First Horizon eyes more expense cuts in wake of Iberiabank merger

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First Horizon National, fresh off the closing of its merger with Iberiabank in Lafayette, La., said Friday that it plans to cut expenses more than planned because of the uncertainty imposed by the pandemic.

The Memphis, Tenn., company also continues to boost its loan-loss reserve and is tempering expectations for loan growth for the remainder of this year and into 2021.

“We are still probably in the early innings of how this thing all plays out,” Chief Financial Officer B.J. Losch said in an interview after the $83 billion-asset company released third-quarter results. “We believe it is better to be conservative with reserves now even as we feel incrementally better about things month to month to month.”

First Horizon’s total loan-loss provision amounted to $227 million for the quarter, well above its $67 million in net charge-offs.

“We're focused on the merger and the integration that we have in front of us” for much of 2021, said First Horizon CEO Bryan Jordan. “That’s most important, and then we'll figure out what's next after that.”
“We're focused on the merger and the integration that we have in front of us” for much of 2021, said First Horizon CEO Bryan Jordan. “That’s most important, and then we'll figure out what's next after that.”

While mortgages and select specialty business lines such as equipment finance are showing continued strength in demand, lending opportunities overall are modest, Losch said.

“Traditional loan demand broadly across consumer and commercial portfolios is pretty muted at this point,” he said. “So we do have pockets of opportunity that can offset some declines,” but “we don't have very high expectations for loan growth going into 2021. That's not because we don't want to look for new opportunities. … But it's just the nature of the environment right now.”

Ultralow interest rates that crimp loan yields and hinder net interest margins add to the need for expense reductions, he said. First Horizon’s net interest margin of 2.84% was down from 3.21% a year earlier.

First Horizon said it already had taken out $15 million from the combined company’s noninterest expense base on its way to the $170 million in cost reductions targeted by 2022. It is reducing overhead, branches, operations and computer services.

Against the pandemic backdrop, First Horizon expects to cut costs beyond those targeted with the merger, Losch said. The company did not specify a dollar amount — expect more details in early 2021 — but Losch said First Horizon would try to capitalize on the shift to digital banking, and away from branches, that the pandemic hastened. He said the company is looking at consolidating more branches and office space to take out more costs in 2021 and beyond.

During a call with analysts, Chairman and CEO Bryan Jordan was asked if First Horizon was looking at more merger or acquisition opportunities, given the economic disruption.

“That's not really in our frame of reference today,” Jordan said. “We're focused on the merger and the integration that we have in front of us” for much of 2021. “That’s most important, and then we'll figure out what's next after that.”

First Horizon reported third-quarter profit of $523 million, or 95 cents a share. That was up from $110 million, or 35 cents, a year earlier, though the year-over-year results were skewed by the Iberia merger and the purchase of 30 Truist Financial branches this year. Excluding the impact of those deals, earnings per share growth was flat.

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