First Horizon Corporation ($FHN)

All right. Good morning. We are delighted to have with us today. Hope Dmuchowski, Senior Executive Vice President and Chief Financial Officer for First Horizon. Hope thanks for joining us.

Thanks for having us. Appreciate being first thing up this morning.

Yes. Pleasure to have you.

So big picture, you've delivered 3 straight quarters of 15% plus adjusted ROTCE, what are 2 or 3 biggest drivers that you feel are most repeatable through the rest of 2026?

We keep talking about -- it was actually at this conference last year, our CEO, brought it up, which is, our focus on getting $100 million of PPNR from our existing portfolio. Last quarter in our earnings deck, we put some of our early wins and where we're seeing that additional revenue come through, really want to point to our NII. We had 3% loan growth year-over-year, but 6% NII growth on an asset-sensitive balance sheet, which had to be cut. And what we're really focusing on is that every time we renew a loan, every time that we enter into a new relationship, how can we make sure we're getting paid for the value of the relationship, how do we start with a loan, but then deepen into treasury management, wealth advisory. If you look at what we put in our earnings deck, we talked about increasing our NII, our return on loans. We've talked about deepening our wealth relationship with clients that are already within the First Horizon book as well as treasury management, is how do you get their operating accounts, treasury management, fraud protection. All these things that we've invested in the last few years, we spent 3 years and $100 million reinvesting into our technology, our fraud, our cybersecurity, and now we're able to see the revenue lift from those initiatives and those investments. I think that's really the thing that we continue to see momentum in.

And in terms of client sentiment, how is client are feeling in your footprint? And are you hearing anything different from consumers versus the commercial side?

Yes. I would say client sentiment has surprisingly stayed very positive. I actually had dinner with one of our lead economists last night, and we were talking about it. The job data has been very positive, continuing to be positive. I think the last 6 years has been a continual cycle of what's next, COVID, rising interest rates, tariffs, and so our customers have really gotten used to just working through whatever is coming at them and how do they overcome that. We don't have a big consumer portfolio. We have a small credit card portfolio. We have resi mortgage, but the lower end consumer is being hit a lot more, and we just don't have a lot of exposure to that. Also being in the Southeast, which is the fastest-growing market, outperforming GDP, there is more than enough projects that are getting started, underway and more coming right behind them.

In terms of loan demand, C&I loan demand appears very solid throughout the industry, especially Southeast, strong pipelines, good growth, ex mortgage companies. What's really driving that demand?

Yes. I think as I mentioned a minute ago, it's been a lot of stops and starts the last 6 years in the U.S. economy. I think at this point, the Southeast is continuing to grow. There was a buildup, especially in CRE, there's a delay in projects coming online from COVID. The supply chain issues, the labor shortages at the time. And so we talked a lot about our spring loaded CRE balance sheet where a lot of supply came on at one time, whether it was Nashville, Atlanta, and that all had to be absorbed. And so we probably had about 18 months there where our CRE portfolio was stabilizing, going on to more long-term balance sheets. We've really focused on the construction CRE part of the relationship. And now that we've seen that stabilize, there's the need for the next round of building in the Southeast key markets, and we're starting to see that pick up. This quarter, we're really seeing increase stabilized. We're about flat quarter-over-quarter. And that's the first time we've seen that for 1.5 years. We talked in our last earnings call about the number of CRE originations we've done, and we're really starting to see that come up.

And sticking on the CRE topic. It's been a headwind for loan growth for the industry, but pipelines have been really improving. So what type of commercial real estate opportunities meet your return in risk standards today?

I would say it depends. We run a regional bank model, which is where we have our commercial C&I lenders in the market, but we also have some national franchises in our specialized lending. Our specialized lending businesses, ABL, equipment finance, even mortgage warehouse, they have a little bit different return profile as you look at those industries. But what we're really looking at is trying to build our relationship with that client. So when we look at the loan, we look at what is the opportunity to continue to do business with this business? Where is this business going? How can we deepen that relationship. And so when we enter into a loan we think about how are we entering into the relationship and how we get paid on that relationship long term. One of the things we always say is we don't want to rent our balance sheet to loan only. The fact that you don't start. There are a lot of times you have to enter the relationship with that, but the next conversation is, "What else we do for you, how can we help advise you." Give Sophia shout out again, our lead economist. She is one of the most requested people at First Horizon. Clients invite her to their board meetings, to their client events. And so we're able to bring the whole bank to our clients. We're able to add value to their businesses as a trusted adviser, not just somebody who collects their loan interest [indiscernible] payments.

