First Horizon Corporation (FHN) Earnings Call Transcript & Summary

We go ahead, and get started. So next up we have with us, delighted to welcome First Horizon. From First Horizon we have Chairman and CEO, Bryan Jordan. So Bryan, thank you so much. I think it's the first time Bryan has been with us. So it must be my lucky day. It is actually my birthday, so thank you. And we also have CFO, Hope Dmuchowski. So Hope, thank you so much to both of you.

And maybe I just think, Bryan, before we get into the near term and the outlook and what you're seeing, it's probably helpful just taking a step back in terms of the franchise, I think over the last couple of years, like when I talk to investors, they're impressed by the job you've done. Coming sort of -- if you just look at the sequence of events with the merger with IBERIABANK going into sort of the issues that TD had at their end, and then kind of reinvesting, doubling down on sort of getting the bank back on sort of track and on a good solid growth footing. Just talk to us about that journey in terms of where things were maybe a year or 2 ago and where things stand today when you look at the franchise.

Yes. I'm -- happy birthday.

Thank you.

And I am really proud of the work that our team has done over the last 2.5, 3 years, in particular. And if you go back to 2020, we announced in '19 without any idea because nobody had the pandemic on their bingo card. But we integrated IBERIABANK in the midst of the pandemic. And then we had that interlude with the merger agreement with TD. And if I think back about the last couple of years, I'm really proud of what the team did to upgrade and invest in our technology, build out our capabilities there to drive consistency across our business in terms of performance and business model. We spent the last 1.5 years putting together a 5- to 6-page document that literally takes a 70-page strategy document and boils it down to how we're going to execute, essentially, how do we deliver value for our shareholders, how do we deliver value for our customers, how do we execute on both of those things. And so when I think back about the progress, the momentum in the organization has been very, very good. I'm impressed with what the team has accomplished. And more importantly, I look at the footprint that we have and think about the opportunities that we have for growth and expansion over the next 10, 15 years with just the organic opportunities in the South. We're very blessed with the franchise and the team we have.

That's helpful. Maybe just sticking with the growth opportunities. Just talk to us, I mean First Horizon has presence in some of the best MSAs, I would argue across the Southeast. When you think about strategic priorities, I think what are the marching orders to the bankers? And where are you seeing sort of that growth momentum? Like where should we expect that growth momentum as we think about the year?

Yes. We have a lot of momentum across the entire franchise. And as you said, you can come up with 8, 10, 15 MSAs where we have huge opportunity to invest. In the near term, Hope and I were talking earlier, our branch focus has been to build branches in the Carolinas, Raleigh-Durham, Chapel Hill, building out some in Texas, some in Middle Tennessee. But we have opportunities all across the state of Florida. We have opportunities all across the South. And when we look at our what I described earlier, the way we're executing, it is really focused on building out a consumer-driven model that supports our franchise with branch density and not that we'll ever be top 1, 2 or 3 or 5 density in any market, probably outside of Tennessee, but that we can continue to be convenient for our customers. And then focus on commercial middle market banking, focus on our specialty businesses, including professional commercial real estate lending, all the way through asset-based lending and equipment finance and really execute in that middle market space with a highly focused and differentiated customer experience, trying to deliver essentially a commodity-based product set with a high degree of customization and value added by our bankers.

Got it. I guess, so when we think about all of that and the outlook that you put out in terms of loan growth, talk to us, I think you and I were together maybe this time last year. Just when we -- you just had the elections, there are still uncertainties around tariffs, what would happen fast forward to today, what are you hearing from clients and bankers around their desire to sort of act and actually borrow and draw down lines?

Yes. There's still some measure of uncertainty in the economy, but people are more optimistic today over the course of '25, we went through the Liberation Day tariffs to where we've finally settled out towards the end of the year. And customers are generally forward leaning. They're optimistic. People are looking for opportunities to invest and buy. My sense is people are encouraged by the lighter regulatory touch on the economy more broadly speaking, financial services included. But the people are optimistic and they're looking for opportunities. So as clarity continues to emerge as we continue to get trade agreements put in place and settle some of the known uncertainties. I think that we'll continue to lead in very strong growth. And I think the tax incentives from the One Big Beautiful Bill in the first half of the year will be good. And our balance sheet, commercial lending has been was very strong in the back half of '29 -- of '25 of our pipelines headed into '26 continue to look very good. And so that is what I think will be the near-term driver. I think as you look at our business, commercial real estate because of the nature of construction-oriented portfolio where loans fund up over time will be flat to maybe down just a little bit of in the next quarter or 2. And we're holding the mortgage portfolio flattish. And then you've got the seasonality of our mortgage warehouse lending business. But I think our loan growth and our expectations are to see as you highlighted, mid-single digits and let that be driven largely by our commercial and industrial lending businesses.

