Everyone. Next up, we have First Horizon Corporation, the bank first opened for business in Memphis back in 1864. Today, First Horizon operates in 12 states across the southern U.S., with assets of $83 billion and 415 branches. The company offers commercial, private banking, consumer wealth, fixed income, and mortgage banking. We'll definitely be talking about those products later. Just looking back at last quarter, FHN generated an adjusted ROTCE of 13.2%, an efficiency ratio of 15.9, and tangible book value increased $0.81- $13.02. With us from First Horizon today are Hope Dmuchowski, Senior Executive Vice President and Chief Financial Officer. She has over 20 years of experience in banking and is responsible for accounting, finance, financial planning, line of business, line of business finance, corporate development, and investor relations. Then to her right is Tammy LoCascio, Senior Executive Vice President, Chief Operating Officer.
Tammy's responsible for technology, operations, data and processing, I'm sorry, data and business transformation function, as well as many of the company's countercyclical and national businesses. Prior to that role, she served as EVP, Senior EVP, and Chief Human Resource Officer since the merger with Iberia. So thank you both. We'll kick it off with some questions, fireside chat, and then open up for questions from the audience. So let's start with Hope. Now that 2024 is mostly behind us, when you reflect back, how do you think First Horizon has performed this year?
Prior to yesterday, 20—who's this on? It's on. Can you hear me? No?
Just keep talking. It'll take a second to kick in.
I was going to say, prior to yesterday, I thought the year was already a little bit crazy, but definitely the election changed some things as to whether we're going to have where the rate cycle's going to go. Great day for bank stocks. There's still a lot of questions for the last two months of the year. However, when I reflect back on the beginning of the year, we had four to six rate cuts in our outlook, the first one in May. We thought that we would have 3%-5% loan growth, and we'd hit the top of the deposit costs. We were wrong on all three of those. The environment played out significantly different. However, our guidance has remained. We were able to increase our fee income while decreasing our NII income guidance and continue to have strong PPNR through the year.
We are one of the banks that did have loan growth this year. We were able to continue to raise deposits quarter over quarter. It did come at a little bit of a cost, but we've been able to successfully walk that back with the first rate cut. Waiting for the announcement while we're on stage as to what our next rate cut is today. But I'm proud of how First Horizon has performed this year. I'm excited for where we are finishing the year and where we'll go into 2025.
FHN has an asset-sensitive balance sheet since we're entering a falling interest rate environment. What impact does that have on your ability to grow revenue and grow earnings?
Our asset-sensitive balance sheet is on a static balance sheet. We have countercyclical businesses, which I'll let Tammy talk about in a minute. She just took over running them last month, and if we see a decreasing rate environment, we expect mortgage warehouse and mortgage to pick up. So the loan growth will offset some of that NII loss. We also have our FHN Financial capital markets bond business, which was really sitting on a cyclical low last year, had a good Q1, Q2 when rate increases were possibly back on track. We had a really low and then a strong Q3, and so although we run an asset-sensitive balance sheet on a static balance sheet, we really think we're more neutral when we look at revenue.
This past quarter, we actually changed our guidance to no longer break out NII and fee income separately because whether we see down 100, flat, or up 100, honestly, our revenue stream stays consistent throughout the years. Tammy has a great background with First Horizon, just having taken over our countercyclical businesses. I'll let her talk a little bit about what she sees coming in the coming year.
Perfect.
Yeah, thank you. So the rate cuts in February certainly helped our countercyclical businesses. So I'm looking for the baseball nod from the audience on what it looks like. For First Horizon, just for those of you who don't know, our countercyclical businesses are FHN Financial business. It's our mortgage warehouse, and then it's our mortgage business that we sell to the secondary market. And we like it for lots of different reasons, but one is it really does help us kind of smooth over our income stream over time. And so that's really what we're planning on. As Hope said, we had a good start to 2024. It dipped down a little in the second quarter. I think Brian shared on our earnings call that we've had some interesting highs and lows over the last several weeks.
I think some of the volatility will come out as we learn a little bit more. I would say the fixed income business is saying that they're cautiously optimistic about outlooks for 2025. So we want to see a few more cards played out. Certainly, today is one of those. Yesterday was another, and we feel pretty good about where we're headed in 2025 with the fixed income business.
