First Horizon Corporation ($FHN)

We have a fireside chat this afternoon with Bryan Jordan from First Horizon. Bryan, thank you for being here.

Thank you, Jon. Thanks for having me.

You're welcome. I'd like to do this in every session just because we have a lot of interest in bank stocks. There are generalists on the line here. But give us a 30,000-foot overview of First Horizon.

Yes. First Horizon is roughly a 12-state southern franchise. If you think about the Southern United States from Virginia to Texas and Arkansas to Florida, we have a lot of opportunity for growth in that footprint, an extraordinary footprint, and we're very excited about where our presence is. Our business today is really the merger of First Horizon, which was largely a Tennessee and Carolinas-based organization with IBERIABANK, which had a big presence around the Gulf. We had some overlap in Florida. So we're in some of the best markets in the country. We're largely a commercial and consumer banking organization, lean is a little bit more commercial. And then we have a number of specialty businesses, which give us balance across the rate cycles given the nature and diversity of those businesses.

Okay. Good. And economies that you operate in are obviously strong economies. How are you feeling about things today?

Yes. We are -- as you said, we're in very strong economies. Unemployment rates are low. We're seeing good growth in migration. While it's not statistical in any way, shape or form, if you look at the U-Haul index where the one-way trips terminate, most of the top 10 cities are in our footprint, and we have a presence in most of those cities. So we're in very good growth areas, a lot of in-migration, tax law, labor law, all are very, very good. And the climate is such that you can be year-round outdoors in most of the South. So we're encouraged by the momentum we see there. I think the Southern United States is probably going to be one of the big growth engines of the U.S. for the foreseeable future.

Okay. Good. We were up here a year ago. You made some promises. You delivered on all of them. How do you feel about the momentum coming out of '25 and going into '26? And what are some of the key focus areas for you in '26?

Yes. I'm really proud of what our team has accomplished really over the last 2.5 years. And the progress in '25, I think, was a year of building momentum. In 2025, we spent a tremendous amount of time articulating to our entire organization, a very simplified but very deep and broad framework for how we think about going to market across all of our businesses. And essentially, what we did is we took our 70, 80-page strategic documents or strategy documents and reduced them down to 6, 7 pages. We touched 99% of the organization. And I see that momentum building across the year. We were working very hard. I mentioned sometime in the middle of last year that we thought we had $100 million of pretax profitability revenue driven that we could create $100 million plus. I feel good about the progress we're making on that. And I'm also encouraged that we still have something in the order of $100 million that we can capitalize on. And so our focus has really been driven over the last couple of years to narrow our business to focus on the places that we deliver value for shareholders to be differentiated, to narrow the business in such a way that we're not trying to be all things to all people. And then to do some of the necessary work we had. I mentioned the integration of IBERIABANK and First Horizon and the 2 cultures, but to spend some time really making sure that our consumer strategy was very consistent in the way we went to market, the way we go to market in terms of our commercial or our specialty businesses and to really focus the organization on driving very broad, deep relationships and a lot of profitability.

Okay. Where are you on the $100 million PPNR?

We're still at a point that I'm comfortable talking about $100 million of economic or revenue improvement. That will start to diminish over time. But today, while there are probably tens of thousands of individual little actions that have to be taken in most of them, our RMs, PMs, our banking teams have to do a lot of work. They're imminently achievable, and it's everything from making sure that if we initially discount the treasury management revenue, for example, that we get that discount worked out over time or that we introduce our private client wealth management folks to our big consumer customers that we introduce private client wealth management, corporate treasurers and CFOs. And so it's lots of tens of thousands of little things, but we're seeing much better progress on those. Our treasury management discounting has significantly reduced. We're doing a better job introducing private client wealth management, delivering TMSOs and reducing loan-only or taking -- transforming loan-only relationships into full broader relationships. And that's progress that will play out over the next couple of years. So right now, I still think it's easily another $100 million of profitability.

