First Horizon Corp (FHN) 2024 Q3 法說會逐字稿

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Good morning all and thank you for joining us at the First Horizon Q3 2024 earnings conference call. My name is Carlo, and I'll be your coordinator for today. (Operator Instructions) I'd now like to hand over to your host, naturally Flanders, Head of IR vacant floor is yours.

Thank you, Kylie. Good morning. Welcome to our third quarter 2024 Results Conference Call. Thank you for joining us today are Chairman, President and CEO, Bryan Jordan; and Chief Financial Officer, and Jeff will provide prepared remarks after which we'll be happy to take your questions. Are also pleased to have our Chief Credit Officer, Thomas from here to assist with questions as well. Our remarks today will reference our earnings presentation, which is available on our website at ir dot verizon.com.

As always, I need to remind you that we will make forward looking statements that are subject to risks and uncertainties. Therefore, we ask you to review the factors that may cause our results to differ from our expectations on page 2 of our presentation and in our SEC filings. Additionally, please be aware that our comments will refer to adjusted results, which exclude the impact of notable items. These non-GAAP measures. So it's important for you to review the GAAP information in our earnings release and on page 3 of our presentation.

And last but not least, our comments reflect our current views, and you should understand that we are not obligated to update them.

And with that, I'll turn things over to Brian right now.

Good morning, everyone, and thank you for joining our call for didn't have the details of the quarter. I want to express our concerns for those who were impacted by hurricanes for line. And though I'm incredibly proud of our turning our chain prepare for and respond to the needs of our associates, clients and communities.

We were on ground immediately providing food, water, fuel and other essential supplies in North Carolina and Tennessee. All, but one of our banking centers are back open with mobile by units on site there to provide continuous banking services to our clients. Florida is in the early stages of recovery, but our banking centers fared well in all our open at this time. We've also announced financial commitments to the restoration of these communities and will remain heavily engaged in the rebuilding process.

On Slide 5, we've shared some of the financial highlights for the quarter. First Horizon delivered another strong quarter for our shareholders as we grew revenue, maintained expense discipline, improved credit coverage and continue to generate capital.

Our results this quarter reflect the strength of our diversified business model and our continued focus on growing and deepening client relationships. We achieved an adjusted EPS of $0.42 per share, which was a $0.06 increase from the prior quarter. Pre-provision net revenue increased $11 million, improving our adjusted return on tangible common equity to 13.2%.

We continue to deploy capital through share repurchases, buying back $75 million of stock in the third quarter and over $440 million year to date. We ended the quarter with a common equity Tier one ratio of 11.2%. Our results continue to demonstrate the benefit of our disciplined credit culture as we saw just $24 million or 15 basis points of net charge-offs this quarter. I'm proud of the dedication of our bankers that our bankers display in serving our clients and communities throughout the Southeast.

I believe we are well positioned to capitalize on our attractive footprint and opportunities to grow along with these markets as we head into next year. I remain incredibly optimistic that our franchise is fully equipped to navigate any economic environment. We are counter while continuing to enhance shareholder value.

With that, I'll hand the call over to Hope to run through our financial results in more detail.

Thank you, Brian, and good morning, everyone. On Slide 6, you will find our adjusted financials and key performance metrics for the quarter. We generated adjusted earnings per share at $0.42, a $0.06 increase from prior quarter. Pre-provision net revenue improved by $11 million from last quarter.

Largely due to strong performance from our fixed income business. While our net interest income and adjusted expenses remained essentially flat, we continue to see solid credit performance from our portfolio with net charge-offs of 15 basis points and $35 million of provision expense.

Acl coverage increased modestly to 1.44%, including $8 million of qualitative reserves for potential losses related to Hurricane Holly. The improved revenue and lower reserve build drove an increase in our adjusted return on tangible common equity to 13.2%. Our CET1 ratio increased to 11.2%, modestly above our 11% and expect risk-weighted assets due to a late in the quarter.

