Earnings Call Transcript - FHN Q1 2021

Ellen Taylor, Head of Investor Relations

Thanks, Jason, and good morning, everybody. We really appreciate you joining us. We know this quarter has been quite a whirlwind. To start things off, our CEO, Bryan Jordan; and CFO, BJ Losch will provide some opening comments and an overview of our results. And then, of course, we'll be happy to take your questions. Our Chief Credit Officer, Susan Springfield, is also with us today. Our remarks will reference the earnings presentation which is available at ir.fhnc.com.

Bryan Jordan, CEO

Thank you, Ellen. Good morning, everyone. Thank you for joining our call. I'm really proud of the great progress we've made over the last nine months and integrating our merger of equals. There's great momentum building in the business. We're off to a strong start in the first quarter of 2021. We demonstrated solid performance in the quarter with good PPNR results reflecting the resiliency of our more diversified business model. While loan demand continued to be muted as clients were still cautious, we're starting to see growth in the loan pipelines and expect demand to pick up some in the back half of the year. Our deposit growth remained strong with inflows from government stimulus and clients continuing to preserve cash. During the quarter, we generated impressive results in our fee income businesses and are gaining traction by capitalizing on additional revenue synergies tied to our merger of equals. I'm also proud of the work we're doing to control the things that we can control, particularly around expenses and deposit pricing. Despite the seasonal headwinds, we reduced our linked-quarter adjusted expenses driven by our ongoing cost management. We achieved annualized merger-related cost savings of $76 million in the quarter. The improving economic backdrop from January to March and our continued prudent risk management largely held for us a $53 million reserve release. The power of our diversified and counter-cyclical model, our strong risk profile, and the benefits from our merger helped us deliver a return on tangible common equity of 20%. Excluding the impact of a $53 million reserve release, we generated a return on tangible common equity of over 17.5%. We are making great progress on our key merger milestones. We've completed early systems conversions included in our mortgage and retail brokerage, with conversions in wealth and trust scheduled for the summer. Our core deposit systems conversion is still on track for the early fall of this year. We have and will continue to make strategic investments in new technology that optimize client experience and improve productivity. We continue to leverage Fintech capabilities to enhance our product offerings, drive efficiency, and improve the customer experience.

BJ Losch, CFO

Great. Thanks, Bryan. Good morning, everybody. Let's start off on Slide 6 and just do a flashback on some of the key highlights of the quarter. As Bryan mentioned, we're really pleased with the profitability and the returns that we're generating for shareholders. We delivered GAAP EPS of $0.40 or $0.51 on an adjusted basis, highlighted by strong fee income, expense discipline, and even further improvement in our credit quality. Our diversified business model is working as we expected. The fee businesses are performing very well to counteract rate pressure. We're controlling what we can control with expense and deposit pricing, the merger integration is on track, credit trends are excellent, and our capital flexibility has allowed us to return capital to shareholders in a meaningful way. Due to the overall muted landscape for loan growth, we opportunistically repurchased 3.6 million shares in the quarter at an average price of $16.12, and including dividends, as Bryan talked about, we returned a total of $143 million in capital to common shareholders.

Bryan Jordan, CEO

Thank you, BJ. I would add my thanks and appreciation for the great efforts of Aarti over the last 10 or 12 years, and she certainly will be missed. I am exceptionally proud of our continued execution and the results that we're delivering. We feel good about the strength of our balance sheet and capital and liquidity positions as the economy starts to improve. We've maintained underwriting standards and built a diversified portfolio focused on profitability and stability. We are positioned to capture merger opportunities with enhanced scale, better efficiency, and improved earning power, and we will create significant shareholder value through it. Thank you to all of our associates for their hard work serving our customers and communities and helping deliver for our shareholders. With that, Jason, we'll now take questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question is from Brady Gailey from KBW. Please go ahead.

Brady Gailey, Analyst

Hey, thanks. Good morning, guys.

BJ Losch, CFO

Hey, Brady.

Susan Springfield, Chief Credit Officer

Good morning.

Brady Gailey, Analyst

I wanted to first ask about loan growth. I think if you look at period-end loans, excluding PPP and warehouse, they were down about 10% annualized which is not really a big surprise; I think the industry is seeing that as a whole this quarter. But how do you think about what gets loan growth headed in the right direction? It seems like, first, your clients are flush with cash; when do you think you really start to see some decent loan growth? Is it this year or do we have to wait for next year? What are your thoughts on the timing there?

