First Horizon Corporation (FHN) Earnings Call Transcript & Summary

Thank you, everyone. We have First Horizon Corporation and looking forward to the conversation. So First Horizon Corporation is a regional bank with $83 billion in assets with over 400 branches across the Southeast. It operates its businesses through 3 segments: regional banking, specialty banking and corporate, and it's headquartered in Memphis, Tennessee. So presenting today, we have Hope and Tammy. Hope is CFO; Tammy, COO. Hope first joined First Horizon in 2021, previously worked at Truist and its predecessor, BB&T in numerous roles over your 20-plus year career in banking. Tammy has responsibilities for technology and operations, and Tammy has been with First Horizon since its merger with IBERIABANK. And your role there, I think you were in a lot of retail and consumer banking positions. So welcome to BAB.

Thank you.

So Hope and Tammy, thanks for coming today. I really want to spend the time digging into the kind of drivers of achieving your intermediate-term target of a 15% adjusted ROTCE. And I'd also like to spend a little bit of time talking about regional bank M&A. So I'm going to start with the -- start by asking you about the consumer and your customers. Can you just talk a little bit about what the outlook is and the sentiment is from your customers, what the appetite is for loan growth and kind of customer mindset today?

Absolutely. I'll start, and then I'll hand it over to Tammy, who heads up our wholesale businesses, which is our mortgage warehouse, mortgage, franchise finance, FHN Financial, correspondent lending and a couple of other ones that I'm sure I'm forgetting. So she'll have a much closer connection to those conversations. But it's nice to be in the Southeast. We have a lot of growing markets. It continues to be strong economies. Our customers are very optimistic. They feel good. There's been a lot thrown at them in the last 5 to 6 years. They've become very resilient, whether it's COVID shutdowns, rising rates, Tariffs were an unexpected shock to the system. They've gotten past digesting that. In third quarter, we had the highest fundings of originations that we've had in multiple years. And so we're starting to see that optimism come through in loan growth. Just a lot slower than we thought a year ago when we were at BAB. A year ago, when we were at this conference, we thought we were going to see high single-digit loan growth. That just hasn't played out in the economy. But we feel really good about where our customers are. We feel good. I know we'll talk later about where our credit has been. Our customers are optimistic and resilient, and we're continuing to partner with them as they grow their businesses, invest in our local markets. Tammy's mortgage warehouse business has been one of our bright spots for loan growth this year. And so I'll let her talk a little bit about customer sentiment in her businesses and what she's hearing.

Yes. I would say -- I mean, I agree with Hope. I think our clients are resilient and also resourceful. And I sat here last year and said they really wanted to see a couple more cards played and they wanted rates to go down. And I would say the same exact thing today. They want a couple more cards played than they want rates to go down. But in general, I think they're cautiously optimistic in terms of where they are. We've got projects that they want to get done. And as Hope said, third quarter fundings were good. Our pipelines are strong. And so we feel good about where we are, certainly like the markets that we're in, like the businesses that we're in.

All right. Great. So can you talk a little bit about your loan and deposit strategy and really what the kind of emphasis is on the mix of deposits and kind of areas of loan growth where you are focused?

We really focus on customer relationships, not a product. We're not trying to sell a deposit or a loan. We're trying to build a long customer relationship. We have often over the last few years and every quarter, talked about our client retention numbers. That's important to us. We're not trying to grow deposits or loans with somebody who's going to be with us for a year or 6 months chasing a rate on a CD or deposit. We see it as how do we build a long, deep relationship. Sometimes we start with the deposit relationship, sometimes we start with the loan relationship. But how do we understand our customer needs and how do we deepen that relationship over time? If you're starting in the commercial bank, you'll possibly start with a loan and then start with treasury management services and then talk to the CEO or CFO or operator about wealth management services. And so continuing to build that relationship. We do have a decentralized model in our regional bank where we let the decisions be made in our local markets who know their customers and know the markets the best. And so we -- if you think about deposit pricing, we have a deposit pricing framework, but every one of our market presidents, our regional presidents, they have the ability to price up above that, knowing the customer relationship, the value of the customer relationship. Tammy's business is much more what's the right word? You guys are constantly talking to your customers almost every single day in mortgage warehouse and franchise finance. They have so many opportunities to continue to deepen that relationship and mortgage warehouse has really been our bright spot as we've deepened those relations with clients. Tammy, you talk a little bit about that business as well as franchise finance that have both been great loan growth areas for us the last 2 years.