As we think about where mortgage warehouse can go, we're sitting at about $2-$3 billion right now. Two years ago, we were between $6 billion and $8 billion, and we actually picked up market share. We shared on our last earnings call that we have increased or picked up 50 new customers as others left the business. We do think $6-$8 billion or more in a normalized environment is where our balance sheet should be.
Just sticking with those businesses, is the move in the short end of the curve enough, or are there other things or events that need to happen for volume to really pick up there?
Yeah, so for the fixed income business, certainly the steepness in the curve helps there. So yesterday helped a little bit. I would say on the mortgage business side, rates going down helps there. So outside of yesterday, if I wasn't thinking about yesterday's event, you would have thought, okay, mortgage rates probably need to get closer to 6% to start seeing significant pickup in the mortgage business. Although I will say that there is some pent-up demand both on the consumer side and mortgage and also the commercial side, which we'll talk about, that I think naturally flows into what loan growth looks like in 2025. But I'd say countercyclical businesses, at least FHN Financial looks for a steepening of the curve. Mortgage, we'd like to see rates go down a few more times to see volumes pick up.
Perfect. And let's circle back to the banking franchise. On the earnings call, you talked about the strategy around lowering deposit rates as the Fed cut rates a few months ago. Do you have an update on that strategy and how that's progressed?
We've continued to see it play out similar to what we saw in the first half of October. We shared on the earnings call that we'd seen an additional five basis points decrease in the first half of the month, and we saw another five basis points in the second half of the month. We're still working through the repricing. A lot of our promos were on 90-day guarantees. We've now shortened that to 45. And as they're coming up each day, we're continuing to walk those back. Again, we'll see where today's rate environment goes, but we have more opportunity to continue to walk back rates in this environment.
Sticking with the theme of the conference, the need for scale, fact or fiction, could you just share your view of the importance of scale in your respective businesses and how we as outsiders can manage and track that scale and progress?
Scale became very important the last couple of years as the regulators kept adding more and more expenses into the banking industry, Basel III, new liquidity requirements. As a $50 billion bank, there's many things that didn't apply to us, including risk and resolution planning that got pushed down to us. We are hopeful with the change in administration that the pace of regulatory change that makes banking more and more expensive every year starts to slow, if not reverse, and so hopefully it's a little bit of both. There's some scale benefit, but that's not the only options for a healthy banking environment in the future. There's 4,000 banks in the U.S., and it's important that we have a mix that meets all of the consumer needs, all of the customers.
I would say too, just to add to that, we love the markets that we're in in the Southeast. I don't think we need scale. I mean, we got it when we did the last MOE, but I think we're prepared for scale, and that's important and we'll talk a little bit about some of the technology investments and some of the advancements that we've done over the last 18 months. I think we are hopeful that opportunities open up, and I think we're prepared to take advantage of those.
Perfect. We talked about the deposit business. What about the other side of the balance sheet? Are you seeing any early signs of increased demand for loans? I think you mentioned some third, second quarter or third quarter activity. Any comments there?
We saw pipelines pick up in third quarter, specifically following the first rate cut. We have, being in the Southeast, we're in some of the strongest markets in the U.S. There's not a lack of demand for loan growth. There's just been a pause. What we were hearing from our customers was they wanted to make sure that we were out of a rising rate environment. A 50 basis point cut made them feel really good that rates were going down and not up, and they wanted to see what's going to happen with the election. It was interesting as when you met with customers and you said, "Well, which one do you think is better?" They didn't have an opinion. They just didn't know what was going to happen, and they said, "Well, just feel better and we know what it's going to be.
Who's going to have the Senate? Who's going to have Congress? Who's going to have the White House?" And with that behind them, I do believe that we're going to see loan growth pick up there. The Southeast economy, especially, but even the U.S. economy, it's healthy. It's growing. And loan growth should pace GDP, and it just hasn't this past year. But we are not, if you look at credit, we're not seeing a lot of charge-offs. We're not seeing a lot of downgrades due to our clients not being able to make their payments. We announced on our last earnings call, for the last two earnings calls, that more than half of our non-performing loans are current on their payments. The non-performing loan has to do with other metrics, not their ability to repay their loans.