Portfolio sale. On Slide 7, we outline a couple of notable items in the quarter, which reduced results by $0.02 per share. Third quarter pretax notable items include a $2 million credit to expenses that was trued up to the FDA special assessment accrual, a $15 million of these derivatives valuation expenses related to the escrow funding that occurred in September. And lastly, $2 million of restructuring expenses associated with the operational efficiencies we have continued to identify all of this totaled $11 million reduction to net income. Slide 8, you will see that NI of $631 million was relatively stable to the prior quarter.

Benefiting slightly from a higher day count. The net interest margin compressed seven basis points from last quarter to 3.31% with better asset yields, partially offset by higher deposit costs. The increase in average deposit costs was driven by higher use of brokered deposits as well as acquisition costs on the EUR1 billion of new client growth. Loan yields expanded three basis points from second quarter, benefiting from new and renewing floating rate spreads and repricing of fixed rate cash flows.

As we move into the fourth quarter, we expect modest margin contraction due to the lag between the loan and deposit repricing. On Slide 9, we take a closer look at our strong deposit growth. Period. End balances increased 3% with client acquisition driving almost 1 billion of growth. We are also pleased to see that non-interest bearing balances have continued to remain relatively steady able over the last few quarters, the average rate paid on interest-bearing deposits increased to 3.44% from the 3.35% spot rate we saw at the end of June.

This was driven in part by a higher use of brokered deposits as seasonality in London to mortgage companies drove a higher need for funding deposit costs. We are already beginning to improve, but they ultimately streamer the 9 billion of deposits, which are market index. Deposit rates have declined another five basis points in October with a spot rate today of 3.28%.

We will continue to make progress on repricing the deposit portfolio as we have approach ultimately, 18 billion of promotional deposits that are set to reprice over the remaining of the year. In addition to the $1 billion of brokered CDs that are maturing. On Slide 10, we have an overview of loans. Average loans were up 1% from the prior quarter, driven by seasonality and loans to mortgage companies. Period end loans declined 1% or $335 million from last quarter.

This included an opportunistic sale of approximately $340 million as we exited the sponsored healthcare lending vertical. The portfolio consisted of approximately 20 relationships have higher leverage low past greeted healthcare load. We do not have the intent to sell any other loan portfolios in the foreseeable future. After a funder as after a period of time, that's in our commercial real estate portfolio.

The balanced business portfolio have stabilized. As previously mentioned, loan yields were up three basis points from second quarter due to a wider spreads and fixed cash flow repricing. As we move into the fourth quarter, loan yields are likely to decline. At 56% of our loan portfolio is indexed to short term rates.

On Slide 11, we highlight the increase in fee revenue we saw in the quarter. Fee income, excluding deferred compensation, increased $11 million in the prior quarter. Average daily revenue in our fixed income business improved 22% to 593,000, driving a 7 million increase in fee income. July was a relatively muted months. However, as the market competence in rate cuts increase, we saw increasing momentum in the business in both August and such timber.

Lastly, other noninterest income increased $5 million due to some nonrecurring items, including securities and other gains, higher Federal Home Loan Bank dividend and the benefits. On Slide 12, we show that excluding deferred compensation, adjusted expenses decreased by $1 million. Personnel, excluding deferred comp, was down $1 million from prior quarter as a reduction in incentives and commissions offset the impact of a higher day count on salary expense and elevated medical expense.

The $2 million reduction to incentive included the continued step down in retention awards that took place at the end of the second quarter and outweighed the incremental incentives associated with the higher fixed income production. We are constantly evaluating options to approve improve operational efficiency. This quarter, we implemented two items that impacted headcount.

First, we optimize the retail staffing model across our footprint to more efficiently serve our clients. We also recently outsourced our property management functions, which lowered headcount and salary expense, but will be offset by some incremental occupancy costs. We expect this to make our building support more efficient while providing a better experience for our clients and associates.

