Q4 2023 First Horizon Corp Earnings Call

January 18, 2024

During this presentation you can register to ask a question by pressing star followed by one on your telephone keypad.

I will now hand over to your host Natalie Sanders head of Investor Relations. Please go ahead.

Natalie Sanders: Thank you Bruno.

Natalie Sanders: Good morning, welcome to our fourth quarter 2023, a result conference call. Thank you for joining us.

Natalie Sanders: Today, our chairman President and CEO, Bryan Jordan, and Chief Financial Officer, Hueston Caskey will provide prepared remarks, and then we'll be happy to take your questions.

Natalie Sanders: We're also pleased to have our chief credit Officer, Susan Springfield here to assist with questions as well.

Natalie Sanders: Our remarks today will reference our earnings presentation, which is available on our website at IR Dot first horizon Dot com.

Hello, everyone and welcome to the first Horizon fourth quarter 2023 earnings Conference call.

Natalie Sanders: As always I need to remind you that we will be making forward looking statements that are subject to risks and uncertainties. Therefore, we ask you to review the factors that may cause our results to differ from our expectations on page two of our presentation and in our SEC filings.

My name is Bruno and it'll be operating your call today.

During this presentation you can register to ask a question by pressing star followed by one on your telephone keypad.

Now I hand over to your host Natalie <unk> head of Investor Relations. Please go ahead.

Additionally, please be aware that our comments will refer to adjusted results, which exclude the impact of notable items.

Natalie: Thank you Bruno.

Natalie: Morning, welcome to our fourth quarter 2023 results conference call. Thank you for joining us.

non-GAAP measures. So it's important for you to review the GAAP information in our earnings release and on page three of our presentation.

Natalie: Today, our chairman President and CEO, Bryan Jordan, and Chief Financial Officer, Hudson Chomsky will provide prepared remarks, and then we'll be happy to take your questions.

Natalie Sanders: And last but not least our comments reflect our current views and you should understand that we are not obligated to update them and with that I'll turn things over to Brian. Thank you Natalie.

Natalie: We're also pleased to have our chief credit officers business Greenfield here, it's consistent.

Brian: Everyone and thank you for joining us.

Natalie: With questions as well.

Brian: What our company and our associates accomplished in 2023 was nothing short of extraordinary dealing with a significant shift in the banking landscape and the termination of our planned merger.

Natalie: Our remarks today will reference our earnings presentation, which is available on our website at IR first horizon Dot com.

Natalie: As always I need to remind you that we will be making forward looking statements that are subject to risks and uncertainties. Therefore, we ask you to review the factors that may cause our results to differ from our expectations on page two of our presentation and in our SEC filings.

Brian: We detail some of our highlights on slide five.

Brian: Despite all the disruption this year, our 2023 provision pre provision net revenue was essentially flat to the prior year.

Natalie: Additionally, please be aware that our comments will refer to adjusted results, which exclude the impact of notable items.

We saw the benefit from our asset sensitive balance sheet with the margin expanded 32 basis points versus 2022.

Natalie: These are non-GAAP measures. So it's important for you to review the GAAP information in our earnings release and on page three of our presentation.

Brian: This offset the decline in revenue from our countercyclical businesses, demonstrating the benefit of our diversified business model.

Speaker Change: Last but not least our comments reflect our current views and you should understand that we are not obligated to update them and with that I'll turn things over to Brian. Thank you Natalie and good morning, everyone and thank you for joining us.

Brian: Most of you have heard me say that we manage our company with three top priorities of safety and soundness profitability and growth.

Brian: You saw the benefit of that when our balance sheet was well positioned to weather the crisis of a few banks this spring.

Brian: This prudent balance sheet management enabled us to better serve our clients strategically expand market share we grew both loans and deposits at significantly higher rates in the industry as a whole supported by our exceptionally strong capital levels.

Brian: We detail some of our highlights on slide five.

Brian: Despite all the disruption this year, our 2023 provision pre provision net revenue was essentially flat to the prior year.

Brian: We saw the benefit from our asset sensitive balance sheet with the margin expanded 32 basis points versus 2022.

Brian: Our deposit growth was kickstarted by our second quarter campaign, we raised over $6 billion of new to bank customer funds and we have retained 96% of that money as of year end.

Brian: This offset the decline in revenue from our countercyclical businesses, demonstrating the benefit of our diversified business model.

We have long tenured deep relationships with our clients.

Brian: Most of you have heard me say that we manage our company with three top priorities of safety and soundness profitability and growth.

Brian: And we're excited to continue to deliver on the promo to promisee efforts with the clients we acquired in 2023.

Brian: You saw the benefit of that when our balance sheet was well positioned to weather the crisis of a few banks this spring.

Brian: Yeah.

We have some of the financial highlights for you on the quarter financial highlights of the quarter on slide six.

Brian: We delivered adjusted EPS of <unk> 32 per share or pre provision net revenue of $298 million, resulting in a return on tangible common equity of 11, 1%.

Brian: We grew the net interest margin 10 basis points from the third quarter as we improved our asset pricing and balance sheet mix.

Brian: Our deposit growth was kickstarted by our second quarter campaign, we raised over $6 billion of new to bank customer funds and we have retained 96% of that money as of year end.

Brian: We anticipate continued expansion into the first quarter as we successfully normalized pricing on our promotional deposits, reducing our interest bearing deposit costs by approximately 15 basis points at the end of the quarter.

Brian: We have long tenured deep relationships with our clients and we're excited to continue to deliver on the promo to promise the efforts with the clients we acquired in 2023.

Brian: We generated 29 basis points of common equity tier one capital this quarter, bringing us to 11, 4% at year end.

Brian: We have some of the financial highlights for you on the quarter.

Brian: Highlights of the quarter on slide six.

Brian: We delivered adjusted EPS of <unk> 32 per share or pre provision net revenue of $298 million, resulting in a return on tangible common equity of 11, 1%.

As I reflect on 2023, I'm incredibly thankful for the dedication of our associates.

Brian: As they continue to deliver value for our clients communities and shareholders.

Speaker Change: With that I'll hand, the call over to hope to run through our financial results in more detail.

Brian: We grew the net interest margin 10 basis points from the third quarter as we improved our asset pricing and balance sheet mix.

Hope: Thank you Brian good morning.

We anticipate continued expansion into the first quarter as we successfully normalized pricing on our promotional deposits, reducing our interest bearing deposit costs by approximately 15 basis points at the end of the quarter.

Hope: On slide seven you will find our adjusted financials and key performance metrics for the quarter.

Hope: We generated pre provision net revenue of 298 million this quarter.

Hope: Net interest income grew 12 million from third quarter benefiting from asset repricing and our ability to improve the funding mix.

Brian: We generated 29 basis points of common equity tier one capital this quarter, bringing us to 11, 4% at year end.

Hope: This expanded the margin by 10 basis points from the prior quarter.

We expect to build upon this momentum into first quarter, which will benefit from our deposit pricing efforts in late fourth quarter.

Brian: As I reflect on 2023, I'm incredibly thankful for the dedication of our associates as they continue to deliver value for our clients communities and shareholders.

Hope: Fees, excluding deferred comp were flat linked quarter benefiting from higher fixed income, which was offset by the timing of a couple of discrete items.

Speaker Change: With that I'll hand, the call over to hope to run through our financial results in more detail.

Hope: As expected <unk>.

Thank you Brian good morning.

Hope: Excluding deferred comp.

Hope: On slide seven you will find our adjusted financials.

Hope: $30 million driven by higher variable compensation tied to revenue and increased strategic investments in the quarter, which we expect to moderate in first quarter.

Hope: Key performance metrics for the quarter.

Hope: We generated pre provision net revenue of $298 million this quarter.

Hope: Net interest income grew $12 million from third quarter benefiting from asset repricing and our ability to improve the funding mix.

Hope: Provision expense was $50 million this quarter, increasing ACL coverage by four basis points, which was largely driven by modest deterioration in the macroeconomic scenarios used for seasonal modeling primarily within commercial real estate and consumer.

Hope: This expanded the margin by 10 basis points from the prior quarter.

We expect to build upon this momentum into first quarter, which will benefit from our deposit pricing efforts in late fourth quarter.

Hope: Tangible book value per share increased 8% to $12.13.

Hope: On slide eight.

Excluding deferred comp were flat linked quarter benefiting from higher fixed income. This was offset by the timing of a couple of discrete items.

Hope: We outlined a couple of notable items in the quarter, which reduced our results by one penny per share fourth quarter. Notable items include the FDIC special assessment of $68 million.

Hope: As expected.

Hope: Excluding deferred comp.

Hope: A pre tax gain of $1 million from the net of a small opportunistic S. A gen financial asset asset disposition and equities valuation adjustments. Additionally.

Hope: $30 million driven by higher variable compensation tied to revenue and increased strategic investments in the quarter, which we expect to moderate in first quarter.

Hope: <unk>, we had one notable tax items of 48 million discrete benefit primarily attributable to the resolution of merger related tax items related to the Iberia Bank merger.

