Thank you for being here. We have Bryan Jordan here from First Horizon. Old friend, covered your company for a long period of time. And we also have Hope in the audience as well. If the questions get too tough, again,
Thank you for.
If they get technical questions, they get technical. Okay, that's good. So, thank you for being here. As I've done in these other sessions, attendance is up. We have a lot more generalist interest, maybe not after today, in the market, but, you know, they're still here and they showed up. So maybe just give us a 30,000-foot description of First Horizon in the markets you're in and businesses, and we'll go from there.
Yeah, happy to do that. Thanks for having us, Jon. It's good to be here and good to see everybody. We are a 12-state franchise today. We basically are in some of the most attractive markets in the country. If you think about our footprint geographically, it runs from Virginia to Texas and Florida to Arkansas. We are built around a core banking franchise in the Tennessee market that was founded in 1864, and we've expanded since 2017 in the Carolinas with the Capital Bank merger and then the Iberiabank merger of equals, which gave us a very strong presence in the Carolinas. It gave us a very good presence in Florida and Texas, and then we have some very attractive markets like Alabama, Birmingham, Mobile, Atlanta, so if you look at the map, we're in 10 of the 25 fastest growing MSAs in the country.
We feel like we have very good opportunity in our footprint. To complement our core banking business, we have a fixed income business and a series of countercyclical businesses, which we describe as countercyclical. We tend to be net interest margin asset sensitive, but our fee income tends to be more liability sensitive. So we're very close to neutral. So the impact of moving rates has less impact on the volatility in our earnings than others might. So we have a very attractive set of businesses and a great growing part of the world. We're very excited about the momentum we see in our markets and our business.
Talk a little bit about that momentum. You had a good fourth quarter, and how are you feeling about the momentum rolling into 2025?
Yeah, if you look at First Horizon over the last five years, it helps to understand the momentum from 2020, which was really closing during the pandemic. We closed the Iberiabank merger of equals . We integrated that. And then in February, we announced a merger agreement with TD. That merger agreement terminated in May of 2023. And so over a period of three and a half years, a merger integration or merger integration planning, so to speak, we built up a backlog of technology investments and investments in the business. And so the last 18 months, our team has done a fantastic job. We invested an incremental $100 million in our systems and technology. We announced that at the termination of the TD merger.
That work is on track and it is very far down the path and I think puts us in a very, very good position in terms of competitiveness of technology and infrastructure. And then, following the termination, we went out and got very front footed in terms of marketing and branding. We were in a bit of a unique position. And it's funny how the calendar works. When you look backwards, nobody would plan it this way. We because we had gone into the Carolinas with Capital Bank, we changed the First Horizon from First Tennessee Bank to First Horizon. So we had a new brand in the Carolinas and in Tennessee. And then Iberiabank, which closed and converted in February 2022, had a new brand from 2022. So we needed to lean in. We did a lot in terms of advertising.
We were very forward leaning in growing our deposit base, taking on new customers. We picked up about 30,000 new customers over the course of the summer in 2023. Had very good retention around that. And so that brings us to 2024, fourth quarter and beyond. We see momentum building in the business. And when we look at our franchise today, I believe we have a number of levers to pull that everybody won't have just simply because we're still working out some of the go-to-market strategies, the way we think about the business, the way we price and deliver product. And we think we've got a number of to-do list kind of items that we think gives us tremendous ability to deliver in 2025, 2026, 2027.
As we've talked a tremendous amount over really the last year or so, most particularly the last six months, we're sort of a low teens r eturn on tangible common equity. We think that over the next several years, we can push that back into the 15% plus range. And that's essentially delivering more profitability on our existing book of business. I think that's the kind of momentum that really is exciting over the next few years.
Okay, good, and like all sessions, if anyone has a question, just raise your hand and we'll get you a microphone and handle the question. How are you feeling in general about the economy? I mean, it's topical today, obviously, but that's not really why I'm asking the question, but how are you feeling about the economy and how does that translate into your pipelines?
Yeah, I did. I had a number of conversations with customers and our advisory boards last week in the eastern part of Tennessee. Bluntly, what I feel today is that 2025 is probably going to look a lot like 2024, that we're going to have a fairly modest GDP growth rate. If you look at the GDPNow from the Atlanta Fed, I think it's showing even a negative number at this point, but it doesn't feel like we're in recessionary territory. What has at least become my main thought process over the last several weeks is there's probably more downside risk to the economy than there were six weeks, eight weeks ago. I feel it's a bit more asymmetric. I think it's still a pretty good economy.
I don't think the Fed is going to move rates a tremendous amount. I think we're going to see a lot of how these tariffs work with the otherwise inflation economy, the size of the Fed's balance sheet. We'll be smarter in six months, eight months about how all these things come together. I'm not in a dark room, but I do think 2024, 2025 are going to look very similar in many ways.