They're good loan growth areas. But as Hope said, we think about bringing the whole bank even to our national businesses where we don't have presence. And certainly, technology has given us the ability to bank clients who are outside of our footprint. So we spend a lot of time talking about treasury management, just deposit services across not only our in-footprint clients, but also of our out-of-footprint clients as well.

So you mentioned this, but I mean, you operate in a very desirable footprint. And there's been, I think, a lot of activity with kind of large banks entering your market or maybe some disruption from M&A. Can you talk about how that could present opportunities for you?

Yes. Yes to both. We've seen a lot of entrants into the Southeast over the last 3 to 5 years, and there's been 3 large deals announced in the last 6 months that have 6 of our competitors in the Southeast working on mergers, either as an acquirer or being acquired. We had 5 years of disruption at First Horizon. We went through the IBERIA merger of equals during COVID. We have recently been reminding everyone, we bought SunTrust branches from Truist almost the same month that we closed on IBERIA. We're able to integrate those branches in the Carolinas, and they were almost immediately accretive for us. We had not gotten through client conversion when TD made an unsolicited offer, which we took to our Board and accepted. It was premium of 40% all cash, which had never been offered to a bank before. And our Board looked at it and said, this is a good offer. This is better than what we can do for our shareholders in the same time period. And so we took that offer. In those 5 years, we were distracted by M&A system conversions with IBERIA. And as soon as we got through system conversions, we actually got through most of the IBERIA system conversions at the MOE and announced TD the next week. We had not gone through all of them. Then we sat for 15 months getting ready for the merger and then terminated. We had an Investor Day 30 days later, and we said, we have 2 years that we need to reinvest in our company. We've got to reinvest in our platform. We had not gone through all the IBERIA conversion of systems. We had not done all the investments in our branches and growth like we wanted. And so we have been saying for almost 6 years now that we have been internally focused and that, that has been a priority for us. And we came out this summer and said, we believe that's behind us now and we are ready to go to market. We have $100 million plus of PPNR opportunities that we have identified within our existing footprint and clients. We are hiring new bankers. We are opening new branches. And so if I look at the 5 years that we spent mergers and apply that to 6 other banks that have to now go through that, we know how hard that is. We know how hard that is on bankers and clients. And so we believe that we will have the same opportunities as they go through their mergers as they had when we were going through ours. Tammy has been our Head of Technology and has had to go through all the MOE system conversions, and then we went into a 3-year $100 million investment to upgrade all of our systems. So almost all of that tech investment, resetting our franchise is behind us, and we're excited about the opportunity we have to grow organically. And yes, if there's disruption, we're happy to be on the other side of it as others sat on the other side of us for 5 years as we had disruption internally during mergers.

Hope and I grew up in banking in the Southeast. I don't think we know any better. She was in the Carolinas. I grew up in banking in Florida and banking has been as competitive 20, 30 years ago as it is today in all those markets. So I like -- I don't -- we don't know any different in terms of being in really competitive markets. We're in a really great position to be able to capitalize on that. As Hope said, we're not as internally focused as you get just when you do mergers and acquisitions. So I feel good about the place that we're at and our ability to hire bankers and attract new clients.

That's a long time to be focused. So probably...

We agree, and we are glad it's behind us.