Hope: On slide nine you will see that our margin expanded 10 basis points from the prior quarter to $3, two seven improving NII by $12 million.

Hope: Tangible book value per share increased 8% to $12.13.

Hope: Yeah.

Hope: On slide eight.

Hope: Fourth quarter benefited from a full three months of the rate hike that occurred in July which improved asset yields.

Hope: We outlined a couple of notable items in the quarter, which reduced our results by one penny per share fourth quarter. Notable items include the FDIC special assessment of $68 million.

Hope: We were also able to use customer deposits and excess cash to pay down a significant amount of brokered deposits improving our funding profile.

Hope: A pre tax gain of $1 million from the net of a small opportunistic fhm financial asset asset disposition and equities valuation adjustments.

Hope: The average rate paid on those broker deposits was five 3%.

Hope: That would be impact of fourth quarter was modest our success in repricing the promotional deposits gathered in our second quarter campaign will benefit margin as we head into 2024.

Hope: Additionally, we had one notable tax items of $48 million discrete benefit primarily attributable to the resolution of merger related tax items related to the Iberia Bank merger.

Hope: As you can see on slide 10, we've been successful in executing our deposit strategy. This year.

Hope: Period end deposits were up 4% year to date compared with a 2% decline in the fed H eight data.

Hope: On slide nine you will see that our margin expanded 10 basis points from the prior quarter to 327, improving NII by $12 million.

Hope: Retention on the promotional deposits acquired in the second quarter campaign has been exceptional so far at 96%.

Fourth quarter benefited from a full three months of the rate hikes that occurred in July which improved asset yields.

Hope: There's promotional rate guarantees expired late in fourth quarter, and we were able to reprice those deposits down by an average of 76 basis points.

Hope: We were also able to use customer deposits and excess cash to pay down a significant amount of brokered deposits improving our funding profile.

Hope: This strong retention allowed us to pay down $1 2 billion of higher cost brokered deposits.

Hope: The average rate paid on those broker deposits was five 3%.

Hope: That would be impact of fourth quarter was modest our success in repricing the promotional deposits gathered in our second quarter campaign will benefit margin as we head into 2024.

No we're continuing to see some rotation out of noninterest bearing we've been able to acquire just under 1 billion of new to bank interest bearing accounts at a blended cost of three 3%.

Hope: As you can see on slide 10, we've been successful in executing our deposit strategy. This year.

Hope: Which is down from the four 2% acquisition acquisition rate, we saw in the third quarter.

Hope: Period end deposits were up 4% year to date compared with a 2% decline in the fed H eight data.

Hope: The interest bearing rate paid of 3.37 this quarter was essentially flat to the prior quarter.

Hope: Retention of the promotional deposits acquired in the second quarter campaign has been exceptional so far at 96%.

Rates peaked in October and came back down as the promotional count for brief priced in the back half of the quarter.

Hope: Those promotional rate guarantees expired late in fourth quarter, and we were able to reprice those deposits down by an average of 76 basis points.

Hope: The end of period rate on interest bearing deposits declined to approximately 3.25, while the total deposit rates.

Hope: This strong retention allowed us to pay down $1 2 billion of higher cost brokered deposits.

Hope: Fell to roughly two 4%.

Hope: We expect this to provide upside to NII and margin next quarter.

Hope: No we're continuing to see some rotation out of noninterest bearing we've been able to acquire just under $1 billion of new to bank interest bearing accounts at a blended cost of three 3%.

Hope: We have an overview of loans on slide 11.

Hope: Our strong capital position and ability to grow deposits supported 5% year to date loan growth.

Loan demand softened in the fourth quarter with period end loans declining 1% from the prior quarter about half of that decline was due to typically seasonality of loans to mortgage companies.

Which is down from the four 2% acquisition acquisition rate, we saw in the third quarter.

Hope: The interest bearing rate paid of 337 this quarter was essentially flat to the prior quarter.

Hope: This business experienced some seasonality tending to peak in the third quarter, then decrease until hitting first quarter lows.

Hope: Rates peaked in October and came back down as the promotional count for brief priced in the back half of the quarter.

Hope: C&I production was fairly muted as we entered into the quarter, though we saw that stabilizes a bit in the back half of the quarter.

Hope: The end of period rate on interest bearing deposits declined to approximately three to five while the total deposit rates.

Hope: CRE growth continues to be driven by fund ups from existing loans primarily in multifamily.

Hope: Fell to roughly two 4%.

Hope: We expect this to provide upside to NII and margin next quarter.

Hope: And as you would expect total commitments have come down slightly as there's not a lot of new production in that sector.

Hope: We have an overview of loans on slide 11.

Hope: Consumer balances are relatively flat as we're focused on using our balance sheet for customers like our medical Doctor program, where we continue to build deeper relationships.

Hope: Our strong capital position and ability to grow deposits supported 5% year to date loan growth.

Hope: Loan demand softened in the fourth quarter with period end loans declining 1% from the prior quarter about half of that decline was due to typically seasonality of loans to mortgage companies.

Hope: We are continuing to improve pricing with spreads on new loans, increasing 21 basis points since last quarter, and 64 basis points year over year.

Hope: This business experienced some seasonality tending to peak in the third quarter, then decrease until hitting first quarter lows.

Hope: On slide 12, you can see that fee income excluding deferred comp remained stable at $173 million.

Hope: C&I production was fairly muted as we entered into the quarter, though we saw that stabilizes a bit in the back half of the quarter.

Hope: Our fixed income business saw an increase of $9 million as the market's expectations that the fed has finished raising rates brought some participants back into the market.

Hope: CRE growth continues to be driven by fund ups from existing allowance primarily in multifamily.

Hope: Mortgage revenue was down $2 million largely due to seasonally lower volume.

Hope: And as you would expect total commitments have come down slightly as theres not a lot of new production in that sector.

Hope: Brokerage income increased $2 million driven by higher annuity sales.

Hope: Consumer balances are relatively flat as we're focused on using the balance sheet for customers like our medical Doctor program, where we continue to build deeper relationships.

Hope: Card and digital banking fees were down $4 million driven by a methodology adjustment on interchange rebate, resulting in a one time impact of fourth quarter.

Hope: We are continuing to improve pricing with spreads on new loans, increasing 21 basis points since last quarter, and 64 basis points year over year.

Hope: Lastly, other noninterest income declined $5 million, mostly due to elevated FH lb dividends in third quarter as well as a modest reduction in Bali revenue.

Hope: On slide 12, you can see that fee income excluding deferred comp remained stable at $173 million.

Hope: On slide 13, we show that excluding deferred compensation adjusted expenses are up $30 million.

Hope: Our fixed income business saw an increase of $9 million as the market's expectations that the fed has finished raising rates brought some participants back into the market.

Personnel, excluding deferred comp was up $14 million from last quarter with a couple of drivers first there.

Hope: There is about 4 million of incremental incentives and our variable revenue businesses driven by higher production this quarter.

Hope: Mortgage revenue was down $2 million largely due to seasonally lower volume.

Hope: We also accrued $5 million of additional expense primarily related to the retention awards as the stock price rose almost 30% this quarter.

Hope: Brokerage income increased $2 million driven by higher annuity sales.

Hope: Card and digital banking fees were down $4 million driven by a methodology adjustment on interchange rebates, resulting in a one time impact of fourth quarter.

Hope: Lastly, medical expenses were up 5 million linked quarter due to seasonality and a couple of large one time claims.

Hope: Lastly, other noninterest income declined $5 million, mostly due to elevated FH lb dividends in third quarter as well as a modest reduction in bowling revenue.

Hope: Moving on to our strategic investments you can see the technology investments entering the run rate and occupancy and equipment.

Hope: There should continue to be modest growth here as we make progress bringing these projects online.

Hope: On slide 13, we show that excluding deferred compensation adjusted expenses are up $30 million.

Hope: Outside services increased this quarter driven by a couple of items marketing was elevated from seasonality and sponsorship and client events that typically occur in fourth quarter.

Hope: Personnel, excluding deferred comp was up $14 million from last quarter with a couple of drivers first there.

Hope: As well as the impact of some of the delayed cost we mentioned last quarter, primarily related to client acquisition and brand campaigns, we initiated in late third quarter.

Hope: There is about $4 million of incremental incentives and our variable revenue businesses driven by higher production this quarter.

Hope: We also accrued $5 million of additional expense primarily related to the retention awards as the stock price rose almost 30% this quarter.

Hope: We also engaged additional third party resources for consulting and resource augmentation on key projects.

Fourth quarter had elevated expenses due to these items that will moderate next quarter.

Hope: Lastly, medical expenses were up 5 million linked quarter due to seasonality and a couple of large one time claims.

Hope: Spencer will stabilize as calls from technology investments increased throughout 2024, but are offset by lower retention expense and other operational efficiencies.

Hope: Moving on to our strategic investments you can see the technology investments entering the run rate and occupancy and equipment.

Hope: There should continue to be modest growth here as we make progress bringing these projects online.

