Good morning, and welcome to the First Horizon National Corporation Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Aarti Bowman, Investor Relations. Please go ahead.

Thank you, Anita. Please note that the earnings release, financial supplement and slide presentation we'll use in this call 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 the forward-looking information for a number of reasons outlined in our earnings materials and in 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 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, thank you for joining us. I'm really proud of the work that our bankers and our team accomplished in the fourth quarter in 2017. Not only did we announce and complete the merger with Capital Bank, we continue to keep very strong underlying momentum on our business, when it has been a year in - particularly, it wasn’t easy to take our eye of the ball. I'm really proud of the work that our bankers have done to build customer relationships, to grow our franchise and to build momentum as we hit into 2018. As I mentioned earlier, we did complete the merger with Capital Bank in November and we've begun the integration process. Although we've done limited integration activity at this point, we have competed our first conversions maybe one of our more important ones which is the payroll conversion that went almost flawlessly. We think the bulk of the work will be completed in the first half of 2018 and we feel very, very good about the progress that we're making in that planning. In addition to the integration planning as I mentioned at our conference earlier in December, we feel much better about our pro forma's that we laid-out in May of last year. At the time we indicated that we expected $65 million annually in cost save. We've upped that estimate to $85 million annually and as I noted earlier in December that we also expect in the next two to three years to be realized in somewhere between $25 million and $30 million in annual revenue synergy. While it's early in the process we can talk about it more later, we've seen indications of our efforts to realize those revenues and feel good about the progress that we're seeing…

Thanks Bryan. Good morning, everybody. I'll start on Slide 6. By looking at our overall financial results where you'll find both reported and adjusted results for our full-year 2017 and the fourth quarter. Starting with the full-year 2017, as Bryan talked about was a strong year for us with an adjusted EPS for the full-year of 1.11 up 17% from 2016. Balance sheet growth and strong operating leverage drove our positive performance there and we're very pleased that during a busy year that included the announcement enclosing of the Capital Bank merger, our employees were able to keep focus on our customers to maintain strong organic momentum which clearly showed up in our results. As expected, our fourth quarter reporting earnings were net loss of $0.20 largely due to the estimated effect of tax reform along with a few other notable items such as acquisition expenses, a legal matter accrual and the special employee bonuses. On an adjusted basis, our fourth quarter EPS was at about $0.30 reflecting continued positive trends in the Regional Bank and stable asset quality. Good loan and deposit growth led to healthy net interest income and net interest margin expansion, while good expense discipline and stable credit quality also contributed to higher earnings. We closed the Capital Bank merger on November 30, so we also benefited from one month of its earnings in the quarter which totaled about $15 million of pretax income. Digging into the capital bank merger a bit more, you can see on Slide 7 that we are increasingly confident about our ability to successfully integrate the two organizations and we believe the deal economics will be even more favorable than originally announced. First week meaningfully increased our cost saves expectation by almost one-third to $85 million from the original $65 million…

Thank you BJ. Over the next year we’re going to focus on a successful integration of the capital by merger while profitably growing loans and deposits. We believe the economy remained steady to improving our balance sheet will benefit from rate rises and tax reform as we mentioned earlier and we should see all of those accumulate in a bit of a tailwind for earnings. We're on track to achieve our cost savings and increase revenue opportunities with the merger. With the favorable economic backdrop and strong fundamentals in our business as a platform for growth, we have great momentum going into 2018. We want to issue a word of thanks to all of our First Horizon, First Tennessee, Capital Bank, FTN Financial employees for all that they do to make our business stronger, to grow our customer relationships and to build our franchise and most importantly to serve our community. With that operator, we’ll be happy to take questions.

[Operator Instructions] The first question today comes from Steven Alexopoulos with JPMorgan. Please go ahead.

Bryan, looking at Slide 9 and the organic C&I loan growth, why was it so weak this quarter. I'm sure paydowns were a factor there?