And just on the One Big Beautiful tax bill, there's a lot of discussion that the bonus depreciation that was there should really be positive in terms of business investments. Like for the longest time, there's been a lot of optimism. But then when you follow off with a lot of banks, are you seeing clients actually act on it? It's like that's still sort of yet to occur. Is it happening now? Are you seeing that happening?

Yes. It is happening, and we saw it throughout the course of 2025 in our equipment leasing business, for example. So that was a very strong business for us in '25. And I think there was a lot of enthusiasm about the economy and the business environment and the Trump administration really beginning after the election. We went through the uncertainty of the Liberation Day tariffs, but people have that excitement. And where we are from a presence standpoint, there is a bias in my view, towards growth and investment and a growing economy. And I think you're going to see the continued investment will build over time.

I guess maybe, Hope, maybe starting with you, just when we think about you move to sort of providing a revenue growth outlook, just given sort of the business mix. Talk to us, I think when we think about 3% to 7% outlook for the year, what are broader assumptions underpinning that? What needs to go right for us to get to 7% as opposed to 3%?

Well, first, happy birthday, again. Great way to spend it. For us, when we look at the 7%, we no longer give NII and fee income because we end up trading one for the other. And so there's really probably two ways, or actually is two ways for us to get the higher end of 7%. One is higher loan growth. We really see significant pickup in loan growth back to what we saw pre-pandemic. The second is we start to see our countercyclical businesses rebound. We have not seen mortgage rates come down yet the way we would have expected with this many Fed cuts. Traditionally, what we're hearing from our mortgage team is that, that 30-year gets under 6%, we're going to have a big refi wave. We disclosed in our deck how many arms we have. Everybody that has an arm is expecting to refi. They're watching rates, they're waiting for something to happen. We have people that have already refied once and are now waiting to refi a second time, as well as our FHN Financial business. If we see a little bit of pickup in that, you get to the higher end. So we don't need one scenario to hit the higher end of revenue. It's really where is the economic cycle and where does it hit throughout the year.

Got it. I guess, maybe just let's talk about the countercyclical businesses because I think it is somewhat unique to First Horizon. Maybe on the mortgage warehouse, you've seen some of the peers exit over the last few years. Just talk to us, to me, it feels there's a lot of torque in that business if things actually pick up. As you mentioned, mortgage rates go below 6%. Just talk to us in terms of the capacity in that business, what you've done in the last year or 2, and what that could mean actually for C&I growth and NII?

Yes. Bryan and I have consistently said, we like mortgage warehouse. A lot of banks got out of it 2, 2.5 years ago or cut down their exposure because of the risk-weighted asset diets that people are on or just the spring loaded that it can be. I mean they can fund up billions of dollars in a couple of weeks when we see a refi wave or if we see a change in consumer behavior for new purchases. And so as we think about it, we have held higher tier capital. And one of the reasons we've said we've done that is we can fund a mortgage warehouse. We've had -- 2025 and 2024, had essentially flat mortgages in the industry, both originations and refi, and we picked up a couple of billion of additional average balance because we deepened those relationships with those clients while other banks were calling them and saying, hey, we're one getting out of the business or two. We're going to bring down your line. A lot of our existing customers called us and said, they typically have multiple banks, and the banks were calling and say, hey, we're going to take your line down. But when you need it, call us back. They don't like to have to call when something happens. They want to know that they have that line. So they called us, and we gave multiple updates on earnings calls and conferences about how many new clients we signed up. There was no fund ups during that time, but we took market share, and you can see it just in how '24 and '25 played out at the height of COVID and the refi boom, mortgage warehouse was a $7 billion, $8 billion business for us at the height of the summer season.

I think it's important that people understand, we have tremendous balance in our business. And as Hope has highlighted the mortgage warehouse business and the way we forecast. If net interest income is getting impacted by a falling rate, our mortgage business offsets that. So we have a tremendous balance. And while not ever neutral in interest rate sensitivity, we tend to be much more moderate than most and that gives us the ability to produce consistent earnings through cycles. It also probably says we're not going to have as high of highs or as low of lows, but we'll have those consistent performance because we have that balance in the business. And we think that mortgage warehouse business is an important part of bringing that balance. And that's why we were so excited to have the opportunity to expand share there.