Moving down to occupancy and equipment, there was a $2 million increase driven by our new property management engagement as well as incremental software maintenance and depreciation from our strategic initiatives. Offsetting the increase is a 2 million reduction to outside services, driven by lower advisory services at certain strategic initiatives into the production base.

I'll cover credit on slide 13, which continues to perform very well. Net charge-offs decreased by $10 million to $24 million or 15 basis points of average loans. Loan loss provision was $35 million this quarter, increasing ACL coverage to 1.844%. The $11 million of reserve build include 8 million of qualitative reserves release related to hurricane holding, as well as the impact of continued grade migration, which was partially offset by improved economic scenarios.

Nonperforming loans increased $4 million with an increase in C&I, slightly exceeding declines in consumer and commercial real estate. We remain optimistic that our clients can navigate to a soft landing at 63% of commercial NPLs are still current on their payments.

Overall, we are very pleased with the continued strength of our portfolio through a high rate environment and expect to see continual improvement if rates do continue to decline. On slide 15, we'll talk through our outlook for the remainder of the year. What we have laid out here is consistent with the guidance we gave last quarter.

Though, we are now focusing more on total revenue versus the individual components. We believe total revenue will be flat to up 2% year over year with the composition driven by what the Fed chooses to do over the next couple of months.

Our counter cyclical businesses are a natural hedge against our asset sensitivity. If we see incremental declines in interest rates, those businesses revenues will offset that incremental NII pressure. Turning to expenses, our guidance remains unchanged as we remain committed to continuing to identify efficiencies to help offset our investments for net charge-offs.

You can see that we are trending favorably to a guidance, but we have less the range unchanged until we have more information on the potential for losses that could arise from the recent weather events in our footprint. Lastly, we continue to target an 11% CET1 ratio near term.

I'll wrap up as you turn to Slide 16. I am proud of all the progress we have made as a company so far this year. We are focused on improving profitability while making the strategic enhancements needed to set us up for success as we continue to grow the franchise as a leadership team, we remain wide and are excited to continue delivering value to our shareholders and a premier banking experience for our clients.

Now I'll give it back to Brian.

First, you hope revenues for many of you've heard me say that our goal is to start one good quarter on top of the mix this quarter added momentum to the track record and puts us one step closer to achieving our longer-term return goals.

As an organization, we are intently focused on execution. We aim to improve revenue through core growth and retention while maintaining expense discipline through operational excellence. We will continue to align capital and resources with the greatest business opportunities while enhancing our technology group abilities to deliver exceptional client experience.

I remain confident that our diversified business model, including our well-established countercyclical businesses, will allow us to continue to deliver strong shareholder value over the remainder of 2024 and into next year.

Our associates, dedication, combined with our attractive footprint and extraordinary club, those positions us to build an unparalleled banking franchise in the so good thank you to our associates for all that you do for our clients, communities and for each other for what we can now open it up for questions.

Thank you, Brian. (Operator Instructions) Ebrahim Poonawala, Bank of America.

Good morning, maybe Brian whole blood missile. It makes sense in terms of talking about total revenue versus And I feel given the countercyclicality of two businesses, but just talk to us, I guess the question is, given the very near term and I think I hope you mentioned some margin compression over the next quarter or two will impact. And I mean we look at the fixed income business, the 47 million in fees this quarter, is it as good as it gets in terms of the upper bound on this? Or what's like?

We've seen a fair amount of loan book restructuring, good buildings of it, but it got these could cut all you did another leg higher to go on additional with outlooks have certainty would locally to address it. Good morning. Abraham visits have happy to answer that question.

I had mentioned in my comments that we saw very muted July that we absolutely think we see some upside if we continue to see rates decline as September and August were much stronger than July. And we've seen strong momentum of our NDA the quarter.

But one thing you mentioned was where people still buying. We had a conversation with our business the other day, if rates go down another 75 basis points this year, they've already talked to some clients that locked things that earlier this year, that late late last year that are thinking about restructuring.

Again, as I do think there'll be continued momentum in a decreasing rate environment.