So I do believe that those pipelines are going to pull through and probably continue to get larger. The thing we don't know sitting here today is how quickly mortgage and mortgage warehouse would come back. We didn't expect the steepening in the curve, but I expect that will come back a little bit slower than we were thinking a couple of days ago.
Yeah, I would say our client sentiment is really strong. I mean, we talk with our market presidents, our regional presidents on sometimes daily and weekly basis, but a formal monthly basis. And across all industries, markets, segments, et cetera, for us, sentiment is strong for getting deals done. So again, I think some of that pent-up demand will come out. We'll have to see how fast it moves, but feel good about where we are at this point.
Okay. And just continuing on with asset quality, third quarter results, very solid. Are there any pockets you're concerned with? And on the other side, are there certain areas of certain borrowers that benefit from lower rates where you feel better about their outlook?
We feel really good about where credit has landed this year. We guided to 25, 30 basis points at the beginning of the year, thinking that we were going to see a falling rate environment in second quarter. That really got delayed till late in Q3, and yet our charge-offs have continued to trend below that 25 basis points. We're not seeing any geographic, any loan size, any loan type that we're seeing stressed. You always have the one-offs. You always have the unique situations. But credit has been performed a lot better than you would have thought. If we would have modeled a 550 basis points increase over 18 months a couple of years ago, I think we all would have had a much higher charge-off than what we've seen. It really demonstrates how healthy the banking system is today when it comes to credit.
Our loan-to-value has decreased 10% down to 59%-60% versus the Great Financial Crisis. More of our borrowers have equity in the deal. They have recourse. Previously, people could walk away from loans, and they weren't losing anything before the Great Financial Crisis. There was too little that they had in the loan, and so we're seeing borrowers continue to be able to make their payments, continue to perform. We also lend through the cycle at First Horizon. We don't think about what credit's going to be today, what cash flow's going to be today. Even at zero basis points, we were stressing it to 200 and 300 basis points and saying, "What will happen to this loan in a rising rate environment?," and that really helped us have top-tier credit throughout the cycle.
Hopefully, we'll get a better Moody's update in either this month or next quarter, and we'll start being able to bring provisions back in line with how charge-offs have been performing. We've had to build provision based on the outlook, even though charge-offs have been coming down throughout the year.
Thanks. And you've spoken often about the strategic investments and technology upgrades that you've been working on for the last year. So Tammy is the COO. I'm guessing it falls under your umbrella, so to speak. Can you give us an update and status of those investments?
Yeah, I'll give you a great update on that. So in May of 2023, in 30 days, we pulled together our strategic plan, and part of that was an additional $100 million investment in technology and in infrastructure to really accelerate what we needed to do from a technology side. Part of when you do a big MOE deal like we did with First Horizon and IberiaBank, there's certainly a lot of technical debt that you've got to get through. We hit the pause button on that for a while, and so we've spent the last 18 months really making sure that we refined, upgraded, brought to current versions all of our technology stack with the view and through the lens of making sure that we could scale with that.
So we wanted to be able to be, say, twice as large as we are today or make sure that we could definitely cross well through the $100 billion mark. And so all of the technology that we have been building and upgrading supports us becoming a larger organization. At the same time, we've also had the ability to sunset a lot of legacy systems that weren't able to scale, that weren't on the current versions, that weren't supporting us the way that we needed to. And so it's also, you'll hear Hope talk about efficiency as an organization. It's allowed us to become much more efficient and effective in terms of the way that we deliver. Two examples of that for the last, since we did the integration in February of 2022, we've been running two treasury management platforms for different legacy organizations.
Two weeks ago, we sunset one of those. So we've got one treasury management platform. It was the biggest client conversion. I said we did a conversion this year, and we really didn't convert, but we had to move half of our clients onto a new system. So we've got that behind us with a lot of new investment going into the new single platform. Another example of it is we had a 40-year-old general ledger system supporting the way that we were organized as a bank. We are moving to a new one. That'll be done by the end of this year. So the projects that we launched in May of 2023, we said we'd have 60 or so large projects. We have launched all of those. The vast majority of those will be completed by the end of the first quarter of 2025.