BJ Losch, CFO

Hey, Brady, it's BJ. I'll start. We talked in our opening comments about significantly increased activity, and just to give you a little bit more color on that. On the commercial side, our pipelines, which we have a high confidence of closing, are up 60% to 70% from the beginning of the year; so we are starting to see really nice trends there. Utilization rates ticked up slightly, so we're planning for a little bit more activity as well. And we've started to see a little bit of churn in some of our markets, particularly in places like Middle Tennessee and Alabama. On the specialty side, asset-based lending and equipment finance are starting to see pretty good upticks. We expect loans to mortgage companies to strengthen in the spring and summer buying seasons. So, on the commercial side, we are certainly seeing a lot more activity, and I'm optimistic about what that means for the balance sheet in the back half of the year. I'll also say on the consumer side; if you look at our consumer portfolios, we have seen a fairly meaningful decline in those portfolios as people have refinanced, and a lot of that has gone to secondary production. We did make some changes in our product set on the consumer side, and in certain areas around 7-year, 10-year, and 15-year fixed loans, where we believe that's going to change the trajectory of our portfolio growth on the consumer side. As a matter of fact, we have seen blocked pipelines increase significantly in the last 45 days as we made those changes. So, all of that to say, we see a lot of activity starting to come on and we're optimistic about the back half of the year.

Brady Gailey, Analyst

Great, that's good to hear. And then, my follow-up is just on the buyback. If you look at your common equity Tier 1, it's now 10%. You were active in the buyback; you have a $500 million buyback out there, that's a big number. I think you can repurchase about 5% of the company over the next couple of years. Is the right way to think about it that you guys will utilize the $400 million to $500 million over the next couple of years or do you think that's too big of an assumption?

BJ Losch, CFO

Yes. I think as we've talked about before, Brady, it's always going to be opportunistic repurchases. We did $56 million this quarter at an average price that was fixed well, so we felt pretty good about that. We want to allocate our capital towards loan growth; we would have thought that CET1 would have been more towards the 9.5% range, obviously it floated up on lower RWA. We just talked about the fact that we think we'll get loan growth coming back. All of that said, we are bullish on ourselves, and so we do expect to continue to opportunistically repurchase shares, and whether it's over the next couple of quarters or the next year and a half, using those or all of that authorization is our expectation.

Brady Gailey, Analyst

Great. And I didn't know about Aarti. So, Aarti, you'll be missed and congrats on the new spot. It was great working with you over the years. Good luck.

Operator, Operator

Next question is from Michael Rose from Raymond James. Please go ahead.

Michael Rose, Analyst

Hey, good morning. Thanks for taking my questions. Just trying to get a sense for the margin trajectory here. I appreciate the disclosure on the purchase accounting accretion and things like that. How do the PPP fees kind of look like? And then on a core basis, if you strip out PPP and PAA, what would be the kind of near-term expectation? Thanks.

BJ Losch, CFO

Hey, Michael. Good morning. It's BJ. So I'll start. I'll give you kind of an overall view of our PPP trajectory that may help. So in round one, we expect that 90% of those will be forgiven by sometime in the third quarter of this year. So I think we originated something along the lines of $4 million, and we expect 90% of that to be gone by the third quarter, and therefore all the fees associated with that will be accelerated and corrected by that. On round two, we're at $1.3 billion or so, and we'll probably climb a little bit more of that. We assume that those fees will be accretive over the next year and a half or so; so hopefully that gives you a little bit of color on PPP. In terms of net interest income and the trajectory, based on my earlier commentary, with a little bit more optimism on loan growth in the back half of the year, our continued focus on driving down the target cost where we can, and that LIBOR basis hopefully flattening out, we expect our NII, as we said on Slide 18, might go down a little bit, but generally be around this area; and hopefully can see a little bit of an uptick towards the back half of the year. In terms of margin, we estimated anywhere between 30 and 40 basis points of drag on the margin today is coming from the excess cash. We certainly want to put that to work in loan growth; we do expect that deposit growth will continue to remain elevated but over time start to come back out. But it's going to be here for a while, so we're focused less on the margin and more on stabilizing and starting to improve the NII trajectory.

Michael Rose, Analyst

That's great color, very helpful. And maybe just as my follow-up; we've seen a bunch of deals announced here lately in the industry, you guys are well on your way with IBERIA. What's the appetite as we move forward for additional deals? If you can update us and have those priorities maybe changed, just given the recent activity. Thanks.