Understood. And just the other question was on the loan to deposit ratio. I think you called out the decline from 97 to 94 for the period and may be some of the actions we took during the quarter. I know we've talked about this in the past. Just remind us, when you look at the 90 94 loan to deposit ratio to get a certain level which you are managing to an EBIT result, is that kind of making a little bit more cautious in terms of how quickly you check deposit pricing lower?

We continue to monitor our loan to deposit ratio, but we also monitor their our loans plus securities to deposit ratio. We run a much smaller securities portfolio and most of our peers. And our belief is that as much as we can use deposits to help our clients, that's what we want to put it.

First as we move forward, we continue to see London deposit ratio does tend to change as we have to fund up mortgage warehouse. And you'll see we did put additional focus on were comfortable. January were with where it's at in the near term.

But of course, we want to continue to work it down over time. I would say it's not the biggest piece of our competitive pricing. What we're trying to do is defend our Homefront. We want to make sure that clients that are with us are staying with us. And so I would say, you know, the new to bank absolutely comes in at a higher weight, but it's really the backlog in the current clients that are being made offers by other banks that are out there.

I was looking for the same deposit growth that we're looking for and to retain them in order to continue to have deposit growth. Quarter over quarter does come at a little bit higher of a premium. Ebrahim, I'll follow. We look at our deposit activity in deposit pricing largely through the customer acquisition mode. And we don't think about it a significant way around loan to deposit ratio to fall. That is important over time. We were to growing customer relationships and new mode. We grew customer deposits were up 3% during the course of this quarter, about $1 billion or so.

And the customers are we want to we want to continue to grow in Waterbury directive footprint with higher-quality customer relationships. We're priced attractively versus wholesale funds and were partially in attractive blue to gain market share. So while the two are somewhat related, we spent more time focusing on how we go grow our customer relationships, particularly our retail private client, high net worth businesses.

Michael Rose, Raymond James.

Good morning, everyone. Thanks for taking my questions on hold, but just wanted to dig into your performance from a margin a little bit. Certainly understand a little bit more pressure in the fourth quarter, just given the mismatch of timing you referenced.

But as we think about the margin into next year with some of the tailwinds on, as you mentioned on the deposit side, some additional replacement opportunities that the sluggish mentioned, a chunk of deposits was eligible for repricing Asian go into promotional client deposits that are eligible for repricing in the fourth quarter.

Are we at a point where the fourth quarter do you think is the inflection point for the NIM. and we can move we can move higher despite your rate sensitivity? Or is the expectation that it's going to be a push and pull each quarter and we shouldn't expect the margin to really move at least OpenEdge couple of quarters?

Thanks. Michael, thank you for the question. I would say it's probably going to be more of a push and pull quarter to quarter. It really depends on how quickly we did the rate cuts. We see back-to-back rate cuts in November, December, and then we see some stabilization. Our margin can stabilize, but we continue to see month after month quarter after quarter.

Rick pricing down, as I mentioned in my comments, are the loans are going to 59% of our loans are going to reprice down their deposits. We're going to have to work through that as they come off promotions, new-to-bank. So I don't think it will necessarily be a steady trajectory one way or the other based on the current forward curve in 2025.

But we are doing everything we can to put things in place to make sure that we can take somewhat EPi-Sense asset. We see very uncertain rate environment, for example, we just shortly. And our new-to-bank promos is the 90 day guarantee to 45 days guarantee. That allows us a little bit more flexible flexibility quicker.

And we are less asset sensitive currently because of that deposit repricing. It's just maybe the last quarter to quarter, especially depending on how late in the quarter we get the loan repricing for we can get the deposit side.

All the key variables, Margot lose hopes are that post June of road drug soon. And those should properly noted the more significant rate cuts or more impact, you will see it on the net interest income. But the more of search you'll see in our fixed income business, et cetera.

And that's why we focused on the total revenue where we think we're significantly more balance in the list. Let's move to interest rate cycles. Than it might appear if you focus on one line item or the other. But we do believe that we've got the balance sheet position and surge was that we can manage through interest rate volatility, then we will adapt to whatever post the FOMC's from for moving Roach and the rest of this year and into 2025 shipping.

