Morning, everyone. Thank you for being here. We're pleased to have Bryan Jordan here from First Horizon.
Yep.
A year ago, I wasn't sure if you were gonna be here, but you're here, and I'm, I'm pleasantly happy.
Yeah.
S urprised, pleasantly surprised and happy about that. So thanks for being here, Bryan.
Well, thank you. Thanks for having us.
Yeah. Good. And we'll get into some of the things that happened over the last year, but maybe the first thing you can do, I think most people are familiar with the company, but not everybody is, and we have a lot of generalists looking at regional banks, believe it or not. So give us a quick overview of First Horizon, you know, kind of the footprint in the markets, and then we'll talk about the economy a little bit after that.
Happy to. We are gonna turn 160 years old in about 3 weeks, March 25th. We're in 12 southern states, headquartered in Memphis, Tennessee, roughly $82 billion in assets. We have what we believe to be a terrific footprint, with a real strong presence in Tennessee, strengthening in the Carolinas and Florida, and great opportunities in places like Houston, Dallas. So we have a footprint that we think will grow very, very quickly relative to the rest of the U.S., and we think we have great opportunities to deploy capital across that footprint.
Mm-hmm. And can you go back and talk a little bit about pre-TD, the IBERIA merger, and some of the things that you were going through there, just to fully get us up to speed?
Yeah, absolutely. We, as I mentioned, we'll be 160 years old. We've up until about 2017, our banking business was principally in the state of Tennessee. We had No. 1 market share in the state of Tennessee. Still do, very strong market shares in the 4 of the 5 major MSAs, and a growing and strong market share in Nashville. We had a big fixed income business, which is a great fixed income distribution, sales, and trading business. But we started to expand for growth opportunities outside of the footprint, so we did a merger in 2017 with Capital Bank, which really gave us a toehold in South Florida and a good start in the Carolinas.
We had in late 2019 the opportunity to bid on and acquire 30 divested branches in the Carolinas from SunTrust, BB&T merger, formerly SunTrust branches. And then we announced, and then completed in the midst of the pandemic, we completed the merger of equals with IBERIABANK, which really strengthened our footprint across the Carolinas into Florida, gave us a great presence in Louisiana, and strengthened our presence in Texas, with overlap in Houston and growth opportunities in Dallas. So we've been building out the franchise in markets where we think we can be competitive in delivering a middle-market commercial banking product set very capably. We believe we can deliver very good wealth management, private client business. And then our specialty businesses, which tend to be more national, also fit well in those markets.
We think we can be a significant player by delivering a community bank look and feel, but have big bank products, and really create differentiation all across that southern footprint.
Okay, good. And, like all the sessions, if you have questions, feel free to put your hand up and ask them, and we'll get them covered as well. But, the economy, we were talking a little bit about the economy beforehand, but give us your assessment on what you're seeing in the footprint. I mean, there's a lot of seemingly negative news, but at the same time, the banks are all talking about pretty decent performance in their own markets.
Yeah.
Tell us what you're seeing, Bryan.
Yeah. If I look at it through two lenses, in particular, one being the credit lens, credit continues to look very good. We're encouraged by what we see. There's always the idiosyncratic credit starts to emerge when financial conditions tighten, but we don't see any broad-based deterioration in credit across the footprint, either geographically or industry-wise at this point, so credit is holding up very well in our view. Second, we look at pipelines and borrower activity, and you would throw into that the anecdotal. It looks like borrowers are starting to lean in a little bit more this year. I think borrowers were somewhat encouraged by the "we're done raising rates" kind of language that we heard from the Fed or the FOMC late in 2023, so borrowers are a bit more optimistic. I would say still somewhat reserved.
Rates are higher. I think borrowers are optimistic that rates will come down, and it'll give more opportunity. But all in all, the economy seems to continue to be moving along very well. If I had to wager a guess, it would be, it's gonna look a lot like 2023 in terms of economic environment this year. Maybe not quite as strong, but overall, pretty good economy, and I think business will hold up pretty well in that environment.