Back of the envelope my calculation was on the first Tennessee side only, core growth was about 6% on an annualized basis. And you have to keep in mind that there's a bit of seasonality in our mortgage warehouse business and if you go back and look historically, a lot of quarters that business tends to reside a bit, it was actually flattish. So, while it was a little bit less than we've seen in previous quarters, we felt pretty good in the mid-to high single-digits. The other thing that has happened in the fourth quarter is the restaurant franchise finance business was not as a boost to the comparison on a year-over-year business that was completed in the third quarter of 2016. So as we looked at the underlying growth and the underlying customer activity, we felt very, very good our pipelines coming in the quarter were strong. We had very good closings in the fourth quarter and we think that momentum particularly with enthusiasm created with the tax act that we could see continued momentum into the early part of 2018. I would say though with some of the comparison things, the numbers are going be a little bit hard to compare with the merger and the acquisition at our Capital Bank and restaurant franchise finance business but overall we feel good about underlying loan quarter.

And we did had some pockets in the fourth quarter over third quarter that had some good growth. So Private Client/Wealth, we saw about 3% increase in average loans quarter-over-quarter. Bryan mentioned franchise finance quarter-over-quarter had some growth on middle Tennessee region was up 5% quarter-over-quarter and that’s obviously been an area of emphasis for us as we continue to add very season bankers. And even in our home west region, we had a3% quarter-over-quarter average loan growth. So we did had some areas that quarter-over-quarter experienced some good solid growth.

BJ maybe I could ask you about the margin given the purchase accounting impacts for 2018 and now having Capital Bank in the mix. How you’re thinking about the trajectory for NIM for 2018.

I think Steve it will continue to move higher we believe. So clearly rate expectations on the short rate side continue to float higher that will certainly help us. Our asset sensitivity is still there as a combined firm thought its moderated from what it was as a standalone firm but still we will benefit from the rise in short rates so I think that that will continue to move us higher. I think the accretion that will now see from the Capital Bank deal will certainly help to continue driving our margin higher. So, I think there's pretty good tailwinds to what we should see from a margin perspective.

It was a really messy quarter obviously with the deal closing and the tax related actions. If we look at the $0.30 adjusted earnings you're calling out, do you see that as a level where you should be able to build from in 2018 and then see the cost saves come through with lower taxes et cetera? Thanks.

Short answer is yes. Yes, so that's how we feels like a good level as we ended the year and so as you know quarter-to-quarter you'll see seasonality as things occur but generally speaking we think that this is a good baseline that will continue to grow off and capture both cost and revenue synergies from the deal in 2018.

The next question comes from Brady Gailey with KBW. Please go ahead.

Just a question for BJ about the 30 million of NII accretion from CBF this year in 2018. Is that - when you look at that 30 million is that just on the scheduled accretion or are you also including some expected prepayment accretion in that figure as well?

That 30 million is just the scheduled part of the accretion. So as you can see, in the fourth quarter we did have 1.7 million or so accelerated prepayment accretion as well. So you can reasonably expect that there will be some of that there as well but we don't really necessarily forecast faster prepayment other than what we normally assumed through our models. So there could be upside to that 30 million as well.

Just so we can help frame out not just '18, '19 and beyond, when you look at the total bucket of accretion that could run through NII for CBF, what is the total amount?

It's probably going to be somewhere in the $80 million range.

And then finally just on the Bonefish, the ROA and ROE targets are unchanged. So why not put - I mean obviously we have kind of a different backdrop with the tax reform in that. Do you think that over time you'll look to tweak the ROA and our ROE guidance higher just with the benefit you guys are going to enjoy from a lower tax rate?

We certainly could. We do believe that we continue to bar on all the Bonefish metrics by 2019. The head of the Bonefish ROTCE is the 15 plus, so over that we can go as high as we possibly can. I think ROE its 1.10 to 1.30 a probably a good range for us over the next couple of years, but as we optimize loan portfolios we’ll continue to strive to make that higher. I would love to be able to - for us to move our targets higher but we think these are pretty good that leads for the next two years.