Bryan Jordan, CEO

Hey Michael, this is Bryan. Our focus really hasn't changed. As you pointed out, we're making good progress on the integration of our merger of equals, IBERIA Bank, and First Horizon. We see outstanding opportunity exists in our existing franchise. We're positioned in great demographics in our Southern footprint, with great growth opportunities; and so, our focus is clearly on getting the merger integrated. And then, as we come out of the integration in the fall, we'll really start to build momentum and capitalize on these growth markets that we see out there. So our priorities haven't changed; it really is trying to capitalize and deliver the benefits we believe are coming from the work we're doing today with our merger of equals.

Michael Rose, Analyst

All right, great. Thanks for taking my questions and congrats on the new role, Aarti.

Operator, Operator

The next question is from Steven Alexopoulos from JPMorgan. Please go ahead.

Steven Alexopoulos, Analyst

Good morning, everyone. I wanted to start with a nice start out of the gate on revenue synergies. Could you give more color on the $400 million of commercial loans you're calling out from the synergies and how are you seeing the bigger picture now for revenue synergies?

Susan Springfield, Chief Credit Officer

So Steven, it's Susan. As it relates to revenue synergies, and BJ alluded to, we're seeing a few areas specifically early on really benefiting from the merger of equals. One is the legacy IBERIA specialty business which is equipment finance; we're seeing great opportunities across all of our markets, and even within some of our other specialty lines we had equipment needs. So that's going to continue to build. Just as a side note to think, during this COVID environment that we've already seen $400 million related to revenue synergies is great. Also, asset-based lending, which as you know, First Horizon has been in that business for many, many years, and we're seeing great results from our legacy IBERIA market and relationship managers. We also believe there is an opportunity to continue to expand specific banking within those two areas. Also, we would be remiss if I didn't mention mortgage; the opportunity that we now have with the legacy IBERIA mortgage business, we're seeing mortgage activity and secondary portfolio mortgage synergies together. We are very pleased. The bankers are doing great work, and our bankers are so excited to have additional offerings that they can talk to clients about rather than those going to another institution. I feel very confident that we'll continue to see that build as the economy continues to open.

Bryan Jordan, CEO

Hi Steve, this is Bryan. I'll add to that. I think this is one of the more underappreciated opportunities in our merger. I think there are a lot of revenue synergies that we will generate; some of it is the obvious stuff, a bigger balance sheet, some of it is the product set that Susan just described. Take for example the private client and wealth business; that's an area that IBERIA BANK has not focused on as much, and we're having really good success hiring private bankers and wealth managers in our Florida footprint, for example. We look at this area from a big picture perspective. We captured or tracked $30 million post-Capital Bank merger several years ago. We think this opportunity of combining these two organizations and bringing this combined product set, the bigger balance sheet, and the opportunity to do more for our customers will likely lead us to see the $30 million of revenue synergies over the next couple of years, as we projected in our Capital Bank merger.

Steven Alexopoulos, Analyst

Okay, that's helpful. Bryan, a big picture question for you. So you guys are delivering on the cost savings from IBERIA. The revenue synergies are starting to come through. Countercyclical businesses are doing their job. I know 2021 is a bit of an odd year given the pandemic and you have PPP program stimulus, etc., all impacting loan demand. But from a big picture view, can you talk about how do you see the growth potential of this new company over the longer term? Is this a mid-single-digit grower or is this a high single-digit grower? What do you see for us? Thanks.

Bryan Jordan, CEO

Yes, that's a good question. You didn't stipulate what you think the economy is going to do when we come out of all this stimulus. I think we are going to have a footprint and the demographics that are going to grow at or above what you see in peers and others. As I look at our footprint, we are in 15 of the top 20 MSAs. Pre-pandemic, we were growing faster than the US as a whole, and post-pandemic, I think that has probably accelerated. If you look at those markets, in many cases, we have a very focused, and in some ways smaller, presence, but we see a tremendous opportunity to take that focus and expand that presence. The work that Michael Brown and our bankers are doing today to position us through hiring, etc., I think we're going to be in a position that we will clearly grow better than average. Over time, I think the growth in the US economy is going to return back to that 2% to 2.5% range. So I think that would dictate that we would probably be more in the mid-single digits. But the easier way to describe it is I think we will do better than most in terms of being able to deliver growth given where we're positioned and the focus of our bankers and the product set that we offer.