So I'd like to pivot a little bit and talk about the falling interest rate environment and your asset sensitivity because I think you've got some countercyclical businesses that can help manage that. So can you talk a little bit more about the opportunities at FHN Financial and what can kind of offset some of the...

I'll start a little bit on the production side and then Hope can add on what it does for the overall balance sheet, but we've been in these businesses for a very, very long time. We really like it because through the cycle, it helps us really manage out our earnings capacity. So if you think about FHN Financial and our fixed income business, we've seen really strong performance. We had a good third quarter, very, very strong September. It cooled a little bit in October when the government shut down and some other uncertainty got introduced to the market. But that market, in particular, and that business really likes rates as they start to fall. They like a little bit of steepness to the curve and a little bit of volatility, not as much uncertainty as we have today. And so we're optimistic about the go-forward strategy, assuming some additional cards can get played and a little bit more certainty comes back into that business. But we've had a really strong third quarter and are looking forward to how it plays out the rest of the year. Holidays and things like that come into play as you get into the fourth quarter. So a little bit of lumpiness in terms of ADR being up some weeks and down others. I can walk the trading floor and literally see the economic cycle impact our ADR in any given day. And so we have like a little bit more stability there and a little bit more to play out from that standpoint. In terms of our other countercyclical businesses, mortgage and mortgage warehouse, we've had a really nice year in mortgage warehouse, got to a high in July, August over the summer. And now we're getting into a seasonal decline in terms of mortgages. Still seeing a lot more purchase money than we're seeing refis, although I do suspect and we've seen a little bit of green shoots from some of the rate changes that have happened that's promising that refi business will kick up as rates go down. I think when I was here last year, we said when we were expecting a lot more rate cuts, gosh, if we can just get in and around 6% for long-term mortgages, we will start to see refis pick up. And I think that, that still largely is true. And so like the business, we've been fortunate in the mortgage warehouse business to pick up some new clients. I think last year, I shared we were on track to add 50-plus new-to-bank clients in the mortgage warehouse space as there's been some disruption in that market. And so that has come to fruition. We've onboarded some new clients. So we've got a little more than 200-plus clients in that business. And we'll continue to grow it, not only new clients and onboarding them, but also expanding relationships with our existing clients is really important to us. We've got clients that have been with us for decades. And so being able to continue to serve them, word of mouth is really important in that business. And so it's been great for us to be able to pick up some new entrants.

And so some people -- some have left the mortgage warehouse business...

Yes. And people have made different business decisions, but it's a business we really like. It helps us on the countercyclical side, smooth out some of our earnings. And so we have had a good year so far and look forward if we get some good tailwinds into next year on what the mortgage business can continue to do for us.

We talk about asset sensitivity. It's really important to remember that, that calculation that we do that we all talk about, it's based on a static balance sheet. Do you assume that your balance sheet doesn't change? It's a 1-day shock scenario. It's not how can you walk back your deposits over a longer term, how can you increase spread? But we saw last year 3 rate cuts in the third quarter -- end of third quarter, beginning of fourth quarter, and that drove mortgage and mortgage warehouse up. And so when we talk about our countercyclicals, it is that we have a balance sheet that will increase in a falling rate environment as mortgages pick up, and we have total revenue that will increase when FHN Financial has the increase we've seen. And if we look at what third quarter last year, fourth quarter and first quarter for us were as well as year-over-year, we've been able to show that the asset sensitivity does not mean that it translates to our bottom line because of the countercyclicals. We've seen multiple rate cuts and our NII is higher this year than last year, and mortgage warehouse is one of those reasons, $1 billion more in our highest spread business, it helps offset the rate cuts. Mortgage specifically is one that Tammy and I always talk about today, it's 25 refi, 75 new purchase. It's not a big new purchase market. There is a refi wave coming, not just because rates are decreasing, we think when it gets under 6%, but also because a lot of people have taken arms out in the last 3 or 4 years, they're waiting for rates to drop so they can get a fixed rate loan.

