Q2 2023 First Horizon Corp Earnings Call
Good morning, and welcome to the fast Horizon second quarter 2023 earnings Conference call. My name is Carla and I will be the operator of today's call.
If you'd like to register a question for the Q&A portion of the Coe. Please press star followed by one on your telephone keypad when asking your question. Please ensure your telephone is muted lately.
Or if I ask a question you can press star followed by two I would now like to pass the conference over to our highest Natsumi Flanders head of Investor Relations. Please go ahead when you're ready.
Thank you Carlos good morning, everybody.
Welcome to our second quarter 2023 earnings call.
It's been a few quarters since we've had one of these so we thank you for taking the time to join us today.
Our chairman President and CEO , Bryan, Jordan, and Chief Financial Officer hooked them, Jackie will provide some prepared remarks.
Afterwards, Bryan and our Chief Credit Officer, Susan Springfield will be happy to take your questions.
Our remarks today will reference our earnings presentation, which is available on our website at IR Dot first horizon's dotcom.
On this call 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 two 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 are non-GAAP measures. So please review the GAAP information in our earnings release and on page three of our presentation.
Lastly, our comments reflect our current views and we are not obligated to update them.
With that I'll turn things over to Brian .
Thank you Matt Good morning, everyone. Thank you for joining our call. This morning.
Pleased to announce our second quarter results.
It would be an understatement to say that 2023, especially the second quarter has been unusual both for our company and the industry as a whole.
I'm incredibly proud of the tremendous resilience of our company and associates as Sean.
Despite the unprecedented events in the banking sector, we continue to focus on serving our clients and communities and the results of those efforts are reflected in our strong quarterly results.
On slide <unk>.
You'll find some of the key highlights from this quarter, which hope will provide more detail on later.
On an adjusted basis, we delivered EPS of <unk> 39 per share and a return on tangible common equity of 14, 6%.
While maintaining robust capital levels.
We ran a very successful deposit campaign.
Our bankers made over 50000 prospecting calls to new and existing clients, bringing in almost $6 billion of new to bank bonds and growing our client base by 4%.
Credit performance continues to be strong with nonperforming loans declining $21 million from the first quarter and net charge offs of 16 basis points coming in at the low end of our guidance range.
Our capital position is very strong with CET, one increasing 72 basis points to 11, 1%.
So the industry is facing headwinds from increased deposit competition macroeconomic uncertainty and pending regulatory change I am confident in our ability to earn top quartile returns through the cycle.
Our commitment to prudently managing interest rate risk liquidity and credit has positioned us well to navigate the current environment.
Our business model is diversified by industry, geography, and product, which provides consistent returns and greater ability to manage through a range of market conditions.
We are investing in our people and infrastructure to enhance our products and services. So that we can take advantage of the opportunities we see in our attractive footprint.
Our associates have gone above and beyond serving our clients during these uncertain times.
A benefit of the disruption in the second quarter was the opportunity. It provides our associates for proactive outreach to our clients.
As you can see the extraordinary results of this effort and I'm grateful for the confidence our clients are demonstrated in us this quarter.
As we move forward.
I'm very thankful for the dedication and hard work of our associates as they continue to deliver value for our clients communities and shareholders.
With that let me hand, the call over to hope to run through the financial results and our outlook.
Thank you Brian Good morning, everyone turning to slide six we have the highlights on our adjusted financials and key performance metrics for the quarter.
As interest rates have risen over the past year, our net interest margin has expanded significantly up 64 basis points.
Despite some moderation this quarter the margin continues to be very strong at $3 38, and our balance sheet remains asset sensitive.
Adjusted fee income and expenses for both essentially flat to the prior quarter after netting the offsetting impact of deferred compensation.
Credit quality continues to remain very strong provision expense this quarter was $50 million, resulting in an ACL coverage ratio of 135 flat to the prior quarter Tan.
Tangible book value per share of $11 50 is up 61.
The series G conversion added 50.
The merger termination fee added 23, after netting out the 50 million dollar Foundation contribution.
Adjusted earnings added 39 cents, partially offset by a common dividend of <unk> 15 cents.
The mark to market on the securities portfolio and hedges drove a 27% reduction.
On slide seven we outline the notable items in the quarter, which netted to $98 million after tax impact or <unk> 17 per share.
Our pre tax notable items include the merger termination fee of $225 million.
