First Horizon in Memphis, Tenn., is getting more aggressive cutting costs tied to its merger with Iberiabank, reflecting systemic shifts that have taken place during the coronavirus pandemic.
The $84 billion-asset company said during a Friday conference call to discuss quarterly earnings that it will cut $200 million in annual expenses as part of the deal’s integration — a $30 million increase from the original projection.
The effort, which includes additional branch closures and getting rid of more office space, should help the deal be accretive to tangible book value within the next six months. Executives previously said the earnback period would extend to 2022.
The pandemic has led executives to rethink some of the plans they crafted after announcing the $3.9 billion merger in late 2019. The deal closed in July.
“With all of the changes in customer behavior and remote working, it has changed how we think about office needs, and it gave us confidence that we could up our goal,” Chief Financial Officer B.J. Losch said during a Friday interview after the earnings call.
First Horizon said it generated $14 million in merger-related savings during the fourth quarter —$56 million on an annualized basis — and it expects that figure to steadily increase until it reaches the $200 million target as soon as the first half of 2022.
The anticipated acceleration in savings, combined with lower credit costs and strong quarterly earnings, is giving executives more confidence about the future.
The accelerated earnback is “pretty meaningful,” Losch said.
While many companies are redirecting cost savings into technology upgrades, Bryan Jordan, First Horizon’s chairman and CEO, said during the earnings call that he expects the added expense cuts to “drop to the bottom line.”
First Horizon is starting to achieve revenue-related benefits from the merger as well.
“We’re seeing … referrals in asset-based lending, equipment finance,” Jordan said. “There’s a lot of excitement among our bankers about those capabilities. … There are strong opportunities for us to either grow with or bring into the company.”
First Horizon reported fourth-quarter profit of $234 million. Comparisons with prior quarters are challenging because of the impact of the Iberiabank merger and the coronavirus pandemic.
Revenue fell by 1% from three months earlier, excluding certain third-quarter accounting benefits tied to the Iberiabank merger.
The loan-loss provision was $1 million in the fourth quarter, a steep drop from $227 million a quarter earlier. Net charge-offs fell by 57% to $29 million, though the amount included $23 million of write-downs in the energy portfolio.
Though Losch said First Horizon “will always be in the energy business,” the company lowered its exposure in the second half of 2020 and has no near-term plans to grow the book. Oil prices, in particular, remain vulnerable to the limited travel that is sure to continue until after the pandemic ends, he said.
Looking ahead, Losch said First Horizon expects revenue challenges in the first half of 2021, with light loan demand and low interest rates putting moderate pressure on net interest income. The company also expects fee income to level off and decline modestly following robust growth last year that largely reflected a boom in mortgage refinancing.
Still, Losch said the company is upbeat about growth prospects in the second half of 2021.
“There’s plenty to be optimistic about, plenty to still be cautious about near term,” Losch said. “We’re erring on the side of caution in the first half of the year, but with the vaccines we think things start to look better later in the year.”
