First Horizon Corporation (FHN) Earnings Call Transcript & Summary

Good morning. My name is Daryl Byrd, I'm the Executive Chairman of the Board of First Horizon Corporation, and I'd like to welcome all of you to the Annual Meeting of Shareholders. We're excited to be hosting this -- the annual meeting virtually, which allows us to be more inclusive and reach a greater number of shareholders in this challenging time. We have shareholders attending via the web portal. The agenda and rules of conduct for the meeting are available in the viewing pane on the left-hand side of your screen. We will answer questions at the end of the meeting. Only validated shareholders will be able to ask questions during the meeting in the designated field of the web portal. Out of consideration for others, please limit yourself to 2 questions. Though we may not be able to answer everyone, we will answer as many as possible, and we'll publish a list of questions that were not answered during the meeting along with our responses on the website promptly after the meeting. It is now shortly after 10:00 a.m. Central Time, and the meeting is officially called to order. I'll start by introducing the other directors of your company. Harry Barton, a Certified Public Accountant, registered investment adviser and an owner of Barton Advisory Services; Ken Burdick is a retired Executive Vice President of Products and Markets at Centene Corporation; John Casbon is Executive Vice President of First American Title Insurance; John Compton is a partner with Clayton, Dubilier & Rice; Wendy Davidson is President, Americas of Glanbia Performance Nutrition; Bill Fenstermaker, Chairman and Chief Executive Officer of C.H. Fenstermaker and Associates, LLC; Brian Jordan, is President and Chief Executive Officer of First Horizon Corporation and First Horizon Bank; Mike Kemp is the Founder and CEO of Kemp Management Solutions; Rick Maples is a retired Co-Head of Investment Banking at Stifel Financial Corp; Vicki Palmer is President of the Palmer Group, LLC; Colin Reed is the Chairman of the Board and Chief Executive Officer of Ryman Hospitality Properties; Stewart Shea is a private investor; Cecelia Stewart is a retired President of U.S. Consumer and Commercial Banking of Citigroup Inc.; Rajesh Subramaniam is the President and Chief Operating Officer of FedEx Corporation; Rosa Sugranes is the Founder and Former Chief Executive Officer of Iberia Tiles; Gene Taylor is a retired Chairman of the Board of Directors and Chief Executive Officer of Capital Bank Financial Corp. The company has appointed Equiniti Trust Company to act as Inspector of Elections. Angela Stewart from Equiniti is with us today and has taken the oath of inspector of election. Please note that this meeting is being recorded. However, no one attending via webcast is permitted to use any recording device. The Board fixed February 26, 2021, as a record date for determining the holders of common stock entitled to vote at this annual meeting. It has been reported to me that the Notice of the Meeting was duly and properly mailed and that a quorum is present. The voting polls will be open after all proposals are presented. If anyone wishes to vote by ballot at such time, please refer to the access e-mail you received 1 hour prior to the meeting start time and follow the instructions there. If you've already voted, you do not need to change -- need to vote today unless you wish to change your vote. The minutes of the 2020 Annual Shareholders Meeting will not be read, but are available for examination during the meeting by clicking the appropriate button on the web portal. I will now outline the 4 proposals to be presented for shareholder action. The first item is the election of 17 nominees for Director for a term of 1 year expiring at the 2022 Annual Meeting. As specified in the proxy statement, they are Messrs. Barton, Burdick, Byrd, Casbon, Compton, Fenstermaker, Jordan, Kemp, Maples, Reed, Shea, Subramaniam and Taylor, and Mses. Davidson, Palmer, Stewart and Sugranes. The next item on the agenda is the approval of the First Horizon Corporation 2021 incentive plan as described in the proxy statement. The next slide on the agenda is approval of the advisory resolution to approve executive compensation, otherwise known as a say-on-pay vote as described in the proxy statement. The Audit Committee has approved the appointment of KPMG LLP for 2021, subject to ratification by the shareholders at the annual meeting. At this time, I will recognize the following representatives of our auditing team, who are participating in the meeting: Chris Seaman, [ Brandon Keno ] and Taylor Quinn. The polls are now open. Any shareholder who hasn't yet voted or wishes to change his or her vote may do so by referring to the access e-mail received 1 hour prior to the meeting start time and following the instructions there. Shareholders who have sent in proxies are voted via telephone or Internet, and who do not want to change their vote do not need to take any further action. [Voting]

Since all shareholders have had the opportunity to vote, I now declare the polls closed. At this time, both Brian and I will make a few comments. Bryan?