The feedback from borrowers on some of these visits?
Yeah, the feedback from borrowers is one of optimism and uncertainty at the same time. I can sit here and tell you that we see pipelines building, but it's not clear what the pull-through is going to be because, you know, people building expectations and then actually drawing it down. I look at the H.8 data, you can look at the industry on a daily basis and see there's just not tremendous loan growth in the economy today. And it feels very much like it fits into what I said a minute or so ago, which is everybody will be smarter in six months and we'll have a better sense. And until then, I think it's going to be fairly modest lending growth in the overall environment.
Okay. How about the mortgage warehouse business? What's an update on that?
Mortgage warehouse business is an interesting business. When you look at that business, we like it an awful lot. It has a lot of seasonality. So first quarter loan balances are likely to be down just because of seasonality. But we saw very good momentum in the fourth quarter and generally like what we saw in terms of the underlying business in the first quarter of this year. I've got to believe that having the 10-year Treasury moved down to the 4.20%-4.15% range, whatever it is right now is going to be good for that business. So I'm optimistic that loan volume, loan demand, particularly refinance activity could pick up over the course of the year. Refi activity is what will really drive the surge.
I don't see a big surge in housing or purchase money demand, but I'm optimistic with a lower Treasury, we could see a pickup in that business in the back half of this year.
So nothing really unusual compared to what you would expect in this kind of environment?
No, it's the business is performing very close to what our expectations are. It has that seasonal low coming out of the holidays, January, February, and the business starts to build in November, excuse me, in March. And we're pretty optimistic. We believe we consolidated some share in 2023, 2024, as people got out of that business or divested portfolios and things of that nature. And while we've built a much stronger floor under the business, we think that will ultimately lead to greater demand when refi purchase money activity picks up. But vis-à-vis where we were two, three, would say seven, eight years ago, we think the floor is significantly higher in terms of aggregate balances.
I think with an improving Treasury, there's a lot of pent-up demand for lower rates coming out of the last two or three years.
Yeah, for sure. Okay. Sources of growth, talk a little bit about loan mix and where, where you see maybe runoff or planned runoff and where you see a little more optimism.
Yeah, I think in the near term, my expectation is that commercial real estate will continue to be a bit softer or trend down just simply because you have more things getting to completion and going into the permanent markets than projects are getting started. I think our core C&I businesses and our specialty businesses will continue to track the economy and we'll do a little bit better than economic growth as a whole. And then I think, you know, what the big wild card is how much refinance activity gets started and what does that do for the mortgage warehouse business. But I think loan growth, we've said low single digits, maybe tweaking into what somebody might define as a middle, but we still feel pretty good about low single digits.
But I think it really is going to depend on how, when we're six months smarter, what's going on in the economy? I'm still optimistic as I said a minute ago.
Maybe a little seasonality early and, but it feels fine.
There's seasonality. There's definitely seasonality in the first part of the year. But I think back to try to link the two points I made, now and earlier is we think we can improve profit, profitability without a tremendous amount of loan growth in the near term. Part of it is by driving an expanded margin and part of it is pulling on these levers where we've spent a lot of time in the last year consolidating and refining our go-to-market strategy and our consumer banking business, the work we're doing in our commercial banking business. We spent all of last year really integrating, making the final integration steps of our Treasury Management system. And all of those things give us the opportunity to work on improved profitability this year.
I think that's, again, back to having leverage more than just what is the economy producing in loan growth or what is the Fed going to do with interest rates?
Yeah. Talk a little bit about some of the margin levers and you did a portfolio restructure and it feels like you have momentum in the margin. Give us an update in terms of what you're thinking there.
When we came out of the merger, I said we leaned in. We competed with rate and I thought a lot about that as marketing dollars. We wanted to have our bankers front footed talking to their customers and talking about First Horizon, bless you, First Horizon is here and here to stay. That we have a lot of momentum, wanted to talk about what was going on in our company and our balance sheet and all of those things led to a margin where we had somewhat higher deposit costs in the end of 2023 and end of 2024. In 2024, we started to see that trending back and we had improvement in our net interest margin in the fourth quarter.
As we looked into the beginning of this year, what you would expect would continue to happen with the Fed stabilized in terms of no further rate cuts. The fact that 100 basis points of cuts had been made between September, November, and December, we saw slightly improving deposit costs, improving margins in the beginning part of the quarter. We think that as a result of that, coupled with a fairly stable asset side, which is largely repriced, we think there's an opportunity to improve our margin again in the first quarter. As you mentioned, we restructured our bond portfolio late in December. That was about $35 million a year.
