First Horizon Corporation (FHN) Q4 2014 Earnings Report, Transcript and Summary

Aarti Bowman - Head of Investor Relations D. Bryan Jordan - Chairman, Chief Executive Officer, President, Member of Executive & Risk Committee, Chairman of First Tennessee Bank National Association and Chief Executive Officer of First Tennessee Bank National Association William C. Losch - Chief Financial Officer, Executive Vice President, Chief Financial Officer of First Tennessee Bank National Association and Executive Vice President of First Tennessee Bank National Association Susan L. Springfield - Chief Credit Officer, Executive Vice President, Chief Credit Officer of First Tennessee Bank National Association and Executive Vice President of First Tennessee Bank National Association

Steven Alexopoulos - JP Morgan Chase & Co Emlen B. Harmon - Jefferies & Company, Inc Ebrahim H. Poonawala - BofA Merrill Lynch, Research Division Marty Mosby - Vining Sparks Matthew H. Burnell - Wells Fargo Securities, LLC John Pancari - Evercore ISI Christopher W. Marinac - FIG Partners, LLC Kenneth A. Zerbe - Morgan Stanley Eric Wasserstrom - Guggenheim Securities

Good morning and welcome to the First Horizon National Corp. Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Aarti Bowman. Please go ahead.

Thank you, Amy. Please note that the earnings release, financial supplement and slide presentation we'll use in this call this morning, are posted on the Investor Relations section of our website at www.firsthorizon.com. In this call, we will mention forward-looking and non-GAAP information. Actual results may differ from the forward-looking information for a number of reasons outlined in our earnings announcement materials and our most annual and quarterly reports. Our forward-looking statements reflect our views today and we are not obligated to update them. The non-GAAP information is identified as such in our earnings announcement materials and in the slide presentation for this call and is reconciled to GAAP information in those materials. Also, please remember that this webcast on our website is the only authorized record of this call. This morning's speakers include our CEO, Bryan Jordan; and our CFO, BJ Losch. Additionally, our Chief Credit Officer, Susan Springfield, will be available with Bryan and BJ for questions. I'll now turn it over to Bryan.

Thanks, Aarti. Good morning, everyone and thank you for joining our call. I'm very pleased with what we accomplished in 2014 and I am optimistic about our prospects for further progress in 2015. Last year we profitably grew our balance sheet by increasing loans in the bank and ended the year with the strong pipeline. We’ve reduced expenses and improved efficiency while continuing to invest in our core businesses. We made significant headway towards putting legacy issues behind us by reaching the settlement with Freddie Mac by resolving the FHFA litigation, reducing nonstrategic loans and selling mortgage servicing. We continued to return capital to shareholders. We repurchased 3 million common shares in 2014. Since 2011, we’ve bought back 31 million shares reflecting an 11% share count reduction. We acquired bank branches in Tennessee adding $440 million of deposits and agreed to acquire TrustAtlantic Bank in North Carolina. We also just announced that we increased our annual dividend rate by 20% from $0.20 per share to $0.24 per share. I feel good about our positioning as we kick off 2015. We are seeing moderate, but steady, growth in our markets. And believe that we are set to take additional profitable market share while maintaining loan quality. Year-over-year the Regional Bank grew average loans 10% despite strong competition. Our specialty lending areas drove the growth with Private Client/Wealth loans up 10%, asset-based lending increased 15% and commercial real estate lending up 31%. Our efforts in our growth markets are paying off as well, with Mid-Atlantic loans up 25% and Middle Tennessee up 10%. At FTN Financial average daily fixed income revenues were steady from third to fourth quarter 2014 and are likely to stay in this general range until market conditions improve. In 2015, we remain committed to cost containments. As I have said previously, we want expense control to be embedded in our culture and not just targeted amounts for efficiency goals. There are still opportunities to reduce our expense base, which BJ will have additional comments on in a few minutes. As to credit quality, non-performing assets and charge-offs were down a respective 33% and 28% year-over-year and trends continue to be favorable. Economic profit was a major thing for us in 2014 and will remain so in 2015. We have educated our bankers on the importance of making profitable relationship oriented loans and have rolled out tools and databases to help employees measure RAROC and economic profit. We believe our emphasis on economic profit will benefit our returns going forward and help us achieve our long-term bonefish targets. I will now turn the call over to BJ for more financial details about the quarter and then I’ll be back for some closing comments. BJ?