The next question comes from Michael Rose with Raymond James. Please go ahead.

Maybe can just talk about the tax rate a little bit on a effective basis 22% of the estimate. Do you have an estimate for what the FTE tax rate would be? And then have you guys contemplated any balance sheet restructuring we've that as some other companies to help, post tax reform to optimize the balance sheet. Thanks.

Yes, on the FTE side I'm not sure I have that, so we can circle back to you on that. On the balance sheet restructuring I’m not sure that we have anything that specifically planned. Obviously in the quarter we did restructure the securities' portfolio coming over from Capital Bank. We did keep probably 25% of it mostly CMBS and some corporate bonds that we had but we restructured everything else. But in terms of loan portfolios I don't - at least sitting here today foresee anything major.

And maybe as a follow up, can you guys talk about the step down in ADR in the capital markets business, I guess comparatively you guys have produced the reliance on that with the Capital Bank deal, but you think we hit a bottom here maybe what should we think about for ADRs into 2018? Thanks.

Brady this is Bryan, this is one of the reasons we’re not going to adjust Bonefish targets in the short run we got up there were an estimate on ADR five years ago and we’re still paying for that. This is a business that has gone through a tremendous amount of change and the short answer to your question is I think this is sort of around the bottom I think for the year we’re just under 700,000 and average daily revenue. We're about 6.55 or something for the quarter and that business is - we think sort of bottomed out we’re excited about our expansion into the government guaranteed loan business with Coaster which was consummated in the early part of 2017. But it’s a business in transition as the GSEs are not doing as much issuance particularly callable agency. And we’re optimistic that we will build off of this base but we don’t see that being a rapid change. To the point that you made it clearly is a smaller piece of our earnings stream going for particularly with the expansion of the banking business with the Capital Bank merger. It’s an important piece though and we like the business, we think that it has the ability to continue to provide very attractive returns on capital. We’re going to look for opportunities to grow and to strengthen the business to build out municipal finance and things of that nature on an organic and hiring basis and build on the gap the Coastal acquisition with government guarantee loan. So we think this is sort of around the bottom and we’re optimistic that we will be able to build, but it’s going to take a little bit more certainty about the direction of rates and a little bit of a momentum from customers getting back into the fixed income activity as opposed to growing through fixed investments and loans for example.

The next question comes from Ebrahim Poonawala with Bank of America/Merrill Lynch. Please go ahead.

Just had one follow-up question BJ on the margin. So I'm assuming the margin in December was higher than the first two months post CBF. So when we think about where we ended the year at its like 327 the right way to think about what the starting point should be or means I get the accretion impact about like any color around where the NIM probably ended the year and from where we should bake in the rate hike expectations and everything else that would helpful?

Yes, I think this is a good place to start. We saw some good organic expansion at least modest expansion from the legacy First Horizon portfolio. And so again it was from asset sensitivity good discipline on deposit rates paid and we certainly expect that to continue as a combined organization. So like I said earlier I do expect the net interest margin to continue to grind higher in 2018.

And in terms of when we look at sort of the core expenses ex-CBF so I get the CBF expense saving for this year and next. What's your sense BJ in terms of should we expect some in seasonally growth of 2%, 3% or do you still expect these core expenses to remain relatively flat?

Yes, so we are obviously still very focused on expense discipline clearly what you’re going to the see coming through the expense line in aggregate is the cost savings and we did put in the presentation that we’re currently expecting about 30% of the 85 million to occur in 2018. But we have been very, very intentional across our organization about not losing focus on our core expense base as we go through the merger integration because clearly that's very important to the trajectory. So we think we have a good handle on that you know things like merit increases and cost-of-living type adjustments are always going to happen, but in terms of expenses across the other lines we think we’re going to hold it relatively flat.