And so we've got a lot of room in front of us to do a lot of new initiatives, but happy that the technical debt and the technology stack that we need to be the bank that we want to be in the future is ready and available.
Okay. And in terms of crossing $100 billion, a lot of that comes into play that you just talked about on the tech side. What about personnel, other systems, and maybe how are you thinking about that important event?
Yeah. I mean, we continue to add talent across the organization, particularly in areas that are going to, that we're going to need to invest in both people and process and technology. So I think about data and cloud. We've added a lot of people there, data governance. I'll look at Natalie and say model validation, risk management, et cetera. So in a lot of those core areas where we know we're going to need to continue to invest and grow those teams, that process has already started.
Perfect. And then let's shift to capital. The near-term CET1 target 11%. You're a little bit higher last quarter. Your target's still 11%. What would you need to see here and feel before you go back to that 10%-10.5% range?
We just early renewed our share buyback authorization. We had an authorization that was in place till January 2025. And we went to the board with the earnings potential we have in Q4. Additionally, the 11.2, we ended up higher last quarter than our target. There was an opportunity for us to run through that authorization and still end up over 11%, which was not our goal. We scaled that up to $1 billion. $1 billion sounded a lot more two days ago before our stock went up 20%. So I might need to rerun some math on that. But the goal is to be at 11% near-term and 10%-10.5% long-term. There's two things we really want to see. One, we've been pretty consistent saying we want to see consistency in the regulatory environment. What's going to happen? Is Basel III going to go in as previously proposed?
They've really rolled that back now and are reproposing it. Hopefully, Taylor will come back. Some of the pending liquidity rules, the additional TLAC rules, how are those going to be impacted to $50 billion-$100 billion banks, as well as Category IV banks? And then as we think about the second part of it, it's really how do we scale up on that? And it's not a one-time answer. It's really, will we see loan growth? First and foremost, we want to use our capital for loan growth. Share buybacks, you can only buy a share back once. A loan, we have the opportunity to deepen the relationship with our capital. We have 90% retention of our clients.
And so, introducing a new client, bringing a new client into First Horizon with that capital, with a loan that we can then deepen with a treasury management relationship, introduce some of the people to our wealth department, have a wealth relationship with. That is where we want to spend our capital. So ideally, we'd like to see loan growth come back, especially profitable loan growth. Mortgage warehouse is our highest spread business with our lowest charge-off and doesn't hold a lot of provision. It'd be great to see that scale back up. So the way we think about it is our capital, once we can stabilize in the environment, is making sure that we have enough to grow before we get down to 10% and really balance share buybacks and loan growth targeting that getting down to the 10% in the next couple of years.
Perfect. We'll shift over to M&A. Clearly a hot topic, always, particularly this week. What do you think the outlook is for Bank M&A?
I think it's changed a lot in the last 24 hours. Trump, in his first time he ran, he was very pro-business, pro-M&A. We've been on the road the last two days, and we were talking about M&A a lot with investors, a lot with the hedge funds, not related to just banking, but the last two years has been negative on M&A for every industry. We were with a group this morning. We said, "What was the largest last non-bank merger that happened?" and everyone in the room could tell us what hadn't happened, all the ones that had been held up or declined, but didn't know the last large one.
Going into a Trump presidency with probably a House and a Senate Republican, we are hopeful and are expecting that it's going to be more M&A friendly from a scale standpoint, from a time standpoint, as well as clear rules. One of the things that have really happened the last two years is the rules specifically on bank mergers have not always been followed. There were two mergers ahead of us with TD, both BMO and US Bank, that got approved in 15 and 16 months, and they had to agree to new requirements that they weren't required to do. That really sent the M&A environment in banking into a, how do you get a deal approved if you don't know what you're going to have to agree to along the way?