Merger related expenses of $30 million, primarily related to the employee retention awards, which remain in place following the termination.
Other notable items include a 50 million dollar contribution to the first Horizon Foundation as well as a $15 million derivative valuation adjustment related to prior class visa class B sales.
On slide eight you can see that over the last year, we've benefited from our asset sensitive position with the net interest margin expanding 64 basis points year over year.
Positive response from clients to our deposit campaign this quarter exceeded our expectations. We brought in five 8 billion of new to bank funds from the more than 50000 customers, which brings our ending deposit balances up 3% year to date.
Positive deposit momentum modestly accelerated the timing of the increase in deposit betas.
However, our net interest margin of 338 continues to be very strong despite some moderation in the quarter.
As marginal funding cost have risen loan spreads have also widened out with new production spreads approximately 50 basis points higher than we were seeing in the fourth quarter.
On slide nine you can see the success of our deposit campaign, demonstrating the confidence our clients have in our franchise. We grew period end deposits by 6% added over 32000, new clients of the bank and deepened relationships with almost 19000 of our existing clients.
Our competitive offer and targeted client outreach generated historically strong acquisition with 60% of balances coming from new to bank clients.
This deposit campaign provide a great opportunity to connect with our clients. Our bankers made proactive outreach calls and the clients who took advantage of the deepening offer increased their balances with us by 37% on average.
Mix shift continued into the second quarter with noninterest bearing balances declining from pandemic high.
We are beginning to see signs that the pace of that mix shift is starting to slowdown and DDA balances are stabilizing in the second half of the quarter.
Non interest bearing balances at 29% still comprise a higher proportion of total deposits today than pre pandemic, which was 27%.
Like a lot of banks, we saw clients looking to maximize coverage on their deposits driving higher utilization of our collateralized repo sweep product.
In addition to the $4 billion of deposit growth, we added $782 million of repo balances, which are incremental funding.
On slide 10, we show the trends in our loan portfolio with loans up 3% on average and 4% at period end growth was diversified across our markets and portfolio types loans.
Loans to mortgage companies grew $650 million from first quarter seasonal lows. This is a great business for us, it's our highest yielding business line and as others have pulled back in this space, we've been able to deepen our relationships widen spreads and negotiate for more deposit business. We also had growth in our CRE portfolio.
Which was primarily driven by fund ups on existing loans, primarily in our multifamily family space.
We cover fee income trends on slide 11 overall fee income has remained stable for several several quarters. Despite the macroeconomic headwinds impacting fixed income and mortgage we had $5 million of increases in deferred compensation, which is offset in expense.
We saw $8 million of growth and other fees, partially driven by higher Treasury management fees due to the decline in noninterest bearing deposits and seasonal factors.
On Slide 12, we review our expense trends, we have maintained expense discipline across the company as evidenced in our results with adjusted expenses down $1 million. When you exclude the $5 million increase in deferred compensation. The advertising investments made this quarter were to support our client <unk>.
<unk> brand awareness initiatives and client outreach programs.
Expenses declined include $2 million of lower fraud losses from implementation of additional security solutions as well as lower franchise in realty tax expenses related to the disposal of properties.
Turning to slide 13, I'll cover asset quality and reserves.
Credit quality continues to be strong with nonperforming loans down $21 million from the prior quarter and net charge offs remained near historic lows we.
We had $50 million of provision expense, resulting in a reserve build of $27 million supporting 3% loan growth excluding loans to mortgage companies.
Our allowance coverage ratio remains healthy at $1 35 flat to the prior period.
If the industry experience as a credit cycle, we expect our portfolio to outperform due to the benefit of operating in attractive markets.
Underwriting loans for all stages of the credit cycle, and the granular diversification across industries and portfolio types.
Yeah.
Turning to capital on Slide 15.
Our capital position is very strong with CET, one ratio of 11, 1% up 72 basis points.
The series G conversion added 71 basis points.
The termination fee added 19 basis points net of the foundation contribution.
We accretively deployed 30 basis points of capital into loans, including $16 million of lower risk loans to mortgage companies.
CET, one would still be nine 5% well above the 7% well capitalized threshold, even adjusting for the unrealized losses in the securities portfolio.
On slide 16, we've reaffirmed our full year guidance, which remains unchanged from what we shared with you at Investor Day in early June .
As we're all experiencing theres been a lot of volatility in the markets expectations for interest rates. Our current outlook is for 25 basis point rate hike in July and then rates flat through the rest of the year.