Thanks, Bryan. I will start on Slide 8. For the fourth quarter, net income available to common was $46 million or $0.20 a share compared with the third quarters $45 million or $0.19 a share. I know this is going to surprise you, but there were no notable items or one-times in the quarter, so we certainly hope this helps lighten your analysis load on us a bit this quarter. Net income available to common for the full year 2014 was $213 million compared to $24 million in 2013 and our full year EPS was $0.90 in 2014 versus $0.10 in the 2013. Slide 9, shows our segment highlights, but let’s skip right to Slide 10 and discuss the core business results. First the Regional Bank’s net income was $50 million in the fourth quarter relatively flat to third quarter’s level, but up 16% from a year ago. Pre-tax pre-provision net revenue grew 3% linked quarter and was up 20% year-over-year. Linked quarter net interest income in the bank was up 2% and up 8% year-over-year driven by continued strong loan growth. Non-interest income was flat linked quarter, as we saw increases in deposit transaction fees, trust services and bank card income that were somewhat offset by decreases in brokerage and other service fees. Year-over-year fee income growth was around 3% with strength and brokerage trust and bank card in particular. While expenses in the bank efficiency ratio were relatively stable linked quarter the efficiency ratio and the bank has improved more than 400 basis points versus fourth quarter last year to around 62%. Loan loss provision was just under $6 million in the fourth quarter compared to a little over $2 million in the third. The increase was driven by loan growth in the commercial portfolios and a modest rebalancing the reserves primarily to our commercial real estate portfolio. Turning to Slide 11, we’ll look at the Regional Bank balance sheet trends, linked quarter average loans in the banks were up 2% and up 10% year-over-year. We continue to see good growth in our specialty lending areas, linked quarter we had a 5% increase in average loans in asset-based lending reflecting both an improved utilization rate on existing lines and new customer growth. Commercial real estate grew 5% driven by increases in the REIT sector and growth in property types such as assisted living facilities, retail and industrial. We also continue to see CRE borrowers funding up committed lines. In fourth quarter 2014 loans to mortgage companies were relatively flat to 3Q 2014 levels with average balances of around $900 million. From a market perspective linked quarter we saw strength in our Mid-Atlantic market which was up 3%, East Tennessee increased loans by 2% and Middle Tennessee posted 1% growth. Pricing and underwriting trends due remain competitive across our markets in lines of business. Yet as Bryan discussed earlier our bankers are focused on improving economic profitability and risk adjusted returns on capital to strengthen our balance sheet. We should continue to see strong growth in our specialty lending areas in expansion markets such as Mid-Atlantic and Houston and although the lending environment remains highly competitive generally we believe customers remain cautiously optimistic and our pipelines remain strong. Turning to FTN in the fixed income business on Slide 12, we saw net income of $4 million in the fourth quarter up from $3 million in the third as anticipated fourth quarter was in line with third quarter and were seasonally down during the holiday season. Fixed income average daily revenue was at $630,000 in the fourth compared with $644,000 in the third. Expenses declined 4% linked quarter due to lower variable compensation. For the first half of the year in 2015, we expect to see continued lower fixed income activity because of the challenges market condition from low rates, low volatility and a flatter yield curve. Turning to Slide 13, let's look at the balance sheet of margin trends. Average total assets were slightly up from last quarter at $25 billion, linked quarter average loans were up 1% and core deposits grew 8%. As discussed a few minutes ago, our net interest income was flat to prior quarter as we saw good loan growth of loan fee collection along with lower deposit costs. However, our net interest margin was down, you will recall that on the third quarter call, we discussed that the net interest margin would come down in the fourth primarily due to anticipated excess cash and that’s exactly what we experienced. The consolidated net interest margin declined 11 basis points to 286 with virtually all of the margin decline driven by our excess liquidity position. First, a good bit of it was the high class problem of strong customer deposit gathering. Fourth quarter’s deposit growth included inflow from commercial customers, the addition of $440 million of core deposits from our recent branch acquisition and higher insured network deposits. Also you will recall that last November we issued $400 million of senior debt at the bank to replace a maturity that we paid-off just last week, so we carried those excess proceeds for the last 45-days or so. All of this activity even with strong loan growth caused period end interest bearing cash levels to go to about $1.6 billion for the quarter up from $275 million in the third. Again, commercial loans and low deposit costs were positive and did mitigate some of the NIM increase - excuse me decrease. Looking ahead to the first quarter, we expect consolidated net interest margin to decline again for largely the same reasons until we can smartly put these excess funds to work. In addition to normal fourth quarter to first quarter seasonality in the NIM that we usually experience. So as we sit here today, we expect the first quarter NIM to be at abnormally low levels from that excess cash in addition to lower day count impacts. However, while the NIM maybe lower, we expect to see steady to maybe modestly lower NII. Again, we do not believe that first quarter 2015 NIM will be representative of the remainder of the year. We expect it to increase after the first quarter as the excess cash is put to work. You can see our balance sheet remains highly asset sensitive and we're prepared for increases in short rates and will stand to meaningfully benefit from that type of movement. While a flattening of the long end is not helpful to either our NII or the fixed income business. The benefit of increases in the short end of the curve more than offset pressure from the flattening on the long end. Turning to expenses on Slide 14, you will see the successful execution of our efficiency efforts. Since 4Q 2011 our annualized expenses excluding mortgage repurchase and legal costs have declined 21%. We’ve reduced cost in numerous areas such as compensation credit and nonstrategic expenses. As Bryan talked about cost control will continue to be a priority for us in 2015. As you know, we still plan to eliminate another $20 million to $50 million of expenses over the next couple years. We have ongoing efficiency initiatives and also plan on reinvesting in the business in revenue producing growth areas such as Middle Tennessee, the Carolinas, Houston and our Wealth Management business. As a result we expected to pace some net cost reductions will likely flatten compared to previous years, but we’ll still continue to look for additional efficiency opportunities. Turning to asset quality on Slide 15, linked quarter trends were generally stable to improved. And in the fourth quarter net charge-offs remained low and an annualized 30 basis point of average loans or $12 million compared to $11 million in the third quarter. Linked quarter our nonperforming assets decreased 6% to $242 million and the loan loss reserve decreased 3%. Our allowance to loans stands at 143 basis points. Overall, we continue to be very pleased with our credit quality and frontline discipline and expect that to continue. Wrapping on Slide 16 and 17. For the fourth quarter our core ROTCE was 10.4% compared to consolidated ROTCE of 8.7%. We are making progress towards our bonefish targets as the strength of our core businesses improve and the nonstrategic segment continues to run-off. As you know, a rate rise would be positively impactful to our profitability. But in the meantime we’ll focus on controlling what we can control to enhance our returns. That’s continued efficiency efforts, the ongoing wind-down of the nonstrategic portfolio growth opportunities in new markets and products focused on economic profit enhancement, increased fixed income activity as well as capital deployment. So back to you Bryan.