Hope: I'll cover asset quality reserves on slide 14.

Hope: Loan loss provision was $50 million this quarter down from $110 million in third quarter, which includes a 79 million idiosyncratic credit loss last quarter.

Hope: Outside services increased this quarter driven by a couple of items marketing was elevated from seasonality and sponsorship and client events that typically occur in fourth quarter.

Hope: Net charge offs were $36 million or 23 basis points across multiple industries and sectors.

Hope: As well as the impact of some of the delayed cost we mentioned last quarter, primarily related to client acquisition and brand campaigns, we initiated in late third quarter.

Hope: The ACL coverage ratio increased four basis points to one 4% driven by marginal deterioration in the macroeconomic scenarios used for seasonal modeling <unk>.

Hope: We also engaged additional third party resources for consulting and resource augmentation on key projects.

Hope: Fourth quarter had elevated expenses due to these items that will moderate next quarter.

Hope: Marilee in CRE and consumer as well as modest grade migration.

Hope: <unk> will stabilize as calls from technology investments increased throughout 2024, but are offset by lower retention expense and other operational efficiencies.

Hope: We continue to see credit migration, but we are not seeing any specific pockets of stress and what we are observing in this environment feels manageable.

Hope: Yeah.

Hope: I'll cover asset quality reserves on slide 14.

Hope: On Slide 15, you can see that we've continued to build on our strong capital levels, we generated 29 basis points of CET, one this quarter, bringing up to 11, 4%.

Loan loss provision was $50 million this quarter down from $110 million in third quarter, which includes a 79 million idiosyncratic credit loss last quarter.

Adjusting for the marks on our security portfolio and loan book, our pro forma CET, one ratio would be nine 1%.

Hope: Net charge offs were $36 million or 23 basis points across multiple industries and sectors.

Hope: Total capital remained strong reaching 14% this quarter.

Hope: The ACL coverage ratio increased four basis points to one 4% driven by marginal deterioration in the macroeconomic scenarios used for seasonal modeling <unk>.

Hope: Tangible book value per share was $12 13 fence, increasing 8% driven by 72 cents from a lower mark to market impact and 34 of net income.

Hope: Primarily in CRE and consumer as well as modest grade migration.

Hope: Partially offset by 15 send some dividends.

Hope: We continue to see credit migration, but we are not seeing any specific pockets of stress and what we are observing in this environment feels manageable.

Hope: On slide 16, we've reiterated the 'twenty 'twenty four outlook. We gave you in December we expect to grow pre provision net revenue from 'twenty to 'twenty three level as our ability to generate revenue more than offset our strategic investments and we continue to look for operational efficiencies to offset rising cost.

Hope: Okay.

Hope: On Slide 15, you can see that we've continued to build on our strong capital levels, we generated 29 basis points of CET, one this quarter, bringing up to 11, 4%.

Hope: <unk>.

Our interest rate outlook seems four rate cuts with the first cut at coring occurring in May.

Hope: Adjusting for the marks on our security portfolio and loan book, our pro forma CET, one ratio would be nine 1%.

Hope: Given our ability to reduce funding costs.

Hope: Total capital remained strong reaching 14% this quarter.

Hope: <unk> asset repricing and modest balance sheet growth, we expect net interest income to exceed 2023 levels.

Hope: Tangible book value per share was $12 13, increasing 8% driven by 72 cents from a lower mark to market impact and 34 of net income.

Hope: Fee income improvement will be driven by a modest rebound in the cotton counter cyclical businesses.

Hope: The expense outlook includes continued progress on our strategic technology investments as well as a modest amount of incremental investment in personnel, including the annual merit adjustment that went into effect at the beginning of the year.

Hope: Partially offset by 15 some dividends.

Hope: On slide 16, we've reiterated that 2024 outlook, we gave you in December.

Hope: We expect to grow pre provision net revenue from 2023 level and our ability to generate revenue more than offset our strategic investments and we continue to look for operational efficiencies to offset rising costs.

Hope: The net charge off guidance reflects continued macroeconomic uncertainty.

Hope: As we have previously communicated we do not see a need to continue to build incremental capital, giving us the opportunity to deploy capital in excess of that 11% CET one target.

Hope: Our interest rate outlook assumes four rate cuts with the first cut at coring occurring in May.

Hope: Given our ability to reduce funding costs continued asset repricing and modest balance sheet growth. We expect net interest income to exceed 2023 levels.

Hope: Yeah.

Speaker Change: I'll wrap up on slide 17.

We have shown you this slide several times this year and Bryan opened with a version of it that listed a few of the things that this team accomplished in 2023.

Hope: Fee income improvement will be driven by a modest rebound in the counter cyclical businesses.

Speaker Change: It is remarkable to reflect on everything that occurred this year and when I look at this slide I'm proud of everything the company did to serve our clients admits significant industry disruption and uncertainty to deliver on the expectations. We laid out during investor day in second quarter.

Speaker Change: To recap 2023, our Investor day guidance for net interest income was a growth range of 6% to 9% with actual growth coming in at 6%.

Hope: The net charge off guidance reflects continued macroeconomic uncertainty.

Hope: As we have previously communicated we do not see a need to continue to build incremental capital, giving us the opportunity to deploy capital in excess of that 11% CET one target.

Speaker Change: Similarly, our fee income guidance was a decline between six and 10% with actual fees down 9%.

Speaker Change: Lastly, we gave an expense growth range of 6% to 8% at 5% we came in favorable to that guidance as we found efficiencies to offset other investments.

Hope: Yeah.

I'll wrap up on slide 17.

Hope: We have shown you this slide several times this year and Bryan opened with a version of it that listed a few of the things that this team accomplished in 2023.

Speaker Change: Despite a challenging environment, our dedicated bankers delivered on our commitment to clients and our diversified business model producing consistent pre provision net revenue year over year in 2023, which we anticipate building on in 2024.

Hope: It is remarkable to reflect on everything that occurred this year and when I look at this slide I'm proud of everything the company did to serve our clients amidst significant industry disruption and uncertainty to deliver on the expectations. We laid out during investor day in second quarter.

Speaker Change: We have a strong balance sheet, which weathered the challenges the banking industry faced earlier this year.

Speaker Change: Alright earlier last year, demonstrating our ongoing commitment to safety and soundness first as always we stayed focus on our clients communities and associates, which results in strong client and associate retention, we are well positioned to capitalize on a 160 year legacy and I'm excited to continue to demonstrate the strength and reach.

Hope: To recap 2023, our Investor day guidance for net interest income was a growth range of 6% to 9% with actual growth coming in at 6%.

Hope: Similarly, our fee income guidance was a decline between six and 10% with actual fees down 9%.

Hope: Lastly, we gave an expense growth range of 6% to 8% at 5% we came in favorable to that guidance as we found efficiencies to offset other investments.

Speaker Change: Zillions C of our franchise in 'twenty, 'twenty, four and beyond and with that I'll give it back to Brian.

Brian: Thank you hope.

Brian: Our 2023 results reflect the strength of our franchise and I'm incredibly proud of everything our associates accomplished this year.

Hope: Despite a challenging environment, our dedicated bankers delivered on our commitment to clients and our diversified business model producing consistent pre provision net revenue year over year in 2023, which we anticipate building on in 2024, we have a strong balance sheet, which weathered the challenges the banking.

Brian: Their commitment to serving our clients enabled us to navigate an uncertain environment.

Brian: Coming out of the other side stronger.

Brian: I continue to remain confident that this company has the people our clients and the dedication to build an unparalleled banking for our franchise in the south.

Hope: Industry faced earlier this year.

Hope: Earlier last year, demonstrating our ongoing commitment to safety and soundness first as always we stayed focus on our clients communities and associates, which results in strong client and associate retention.

Brian: My expectation for 2020 for as much like 2023.

Brian: With all that's going on in the World economy continues to perform well and it still looks like a solid plan and as possible.

Hope: We are well positioned to capitalize on a 160 year legacy and I am excited to continue to demonstrate the strength and resiliency of our franchise in 2024 and beyond and with that I'll give it back to Brian.

Brian: Thank you to our associates for all that you have done for our company our clients and communities.

Brian: Our shareholders in 2020 through.

Brian: Thank you hope.

Brian: Bruno we'd now open it up for questions.

Brian: Our 223 results reflect the strength of our franchise and I'm incredibly proud of everything our associates accomplished this year.

Bruno: Thank you Lady.

Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.

Brian: Their commitment to serving our clients enabled us to navigate an uncertain environment.

Speaker Change: Thats Star one on your debt.

Speaker Change: Allophone keypad.

I'm out of the other side stronger.

Speaker Change: To withdraw your question starts to look like two I'm pleased to also remember too our mutual microphone when is your turn to speak.

Brian: I continue to remain confident that this company has the people the clients and the dedication to build an unparalleled banking for our franchise in the south.

Speaker Change: We do have our first question comes from John Our storm from RBC Capital markets. John You May proceed with your question.

Brian: My expectation for 2020 for as much like 2023.