And just on the -- sticking with mortgage. There's a lot of discussion around the administration being very focused on housing affordability, maybe purchases of MBS securities. I'm just wondering do you expect something to happen on the policy front because it could be meaningful for the business? I'm sure you've spent...

Well, I think the big determinant, as Hope pointed out in her comments, if you get that 10-year -- excuse me, the 30-year mortgage rate in that 6% area, it should pick up. I was actually traveling a couple of weeks ago, and I saw a billboard for 5% and 7%, 8%. So I smiled when I saw it. So it's more a rate-driven thing. And I think if the agencies buy a few hundred billion dollars worth of bonds, in mortgage-backed securities, that will help bring rates down. So from a policy perspective, I expect that, that will have some impact. I don't know what happens in terms of a 50-year mortgage or any of that. But I do think at the end of the day, that if rates on the long end get -- come down, I think you're in a position where you'll see that refi activity pick up. I don't know how to think about a Kevin Warsh, chair of Fed and the size of the balance sheet because that's been a big determinant in the long end of the curve through quantitative easing. That might have some policy impact, too. But at the end of the day, we're getting close and we're starting to see refi activity pick up a tiny bit.

Yes. Okay. And maybe I think the other countercyclical business, FHN Financial, just give us a mark-to-market in terms of -- it's been a great business working with sort of banks on their treasury portfolio management. Like when we think about what are the growth drivers for that business, remind us what are the one or top three things that matter to get sort of revenue growth going?

Well, it's -- first and foremost, it's volatility in interest rates, and that tends to drive a lot of activity in the business. If you have a falling rate environment, it tends to be good for the business, most importantly, having steepness in a positively shaped yield curve. So activity has actually been pretty good through the back half of 2025 and into early 2026. And we think in terms of what's likely to happen with falling rates on the short end of the curve and a little bit of steepness added with the 10-year in the -- I don't know where it is this morning, call it, a 4.15% area, then that's going to be good for that business. And we've seen activity in the first part of the year continue to be right in line with what we saw in the fourth quarter as we exited '25.

And Bryan, when you think about the business, are there areas where you're investing or adding product capabilities? I think a few years ago, you brought in like some public finance bankers on board. I'm just wondering how you envision that business evolving?

Yes. Our fixed income business is largely a distribution business. And so when we think about what we add, it is how do we add product or how do we add complementary services to that typical fixed income business. And it ebbs and flows, but it's a pretty balanced business between financial institutions and total return accounts. And we -- as you pointed out, we added several years ago, our government-guaranteed business with Coastal Securities, which is basically an SBA securitization business. We've looked at our fixed -- our municipal finance and try to be real targeted in where we can generate fixed income product through a municipal finance business. We look at are there complementary ways to provide transaction services for -- but right now, we're not looking at huge investments in that business. It really is, as I said, a transportation business where we want to match up buyers and sellers of fixed income securities. And the work that we do in terms of asset liability management, portfolio management, all of those are great ancillary businesses. And then we just look to complement it in small ways where we can.

Got it. I guess, maybe pivoting to the other side of revenue growth on NII. So obviously, you don't guide for NII. But I think Hope, you talked about on the call, the margin could be in 3.40s, relative to the 3.5% you ended the year ahead. Just maybe give us at least the puts and takes around is this sort of a cyclical high for the margin? Like are there aspects that will push the margin even higher, provided based on things we know today? And what's driving that modest compression that you expect?

Yes. I think in the near term, 20 -- for the current year, that's probably the high mark with what we know of where the economy is. For us, it's the lag in funding quarter-to-quarter. We have an asset-sensitive balance sheet. So when you see a cut at the end of September, our loans immediately reprice and our deposits that are on committed times, 30, 60, 90 days, you've got to wait for those to reprice. And so we saw it consistently in '24 and '25, but we saw margin compression in Q4 and then expansion in Q1. But single-digit basis points, it's more around the edges. Mortgage warehouse is a big bump to our margin when it funds up. We do have a large spread there. It's short term, you don't have the same impact to margin in a C&I loan as you do in our mortgage warehouse for a short period of time. So when we look at some of the volatility, we do tend to see our margin go up in the summer when that hits their peak. And then deposit pricing. Deposit pricing, it went up so quickly, and we've kind of been zigzagging on the way down where we saw cuts in 2024, we were all able to bring our rates down. As soon as we saw no cuts in the forward curve, it's started to get really competitive and all of our deposit costs went back up. So you see pressure on both sides of margin in this type of uncertain environment with interest rates.