Thank you, BJ. I am pleased with the successful execution of our priorities in 2014 and I expect continued momentum in 2015. Overall, we are broadly optimistic we anticipate this year’s operating environment to be somewhat better than last year’s with the economy steadily improving. We are fully prepared to capitalize on opportunities provided by an improving economy. Over the next year, we will continue to strengthen our balance sheet, manage expenses, wind down the nonstrategic business and improve our economic profitability. We should make ongoing progress towards achieving our bonefish targets and building franchise value. And finally, thank you to our First Horizon people for all that you do to help us serve our customers so well. Amy, with that we'll now take questions.

[Operator Instructions] Our first question comes from Steven Alexopoulos of JP Morgan.

Hey, good morning everyone.

Good morning, Steve.

Good morning.

I want to start on expenses. Thus far, you guys have been one of the few banks that actually cuts dollars of expense, not just trims the growth rate of expenses. With that said, less than $140 million now of annualized expense in the fourth quarter. Is there more room to drive the level of expense down again in 2015?

Hey, Steve, it’s BJ. Yes, we believe so, like I said we’ve got $20 million to $50 million of efficiencies we’re working on and like we’ve done in prior year’s that won’t be the end of what we do, we’ve try to build a culture of expense, discipline and continuous improvement here, so we’re going to constantly look for things that the steep decline in what we’ve seen in terms of net expense reductions of 21% over the last three years, I mean there is a law of diminishing returns after a while. We’ll continue to look for net reductions and we believe we can get that, but we’ve also got a lot of good things going on that will produce revenue like what I talked about additional investment in Middle Tennessee, Mid-Atlantic, and the Carolina’s in particular, our wealth management business things like that. So we had a lot dropped to the bottom line before, we still think we’ll have more drop to the bottom line, but some more of that will be offset by growth initiatives we have as well.