I'll look at Hope, make sure I get the number right, but I think it's about $35 million a year in pre-tax, net interest margin benefit, about a $90-$91 million loss on the portfolio with a two and a half year earnback. So we're fairly optimistic about improving profitability. The other levers in our businesses, by having everything consolidated in one business model, there's a lot of opportunity for us in Treasury management. The calling efforts I see across the franchise this year versus last year is up significantly. Our bankers, our Treasury management sales officers are getting in front of the customer much more aggressively. We're seeing much better intersection between our Private Client and our Wealth management businesses and getting out with our commercial customers.
It's really the benefit of bringing together Iberiabank and First Horizon, the footprint and the combined product set and leveraging of that. These are all things that we never or nobody models into deals. It was delayed a bit because of merger integration and then, you know, whatever happened in the last two or three years. Those things, they're not going to all happen in the first quarter of this year, but it's something we believe that we can build on over the next several quarters and it can add significant profitability to our book of business.
Okay, so consistent message on the margin with some improvement in the first quarter, but you're feeling good about margin expansion from there.
I feel good. I feel good about how the business looks today and the momentum in the business. We are asset sensitive in net interest income and to the extent that the Fed does not lower rates, that tends to benefit our net interest margin even further.
You're still getting the repricing on the deposit side.
We're still getting repricing deposits. The easiest way to think about it is certificates of deposit. You know, if you have one that was a six-month deal done in the summer of 2024, reprices in January, it's just going to be at a lower spread. That kind of works its way through the balance sheet for a while. Deposits don't reprice as rapidly as loans.
Okay. Good. Fixed income business, can you give us an update in terms of how that's performing and what kind of expectations you have there?
Yeah, the fixed income business has been very good. There's the volatility you see in the bond markets. It hadn't been that long ago. We were pushing 5% on the 10-year and now we're pushing 4%. And that adds volatility in that business. That's ultimately good for the business. But we're optimistic that fixed income will be similar to 2024 as we look at first quarter and into the rest of this year. I think if rates are stable and you have a number of these uncertainties coupled with an absence of loan growth, that will be good for the fixed income business. I expect simply because people will continue to reinvest in securities portfolios.
Okay. You've been pretty open about making preparations, the LFI requirements. Where are you in that journey and how do you want investors to think about that from an expense point of view?
We have some elements of being an LFI. And I'm not arguing that we're at LFI standards, but we could have neglected or avoided stress testing for the last seven or eight years. So we've continued to do stress testing and we have continued to try to build in the infrastructure pieces that we think are additive to our ability to manage risk in the business and improve performance and stress tests. Stress testing, easy for me to say. Stress testing is one of those things that actually does that. And as we look at the remaining requirements, we have a better sense as to what the reporting, the reporting, what the data requirements are simply because of our time with TD and being prepared for day one reporting.
And so we will invest in and continue to build out the infrastructure so that we won't have a sharp cliff when and if we reach the $100 billion threshold on an organic basis. I do think that I am clear. Well, I don't think. I know I'm clearly more optimistic today that some of the cliff effects that were proposed in 2023, 2024 around TLAC and regulatory costs are likely to be less, maybe significantly less. And I think if it's just down to the $25 to $50 million range of total costs to comply with regulatory reporting, some of that is in our run rate. We'll embed a little bit more of it in our current run rate or planning to. And I think that will be manageable. It's not going to be a huge speed bump for us in terms of driving profitability in the business.
You have some time.
Yeah, we have time. You know, organically, you can fly whatever percentage you want to 82%. It's going to take you two or three years to get there.
What's the most expensive part or what, what part of it bothers you the most in terms of getting prepared for that?
I think the bother is probably too strong. The thing I worry about most.
Yeah.
Yeah. Well, it's yeah, look. I look at a lot of these costs and stress testing is one that I fully acknowledge that we think is a valuable tool for our board and as we think about capital policy. And there's some elements of it that are seen a bit overly redundant is documentation and it's checkers checking on checkers. But we recognize that that's part of the infrastructure required to be an LFI. And I would rather have it in place and have the optionality as opposed to be paralyzed because we get in a situation where we don't have the infrastructure we need. And I think, you know, the optionality is pretty valuable to us for the cost involved.
Okay. You use the term optionality. In a couple of years, it feels like you're prepared to organically grow through it. I think some people look at you today and say it's kind of a ceiling or a cliff. And what's your answer on that?
I fully believe that.
You've probably never been asked that question before.
Never. There are two ways we're going to grow through it. I have no doubt about that. I think that is, you know, the most probable answer. The question is, do we do it on an organic basis or is there some opportunity to fill in our footprint that adds to that? I would tell you as we sit here today, M&A is not a priority for us, focusing on the business that we have operating it and most particularly operating it very well and then driving up profitability is our focus. So if you ask me today, it feels to me like we will grow through it organically. You know, whether that's two or three or four years is really insignificant.
