First Horizon’s
The $88 billion-asset First Horizon said Friday that the Iberia integration is on schedule for completion by mid-October, and new revenue is emerging, with $20 million in top-line growth identified so far, double the previous estimate.
President and CEO Bryan Jordan said in an interview that cross-selling efforts are playing a key role. First Horizon, for example, brought asset-based lending to Iberia clients, while Iberia presented equipment finance services to First Horizon’s customers. “We’re seeing very strong momentum,” Jordan said.
Merger costs, however, are now projected to be $500 million in total, up $40 million from earlier estimates, the Memphis, Tennessee-based company said. First Horizon, in reporting second-quarter earnings, cited increased costs tied to system upgrades and more branch closings than initially planned.
Jordan noted that the pandemic hastened the transition to digital banking, necessitating more investments in technology while also enabling the bank to close more branches. First Horizon had initially planned to shutter 25 branches after the Iberia deal closed in July 2020. It now plans to close about 75 branches.
That effort presents upfront costs, but it also will help lower future real estate expenses and free up money to invest in technology, Jordan said.
First Horizon generated $23 million in merger-related savings during the second quarter — $92 million on an annualized basis — and it expects that annualized figure to increase steadily until it reaches its $200 million target as soon as the first half of 2022.
First Horizon faced revenue headwinds in the second quarter, with average loans and interest income both down 2% from the prior quarter. Comparisons with results from the second quarter of 2020 are skewed because of both the merger and the pandemic.
Fee income also dipped lower, falling 4% from the first quarter, as the recent boom in mortgage refinancing began to slow, and home purchase activity was held in check by low inventory and rising prices.
Total revenue declined by 3% to $781 million.
Still, First Horizon posted strong earnings, with total expenses flat, credit costs down and a $115 million reserve release that dropped to the bottom line. The bank reported quarterly net income of $295 million, or 53 cents per share, up from first-quarter net income of $225 million, or 40 cents per share.
Credit quality continued to improve, with nonperforming loans shrinking from 0.67% of the total portfolio in the first quarter to 0.61%.
“We think that as the economy further strengthens and credit improves more … there is substantial room for more reserve releases,” Jordan said, though he cautioned that the pandemic remains a wildcard.
First Horizon’s loan pipeline is building, he said, with the growth spread across the bank’s Southern footprint, from Texas to the Carolinas.
Jordan is anticipating the arrival of both loan growth and stronger interest income, though he said the timing remains difficult to predict. He noted that consumers and business owners are actively paying down real estate debt, which is offsetting new loan growth.
