Aarti Bowman - D. Bryan Jordan - Chairman, Chief Executive Officer, President, Member of Executive & Risk Committee, Chairman of First Tennessee Bank National Association and Chief Executive Officer of First Tennessee Bank National Association William C. Losch - Chief Financial Officer, Executive Vice President, Chief Financial Officer of First Tennessee Bank National Association and Executive Vice President of First Tennessee Bank National Association Susan L. Springfield - Chief Credit Officer, Executive Vice President, Chief Credit Officer of First Tennessee Bank National Association and Executive Vice President of First Tennessee Bank National Association

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division Ebrahim H. Poonawala - BofA Merrill Lynch, Research Division Thomas LeTrent - FBR Capital Markets & Co., Research Division Christopher William Marinac - FIG Partners, LLC, Research Division Kevin Fitzsimmons - Hovde Group, LLC, Research Division Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division Emlen B. Harmon - Jefferies LLC, Research Division Stephen M. Moss - Evercore Partners Inc., Research Division Kevin Barker - Compass Point Research & Trading, LLC, Research Division

Good morning, and welcome to the First Horizon National Corp. Third Quarter 2014 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. Now I would like to turn the conference over to Aarti Bowman. Please go ahead.

Thank you to Amy. Please note that the press release and financial supplement, which announced our earnings, as well as the slide presentation we'll use in this call this morning, are posted on the Investor Relations section of our website at www.firsthorizon.com. In this call, we will mention forward-looking and non-GAAP information. Actual results may differ from those forward-looking information for a number of reasons outlined in our earnings announcement materials and our most recent annual and quarterly reports. Our forward-looking statements reflect our views today and we are not obligated to update them. The non-GAAP information is identified as such in our earnings announcement materials and in the slide presentation for this call and is reconciled to GAAP information in those materials. Also, please remember that this webcast on our website is the only authorized record of this call. This morning's speakers include our CEO, Bryan Jordan; and our CFO, BJ Losch. Additionally, our Chief Credit Officer, Susan Springfield, will be available with Bryan and BJ for questions. I'll now turn it over to Bryan.

Thank you, Aarti. Good morning, everyone, and thank you for joining the call. I'm very pleased with our third quarter accomplishments. Our loan portfolio growth was the best in some time showing that given our customer focus, we can generate high-quality incremental business in a competitive environment. We kept co-operating costs in check, yet didn't scale back on investment spending. We accelerated the rundown of our Non-Strategic portfolio, selling a block of held-for-sale mortgage loans at a significant profit. The second sale of this year. Last but not least, we returned capital to shareholders, repurchasing 2 million shares of stock at an attractive price. Our core business posted solid performance. Year-over-year, the Regional Bank's average loans were up 6%. Linked quarter growth was 4%. Growth was driven by specialty lending areas and our expansion markets. Year-over-year, Commercial Real Estate loans rose 31% to $1.2 billion or 7% of the total portfolio. Asset-Based Lending increased 13%. Commercial and Private Client/Wealth Management portfolios were each up 9%. And within our markets, Mid-Atlantic booked 29% loan growth, while Middle Tennessee grew 10% year-over-year. Average core deposits were up 1% year-over-year in the bank, and net checking accounts grew by 3%. Our active calling program's emphasis on customer service and investment in additional talent and products are enabling us to grow our portfolios, yet, maintain our risk-adjusted pricing and our underwriting discipline. Our other core business, FTN Financial, performed well even though market conditions laid on fixed income activity. As anticipated, average daily fixed income revenues were flat to last quarter and are likely to remain so in the near term. Meanwhile, we're building out our municipal products platform and developing our public finance capability. When the fixed income market conditions improve, we'll be prepared to take advantage of opportunities that FTN's extensive unique…