And I guess, maybe just on that point, how would you characterize the deposit pricing competition? I mean it's always competitive in the Southeast and in your markets. But just one, like, what's the environment like today? And then how do you go about actually growing relationship core deposits?

Yes. Deposits are always competitive. But as a CFO, Q4 is always really nice. For some reason, Q4 is not a competitive deposit environment. Everyone is out there going -- getting their Thanksgiving turkey and Christmas presence and they're not shopping for where can they get a new cash offer for a checking account. So we do typically see Q4 be a very quiet competitive quarter and spend like that for years. We are now in the season where just about every day since deposit pricing reports to me, I wake up and somebody -- one of my bankers has sent me a screenshot of something that they got or their dad got or somebody else got that says, here's the rate that you could get. And I was showing the back, what's the terms? What's the minimum requirements? But deposits are competitive. And the Southeast, everyone I've seen talk about branch expansion at the conference so far has all talked about where they're building their branches, it's in the Southeast. The Southeast, I think, is the most competitive deposit environment in the U.S. right now.

So how do you solve for that? Like just from a longer-term perspective, do you just have a strong program on adding branches? And does that bring in core deposits? Or -- I know it's a long cycle, but...

Yes. I think you've got this long cycle, as you point out, with respect to deposits. And the fact that everybody has now got online banking, everybody has got mobile banking, anybody in this room can move money without getting out of their chair. It is a much more fungible market and the transparent market. And I think over time, you're going to see deposit costs continue to creep closer and closer to wholesale cost of funds. From our perspective, it really is a commodity-oriented product, and we're going to differentiate with our banking centers, our level of service, our people and compete really hard. A big part of it is where you locate your banking centers, not only in mature markets and do you move in line with the customer, but also where you invest in new markets. So it's a combination of all of those things. And then it is being proactive in your banking centers to be out talking to customers, working in the neighborhood, being visible, things of that nature. But it is going to be a very competitive market, and I think it gets more competitive over time, not less competitive.

That's an interesting point. I share that view. I just think like I was talking to someone last night and I was like the share of noninterest-bearing deposits to total deposits for the industry is likely to be lower 3 years, 5 years from now, not higher, just directionally. When you think about this whole debate in D.C. around stablecoins, digital assets, is that something that you think impacts First Horizon? Are you paying a lot of attention to that or...

Well, I think it impacts the entire industry and by association, we would be impacted as well in terms of how stablecoins, cryptocurrencies and regulation plays out around that. I don't think it is that a real near-term threat. But I think over time, the competition will be good for our business, but it will have an impact in terms of deposits, deposit flows. And as I think about our investments, we look at how we work with a stablecoin tool. So we're working with an organization to think about how we put an FDIC insured stablecoin or digital token, digital deposit. So we're thinking about those tools. But I think for the most part, the business case is still evolving and the regulation that falls around that will be important. And I think our industry has been very active. I think there was another meeting at the White House with the digital and cryptocurrency organizations and then the industry, and I don't know if there's any progress made, but there's at least conversations about how do we create a playing field that is level and allows everybody to compete on a level playing field, which I think is ideal.

Make sense. I guess maybe switching to your guidance for expenses, like flat expenses was remarkable. Like I mean, how do you keep expenses flat in a world where inflation is 3%, banker hiring, the bid for sort of talent. Just talk to us in terms of as you think about expense growth for the year, like where are the savings coming from and areas where you're investing?

Flat expenses is a commitment we made to our shareholders in 2023 when we held an Investor Day. We said we need 3 years to invest back in the company. We specifically mentioned a $100 million technology investment that we're going to use for fraud, cyber, new products, new platforms, but we've also been hiring bankers at the same time. We've been opening branches. And so we've really been in that reinvestment stage, and now we're seeing that level off. And so we still have, as Bryan mentioned, we have multiple new branches opening this year. Our technology budget is higher this year than it was last year. But one of the things we really focus on is as we make every investment dollar, as we look at where are we going to do the next product investment, the next technology investment, we tie a business model to that. It's either cost savings or revenue growth, and we track that through. A lot of the technology advancements we have implemented over the last 3 years, they did come with cost saves. And so we're able to take some of that cost savings out of the bank and reinvest it. So it's not a cost-cutting initiative. It's a reinvestment initiative. There are a lot of things that we've been asked about what would drive us to the higher or the lower end. So I have to say it is 0, excluding our countercyclical commission businesses. And so I think that is one that will have us above. But we have a healthy amount of investment in the bank this year. If you would talk -- we just had a big town hall and you talk to everyone, they're like, well, in this new system, these new products, when is this branch opening? And so we are in an investment period, being very disciplined about when and how we do that.

