Good day, and welcome to the First Horizon Iberia Bank Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Aarti Bowman of First Horizon Investor Relations.
Please go ahead.
Thank you, Eileen. Please note that the slide presentation we'll use in this call is posted on the Investor Relations section of our website at www.burchurizon.comandwww.iberiabank.com. Please note that this presentation may include forward looking statements like those described on Slide 2. Please refer to our filings with the SEC, including our most recent annual and quarterly reports and some specific factors that could cause actual results
to differ from these statements.
Speaking this morning is pleased. First Chairman and CEO, Brian Jordan Iberia Bank's CEO, Darryl Burd and Versurizing's CFO, Peter Lynch. Additionally, Iberia Bank's CFO, Anthony Roussel and Bertrand, Chief Credit Officer, Susan Springfield will be available for Q
and A. We know that
you have been able to review our detailed press release and presentation. As such, we will provide you with some compelling reasons to return our vehicle. We will then move quickly to Q and A. I'll now turn it over to Brian.
Thank you, Ari. Good morning, everyone. Thank you for joining our call. I'm pleased to be here this morning with Daryl Byrd to announce this merger of equals between our companies. We believe this deal creates a leading banking franchise and strengthens our competitive position in attractive markets across the South.
Daryl and I have known each other for years and we strongly believe our respective companies create a great strategic and cultural fit. We take similar approaches to serving customers and communities and in balancing growth and risk. Our business models are very much aligned in serving all shareholders, communities and employees. As you're aware, banking industry is rapidly evolving and combining our organization gives us a platform to compete successfully in all market environments. With $75,000,000,000 in assets, we'll be better able to serve customers by leveraging scale to invest in technology and to expand product offerings.
We'll have a complementary market presence throughout the South and the combined franchise will have a good mix between high growth and stable markets. The deal is also financially attractive as an half market highly accretive merger of equals with modest handful buffet dilution and a short term back period of 1.4 years. We'll have a diversified business mix to support revenue opportunities and implement cost savings. We'll have enhanced profitability metrics and returns, earnings power, efficiency and capital generation. Beyond the numbers, I'm excited about the great team of leaders and leaders at Regions Mason.
Great team of leaders and leaders at Iberia Bank. We've described our executive team in our presentation. Leadership will be BJ Loews, Chief Officer David Popwell, President of Specialty Banking Susan Springfield, Chief Credit Officer Danny Latacias, Chief Human Resources Officer Anthony Restall, Chief Operating Officer Michael Brown, President of Regional Banking Terry Akins, Chief Risk Officer and Beth Arkin, Chief Communications Officer. Ipiria Bank is powerful franchise and I'm looking forward to our partnership. Both our companies have over 130 years of history and have proven our success and we are focused on execution.
Now going forward, we will be better together. At this point, I'll turn it over to Daryl. Daryl? Hey, Brian, thanks. I'm thrilled to be joining forces.
We're creating an outstanding financial institution, and together, we have more resources for our clients, including expanded products and advanced technology. The profitability metrics in the combined organization will drive shareholder value and enhance financial performance. First Horizon and Iberia Bank share common values and culture, including intangible commitment to all our stakeholders, customers, employees, shareholders and importantly, all the communities where we live and work. This deal broadens our business mix, and we now have expanded presence in our 12 states. The partnership strengthens our core deposit franchise, further diversifies our loan portfolio and adds differentiated revenue streams.
As Brian touched on, we have a more similar approach to credit We're excited about the ability of more balance sheet capacity and access to additional high growth markets. We'll be able to bring these expanded capabilities to our customers. For all the stakeholders that have supported up Airy Bank over the past 132 years, I'm so very proud of our accomplishments. In the past 20 years, we turned a small $1,000,000,000 threat in South Louisiana into a highly regarded $32,000,000,000 regional company with a presence in 12 states. Throughout our history, we have successfully navigated, tripled, changed and difficult hit me but have consistently delivered on our promises to shareholders.
For the next step in our journey, we chose a merger equals partner who values deep relationships and is culturally aligned with our core mission. Our mission is to provide exceptional value based client service to create a great place to work for employees, to deliver value and build a strong sense of community. Our partnership will leverage our best in class workforce and build on and complement the well established strong foundations of both organizations. We look forward to bringing our companies together to better serve our clients and communities. Now turn it over to Vijay to open the National Impaxions transaction.
