Ladies and gentlemen, please welcome Chairman, President, and CEO of First Horizon National Corporation, Brian Jordan.
Good morning, everyone. Thank you for joining us here in Nashville. I hope everybody had a good time last night. It's important that you're here for a couple of reasons. One, we wanted you to see Nashville and we wanted you to see really the dynamic thing that is going on here in the middle of Tennessee.
It is by far the fastest growing city in the economy in our home state here in Tennessee. And we wanted you to see the vibrancy here, but we also want to show you the foundation that we'll talk about throughout today. What we've done here over the last 4 or 5 years under Carol Jochim's leadership, you'll hear more about, but we believe very strongly that we can do that in 2019, 'twenty, '21 and beyond in markets like Raleigh, Charlotte, South Florida. So you'll hear more about that. With us today, we have a number of our leadership team.
You'll hear from them throughout the course of the day. This is a brief agenda. I think you might have a copy on each of your tables. David, who joined the bank in 2,008, will start off with banking. You'll hear from Carol Yoakum and Jeff Jackson.
Carol joined the organization 4 or 5 years ago. Carol leads our market here in Middle Tennessee and she'll give you a good background of what we're doing here. Jeff Jackson has been with us most recently in Chattanooga and then he moved to South Florida in the last several months and is now leading our effort there in South Florida, doing a great job in the early days of recruiting and attracting talent to the platform and you'll hear more about that. And then joining David, Susan and Jeff will be Susan Springfield, our Chief Credit Officer for Q and A in a little bit. After a break, you'll hear from Tammy LoCascio and Chris Van Steenberg in Q and A.
Tammy has been with the organization about 5 years. She runs our retail wealth management consumer businesses. Chris runs our deposit products and has been with the organization about 3 to 4 years. Todd Jones is the newest leader in our commercial business. Todd was named to this position about 3 months ago.
Todd joined us through our restaurant franchise finance acquisition from GE about 2 years ago in the process of moving from just miserable climate in the Southwest in Phoenix to something a little more moderate like Memphis, Tennessee, where we actually have 2 seasons, winter and summer. And then you'll hear in a Q and A session. Joining them will be Steve Hawkins. Steve has been with the organization 30 plus years and very senior leader in the organization, most recently running our commercial businesses. Steve plans to retire in 2019.
So in addition to helping with the transition, he is the founder and builder of most of our specialty business in partnership with a number of the folks that are around the room today. You'll hear from our newest member after lunch, Dawn Morris. Dawn is in her 3rd month with the organization. She is our Digital Banking and Chief Marketing Officer. She is bringing up a lot of energy and new ideas to the organization and she will give you a good overview of what she plans to do and where she plans to take the organization in that regard.
And then I'll let you know BJ has been with the organization coming up on 10 years now, sort of he joined us right as we rolled out the Bonefish. In fact, BJ gets the credit for offering that and rolling that out across the organization. We'll talk more about that. To prove to you that I'm not going to read all the slides, I'm going to start with this one. This is our forward looking statement.
It is in small print, but it is important. We will talk about the future. We'll say words like believe and think and just put qualification around all of it. We don't know what we don't know, but we're going to give you our best view of the future of the organization. The theme for today, as most of you've had a chance to flip through the slides, are proven, focused and better.
This is a team of leaders that I'm very, very proud to work with. And as you hear from them, you'll understand the capabilities that they bring to the organization and what they really can do to transform our business as we move into 2019, 20 20, 2021, but we have a very strong foundation. We have transitioned the business over the last 8 to 10 years. We transformed it in very meaningful ways, lower risk balance sheet, more profitable balance sheet and you'll see that as we go through today. This is also a leadership team that is very focused.
It has a focused strategy to create value based on economic profitability, looking at the capital we put to work and the that we have better opportunities. We think we can continue to be a better organization. We have better strategies and better markets. And you'll see throughout the day information about the demographics and the opportunities that we have, not only here in our home state of Tennessee, but the additions of the markets in the Carolinas and South Florida through the acquisition merger with Capital Bank. So the second reason we wanted you here today is to deliver to you our strongly felt belief that we are going to create superior value and outperform the industry over the next several years, given the foundation that we have and the opportunities that we have as an organization.
Most of you know, I joined the organization in 2,007, immediately before the financial crisis. Most of you probably know and believe that I didn't cause the financial crisis. I was named CEO in September of 2,008, 7 days before Fannie and Freddie failed. So September 2008, I think was roughly 25 years ago. Over that period of time, we have done a tremendous amount of repositioning of our organization.
Everybody knows we exited the mortgage business. We worked out of our non strategic portfolios and mortgage issues, particularly repurchase risk. The non strategic portfolio in January of 2,009 was roughly $7,000,000,000 The balances today are under $1,000,000,000 It's been a 7 $1,000,000,000 headwind for about 10 years now. We focus the business on profitability. We rolled out our Bonefish targets.
We retrain the organization. We went from a focus on growth to profitable growth, a very significant transition. You hear more about how we've built the business, the specialty businesses, you'll hear more about our footprint, but we are positioned with a very strong foundation for growth and profitability. In 2,009, when BJ joined the organization, we created the Bone essentially a road map for you to understand where we were taking the organization. It was dimensioned in financial dynamics and BJ will talk about those later today.
We created transparency. We tried to give you a tremendous amount of information on our balance sheet, our risks and how we thought the business would perform over the foreseeable years. The one thing we didn't anticipate is that the recovery would be so slow and take so long and that we'd still be dealing with the mortgage business 5, 6 years on. But this is a team that is focused on making commitments and delivering on those commitments, taking profitability tools and driving profitability and shareholder value creation. The past year, the hard work on getting the Capital Bank integration merger completed was not on announcement day.
It really started in the summer of 2017 and it went through sometime in the early part of Q3 of this year. We spent a lot of time leading up to the Capital Bank merger thinking about the strategy and how important the markets were, the culture of the organization. You heard in the video, the 1st power culture and our strong belief that culture matters, the way that we interact with each other, the way we interact with our customers, all matters, all that was important to get right. Nothing else mattered in the last year. And I can say that integration is done.
I feel very, very good about the outcome, the work that was done, that it was done well. We spent over 30,000 hours training people, over 200,000 outbound calls to our customers, all in an effort to make sure that we were prepared on Memorial Day weekend to deliver as seamless an integration as we possibly could. It had some impact. When you do that much effort, it requires an inward focus. So it had impact on growth and growth dynamics.
We got the integration done, as I said, early in Q3 and we saw that organization turned back outward, focused on customers and customer growth and started to see tremendous building of the momentum, both customer acquisition on the commercial and the retail side. You'll hear more about that. So we got the integration done. One of the key elements of any merger is delivering on the cost saves. When we announced it in May of 2017, we said we'd save roughly $65,000,000 Today, we have $85,000,000 largely built into our run rate.
You'll see a chart from BJ later that shows you where we are. We think we have done that in a thoughtful, meaningful way that will not adversely impact customers and we'll continue to look for opportunities to build on the cost savings that we've achieved. When we announced the transaction, we didn't say anything about revenue synergies other than we expect there to be some. A year ago, I said, I think we think that we can deliver $25,000,000 to $30,000,000 of incremental revenue synergies. Today, we have $31,000,000 already booked or in the process of being booked, And we truly believe, and you hear throughout the day, that we have just begun to scratch the surface in terms of creating revenue leverage with our expanded footprint, our expanded customer base and our bigger, more flexible balance sheet for customers.
We strengthened the balance sheet. We took some low yield and some high yield assets, high yield, high risk assets off the balance sheet over the last several quarters. Admittedly, we could have been smarter about the impact that, that had on headline loan growth numbers because as you'll see in a chart BJ shows you later, it did depress our loan growth trends. But we think about our balance sheet, not so much quarter to quarter, we think about it for the long term. And firmly believe that those actions, those steps were the right ones to take to position the business for the long term.
I've mentioned a couple of times Bonefish. We said 15 plus percent returns in 2 1,008. We hit that with north of 17% returns through the Q3 of this year. And you'll hear from BJ later that our outlook for the future is that we will continue to produce very strong returns on capital, a 120 ROA. In spite of the headwinds from the non strategic portfolio, 6% compounded loan growth, 9% compounded deposit growth.
We shifted the mix of our balance sheet to a more profitable commercially oriented business, particularly with a focus on our specialty businesses. Our deposit base is expanded. Tennessee is a great deposit market. We have number 1 share here. We have opened up with the Capital Bank Merger and Integration, the North Carolina, South Carolina, South Florida markets.
And as you will see later, they are huge. And we have the ability to be a disruptive competitor in those markets and the ability, in our view, to generate a tremendous amount of deposit growth over the next several years. We've deployed capital. Over the last several years, we've bought back about 10% of the company. We've completed 7 mergers including the Capital Bank merger, Trust Atlantic, Mountain National, I mentioned restaurant franchise finance, all of which are adding to our profitability and our growth dynamics.
In the ratios by about 50 basis points and improving our tangible book value per share by 0 point 6 4 dollars dollars The capital ratios are important, and I'll come back to that. In the video you heard, we have created shareholder value. We picked 5 years, you can pick any periods you want, but over the last 5 years, 5 years because our last Investor Day was November 20, 2013. We have outperformed our regional bank index. You can see the strong EPS growth and quarterly dividends growth.
We play to our strengths. Our business, the financial services industry is going through a tremendous amount of change and we don't think that we're immune to that nor do we think that we'll be doing business the same way in 3 years, 5 years, 10 years that we're doing business today. I firmly believe that on the whole, that it is going to be extraordinarily difficult for the average or the median financial institution to create shareholder value in meaningful ways over the next 5, 10, 15 years. And why do I say that? Because business models are being changed daily, changed daily by technology.
The largest financial institutions in the U. S. Are spending 1,000,000,000 on an annual anything. But we also have confidence that while you don't win with technology, you can darn sure lose with it and that we can be fast followers, that we can make the needed investments in technology and infrastructure to be competitive. Table stakes, so infrastructure to be competitive, table stakes, so to speak.
And our focus is on figuring out the right technologies to invest in and to invest in those technologies in ways that provide differentiation to our customer base. Specialization is our advantage. I've talked about the specialty businesses and those are unique. They're very scalable, they're regional and in some cases, national. Todd, Tammy later.
We push decision making close to the customer. We know our customers, we know our markets and we really do try to compete in a differentiated way. We are keenly aware that all good decisions are not made in Memphis or any other city in this U. S. Knowing your customers and serving them with specialization
and
customization is extraordinarily important to being successful in growing in the banking business. And finally, success is a matter of the business differentiate. We intend to be a fast follower on the necessary technology to be at table stakes. While scale matters, scale is not a game that I believe that you can win. I feel very, very good that our balance sheet puts us in the sweet spot.
It puts us in a position where we're big enough to provide big bank products and services to take meaningful hold positions and transactions to use our capital to facilitate customer activity And we're small enough to be flexible and nimble in our decision making, our customization and knowing our customers in meaningful ways. I started with an analogy last night. I was talking to Ken Zerbe. And I said, in some ways, it's not a perfect analogy. And as a coffee drinker, I'll disclose my bias.
As coffee drinker, I see coffee as a commodity. But you look at what people do to get coffee at Starbucks. I drove to the office yesterday morning, the entire right lane of Union Avenue, Marty knows it, was blocked, people trying to turn in Starbucks. And they had just missed 3
or 4 or 5 convenience store gas stations, they missed
a Dunkin' Donuts, they convenience store gas stations, they missed a Dunkin' Donuts, they missed a lot of places to get coffee. And banking is similar to that. Ken came up with a better analogy for me. He said, you know, that's interesting. He said, a lot of us here tonight, a lot of you here today write research and all research is not a commodity, right?
Everybody brings an edge to it. Everybody brings a different perspective. And that's what we're doing in the banking business. It's a commodity based product set. Our loan documents are no easier to read.
Our money is no greener, we can deliver it in a differentiated thoughtful way using analytics about where value is created and where it destroyed and we can deliver meaningful shareholder value and we can do it in a differentiated way that performs the broader industry. There's 2 buttons here and I can't seem to get the right one, too many choices. We have a lower risk business model. We have a highly commercially focused business. Over the last 5 years, we have made meaningful improvement in the quality of that portfolio.
Using our tools around profitability, but also disaggregating our risk and thinking about diversification and how the balance sheet will perform through many cycles. You can see here a slide just the credit grade equivalents, tremendous improvement in credit quality.
In
2 things about capital. 1, you need to have a safe and sound balance sheet and adequate capital and you don't need excess capital. You need to get excess capital back in the hands of shareholders if you can invest it in the business profitably. And to do both of those things, you have to run stress testing. So we intend to continue to run the DFAST as a management tool and we intend to lay it out to you.
We put it in our Q3 analyst packet, which was rolled out in the gosh, August timeframe. And you can see here cumulative loss rates. BJ will come back to that. But capital efficiency and capital adequacy go hand in glove. And so we intend to keep you informed about that.
But we feel very, very good about our capital base and our ability to stand the ups and downs in the business cycle. I mentioned better opportunities, great markets with strong market shares, quickly growing specialized businesses, dollars 730,000,000,000 of opportunity in the new markets where we have smaller shares and the ability to be an aggressive competitor. And finally, very strong household growth rates, household income growth rates. And when you look at a business and an economy that's going to grow, pick your number 2%, 3% in the aggregate, Being in better markets with better opportunity matters. And we're well positioned in Tennessee, North Carolina, South Carolina and South Florida to deliver better results.
So our strategic priorities over the next several years. We're the leading financial institution in terms of deposit share in Tennessee, and we intend to continue to win here. We intend to continue to intend to grow our specialty businesses and capitalize on the new markets that have. We truly do mean to transform the customer experience. We know to be successful, we have to change our business, break the traditional paradigms about banking and how we put technology to use, how we go to market, all of those things are in play.
We'll give you a lot of estimates or guesses about where we think we need to be 2, 3 years down the road. But we also know that we're not playing solitaire. We recognize that we've got to adapt and we've got to adjust. And then finally, optimize our expense base. BJ will have a slide later that shows you how we have managed expenses over the last 10 years.
BJ also coined a term about 10 years ago, control what we can control. And we truly believe that we can control our expenses. We have controlled our expenses and we expect to continue to do that. We know we're going to make investments in technology. We also believe we have to cover that with our existing of how we get there.
So in summary, the 5 key themes for investment thesis. Over the last 5 years, we've delivered results. We have a strong profile. We have great and many growth opportunities. We are focused on capital and capital deployment, and we have a lower risk balance sheet that will perform through many cycles.
So as you leave here today, the 3 key takeaways, We're going to deliver value by using a proven team with a focused strategy and better opportunities for delivering shareholder return. Now if you would, please welcome to the platform, David Popwell, President of Banking. David?
All right. Thank you, Brian. And thank you to all of you for being here today. A little bit about myself. As Brian said, I'm the President of Banking at First Tennessee.
I joined First Tennessee in May of 2000 and bank. And then 6 years ago in 2012, I was named President of Banking for First Tennessee. Around 5 years ago, at the time of our last Investor Day, the regional bank set a goal of doubling economic profit over the next 5 years. And we did it. We hit the number and in fact we exceeded it.
What did we do? Three things. Number 1, we focused on enhancing the most profitable segments of our business by growing core deposits and increasing our emphasis on higher return specialty lending. 2, we executed with the best interest of our customers in mind and then finally, we hired, retained and developed great bankers who know how to take care of customers. You're going to hear today about how we invest in people.
If you hire great people, they will pay for themselves every time. Again, our priority in the regional bank is to enhance the most profitable segments of our business. As you can see on Slide 4, even with leading market share in Tennessee, we were able to grow deposits faster than peers. And our ability to analyze economic profit led us to optimize the loan portfolio towards higher return specialty lending areas. Today, we set out on a new plan.
We're setting the goal of doubling economic profit in a regional bank over the next 5 years. I have three purposes in my comments today. Number 1, I want to lay out the component parts of our coming 5 year plan to double economic profit. Others will follow me and give more detail. 2, I want to impress upon you the enthusiasm that I have for the opportunity we have with Capital Bank.
We knew when we signed the merger agreement in May of 2017 that this was going to be a good thing for our company. But knowing what we know now, the future is even brighter than we thought. Finally, this is a story about people and transformation. We're continuously raising the bar on how we execute, we recruit, we retain and we develop people who know how to take care of customers. We have what it takes to execute this plan.
How do I know? Let's start with some facts. 1st, we have the leadership in place today. Well, first of all, we're building from a position of strength. We have the leadership in place today to execute this plan.
Many of these leaders have been in place for more than 5 years. We're continuing to add experienced bankers and leaders with substantial connections in their communities. The Capital Bank merger gives us improved economies of scale to make further investments, gives us access to attractive growth markets and provides an opportunity for many complementary revenue synergies such as treasury management, wealth management, referrals to our specialty lines of business and mortgage originations. We are already seeing these synergies hit the books. Not only that, our merger integration is behind us, the economy is strong and the regulatory environment is our favor.
We have done it before and we will do it again. Not only do we operate from a position of strength, we have a performance culture. What do I mean by that? We prioritize, talk about, measure and track and incentivize what matters, growing the balance sheet profitably. Our financial performance is prioritized by focusing on the financial metrics that drive return on equity.
Essentially, we measure economic profit, which is net income minus the cost of capital. Focusing on revenue growth, expense control, our net interest margin or pricing and credit quality drives economic profit and return on equity. Our bankers understand customer profitability and we can take it down to the market, to the line of business, to the individual relationship manager and the individual customer. We make good decisions for our shareholders. Pay for profitable revenue growth consistent with these financial drivers.
Our incentive plans are aligned with shareholder returns. It's a fact. Our business model is different from our large bank competitors. If you're a business owner, you want to deal with a decision maker, not an order taker. As you can see on Slide 12, we have decision making leaders and credit officers on the ground in our key markets.
This pushes decision making closer to our customers. Our local bankers have the ability to influence outcomes and serve as advocates for their customers. Our structure provides for team based selling, team based servicing and team based credit collaboration. We have credit officers working in the same offices as line bankers, again allowing the right decisions to be made closer to our customers. We have a real advantage over our big bank competitors because we can facilitate quick, efficient decisions.
With our larger balance sheet capacity and expanded product offerings, we are well positioned in our markets. I've seen this model work from personal experience. Back when I was the president of the local bank in Memphis, there was a great local business that had been in existence for about 3 generations. They were in the cement or the ready mix business. They were banked by a competitor who was acquired by an out of state holding company.
Eventually, credit decisions started being made from out of town that affected this business. The balance sheet didn't tell the story. There were tax basis financial statements and they had lots of fully depreciated dump trucks and ready mix cement trucks and they also had a lot of land that had been purchased over 30 years ago by their fathers and grandfather. And it didn't really reflect the value because this land was loaded with sand and gravel. Eventually, we got the call.
We took our senior credit officer out to the business. We walked through their financial statements, understood the value of their equipment and we understand and we could see from their income statement the value they were creating with the sand and gravel coming out of this low basis land. Within 48 hours, we were able to deliver to them a term sheet for a credit facility that would enable them to operate their business the way that they needed to. Eventually, the principals of this business moved their personal business over to our private banking group. 11 years later, they sold this business for north of $50,000,000 and First Tennessee Bank won the opportunity to participate in managing their wealth.
It was a great win. In a few minutes, you're going to hear from Carol Yoakum, the President of our Middle Tennessee Bank and she'll talk to you about how she has used this business model in Middle Tennessee with her team to transform our bank. After Carol, Jeff Jackson, to effectively compete as well. Our specialty businesses are a growth engine. They make us different.