The positive deposit momentum modestly accelerated the timing of the increases in deposit betas, and we remain asset sensitive.
We still expect our NII guidance to be in range with what we provided at Investor Day, we continue to invest in our businesses and our expense outlook reflects the impact of those investments as well as the remaining retention awards moving into core expenses.
We are pleased with the momentum we had this quarter and are excited to continue to deliver on the strength of our franchise.
To wrap up on slide 18.
We are well positioned to capitalize on our diversified business model highly attractive markets and asset sensitive balance sheet as we continue to prudently manage capital and risk we are committed to delivering top quartile returns through the cycle.
I am proud of the work our team has accomplished over the last few years and especially as the last few months, we have built a balance sheet that we believe in and have demonstrated our ability to execute even in challenging times and with that I'll give it back to Brian .
Thank you.
We strongly believe our second quarter results reflect the strength of our franchise our associates accomplished a lot in the lab.
<unk> 60, or so days.
That dedication combined with our attractive footprint and extraordinary client base sets us up to build an unparalleled banking franchise in the sale.
We have long tenured relationships that are broad and deep.
We have an established today, we're excited about the opportunities that we have to deliver value added advice to clients with improved product and technology.
I am confident we are well on the way to becoming a top performing regional bank and delivering enhanced returns to our shareholders.
This concludes our prepared remarks, Carlos will now open it up for questions.
Thank you to remind you if you'd like to ask a question. Please press star followed by one and your telephone keypad.
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Our first question is from John Armstrong from RBC markets. Your line is now open.
Please go ahead.
Everyone.
Good morning, John .
All right.
Quick question on deposit pricing expectations.
Curious if you see them changing at all and you alluded to a slowing noninterest.
Noninterest bearing migration can you talk a little bit about that.
And then on your deposit campaign.
Campaign.
You need to do more or is that essentially over at this point.
Good morning, John Thank you for the first question good to hear from you again.
We on the deposit campaign, we did have a promo rate that ran through June 30th that promo rate has expired and we have gone out with a new.
Third quarter from a weight, which is much more.
We do expect to continue to need to raise deposits in the industry, but we don't expect to have to run the aggressive campaign, we did in May and June .
We continue to believe that we are well positioned to grow our deposit base, especially and deepening relationships with the new clients. We brought on board at.
As far as the DDA, we really saw in the second half of the quarter almost no migration coming out of the beginning of the year and especially in March and April we saw significant focus by clients on moving DDA into interest bearing as they became aware of how lucrative that is in the outreach calls that we were all doing during that time as a result.
Of the failures in the industry and we believe the 29% that we're at now is has been stable for the second half of quarter. One main stabilizers are really operating accounts and theres not much more that can migrate into interest bearing.
Okay very helpful. And then can you touch on the pricing pressures on some of the larger depositors you touched on it at Investor day, but are you seeing that ease at all with some of the bigger deposit balances.
Yeah, I would say in June we do definitely towards the end of the quarter saw not be significant pressure. We were seeing I think a lot of people settle down had changed banks already moved their money and where we're starting to see a little bit more normal.
Bidding and the industry as well as clients not.
Looking to move money as quickly as they were following the three bank failures.
John .
Ed.
Following which is I think where you'll see more pressure in the coming quarters method is going to be easy anywhere, but more on the commercial lending side as you as you look at commercial lending transactions.
The entire industry is looking to deepen and broaden relationships youre seeing that in participations in club deals youre seeing that in syndicated transactions.
I think youll see more of a pressure emerge and on the commercial side in all likelihood in the back half of this year.
Okay, So youre, saying tied to more tied to credit.
Yes, yes.
Are they more than just a credit transaction is a relationship.
Okay. Okay.
Okay I'll step back in the queue. Thank you I appreciate it thank you.
We have our next question from Casey Haire from Jefferies.
Please go ahead.
Great. Thanks, Good morning, guys.
So just maybe following up on some of some of John's questions.
It sounds like the DTA is near bottom, which is great and I was wondering.
Is there a.
A ceiling on Cds as a percentage of your mix.
I know you guys are stepping away from the promotions, but just wondering how much Cds can make up the deposit franchise.
Okay. So you are getting a little bit of a feedback, but I think you asked is there a ceiling on Cds as to what we're targeting in our portfolio and I would say I think we're still a significantly underweighted in Cds versus our peers. When I look back at Q1, and where we grew in Q2. So I think we still have.