Okay. Great. I'm going to just talk a little bit about expenses because I think you have a good story there with really kind of keeping them flat. So how are you kind of managing that with investing in the business and also kind of keeping the efficiency -- getting the efficiency.

In June of 2023, the years are starting to run behind me, whatever day we had that Investor Day, I guess it was 2023 now. It seems way longer than that. We said we were going to invest back in the company, and it would take us 2 to 3 years to get some of the tech debt behind us, $100 million over 3 years. We said we're going to have to reinvest back into our franchise in people and real estate as we really started to bring the full MOE capacity back, we had committed at our Investor Day that we would -- at the completion of those 3 years, we would bring down our cost back to a peer average efficiency ratio. We've been above that. We said we would have a top quartile ROTCE. And so for us, this is -- the flat expenses is a commitment we made to our shareholders and our investors when we held an Investor Day and said, we need a couple of years to invest in our franchise, and then we will bring our costs back in line. We've made a lot of decisions, operational decisions that have cut costs out of the company. And so when we look at a flattish expenses next year as we look at the commission businesses that do -- our countercyclicals are high commission businesses, they will increase if revenue increases. We are -- that includes hiring bankers. That includes new branches. That includes launching a new digital consumer app that will be launched sometime next year, I think around midyear, we're targeting maybe second half of the year. So there are investments in that. And so what I really go back to is what we told investors almost 2.5 years ago is that we had to invest back in the company and then we will be focused back on that efficiency ratio, top quartile ROTCE and growing our shareholder value. And now we're at that point that we're delivering on those promises we made.

And so the technology investments that you've made, I mean, I guess, -- are you -- is it near the end at this point? Or where are you in that?

Well, the additional $100 million that we announced at Investor Day, we are largely through that. And that was to clear a lot of the tech debt that we had that we had accumulated over the years. We were running 2 different treasury management systems. We had an old general ledger. We had a lot of things that were on-prem. So I would say, yes, we've gotten a lot of that behind us, which has really given us the opportunity to have a lot more efficiencies from a technology standpoint, but technology investment is never over. What I would say is the other thing that I announced at Investor Day is that we were going to spend this extra $100 million on really cleaning up the run-the-bank work that we needed to get done and put behind us. We have largely gotten that done. And so we're shifting a lot of our investments now to things, as Hope said, are really changing the bank, our client-facing banker-facing enablement. So building our own consumer digital platform is a great example of now we can invest in things that are really accretive to clients, which we're excited about. So doing a lot more cloud migration. I mean the ability to be able to build in the cloud and have quality engineers building client-facing applications has been a game changer for us.

Tammy, can you talk a little bit about the AI we've seen specifically related to building our new digital consumer app and how that's taking cost out and time out?

Yes. I mean that's another way that, again, it's -- we have the money we need to invest in the business because the costs are coming in under what they needed to. So hope the consumer digital platform is a great example. We're going to build it in less time than we thought we were going to build. It's coming in under budget because we've been able to use AI to do code development. We've been able to use AI to do testing on that platform. And so lots of opportunities to, again, help us with speed and scale. So we can build things faster. We can get them to market faster and the cost is less to do that.

That's pretty impressive actually because most of the time is always longer and over budget. So...

Yes.

Also on time and under budget. So Tammy's point, though, going to the cloud. I mean it is much easier going to the cloud with some of these solutions that just get deployed to company after company. And it is amazing how much AI has changed both development and testing.

Yes. Speed, scale and quality. So we try and think about all of those and then deliver it to hope at a reduced cost.

Okay. So just keep -- I want to make sure we have time for questions, and I want to move over to credit because I think that's another good part of the story where the last few years, I think you've had very good credit outcomes. So kind of what are you -- what's your -- what are you watching now? Like where are kind of any sort of yellow flags or anything that is kind of keeping you a little bit more vigilant?