Brian: With all that's going on in the World economy continues to perform well and it still looks like a solid plan and as possible.

John: Hey, Thank you good morning.

John: Good morning, John.

John: Okay.

John: Maybe a question for you hope.

Thank you to our associates for all that you have done for our company our clients and communities.

On the noninterest income outlook you made some comments on.

23 performance against your guidance.

Brian: Our shareholders in 2023.

John: I just wanted to ask about the 24.

Speaker Change: Bruno we now open it up for questions.

John: NII outlook range.

Bruno: Thank you.

John: Curious what kind of an impact of the four cuts.

Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.

John: On your net interest income and margin outlook.

Speaker Change: Thats Star one on your debt.

John: What kind of puts and takes do you have for getting the company to the kind of the lower end or the higher end of the range.

Speaker Change: You bet.

Speaker Change: To withdraw your question starts to look like two I'm pleased to also remember our mutual microphone when you should turn to speak.

Speaker Change: Thanks, John I appreciate the question and good to hear from you in 2024.

Speaker Change: We do have our first question comes from John Our storm from RBC Capital markets. John You May proceed with your question.

Speaker Change: We look at 2024, new I've seen guidance out there from others with different rate scenario, we did use a four rate cuts in areas with the biggest impact in that range is how many cuts do we get and win our first ones in may if it happens later in the year, then that we would have a benefit to our margin.

Hey, Thank you good morning.

John: Good morning, John.

John: Okay.

John: Maybe a question for you hope.

The biggest factor that we need that we have you know that in the range. When you look at a couple of different scenarios as how quickly can we reprice down those client deposits, we've shortened the duration of the promo rates and the deepening rates that we have and so our anticipation would be that as we saw rates decrease we quick we would be able to offset that in our funding costs.

On the net interest income outlook you made some comments on.

John: 23 performance against your guidance.

Just I wanted to ask about the 24.

John: NII outlook range.

Curious what kind of an impact of the four cuts.

John: On your net interest income and margin outlook.

John: Yes.

John: What kind of puts and takes do you have for getting the company to the kind of the lower end or the higher end of the range.

Speaker Change: Okay.

Speaker Change: So it's safe to say, if we're less than four youre, probably at the higher end of that range before it forward mid to lower end is that fair.

Speaker Change: Thanks, John I appreciate the question and good to hear from you in 2024.

Speaker Change: That's correct on it and also we could be on the higher range higher end of the range with four if we can bring down deposit pricing quicker with the rate decreases.

Speaker Change: We look at 2024, new I've seen guidance out there from others with different rate scenarios. We did use a four rate cuts in areas with the biggest impact in that range is how many cuts do we get and win our first ones in may if it happens later in the year, then that we would have a benefit to our margin.

Speaker Change: Okay and on what that lag and then just.

Speaker Change: Yeah, Okay, and then overall thoughts on loan growth for 2024.

Speaker Change: The biggest factor that we need that we have you know that in the range. When you look at a couple of different scenarios as how quickly can we reprice down those client deposits, we've shortened the duration of the promo rates and the deepening rates that we have and so our anticipation would be that as we saw rates decrease we quickly we'd be able to offset that in our funding costs.

Speaker Change: But I was looking forward in here and I think I may have missed it somewhere but how are you feeling about overall loan growth expectations.

John This is Bryan we feel pretty good about loan growth expectations, we expect to see the balance sheet growth. So we think as I said in my closing comments that the economy is still growing consistently with the end of 2023 financial conditions.

Speaker Change: Okay.

Speaker Change: So it's safe to say, if we're less than four youre, probably at the higher end of that range before it forward mid to lower end is that fair.

Bryan Jordan: Sort of ebbed and flowed, but I'd say overall, they're still on the tight side and I expect that loan growth will be more muted. This year as a result of that our balance sheet benefits a little bit from the spring loaded nature I, we have some fund up of some commitments construction etcetera that was set up a couple of years.

Speaker Change: That's correct on it and also we could be on the higher range higher end of the range with four if we can bring down deposit pricing quicker with the rate decreases.

Speaker Change: Okay. It depends on what that lag.

Speaker Change: And then just.

Bryan Jordan: <unk> originated a few years ago, then we feel very very good about the opportunities we're seeing we're being very selective.

Speaker Change: Yeah, Okay, and then overall thoughts on loan growth for 2024.

But I was looking forward in here and I think I may have missed it somewhere but how are you feeling about overall loan growth expectations.

Bryan Jordan: The opportunities that we choose to put on our balance sheet. So we expect a little bit of modest growth, but we don't expect it to be outsized given the our outlook for the economy.

Speaker Change: John This is Bryan we feel pretty good about loan growth expectations, we expect to see the balance sheet growth. So we think as I said in my closing comments if the economy is still growing consistently with the end of 2023.

Bryan Jordan: The sort of go back to cabinets, the hope was making about the margin.

Bryan Jordan: Yeah.

Bryan Jordan: <unk>.

Bryan Jordan: Our modeling is just based on taking a forward curve that's implied in the market at some point in time it could have been 238 on December 31.

Bryan Jordan: Natural conditions.

Bryan Jordan: Sort of ebbed and flowed, but I'd say overall, they're still on the tight side and I expect that loan growth will be more muted. This year as a result of that.

Bryan Jordan: It's moving around a whole lot, which tells you that there's a fair amount of uncertainty about what interest rates will actually do in the fed's comments or interpret it as pretty significant cuts in the market implies.

Bryan Jordan: Our balance sheet benefits, a little bit from the spring loaded nature I, we have some fund up of some commitments construction et cetera that was set up a couple of years ago originated a few years ago.

Bryan Jordan: We don't I personally don't feel that strongly that the fed cut rates early in the year I think rates are going to hold up better.

Bryan Jordan: Then we feel very very good about the opportunities we're seeing we're being very selective.

Bryan Jordan: Or higher than the market's expectations, right, now, but but but I wouldnt substitute our judgment for the market. So we just use a market curve.

Bryan Jordan: That ultimately reflects.

Bryan Jordan: The sort of go back to the hope was making about the margin.

Bryan Jordan: What is a slowing economy and interest rates coming down.

Bryan Jordan: Yeah.

Bryan Jordan: <unk>.

Our modeling is just based on taking a forward curve that's implied in the market at some point in time it could have been through 38 on December 31.

Speaker Change: Okay. Okay. That's helpful I'm more near count, Brian, but the framework you provided hopes so thank you for that.

Speaker Change: Sure.

Bryan Jordan: It's moving around a whole lot, which tells you that there's a fair amount of uncertainty about what interest rates will actually do in the fed's comments were interpreted it as.

Our next question comes from Michael Rose from Raymond James Michael Your line is now open.

Michael: Hey, good morning, Thanks for taking my questions just wanted to go to the slide.

Pretty significant cuts in the market implies.

Speaker Change: We don't I personally don't feel that strongly that the fed cut rates early in the year I think rates are going to hold up better.

Michael: <unk> 24 in the appendix as it relates to FHA and financial I. Appreciate you guys putting that in there you guys had a nice uptick in ADR as this quarter certainly understand the way this business works.

Speaker Change: Or higher than the market's expectations right now but.

Michael: But can you just give us kind of what your baseline expectation is for <unk> as we kind of move through the year, assuming your rate cut expectations and then what it could look like.

Speaker Change: I wouldnt substitute our judgment for the market. So we just use a market curve.

Speaker Change: Ultimately reflects.

Speaker Change: What is a slowing economy.

Michael: In your estimation, if we are if we move a little bit slower.

Speaker Change: Interest rates coming down.

Speaker Change: Okay. Okay. That's helpful I'm more near count, Brian, but the framework you provided hopes so thank you for that.

Michael: Yeah.

Michael: F N Gen as you just.

Michael: <unk> very sensitive to what interest rates do.

Speaker Change: Sure.

Michael: We did see a little pick up in the fourth quarter of this year and that was really based on the market, reaching a conclusion that the fed had reached peak rates and that we're more likely to see rates falling and then borrowing rates tend to be good for our fixed income business. So our expectations are for some.

Speaker Change: Our next question comes from Michael Rose from Raymond James Michael Your line is now open.

Michael Edward Rose: Hey, good morning, Thanks for taking my questions just wanted to go to the slide.

<unk> 24 in the appendix as it relates to FHA and financial I. Appreciate you guys putting that in there you guys had a nice uptick in ADR as this quarter certainly understand the way this business works.

Michael: Slightly higher average daily revenue next year.

We think the markets will continue to stabilize and improve particularly as it follows the past market follows the path that is sort of laid out in terms of rate cuts next year we.

Michael Edward Rose: But can you just give us kind of what your baseline expectation is for <unk> as we kind of move through the year, assuming your rate cut expectations and then what it could look like.

Michael Edward Rose: In your estimation, if we are if we move a little bit slower.

Michael: We don't expect that.

Michael: That if a gym financial is going to bounce back to 2000 2021 levels, but we do expect some modest improvement next year.

Michael Edward Rose: Yeah.

