Will Jones: Very thoughtful. Thanks for the color there.
Tim Schools: Sure. Thank you for your questions.
Operator: Thank you. Our next question comes from the line of Brett Rabatin with Hovde Group. Your line is now open.
Brett Rabatin: Hey, good morning, guys.
Tim Schools: Good morning.
Brett Rabatin: I wanted to start with loans and just wanted to get a better understanding. You talked about the loans repricing and FTP spreads are nice to see. The improvement in the loan yields were a little lower this quarter than last quarter. Can you talk maybe about the magnitude of the change in the loan yield from here? And how you think that plays out relative to the current rate environment?
Tim Schools: Yes, I’ll let Chris cover that, but I want to point one thing out before he gets into that, just to let everybody know what we’ve seen, and I think everybody talks about this differently. We internally and at my former organizations, we always targeted loan yields to FTP matched funding rates. So if you had no deposits, you had to go to the FHLB and fund that loan, what would that borrowing be from FHLB? So, when we talk about our spreads, the spreads we’re talking about are not to our current actual deposit rates. So, I just want to be clear on that. But historically, where I’ve worked, we’ve targeted a minimum of a 200 basis point spread on commercial loans. And if you do that sort of on a napkin and put in a tax rate and a provision and some reasonable operating expense, if you really don’t get 200 basis points, you’re not going to get a 1.30% ROA.
So that’s sort of a floor we always targeted. In the fourth quarter of ’21, we reported to you all that our FTP spread was 250 basis points, in the fourth quarter of ’21. In the first half of last year, we reported to you all that our FTP spreads were in the 150 basis point range. And the reason for that was wholesale rates had shot up and we communicated at that time that competition in the markets either were stretching for loan growth or they were less sophisticated and they didn’t raise their pricing. So if you wanted loans, you had to jump in the game with them. It was almost like the inverse of the deposit market today. So, if you want deposits today, you’ve got to pay what First Horizon is paying. It’s irrational, but you’ve got to pay it.
Well, it was the same thing for loans first half of last year. So it was 250 basis points, then it was 150 basis points. So, I’m really pleased that in this environment, we’re getting closer to the 290 basis points to 300 basis points. So, we’re getting better pricing to help mitigate the sharp increase in deposits. But I’ll let Chris talk more specifically about your question.
Chris Tietz: Yes. And Brett, thanks for the question. I want to clarify, are you looking at on Slide 10, questioning the direction or the trajectory of the loan yields, or the actions that we’re taking?
Brett Rabatin: No, Chris. Actually, the — if you look at the loan yields on Slide 10, actually, just the linked quarter change, 2Q versus 1Q, was less than 1Q versus 4Q. And I know rates were moving up faster in 4Q than they were this quarter. But just wanted to make sure…
Chris Tietz: Got it, okay. Yes. Okay. Well, I don’t have specific dates in terms of when we had Fed increases and so on. But we have a number of situations where timing in the quarter would matter where we’re repricing a renewal. Not all loans reprice today that in index changes, some might change quarterly in. Let me turn it over to Mike. He can give you more insight on that than I can.