I would say we start with credit culture is one of our core disciplines. We look at the client relationship, is this the best spread we can get with somebody we don't know or a client that we haven't worked with before or maybe we know that there's been possible concerns with. We run a decentralized credit model, which means our credit analysts sit in the markets with our bankers and our specialty businesses have dedicated credit analysts that are only dedicated to them. They're not sitting somewhere looking at a piece of paper saying, yes, no, this models, this doesn't, we don't want to do this. They're going and meeting the clients. They're living in the communities where they drive by and see that business every day or frequent the business or knows the business owners. And so what we're seeing now is the client selection piece that we've been talking about for almost a decade. Sometimes there were multiple earnings calls you can go back to where Brian Jordan asked, well, why don't you have more loan growth? And he's making the loans the easy part, collecting on it through maturity is the hard part. We're showing that we are being able to collect on those loans that we have best-in-class charge-offs. We're in the bottom quartile for charge-offs, best quartile, usually the top 3 when it comes to lowest charge-offs. That comes back to that discipline of lending, knowing your client, having that relationship being with some of our mortgage warehouse, some of our Pro CRE clients, we have relationships that go almost 100 years with the business and operators. And that makes a difference when you're trying to make a credit decision. Not everything can be seen on a piece of paper by some analyst that runs it through an AI model. Unfortunately, it's one thing that I don't think as much everyone is like, can AI make credit decisions? It can, but you might not like the one that's going to make when you aren't looking at the business. Tammy personally has increased multiple and brought new clients to mortgage warehouse and she goes to see them. Before she'll come back, like, all right, I met with them, here's how much I want to do. Hear the Chief Credit Officer will come back and say, hey, we're going to open this much a line. We're going to increase -- she goes and meets with them and our Chief Credit Officer goes with her.

I think it's a differentiator for our company. I mean it's -- we have our credit officers, as Hope says, sitting right alongside of our relationship bankers. But our Chief Credit Officer, myself, our President of Regional Banking, lots of us Hope, Brian, all of us go out and make client calls. And when we can take deals off the table immediately in markets when people have lots of options and there's competitors all over the place in the Southeast, it's really a differentiator for us. So we spend a lot of time on client selection. And then when we decide that, that's somebody we want to partner with, we really all come together to make that happen.

So is there anything specific today that you're kind of keeping an extra eye on that is of any...

I know [ Ryan Richards ] is on stage right before me, and I know he was talking about what they're doing. Obviously, as we see fraud like they've experienced in others, we're looking in specifically how do we monitor our credits, how do we monitor our collateral, how do we do spot checks. And so we're really looking at some of those fraud situations that our peers have gotten stuck and said, do we have the right controls in place to catch what's happened to them? Tammy talks a lot about field audits in her business, whether it's franchise finance. Mortgage warehouse, there's a lot of talk about [ NDFIs. ] For us, for mortgage warehouse, we do run it a little bit differently. We hold the notes. And so we -- 5 times a day, we get through FedEx. We sit right next to the FedEx hub in Memphis, and they deliver the actual mortgage notes that have been signed to us, and we hold them and then we deliver them to the GSEs. If something happens, we have the collateral. There's no chance that somebody else has another copy. We have the only copy of that mortgage note. We also -- we pick the closing attorney. So when you look at collision, you look at fraud, we tell them who's going to be at the table that's looking at the ID of the borrower that's making sure when you say it's this person and this is their credit, whatever it is, it's a lawyer and it changes. We don't pick one and say, yes, this is the one for this client, and this is the one for this market. We change those. And so we do run a very different model when it comes to mortgage warehouse than some of our peers. Tammy has been involved in it for a long time now.

Well, and lead fraud just in general. And I would say fraud moves, both consumer and commercial fraud and just staying in front of it, understanding where the fraudsters are going, how you can stay in front of it, having good operational controls and practices is something that we spend a lot of time about. And again, putting eyes on the business, doing field checks, spot checks are all things that are important and a core competency of some of the things that we do.

