Good morning, everybody. Welcome to First Horizon's 2023 Investor Day. I'm Natalie Flanders, Head of Investor Relations. On behalf of the team, we thank those of you attending in person and those joining us virtually through the live audio webcast. A few housekeeping items: I want to remind everyone to review the forward-looking statements in the presentation on slide two for both our prepared remarks and the Q&A. Materials for each presentation will be posted to the investor relations section of our website a few minutes before each presenter. Our website address is ir.firsthorizon.com. On our website, you'll also find the bios for the executive management team presenting today.
You can find all materials on the Investor Day under the Events and Presentations tab. For those of you attending in person, there's a QR code on your agenda that will take you to the presentations and leadership bios on the website. You can see that we've got a full agenda today. I know there are some of you in the room who've followed our company for a long time, while some of you are new to First Horizon. Either way, our management team is excited to share our story. We invite you to enjoy a brief video about the company as we welcome our President, Chairman, and CEO, Bryan Jordan, to the stage to provide opening commentary.
Since 1864, we've been more than a bank. More than the facilities we operate and the services we offer. We've been an agent of change and promoter of progress in our industry. A growth story for our investors. We've been a source of constant strength for our clients. A protector of our communities. A place filled with family that our associates could call home. The unbreakable thread throughout the past nearly 160 years has been our people. People who believed in our mission, executed on our vision, and lived our values every day.
As we have grown and expanded, every associate has played an important role in shaping our culture and building our brand with pride and integrity. In the face of adversity, we demonstrated our ability to adapt and thrive, turning challenges into opportunities. The individual talents and collective strength of our team has been invaluable to our success. Our legacy will live on in future achievements.
Please welcome Chairman, President, CEO of First Horizon, Bryan Jordan.
Thank you. Thank you. Good morning, everybody. I hope you had a good time last night. The Lower Broadway crowd's probably in the back. Thank you all for being here. I appreciate you making the trip to Nashville, particularly on such short notice. I can't imagine anybody in the room 45 days ago thought we'd be here doing this today, but we're here, and we're grateful for you making time. We've got a good presentation. Hopefully, you'll learn a tremendous about our organization and about our management team.
I want to introduce a few people, and I'm going to start with Natalie Flanders. We didn't give Natalie a very good introduction. Well, she was born in the vault. She started when she was in college as an intern. Some of you may remember that Natalie worked in investor relations. She was in, actually, in investor relations when I joined the company 16 and a half years ago. She has done a number of jobs across the finance organization, including running our securities portfolio, our asset liability modeling, our corporate development, and our performance reporting.
That's a long way of saying Natalie knows our company as well as anybody. She knows how we make money, where we make money, and she'll be an invaluable resource to you as you cover our company. We're very excited to have Natalie in that role. Thank you, Natalie, for kicking us off, and after we do today, you get all the hard work from here. We have a broad cross-section of our management team here with us today, and I won't go through and introduce everybody. Hopefully, you've had an opportunity to interact with a number of these folks. I do want to introduce- w e have four directors who have joined us.
These are our directors who are our committee chairs and lead director, Colin Reed, who is the Chairman and CEO of Ryman Hospitality Properties. Colin is our lead director. Cece Stewart is Chairman of our Information Technology Committee. Colin joined the board in 2006, Cece in 2012. Rick Maples has gone missing. I can't see Rick. Oh, he's over here. Rick joined the board in connection with the IBERIABANK merger of equals. Rick is the chair of our compensation committee. He chaired Investment Banking at Stifel Nicolaus. Finally, Gene Taylor. Gene is- w here'd you go, Gene? Oh, he's over there next to Rick. Keeping each other out of trouble. Gene was chairman, founder, CEO at Capital Bank, and has been on our board for the last seven years, six, seven years.
I tease Gene, in that he's probably forgotten more about banking than any of us will ever know, but he's been an invaluable resource to us. Hopefully you had an opportunity, either last night or sometime during the course of the day, you'll get a chance to interact with our board. Any thoughts you want to share with them or hear their observations, please do that. We have a pretty packed agenda today. We're gonna try to cover a great deal of information. I'm going to start with sort of a presumptive economic backdrop. All of the modeling that Hope will show you, all of the modeling is based on the forward curve.
You-- your first question ought to be, which forward curve? Is that the curve at 8:00 A.M. this morning or at 8:30 A.M. this morning? It's moving so rapidly. I don't know how effective that is, but it's probably a week or so old. We're using a forward curve for modeling, and we don't know what better to use. I personally think that the Fed is gonna raise rates. I don't know if it'll be June or July, and I don't think it really matters much. I think rates are gonna go up a little bit and stabilize.
I don't expect rates to come down very rapidly. I think the Fed is in a little bit of a stuck position, simply because we have to get control of inflation. It is not moving down at the pace that we would hope. I think the Fed would hope. For that matter, I do think outside of interest rates, financial conditions are tightening fairly quickly. Part of it is simply being driven by the shrinking deposit base as M2 comes down and as the deposit base in the U.S. banking system shrinks.
I'm sure you all look at the H.8 data. I think it was down $25 billion-$28 billion last week. The last four weeks, probably down $100 billion. I think it's gonna drop even further as the Treasury refunds its balance sheet, given the completion of the debt deal. I think that will have the constricting effect on the financial services industry, just simply because the supply of deposits is somewhat limited. Because it's limited and so many of deposits are tied up across the industry in long-dated assets, securities, long-dated mortgages, principally underwater because of rising rates, I think it's gonna put much tighter financial conditions.
I think you're gonna see that in lower credit availability, and you're gonna see that in terms of higher pricing, in terms of credit. What I think that means in terms of the economy is, the economy is likely to slow fairly significantly over the back half of this year. I am personally not in a very dark room about a downturn. I think we will have a downturn, whether it's late this year or early next. Maybe we're in a recession now. Doesn't feel like it, but it does feel to me- we will have some sort of recession later this year or early next.
In all likelihood, I think it will be fairly slow and sustained recovery, but I think it's likely to persist for a while, simply because it's gonna be difficult to cut rates very significantly, given the persistence of inflation and the need not to reignite it as we re-flate the economy. That's sort of the economic backdrop that we're working against. We are prepared for a number of different outcomes. We're gonna, over the course of the next several hours, walk you through an update on our business. As I mentioned earlier, none of us would have expected to be here 45 days ago.
I assure you, we did everything we could to get this merger completed, and we were unable- TD was unable to get regulatory approvals. I can tell you, we hit the ground running when we terminated the merger agreement. What I want you to see today as we go through this material is- one, reorient, reconnect with our businesses, the diversity, the strength of our businesses, the strength of our credit quality. Most importantly, the strength of our people and
our franchise. We have an outstanding team, and we will show you some information in these slides later about our associate retention, the tenure of our associates, the strength and enthusiasm of our team. We'll show you information about credit, the disaggregation of credit quality. I know there are a lot of questions in today's world about commercial real estate, for example. Susan will show you information that shows you the granularity of our portfolio, both in terms of collateral class as well as geographic. We'll show you a good bit of information about the strength of our deposit franchise.
We hit the ground running, when we announced the termination, very shortly thereafter, we started leaning forward on our deposit franchise. The primary reasons, and you'll see the results, the primary reason is, one, to give our people another reason to reach out to their customers, and two, have very positive conversations about attracting new relationships and expanded relationships into the franchise, and I'm very pleased with the results that we've seen in that regard. Number two objective for me is for you to get a chance to get to know our leadership team. This is a leadership team that has been together largely for many years and worked across a broad array of the businesses.
You'll hear from David Popwell and Anthony Restel, who lead our specialty in regional banking businesses, respectively. Susan Springfield, who leads our credit organization. You'll hear from Tammy LoCascio, Tanya Hart. You'll hear from Aaron Pryor, our marketing executive, and then you'll hear from Hope Dmuchowski about our financials and our outlook. Aaron and Hope both joined us. Aaron joined in the pandemic timeframe, and Hope joined at the end of 2021.
This is a team that has been working together very closely for the last 18 months, and I think you'll see that we've got an extraordinarily talented group of bankers who are positioned to take this company forward, to do an outstanding job of leading through this period of change in the economy and uncertainty. When you look at our financial position, we'll try to highlight for you the significance of our capital position, the strength of our capital position, the strength of our balance sheet, the diversification in that balance sheet, and most importantly, the attractiveness of our geographic footprint.
In the video that was up just a few minutes ago, we showed our map. We have an extraordinarily attractive footprint. While this is not a period of time where it feels very growthy, we're likely, as I said, to see a slowdown. I still believe that it's a tremendous benefit to be in great markets, and our 12-state footprint is really positioned in extraordinary markets with great growth opportunities. Nashville is a perfect example. Carol Yochem, I haven't seen Carol this morning. She was here last night.
We have 42 banking centers here in Middle Tennessee, about $11 billion gross loans and deposits, a tremendous presence, a tremendous team, and we've seen tremendous progress here. What we want to do is have the opportunity to replicate that in these tremendous markets across the South over time. Places like Raleigh, Durham, Chapel Hill, Charlotte, Greenville, Atlanta, Tampa, St. Pete, Jacksonville, Miami, Houston, Dallas. We have a huge opportunity to deploy capital over the long term, and we're excited about our footprint. I mentioned we have a strong capital base.
We expect- y ou'll see in Hope's projections, we expect to see that capital base continue to grow. We expect that we will, over the foreseeable next several quarters anyway, strengthen our capital base and allow capital to build. We think in this period of volatility, particularly as we go through a transition in the economy and the Fed continues to raise rates, that it's best to be positioned with a strong balance sheet, and we expect that we will have one of the leading capital positions. We expect to maintain that. It gives us flexibility for the long term.
We've been very disciplined over time in the way we deploy capital. We drive our business based on return on the capital deployed in the business, ensuring that we get paid for the risk that we're taking, that we're driving and maximizing shareholder returns. We've been willing to return capital through dividend and stock repurchase programs in the past, and we'll manage those capital levels over time. We start in an extraordinarily strong position, and we think it'll get stronger over the course of the remaining part of 2022, 2023 and into 2024.
Hope and I will be back and take questions later. I want to leave you with one thought. There's one thing that I believe very strongly. I will not argue about how the market's using PE multiples or tangible book value multiples today. I will tell you, in my view, and I think you'll see today, the First Horizon franchise is a better, stronger, more valuable franchise through the cycle than it was a year ago, in February of 2022, when we announced the merger.
A nd that this franchise has hit the ground running, that we are in a very strong position with a very strong team, creating shareholder value for the long term. Thank you again for being here this morning. Thank you for taking the time to learn our story, and please note any questions, and we'll be happy to take them as we get towards the end. Thank you all very much, and I'll turn it over to Anthony.
Now please welcome President, Regional Banking, Anthony Restel.
Good morning, everyone. It's good to be here. I will tell you that, a couple of years ago, when I stepped into the Chief Operating Officer role and then took Michael's role, I said, "You know what? Good, I'm not going to have to do the presentations anymore." Here we are. For those that don't know me, my name's Anthony Restel. I'm currently the President of the Regional Bank.
Prior to that, I served at the combination of the merger of equals- I was the Chief Operating Officer at the company, then back in IBERIABANK days, was the CFO for IBERIABANK for 15 years, had responsibility for technology and operations, and was also the Chief Credit Officer for a number of years. I guess if we go all the way back, I was an RM once upon a time. I guess I've completed the circle where I started on the front, made my way through the back office, and I've returned to frontline management.
You know, my goal today is really simple. I've got a very short presentation, hopefully, I can debunk a couple of myths. I do appreciate all the early notes that people said might come out or things they wanted to hear about. I'm going to try to cover some of that as I make my way through the presentation, certainly, as Bryan said, during Q&A, if there's anything that I can answer during that period, be glad to do it. Let's start with our franchise. As Bryan mentioned, spread across 12 states, 417 banking centers.
The regional bank has approximately 4,000 employees. We bank clients from the small side, and think about maybe a recent college graduate up to a wealthy retiree, right? We can service that whole entire population, with sophisticated products or limited products, depending on what makes sense. And at the same time, our focus has always been on full relationships, right? Everybody talks about full relationships, and what does that mean for us? We want loans, we want deposits, and where it's applicable, we'd really like to have the wealth relationship.
We'll so show you some great numbers on our primacy in a few minutes, but I think you'll see that we've made tremendous progress. Obviously, as a regional bank, we are fully committed to the markets that we operate within, we can only be as good, right, as the communities we work within. We're very interested in help driving forward our communities as we move forward. We're going to show you a bunch of numbers, particularly on the next slide. The numbers I'm going to show you kind of look at things over a three-year period.
I'll be the first to say that over the last three years, First Horizon has had a tremendous amount of, I'll call it, noise, right? We started with COVID. We had the merger- the conversion, and the merger activity. We had the TD transition. Think about all of those things, and I want you to focus a little bit on the numbers that we've posted during that period. Clearly, tremendous growth from a loan deposit perspective, great revenue synergies from the combination with IBERIABANK, as well as cost saves.
More importantly, when you look at our pre-provision net growth, very solid returns reflecting our asset sensitivity of our balance sheet, as well as our underlying growth. As we think about where we're going, obviously, we want to continue to lean into our model, which is really a focus on our deep relationships that we've got with clients. We're going to invest in, retain, and look to recruit new talent to the team. Obviously, our credit culture has really been something that's been paramount to us as we focus on through-the-cycle lending, meaning as we're very- h ow to describe it? We're very sensitive to who we onboard, with really a focus on how that credit will perform as we move through the cycle.
Certainly delivering strong results is important for us. We look at our financial numbers. Again, three-year slides, I really like here, the left of the screen. You see that strong growth in terms of pre-provision net revenue. What I really like as an ex-CFO is the positive operating leverage that we see here, where we grew our revenue 10% during that time frame, where expenses only grew 3%. I think that's something that we can do. I think that's part of the scale, and the benefit of the merger of equals, is our ability to really leverage our infrastructure and be able to put up superior growth.
In the middle, you see our loan growth. Loan growth was quite strong during the period. Without going through all the dynamics of that, Susan Springfield will cover the loan portfolio in detail a little bit later. I will say that we've got a healthy mix and a good combination of different lending across the various geographies that we cover that provides really some pretty good diversification for us. Deposits, clearly here, when you look at 2020 and 2021, you see the impact of all the surge deposits that entered the bank, followed by the rundown in 2022 and the Q1 of 2023.