These specialty businesses, 8 in total, such as mortgage warehouse lending, franchise finance and within asset based lending, our trucking and transportation business and consumer finance lending business are industries that are ripe for banker specialization. They present a nationwide footprint and our company has a less than 5% market share. So we have room to grow, especially in the Capital Bank footprint. Our specialty businesses are led by tenured, experienced leaders and teams. In these businesses, our bankers have the reputation of understanding a business and staying with customers during both good and tough economic cycles.
Other banks come and go out of these businesses, but we've developed this with trucking companies and the ABL Group, maybe a consumer finance company and particularly in the mortgage warehouse lending space, we hear time and time again how in 2,008, 2,009, 2010, a lot of banks abandoned these customers and they got out and they thank us and they say that if it wasn't for First Tennessee Bank, they may not be here today. So historically, these businesses have not generated deposit opportunities, which is precisely why we believe this is a special growth opportunity. We believe that the mortgage warehouse lending business and corporate regional businesses present the opportunity to grow substantial deposits over the next 5 years. So growing deposits is the linchpin of our strategic plan. The merger integration is behind us and we can focus on sales activities.
The demographics of the Capital Bank markets give us the opportunity to grow both new customers and expand relationships with existing customers. Folks, there's a lot of opportunity in the Carolinas and Florida and we intend to capture it. So what's different about strategy to grow deposits? First, we understand that deposits are foundational for economic profit. The evolving customer experience will augment our deposit growth.
We can use multiple levers such as product positioning, employee incentives, pricing and marketing to expand our deposit base. Our bankers are known for providing superior service to our customers and we can leverage these strengths to build deposits. We're enhancing our ability to use data and analytics to more intelligently prospect with existing customers and prospective customers and within various segments of our business lines. You'll hear more about this in a minute from Tammy Lecoccio, Head of all of our consumer businesses and Don Morris, our new Chief Marketing Officer. We know growing deposits is critical to our success.
It's the lifeblood of the banking business and it drives profitability. Our credit quality is outstanding. We have a diversified loan portfolio that's weighted towards commercial banking. It's underweight commercial real estate and land because of our underwriting practices and management of portfolio loss rates because of our underwriting practices and management of portfolio limits and concentrations. Our relationship manager, portfolio manager operating model allows for continuous loan servicing and ongoing credit monitoring.
Having local credit our excellent asset quality, we are focusing on growth opportunities and not problems. We are a company that knows how to grow. We have done it before and we can do it again. We are operating from a position of strength with a focus on strong economics, economic profit and risk management. We're more excited about the Capital Bank merger now than when we announced it.
We make decisions close to our customers. We are decision makers, not order takers. We have high return specialty banking areas. We have strong growth opportunities with a blueprint for going on offense. And finally, it's about people.
And we have great bankers who know how to take care of our Middle Tennessee market and Jeff Jackson, President of our South Florida market and they're going to come up and tell you about how they'll use our business model to succeed in their
Thank you, David. Nashville is the one major market in Tennessee we have never historically owned. Today, we are a major player here. My home territory. By now, you know, I lead this market for First Tennessee.
I came on board about 5 years ago to lead and deliver this exceptional growth here in the marketplace with very well equipped team. You've heard we have a formula for growth for our new markets. And I'm going to show you how it's made us successful here. Then Florida President, Jeff Jackson is going provide some insight into how he's applying the formula for growth, customized of course for his customer base in his markets. Our Mid Atlantic market is another fast growing market and it's led by Rick Manley.
He's a stellar banker with a lot of experience in the Mid Atlantic footprint. He is not with us today. I understand he's gathering up some deposits in the Mid Atlantic territory. He's the one that's actually working today. So let me share with you the headlines for Middle Tennessee.
Over the last 5 years, we've doubled our loans. We've essentially doubled our deposits. We've doubled our revenue. And when you do all of that, it starts falling to the bottom line. Our pre tax profit is up nearly 3 times.
And as a result, our economic profit, which you're
going to hear a lot about today, has increased nearly
Now while we've essentially doubled our deposits, we have outpaced the market growth 2.3x in the last 3 years. And that's in one of the fastest growing markets in the country. It's a proof point that our strategy is working. The bulk of this deposit growth is organic growth. Now like the growth that we've had in deposits, I'm especially proud of the organic growth that we've had in loans over the past 5 years.
And that further demonstrates the power of our 3 pronged approach. How did we do it and how do we replicate it? Well, the key to our success is our commitment to getting the best people. We've hired rainmakers. We were very intentional about the leaders that we brought on board.
They were well connected with the customers and in the community and they have the ability to deliver against the aggressive goals that we set for ourselves. Then those leaders were intentional about building their teams in the very same way. So our investment in talent has paid off. And it's why we've been able to grow our loans by $2,200,000,000 and our deposits by $2,000,000,000 in the last 5 years. The next thing that we did was focused on elevating our brand by creating raving fans of our employees, our customers and our community.
The first bright spot of course was with our people. When you have the top bankers in town, people want to bank with you. So the investment in talent elevated our brand. Our bankers are everywhere in this community and they're fully engaged with customers and with community organizations. With strategic sponsorships, we've received outstanding brand recognition in Nashville.
We are consistently recognized as a top workplace and the top regional bank in the Toast of Music City Awards. We've also invested in marketing where we could get the biggest bang for our buck. The best example of this is that we purchased the naming rights to First Tennessee Park. It's our AAA Minor League Baseball Stadium on the north side of downtown that's home to the Nashville Sounds, a affiliate of now an affiliate of our Texas Rangers. Those investments are paying off.
All of this combined has resulted in a 25% increase in unaided brand awareness in a 2 year period when it typically takes 20 years to achieve that. The third aspect of our strategy has focused on the rich opportunities that are right here in Nashville. The 4 industries with the greatest economic impact here in this market are the healthcare industry, the music industry, the manufacturing industry and then the hospitality tourism industry. And the 4 these combined have an economic impact of around $70,000,000,000 We set out to bank them all. So let me give you an example of how we've tapped into 2 of these industries in a very differentiated way.
2 years ago, we created a sub strategy and recruited 2 unique industry teams, a music industry team and a sponsored backed healthcare team. And I'm proud to say that 2 years later, they have delivered a combined 350 $1,000,000 in outstanding loans, dollars 100,000,000 in deposits and $13,000,000 in revenue. These are just additional proof points of strategies that differentiate us in the market and have helped us move the needle. As you can tell, I am super excited and proud of what we've been able to accomplish here. The success formula, which includes talent, elevating our brand and focusing on the unique opportunities right here in our own backyard can be replicated successfully across our entire footprint.
You can see that we have transformed our banking franchise here in Nashville. We have tremendous momentum. I say we are just getting started. Now, I would like to welcome Jeff Jackson, who will talk to you about how he is going to use this success formula in his market. Jeff?
Good morning. I joined the company in 2,009. As David mentioned, I was recently the Market President of Chattanooga, Tennessee and in the last 30 days I moved to Florida to take over that new market. I'm really excited about the future of our company. We really have a blueprint for success and the details really matter, especially when you're going to grow your business.
It's really important if you're going to double your business like both Carol and I have done since we've been with First Horizon. Even though our markets are different, we both use the same blueprint for success. We really focused on 3 things investing in talent, elevating the brand, and a targeted industry focus. Before I was named Regional President for Florida, I was the market President for Chattanooga as I mentioned, and we doubled our commercial loans, grew our deposits to a 25% market share and quadrupled our economic profit to almost $20,000,000 this year. So I've seen what it takes to get it done in a market.
When I look at the blueprint, it all starts with investing in talent. We're going to do some things differently. 1st, we're going to hire some commercial middle market bankers to focus on bringing in full relationships, but also using a Bonefish framework to make sure each hire makes sense and pays for itself.
The second thing we're going to
look at doing is bringing in talent from a private client and wealth perspective. Today, these markets do not have that talent. And because of the markets being so rich in deposits, we feel like there's a great opportunity to optimize those opportunities and bring in strong deposits in the growth markets. And then finally, we're going to add to our treasury management team. Based on the acquisition, we've got a lot of new treasury products that we can implement in our customer base and new prospects.
And so I believe there's a lot of low hanging fruit within the portfolio in the Carolinas and Florida that we can take advantage of with these new treasury fees. The second part of our blueprint is elevating the brand. Once again, we're going to do things differently. We're going to put together a strong marketing and advertising plan that will use all forms of media. We're also going to use our foundation dollars and advertising dollars to go towards sponsoring events where we not only get brand awareness, but we get our employees face to face opportunities to network with prospects and customers.
We are going to use every dollar to make sure it's either toward customer acquisition, retention or expansion. Last year alone, I went to 176 events myself and that's the type of leadership we're going to have in these new markets. The third thing when it comes to elevating the brand is making sure our employees are ingrained in the communities they serve. That means they are well known in the communities. That means they are very active on boards and other things to make sure they elevate our brand as well.
I think by executing on these three things, our brands will get elevated in these new markets in the Carolinas and Florida and we will really have a successful brand going forward. Finally, the 3rd piece of the blueprint is using a targeted industry focus when it comes to new business. In the previous First Tennessee footprint markets, we were very successful in the medical industry. We're going to take that approach and take our owner occupied medical program, combine it with our consumer MD mortgage program and drive a lot of business in these new markets. Secondly, we're going to leverage our specialty groups, ABL, Franchise Finance and Pro CRE.
By using these groups, we can optimize our opportunities and grow the business in these markets where they are very rich with opportunities for our specialty groups. And then this all comes together because we are going to optimize our local decision making on the credit side and as well as the pricing side. When we use local decision making, it increases our speed to market. Based on the blueprint I just talked about and how we're going to operate differently in these markets, it's really exciting because we are feeling really good about a couple of markets there, especially Raleigh and Charleston. They look like markets that we have dominated in the past in Tennessee.
And with the population growing in North Carolina and South Carolina, two times the national average, we know this is a very deposit rich deposit specialists to really mine these markets for the opportunities they present. And then finally, we have a good commercial customer base, but we can also look at expanding that through treasury services, higher hold limits selectively and other fee based services. We really feel like we can really increase the fee base, the fee generation in this market. And then finally, since we are a capital bank, we're going to really focus on the marketing effort to build up the brand. As we turn to Florida, I'm really excited about taking the lead for this team.
We have a lot of great opportunities. We're really excited about Fort Lauderdale, Miami and Southwest Florida, Naples, Fort Myers. These markets have more deposits than the entire state of Tennessee and we are going to hire people to capitalize on these opportunities. To ensure our growth in these markets over the next several years. We will also be working on elevating the Capital Bank brand with a strong marketing and advertising mission, which is already in place.
We have proven that we can double our business in Nashville and other legacy markets. Going forward, we're going to be focused on executing on Carol's plan that she used for Nashville in these new markets. We have experienced leaders who are going to get it done and there will be no doubt we are going to be successful in these growth markets. Now I'd like to ask David Carroll and Susan Springfield, our Chief Credit Officer to the stage for Q and A session.
We have microphones placed here in the room. If you have a question, if you could go to the microphone or maybe someone will pass it to you, that be great. I would like to do a special introduction though for Susan Springfield, who is our Chief Credit Officer and has been a great partner to the bankers who are here today and leaders. She and her team have been a huge part of the success of our organization in the past, and they will continue to be a huge part of our success as we go forward into these new markets. And so, the floor is open for anyone who has a question.
Question for you, just in terms of the doubling of the economic profit goal that you have, can you help us put that into context? Like what dollar amounts, what I mean how big or what exactly are we talking about? Sort of the overall organization?
Yes, it's doubling economic profit for the regional bank and Vijay, I'm going to lean on you a little bit, but going from roughly $130,000,000 in economic profit to $260,000,000 in economic profit, hard to correlate back to EPS, because you've taken out the credit charge and the cost of capital.
Yes. I think Ken, what I would add to that is, what you have in terms of economic profit, as David laid out, is what we look at is net income, less a charge for economic capital, right, because you all are requiring us to have a certain level of return on the equity that you provide us to grow our business. So we require our businesses to do the same thing, right? So it's more than just growing net income, it's growing it profitably. So the way that we do that is by continually improving the credit quality on our portfolio, while improving the pricing on the balance sheet mix that we're driving, number 1.
Number 2, fee income generation is huge. Fee income does not take up any economic capital. It falls right to the bottom line. So making sure that we're building business like treasury services
Yes. 3rd piece of it
is expense management, right? 3rd piece of it is expense management, right? We will invest to grow, as you heard from Carol and Jeff, but look at what Carol also put up there that we doubled the business, we doubled the balance sheet, we hired people, we put in marketing, but we also more than doubled the pretax income. So it all works together, but with a foundation of using our economic capital as wisely as possible.
So presumably taking sort of $130,000,000 to $260,000,000 just as a bottom line number, that's not the right is that the right or is that not the right way of thinking about it?
Yes, it is. Over the next 5 years, right. So what David, I think actually showed was about 70 $70,000,000 to $150,000,000 from 2013 to 2017, 2014 to 2017 and what we're targeting in the regional
Just while we're on that point around economic profit, so we talked about pretax income in Middle Tennessee being up 3x, but economic profit being up nearly fold over the last 4 years. So what drives that elevation of economic profit versus pretax income? It just seems a little larger than I would expect.
Well, it's the weighting of the deposit growth. If have a loan book and a deposit book and you grow them equally, the deposits don't attract near as much capital. And therefore, it creates an incentive for our leaders and our relationship managers to go out and grow deposits. And so that's how you get the leverage in the economic profit growth is by growing your deposits.
There's also though been the improvement in the loan portfolio as Brian and David both pointed out in terms of investment grade equivalent, we saw that go from 20% to 38%. And so that also drives positive economic profit growth.
Because of the lower capital charge.
Got you. Maybe separately a question for Jeff. I understand
the plan is to follow the
blueprint in Middle Tennessee, in the South Florida market. However, they are very different markets, right? So the Nashville area had a fair amount of tailwinds over the last several years, which helped drive that growth. And so how do you think about applying that model or strategy into this newer market? I know you haven't been in South Florida for all that long at this point, but can you talk about some of the differences in the end market and how that can maybe dictate evolution of that strategic blueprint for growth?
Thanks.
Sure. Obviously, the markets are different. Even the 4 markets that I have today are extremely different. I think part of it is really hiring the diverse talent to fit the markets that we're in. And I know that we can do that.
It all starts with having great people. So obviously in Miami, it's highly bilingual and we've got a lot of employees and going to hire more that focus in that market. Other markets are different, but I would say it starts with the talent and then obviously we have to elevate the brand through various things I mentioned before. But other than that, I mean we're going to really get into the communities, make our name known and also really build relationships with those face to face interactions. And so I think it's similar on that perspective.
Yes. We win our business 2 thirds of the time by taking customers away from the larger banks. And what we have found is what Jeff said, if you have great bankers who know the market and know how to take care of their customers, and most of them have been at larger banks at some point in time in their careers. If we are consistently out in front
of our
prospects, eventually our larger bank competitors will move too slowly, there will be a servicing glitch and we will get a phone call. And that's when we have the opportunity to go in and prove that we can make decisions locally, closer to the customer, and win the business. And after we win the business, we have to continue to do a great job taking care of those customers, which in part is keeping your employees and keeping that consistency and growing the relationships. And that's what we have done in all of our businesses. And that's what I see as the biggest opportunity.
Maybe
for right for you, David. So Brian talked about being in the sweet spot, big enough to serve clients but close to them.
But I
didn't see anything on customer satisfaction metrics when we think about your ability to take share. Could you first share those?
You should
see later in Todd Jones' presentation, and I believe you did see earlier today, maybe in Brian's, Greenwich and Associates rates commercial banks on a number of criteria. And over the last 2 or 3 years, we were one of 5 or 6 banks in the United States that earned more than 20 awards. I believe last year, we won 23. Another organization, Phoenix Hecht, reviews treasury services and capabilities for the top 50 banks in the country. And over the last 3 to 5 years, we've either had all A pluses or a couple of A pluses and maybe an A.
And generally, we are the only bank with all As or all A pluses in the top 50. And so we've got those capabilities. Again, it's industry leading from a retention standpoint.
And then a second question for Jeff. You said you would hire mid market
make sure everybody hires based on their compensation and what we feel like they can deliver from a production perspective makes sense to us financially. Does that make kind of a targeted portfolio size and depending on the market?
So at first Tennessee, bonefish is a verb, it's a noun, it's a lot
of things.
When somebody saves money of doing something, we talk about how we bonefish something. When we talk about bringing a new relationship into the bank, we say it bone fished. I mean, we don't bring things in hopefully that lose us money. And so when we talk about hiring somebody and we say they're going to bone fish, it means we're going to make money.
Right. Well, and Carol talked about this, about hiring rainmakers and people that have an established name in the community in terms of being excellent bankers, whether they be commercial bankers, private client, financial center managers. And I know that Jeff has said before, he's already interviewed a number of people and so making sure that we're getting folks that are already established in the markets and can bring business over when they join us.
How does the approach to pricing loans and deposits in the growth markets compare with the approach in markets where you're more of an incumbent?
You will hear more later, but I'll address it. As we go into these new markets or markets where First Tennessee would be new, obviously Capital Bank has been there. We will not lead the market from a pricing standpoint, but we will pay lending money. We understand our cost very well. To do to make money lending money.
We understand our cost very well.
And so that will be our challenge. We will not go in and buy business on the loan side.
On the deposit
side,
we will not go in and buy business on the loan side. On the deposit side, we will pay competitive pricing and it's to get the customers in the door so that we can grow those relationships.
Is there an opportunity on the deposit side to innovate a little bit given that you're in markets that are far
away from Memphis? There is. We can do things from a pricing standpoint, for example, in Southern Florida, that we wouldn't do in Memphis, Tennessee or Chattanooga or Knoxville or North East where we have number one market share, no doubt.
Marty?
Three questions, Susan, not to pick on you first, but, 77% of deposits are in the Tennessee market. Yes, you're getting a lot of the loan growth outside of the Tennessee market. We've played that story out before. Why is this different and how do we control the fact that we're not going to just fund all this specialty lending outside of the market with our Tennessee deposits?
Great. I'll start and then David may want to add in. We do have and we have for several years have a real specific focus on full relationships. And David touched on it, I think Todd may hit it later. In many of our specialty businesses, which have been traditionally heavy we believe will propel us forward in terms of deposit growth.
Personally from a credit standpoint too, I think that full relationship banking, not only do you have more retention because it's harder for them to leave, the credit outcomes also are better. I think we've proven that and other banks have as well. If you've got the full relationship, you've got the insight into cash flows. So you will continue to see us focus on that, in the specialty businesses as well in our core markets.
Now I'm going to pick on you, Jeff. Okay. So when we think about going into South Florida and you talked about the bilingual culture, you ran Chattanooga. Okay. Why is First Horizon desperately needed in South Florida right now?
Why as a bank are you introducing your talents into a curious how you imagine not just that there's a lot of opportunity, yet we know there's a lot of deposits down there, but so everybody else in the country knows that. So why is this brand, this strategy needed in South Florida?
Well, I think first, I haven't seen a bank that does what we do in South Florida. I could be missing it, but I haven't seen a bank that's really entrenched in all the communities like we do in Tennessee. I think the other piece of it is, it's all about the talent. And so while you're right, it is bilingual and I do not speak Spanish yet,
but I do have the babble half of my phone.
But once again, I can hire that talent. I'm very confident about the talent piece. Like I said, I've talked to 33 people. I could probably hire 28 of them today if I
wanted to.