Vijay? Thanks, Daryl. Good morning, everybody. Let's start with the strategic highlights of our merger of Equals Combination on Slide 6. Together, we will be a formidable competitor with size, scale and capabilities that will create compelling advantages for our customers, employees, communities and shareholders across some of the most attractive growth markets in the United States.
We are excited about the significant value creation opportunity we have with our no premium combination. We expect to generate pure leading profitability metrics for returns and efficiency. We expect to deliver strong double digit earnings accretion, and we expect to create significant capital generation providing optionality for future growth, investment and shareholder benefit. On Slide 7, you see some of the key structural components of the combination. We structured it as a no premium transaction at a fixed exchange ratio set at market based on closing prices last Friday, November 1.
Iberia shareholders will receive 100 percent stock consideration, 4.584 shares of First Horizon for every Iberia Banc share, and Iberia Bank will merge into First Horizon at closing. Turning to Slide 8. We believe that a balanced board and executive leadership structure with executives from each company taking on key roles in the combined organization will create a collaborative approach to maximize the opportunity this combination affords us. Slide 9 demonstrates that our combined company will have an attractive presence across over 25 major MSAs in the Southern United States, where population growth is expected to be 25% faster than the national average. We will have a top 5 deposit rank in 12 of our top 20 pro form a MSAs with significant continued opportunities for growth.
And as you can see on Slides 10 and 11, we will create meaningful scale, profitability and shareholder value creation with this merger of equals. We've laid out the accretion and earn back metrics under both current accounting and underestimated CECL accounting. Starting with EPS accretion, we expect strong double digit accretion in both banks under either accounting method. Using estimated CECL accounting, EPS accretion on a fully phased in basis is projected at 16% for First Horizon and a 22% for Iberia Bank with EPS accretion from just the value of cost savings alone being $0.25 a share. Due to the no premium construct of the combination, coupled with the cost savings and accretion benefits, tangible book value earned back is swift in under 2 years using GEDAR methodology.
Profitability and return metrics are also very compelling with roughly a 1.4% ROA and ROTCE at 18% using 2020 estimates with fully phased in merger impacts. These metrics, as you can see on Slide 11, would put us in peer leading categories for returns, efficiency and EPS growth. While long term success is ultimately based on having a compelling business model and executing on growth opportunities, scale matters in our industry. Creating this combined company gives us much more optionality by improving our capital generation and creating cost efficiencies that will allow us to further invest and grow. With greater size and scale, we'll have the ability to invest more in customer experiences such as digital capabilities as well as rethink and optimize our back office infrastructure to improve our technology spend effectively.
The ability to make these investments will afford us the ability to compete more effectively with the largest banks, thereby improving our ability to provide differentiated services to our customers and deliver strong returns to our shareholders. Slides 13 through 16 give you some highlights of our combined revenue and balance sheet composition, along with our extensive product and capabilities set. From a revenue perspective, we will possess a healthy mix of spread and fee income with significant diversity of net interest income and fee income sources. From a balance sheet perspective, we will be better together with nearly $60,000,000,000 in deposits and $55,000,000,000 in loans that are well diversified across products, geographies and businesses. And with our combined expertise, larger balance sheet and complementary specialty businesses, we see the potential for additional revenue opportunities across both customer bases.
On Slide 17, you'll see we've done extensive due diligence for the transaction. Both of our teams have significant experience with M and A and banking integrations, and we will be very focused on minimizing customer revenue impact, while we thoughtfully execute our integration plans to build an optimal business and infrastructure model. I'll highlight a few key transaction assumptions impacts on Slides 18 through 20. Starting on Slide 18 with cost savings, we're assuming $170,000,000 of cost synergies, representing about 9% of combined expenses or about 25% of Iberia's operating expenses. With a mid year 2020 expected close, you can see our expected phase in of cost saves over the next few years, and you can also see our current assumptions of the mix in savings on Slide 20.
This will create about $1,000,000,000 of capitalized value when we deliver upon this commitment. Revenue synergies, while expected, are not included in our modeling. Onetime merger expenses are estimated at $440,000,000 inclusive of a $20,000,000 contribution to a foundation we are setting up in the REB. The aggregate loan mark is 1.6%, which includes 1.2 credit mark and a 40 basis point rate mark. As you know, CECL requires bifurcation of the loan portfolio into 2 separate categories, purchase credit deteriorated PCB and non PCD.