And if I can sneak in one last question for Bryan, assets post CBF are about $41 million would love to get your thoughts with a realized integration of CBF it’s probably the big priority over the next six months. And we think about additional M&A either with city or without city Bryan. Would appreciate your thoughts in terms of how you’re thinking about that?

Ebrahim clearly you hit the number one priority and that’s to make sure we do a great job on the integration for Capital Bank customers and employees. It is a tremendous undertaking in the first half of the year and we’ll get that done so that’s what we’re really focused on in 2018. We think that there will be additional opportunities in the M&A environment in the future. We still believe that fundamentally you will see consolidation in the banking industry and we think build to the fact with platform. But we don't see that is something that we have to do we think it's – we have the ability to deploy capital in an organic fashion and given the expanded footprint we have with Capital Bank particularly in the Carolina’s where we have a much enhance market presence in Raleigh, Durham, Chapel Hill, Greensboro, Winston-Salem and Charlotte, Upstate South Carolina, Greenville, Charleston, Columbia for example and then South Florida. We've got more optionality to invest capital in hiring and growing organically and being front footed on an organic basis. And we think we brought in a tremendous amount of talent that will also we think the opportunity is to do smaller M&A activity that could fill in some of those markets as well. So we think M&A can be a part of our capital deployment strategy but we don’t think that’s the only vehicle to deploying capital and doing it efficiently. The implied question I guess may have been how do you feel about the SIFI designation and I would say while the Senate has not taken up in the full Senate the bill that came out of the banking committee the Crapo bill. We think directionally we think that's a very good bill it has some bright lines…

The next question comes from Emlen Harmon with JMP Securities. Please go ahead.

Have you guys began to taking a cut that kind of quantifying how much the improved profitability from tax reform could be reinvested in development areas and do you think you could do that and both kind of keep the core expenses flat that you’re talking about few minutes ago?

Yes Emlen, this is Bryan. We have a sense of the impact of the tax reform and we took some one-time items that we talked about earlier, the $1000 incentive awards and then the contribution to our foundation. We will look at some other actions that we’ll consider over the next several weeks around compensation levels for our lowest paid associates but we don't think that we’ll take that which fundamentally change our expense trajectory by a significant amount. We think that our ability to fund needed investments in the franchise both in hiring and technology should and has been funded by our operating activities and so this gives us a little bit more flexibility but we don't think that it will fundamentally change our expense trend. So another way you look at that is I think what happens is a fair amount not a substantial portion of the tax benefit falls to enhanced capital returns over time to improved ROEs and potentially higher dividends and share buyback.

And then BJ just a quick question on deposit pricing, you guys give us kind of a breakout of the consumer commercial deposit yield on Slide 16 which is always helpful, thank you for that. Do those incorporate capital for the quarter and kind of what would the trends have been there without the addition of capital for part of the quarter?

Yes. So they would have still been favorable, consumer was very, very strong I think we were down three basis points on deposit rate paid in the quarter on the consumer side, so you know the team there has done an excellent job and the Frontline have done an excellent job of managing our deposit rates closely over the course of the year. Commercial deposit rate paid are still rising a lot faster than the consumer side, we're seeing a lot more competition whether it's actually in deposit rates paid on the commercial side or in earnings credit rates that are earned on treasury management business, so that that has continued to move up and clearly the market index are what they are but I think the discipline there we’re very pleased to what we've seen. So the way I look at it is through net interest spreads, so it’s our loan yields minus our deposit rates paid on our portfolios expanding or not, the way we think they should and on the legacy first rising portfolios they did, they were up several basis points quarter-to-quarter, so that indicates to me that we're doing a good job. Capital Bank has done a very, very good job as well, if you look over the last four quarters their deposit rates paid, they've actually gone up less than what First Horizon has. So that's testament to their work and their business as well and so as a combined organization we will continue manage that closely.