Okay, good. We do wanna get into lending and credit in a little bit-
Sure.
but let's, we're coming up on a year from the termination of the TD deal. Talk a little bit about some of the changes that you've made over the last year. I know it was... You know, you made a lot of changes early, and you kinda had to-
Yeah.
make some quick moves. But talk about what you've done over the last year and kind of regained momentum in your business.
Yep. If you step back to when we announced the merger agreement with TD, we had just completed the integration of First Horizon and IBERIABANK systems, and at that time, we had just rebranded the old legacy IBERIABANK franchise, and we were tremendously excited about what that potential franchise could do and deliver. And we announced the potential merger with TD shortly thereafter. Our view was keep the momentum up in the franchise to build on what we had put together with IBERIABANK, really for two reasons. One, we wanted to be in a position to deliver a better franchise if and when the merger closed, and if the off chance that it didn't, we had a lot of momentum coming out of that.
We, we didn't expect the latter, but that's where we ended up. But as a result, our company had a tremendous amount of momentum in the spring of 2023, and our teams were in a position to hit the ground running when the merger terminated by reaching out to customers, explaining what was going on with the termination of the merger. But most importantly, the strength and stability and the legacy of First Horizon to and to capitalize on opportunity to really grow deposits and bring new relationships to the business. One of the keys is we started immediately branding the First Horizon name in those legacy Iberia markets where we had not spent a lot of money branding them.
We have, in that period of time, done what I think is a fantastic job of growing new-to-bank relationships, growing our deposit and customer base. We have put in place more streamlined regional banking organization, and we have started to make investments in really remediating what I would say is deferred maintenance. A good example is we knew our General Ledger system was gonna be end of life at the end of this year. For two or three years, you don't start replacing it when you're in the process of doing a merger, so we'll get it replaced by the end of this year. But we're also investing in new technologies that will be great for customer-facing products and services, and that's Treasury Management and Online Mobile Banking.
So we've made quite a few changes, and my sense is the excitement level and enthusiasm is high in our organization. Our associates are very, very engaged. They're excited to be delivering products and services to their customers, and have a high degree of confidence that we can make a meaningful difference in the communities that we serve.
Okay, good. When you talk to investors, do you feel like the market's perception of the work that you've done is fully there, or are there gaps that you think you'd like people to understand?
I think the investor base has a pretty good sense of what First Horizon is today, and the work that has been done, and how we're positioned. I would say that was less true in May of last year. We had gone through 14 months where we hadn't done any earnings calls, and there was really not a lot of coverage of our results. And because we had a fixed-
Except for one guy.
Except for one guy, and that's not a lot. We had... Because it was a fixed-price cash transaction, we had a transition of shares into more of an arbitrage makeup of our shareholder base, so things had to be reset. And so we have really tried to put the effort behind getting in front of investors over the course of the last nine months, and we think ultimately the most important thing we can do is what we started in the second quarter of last year, which is deliver a good quarter after a good quarter, after a good quarter, after a good quarter. So just to continue to deliver on the financial, you know, returns in the business and prove that the franchise is working.
And so I think we're in a place where we've made a lot of progress, and we're in pretty good shape.
Yeah, tough week for the deal to break.
It.
That was a difficult week in general.
It was a handful of days after the First Republic acquisition by JP Morgan, and it was a tough environment. But our folks did a great job, and most importantly, our customer and community engagement has been high and continues to work very well.
Yeah, okay. You feel like the hard work has been done? I mean, the last quarter was a good quarter. I mean, it was a very solid quarter. It looks like there's momentum, but you feel like the hard work has been done?
Jon, I would say the hard work's never done. It's always the next quarter. I think it's... Look, it's a competitive environment. Our industry is changing a tremendous amount, and you can't ever stop thinking about how are we going to market? Do we have the right products and services, and are we doing the things that truly differentiate us with our customers? So I think we have done a lot of hard work, but I look at 2024 and 2025 and think, "We've got to continue to grow with our customers. We've got to continue to evolve. We've got to continue to build the product and the distribution capabilities that truly differentiate us." So I don't think it's done, but I think we've made a lot of progress.
Okay, good. Touch on the lending environment. You talked about it a little bit, and maybe it's getting a little bit better, but how are you feeling about loan growth in general?