Consumer fraud is also something that we've had significant investment in the last 2 years. It was one of our core pillars. We talked about at Investor Day, and we said $100 million in technology and increasing fraud. We've probably doubled the headcount there, and I've lost track of how many new projects we've launched. And so we're also investing in that space, both in the people and in the systems to try to help our customers not become a victim of fraud.

It's -- yes, it's rampant. So when I started -- when we started the conversation, I said I want to talk about the 15% ROTCE target. And we just discussed a bunch of really good things that are going on at the bank. And you did actually hit the 15% this quarter, which is great. But can you kind of talk about the pathway and maybe the time line to sustaining the 15%?

You picked up the keyword there. So we did hit 15% in Q4. So we significantly changed our investor deck to say sustained 15% ROTCE -- 15% plus. And I want to focus on that plus. We're not trying to get to 15% and saying that's the end way. We're saying, you said in your opening remarks, intermediate goal of getting to 15% plus. We want to be in the top quartile for ROTCE. And so we're looking at where our competitors going, how can we keep adding value to the company. 2 years ago, we had Investor Day, we said we would be in the mid-teens in 3 years. Q4 of last year, we knew we were going to be in the teens at the end of the year and coming into this year. And so we changed that to 15% plus. So I do want to focus on the plus that 15% starts to become the minimum that we believe we can run our company and create profitability for our shareholders. But there's 3 parts. The first being profitability within our existing business and footprint. We believe we have a -- we know. We know we have $100 million plus of PPNR opportunities, and that's not expense cuts. That may be doing things more efficiently as you scale and not have to add in a back office or processing as much as you could. But we have $100 million plus of opportunities with our existing clients to deepen relationships to increase spreads at renewal. We've been talking a lot about we partnered our PRO CRE business with our market CRE lenders. And in the first year, we've done that, we've seen renewal spreads increase 30 basis points, 30 basis points plus. And that's because you have a CRE specialist that's now partnering with our market -- our market lender who might do CRE and might do C&I, does all these different things, and they're not a specialist in the market where our CRE lenders are saying, wait, hold on, why you're way low balling this, and they'd say, well, no, no, my client won't accept that. And sure enough, their client did because their clients' other bids were even higher than ours. And so when we say that $100 million plus, that's with our existing clients. We were running on 2 treasury management platforms earlier this year. We're on one. We're launching new products. We have constant projects where we're launching new products, which means we can sell our existing clients additional feature and functionality that makes their business more efficient and continue to increase. So the first is increasing the profitability with our existing clients. Second is growing our balance sheet, growing our net new clients. The second part of that is credit. We talk about having really best-in-class charge-offs, but CECL modeling doesn't care about what my charge-offs are today or what I think they are. It's about what is the economic outlook, what are the scenarios we base ours on the Moody's scenario, where do they think the economy is going. And so we've had to build provision. We sit at about 9 years coverage at our current charge-off level because of that outlook. We brought down the last 2 quarters. We have not grown our balance sheet significantly over the last 2 years, but we've held up a lot of shareholder money in that provision that we can now release. Q1 this year was the best analogy of how unique CECL is since it's been implemented. Our balance sheet decreased in Q1, but we had an increase in provision because we had to increase our coverage as the market factors were changing with tariffs. And if you were to tell a CFO or a shareholder, hey, my balance sheet shrunk, but I've got to build provision and my charge-offs are still top quartile, it has not been helpful to our ROTCE. It's artificially hold that back. I think we're going to continue to decrease. Hopefully, we've hit the top of having to build provision. We're seeing that the credit has held up much better across the industry. So getting that credit normalization, we're not having to build provision and the provision is truly tied to existing charge-offs as well as growing your balance sheet. And then the third is capital. We've held 11-plus percent capital. We ended at 11.2% at the end of last year coming out of TD and a lot of uncertainty and having to reinvest in our business. We said we're going to leave capital 11% for the first year. In the second year, we looked at the outlook and said, we're going to leave it at 11% again. In August, we finished our stress test. We are not required to do a stress test. We voluntarily do it and submit it to the Fed and publish it. And as we look at the stress test scenarios out there, we felt very comfortable to bring it down to 10.75%. Longer term, we believe 10% is the right place to run the company kind of as a floor or a target. So returning that capital back to shareholders with the primary goal being loan growth first to use that capital and share buybacks being second. All 3 of those, every single one of them is moving in the right direction to increase ROTCE every single quarter and every single year.