And so when you deepen the relationship with clients, what are clients telling you right now about their appetite to invest, hire, expand?

Yes. In the Southeast, I would say what we're hearing the most is that they have issues getting the labor, some supply just longer time lines. And so their interest to invest is really dependent on the ability for them to get their projects underway. Bryan spoke at our last conference, I had up corporate real estate, you'd be amazed how hard it is to build a branch in the Southeast now because you have 2 or 3 that they're bidding on at the same time. I'm sure you're not going to talk to a single bank this week that doesn't talk about building new branches in the Southeast, while there's only a set amount of general contractors there that are capable of doing projects of the size, and we're all competing for them. I think a lot of our clients would like to do more if they could. It's just -- there's so much demand in the Southeast for growth right now.

And are you seeing more competition from new entrants in the Southeast or more from your existing competitors?

A little bit of both, but I would say competition in banking is no harder today than it was a decade ago. It's always a competitive market. There's always good banks. You'll have banks that will focus on one area for a while and then move out or you've had a lot of merger disruption in the Southeast now. But I wouldn't say that we feel any more competition now, maybe a little bit different. Private credit is the one we're watching. Obviously, with some of the issues there, we used to compete with them for -- especially in some of our national platforms and looking to see maybe how that plays out, whether they're as competitive as they had in the past. But as far as traditional banking piece, we've been pretty consistent.

Got it. So then energy prices moving higher. Are you seeing any early changes in borrower behaviors?

Well, we're seeing them use their lines a little bit more, a little bit less cash flow. Obviously, the cost of operating their businesses has gone up. it's hard to find a business that doesn't have an impact of higher fuel prices now that it's persisted for a few months. But our customers are really prepared for this newest shop to the system. They overcame interest rates. They overcame rising labor costs. And so they're making the right adjustments. And everyone is hopeful that it will come down very quickly and soon, but it's not -- it hasn't been the shock to the system in the U.S. that I think everyone predicted. We were just in Europe last week, and it's amazing to talk to investors over there about what they're seeing in Europe versus what we're seeing in the U.S.

Mortgage warehouse lending, meaningful distinctive business for First Horizon. What is the market most often misunderstand about its risk profile?

Yes. For us, mortgage warehouse on the call reports NDFI for the way it's classified, but it's truly not NDFI. So we actually put a slide in last quarter in our earnings deck about our NDFI profile. For us, mortgage warehouse, we hold the notes. So at closing, when the mortgage is delivered -- it's actually FedEx to our offices. We hold the note. And then when it's pledged to [ Anny ], p Freddie ], we're the one who sends the note out. So really, it's not a credit risk. It can't be double pledged like some of these frauds you've seen. It's an operational risk. And we disclosed that we've had 1 basis points on average of losses in that portfolio, and that's operational risk. That means that something has happened with the business we were lending to. And then we have to go through the process of getting rid of those loans, and there are some costs in it. But it's a very labor-intensive process for how we do it, but it prevents the losses and frauds that others have seen. I think the biggest issue in our industry is people do mortgage warehouse differently. Some do not hold the notes. They have an intermediary. They have a risk-sharing profile. We don't. So for us, the mortgages that's on our balance sheet are client, and the mortgage warehouse note, they sit in the same place.

All right. Let's turn to deposits. The key topic at our conference this year. And on deposit pricing, you've highlighted strong cost control post last Fed cut. What's really the playbook for what's working, product mix, segmentation? Is it relationship pricing discipline?