The next question comes from Casey Haire with Jefferies. Please go ahead.

Wanted to touch on capital, I know you guys are at the high end, your Tier 1 common range at 8.7 but you are a little late versus peers on TCE ratio, just wondering would you like to see that I mean does that matter to you guys that would you like to see that ratio higher?

Well we've always thought as we had our Bonefish targets at 8% to 9% CET1 ratio translate to a 6% to 7% TCE to TA and now we’re at 8% to 7% CET1 and we’re at about 66 on TCE to TA. So right in the middle topper end of each of those ranges, couple of things that I would mention is the tax for DTA and permits will obviously accrete over time back into earnings and capital levels. So that’s kind of a one-time decline if you will in the capital ratios, the rate markets well will creep back into income and that will end to capital levels as well. So we still believe that this is the optimal capital levels for our business, we do think those that the capital levels will float higher next year as even if we do reinvest as Bryan said from a dividend or share buyback perspective our retained earnings or higher retained earnings will more than outweigh that and we think that capital levels would probably float more towards the higher end of our Bonefish target ranges next year.

Casey this is Bryan. We are comfortable with our capital levels in this range, we have been pretty steadfast in our view that there is excess capital in our organization and in the industry and we look at capital through the lens of what is the adequate capital level to support fluctuations in the business. So we really do rely on the stress testing work, it’s not just a regulatory exercise, it is an effort on our part to understand our capital and we were doing it before it was required for that reason and we believe if we had excess capacity or capital and so we’re comfortable in this range. The final point that I would make is we don’t believe that you have to warehouse capital for M&A or other type transactions and so we try to run it efficiently as possible, we believe driving ROE and getting excess capital in the hands to our shareholders is the right way to look at the business and that if we have actions that we want to do in the future that if it’s a good transaction it will support itself. So we’re optimistic that as BJ said you will see improved returns in 2018 and 2019 that will call maybe to drift a little bit higher but we’re not uncomfortable at all, it’s little bit of higher end of the 8% to 9% common equity Tier 1 range.

The next question comes from Jennifer Demba with SunTrust. Please go ahead.

Bryan, could you just talk about your progress you’ve made in gaining more market share in Middle Tennessee, I know you guys have done better there over the last one to two years, can you just give us more color there?

Yes, sure happy to do that Jennifer. I’m really, really proud of the work that our team in Middle Tennessee has done. Carol Yochem and Renee Drake big group of folks have really done a tremendous job building that business, so I have built a very talented team of bankers and we are seeing very good growth there. And as in aside I would add that there is a little bit of overlap in the Capital Bank footprint in Middle Tennessee and we will pick up a presence in Clarksville, for example. So we think there will be additional growth opportunities there. Middle Tennessee is a highly competitive market not only for people but it’s a highly competitive market for relationships. We have seen a tremendous amount of competition for every opportunity that is out there but with this group of bankers is open to lot of doors who brought in a tremendous number of new to bank relationships and we’ve also been doing some things there that we have not tried really in the past and that is taking our specialized business ABL and overlaying that with our commercial banking business and creating a hybrid go-to-market model where our relationship bankers in Middle Tennessee are working with our ABL folks to deliver the product with a market presence that is a little bit different than what we’ve historically done. So we have seen a lot of new to the bank relationships through efforts like that that have been important to us. We don't think that market will be any less competitive in 2018/2019 it’s a dynamic market its growing but we think we have the people in place and the momentum to continue to show very positive trends there and customer relationships and balance sheet growth.

The next question comes from Jared Shaw with Wells Fargo. Please go ahead.

Just looking at the capital franchise, how much more or what do you anticipate in terms of additional hiring you need for the markets to be able to really get the organic growth that you're ultimately looking for that?

