Manan Gosalia: Hi, good morning. I wanted to clarify your comments earlier on the call that you believe that the LDRs for the industry and Category 4 banks, in particular, will have to move lower. Does that mean that you have some room to optimize some of your non-deposit funding like longer-term debt, or is that unlikely given the potential for TLAC rules to also apply for Category 4 banks?
Clark Khayat: Yes. So, I think that we do have that, and you would have seen us do a little bit of that even here in the second quarter. So, I think your follow-on question around TLAC or long-term debt is the right one as well. And we’ll wait, as Chris just mentioned, for the proposed and final rules. But we do think that reduction in loan to deposit over time gives us an opportunity to reduced reliance on wholesale funding.
Manan Gosalia: Got it. Okay. And then maybe on the credit side, given the ACL was up this quarter as well. Was that entirely model-driven? And I guess how much of a buildup — is there more of a buildup to do? And what sort of an environment do you have baked into that current reserve ratio?
Chris Gorman: Sure. So, just from a CECL perspective, obviously, it’s very forward-looking. In terms of what percentage is model-driven, what percent is kind of portfolio driven, I think you can assume it’s kind of sort of half and half. And my assumption is that — just to step back for a second. My assumption is that we will have — I think the Fed is going to successfully engineer a soft landing. I think it will probably happen in 2024. Having said that, what I don’t think is yet in the market is the impact of and also the impact of banks tightening down on credit. And I think both of those will have an impact on the economy. And as such, we’re pretty conservative in terms of how we look at things. And so the first thing we always do is look at anything that is leveraged and anything where the cash flows could be in any way impacted by a slowing economy.
So that’s kind of the lens that we looked at it. There is nothing specific. There’s nothing that we’re particularly worried about. We kind of looked across all the portfolios.
Manan Gosalia: So as we — if we do move towards a soft landing, would that imply that you don’t need the ACL ratios to really move higher?
Chris Gorman: Yes. Right now, I feel like we have reserved what we need to reserve, for sure.
Manan Gosalia: Got it. Thank you.
Operator: Thank you. We’ll go next to the line of Mike Mayo with Wells Fargo Securities.
Mike Mayo: Hi. Can you hear me?
Chris Gorman: Yes, Mike, we can. Good morning.
Mike Mayo: Okay. Good morning. So you’re guiding NII down 4% to 6% in the third quarter and another 0% to 2% in the fourth quarter. What does that mean for your NIM? Even in broad terms, it was — I guess, it was 2.12% in the second quarter?
Clark Khayat: Yes, we would expect it to be relatively flat in the third quarter and then start to trend up.
Mike Mayo: Okay. So my question is, look, that’s the lowest core margin possibly ever, at least since the global financial crisis. I mean, that is such a slim margin here. And then — so I guess, why such a low margin? And even after the increase, I guess I get to around NII of about $1.15 billion per quarter, which is where you were in the second quarter 2022, which is before the Fed rate hikes. And you can correct the math, but you’re using the midpoint to your NII of $986 million, goes down to $937 million next quarter and then $927 million in the fourth quarter. And then I guess you’re saying it goes up by about one-fourth from there by the end of the year, right? So $927 million plus 1/4 of that $900 million annualized, gets you around 11 50 NII.