And these are well entrenched bankers that are in these markets that have great customers that I know we can win. The second thing, we have some products and offerings that other banks aren't looking at. I look at our owner occupied offering, right? We will for the right credits, we will look at 100 percent LTV on a medical office building. We will go up potentially to 95% LTV on longer terms.
So there are some things that we'll do on the product side, also getting ingrained in the community. And once again, I feel very strongly about the talent that I think we can differentiate ourselves in these markets. And while Miami is bilingual, obviously, Fort Lauderdale, Maple, Southwest Florida, those look more like the markets we do well in Tennessee.
The other thing, Marty, back to your question to me, combining it with what you asked Jeff, the deposit opportunity in South Florida is huge. And so you saw that on, I believe, David's slides or Jeff's about the deposit opportunity. So the opportunity to mine those deposits in South Florida, which will continue to help us support growth throughout the company.
Well, and just one more thing. We don't have to be like we are in First Tennessee and Tennessee with the dominant market share. Due to the large market, I mean, if I can move the needle 1%, 2%, 3%, you can do the math. I mean, that's an enormous move in deposits for us.
All right.
Your turn, Carol. So we Nashville, the history of First Tennessee here. What looks like is the Tennessee banks are gaining market share. So in other words, what's gaining is Pinnacle is gaining in Memphis, you're gaining in Nashville, the ones that are losing are the bigger out of market kind of players that are here. So if you kind of look at that race, Pinnacle has added about 4% in Memphis, you probably added about 4% in Nashville, kind of compare how each of those banks are kind of cross streaming within Tennessee because it looks like you all 2 are the ones that are kind of capturing the market against what's outside the state.
Are really shifting pretty extraordinarily. If you look 20 years ago, the top 3 regional banks here, BofA, Regions and SunTrust combined had about 57% of the deposit market share. Today, they have 30 7%. So they've ceded 20 percentage points of market share. If you look at our growth here, we're 5th in market share here.
Pinnacle is number 1 as of this year. The last 3 years, there have been only 2 banks in this market out of the top 5 that have grown double digit each year and that's us and Pinnacle. So those are some of the changing dynamics that are happening here on the deposit front and the market share
front. John Ping, Cary, Evercore ISI. Just a quick question again regarding that topic. You've been in the Southeast markets and other markets outside of Tennessee in the past and you've since retrenched and then now you're heading back into these markets and everything. What does this expansion differ?
Like what's different about the model in these other markets outside of Tennessee than what you had previously when you had back to late? Yes.
So if you went back 11 years, we had a presence in Washington, D. C, we had a presence in Atlanta, and we had a presence in Dallas. And at that time, this is pre-two 1008, we had a nationwide mortgage business or 23 states. And the idea was that we were going to put 10 branches in each of these three cities and we were going to be able to get consumer banking services from our mortgage origination customers. There was a wealth piece.
There was a small business SBA piece. And I would just say that was a very different strategy. When Brian joined the company, looked at the numbers, very quickly exited those businesses because we figured out that long term it was not going to be a profitable strategy. High price deposits and HELOCs with mortgage origination was not a good recipe. It did not bone fish.
The new expansion process, again, we're primarily or we are heavily weighted on the lending side in core commercial relationship banking, plus the specialty lending businesses. And then we use our retail footprint to gather deposits, hopefully low cost, that's the objective, to then go and deploy into the specialty businesses and to some degree to the extent the core commercial business isn't self funded to help fund that. But it's a very different target customer today versus 11 years ago. In the new expansion, we also have capital bank locations. And many of the banks that were acquired through the capital bank process had been in existence for an extended period of time.
And so they really truly had core commercials, retail base, etcetera. So we think it's a much better foundation to grow from. Thank you, David.
And then Susan, just regarding the specialty lending efforts, what's that done to your credit assumptions? Have you had to modify go forward loss assumptions given the nature of the specialty businesses in your growth plans?
Actually, our specialty businesses, if you look at the specialty businesses we were in before the last downturn, they performed better than many of our just traditional businesses did because of the expertise and the ability to really go in and So we're not, thing. With the specialty business growth. We actually think that it's a great thing for our balance sheet and will perform well throughout the cycle.
I just had a question for Carol. You mentioned that the bank has been obviously experiencing tremendous momentum in Nashville and that's likely to continue. If we look back at the last Investor Day, the bank by deposit market share was number 5 sort of where it is today. And so what are some of the milestones of success look like in the Nashville market in terms of do you want to be number 3? Or what do you think that outcomes can look like over the next 5 years?
Thanks.
The answer to that question is above my pay grade. So look, I would love for us to move up in market share here. I feel that we'll continue to do a lot of what we have been doing to make us successful and grow dollars outside of 4th place, if you will. So when could we get that organically is kind of a question. I don't want to make any predictions.
But I think if we were to move into a much higher rank, might require an acquisition.
I would say it this way. We are about profitability first and market share second. Market share says great things about your company. But at the end of the day, we're running the business for profitability and returns. If we had to go out and pay up for market share, we wouldn't do it.
If we can take business from the competition and particularly those large bank competitors and we can grow profitably and improve our market share, that would be great. But we wouldn't go out and pay up for the sake of paying up just to be at some market share level. It's about profitability.
Sorry, Ken Zerbe again.
Did I hear right that
you talked about, obviously, specialty lending did not really bring in a lot of deposits, but now it was going to bring in a lot of deposits. Can you just elaborate on that? Sure.
We have 2 businesses. Well, first of all, every one of our business leaders will be better incentivized by growing low cost deposits. So it's baked into our incentive plans. Our mortgage warehouse lending business coming out of the 2,008, 2009, 2010 era, it was growing very quickly. And we were really focused on being great at operating there and managing credit.
We were not seen is that where we are the primary mortgage warehouse lender and particularly where we've been in there for 7, 8 years or longer, we are being well received when we go out and ask for those deposits. And so we are focused on going out to all of our mortgage warehouse lending customers where we are the primary lender and asking for their operating business deposits and their mortgage servicing deposits, and we've had a positive reception there. In our corporate regional business, and this is something that could be a ways off, but we're very optimistic. We're working with some Fintechs that are in the payment space. And because of our size, because of our technology and our ability to be flexible and nimble, we have the opportunity potentially to be the And
potentially
that could be something that's
a little
And potentially that could be something that's a little different, but would give a company like ours a real growth engine for deposits. So it's a high priority.
Question on commercial real estate. The slide showed a while ago that the concentration is very low. Should we think of that as an opportunity for growth in the next several quarters? Or is that something for dry powder to keep for a different time and different cycle?
Chris, we as you know, we've been conservative around commercial real estate, which has enabled us, I think, to serve our customers well in terms of not being overexposed. And we have a really good opportunity. We can work with our customers to get that done. But our goal is to continue to remain below peers as it relates to commercial real estate concentration. In addition to that, with commercial real estate as well as our other specialty businesses, we have a very robust portfolio limits process, making sure that we're maintaining discipline around and in commercial real estate by product type, by geography.
We monitor any exceptions to policy. They're very small. So and we've got really good average equity in the commercial real estate portfolio today is 32%, which is very strong. The debt service coverage on that portfolio today, the actual debt service coverage is over 1 point 7 times. And on a stabilized, if you permed it out, would be over 1.5 times.
So we feel good, very good about the portfolio that we have. So we do we have room to flex a little bit when we want to for a particular customer in a particular market metrics are right, but we don't aspire to be overexposed in commercial real estate.
All right.
I believe that's it. We'll go on to the next session. Thank you.
Ladies and gentlemen, at this time, we will take a break until 10:45. Please enjoy the refreshments in the foyer. Ladies and gentlemen, please welcome EVP of Consumer Banking, Tammy Locascio.
My name is Tammy Locascio and I lead our consumer bank. As Brian said earlier, I've been here a little more than 5 years with the company and I have the amazing privilege every day to work with great bankers, experienced and talented folks across our organization. And today, I am excited with you on behalf of all of them to share our plans for the consumer bank. As you heard earlier today, we do what we say we will do. We set a target of doubling economic profit in the consumer bank and we have doubled it twice in the last 6 years.
In doing so, we have become a far more efficient organization. We have grown our deposits to 18,000,000,000 and we have increased our revenue by 80%. And our opportunities still lie ahead of us to grow our deposits, to take costs out of our organization and to invest in faster and easier solutions for our customers. Let's start with our successes. We have a strong foundation in Tennessee.
We have expanded our number one market share and demonstrate that where we focus, we deliver growth. 2nd, we continue to evolve our customer experiences. We use data driven insights and technology to match the right customers with the appropriate channels. This enables us to deliver distinctive and relevant experiences to our customers whenever and however they choose. The third, we remain focused on profitable customer growth and more specifically deposit growth.
As the funding source for the bank's lending activity, growth in deposits is our number one priority. We will achieve this growth through expansion of existing customer relationships as well as focusing on cultivating new ones. And as you heard earlier, our success in Nashville provides a blueprint for success in newer markets. We have a proven model that will allow us to differentiate across our markets, bringing the full set of capabilities to our customers. Page 3 highlights a few of our financial wins.
The consumer bank consists of 5 lines of business: retail, private client, wealth management, small business and mortgage. We focus on profitable growth while managing expenses. And when we do this, we get proven results. We know how to grow deposits, manage our expenses and take care of our customers. 1st, growing deposits.
As you'll see on the top line on this slide, we have 90% growth in deposits and 80% growth in revenue across our network over the last 5 years. And managing our expenses, we reduced our branch network by 21%, twice the industry average and faster than any other bank in the State of Tennessee. We also improved our efficiency ratio by 12%. And most importantly, taking care of our customers. We could not have accomplished our goals without putting the customer in the center of everything we do.
We have top quartile customer satisfaction and a strong 91% customer retention, both of which are critical components to growing our balance sheet. Even with the addition of Capital Bank, we have delivered outstanding performance in our home state. As the number one market share bank in Tennessee, we organically grew deposits by 44%, 1.5 times the state average. And in spite the strong competition that we see and Carol talked about here in Middle Tennessee, our national market has grown consumer deposits by 78% over the last 5 years. Our focus on Tennessee will continue to remain strong as it is foundational to our success.
Also foundational to our success is how we think about our delivery network. At the top of Page 5, you will see that over the last 5 years, we have grown our franchise and entered into new markets through acquisition. We have been aggressive but thoughtful in managing our distribution network. The most recent evidence of this came during our Capital Bank conversion. We closed 69 branches over the last 18 months and retained 90 4% of Capital Bank customers and their deposits.
This success represents learning from prior optimization efforts where we retained at least 90% of customers and their balances post consolidation. Continual optimization of our network allows us to reduce our cost to serve and also improve our efficiencies. It also very importantly provides us the means to reinvest back into our business into profitable markets and profitable programs that drive growth. With shifting consumer preferences and their ability to digitally engage, we have more choices today than just physical distribution to engage and connect with customers. As we build on our strong foundation, we look at our business through the lens of our customers and change our models to reflect the revolving customer expectations.
We recognize that consumer banking is relatively a commoditized business and being able to deliver distinctive experiences is what sets us apart from competitors both large and small. So how do we show up differently for our customers? Page 7 highlights that both internal and external research validates that customers consistently say that we excel at looking out for them and being friendly and helpful. In fact, we are best in class in both of those And while these two attributes help us differentiate us from our competitors, the number one reason customers choose a bank is the ability to serve all of their banking needs. And it so happens we actually rank strong in this category 3 of these attributes together that helps us stand out from others and allows us to continue to grow our business.
We track customer channel preferences closely because it's imperative that we understand this intersection between personal and digital engagement. What we see in customer behavior today is generally a digital first engagement where they choose self-service options to handle their transactional needs. Over the last 5 years, 35% of our transactions have migrated to digital channels. These costly low value transactions have been taken out of our branches. And yet with that said, 93% of our customers still come in and visit with a banker at least once a year.
We've reduced
transactional interactions and replaced them with more moments that matter with our customers. This allows us to free up our bankers capacity and focus on more complex needs, which is the value that our people deliver. We continue to enhance our ability to convert data into insights that empowers our bankers to proactively engage with the right customer at the right time.
We
both personally and digitally. We'll continue to expand and refine our ability to use data and insights and technology in smarter ways. We will create distinctive experiences for our customers, whether it's in lobby or independent of a physical distribution network. As you'll hear later today from Don Morris, interactions with our customers are incredibly valuable and develop robust customer solutions and position our offers through the customer's channel of choice helps keep us relevant and one step ahead of their
bank that values customer relationships and values that customer well-being above any other piece of the puzzle. When we announced the merger with Capital Bank, we were all excited. We also knew that our retail organization was going to double. The number of customer interactions was also about to double. We needed a system to help us make 100 of 1000 of calls in a very short period of time and for those calls to be really impactful for the customer.
That personalization of scale is what we're after.
Historically, it took a lot of clicks, it took a lot of paper, it took
a lot of people. So we're really trying
to take away the task that we're demobilizing our bankers and trying to mobilize our bankers better.
So the tool that we use to do that is Salesforce, Marketing Cloud, Services Cloud and Sales Cloud. The customer information comes into Salesforce and then is a distribution tool out to our bankers, responsive across any device that a banker could possibly be using at the time where they're engaging with a customer. A tablet, if they're at a coffee shop with a customer, they could use their capture what happened in that interaction. The banker has much better insights. They have better data right in front of them as opposed to bringing it back to the bank and then pulling it up on the computer and then almost have an interaction with the computer with a customer as a side part.
We're standing up machine learning elements. We're pushing data in there. We're creating models every day.
When we combine data and analytics with the great relationship builders that we have on the front line across our markets, that is a winning combination.
Really, it's about making an impact on the world and making sure that people leave better lives because First Analysis is here.
That's something we can all be proud of.
A great example of our strategy to transform our banker and customer experience became evident during conversion. We leveraged the friendly and helpful attributes of our bankers and the power of data driven insights to reach out to our customers. Brian mentioned earlier, the 100 of thousands of calls we made is a part of our personalized outreach program helped us to deliver 94% customer imbalance retention. We have now shifted this powerful combination of bankers and digital capabilities to deposit acquisition. And as a result, we have seen double digit annualized deposit growth from our new Capital Bank footprint over the last 90 days.
Understanding the value of target customers and aligning how we deliver on their preferences will drive profitable growth. We will be actively focused on 2 critical segments in our business, the affluent and small business segments. On Slide 11, you'll see the opportunity afforded to us in our new expanded footprint for both affluent and small business is significant. There are over $120,000,000,000 in mass affluent and affluent deposits and $1,000,000,000 in small business deposits available in the markets that we serve. Expanding existing share of wallet will continue to be important.
It's a core competency that we do really well. But we will increase our focus on new to bank customers, most notably in these 2 deposit rich segments. As a proof point that our value proposition is already resonating with these 2 segments, our consumer money market customers $1,000,000 available in investable assets. If you go back to 2017 on the First Tennessee side, our new to bank money market acquisition average was 87,000 highlighting the value that our new markets bring to the organization. In small business, we've increased our average deposit size this year on new to bank acquisitions by 25 percent.
Both the affluent and small business segments require business models that allow us to deliver the full breadth and depth of our organization at the appropriate cost to serve. One example of a business model change is how we are going to market with Wealth Management. Let's watch how our advisors leverage a combination of people and technology to deliver results.
People still need advice from advisors face to face. They have complex financials needs and situations where they need to have somebody to talk to. And we've got experienced advisors that can provide that advice.
We have a very robust, I guess, almost like toolbox, the things that our advisors and our clients can utilize.
Our customers can now leverage technology as well as the advisors. So we're moving up into a situation where it's all fully integrated. Clients can have a paperless experience with us if they'd like to, they can access their accounts 24 hours a day.
By having an investment center through Investment Services, it really does differentiate us between some of the other banks. Our goal is to make sure that every client has the opportunity to talk to somebody about investments and to make sure they have a solid financial plan and they know what their goals are.
It's hard to be all things tall people. So what we're seeing in the industry and our advisors are embracing this, they are really focusing on specific niches.
We can't all be generalists. We have to have kind of that tool in our back pocket. And what we can do is refer others to some of our niche markets such as the medical private banking where we offer lending to doctors that have recently graduated. We also have several initiatives with women and wealth. So we're really embracing what women need, how they want to interact.
We've got great advisors. If you look at our industry averages, we care very well.
Turnover ratio with our advisors is very low.
We've got good growth markets where we'll be looking to grow our teams. Put all that together and I think we've got a winning point.
Our ability to leverage technology in the wealth space and change our business models has given our advisors more time to spend with high value customers and prospects as much as 30% more time each day. From a robo solution that offers 100% digital experience to full service advisor and planning capabilities, our wealth business has and continues to adapt to an ever changing landscape. I want to transition now to how we will execute in our markets. Our go to market strategies will be based on the diverse opportunities that we have available to us. Our combined footprint highlighted on Page 13 is an exciting opportunity.
The number one market share we earned in Tennessee is a privilege that we don't take for granted. And our position in high growth markets in the Carolinas and Florida only strengthen our ability to grow. We have completed extensive research to inform the approach we will use in the expanded footprint. We've evaluated market potential, the competitive landscape, how we're currently positioned for success. We have also spent time looking at the opportunity to acquire key talent, as you heard Carol and Jeff talk about, and also the cost to achieve a meaningful level of share of voice that affords us the opportunities that we need to meet our objectives.
Based on these factors, we have segmented our markets into 3 categories noted on Page 14. The first is core markets, moderate growth markets such as Memphis or Knoxville where we have dominant branch and deposit share opportunities for targeted growth. These markets also represent an opportunity for us to optimize resources and reinvest back into growth and target markets. The second is growth markets. For example, Nashville, where we have strong a strong market opportunity and expansion opportunities in key segments with enough physical presence to deliver outpaced market growth.
And finally, target markets, cities like Naples and Charleston, where we see high deposit growth strategy focused on niche opportunities as you heard in the video such as medical private client and our women and wealth programs. Each market's unique opportunity will determine the choices we make to achieve our growth objectives. Let's take a look at Nashville, a proof point of how we succeed in markets where we don't have dominant share. Nashville continues to excel and is positioned well for future growth. As Carol shared earlier, outpacing the market at 2.3 times the average, our story in Nashville on the consumer side is not just about what has been done the last 5 years, but what our opportunity is for the momentum that we have built for the next five.
And the combination of the right people, distribution, marketing and community engagement leads to outstanding results. When we show up for customers as a unified team, we win relationships and our sweet spot is finding work that our customer segmentation strategy combined with our local market approach allows us to be nimble and flexible when building customer relationships. Taking our Nashville blueprint to Raleigh on Page 16, we have the same great opportunities to combine local talent, marketing and digital capabilities along with a solid distribution network to drive outpaced growth. 5 years ago, 10 years ago, if we were talking about going to Raleigh, it would have been heavily weighted towards building branches. But we're shifting consumer preferences and their ability to digitally engage with banks.
Customers' purchase decisions are driven more by convenience, delivered through a combination of distribution, marketing and digital than just physical locations alone. And the good news is we can now enter into new markets for significantly less than it would have cost us to build out a full distribution network and deliver the same growth. We recently tested a new branch concept in Nashville and in Knoxville. We leveled a traditional branch and rebuilt it with a refreshed look in a much smaller space. Our open concept floor plan removes the physical barriers between our customers and our bankers, enabling better collaboration as we meet their needs.