Michael Edward Rose: FHA and as you just.

Michael Edward Rose: <unk> very sensitive to what interest rates do.

Speaker Change: That's helpful and maybe just as my follow up question.

Michael Edward Rose: We did see a little pick up in the fourth quarter of this year and that was really based on the market, reaching a conclusion that the fed had reached peak rates and that we're more likely to see rates falling and then borrowing rates tend to be good for our fixed income business. So our expectations are for some.

Speaker Change: Assuming that.

Speaker Change: I just wanted to get a sense for how much flex there would be in the expense base if the if the revenues.

Speaker Change: Don't necessarily come through you know for instance, like is there some technology costs that you could.

Speaker Change: Maybe push out or what other areas could you look to.

Speaker Change: Maybe kind of address if the the revenue expectations coming in at the lower end of expectations. Thanks.

Michael Edward Rose: Slightly higher average daily revenue next year.

Michael Edward Rose: We think the markets will continue to stabilize and improve particularly as it follows the past market follows the path that is sort of laid out in terms of rate cuts next year we.

Yeah Yeah.

Speaker Change: Our our expense base Fhm financial is very heavily tied to revenue.

Speaker Change: We have a.

Michael Edward Rose: We don't expect that.

Speaker Change: System that is scalable calls with scalable revenue.

Michael Edward Rose: Jim financial is going to bounce back to 2000 2021 levels, but we do expect some modest improvement next year.

Speaker Change: Team has done I think a fantastic job.

Speaker Change: And controlling costs and even when you reach the lows in the cycle, we still make money in the business and clearly is not as profitable or is it better or higher point in the cycle in terms of average daily revenue, but we've got the ability to control those costs and we will flex them and we.

Speaker Change: That's helpful and maybe just as my follow up question.

Speaker Change: Assuming that.

Speaker Change: I just wanted to get a sense for how much flex there would be in the expense base if the if the revenues.

Speaker Change: Not necessarily come through you know for instance, like is there some technology costs that you could.

Speaker Change: <unk> no matter, how low ADR is likely to drop in the near term. We think we can eke out profitability, even at the lowest levels in <unk>.

Speaker Change: Maybe push out or what other areas could you look to.

Speaker Change: Maybe kind of address the revenue expectations coming in at the lower end of expectations.

Speaker Change: With some expectation for her.

Speaker Change: Yeah Yeah.

Speaker Change: We expect to be at a much better position through the course of 2024.

Speaker Change: Our our expense base Fhm financial is very heavily tied to revenue.

Speaker Change: Brian I appreciate that color and then holistically for the for the firm not just that.

We have a.

Speaker Change: System that is scalable cost scalable revenue.

Speaker Change: Makes sense.

Speaker Change: Sorry for that was if that wasn't clear.

Speaker Change: Team has done I think a fantastic job.

Speaker Change: The.

Speaker Change: And then controlling costs and even when you reach the lows in the cycle, we still make money in the business and clearly is not as profitable or is it better or higher point in the cycle in terms of average daily revenue, but we've got the ability to control those costs and we will flex them and we.

Speaker Change: Well.

Speaker Change: So expense levels are something that we have acknowledged that we have most control over its something that we will stay focused on we have demonstrated over a number of years the ability to control cost and take out cost.

Speaker Change: <unk> no matter, how low ADR is likely to drop in the near term. We think we can they go profitability even at the lowest levels.

Speaker Change: Out of the organization.

Speaker Change: In terms of of the levers that are at hand, we think we have a number of levers.

Speaker Change: With some expectation for her.

Speaker Change: In terms, you mentioned, specifically technology costs.

We expect to be at a much better position through the course of 2024.

Speaker Change: And.

Speaker Change: Well, we're investing in technology, we think those investments are important particularly the.

Speaker Change: Brian I appreciate that color and then holistically for the for the firm not just that.

Speaker Change: What I described as deferred maintenance or remedial investments from from last year. There were some things that we had to get called out. So that's a potential lever, but it's not one I expect us to pull.

Speaker Change: Makes sense.

Speaker Change: Sorry for that was if that wasn't clear.

Speaker Change: Well.

Speaker Change: Our overall cost consciousness in the effort we have in the organization I think gives us the ability to control cost as we.

Speaker Change: Sort of moved through an environment if revenues don't play out the way we expect.

Speaker Change: Out of the organization.

Speaker Change: Again, I think that overall cost consciousness will serve us well in 2024.

Speaker Change: In terms of of the levers that are at hand, we think we have a number of levers.

Speaker Change: In terms, you mentioned, specifically technology costs.

I appreciate the color thanks for taking my questions.

Speaker Change: No my pleasure in sorry, I misinterpreted the first though.

Speaker Change: And.

Speaker Change: Well, we're investing in technology, we think those investments are important particularly.

Our next question comes from Casey Haire from Jefferies.

Casey Haire: Your line is now open.

Casey Haire: Great. Thanks, good morning, everyone.

Casey Haire: Quick follow up on NII.

Casey Haire: Specifically the funding side of things so.

Speaker Change: Our overall cost consciousness in the effort we have in the organization I think gives us the ability to control costs.

Casey Haire: First off what is the $6 million deposit promotion is that fully.

Casey Haire: Rolled over and then what kind of deposit beta are you expecting.

Speaker Change: We.

Speaker Change: Sort of move through an environment, if revenues don't play out the way we expect.

Casey Haire: Along along these four cuts.

Speaker Change: Again, I think that overall cost consciousness will serve us well in 2024.

Speaker Change: Good morning, Casey good to hear from you know 2024, yes.

Casey Haire: We are we are fully through that re pricing of the second quarter promo campaign.

Speaker Change: I appreciate the color thanks for taking my questions.

Speaker Change: No my pleasure and sort of misinterpreted the first time.

Casey Haire: At 96% retention is a up to date number as of yesterday and so it's not a.

Casey Haire: At December 31st number isn't up to date number off of what we've seen our retention on that.

Speaker Change: Our next question comes from Casey Haire from Jefferies.

Casey Haire: Your line is now open.

Casey Haire: Through the cycle you know when we think about deposit where you can really get through the cycles. When do you start cutting rates and you know, we probably be right around 60. It would be a may cut we would end their beta cycle about 60, if it got later in the year. The first cut in this cycle continued we do think that we can continue to moderate by bringing client deposits paying down a little bit more of a wholesale.

Casey Haire: Great. Thanks, good morning, everyone.

Casey Haire: Quick follow up on NII.

Casey Haire: Specifically the funding side of things so.

Casey Haire: First off what is the $6 billion deposit promotion is that fully.

Casey Haire: Rolled over and then what kind of deposit beta are you expecting.

Casey Haire: As well as we mentioned in my prepared remarks, we saw fourth quarter, new to bank money at a significantly lower cost than we saw the prior quarter. So we are seeing the ability to step back not just existing money entertainment, but also bring new money in about $1 billion of you know in each of the last two quarters have a lower rate than we saw in second quarter.

Casey Haire: Along.

Casey Haire: Along these four cuts.

Speaker Change: Good morning, Casey good to hear from me on 2024, yes.

Speaker Change: We are we are fully through that re pricing of the second quarter promo campaign.

Speaker Change: That 96% retention is a up to date number as of yesterday. So it's not.

Speaker Change: Gotcha, Okay, and just as a follow up.

At December 31st number isn't up to date number of of what we've seen our retention on that.

Speaker Change: I'm trying to gauge buyback appetite.

Speaker Change: CET one at 11, four you're comfortably above your 11% target you do mentioned organic.

Speaker Change: Through the cycle you know when we think about deposit where you can really get through the cycles. When do you start cutting rates and we'd probably be right around 60. It would be a may cut we would end our beta cycle about 60.

Speaker Change:

Speaker Change: Our capital deployment, but it doesn't it doesn't seem like I.

Speaker Change: If it got later in the year. The first cut in this cycle continued we do think that we can continue to moderate by bringing client deposits paying down a little bit more of a wholesale as well as we mentioned in my prepared remarks, we saw fourth quarter, new to bank money at a significantly lower cost than we saw the prior quarter. So we are seeing the ability to step back now.

Speaker Change: I mean, Brent to Brian's point in loan growth sounds kind of muted.

Speaker Change: It is is there.

Speaker Change: It seems like you guys are being a little vague on the buyback given given the strength.

Speaker Change: Do we do manage CET, one back to that 11% level or are you going to run above that.

Yeah Casey this is Brian.

Speaker Change: Just existing money entertainment, but also bring new money in about $1 billion of you know in each of the last few quarters have a lower rate than we saw in second quarter.

Brian: At this point, we don't have an authorization with respect to share repurchases.

Brian: Expect that that's one of many things that the board will evaluate when we work through sort of our continued outlook for the remainder of the year and so it is one of the tools that we will consider but ultimately that's a board decision that gets made in the context of <unk>.

Speaker Change: Gotcha, Okay, and just as a follow up.

Speaker Change: I'm trying to gauge buyback appetite.