Certainly understand that. Maybe just as a follow-up, I know the bridge drove a backdrop is difficult to project and and I know it's early for next year, but is the plan or the expectation that you can grow kind of adjusted PPM our year over year? And are you planning at this point for positive operating leverage?

And I assets because I certainly understand the pull some levers on the cost savings front, but we're hearing more and more banks looking to hire bankers assume that would be some of your expectations to drive some some balance sheet growth. But just wanted to just initially you had any comments on how we should kind of think about that. Thanks.

Joe will provide a little more guidance and then the remainder of this for outlook for next year. But I sit here today. I expect that we will draw of positive to be on our next year, and we're still working through the various line items. But I do think you will see us growing our beauty and are in 2025.

Jon Arfstrom, RBC Capital Markets.

Hey, thanks. Good morning. Morning, John, on what Brian one for you on give us your thoughts on loan growth expectations on looks like you guys referenced some theories stability, but Sienna was a little bit weaker, but talk about what you're seeing from your home office and self imposed and with turnover not looking for growth, I would show very low of what we're seeing is self imposed.

We're not we're not limiting the size of the balance sheet from the one caveat to that that I will come back to on a surge in the loan growth in the marketplace. Somewhat muted at this point. It is not picked up. I couldn't tell you was how to weight the parts, but I suspect some part of it is what happens in the elections that are coming up in the next month. It's partly weighted on what the so the Fed is going to do with interest rates.

And in particular, when do you start to look better financially? And then just overall, all, we're going to have a solid plan in or something else. And I'm somewhat optimistic that we did through the next 90 days. We'll have greater clarity maybe on all three of those. And if we do think there's some pent-up loan demand lease, we hear the or customer conversations, both the marketplace is still somewhat muted, and it's still very, very competitive at this point.

I mentioned the one exception. There are a few places where we have taken some participations where we've been in participations for a period of time. We had not broaden or deepen the relationship as we thought we might. And we've used the opportunity to exit the exit of some of that. But other than they were looking to grow with our client base, we're looking to grow lane in wind when customers are ready to make investments.

Okay. Fair enough on the, so maybe a little more optimism potentially on I know that's a lot of headroom there, but it feels like you're still somewhat optimistic on growth. I didn't mean to hedge as much as I mean meant to convey on certain Nuvo is going to happen.

Okay. I hope my follow up on fixed income or are you willing to secure what studios look like in August and September? How big of a step-up, but was I think that would help us with maybe a run rate?

Jon, I actually don't have that in front of me. In August and September were generally pretty equal, as I recall, but the end of Q2 end of September following the rate cuts was a significant uptick and might be for the rate Texarkana clients. Now I would say that months were not materially different than a week told a much different story.

Nobody really wanted to buy anything right before the way Cognex the rate cut. We finished the quarter really strong. I think we'll see that same type of momentum at there's uncertainty about rate cuts in the coming two months done that didn't turn in the 10 year. The rate curve has moved around a good bit as people's expectations for the economy has changed.

I gave you the last two weeks from now, if you look at the first week of October were a little over 1.1 million last week, we were a little over 500,000. So two weeks does not make a trend and it moves around based on what interest rates and sentiment in the market are doing on the whole . We were a little over, I think, refreshed 60 through for this quarter just passed and our outlook is to be slightly better for that then the remainder of the year, and you have to keep in mind, as you will know that at some point, the markets turned to shut down as you get into the back part of the year.

So we're optimistic tone activity for the remainder of this year.

Jared Shaw, Barclays Capital.

Your line is now open. Hey, good morning, everybody. For the job. And maybe just go back on the deposit side, the $18 billion that you referenced such that's coming due in fourth quarter. Could you give us an update on on the pricing for those deposits down, where you expect to see that moving to and in all stores or a term change in that promotions?