This approach costs us roughly 70% less but is 100% more cool. These locations staffed with just 3 to 4 banking specialists provide the high touch access our target customers look for and also act as a 20 fourseven billboard of our brand. And yes, I said 70% less cost for all the math people, 100% more cool. Inherent to our go to market strategy is recruiting and retaining the very best talent in our markets and you heard that earlier today. When we support that talent with the right complement of distribution, digital offerings and marketing, we win in our markets.
We are already executing this concept and our team based approach in our new markets. We will also relentlessly test and learn from a variety of new concepts that we can export to additional markets as we identify new opportunities. As we look to the future, our ability to deliver profitable growth, market growth as well as transform the customer experience will be a critical part of our success. Page 17 summarizes our commitment. We have a track record of doing what we say we will do.
The Consumer Bank has doubled EP twice in the last 6 years. We have dominated the State of Tennessee and will continue to expand our market share. Our distinctive value propositions will continue to evolve and resonate with our target customers. We will grow across our footprint capitalizing on our appeal to both affluent and small business customers. And we will take our successful playbook in Nashville and export it to new highly concentrated affluent markets.
Trends and we are excited about the new opportunity and tremendous potential that our new combined footprint brings to the organization. Thank you for your time this morning. Would now like to invite Chris Van Steenberg, our Executive Vice President of Consumer Strategy and Delivery to join me on stage as we open the floor for questions.
Hi. A question for you on the new concept branch. How broad are you going to be replicating that throughout your branch network given it's obviously a lot less cost intensive than your branch.
Yes, a lot more branch effective. We had a little bet on what our first question was going to be, so delivery wins. I will say this about our delivery platform. We don't lead in any of our markets with distribution. So it really comes down to focusing on understanding the markets we want to go to 1st, working with the market presidents to understand the key talent, the strategies that we can go after, etcetera, in those markets, what our marketing is going to look like as a part of all of that and then distribution is complementary to that piece.
So as I mentioned, there are 5 growth and target markets that we want to spend time on. We're looking at each of those 5 markets now and trying to determine, what the distribution looks like in those areas. But what I can tell you is that we feel like we've got great presence already in those markets that we have. We are going to be looking at some of the micro markets inside those broader footprints to look for opportunities to be able to expand. I'll use Raleigh was on the slide, so I'll use that as an example.
We've got a strong distribution already in Raleigh. If we look underneath the Raleigh MSA, where we already have talented bankers and a marketing plan there, there's a couple of small pockets where there's high significant affluent and small business opportunities. Durham is a great example of that. It's 15, 18 miles from Raleigh. So that would be an example of a place where a really small footprint addition in that market would complement our overall plan there.
So if that answers your question, but that's we will look at those 5 markets specifically and look to add in those places as we have the opportunity. The flip side of distribution is how we continue to optimize. And so that's a core competency that we have and we know we have to fund growth in these new markets. And so we will continue to look at optimizing in places where we have the ability to do that as we have the last 5 years, so that we can reinvest and have the money to reinvest back in our business.
You mentioned that you improved the efficiency ratio in the consumer bank by 12% over the past 5 years. Where is the efficiency ratio now for the consumer bank? Where is it running? And what's your goal over the next year or several? Thanks.
Yes. So fully loaded all in, we're running at 60%.
64%.
64% ish. We plan on continuing to move forward with our efficiency ratio. I mean, as we continue to take cost out of our organization, I talked about creating better, faster, simpler processes for our employees and our customers. We'll continue to do that. We've had double digit reductions over the last 5 years And I think being close to that and approaching that over the next 5 years is certainly achievable for what we have planned both for our distribution network and then also just taking additional costs out of the organization as we're able to automate and focus on digital transformation in our network.
Okay. And then secondly, just around your overall branch plans, can you just remind us the overall plans in terms of expansion in the network or how much you're closing over the next several years? Thanks.
Yes, I wish it was ecstatic is saying that we have a plan and a number today. We are very aggressive. I said aggressive, but thoughtful earlier in terms of branch opportunity to consolidate locations, which will give us the opportunity to kind of reinvest back in new ones, but it's not something where we come up with a number every year that says, hey, we're going to take out this many from the bottom of the organization. Branches that we closed the last, I said 18 months, closed 69 in the last 18 months. Some of those locations, if we look back 3, 4, 5 years ago, we said were not an opportunity for us to close because we can't get too far ahead of the pace of where our customers are going.
If they're not migrating fast enough and that's our opportunity to get them to migrate to digital, but we don't want to get in front of that because it impacts our retention and also impacts our acquisition. So we'll continue to be very aggressive as our customer preferences change. We definitely don't want to lag that, but we won't get too far in front of it. In terms of growth, we will share those over the, B2 will be able to share them over the next couple of quarters as we dig into those 5 key markets. So it's Nashville, Raleigh, Charleston, Fort Lauderdale and Naples and then be able to share with you kind of what our thoughts are to complete some of the distribution that we're looking at in those areas.
Great. Thanks. So my question relates to Southwest Florida and the consumer banking opportunity there. Certain of those markets, Naples, Fort Myers tend to skew older, segment. And so with older clients, is it more of a challenge to take market share from that perspective?
And what's the strategy to grow in the affluent areas in those regions specifically?
Thanks. Yes, great question. So older customers tend to want relationship bankers and I think First Tennessee does that really, really well and it's something that our Capital Bank bankers in those markets also do really well. So we have had and seen tremendous growth as I talked about a little bit earlier and just in the last 90 days as we've been able to come out of focusing on conversion and really focusing on cultivating new relationships. We've added marketing, a marketing overlay component to Florida, and we've got customers coming in across all of the generational spectrums coming in spectrums coming in to open new accounts and have conversations with our bankers.
So we've been real pleased. We've got experienced bankers in those markets. As you know, the banking competition in Florida is extensive. But as Jeff said, hiring and retaining and keeping the very best people there. We have not seen any issue in terms of attracting new business and bringing the full breadth and depth of our new organization to those markets, it gives us an opportunity to offer things that they were not able to offer before.
So we talk about Private Client and Wealth Management. Those are both new offerings in that market that we'll be able to bring to Southwest Florida.
Thank you. Yes.
I had a question for you. You talked about you're seeing double digit annualized deposit growth out of the new Carolina markets. Can you talk
about what types of deposits you're
seeing the growth and what's the
relationships. Our value proposition doesn't lead with rate, but as Tammy referenced, it is a component and it's part of what customers expect, particularly as you see the competition hitting up over the course of 2018. So we've been delivering that through, as Tammy referenced, we've got a relationship first approach. We're attracting primary transacting relationships. And we're also winning high value deposits in money market and CDs.
We're not leaving the market. And so there's no intent to leave the market within with our rates in any of our footprint, whether it's legacy Tennessee or in the Capital Bank markets. And so coming in, I think below the market leading competitors, but I think we're coming in at a competitive rate that matching up with our relationship first approach and the marketing that Capital Bank really historically never did. We're creating more opportunities at the top end of the funnel to enable us to capture share. But we're not finding that we have to price outside the market on any level in order to get that double digit growth.
The other question I had, so the challenge for many banks, particularly your size, is acquiring millennial customers that don't use branches. What is your strategy? Can you talk about customer acquisition trends? Like what are you actually seeing in terms of bringing new millennial customers in?
Yes. As we look at our data and benchmark against both regional peers and the national banks, we see that we're actually capturing our fair share of both Gen Y and Gen Z customers. In fact, we have our index on the Gen Z customers. And while for the more transactional, more basic needs that they've got, digital first tends to be the solution. We still see more than 50% of those customers come into our branches at least once a year in order to solve for more complex needs, whether it's buying their first home, starting to save for retirement, etcetera, they're still coming in to talk to their banker.
So we're still seeing a lot of volume through that.
And our average age in terms of just new accounts this year has gone down significantly, which shows kind of the full range of being able to do that. I think our new account average this year is in the low 40s. And historically, on the First Tennessee side, we've had a higher 40s, low 50s range. So we are seeing acquisition come kind of across, as Chris said, all of the generational spectrums.
Just as a follow-up to that. It's Brock Vandervliet, UBS. This quarter, I'd say, across the industry, one of the trends was really a mix shift that became quite pronounced with particularly declines in non interest bearing growth rates and some management is going as far as saying new growth is likely to come from all interest bearing
I I think certainly our recent trend is probably not as extreme as we saw with the Wall Street Journal article last week, week before last around that. So I think when we look at our non interest, we're seeing modest growth, certainly compared to how we forecast out the 5 years at the low end of the range there. We are seeing much faster growth in the interest bearing products. We're balancing that again by capturing full relationships. So as we look at, I'll use our private client population as an example, we're not chasing hot money, we're not just capturing the interest bearing.
91% of our private client population with those high balances in their accounts have got a primary transacting relationship with us. So while there is an element of bringing rate in, we're also capturing the core relationship.
If we think about the change in the landscape to branches becoming less important, technology becoming banks with very big tech budgets and very big marketing budgets and maybe the branch network becomes less important. Are you kind of seeing any sign of the big banks doing better at the expense of some of the regional competitors, the community bank competitors that you're seeing?
As we look at so there's I think a couple of components to that answer. We don't see share we don't see our customers leaving us for the larger institutions. So as we look at our outflows, where it's going, we don't see a particular category. And I think Tammy referenced it better than 90% retention rate. We don't see a category or an individual institution where share is moving from us to them.
And while branches are perhaps less important for certain segments of the population, both looking at our target segments and then looking at how you see some of larger national players announcing their continued investment in branches and you see some of the digital first banks building physical branches, they're recognizing the value of having both options, right? I think as we look at channels, you never take a channel out. You simply continue to add, and that's because the customers have a desire to bank with you however they want to. And so we've got to have the ability to meet their needs in whichever channel they decide they want to come to us. I don't
know if you'd add anything.
I would just say we're big enough as an organization to have the technology budget that we need to take care of the things that matter most to our customers. So the good news is the last 5, 7, 8 years, we have built our technology platforms to be able to scale and do the acquisitions that we want to do, do the things that we want to do. And now we can take that focus in our technology spend and BJ will talk a little bit about this this afternoon in terms of what that percentage is, but we can take that technology spend and really focus it on customer experiential things that matter most to our target segment customers and Don will highlight that a little bit this afternoon as well.
Yes. Maybe just a follow-up on 2 of the questions that were asked. One of the things that was mentioned earlier was about how you elevate wanting to elevate the brand. Can you just maybe talk about how you elevate the brand given that some of these markets are highly competitive and you do have a lot of larger bank competitors who probably are spending a lot more money? And then second, I'll ask my second question upfront.
You talked about 91% retention. Can you maybe just talk about how that compares versus peers? How do you think that compares across peers? And a follow-up to what Jeff had asked, is it different across markets? Is it different across different kinds of competitors?
So are you seeing less retention in markets that are concentrated in large institutions and better retention in markets where you're competing against smaller institutions? Thanks.
I'm not sure. You can back up on that. So a couple of things around retention. We see strong retention across all of our markets.
And generally, retention for the most
part is driven by primacy. So we well, like us, have strong customer retention. Banks that don't have a strong core checking account business, core checking account relationships see a little bit more churn. And so it's top quartile. In terms of customer retention in comparison to peers, we do really well and we do that because we've got primary checking account relationships.
In terms of elevating the brand, so the unique opportunity that we have across our organization is that we compete with small community banks. In Tennessee, we compete with large national banks and the way we show up in our markets is different and unique and we do that as Jeff and Carol said through our people. And so when we're competing against smaller banks, we have the opportunity to elevate our brand by talking about the full complement
and
National Banks and talk about elevating our brand and spending time out there selling our bank to prospects and to customers. It's about creating, adding value in local decision making and what we're able to do because of the size of organization that we are, being nimble and flexible and being able to put together deals and products and packages and test and learn things that a larger organization
the story that David shared about the cement company, where it started out as a commercial opportunity, it evolved into a consumer and wealth opportunity. It's again, it's not just one line of business showing up to engage with the customer. It's calling their colleague down the street to say, hey, listen, I've got this opportunity, let's go do a joint call. And so we really do win, and you've heard this a lot, and you hear it over the course of the rest of the day and over the next several years as well, when we show up as a team. And it's bringing all of the value to the customer and thinking about how we can help them achieve their objectives.
One other thing to add to the brand, Tammy referenced this when she referenced share of voice, and Dawn's got a presentation later where she'll talk more about customer experience. We try to be very intentional on where we focused our energy in our 5 focused growth markets, where it wasn't going to require that outsized marketing spend as well. So we're trying to be judicious and it's not all brand, it's all channels, it's all mediums in terms of how we go to market and show up and where customers are getting their perspective from as well.
So Chris, we used to have a metric of a branch covered so many miles and the digital, at least what I'm envisioning is happening is the digital is expanding that reach. So what is the current metric? Is it number of people in the sense of you do a circumference around the branch? Is it miles? What is a typical way that when you're optimizing these branches, what's the metric that you can kind of use to say, okay, that's what we can cover?
Yes. We're looking at it on a couple of layers and Tammy will add to this comment. But it's less about the number of people than looking at what's the pockets of affluence target customers, and really what's the deposit gathering opportunity. And so that's really the primary circumference driver that we use around that. And digital does expand that reach, both in terms of how they can interact with us, but also how we generate awareness, right?
So it's not just doing talk about brand. Brand awareness doesn't just happen through TV and print. It goes out through digital mediums. And so we're using that to both expand awareness and then expand our ability to serve customers beyond a drive radius.
I mean drive time is certainly something that's important for customers. It's something that they take a look at. So we it's one of the components that we use. Surprisingly enough, as we do our evaluation of our network, most customers use somewhere between 3 and 4 branch locations. And so we really spend time looking at their traffic patterns and not only when they show up in a location, but how they're using, as Chris said, all of our digital channels and kind of pull those together.
The other piece we're very thoughtful of is when we optimize our
distribution and take
a 4 branch down to 3 branches or 2 as a result of that. You want to have enough presence where people think of you top of mind when they have a purchase decision. And so we really balance all of that together. So it's not just about the transactions that kind of flow through those locations, what's the full opportunity of acquisition available on a market when we look at it.
So maybe another way to think about that is, has it expanded 50%, 100%, what is the
Well, we used
to say, yes.
Rates in a city is cut in half, just some kind of rule of thumb, what have you kind of imagined? And every market is different, but just in general.
Yes. It's more it's less about the distance and more about drive time. But generally, the less people want to come in, so they used to come in once a month, now they come in once a year. So you're willing to drive a little bit further in order to do that. So what used to be an average of 6, 8, 10 minutes drive time, 15 to 20 minutes is now reasonable for somebody assuming that they don't have to pass 10 competitors on their way, right?
Because if they got to pass a lot of people on the way, then you lose opportunities every time they do that. So again, it's kind of a balance, but you will start to see an expansion in terms of radius for locations as people need to use them less.
Very helpful. Now Tammy, two questions for you in a sense of when you're thinking of the consumer bank, running the consumer bank as Director of the consumer bank, what's the vision that we've heard is touch, contact, products. But how do you what is your vision in the sense of digital and all the pieces that come together? How do you see 10 years from now? What are you moving towards?
And how does your experience kind of take you in a certain direction? So just curious what's your vision is for this particular business line?
Yes. So we will continue to optimize our network. We'll continue to work on getting customers as they choose to migrate to digital capabilities and you'll hear Don talk about that this afternoon, particularly in certain segments of our business, right. Being able to optimize and really being more efficient in certain parts of the organization will allow us to invest in higher growth and higher pockets of profitability in our business, which is really around our affluent segment and our affluent strategy. And those still will require, even though a lot of their transactions will migrate digitally, it still requires it's a higher touch model.
It's a relationship model. And that's something that I think is our sweet spot where we can win. We will continue to see and attract mass market customers because of the markets that we're in. And we're going to work as quick as we can to migrate some of those to digital. But we will continue to be invested in relationship banking with our affluent segment customers and our small business and business banking customers, and we feel like that's a place where we can continue to win.
I think that's
Good morning. My name is Todd Jones. I joined the bank a little over 2 years ago in connection with Franchise Finance Portfolio Acquisition. My team and I were immediately impressed with the culture and the leadership here at the bank, and that's only grown since our time over the last couple of years. A couple of months ago, I was given the opportunity to lead the Wholesale Banking organization, and I couldn't be more excited about what our growth hear throughout today's presentation.
1, we build deep, profitable relationships supported by robust data to drive decision making. 2, in our legacy commercial bank in Tennessee, along with our new markets in North and South Carolina and South Florida, we see opportunities for a $19,000,000,000 loan portfolio and $9,000,000,000 in deposits spread across 9,000 relationships. We are a relationship driven organization. Our 741 dedicated employees serve our customers every day, providing the necessary capital to help them grow their businesses and manage their liquidity through our full suite of treasury products and services. Among our strengths in this portfolio is market leader.
Collectively, our Tennessee markets represent 55% of our commercial deposits and 28% of our loans. We will continue to win there. 2nd, as you heard earlier from Jeff and Carol, our new markets, the Carolinas and South Florida, are large markets with significant opportunities to grow loans and deposits. Today, those combined markets represent only 20% of our loans and 15% of our deposits. We see the opportunity to not only target new middle market customers between say $3,000,000 $500,000,000 of revenue, but we can also bring our expanded set of deposit and treasury capabilities to our existing Capital Bank customers.
Finally, we are unique, particularly for a bank our size to have such size and breadth in our specialized industry verticals. Together, they represent about half of our loan portfolio and 30% of our deposits. Over the last 5 years, we have delivered strong balance sheet growth in both loans and deposits. A strategic acquisition, Capital Bank, an important component of our most recent strategic plan, as you heard from Brian, contributed $4,700,000,000 in loans and $1,200,000,000 in deposits. More importantly, however, was our growth during that same period, excluding that acquisition.
Our regional bank and specialized industry verticals combined to deliver an impressive 14% compound annual growth rate for our loan portfolio and 11% compound annual growth rate for our deposit book. We are well positioned to continue this momentum. So why have we been so successful growing our balance sheet over the last 5 years? The answer at its core, our customers value our differentiated approach and our results show it. Here are some highlights.
Our 2017 Greenwich survey showed that 94% of our customers are highly satisfied with us, 94%. That satisfaction rate places us among the top performers in our peer set. Strong results like this define a relationship bank. A relationship bank also needs primary relationships to be successful and we excel there too. We are the lead bank for more than 3 quarters of our relationships.
Being the lead bank affords us the opportunity to deepen our relationships and bring our full suite of products and services to our customers. We see opportunity, especially in the Carolinas and South Florida, to expand those relationships relationships and increase our penetration rates. So why does this work? What makes us so different? There are 4 key principles.
1st, as David mentioned earlier, we have localized decision making. Being nimble and close to the customer gives us an advantage in competitive situations. 2nd, we are involved in our local business communities, the Chambers of Commerce, professional associations, non profits and other organizations where our teams can connect with community influencers to help drive the right opportunities. 3rd, our brand recognition. We have a long history in Tennessee and our number one market share provides us a competitive advantage for our teams versus the competition.
And finally, you've heard this a few times today, our people make all the difference. Their experience, knowledge of and connection to their communities and service mindset helps them build long lasting relationships and we've done it profitably. Over the last 3 years, we've been on a journey to enhance our profitability at the relationship and and 3 years. During that same time, we increased the net income contribution for the business by 136%. From our increased rigor and focus on profitability, 3 key elements of our success emerged.
Number 1, full lead relationships with deposits are key. When we have control of the relationship with the opportunity to cross sell additional products and services, further enhancing our return profile. 2, we increased our average relationship size. Larger the math is simple. Larger loans and deposit balances provide a better offset for fixed costs and generate more absolute revenue per opportunity.