I think loan growth, it will be okay. I don't think it will be great. Our guidance was for fairly modest loan growth this year. A fair amount of that will continue to be fund up of pre spring-loaded, pre-originate deals in construction real estate, for example. Demand has started to build, or at least pipelines a little bit in the first part of this year. On the whole, though, interest rates are still relatively high to borrowers, and I think there's still a certain amount of cautiousness. People are hanging on for rates to potentially come down later this year. I'm not particularly optimistic around that, but I think until people get comfortable with the economy being stabilized, that we're gonna be at or pretty close to a soft landing, I think it'll be fairly modest.
Broad-based loan demand is not geographically centered. Probably the slowest area we see is in commercial real estate, and as you can imagine, with inflation and higher rates, it's harder for deals to pencil. But on the whole, I feel pretty good about demand in this environment.
Sources of growth?
I think it's gonna be more C&I-oriented in the near term. You'll see some growth in CRE simply because we're funding up some deals, but I think the incremental growth will be broad-based across the franchise. It'll be C&I, and we're seeing a number of opportunities to pick up what I would describe as generational-type opportunities as other people are resetting their balance sheet, managing risk-weighted assets. So we're seeing a lot of opportunity to grow, but I think the biggest driver will, in the near term, be C&I related.
Okay. Okay. On the margin, back to this May timeframe, it was a unique period of time. All of the banks were looking for deposits, and I don't want to use the term window dressing, but everybody wanted to show stable deposits
Yeah.
at the end of the quarter.
Yeah.
But it's created some opportunities for you to reprice deposits downward.
Yep.
Can you talk a little bit about that, and give us an update in terms of what you're seeing in the retention and pricing?
Yep, absolutely. We in May, I mentioned, you know, our folks got on the phone and started talking to their customers, and one of the things we wanted them to do was to have a very attractive offer. And we were competing with a very attractive rate structure, whether you're looking at money market or CD. We felt good about our bankers having something to be excited about when they called their customers. And during that timeframe, to put it in perspective, we raised about $6.5 billion in new-to-bank money in the second quarter of this year, about 32,000 new-to-bank relationships, and another $1.5 billion in the third quarter, and $1 billion beyond that in the fourth.
But what I think was most important was, at that timeframe, we wanted our people to be talking to customers and potential customers, and we wanted to demonstrate that we were here. And in some sense, you can look at the marketing aspect of it, because we hadn't rebranded First Horizon very effectively or the way we would've done it in 2022. So, we really had very good success. Those specials started to end in the fourth quarter, November, December, and we've had pretty good success in repricing the deposit base, more in line with, not only with the competitive environment, but to bring those rates down. Our retention on the new-to-bank money today is probably 94%-95%, something like that. I think we're at 96% at the end of the year, so it's been pretty successful.
We recognize that when it comes to deposits and thinking about the deposit franchise, we're not playing solitaire in any sense. It's a competitive environment out there, and our goal is and has been to take those new-to-bank relationships that I mentioned and convert from promotional to primacy. So we're making a tremendous amount of outbound calls. We're trying to deliver other products and services to those relationships, and I think we're seeing pretty good success, at least in the early stages of retention and trying to build primacy.
Okay. You've talked about the cadence of the margin over time as generally being supportive and moving higher.
Yeah.
Any change to that thinking?
No, not today. We think the margin is likely to be stable to improving. We think deposit costs will continue to drift down a bit here and there. When we laid out our guidance for 2024 in December, and then again in January, our view was based on the forward curve in the market at some point, on some day in December, because it moved so much. I joke it was 237 on December the 31st, but it's moved around a lot. But we had four rate cuts built in. We are asset sensitive, and we should benefit or have a slightly better margin if the Fed does not cut rates across the course of the year.
There's some countercyclical offset that'll affect that, but all in all, I, I think we still feel very good about our margin outlook for 2024.
Okay. I wanna talk about the countercyclical stuff in a second-
Yeah.
but you said that you'd probably take the over on rate cuts. You feel like the Fed really doesn't need to be that aggressive based on what you're seeing?