And so to get to that 10% CET1, what would you have to see to give you confidence? Because I mean, going from 11% to 10.75% isn't -- so it's a start, but there's still a long runway there to get there.

We have a $1.2 billion authorization on shareholder for share buybacks in the next 12 months, which seems like a good rate for our company. So we really want to come from loan growth. To get from the 10.75% to 10%, we want to use it for loan growth. We want to see loan growth get back to a normalized higher than GDP type environment. I think if we see a refi wave, I think mortgage warehouse at the peak in COVID with refis went all the way up to $8 billion. You think about doubling mortgage warehouse and how much capital that would use to bring it down. So our goal would be get to $10 billion when we start to see robust loan growth. I don't want to get to $10 billion by buying shares back and then have to go and issue debt in order to bring it back. So flattish loan growth has required us to only bring capital down with share buybacks.

Okay. That was very helpful. So I do -- so I wanted to ask about the M&A because that's been a constant discussion point. And I think that maybe there was -- I don't know, I don't know how to say it, but some confusion or something from the conference call. So I just -- can you maybe just clarify a little bit of how you're thinking about M&A today?

Yes. I will say we are thinking about the M&A the same way we've been thinking about it since the first day TD called us and made us an offer, which is optionality, and we will look at what's best for our company with the facts and circumstances right in front of us. To your point about the conference call, I can't speculate on exactly what people thought or didn't think. Obviously, there's been a couple of deals announced since then that were obviously rumored out in the market at the same time we were on our conference call or that timing. But for us, we believe the best way to create shareholder value and have opportunity for our shareholders is to run our company for top-tier returns. And if you have top-tier returns and somebody wants to buy you and makes you an offer like we had at a 40% all-cash premium, the shareholders make that much more. M&A is not a near-term priority. We actually said that on our call. We said that our near-term priorities do not change on our call. We said that at the conference in September as well, our near-term priorities are to get to 15% plus ROTCE and continue to increase our profitability through the -- organically through what we have. But Brian has been asked multiple times on stage and on the call, well, what type of deal would you do? And he said a small tuck-in, and I point back to the SunTrust branches. It's amazing how many of our investors remember IBERIA, I was like, oh, yes, you do SunTrust guys barely talked about that. It's also COVID. But we bought 20-plus branches, and it's somewhat already forgotten because of how easy it is to integrate, how quickly it was accretive. And so I think we can -- M&A is constantly changing. Us of all people never expected a large bank like TD to come offer us an all-cash offer when we hadn't even converted from -- we were running 2 sets of client systems. We still had 2 names out in the book when they came and said they wanted to buy us. We took the offer. We surely -- and everyone in this room never expected the regulators to decline it 15 months later. And so when we talk of optionality, we've been through a whole slew of things in the last 6 years that you would have never expected. And so we believe the best thing we can do is run our company for shareholder return based on the company we have today and then look at the options as they present themselves.

All right. Thank you. All right. I'm going to just poll the audience and see if there's any questions. We still have about 5 minutes. I think we get a...

Manan Gosalia, Morgan Stanley. Hope, can you talk big picture about deposit competition in your footprint? And then more specifically, post the 2 rate cuts that we've seen recently, how have deposit costs trended since then? I know spot deposit rates were down in the third quarter. But post the October rate cut, have things gone according to how you had envisioned before?