Thanks, Bryan. Good morning, everybody, thanks for joining us. I'll start on Slide 7. In the third quarter, net income available to common shareholders was $45 million or $0.19 a share. I'm pleased with the core performance we saw in the quarter like Bryan is. Overall, earnings were impacted by a few notable items as well, which I'll discuss on the next slide. So if you turn to Slide 8, in the third quarter, we continued our efforts to wind down our Non-Strategic portfolio with loan sales. We finalized the sale of about $315 million of UPB held-for-sale loans and booked approximately $40 million of pretax gain on those sales, which will show up in the mortgage banking income line. As Bryan mentioned, our year-to-date loan sales out of the Non-Strategic portfolio have resulted in pretax gains totaling almost $50 million (sic) [$40 million]. We have been able to manage down this portfolio to our advantage, and we'll continue to look for opportunities to accelerate the wind down of the Non-Strategic portfolio in an appropriate fashion. We also had a $50 million pretax expense related to legal matters reflected in the addition to the litigation reserve. And additionally, we booked a $15 million pretax gains related to insurance recoveries associated with the previous legal settlement. These 2 items had a $35 million net negative impact in our litigation and regulatory matters line in other expense. Segment highlights are on Slide 9, and I'll go over the details of the Regional Banking Capital Markets businesses on the next few slides. So if you turn to Slide 10, taking a look at the Regional Bank. Our Regional Bank showed particularly strong performance, contributing $51 million in net income in the third quarter, up 9% from the second. Linked quarter, our net interest…

Thank you, BJ. We will continue to work diligently in a disciplined manner to achieve these key priorities: further strengthening our balance sheet, enhancing productivity and efficiency and winding down our Non-Strategic businesses. With our focus on improving economic profit, I'm very confident that we will make progress towards the reaching our bonefish targets and further building franchise over the foreseeable future. Thank you to our First Horizon employees for all that you do to build our business and serve our customers every day. And with that, Amy, we'll now stop and take questions.

[Operator Instructions] Our first question comes from Steven Alexopoulos of JPMorgan. Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: Maybe to start, could you guys give some color on the nature of the $50 million add to litigation reserve in the quarter?

This is Bryan. Unfortunately, we can't go into a whole lot of detail. It's very clear that we set up $50 million in these legal reserves. We have a number of things that are active and in progress. And because they are, it wouldn't be appropriate for us to go into details regarding them. Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: Okay, got you. Bryan, given the recent increase in market volatility, have you guys seen any pickup in ADR so for in the quarter? I know you said the outlook is flat for the quarter. But wondering why you're not expecting a bit of an increase given what we're seeing just in the markets?

Well, it has been very -- it's been stable with this volatility and rates going down, actually is somewhat negative and as they come back up, you see a little bit of a benefit. There's really been more selling than there has been buying in this environment. If you go back and you look at the third quarter as a whole, we were very encouraged. There were a couple weeks in the early part of September, where average daily volumes were very, very strong. The volatility is driving -- volatility and average daily volumes as you'd expect. But given what we think is happening in interest rate markets for the next several quarters, we think it's likely to be in this area. And so we're not optimistic that we'll see a significant increase. We're always hopeful that we'll get it, but we don't believe at this point, that it's likely to occur in the third -- fourth quarter or the early part of 2015. Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: Okay. And maybe just a final question, from a high level, if we look at the Regional Bank pretax, pre-provision income is basically flat year-over-year. Capital markets are below the low end of the range. I know you stepped up buybacks in the quarter, your focus on expenses. But are there any other initiatives you're contemplating to move the needle a bit more at least over the intermediate term?

Yes. This is Bryan. The -- I've said in my closing comments, I'm very, very confident in our ability to enhance value and improve profitability with the balance sheet that we have today and the opportunities that are in front of us. We've talked a lot, and you'll recall, even in our Investor Day last fall, we were talking about how we were disaggregating the organization and understanding the drivers of profitability, and we continue to do a lot of work. And as we look into the last part of this year and into the next couple of years, we still see a tremendous amount of opportunity for us to capitalize on opportunities in our marketplace, to do a better job of winning business and getting more efficient in the way that we do it, both on a revenue and an expense side of the business. So we're very, very optimistic that in sort of continued sideways interest rate environment for the next several quarters, there is still opportunity for us to improve our profitability, just focusing on these opportunities we have in the existing balance sheet.