Thank you, Daryl. Good morning, everyone. 2020 was a year of significant events and change. We completed a historic merger of equals with IBERIABANK. We acquired 30 Truist branches. We dealt with the impact of COVID-19 pandemic and its economic impact, and we saw one of the busiest hurricane seasons in recent history. Throughout the year, our core values and operating principles never wavered. We could have never predicted the challenges or the opportunities that we faced during the year. We were prepared. Our associates rose to the occasion to ensure that we could safely and effectively continue to serve our clients and our communities. The resiliency shown by our team has been extraordinary. In the early stages of the pandemic, we moved quickly to assist individuals and businesses impacted by the shutdown, offering payment deferrals and waiving deposit-related fees, including overdraft and early withdrawal fees. We processed $4.2 billion of Paycheck Protection loans in the first round, supporting buyer estimates of more than 500,000 employees of clients. In line with our unwavering commitment to care for our communities, we committed $15 million of fees associated with our PPP loan portfolio to assist low and moderate income communities. In addition, The First Horizon Foundation donated $2.5 million to the COVID-19 emergency relief efforts to provide meal, educational and emergency assistance throughout our footprint. In the middle of all this, on July 1, 2020, we completed our merger of equals with IBERIABANK Corporation, followed by the acquisition of the 30 Truist branches, completely transforming our company for the better. Our balance sheet is more diversified, and our capital position provides substantial advantages, particularly as it relates to the current operating environment. We're excited about the additional opportunity to client growth and with our presence in some of the fastest-growing markets in the Southeast. We continue to make substantial progress towards achieving our key merger milestones. With the integration of operating systems scheduled for the fall of 2021, we look forward to operating under 1 name. We remain intensely focused on achieving our cost saves and retaining and growing our client base with expanded suite of products, services and expertise delivered through an exceptional customer experience. While corporate social responsibility has always been part of our journey, this year brought an undeniable heightened focus. As we further develop and enhance our environmental, social and governance strategy, we will continue to be transparent about our progress, and we'll hold ourselves accountable. Also brought to the forefront over the last year is the importance of fostering diversity, equity and inclusion within and outside of our organization. Our team continues to work on breaking down barriers and creating an environment that embraces unique talents, different perspectives and opportunities for our associates to be developed, affirmed and heard. In October of 2020, we named a new diversity, equity and inclusion officer to advance our efforts in all aspects of the company. Because of our disciplined execution, we delivered solid financial results in 2020 despite the operating headwinds and transformational priorities we faced during the year. We delivered earnings per share of $1.89, up from $1.38 in 2019 driven by the impact of the merger. Our results included a benefit of $0.68 per share from notable items largely related to the merger. In 2020, we delivered solid pre-provision net revenue of $1.4 billion, $1.1 billion before the impact of notable items. This environment allowed us to prove out the benefit of our countercyclical businesses, fixed income, mortgage banking and mortgage warehouse lending, which helped mitigate the headwinds of a low-rate environment and significant economic deterioration tied to the pandemic. As a result, our revenue growth normalized for the impact of the merger was nearly 2 full percentage points higher than peers. 2021 is off to a solid start as well with the first quarter earnings per share of $0.40 per share, down slightly from $0.42 in the fourth quarter. The first quarter 2021 results were reduced by a net $60 million after tax or $0.11 per share of notable items largely related to the merger. Excluding notable items, adjusted first quarter EPS of $0.51 per share increased from $0.46 per share in the fourth quarter of 2020. First quarter results reflected strong fee income, good expense discipline and solid improvement in overall asset quality. We remain confident that the strength of our highly attractive franchise that the benefits of the merger position us well to capitalize on tremendous opportunities. Our first quarter 2021 adjusted return on tangible common equity was 20.2%, improved from 18.2% in the fourth quarter of 2020. We are strongly committed to delivering top quartile returns, and we believe our more diversified business model, expanded franchise and attractive higher-growth markets, coupled with a broader set of products, positions us well to deliver on this commitment over various economic cycles. The results we are realizing demonstrate the benefits of the improved, focused and better together. Our success at First Horizon belongs to the nearly 8,500 associates who pulled together this year in ways that only a family can do to care for our clients, our communities and each other. They exceeded my expectations and demonstrated unwavering commitment to our company and to you, our shareholders. Thank you to Daryl and our Directors for their guidance and foresight, and to our associates for their incredible commitment to our clients, communities and each other. And thank you to our shareholders for continuing to trust in us. Daryl?