Deposits have stabilized, w e'll show you some numbers on that. That's one of the big secret reveals for those that haven't looked forward in the deck. You'll see those numbers shortly. We feel really, really good about what we can get done in terms of attracting new deposits to the bank, and have had great success. You know, one of the things that actually has benefited our company as it relates to the TD announcement is, believe it or not, we had clients that really didn't want to bank with a Canadian-owned institution, and secondly, didn't want to go through a conversion again.
We had a few things that have helped us a little bit in terms of reengaging our client, not to mention that we're using rate and some other tools. We've got some great momentum on deposits that we're using today. Our footprint, as Bryan alluded to, right? Southeastern part of the United States. I think undoubtedly, if you ask anybody what's the most attractive part of the country today, it is the Southeastern footprint, right? You see some numbers here about the growth, whether it's 2.6 times GDP growth of the rest of the country or 4x the population growth.
We know as a company, right, that in-migration and our excellent footprint centered in major metropolitan areas will help drive significant growth opportunity for us going forward. There's $5.1 trillion of deposits in the markets we're in. Let me take a quick second and talk about some of our markets. Obviously, you can see all the numbers up here we've provided in the deck, which just gives you a smattering of the MSAs that we're in. We're in 32 different MSAs. We're in 60 different markets. In 16 of our MSAs, we occupy a top five market share or better, We're in number one in a bunch of those markets.
Bryan talked about Nashville as an example, as something that we're trying to replicate into some of our other high-growth areas. Nashville, as a market, grew $1 billion over the last 18 months, just as an example of something that our franchise can do. Think about the backdrop of what's been going on over the last 18 months, You can see the power of that. 80% of our deposits are in markets where we have a top five market share today. Again, tremendous growth opportunity as we move forward within our franchise.
Talent. You look at our business model, I'll tell you, the secret sauce to what we do and our successes are people. There's been a lot of questions, a lot of commentary, are we hollowed out if we lost a lot of people? These are numbers for the regional bank. I'll point you to the 99%. 99% retention in our top two tiers across the markets. What that means is 99% of the people that control our revenue prior to TD are still here, right? Number one, our people are still here.
Relative to now that TD's done and retention is starting to move out, I'll point you to the bottom, particularly the 83%. Certainly, some of those awards have been paid out, but those awards have a three-year vesting schedule, and so for the vast majority of our producers, almost 80% of that retention is still in place. You can see our experience. I did enjoy the part that said, for the executive team, 25 years of experience. Nevertheless, I think as you go deeper in the organization, you see the same tenure and same splits across the organization.
Although it's not on the slide, we're very proud of our diversity record that we've got as a company as well. This is a slide I wanted to spend the most time talking about. Our company is a people-led, technology-enabled company, right? Our secret sauce and the way that we deliver and the way that we win in the market is through our people, right? I'd like to describe our company very simply as we believe we've got near big bank balance sheet capacity and capability and products, but we deliver it with the local feel of a community player.
We are market-oriented. We align around regions from a delivery perspective. We've got regional presidents. We've got our credit partners, our TM partners, our wealth partners, all embedded as close as we can to the clients. They're in the market. That is one of the hallmarks of the way that we approach our business. We are relationship-focused with a real goal of being a trusted advisor for our clients. The banker is the center of what we do to deliver to the clients. Again, strong partnerships with credit, TM, and again, trying to push decisions as close as we can to the client as possible.
Our retention of clients has been very, very strong. Since the IBERIABANK clients, or since the conversion, you can see here some of the numbers. We've retained 91% of the IBERIABANK clients post-conversion, which is a good number. Our medium client tenure is 16 years. Overall, again, great retention, not only of our people on the prior slide, but of our clients here. I will tell you one thing that's interesting about our model. Without naming names, I will tell you that recently I did have the privilege of seeing a lot of under the hood of a large bank.
I can tell you that our model and the way that we view the way our clients interact with us, we think about our clients where they bank with us horizontally, whereas in big banks, it always gets segmented. I'll tell you that I feel very confident that we've got the products, capabilities, and the model that we can compete effectively against much larger banks who are growing today, but at the same time, deliver at that community level, which is really important for our success going forward.
Looking at our deposit franchise, not surprisingly, you'll see that the deposits are dispersed. We do have some concentration in Tennessee, Florida, Louisiana, and North Carolina. Our mix between consumer and commercial is about 50/50, and our DDA represents about 34% of the balances. We've had great retention. Obviously, we've put a big emphasis on deposit gathering post-TD announcement, and like I said, you'll see those numbers shortly. 63% of our deposits are insured or collateralized.
For what it's worth, recently, we're seeing the greatest new account origination that we've seen in the last three years. Again, our model works, our people are engaged, we're making progress from a deposit perspective. Switching over to the loan portfolio, you see a similar kind of story. I do want to start and tell you that our loan growth, although been really strong and steady over the last three years, it's important to recognize as a company, we always kind of step back and start with a risk appetite statement.
From a risk appetite statement, and if you saw our strategic plan for the last internal strategic plan for the last two or three years, we've been very clear about safety and soundness was number one, profitability is number two, growth is number three, right? We've never traded, our perspective in safety and soundness and profitability, for our growth aspirations. With that said, we have had some nice growth. We do believe in a rigorous client selection process, so we've built our portfolio with a through-the-cycle view.
Most of the executive team, certainly remembers the great financial crisis and some of the challenges with being less diversified and more concentrated in areas that you wouldn't want to be. Our book is diversified across our franchise, and one of the beautiful things about our markets, with the 64 different markets that we've got, that diversity of markets provides us tremendous granularity in terms of client selection, insulates. It provides industry diversification, geographic diversification, et cetera. Very positive from that perspective.
Susan's gonna go through the portfolio in detail when she comes up in a minute. Treasury and wealth. I talked about us being a relationship-oriented bank, where having ancillary business is important to us. Treasury and wealth is the bread and butter for all regional banks. I want to show you some of our numbers. Basically, when you look at the screen here, there's really two or three key takeaways that I want to share with you. One is we have 18,000 Treasury Management clients, and we've been able to grow that number in the last year. Despite the fact that we were merging, or I guess being acquired by TD, we've been able to grow our client base.
80% of our commercial deposits are from clients that have Treasury Management services, right? Again, primary clients. I keep hitting home that are focused on gaining and growing primary clients. I will also tell you, 'cause Tammy's gonna come up in a little bit, we did install a new TM system. We installed a new wire system, and we upgraded all of our ACH capabilities. Again, our products are reasonably fresh. Doesn't mean that we ever want to stop. In fact, we continue to look forward and push into innovative payment products like our ClearPath Fast Payments model, which is really the ability to provide real-time payments to our customers.
Again, TM, very important to us. Our TM partners are embedded in the markets with us. Great success, great growth. Switching over to wealth. We've got almost 200 wealth advisors or wealth personnel, kind of helping drive this business. You can see the assets under AUM, AUA numbers. You can see the growth really over the last three years. Really, really strong growth. We feel very proud to say that despite all of the noise, right? Despite COVID, despite the merger of equals, despite the conversion, despite TD, we're growing our relationships with our customers.
I started with our communities when I talked about how important our communities were to our overall story. This is a great slide. In 2022, we invested $23 million in about 1,500 not-for-profit partners. Our associates provided almost 25,000 hours worth of service time to support those not-for-profits and other things that are important to them. We invested over $1.5 million in lending to low and moderate-income areas, really to improve the communities that we focus on. Again, just reiterating the importance to our model.
Finally, if you didn't see it, our recent contribution, which was made of $50 million into our foundation to continue these efforts going forward. I got up here and told you a lot about how great we are and all the things. I do find that this slide is interesting because it just shows you some of the awards that we've won over the last year. That really proves kind of the sustainability and success that we've had relative to how other people view us. On the Greenwich Awards, for instance, we won 22 awards, so that was the second most of any bank last year.
Just recognize, again, think through the time frame, think of what's going on. As I close out my time up here on stage, I want to reiterate just a few key points for you. The regional bank serves about one million clients. We operate in a very attractive footprint in the South-southeastern part of the United States. We've got a talented tenure, associates, right? Our retention of our associates has been very strong, and we've not lost people of significant people to drive revenue over the last two years.
Our model is attractive, and we have the ability to recruit new talent to the team, right? We've got a demonstrated ability to drive positive operating leverage and deliver strong results. Our client retention has been outstanding, given the backdrop that we've operated in over the last three years. I will admit, the last three years have been somewhat crazy, right?
Nevertheless, I think what that's proven to us is that as a company, we're resilient. We have the ability to adapt and change and thrive where we want to lean in. May fifth, kind of started a new chapter for us. I will tell you that we've got a lot of work to do. I personally am excited for the opportunity. I think there's a lot of good things coming our way. We're ready to play offense, and drive some shareholder value. Thanks for listening to me this morning. I'll now turn it over to David Popwell.
Joining us now is First Horizon's President, Specialty Banking, David Popwell.
All right. Good morning. Thank you for being here. My name is David Popwell, for those of you that I have not met. I've been in banking for 25 years, joined First Horizon in 2007 as a market president. 2008, when the financial crisis really got going, I moved into the role of chief operating officer for the regional bank. From 2012 until the middle of 2020, I had the role of president of the regional bank, which included both the markets and the specialty businesses. Before I dive into the materials, I'd like to make a couple of overall comments about the specialty businesses.
We've been in these businesses for a long time. For FHN Financial and Correspondent Banking, over 100 years, and for other lending businesses for as long as 30 years. Over time, we've built strong teams, strong relationships with large, well-run customers, and our companies prospered. These businesses produce higher-yielding loans that fit our credit appetite, with risk-adjusted returns that often exceed the more competitive regional or local banking. We fully understand and want to state clearly that the specialty lending businesses have been a growth engine for loans, but by the nature of these businesses, not always deposits.
As we adjust in the current rate environment, we're aware that we need to get more out of these businesses from the standpoint of liquidity and deposits. We've kicked off initiatives to grow deposits, and we're seeing very good progress. To the extent we need to reevaluate some of these relationships from a pricing and ancillary business standpoint, we are prepared to do so. We'll continue to take care of our target customers. We'll continue to take advantage of generational lending opportunities for new business with experienced operators.
I just want to make it clear that we fully understand the fact that a nationwide lending business, given the current environment, could be challenging, and we are prepared to manage for it. With that, I will jump into the presentation. The specialty lending businesses include 11 specialized lending verticals. Three are managed and reported up through the regional bank and eight in our specialty bank. A hallmark of these businesses is tenured teams providing expertise and experience, including our credit partners across the industries. Customers value our advice.
There are fewer, more focused or disciplined competitors in this, in these areas, and therefore, we have more predictable credit structures and generally higher yields on loans. These businesses are super regional or national businesses, which gives us the ability to target premier operators in each segment, and given our low market share, provides long-term growth opportunities. Credit discipline has driven a strong credit profile for these businesses.
We have an average of 9 basis points through the three year cycle of charge-offs. The loan portfolio provides diversification by both industry and geography. Since January 2022, we have retained 100% of our leadership team and 31 out of 34 of our top 50% revenue producers, 91%. I would add here, just I guess as some commentary, two of the three came out of commercial real estate, one out of correspondent banking. We were able to reallocate those portfolios and move straight forward. I want to talk a little bit about the countercyclical businesses that are part of specialty.
We have three countercyclical businesses: FHN Financial, which is our fixed income broker-dealer, residential mortgage, and our Mortgage Warehouse Lending business. I want to make three important points about these businesses, and you will hear this multiple times. In 2020 and 2021, during the pandemic, these businesses delivered outsized revenue while the broader banking industry was down. These businesses are scalable.
During 2020 and 2021, we were able to flex up and achieve very good operating leverage during a very challenging time. As these businesses decline, we are able to shrink the cost base, as you will see later. Finally, the countercyclical businesses are run by very experienced managers or operators who have been in these industries most of their careers. Now, if you'll switch to the next slide regarding financial performance. As you'll see, the pre-provision net revenue trends reflect the impact of the countercyclical businesses in the low-rate environment of 2020 and 2021.
In 2022 and 2023, the decline of the countercyclical businesses has been more than offset by the net interest income expansion in the regional bank and specialty lending. During this period, loans excluding Mortgage Warehouse Lending, grew at a 9% CAGR. The growth was led by Asset-Based Lending, Franchise Finance, and Equipment Finance. Deposits in the specialty businesses, which were primarily correspondent banking and Mortgage Warehouse Lending, reflect the pandemic-related excess deposits in the bank.
The decline reflects the runoff related to the mortgage escrow accounts and corresponding bank deposits as the environment changed. Next slide, please. This slide emphasizes the points I just made at the next level of detail. A couple of items to note. On the gross revenue side, given the superior performance of the countercyclical businesses, revenue increased 55% from 2019 to 2020, and 48% from 2019 to 2021. As it relates to credit, our loan books performed very well over time, again, with net charge-offs over the three-year period, averaging 9 basis points, and non-performing assets trending lower to a three-year average of 48 basis points. These are excellent results.
Now I'm going to profile three businesses: our Professional Commercial Real Estate business, our Asset-Based Lending business, and our Franchise Finance business. In going through these businesses, what I will try to do is sort of embellish the hallmarks that we spoke about earlier regarding the countercyclical businesses. Professional Commercial Real Estate or ProCRE. This is our largest specialty business, with $6.2 billion in period-end loans. As has been said, several times now, Susan Springfield will cover this portfolio with a lot of granularity during her presentation.
Our target customer in ProCRE is the experienced developer or investor who has a proven track record to stabilize projects, does business with contractors that have the ability to perform, and partners with institutional or sophisticated equity investors, sponsoring projects primarily in the growth markets of the Southeast and Southwest United States. We have great diversification based upon borrower, product type, and location, along with sound credit discipline to the business. With respect to diversification, our largest concentration is in multifamily with 30%, with a lesser concentration in industrial, hospitality, retail, and office.
We've managed our exposure to office and hospitality, both of which are predominantly located in suburban markets and not large metro centers. We're geographically diversified, as well across our footprint, and we manage to customer limits, product limits, and we have very strict credit discipline. Over the last three years, we've had zero charge-offs. Again, our people are our differentiator. The team averages 21 years of experience. The team's led by Greg Cullum, who is here today. He's been with our company for 34 years. Five years were spent as a credit risk manager in commercial real estate, and he's run this business for the last 11 years.
The next business I'm going to profile is Asset-Based Lending. It's among our oldest specialty businesses. We've been in this business for over 30 years. Today, it has $2.9 billion in period-end loans. Again, our target customers are long-tenured management teams who have demonstrated track records of managing through adverse cycles. The portfolio has two components. We have a traditional portfolio where we provide working capital facilities secured by receivables and inventory, manufacturing companies, wholesale trade, borrowers such as that.