Okay. Good. Like all sessions, if you have questions, just put your hand up, and we'll make sure they get addressed. I have 2 pages for Bryan, and we'll see if we get through them all. Lending, it seems like you feel good about the economy generally in your footprint. How would you characterize the start to 2026? How are you feeling about demand and pipelines?

Yes. It's really been a good start to 2026. The momentum we had in the fourth quarter was very good. Our loan closings, our pipelines in the fourth quarter were good. Progress into the first quarter has continued to be very good. If I break it down our C&I business, which is roughly half of our loan portfolio is doing very well, and it's probably up a little over 1% on a linked-quarter basis. It's -- so we're seeing good progress there and pipelines continue to be very strong. We're still seeing a little bit of excess payoff in commercial real estate lending. So it's flat to down a bit. But I heard just yesterday in talking to the head of our commercial real estate business, our pipelines there as strong as they've been since 2021. And then we have the typical seasonality that happens in the first quarter in the mortgage warehouse lending business, but we're essentially flat with where we were in the fourth quarter. So when I look at the seasonality and the impacts in our business, I feel very, very good about where we are from a loan growth perspective, and I expect that we'll be right in line with what we forecasted for the full year, which is right in that mid-single digits. If I said it another way, if I look just at the first quarter, I think our net interest income is going to be right in line with where we internally had forecasted. So I feel good about how our balance sheet is positioned and the data we use to build up to the expectations we laid out for the year.

Okay. Good. You talked about CRE last quarter on the call. I think you just alluded to the fact that maybe there's some paydowns, but what's really happening there? And what's causing that inflection?

Well, that's a business. We -- a lot of what we do, substantially all of what we do in commercial real estate is short-term construction funding. And so when you originate a loan, it funds up over a period of time. And once the project starts, the equity goes into it first, and so it takes a while to fund up. And when it gets to maturity, that loan will pay off. And so it builds up and it pays off. So it's a cliff nature. There was a bit of a slowdown in -- excuse me, in commercial real estate construction, particularly around the higher inflation and not anticipating construction costs, what is the cost for the steel, the concrete, the labor, so on and so forth. That's come back given that inflation is at a much lower level and interest rates are in a better place. So people can forecast projects. So that's a business that we think is turning the corner, maybe a quarter or 2 earlier or a quarter or 2 late, but we feel very good about the closings that we've had there in the pipelines. And the way I describe that, may be a bit of a southernism, but it spring loads the balance sheet because you close a loan in December, you close a commercial construction loan in January. It's going to fund up over 3 to 4 years. So it just builds in loan growth over time.

Okay. And then the other comment on mortgage warehouse, it seems like you've kind of -- you've bucked the trend, some of the seasonal trends there. What's driving that?

Well, our mortgage warehouse business is a national business, and that's a line of business that has been through a tremendous amount of change just in the industry. And we had an awful lot of work done last year to bring new-to-bank relationships onto our platform. And so we broadened and deepened the relationships that we had across the industry. And two, with interest rates having dropped, I think we're on the verge of starting to see refi activity pick up. Now we've had the short-term ups and downs in the 30-year and the 10-year -- 30-year mortgage and the 10-year treasury have bounced up a little bit, but I think it will be good for pull-throughs. But I think the vast majority of the momentum that we're going to create out of that business will really be by the great work our teams did expanding our customer set over the course of '24, '25, while the industry was changing the way it approached mortgage warehouse lending.

So good business for you, but some upside.