I personally think the economy is very strong on a relative basis. Unemployment is still very, very low on a relative basis, and inflation seems to be getting stuck in that 3% area, or more, depending on which aspect of it you look at. So my guess would be that it'll be on the lower side of four cuts. Whether it's zero or two, I don't know.
Mm-hmm.
You're starting to see, Fed voters and FOMC members saying, you know, 1, 2. It just feels to me like it's gonna take a very big shift in unemployment and growth in the economy before you see the Fed start to move on rates.
Yeah. Okay. Okay, good. So potentially positive for NII, but the flip side is? S ome of your countercyclical fee businesses.
Absolutely.
We've talked about for years.
Absolutely.
How do you feel about that? How's FTN going and some of the other countercyclical businesses?
Yeah, we have the three countercyclical businesses. The mortgage business, and it continues to be one, seasonally soft, and two, because fixed rates and long-term rates are higher, it is and has been slower. Our mortgage warehouse lending business ebbs and flows. We think we have seen and will continue to see opportunities to continue to pick up share there, and that business feels pretty steady. We won't get to the outsize levels unless we start to see more refinance activity. Then, it is seasonally impacted, like the mortgage business. It should pick up from first quarter levels across the course of the year, but we think it'll still be fairly modest. And then our fixed income business.
Now, the fixed income business has started to bounce back late in the year. I mentioned the FOMC and Chair Powell's comments about interest rates and further rate increases. That business has picked up some. I would guess, as we sit here in early March, that our average daily revenues will be up at least $100,000 a day in the first quarter and maybe a bit more than that.
Mm-hmm.
Business has strengthened over the course of the last couple of months and is back to more normalized levels.
Okay, that's good. If the Fed stays where they're at, can that-- do you think that can continue?
I think if the Fed stays where they are, I think we will continue to see the fixed income business be pretty stable. I would say I'm more optimistic about this year. I would say if the Fed cuts, it will be even better for the fixed income business. But right now, it feels like we're in a pretty good place, and with some luck, it'll continue to play out over the course of the year.
Is there an ideal environment for you, couple of cuts?
I'd say, you know, somewhere between zero and two-
Okay.
is probably ideal. I think we're, given the balance in our business and the way we've constructed it, we've tried to desensitize our balance sheet to rates moving one way or the other. And I say this with some sense of if it moves one or two, it'll have an impact on us, but hopefully we've tried to minimize that impact, good or bad, and just continue to deliver steady and high returns through any cycle.
Okay. Good. Anything to note on credit? I remember back in the September conference, you talked about the big credit, the idiosyncratic-
Yeah.
credit.
Yeah.
Doesn't seem like there's anything that we're gonna talk about today, but...
Yeah.
Anything to note?
Well, credit, as I said a minute ago, credit continues to hold up pretty well, you know, on the whole. You know, the longer you have higher rates and more inflation, you're gonna find somebody's model or business or balance sheet that is gonna get stressed in that. But it still is very idiosyncratic in the sense that it doesn't appear to be geographically centered, nor does it appear to be centered in any one particular industry. So right now, my sense is that credit continues to hold up pretty well. The longer people are enduring tighter financial conditions, and if the Fed happens to be late in reducing rates, it could get a little worse. But right now, credit feels pretty good, and it is...
Two years ago, if you said, you know, we'd be in 2024, looks like we're gonna have a soft landing, you know, credit feels, you know, favorably positive to what you might have thought two years ago.
Okay. Anything on commercial real estate?
Nothing new on commercial real estate. Our portfolio is broadly distributed across the South. These are markets that have continued to see a growth in and people moving into the markets. It helps with absorption rates. We tend to have a portfolio that's written with very strong borrower commitment on the front end in terms of cash equity and deals. We continue to work with borrowers in terms of right-sizing deals like everybody else has. But on the whole, commercial real estate still looks reasonably good, given all the inflation and interest rate movement we've had over the course of the last 18 months.
Okay. Couple more things I want to touch on. Just see if there are any questions before we go any further. Okay. Expenses, you talked about the $100 million investment that you've made, to kind of get things back to where you want them to be. Anything else to note on expenses or call out? It seems like, maybe you're through the bulk of that at this point.