But increased balances are not enough without discipline. 3rd, we increased our intensity and focus on risk adjusted loan pricing. Capital is a finite resource and we've added tools to help our teams evaluate each incremental opportunity. I will show you more on that in the next section. Our customer data helps us build deep, profitable relationships.
Put more simply, good data yields better decision making. So how do we use it? On Page 8, you'll see an excerpt from our pricing and profitability tool. The boxes highlighted in blue summarize our relationship profitability. On the left, you'll see some basic attribute data about the relationship, such as the loan fees, our fee profile and our credit grade.
On the right is a mini P and L that shows revenue, income, economic profit and our returns. Down below, our relationship and our returns. Down below, our relationship managers and business leaders have visibility to the profitability of each product. This holistic relationship view, along with the product view, helps them make strategic decisions about each relationship and provides insights on what mix of products and services can performance of our relationship managers. For our legacy First Tennessee relationship managers, which include a mix of commercial and business bankers, portfolio per relationship manager is $77,000,000 and that number is $58,000,000 for deposits.
But the average is only part of the story, so is the dispersion. As I mentioned earlier, larger balances and if we compare our newly acquired Capital Bank portfolio and its dispersion to our legacy First Tennessee Bank Portfolio, we see a substantial opportunity. On the loan side, the First Tennessee average portfolio is $15,000,000 higher than Capital Bank. When you look to deposits, that differential is even more significant. It grows to $41,000,000 So what does this mean for our potential profitability enhancement?
If we raise the portfolio average for the Capital Bank portfolio to the size of the legacy First Tennessee Bank portfolio averages, we see an opportunity for up to $42,000,000 of and up to $2,300,000,000 of incremental deposits, applying similar portfolio rigor and discipline as we've done for the last 3 years in legacy First Tennessee Bank using the tools and techniques that I've outlined can contribute to enhanced profitability for our business. Looking ahead, we are excited about the potential we see in our growth markets, specifically the Carolinas and South Florida. As Jeff mentioned in his presentation, we see opportunities and a $32,000,000,000 commercial and a $32,000,000,000 commercial loan opportunity. Correspondingly, in South Florida, those numbers are $28,000,000,000 for dollars for deposits and $38,000,000,000 for loans. Growing our share of these markets can be accomplished using some of the same strategies we developed to grow our Nashville market that Carol shared earlier.
They include, number 1, expanding our teams with the right talent who are connected in their markets and to key prospects. Number 2, leveraging that talent to move up market to larger, more profitable relationships. Again, back to the math problem I suggested before. 3, identifying cross on domain our specialized industry verticals, where specialization is our advantage. We are excited about the results we've achieved over the last five years in our specialized industry verticals.
We've added $6,000,000,000 in incremental loan growth, a 134% growth rate. And we've done it profitably. Pre tax contribution has increased 75% over the last 5 years and 83 percent of all of our relationships are income profitable. So what are the keys to success
of these
verticals? First, they are collectively an efficient delivery platform. The efficiency ratio, 29%. 2nd, the industry specialization creates fewer, more focused competitors than a traditional C and I model. 3rd, and our biggest driver, our customers value the expertise of our teams and we see that in our risk adjusted returns.
Let me share a story with you from our franchise finance business. We have a long standing customer who's a multi unit franchisee and a well known national brand. He's grown his business through a combination of strategic acquisitions and organic growth and has been quite successful doing that over the last 10 years or so. Earlier this year, he was evaluating strategic options, including an opportunistic buyout of his partner. As his leader and trusted advisor, the franchise finance team went to work helping him evaluate those options.
The team provided insights on the capital required for each option and had numerous conversations on the trade offs between an opportunistic buyout and having capital for growth and acquisition. Initially, he decided on the buyout, and then the team had one more heart to heart, as they sensed that emotion and logic or rational thinking were being mixed in, and we shared some additional analysis and had one more conversation. Time passed and ultimately he decided to defer the buyout and refocus his efforts on growth. Now we fast forward to this past October, he just closed on another multi unit acquisition that will be accretive to his returns and profits. That would not have been possible, especially this soon, had he pursued that buyout opportunity.
He was quick to send our team a note thanking us for the transaction like he always does. But more importantly, he appreciated the discussion, care and concern we had about helping him evaluate a significant strategic decision making option. And that's true across our verticals. Our customers value support, candor and the analysis that comes from the domain expertise that our various teams have built in these verticals. If you look at Page 16, this is an overview of the collection of businesses that make up our specialized industry verticals.
As last Investor Day, I'll highlight 3 additions to the portfolio. 1st, back in May of 2014, we added our a second healthcare vertical, this time specifically focused on private equity sponsors who are active in that space. And finally, in September 2016, which brought me and my team to the Bank, we started the franchise finance group in connection with a portfolio of loans we acquired from GE Capital. In each case, and here's what's important, teams with extensive industry experience were recruited from other institutions to build and grow those platforms. Our prospects for continued growth are strong.
David said it earlier, none of these businesses have more than 5% market share in their markets. Individually, these businesses are strong as you can see, but collectively, they are even stronger due to the diverse industries that they represent. I'll now share highlights from 4 of the businesses. From 4 of the businesses. 1st is our vertical focused on loans to mortgage companies.
It's also called our mortgage warehouse lending vertical. This platform provides lines of credit for mortgage lenders secured by high quality, liquid residential mortgages. We've grown this to be a $2,100,000,000 platform. This is our most economically profitable lending business. Economic profit is up $10,000,000 over the last 5 years.
That's more than a 75 percent increase. The key differentiators for this platform are the proprietary technology and processes used to run this business and manage our customers' warehouse lines. Let me share a story with you now about how well this business executes for its customers and why it's so well positioned for future growth. In the middle of last year, we had a small 15 year relationship on the West Coast, which sold out to a larger lender. As part of the negotiated sale terms, the owner of the small company required the buyer to get a line with First Tennessee so she could continue using us.
How has this relationship changed over the last year plus? The larger lender is so pleased with our product and service level that it jettisoned 2 other warehouse lenders that providing it capital and asked us for an increase to our line. On top of it, we're in active discussions right now about adding additional treasury products and services to the relationship. There are a lot more stories just like that one in this business. They've received many calls from our customers asking for us to increase our line so that they can replace 1 or more existing lenders in their facility because of the way that we deliver and execute in this space.
Nimbleness and our flexibility. Next is our asset based lending business. This is a traditional working capital lending platform. Loans are typically supported by receivables and inventory. It's also a $2,000,000,000 platform.
Much like mortgage warehouse, we've also had profitably growing this business. Over the last 5 years, loans are up 75% and economic profit has increased by 50%. Credit discipline, along with robust ongoing monitoring and our field exams, have been keys to mitigating losses in this vertical. Through our regionally deployed business development team and our focus on industries we know well, such as wholesale trade, manufacturing and transportation, we believe our asset based lending vertical is well positioned for continued success. Next is our franchise finance vertical.
This business makes loans to restaurant franchisors, franchisees, regional chains and private equity sponsors that invest across all three of those channels. Typical brands include established recognizable concepts like Taco Bell, Wendy's, Burger King and Dunkin' Donuts. We established this business back in 2016 when we acquired a portfolio of restaurant loans and recruited a team to grow the business. Credit discipline here is critical. It's about identifying strong brands with the right management teams and then remaining disciplined on advance rates and terms, particularly since many of the credits are secured by cash flow and equipment.
We've been building our brand awareness over the last couple of years in this vertical. We've shared proprietary research with the market and we've been frequent presenters at brand and industry high quality sponsors who have high quality projects in markets that we know well, predominantly the Southeast. Diversification is also important. As you can see, we manage our concentrations by collateral type, by project size, our average relationship, dollars 14,000,000 Similar to franchise along to balance growth and prudency and we'll continue to strike that balance going forward to help drive continued deposits. We see 3 areas in the specialty lines for outsized growth.
Number 1, in our mortgage warehouse business, as David said earlier, we plan to capture more share of corporate and escrow deposits from our customers and mortgage servicers. We've already won a $53,000,000 mandate this quarter and we see more opportunities similar to that in our pipeline. 2, in our correspondent banking platform, we are underway with some digital platform enhancements to make it even easier for our partner banks to do business with us. When Dawn comes up after lunch, she'll share more on our on our digital strategy going forward. 3rd and finally, in our Corporate Finance Group, we have an initiative underway with our treasury management team to develop specific products and capabilities to support the FinTechs as it relates to payment processing.
We are excited about these specific initiatives, but the deposit and treasury focus doesn't stop there. It's been increased across all of the specialized industry verticals to help drive our balance sheet growth and provide the necessary fuel for continued loan growth. So to recap, we believe our Commercial Bank well positioned for growth for 3 important reasons. 1, we build deep, profitable relationships supported by robust data to drive decision making. 2, in our legacy commercial bank in Tennessee, along with our new in deposits.
And 3, our specialized industry verticals produce strong returns and they are well positioned in their markets for continued profitable growth. As I ask David Popwell, Steve Hawkins and Susan Springfield to join me on stage, we'll share a short video highlighting some of the themes I covered in today's presentation.
Maverick is a family owned business that's privately held based in Little Rock, Arkansas. The only money that we have to grow our business is through debt capital and reinvestment of profits. The trucking business is highly capital intensive. It's also highly labor intensive, but the capital requirements to grow are really large. About 30 years ago, we were a small company here in Little Rock.
We were looking for a bank, but we were introduced to First Tennessee and right out the gate, it was, we want to know about you, we want to know about your business. We're a relationship lender.
Maverick was my first transportation customer. We like to get to know our customers, understand their business. Hopefully, we can provide value that helps them be successful. The relationship when it
knowledge that they have of who we are, what we do and working together to come up with solutions. The new products are introduced. We're very proactive in taking advantage of them.
Maverick subscribes to almost every product that we offer. We have to be devoted to bringing technology to our customers to help them advance.
Just the daily blocking and tackling is very critical to us and it's really important. Over the years, whether it's an opportunity to expand our footprint through terminal acquisitions or real estate projects or acquisitions, the bank has been right at the forefront of helping us accomplish those objectives.
We like to think that over the years, our attention to detail and providing financial services and solutions has to Maverick's success. We think their success has been our success.
We're still dealing with many of the same people today that we were dealing with almost 30 years ago, which is unheard of. And with First Tennessee, there's been no question that they've been a very vital partner over the years and a big of our success.
Thank you. I'd like to take this opportunity to introduce Steve Hawkins, who's joined us on the stage. Brian mentioned Steve earlier, but from 2012 up until the time that we recently named Todd the Executive Vice Charge of Wholesale Banking. Steve had that role. Steve has been with our company for over 37 years.
And in the video that you just watched with John Culp talking about dealing with the same people for 30 years, he was referring to Steve. But Steve is a great relationship banker. And as Brian said, has had a huge influence on our company from the standpoint of really crystallizing our strategy with these specialty lines of business and it's been very successful. And so we appreciate all that Steve has done.
Thank you. Thank
Hi, thanks. I guess two questions
on
the deposits in the business. So if I look at what you laid out on Slide 3, you showed $19,000,000,000 of loans and $9,000,000,000 of deposits in the business. And I was a little bit surprised that given that you said that you're the lead bank for 76% of the relationships that you would have that high of a loan to deposit ratio in the business. When I look at it, clearly the specialty business is one of the big drivers of over $10,000,000,000 of loans and just 3,000,000,000 dollars of deposits. So my first question is, what are the strategies in place to close that gap in terms of this business becoming dollars per RM of deposits versus just dollars per RM of deposits versus just $17,000,000 at Capital Bank.
What is it about Capital Bank's footprint that made it so much lower? Was it just it was early in its evolution? Was it products? And what is the strategy that you have in place to actually close that gap?
I'll start and then Steve, maybe you can jump in on the first question. But as we look at your us. They tend to be businesses that are using capital, specifically loans, as part of how they're driving their growth. So they tend to be a little lighter on deposits. So part of it's fundamental.
But also the second part of it really is the effort in heat and light that we're going to put on it now to
capitalize on opportunities where we weren't before.
The returns were strong. Expectations we have going forward to capture more share there than we had historically. Steve?
Sure. I would echo what Todd said. The specialty businesses, those verticals, they're not deposit most of them are not deposit centered businesses. ABL, we control the cash in our ABL. And we take that cash and we apply it to a loan balance.
So this is a business that's not going to generate significant balances for us unfortunately. But the returns that are very good on the loan side and the treasury business there is very good on the fee side for us. So we'll continue to do that. We do have some opportunities though to drive deposits in some of our lines. You heard about mortgage warehouse.
We will put some heat and light on that. We think we'll get significant dollars business, we have almost $500,000,000 in our CRE line of business in deposits today. We'll continue to grow and expand that. So I think on the specialty side, I think the things we're doing there, the heat and light, we also we hadn't mentioned this much, but earlier this year we created a syndication team in our company where we're going to be the we said lead bank, but that lead bank is 75%. That's most of that is one bank, it's us, it's 75%.
But particularly on some of our large relationships that we would have lost that relationship as it outgrew us in the past, we'll be able to be the lead bank on those and keep the deposit and relationships in First Tennessee and grow that as well, what we're doing there.
And then your question associated with Capital Bank. Capital Bank did not have the treasury management products that we have at First Tennessee. And so the ability to go in and offer these commercial customers more sophisticated products will allow us to have more deposits, offer them the opportunity to bank with us primarily. Mid Atlantic as well. Because obviously, when you're talking about middle market companies, mid Atlantic as well.
Because obviously, when you're talking about middle market companies, they're wanting more than just a deposit account. They're wanting some of those treasury management. And that's really going to help us fill that gap as well.
Maybe you could say a little bit about the Healthcare business. You mentioned Private Equity Backed Companies. What sort of leverage are we looking at there? And then I guess stepping back across the specialty lending businesses, maybe more a question for Susan. But on the credit side, what are the things that you see some of your competitors doing that you're not willing to do from a credit standpoint?
Right. I'll let me start with that and I'll go back to the healthcare. And Todd and Steve can jump in as well. We talk about you heard every speaker talk about our disciplined approach. We do believe, 1, we've got great growth opportunities ahead of us.
But we also know when to say no and when to let something go to a competitor. It could be a bank competitor. We're also seeing non bank competitors come in. We've seen that I know in franchise finance. We've seen it in commercial real estate.
We've seen it in healthcare. And so I it's about remaining disciplined even while having the growth goals. What you see in terms of competition that we're not willing to compete against is when you have very little repayment. So 1% amortization type term loans where you have leverage that exceeds that's far ahead of where it should be and wouldn't sustain a downturn. So we're cautious there.
And then also I think and Todd talked about this earlier, really evaluating how management is managing that business. So, what is their trajectory? What's their risk appetite? And making sure that we're selecting customers on on things you're seeing from competition where sometimes we'll choose to let it go or not compete. All that being said, there are opportunities where we need to sharpen our pencil and we've done that to maintain a good relationship.
Well, I would add, things that our competitors are doing, We're very fortunate. I think Carol used the term rainmakers and we have a lot of really good relationship managers in our company and they can deliver the business. And we have robust pipelines in our company. And because of that, it gives us the opportunity to be really selective in what we're doing when we look at credit and we look at pricing. So things we see that other banks do because of our strong pipelines, we have the opportunity to be a little bit more selective.
We have the opportunity to say no a little bit more sometimes when we need to because we're focused on soundness, profitability and then growth, things that we focus on. So our pipelines are really strong. We can be a little bit more selective. We see all kinds of things that we say no about, whether it's amortization, guarantor support, pricing, covenants, all those things that we look at a whole different line of businesses across all of our core commercial and specialty lines of businesses that sometimes we just can't get there when we look at things. And because of our pipelines, it gives us the ability to say, we'll pass on
it. That's well said, Steve and Susan.
And then your question specific to the sponsor backed healthcare. Typically leverage is in the 4 times or less. That's kind of where we want to be, I would say, in most of our leverage businesses. We've actually had a decline in leverage lending transactions over the last 12 months. Commitments are down a little over $200,000,000 in our overall leverage lending portfolio.
It's something that we don't want to be overexposed there. It's less than 3% of our commercial portfolio is leverage lending. The sponsor back specifically, we're very selective with the sponsors that we do business with. And actually, Brian, David and I have met the sponsors that we've done business with to date in that portfolio. So we make sure not just the health care team, but also executive management is meeting with these private equity sponsors, understanding how they do business and how they've supported their transactions over time.
So it's a well run business for us, and we're managing it, I think, in a great way. We do see opportunities, to grow that prudently with some of these sponsors that we've met.
Just a couple of questions on the mortgage warehouse business. So 270 roughly clients today, what would that number have been like a year or 2 years ago? And then can you talk about how pricing has been impacted and how you expect it to be impacted, just given the peer peer banks?
I don't know about a year ago, but I know about 3 years ago it was about 130 customers we had in that group. Today it's up to 2 70 as you mentioned. We have seen pricing get more aggressive in that line of business. It's tough to compete in it. We feel like we have great bankers in that line of business though.
We have people that understand the business. They're engaged in the business as well. Todd told the story about the one that wanted us to stay in the financing business and we've grown and expanded that even after an acquisition. And then we have some systems, some back office systems and people and processes where we're more nimble, more flexible and we're more easy to do business with than our competitors to be honest with you in that. And we win business day in and day out in that line of business because of that.
Just in the last 6 months and I'm looking at Bob Garrett, he's in the back who manages that line for us. Just in the last 6 months, the client count has grown more than 15%. Bob's added a couple of RMs over the last year or so, year or 2, who brought in additional relationships. So we have been able to grow that client list.
Commercial losses the last several quarters have been very, very low, particularly outside of CRE. If you go back the last 13, 14 years, they've been an average, I think, of close to 70 basis points. But your portfolio is so much different. Going forward, how should losses evolve relative to the past? Is past any guidepost or should you have less losses just because of the way you've remixed and specialty is a bigger component?
We do believe that our losses, going forward will be less than they were during the last downturn for a number of reasons that you've heard today. One, we do believe in diversification. We think it's just very important to make sure that we're managing that. And the bankers in the room know that we have robust discussions and management about what limits should be, exception tolerances, etcetera. The other thing is that we have very little credit card exposure, very little auto exposure.
So when you look at the overall mix for us, we think it's an advantage for us. And then I think last but not least is just the fact that we talked about the local decision making. And I believe strongly, and David gave an example of the way we use it in a positive way, which is great, right? So you really know the customer, you're able to respond. But I would tell you, it also helps us on the ones that maybe we need to avoid, right?
By having local leadership like the Carols and the Jeffs and I've got credit risk managers in all those geographies and the lines of business. And they together can say, this is not the type of company we want to bank based on things that you might not pick up just from a financial statement. And so for all those reasons, I feel very good about our portfolio and the ability to sustain for the long term.
Thanks. Matthew Keating from Barclays. Just a question. We heard earlier today that Bonefish is a noun and a verb here at First Horizon. So I guess the question really relates to we heard from the consumer banking division earlier and now we heard a lot of detail on commercial banking.
In general, banks your size tend to say that their consumer banking operations are not positive economic profit businesses at this point, maybe they're not earning their cost of capital. I guess my question would be maybe for David in terms of how you allocate capital incrementally between the Consumer and Commercial Banking division now? And maybe you could also comment on whether First Horizon's Consumer banking operation, we heard economic profit is growing, but it is actually earning its economic cost of capital. I just appreciate your perspective there in terms of deploying capital between the two business lines within the regional bank.