Hey, Steve, this is Bryan. I’ll piggyback on BJ’s comment. In my earlier comments, I talked about the cultural nature of expenses and I’m very, very pleased with what organizationally I see in terms of the way our folks are approaching expenses. And I think the expense efficiencies it will gain over the next couple of years are likely to be through their hard work in analyzing the financial tools that we’ve laid out in terms of profitability looking at in then and processes. And I actually believe that to be a much better way for us to continue to approach expenses setting targets and setting those targets in such a way that we go into silos and ask - because Susan is in the room say we want to reduce a little bit more in credit or we want to got to finance and say BJ reduce a little bit more finance is not the right way to approach if we need to do it in a way that helps us from end-to-end in our processes, and allows us to continue to provide high level, high quality and differentiated service to our customers and do it in a way that make sense for building the business long-term. And to reiterate what BJ said, yes we see additional opportunities to reduce expenses over the next couple of years, it gets more difficult, but we do see those opportunities. And like we have in the past we will continue to invest in the business and build the franchise for the long-term.

Okay, that's helpful, Bryan. Appreciate that commentary. Maybe to shift gears, I wanted to ask a question on the nonstrategic segment, which generally continues to help earnings rate. It was $0.02 this quarter, about the same as last quarter? Can you help us think about the wind-down of the remaining businesses? Should it just be very gradual? Are you looking at options to more quickly exit some of the remaining businesses or portfolios? Thanks.

Yes, Steve its BJ. You obviously know that over the last couple of quarters. Well, second and third quarter we did do some loan sales out of the portfolio which helped us we had some significant gains there. The rest of the portfolio is largely consumer HELOCs and installment loans, there are couple of hundred million dollars of trust preferred whole loans that are there and we will probably be there for while, but it’s mostly the consumer real estate. We would certainly be open to looking at ways to accelerate that either through various ways that we could do internally or look for things externally like we’ve done before. But if you look in the back of the slide book you can see over the last two quarters that the CPR on the consumer real estate portfolio has ticked up pretty substantially over I think it was 22% last quarter 25% this quarter that was up from maybe mid-teens several quarters ago. So with the long end coming down, I think people have seen more opportunity to refi away that certainly help the reduction in our portfolio, we expect to probably see more of that and as we’ve talked about before we're not particularly active in trying to keep those balance sheets on our balance sheet. So we're happy to see them go, but with that said, in a rising rate environment we're looking for plenty of ways to match fund or core fund that portfolio as well so that we might take a little bit more advantage of the asset sensitivity inherent to that as much as we can. So there is lots of things that we're looking at to do, but we feel like it’s well managed, its got great credit quality, it has made us a modest amount of money and we feel comfortable with it.

Okay. Just one technical question. BJ, the tax rate, was there any one-time items in there in the fourth quarter or is 19.5% a reasonable rate going forward? Thanks.

No there were some permanent tax credits and some reserve reversals that came through in the quarter. So that was a little bit lower than what we would normally expect. Going into 2015, I would suggest that you should probably think about a 30% effective tax rate, something like that but this quarter was a little bit light with those permanent credits.

Okay, thanks for all the color.

Our next question comes from Emlen Harmon with Jefferies.

Hey good morning.

Good morning.

Good morning.

BJ, just could you walk us through the plan for deploying that liquidity build-up in the quarter? Obviously, debt redemption will consume a portion of that. But for the remainder, is the plan to wait for loan growth or do you have a plan to do something different in the interim or the medium term?

Yes, we're still working through what would be the smartest way to do it. There are plenty of ways, certainly loan growth would be the most advantageous for us and so we're looking at what our forecast are for loan growth and we think that will certainly be part of it. We're looking at our capital and debt instruments that we have to see if there is any opportunity for us to retire those attractively that could be a possibility. Buying securities is extremely challenging right now as we can see in our fixed income business and we certainly see in our securities portfolio, but we're looking at that as well. So there are plenty of things that we're looking at, but what I alluded to in my comments was we’ll smartly do it; we're essentially parking that cash today at the Fed and making 24, 25 basis points on it. So it is earning a little bit but it’s not earning nearly enough. So we will be smart about it, but hopefully we can get through most of it in the first quarter and maybe leak a little bit into the second.

Got it. If I look at just kind of the average interest-bearing cash, that was actually up about, call it, $800 million versus the $1.6 billion end of period. If we think about the first-quarter margin, does that mean you may have a little bit more leak there in your abnormally low NIM guide for the first quarter?

Yes, yes that’s right, we don’t want you to be surprised with a NIM that maybe has a 2.7 something on it, because that could certainly happen in the first quarter, but again as I talked about the margin might look low because of that excess cash, but our NII should be relatively stable to maybe modestly down. So I would keep more of an eye on the NII until we work through the excess cash.