The second component of the portfolio is our lender finance business. We provide working capital facilities secured by diversified pools of consumer and auto finance receivables. We also specialize in factoring, supporting factoring companies, primarily in the transportation industries. Strong client selection, coupled with ongoing field exams, a proprietary credit management system to track our customers' performance, and strict management of borrowing base advances, has led to an average of 11 basis points of charge-offs over the last three years.
The coverage team averages 23 years of experience in the business, and Kevin Beeson, who runs this business, has been in banking for 37 years, 19 with First Horizon. The next business I'm going to profile is our Franchise Finance business. We got into this business in 2016 as part of a portfolio acquisition from GE Capital. We were able to recruit a team of experts from GE to build it, and we've since recruited the talent to grow it. When we acquired the business, the book was $600 million. We've grown it to $1.7 billion in outstandings.
The business primarily makes loans to restaurant franchisees, non-franchise regional chains, and primarily to support their developments, remodels, and acquisitions. Our brands include national names like Taco Bell, Wendy's, and Domino's Pizza. The regional brands are those such as Raising Cane's. Our target customers are typically larger, multi-unit owners with proven track records to manage through the cycles. Credit discipline is very important here. It's about matching the right brands with the right management team in the right locations with the right credit structure. Leverage levels, liquidity, cash flow coverage are the core components of our credit approach.
Rising food costs, labor costs, and interest rates are factors now, and I'd like to tell you a little story about the last point that I made. Todd Jones, who joined us from GE Capital, and I'll talk a little more about Todd in a minute, and I were out west or in the Southwest, visiting customers after we'd acquired this portfolio. We went to meet a franchisee who had 16 Mexican quick-serve restaurants. He takes us on a tour of one of his stores, and you go by through the drive-thru window, and they're timing how fast it takes to get the food out, because that affects retention and customer experience.
He walks us into the food prep area, and there's this big stainless steel cheese grinder. He said, "I want to show you something." They get these big blocks of cheese out in the morning, and they grind this cheese for the day. He said, "You know, the prior owner of this business, was allowing the employees, they would grind the cheese down. There would be about a quarter-inch to a half-inch piece of cheese left. They would just throw it in the trash can." He said, "We came in here, and we taught the employees of these 60 stores to just put the next block on top of it and push that cheese through." He said, "At the price of cheese today, we're saving somewhere between $700,000 and $800,000 a year."
We go sit down in the lobby, and we have lunch in the dining room, and he's got his three-ring binders, and he's going through all his metrics and numbers. He says that on a trailing twelve basis, they've made about $4.7 million, $4.8 million in EBITDA. When lunch is over, we go get in the car. I look at Todd. I said, "Did he just tell us that he made $4.8 million and $700,000-$800,000 of it was that quarter to half-inch piece of cheese?" Todd looked at me, and he said, "David, that's exactly right. If you're going to make money in this business, you have to be able to manage food cost, labor cost, and the cost of money."
When we underwrite, we have to be able to stress these businesses based upon the variables in the business. Again, I tell this story to make the point that this is a very specialized lending business where we have tremendous expertise, and we're able to drive very profitable yields. Under our nationwide coverage model, coupled with our 14 years of average experience, we are able to attract the premier operators with the premier brands in the United States.
A little about Todd Jones. Todd joined us in 2016 with the GE acquisition. He has been in and overseen the Franchise Finance business for 19 years. Presently, Tom Hung, who's been in the franchise space for 16 years, runs the business. Both Todd and Tom are considered experts nationally. They participate as keynote speakers at conferences, as well as participating in panels. Today, seven of our eight specialty lending verticals report directly to Todd, and Todd is here today. Average charge-offs in this business over the last three years, 37 basis points, slightly elevated.
It's a result of some of the more full-service restaurants that we bank, being impacted by closures and protocols during the pandemic. Now, I'm going to talk a little more about the countercyclical businesses, over time. FHN Financial, Mortgage, and Mortgage Warehouse. In FHN Financial, Residential Mortgage, and Mortgage Warehouse, again, during 2020 and 2021, periods of interest rate easing, they create the greatest opportunity. In periods of tightening, like we saw from mid-2022 through today, our results are muted. I want to emphasize, they're greatly offset by the net interest margin expansion in the regional and specialty lending businesses.
We acquired the mortgage business in 2020 as part of our merger of equals with IBERIABANK. In 2020 and 2021, not only did generationally low interest rates drive purchase and refi activity, but the execution for sales to the secondary market were outsized. It was better by more than a full percentage point higher than the longer-term averages, which are like we're seeing, we saw in the second half of 2022 and in 2023. Nathan Vogt, a 22-year veteran of the mortgage industry, runs this business. He's been with our company six years with a combination of IBERIABANK and First Horizon.
From an expense standpoint, what you'll see is we have good flexibility. Again, when the revenue is good, we have great positive operating leverage, but when the. The tightening occurs and these businesses fall off, we do have the ability to shrink the base of expenses. As you see here, for example, FHN Financial, our expenses went from $296 million in 2020 to a current run rate of $194 million. Mortgage Warehouse, you know, another great business. We provide lines of credit to independent mortgage companies, and with respect to the larger lines that we provide, they are to management teams that are experienced in running mortgages, mortgage businesses through the industry cycles.
This business has $2.1 billion today in period-end loans, but it reached a peak of $7.2 billion in period-end balances in October of 2020. These loans are secured by high-quality, liquid residential mortgages that will eventually be sold into the secondary market. 90% of the underlying loans are conventional or government loans. Over the last three years, this business has averaged two basis points of net charge-offs. It's a profitable business, even given the re-reduced volumes of 2023.
As noted earlier, the business is very scalable. Staffing levels and productivity flex to accommodate the increases in volume in 2020 and 2021, and they've now adjusted back for the current demands. The hallmarks of this business, number one, our proprietary collateral system, and customer portal. We have the ability to track the individual loans as they go through the system, from origination to repayment. The second hallmark of this business is the experience of our people. Our team of associates averages more than 25 years in the banking industry, and Bob Garrett, who runs the business, has been in banking for 40 years, and he was the founder of this business at First Horizon 25 years ago.
We've expanded our deposit gathering and treasury capabilities in this business as well, and we believe we are well-positioned for the future. FHN Financial is the next of the countercyclical businesses. Again, selling bonds has been part of our company for over 100 years. The primary focus of this is institutional fixed income in trading. We do have a very important set of value-add products or advice products, including derivatives, investment advisory, loan trading, and asset liability management. The franchise value is our extensive distribution platform.
We have 4,300 customers. We do business in all 50 states and 28 foreign countries. We have 140 fixed income sales personnel. The revenue is balanced equally between depository and non-depository customers. We do business with about a third of the banks in the United States and 50% of banks with bond portfolios greater than $100 million. You know, this business is highly sensitive to the market environment. On the bottom right-hand side of this slide, you'll see the factors that impact performance. I would tell you that in the time, 2008 through about 2014, and again in 2020 and 2021, this business provided very meaningful revenue and earnings at a time when the economic environment was very challenging for the regional bank.
All right. We have very strong returns on allocated equity through the cycles, 20%-25%. The management team of this organization, again, a very well-run business, where we do a very good job managing risk, 30+ years. The business is run by Mike Kisber, who's here today. He is a 30-year veteran of First Horizon. He started running the fixed income component of this business in 2008, and he's been the president of the firm for the last 11 years. I would just say that, again, long-tenured, skilled management in place in all of these businesses.
Next, I'll talk a little bit about the deposit growth upside. For deposits, we have 4 channels that we're really focusing on to either bring in or recapture deposits. The first one would be escrow deposits in our Mortgage Warehouse Lending business. When our borrowers retain the servicing, they keep the escrow deposits, and they need a bank to hold them. We've done a good job growing deposits here. As mortgage servicing rights have been sold by many of our customers to raise liquidity, those deposits have gone away.
Another area is our community banks. Again, during the pandemic and when there were surge deposits in the system, we grew deposits very well in this business. As the environment changes, we will focus on reclaiming those deposits. In our real estate business and our corporate banking business and our Franchise Finance verticals, we do business with a number of private equity firms. There's an opportunity to raise deposits from the PE firms, the operating companies as well. Our middle market corporate business, ABL, Asset-Based Lending and Equipment Finance. Again, there are numerous opportunities to gather deposits from these customers.
Finally, in concluding, I would just say this: in the specialty area, we have the ability to provide deeper industry experience that adds value for our customers. We have a nationwide footprint that enables customer selectivity and targeting great operators. We have a strong credit profile with a great growth trajectory because of the national scope of these businesses. Finally, our retention rate since January of 2022 is 91% of our top-performing relationship managers and 100% of the leadership team in specialty. With that, I would just say thank you, and I'll be joining Anthony and Susan Springfield on the stage later to handle Q&A. Thank you.
At this time, we'll take a brief break. Please enjoy refreshments in the foyer. We will continue with the program at 9:55 A.M. Once again, please be back in the room at 9:55. Thank you. Welcome back to the next portion of our program. Please join now in welcoming Chief Credit Officer, Susan Springfield.
Good morning, everyone. We really appreciate you being with us today. I'm Susan Springfield, Chief Credit Officer for First Horizon, and I'm now in my eleventh year in this role. First, I want to provide some overarching commentary about our approach to building a strong credit culture. It starts from the tone at the top. Our board of directors, our CEO, our executive management committee, all emphasizing the importance of risk management in every aspect of our business.
Our executive management committee has three members who are dedicated to risk management. Our Chief Audit Executive, Vernon Stafford, who's here, our Chief Risk Officer, Terry Akins, who's also here, and me, our Chief Credit Officer. Our Chief Audit Executive reports to the head of our audit committee, and our CRO and I report directly to the CEO. Bryan has said many times that having more than one direct report dedicated to risk management is important in continuing to establish our strong culture.
As you know, in the past few years, we've brought in Capital Bank and IBERIABANK into First Horizon. We've benefited from our similar credit cultures. In addition, it's enabled us to build, bring in additional talent and also build a deeper, broader pipeline of talent within the credit organization, but also throughout the bank as a whole. It's also allowed us to take best practices from each company and bring them together. It's serving us well. As a result, we've built strong internal and external relationships more deeply and more quickly. We believe in respectful, credible challenge.
We encourage all associates to speak up about both risks and opportunities to make us a stronger company each and every day. Part of our credible challenge structure is that we have three lines of defense when it comes to managing credit risk at First Horizon. Line one, the relationship managers, portfolio managers, credit analysts in the regional bank and in the specialty bank, perform the initial underwriting and portfolio management activities. These folks report into regional presidents and specialty line of business heads that both Anthony and David spoke to this morning.
Line two, our credit executives and credit officers, whether in our centralized areas for consumer and small business or distributed out in our markets and in our specialty businesses, working directly with our commercial clients and our line one deal teams. Our line two credit officers review the work of these line one teams, that is the first kind of step of that credible challenge. To further separate duties at First Horizon, other parts of our line two functions, like our Credit Policy Group and our Credit Analytics Group, report to our Chief Risk Officer. Line three, credit risk assurance, which is our loan review function, reports into our Chief Audit Executive.
As you see, our net charge-offs since 2017 are better than peers. We are also diversified in many different ways: geographies, product types, and industries. Our client focus. We build relationships based on transparency and knowing our clients. We ask questions to better understand opportunities and risks facing our borrowers, and we discuss ways to mitigate those risks while also finding solutions for them. Our dedicated deal teams get to know our borrowers. My credit team goes on calls with clients.
In my opinion, it's a great opportunity to assess the risks that won't show up in a financial statement. I call these the softer risks, but important ones associated with commercial lending. Are their premises clean and updated? How do they treat their employees? Do their employees appear engaged and happy? Do things seem to be organized? Do you notice anything stale, raw materials or inventory looking old or stale? We can assess that. Client selection, you're gonna hear this, you've heard this already this morning, is a critical aspect of maintaining strong asset quality.
Our teamwork. Outside of our centralized approval areas, much of our loan structuring is bespoke, so partnerships are critical. My credit teams want to be brought in early. We don't want to wait till it's been all tied up in a bow. In fact, the early discussions allow us time for credible challenge, and it also allows us to give quicker approvals on opportunities that are strong and easy to underwrite. Alternatively, it allows us to give a quicker no on opportunities that don't meet our credit appetite. We can spend more time on the ones that have more complexity, that may require more questions and research, higher level of expertise.
It allows us the time to talk about risk mitigants, and maybe even solutions outside what the client stated that they wanted. One quick story here about one of my credit officers offering a solution outside of what the client stated that they wanted. A long-time client was moving its headquarters and was seeking financing for a build-to-suit project that was to be owned by an outside entity and leased to our client. We did provide terms on that structure, but we also presented a structure based on our client owning the building. Interestingly, we were the only bank that came back with an alternative structure.
Everybody else just, "Here's what the client said they wanted, here's the term sheet." We came back with alternatives, and the client said, "We're gonna go with you. You thought about what was really best for us." By the way, that structure was also less risk to the bank, so a win-win for everybody. Our discipline. Our approach is to be thoughtful and strive for a through-the-cycle lens. While adjustments may be necessary on some policies based on the environment, we don't want wide swings. The pendulum, as it relates to credit, while dynamic, should really stay within a controlled range.
Strong credit quality. Non-performing loans will see increases during more challenging economic times, like 2020 with COVID, and in our Q1 this year, with the rapid increase in interest rates over the last 12 to 15 months. Our net charge-offs remain low and are below the peer average. Our ACL coverage is 1.35% for the portfolio. Please note, in this time frame for the ACL coverage, there were two major shifts from 2019 to 2020. One was our merger of equals with IBERIABANK during 2020 and the adoption of CECL. Diversification is a strength. We have very good portfolio diversity.
54% of our portfolio is C&I, 23% CRE, 21% consumer real estate secured, and 1% consumer other, which includes things like credit card and non-real estate-secured consumer lending. As I just stated, 23% of our loan book is commercial real estate. Our CRE to total risk-based capital is 160%, which is well below regulatory guidance levels. Our borrowers are concentrated in higher-growth southern markets and with additional diversification through our specialty businesses, some of which who have national footprints.
We have granularity in the portfolio, with an average commercial loan size of $1.1 million and no single industry more than 7% of total loan balances. Client selection, disciplined underwriting, timely portfolio servicing are key to our asset quality strength. C&I. Focus a little bit on C&I for a minute. Within the C&I portfolio, the industry diversification, you'll see the chart on the left, with no one industry making up more than 13% of our C&I book. Within any particular industry, there's diversification in the subcategories within those broader NAICS codes. You can also see our geographic diversity in C&I. Obviously, as a Tennessee-headquartered bank, Tennessee is still showing as our largest state for C&I loans, but the other states continue to grow as a percent of the portfolio.