It's a very good business for us, and it's seasonal. And if you wanted a straight up line or low left to high right loan growth number, it's not a -- it's not business is going to produce that because second and third quarters when people move and they buy homes and so on and so forth, it's going to expand in the second and third quarter, and it's going to cycle down in the fourth and the fifth. But we believe we have unique positioning in the business. And two, in terms of the profitability of the business because we can leverage our cost structure, it's a very profitable business for us. And so we're willing to deal with a little bit of the cyclicality given the overall profitability of the business. And then the second, maybe more important point is it tends to be very countercyclical. We manage our net interest margin to be asset sensitive. And so when interest rates are falling, it impacts net interest income, but we have these countercyclical businesses like mortgage warehouse, where rates fall, volume goes up because of refinance activity, and it ends up being something that keeps us much more neutral in terms of our income statement. So when Hope and the team put together a set of projections for 2026 or guidelines or guidance or whatever you want to call it, we run a bunch of different rate scenarios, and we don't try to break out net interest income and fee revenue simply because our business is relatively balanced, and we're going to be consistent whether rates are going up or whether rates are trending down. We're going to be fairly consistent within some reasonable range, and mortgage warehouse is a big part of that.

You're taking away all my margin questions.

I didn't have any, I'm just [indiscernible]. Well, I'll tell you what's going to be next Thursday.

Just -- related to that, though, I understand what you're saying on net interest income, but the deposit, you guys have had kind of a wild ride on deposits over the last 3 years. I mean a lot of it is obviously not a First Horizon issue. It's generally an industry issue. But how are you feeling right now about deposit pricing and gathering? You've had a lot of success, but it feels like now it's getting a little bit more difficult and tougher. What's your assessment of the environment today?

Yes. I think I think we're in a secular change in the way deposit pricing is going to work. And some of it is very much driven by technology and the fact that any of us in this room can move money from one place to another without getting out of seat that we're in right now. And so there's a whole lot more transparency about rates. So I think we're in a longer-term shift. I think that the evolution of what's happened with the Fed's balance sheet, in particular, the fact that it expanded greatly during the early days of COVID and has trended back down will put more pressure on the size of the deposit base. And I think over time, you're going to have a shift in the way digital tokenized deposits, but things like that affect the industry. So I think we're in a period that's secular, you're just going to see an upward drift in deposit cost that drive towards more wholesale type funding levels. Given that, it's incumbent upon us and everybody else to do the other things that I've talked about to drive profitability by building relationship and making sure that you have broad, deep relationships and that you're not in any way, shape or form, a one-trick pony. The near-term dynamics, and I talked to -- we heard from really all of our market leadership yesterday, deposit competition is still very strong in our footprint. There are still a number of special rate offers out there. But I would say, given what our expectations have been for the first quarter, we've done a really good job of managing deposit costs, and I feel very good about the trends that I see in our -- broadly deposit base. And I think we're very well positioned to compete very effectively to not only grow that deposit base over time, but to do it in a way that, as I said, connects it to broad deep relationships and stays away from trying to create short-term transactional money.

Okay. would you welcome a couple of cuts? Would that be good for the bank generally?

Our forecast, our plans are built on a couple of cuts. Given the balance in our business, I would say I'm largely indifferent. And at this point, I couldn't begin to -- I wouldn't know whether to flip a coin or place a bet on either side right now because I can make arguments both way. But I think we're largely indifferent.

Okay. Okay. How about an update on the fixed income business is performing?

Yes. The fixed income business has continued to be very steady. It's consistent with where we are, we're in the fourth quarter. The volatility of the markets, you'll have some spectacular days, and you'll have some days that slow down depending on whether rates are backing up or coming down. But we're right on track. We're -- I would guess through the quarter, we're right in that $750,000 area on a quarter-to-date average daily revenue. So the business is sort of on track with where we expect it to be.

So you're feeling pretty good at this point from a revenue growth point of view?

Yes. I feel really good about the momentum in the business. And I do believe that we are in a very good position today given what we know about the world and the economy and interest rates and everything else that we can deliver on our expectations for profitability improvement in 2026. And so in terms of what we laid out in January expectations for the year, we still believe we're squarely in the middle of that framework.

Okay. Okay. Good. How do you do it on expenses, the flattish expense growth? And how confident are you in that outlook?