Yes. I brought our Chief Marketing and Client Experience Officer on the road, the times that we keep getting asked about deposits. I thought it would be great for her to spend 2 days with investors, hearing how the investor community thinks about it. This time of the year is always the most competitive. We were just looking at the number of offers that are out in the Southeast. We were looking at it when you look back the last 2 years. This tends to be the most competitive time every year where people start shopping their money. They're willing to open a new savings account. They're willing to move their wealth relationships. And so there's no shortage of offers. Whether you go online or you open your mailbox or [indiscernible], I'm sure everybody has multiple offers to move money. The interesting thing about deposits is I always -- well, I own pricing for positive and I'll get, "Well, so and so has this right." And I said, "Can you send me the flyer?" Because, "What's the minimum? Is there a fee?" How long -- it's not as easy to see -- compare the offers 1 to 1 we're not seeing the success that we saw in 2023, with moving money quickly top of market because everyone's kind of competing in the same range. Quarter-over-quarter, I mentioned this on our last earnings call, we're up low single digits in deposit costs. There's 2 components to that. Mortgage warehouse seasonally funds up in Q2. It hasn't been as strong as we would have hoped due to what's been happening in the mortgage market. There's not much refi right now. So that always drives their deposit costs up as we match fund that with wholesale. And then we knew the bank, is getting more expensive to bring in. We have a guarantee maybe days, 6 months fees, 9 months and then when that rate spectrum runs off, you'll start to see us walk back our prices. If you look at the last 2 years, spending a similar rate cut pattern in the Q4, we've been able to get the most beta decrease then and you start to give some of it back in the spring summer months, and then we'll walk it back again. But deposits are competitive. They're going to continue to be competitive. Watching AI, how does that change, how people shop, how they move their deposit is a continually evolving environment.

So pick up in second quarter, in line with prior comments that you've given. And you mentioned seasonal is a big part of that. How much is seasonal versus structural? And how confident are you in keeping deposit costs manageable?

Yes. I'm very confident that we can keep deposit costs manageable. I think the question is, I was just looking at the forward curve, is the next move up, down? If we have a rate increase, the back book is going to reprice. One of the things being asset-sensitive, 59% of our book they benefit from falling rates on the loan side, some we call them about their deposit. It's an easier sell for somebody whose loan just went down 25 basis points, to talk about their savings going down the same or their operating accounts. On the flip side, when the rate goes up on the loan side, we're expecting their deposits to try to offset some of that spread as well. So at this point, I don't know whether I'd bet on a cut decrease or flat for the rest of the year, but it seems to move pretty consistently. And I'm sure by the end of the day, it will move at least once in a different direction today. So I think our ability to manage deposit costs, I feel very confident. The question is which direction is rates going because that will drive the cost up or down. Whenever we see a rate cut, it is the best time with our consumers to start talking about bringing rates down. It's fresh in their mind. They're seeing it in the news. Some of them see it on their loan side. So the ability to decrease it then is very important.

And any change in the take on rate from customers that you're seeing?

No, I'd say it's early in the deposit competition season, but I would say maybe in line, a little slower than last year but not like we saw in 2023. We were able to raise $6 billion of deposits in 30 days with a top of market rate. Customers have gotten used to moving their money that they have multiple accounts open. It's just a different environment. So it's much harder to get the lift no matter what your rate is.

Excellent. So what about broker deposits? How do you think about them? Are they more of a tactical tool or something that you'll the [indiscernible] going forward? .

Yes, broker deposits, the way we start with the principal, if we use broker deposits to match fund mortgage warehouse. We had about $4 billion -- $3 billion, $4 billion on our balance sheet, and wholesale funding broker -- deposits have been a big part of that. It allows us to manage our NII up and down. So if you look at the last 2 years, we've seen broker deposits go up in Q2 and Q3 as mortgage warehouse is funded up, and then we're able to pay those down when the balances come back down, so that we can really see the immediate impact to margin. The unique thing about mortgage warehouse is the individual notes stay on our balance sheet between 19 and 21 days. So it's a really short duration. So we really think about mortgage warehouse and broker deposits kind of in the same range.

Right. So we talked about deposits. Before, we talked about loans. Together, you've been managing them well in the first quarter despite some lower variable loan yield. So how should we think about NII trending from here, with some deposit cost pressure and also some asset repricing tailwinds? And do you expect the repricing to offset pressure from variable yields?