Yes, it's there's a formulaic methodology that based upon the loan portfolio size and the actual credit grades of those portfolios and with respect to, I guess, the mix, the mix of loans and deposits, the numbers fall out where they are. The reason that we earned our cost of capital and the reason that our consumer business is so profitable is that we have a very high level of deposit balances and we are a very, I don't want to say small, but relative to our deposit size, we do not emphasize consumer lending to the extent I think a lot of other banks do. And therefore, that business draws a lower capital allocation. And therefore, with the we earn from our deposit products and our wealth management products.
Just regarding your national businesses as part of the specialty verticals, I know in the past you've had issues in some of the national businesses that you've been in. You talked about how you've retrenched in mortgage and everything nationally before. How is this how are you confident that you're going to avoid the similar pitfalls of national lending when it comes to these specialty businesses? And Susan, you mentioned now twice that the fact that it's 30% of your loans hasn't changed your assumption on long term credit experience. So how do you look at that?
Well, I'll let Steve jump in and Todd as well. But when you look at, so I've mentioned several of our business lines that are national in nature and have been for a number of years. The mortgage warehouse lending business we've been in for 25 plus years, it's a national footprint. But even while it's national and I mentioned earlier about David and Steve Dave and Brian and I go out and meet customers in all of our lines of business, we're not just buying into loans. We're calling on companies.
We're going to meet them in their offices. We're doing the field exams in Asset Based Lending, the due diligence we need to do in mortgage warehouse, making sure we're visiting sites in commercial real estate. So we're really, really doing the basic blocking and tackling really well. So even though a few of these businesses are national in nature, we're going out and we're calling, we're touching, we're touching the customer, we're visiting factory sites. We're involved in trade group associations to make sure that we have insight into what others are seeing and thinking.
So making sure we're continuing to build that knowledge base. So, I really do believe that we're doing it the right way. And we're doing it with one of the things that we've got in place today that we didn't during the last downturn are these fairly prescriptive portfolio limits. And data and analytics into, are we making exceptions or not? And we've got a limit on the tolerance limit on exceptions.
So we believe that we're building while we've got an emphasis on these specialty groups, they perform better during the cycle. We've got insight into the portfolios and we're being very disciplined. And Steve and Todd may want to add as well.
Well, I would add one. I think Susan said it very well. We're very disciplined in what we do. We're very engaged with the customer base. And the big difference is, it is a finite small, relatively small customer base.
We're going to grow and expand it. But when you look at mortgage warehouse, 2 70 customers ABL, probably 200 customers in that group franchise finance, probably 150 or so. I mean, so it's a finite group of customers. There are larger relationships. We have a team that really handles those relationships as an RM and a portfolio manager and a line of business leader and a credit risk manager that's all engaged in monitoring and handling those relationships.
And it's just like what you saw on the Maverick video here. I mean we're engaged with them day in and day out. It's not like we make a loan and then right away, which is what we often did on the mortgage side when we had national footprint. And that was 100 of 1000 of loans on a nationwide basis. So it's a little bit different then.
And I'll add one piece that I think is at the core of this, especially in the specialty verticals, and that's the domain expertise, knowing the space. I'll take franchise finance as an example, being connected to the right concepts, knowing who the good operators are in those systems, being active at the trade conferences and the brand shows, and we've had pretty active participation in there. And so when you understand the market and understand the separation between those opportunities that are strong and those opportunities that aren't, it lets you transcend geography because it's more about making sure you get connected to the right opportunities, really regardless of where they are in the country when you know what the playing field is.
So Steve, I have a question for you. John O'Connor, which was a Senior Credit Officer for Susan, walked in my office one day and said, Marty, I know that the end of the world has come because chicken farmers are getting debt placements and we're losing loans to capital markets, to chicken farmers in Arkansas, which was a specialty lending for us. We went through the financial crisis and it seems like the environment has changed because we're seeing all the super regional banks going back into these specialty lending, these verticals, it's a very common theme now. So you've been through this, your experience, you've been through the whole cycle of all these different times. Could you just let us digest a little bit of why it's different today than where we were losing even the chicken farmers in Arkansas?
Why now we are being able to be successful
across the industry because it's not
just Horizon, there's many others that are taking the same stance.
So
just curious from that standpoint.
Well, Marty, I've been in a lot of those chicken houses. And it was an experience. But I think the banks that are getting into it, we've seen that. I mean we've seen that through the years. We've seen people I know Bob's seen people get in and out of warehouse, mortgage warehouse lending.
We've seen people get in and out of ABL. We've seen people get in and out of franchise finance lending. So we have seen people do that. I think the thing that is different at First Tennessee than other people getting in and getting out, I think we understand it. We understand the commitment that you have to make at the credit level, at the people level, at the systems level, that you have to make that decision and those types of decisions to support this industry, to be engaged in the industry.
We see people that say we're going to be specialists. But what Todd talked about being engaged in the industry, being at their conferences, being at their trade associations, knowing what's going on in the industry, adding that value to that customer base, that's what's different at First Tennessee. I can't speak to other banks about why they decide to get in and out of things, but we see them getting in and out of it all the time. And I think it's different at First Tennessee. When we get into something, we're committed to it.
We're going to stay in it. We're going to manage our way through it. And that's been our business model and it's been very successful for us.
One other thing I just want to add on really Marty to your question and to John's and that is our focus on economic profit is something that's really been a focus point after the last downturn. And so instead of our leaders are not measured or compensated or evaluated based on just growth. They're based they're evaluated on economic profit. And obviously, economic profit includes that credit charge. And if we started booking loans, big loans with very low pass PD grades, that economic profit would drop pretty dramatically.
And so it and make those tough calls sometimes to say, maybe this isn't the right one. So I think that is something that is definitely different in the way we manage the business today, that leaders are not just evaluating on pure growth. But that capital that credit capital charge comes into play in a big way.
We're at our break time for lunch, so you'll hear some instructions shortly about what's next.
Thank you. Ladies and gentlemen, we'd like to invite you to move up to the L. Jackson
restaurant.
Every day in hundreds of ways, customers are telling brands what they want and how they want it. The power has shifted from corporations to individual consumers armed with information and technology. This is the age of the customer where relevancy is measured in real time. The demand for content, transportation, even groceries is immediate. Customers want to be served seamlessly across channels and formats.
The appetite for instant information is unlimited, shaping preference and ultimately choice. And they want to manage it all with instant access that delivers immediate control. The challenge is clear. How do we make smart connections to help us powerfully fuse what we know about our customers to key moments in their experience that drive value? It's no longer enough to be customer focused.
In the age of the customer, businesses that thrive are customer obsessed.
Thank you. As you can see in that video, today now more than ever, relevancy is the best currency in the age of the customer. It's important for us to be relevant to our customers because essentially that's how we're going to win. Good afternoon. I'm Dawn Morris, the new Chief Digital Banking and Marketing Officer.
As Brian shared earlier, I've been at First Horizon for just over 8 weeks now. I'm thrilled to have joined this great team from Webster Bank and I'm excited to share with you today how we're going to utilize our existing customer data to help us win and be more relevant to our target customers in both commercial banking and consumer banking to help drive profitable growth for First Horizon. Over the next 20 minutes, I'm going to walk you through how we will be more relevant to our target customers. I'm going to share with you how we've done this and how we're able to transform our customer experience to help us drive growth. As you've heard all day today, at First Horizon, we've been taking a hard look at ourselves, deconstructing what we're good at, where our value lies and how our customer segments deliver profitability.
This self examination has been a part of our comprehensive Bonefish strategy that has set us up well for transformation, a transformation that optimizes the experience we offer customers and puts us on the path of doubling our economic profit to the regional bank. By transforming our customer experience from the outside in, we will create a win win for our customers and for the bank. This strategy will help us drive the twin factors of profitable revenue growth along with expense and optimization realizations. Today, as we discuss this transformation, we'll see where we're proven, the track record of our commitment to excellence, what we're focused on, connecting profitability knowledge with customer centric insights and finally, what better looks like, how a transformed customer experience ensures our ability to double economic profit for the regional bank. Our mission at the start of this journey was to look inward.
What aspects of our organization were most essential in helping us transform our customer experience to drive value. What proven platforms could we build upon? Our examination identified 3 key pillars. The first pillar is a culture committed to excellence. The second pillar is customer and employee loyalty.
And finally, the third pillar is our Bonefish profitability and insights. Let me start with the 1st pillar. As you can see on this slide, we've had a culture committed to excellence And transformation often encounters its greatest friction in the context of a corporate culture that isn't committed to excellence and doesn't embrace change. But what company quite honestly doesn't say that? And I'm thrilled to say at First Horizon, we've proven it.
We're built on the strength of a thriving nimble culture that has been locally and nationally recognized for workplace satisfaction and service excellence. But more importantly, our culture permeates everything we do. Our cultural values of accountability, adaptability, integrity and inclusive relationships are woven throughout every decision we make and help us efficiently facilitate change and drive innovation. So why does a good culture matter? It matters in these statistics.
It results in customer and employee loyalty. As you can see from these tenure statistics, our customers as well as our employees stick with us. Obviously, customer loyalty is critical and is any business. But as we think about transforming our customer experience to deliver value and grow our business, it is essential. We get to begin the work of optimizing our customer experience on a foundation that's already incredibly solid.
And we get to do this work with our frontline bankers who are highly experienced and familiar with the needs of their customers that they serve day in and day out. And our final pillar, Bonefish profitability insights. Building profitability starts with knowing where it exists. Back in 2013, we started this journey on a mission to identify and optimize the levers that drive customer profitability throughout the entire business. It was part of our overall Bonefish strategy and simply put, it was transformative.
Today, Bonefish permeates every part of our organizational DNA. But beyond the bottom line numbers is this more fundamental advantage. We have a deeper understanding of what we're good at, a deeper understanding of our key areas of profitability and a deeper understanding of where we could begin to connect these insights to an enhanced value producing customer experience strategy. So this is our focus as we execute this strategy. The customer experience transformation begins to take shape as we connect the original inside out profitability approach with an outside in view now of our customer.
So how are we going to do that? We'll start by strengthening our outside in customer experience strategy. This process will focus on profitability, except this time from an outside in customer centric view. We want to analyze the moments where we are over or under investing in our customer experience. And how do these moments diminish our capacity to provide value in priority moments?
And more importantly, how can we refocus our resources to enhance the value that we provide in priority customer moments? Based on a better understanding of our current customer profitability grid and a precise mapping of those opportunities available, we can lever our approach to efficiently target high priority moments that drive value. Essentially, this is the evolution of our Bonefish strategy. So let me explain what I mean by this customer profitability grid. You can see it here on the screen.
This is a representation of our customer profitability grid that I quickly worked with the team to make this happen in the 1st 4 weeks of being at First Horizon. And it was due to the great work that the finance team has done under the leadership of BJ to have this available for us and be able to activate it immediately. When you look at this grid, you'll see that it's divided by profitability and tenure. And the reality in business is that we know that all customers are not created equal. And what I mean by that is that all customers are not equally profitable.
As you'll see on this slide, as I walk you through some insights on the simple 2 by 2 grid, there are some key drivers of profitability that we can hone in on now to drive growth. So as this grid illustrates, it's a high level view of tenure and profitability. There's clear insights around product mix, channel usage, balances and net promoter score that can help us responsibly grow our business while meeting our customers' needs. And I want to take a minute just to highlight Net Promoter Score. Net Promoter Score, as many of you know, was developed over a decade ago by Bain and Company.
And it is all around what's called the ultimate question. How likely would you be to recommend First Tennessee Capital Bank to your family and friends? Net promoter score is proven as the only customer experience metric that predicts business growth. Customers in our upper right hand corner of the grid represent our most valuable customers. Whereas customers in the upper left hand corner of the grid offer our greatest opportunity.
We know already from our own customer data that we have on hand today that higher net promoter scores in these upper quadrants, our most profitable customers are correlated with increased profitability, longer tenure and more share of wallet. Through this transformation, we will develop a deeper understanding of the needs, preferences and expectations of our most profitable customers, so that we can continue to increase customer value profitably. We know that a simple 5% shift to improve customer profitability in the consumer customer base alone can deliver an additional $76,000,000 in annualized revenue. And let me just repeat that. A simple 5% shift in increasing our customer profitability and our consumer base will deliver an additional $76,000,000 in annualized revenue.
So let's take a deeper dive into this grid. The view of profitability is rich with insights and I'll walk you through just a few of them today. Our high profitability, low tenure quadrant offers us some of our biggest growth opportunities. By simply reducing their attrition rate and improving that net promoter score, we will increase our customer profitability. On the next grid, you'll see these are our most valuable customers.
Our high profitability, high tenure customers have some of our highest net promoter scores. These are our most loyal customers and longest tenured. They are ripe for advocacy opportunities and we know that word-of-mouth advertising is one of the strongest influences today in choosing where to bank. This is basically free advertising and it greatly reduces our cost to acquire new to bank customers. In this quadrant and the other quadrant, we will continue to create targeting opportunities to create look alike models to go and find these customers in digital marketing capabilities by leveraging our current marketing technology stack, again, another strong capability that we already have.
Focus for our low profitability, low tenure customers will be to reduce our churn and our cost to acquire and cost to serve. We'll do this by continuing to optimize our spend associated with acquisition efforts, as well as continued transaction migration strategies to self-service channels. And finally, there are additional efficiencies to be found in our low profitability, high tenure quadrant by reducing the cost to serve and reallocating the current resources that are here today aligned to sustaining their Net Promoter Score. Today, we know that this quadrant of customers are heavy users of multiple channels. So again, this is another transaction migration strategy to increase self-service channel usage.
Additionally, we will right size our efforts to delight these customers appropriately and we will redeploy these efforts and resources up to the quadrant with our highest growth opportunity. So this is where the journey begins. This is how we'll be more relevant to our most profitable customers in the consumer and commercial bank. So how do we make the type of connections that powerfully fuse what we know about our high priority customers and the high priority moments that drive value? We'll do this by accumulating a better customers and their current customer experience today.
We're going to recognize moments of high cost and high friction within our customer experience. And finally, this is going to be an incredible opportunity for us to uncover opportunities for innovation. So let me take a minute, I know it's after lunch, to explain this very powerful and perhaps a little confusing slide to you. This slide illustrates how we're going to align customer priority with customer preference. The initiative focuses again, that's our most profitable customers.
Our customer data today shows us who those most valuable customers are. And our customer research will show us what's most important to them. Connecting these 2 together through journey mapping will help us grow customer lifetime value by identifying priority moments in which to concentrate those resources and also focusing on moments where we are over or under investing resources today. You'll see down at the bottom, the buy own advocate journey highlights key moments throughout the experience. Some of these key moments are being under invested in today.
You'll see them on the slide highlighted in green. And then others are over invested in, which are noted in red. And as we create the map and optimize this journey, we're able to move outlier moments, which are those over or under invested moments into the control path, which will deliver greater customer lifetime value for us. We'll do that by identifying these moments that are either accretive, that are either adding to customer lifetime value or moments that we know are diminishing customer lifetime value. These are the moments that are disproportionately creating or destroying customer satisfaction, loyalty and advocacy and disproportionately creating or destroying business value today.
So what are the results of this transformational journey? And where does this transformational journey take us? We believe that this journey ensures our ability to double the economic profit of the regional bank. And the business case for this strategy is clear. You can see the metrics up on the slide.
This works. When we take this transformational approach to our customer experience, we will increase our most profitable customer satisfaction, their loyalty and most importantly, their advocacy, while at the same time driving profitable growth, optimizing expenses and increasing customer lifetime value. Transforming our customer experience from the outside in is truly a win win. It's a win for the customer and a win for the bank. Thank you very much.
I'd like to now introduce our Chief Financial Officer, BJ Loesch to the stage.
I have
been at First Horizon since January of 2009, almost 10 years now, and I have never seen our company stronger than it is right now. So does that mean that we're at our peak? Well, I hope as you've heard today, you agree with me, absolutely not. We are just getting started. Proven success, focused strategies, better opportunities, and I'll add lower risk is what you've heard today.
Now let's put it all together starting on Slide 3. So why invest in 1st Horizon going forward? First, we have delivered results, as you've seen today, from exceeding our bonefish targets and doing what we say we will do, and we can do it again. And we can do it again. 2nd, we have a strong return profile with high returns on equity and a strong capital position.
3rd, we have multiple growth opportunities as you've heard throughout today. In Tennessee, in our newer markets in the Carolinas and Florida and in our specialty businesses. 4th, we have capital to deploy. Our capital foundation today is sound and we're generating significant earnings momentum, which will give us both the strength and flexibility to organically fund the growth that we expect as model. Our credit profile and the complementary earning streams that our core businesses afford us give us the opportunity to perform well in any operating environment.
Proven results matter and let's take a look at some of the ones that we've had on Slide 4. Brian said it, I've said it, we have done what we said we would do over the last 5 years. Starting with the primary objective of our Bonefish strategy, return on tangible common equity. You can see on the upper left hand side of this page that we have exceeded our historical long term bonefish target of 15 plus percent, going from 7% 5 years ago to over 17 percent today. As you can see on the lower left, our return on assets, a very important profitability metric as you well know, has doubled during that time period to over 1.2% today.
And very importantly, we have done it by delivering strong EPS growth, as you can see on the right hand part of this slide. We grew EPS over the And then we accelerated that growth in 2018 with the benefit of tax reform as well as the incremental addition of Capital Bank. Turning to Slide 5, as you've heard from Brian and others throughout the day, we have done this the right way. First, by profitably growing our balance sheet. Over the last 5 years, the organic loan and deposit growth that we've seen as a company, excluding the positive impact of the Capital Bank addition, has averaged
6%
excluding the $3,000,000,000 of non strategic run off that we've seen over this time period, has actually grown organically by 11% a year. 2nd, we generated significant positive operating leverage. As a matter of fact, over this time period, over 4 times positive operating leverage, 12% revenue growth on only 3% expense growth on an adjusted basis.
And as
you can see, we improved our efficiency ratio materially, growing from 75% 5 years ago to 64% today. Our efficiency ratio improvements were not driven by large one time savings or other items, but by daily application of our Bonefish concepts of continually taking out cost that does not give us a chance to generate revenue. As Brian talked about at the beginning, 2018 was a very important year for us. And as shown on Slide 6, we have been focused on getting the Capital Bank merger done successfully and strengthening the balance sheet. We manage this company for long term sustainable performance and getting success drivers right like this in the short term has been important to our long term momentum.
Job number 1 in 2018 was getting the Capital Bank merger done and integrated teammates into our organization, delivering on merger expense efficiencies and starting to drive revenue opportunities from the combined business. As Brian talked about and alluded to earlier, we also took steps to strengthen the balance sheet to position us for long term improved profitability and growth going forward. And as we turn to Slide 7, you see that our goals of combining our 2 companies well and maintaining positive earnings momentum were accomplished. Our strategic objectives for the Capital Bank combination were clear. 1st, accelerate our ability to achieve our Bonefish targets and 2017, which was the last quarter before the Capital Bank announcement.
As you can see on the upper left, adjusted EPS is up 58% over the last 7 quarters. In the top middle part of the slide, you'll see Rozzi is up over 700 basis points on an adjusted basis over that time period and the 40 basis point ROA improvement that you see on the top right has been driven by the two things that you'll see in the bottom two charts. Strong expansion of the net interest margin, up 36 basis points on a core basis and 52 basis points on a total basis and an 850 basis point efficiency ratio improvement from 1, continued overall expense discipline like I talked about, but also the incremental cost saves that we've gotten from the Capital Bank merger and we're not done. While I'm incredibly pleased with this performance, we have so much more opportunity ahead. As you can see on Slide 8, we are exceeding the merger costs and revenue efficiency goals that we outlined for you and we have more to come.