97- l et me talk about C&I credit quality. 97% of our C&I portfolio is pass-rated, with 90% high or medium pass. This slide, as you can tell, highlights our credit outcomes in recent years. Our classified loans have remained below 2%, except during the COVID year of 2020. As I mentioned before, we did have a slight uptick in non-performing loans. One was related to a C&I loan, which was an idiosyncratic issue in the Q1 of 2023. As stated a couple of times previously, our net charge-offs remain low.
Let me shift to commercial real estate. Our approach to commercial real estate has been disciplined, with upfront equity requirements, sizing and underwriting loans using stressed projection scenarios, including higher interest rates. We also have good diversification in our commercial real estate portfolio by property type and geography. Please note that our largest category is multifamily, which has performed well and is largely located in higher growth markets with good historical absorption.
Multifamily continues to benefit, especially with the recent increase in mortgage rates over the last 12-15 months. Please note that our top four states for CRE exposure, Florida, Texas, North Carolina, and Georgia, are also the top four states in population growth from 2021 to 2022. Let me provide some additional details on our CRE office portfolio. We have about $1.6 billion in non-medical office and $1.2 billion in medical office. We view the medical office property type as having less risk.
Many of our medical office loans have strong ties to major hospital systems, and the work-from-home movement has not had the same effect on medical office. If you see the geographic information on the right side of the slide, and we've divided it by non-medical and medical, but also want to note that if you just total those, the percentages for our top four states in total office are also the four states with the highest population growth noted on a previous slide for total CRE, North Carolina, Florida, Georgia, and Texas.
Here's a little bit of additional detail on our non-medical office portfolio. Our average loan size is $2.3 million, a good bit of granularity. About a third of the loan balances are less than $5 million, two-thirds of the portfolio are loans greater than $5 million. Our property types in this non-medical office are 80% weighted downtown suburban. Recall from our previous slide, our top non-medical office states are North Carolina, Florida, and Georgia. Our average weighted average loan-to-value is 59%, the weighted average debt service coverage is 1.71x .
You can also see that the lease rollover is pretty steady over the coming years, as shown on the right chart. I'll also note that most of our portfolio of non-medical office loans are buildings with under 10 stories, which poses a lower risk profile. Let me talk a little bit about CRE credit quality. Please note that 98% is pass rated as of 3/31/2023. Our classified percentage in CRE is at 1%, also as at the end of the Q1. Non-performing loans for commercial real estate did increase at the end of the Q1, primarily related to two relationships, neither of which is office. You'll see net charge-offs in the recent past for commercial real estate have been negligible.
On to consumer. Our consumer portfolio is largely a super prime and prime portfolio. The weighted average refresh FICO is 759, and more than 94% of our portfolio has a refresh score of 660 or above. 65% of our loans secured by real estate have a loan-to-value of less than 80%, and over 70% of our loans that have a greater than 90% LTV are loans made to medical doctors. That portfolio has performed very well for us. As mentioned previously, our consumer portfolio is largely secured, with 95% secured by real estate and less than 2% unsecured.
Here's some information about our 2022 company-run stress test results. Loan loss forecasts from the stress exercise reflect our model's projections using the Fed's supervisory severely adverse scenario. As you would expect, projected losses are highly dependent on the scenarios and variables as well as portfolio mix. Our 9-quarter loan loss projections are about half of the losses from banks included in the supervisory run scenarios. Note, 2.5% for First Horizon versus 6.4% for the CCAR banks.
Loss rates from other consumer, which includes card, were the highest for us, but of course, that portfolio, as I mentioned previously, is very small at First Horizon. Our commercial real estate was at 5%, still lower than the median of the CCAR exercise. We believe that these results show what we have just discussed as to our credit culture and a through the cycle lens. We are well positioned for the future with our client focus, our teamwork, our disciplined approach to delivering credit.
My leadership team, a very talented and tenured team, has an average of 16 years at First Horizon and an average of 35 years in the industry. In addition, I've had no change in my leadership team in the last 15 months. The only changes in the two years prior to that have been planned retirements. Our client relationship focus. Understanding our clients and selecting the right clients is critical in our success. Our dedicated deal teams in various markets and specialty lines provide a deeper understanding of market and industry dynamics.
Our teamwork, respectful, credible challenge, and knowing that risk management and client experience are everyone's responsibilities, leads to balanced and better outcomes. Our discipline. We have a long-term view of building a loan portfolio with a through the cycle lens. I'd like to ask David and Anthony to join me on stage for question and answers. To ask a question, please raise your hand and someone will bring you a microphone.
David, I'm curious, on the countercyclical businesses, can you talk about revenue trends? Have they bottomed out? How you manage those pieces of the business, and maybe an outlook for those with higher rates for longer?
Well, first of all, with the likelihood, as Bryan mentioned earlier, that we could see an additional rate increase later in the year, I think it's doubtful that we have bottomed per se, but I think it's fair to say we're pretty close to a bottom. From the standpoint of the longer-term view, if you look at history, what you've seen the Fed do is pretty aggressively try to manage the economy or cycles in the economy using interest rate policy.
What we do talk about from time to time is if we have elevated rates for longer with an inverted yield curve, then the recovery of these businesses will be slower. Notwithstanding that possibility, I think we all can be very confident that at some point, the rate environment will change. You will see easing, when that occurs, we should see a rebound in these businesses. You know, in the interim, I would tell you that we do a very good job in the case of FHN Financial, in managing the expense base.
In the mortgage business and mortgage warehouse businesses, we have the ability to flex up and flex down. You know, there's not a lot you can do to manage the revenue side, and therefore, we have to be thoughtful in managing the expense base. History has shown, and it will show again, we believe, that when you have an easing policy at the Fed, these businesses will rebound nicely, and they will offset challenges or headwinds in the regional bank.
Hi, thanks for taking my questions. I had a couple for you, David. I just noticed on the deposit growth upside strategy, there's a lot of use of the word recapture.
Right.
I just wanted to ask, you know, these must have been clients that moved elsewhere, so why did they leave, and how do you bring them back?
Good, good question. The two biggest components would be the Mortgage Warehouse Lending escrow balances and then the downstream correspondent banking deposits that our correspondent banking customers put on deposit with us. In the case of the mortgage warehouse business, again, as our customers have sold servicing rights to raise liquidity, the deposits have gone with those servicing rights. In the case of correspondent banking, as the banking system has lost or the deposit power shrunk, again, that liquidity has gone out of our bank.
In the case of Asset-Based Lending, commercial real estate, we did see, prior to the problems with First Republic, Silicon Valley, et cetera, we did see some customers move excess liquidity into treasuries. What we've been able to do is pursue those deposits. I would also say that, with respect to some of our national businesses, we've been very proactive over the last 60 days in going out and asking for deposits, and we've had some success.
Got it. I guess just a quick follow-up. Do you know how much in deposits you have in the mortgage warehouse business?
Not just off the top of my head, no.
Okay. Just my last one is I noticed that on that same slide, you said targeting excess deposits. I guess, you know, how do you define excess? Why are you targeting those deposits? I ask that just given in the current environment, everyone hears excess deposits and thinks that they're going to leave regional banks. When I see that word, you know, I just, it intrigued me.
Yeah. What I would say here is that, you have businesses where they have liquidity in the business that exceeds what they need for the day-to-day operation of the business. To the extent they have deposits that exceed what they need to manage the business from day to day, week to week, month to month, that's what we would describe as excess deposits or excess liquidity.
I had a question for, David
Right here. All right.
You talked about just cyclically how you manage expenses in your business. Talk to us around structural. If we remain in a period where deposit liquidity is tight for the next several years, what are the businesses that you're evaluating from a structural standpoint, where they're not self-funded, there's no line of sight of self-funding on deposits? Just when do you think you pull the plug or just de-risk or shrink in those business lines?
Yeah. Well, I think that from the standpoint of I don't like the words pull the plug. We're looking at. The answer to your question is, we're looking at the entire balance sheet. With the changes that we've seen in deposit cost, of recent times, pricing models are changing rapidly. We are seeing that loan pricing models are changing rapidly. You've got increased cost of funds, you've got increased cost of capital, and you're likely to see increased credit cost built into all of our regional bank competitors' markets.
Rather than saying we pull the plug on a business, what we're really doing now is, in addition to going out and asking for deposits, we're evaluating different relationships, different loans on our balance sheet to get an understanding of where we have the ability to increase pricing or go out and ask for deposits or ancillary business. I think step one, and Anthony said this, we run the bank for safety and soundness, profitability, and growth in that order. Again, we view this as an exercise where we analyze all of the relationships on the balance sheet to look for where, again, we can increase price, get ancillaries, get deposits, or potentially exit.
All right.
May I add just a little bit to that, too? I would just say that, in the specialty businesses, while not as deposit heavy, it has continued to be a relationship focus for us.
Right.
We have direct relationships with clients, where we have continued to ask for ancillary business and have done that for quite some time. As David just said, I think as we go through this next part of what's going on in the industry, it will be on a really a client-by-client basis, looking at, you know, what's strategic and what may not be.
Yeah. Both Anthony and Susan talked about being through-the-cycle lenders. When you have experienced credit partners, and you have people running your businesses that are experienced in their particular industries or markets, you know, one of the hallmarks of our company, as Anthony said, is when we onboard someone, we intend to bank them through the cycle. That's mainly from a credit standpoint. There are situations, and I think given the changes that you're going to see to loan pricing models for all banks, there will be credits that we will exit.
I guess maybe one question for Anthony. As you're talking to the regions market presidents, you shared numbers around retention, which were good to see. How are you energizing these teams? Clearly, you're trying to lean in in a period where the economy is slowing. Bryan talked about the risk of a recession later this year into next. Just what are the marching orders on the ground?
Look, our basic message is, you know, now that the TD transaction has kind of moved past us, it's our time to reconnect, re-engage with our clients, right? Internally, we've put forth a big effort to engage our associates, to make sure they understand where we are, make sure what our objectives are. We've gotten in front of our clients. It's in a weird way, it's been a unique time, so we got to engage with our clients around safety and soundness because of some of the noise at the end of the Q1 in the industry.
With TD kind of moving aside, it's given us a chance to really kind of lean in, run our own playbook. One of the things that's a little bit unique for our company is we've been a little bit inwardly focused for the last couple of years, not because of something we want to do, but because of the circumstances, right? Just think about COVID. We went into prep for the conversion and then TD. We've never really been able to play offense. One of the things that we're doing is we're actually very much looking forward to and enjoying the opportunity we've got to run our own playbook.
Our people are energized. We've got a tremendous amount of new account origination. Hope's going to show you some of the numbers. Our people are super pumped to be out and kind of deliver for their clients and be active, play an offense again, where we haven't been doing that for the last couple of years Ebrahim.
One more question.
Back to David. Just wanted to ask on the specialty lines of business, are there areas that are a bigger opportunity presently, given the market? You guys were light on commercial real estate relative to some regionals. Which is good, but is that also an opportunity, given maybe a pullback by some other players?
Well, there has been a pullback by other players, and we are not opposed to putting high-yielding loans that have good credit characteristics on our balance sheet. Our first priority in the commercial real estate space will be to take care of our existing customers. Many commercial real estate developers do business with multiple banks or financial institutions, and as other banks pull out, we will have customers who will continue with very viable projects, and they will come to us. We don't have an unlimited appetite, so we will continue to produce commercial real estate loans, but it's not something that we would view by any means as a growth strategy.
We, in fact, are seeing exactly what I just said, is that some of our very, very good customers are coming to us with really good projects, and there are fewer banks willing to loan in that space. I would just say that in the Franchise Finance business, given what that industry has been through with rising food costs, labor costs, cost of money, you're not gonna see a lot of acquisitions at this point. You're not gonna see a lot of expansions. I would think that that portfolio will be flattish.
In the Asset-Based Lending space, we have a lot of opportunity. Again, nationwide, we've got a strong brand in the lender finance business. We also have a strong brand in the trucking, transportation, logistics business. That's an area where you could continue to see some growth opportunities. You know, the one that constantly, I think, I'm not gonna say surprises us, but we feel good about, is this Mortgage Warehouse Lending business. In tough times, we grow our market share, and you will see seasonal fluctuations, and when those occur, we tend to perform well over time, and it's a profitable business.
Hi, John Pancari, Evercore ISI. Just a quick question as a follow-up on commercial real estate. Can you remind us where your commercial real estate loan loss reserve stands right now? Specifically for office, where is your reserve? Lastly, can you help split out how much in your office portfolio is Class A versus Class B and C properties? Thanks.
Our overall office coverage, and this would include the medical office, is about the same as the overall, which is 1.35% for the overall. Commercial real estate as a whole is a little bit higher than that. I don't have that number right off the top of my head, but I can get that for you. What was the second part?
The Class B-
Class A or .. .
Class A versus Class B, C.
I will tell you, we don't have it broken down that way in my notes. I would tell you it's largely Class A. It tends to be a little bit more suburban in nature. As I mentioned, most of it is buildings that are less than 10 stories and also have a lot of granularity in terms of lots, not lots of big office ones.
One last one. That LTV, that 57% weighted average LTV, is that pretty much at origination? Do you have any indication of what the value depreciation has been on reappraisals?
It's 59% on an as-stabilized value, based on the most recent appraisal. Some of them would be as at origination, some would have been updated. I will tell you, within our office book, I was looking at the updated tenant vacancy that we get information from our borrowers. For loans for properties that are stabilized, so not under construction, that vacancy is 7%, which I think is very, very manageable. Now, could that go up? It could, but we feel very, very good about the fact that based on what we're reporting that we're getting from our office clients.
The other thing is, we tend to, we don't have a lot in construction within office. Only about 7% of our total office portfolio, that would be medical and non-medical, is in construction. Another 2% would be non-construction, but not yet stabilized. Somebody that's turning around the property. I think that makes our office portfolio, to me, a better portfolio. In addition, obviously, the great markets that we're in that have benefited from a net migration in. We're watching it closely, John, but based on the information that we have today, I feel good about it.
Susan, that will be our last question for this Q&A segment. We will be back a little bit later with another opportunity for questions.
All right.
Our next presentation will be by First Horizon Chief Operating Officer, Tammy LoCascio.
