First Horizon raises cost-cutting goal for Capital Bank deal
First Horizon in Memphis, Tenn., is feeling good about its most recent bank acquisition.
The $40 billion-asset company told investors at a conference Tuesday that it now expects to cut $85 million in annual expenses at Capital Bank Financial, which it bought on Nov. 30. That new projection is 30% higher than what management forecast when the deal was announced in May.
“We have very detailed plans, line item by line item, that builds up to the $85 million,” Bryan Jordan, First Horizon’s chairman and CEO, said during a presentation at a conference hosted by Goldman Sachs. “Not only do we have greater confidence in it, we have the ability to track it, to monitor it and to report on it, which we intend to do.”
Jordan said it is possible that First Horizon will close more than the roughly two dozen branches it had previously targeted.
"We are trying to be very measured when we look at branch consolidations," he cautioned. Decisions are "based on customer behaviors and customer transactions and our ability to do it in a way that minimizes the adverse impact on customers."
Jordan also said the company could bring in $25 million to $30 million in new revenue by 2019, with most of the benefits coming from improved margins tied to the balance sheet. For instance, he said there is a greater ability to replace wholesale funds with core deposits, along with the opportunity to hold larger portions of credit on the balance sheet.
"If we go from holding $25 million in a deal to $35 million ... it's no different in our cost structure," Jordan said. "We're going to underwrite it in the same fashion, but we picked up an additional $10 million of earning assets. So some of it is very, very easy."
First Horizon also has a "huge" opportunity to bring in more deposits in South Florida, Jordan said.
"While competitive, we think it's an opportunity to increase our core deposit funding," he added. "And we think we can do it at rates that are ... competitive vis-a-vis the marketplace competition but at the same time are attractive to any wholesale funding that we have on the balance sheet today."
First Horizon also plans to take advantage of Capital’s mortgage platform, a business it left in 2008.
“We have the ability to leverage our wealth management [and] our private client businesses, as well as our opportunities to lever our treasury management and treasury products,” Jordan added.
First Horizon should also meet its 15% return on equity target in 2019. The company's ROE at Sept. 30 was 10.79%.
The forecast doesn’t rely heavily on increased interest rates, Jordan said, noting that management has modeled a December hike followed by one in 2019.
“To the extent that rates move up faster … that should be additive,” he said.
Jordan also provided a timeline for integrating Capital. Deposit conversions should take place in mid-2018 with a few “wrap-up pieces later in the year,” he added.