Gotcha. Just one quick one on Middle Tennessee, loans there up 10% on a year-over-year basis. You have talked about addressing that market differently going forward. Is it still possible to see an acceleration of growth there or is that 10% what you were hoping for or what you are hoping to get out of that market?

Hi, Emlen, this is Bryan. Yes I think there is still additional acceleration that will see there we have put a lot of energy into that market over the last couple of years we have made I think very good progress this year. We have actually gone through a leadership transition with Doyle Rippee, who is retiring, and Carol Yochem, who has taking over the market and is providing really good leadership. We have attracted some very, very talented individuals that we think will make a significant difference for us in that marketplace. So I am very optimistic that we will see an acceleration in 2015, 2016 and beyond I think we’ve got great opportunities in Middle Tennessee.

Got it. Thanks guys.

Thank you.

Thank you.

Our next question comes from Ebrahim Poonawala at Bank of America Merrill Lynch.

Good morning, guys.

Good morning.

I guess first question, just in terms of the investment side of the expense equation [mainly] to reinvest in the franchise. I was wondering, Bryan, if there is a specific plan in terms of the X number of branches that you want to open in the Carolinas or Middle Tennessee or hiring of lenders over the next six to 12 months, if there is any color that you can add in terms of where those investment dollars are going to go on the banking and maybe even the capital market side?

Yes, we don’t have, let me start with the branches, we don’t have any broad based plans to have a net increase in the number of branches. In all likelihood, we would continue to see a net consolidation of branches. What we’re referring to the types of investments that we’ve made over the last several years, where we’ve invested in technology and platform, whether it be our sales and service platforms, whether it be our relationship management platforms or even the technology required to produce economic profitability at the customer or the relationship levels. So we’re not expecting anything off pattern in terms of investment in the business, we’re really just sort of nodding to or acknowledging the fact that at some point that the ability to continue to make the significant kinds of productions that we’ve made over the last couple of years gets harder and that incremental progress is likely to still be achieved, but we’re going to continue to focus on investing in the business for the long-term and making sure that as I said earlier that we have a franchise that is delivering that differentiate customer service to our customer base.

Understood, and then just a separate question on the mortgage company loans. Other banks have talked about benefit from low rates sort of helping activity there, more recently on the refi side. Also, the purchase side is getting better. Just wondering if you had any thoughts in terms of how those balances should look vis-a-vis the first half of last year, and it seemed like the balance load obviously seasonally closed up pretty strong at the end of the year. So any color on that, BJ, would be helpful?

Sure, yes, the average balances were relatively flat from third quarter to fourth quarter, but there was - there were pretty good peaks in there for going into the end of the year the balances were well over $1 billion, probably now today they are in the 800 range, but with long-end falling we think of replenishment in that pipeline is coming, so we could see some modestly higher balances in the first quarter and we would probably anticipate that in the business, so that’s positive. The other is we have seen as you might imagine a shift in our pipeline to more refi versus purchased. I think we had been running most of last year as a 70% purchased, 30% refi will probably more 55%, 45% purchased refi right now and probably continue to move more to refi. So we’re fairly optimistic at least over the next few months that we could see higher balances there.

Got it. If I can sneak in one last question, just in terms of the capital markets pretax income, is there anything outside of the overall rate environment changing or the increase in volatility that could lead to growth in terms of pretax contribution from that business, or not?

This is Bryan again that in short order that the thing to move the needle the fastest will clearly be a pickup in fixed income activity and the volatility this week and last week with the moves at the EU made in terms of quantitative easing and even the de-linking of the Swiss Franc has increased volatility and so those things have been reasonably good for the business. Now two weeks is not a trend, but those are the things it will move fast. In the longer-term the work that the FTN team, Mike Kisber and the team or putting in place to build out our capabilities around municipal finance and building those businesses will not only change the mix of the business, we think they will give us greater opportunity to grow the revenue base there. So we’re working on a lot of fronts, but clearly the most effective in the short run is going to be greater volatility in the fixed income markets it leads to more fixed income sales in market making.

And next question comes from Marty Mosby at Vining Sparks.

Hi.

Hi, Marty.

I wanted to ask a little bit of a technical question on capital ratio, and then also on interest rate sensitivity. But on capital ratios, your Tier 1 common ratio is improving, but you are being able to pull down your tangible common equity, which is really the more important when you start looking at returns. How are you kind of efficiently managing between those two ratios? It seems like you are doing a real good job of effectively deploying capital in a way that will be productive.