Hey turn the lights down. Good morning, everyone. It's great to have everybody back in person again at events like this. This morning I'm gonna share with you the investment plans that we have for hiring and recruiting the talent and building the technology capabilities we need in order to deliver on our business objectives. As the Chief Operating Officer, I'm excited to lead the teams that sit at the intersection of people and technology, working with our business leaders, as you heard this morning, Anthony and David, to drive and deliver successful business outcomes.
We work, and you've heard this the last two days, we work every day at First Horizon on the culture of our organization, and that affords us the opportunity to hire the very b st talent in the industry. It's this talent, that we are very proud of, who has delivered a successful integration in 22, who worked the last year on delivering outstanding performance in the confines of a potential merger, and most importantly, who will execute on the roadmaps that we share with you today. I've been with the company for a little over 12 years in a variety of different roles.
The last time we were together here, I think, in Nashville for Investor Day, I was leading the consumer bank. Had the opportunity to be the Chief Human Resources Officer during the pandemic. And over the last year, I was the First Horizon integration leader for the TD transaction. One of the things that I learned over the last year is I got the chance to look at First Horizon again through the lens of others who were seeing our company for the first time. I've learned this about our company, and kind of reaffirms all the things that we've talked about over the last the two days.
First is we have a strong culture. Our associates are proud of who we are, they're proud of what we do, and they are competitive and really like to win. We have deep relationships with our customers, with our internal associates, and with our communities that serve us well. We operate with the clients at the center of everything we do, which keeps all of us connected, whether we're in the markets or we're in support organizations, keeps everybody aligned around the same outcomes. We're agile in our delivery and our decision-making, and you heard a little bit earlier this morning, we make decisions as close to the customer as possible.
Finally, we have a resilient workforce. Our merger of equals brought us together at a time where there were a lot of things going on, and it really helped us solidify the way we work together in new and different ways, and that continues today. Over the last three years, we have never stopped investing in our people and in our platforms. A merger of equals, as you can imagine, is a little bit different than an acquisition, and one of our core mandates as we went through this integration process, was to select the best of both companies as we built the organization for what we needed for the future.
This meant selecting the best talent and the best systems to carry us forward. We evaluated more than 1,500 systems and applications to choose the ones that were most scalable for the organization. As a part of this process, we sunset something north of 500 applications. Our talent selection process took place in 2020 and 2021, followed by our systems integration in February of 2022. And it was really a culmination of two years work, preparing, practicing, and then executing on a successful integration.
And some of the highlights you see here are notated on this slide. We had strong primary client retention of 91%. Anthony touched on this earlier, r eally proud of this number and the work that our bankers did in the markets to make sure we had lots of communication on what was going to take place and how it was going to impact them. We had over 90% successful unassisted logins. That's a mouthful. Unassisted logins for both consumer and commercial in the first 30 days after systems conversion, which was reflected in our low wait times in both our banking centers and our call centers immediately following conversion.
This is a number that's new to track as it relates to conversion, but it's really important. As more clients become digital-first in their experience with banks, it's important that people have the ability to log in and have access to their banking as soon as a conversion is completed. Proud of that number as well. Our talent retention scores and our culture scores, which we'll talk about in further detail with Tanya, were both above industry averages during a time where many people in our company were wearing multiple hats, pulling double duty on the integration front.
In preparation for the merger of equals, we executed on six major platform upgrades. We will share more about that as well, and also 100 other supporting projects to support where we were headed for the future. While the integration did take us a little bit longer than expected, we had, let's see, a pandemic, and then we had a hurricane. A few things that we had to navigate through, we executed well, and we took the time necessary to get it right for the benefit of our bankers and also for our clients longer term. Our successful conversion and strong performance post-conversion can be attributed in large part to the strength and stability of the talent that we have in our company, and you've heard about this all morning.
Our senior leadership team has remained largely intact. We have an experienced team who continues to deliver results. Bryan mentioned this this morning, we're very excited to have both Hope Dmuchowski and Aaron Pryor join our executive team, and they bring incredible experience and perspective to their roles, to our team overall, and to the company. The retention of our senior leaders also translates to strong retention across our franchise. Our organization has retention better than industry averages at 87% since January of 2022, in a time where we had a lot of things going on in the company.
This equates to longer-tenured associates providing the stability and counsel that our customers expect. I want to highlight the 12 years in IT and operations tenure. A quick story. Last year, we held a celebration honoring 43 of our operations associates who have been here 35 years or longer. An extraordinary 1,689 years of service in those 43 associates. Just yesterday, I had the opportunity to call and congratulate a technology associate who had been with our company for 45 years.
That doesn't happen everywhere, and yet it happens here all the time. It really is a testament to the dedication of our people and the culture which you've heard about all day today at First Horizon. In addition to our strong retention of existing associates, our story of why choose First Horizon also resonates with seasoned bankers and other top support talent as well. We onboarded more than 1,000 associates over the last year, giving us the opportunity, even with a lot of change going on in our organization, to attract new talent. Our nimble approach to hiring allows us to take advantage of opportunities as they present themselves.
If Anthony sees something in a market that we need to go after, or David wants to lean into the specialty bank, we've got the opportunity to go out and do that. While we're not only recruiting talent every day, we're also spending time re-recruiting our talent, making sure our existing associates understand and are prepared for opportunities that arise as our company continues to transform. To see a little bit more about the culture of First Horizon, in action, take a look at this video clip from Dr. Mario Brown, our Chief Talent Officer.
A great place to work is one that intentionally focuses on the greatest asset, its people. At First Horizon, our diverse team has been and continues to be our differentiator, our driver of success for our clients, communities, and shareholders. Year-over-year, First Horizon continues to outpace national benchmarks in creating a cohesive, relationship-oriented culture where diversity is valued, leaders invest in development, and opportunities for growth exist.
Even during moments of significant change, our strength comes from clarity of purpose and direction, and a high sense of trust and leadership to do what is right for our enterprise. Our foundation, now and going forward, is to support and inspire our workforce by creating a top-notch talent ecosystem that continuously seeks to be purpose-driven, client-centered, and value-focused. As I have traveled the enterprise, I've seen firsthand what the heartbeat of our organization looks like in real time, and I'm proud to report that our resilient team is highly energized, positioned to compete, and excited to deliver shareholder value under the First Horizon brand.
I'd like to invite Tanya Hart, our Chief Human Resources Officer, to the stage to wrap up the people section and share more about our talent strategy.
Thanks, Tammy. Good morning, everyone. As Chief Human Resources Officer, I am extremely excited about the talent in our organization. I have been with the company for over 30 years, and the past 12 in a variety of senior leadership roles in human resources. What's critical to our success and growth as an organization is the engagement as well as the development of our associates. To highlight how connected our associates feel to First Horizon, I want to share some of the results of our annual Associate Value Survey. We conduct this survey every year, and even amid ongoing changes, our associates still feel heard, they still feel valued, and are extremely engaged.
The results of this latest survey, which was conducted in the fall, show that 83% of our associates view First Horizon with overall favorability. This score increased slightly from 2021, which demonstrates that the resources and the programs that we provide, as well as the relationship between our associates and their leaders, has continued to make a positive impact on our people. In the survey, we use 18 different benchmarks. We compare the results of this survey to other financial institutions, U.S. organizations, as well as global companies.
I am proud that First Horizon has outperformed these other organizations in the majority of these benchmarks. This has been consistent for our organization year-after-year. This validates and also informs us regarding the way that we treat our associates. This also helps to understand some of the key associate motivators, such as meaningful purpose or work, as well as customer focus, which helps them to thrive and continue to carry the vision of First Horizon. I would also like to offer some additional insight regarding why our associates feel so connected to First Horizon by sharing some recent updates to our incentive program.
A large part of our strategy with our associates also includes investing in them. I'm proud that we were a leader in some select markets in raising our minimum wage to $20 per hour, where 23% of our associates were impacted by this increase. As of 2022, we've implemented a new enterprise-wide reward strategy to align our incentive programs with the overall goals of the organization. With this new strategy, all associates participate in a bonus or an incentive plan that's tied to First Horizon's performance. This strategy allows for maximum flexibility to reward our top performers and to also ensure that our associates feel valued as well as appreciated.
In addition, as you know, to keep our top and critical talent, First Horizon has set aside $150 million in retention awards. These were initially communicated after the merger with TD, and we kept those in place. This payment structure serves as another way where we can recognize our associates during this challenging and changing environment in which they've excelled over the past few years. Our focus on top talent is now more important than ever. We as an organization, we have the tools, we have the leaders, and we also have the story to retain and to win talent. Thank you for your time this morning. Now I'll turn this back over to you for the tech update to continue to Tammy LoCascio.
In addition to our talent strategy, we must continue to improve our operating systems and refine internal processes in order to compete successfully. We've made significant progress since 2020, implementing initiatives that contributed to the success of our integration and continue to help us build a strong foundation for the future. Leading up to conversion, as I shared earlier, we installed several new platforms. You heard about some of those earlier this morning. nCino's Commercial Loan Origination System, a new digital Treasury Management system, and new wire and commercial loan servicing platforms.
We also converted our virtual bank brand to a next-gen core platform, giving us the ability to test and learn outside of our existing tech stack. Since last February, we've completed more than 150 projects, closing gaps and implementing new initiatives that were on our roadmap prior to the merger. Projects such as a new IVR, and contact center desktop that's hosted on Salesforce, enhanced cyber and fraud analytics tools, and as Anthony mentioned this morning, an upgraded ACH payment system as well. While there's a lot to accomplish, we still have a lot of work to get done to be where we want to be.
Last year, we placed several long-term projects on hold, and we will now accelerate those on our roadmap in order to get those completed. Going forward, our priorities are to build on our foundations and deliver enablement initiatives that support our business strategies. Our goal on the technology front are threefold. The first is to ensure business resiliency by continuing to focus on things like cyber, regulatory, and operational excellence. The second, elevate technology delivery through the simplification of banker platforms and enhancements for clients that come in the form of more digital self-service, cloud migration, and API capabilities that improve our ability to deliver faster speed to market.
Lastly, enable superior experiences to deepen client relationships by continuing to focus on being easy to do business with and providing more seamless and personalized experiences, which you will hear more about from Aaron in her section. If you haven't flipped forward in the deck, you'll see it now. To deliver on these initiatives, we plan to invest $75 million-$100 million of the $225 million termination fee on technology, people, and platforms over the next three years. This will be a combination of both capital and expense dollars, with more details available as we continue to build out the roadmap.
Roughly half of our projects will be focused on foundational efforts, what we call run-the-bank type of initiatives that will enhance the security and the reliability of our existing infrastructure. Initiatives such as continued compliance, cyber fraud defense programs, replacing and upgrading aging systems, and harnessing cloud and API capabilities to improve our speed to market. The other half will be focused on accelerating client experiences or change-the-bank initiatives such as process automation, more AI and machine learning, as well as better analytics and insights and product capabilities that support our lines of business and deliver better enhancements for our clients.
Our existing talent will be augmented by new talent as we continue to invest in technology expertise, in areas such as data, cloud, cyber, and digital. This will include conversion of existing contractor support, as well as filling existing open positions that have been open over the last year. Mohan Sankararaman is with us- o ur Chief Information Officer is here with us today and leads these efforts, Mohan and I are available for questions if anybody has any.
As we cycle through the next three years of enhanced spending to accelerate the initiatives that we've deferred, we will then look to migrate our IT spend back in the range of what is where peer norms are. Most importantly, the investments I shared today are aligned with the business outcomes that you heard about this morning from David and Anthony on their roadmaps. We will spend, again, up to $100 million and deliver on 60 major projects over the next three years to accelerate our technology platforms. I will close today with where I started.
The intersection of people and technology will continue to be a priority for our company as we evolve and build for the future. While there's much work to do in the coming years, I'm confident, very confident, that our teams are ready to deliver the outcomes that our clients value and that ultimately benefit our shareholders. Thank you for your time today, and we will now move into the last section for session two, and hear from Aaron Pryor in marketing.
At this time, we'll hear from First Horizon's Chief Marketing Officer, Aaron Pryor.
Hi, everyone. I'm Aaron Pryor, the Chief Marketing Officer for First Horizon. I joined the organization in December 2020, most recently from USAA. It was great meeting many of you last night. I hope you enjoyed your dining experience at Halls Chophouse. Halls has been a long-time client of the bank and is currently featured in our brand campaign. Tommy Hall shared last night that he has been receiving calls from friends and family, some long-lost friends across the footprint, due to the commercial.
With that, we have been helping our clients and communities grow for over 159 years. We have navigated quite a bit of change recently due to strong growth, bank integrations, recently with the IBERIABANK Bank, merger of equals, and the pandemic. We've continued to refine our brand story to ensure it resonates with both clients and prospects. We have the opportunity to strengthen the brand across the First Horizon footprint. Brand is the promise of an experience, and it is brought to life by the people. Great brands are built internally. We started inside.
During the merger of equals, we took the opportunity to unite two strong, deeply rooted companies. We started with our associates. We needed to motivate and inspire them. We asked them to put into their own words what we do and why it matters. The feedback we got was gold. We could not have made it better if I made it up myself. We created our purpose, which is to help our clients unlock their full potential with capital and counsel. That capital is not just monetary capital, but also the human capital that makes First Horizon great.
Customers cite a brand's purpose as a key reason for choosing them. We use our purpose as a cornerstone in our messaging in all of our channels to create consistency, including with our over 7,000 associates, to create a force multiplier. Great brand transcends product, and before people choose a product, they choose a provider. We needed to build awareness to reach prospective clients earlier in the purchase decision lifecycle by making investments, longer-term investments in marketing.
A 1%-3% increase in brand awareness is considered success. Since our 'Always On' campaign launch in late 2021, we have seen a 6% and 5% increase year-over-year, respectively. Our award-winning campaign, ''Let's Find a Way'', launched in April of 2022. We feature real clients and bankers, such as Tommy Hall, because who better to tell our story than our clients? You're about to watch a commercial with our client, Mack Wilbourn, who is a multi-franchise restaurant owner in the Atlanta airport, and he is oftentimes referred to as the "mayor of the airport".
Mack, what year was it again? 1988, 34 years ago. 17 restaurants and 10 brands later. You drove the vision. I made sure the financing worked. You sure did. What's next, Mack? It's a new chapter, and I want to do things that I'm passionate about for my community. Retirement, Mack style. 'Let's Find a Way'.
The 'Let's Find a Way' campaign creates an emotional connection by highlighting the relationship and trust our clients have with us and our bankers. Customers with an emotional connection tend to be more valuable and loyal over time. Great brands are also operational. The client experience is the totality of the customer's interaction through all the channels, both tangible and intangible, and the way customers are interacting is changing. They want a seamless, omni-channel experience.