Steven Alexopoulos, Analyst

Okay, that's very helpful color and best of luck to Aarti as well. Thanks guys.

Operator, Operator

The next question is from John Pancari from Evercore ISI. Please go ahead.

John Pancari, Analyst

Good morning.

Susan Springfield, Chief Credit Officer

Hi John.

John Pancari, Analyst

And first off, best of luck to Aarti as well in your new role. On the excess cash side, I believe you're sitting on about $10.8 billion in excess, and if you can give us a little more color on how you're thinking about the deployment there. I know you indicated in the loan growth opportunities, but outside of that, where do you see opportunities? Are you looking at the bond portfolio any differently these days? Or do you see any bond portfolio purchases or areas like that? Thanks.

Bryan Jordan, CEO

Hey John. So I see it in a couple different ways. One is we are optimistic that loan growth is going to come back and set up some of this excess cash, so that's priority number one. Number two, I think over time, there is going to be a reduction in deposit balances as the stimulus rolls off, as economic activity picks up, and commercial clients will go to cash holdings first then lending second; so I think there is enough activity to see both of those scenarios. But I think deposit levels will come down because of that as well. Regarding the securities portfolio, we did modestly decrease it this quarter, but we'll look for opportunities to deploy that, but I wouldn't expect that we're going to significantly increase the securities portfolio. We're really looking more at deploying it on the loan growth side. As I said before, yes, of course, we'd like to put excess cash to work, but this is a high-class problem to have. It's just dampening the NIM and hurting our NII. So to me, deploying it is all of that.

John Pancari, Analyst

Thank you, BJ. That's helpful. Now, regarding the countercyclical businesses, I agree they are certainly performing as intended. Can you discuss the outlook for the capital markets business? This quarter, you reported $1.9 million ADR, which is a significant figure. What are your expectations moving forward, especially in light of the current rate environment? Additionally, could you provide an outlook for the mortgage warehouse business, considering the rate dynamics? Thank you.

Bryan Jordan, CEO

Sure. So starting on the fixed income, $1.9 million was very, very strong in the quarter. We expect continued strength, maybe not at that level but closer to the $1.5 million range. Ninety percent plus of the business days last quarter had $1 million across the desks. That is very strong. So, all in all, like we said in our outlook, we expect that strength to continue, but maybe not quite at the $1.9 million level that we saw this quarter. On loans to mortgage companies, as you would know, you see seasonal declines in the first quarter; we do expect some pickup in the second spring and summer seasons as we move into the third quarter. So, we will see a little bit of a pickup from first quarter levels which would help drive some of the loan growth that we see in the back half of the year.

Susan Springfield, Chief Credit Officer

John, also in mortgage warehouse, we’ve done a great job of continuing to add buyers. So just in the last two years, about 8%. We've got more clients that we are working with, and obviously from the business's perspective, we moved with mortgage lending. So, we think we're well-positioned because of the growth in that sector as well.

John Pancari, Analyst

Great, thank you.

Operator, Operator

The next question is from Brock Vandervliet from UBS. Please go ahead.

Brock Vandervliet, Analyst

Thank you. Just following up on John's question, BJ, it sounds like you're relatively cautious given the rate environment on securities, which I understand. We are seeing some of your peers, particularly those with mortgage banking operations, simply retain more on the residential side in this environment especially if they can avail themselves to jumbo or non-QM something with the stepped-up rate; is that part of your strategy here?

BJ Losch, CFO

Hey Brock. Yes, in response to a couple of questions, we've discussed loan growth on the consumer side. You're correct that we've made some changes. Some of our product offerings are now more appealing to our affluent clients as well as to our retail clients in general. As I mentioned, the pipeline for portfolio production has significantly increased over the last 45 days. So, we are looking to add more to the portfolio. Regarding securities, the yields we are currently seeing from the portfolio are around the 1.25 range with a five-year duration. We are being selective in our choices, but our priority is to increase portfolio production, serve more clients—especially affluent ones—and provide our bankers with more to discuss with clients. That's precisely our plan.

Bryan Jordan, CEO

This is Bryan. As you think about the alternatives for investing this excess cash, if you're doing anything, like securities portfolio or mortgages, our preference is always to use our balance sheet for building customer relationships, especially in mortgage products where you have the opportunity to expand or solidify a relationship; you don't get that from a securities portfolio. So we will always look for opportunities, if we're going to add duration, to add through our loan book.