A lot more room that we could grow Cds, if we aggressively where to price there I would tell you in the quarter Cds were not our leading we really a lot of money market funds was where we saw a lot of the new client money come in.
Okay great.
And then just following up any updated thoughts on where cumin deposit beta I apologize if I missed this where it came deposit beta settles.
An investor day, where we said that we thought our cumulative deposit betas would be around 55, I think that's still a good range I think we'll look at depending on what the rate environment is one of the things that I mentioned in my comments I do believe that we accelerated our deposit beta this quarter as a result of our deposit gathering campaign.
And so future rate hikes do not require us to reprice our book the way.
We would've had to you in the past I think we just accelerated that.
Okay, and just maybe at Investor day, and I think we're still in that range.
Okay excellent.
Just lastly on the expense front.
Up 5% year over year tracking a little bit.
Below your <unk>.
<unk> guide for.
For the year.
I'm just wondering if that's conservative or is there going to be more expense pressure heavier expense pressure in the back half.
I think that's realistic I think one of the big things need to add back is we have $22 million of retention coming back into operating that was previously charged to the merger center, which is a big part of it and we also had some hiring that we need to do coming out of just being a little bit low thinking that we were going to close on a merger shortly and so there is some hiring that we need to do back.
Significant portions, which has some pockets that we need to backfill.
Great. Thank you so as we mentioned at Investor Day, we are sort of in the third one is we are starting to invest in our technology and that takes a quarter or two to come up. So I think we start to see some of that really hit our run rate in fourth quarter with a full run rate impact in 2024, as we invest $75 million to $100 million in our technology platforms over the next three years.
Thank you.
Thanks Casey.
Our next question comes from Michael Rise from Raymond James. Please go ahead, when you're ready.
Yeah.
Hey, good morning, everyone. Thanks for taking my questions.
Just wanted to touch on this quarter's loan growth.
I think if I'm doing the math right.
The guide was reiterated but this quarter was obviously much stronger than I think many of US were anticipating does that imply kind of a shrinkage in the back half of the year or is the guidance conservative just trying to kind of square the guidance and then maybe if you could touch on the warehouse it looks like one of your larger competitors.
Got out of the space just wanted to see what the potential benefits you all would be thanks.
Yes.
Michael This is Bryan I'll start we.
We think that loan growth will probably flatten out some.
In the back half of the year you had some continued pull through of pipelines in the residential mortgage you mentioned mortgage warehouse lending.
There has been some changes in the competitive landscape there and we've seen some opportunities both on the pricing in the line utilization side to pick up some some very nice relationships there.
And broadly speaking we saw utilization.
Utilization in commercial real estate as we self fund up of some existing projects that were done many many quarters ago. So we think that will start to level out we think clearly the positive trends, we saw in deposits and deposit gathering positioned us well to support.
Our customer needs and to grow the franchise attractively and we will take advantage of those opportunities, but our expectation for loan growth over the full year as it flattens out some in the back half of this year.
Great and then maybe just switching to the fixed income business I think this is the lowest quarter of revenue.
At least in my model going back. Many many years can you just give us an update on kind of the competitive positioning of that business.
Is this kind of inflection point quarter are we going to get some sort of inflection point at the fed.
Terminal rates here in the next couple of months just wanted to get some some of the updates there. Thanks.
Yes look it's been a series of very tough quarters in that business and average daily revenue has suffered as a result.
We're still very confident in our ability to serve.
Our customers at a very unique way, we're very uniquely positioned with a broad customer base a huge distribution model.
And we're very confident that when we do reach terminal rates and we start to see some transition and steepening of the yield curve, we are likely to see that business recover nicely. We've always described it as somewhat counter cyclical and we expect it will continue to do that.
In the meantime, our teams are working very very hard to deliver value through other channels portfolio Advisory asset management research things of that nature, and we're going to control cost and we will be positioned for the turn when it comes.
Okay.
Alright, great. Thanks for taking my questions.
Sure. Thanks, Thank you Mark.
We have our next question from Brady Gailey from <unk>.
Please go ahead, when you're ready thank you.
Thanks, Good morning, guys.
Good morning, Brian morning.
The initial deposit promotion is over I think you said it wrapped up June 30, and then you mentioned there was a new deposit promo going but at lower rates what is the new.