Yes, the tangible common equity I think this quarter was from a few different areas, the intangibles were actually larger because of our branch acquisitions that was one thing, movement in the discount rate and pension liability was another and then the modest amount of share repurchases that we did in the quarter obviously actually both tangible book value had a modest impact on that. So I wish I could say I was really smart and figured out a great way to do that, but this quarter it was a little bit more of those technical details that drove it.

I was trying to give you a little credit.

I appreciate that.

I want to talk about the yield curve impact that you show on page 13. Basically what you are saying is a flattening of the yield curve would offset about 25% of your rate sensitivity. What point of the yield curve are you applying when you are looking at the flattening there? Is it farther out, or where is the sensitivity there?

On which part? I’m sorry Marty.

On page 13, you talk about the long end going down, impacting you by about $9 million?

Yes, its more in the five year range is what we look at. We don’t have a ton of long dated assets that are beyond that. It’s mostly in that five range.

What if you looked in the two- to three-year range, would it be a little bit more sensitive? I am trying to think of where it becomes -- the elasticity begins to increase a little bit more?

Yes, a majority of our durations on the balance sheet on the loan side would be in the probably three to four year range. So anything in that range would be most sensitive, but as you can see, I mean if you just do a simple extrapolation, its we are much more levered towards movement in short rates than we are even in the three to five plus area. So on balance if the Fed does start to move rates we're going to be a net beneficiary of that movement.

The next question comes from Matthew Burnell of Wells Fargo.

Good morning Matt.

Good morning folks. Thanks for taking my question. Bryan, a question for you. You mentioned a couple of times in your comments the capital return and share repurchases that you have done over the last couple of years. This year -- or 2014's capital returns, at least in terms of buybacks, were back-end loaded. It looks like to us you had about a 45% to 50% payout ratio. Obviously, you just announced a higher dividend, but you have also said in the past that in a low rate environment, you would think about capital returns up to 100% of earnings. Just trying to get a sense as to how you are thinking about that going forward into 2015 and 2016.

Yes. I think Matt it really hasn’t changed an awful lot in that regard, we still think that we will in all likelihood be returning substantially all of our capital in the buyback and the dividend programs and obviously you noted the increase in the dividend, because we do think its important reward our long-term shareholders. Mechanically, as you pointed out, we did have it somewhat backend loaded in 2014, some of that is because of what we described, say a year, 15 months ago, in terms of wanting to work through some of these mortgage related issues. And then with the announcement of the TrustAtlantic, we will be in a proxy solicitation, so there will be certain limits in terms of how much we can buyback while we’re in that process, but overall we still would expect to repatriate substantially all of our earnings and maintain our capital levels by getting capital back in our shareholder’s hands.

Okay, thank you. Then a question, BJ, for you, I guess. You are running at about 5% year-over-year loan growth. It sounds like the pipelines are pretty good right now. Can you give us a color as to the momentum in the pipelines and would you be willing to give us an outlook for loan growth, either into the first quarter or through 2015?

Sure, Matt and Susan can jump in as well, but we’ve been very pleased, and I might even say, pleasantly surprised by the ability of our bankers to actually put fundings on the balance sheet and yet remain - have the pipelines remain strong. So we have seen that over the last three quarters and what our bankers will tell us is that the pipelines remain strong and we should continue to see good fundings. We do see some seasonality from fourth to first that always seems to occur in terms of our fundings. But we do believe that loan growth year-over-year as we go through the year can be pretty strong. We saw 10% growth in the bank this year I am not going to sit here and predict double digit growth but can we have strong growth like that or close to that. Yes, I think we can we’ve seen good strength in commercial real estate. Where we have a lot of capacity from a balance sheet perspective, I think only 8% of our outstandings are in CRE, so that gives us a lot of dry powder, if you will, where others might not have as much that’s good. Carolinas has seen very strong growth. Our asset-based lending business is seeing good utilization and new customer growth as we talked about earlier. So we are pretty positive on where we can see growth going forward into 2014.

This is Susan. I would echo what BJ said. We do continue to see our bankers doing a great job calling on existing customers as well as prospects in all of our markets and we have seen obviously growth in our specialty areas and some of the growth markets, but we’ve also had success in our core, more seasoned markets in terms of further penetrating existing customers with both on increased lines of credit lines, also treasury management and so we’re encouraged by that.