The Harvard Business Review cites the Net Promoter Score, which is measuring loyalty, as the number on number you need to grow. Our Net Promoter Score is up 16 points year-over-year, our customer satisfaction is up 13% year-over-year. These scores increased during a merger of equals, an impending merger, and a hurricane. We have an organization, starting with our frontline bankers, with the skill and ability to provide the counsel our clients need and to be a partner for growth, which is supported by the client retention numbers you heard earlier.
Over the past 15 months, we've continued to invest in our brand and our channels. We launched our new website in October of 2022. It's our largest banking center with over 8.5 million annual visitors. We wanted to build a client acquisition engine, we enhanced our messaging and content, we simplified the user experience, and we increased our lead generation capability. Since launch, we have seen significant performance increase, with over 2 million new website visitors, a 26% faster load time, which gets the customers to the content more quickly. Best practice is three seconds, o urs loads in 1.5, which is best in class. Pretty proud of that fact.
In additional, we saw an increase of 7% in pages per session, meaning that the users are consuming more, and a 560% increase in leads, which means they're taking action. The website is a key component into performance-driven marketing. We have aligned marketing to the business objectives, and through line of business campaigns, we are driving prospects into the funnel, converting them to leads, helping to pull them through, and ultimately deepen the relationship with automated onboarding experiences.
Some 2023 highlights include a 4x increase in marketing-driven leads, over $500 million year to date in marketing-driven deposits, $70 million in commercial deposits from events such as our CEO Summit, where we hosted top clients and community leaders, and a 2% primacy lift in retail onboarding. Data and technology are cornerstone for marketing today. We are driving data through an enhanced marketing technology engine to deliver personalized, measurable experiences.
We were the first bank in the United States to implement the Salesforce Customer Data Platform, which enables the delivery of a one-to-one experience with tailored messaging at the right touch points based on our knowledge of the consumer. This is enabling that seamless omnichannel experience that our reference customers want.
We are confident that these investments in marketing will continue to drive the brand and increase market share. We will support the business through lead generation, tools for our bankers, and deposit growth, and we will enhance client experience by leveraging data-driven insights, real-time client feedback, technology, and our people. Ultimately, our goal is to further enhance the value of the franchise and continue to drive improved shareholder returns. Thank you.
Ladies and gentlemen, we'd now like to take another short break. Please be back at 11:15 for the final segment of our program. Once again, we will return at 11:15. Thank you. Here to begin our final segment, please welcome Chief Financial Officer, Hope Dmuchowski.
Good morning. Thank you for all coming. This is the last presentation of the day for you all. I am Hope Dmuchowski, the Chief Financial Officer. I joined First Horizon Bank 18 months ago. Prior to that, I was with Truist, joining the predecessor entity, BB&T, for approximately 13 years. I did accounting roles, finance roles, treasury roles, as well as line of business roles. I started my career at Deutsche Bank in New York City as part of the leadership development program, and excited to have one of my former colleagues here in the room with me today- banking can sometimes be a small world.
My first 18 months as a CFO have been a little bit more untraditional than most. On the 60th day in the role, we entered into due diligence with TD. My three-month anniversary with the bank, we announced that we would be acquired by TD. 15 months later, we announced that the deal was going to be called off due to the inability to get regulatory approval. This 18 months has been so interesting as a CFO. I've gotten to see the best of First Horizon. I've gotten to see how dedicated, passionate, and tenured our employees are in any scenario that we throw at them. I've seen the best of our clients.
Often as a CFO, you get removed from the clients, you don't get to talk to them. It is amazing how our clients have shown up in the last 30 days, the emails that have ended up in my inbox, and the one-on-one conversations I've had with them. First Horizon is a resilient, passionate company that is ready to take on whatever comes. As you'll see in my presentation, we have a business model that is ready for any cycle, an employee base that is committed and ready to take on whatever is on our horizon.
We're focused on delivering enhanced shareholder value through targeting top quartile performance. We have a diversified business model with our asset-sensitive balance sheet and our countercyclical businesses, as you heard from David Popwell earlier today, in a highly attractive geographic footprint. We have strong balance sheet with diversification in our loan book, as well as within our verticals and geographic diversification. We have a strong risk management mindset. We run a client-centric model, which leads to high client retention and deep relationships. We have a disciplined execution of strategy- a s you'll see in my presentation, you can see through the cycle how we've performed.
We also focus on investing in our well-being, our associates' well-being, as you heard from Tammy and Tanya earlier today, which leads to high employee retention. We also invest in our communities. We have a long relationship with our communities, recently demonstrated our commitment to them with donating $50 million of the TD termination fee that we received. Our diversified model delivers more consistent returns. Our adjusted PPNR per share from 2017 to Q1 2023 CAGR is 10.4%, which is 250 basis points higher than the BKX median. Our diversified revenue streams with our countercyclical businesses provide interest rate downside risk protection.
As Anthony shared, we operate in attractive southern markets with a growing footprint. We captured expense savings through the MOE, and we continue to focus on operational efficiencies, identifying ways to redeploy our savings into investments. Delivering more consistent return outperformance, both ROA and ROTCE over the last five years. Our five-year average ROTCE outperformed the BKX median by 75 basis points. Our ROA outperformed the BKX median by 7 basis points.
Additionally, we've built $260 million of tangible common equity from Q1 2022 to Q1 2023, allowing us the ability to return capital in the future. Top quartile performance across key metrics. In the Q1, we were a top quartile performer versus the BKX index, excluding trust banks for CET1 ratio, margin, adjusted efficiency ratio, and adjusted ROA. Our CET1 on a pro forma basis of 11.3 is in line with the G-SIBs and even ahead of 1 G-SIB. Our CET1 is 140 basis points above the peer median.
Our margin, with our highly asset-sensitive balance sheet and disciplined deposit pricing that we've had through the cycle of 3.87, is 67 basis points above the peer median. Our adjusted efficiency ratio, as we've always focused on disciplined expense management. As Tammy and others shared this morning, we have continued to invest, although we put some things on hold, of 53% is 5% better than the peer median. Finally, our adjusted ROA of 1.40 is 30 basis points higher than the peer median. These four metrics show how we've run a disciplined, intentional business with a highly attractive footprint. We believe that we are well-positioned in the future to continue to deliver top quartile performance.
Strong Q1 results. As we released our results but did not have a call, we'll share just a couple of the highlights here. We had strong capital position in Q1. As I mentioned, the 11.3% pro forma for CET1. We have a prudently managed balance sheet, which I'll discuss in more detail, and we have continued earnings strength. Our revenue was up 23% year-over-year, and adjusted PPNR was up 66% year-over-year. Demonstrated history of robust capital levels. In Q1, our total capital pro forma was 14.5%, with CET1 adjusted of 11.3%, which, as I mentioned earlier, is 140 basis points above the peer median, but it's also 430 basis points above the minimum regulatory requirement of 7% for our bank.
We have continued to run a company-run stress test, even though it is not required for banks under $100 billion. This was an intentional way for us to manage risk, look at how our businesses will perform, and make sure that we were making prudent steps. In the 2022 CCAR results, our CET1 outperformed the peers by 100 basis points. We maintained strong capital levels. Our reported CET1 for Q1 was 10.4%. If you look at the chart on the left, we've done the pro forma for the TD conversion of the Series G stock to common, the termination fee we received, as well as the offsetting investment that we made of $50 million into our communities through our foundation, resulting in 11.3% adjusted CET1 for Q1.
We look at our pro forma CET1, in the chart on the right, and we include the adjustments for available-for-sale securities, held-to-maturity securities, and our loan fair value mark, our adjusted CET1 would be 9.6%, which is 260 basis points above the regulatory minimum. Top-tier capital levels provides us flexibility in the near term to manage near-term risk and the ability to return capital in the future. On the left side, you'll see here we've compared the BKX top quartile, our tangible common equity to tangible assets, which outperforms the peer group by 170 basis points. The bottom left shows you TCE and TA, including held-to-maturity securities and loan fair value marks, we outperform the BKX top quartile by 270 basis points on this.
The difference between these two shows the disciplined approach that we took to putting securities on our balance sheet during the pandemic. On the right side, you have our total capital return ratio, as well as our dividend payout, which shows our commitment to continuing to return strong returns. In the near term, we expect to build capital. In the future, as we start to see a stabilized economy and banking system, we would target a 10% to 10.5% CET1 ratio. Our balance sheet is well positioned to navigate any variability. We have an asset-sensitive profile with 66% floating rate.
We've put on $3.2 billion of loan floors and $2.2 billion of swaps to protect against the downside of potential decrease in rates. As Bryan mentioned earlier today, the rate curve continues to change, and we continue to make sure that our balance sheet is positioned for a rising rate or decreasing rate environment. Our interest rate profile is supported by a strong base of client relationship deposits, with non-interest-bearing deposits making up 30% of our total liability. Our contingent funding plan is sufficient to cover all uninsured or uncollateralized deposits.
One last note I'll make on this page is we have 12% of borrowings as a percentage of funding versus our peers of 16%, which provides us additional flexibility in our funding profile. We prudently manage our portfolio to support both liquidity and interest rate risk. In Q1, our securities portfolio was 13% of total assets compared to the peers of 22%. We have a low resilience on held to market designation of our portfolio with just 13%. Yes, that's not an error. It's a 13% of a 13% calculation.
Our securities portfolio duration of 5.2 years is in line with the BKX peer median. We also, on Q1, our unrealized security losses of 1.4% of reduction to CET1 ratio compared to peer median of 2.4%. Q1 earning assets mix reflects a more normalized profile for First Horizon. We made the intentional decision to hold pandemic-related excess cash at the Fed to not redeploy it into securities or extremely grow our balance sheet, which we'll talk about in a few minutes. If you look at our loan portfolio, it grew only 1% during this time, primarily driven by our outsized PPP portfolio that we had compared to our peers.
If we adjust for the PPP portfolio, our loan growth during this time would be 9%. On to the slide everyone's been asking about. Last night, over cocktails and dinner, I got asked no less than 20 times, "How much deposit runoff did you have? How much did TD's cancellation of the merger due to regulatory approvals impact your ability?" The answer is that we didn't. We saw our best month in deposits. We have quarter-to-date deposits up $400 million, with all of that coming from May. We saw $1.5 billion in May of new deposits. We've put both April and May on here so that you can see that in April we saw a deposit runoff and then the trend turned in May.
As mentioned earlier, we are competing on pricing, but we've been in the market competing for pricing for many months. What changed? What changed is First Horizon, as a standalone bank now, has the ability to tell our clients what their rate will be, who their banker will be, and that there's not a client conversion coming in the near future. As I talked about our valuable client base, following the merger, my inbox was flooded with emails that we were receiving from clients that were excited to continue with First Horizon and were offering to move money to us. We're in a unique environment where the- Anthony and David, let me go meet with our clients now and our prospects.
A CFO at the table is now a plus, not the negative. I probably do 1 to 2 prospect calls a day. I want to tell you about one. Last Thursday, I got called into a prospect call for a very large nonprofit that you would all know. We've been working with them for three years, calling on them, having meetings with them. The banker called and said, "Hey, I've been working on three years to bring this relationship over. Will you come and pitch this deal with me?" I said, "Sure." Had a great conversation. We talked about First Horizon. We talked about how we think about our client culture. We talked about how we think about our credit culture.
We talked about our communities. They specifically asked about our $50 million donation we made, why did you make that in the middle of everything that was happening? At the end of this call, we said our goodbyes. The banker said, "Thank you. You know, I hope to get this client sometime in the future." I didn't hear anything more. The next day, I was on the call with my core team that's been working on getting this deck together, an email popped up in my box. We were going through the deck, making sure everything added for you all, the footnotes were right.
An email popped up from the CEO of this nonprofit, I saw it, I expected it to be a thank you very much for your information. It said, "We are so excited to become a First Horizon customer. We're going to move $50 million. Help us start our paperwork today." I was so excited because as a CFO, I never get to bring clients into the bank. I actually screamed. I went, "Woo-hoo!" Susan, who's in the office next to me, comes into my office and pops in the door, she's like, "What's happening? I hear you screaming." I was like, "It's a good screaming. We just got a client that we have been trying to get for three years." That's my client story.
Everyone around here has one of those client prospect stories. Although we have been doing marketing since February, we've been competing on pricing. It is the First Horizon story. It is the commitment that our associates have and our bankers have to our clients and our clients wanting to be part of First Horizon that shows why these numbers increased in May. We also have an attractive lower-cost deposit base with 31% in DDA. We have higher growth markets that we believe provide us an attractive market to grow deposits beyond what we've seen in May. Our well and diversified deposit mix in both geography and product type.
Our average deposit balance of $40,000. Our top 15 unsecured deposit relationships represent only 1% of deposits, and our top 40 unsecured deposit relationships represent 3% of deposits. As you can see on the bottom left here, we put a May 31st number in. As of May 31st, our secured and insured deposits have increased 66%, up 3%. We continue to see this number increase. One of the things that has changed with the clients in the recent months is now the collateralized product is something that we are continually being asked about in prospecting, as well as meetings with current clients, we're seeing a mix shift.
Our asset-sensitive balance sheet delivers strong results. As we saw earlier, we have a top quartile margin currently at 3.87, resulting from our asset-sensitive balance sheet. Our deposit betas through Q1 were 37%. Our NII overall was up 100 basis points. Revenue trends reflect the benefit of rising rates. As David and Anthony talked about this morning, we run a countercyclical business model. You can see on the left-hand side here, our adjusted revenue trends. In 2020, our revenue was $3.2 billion, and in 2023, Q1, on an annualized basis, it was $3.49 billion. What you see is that the mix has shifted.
In 2020, our countercyclical businesses made up 34% of our revenue, where in 2023 it is 20%, but yet our NII has moved from 66% over this time to 80%. On the right side, we've broken out our fee income between our countercyclical businesses and our other businesses. You can see that the top two there have shrunk over this time, but our other businesses have remained stable. Disciplined expense management has long been part of the First Horizon story. Our annualized expenses since 2020 are down $51 million. This includes the benefit of the IBERIABANK merger cost saves of $200 million.
A few of the items that have increased over this time, as you heard from Aaron Pryor this morning, we've increased $36 million, our brand and advertising spend. We also have seen a $16 million increase in FDIC expense and a $12 million increase, as Tanya and Tammy shared early this morning, as we've increased our minimum wage twice from $15 to $20. We have a 500 basis point improvement in adjusted efficiency for the full year, which is a 500 basis point outperformance or 5% versus the BKX peers. In the future, we expect to continue to prudently balance expense levels with a need to continue to reinvest and capitalize on the strength of our franchise.