Kind of pricing up deposits for this quarter.
Okay.
This is money market kind of been the one that we've had the most success with I'll do that one we were at $5 25 for money markets and starting July one. We're now at 425 that we decrease 100 basis points, there and I would say that that's pretty directionally similar for our other products as well.
Okay.
Our loan to deposit ratio ticked down a little bit in the second quarter. Its now kind of the mid <unk>.
90% range is there a goal that you would like to see that ratio Ed are you actively trying to get that ratio lower.
Okay.
This is.
Brady.
We don't have a goal around that we're mindful that we have to fund our loans with deposits and our securities portfolio. We think it's useful to look at both loans and securities portfolios because they both have to be funded in a similar fashion.
We are mindful that we don't want that ratio to get to.
We're not uncomfortable with where it is in our outlook and our ability to gather deposits doesn't give us any concern that we're gonna be overly constrained by our loan to deposit ratio, we're not going to get let it get wildly out of ground.
Right now, we're very comfortable with how it's positioned.
No.
And then finally for me just just an update on the share buyback.
If you look at your common equity tier one youre supposed to finish the year.
Around 11, 5%.
A lot higher than your goal of 10 to 10, 5% is there any update on the willingness to consider a share buyback, especially with the stock at 110 of tangible.
Yes, I don't have any new information, we still have authorization to buy back stock. We believe that right now cap capital provides true.
Really nice degree of Optionality, we think it's important to see how this economic environment plays out and we like being in a position with a strong capital base.
We have opportunity to deploy it.
<unk>.
Capital repatriation, whether it's dividend or buyback, but in the meantime, we're going to use it to support our customers and looked at opportunities to grow the balance sheet where appropriate.
Okay, great. Thanks, guys.
Thank you.
Our next question it comes from Brody Preston from UBS. Please go ahead.
Hey, good morning, everyone.
Good morning.
I just wanted to ask it seems like the interest bearing deposit growth was a little bit back half weighted when comparing the period end than the average and so I just wanted to maybe ask on the.
On the spot rate on the interest bearing deposit costs do you happen to have what that is at quarter end.
Yeah.
No doubt it was back half weighted with determination in early may.
Started the program in the back half of <unk>.
Our spot rate at the end of the quarter would run in about 310.
Okay deposits.
Okay, Great and then.
Just within the net interest income guide.
I guess how much of the.
I think you were just a little bit below the low end of the <unk> guide, but you maintained and I know you changed the forward curve outlook that you are using as it evolves. So I just wanted to kind of ask how much.
How much did the removal of the I think you had a couple of cuts.
A handful of cuts in the back half of the year kind of baked into the previous guidance how much did the removal of those cuts add to the net interest income guidance.
If we did miss our guidance, just slightly and Thats all on deposit growth we.
We set up an investor day on June six and everyone thought we were going to have deposit runoff and we said no. We're seeing deposit momentum we didn't expect June to be a better month in may at that point that we were really really excited to see how strong June came in which did give us.
Higher beta and a little lower net interest margin, but I will mentioned.
Right, we're paying for deposits is paying off wholesale funding. So it is.
Positive to our overall net interest margin over the horizon as we pay down wholesale funding as it matures and can continue to use client deposits as our primary way to fund our balance sheet when.
When we look at the way the rate curve has moved bringing a rate increase earlier in the year versus two decreases later in the year is very positive to our margins as we're asset sensitive and it does help to offset the increased deposit rates. We have so I believe we're still in range with all three of those offsetting.
Okay.
And then I wanted to ask one just on the fixed rate loan portfolio do you happen to know what what the dollar amount of fixed rate loans as thats.
That's repricing over the next 12 months.
And do you know what the current yield on those loans that are that are re pricing is.
Brody I don't know the yield on those I can try to get them in half Investor Relations get back to you at the end of the day I don't have that but it is about $5 billion that we have repricing in the next 12 months.
Okay, great and what are what our current origination yields I'm, sorry, if you mentioned that and I missed it.
We've seen our spreads significantly widen out too.
About 150 to 30 spreads 300 150 to 300 is what we're seeing new originations at.
Got it Okay, and then last one for me just within the Ams portfolio do you happen to know what the effective duration.
<unk> of that portfolio, and then I guess within that duration calculation.
Do you know what conditional prepayment rate.
You guys are using to come up with that duration.
Our effective duration is five two and then we assume at five <unk>.