The next question comes from Ebrahim Poonawala for Merrill Lynch.

So I guess, Bryan, first question, just in terms of Capital Markets, the investments we've been making on the muni and public finance side. Do you need a pickup in ADR for those investments to start paying off? Or is that somewhat independent with some of those bankers who've been on board now start generating revenue in business even in the absence of major pickup in ADR?

Yes. Those are investments that, one, should have some short-term impact. And clearly, the extent that we grow that platform and we grow our ability to participate in deals in the bigger markets and as well as bring people onto the platform that will help ADR. But we also look at those as long-term investments that will allow us to build out the product set. And over the long term have a more positive impact on ADR by broadening the product suite. And broadening the product offering we can bring to our customer base, as well as to the issuer community. So we see it having some modest short-term impact, but long-term, we see it as a big investment for the future of the business and the product set.

Understood. And then the second question, and BJ, you talked about looking for strategies to sort of expedite the sort of wind down of the Non-Strategic portfolio. I guess when you look out there, what is the biggest impediment in terms of being able to sort of sell larger chunks over the next few quarters? Is it just buyer appetite, or the cost of funding for the buyer, which is still sort of making the economics not that attractive for a buyer relative to you -- given the banks funding base?

Sure. No, I think given what we've seen the last 2 quarters with the 2 loan sales that we did make out of the portfolio that the buyer appetite is pretty strong. On both of those sales, we had dozens, literally dozens, of bidders on each, and the bids were obviously very strong. So we are pretty pleased with the execution there and that gives us a little more confidence that maybe there's some more opportunity to sell down, more of the Non-Strategic portfolio as appropriate. Now these 2 happen to be out of the existing held-for-sale portfolios that are currently marked. So it's a little bit more liquid, if you will, and easier to do. But we continue to look for shareholder-friendly and economically profitable opportunities to manage down the Non-Strategic portfolio. And I'm pretty optimistic that we might be able to do that.

Next question comes from Paul Miller from FBR. Thomas LeTrent - FBR Capital Markets & Co., Research Division: This is actually Tom LeTrent on behalf of Paul. It was nice to see the good growth in Middle Tennessee and the Mid-Atlantic. Can you sort of remind me how big those areas are currently? And what you want them to become over time?

Sure. Mid-Atlantic is probably about $700 million or so in deposits -- excuse me, in loans outstanding. And maybe $250 million or so in deposits. So we've been in those markets and building out those markets over the last 10 years. So it's a pretty meaningful book of business today. And as you saw, linked quarter growth there was pretty strong. In terms of our Texas markets, they're still in their infancy stage. We just did those up, I believe, we have 4 or 5 existing employees there, and they've been building out more of the infrastructure. Now we have had really good pipelines and have closed some deals. But those are still very, very small. But we do expect them to provide meaningful growth opportunities, profitable ones over the next several years. Thomas LeTrent - FBR Capital Markets & Co., Research Division: Okay. That's helpful. And one last question. The tax rates were a jump between 23%, 28% for the last 1.5 years or so. Is 28% sort of the normalized rate that we should use for you guys? Or how should I think about that?

Yes. I would say, assume 28% to 30%. This quarter was positively impacted by some low-income housing partnerships credits that we received in the quarter. So they should smooth out over the next quarter to year. So I'd use, 28% to 30% as appropriate.

The next question comes from Christopher Marinac at FIG Partners.

BJ or Bryan, I was curious on your thought about a flat or flatter yield curve, and the impact of that just kind of looking at Slide 13 again.

Yes. So it's BJ, Chris. Certainly, it does not help as much as a steeper curve. But from the banking business perspective and our assets to be on the balance sheet, since a lot of our floating rate loans are tied to short rates not longer, we can still get much of that asset sensitivity benefit. Now if we're buying in the securities portfolio, it's a little bit harder. A flatter yield curve is certainly not conducive to better FTN business. But on balance and on net for our company, it's a positive, if short rates rise, even if the longer end of the curve is flatter.