The DOJ put out an advisory a couple of months ago that said they want a say on whether we can close branches, and they're not going to tell us the rules where we used to be able to figure out how many miles they were and what type of low income or low-mod they were in. We put an application in, and we'll let you know if we can close them, and most likely you can't close them for three years. It's really hard to do bank M&A in that environment. We'd like to see it go back to where it was six to seven months for approvals, and you knew the rules. You could tell your shareholders, "This is what the model's going to be. This is going to be our cost savings. This is going to be our resultant revenue synergies.
This is how quickly we're going to do that. I'm very hopeful that we will hear some clarification on that and how quickly we'll move. I do believe we'll get there in the next four years. I'm just not sure if it's going to come immediately or it'll come a little bit slower.
Because if you think about regional banks, we're put together historically by accumulating smaller banks as a part of that process. And because it is such an arduous process, because we don't know the timelines to get mergers done or, again, certainty around deal math, et cetera, it's really hard, especially if you're only going to be able to do one every couple of years or two. It makes selection of that really, really narrow. And so we would like to be able to see it open back up. If you think about the history of the banks that we have partnered with over the years, Capital Bank, IberiaBank, et cetera, all of them are a culmination of lots of smaller community banks. Again, we like the footprint that we're in, but it's really hard to see right now outside of yesterday.
We've got to see some changes to that to have more certainty in the process.
Tammy brings up a really good point. The environment changed to you get to do one merger every two to three years. That's really changed the environment. Five years ago, when First Horizon entered into a merger of equals with Iberia, we also bid on the SunTrust branches coming from Truist and closed them both in the same month. We didn't have concern about the MOE being approved in six months. We didn't have concern about the SunTrust branches being approved. The applications went through, even in the height of COVID, got approved in the timeline within the rules that had previously been stated. If we can get back to not just doing one merger every two or three years, that would make a big difference for how we see consolidation happening. You can do two or three a year or two or three every couple of years.
It changes how we think about scale and how we think about growth.
And one more question for me, and then we'll open it up to the audience. I started to ask, reflect on 2024. When you look towards 2025, what are your top priorities for the franchise?
Top priorities is increasing profitability. We had the merger with Iberia, merger of Equals, expanded our footprint to 11 states in the middle of COVID. We got through client conversion and then had the unexpected offer from TD. We were on a 15-month pause with TD and really starting to continue to deepen our franchise, grow our franchise the way we intended with the MOE. And we've seen great success in 2024 with starting to build out our regions. We've restructured our regions going into the year, continuing with the technology advancements we have coming, the new systems, new personnel we've brought on board is to really accelerate the revenue growth in the markets with the MOE. We have number one market share in Tennessee. We'd like our other states to catch up to that.
And agility, I would say. We have proven over and over again the last five years, particularly being at First Horizon, that our people can respond to the challenge of agility and changing environments. And so I think we're well positioned now more than ever with everything that we've done the last 18 months to prepare for that, to really be front-footed as we go into 2025. And a favorable market and environment will certainly help with that.
Our bankers are excited to go into a somewhat normal economy. You think about the MOE. We closed it in COVID. Then we had TD. Then we had bank failures. Going into 2025, or hopefully we have certainty about the regulatory environment, we have certainty, hopefully a little bit better idea of what's going to happen to the rate curve. That's exciting for them, especially with a lot of the new technology and the investments we've done this year.
Questions?
Jared.
Thanks. Jared Shaw at Barclays. Hope just on the buyback, obviously a much bigger buyback than what you had before and what we were, I think, expecting. How should we be thinking about the dynamic of that with liquidity and how you're going to fund that? Right now, you're at about 11% securities, like 3% cash. Should we think that the pace of the buyback is determined really by the pace of growth of deposits, or how are you thinking about the buyback in light of the broader liquidity requirements as you get bigger?
Yeah. We will have to issue more debt. We have a debt maturity coming next year. And so as we think about just our growing, we have not issued debt since Iberia. We had a maturity this year. And so we start with thinking that we will issue, we have a roadshow in a couple of weeks, actually, that we will be issuing debt next year. As we get closer to $100 billion, we do have to hold more debt. When we think about how the share buybacks, it's really less about the structure of our capital and more about where is the best place to put it first for long-term profitable growth for our shareholders. And we believe that's loans. And so growing our loan portfolio and deepening relationship is where we want to put it first.