Prepayment rate.
Awesome. Thank you very much for taking my questions I appreciate it.
Thank you.
Our next question is from Jared Shaw from Wells Fargo. Please go ahead.
Hi, Good morning, this is actually Timor, Brazil or filling in for Jared.
Just a couple of questions here the excess liquidity that was generated in the second quarter.
It's sitting in cash right now just curious what the use of that liquidity is going to be are you going to pay down some borrowings of that is that going to go into the bond book any color, we can get on that.
We plan to pay down our borrowings on that we had laid out our borrowings in the deposits came in a little bit quicker. So it wasn't intentional to have that much cash at the fed, but as we as <unk> matures our debt, we will pay it off with that excess funds.
Okay and then the.
It sounds like Youre going to continue building liquidity throughout the rest of the year is that going to be the.
The strategy, there as well or could we see some additional layering into the bond book.
Yeah.
At this time, we have no intention of putting any additional securities on the books. We're our intention is to improve our liquidity position as you said and as Brian said earlier.
Use our strong capital position and liquidity, we generate too.
Be there for our clients and customers during this time and support our loan growth that we felt we are moderating loan growth in the back half of the year, but still loan growth.
In fact, our expectation is that the securities portfolios.
We're making very limited reimbursement they'll continue to trend down.
Okay. That's helpful. Thank you and then maybe from a bigger picture standpoint, the deposit growth that you generated in the second quarter can you just talk about kind of the geographic diversity, there and that how that plays into the broader strategy.
As a standalone company once again and kind of the near term strategy to further penetrate the Iberia market kind of with a more broad product offering is it on working to gain market share in Tennessee, namely Nashville kind of all the above maybe just give a sense on how youre thinking about geographic strategy here.
Yes.
Breakdown, if I recall the numbers it was about 20% of the deposit growth was in the state of Tennessee, and 80% was out and so it was fairly broad based and diverse.
We think.
As we look at the next several quarters.
Realizing the benefits of the promise of the Iberiabank first Roz and merger vehicles. We think we have a great opportunity to continue to.
To grow out our presence in these very attractive higher growth markets that we're in all across the south.
One of the areas of emphasis for us will be in the coming quarters will be how we continue to build out that retail presence in retail focus and what would have been the legacy Iberia bank markets. So.
We see there being a huge opportunity for us to capitalize on.
Business model and value proposition for our customers.
Same time drive.
Attractive deposit growth and the ability to serve our customers more broadly in these higher growth markets.
Great. Thank you.
Thank you.
Our next question comes from Steven Alexopoulos from J P. Morgan. Please go ahead when you're ready.
Hi, This is Anthony Elian on for Steve My.
My first question at Investor Day last month, you indicated that you were able to retain nearly 90% of associates through the first quarter of this year, while waiting for the TD deal to move forward what did banker retention look like in the second quarter and since Investor day and are there any notable changes.
From the retention statistics provided at Investor day.
No no notable changes our banker and client retention has continued to be very very good.
We're encouraged with the excitement and enthusiasm we see in both groups our associates, our bankers as well as our clients. So our retention has been good and I would I haven't seen the final numbers, but Mike.
Estimate would be that has probably improved from what you saw in the first quarter.
Okay, and then on the deposit gathering promotion I guess from a high level why do you feel like you needed to be aggressive with engaging in deposit gathering promotions not just from existing clients, but also from new to bank clients.
Well couple of thoughts clearly.
Maybe one of the more unique situations in mid April with determination as she may mid may with termination of the merger.
And we wanted to do a couple of things one there was a period, where there was an awful lot in play and we all know that the deposit base in the U S has been volatile and contracting. So one we wanted to be very well positioned to.
Not only did.
Protect the homefield, but to be aggressive in front footed in terms of demonstrating our commitment to the markets that we serve it was a great opportunity to get our bankers on the phone talking to customers, having a positive conversation about first raws and how we're positioned and what we are.
Looking to do over the foreseeable future and how we continue to be committed to serving them and their needs.
Then thirdly.
Hope mentioned wholesale funds and sort of that alternative of wholesale funds.
Even at the same cost you certainly get a relationship benefit when you deal with a client versus a federal home loan bank borrowings. So we looked at it said it would appear appropriate period to say, we're going to reset we're going to draw a line.
Under the termination of the merger, we're going to get very front footed, we're going to demonstrate our commitments to customers our marketplace and our commitment to delivering on the value of the first ryzen model.