Well, I sure hope it will. That's our goal. As we mentioned earlier, we're really proud of the fact that we grew loans 3% and NII, 6% year-over-year. That continues to be our focus is how do we get more out of the portfolio, how do we continue to use repricing and opportunity to get in front of a client to drive a higher return on equity for our shareholders. We've been able to -- because of the health of the Southeast market, we have been able to continue to grow loans and grow them at a more profitable spread than some of the stuff that's running off from the COVID years or early 2020.

Right. We touched on competition a little bit in the beginning, but I wanted to dig in a bit there. So you've noted that the market is competitive. Where are you seeing competition intensify most in terms of is it pricing structure, underwriting standards?

Everything, in all honesty, I think it's consistent. Some of it's structure, some of it's pricing, some of it's terms. I think there's a lot of different philosophies out there, high-growth portfolios versus moderate growth. We we think mid-single digits for loan growth this year, we believe that's where we'll end up. So we're choosing which loans to make that fit our profile versus high, high growth. The market -- the banking industry continues to evolve, and that can change quarter-to-quarter or month-to-month. But it's been pretty consistent year-over-year.

And what about within your footprint, any areas that are getting more competitive is Nashville more competitive than the rest?

Yes. I think all of the fastest-growing cities have been competitive for years and continue to be more and more competitive. My 20 years in banking, I had this before in some of these conferences, Miami has never not gotten competitive. You keep saying there's no one else that can move to Miami. There's no space for them to build. And yet Miami became more expensive to live in the New York this year. So there are certain markets that we're always competitive, continue to get more competitive. Nashville's one of those in the last decade. Miami -- Charlotte had become -- the Carolinas in general have become extremely competitive in banking, but there's a growing population there. So you're not fighting for a shrinking pool, you're fighting for a pool of -- there's more jobs moving to these cities. There's more people, more retirees. And so you're writing for a larger pool, which allows us all to grow our balance sheet.

And for you, this is where owning the relationship becomes very important?

It does. We talk a lot about our 5 flags framework that we ran out, which is where can we bring value to the client? The client is -- we had anchor say the other day, he was doing a training session, if your clients asking for 10 term sheets, they're probably not the client we want because they're just chasing the best structure, the best rate, and we can add value to that relationship. And so absolutely, I also be headquartered in the Southeast for 162 years. We've talked a lot about that in our branding campaigns. We're not new to the South. We started in Memphis. We've been headquartered here within 2 blocks the whole time. So we know the Southeast. We've grown with these clients. We have clients that were on third generation of CEOs, owners, and we've been with them for 100 years, and they've been with us for 100 years. So it does matter that we know this market and our structure, our products, how we go to market is geared towards the Southeast and has been for over 100 years.

Let's turn to fees. So in terms of fees, what areas are you most optimistic about for 2026 and any headwinds?

Most optimistic, I would say, as we talked about in Q1, we've seen good momentum as well. We got through an [ LTL ] conversion. Third quarter of last year, we're able to offer additional products, a better platform to our clients. We've been hiring wealth advisers. We've seen some really good early wins with that conversion and partnership. Treasury management, we put that in our deck as one of our $100 million PPNR. We're continuing to deepen relationships because you can have a treasury management operating in accounts, but then you can do a [ P card ] accounts, payable, account receivables. It's not just about getting the accounts, how do you keep deepening that account and that relationship with the client? How do you bring more value through our treasury management platform and our treasury management advisers. FHN Financial, our bond business, has had a unusual quarter, which is it's a start and stop. So we've seen ADRs in the high [ 500 ] there, but it really is a week of almost nothing and then a week that kind of makes up for it. So the average is a little bit deceiving. So what we're seeing every Monday morning, Bryan and I and the executive team get ADRs for FHN Financial entering box. And I open it, and I've usually gotten a little bit of a gut feel for the week before, but there's no telling what it will be week-to-week with the way the forward curve has moved, by the 10-year has moved up. So a little bit less optimistic about that in the near term, but know that there's demand in the system, it's just a matter of when it comes back.

So a lot of fee income businesses at First Horizon. And you've identified $100 million plus revenue driven PPNR opportunity from cross-sell. As you look at the different income streams wealth, treasury management, specialty lending, maybe something else, what's really driving the biggest piece of that opportunity?