Okay. And then, I guess, just in general, will we see this figure at the 200 basis point, kind of creep up further. It seems like it has in recent quarters just as it's -- as we've looked at each -- this chart each quarter.

I'd say, Chris, it's actually -- I think, I have to go back, but it's been relatively stable in this $63 million, $64 million NII impact. A year ago, it was actually around $70 million, $71 million and it's come down modestly. But it's been in this range for the last couple of quarters.

The next question comes from Kevin Fitzsimmons at Hovde Group.

Just a few quick questions. Can you comment on the outlook for the pace of buybacks. Since specifically in relation to what happened the past year, as you were approaching stress tests. And I know, there was a lot more significant questions on the legacy issues back then. So I just -- looking to clarify, is there any risk of having to dial back those buybacks as you approach the next formal stress test?

Kevin, this is Bryan. I don't think -- we're going to be opportunistic and we're not locked in to any given pattern. We, as I mentioned and I think BJ reiterated, we bought back $24 million this quarter and I would expect it -- that something in that range maybe a little more, maybe a little less depending on what the opportunities are in the next quarter. But in all likelihood, we expect to see that buyback continue as, one, we optimize our capital base and, two, as we continue to generate strong earnings. We expect to repatriate excess capital to our shareholder base and do it in a shareholder-friendly fashion. So we will be opportunistic.

Okay. And just one follow-up on the -- your guidance on the margin. BJ, you specifically addressed this next quarter, but it seems like it's a phenomenon of the deposit inflow that's coming in and a few other issues. But looking further out beyond that if we're still in this rate environment, getting into early '15. Would you guess that the margin would return to where it was in the third quarter? Or is it going to be somewhere in between?

Sure. So if we're looking forward to 2015, I think we're going to stay in roughly this range. I would hope between 2.85% and 2.95% that we bounced around. And if you look on one of our slides we had in the deck, we had the last several quarters of our margin. And it's been relatively stable in that range. So I would expect that to continue even without rate rises. Now, of course, if rates do rise, we believe we'll be above that. But I think that range of 2.85% to 2.95% is appropriate to think about.

But BJ, is there any like real important driver that puts you either at the low end or the high end of that range?

Well, sure, I think, the same impacts that we would have in the fourth quarter are going to impact the margin going into 2015, I talked about. We do expect pretty strong deposit inflows. We actually got the wire this morning to close our branch acquisition, so that adds excess funds that we'll have to put the work. So those are high-class problems to have. Those things are good. Loans to mortgage companies are going to fluctuate, and we have 4.75% yields in that business. Any fluctuation there can have an outsized and meaningful impact on the margin, so that's certainly going to be an impact. Trading inventories in our Capital Markets business, higher levels of inventory are going to cause lower margins. It doesn't necessarily mean that it's bad business. We're going to make the income off of that dealer inventory, but it could certainly impact the margin. So it's the same types of things that we've seen. And again, I think that, that range should be what we're targeting over the next several quarters.

Kevin, this is Bryan to piggyback on BJ's comments. We don't manage to a margin number per se. As BJ pointed out, it's been very stable. What we're really focused on is acquiring and building long-term profitable relationships. And so if we take on more deposits that can have an impact, but we see that as very value accretive. If we book additional loans or we see fluctuations in our mortgage warehouse, those are all byproducts of it. But we're very focused on managing the overall profitability and managing it for the long-term, and the margin really just sort of falls out. So as BJ talks about the range, we're not managing to a certain number in that. We're trying to make the right decisions for the business and build a franchise for the long-term and manage that overall level of profitability.

The next question comes from Jennifer Demba SunTrust Robinson Humphrey.

Question about the infrastructure investments that you think you are going to be needing to make in the next -- call it 2 or 3 years. Could you just talk -- give us some more color about what you think you probably still need to do there? And specifically, what may be related to cybersecurity if you can isolate that?