We see the breakout of each along with the day 2 duplicative impact of the non PCD credit mark to be recorded through the income statement, which will accrete back into earnings over time. While we already reviewed the strong earnings accretion and pro form a profitability metrics that are repeated on Slide 19, I also wanted to highlight the strong internal rate of return of 20% and return on invested capital of 13% with a healthy 43% dividend accretion to Iberia Bank shareholders. Wrapping up on Slides 21 22, we see the opportunity to create significant shareholder value through strong double digit earnings accretion, multiple growth opportunities, peer leading return profitability and efficiency metrics and increased capacity for capital generation. We're excited about our future together and the benefits we will deliver to all our constituents. We will be better together.
With that, I'll turn it back over to Daryl. Thanks. Now I'll open it up for questions.
Our first question today comes from Brady Gailey with KBW.
Thank you. Good morning, guys. If you look at 9% cost save number, that is below some of the other larger MOEs that have been announced over the last couple of years. I know there's not a ton of overlap between the 2
groups. I'm sorry. Yes.
Good morning, guys. So I wanted to start with the cost saves number. I mean 9% is below some of the other NOEs that we've seen announced that have been closer to 12%. So it seems like it's a fairly conservative number. I know there's not as much of an overlap between the two franchises, but maybe just talk about
We have what we think is a very achievable number. We think it may end up being conservative, but we think it's very achievable and we would rather be smart about how we put the organization together. The fundamental thing that drives the difference that you cite vis a vis others is we have very limited branch overlap. And so our branch consolidations are likely to be fairly small in number. And so that's impacting the number at least initially, but we think they're great opportunities to achieve savings and with the combination not only create value through synergy, but we also have the ability to create a lot of revenue synergy by leveraging these additional capabilities.
Okay. That's helpful. And then I also wanted to ask about share buybacks. I think each company was buying back stock in size. With this deal announced, it feels like buybacks could slow, if not stop.
Is that the case? And did that come into play with the tangible book value dilution number of 5%?
Hey, Brady, it's Pete. So through the closing for sure, we would be suspending buybacks until we get to about midyear next year. And then our assumption is we will continue to build capital such that we are in the midpoint of our targeted CET1 range, so between 9%, 9.5%, at which time we believe, as we about, we'd be generating significant capital such that we can look to be opportunistic on buybacks once we get there.
Okay. And maybe to ask it a little differently, does the 5% tangible book value dilution include the benefit to tangible book value of no share buybacks in between now and closing?
Yes, it does. Yes, it does.
Okay. And then finally, just looking at the map, you have a nice franchise. You also have some holes in Mississippi, Alabama, Georgia and Texas. I know near term, the focus is going to be on integrating these 2 companies. But I think as you look longer term, is M and A still an option to fill in some of these gaps in your branch map?
Brady, this is Brian. Daryl and I have talked about this in our first three priorities are integrate this transaction, integrate this transaction, integrate this transaction. We think there are opportunities down the road, but that's not what's important to us right now. We have a great opportunity combining these 2 companies and we'll get that executed and then we'll be opportunistic as companies and we'll get that executed and then we'll be opportunistic as things come up in the future, but we'll be disciplined. Both companies have had a history and promise.
All right, guys. Thanks for the color and congrats on this powerful combination.
Thank you.
Our next question comes from Ebrahim Pudawala with Bank of America Merrill Lynch.
Good morning, guys.
Good morning. Hey, Yuri.
Hey. So first of all, congratulations on the deal, the feedback just based on what we received this morning and you're leasing the stock, probably one of the better ones that we've seen to a large deal. So when we ask to both management teams. And the one question, and I'm not sure if Brian or Daryl who wants to handle this, but the immediate question when you think about an MOE comes to potential for client customer attrition. And if you could talk to in terms of Iberia is obviously a pretty long lasting franchise.
Talk to us in terms of the how you talk through the risks of some customer attrition within sort of the Gulf South markets and how you expect to address that and sort of defend against that?
Yes. This is Brian. Ebrahim, I'll start and Daryl pick up. We have spent a lot of time on this topic and I think the most important thing to understand about this transaction is that one, we have very similar cultures, we have very similar market focus, operating models where we push decisions close to our customers and we have very similar credit cultures and while there are always differences in organization, Daryl and I believe very strongly that we can weave these things together and we've seen great progress and the combination or the conversations of the team as we contemplated this merger for several weeks here. Secondarily, I would say back to the point on cost saves because we have limited overlap, we expect there to be no impact on employees in the branch.