Yes. It's really equal. And that's why we're able to get so much of it, continue to get so much of it. It's not being -- the $100 million is not just all of our commercial bankers on the loan side or all on the deposit side of the well. It really is the opportunity for every one of our businesses to get a little bit more out of their relationships. So it's not one big bet, which is why we're so confident in it. This time last year, we said $100 million plus. In January, we said we're going to reset that $100 million -- $100 million even from the run rate we're at the end of last year. We're probably going to get about 40% of that in the run rate by Q4, which will carry forward. So a lot of our growth story and increasing our ROTCE, is getting more profitable and getting more out of every relationship.

So when you make a new C&I loan or you make a new commercial real estate loan, what does it really take to capture that full relationship? And how difficult is it?

I'll start with, it's very important that there are first meetings with us. Getting that loan done is done well. They like their banker. They feel their anchor is a partner that's there to understand their business, to help drive value in their business. And we really focus on the whole bankd. Our CEO will get on a plane to talk about good prospects and have dinner with them. Our Chief Credit Officer and myself for on a prospecting call just last week, the day before he said, listen, we have this great client. We're about to close. We're in between the 2. They've asked if they can meet with you or Tom. And Tom and I said, we will both be there. Here's the times we can also work. And so really upfront showing them how they have access to our whole bank. How we will be there as a partner. That first few interactions until we get the loan done is so important. How do you -- if you start talking about treasury management, we will bring that to the table during the discussion so that every meeting with them really feels like the entire bank is here to support you and your company's success.

Any updates on FHN Financial fixed income trading business for the quarter? And any other updates for the quarter?

Yes, I mentioned a little earlier when we were talking about fee income. ADR right now is trending in the high [ 500s ] for the quarter, which is significantly down from Q1. We'll see how the next few weeks play out. But at this point, I think it will be in the high [ 500s ] for ADR.

Anything else for the quarter or offset?

We've talked about this a lot, and you and I were talking about this earlier. We give our guidance -- our revenue guidance, we don't break out NII and fee income. [indiscernible] on financial is a little lower than we thought it would be, but we didn't have a rate like we regionally thought in the year. So NII is staying higher, we're seeing strong loan growth Q1 to Q2 that's offsetting that. So whether it comes from FHN Financial bouncing back, higher loan growth, increasing our NII with our existing clients, we're confident that we're going to hit our revenue guidance this year.

What about expenses? So where are you seeing the best productivity gains? Is it from operations, servicing, onboarding, fraud, compliance? And any update on the expense side?

We still intend to hit our full year expense guide, just like we do our revenue guide, and I'll add in there, in case, we don't get to it, we expect to be within line with our credit outlook as well when it comes to charge-off. We feel really confident with the guidance we laid out in January and that we're going to be well within that this year. On the expense side, AI has -- you can't get through a day or a meeting without talking about AI. Every technology project we have, every enhancement we have, "Can AI do this quicker?" I have a group of interns. Tyler, IR Director, is actually running the intern pool for us, and we have them running some AI projects and trying to figure out what they've learned in college that they can teach us. But AI is becoming more and more expensive, our tokens, how do you manage those, who do you give licenses to? I think early on, there was a lot of expectation that AI was going to take all these costs out of the system, and it was just going to fall on the bottom line. There is a cost to running AI. We're having to set up AI governance. I would say AI is definitely increasing the pace of things like how quickly we can do development with some of the tools, how we can do peer analysis during earnings within IR, we're seeing small gains like that, but there is a huge investment back into AI. And I think that's here to stay. Fraud, fraud is one that we're continuing to stay ahead of, and you can see that as it relates to the industry, there's a lot of focus on the end consumer getting that fraud loss, seeing the impact of that, how do -- we're using AI to look at trends. Where are we seeing things happening that might be a fraud scam >where are we seeing consistent -- one of the big ones that we're seeing in the industry now is it's a client's e-mail that are being overtaken. And they're getting access to their user names, passwords or having to build dual authentication and call back more so than we used to. And so the human in the loop is in a lot of ways becoming more important with our clients so we can make sure, especially for our commercial and treasury management content, we see unusual wires being made that they've offered. So I do think AI is most -- the biggest impact we're seeing immediately is fraud. Our fraud losses are pretty similar year-over-year, but the cost to manage fraud, the investments we're making into the tools and the people have significantly gone up. Expenses, we're not immune to the cost of rising fuel prices. It's more expensive to get on a plane. I can't believe much it cost to me to get to this conference this year versus a year ago. And so we are looking at where do you also have to scale back our cost. The cost of utilities are going up. And so balancing that. Bryan and I always talk about levers. We see expense as a factor of revenue. How much is revenue going to go up? What's the expense we can have positive operating leverage and where do we want to invest that? We do have -- we're hiring new bankers this year. We are building approximately 10 branches or in different stages of construction. We're still investing in technology and AI. So we're investing back in the company at the rate we're able to offset as we find savings internally.