Yes. I'm confident in our ability. We have a number of things that have just been high spending levels in certain areas that we can clearly bring down in 2026. We believe we built a plan that gets to that flattish level and flattish is defined as everything and then average daily revenue and the commission businesses might affect it a little bit here and there, but generally flat across everything else. I'm pretty confident and our ability to manage to that. We built a plan that has us building or opening new branches across the year. We had very good hiring of relationship teams and specialists across a number of different areas, including a new consumer banking head and a new CISO or Chief Information Security Officer. So we're building out the team, and we're hiring bankers. We're really looking to grow the organization and our capabilities and doing all of that in a flat expense budget. And I feel pretty good about our ability to get that accomplished.

Okay. Category IV cost, what's the latest update there? And how are you thinking about that? -- just wait?

It's interesting, Jon. If we were here a year ago, I would have said I'm less certain, but it looks pretty dark if the plans got carried over from TLAC and you don't see any more tailoring in the industry. I would tell you today, it feels like that the Federal Reserve and the OCC primarily are moving in the right direction and that tailoring is an objective of the current regulatory regimes. And that things like TLAC are probably not going to be a significant issue and that the thresholds around $100 billion in assets, whether it's through the work that is happening in Congress or whether it is through what's happening with the regulators, it's going to be less of an issue. So I spend a whole lot less time worrying about the size of the balance sheet and bumping up against that $100 billion threshold. We still have plenty of time. We still have plenty of room to essentially grow our balance sheet 20% before you start bumping up against the $100 billion threshold. But I think we're in a much better environment today. So I'm less concerned about it. I would say we have also a pretty good sense of what our gaps are to being $100 billion compliant, if that's still the number. And if it's on the expense side, it's probably $25 million to $30 million of annual run rate. What we have done is we've sort of looked at what's required at $100 billion, and we have tried to be very thoughtful with that list and say these things make us a better managed organization. We're going to incorporate that in what we do on a daily, weekly, monthly basis. And these other things, we will wait until we cross that threshold. An example of something that we're doing, and it's something that we've done consistently even when the threshold was changed last time is stress testing. So we stress test our balance sheet on an annual basis. We disclose that and show how our balance will perform versus the CCAR testing that our larger competitors are doing. So we try to manage the business in such a way that we're not going to have a big stepwise cost adjustment.

Okay. So PPNR message is you feel good about, at this point, the midpoint of the revenue guide range, you feel good about flat expenses. If LFI -- if we're at $150 billion or $200 billion, maybe there's a little bit of room on expenses. Is that a fair assessment of where we're at right now?

Yes. Well, the LFI won't impact 2026. So that probably doesn't make much difference in 2026. But I think there are enough levers in there that if something needs to change, we've got the flexibility to manage our expense base. But today, I think we can make all of the investments we need to make in people, skill set, technology, banking centers and do it in a way that we can manage to that flattish level.

Yes. Okay. Good. Any comments you want to make on M&A generally? It obviously depends on the quarter. And people were surprised with the third quarter comments. As you know, I didn't think it was that big of a deal, but how are you thinking about the optionality of the company? And if we get a Category IV, if it goes away or we go to $150 billion or $200 billion or $250 billion, how do you think about the outlook for the company?

Yes. I think M&A gets -- because of probably language I used, got more attention in the back half of 2025 than it really occupied in terms of our thinking. I do think as an organization that we could do a small fill in, and I'm talking about low single billion dollar sized balance sheets where if we could fill in, in a market and really pick up a high-quality set of banking centers and deposit base and customers, that might be something that would be interesting. From an overall perspective, I would say, given what I've said about $100 million of incremental revenue that we think that we can grow in the business and our ability to invest in growing our franchise and execute on the hiring and the plans we have in place, it seems like anything significant in an M&A is largely a distraction. And so it's not a big priority for us today. So unless something significantly changes in the next -- whatever it is, it feels to us like growing our business organically, investing in our existing franchise and continuing to return capital to shareholders is a way for us to think about improving the profitability of the business and creating shareholder value.