We expect every employee in our financial centers will have an opportunity to be a part of the combined organization. And we think we will have minimal to no impact on relationship managers. So while we're going to put the 2 organizations together, we think we start in a really good place in terms of similar operating models, stable and consistent talented teams that are there to take care of their customers. So I'm optimistic that we can do this in a way that minimizes if not completely eliminates all adverse impact on our Even with sterile couldn't agree more with Brian, but the disadvantage of not having any overlap is what BJ talked about in terms of some of the cost saves. But it's a huge advantage from a teamwork perspective not to have any overlap because you don't have people that have been competitive with each other.
So we see this as a huge advantage. Really nothing much should change for our cloud facing people. So I think the teamwork is always important. This kind of transaction should facilitate that.
Got it. That's helpful. And just talking about both of you have grown a lot through M and A organically over the last few years. If you could talk to the advantage of being a $75,000,000,000 bank, is there a real discernible difference at that asset size, both in terms of client servicing as well as in terms of scale to invest in technology? If you could talk to that.
It's Steve from Outsourcing, there. Ebrahim and I talked about that a lot. We both knew scale is very important. We have both grown a lot historically. But in today's age with changes in technology, we think scale is pretty important.
And the profitability of this transaction, the profitability really all the charts will help us with that, right? Yes. I agree. Daryl and I have had a lot of conversations. We've known each other, been friends going back probably close to a decade and talking about the business models.
One, we come into it with a tremendous amount of experience doing these deals. But we think with the savings we can achieve, we really can invest in new products and services and technology at a greater scale than we would have been able to do individually. We think that's good for customers. We think that's good for our communities. Ultimately, we'll be able to do more.
We have a bigger balance sheet and we can use that balance sheet to build us more service better service to our customer base. Even the other one, I would think about a little bit. People are predicting that we'll see some kind of correction out there in the future. Nobody any idea when. But the fee income businesses, as combined in this merger, are really significant.
And they're very countercyclical to any kind of correction that we might see sometime in the future.
And just to that point, can you just talk about what the scale means for SCN for the Capital Markets business? Is this added scale really a needle mover or it doesn't change how you think about that growth for that business?
This is Brian Abraham. On the in the short term, I don't think it will have much impact on the FDM, now FHM Financial Services business. We expect that that business will continue to be largely un impacted by this and we'll continue to do very much what we've been doing today. I expect that as Daryl and BJ talked about the fee income, it will be moderated some in terms of the overall component of our fee income base. But I don't expect there to be any significant impact on FHN Financial.
Got it. Thanks for taking my questions and congrats again.
Thank you.
Our next question comes from Steven Alexopoulos with JPMorgan.
Hey, good morning. This is Anthony Lian on for Steve. Can you guys talk more about the discussions you had during the diligence process and how long that process lasted?
This is Brian. I'll start and we'll write a nice background section when we file the S-four. But as I said a minute ago, Daryl and I have known each other for a long time going back to our service together with the Federal Reserve and we've talked about the industry and the impact of consolidations and so on and so forth for many years and we talked about the benefits of conceptually what doing these kind of transactions would mean. And we both have built very strong and formidable franchises. And over the last few months, we started to have additional and renewed conversations about timing and the opportunity to do something.
And over the last 2 or 3 weeks, that momentum really started to build. So we had a very thorough process around due diligence. I feel very, very good about the due diligence work that was done by both organizations and it was comprehensive on both sides. I talked or we've got the deck, we've talked about the combined leadership team. This leadership team has spent a good bit of time together over the last few weeks.
And Daryl and I are both excited about not only the capabilities of these leaders, but the tremendous camaraderie we see building between strong credit and risk management cultures. And for those of you who know both of us, we've done well in managing through some different pounds. So I think we have a lot of mutual respect and we look thorough. It really starts with very strong credit risk management cultures.
And a few comments on the actual credit due diligence. Obviously, we look at each other's loans, but there were also a lot of conversations about approach and risk appetite and how do you think about this business or this market? And the fact that both companies, the price that have decision making pushed out into the markets and lines of business with local leadership and local credit officers working with those leaders. So a lot of conversations, as Daryl said, around risk management, risk appetite.
And we know our clients very well.
Great. Thank you. That was very helpful. And then my next question just on the market.
So they appear to be very attractive for
the new combined company, maybe for Brian. After the deal is closed and fully integrated, how do you view the organic growth potential of the new franchise?