Yes. Jennifer, this is Bryan. The -- most of the investments that we will make will still be in customer-facing systems or close to customer facing systems. For example, our Commercial Lending platform. For example, our customer-facing mobile banking platforms, things of that nature that drive treasury management products, things of that nature. We are spending marginally more money on cybersecurity. I would say that, that has been an investment that we have been ramping up over time. We spend a lot of time focused on it. Now we'll also continue to build out the capabilities around infrastructure in Houston, the mid-Atlantic franchise and even our Middle Tennessee franchise. But in the context of overall numbers, as we've commented a couple of different ways, we brought expenses down while making a lot of investments. We expect to bring expenses down another $20 million to $50 million. Some of that will be reinvested, but we would expect our expense base to continue to decline, while we make these investments.

That's helpful. One more follow-up, on the cybersecurity issue. Bryan, do you get the sense that First Horizon is on the front end of that rather than in the middle. Because it sounds like just based on some of the calls we've heard so far that, that seems to be in a more of an emerging area of investment.

I don't know how to characterize it vis-à-vis others. So I don't really know how to answer front, middle or back. It is an issue that Bruce Livesay and our technology team have spent a lot of time on. Steven Jones who manages that for us, we spent a lot of time working through these issues. We have made substantial investment in the infrastructure. But as you can see from the headlines that come up that the threats are coming from a lot of different places. And so we're always cautious that we don't know what we don't know and that we need to remain vigilant. We stay involved in FS-ISAC and other organizations that help in the sharing of information. We follow what's going on in the marketplace. And then we work with our regulators and governmental agencies to stay on the front-end of what's happening in the marketplace. So although I can't characterize it front, middle or back, I think we've made a substantial investment, and I think we'll continue to invest there. But I don't think it will be a huge incremental investment for us.

Our next question comes from Emlen Harmon at Jefferies.

I understand you guys don't want to provide too much detail on the litigation reserve. I would just be helpful to understand if that's for some of the kind of existing issues that you guys disclosed in your filings or whether that's something new that you're putting up the reserve for?

No, Emlen, this is Bryan. You're right, we don't want to go into the details. But it is safe to assume that it's related to existing matters that we have disclosed in previous Qs and Ks.

Got it. And then just one other, going back to Non-Strategic asset sales. Could you help us, BJ? You noted already that the held-for-sale portfolio was obviously marked. Would just be kind of curious in terms of differences between what was in that held-for-sale book and sold. And kind of what's in your Non-Strategic consumer real estate book? And how those assets comp?

Sure. So what we sold out of the held-for-sale were largely loans that we had repurchased, when we were doing the Fannie, Freddie mortgage repurchases, right? So if there was a loan to be repurchased, we bought it back, we marked it, and then we managed it. And so those were mostly, well, they were all firsts -- a mix of performing, modified and reperforming and nonperforming. So that is going to be a little bit different from what we have remaining in the Non-Strategic portfolio, which consists of home equity lines of credit. Some installment loans that are still outstanding, TRUPs, of which we have a portfolio. So they are going to be a little bit different. And certainly, those are held to maturity versus these being held-for-sale, hence, being more liquid. But to the extent that we can find opportunities to make economically attractive deals on those, we will certainly look at that.

The next question comes from John Pancari at Evercore.

Actually, Steve Moss here for John. Circling back on to the Non-Strategic loan sales here in this quarter. Was the marked balance around $200 million for the loans you sold this quarter?

Let's see, trying to do it in my head it. Yes, about $200 million.

Okay. And judging by what I see on the balance sheet, there's probably about $120 million left in terms of nonstrategic loans held for sale?

Yes. There's about $150 million, I believe -- $120 million of it is student loans that are government guaranteed. So basically, at par, they're not going to fluctuate much on a marked basis, and the other $30 million will fluctuate.

Okay. And then one more thing with regard to loan yields this quarter. Commercial loan yield came down 8 basis points, quarter-over-quarter, perhaps a bit more than I would have expected, given the increase in average balances for mortgage warehouse. Just kind of wondering, where you're seeing the competition and where the new money yields are coming in.