And remind us, when you look at '26, do you have a number in mind in terms of how many branches you expect to open? And on a net basis, do you think the branch count for the bank will continue to grow or remain flat because you shut some of the underperforming ones?

Yes. I think we'd like to open them a lot faster than we are if what Bryan is looking at me and our Head of Consumer. You'd be amazed how hard it is to find real estate in the Southeast. And then once you find it to build, how busy the construction teams are. It's one place I wish AI could fix because it's still almost 9 to 12 months to open a branch from the time we sign the lease. It's not -- the architects aren't moving any faster. The construction crews aren't. So we had, I think, about a year ago, so we were going to try to open 20 this year. Trust me, my team is working out there, but it is taking forever. We have about 9 leases, land that we've purchased and just getting through that process of getting them open is getting longer in the Southeast, not shorter. So we would like to open probably 10 to 20 a year in the next couple of years.

I was just smiling. It's probably one of those problems that more money can solve, but we don't want to be smart about it, too.

So it happens, if you have the CFO managed the corporate real estate. There's a balance there in our site selection and how quickly we get our buildings open sometimes.

That's true.

You mentioned AI. Just talk about like there's obviously a lot of discussion around AI and productivity gains and what it might mean overall to headcounts at banks. I'm just wondering, when you bring this to First Horizon, where are you using AI today? And just what do you think the technology to mean for the bank, for productivity, et cetera?

Yes, I'll start and Hope can help me out. But it's -- AI is an important topic for us. And in financial services and in our business, we've been using artificial intelligence through robotic processes for many, many years. And we are doing a lot of work with AI-based technologies. We're using it more in coding and doing the work that a software engineer might be over 3 weeks, doing it in 2 hours. And so there are lots of opportunities to automate process. We're looking at how do we automate credit underwriting and how we use AI in places like that. We're looking at agentic and how we use that in customer service operations. And I think that we will continue to see not a wave of AI, but just sort of a steady pacing where AI gets more and more involved in our business. We're addressing it both ground up and top down. We have a process going on in the organization today where we've put together 10 teams just to take AI and really think about how we use it and how we approach it from the customer-facing side. So we're trying to think about it in a 360-degree view. I think AI is one of those tools that will give us more capability. it may be the wrong analogy, but at least my analogy today is it will be a lot like the Excel spreadsheet or Lotus 1-2-3, if you go far enough back or a Word processor that it has productivity benefits and you can do more things, you can do more things faster. And I think what it will end up doing is enable -- it will free up people and allow us to do more for our customers and to be better at service and do all sorts of things. And while it will drive some efficiency in the organization, I expect that it will just put more capability in front of our customers, which I think is really desirable.

One of the places that we've been using it a lot and you just can't stay ahead of this fraud. And so AI is something we can build really quickly when we see a new fraud scheme out there, and you can start searching through client transactions or log-ins to treasury management system. And so that's a place that has an immediate -- and you can't wait for a new software code. You don't want a developer to have to test it and take months. You need a day or 2 to start catching these very complex frauds that are hitting the U.S. banking system. I would say, in recent last 6 months, that's the place that you're seeing that create an immediate impact. It's not saving anybody's job, but it's creating a better customer experience because we're able to see what is this fraud scheme and how do we close the back door using AI tools. We're also using it with our client-facing marketing. The Salesforce was one of the early adopters of Agentic AI, and we quickly signed on for how do we get clients, marketing offers, next best offer for what we know they need, not just a splatter of, oh, everyone might want a mortgage using that data that you have on your clients and saying, hey, we think you might need a mortgage or you're reeligible for refi. And so we're already starting to see it on the customer side have immediate impacts that you all probably don't see, but we see internally. We have a monthly quality meeting, and it's amazing how AI is being used in our call center already in our fraud departments.