We want a strong dividend that's in line with peers and in line with our internal metrics. And then third is share buybacks.
I guess I'll keep things going. When I was looking at your branch footprint over the weekend, I think it was Oscar Wilde that said the only thing worse than being talked about is not being talked about, and everybody's talking about your footprint and your markets, and I was wondering if you could just talk about competition and how you balance maybe having to play defense more given the competition that you're likely seeing.
As the former CHRO, I will say, one, we like the markets that we're in, so certainly wouldn't trade that. But I would say we spend a lot of time and are proud of the retention of our bankers and our people, which translates to good client retention as well. So I won't say that we don't have competition. There's not a day that goes by that one of us don't get a phone call that says, "Hey, somebody got this in the mail or got an email, and we got to talk about rate." So a lot of new entrants into the market. But we feel good about what we're building there. We feel good about the investments that we've got in the community. And certainly having great bankers, long-tenured bankers who are located in the markets that we run is super helpful for us.
I mean, our business model, we've been very clear about it, is market-centric. And so we've got not only local branches and local bankers on the grounds, but we've got market presidents, the credit folks. Everybody is very decentralized. And so it makes a difference when you're talking about building client relationships over long periods of time. We've been in a lot of our markets for 100-plus years. Our 160-year-old company, Iberia, was pretty close to that as well. So we've got a lot of deep roots in the communities that we're in. And so we like that. But yes, there's a few new competitors around.
The competition in the Southeast has increased, but it's because there's mass migration. We have all but one of the top growth cities. So you have people moving in. You have businesses moving in. And where you're competing in other markets for a shrinking deposit pool and a shrinking loan pool, we're not losing market share. We're still able to grow deposits quarter over quarter. We're still growing our loan portfolio. We have 90-plus% client retention. And so it really is a great place to be doing business with our long retention of our bankers. Clients like to stay with a banker they know. And so we have 95-plus% retention of our top bankers and 90% of our clients over the last decade. That correlation is very closely correlated.
Bankers like to work with the clients they've worked hard to bring in in the first place and help them grow their relationships, and clients like to work with the bankers they know.
John.
Yep. I'm going to John Arfstrom from RBC. I'm going to speak slowly, filibuster until the top of the hour. Maybe ask a softball for a couple of minutes. Any lingering impact or costs from the TD deal breaking that are still around? Do you feel like you're fully back to normal?
We are fully back to normal. We're about halfway through our technology investments. We said we would do $100 million in three years. And we've been able to identify numerous synergies within our businesses, numerous areas where we could cut back costs in order to offset that technology investment. A lot of the technology investments themselves have come with operational savings, cost savings. It's amazing how sometimes going to a software provider as a service or a cloud like General Ledger is not as expensive as it used to be 10 years ago. We're going to get our General Ledger project in in less than a year from start to finish. And the cost is minimal when you look at the increase, but the efficiencies we're getting on the back.
If I think back five, six, seven years ago when a bank did a general ledger overhaul, it was two, three, four years, and they were telling you all exactly what the depreciation would be on the other side. Technology is moving quickly, but there is also a lot of efficiencies we're gaining with back-office systems and client systems that are helping us offset that. Generally, we expect, excluding commission businesses that will be increasing revenue and positive PP&R, we expect that our expenses will increase in line with inflation. And we're going to keep looking on how we can take efficiencies out.
I would also say at the same time, I mean, running in parallel to all the things that we're doing around centralization and automation and just technology upgrades, we've also spent the last 18 months aligning and standardizing our business models. I mean, First Horizon and Iberia had two different types of go-to-market business models. And so bringing those together, bringing together our credit structure, our regional president structure, et cetera, has really helped us and will help us going forward continue to be front-footed. We got the baseball.
All right, John, the answer is 25 basis points. Does that change your question?
I was just wondering if you want me to tell you or not. Jason told me.
We had a baseball sign up here with Natalie and Eric that they were going to give us a signal of which one it was.
All right.
I think that's what we expected in September, so that's actually what we got in November.