Derek, yet starting at the end of your question, we have changed the task as recently as last week as we continue to look at how to bring down rates. It is really a sensitivity analysis of how sensitive our clients to how quickly the rates are falling.

And so we do, right, right mentioned earlier only guarantee for 45 days versus our prior 90. Our money market is currently at four 25. That compares to five over oh five last quarter. When you ask me on the earnings call, our retention offer is now three, 3.5%. And so what we've been walking back ahead of the rate cut and after and we have quite a few scenarios for how that might walk back depending on the rate cuts we see in Q4 at December, rate cut is really hard for us to make much headway with deposits.

And so net-net, it November rate cut will happen to have a meaningful impact on how much we can walk it back.

Okay, thanks. And then as we look at the deposit composition and what's what's the appetite for additional brokered from here, your commentary that you built that up in anticipation of the mortgage business, some should we expect to see brokered be a bigger part of the overall deposit mix? Or are we near the top?

Jared, our goal is always use client money first and broker. Second, let's start with that being our gold and where we bring and retain client money in the last part of what we need brokered it for us is always kind of a match funding for mortgage warehouse. We saw mortgage warehouse on average of about $400 million last quarter.

I'll note is against a half years, typically three Q3 comes down and we actually saw come up with some of the rate cuts that we saw. Our refi activity actually decreased 5% quarter over quarter. So as we think about that is really going to be more about mortgage warehouse and how much we continue to have balances there in the short run.

But yes, our goal is always trying to get out of a quarter over quarter at when we can. Whether we see decreasing mortgage warehouse balances are increasing quite funny, but I am comfortable where if that were well below our peer group the last couple of quarters like compared our brokerage versus there.

Okay, thanks. And then just finally from I know you're still guiding us more towards total revenue versus NI versus fees. But with the expectation, how should we think about the dynamic between continued margin pressure but potentially some balance sheet growth? You are? We are we at a trough for NI here.

We are trying to trying to gauge or what the our ending the year with the exit of NI is for 24, Derek, for 2024, I don't see much of a change from our prior guidance. And you look at the new revenue guidance we gave it is in line of both revenue. And I've just got a couple in the low end of line high end on the other for us, not just for Q4 going into next year as we think about it. And I think the big unknown for us is how much mortgage are we going to see. It's our highest yielding assets.

And so we did see a large refi boom. It moved from a 22% to the historical 30 or 40 or 50%. We've been saying that would help NI significantly. So as we talk about countercyclical, GM Financial is in the fee income line, but that's not the majority of mortgage warehouse and mortgage is in line. So that also is, as we talk about embedded hedges that we do have an embedded hedge with hopefully loan growth is going into 2020 by the bulk of those businesses.

Sámuel Varga, UBS.

Sámuel Varga, UBS.

Good morning. Wanted to switch over to the deposits a little bit unusual to see if you could give some color or any initiatives you might have going on to the folks from non-interest-bearing deposits, whether it's through retail or commercial.

This is this is Brian. We're looking into really grow across the entire deposit base. We have been very active in growing our non-interest bearing deposits. They've been stable home, which it was sort of follows along with what we articulated earlier in the year, which is you get to a core level as a percentage of drops a little bit. But that's because we grew non-interest bearing, but we're we're looking to grow customer relationships and growing core checking accounts.

Non-interest-bearing and low-cost deposits is an important part of the. So we have a number of efforts across our entire franchise to grow those deposits. And we will continue to lean in and look to grow client and customer relationships on the commercial and consumer.

Sir, and then hope on the 12% of loans that are arms on, can you give us a sense for what sort of weighted average yield that party book currently has in the industry and the for the next year and there's not much of a reset on it, any of those? But I guess as you think about late 25 and 26, are there sort of bigger chunks that we should be aware of as we model it?