Okay. You've been surprised by the negative reaction on the M&A discussions. I mean, when I think about capital, IBERIA, what you've done in the past. There's been a lot of M&A that has built First Horizon over the years, and it just seems to be a very negative reaction when it comes up today.

Well, having -- you gave a couple of examples, having lived through it, I think there are 2 aspects of it. One is when you announce a transaction and it takes a period of time to integrate it, it really does change a large transaction. It changes the story, and that's where the focus goes for some period of time. And given that if you want, you can go away for a year, 1.5 years. And then when it gets done, then the story might be interesting again. So I think that's one aspect of it. And I think the other quite bluntly is I think people think what changes the optionality that you have as an organization that if something compelling happens upstream that your dynamic in the environment has changed. So I was probably surprised by the level of reaction we got in the third quarter, but I've seen the reaction to a lot of M&A that's been announced in the last, call it, year. And so it's -- I understand what investors are thinking.

Okay. Okay. Good. The buyback -- the big buyback. How do you think about that? And how does it align with some of your capital targets? And how aggressive would you like to be from here?

Yes. Buyback has been very, very useful to us, and it really has enabled us to work our capital ratios down to something that we think is much more commensurate with the risk in the balance sheet, and I'll come back to that and also in line with peers. I expect that in the first quarter, we bought back roughly $900 million worth of common stock, another $300 million in dividend last year. I would guess this first quarter, we'll probably end up somewhere in the $250 million area of buyback. We've said on a near-term basis, and we've walked it down from 11% to 10.75%, we're now targeting a 10.5% CET1 ratio. And we think over the long term, 10% to 10.5% is probably the place that makes sense. The asterisk I put on buyback is relative to peers. I think as the industry evolves and some of the excess capital comes out across the industry, I think it gives us opportunity to push closer to that 10% level and then evaluate whether it's 9.5% to 10% where we've operated very well in the past. It really is important to capitalize organizations based on the risk and the balance sheet. And my guess is, from an industry perspective, we're going to be in a much better position to think about individual risk. So said another way, you don't want to screen low on a capital level in terms of industry comparisons, but we think it gives us -- as the industry changes, it gives us some room to continue to return excess capital to shareholders. And we believe very strongly in driving return on tangible common equity. I know CET1 is a different ratio, but it's a pretty good proxy and that managing that and getting excess capital back in shareholders' hands is probably the most attractive way of -- it's better than putting it a bad use. So we're going to deploy it everywhere we can organically. And if not, we'll just find a way to repatriate it.

Yes. Okay. Got about a minute left, if anybody has anything.

And I'll mention on capital return. In January, we increased our dividend $0.02 per share per quarter, which I know for a lot of investors is sort of not the big thing that folks are looking for, but it is a sign that we have confidence in the earnings capability and that our payout ratio on dividend had gotten relatively low versus the earnings power of the organization.

Okay. Okay. Anything else you want to touch on that we didn't touch on?

No. We have one question here.

I can -- I'll repeat it, yes.

Just you mentioned that the deposit competition in the market you guys [indiscernible] you're achieving what you desire and want despite that, would love to hear what the end-to-end looks like? What you're doing and a couple...

Question was on deposit competition and how you're handling it?

About the hand to hand. Let me I'll tell you all the rate specials. There's -- when you have an economy that is as good as where we are in the South and you have as much growth there and the number of people who are building branches, it is -- it really is going to be a competitive environment. So I'm not particularly troubled by that. I think it's just part of being in some of the best markets in the country and that we'll see a lot of competition. Our bankers have plenty of flexibility, in my view, to manage the competition as it shows up. And we have been very responsive. So it's -- you pick the market, and I can tell you who the competitors are. I'm not going to do it from here. I'm not going to do it from anywhere, really. But it's different in every single market, and it's really a function of having good markets and new competitors or people who are trying to expand their footprint.

That's all we have time for, Bryan. Thank you very much. Thanks for being here.

Thanks for having me, Jon.