So that’s really the first quarter pressure. But I think your point about kind of a clean balance sheet entering the second half is the right one. And I think, again, we’re suggesting kind of a tepid recession kind of mid to late year and if that doesn’t come through, and we see a more constructive economic environment, I think there’s some opportunity to grow loans. But I do think as we progress through the year, you’ll see NIM expand, you’ll see NII grow nicely and you’ll see the balance sheet, I think, on the right trajectory.
Erika Najarian: Got it. And my second question is a bit of a two quarter as I’m trying to squeeze it in. One, Clark, I think when I first met you, I was very impressed by how you were so good at understanding where your funding needs and funding sources. So my question for you is, are these two-thirds of your commercial deposits in commercial, are they truly indexed on the way down, right? There’s a few regional banks have warned us that they’re indexed on the way up and perhaps more negotiated on the way down. And I guess the other question is that, is it possible to break down on Slide 14 on your maturity schedule, what would the treasury’s component be and the swap component, only because, obviously, there’s a lot of debate on whether or not the cuts in the curve will happen, which clearly impacts some of the math behind the swaps?
Clark Khayat: Yes. So the second one, Erika, is easy. We’ve — I think we’ve provided that breakout before we’ll deliver it. That’s not a problem at all. On the first, I think, look, it’s a fair point because not all of those commercial deposits are contractually indexed. So, I think that’s the right question. There’s always a little bit of — it’s easy to negotiate with the client when you’re giving them rate, and it’s a little bit harder when you’re taking it away. But I would say, our view is while it may not perfectly pull through, we have spent a lot of time with these clients. We’ve been in front of them, probably more than we would care to admit over the last year, but in a way that I think we have a good understanding of how those dynamics would work.
And we expect that the component of what we think is our indexed will come through. And just as a reminder, the — when we say indexed, it’s not all 100% index. So there’s a range of that. So bringing a client down is indexed kind of 50% doesn’t feel as challenging to negotiate than somebody who’s coming down at 100% plus. And so the book is pretty broadly distributed across 20% to 100%, and we’re going to actively engage those clients to make sure we can manage the book appropriately.
Erika Najarian: Got it. And [indiscernible], Vern.
Vernon Patterson: Thanks, Erika.
Operator: Next, we move to the line of Matt O’Connor with Deutsche Bank.
Matt O’Connor: Just a quick clarification. The fee guidance of 5%, you walked through a lot of detail on that on banking. Does that assume the 4Q annualized level, the kind of up $100 million more normal level or somewhere between?
Clark Khayat: It’s a little bit in between, Matt, probably a little more leaning toward the higher number, but we do think if markets kind of fully normalized, we’d see a little bit outside. So, it’s better than the annualized fourth quarter, not quite all the way to what we would think is normal operation.
Operator: Next, we move on to the line of Gerard Cassidy with RBC.
Gerard Cassidy : Chris, one of the interesting developments over the last 12 to maybe 36 months has been the increased competition from the private credit lenders into the commercial space. Can you share with us — obviously, you guys are a strong, big regional lender in the C&I space. What are you guys seeing from competition from those non-depository lenders? And second, if any of them are your customers, how do you balance their needs with, at the same time, competing against them for lending?
Chris Gorman: Sure. It’s a great question, and it’s developing quickly. So principally, they are customers of ours, and let me explain what I mean by that. As you well know, we distribute 80% of the capital we raised. So we are distributing, all the time, a lot of paper to these private debt funds, and it’s an important part of our underwrite-to-distribute model. As we’ve said many times, for banks, a stand-alone properly graded credit can’t return its cost of capital. That is not the situation for the private debt funds. They have the benefit of leverage on leverage. We have to be a relationship bank. We have to be able to provide all of the payments capabilities, all of the capital markets capabilities. And that’s actually an opportunity for us because I think what you’ll see is as these private debt funds continue to grow, they’ll need to partner with banks and they’ll want to partner with banks that have sophisticated capabilities around things like payments and capital markets, but don’t necessarily want to hold on a risk-adjusted basis, paper that doesn’t return, it doesn’t hurdle.
So, I look at it, frankly, as an opportunity for us. I think we’re well positioned for that.
Gerard Cassidy : Very good. And then coming back to credit, you mentioned, obviously, you have minimal or very low exposure to office space, which is great in this environment. And then you have the multifamily, exposure, but 40%, I think you said was in low-cost housing. Can you share with us, what are you guys seeing in some of the markets where there’s been rapid buildup of not necessarily low-cost housing or subsidized housing, but normal housing in the multifamily. Are you seeing issues in that subsegment of the multifamily market? Or do you not have much exposure to those markets that are growing rapidly?
Chris Gorman : Well, we don’t have a lot of exposure because you’ll remember, Gerard, we exited a lot of these what we call gateway cities, probably 5 years ago based on affordability, based on cap rates. But we do have a fair amount of insight in that we have this third-party commercial loan servicing business. And we are the named special servicer on over $200 billion of loans. And in that area, 44% of what’s in active special servicing, which is really what’s in workout is office. But the fastest-growing segment over the last quarter was, in fact, multifamily in some of these gateway cities. So we’re not seeing it in our portfolio because it’s not an area of focus, but we are picking it up through for the reconnaissance we get through our third-party commercial loan servicing business.
Just one little add-on to that, that I think the group might find interesting that I did when I was talking to the leaders there. Actually, what is in special servicing is down — we had a record year in 2023, as you can imagine. What is in active special servicing actually ticked down, which I think is just an interesting data point for all of us that kind of follow the market.
Gerard Cassidy : Great, Chris. And Vern, really good luck on retirement. And I do want to point out that I have a [indiscernible] on the investor conference book from September of ’95 when we had the infamous Elvis impersonator entertain us that night. So thank you, those are great memories, Vern. Thank you.
Chris Gorman: Well, fortunately, I wasn’t around for that, but I’m sure Vern will be happy to sign it for you, Gerard.
Operator: Next, we go to the line of Mike Mayo with Wells Fargo Securities.
