Fitch Affirms First Horizon National Corp. at 'BBB+'; Outlook Remains Negative

Although the economic environment continues to be extremely challenging, Fitch anticipates that FHN's solid capital position and high level of loan loss reserves will provide an adequate buffer against losses. FHN's tangible common equity and Tier I capital ratios remain solid at 7% and 15%, respectively, as of March 31, 2009. In recognition of asset quality trends early on, FHN took numerous steps to shore up its capital position. In early May 2008, FHN raised nearly $700 million in common stock, replaced its cash dividend with a stock dividend in July 2008, and issued $866 million in preferred stock to the U.S. Treasury as part of the Capital Purchase Program. Nonetheless, FHN continues to face well above average credit costs as it resolves existing problems in its stressed national portfolios. Helping to mitigate loan losses, FHN has already written down its impaired loans by 32%, and the company has already built reserves to a considerable 4.57% of loans. Further, planned balance sheet contraction over the next several quarters will help to maintain capital ratios at their current solid levels.

FHN's strength of its Tennessee-based franchise, improving funding profile, and revenue diversity provided by its capital markets business provide support for the affirmation of the Issuer Default Rating (IDR). FHN has undergone a considerable amount of restructuring over the past 12 months in an effort to refine its business model and strategy. FHN has transformed itself from a national mortgage lender with operations in 42 states to a Tennessee-based regional bank with an increasingly diversified capital markets business. Fitch views the strategic reorganization favorably as it reduces the company's outsized mortgage-related exposure.

Fitch expects that FHN's profitability will still be under pressure in 2009 given the elevated levels of problem assets and the weakened economic environment. The Negative Outlook reflects the possibility that credit and market conditions could deteriorate materially further, placing further stress on the company's turnaround prospects.

FHN is a Tennessee-based regional bank with approximately 200 offices, and conducts capital markets activities on a national basis through FTN Financial. Through its lead bank, First Tennessee Bank, N.A., it offers deposit products, loans, investments, insurance, financial planning, trusts, asset management and cash management services. FTN Financial offers a full range of products through five business lines: capital markets, equity research, investment banking, correspondent services, and strategic alliances.

Fitch affirms the following ratings:

First Horizon National Corporation

--Long-term IDR at 'BBB+';

--Short-term IDR at 'F2';

--Subordinated debt at 'BBB';

--Preferred stock at 'BBB-'.

--Individual at 'C';

--Support at '5';

--Support Floor at 'NF'.

First Tennessee Bank, N.A.

--Long-term IDR at 'BBB+';

--Short-term IDR at 'F2';

--Long-term deposits at 'A-';

--Short-term deposits at 'F1';

--Senior debt at 'BBB+';

--Subordinated debt at 'BBB';

--Individual at 'C';

--Short-term debt at 'F2';

--Preferred stock at 'BBB';

--Support at '5';

--Support Floor at 'NF'.

First Tennessee Capital I and II

--Preferred stock at 'BBB-'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

SOURCE: Fitch Ratings

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