I'll be glad to take that. This is Susan. We are -- obviously, competition is fierce for new loans. We have seen positive grade migration both in terms of existing clients, as well as new business that we're bringing on. We're bringing on very high quality business. And so from a risk-adjusted return, often the spread on those loans obviously is lower. But we remain disciplined in terms of the pricing and underwriting.

Steve, this is Bryan. I'm -- we've talked a lot about competition for a while, and I think just reading whatever I've read over the last few days, I think people are still talking about it. It's still a very competitive environment out there. And I continue to be extraordinarily pleased with the work that our bankers are doing, day-in, day-out to maintain discipline in terms of pricing, to grow relationships, to make strong calling efforts and to build the overall franchise value of the organization for the long term. So it is competitive environment, and it is one that you're going to see spreads be moved up or down by a number of different factors, whether it's higher -- lower risk borrowers and by necessary -- by necessity lower spreads or various things of that nature. But I am very, very pleased with the work that our bankers are doing. And it's not something I think that we've commented on before, but the other thing that I'm kind of excited about is the fourth quarter tends to be a little seasonally slower in a lot of ways in terms of lending volume. Our pipelines going into fourth quarter continue to be very strong. So we're optimistic about the fruits of their effort as we move into the last part of this year.

Our next question comes from Kevin Barker of Compass Point. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: Could you talk about your -- the HELOC bids that you're seeing out there, given that remains the biggest portion of your Non-Strategic portfolio? And what other efforts you can look at in selling parts of your HELOC portfolio, given there are quite a bit of payment shocks that are occurring over the next couple of years?

Yes. This is Bryan. We haven't had any significant or any real effort to market the HELOC portfolio. We are not emotionally attached. So in the event that we find the right kind of opportunity, we would certainly pursue it. We've been dealing with the credit aspects of payment shock, our folks going into repayment, and Susan can pick up on this. This is an aged portfolio. We basically wrote a 5/15 or a 10/10 contract. And I think the last loans that went into it basically were in 2007. So we've seen and we've got a lot of experience in managing the transition from the revolving period to the payment period. And we've had reasonably good success in terms of our proactive efforts. So I don't -- and one last point, the credit quality updated in the appendix in the supplemental slides, is we updated credit quality, we refreshed FICA scores and we report the trends on credit quality. And credit quality continues to remain very high. So it's been a good performing portfolio. We don't see that the transition from revolving to payment to be a huge issue. Susan?

Yes, I'll add to that. We've actually seen the last 5 quarters, where the annualized charge-off rate on HELOCs that have entered the repayment period come down. So we're very pleased with that. We believe that due to a couple of factors. One, we do have a more proactive approach that we put in place about a year ago, a more proactive where we talk to borrowers via online statements, messaging that they have an upcoming -- they're ending their draw period, will be entering repayment. And we now reach out to them 9 months in advance and touch them several times as they're nearing the end of draw. So we believe that, that more proactive approach is improving the charge-off rate there, as families have an opportunity to adjust their budget. The other thing, and we've done a lot of analysis on the payment shock. The average payment shock in our HELOC portfolio is about $470 when they go from draw into repayment. And if you just look at the minimum payment compared to what the new payment would be for under -- let's say, go into repayment, it's about 250%. But based on what our borrowers are paying during the draw period, they're paying more than that minimum payment and that reduces that shock to about 150%. So we do, as Bryan mentioned, a lot of analysis here, and we're very pleased the FICA scores continue to remain very, very strong. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: So when I compare second quarter to the third quarter, the increase in delinquencies and from on the 30-day delinquency level for the HELOC portfolio, would you consider that more seasonal? Or is that just a temporary blip that you're seeing, not something related to the payment shocks?

Yes, we will see some seasonality in terms of HELOC delinquency. And occasionally, you can have some larger loans that will cause an increase and it's not representative of really a portfolio change.

At this time, we show no further questions. Would you like to make any closing comments?

Yes, thank you, Amy. Thank you all for joining the call this morning. Please let Aarti or any of us know if any have any further questions. We appreciate your interest, and I hope you all have a great weekend. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.