The next question comes from John Pancari at Evercore.

Good morning.

Good morning, John.

Hi, John.

Regarding the margin in 2015, I know you expect - you cited the impact you expect for the first quarter. Can you give us a little bit more color on the pace of that rebound or that expansion that you cited coming out of first quarter and through the remainder of the year, and then what that means for the full-year 2015 margin? Thanks.

Sure, John, so like I’ve said I guess we’re at 286 this quarter, I could see something in the 270s in the first quarter, but then I think it rebounds back towards where we were at this quarter. And then depending on the timing of rate increase, I think it starts to climb pretty healthy from there. Absent rate increases, I think it goes back to the levels that kind of we’re at in the fourth quarter. So in terms of 2015 margin, I would think in the 280 range, absent rate moves would probably be a good area to think about.

Okay, all right. And then separately on expenses, back to your $20 million to $50 million that you have cited in terms of efficiencies that you're still focusing on, can you just remind us - I mean, do you expect that to ultimately come out of the run rate or do you expect a portion of it to be reinvested over time? And then, separately, what do you think about the efficiency ratio as you look into full-year 2015? Thanks.

I would hope that a good amount of the $20 million to $50 million over time would drop to the bottom line. I think what you’ve seen from us over the last three years was a substantial amount of the expense reduction falling to the bottom line which is good. I would change my language to some or a good amount of the reduction fall into bottom line now. As Bryan talked about as I talked about it does get harder and as we see growth opportunities we want to continue to invest in good costs and so we’ll reinvest some of that over time. So I think the efficiency ratio in 2015, I would expect it to get better by a couple hundred basis points I would hope. We are doing a lot of good things on both the numerator and the denominator there and so we’ll keep chipping away at it and a couple hundred basis points I think would be good next year, but we need to get it down a lot more than that and we’ll need a lit bit more help on rates to really see a steeper improvement in new ratio.

The next question comes from Christopher Marinac at FIG Partners.

Thanks Bryan and BJ, I was curious on the TCE ratio. As you look at decisions on buying back more shares or looking at other acquisitions or anything in between, is there a lower threshold where you don't want the TCE ratio to cross under?

Chris, its BJ. I think not in a normalized environment whatever that is we think TCE ratio in that 6.5% to 7% range would be very appropriate for our balance sheet and a business mix that we would have, with stress tests and binding constraints on stress tests in a severe adverse scenario can we go down to the 6.5 range maybe, maybe not, but we’ve got plenty of excess capital today to be able to get down to that range that 6.5 to 7 TCE to TA kind of implies a 8.5 to 9 little over 9 Tier 1 common ratio and again we think just operating normally that would be an optimal range for us to be in.

Okay, great. Thank you for that color. And Bryan, given the new investment in Houston, is this a time where Houston could actually become a bigger opportunity for you, just given changes in energy, perhaps changes in other banks, interest level in the market there?

Yes, we’re optimistic we think we’ve got great opportunities in the roughly 9 months, 10 months that we’ve been building the business there we are seeing very good momentum, we are seeing very good opportunities in fact David Popwell was there yesterday and today making customer calls so with our teams. So we’re seeing very good receptivity there, it’s a little too early to tell what the long-term impacts of lower oil and gas prices mean to the overall Houston economy, clearly in the oil and gas price we're seeing capital investments reduced and that economy is likely to slow down some, but given all of that it is you are sort of a new participant in the market, you’ve got sort of a wide open field, we think there would be a number of great opportunities, we’ve have an opportunity to look at and we feel like we have the balance sheet capacity and appetite to be very proactive in booking those relationships.

Chris, this is Susan. To add on what Bryan was saying, we actually think from a credit perceptive obviously to have the correction in energy prices at this time at the point in time we are entering the market will be a good opportunity for us to go in and bank some of these great companies that are there. We’ve hired bankers this year now with deep experience in relationships with both energy companies, C&I, CRE and so we believe that there are opportunities there and that we’ll be able to expand on those.

The next question comes from Ken Zerbe at Morgan Stanley.

Great. Thank you, good morning.

Good morning Ken.

I just want to go back to the reinvestment of the excess cash you guys have. I heard you when you said you wanted to -- you were going to get most of that done by the end of first quarter and you said loan growth is the best option, but I suspect you are probably not going to grow $1 billion of loans. So unless you have any debt that you're going to retire that you're planning on, it seems like the only way you're going to really redeploy all this cash is by investing it into securities, which is probably, like you said, a tough choice right now, given low rates. Am I wrong in assuming that most of this is going to go through into securities growth, and is that baked into your 2.80% NIM expectations for 2015?