I think that's one of the really neat things about this combination. It builds on the strengths we have in our existing franchises that combines our Florida presence to be a very formidable franchise with a $10,000,000,000 business in Florida, for example, and a tremendous amount of runway in terms of being able to invest in organic growth there. We still see tremendous opportunity in the North and South Carolina markets and we are very optimistic about our ability even through the integration process to continue to build momentum there. And then we strengthened our presence and Daryl's presence or Opryobank's presence in Texas as well. So we see very, very good growth opportunities.
And as BJ pointed out, we will have a footprint in markets that are going to show very strong growth both in households as well as household income. And Birmingham and Atlanta have been very good markets. Yes. And will be very good margins for us. Very good margins.
As a follow-up, would you expect the organic growth sort of metrics to be materially stronger than the legacy First Horizon business?
I think absolutely. I think we get through this integration with the opportunity to invest capital on an organic basis in these markets that both Daryl and I have mentioned. And just the underlying dynamics of those markets, I think, yes, we can show an improved growth profile over time.
Okay. And then finally for me, Brian, you've talked in the past about the attractiveness of the MOE transaction for several years. This seems to be a deal that should have happened years ago, particularly given the expected boost to performance metrics. What changed the timing works now for this deal?
Well, I think there are always a lot of things that go into timing and both organizations have had a lot in progress. And as I pointed out earlier, Daryl and I have had a great friendship and tremendous respect for one another and each other's franchise. And as we looked at what's going on and particularly the acceleration in the cost of technology and the need for scale, we renewed our conversations and felt like this was a really good time and an opportunity to put something together that would create not only a much bigger franchise, but something with the capability to meet customers' needs and be a leading banking institution in the
South. Our next question comes from Jennifer Demba with SunTrust. Congratulations on the deal. Two questions.
First of all, Brian and Daryl, where do you see the best revenue opportunity in terms of synergies for the combined organization? And you also said earlier that you felt like the cultures from a credit standpoint and operating standpoint are very similar. Can you just talk about where they're most dissimilar and how you'll reconcile that difference?
Jenny, I'll start with kind of the market side. We think the demographics of Florida, Texas are terrific. Your market, it allows, we think, is a terrific market. So we think the growth dynamics are very, very powerful for the combined organization. I don't think, Jeff, are there any real areas where we see very significant dissimilarities in the way we do business and or anything that will have a significant impact.
There's some subtle differences in the way we do certain aspects of commercial real estate as an example. But we've got both proven lenders and teams in both organizations and we think we will be able to leverage that. We're also optimistic that with the improved investment in technology and product set that we're going to be able to deliver more pick up some revenue synergies across some of the commercial product set and build on the momentum that we both have there. And so we're the other thing I would add is as a bigger organization, we have the ability to think about how we use more of our balance sheet to support customer transactions and lead transactions and things of that nature. So we think there are a number of opportunities and at this point we have been conservative and not built anything into our financial analysis.
But I know our recent transactions as well as our various banks have shown that we've got the ability to drive additional revenue in addition to exacting the cost savings that we commit to. And Judy, we have some different verticals, but I would say them as very complementary.
Okay. Thanks so much.
Thank you.
Our next question comes from Stephen Scouten with Sandler O'Neill.
Hey guys, good morning. Congrats on the deal.
Thanks, Steven.
And obviously, this looks like a major win for both of you guys when the market is reacting very positively, which
is great to see. I'm just curious, you talked about your experience
in M and A for both of you guys. And obviously, the most recent deals we did for both were not as well received. And so I'm wondering what you guys learned about structure and maybe the 1 or 2 top things you're focused on to make sure execution around this
deal goes well. Yes. Well, I think lesson that we capitalize on here is that if you can structure a deal in a way that you do it as a merger of equals and you take the best of both organizations and you can find the leadership team, the franchise in a way that creates significant shareholder value. And forgive me for coming back to it again, strong earnings accretion for both sets of shareholders and as BJ pointed out, roughly $1,000,000,000 of incremental value. That is something that should get rewarded.
I think we both have learned a lot over many years. I think we point out in the deck something like 17 integrations in the last few years between the 2 of us. We have the ability to put this together in a way that will minimize customer impact and maximize achieving those opportunities both on the cost side and the revenue side of the business. Steve, I would add that our integration experience should give you a lot of confidence looking forward in this transaction.
