Bruce Van Saun: Okay. Thank you, John. Greg, why don’t we open it up for some Q&A.
Erika Najarian: My first question is for John. John, there has been a lot of feedback from investors on uncertainty over the NII trajectory for ’24 in the environment of higher for longer. And I think you know where I’m going here. I think that investors are trying to sort of square the $11 billion, $12 billion increase in notional swaps, right, at a received fixed rate of 3.10% in the second half of next year and trying to square that in a higher for longer environment with some of the balance sheet optimization. So if you could just sort of take us through a little bit of the moving pieces and perhaps simplify it for the investors listening in terms of how that impacts your NII trough timing, what happens after you hit trough and are you still confident in what you said, I guess, a month ago and that you could exit 4Q ’24 with a 3% NIM?
John Woods: Thanks, Erika. Maybe I’ll take that a little bit in reverse order because it may help us with the jump off conversation. So we — net interest margin came in as expected in the third quarter. So we’ve talked about that at 3.03%. I think that the two big forces that I would talk about broadly as you look out into the fourth quarter, would be our basic ongoing deposit migration and how that is expected to play out. So I’d say that if you look at overall net interest margin, I’d say that we’re going to see another, call it, mid-single-digit sort of headwind into the fourth quarter just on the entire balance sheet outside of liquidity build. And so that 3.03% kind of gets to close, it comes in right around that 3%. So that’s kind of playing out the way we expected, notwithstanding the fact that we are seeing ongoing migration, I’d say that, that’s holding about where we think it should be.
The other item, as you may have seen in some of our walks in the slide deck is the fact that given the uncertainty and regulatory environment, we’ve endeavored to actually build liquidity in a much more meaningful way. That liquidity build is NII neutral. But it does have a nominal impact to the net interest margin. And so you could see that being an impact in the fourth quarter, so it was a couple — maybe 2 basis points or so in the third quarter. That could be maybe another, call it several basis points as you get into the fourth quarter. So you can see things playing out as we expect in the fourth quarter. When you basically get to the 2024 dynamics, once you reset the table in the fourth quarter, the big puts and takes are we do have the swap portfolio increasing as you get into — it’s flattish when you get in the first half of the year, but it rises in the second half of the year.
It happens that as it relates to ’24, that’s about when the forward curve would start implying that cuts are starting to come in. So I’d say that when you think about some of the mitigants to the outlook, with the swap portfolio, you’re going to have potentially the Fed beginning to cut in the second half of 2024. You have the ongoing benefit of the Non-Core portfolio. You’ve got the growing accretive contributions from the Private Bank. And with long range being where they are, asset front book, back book is will contribute positively. And then just the broader balance sheet optimization efforts that we’re doing across the bank. I think are all the areas that I would highlight as nice mitigants to what we’re seeing play out. Let’s see where the rate environment plays out.
I mean the forwards have it in 1 place. We have Bloomberg economist consensus are probably 50 basis points lower than where the forwards are. But I mean, Nevertheless, we see this potentially playing out to a very manageable and, frankly, growing momentum as you exit 2024 on the net interest margin.
Erika Najarian : And just to clarify, are you still confident that you could exit taking all out account — exit 4Q ’24 have a NIM of about 3%. And based on sort of what you’re telling us, it sounds like the — if the Fed doesn’t cut as the forward curve indicated, that would be the risk to that 3%.
John Woods: Yes. I think in the fourth quarter, I’d say that we’re all else equal we’re getting around that 3% level, depending upon the impact of liquidity builds, which are NII neutral. That is that liquidity build piece that I would say, which is kind of sort of set that aside, just given where we are, it doesn’t drive NII. So you’re thinking about the net interest margin that drives NII, we’re going to be in that neighborhood of 3% ex liquidity build.
Erika Najarian: Got it. And I’m going to step back after this because I think I’m taking up too much time. I just want to clarify I’m asking about 4Q ’24. Are you talking about 4Q ’23? I just wanted to make sure we were on the same page.
John Woods: 4Q ’23, yes, sorry, I need to make sure that was clear, all everything I was just saying was about in that last bit was that we’re getting around that 3% level, give or take, at the — in 4Q ’23 ex liquidity build and the liquidity build is NII neutral. So if you’re trying to think about where we’re driving NII, it’s around that plus or minus 3% level ex liquidity build. For 2023 and all the other forces that we talked about earlier, we’re — as you’re going into ’24, when I was ticking off the tailwinds from Non-Core, Private Bank, asset front book, back book and BSO, all of those are tailwinds into ’24, which will be mitigants along with, let’s see where the rate cuts actually start kicking in, in the second half of ’24. And we’ll see where we exit 2024. But that’s something we’ll come back to you on in terms of adding more color in January as we typically do. And we’ll assess our environment and all of those forces and puts and takes at that time.
Operator: Your next question comes from the line of Scott Siefers from Piper Sandler.