We'll be prepared when we get there, but we'll continue to invest capital at the greatest rate possible to attract and build deep, broad customer relationships and one of the most attractive parts of the U.S. economy.
Absolutely. Can you talk a little bit about capital deployment and what your plans are? It feels like you still have more room and maybe it keeps getting a little bit better over time in terms of where you can take your capital ratios.
Yeah, we, as I said, stress testing is a part of it. We build bottoms- up estimates and things like the variability in our mortgage warehouse business, which we don't believe embeds a lot of credit risk in our balance sheet, if any. It really is operational risk. Give us a number of levers. Hope and I have talked in a number of different settings and we believe at some point we're going to drift from that target of around 11% CET1 towards a 10.5% area. And that's going to be done in conjunction with conversations with our board and talking to them about risk in the economy and so on and so forth. I think those are discussions that are not in the way too distant future. Again, go back to my we'll all be smarter in six, eight months.
Given that to the extent that we're generating excess capital to the extent that we're above 11% CET1 and we don't have attractive opportunities to invest it in loan growth or the franchise otherwise, we've been completely comfortable buying back stock. You know, through yesterday, you know, we're probably north of $225 million of stock repurchases on a quarter- to- date basis. I'm not sure what the sale price is right now, but it was on sale earlier today. When we take advantage of that because we do believe in the intrinsic value of the franchise and that it is going to be significantly greater over the next two or three years.
Okay. We've got a few minutes left if anyone has any questions. Okay. What are you getting the most investor questions on? What do they want to know?
I think most of the questions that we get start with, what's going on in the real economy and what does that mean in terms of aggregate balance sheet growth, particularly loan growth. So I think that's category number one. And then as it relates to us, it really is trying to plumb the depths of where are we in terms of improving our margins, improving the profitability and what is the path we have from, call it the 13% area in terms of ROTCE to driving back to 15% plus. And our discussions have largely been how do we improve the profitability of our business.
Okay. Anything you want to share on lessons learned and call it this May of 2023 to where we are today?
I think probably, Jon, the most important lesson is just the sheer aggregate power of our team and the franchise and the footprint. You know, if people were sitting around in early May of 2023 and somebody said, you know, what's First Horizon going to do over the next six months? You know, there wouldn't have been a lot of people say, well, they're going to grow 30,000 new account relationships, 25,000 of them being consumer. They're going to have net growth in deposits that you measure in the billions. And then the next 12, 18 months, they're going to have those kind of retention rates. And what that does in my mind is solidifies that one, that footprint is extraordinarily powerful. The places that we do business are really tremendous places to do business.
We have a great group of customers to go along with those communities. Most importantly, we have an extraordinarily talented team of bankers who really do deliver on a differentiated customer experience. I hope everybody has seen the ad campaign we're running that is really built around big bank muscle. So having a big bank balance sheet, big bank muscle with small bank hustle. It really is that look and feel of a community banking organization. We firmly believe that in a commodity-based product set, the value we create is bringing deep long-term relationships, customer advice, and building out partnerships that expand the entire product set over time.
Okay. It's a lot of focus on M&A, obviously. I'm sure you maybe get annoyed with these questions, but I mean, what is the Bryan Jordan's thought process? And you were partnered with a bigger institution, but at the same time, I hear you say you can grow through a hundred billion on your own and you're not that bothered by it. But what's your current view?
Yeah, I think M&A. I think the M&A environment is getting more clear daily. I understand the FDIC rolled back some of the merger guidelines from 2024. And I expect that will be the general drift of regulation. As I said, as it relates to us as an acquirer, it doesn't feel like a priority in the near term. We have all these levers that I've been describing, and having an extraordinarily good business model is number one priority, and driving profitability in that is a big part of it. As a target, you know, you can't. I don't believe you can plan your strategy around that. Our business is. We're going to operate our business just like we have the last 160 years.
We're going to go out and build the business, create value for our customers and communities, for our shareholders and our associates. If we do those things, you know, it'll be a more valuable franchise down the road. As I said earlier, when you ask about capital, we believe the valuation is going to be significantly higher down the road. One of the things that we proved in early 2022 is we were not looking to do a transaction, but we received an offer and the board did the right thing. I have no doubt at all that the board is going to keep all of its optionality available and decide what creates the most value for our shareholders, customers, and community.
Yeah. Okay. Seems like you're in a good spot.
I've, I feel very, very blessed. I think we're in a good spot and I'm very excited and optimistic about the environment. Certainly, we will get certainty in the not too distant future, is my sense.
Yeah. Okay. Well, thank you, Bryan, for being here.
Thank you.
Thanks everybody.