I don't have the weighted average of where they're at currently from the rate, but we don't have a large Wall of that at any time in the next three years that they've kind of it are steadily added to our balance sheet over the last 2, 2.5 years. What I'll say though, is we expect a lot of them to get prepaid in fixed for oh five, five, six, seven years members, they have less at a six 7% that we really see rates get cut 100%, 200%. That is one of the items that I think we'll have that I mentioned earlier that we could see a large amount of refi in the ARM space or what we have on our balance sheet.

If I remember correctly, you know, look to sort of analogous, you remember these numbers better than others, but you can use as a proxy. I think our consumer loan portfolio yielded in the 5.8% or so range, maybe a little are in the third quarter. And that's largely driven by arm so that the boxes for the numbers, the grid.

Chris McGratty, KBW .

One of them. I hope with your question or Brian on the PP&E or 25 being above 20 force, does I guess a couple of questions? Maybe you could comment on between Is that more of a revenue comment or and expense control given new steps? And secondarily, does that currently factor in the forward curve right now?

Thanks. Yes, yes. So if I break that down Great, we can prognosticate about rates is probably most efficient always used for or for that sort of our point of reference point, right? It's been in flux and we're always focused on growing revenue are always focused on controlling expenses.

I think we have a number of catalysts that we are working to leverage that are really, really important in terms of our ability not only of driving PPNR in 2025 foot, creating long-term shareholder value, essentially taken our returns a little over 13 zone tangible common equity back north of 15 plus percent growth on a really logical follow-on of the work associated with the merger of equals. I didn't get done during the integration through.

So we see a number of opportunities once we get systems investment mode have a very tactical level to grow revenue to deepen relationships to drive additional loan growth and the controller calls centralizing further centralizing processes, things of that nature. So I'll circle back around two years. We think it's going to be across all of the levers that you mentioned.

And then maybe on regulation, your target of 11% on CT. one, you slightly above it. I would expect you're saying you're going to continue with the buyback, but just any changes over the medium term that you might be contemplating now the Basel been a little bit watered down? And also maybe a comment, Brian, about where you on the investment for for 100 billion. Thanks.

We own look at capital and in blue are our Board is involved in any discussions about buyback and authorization. We feel like we have sufficient authorization to do this through the fourth quarter. We will talk to the Board in the early part of 2020 about further authorization. We don't see any short-term catalysts to bring the CET1 ratio below 11%.

What we've said is we're looking at the economy and how things play out. And I would start just circle back in some ways to what I said earlier that the customers have uncertainty about solve land in an interest rates and the election process that clarity they do. It will also be clarifying the US and the more certain we hear about continue good strength and improvement in credit performance and things like a bit more comfortable.

We did as we approach all planning to bring that ratio down, we do think that the CET one ratio is above where we needed through the cycle. So we will look at that probably sometime in the early part of 2020 before we really start to really assess and reassess at a meaningful was the second part of that is regulatory hurdles, particularly around become and an LF. one hundreds.

We are doing a fair amount of work and making investments in the near term to prepare for crossing that threshold is would we looked at it? We think we've got a number of years to do that work and we will further those Colson over time and build those that those capabilities that infrastructure book.

But given the markets that we're in, given the strong client relationships that we have, we do believe that leaning forward and growing the balance sheet is an important part of it is not much matter of if we hit the $100 billion gross does really a matter of when and that we are going to build the preparatory infrastructure. They did it employs so that it won't be enough to go to our ability to continue to grow.

On the other side of the also think that the in the event that you have a more difficult land and building that infrastructure picture gives us the opportunity to be opportunistic if they're strong deposit base that we have the opportunity to pick up and a more difficult financial set of circumstances. I have more troubled institutions.

Timur Braziler, Wells Fargo.

Hi, good morning. Maybe one for hope. Just following up on some of your comments relating to some mortgage outlook for next year. I guess what's the rate environment need to look like for mortgage to get back to some of the type of performance than maybe you are implying on the upside?

Our overall belief that we have to be at a sub 6% mortgage rate. How that will play out is a little bit uncertain in the last 50 basis point cut fairly touched mortgage rates as the Board as that curve became less than burden.