Yes, for sure. And then maybe can you talk a little bit about the talent within the combined franchise and just how many people are locked up currently or how you're thinking about the ability to make sure you retain all those people, especially in light of other dislocation market wide?
I think Brian just talked about it. We have very little overlap. And so for our relationship managers and client facing people, they're going to be in really good shape and should be very confident going forward. We have spent a lot of time thinking about over the last few weeks how we will do exactly what Daryl just described, which is we will do everything in our power to keep all the people we can that are serving our customers engaged in the business both with communication and a lot of information from us. And we feel good about our ability to retain the relationship people in the organization, the back office people in the organization, we need to make this a success.
Thanks, Lance. And then last thing for me, obviously,
as you guys move up market, more of the conversations for what will become your larger peers is on technology spend with these larger deals. So how can we think about incremental investments on the technology side and how that is factored into the cost base expectations? Thanks a lot,
guys. Stephen, it's Anthony. What I'll tell you around technology spend is that clearly when you put the 2 organizations together, right, you're simply kind of doubling up the expense. So I think if you think about kind of a cascading and bringing systems together, right, certainly there's an ability to have some of that money go to achieve part of the cost saves. But there's also a healthy amount of money that we can kind of core OASH and Proving Systems.
And I think one of the big concepts why this is really attractive technology perspective, right, it should enable us to propel forward on the technology side way faster than we can do on an individual basis. One of the things that I would add to what Anthony just said, Stephen, is the real simplistic way I think about it is if we individually have to update our mobile or online banking systems, now we only have to do it once instead of what we're going to spend on the second system, we can now invest in something else that gives us a capability. I think it was some comments that Kelly King and Dave recently about technology spend going up as a percentage of the cost structure. I believe directionally, I think he's correct. I think over time that technology spend is going to be a bigger part of what we have to focus and I feel very, very good about Anthony's ability to help us focus our investments in technology in a way that makes us unique and differentiated to serving customers and delivers our products and services at the lowest landed cost that we can.
Great. Thanks again and congrats again on a great day.
Thank you.
Our next question comes from Brian Foran with Autonomous.
Good morning, everyone.
Good morning, Brian.
I don't want to sound like I'm missing the forest or the trees. The EPS accretion is clearly a big number. For those of us who have to then translate that to something in terms of a 2021 2022 estimate. Can you just I think the 16% is kind of like a run rate with the full cost saves. So in terms of the actual cost saves realized in 2021, any thoughts there?
And then on 2022, is 16% the kind of right baseline to think about there? Does the CECL impact of 5 percentage points go up or down for any reason? Or is that kind of a good baseline as we start thinking about the 2022 earnings power?
Yes. So it's BJ. So we've got plenty of information if you dig through here and look at some of the flip notes where we've tried to lay out for you 2020 estimates plus a fully phased in impact with and without CECL fully phased in post 2021, all of them are very compelling. I would tell you that we run it without any merger impacts, including the accretion. And we still see double digit EPS accretion by year end 2021 going into 2022 that is incredibly compelling to us.
So this is not just an accretion story. This is a low premium putting 2 companies together with conservative yet highly achievable cost savings that combined with organic growth opportunities will be very, very strong and compelling going forward from an EPS perspective. So I would encourage you to take a look at some of the footnotes about how we've done it. We've done it multiple ways. But again, we've used street estimates.
So it was hopefully easier for you to understand how we built accretion and try to give you all the assumptions that you would need. But we feel very strong about our ability to deliver double digit accretion over the next several years.
And then maybe on the combined returns on Slide 11, people always look at it 2 ways, right? What's the cost save as a percentage of combined expense base? Your 9% seems in line, maybe a little low. You addressed that. So that's the optimistic approach.
Some people push back as 51% pro form a really achievable, it'd be almost best in class or depends on your comp group. How do you answer that question for people who maybe think 51% seems a little bit punchy?
Yes. So if you look at how we calculated that on Page 11, we just simply took the 2020 estimates, put in all the merger impacts as if fully phased in for illustrative purposes. So you put in the accretion benefit that we would expect to see, take out the fully phased out cost savings, and you get to a 51 percent efficiency ratio. Whether it stays there or not is up to us. We're going to have to execute really well on it, but we see it staying in the low 50s based on what our projections are even as we invest in the business, even as we grow the business, we believe that we can be one of the more efficient operators in the industry.
Thank you.
Thank you.
Our next question comes from Brock Vandervliet with UBS.