Bryan, thanks. On behalf of the Board of Directors of First Horizon, thank you, our shareholders, for granting us the opportunity to proudly serve as your representatives. We recognize the importance of this role and are intently focused on ensuring our company operates in a safe and sound manner. 2020 was a dynamic and challenging year. The COVID-19 pandemic will have a lasting impact on our associates, clients and communities. The past year also demonstrated the critical role that banks play across society. I'm proud of our company's unwavering commitment to care for the communities we serve, particularly at the time when they needed us the most. As Bryan mentioned, we are intensely focused on environmental and social efforts, and this can be -- can only be accomplished through strong governance, the foundation of long-term sustainable growth. Your Board is actively engaged and committed to understanding, managing and providing oversight of emerging ESG risks and opportunities. Your Board remains committed to continuous improvement. In October of 2020, we approved our 3-year strategic plan, providing a road map for future priorities. In January of 2021, we approved a new $500 million common stock repurchase program. As it relates to capital deployment, our priority is to make investments that drive organic growth, but we will also balance this with cash dividends and opportunistic share repurchases to help drive shareholder returns. I'm incredibly quite proud of where we stand today as a company and the progress we've made since July 1, 2020. The resilience and strength of our business model, combined with the dedication of our team, continue to drive exceptional client growth. I'm confident your experienced leadership team will continue to execute on our strategic goals and successfully integrate our companies to deliver profitable growth and long-term shareholder value. Many of last year's challenges will continue through 2021, but I'm confident we will continue to excel as we did in 2020. Your Board remains committed to working on your behalf and look forward to serving you and making more progress in 2021. Clyde Billings is our Corporate Secretary. Clyde, do we have the results of the voting?

Daryl, yes, we do. And let me add briefly, our adjusted results that we referred to earlier are non-GAAP, and they're reconciled in our earnings release material. And we do have the results, and I will provide -- information has been provided by the inspector of elections that all items submitted to the shareholders for a vote have passed. The preliminary voting results show that a quorum in excess of 89% of the shares outstanding was present -- is present at the meeting. The -- each director received at least 97% of the votes for election. The 2021 incentive plan received 98% of the votes for approval. The say-on-pay resolution received 97% of the votes for approval. The auditors received in excess of 93% of the votes for ratification.

Thank you, Clyde. I'd like to take this opportunity to recognize Ben Adams and George Lewis, who are serving as proxies along with Clyde Billings and Charlie Tuggle. We appreciate your service. I now declare the 17 nominees for director named in the Notice of Annual Meeting and proxy statement have been duly elected. The First Horizon Corporation 2021 incentive plan has been improved. The advisory resolution to approve the second compensation has been approved and the appointment of KPMG LLP's auditors has been ratified. Now we'd like to open things up for shareholder questions and comments. You can begin to enter your questions or comments on the web portal. Please note, we'll attempt to answer as many questions as time allows, but only questions that are related to the business of the company, while the business of the annual meeting will be addressed. We will begin by answering questions that were submitted by shareholders during the meeting registration process. Clyde, do we have any questions?

