Iberiabank deal ‘on track,’ First Horizon chief says

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We’ve done it before and we can keep it up — that was the message First Horizon National executives sent Friday in discussing plans to manage expenses without sacrificing growth potential in 2020.

Coming off a solid year of expense control and loan growth in 2019, officials of the Memphis, Tenn., company sought to assure investors of their ability to deliver on the cost savings projections tied to the pending merger with Iberiabank in Lafayette, La., while continuing to expand the combined company’s various business lines.

“We're very optimistic about what we see,” Bryan Jordan, chairman and CEO of the $43 billion-asset First Horizon, said Friday during a call with analysts about fourth-quarter and year-end results. “I am optimistic that we're going to hit our synergy numbers. And I think, over time, we may prove that there's some upside to that.”

First Horizon said average loans rose 7% in 2019 while noninterest expense rose just 1%.

When they announced the $3.9 billion Iberia deal in November — billed as a merger of equals, it was among the largest transactions of last year — executives projected $170 million in expense savings, or 25 cents per share of the combined company.

The substantially larger company, with $75 billion of assets, would have the scale and broader business and geographic mix across the Southeast to invest in digital banking services and talent and still make more money, executives said.

At announcement, the two companies said the deal would prove 16% accretive to First Horizon’s 2021 earnings per share and 22% accretive to Iberia’s.

Jordan, who will be CEO of the combined entity, said Friday the merger is coming together as planned. “We have no reason to believe at this point that we won't get the requisite shareholder and regulatory approvals by second quarter of this year,” he said. “So we expect to close late first half of this year. … Everything there is on track.”

Within days of announcing the Iberia transaction, First Horizon said it would also acquire 30 branches in North Carolina, Georgia and Virginia from the former SunTrust Banks. SunTrust merged with BB&T in 2019, creating Truist Financial in Charlotte, N.C. Regulators required Truist to divest branches to satisfy antitrust concerns.

The branch deal added $2 billion in deposits, and the integration is going smoothly, Jordan said.

“Both of these transactions are accretive to earnings,” Jordan said, “and we see both of them delivering significant shareholder value over time.”

Earlier this week, during an earnings call, Michael Achary, chief financial officer of the $30.6 billion-asset Hancock Whitney, said the Gulfport, Miss., company expects to ramp up hiring of commercial lenders in 2020 to capitalize on expected disruption created by the First Horizon-Iberia merger and the formation of Truist.

Jordan was asked on the First Horizon call about this. “We've been able to say very clearly to our frontline bankers that, given the limited branch overlap that we have, we were going to have a role for the folks that are facing our customers. So we don't think we're going to create very much disruption.”

For the fourth quarter, First Horizon reported net income of $121.3 million, up 6% from the previous quarter.

Excluding acquisition and restructuring charges, it reported adjusted earnings per share of 47 cents. Analysts on average had forecasted 41 cents, according to FactSet Research Systems.

The company's revenue rose by 5%, to $494.7 million, on gains in fee income and interest income. Average loans were up 2% to $30.7 billion, and net interest income climbed 4% to $311.4 million. Noninterest income increased by 7% to $183.3 million. Strength in fixed-income trading drove fee revenue.

The net interest margin increased by 5 basis points, to 3.26%, on lower funding costs.

Stephens analyst Tyler Stafford called it “a solid finish to 2019.”

First Horizon CFO B.J. Losch said that while deal integration is top of mind, the company is also focused on organic growth over the next several months leading up to the Iberia closing.

“I think the momentum that we've got in our business is going to carry on into 2020,” Losch said on the call. First Horizon has put “a major focus of not losing sight of continuing to run the business as we integrate. So that's one of our top priorities.”

Iberiabank is scheduled to report fourth-quarter and year-end results on Jan. 24.

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