Well, thank you for flying to our conference. We appreciate that. and always love having you here.

I think economists last night asked me how big their flight was. Are they full? Or are they unfull? She said she was doing her own little survey to see what the sky looks like. Mine was completely full. We were out of seats, but our IR Director coming from Raleigh said, he had some open seats. So I don't know if we helped her very much as they're trying to get ahead of the data gaps.

All right. Let's turn back to AI. So you mentioned there's a cost to AI. It also can free up some efficiencies. So how do you view it on a net basis? Is it net cost saving? Is it net revenue enablement, net cost?

Well, the goal will be for it to be net neutral to cost, if not net positive. I mean we really focus on how we invest to get savings out of the company and reinvest. But on the revenue side, it absolutely is revenue-enabling can you do underwriting packages quicker? Can you get the loan -- the quicker you can get any one closed and on your books, if you can do it 15, 30 days earlier, that's more revenue you're getting. Also a lot -- I mentioned earlier, I have a Chief Marketing and Client Experience officer here. She tells me all the time of how we're doing AI for next best action, how do you prospect differently? I remember I'm a little bit older than you, fair out, but I remember when you used to get Excel files of leads list, and you have analysts looking through them and say, "No, you don't want that one." Now nobody looks through marketing leads list anymore. When we do deposit campaign, there is a tool that's built Aaron's team can do a great job, saying, "Okay, now we want this type of client or we want these types of markets, let's tie this to where we're seeing the markets grow." And that is an enablement. The ability of success that we can have in a direct-to-client marketing for CDs, money markets, mortgages, is significantly higher because of the quality that AI can run for those lead tables.

Let's shift gears a little bit to credit. So theme at our conference so far has been the credit looks pretty fine. Are you in agreement with that statement? And what leading indicators are you really watching most closely today?

Our credit has held up really well throughout the last 5 to 6 years. We have one of the lowest charge-offs in the industry with one of the highest margins. It's something we're very proud of. It really goes back to that relationship banking, know your client. In our regional bank, our bankers sit in the markets. They know what's happening in the market. They understand that they build a hotel on this side of town or an apartment building on this side of town, what it means because it's where they live. And there's a lot of value in the human in the loop as you're making those credit decisions. A model can't tell you everything models really work backwards much more than forward. So as we think about credit, we think about the relationship and lending to that person and that business and making sure they can be successful through any set of economic conditions. So we feel really strong about credit. It is holding up very well this year. You always have some losses. But as far as leading indicators, we are watching the consumer. We do have a franchise finance business that does quick serve. We do have some exposure to the medical industry, looking at how some of these medical changes have worked. But I think it's been 5 years of the industry being surprised as we've stressed the consumer how well credit holds up across the industry, whether it's mortgages, C&I or CRE, we're really seeing a lot of discipline in the banking industry that I think has led to much better charge-offs than the industry, was expecting coming out of the early 2000s on what we saw there. I think it's a much better overall credit underwriting today, more equities and deals, better structures than there was a decade or so ago, and we're really seeing that play out through our system.

On the capital side, First Horizon is targeting 10.5% CET1 target. So how do you think about the trade-off between flexibility, buybacks and growth capacity?