Are you pleased with this? What's an ideal rate curve environment for you? And I'm curious, what are your people doing right now?
I don't know that there's an ideal curve right now in the environment we're in, but slow and steady is better than quick. 50 basis points, when we look at what came out, the last rate cut, we said we were going to have 50 and then 50 and then 25 or maybe 75 and 25. That's really hard to follow up with to continue to get customers to walk back that quickly. When you think about most of our promo money's on 45-day windows, if we only have one rate cut every 60 days or 90 days, hopefully we're touching them after each rate cut. Before the election, the forward curve had about 25 basis points every other meeting next year.
Short of a change in environment, slow and steady is absolutely the best for us so that we can take the deposit lag out at the same time we're seeing our loans reprice.
Question back there.
Hi, Hope. Timur Braziler with Wells Fargo. Maybe just a follow-up on that. In terms of bringing down the deposit costs, how much of that is predicated just solely on the promotional-type deposits versus the legacy or more core-type deposits? And as you look at the shape of the yield curve, I guess what's more important, the fact that maybe rates have backed up some more recently and that might take some of the momentum out of that ability, or is just the fact that we're getting a cadence of more cuts with more cuts on the come? Is that enough to keep rates going lower for you guys? Thanks.
I think deposit rates are going to keep going lower in the near term. Consumers were very, very sensitive to the fact that we were going into a rate-cut environment. You couldn't turn on the news. We couldn't have a conversation with them. So they were expecting that to get passed to them. We have an asset-sensitive balance sheet, which means 59% of our customers already had their loans repriced. It's a little bit of an easier conversation when their loan goes down 50 basis points. That is usually much larger than their deposit to say, "Well, your loan went down 50 basis points. Your deposit's also going down 50 or 25, and net you're still winning on the deal, right? You're still saving more than you were making on your deposits." That's been meaningful for us.
Now, because of our countercyclical businesses, as Tammy said, with a steepening curve, mortgage rates did go up yesterday. That's not ideal in the short run, but eventually mortgage rates normalize. We've seen so much built-up demand. If you look at first-time home buyers, people that are sitting, baby boomers, empty nesters that are sitting on houses, they want to downsize. Your mid-career professionals that are looking to buy a second house, eventually they have to get back into buying. And there's also a ton of arms that will come into their adjustable rate in the next one to two years. And whether it's a rising rate environment or a decreasing rate environment, they're going to refi one way or the other.
Anthony El ian, J.P. Morgan. You talked a lot about deregulation. Can you quantify the earnings or the ROE impact from deregulation and maybe more specifically if the 100 billion threshold goes away?
Yeah. I can't yet because I don't actually know what they're either going to not do or roll back. But the one that we've been very public about, as is everybody, is TLAC. TLAC, as proposed, if we have to do 6% risk-weighted asset, depending on the negative carry, was going to be between $50 and $75 million for us. That is a huge expense when you look at our $2 billion expense line just to hold more debt. And because you went from $99 billion to $101 billion, that is the biggest one. I don't know that we're going to know in the next three or six months what might get rolled back yet to really quantify it. But Basel III was really punitive to the smaller banks. Getting rid of tailoring was punitive.
I think that will be the biggest one for us if we see the tailoring come out and we don't see it increase for the Category IV banks.
And just giving the time to get and cross over $100 billion with everything that goes into that. The conversations that we have been having are, you've got to be prepared before you get there. And that has not been historically the case. Historically, you'd cross over the $100 billion and then you'd have three years to get there. And so feathering in those costs over time, you'd have the revenue over $100 billion and the expense at the same time seems to make a whole lot more sense to us than us having to spend the money that we would need to to get prepared for that ahead of time. So we're looking for some hopefully some changes and some relief on that end as well.
Really, the step back and the pace of change. The amount of regulations that are being proposed and coming out every month the last two years has just been really hard to keep up with, really difficult to implement. So that has been adding uncertainty into the share price of banks is which rules we're going to get passed, when were they going to get passed, and how much was it going to cost to implement them for the whole industry, not just $50 billion -$100 billion or Cat- IV banks.
With that, I think we'll wrap up. Thank you both for attending BAAB this year.
Thank you.