Great. Good morning. I guess for those of us that are less familiar with Iberia, which may be most of the folks on this call, could you talk about historically where is the growth come from? I can see the Florida portion of the franchise. Was that where most of the growth was coming from?
Could you just kind of speak to the overall franchise? Yes, Brock, it's Daryl. Mike, I think for us, and this has been a story our story for a long time. It kind of always starts with people. We're in great markets, very diversified markets, whether it's Texas, Atlanta, Florida, they're good markets, they're growing markets demographically.
But we've done a great job of recruiting people to our organization. So we can always say we can pick the right relationship manager and the right class facing people and they'll bring across the right clients. And if you know our story, we've been doing it for a long time and have had very consistent organic growth and we've had good M and A growth, but it's a very consistent organic growth. And just as a follow-up, not surprisingly given your Gulf Coast exposure, you've got a reasonably sized energy portfolio. That segment's caused some credit friction across the whole sector.
Can you talk about your experience there so far? Yes. Brock, I'll start. Through the LME 2015 and 16 kind of downturn, we performed very well. We've recently done a review of all of our energy exposure.
We're very production based, E and P based and midstream. We don't have a lot of service company exposure in our portfolio. So our portfolio has performed very well. Anthony, anything you'd add to that? No.
I mean, I think on a combined basis, right? So today, we're about we're just under 6. I think on a combined basis, we're around 4 overall. I think we've got a great team. I think it's an attractive vertical, let's call it vertical, it's easy.
But I'll let Susan jump in.
So we both took a good look at each other's energy business. And I would tell you the philosophy of conservatism is picking the right borrowers and sponsors and banks, we share that. And very much as Daryl said, focused on the E and P side primarily.
Okay. Thank you. Thank you.
Our next question comes from Marty Mosby with Vining Sparks.
Good morning. Good morning, Marty.
Brian, congratulations. We've talked about this long time ago and you've gone through and accomplished it. So congrats on, I know there's a lot of effort getting to this point.
Well, thank you. Thank you. I'm excited for both our organizations and make this happen. It takes great partner like Daryl and the team from our area to make this work.
Scott, three questions. 1, we've talked about doing this and using the platform that you had defended and kept for all these years from the national expansion. Is that still a part of the consolidation of Memphis and why you're being able to get some of these expense savings?
I'm not sure what happened to the first part of your question. I missed that. If you could start over, that would be great.
Sure. What I was getting at was we had that operational center that you've kept intact throughout the last 10 years. And you're always imagining being able to lever that platform as you kept developing it and keeping it. Is that a part of the consolidation of Memphis and part of why you're being able to get the operational
I think the question broke up a little bit against technology and the ability to realize cost savings. We haven't made any systems decision and we've got a lot of work to do that. We've got an integration team that is coming together. Anthony will be heavily involved in that and we will pick the best systems and we will use that to create hopefully an organization that's better than any of us could individually be. But we think there are opportunities to take 2 very strong back office functions and capitalize on the best to create a much better organization.
Anthony, do you want to add?
And then two more questions, kind of broader. If you think about you're making a leap up, doubling the size of kind of both institutions. In our kind of process of looking at it, you're kind of going the leg from being a regional bank to being really a super regional bank. And that risk element, as you expand the assets that much, can really degenerate some kind of side as you're consolidating these platforms. So just talk about managing the risk and how you look at the kind of scope and scale as you get to be twice as big as you are right now?
Yes. One of the things that I'm very excited about is our ability to manage risk and to really deal with requirements of being a $75,000,000,000 organization. Both Iberia Bank and First Horizon had invested significantly in risk infrastructure and the ability to put risk controls on the organization. I firmly believe that for an organization to grow and to grow quickly, you need to have the ability to have good risk management and monitoring and be able to slow the organization down when it's not in the right place. I'm excited about the 2 risk leaders we have in the organization.
They're both proven. Terry Akins, who has been the Chief Risk Officer for Iberia Bank and Susan Springfield, who has been the Chief Credit Officer for First Horizon. They have spent a good bit of time together and I think the partnership of those two leaders is going be really, really good. And I think with the technologies and the capabilities we both built individually when you combine them, I think we're very well positioned for being a much larger bank. Hey, Mark, it's Daryl.
I think both as I said earlier, both companies have a strong reputation from a credit or risk perspective. And frankly, I think we're a good bit ahead of the curve kind of coming into this transaction.