This is not just of Capital Bank franchise statement, we’re looking to continue to grow through the acquisition of talent in all parts of our franchise in response to Jennifer's question I mentioned some of the hiring we've done in Middle Tennessee that has been outstanding. We think we have an attractive platform and an attractive business model all across the franchise. We have the ability to make decisions locally and to deliver products and services in a differentiated fashion, but we deliver large bank products and services, treasury management, private client, wealth management in a basically a community bank look and feel. So we think that's a competitive advantage and we do believe that there are a number of talented bankers that are out there that we can bring onto the platform. One of the obvious things about the Capital Bank merger and sort of the post integration or post merger phase is we've got Gene Taylor serving as a Vice Chairman of the organization. Gene is probably one of the best relationship bankers in the industry over the last 25 to 30 years and his relationships and his ability to open doors with talent has been legendary and we think that is a great opportunity for us to continue to grow. So while we don't have a number, we've got to hire this many bankers we are opportunistically looking for bankers who can come on to the franchise, who look at relationships and service delivery in a model that is consistent with ours. And we think there are a lot of people out there that we can attract to the franchise over time and grow organically.

The next question comes from Tyler Stafford with Stephens. Please go ahead.

BJ, I want to just start on expenses and looking at Slide 7 on the one month impact from CBF that $20 million of total expenses that you guys call out. Does that include or exclude intangible amortization expense?

Is that include or exclude what, I'm sorry.

Intangible amortization.

Yes.

That would include that.

That does include, okay. And then Bryan you mentioned in one of the earlier questions that the mid to high single digit growth this quarter with the strength out of the mortgage warehouse. So is that your expectation for 2018 with the combined franchise that mid to high single digit range?

Yes, I would say mid to high single-digits would be reasonable. It’s going to depend on a number of factors but that sort of our plan for the year.

And just to be clear is that at a regional bank or all in at the consolidated?

It’s about the same is a short answer that will be just a hair lower if you look at the non-strategic it's down to about $1 billion at this point and the runoff while accelerating is not that much quarter-to-quarter. So it’s about the same.

And then just last one from me BJ, you mentioned earlier chinning the bar on the Bonefish for ROA and ROTCE by 2019. But with the tax benefit beginning in the first quarter would you not expect to cross 15% ROTCE in 1Q?

Yes, we have an opportunity to accelerate it in 2018 for sure.

The next question comes from Christopher Marinac with FIG Partners. Please go ahead.

I think BJ you may have mentioned this at the very beginning, was there any accretion income in the first month or so with the merger?

Yes, so if you look on the NIA slide Chris I think - we breakout the different types of accretion that we saw yes.

And then a bigger picture question for you Bryan as just would we see a net reduction in the sort of number of branches in the footprint as you integrate or are there some additions that you plan, I’m just thinking about the new markets that you've added and if you're selectively kind of building upon to widen that footprint on your own?

There clearly are some plan closures and integrations. There is a fair amount that will be in Tennessee in the integration process. In fact in our application we identified I think 26 or 27 financial centers. We think that there will be additional footprint consolidation over time. We think there will be in all likelihood more in 2018 it’s really going to be continuing to follow changes in customer behavior and customer patterns. It is a known fact that customers are doing less activity in the branches and using more online, more ATM, more mobile capabilities, call centers things of that nature. And as that happens we will look for further opportunities to close, consolidate the facilities and drive efficiencies. So, I would say that number, the 26 to 27 the application could easily be twice that over the next year or so.

This concludes our question-and-answer session. I would like to turn the conference back over Bryan Jordan for any closing remarks.

All right, thank you operator. Thank you all for taking time to join us this morning. I think it was described in very first question as a messy quarter, I wouldn’t use that word but I'd say there are a lot of moving parts and we appreciate you taking time to visit with us this morning. If you have questions as you try to peel it back and understand the core results, please feel free to reach out to Aarti to BJ or to me or Susan. Thank you again to all of our colleagues at First Horizon for all of you who do take care of our customers and our communities. I hope everyone has a great weekend. Thank you.

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.