And do you see the legacy technology providers? You mentioned Salesforce obviously was ahead of the curve here. But when you think about the sort of the core infrastructure providers at banks, like do you see them having those offerings today to sort of provide to the banks? And is that sort of a governor for certain banks in terms of how quickly they can implement this or.

Well, I think it's been interesting to be a third-party observer of what's going on in the software space over the last few weeks. And I don't think that organizationally or as an industry, we're going to be in a place where we're updating our core code every 3 weeks. I think cycles will get shorter. And I think AI will help our software and our core providers provide faster, greater tools and capabilities. And I do think cycles will get shorter. But I don't think we're all going to start with -- let's just start rewriting all our code and build it all internally, because when you're dealing with millions of transactions on a daily basis, you got to make sure that they execute precisely. And these big mainframe-based systems and the technology that we use has been proven out over many, many years. So I think it will be a way to enable us to shorten cycles and to get better. But I don't think it's going to be that we're all just replacing all and writing our code over every week, or every 6 weeks, or whatever.

Got it. I guess I just want to go back to something you've talked about, I think, $100 million PPNR opportunity within the footprint. Just give us a sense of what would be the drivers of that PPNR growth? And what's the time frame we should be thinking about where you monetize that?

Yes. We've talked -- we said $100 million plus at the beginning sometime last summer. And we've talked about that we still, at the end of the year, believe there's at least another $100 million of profitability opportunity. A lot of that comes from the work that we have done in the last 1.5 years just in communicating with everybody in the organization, how we want to go to market. And that means that we're focused on how do we deliver better for our customers and how do we bring products and offerings together. So capitalizing on that $100 million opportunity is going to be hundreds, if not thousands of small things across the organization, making sure where we have single product loan customers that we're introducing treasury management, where we have opportunities to introduce private client or wealth management folks to our consumer customers or our commercial customers, making sure that we're pricing and collecting fees for the work that we're doing in terms of a treasury management product set or whatever. So it's -- Hope and her team have a very big spreadsheet, but we know where these opportunities are, and it will take hundreds, if not thousands of people executing on it. And it's not going to be done overnight. It's a progression, but we think there is a lot of additional profitability that we can drive out of our existing business. And that's why we're confident in that -- in saying that we set the 15% ROTCE goal and that we feel confident that we can be greater than that over time because we can drive more profitability out of that balance sheet.

And I was going to ask about that. So when we -- I think we're more or less there in the back half of last year on the 15%. As we think about the 15% plus, like where do you think the franchise, like we talked to banks today, and it's actually mind-boggling like the return targets in the high teens, 18%, 19%, 20%. I'm just wondering, when you look at the franchise, what you've talked about, the growth opportunity, operating leverage, like how quickly could this be something that's more closer to high teens than 15%?

A lot of our $100 million PPNR, as Bryan talked about, is in growth in fee income, which is something we have not had the last few years. A lot of our $100 million 3-year technology investments went into new products, new platforms. The two we've talked about before is we partnered with LPL in Q3. That was an investment to get on their platform, have additional products. So now we have wealth clients and we have new products we can sell them. Treasury management, we have added multiple feature and functionalities that we can go back to our existing clients and say, hey, we now also offer this, and that comes with a fee. So when you talk about growing the fee income side of the business, you don't hold any capital against it. It's a big broad stat projection. We're also, as Bryan said, on our earnings call, we're focusing on profitability at renewal. We have hurdles for client profitability. If it's loan only, it has a higher hurdle rate. And in our CRE business, we've increased the margin double digits over the last year just by partnering our in-market bankers with our CRE specialists that understand the market and can do things like increased origination fees, unused line fees. They just know that market so well. They know where the CRE market is moving that they're able to create existing clients with more profitability at renewal. And all of that just adds up.

We have -- to your point about leverage, we think over time that we have the opportunity to bring our CET1 ratios down and create greater leverage. We think through the cycle, we need to be in that 10% to 10.5% range. We're now targeting to get to 10.5%, whether it's the first quarter or the first half of this year, we'll see. But we think we can bring those levels down. And as I think as the industry resets more broadly speaking, with a regulatory framework that brings capital levels down, we would get comfortable that we can come closer to that 10% area because we think the risk profile in our balance sheet, we have very strong capital levels that we're in that 10% to 10.5% area.

And just on that, Bryan, from a regulatory standpoint, do you -- like are you expecting or are you anticipating anything from Governor Boman and the Fed and others around some explicit guidelines around the $100 billion asset threshold? I'm just wondering what can the regulators say that would make you feel incrementally more comfortable about operating at the 10% CET1?