Okay and my last question of the $5 8 billion deposits you added in the second quarter from the campaign.
Which would you say is sticky and how does this break down into the three 5 billion from new clients and the $2 3 billion deposits from existing clients. Thank you.
New to bank clients, we saw 80% of that in consumer and 20% of that Marshall.
And on the deepening relationships it was 51% consumer 49% commercial.
We see every one of these as an opportunity to introduce new clients to the first horizon brand to the first horizon franchise and so now that we have a deposit relationship with them, we're calling on them and trying to deepen relationships in other spaces that we're hoping that the majority of these will be sticky, we're not seeing that much.
Transitional deposits were reaching out to these clients and trying to build relationships with every single one of them, we have 4% more clients this quarter than we had before and we see that as an opportunity to.
To continue to grow relationships with them and create more profitability.
The real opportunity in our view, which is we recognize that you attract customers.
New customers in any.
Any deposit campaign, principally with rate, but it is an opportunity to demonstrate our commitment to service and deepening and if you look at the deposit growth, we had with our existing customer base of roughly $2 three $2 4 billion. My recollection is right something like $60.
<unk> of that was with our primary customer base EBITDA something like that so.
What we want to do is take the opportunity we have a locked in period here and we will take the opportunity to deepen the relationship broaden the relationship with these customers.
New customers. The 32000, if I remember the numbers right. It was about 23 24000 were retail and about 6000 plus were 6500 were commercial so that's a great opportunity for us to broaden relationship and.
And we as I've.
I've said about doing that and I expect it will have very good results with it.
Great. Thank you.
Thank you.
As a reminder to register a question. Please press star followed by one on your telephone keypad.
Our next question is from Christopher <unk> from Janney Montgomery Scott. Please go ahead.
Bruce you there.
Hey, Brian can my risk.
Yes, yes, we can hear you.
Great I'm. Good. Thanks, I had a credit question for you or for Susan just about the migration of.
Just downgrades on special mentioned substandard. However, you look at it and how you think that May play out in the quarters ahead.
Yeah. Thanks, Chris.
We had we had a little.
<unk>.
Additional downgrades into non Pam, but it was it.
It was very moderate.
And it's something that we typically do see as you know in second quarter, we're getting yearend financials and from clients.
We're still.
So very very pleased with the overall.
Asset quality for the portfolio so.
In terms of <unk>.
Total classified Glen is finished or at one 7% at the end of the quarter.
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And non accruals at 47 is hopefully that we actually had a decrease in our non accrual loan balances. So obviously, we're watching it carefully with what's going on in the economy rising interest rates, but.
But as we talk to our bankers and clients.
We feel like that in many cases.
Borrowers are getting used to this environment they are adjusting.
Businesses are being able to pass along increases.
Prices. So again, we believe we're well positioned but we're watching it carefully and doing the appropriate servicing and monitoring that we need to do and continue to be diligent and.
An initial underwriting as well.
It's kind of interesting when you talk to her.
Our bankers and the customers Chris.
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Expected recession, that's always six months off and just continues to roll it still feels like customers borrowers are in a pretty good place as Susan said, they have adjusted very well to higher rates and the changing dynamics around inflation.
As she said paying an awful lot of attention to grading and understanding how are our borrowers are doing but at the end of the day things still feel relatively good at this point.
Great. Thank you for that.
Good morning.
Possible reserve releases.
Just on the commitments come down is that a possibility.
Well I think obviously, we have to we evaluated every quarter Chris.
In terms of looking at what growth we've had in balances in unfunded.
Things like what's going on the economy at this point I feel like the.
The reserve is where it needs to be based on what we know today and we'll gauge that home. Obviously, if there are opportunities to release, we take a look at that just like we look at <unk>.
Changing economic conditions.
Either there is growth or deterioration in the economy.
Great. Thanks, again for taking my questions.
Thank you.
We have no further questions registered I'll hand back to the management team for final remarks.
Thank you Carla we appreciate everybody joining us on what we know is a busy morning. Thank you for taking time. We appreciate your interest in our company. If you have any follow up questions or if you need additional information. Please reach out to any of US are Natalie Flanders today, and we will give you additional information. Thanks, I hope you all have a great.
Okay.
This concludes today's call. Thank you for joining if you have missed any part of the call.
Here again <unk>.
<unk> replay will be available shortly.
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