Speaker Change: CET one at 11, four you're comfortably above your 11% target you do mentioned organic.

Speaker Change:

Brian: Safety and soundness outlook on the economy, and so we expect to have those discussions.

Speaker Change: Capital deployment, but it doesn't it doesn't seem like I mean.

Speaker Change: Brent to Brian's point in loan growth sounds kind of muted.

Brian: And again, that's one of the leverage we think that is on the table to manage that capital level.

Speaker Change: Is there.

It seems like you guys are being a little vague on the buyback given given the strength.

Speaker Change: Do we do managed CET, one back to that 11% level or are you going to run above that.

Speaker Change: Our next question comes from Ben <unk> from Citi.

Speaker Change: Yeah Casey this is Brian.

Brian: At this point, we don't have an authorization with respect to share repurchases.

Ben: Your line is now open.

Ben: Thanks, Good morning.

I expect that that's one of many things that the board will evaluate when we work through sort of our continued outlook for the remainder of the year and so it is one of the tools that we will consider but ultimately that's a board decision that gets made in the context of <unk>.

Speaker Change: Good morning, Ben.

Speaker Change: I was curious if we could talk to I know this is kind of more philosophical in nature, but it is.

Speaker Change: This television campaign, you, obviously got a lot more money.

Speaker Change: Money coming in than previously expected or at least.

Speaker Change: The implication was.

Brian: Safety and soundness outlook on the economy, and so we expect to have those discussions.

Speaker Change: So from that I guess, if there is a retention, but how much of that is actually turning into new business I E something along like a fee income line item or bringing over relationship in general in terms of a lending opportunity.

Brian: Again, that's one of the leverage we think that is on the table to manage that capital level.

Speaker Change: In terms of the retention the retention has been very very good.

Speaker Change: Our next question comes from Ben <unk> from Citi.

Speaker Change: And our bankers are I think executing very very well on what we're referring to as promo to privacy.

Speaker Change: Ben Your line is now open.

Ben: Thanks, Good morning.

Speaker Change: While it is still early we think we're making good progress in taking those new to bank relationships.

Ben: Good morning, Ben.

Ben: I was curious if we could talk through I know this is kind of more philosophical in nature, but this television campaign, you, obviously got a lot more.

Speaker Change: And broadening and expanding those relationships.

Ben: And coming in than previously expected or at least.

Speaker Change: That doesn't happen instantaneously, but we see early indications that are encouraging.

Ben: And what's the implication was.

Ben: From that.

Ben: There is a retention, but how much of that is actually turning into new business I E something along like a fee income line item or bringing over relationship in general in terms of the lending opportunities.

Speaker Change: Got it.

Speaker Change: Embedded in anything or is that kind of icing on the cake for 24, if they start to bring over well or something like that.

Ben: In terms of the retention the retention has been very very good.

Speaker Change: Well inherently that's embedded in our estimates of fee income and net interest margin. So yeah inherently is embedded but there's there's not a specific add on at this point in terms of the way, we manage our forecasting and budgeting.

Ben: And our bankers are I think executing very very well on what we're referring to as promo to privacy.

Ben: And while it is still early we think we're making good progress in taking those new to bank relationships.

Speaker Change: Gotcha and then Mr.

Speaker Change: Clearly switch gears here in terms of just.

Ben: And broadening and expanding those relationships.

Speaker Change: Lending appetite I guess theres some of your competitors here in South East.

Ben: That does happen.

Speaker Change:

Ben: <unk>, but we see early indications that are.

Speaker Change: R R.

Speaker Change: Pulling back of reorganizing or something.

Speaker Change: Have them take their eye off the ball.

Speaker Change: Seeing additional client add potential.

From a commercial perspective, if you could highlight any areas within <unk>.

Speaker Change: Lending categories, where youre seeing better risk adjusted spreads or Conversely kind of.

Shying away because it really just doesn't make a lot of sense I get off this isn't easy low hanging fruit the callout, but if there's anything more granular than that would be helpful.

Speaker Change: Yeah.

Speaker Change: I'll start and then Susan to sort of pick up.

Speaker Change: <unk>.

Susan Springfield: We sort of get.

Susan Springfield: Varying degrees of information and a lot of it is anecdotal I would say in the middle of 2023 and in the early fall you saw more people actually pulling back from the market.

Susan Springfield: In terms of lending appetite.

Susan Springfield: Getting out of lines of businesses, which we think created a number of opportunities for us and things like mortgage warehouse finance and mortgage warehouse lending and restaurant finance and things of that nature.

Susan Springfield: The market has seemed to stabilize a little bit as you got into late 2023, and whether that was.

Susan Springfield: The feds.

Susan Springfield: It's essentially loosening financial conditions by talking about thinking of breaks in and potential for rate cuts being the topic of 2024.

Susan Springfield: The market seems to have stabilized a little bit in terms of lending appetite has probably gotten a bit more competitor there one or two examples of folks who are not taking new or new to bank relationships that are now back into the market. So it ebbs and flows all of that said.

Susan Springfield: We feel very good about the opportunities that we are seeing we try to execute with a very consistent and steady go to market approach, we try not to pull into and out of markets based on whats happening in the next 25 or 30 days.

Susan Springfield: By our estimates.

Susan Springfield: And essentially what we believe is how we conduct ourselves in those periods of volatility are the things that define us for the next 25 years with our clients and our customers safe.

Susan Springfield: We literally tried to just be very steady and very stable and as a result, I think we continue to see a number of attractive opportunities. It's not a high volume because the economy doesn't support that but we're very encouraged by what we're seeing in tomorrow Susan.

Speaker Change: Agree with what Brian was saying and we do take us through the cycle approach as Brian says, we try not to have the pendulum swing on too much either either way when times are really good or when things are a little slower and more challenging like they are today with the higher interest rate environment.

Speaker Change: We want to be there for our clients and communities and we have done there were some instances midyear, so where we were able to step up for existing clients when others were not.

Speaker Change: But it is.

Speaker Change: It is a market, where we're able to get them.

Speaker Change: Good underwrite good core underwriting metrics constructors.

Speaker Change: And some good.

Speaker Change: Good risk adjusted returns on the pricing as well.

Speaker Change: So it's again, we want to be there for clients. We also do think I think there are some opportunities.

Speaker Change: Our specialty lines as well as in our markets.

Speaker Change: To take some generational opportunity potentially away from some competitors, who might be having some kind of disruption in their ability to execute.

Speaker Change: Got it that's really helpful color.

Speaker Change: Oh actually email coupled with real small modeling question, but I'll go back in the queue. Thanks.

Thank you Ben.

Speaker Change: Our next question comes from Brady Gailey from <unk>.

Brady Gailey: Your line is now open.

Brady Gailey: Hey, Thank you good morning, guys.

Speaker Change: I wanted to start on the credit quality front last quarter, we saw a little blip with the shared national credit loss. This quarter, we saw <unk> increase by about 17% Theres still at a relatively low level, maybe just updated thoughts on.

Speaker Change: It feels like credit is normalizing here, but just updated thoughts on how youre thinking about credit into 'twenty four.

Speaker Change: Hey, Brady, it's Susan I'll.

Susan Springfield: Take that.

Susan Springfield: We are being as I just said on the last question very disciplined in our approach and we have been we have been for years and so I do believe that that this disciplined approach to client selection in fact, the markets that we're in are very strong and we will continue to serve as well as you pointed out we've had some.

Susan Springfield: Downgrades into nonperforming and classified.

Susan Springfield: It's very manageable at this point, we're not seeing any specific things related to.

Susan Springfield: Markets in history product types.

At all we did.

Susan Springfield: A lot of deep dive work in 2023, and we'll continue that in 2024, we do it really got all the time, especially in a higher interest rate environment, we're making sure that we're touching.

Susan Springfield: Wanted to touch on the portfolio and even at a higher level.

Susan Springfield: Our executive management is involved and portfolio reviews.

Susan Springfield: I feel very good about the fact that we've got discipline and how we're grading and servicing credit.

Susan Springfield: So I think the outlook is.

One where we will perform well.

Susan Springfield: I was on the ball and we'll continue to be conservative both at origination, but also is how do we think about grading and marking our one each and every quarter.

Speaker Change: Alright, that's helpful. And then first horizon is about 80 billion of assets now. So you still have some time until growth takes you to 100 billion.

Speaker Change: Just updated thoughts on how you're preparing for that and what you think the impact will be and when.

Speaker Change: When you think first ryzen could see that $100 billion Mark organically.

Okay.

Speaker Change: Brady good morning.

Speaker Change: So the way, we're preparing as we're practicing treading water right now.

We think we think at the end of the day that we have some flexibility in terms of managing the balance sheet and Wow.

Not clear, what becoming $100 billion.

Speaker Change: <unk> entails and particularly with the proposals that are out on on Basel III.

Speaker Change: So we're taking the time to understand that and navigate through it some aspects of it we're likely to.

Speaker Change: I have to deal with earlier, particularly if the final rule gets issued on resolution planning for $50 billion to $100 billion organizations. Some of those things will start to work their way into the system, but right now we.