You'll remember that we initially announced subsequently raised it to $85,000,000 and we will hit that target and you'll see all of it in the 2019 run rate. As you see on the upper part of this slide, with over $30,000,000 of incremental year over year expense reduction benefit to be captured from 'eighteen to '19, we are well positioned for a net reduction in our expense base in 2019. Looking at revenue synergies on the bottom part of the slide, Brian talked about we had an incremental revenue goal of $25,000,000 to 30,000,000 dollars over 2 to 3 years. We have captured that in less than a year and we're nowhere near finished. We have only scratched the surface on 2 really big opportunities and you heard about them today.
Number 1, improving our treasury management and businesses and second, optimizing our deposit base towards core relationships and away from the $4,500,000,000 of market index deposits that we have as a firm. Turning to Slide 9, as I said earlier regarding our 2018 areas of focus, sometimes we make decisions that are in the best long term interest of this company that may have an impact on the short term. Over the next two slides, I'll give you an example of how that philosophy has played out this year and why those types of decisions make us a stronger company. The first of those decisions was to optimize our overall loan portfolio in 2018 by intentionally running down roughly 350,000,000 dollars or so of low spread, low or no relationship assets in addition to selling non core subprime effect on our loan growth results, they were the correct ones and position us and our balance sheet well for the future. Though there will always be optimization opportunities in our portfolios, these were a bit more outsized than usual and you should not expect nearly as much growth impact from optimization impacts going forward.
As you've heard throughout today, our pipelines are solid and our loan growth plans are strong. On Slide 10, you've heard me use this term before. You can see that our long term focus on managing what I call the totality of the margin to improve our profitability has worked. What I mean by managing the totality of the margin is that it's not just about loan betas, it's not just about deposit betas, it's not just about how much loan growth you had or deposit growth you had, it's all of it. It's everything working in tandem and constantly pulling the levers that are available to you quarter in, quarter out, year in, year out to improve our profitability.
We do that in 3 ways, improving our balance sheet mix, managing our pricing and growing the balance sheet profitably. Over time, this focus on managing the totality of the margin results in strong performance. As you can see on the upper right of this slide, our net interest margin performance since the beginning of the rate cycle has outperformed most peers. How do we do it? We captured the asset sensitivity that was inherent in our loan book.
Continued the shift of our lending mix towards more profitable activities like our specialty lending businesses. We managed over the cycle our core deposit betas appropriately and we grew our balance sheet profitably, all resulting in higher margin expansion. Going forward, we will continue to manage the totality of the margin. We will continue to shift more of our loan growth to specialty lending. We will balance our ability to retain and grow deposits the way we would like with the level of price competition that we know we're going to see.
Speaking of deposits, the second decision we made this year was to make proactive moves, particularly in our consumer relationship deposit rates in the second quarter to protect and grow that base. We obviously knew that deposit betas would look high for a quarter or 2. We also knew that our cumulative deposit betas for both our core consumer and our core commercial deposit basis remain competitive through the cycle at 18% and 24%, respectively. So taking the long view on deposit pricing has positioned us well to retain the deposit base that we find so valuable and grow deposits going forward. And as you heard today, we expect to remain very disciplined on further rate increases.
Sticking with deposits for a moment, I mentioned it earlier, we have a great opportunity over time that really nobody else in the industry has as it relates to deposits. We can optimize our deposit mix by replacing a roughly $4,500,000,000 100 percent beta market index deposit book with relationship core deposits at much lower betas. When we do this, it can provide a tailwind to the margin and further strengthen our deposit base. We have strong conviction that managing the totality of the margin quarter in, quarter out, year in, year out will allow us to strengthen the profitability of our balance sheet and allow us to have one that we'll be proud of. So let's shift and talk a little bit about our earnings growth opportunities on Slide 11.
We are focused on the best opportunities in the pursuit of sustainably strong earnings power and returns. These opportunities are profitable growth, improving efficiency and managing our capital smartly. You've heard over the course of today strong conviction from our leaders on our plans for balance sheet growth. Now let's take a look and review what those plans are again on Slide 12. Here are our key loan and deposit growth expectations over the next 5 years.
On the lending side, we see a continued emphasis on outsized growth from our higher return, higher profitability specialty businesses, where we would expect over 5 years as much as a 50% increase or more in those aggregate portfolios. That would continue our intentional shift we have driven in our overall loan portfolio mix towards those attractive commercial market right here in the Nashville market. And as you've heard throughout the day, our multiple loan growth opportunities in our newer markets in the Carolinas and Florida, particularly on the commercial side are expected to deliver outsized growth as well. On the deposit side, 60% of our existing deposit mix is in our consumer bank. And as you've heard from Tammy, our primary focus in that business is growth in core deposit relationships.
It is the key to our continued success. Over the past 5 years, we have grown our one Tennessee market share and our deposit franchise by 45%. Starting from number 1 market share, we grew at 45%, almost 50% faster than the Tennessee market as a whole. We will continue to press that advantage we have in Tennessee. In our newer markets, our aspirations are to organically double the size of our total deposit base in targeted high potential markets within the Carolinas and Florida, places like Raleigh, places like Naples, places like Fort Myers, places like Charleston, the ones that you heard Tammy and others talk about.
On the commercial side, we have only scratched the surface on our commercial deposit gathering and treasury services opportunities in the Carolinas and Florida as Todd alluded to. And in our specialty businesses as we talked about as well, we have well defined plans that we believe will double the size of that deposit base over the next 5 years. Turning to Slide 13, we continue to be focused on enhancing our operating leverage. If you start on the left side of this page, you can see obviously that we are a materially larger company today than we were in 2,009. We were $26,000,000,000 back then.
We are $41,000,000,000 today. Yet we have $400,000,000 less in expenses than we did back then. And over this time period, our pre provision net revenue in the heart of the franchise, our regional bank, is up over 600 our regional bank is up over 600,000,000. Let me say that again. The regional bank over this time period pre provision net revenue is Well, at the beginning, we managed through adversity and crisis area exposures.
Then we streamlined the organization and from 2,009 to 2013, we took out over 20% of the total expense base, the core expense base. We simplified and we made numerous process improvements in our back office operations. Optimized our branch network and our office space. We consolidated our technology and our vendor relationships and we did 1,000 and 1,000 of other little things across our organization delivered by people operating in a culture of expense discipline. But we didn't just reduce expenses, we also invested in areas critical to revenue generation and our long term success.
We made over this time period 100 of strategic hires from key business executives like Tammy and like Carol and like Todd to experienced relationship managers across our footprint that have brought us profitable business and relationships to grow. We have also made significant technology improvements and investments as well. Our core systems today are current, they're scalable and they're wrapped with state of the art technologies. We have upgraded all of our key applications as well during the merger integration process. And over this time, we have consistently increased the percentage of our total expense spend as an organization on technology.
In 2,009, we only spent about 8% of our total company expense on technology. Today, we spend 14% of our total spend on technology and of that 14%, 45% of it is spent on customer enabling technology. We are trying to be very smart about how we use the resources that we have as a $40,000,000,000 bank to have the most impact on customer revenue generation and customer been able to sustainably invest and improve profitability. So what's the bottom line? From 2013 to 2017, adjusting for notable items, revenues grew by 12%, while expenses grew by only 3% a year, less than 1% 3% total over those 4 years, less improvement in our efficiency ratio will be evident.
With a long term operating target of less than 59%, another 500 basis points or more of improvement from today's 64% level. Let's shift and take a look at capital strength profitability and growth in that order. And our capital ratios and where we operate them are a reflection of that philosophy. Our stress test, which we use extensively as Brian talked about as a management tool, demonstrate our balance sheet strength and with the primary capital ratio that we manage to CET1 at just under 10% today, we start from a position of strength. This combined with the earnings power is a powerful combination of capital strength and flexibility.
So let me walk you through some an illustrative example. In the middle of this slide, you'll see an illustration of how much excess capital we currently have and how much excess capital generation we have. If you start in the top middle, you'll see that our 3Q year to date annualized net income adjusted for notable items is about 465,000,000 Out of that, you then assume a 35% dividend payout, which would imply about 160 $1,000,000 of dividends paid from that net income. Then assume, let's say, a 5% asset growth on that, which would consume about $150,000,000 of capital to support the increase in the balance sheet, you're left with about $170,000,000 of current excess generation, which you see on the upper right. This is in addition to the over $300,000,000 or so of excess capital above our long term operating target of 8% to 9% CET1 as you see on the lower right.
So the combination of the earnings power that we're generating combined with the existing capital levels give us powerful flexibility to You can see on the left that our current capital priorities are clear. Number 1, invest in the multiple growth opportunities that you've heard about today. 2nd, pay 35% in dividends out of our earnings streams. 3rd, opportunistically buy back shares when it's appropriate and advantageous to do so. And 4th, take a long term view on M and A when it makes strategic and financial sense.
These are our capital priorities in order today and we expect that over time we'll be able to pursue all of them profitably and for the benefit of our shareholders. Adversity does not build character, it exposes it. And by that I mean, when times are good, everybody can always look good, but your true colors emerge when times get more difficult. Today, the operating environment is generally favorable and I think all of us expect that or hope that to continue for quite some time. But we believe what fundamentally makes First Horizon better is our business model's ability to thrive and perform well in any operating environment.
Our focus on soundness, profitability and growth in that order ensures that we maintain a strong risk profile and continually look for ways to strengthen the resiliency of our earnings power. That's why we make sound decisions with the long term in mind, regardless of short term pressures. So what gives us confidence that we'll be a business that can perform well in any operating environment? 1st on Slide 16, you see and you've heard today, we believe that we have a lower credit risk model and it shows up in superior results on stress loss rates versus loss credit loss rates are less than half the weighted average of all of those peers. Why?
Again, focus on soundness, profitability and growth in that order and the use of our economic profit and economic capital concepts that permeate the organization. What else? We like commercial real estate, but geographies, we like it in the right types and we like it in moderation. We have minimal exposure to higher risk consumer portfolios, things like auto, things like student lending and things like subprime As evidence of that long term view, you know that we just sold a higher yield subprime loan portfolio that we inherited from the Capital Bank merger, not because it was underperforming, as a matter of fact, it was highly performing with high yields and very low charge offs, but it didn't fit our long term credit risk profile. Across our commercial portfolios, we used disciplined risk adjusted pricing and economic profit, credit underwriting to ensure we're building a strong balance sheet and we are proud that over 40% of our entire commercial loan portfolio is considered investment grade equivalent.
That is strength. All these characteristics we believe add up to a lower, stronger credit risk profile. Credit risk profile, the complementary nature of our core businesses, our regional banking business and our fixed income business afford us the counter from the chart on the top a view of pre tax income trends in our regional banking and fixed income businesses through stressed, muted and growing economies over the past 18 years. In each period, you can see the complementary nature of our core businesses at work. In a growing economy like the one that we're in today and have been for several years, on the right hand part of this chart, our banking business will be very strong and you'll see fixed income, pre tax income moderate.
In a more muted economy like the one we saw for several years, roughly 2010 to 2016, on the right hand side of the page, you'll see both steady performance from banking and fixed income. But in a stressed economy, like the ones we saw on the left hand side of this chart in the early 2000s or during the financial crisis in 2,008 and 2,009 in the middle of the chart, you will see fixed income strength offsetting lower banking earnings. So wrapping these two points together on Slide 18, what happens when you have a lower risk credit model and combine it with complementary earning streams, lower credit losses in times of stress, healthy pre provision net revenue earnings power and far better stress test results that demonstrate capital strength that we believe is far more multiple ways throughout the course of the day, evolving our go to market business models for different types of markets and opportunities, evolving our specialty businesses to capture not just loan growth opportunities, but deposit growth as well, evolving and even transforming our customer experience based on deeper, more holistic customer insights, evolving and optimizing our expense base to reduce cost in order to fund needed investment in people, marketing and technology.
But on Slide 20, you see the visual representation of our Bonefish period, both internally and externally. Internally, as you heard today, it's called multiple things. It's a noun, it's a verb, it's everything. It's become part of our cultural DNA and how we do business. And externally, it's been a definition of our success.
On Slide 21, you'll see that our Bonefish design has evolved as well, a little bit more modern, a little bit more fishy. While the look is different,
the key
drivers which should be important to you are exactly the same as they have been in the past, exactly the same. You also might notice on here that there aren't specific metrics in the Bonefish. That's because we are currently meeting or exceeding all of our long term historical Bonefish targets and you'll see that we expect that to continue in 2019. What we are focused on now is constantly getting better, on driving margin and keeping our net charge offs as moderate as possible and finally on expense discipline as measured by improvement in the efficiency ratio. Day in, day out, year in year out, the tactics may change, the levers that we have a chance to pull or as Brian said, control what we can control, they may change, but the overall goals of driving sustainable long term returns and profitability will be the same.
As you've heard throughout the day, our business plans are aligned around our strategic priorities and these are going to be the levers of earnings growth. Dominate Tennessee by pressing our advantage even further, particularly in the deposit space. Profitably growing our key markets and our specialty businesses, transforming the customer experience to improve both customer engagement and our profitability and 4th, optimizing our expense base to afford us the ability to remain competitive and compete, while improving our efficiency ratio. I am convinced that we have the operating capabilities and the talent to deliver. Now let's take a look at what that looks like for 2019 on Slide 23.
Our current 2019 outlook reflects our expectation of continued strong returns and profitability. We key assumptions on the bottom of this chart, there are 3 there that are very important to driving balance sheet growth and operating leverage. The first is healthy balance sheet growth, which we would expect sitting here today in the 3% to 6% range. We're currently assuming 2 rate increases, 1 late this year and 1 in the middle of next year. And third, the full realization of our merger cost saves.
If you look in the upper in the NIM column in the upper part of this slide, you'll see that the combination of the balance sheet growth and the Fed funds rate increase expectations along with overall disciplined pricing, we believe we can maintain overall NIM stability going into next year. Even with expected declines in benefit from purchase accounting accretion from the Capital Bank portfolio and assumed continued deposit price competition. We expect that with the incremental merger cost save benefits coupled with disciplined expense management, as I said earlier, we expect to see full year expenses down from 2018 to 2019. A key assumption in that expense outlook is FTN average daily revenues, which sitting here today we currently expect to be relatively flat to 2018 levels. If ADRs are higher in the fixed income business, we are going to see higher expenses and our expenses may grow, but they will be more than offset by revenue in that business.
As you can see in the efficiency ratio column in the top part of the slide, the resulting positive operating leverage that we expect to generate in 2019 leads to an expectation of another 200 to 400 basis points of efficiency ratio improvement from 3Q 2018 levels environment to remain very benign with low levels of charge offs and provision. And finally, the last assumption on our total payout ratio at the bottom of the slide reflects our ability to pay strong dividend in the 35 percent range and buyback a meaningful amount of shares given current valuations, while maintaining a strong CET1 ratio in the 9.5% to 10% range, as you can see in the upper right column. The financial metrics of our Bonefish strategy continue to guide the management of our business through any environment. With that in mind, the long term objectives for our company are these: deliver top quartile returns maintain strong credit quality and capital, grow the balance sheet profitably and demonstrate enhanced operating leverage. Our proven results, strong 2019 outlook and focus on our long term objectives leads us to what's on Slide 28.
We fundamentally believe that we are a unique franchise from our number one market share position in Tennessee to our higher growth, higher return specialty businesses to our attractive market opportunities across the Southeast to the complementary nature of our core businesses to the lower risk profile that we maintain. We are a company with and attractive valuation. As I said at the beginning, our company has not been stronger in the last 10 years than it is right now. And I hope you heard today and believe as we do that our future is even brighter. And I couldn't be more excited about where we're headed.
As we wrap up on Slide 27, on behalf of my colleagues, I'd like to thank you for joining us both in person here today and online. We appreciate your investment in and your interest in First Horizon. We've hoped you gained a better perspective on our businesses, our talented leaders and our opportunities. I'd also like to thank the leaders that presented here today, our talented teammates that helped us put this Investor Day together, our dedicated employees that are out serving our customers so well every day and especially our customers and our communities that we have the pleasure to serve. Proven success, focused strategy, opportunities, this is First Horizon.
With that, I will pause and ask Brian to come up and join me and we'll be happy to take some questions.
First question comes from Gene Taylor.
Thanks for taking the question. I guess, I was kind of surprised that the Bonefish was empty of numbers. So how much debate was there around that? How much discussion on should you put some numbers into the Bonefish or not? And then assuming you're not going to suddenly change your mind on that and give us new numbers now, can you talk about which of the levers you think are most important?
I guess it kind of feels like it's probably the efficiency ratio from here, given that long term sub-fifty 9 efficiency target.
Jeffrey. So we've had a lot of discussion once we exceeded our Bonefish targets about should we change them, should we not change them. And the reality is that they were excellent targets for a long period of time for us as an aspirational to improve. The problem with that though is that it's hard now to see the future, particularly around credit, right? That will probably be the biggest toggle in terms of not just us, but the industry in general, knowing where or not whether or not they're going to be able to improve returns.
So for us over the next couple of years, in 2019, we see 17% to 18% ROTCs. If the credit environment remains benign, we see the growth that we expect to drive. We expect and we improve the operating leverage like we expect, that will likely go higher over the next couple of years. But without being able to know what the credit environment is going to be 2, 3, 4 years down the line, we just thought frankly it was more prudent to say, you know what, day in, day out, year in, year out, we are going to build a business model that can generate returns, wherever those top quartile returns are. And we'll give you a view of what the next year looks like, which we did, and we'll do that going forward.
To add to BJ's comment, I think just the framework of top quartile returns year in, year out is an aspiration, is very aspirational. And we are very focused on the dynamics of the business and particularly the attractive returns that we produce and being very efficient in capital. And the second part of your question is, what is the key lever if anything? Operational efficiency is a big part of it. We think that and you've heard us describe today a number of places that we're going to be investing.
You heard talking about hiring people in our markets, South Florida, Jeff Jackson mentioned, could be 25 to 30 people over the next 4 or 5 years. We're going to make investments in technology, but we've got to pay for those. We've got to drive efficiency in other parts of the business. But ultimately, all of that is geared towards deploying capital in a thoughtful way and producing superior returns on that, which top quartile would ultimately be. And while it's hard to dimension what the cycles look like and if we raise the Bonefish targets from north of 2015 to 2017 to 2020 and where do you end with that?
And so we just wanted to set something that worked for any environment, which is producing top quartile returns. Okay. And then
question regarding the presentations. So I noticed no presentation today on FTN Financial. How should we think about that? I mean, can you talk about your commitment to the business? And maybe a little bit around the if you're still committed to it, what's the longer term outlook in terms of the contribution from the business, the longer term ADR level that you think?
Thanks.
Yes, I'll start. Mike Kisber, who runs Kisber who runs the business is hiding out in the corner over here. There is a business we're committed to. We've been in the fixed income business for darn near a century, 75 years to 80 years. We know it well.
We know it through various cycles. And you know when interest rates are bottoming out that it's going to be a difficult environment. And as Vijay said, we expect average daily revenues to be very low. I think it's a telling picture that it is a counter cyclical balance to our business that when the economy invariably and it will, I don't expect it next year and maybe the year after that, but at some point, the economy will turn down and FTN Financial will be a very countercyclical balance to that. So when our credit cost goes up like everybody else's, probably at a slower rate, but when it goes up, we will have an offset to that and it gives us the ability to continue to lean in.