Yes. I will read the questions. The first question is, what is the company's future post-COVID?

Thank you, Clyde. This is Bryan Jordan. The COVID-19 pandemic will, I think, have significant and long-lasting impact on our business in a number of ways. First, in terms of changes to customer behavior, we saw a very significant and clear acceleration of customer trends to use technology and alternative channels to complete their banking business. We think that the long-term impact will be continued, the less -- lower transaction in our banking centers. And as a result, we expect the customer behaviors will continue to migrate to the alternative channels. We also think it will have an impact on the way we work together in our offices. We've had about half of our organization in our banking centers or operation centers every day, the other half has largely been working from home. We will start to migrate back to the office over the course of the next several months as the pandemic continues to trend down and stay at home -- or group gathering numbers permit us getting back into the office. We believe there's strong benefits to the culture of our organization and communication in our organization, and maybe most importantly, the collaboration that takes place when people are together to improve our products, our services and our customer experience. I do believe that even in this post-COVID world, we will have more flexibility in the way that we work now that we've proven out our strong ability to work remotely. So I think it's not clear what all of the post-COVID impacts will be, but we do see significant shifts in the way customers are doing business and likely to see shifts in the way we continue to work together.

Clyde, any other questions?

Yes. The next question I have is, what specific measures are being taken to address the risk posed by fintech companies such as PayPal, Square as well as blockchain technology?

Yes. We have created a group in the organization as part of our merger that we've talked about that is specifically focused on evaluating emerging technologies, making sure that we understand what those technologies do, how customers would use them and most importantly, how those technologies can benefit our products and services. That team is a significant effort in our technology and operations organization led our Chief Operating Officer, Anthony Restel. We're seeing opportunities to meet with and understand a large number of these fintech organizations, and we're starting to deploy some of those technologies in our business and our operations today. There's an announcement a couple of weeks ago about our use of a product [indiscernible] and our virtual bank, for example. So we're evaluating and using these technologies. The other end of the spectrum, all of our product managers, a lot of business leaders are spending significantly more time evaluating what customers are doing from a technology perspective or what their expectations are. We're also evaluating our competitors to make sure that we're paying attention to innovations that they're bringing to market. So we are using both a push and a pull approach to evaluating how these emerging and changing technologies will affect the business with a keen focus on. We want to maintain a strong investment in table stakes and the products and services that technology can deliver for our customers and then continue to differentiate that with our people, so a people-led technology-enabled organization.

Clyde, other questions?

We have another question. Are there plans underway to reduce the current total number of existing branches within the next 12 months through the FHN network? If so, what would be the anticipated annual savings on a per share basis in the current fiscal year as well as next?

Yes. Clyde, as I mentioned a minute ago, the customer behaviors and traffic in our banking centers has lessened, and we expect that trend to continue. We're in the process of closing or consolidating the number of banking centers over the next several months. We expect that, that trend will continue over the foreseeable future as customer behaviors contend to use technology. Typically speaking, a branch closure results in about $500,000 per branch in cost reductions, and those cost reductions are often somewhat offset by some customer attrition that occurs because of it. But net-net, we ought to save a fair amount of money as we close or consolidate our banking centers. Some of the savings that we're generating in the near term by closing and consolidating banking centers will be reinvested in our higher-growth markets. We're very proud of the fact that we're in 15 of the top 20 MSAs, metropolitan statistical areas in the South, and we are very aggressively looking to grow in those markets. And so we will reinvest savings into those markets over the next 2 to 3 years by hiring bankers and investing in teams so that we can produce additional growth. So essentially trying to reallocate in the short run.

Clyde, are there any additional questions?

Daryl, that is all the questions we have received.

Thank you for joining our annual meeting today. Since there is no further business, the meeting is now adjourned.