Speaker Change: We're studying what covenant Ela file looks like we're preparing the ground work for it but at the end of the day, we're not going to just stumble across $100 billion and we have.

Speaker Change: A few years of flexibility and as I alluded to the ability to tread water and keep our balance sheet at a level that doesn't push us over a bright line threshold accidentally.

Speaker Change: Yeah.

Speaker Change: Okay, Alright, great. Thanks, guys.

Speaker Change: Thank you.

Speaker Change: As a reminder to ask a question. Please press star one on your telephone keypad.

Speaker Change: Thats Star one on your telephone keypad.

Speaker Change: Our next question comes from Timur <unk> from Wells Fargo. Your line is now open.

Timur: Hi, Thank you.

Timur: Maybe a follow up to <unk> credit quality question, just any color on what the increase in non performers was in the fourth quarter.

Timur: Yeah.

Timur: It was really we had several different industries reflected.

Timur: On the top kind of for that were added you had one that seemed to come in online retailer.

Timur: We had we had one Cree hotel project that was that was that.

Speaker Change: Got it and then a couple of other just kind of general C&I credits.

Speaker Change: Kind of a driver or something else in there.

Speaker Change: I would drive or something increased one was Uh huh.

Speaker Change: And then one franchise finance restaurant.

Speaker Change: It looks to us like it.

Speaker Change: As we see the credit portfolio's performing that Theres still largely driven by idiosyncratic trends as opposed to broad.

Speaker Change: Broad based this category of asset or that category of asset so what I really saw.

Speaker Change: Sort of suggesting as is.

Speaker Change: Borrowers that start in a more stressed position more levered and ability to take price higher cost pressures interest rates or getting some that's stressing some borrowers more than it's stressing the others and so we're not seeing broad based trends in the portfolio right now.

Speaker Change: As Susan said, we're spending a lot of time doing deep dives in analytics, but.

Speaker Change: At the end of the day the trends seem to be driven by more idiosyncratic stories at anything you know as an example.

Speaker Change: Hotel projects that we added.

Speaker Change: <unk> experienced some construction delays and so they're just a little behind on where we thought they would be according to plan. So that's an example, like Brian said part of it was related to something.

Speaker Change: It's a fairly industry related.

It would have similar stories.

Speaker Change: Kind of one off situations.

Speaker Change: Okay. Thanks for that and then going back to expenses in the technology spend specifically I think the commentary prior had been around $100 million in technology spend over the next three years.

Can you provide maybe some greater clarity on the cadence of that spend is that pretty even over the next three years or some of that remedial spend as you called out is that something that's going to be maybe a little bit more forward skewed.

Okay.

Speaker Change: Timur <unk>. Thanks for the question technology spend tends to kind of be back loaded in the projects that you bring up your capital.

Speaker Change: Capitalizing cost software doesn't go into maintenance, yet and so it is a little bit more back loaded we started to as we talked about in Q3 kind of Undershooting our expense our expenses in the quarter. We've seen that hit in Q4 of those projects have started up.

Speaker Change: I said in my prepared remarks, we expect that the back half of next year, we will see those cost increase and then increase going into 2025 as the bulk of what we started in the second half of this year starts to hit that run rate of default side.

Speaker Change: And that being said, though we are and we continue to say looking at operational efficiencies to figure out how we can offset some of that investment, but we do expect in 2024, but we expect that in the back half of the year, we're going to offset it in on a P&L basis.

Speaker Change: The increased technology spend with it with the retention dollars that are running off that we have you know somewhat flat expenses throughout the year and we'll continue to focus on looking at how we do that.

Speaker Change: Okay. That's good color and then one more if I could just on the promo deposits rolling off that retention is impressive 96%.

It works with projects that started up we and I said in my prepared remarks, we expect that in the back half of next year, we will see those cost increase and then increase going into 2025 as the bulk of what we started in the second half of this year starts to hit that run rate at the whole side.

Speaker Change: I guess, what did those borrowers are those clients roll into where those back in Cds did that move to money market and I guess what is the current CD specials out there right now for you guys.

And that being said, though we are and we continue to say looking at operational efficiencies is to figure out how we can offset some of that investment, but we do expect them you know in 2024, but we expect that in the back half of the year, we're going to offset it in on a P&L basis.

Speaker Change: Yes.

Speaker Change: That was all money market that repriced in Q4, our cities were actually a nine or 11 months.

Speaker Change: We're not as material every price in Q2.

Speaker Change: Those rates were down 70 576 basis points.

The increased technology spend with it with the retention dollars that are running off that we have you know somewhat flat expenses throughout the year and we'll continue to focus on looking at how we do that.

Speaker Change: From from the special rates.

Speaker Change: The second part of your question was what was the current offers so our current offer is a deepening relationship of $4 25, and so as you are coming off primarily keep bringing more money to the bank you deepen your relationship with US. The offers for 25 you can see we ended up at about 700.

Okay. That's good color and then one more if I could just.

On the promo deposits rolling off that retention is impressive 96% I guess, what did those borrowers are those clients roll into where those back in Cds did that move to money market and I guess, what is the current CD specials out there right.

Speaker Change: 176 basis points down from as we've gotten pretty far to the kind of that 425 rate there's always some negotiation in.

Speaker Change: The discussion, but we believe that overall that 425 is the target or new money coming in.

Now for you guys.

Yes.

That was all money market that repriced in Q4, our cities were actually a nine or 11 months.

Speaker Change: Great. Thanks Al.

But we're not as material that we price in Q2.

Our next question comes from comes from Christopher Merrimack from Janney Montgomery Scott.

Those rides were down 70 576 basis points.

From from the special roads.

Mr. <unk>. Your line is now open.

Christopher Merrimack: Hey, Thanks. Good morning, just one more credit question for Susan do you think that the C&I, specifically you would see some deterioration this year or should this quarter still kind of stay intact.

The second part of your question was what was the current offers so our current offer is a deepening relationship of 425 and so as you are coming off promo with you bring more money to the bank to deepen your relationship with US. The offers for 25 you can see we ended up at about 70.

Hey, thanks.

Speaker Change: Chris the interest rate outlook of stable rates may be going down.

76 basis points down so we've gotten pretty far to the kind of that 425 rate there's always some negotiation in.

Chris: Again, I think I think youll see mostly stability.

Chris: Based on the fact that we've done deep dive portfolio reviews.

The discussion, but we believe that overall that 425 is the target or new money coming in.

Throughout different sectors C&I inquiry.

Chris: <unk>.

Chris: I'm not I feel like we've got things graded in the right place, we're continuing to talk to clients.

Great. Thanks, so much.

Yeah.

Chris: We're stressing doing stress projections, when an underwriter service credit.

Our next question comes from comes from Christopher <unk> from Janney Montgomery Scott.

Chris: And so I think absent something really changing in the evening economy. If it were to worsen obviously, we'd take another look and it could impact client, but based on what we know today.

Christopher Your line is now open.

Hey, Thanks. Good morning, just one more credit question for Susan do you think that the C&I, specifically you would see some deterioration this year or should this quarter still kind of.

Chris: I feel good about kind of a stable outlook at this point based on what we're seeing now.

The impact.

Hey, thanks.

Speaker Change: Great. Thank you for that and then Brian for you do you think we will see consolidation in the industry. This year and is there a scenario where first horizon would be interested in buying other banks, even something smaller fill in and the footprint.

The interest rate outlook of stable rates may be going down.

Again, I think youll see mostly stability as well.

Based on the fact that we've done deep dive portfolio reviews really throughout different sectors C&I inquiry.

Brian: Good morning, Chris.

Speaker Change: Thank you Mike see consolidation start to pick up later in the year I don't think.

<unk>.

I'm not I feel like we've got things graded in the right place, we're continuing to talk to clients where.

Speaker Change:

Speaker Change: To be a robust environment personally I think there's still a tremendous.

We're stressing doing stress projections, when an underwriter service credit.

Number of headwinds.

And so I think absent something really changing in the evening economy. If it were to worsen obviously, we'd take another look and it could impact clients there, but based on what we know today.

The purchase accounting marks being the largest at this point and then I think some of the uncertainty around what the regulatory landscape looks like both in the context of what it takes to get the deal approved and how long that takes as well as what does it mean.

I feel good about kind of a stable outlook at this point based on what we're seeing now.

Speaker Change: You deal with some of the bright lines like $100 billion in L. A so I don't expect a tremendous amount of pick up during the course of this year.

Speaker Change: In terms of first horizon.

Speaker Change: Our priorities are executing on the things that we've talked about and that's dealing with the investments we want to make in technology.

Natalie: Good morning, Chris.

Natalie: You might see consolidation start to pick up later in the year I don't think.

And in continuing to grow customer and client relationships. If you look backwards. We had spent roughly three years, maybe closer to four depending on how you counted in.

Natalie: That it's going to be a robust environment personally I think there's still a tremendous.

Natalie: Number of headwinds.