Yes. We start with safety and soundness. So we set that target annually. We give it in our guidance, but we also look at it with our Board every single quarter. We still submit a stress test, even though we're not required to at our size, that we can get comfortable with what would happen in the scenario. We rerun that. We published it. We publish it every summer. So if anybody wants to look at a stress test, you're more than welcome to see what we publish later this summer. But we start with that with just what is the target we need to feel that we are -- we have safety and semis throughout a set of economic conditions. And then second, we go to own growth. We want to keep capital for loan growth. That is our key way to deploy it, is how do we build a relationship, how do we continue to grow value for shareholders. And then third, we buy back shares. We are in the market for share buyback this quarter. We bought approximately $80 million so far, and we'll continue to look at what we think our earnings will be targeting that 10.5%. So we have good loan growth this quarter, quarter-over-quarter. We've kept the C&I momentum generally pretty flattish on CRE for the first time and approximately $80 million of share back.

Would any potential capital relief from regulation and definition of standardized RWA change the pace of capital deployment even if the philosophy stays the same?

Absolutely. We're all well capitalized right now. We're well above our minimums. But if the minimums change, the goal with trying to bring capital back in line is to be able to lend more. So it would still be the same goal, which is how can we create more lending, how do we help our communities grow, how do we create jobs in our local communities and the national businesses we're a part of? So it will absolutely be a help to the entire industry. And hopefully, the goal is to stimulate some more loan growth across the U.S. market.

So what about upcoming tailoring and the changes. Does evolving regulatory framework around $100 billion threshold, influence, how banks of your size to think about M&A or organic growth?

It definitely changes how we think about organic growth previously, we did have a 3-year plan that we are working through with our Board, on getting ready for $100 billion or LFI. For a little while, it was we had to show the regulators we were prepared to cross $100 billion before you could cross it. That has changed a little bit. But we are definitely one of those banks that are watching closely if that line moves up and will benefit significantly if they do move it up with kind of indexing it to inflation or GDP or something. So right now, we're closely watching and very hopeful that, that $100 billion will move up, which will allow us to do organic. On the M&A side, we've been saying the same thing. We have a great franchise that we believe has a ton of organic growth within our current portfolio as well as abilities to grow in the fastest-growing economies in the U.S. and that is our #1 priority. M&A as a buyer [indiscernible] will be opportunistic, but it's not our focus. It's not our priority. Our priority is continuing to focus on growing our franchise and the value of our franchise.

And you've talked before in prior interviews about the importance of scale. And I'm wondering with the AI conversation that we had earlier, does AI change the meaning of need for scale to you? Does it maybe make scale less important? Or does it make scale more important?

I think we're still trying to figure that out. But we're on the side that probably makes it easier to compete. When you can build the code that used to take you 3 months in a week or 2 with Cursor and some of these other allocations, you can keep up with less investment. Software as a Service, I think, had already started to kind of neutralize that impact. Most banks use an Oracle Geo or sales force. If you look at the number of banks on some of the core systems, we're all using the same provider. We have the same software. I think the bigger thing when we talk about scale is the change in the regulatory environment. It's not costing some of the rules that they were proposing that would come down to $100 billion banks, made it unscalable and a lot of you have the same cost of operating a bank. I do think tailoring to back on the table, really structuring the [indiscernible] through differently allows the the ecosystem to continue to grow organically.

Right. We're almost out of time. So one more questions to wrap up. If you were to look maybe 3 years out, what are the few things you would want investors, clients and employees to really say First Horizon became better at during the current period?

Well, first and foremost, it's ROTCE. You started with our 15% plus. I will not get away from today, probably even the first meeting with investors and some of the people in the room here, when are you going to raise that goal? We've raised it twice 3 years since we had an Investor Day just about 3 years ago this week. And we've said we were going to get to 15%, and then it became 15% sustainable, then it became 15% plus. So we're really focused on returning that value to shareholders, getting to that top tier ROTCE. And in the Southeast, we want to be a premier lender of choice for regional banks, right? As a regional bank, we have a different value proposition to our clients than bigger banks. We run a decentralized model where our credit analyst, our regional president, our commercial bankers, they sit in the markets they work in. We have a regional president over the Carolinas, she's traveling to see all the clients there of her team. And so we really want to focus on that relationship-driven Southeast aspect as we continue to grow our franchise. We're hitting 162 years, and we hope in 100 years, they're saying the same thing that we're seeing now, which is we continue to grow the franchise profitably while investing back in our local communities.

Excellent. With that, we're out of time. I hope -- thank you so much for your time.

Thank you. Thanks for having us.