The second most wanted slide last night at dinner, besides asking how our deposits were going to do, is how is the company going to perform this year? Our NII, we are forecasting to be down approximately 6%-9%. This includes the forward curve as of May 22nd, which had 2 25 basis point rate decreases in November and December. We are currently forecasting our betas in the mid-fifties, and our DDA balances return to pre-pandemic levels. Our average loan growth, we're forecasting at 3%-5%, with the majority of that happening in the first half of the year and growth moderating in the second half of the year.
Our non-interest income, we're forecasting down 6%-10%. As we've talked about how the countercyclical businesses are performing in this interest rate environment, we do anticipate seeing modest improvement in fixed income in the second half of the year. Non-interest expense, we are forecasting to be up 6%-8%. This is due to our increased investment in technology, marketing, and people. Additionally, we have $22 million of incentives tied to the TD merger agreement that were previously accrued through merger accounting and are now coming back to operating. Our net charge-off ratio is forecasted to be 15-25 basis points.
This is forecasting a modest return, normalization from the benign levels we've seen in the last couple of years for charge-offs. Our tax rate is forecast to be 20%-22%, with the individual quarters having some variability due to discrete items. As I mentioned earlier, we continue to expect to build capital with our CET1 ratio being between 11.25%-11.75%. This does include an estimate for the one-time FDIC assessment. For Q2, we're forecasting net interest income to be down approximately 5%-7%. Again, this is the May 22nd forward curve, we're not anticipating any rate changes in June.
Our non-interest income will be flat to down 2%, with an ADR expected to be approximately $437,000. Non-interest expense will be up 3%-5% as we have increased marketing expenses from deposit campaigns. Net charge-offs are forecast to be 15%-20%, CET1 is forecasted to be approximately 11.25. We're going to be committed to continuing to drive shareholder value, deliver outperformance through the cycles, as we've demonstrated, have strong balance sheet management, and invest in the well-being of our associates and our communities. We're also going to focus on a disciplined execution of strategy as we thoughtfully look towards the future in the current rate, environment, and economy. We thank you each for taking the time to be an investor.
We thank you for taking the time to spend with us today. As we talk about our future, we want you to know that we appreciate each one of you. We appreciate that you are an investor in our company and give us the equity to help people like Tommy build on his father's strong legacy at Halls Chophouse. People like Mack, who we've helped build his franchise, but also move into his retirement years with wealth advisement. We thank you for being part of the First Horizon story and are excited for the next chapter to come. With that, it's my honor to invite Bryan Jordan up for Q&A.
Thanks. Brett Rabatin with Hovde Group. First, you know, Hope, you mentioned the two slides that everyone was asking about last night, you know, the deposits and expectations for the year. Excuse me.
I get choked up talking about it, too.
Can you talk maybe about the deposit campaign in May, the $1.5 billion that you added? How much of that would be at the promotional rates that we're seeing, you know, advertised quite a bit? Just maybe more color on how you expect deposits to play out from here?
You want me to go first?
You go ahead.
You know, how we expect deposits to play out from here, we think we will continue to perform better than we have been performing, in all honesty. We've seen our marketing take off. We have an engaged associate workforce, engaged bankers that are really focusing on gathering deposits now, as well as looking at the fully banked relationships. As I mentioned in my forward-looking guidance, deposit betas continue to be going up. It is a competitive market, and although you lead with rate, we get beat by rate all the time.
Whether you're at 5%, 5.25%, 5.35%, if you want the deposits, you really have to be the bank that they want to bank with. I think we are going to continue our full-year deposit campaign that we committed to at the beginning of this year, and we're going to continue to work, you know, one banker, one client at a time to continue to bring deposits into the bank.
The pace of deposit pricing and change, I think, will normalize as we move through the next several quarters and then in the next year. As I said in my opening comments, we saw a fair amount of contraction in M2, you've seen the Fed increase the size of its overnight reverse repo, pulling deposits out of the banking system. We came into May when we announced the termination of the merger agreement, we wanted to do two things, principally.
Number one was protect the home field, and number two was to give our bankers another reason to pick up the phone and call their customers and talk to them about deepening and broadening relationship. We look at a world where, you know, raising money at incremental promotional rates is at a higher rate, but relative to what we could pick it up at the Federal Home Loan Bank or the Federal Reserve, is still accretive to our margin. We wanted to be front-footed. We wanted to be aggressive in defending the home field, giving our bankers a reason to reach out to customers, and we're seeing very good success with it.
One other one on deposits. You know, a lot of banks are talking about DDA levels going back to a percentage pre-pandemic. Given that rates have moved up so much, why is that the right number? Why could that not be lower?
Yeah, look, I don't think anybody really knows. I think in a higher rate world, people ought to care more about whether it's in an interest-bearing account or not. I think, you know, the wild cards are, does Congress and the administration do something to change the Transaction Account Guarantee and change the mix between collateralized? We're, you know, plus or minus a couple % of where we have historically been, I don't know that anybody knows how deposits are going to play out in a higher rate world.
I'd be surprised to see it drift to that higher number. One thing I would say about deposits, there's an awful lot of discussion about unsecured deposits, and Hope walked through the information with respect to ours. All unsecured deposits are not created equal. Commercial unsecured deposits are a whole lot stickier simply because they're tied to transaction accounts, to Treasury Management, Wire System, to P-Card, Sweep Accounts. That's a whole lot stickier balance. I think we're going to see some ebb and flow.
The deposit universe is going to continue to change through the rest of this year. As Hope just said, we're going to see a lot of competition, but I think to sit here and say, we can be smart enough to tell you what unsecured is going to be at the end of the year or what DDA is going to be at the end of the year, would be a complete overstatement of our forecasting ability. You're laughing at me.
That's helpful. One last quick one, appreciate the questions. There was a comment about the Net Promoter Score being up 16%. Do you have the Net Promoter Score? Can you give us the color on what the scores were?
Yeah. Aaron will know the exact numbers, but you have to keep in mind that the Net Promoter Scores are really being benchmarked against a merger of equals that occurred in the summer of 2020. We've gone through a merger integration. What is the number? I think it's positive, low single digits. Is that right? Nine? Is that right? Nine. It's all the movements being benchmarked, going through a merger of equals and through the TD pendency of the merger agreement.
Hey, guys. I had a couple of questions. Steven Alexopoulos. First, the employee retention is very impressive, and I'm wondering how much of that was a function of the employees were going to get paid $25 cash, right? I'd imagine that would be a bit of golden handcuffs. How much of a factor was that? Now that the TD transaction is terminated, stock's around $11, do you look at the next year as more of a challenge for retention than actually what you saw over the past year?
I think there are a number of counterbalancing things that occurred. I would say clearly, you know, all of us and our colleagues and associates across the organization understand the impact of expecting $25 and where the stock trades today. We all believe that will work out over time. We have a lot of our compensation tied to stock, and so it is something that our folks notice, and they do pay attention to it. It's not to say that that's not an issue. I think what the board was able to do with our retention program was we were able to reset it at full value, so it was tied to stock price.
We reset it at full value, and we set it in such a way that our associates can earn- t hey have a floor, but they can earn a 25% upside in the event that the stock price goes up. The basically 5% of the dollar in stock price. The counterbalance to all of that, Steve, is that while you're in a pending merger, there is a tremendous amount of uncertainty that exists, and TD was very positive on the front end in saying all front-line bankers are gonna have an opportunity. That was an important message. In that period, okay, how are we gonna segment? How are we gonna be able to do business? How is our credit approval gonna work?
There's a whole lot of questions that come up, and so when you terminated the merger, you had all of those questions go away. "Okay, I know how we do business, I know I have the ability to serve my customers, and the board is doing what it can to protect me for the downside on the stock price with a retention program that really does signal, I want you here." I think it's done a great job creating stability across our associate base. Our retention program was very broad. It reached down to the folks who were in our banking centers behind the teller line, all the way up to our regional presidents and beyond.
Steve, the other thing I'll add to that is, you know, this time last year, the competitive hiring market, recruiters were calling and saying, "I will buy out your retention," as the first word out of their mouth. This retention was given at a time where buying it out was not a problem. Companies were just trying to get people in the door, and we had a heavy calling effort after the TD announcement came from every team.
Every team would tell you, "Yes, I'm getting this recruiter call me," and they start with, "We'll buy out your retention." Keep that in mind when you think about what environment we were in last year. These our bankers, our employees, they chose to stay here. They could have gotten bought. Most of them could have been bought out and didn't even take the calls.
One last point, Steve, you, I know you have another question. I don't want to sound like we're patting ourselves on the back. Tanya Hart presented a lot of information about company culture and the way people feel about their ability to be successful in the organization, to serve their customers, to grow, to thrive, the tenure. All of that matters when you have these big events. I've been CEO since 2008, and I think about all the big rally points in our organization, it's when we're confronted with some sort of adversity, whether it's the Great Financial Crisis, whether it's the pandemic, whether it's a termination of a merger. Our people lock down and get to work.
Mm-hmm. That's helpful. For my second question, many of us in the room have covered you guys for a long time, right? Before joined the company, Bryan, it was a growth almost at any cost bank, right? We went through 10 years where it was like the bonefish was the focus. As you now emerge post IBERIABANK, post TD, I've sat here for half the day, I don't really understand, what is this bank for the next 10 years? Are you a positive operating leverage story bank? Are you gonna get back to growth? Like, how do you measure success of this company?
Yeah. It was in, I think, one of the top of Hope's slides. We're focused on being a top-tier return organization, and we're gonna deploy as much capital as we can in the business that creates value for our shareholders. In other words, we are going to drive profitable growth, and we look at it in the context of relationships and broadening and deepening those relationships. As we sit here today, depending on how the next couple of four quarters play out, I think there's as much chance we're an $80 billion organization today.
We could be an $85 billion organization, we could be a $75 billion organization. We're gonna do what makes sense for the environment. We're not focused on growth first. We're focused on driving profitability, safety, and soundness, and then we focus on growth. That's just sort of a cultural aspect that we have. I think we can provide top-tier returns, top-quartile returns, I think is what Hope put on the slide, across our peer group.
Thanks. Jared Shaw with Wells Fargo. Just a question on the capital targets. You're at a 125 basis point cushion, it looks like, over your longer-term goals sort of right now. How long should we be thinking about you sitting on that excess capital? Is that just really a 2023 thing, or is it, you know, more indefinite, and when can we start to see some of that return come back?
Steve, or Jared, sorry, at this moment, I can't tell you a timeframe. We're looking at the industry stabilizing right now. With banks being where we are, having top-tier capital, it is a differentiator for us. It's a differentiator. I have become a pro at explaining to clients how to think about CET1. I love to show them that slide with the G-SIBs, telling them we have as much capital as the G-SIBs, it is a differentiator to us. In the near term, I think we'll hold onto it until I said in my comments, stabilization in the economy and the banking system.
Okay. And then just- Oh, sorry. As a follow-up, what should we be thinking about as the long-term loan to deposit ratio, as we're going forward? Is that something you want to try to bring down a little bit and more normalized, or you feel that the deposit flows will be there, and that, you know, we're comfortable seeing it stay elevated?
I'll start. I think over time, we're going to see deposit flows start to stabilize. In my real simplistic way of thinking of things, there's too much of the banking system's deposit base tied up in long-dated assets that aren't prepaying, aren't going to prepay. That will normalize over time. I like the loan-to-deposit ratio at or below that 100%. I'm not uncomfortable with it going above that for a period of time. It has to fit why are we driving that loan-to-deposit ratio. A loan-to-deposit ratio of 100 with the wrong kind of credit doesn't make any sense, and 100, or 90% and missing great customer opportunities doesn't make any sense. I think David and Anthony laid it out in a very complete way and subtle way.
We have a lot of flexibility to think about how we use our balance sheet, and I do believe that loan pricing, because of deposit pricing, will both migrate up. I think we'll look at the breadth and depth of relationships. If we're in a transaction or credit relationship, and 3 years in, we haven't picked up any ancillary or relationship business, we're fine walking away with that. Anthony made a decision like that a couple of weeks ago. We have the ability to manage that, but again, we're going to use our balance sheet for the most profitable business, and we have a lot of levers to pull in that regard, so I feel good about our optionality with respect to how we drive the mix of loan and deposits over time.
Hey, Bryan.
Hi.
Brian Essex, Goldman Sachs. Just a couple of follow-up questions. You know, on the back of Steve's question, you know, you talked a couple of times about wanting to have top-quartile returns. Obviously, the world's changed a lot the last couple of months. Can you maybe just talk about what type of return profile do you foresee the bank as being capable of generating over time, and what are the levers to get us there?
Yeah. your inherent in your question is the landscape from a regulatory and is likely to change?
I think the bank used to talk about, what was it, 15% to 17% over time.
Yeah.
Where do you foresee us going?
Yeah, I think we're in probably that 15%-18% range through the cycle. I think we were, what, 18.3% in the Q1. We had, relatively, what I would describe as peak margins, and they're going to contract some from there. I think this is a business that ought to be able to produce north of 15%, and I think it sort of caps out somewhere above there. I mean, you've spent more time modeling it than I have.
I agree with that.
Bryan, as a follow-up to Jared's question, if you look back over the last 10 years, the bank's been pretty acquisitive. What role do you see M&A playing in the next five years ahead for the bank?
Yeah, have I shown you my scars about M&A lately? I think M&A will continue in the financial services industry. I think, in all likelihood, you know, we're as likely to be 2,500 banks in the US 10 years from now as we are 4,500, I think we will see consolidation. As it relates to us, I think for the foreseeable future, that one, we want to have a period where we can get some of these priorities that we've laid out to you today completed.
We've been in merger integration mode one way or the other for the last 3 years, we want to get this time to make the investments in our technology that Tammy laid out for you. More importantly to me, I want to see how this regulatory landscape plays out. It's our estimate, based on some work we did, Terry Akins and her team did, 18 months ago, that going across $100 billion is not just expensive, it's extraordinarily expensive, That doesn't add much in terms of customer service ability or shareholder returns. It really is a pretty big step.
I want to see how the regulatory framework plays out. We're not afraid to grow through M&A, If the right opportunities present themselves, we'll figure it out at the time. Our focus right now is operating our business and making the investments that Tammy has laid out. One thought on those investments. We are I think our technology is very, very solid. We're in a good place.