The purchase accounting marks being the largest at this point and then I think some of the uncertainty around what the regulatory landscape looks like both in the context of what it takes to get a deal approved and how long that takes as well as what does it mean, if you deal with some of the bright lines why.

Speaker Change: The merger of equals integration and then the pre termination period. So we really want to use this period of two.

Speaker Change: 2024 to continue to prove out the power of the franchise that we built and we think we have plenty of opportunities to deploy capital there.

Natalie: The $100 billion in L. A so I don't expect a tremendous amount of pick up during the course of this year.

Speaker Change: Great. Thanks for saying that I appreciate it.

Speaker Change: Sure thing.

Natalie: In terms of first horizon.

Speaker Change: Our next question comes from Brody Preston from UBS.

Natalie: Our priorities are executing on the things that we've talked about.

Brody Preston: Your line is now open.

Natalie: And thats dealing with the investments we want to make in technology.

Brody Preston: Hey, good morning, everyone.

Natalie: And continuing to grow customer and client relationships. If you look backwards. We had spent roughly three years, maybe closer to four depending on how you counted in.

Brody Preston: I wanted to share.

Speaker Change: I wanted to circle back on the buyback commentary.

Speaker Change: Brian If I heard you correctly, you said you don't have an authorization and your <unk>.

Brian: Expecting to discuss it with the board.

Brian: The merger of equals integration and then the pre termination period. So we really want to use this period of.

Brian: I guess I'd ask When's your next board meeting and really.

Brian: Will it get addressed at that board meeting.

Speaker Change: Well it is a matter of fact, our next board meeting is next week so.

Brian: 2024 to continue to prove out the power of the franchise that we've built and we think we have plenty of opportunities to deploy capital there.

We always cover financial outlook capital management, our capital outlook with our board. So that's a meeting a meeting thing.

Speaker Change: Thanks, Paul and thanks for sharing that I appreciate it.

I don't want to prognosticate, what the board is likely to do or not do at our next meeting but capital management is one of those things that we always spend time on are we we think about it from the context of of adequate capital as we stress test our balance sheet, we can.

Speaker Change: Sure thing.

Speaker Change: Our next question comes from Brody Preston from UBS.

Speaker Change: Your line is now open.

Speaker Change: Hey, good morning, everyone.

Brian: I wanted to share.

I wanted to circle back on the buyback commentary.

Speaker Change: To do that and reported publicly so I don't want to get into what the board may or may not consider next week, but it's always a topic in terms of our balance sheet and financial outlook.

Speaker Change: Brian If I heard you correctly, you said you don't have an authorization and you're expecting to discuss it with the board.

Brian: I guess I'd ask When's your next board meeting and really.

Brian: Will it get addressed at that board meeting.

Speaker Change: Understood.

Speaker Change: Maybe I could ask you could you speak to the the noninterest bearing mix. That's that's underlying the NII guidance that you provided.

Brian: Well it is a matter of fact, our next board meeting is next week.

Brian: We always cover financial outlook capital management, our capital outlook with our board. So that's a meeting a meeting thing.

Speaker Change: But we do have a small the NII guidance with a small increase in noninterest bearing for 2024, we went out pretty aggressively at the end of Q4 and starting in Q1 with a new bank cash offer for new checking accounts a week.

Speaker Change: I don't want to prognosticate, what the board is likely to do or not do at our next meeting but capital management is one of those things that we always spend time on and we we think about it from the context of of adequate capital as we stress test our balance sheet, we can.

Speaker Change: Haven't done that before and so we are seeing some positive momentum.

Speaker Change: In my prepared remarks, but I wouldn't say it's meaningful.

Brian: To do that and reported publicly.

Got it.

Brian: Don't want to get into what the board may or May not consider next week, but it's always a topic in terms of our balance sheet and financial outlook.

Speaker Change: <unk>.

Speaker Change: And what does it what does it take to pay off further.

Speaker Change: Further pay down broker deposits is it is it an ability to grow our deposit sources or would you look to kind of.

Brian: Understood.

Speaker Change: Maybe I could ask.

Brian: Could you speak to the the noninterest bearing mix, that's that's underlying the NII guidance that you provided.

Speaker Change: Pay down some of that with the securities cash flows that you have on a quarterly basis.

Speaker Change: The answer is yes to all of that so we want to continue to bring client money in cheese.

Brian: But we do have a small.

NII guidance with a small increase in noninterest bearing for 2024, and we went out pretty aggressively at the end of Q4 and starting in Q1 with a new bank cash offer for new checking accounts, we haven't done that before and so we are seeing some positive momentum, which I had in my prepared remarks, but I.

Speaker Change: Offset our loan growth would you have loan growth projections next year and so we are focused on it and you saw it on a large push in Q4 on the marketing front as we get into our Q4 2023, as we get into 2024, and we have paused reinvestment of our securities portfolio, We will use our securities portfolio to hedge our interest rate sensitivity, we're happy where we're at.

Brian: I wouldn't say it's meaningful.

Speaker Change: And expect that that cash flow will continue to come back.

Speaker Change: Got it.

Speaker Change: For us it number one is creating client deposit sweep in London to clients and if we have to be a little bit in brokerage for that we will be the bigger thing for us when we look at brokered going into 2024 is the mortgage warehouse and you look at the seasonality of their you know you can possibly see some broker would have to come back in and then also next quarter about being our highest yielding asset in.

Speaker Change: And what does it what does it take to pay off further.

Speaker Change: Further pay down broker deposits is it is it an ability.

82 to grow our deposit sources or would you look to kind of.

Pay down some of that with the securities cash flows that you that you have on a quarterly basis.

Speaker Change: Being short term on the balance sheet is a great trade for us.

Brian: The answer is yes to all of that so we want to continue to bring client money in cheese offset our loan growth would you have loan growth projections next year and so we are focused on it and you saw a large push in Q4 on the marketing front as we get into our Q4 2023, as we get into 2024 and we.

Speaker Change: Got it Okay, and then last one for me and I'm sorry, if you totally addressed this question I think somebody asked about it a little earlier was just on that $3 25 spot deposit cost.

Speaker Change: Is that where we bought them out unless we get rate cuts or incrementally decline from that level in the first quarter is the last of the promo stuff kind of rolls off.

Hope: Have paused reinvestment of our securities portfolio, we will use our securities portfolio to hedge our interest rate sensitivity, we're happy where we're at.

Hope: Expected that cash levels continue to come back.

Speaker Change: We're anticipating it to decline in Q1 modestly we do have additional appropriate we can pay off that was watered out and you look at our cash balance at the end of the quarter. The bigger piece of legal what is love Grubhub like in Q1, right when we pay down broker with the excess money when it when it comes.

Hope: For us it number one is creating client deposit so we can lend them to clients and if we have to be a little bit in brokerage for that we will be the bigger thing for us when we look at brokered going into 2024 is the mortgage warehouse.

Hope: Look at the seasonality of their you can possibly see some brokers have to come back in and then alpha next quarter about being our highest yielding asset and being short term on the balance sheet is a great trade for us.

Do or do we play into loan growth.

Speaker Change: But I would say you know 325 got it you know it's the high fleet will be bringing it back down until we see a rate decrease we do believe we've hit the peak of our beta last quarter and that will continue to bring it down again, not meaningful, but you know basis points here and there each quarter is.

Got it Okay, and then last one for me and I'm sorry, if you totally addressed this question I think somebody asked about it a little earlier.

Hope: On that $3 25 spot deposit cost.

Speaker Change: What we're targeting.

Hope: Is that where we bought them out unless we get rate cuts or incrementally decline from that level in the first quarter is the last of the promo stuff kind of rolls off.

Speaker Change: Got it alright, thank you very much for taking my questions.

Speaker Change: Thank you.

Speaker Change: We currently have no further questions. So I'd like to hand back the call to our CEO Bryan Jordan. Please go ahead.

Hope: What are anticipating it to decline in Q1 modestly we do have additional broker we can pay off that was watered out and you look at our cash balance at the end of the quarter. The bigger piece of legal what does loan growth look like in Q1, right. When we pay down broker with the excess money when it when it comes.

Bryan Jordan: Thank you Bruno Thank you all for joining our call. This morning, we appreciate your interest in our company and you're taking the time to join US. Please reach out if you have any follow up questions or if we can provide any additional information OPE everyone has a great day.

Hope: Do or do we we put into loan growth.

Hope: But I would say you know 325 got it you know is the high point, we will be bringing it back down until we see a rate decrease we do believe we've hit the peak of our beta last quarter and that will continue to bring it down again not meaningful but you know a basis point here and there each quarter is what we're targeting.

Speaker Change: Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.

Speaker Change: Thank you.

Speaker Change: Got it alright, thank you very much for taking my questions.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: We currently have no further questions I would like to hand back the call to our CEO Bryan Jordan. Please go ahead.

Hope: Everyone has a great day.

Speaker Change: Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.

Speaker Change: Thank you.

Speaker Change: [music].

Q4 2023 First Horizon Corp Earnings Call

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