We're seeing the same deposit environment we saw in Q3 and Q4 last year, which is 2 successive rate cuts and another one somewhat expected depending on the hour of the day, whether it's more likely or not in December, is that the clients are aware that rates are stepping back. They're aware that their rates are going to come back. The inbound calls, once we drop those rates, we get some and we sometimes meet in the middle. We've dropped most of our clients back 25 basis points with each cut and a good client calls, their private wealth adviser and there's a discussion. But there's not the competition we've seen in the summer. It's also an environment where there's not a lot of -- none of our competitors are out there soliciting rates with term. So we had seen -- and I know we commented on a lot that we were seeing offers that had rate commitments at Fed -- close to Fed funds all the way through December 1. There is not any term commitments where our clients are calling us saying, Hey, I just got this flyer and it's near Fed funds and they're going to guarantee it for 6 months. So it is the exact same as how I felt last fall, which is deposit competition has really just kind of quieted down significantly. And I think it will until we think we're through rate cuts. Clients are very aware of those. For us, our commercial clients, 56% of them, as Tyler always gets the number right when I say it wrong because it does move quarter-to-quarter, but it's 56% right now. They just had their loan size repriced down, right? They're all indexed and so that dropped down 25 basis points. So they see 25 basis points on their deposit side, they're okay with it. Now someone will call and say, Hey, how about we -- it's a bid ask. How about we do 20 basis point decrease, you look at the profitability of the client. But -- it has gone well, and I think it will continue to go well. I think it's when you see loan growth pick up again, you see rates stabilize and the competitive environment picks up. I'm also glad the Fed is going to stop shrinking the balance sheet. A shrinking pool makes deposit competition harder. John is in the back over there. Chris?

Chris McGrattycatti from KBW. You talked about the $100 million of tech expenses. I'm interested in what the run rate of technology expenses are in the run rate today and maybe as a percentage of your total expense base, your total revenue base. And also, you talked about the flat expenses next year. So there's conflicting, right, you're investing but pulling back in certain areas.

Yes. So we have not disclosed our tech spend as most banks do. It's kind of one of those things that's a little bit harder to do as you think about tech spend that can be tied to revenue, whether it's a processing fee on a hosted solution, something like that. But when you say it's a contradictory story, let me go back to what we said at Investor Day. We have some tech investments we need to do and then we will take that out of the run rate. Most of those tech investments, except for my system that brought absolutely no value to the bank, it came with a revenue commitment by the business or it came with an expense synergy, whether it was -- I guess, I did have some savings. So we had some people that supported GL in technology that have now been redeployed to another system because now that we're in the cloud, there's nothing for them to do. So I guess maybe I should start taking credit for that, Tammy. I have to call over to Mohan and ask him how many people he's been able to redeploy. But those projects, in addition to increasing our run rate, they created either revenue or cost saves. What we're doing instead of bringing costs down is reinvesting that savings back into the company in the form of bankers, new products, as I mentioned before, we did get to one treasury management system, but we're launching and enhancing products almost on a quarterly basis there. And that comes with revenue tied to it.

What I would say is development in the cloud costs have come down. They're not as lumpy in technology. Used to do big data center transformations or large general ledger. We're getting ready to do human resources. All of those kind of things took large investments that now move to a subscription base, which is much more digestible over time. So I would say the one number we are going to continue to talk about is how much are we investing in what we call change the bank stuff because that's really when you're enhancing client experience, banker experience are the places where we believe, to Hope's point, there's a business case that goes with that. There's also a business case for run the bank. I mean you got to keep the lights on, but we're really excited to be able to continue to shift to do more client-facing type stuff. And we have the money we need even on a reduced run rate going forward. We have the money that we need to do those client-facing projects.

All right. I think we're out of time. Yes, I think we're out of time. So thank you very much for coming and sharing your story with us...

So appreciate you as well.

Yes. So this concludes the day. We will start tomorrow morning at 7:30. So hope to see everyone again first thing in the morning. Thank you.