And both, Marty, both companies have a great deal of transparency and prescribed governance around risk management in terms of reporting, bringing the key leaders together across risk, credit, and line to talk about things about portfolio limits, exception, processes that we feel that's going to be even stronger bringing the 2 together.
And then my last question, and I think you all like this, Brian and Daryl. Both of you all, relatively young men, still have a lot of your careers ahead of you. How do you because when you bring these 2 companies together and look at the cultures and how that kind of works in as one now, you all will be the kind of leading effects of that. So how do you work as Chairman and CEO? Is that going to be a traditional relationship?
Or is it going to be morphed into something else because of your partnership and relationship? Thanks.
Again, as Brian said, both time, Brian and I have known each other for a good while. I think our boards have done a good job of helping us think through the kind of teamwork we've got to have to make this work. I think we've got a lot of hard work in front of us, but we've got plenty to do. Yes. It starts, as I said, with a lot of knowledge of each other in the organization.
Daryl and I have a friendship and that always builds a good starting foundation. We have trust in one another and we think that with our respective teams in place that we can bring the cultures of these organizations together. And when I say bring them together, what I really mean is that we both have similar cultures, but there are always differences. And we're very focused on how we minimize those differences and not create the First Horizon culture or the Iberia Bank culture, but how we blend it for the new culture of the combined organization. And so that's another area of taking the best of both companies.
And we are committed Daryl and I to making sure that we work arm in arm to get that done.
Thanks and good luck.
Thanks,
Marty. Our next question comes from Matt Olney with Stephens.
Great. Most of my questions have been addressed, but I wanted
to ask about the loan to deposit ratio expected to be around 96% on a combined basis, which for banks below $50,000,000,000 of assets is pretty average. But for banks above $50,000,000,000 of assets, that's going to be at the higher end. So can you talk about how comfortable you would be operating with the loan to deposit ratio at that level longer term?
Yes, it's D. J. So we feel very comfortable through due diligence. Anthony and I and our teams look very closely at our combined balance sheet, our interest rate sensitivity, our liquidity resources, etcetera, and we feel very good about the combined organization. The deposit mix will be roughly 55% to 60% commercial with the balance being consumer.
We have very long standing relationships on both sides on the commercial deposit side. On the consumer side, we both possess very strong deposit basis, which we think we can grow. We talked about what we will be in terms of top five target share in some of the largest major MSAs itself, which gives us a lot of stability of our deposits yet the opportunity to grow significantly in those markets that have a wealth of deposits that we can go capture. So we feel good about the combined balance sheet, our ability to grow the loan side, funded with solid core deposits, we'll make sure that that continues.
Okay. That's all for me. Thank you.
Thanks, Matt. Thanks, Matt.
Our next question comes from Christopher Marinac with Janney Montgomery Scott.
Thanks. Good morning, guys. Just want to follow back up on the Tier 1 common that was outlined a little over 9%. Should that grow from there before you pull it back down? Or what's the long term thought about kind of where that can go?
Hey, Chris, it's BJ. Yes, I think I mentioned it earlier. I think what we're going to assume is that obviously until we get to close, we'll be suspending buybacks. And so that will incrementally build capital on each side going into the close. And then it's our expectation that we will manage the balance sheet in the midpoint of the range that we have discussed previously at First Horizon reaching 9% to 9.5% CET1.
I think it's also important to note that putting this deal together, we will have a very full CECL reserve bucket, where we are fully reserved on both sides and as a combined organization from a reserve perspective. And so that gives even more strength to operating our combined company in that range. So that's what we're expecting right now, and that's what we expect to execute.
Sounds great, P. J. Thank you for both the CECL and the clarification on this. Appreciate
it. Got it. Thanks, Chris.
As we have no further questions, this concludes our question and answer session. I would like to turn the conference back over to Brian Jordan and Daryl Byrd for any closing remarks.
Before I turn it over to Daryl, I'd just thank you everybody for participating in the call this morning. We're excited about what we're doing here with the combination of these 2 great franchises. Thank you to the people in both organizations who take care of our customers day in and day out and for the great work they have done to build these communities as we put these 2 organizations together. I think this is a great partnership and I look forward to working with Daryl as we put these 2 organizations together. Again, Brian, we're very, very excited about this organization that we're going to have to build in the future.
Again, we want to thank our associates for their dedication and hard work over the years. And I want to thank all of you all for your confidence in our organization. I hope everybody has a great week.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.