Yes. Yes, I don’t think a lot of its going to go into securities, if I didn’t say it as clearly as I should have before I apologize. Yes there isn’t a lot of buying opportunity in securities debt at levels long rates are at. So there could be places where we have opportunities to do that but you wont see the securities portfolio grow meaningfully. Debt retirement, capital instrument retirement, yes we’ll look at all of that could it be opportunities in our trading inventory at FTN and we could certainly look at things like that even though we're not a proprietary trader, caring inventory for customer purposes in different areas we could certainly look at all of that said, I would like to get most of this excess cash put to work by the end of the first quarter, but if we have to whole more excess cash because there is not an economic opportunity to put it to work we’ll just send it back to the Fed and do it in a smart way which might depress the NIM a little longer than I would want it to, but NII will be fine and we’ll be proud of the balance sheet going forward.

Hey, Ken this is Bryan I’ll pick up on BJ’s comments, its hard to layout completely because we are still working through and BJ has I think done a good job of laying out some of the alternatives and you got I think keep in perspective that this is the result of a high class problem, we saw very good strong deposit growth and we’re always great with deposit growth, we want to see that and so we’re encouraged by it and we’ll figure out how to put the cash to work in a smart way. We’re not going to put the interest rate sensitive or the balance sheet at risk, we’re going manage through it smartly, but it’s the result of a high class problem and we’ll continue to work through how we put that cash to work and be very smart hopefully about the way we do it.

Got it, understood. Okay and then just a really quick one on the capital markets. I think you mentioned that you did see some increased ADR because of the market volatility. Can you quantify that what you have seen so far in January?

Yes, and I will go back to what I said earlier to before but do that we’ve you can’t take two or three week and make a trend for a quarter so, but we did see it move back up a couple of hundred thousand dollars a day above where it had been running in the fourth quarter, we have had a million dollar week in there so, but again I want to be very careful two weeks is not a trend, there are some unique events going on the world, they create volatility, but it does underscore in my view the fundamental strength of a platform that there is pent-up demand that we have good calling efforts and that when activity picks up, we’re going to benefit very, very nicely from that activity. So it’s a little better, we’ll see where it plays out the rest of the quarter and as we look into this year, we think in this area, where we’ve been in the fourth quarter potentially all year, but we’re optimistic if things improve we’re going to benefit from that very nicely.

The next question comes from Eric Wasserstrom at Guggenheim Securities.

Thanks, good morning.

Good morning, Eric.

BJ, you have given a lot of very clear guidance and roadmap, but I just want to follow up on the issue of the first quarter because for NIM to be or for NII dollars, rather, to be more or less flat with the first quarter with a NIM that's down, let's say, another 10-ish kind of basis points would suggest some kind of resurgence in first-quarter loan growth, and yet some of the seasonality would argue for the opposite. So I just want to make sure I’m understanding all of the dynamics of what may be occurring on the balance sheet.

Sure. So excess cash if that stays around that we’re earning 25 basis points on that when our net interest margin is 286, and if you have got let’s say a $1 billion of that and earning assets of $20 billion that’s a material amount that’s only earning a modest amount so that’s kind of depress the NIM pretty good. Where we do see the other piece in first quarter is going to be a lower day accounts so those two will be main drivers. The positives that will occur is as I alluded to earlier I do see or hope that loans to mortgage companies could be better, they carry higher yields, much higher yields than our aggregate portfolio does and so that will certainly be a [mitigant] in terms of net interest income. So like I said, if you put all those things in the mix NII flat to modestly down is something that I think is going to occur.

Thanks. Just to follow up, could you give us a status update on TrustAtlantic and what - if there has been any change to the expected closing date or conditions there?

Eric, this is Bryan, we’re in process - the regulatory applications are in process, we would expect to file the securities registrations statements in the not too distinct future, our timeline and expectation is that we would receive hopefully the requisite approvals by sometime in the second quarter and that we would close and begin the integration process sometime in the middle of the late second quarter.

Okay, thanks very much.

You are welcome. End of Q&A

This concludes the question-and-answer session. I would like to turn the call back to Bryan Jordan for closing remarks.

All right. Thank you all for joining us on our call this morning. We appreciate your interest in our Company. Please let us know if you have any additional questions or you need any additional information. I hope you all have a great weekend. Thank you again.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.