All of that said, if you look at the business, even with these very low levels, we do make money in the business. And while it is sort of just around cost of capital returns today, because it does not draw a tremendous amount of capital, we don't run it with very much risk in the business. It is essentially a go home flat every night business. We don't run trading portfolios. It is a matching up buyers sellers business.
We can make small amounts of money in it and still be comfortable with the return profile we have in the short term, knowing that over the long term, it is a very complementary piece of our business.
I had a question about loan growth. We heard from a lot of other people this morning talking about Nashville, the Carolinas, and you're than 30 to 40 people in Florida, the specialty lending group looks like the outlook is pretty good there. But you look at loan growth next year at 3% to 6%, it just seems like a little bit of a disconnect.
So I'll start. So a couple of different factors at work, right? So 3% to 6% is total company. We still have non strategic portfolio rundown, so that's a little bit of a dampening effect. The second is, and you've heard this mentioned across the day, profitable growth.
If we don't see opportunities for profitable growth, then we're not going to pursue. We don't go out and just make loan only syndications to make loan only syndications and grow the balance sheet. We are looking for profitable relationships in our businesses. So if you look at that and dimension that 3% to 6%, I think our specialty businesses are going to be at the high end or higher of that. I think our commercial businesses are going to be maybe in the middle range to that.
Our consumer businesses are going to be on the low end of that. But in general, I think that's where we think the opportunity is going to be given what the H8 data is telling us about growth and where we see the opportunities. Going forward though, we're thinking that that accelerates over time if loan demand starts to come back, if we're getting outsized traction as we're hiring bankers in the Carolinas or in Florida as we're seeing better opportunities or continued opportunities in specialty. But for 2019, we think that that's the most appropriate expectation.
All right. And then I had a second question. So a lot of talk about economic profits doubling over the next 5 years. I think you quantified it $130,000,000 to $160,000,000 But I thought I saw on a slide 2017 was $1.55 So just kind of explain that. And then you're not talking about EPS doubling, this is something separate, right?
That's right. That'd be noteworthy, wouldn't it? Double on EPS over 5 years. So think about it this way, okay? We and there's a slide, Slide 5 in your reference material.
So we had these decks that were posted, their reference materials posted as well. Slide 5 on that kind of breaks down how the regional bank doubled economic profit. And it shows loan growth and it shows balance sheet growth and it shows economic capital usage. What happened over those 4 years is that net income in those businesses actually grew a little bit over 50%, but economic capital usage in that business was roughly flat and we doubled economic profit. So what happened was the regional bank grew the net income by managing the allocated capital that we gave to them, reducing the credit loss in there, building a higher return balance sheet, growing deposits, which don't carry economic capital hardly at all.
All of those things drove that. The job of our businesses in the regional bank are to manage the allocated capital that we give them. Brian's job and my job is to then take the excess capital and optimize our total capital for the benefit of our shareholders like more than doubling the dividend payout over the last 5 years, like buying back 10% of the company over the last 5 years. And if you look actually from 2013 to 2017, excluding the Capital Bank deal, EPS was up 66% during that timeframe. So the bank manages what they can control and we optimize the capital such that from your perspective, we're trying to grow EPS and build a sustainable top quartile return business.
Brady, to piggyback on sorry, Ken, one more point. To piggyback on the intersection of your two questions,
the loan growth is not the only proxy for growth and profitability. And I don't know that it made the final cut of the reference material. But you saw it a little bit in the slides that we had there today. We've shown in the past the chart basically a waterfall chart of all the products that are profitable dipping down and those that are unprofitable. There is growth in profitability opportunity in the existing business, the relationships that we have.
And you heard that sort of woven throughout the conversation today. So when you think about how we use these tools and you hear BJ talk about improving the capital efficiency in the banking business, it comes from better pricing on existing relationships. It comes from having less risky relationships, so you'll use less capital at better spreads. And it ultimately comes from making relationships, products. Those waterfalls apply to products, they apply to RMs, they apply to geographies.
And while you can look at those as a glass half full or a glass half empty, I see them as a glass half full. I see a lot of interesting opportunity for us to improve our profitability with the existing book of business that we have. And so our growth in profitability is not only dimensioned about how fast we grow the balance sheet, it's how fast we are able to leverage the profitability that is in that balance sheet. And as BJ said, when it comes to loan growth, we're going to make every good loan we have an opportunity to make, but we're not going to put our balance sheet at risk for the long term by trying to hit artificial targets about some percentage or another. We're focused on what we think is the right thing for the long term, what we can do in a reasonable fashion and a profitable fashion.
And as we look at the next year or so, that range that BJ laid out, 3% to 6 percent seems like a reasonable place to start. Ken?
All right. I guess first question is just in terms of capital return. I understand want to deploy it prudently, totally makes sense. But you have $290,000,000 of excess capital, you're generating 170,000,000 dollars of sort of annual capital. What's holding you back from getting a little more aggressive with the capital return?
You want start? Go ahead. Look, we a quarter ago, our CET1 was right at 9%, and we got a lot of feedback. And one thing is holding our price back is our price to tangible book is often that our capital ratios are low. FTN does have some impact on our tangible common equity ratios to tangible assets.
Basically, while it doesn't have much risk, it uses $2,500,000,000 $3,000,000,000 worth of balance sheet. And so we looked at that and said, well, the reasonable answer for that is you just go out and raise more capital, which makes no sense at all. But when we let the Visa stock drop into the income statement, which was hidden capital that we've been talking about for years, it brought those ratios up. It's not to say that we won't bring them down, but if that's a screen that people are running and not being, I'd say, critical or thoughtful about how the risk in a balance sheet stacks up visavis peers, you can't get too far outside that range. So that's a big part of it.
But let's say BJ's, his chart that he had up here 9.5% to 10 percent is a safe range. That's above our long term range. We feel comfortable there. In his pro form a, you're going to distribute the 100 and $70,000,000 or so in capital next year. Vijay didn't say, at least I didn't hear him say, early this quarter, we bought back about $30,000,000 of stock as the stock went on sale in our view over the last several weeks.
So we're going to be opportunistic. We're not just going to plow ahead pushing capital out the door, but we're going to
I'd just reiterate $30,000,000 bought back in a month and a half is pretty good, pretty good starting point.
All right. And then just one follow-up. Just if I heard you right, I think you said you had $4,500,000,000 of the market index deposits and you want to try replace those. Obviously, that's a fairly large number. What's the timing of when you could potentially a
lot of the questions, rightly so, that are a lot of the questions rightly so that our business leaders got from you all today was well in these newer markets where you're kind of more of an upstart, don't you have to be aggressive on pricing and don't you have to pay up for it and so on and so forth. And the likelihood is in some cases, yes, that will be a lever that we pull. But remember, we are paying 100% beta, fed effective plus 5 or 10 today on 4 relationship that's also going to have some checking balances to it in addition to savings or CDs. We are materially improving the margin as we're paying those together dollar for dollar. So when I said over the next 5 years, I would like to see double the deposit base in certain high potential markets that we have.
That's a couple of $1,000,000,000 If we can double the deposit base that we have in our specialty businesses, that in aggregate is $4 ish 1,000,000,000 and that could replace our market index. Index. So that's how I think about it.
And there's no prepays or anything on those, like if
you bring in a dollar of core deposits, you can just pay off a dollar
certain period of time. So what we do to optimize that is where we see our balance sheet growing. We'll just let the contracts go. And it's as easy as that and we can ebb and flow the base.
Hi. So you've highlighted the revenue growing 12%, expenses growing 3% over the past 5 years.
Would you
expect that, that relationship will continue? Or what are the risks that expenses will, I guess revenue will grow slower compared to this past 4 times operating leverage with all the initiatives you're doing? And then secondly, you've highlighted a few areas where you think you can get $42,000,000 of pre tax income closing the gap with the relationship managers and CBF. And then the 7 $5,000,000 of annualized revenue and marketing. So are these commitments you're making or are these just opportunities that if they happen it would be great, but not necessarily a core focus?
And then if they are going to happen, what does the
timeline look like for that?
Okay. Starting on the first one, the 12% revenue growth and the 3%, so 4 times leverage, That's a lofty goal. I would expect that we would at least target 2 times operating leverage or more over the next few years. And that's what we're thinking about for 2019 sure. So that's part of that is knowing where our revenue opportunities are.
So as we talked about earlier, 3% to 6% balance sheet growth next year, we think is pretty strong and healthy given the environment that we're going to be operating in. And so we're going to calibrate our expenses accordingly and try to drive positive operating leverage there. The things that you heard throughout the day, the 42 $1,000,000 or the improving customer profitability, those are absolutely part of our plans to continue to grow the profitability of the bank, double the economic profit in the business over the next 5 years and obviously grow corporately the earnings per share that we see. They're not specifically in any of the things we have disclosed to you today, but the things that we disclose to our Board, the things that we talk about at our management meetings, all of those things feed into how are we going to continue to enhance our operating leverage, improve the efficiency ratio better than 59% and continue to improve the earnings per share that we think we need to deliver.
Brian, BJ had laid out the capital priorities of the bank. It sounds like there's a lot of organic growth opportunities. I think you guys have a view the stock is disconnected or discounted from where it should be. So clearly, repurchasing stock makes a lot of sense at this point in time. And you've talked about whole bank M and A is probably not in the cards anytime soon.
I guess, when you look at the inorganic opportunities out there, just given all the things that you guys laid out today, what's going on at the bank, what would some of the inorganic opportunities that you would potentially pursue be in the non bank area?
I can't think of anything today, Ryan, that we pursued. It's inorganic in the non bank area. I think David talked about a few opportunities, which are not whole bank. Well, restaurant franchise finance, that's a we had a small couple of $100,000,000 franchise finance portfolio, GE decided to exit that business. And if we had known, we couldn't get Todd Jones to commit early enough, we could hire Todd early enough, we bought the whole portfolio, which would have been roughly 3 times what we bought.
Those kind of opportunities that fit with areas of expertise, sure, but they don't come up very often. But there's nothing that we sit around and think about that is a gap in our product set today that at least we're aware of that we feel like we need to go in and fill a gap. So there's nothing really that I think of today. You're thinking about something I'm missing. But we're going to be opportunistic in that regard.
There are restaurant franchise finance, our specialty healthcare team that we had the opportunity to build a business around. We didn't talk, but I think a minute or so on it and in Todd's slides, we've got a very small energy lending team that has been growing and doing a very nice job in our Houston office. So we'll be opportunistic to look for things like that, but nothing I can think of today. Steve?
Thanks for holding the day today first. I wanted to follow-up on expenses, BJ. Maybe regarding I
think,
left at this point?
Yes. It's what a lot of our leaders say too. It's like, come on, how much you want me to give? We're looking at numerous continued areas to take out. And candidly, there are a lot of the same ones that we've looked at before.
I think what we're doing though, Steve, is looking a little bit harder at efficiencies that are tech enabled, right? So we haven't done as much as we think we could have using technology to then reduce costs across the organization. We've done some of the other things that I've mentioned. So that's going to be, I think, a big piece of it. And as Brian said at the beginning, and clearly it shows up in our aspirations of efficiency, we can't let it not be self funded.
We can't afford to do that. And so Youssef Aline, who's here today and Bruce Lidsey and I are leading an effort to figure out where we're going to take cost out of the organization and where we're going to put money into primarily technology, but also marketing and people to be able to do that.
Given your ability to continue self funding, do you think you can hold continue beyond 2019?
That's a nice aspiration, but I wouldn't commit to it today. What I will commit to is what BJ said, which is we understand we have to drive positive operating leverage. And I don't know what investments will be required. And expenses and operating leverage need to be looked at over more than a quarter to quarter basis or year to year basis. It needs to be looked at over a longer horizon.
And while we will endeavor to do exactly what you said, I wouldn't feel like we're in a position to commit in that regard, because I described in my earlier comments, the the work that BJ just referenced with Youssef and Bruce Lipsey and BJ will find opportunities where we can use technology to eliminate costs. You heard Tammy very clearly say today, we're looking at our cost structure even in the consumer bank and our branch network and figuring out how we take the dollars we're spending a day and invest them into what we need for the future. So I think it's a core competency of the organization and it is something we will always endeavor to do. We very clearly talk about spend every dollar as if it were your own, not a corporate dollar, not an allocated dollar, but if you owned 100% of the company and you were spending that dollar, is that what you would do?
One final one. So quite a few of the slides talked about the opportunity from the new markets from the capital deal. But what I'm hearing, it sounds like it's more of an ROE opportunity, right, replacing expensive deposits, stuff like that. Is that the way you're viewing it? Or do you think this is a stair change in terms of long term growth of the company?
I think it's a little bit of both. I think it is clearly an enhancement to the overall demographics of the franchise and the growth opportunities. We've pointed out in very well, clearly in less and subtle ways that the growth dynamics of the Capital Bank markets are very, very strong. We also start out with a a through our branding and our marketing efforts. It will be partly by augmenting the strong team that Jean and the Capital Bank team was able to put in place with additional hiring.
But if you look at the demographics of a Raleigh or Charlotte or a Charleston or even some of the submarkets in South Florida that Jeff has referenced. That should enhance our growth rate over the long term. It's probably not as much a factor as because of the small base we start with in 2019, but you will see that accelerate, I believe, over the 4 coming years.
Hey, thanks for the question. So just a clarification question on efficiency ratio for the 2019 outlook. Vijay, I thought you said that was a by year end efficiency goal or is that a full year goal?
The 200 basis points to 400 basis point improvement was from 3Q 2018 levels by the end of 2019.
Okay. So the 60% to 62% is
by 4Q 2019? Yes. So yes.
Yes. Okay.
I thought you guys did a nice job laying out all the opportunities over the next 5 years, particularly around the doubling of the economic profit over the next 5 years. Can you just remind us how the executive compensation may or may not be tied to hitting these goals?
Yes. Short term economic compensation for executives is driven on a the bonus program is basically on a series of shorter term annual goals that are discussed with the Board in the early part of 2019. So it incorporates the things that we've been talking about here. Longer term compensation historically has been driven by relative ROE. So stock compensation performance shares have been driven by Short term compensation in addition to goals includes a measure around overhead efficiency ratio.
So we keep a focus on controlling costs. And so there's a modifier and we might add to that as well as we look at 2019 for this year, we might add some growth dynamics in that as well. Marty?
So I got a couple of questions for BJ and then Brian I got an easy one for you.
Thank you. The other way?
You don't get any easy ones. The loan loss allowance is one of the lowest levels and if you kind of took out the non strategic it's even lower in the bank. Is there a level set or how do you rebuild that or how do you I mean over the next couple of years should we build any increase in that ratio as you go forward or is CECL going to be your recalibration once you get there?
Yes. So let's put CECL aside for the moment, hopefully forever, but at least for the moment today. Yes, we will as we're growing the loan portfolio, we will incrementally be to it. Our portfolio, just keep in mind, number 1, obviously, it's starting from a position of strength. 40% of it is investment grade equivalent.
So we Susan does an excellent job of calibrating what we need in terms of reserve and have a lot of eyes on it. But number 2, keep in mind that our loans to mortgage company business is about 12% or so and really doesn't hold any reserve because it's really fraud risk, not credit risk in that business. So we got a $2 ish billion portfolio that really has no reserve against it. And don't get nervous about that. Again, it's very little to no credit loss.
As a matter of fact, Bob, I don't think not in my tenure here, we've never had a single credit loss, right? So that artificially impacts the optics of the reserve. But regardless, you've heard today that we focus on soundness, profitability and growth in that order. And we will not hesitate in the least to do something with the reserve or to build our provision when we think it's prudent to do so. But we're actively watching it and across our portfolios, absent something lumpy or one time, we are seeing continued strength across all of our portfolios and we expect that to continue for the foreseeable future.
So second question, could you lead the way for all your FTM Financial customers and show how you can actually accelerate the benefit of your yield in your portfolio by restructuring and using your extra capital. So use that temporary benefit and show some of those customers the pathway so that maybe they'll start to follow suit.
Julie noted, I'll think about it.
And then the What's
the easy one? The layup. We see the bug everywhere, right? So the logo bug. But I was surprised, I guess I just was fell asleep at the wheel.
The Capital Bank was still the name in the out markets. So I was just interested with First Horizon there as a big brand, you chose to use Capital Bank and not use First Horizon. So I was just curious how that thought process went?
Well, it was reasonably straightforward. We used the first Tennessee name when we acquired Trust Atlantic in 2016. And it became clear that that was fine on the commercial side. It was more problematic on the retail side. The capital name was a good name.
It was a strong name. We were able to use the First Tennessee logo and we operate basically 1 charter, one set of systems, but two names. So if you're in Nashville, you can go to Fort Myers and vice versa. We will have to work that out over time. Dawn has been here for 8 weeks and I can't imagine why she doesn't have it solved yet, but she will.
We'll work through that. We're going to end up with probably 1 of 4 choices. It'll either be First Tennessee Capital Bank, First Horizon or something else. But that's not a real burning platform. We need to resolve it before we push a lot of dollars in the marketing and branding the Capital Bank name.
On the other hand, the First Tennessee name is extraordinarily powerful here in the state of Tennessee. So it's not an easy thing to work through. And we took the pressure off the situation by saying that that's a decision for down the road.
Just the First Horizon name as the corporation, I was one of those that said, well, if we're going away from that national strategy, let's just become First Tennessee again. And we kept it. We kept the First Horizon name. So, just thought that would be the nomenclature that was just there because that's why you all kept it?
Well, we kept the 1st Horizon name because I was sort of cheap, didn't want to spend the $400,000 or $500,000 it took to have a shareholder vote and free print business cards to change it. And it really had nothing to do impacting our operations. It's a name that is tested well over the years in terms of Horizon always implies optimism or seems to imply optimism to most folks. So it's in the mix, but we didn't keep it for that. In particular, it was more just a decision in 2,009 that we want to spend $500,000 and go through the brain damage with everything else we had going on to change the name on a company that really doesn't have an operate is not an operating entity.
I'm going to go ahead and wrap up. We'll stick around and have any other questions. I know I'm trying to be mindful. I know a lot of people have 4 o'clock flights and making you late. We are grateful that you took the time to visit with us here today and experience Nashville.
This is an outstanding city to visit and I hope you'll come back here. Hope you'll come back to Tennessee or any of our markets and visit and I hope you'll take the time to come back and visit with us and we'll be happy to put more people in front of you. One of the benefits of days like today is that you have the opportunity to see a broader cross section of the leadership in the organization. And it is an extraordinarily talented team. I'm very, very proud of this team.
They're very thoughtful about the business and they're very focused on creating a tremendous amount of value. We're sort of fanatical in the organization about a book, probably the best book ever written on Moneyball is a book about baseball, but it's the business of baseball, Billy Bean and the Oakland A's and how they took They said, we don't have the resources to outspend the big guys, the Yankees, the Dodgers. But if we look at what puts runs on the board and think about our business in differentiated ways, we can win and win they did. And essentially, everybody in Major League Sports is trying to do something like that. That's what we're doing in the banking business.
We're taking data. We're taking analysis, what drives value, what destroys value and weave those things together and create a customer experience that is differentiated and creates superior returns. If you leave with anything, I hope you leave with, this is a team that has proven its ability to transform and execute the business, that we really do have a focused strategy for creating value and we recognize that we have to adapt that strategy to changing serve of anybody in our peer group. The Tennessee footprint, the Carolinas and South Florida footprint provide us opportunities that are almost unparalleled in the business. So thank you again for being here with us today.
Thank you for the big investment of time it took you to get here, to spend 6 hours with us today and to get home later. If you have questions, please follow-up with us. I hope everyone travels safely. Thank you.