Yeah, we have what will be a surge for a year or 18 months in expenses. The $100 million is investments in technology to close that gap.
Mm-hmm.
between where we were in technology investments and where we needed to be when the merger terminated. And that roadmap is pretty much laid. We just got to do the work, and it'll sort of work its way into the expense system as we start to amortize some of these systems. But I think that's sort of a bubble that we'll work through in the next 18 months or so. We have a little bit of. We had some retention money that we put in place when we announced the merger. That has been rolled into operating expenses. It will step down later this year, and will step down again next year. All in all, I feel good about our
expense run rate and our ability to continue to invest in the business, invest in a way that makes us a better, stronger, more profitable organization for the long term. We are always mindful of controlling our expenses, and over the last 15, 18 years, we've shown the ability to bring that overhead efficiency ratio down with time and take expenses out. So I think we've got a pretty good balance today, and I don't think there are any big surprises coming on the expense side. You know, the better fixed income does, it'll drive a little bit more expense, but it also drives more to the bottom line. But all in all, I don't expect any surprises.
Okay. On the buyback, I have eight of these sessions today, and I'm really not talking about buybacks-
Yeah.
to people, except you. And you have a nice sizable buyback out there. How do you want us to think about the pace of that? How active do you wanna be?
Yeah.
What's the messaging around that?
Yeah, I, I think, you know, we think capital is extraordinarily important, and having a strong capital base has served us well over the course of 2023 and will in 2024. We started the year with a CET1 ratio of about 11.4%.
Mm-hmm.
What we have said is we don't expect to let that capital ratio grow from there. We expect to floor it out somewhere around 11%. We think a buyback is an appropriate way to manage capitalization in the organization, and we will use the excess capital to repurchase stock as we see opportunities. We would obviously rather invest it in organic growth in the footprint, so to the extent organic footprint growth is stronger, buyback will be a little bit less, and we'll manage with a capital ratio of around, you know, 11% or greater this year. I think 11% in a more normalized investment human environment is on the higher end. We can operate the business probably more appropriately between 10% and 10.5%.
I think, you know, we'll figure out how we get there when the economy is clearly stabilized and we're confident that the soft landing has been achieved, and the economy is showing very strong growth and in some sense, the world situation stabilizes. We'll pick up, we'll buy a little bit of stock back. We started the buyback this quarter. We announced the authorization in January, and to date, we've bought, you know, $90 million worth of stock, something like that.
Would you like to use it all?
Like to use it" is probably too strong. We're willing to use it-
Mm-hmm.
but it's really a privilege-
Right.
to invest in customer growth and growth in the balance sheet. And to the extent we don't need it there, and we've got adequate capital, we will use it to buy back stock. I believe our stock is on sale, and it's an attractive value, and as we have the opportunity to capitalize on buying stock that is relatively cheap to us, we will do that.
A few people in the room agree with you-
Okay.
on that. Last question, last topic is the $100 billion in asset topic, which has become quite a prominent topic.
Right.
You're, you're still a ways away from it.
Yep.
How do you think about that, that ceiling? Is it a ceiling for you?
Yeah. I think it's an open question. I am excited that we've got, you know, two or three years of headroom just in terms of organic growth. We're at $82 billion, as I mentioned, so we have plenty of room to run. I think we will have clearly greater clarity as time passes about what is the true and incremental cost of crossing that $100 billion threshold. I think it is i f Basel III is proposed like it was, you know, late middle of last year, it's a fairly significant cost step to go across $100 billion, and my guess is it will likely get moderated, and two, we will start to have some of that built into our run rate anyway. The FDIC has a proposal out to start creating Living Wills.
We have always stress tested and disclosed our stress testing. So we have a lot of that infrastructure in place, and I'm sure it will build out. So I'm hopeful that with two or three years of optionality on timing and understanding how things are gonna work, I think we have the ability to navigate it. So I don't see it as a ceiling that we can't deal with. I think it's fairly significant, but it's not something that we can't deal with.
You have time.
We have time.
Time.
Time is our friend on that topic.
Yeah. Okay. Okay. Well, with that, we're out of time. Bryan, thank you for being here.
Thank you, Jon.
Thank you for having me today.
Good to see you.