Brock Vandervliet, Analyst

Got it. And just as a follow-up, I think the only thing it's rebounded more than bank stocks in the last year has been oil prices. I didn't hear you mention that as a source of incremental growth. Could you talk about that area? Obviously, it's been a focal point in the past for the bank. Is it a question of seeing a different risk reward here or other concerns, or how are you thinking about energy?

Bryan Jordan, CEO

Yes, this is Bryan. That's an important business. I mentioned in the growth markets that we're in Atlanta, Houston, and Dallas. Clearly, Texas is an important product set, and we are likely going to have a continued presence in energy lending. All likelihood, our exposure may be flat to down. We expect those portfolios to come down a bit, and that we will reduce our exposure a little over time. We think it's important to be in those markets and to facilitate lending in oilfield services, and so on. But we also think it's a very volatile area, and so we're not going to increase our exposures significantly. We're focusing much more on how we support the commercial businesses in those markets.

Brock Vandervliet, Analyst

Got it. Okay, thank you. Good color.

Operator, Operator

The next question is from Jennifer Demba from Truist Securities. Please go ahead.

Jennifer Demba, Analyst

Thank you. Good morning. Most of mine have been asked, but Bryan, I have two questions. I assume that when loan demand does return, the competition is going to be quite challenging given all the excess liquidity in the system. Just wondering how you guys are thinking about that. And then my second question is, when do you think we will know what the real estate implications are going to be from the shift to more working from home for banking industry employees? Thanks.

Bryan Jordan, CEO

Yes. Thanks, Jennifer. First on loan demand, you're absolutely right. It is a very competitive environment and probably becomes more competitive every day. I would argue that you've got competition around pricing obviously and duration or term, but you're also starting to see more competition around structure. We are being mindful of how and where we compete; we're focused on the strength and stability of our balance sheet. We're also aware that growing with our customers and protecting our customer base is crucial, so we're being very thoughtful on a transaction-by-transaction basis. We're trying not to draw a whole bunch of bright lines other than making sure that we're booking assets and serving our customers in a way that will be good for them and our balance sheet in the long term. With respect to real estate, Susan may have additional comments. I think that's an area that is going to take a little while to unfold. We're working through how and when we return to the office over the next three or four months, and we expect the vast majority of those working from home will return. Keep in mind that half of our people or more are in the office today, whether it's in a banking center or an operations center or technology center, etc. So we are looking at a return to work. We think there will be some short-term impact on commercial real estate. Our focus is more on whether we can see the return to opening in some of the businesses that need workers back to operational capacity. Thus, I believe more short-term stress in commercial real estate is about properties being able to open.

Susan Springfield, Chief Credit Officer

I'll add a few things. Around offices in general, as Bryan and BJ both said earlier, we are in very attractive markets in the South and we have seen even during the pandemic, and sure, we're emerging out of it, interest in companies relocating into some of the markets that we're in; places like Raleigh, South Florida, Atlanta, Birmingham, Eastern Dallas, to name a few. So even if office space becomes somewhat of an issue down the line, we're well positioned in the markets that we are in. The other thing I would say, Jennifer, is that we remain very consistent in improving our underwriting across office, and average price equity in our office portfolio now connects us with 35% to 38%. We always have huge funds to one office building; our average loan size in that portfolio is about $12 million, and then we’re diversified across our own geography; Florida, North Carolina, Tennessee, Texas, and Georgia would be our top six markets, which is what you would expect based on our footprint. So, based on our underwriting potential for good things in our portfolio, I believe is greater than others because of the market we're in and how we underwrite those loans.

Jennifer Demba, Analyst

Thank you.

Operator, Operator

The next question is from Christopher Marinac from Janney Montgomery Scott. Please go ahead.

Christopher Marinac, Analyst

Thanks. You mentioned this earlier this morning, but I wanted to go back to the loan yields and compare new business going forward compared to what the core yield was. I'm just looking at the details on Slide 12.

BJ Losch, CFO

Yes, hey, it's BJ, Chris. So our new production on the commercial side, we're seeing it in the high 2s; let's say blended across variable and fixed. On the consumer side, it's going to be a little bit higher in the low 3s, but that's what we're seeing today. Repositioning of the book in terms of new production is going to be a little bit less, which will put pressure on the margin. Again, as volume starts to pick up in the back half of the year, hopefully we can mitigate some of that. But hopefully, that gives you a little bit of clarity.