Yes. I think it's a combination of things. And I think that the regulatory bodies, it's not just the Fed, but the Fed, the OCC are really starting thinking about, okay, how do we handle the capital ratios at the largest institutions, and that will trickle through the industry. And so I expect that as on a whole, you'll see with changing the supplementary leverage ratio and things of that nature, you'll see capital levels trend down, because it does appear that the industry has gotten to such an overcapitalized level that I think there's opportunity to bring that down. So in the context of a macro change there, I think that's helpful for us, and we have the opportunity to bring our capital ratios down too. The other piece of your question sort of hinted at the $100 billion threshold. And I think over time, whether it's through legislation, I think something passed in house financial services this week that would take it to $150 billion. I think that the regulatory bodies will work through the tools that they have really embedded in the 2018 legislation to reset or think about where are the right thresholds. And I'm much less concerned today about the $100 billion threshold because I do believe that, that will be moved up and/or that you'll see that there will be a different way of thinking about $100 billion or $150 billion. And so I think the cost of those regulatory bright lines is likely to be significantly lower going forward.

Got it. And I guess -- so when you think about capital deployment, the stock performed quite well. Just when you think about buybacks, you have a healthy program in place. But how do you think about buybacks relative to stock valuation? Like does that make you take a pause at some point?

Well, we're always trying to be thoughtful about the relative price that we're paying. But we start first with do we have organic growth opportunities and where we have those opportunities, we're going to capitalize on those first. So we're always looking to invest in the business. And then we think the buyback is an important tool. Last year, we bought back just under $900 million worth of stock. We returned about $1.2 billion in equity. Beginning of this year, we -- at our Board meeting in January, we increased our quarterly dividend by $0.02 a share from $0.15 to $0.17. And we have about $1 billion of remaining authority. So when you put all of that together, one, we feel good about our capital generation and what we will do. We feel good about our opportunity to deploy it in our business. And we still believe that we will have excess capital that we can return through dividend and stock buyback. In terms of absolute valuation, when we look out into the future and think about what we can deliver in terms of improved profitability, we think that attractive -- it's still an attractive time for us to repurchase shares, and we will continue to use that opportunistically to repatriate capital.

I don't mean to cause any trouble, but just talk to us about bank M&A, right? Like you're seeing a lot of deal activity happening around us. One, just from a scale standpoint, does it matter if you are $30 billion larger or not? But are there interesting opportunities strategically that are out there that would make sense?

Yes. M&A is going to -- it's been around the industry and it's going to be around the industry. And it's not a priority for us. If anything, we would just fill in markets. We think there is a whole lot more opportunity for us in being focused on delivering $100 million of incremental profitability. And as you highlighted in your first question or two, our organization has been through a lot of transition over the last 5 years. And for us, the focus on execution and delivering value for our shareholders, making sure that we get maximum profitability out of our existing balance sheet franchise is a much more important tool or important objective for us. So that's where our focus is today.

That makes sense. And one last question. You've been through a lot in the last 20 years. I think there's a lot of optimism today around just all things around growth. When you think about credit quality, anything to either of you like that concerns you on credit that we should be watching for?

Go ahead.

Our credit has held up really well. When we look at how we performed the last couple of years for charge-off, where our outlook is for this year, we look at a through-the-cycle lending. We have a disciplined credit lending. We were stressing our loans when we were near 0 interest rates, all of our loans had a plus 300 basis points. Our bankers were screaming. This will never happen. And when it did happen, our clients were able to maintain that. So we don't see any geographic concentrations we have issues with any industries. There's always even in the good times, businesses that hit rough times, but our credit has held up really, really well, and we anticipate that continuing.

We haven't had any big cycles, Ebrahim. But I recognize that there was a long period of time where people looked at our credit performance in 2007, 2008 and sort of extrapolated that out. But if you look at our credit performance through the many cycles that we have had, MI&I cycles that we have had over the last several years that we have really restructured the way we think about credit. Our teams have done a fantastic job thinking about risk and diversification. And I'm very, very confident that our credit performance is going to be as good or better than most through, almost any cycle. So I'm excited about that being something that is -- positions us to move fairly quickly as we see opportunities in the marketplace even in the face of cycles.

All right. No, we're out of time. So on that note, thank you, both of you.

Thank you Ebrahim. Thank you for having us.

Thank you.