And actually we had is even higher for a little while there what I think it will be the telling thing and the thing that we continue to see is new home purchases are not required to first-time home purchases. Second homes has been historically low for the last two years. A lot of the data we're seeing the mortgage industry says we have the highest supply we've seen, and I think buyers will start getting back end.

So I think it's going to be a combination of new purchases and we get under 6% as well as a refi for the people that are in their fixed rate part of the art, congrats on.

And then maybe just on the revenue guide on it implies a pretty wide range of outcomes in the fourth quarter. I'm just wondering where the greater variability is it on the C&I side? Is that on the fee side? And then maybe more specifically on Seeds, you called out some of the other fees this quarter as being one-time in nature. Can maybe give us a starting run rate of a 4Q, you kind of X1 and some of those one-time fees.

Sure. What I would say is start with we did not intend to change your range. It really comes down to rounding is we would have had to say like point out that a flat would at that 0.33 is the intent is not at all to change our revenue range for Q4 for the year. It is they're probably more upside on fee income and more downside on NI if the forward curve that we really see 75 basis points of cuts in two successive month.

And I will be on the lower side and fee income will pickup if we don't see any cuts and identified and better. And I think the income it looks similar to this quarter. It's really hard to handicap whether when this current forward curves of 75 basis points of most of the market, that's probably a little bit more than 25.

Okay. And then just the one-timers this quarter from fees for the full increase in the other line. But the other item that always bounces around poly is something that you have. It just comes when it comes and you don't know that we often have to comment on volume. Could you run a portfolio of that movement quarter to quarter and I can't really predict what's going to happen next quarter.

Obviously you can figure out what that does dividends paid in a quarter in arrears and the more that we're borrowing, the more we get those dividends. I don't expect it to be materially up or down. A lot of it tends to go about in a $5 million linked quarter to quarter.

Great. And if I could sneak one more question in the comment on commercial real estate, but the funding schedule, and that's kind of stabilize about. I'm just wondering, as we do get rate clouds as paydown start to accelerate, is there any way you can quantify maybe what the historical paydowns of look like, what they've looked like more recently and what type of headwind by either broader. You're talking about paydowns on NPLs, just commercial rooms?

No payout on commercial real estate of that either you're talking about the one that we mentioned that were in top-performing that we're still paying. Yes, I think this is Thomas on here. I think that's going to be a little hard to predict right now because for us, a lot of our commercial real estate is up a little heavier on the construction side and probably a lot of our peers.

And so in terms of paydowns, that will really come down to the other pump financing market, how much appetite there is so that phone takeout financing, that's what will really drive the level of paydown that we see when I make it.

Christopher Marinac, Janney Montgomery Scott.

Thanks. Good morning. I had a follow-up credit question. As it relates to the shared national credit exam this year. Is there anything like a fallout on that in terms of either on sales and flows of NPAs or more importantly, charge-offs as we move into Q4 and Q1?

Yes, hi, this is Thomas on again. I don't expect so you know, overall shared national credits, it's runs a little under 8 billion for us overall. And if you look at kind of the relative performance of our net book to our C&I book metrics are all generally about the same line. That's not really a material difference in terms of classified assets, NGLs or year-to-date net charge-offs and us, my expectation is that next should continue to perform about decided the overall book. We haven't really seen a variance.

Great. Thank you for that. And it and hope just a quick one for you. I know you broke out a lot of information on the other expense numbers this morning. Is there anything in there for operational losses or customer five things of that nature that would stand out?

There's nothing that stands out now. As I said, it was a bunch of small items that added up to $5 million. We did not having a significant project quarter over quarter or any large one-time gains on any sales of property or things like that.

Thanks very much. We currently have no further questions. So I'd like to hand over to Bryan Jordan tiers for any closing remarks.

Thanks, Charlie. Thank you all for joining our call this morning. We appreciate your time and your interest. Please follow-up with any additional questions that you may have. Hope everyone has a great day.

As we conclude today's call. We thank everyone for joining. You may disconnect your lines.