Bryan Jordan, CEO

Hey Chris, this is Bryan. With respect to coming out of a pandemic and all of the uncertainties that created, you wouldn't expect to see spreads compressing at the pace that they are. As I suggested in my response to Jennifer's question a minute ago, there is a lot of competition manifesting itself in spreads. Unfortunately, we think that we and the industry are looking at tighter spreads for some period of this year as there is so much excess liquidity trying to get deployed in loan growth.

Christopher Marinac, Analyst

No. I appreciate that. Thank you for the additional color. And then just BJ, as a follow-up on the gain on sale spread in the mortgage business. Are there any technology improvements that are essentially helping on the cost side that as time evolves, that the gain on sale spread may not come back as much as it historically did?

BJ Losch, CFO

Chris, when you say come back as much, what do you mean?

Christopher Marinac, Analyst

Well, I mean, just comparing where we are today at 3.70 compared to being in the 3s or 2s a year ago?

BJ Losch, CFO

Yes, I mean, I think there are significant process improvements that we're working on in the mortgage business. It's hard to do a lot right now with so much volume, but we are trying to implement a lot of things to keep those spreads higher. We expect that they'll continue to moderate more towards the 3.5% range this year. However, it remains to be seen because there are many moving parts that go into gain on sale spreads, but they've been pretty healthy over the last three quarters at least, and we expect them to be above some historical levels for another couple of quarters.

Christopher Marinac, Analyst

Great, BJ. Thanks again.

Bryan Jordan, CEO

Thank you.

Operator, Operator

The next question is from Jared Shaw from Wells Fargo. Please go ahead.

Unidentified Analyst, Analyst

Hi, good morning. This is actually Timo filling in for Jared. Good morning. My first question is a follow-up to your response to John's question on excess liquidity. Just looking at the deposit book, is there a way to gauge how much of that could potentially come out as borrowers start to engage in the CapEx activity, and is it going to take years for the excess liquidity to get back toward normalized levels or do you foresee that being a quicker process?

BJ Losch, CFO

Yes, we had to do that analysis in terms of how much of it could come out over time. Just to give you maybe a little bit of context on how I think about it, our excess cash position for a company our size should be around $700 million to $1 billion in any given quarter; we're at $11 billion right now. I don't think that $10 billion of excess cash comes out over the next couple of quarters. I think it is going to take some time for it to be absorbed; so I think excess cash positions are going to be here for a while. With that said, I don't expect it to continue to be expanding at that level. I expect it to continue to fall based on increased loan growth, increased usage of those excess cash balances, particularly on our commercial clients, and the burn off of stimulus checks on the consumer side. But again, I think it's going to remain here for a while.

Unidentified Analyst, Analyst

Okay. And then as a follow-up, maybe switching gears and looking at credit and the reserve position. Credit was very clean this quarter. To what extent or qualitative overlay is still being applied to perhaps slow down what otherwise would have been a larger reduction in the reserve? And as we look ahead, barring any changes in the credit picture, should we expect to see accelerating declines in the allowance level?

Susan Springfield, Chief Credit Officer

We are feeling very good about the credit outlook compared to coming out of the pandemic. In talking with clients and with bankers, we are really starting to see a lot of great activity come back to pre-pandemic levels. We are optimistic, although we are still waiting to see the results of additional vaccinations in some states. Based on what we know now, I think the portfolios should expect to see additional reserve releases throughout the remainder of the year.

BJ Losch, CFO

Yes, I agree. As I mentioned in my earlier comment, based on what we're seeing and the economic outlook, we have said for quite some time that we have significantly repositioned our credit portfolio since the financial crisis, and this is showing up in the very low levels of charge-offs we've got. We are at a 1.70 coverage ratio, and pre-pandemic, on a combined basis, we would have been at 1.10; that implies we have pretty significant reserve releases assuming the economy continues to improve. Do we get back there by the end of this year? Probably not, but you'll get back closer to maybe first or second quarter models by the end of this year; yes, probably.

Unidentified Analyst, Analyst

Okay, that's great color. Thank you.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Bryan Jordan, President and CEO, for closing remarks.

Bryan Jordan, CEO

Thank you, Jason. Thank you all for joining our call this morning. We appreciate your time and interest. We're excited about the momentum we're seeing in our company. Please feel free to reach out to us if you have any further questions or need additional information. I wish you all a great day. Thank you.

Operator, Operator

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