We've had 3 years of merger integration. You end up being on version two or three of software, and you ought to be on four or six. We've got some end-of-life system stuff. These are not deal stoppers. These are not things that'll keep us from growing the business. It is an opportunity for us to continue to be at or better than table stakes with respect to competition. I'm a big believer that you can't win with technology, but you can darn sure lose without it, and we want to make sure that our technology infrastructure is highly competitive.
Hey, guys. I just had two questions. My first is on the expense guide, you know, 6%-8% this year. You know, should we view that more as a one-time catch-up, kind of after the TD deal busted, or do you think that's a good kind of longer-term expense rate? My second question, you know, you're at 11.5% common equity Tier 1 at the end of this year. You know, without any buybacks, you'll be maybe north of 12% next year. The stock is below tangible book value. When do buybacks make sense?
The first one on expense guidance, I would say that's probably going to repeat next year. We only have a half year of the increased expense for technology in this year, and you'll have a full year run rate, and then the bonus piece moving from merger to operating continues. It's a three-year program.
That's the retention dollars.
The retention dollars...
Yeah.
...through the TD merger. You know, that's just It's really geography, but it was moved out. You know, it was in reported, but out of adjusted, and now it moves back into adjusted since it's no longer charged to merger center. I think on the technology side, when you get a full year run rate, as well as marketing, I would expect that we'd see that continuing into next year, not being flat year-over-year.
On the return to capital, I'm going to say the same thing I said before. You know, we'd all love to do share buybacks. We had a share buyback program in place when TD, when the merger agreement was put into place and share buybacks were stopped, but this is not the market to do it right now. We need to see stabilization in the industry and the economy before we'll do share buybacks.
I would add on the expense modeling, I view it as somewhat anomalistic because these retention awards, they will dissipate over time. Some of this technology spend, I see it as sort of a bulge going through the pipe. We have not lost our focus nor our discipline on expense control, and we're not unimpacted like everybody else in the world by inflation. We have that long-term focus, and some of it's just anomalies in the way the accounting is going to work period over period, whether something was reported as merger related as opposed to adjusted or operating earnings. We'll help lay this out. I'm sure Natalie's already forming the slides to help people understand it in our earnings materials as they come out later this year.
Ebrahim Poonawala from Bank of America. I guess two questions. One, for you, Hope. I guess just around the NII guidance. Talk through, I mean, I think rough math, you had about 6% decline in NIB, May or April. One, do you have any visibility? I know, Bryan, you mentioned you don't know where the mix ends up, but are you seeing any level of stability around are we getting to a point where the NIB mix is, in fact, core deposits, transactional in nature, and that begins to level off?
Then second, as we think about the NII guide, what if you remove the forward curve? If you don't get any rate cuts, does that meaningfully change the NII outlook for you? On a steady state basis, if there's no changes from the Fed, does the NII begin to flatline, drift lower? Like, how do you think about it?
That was a lot of questions.
A lot of questions, and that was just the first one, so apologies.
I was making notes for you.
I know. I was like, normally on the calls, I can write notes, but, first of all, the NII guidance was not April versus May, it was quarter-over-quarter guidance. We have started to see stabilization between product mix in May and towards the end of April. Coming out of Silicon Valley and Signature and then First Republic, we saw a lot of mix change. The clients are now aware of, you know, insured deposits and collateralized deposits. We constantly had those discussions before. Nobody wanted to pay for. I mean, it's not free, right?
If you want to collateralize your deposits, there's a fee that goes with that. We're seeing a big shift in mix to those types of products. We've also seen, you know, in March, April, we've really saw a high mix moving from non-interest bearing to interest bearing. It hasn't been significant. I look at the balance sheet every single day, look at our variance to prior month. It's been pretty stable, probably the last 30 days or so, minus the influxes. If you look at kind of the core deposit, it's been stable. On the NII side, the pressure is coming from the deposit prices going up. It is an extremely competitive market.
You know, I mentioned when we were talking last night. I think I said in my comments today, it is Fed Funds plus. Banks are out there paying for big money. If you're talking to a $50 million, $100 million, $150 million client, they're offering Fed Funds plus. We're not in that position. We're not competing in a normalized deposit market right now. The pricing is, you know, almost irrational, which is probably the wrong word to say. You know, we have these clients tell us this, and we're like, "It can't be true, is it?" We have to believe they're telling us the truth. I mean, we're seeing Fed funds plus, we lost one to Fed funds plus 75.
I guess, one question for you, Bryan. I think last night, this morning, everything you've said about the macro outlook doesn't make you feel great. Just talk to us around the self-help at the bank. Capital optionality is there, unlikely you're using it anytime soon. On the expense front, is there anything you did a lot of work pre-capital, pre-IBERIABANK. Is there anything on the expense side that we can look forward to mitigate the revenue pressures you might see maybe through 2024?
Ebrahim, I think that it is an operating environment where it's going to be very difficult to see a lot of balance sheet growth because of some of the constraints that we've been talking about. As Hope and I both have said, margins will compress some just given the competitive environment. We think we have a tremendous number of levers, and as we work through some of these expense, excuse me, technology investments, it does give us leverage on the expense side. We have a lot of opportunities, we think, to pull different levers as we sort of navigate through this period of change.
Hope is constantly focused outside of the big categories that we've talked about today, looking at where we're spending money, why we're spending money that way, and can we come up with more effective and efficient ways to do that? I think that there will be a lot of things that settle down over the next couple of quarters, I think it gives us opportunity to bring expenses down and offset some of the revenue pressures. It's not something I think is an initiative-driven thing. It's just something that, as I said to Brady's question earlier, we're focused on controlling our costs. It's the one thing that we're certain we can control. We have the ability to work with that.
Hey, Mike Holton from Bank of New York Mellon Newton. I'm going to ask Brett's question again from earlier. The, you know, $1.5 billion of deposits you brought in in May, approximately what cost did you bring them in at?
I don't actually know that we have that. We don't have a deposit system that says, "This is a new deposit, this is normal flow." We have hundreds of millions flow in and out of our bank every single day. You know, I can't say that that $1.5 billion was brought in at this, in all honesty.
It's going to be.
It'll be-
the incremental dollars will be in that 4-5 range. It's, it's not cheap, low-cost deposits, but relative to putting on Fed funds plus at the Federal Home Loan Bank. In fact, it replaces Federal Home Loan Bank borrowings at the margin. It's actually favorable.
As I said in my prepared remarks, you know, we're expecting betas to be in the mid-40s this quarter. That should tell you know, how we're moving quarter-over-quarter. We were at 37 at the end of last quarter, I believe.
Our all-in deposit cost in the Q1 was extraordinarily low, so we started in a really good place.
We're at $111 Q1.
Yeah.
Hi, John Pancari, Evercore ISI. Just a question on credit. How are you thinking about the loan loss reserve level here against that 15-25 basis point charge-off guide? I believe you're at about 120 basis points now. How should we think about the trajectory from here?
CECL is an interesting thing. I'll start there. You know, you're pro- building your provision ahead of when you think the loan loss is going to come. You know, the biggest input to our model for provision is what's Moody's saying going to happen, and how does that change quarter to quarter? I think we're going to continue to build as we continue to have or stay stabilized to slightly build, as we continue to see a outlook that expects a recession.
It's not based off charge-offs anymore the way it used to be. You used to be able to look at how your credit was performing and what your charges were and put a provision out there. Now, with CECL, you're running models saying: What could our future losses be, and are we appropriately accrued?
Okay.
I think, John, the CECL modeling is futile exercise in precision, in my view. I do think, given where we are modeling today, if I am anywhere in the ballpark about a relatively slow glide path and a mild to modest recession, I think we have built reserves in anticipation of that, and we've been building them over the last couple of quarters. CECL is very sensitive to, apparently, you know, Moody's affects everybody's reserves. You know, if it gets real bearish in their models and the weightings, it could change from there. I think we have built at something like 7 to 10 years of our forecasted losses, a fair amount of the reserves that we're likely to need.
Thanks. Separately, in that ROE expectation that you mentioned to Brian, how are you thinking about long-term efficiency of the company? I know you're making investments now, and you're putting some of that termination fee to work, but what is the long-term efficiency ratio that you believe First Horizon should be operating at?
Yeah, I'm not going to give you an absolute number because revenues are moving so much. You know, the numerator in that is changing significantly. What I'll say is, I expect us to be better than the peer group when it comes to long-term efficiency ratio. We have a disciplined management of expenses. We're not going to overspend when we don't see the return. I would think as, you know, better than the peer median.
I think that mid-fifties area is probably not a bad target, though.
Brett Rabatin again. Hope, earlier we were talking about how FTP didn't work presently because of the inversion of the curve, the three-month to five years, like a negative 160 basis points. You said, "You know, it's SOFR plus," and I said, "SOFR plus what?" You said, "I had to wait to find that answer." Can you talk about loan spreads and just what the SOFR spread is at this point for you, and how you make loans with the curve inverted like it is?
Well, I appreciate you telling everyone else in the room that I did not violate Reg FD and told you had to wait to answer that question again. Bryan mentioned earlier in his comments, you know, with an inverted yield curve, FTP is, you know, requiring a lot of overrides right now to have current year profitability. We're thinking in SOFR 150-300 right now, when we're doing pricing, the better quality at the lower end, the higher risk at the higher end.
Just to follow up on that, would you say that your origination rate has moved higher in the past two months or so? Can you talk maybe about...
Yeah.
Yeah.
The what...
Spreads have widened out. Yes. Yeah.
Would maybe a May origination rate be over 8% for you today?
Depending on the asset. It depends on whether it's renewal or a new asset. We're seeing some new assets that are exceeding 8%. You know, we all see anecdotes, too, about competition, because most deals we're not playing solitaire on. We see what competitors are doing, and you get a fair amount of transparency in the syndications, participations market. Spreads are moving up at a fairly reasonable rate, broadly speaking.
Hi, this is Brody Preston from UBS. Thanks for taking the questions. I wanted to clarify something just within the NII guidance that you put out, where you say DDA balance is returning to pre-pandemic levels. Is that the percentage mix, or is that your pro forma DDA balances with IBKC, on a dollar perspective?
It's a percentage mix.
Okay, thank you for that. Could you clarify what you said earlier about the retention? How much is shifting back into what we consider operating NIE? Just, I guess, of the $150, how much has already been paid out? I'm just trying to get a sense for when that kind of rolls off eventually.
Approximately $22 million for the rest of this year is the six-month impact to operating earnings. It is a three-year accrual, of which we've paid out about 40% of it so far. It will drift down each year. There's a group that has a two-year retention, a three, and a four, and we can get that modeled for you in the future. I don't have it right now. It does dwindle each year.
Yeah.
In May of each year, you have a few more. The more senior people have three-year retention, the more junior, some have two and; one and two-year additional retention years.
Yeah, but it's roughly $90 million today, and all of it will be amortized through operating results.
Got it. Just on the 75-100, I'm assuming that it'll be something that we'll get clarification in terms of how much is CapEx versus how much is going to be straight expense going forward.
Yes. In 30 days, getting ready for Investor Day and trying to figure out where to catch up on technology, we don't have that yet. We need to go back and look at what projects we're going to do when. As you know, the larger cost projects are highly capitalizable and will have, you know, 3- 5, or even longer lives. It'll probably take a couple quarters for us to really get through the backlog and figure out what our strategy is for delivering technology projects the next two years.
Got it. Last one for me. If I could just try the expense, kind of long-term expense question, a slightly different way. Since your asset size won't necessarily be shifting as dramatically as your revenue in the current environment, what would you say your NIE to asset ratio target longer term would be?
NIE to asset ratio? I haven't run those numbers yet. I need my team here to... We haven't even-
Yeah.
I don't know if you have a ratio. We haven't run that one to know where I am today, to say where I'm going. Good question, though. You can ask that on quarterly earnings again, and I'll make sure my team preps me for that one.
I think expenses in the near term are going to be hard to pay because we've got so many moving parts. I think long term, I think our ability to drive attractive overhead efficiency ratios vis-à-vis peers is still very good. In the near term, asset size may be up or down, all these different things, but I still feel very, very good about our expense discipline, which we've demonstrated year in, year out for many, many years.
I wanted to add to that, as you know, we did show we have not stopped investing. Technology is the one area that we need to do some catch-up. Just you don't do a big bank core system conversion if you're going to be acquired, but we have been investing in our people through increasing the minimum wage, marketing, and so the catch up is not a huge, you know, detraction from our efficiency ratio. I'd expect we'd be in line with peers in the coming years, even with a increased technology spend.
Any last questions? Everybody hungry. Been a long time since dinner last night. All right. Thank you, Hope. I will wrap up relatively briefly. One thing I neglected to do when I was introducing our directors earlier today, I failed to mention Cece's experience. Cece's been on our board, as I said, since 2014. She retired from running the commercial and consumer businesses for Citigroup. She had experience at Morgan Stanley and a broad and diverse career at Wachovia.
She brings tremendous capability from the banking side, but having her lead our technology committee has been really invaluable because she has a real good sense of how technology changes our way to do business. Hopefully, today you have gotten additional information which helps you sort of reorient to First Horizon. Hopefully, you've had the opportunity to get a sense of the leadership team and how we're thinking about our business. I know this is not an easy environment for anybody to model in, and I say that from our perspective and yours. I think it's a period where there's a lot of moving parts.
On the whole, though, I hope that you walk out with the sense that we are in a very good position. Our team is excited and stable. We serve a tremendous footprint, and our client base is extraordinary. We have relationships that go back over 100 years, and these client relationships are broad and deep. I am, like the rest of our leadership team, very, very excited about the opportunities that we have to deliver on the promise of the merger of equals that we committed to in 2019, to create tremendous shareholder value and build a banking franchise in the South that is gonna be unparalleled.
Again, thank you for taking time to join us. I know we put this together on relatively short notice. To get you here was very, very important to us, and we're grateful that you were able to join us. I would encourage you, as you work through all of this material or follow-up questions, please reach out to any of us. We're more than happy to help. We will restart the cadence of quarterly Earnings Calls in July and pick up the conversation there. Thanks, everybody. I hope you have a safe trip home.
Couple closing points: One, in front of everybody is the highly coveted First Horizon AirPods. Help yourself to that. And there's some notepad material as well. Hopefully, you'll take those with you. Second, we have boxed lunches, and they're either outside or in the room we had breakfast. We hope you will help yourself to boxed lunch. Thank you again for being with us. Safe travels home. Look forward to talking to you soon.
This concludes our 2023 Investor Day program. Thank you for joining us live and online.