David Turner: No. Our NIB largely comes from our consumer base. We do obviously have a big NIB on the commercial side. I think folks that were going to move out of NIB to seek rate have done so. And we think that that’s why we’re calling for our NIB to decline a little bit but still stay in the low 30% range. And they all just want to maintain a little bit more liquidity going into a cycle that still has uncertainty, geopolitical risk, our own elections this year. But no, I don’t think from an inflation standpoint, we’re going to see a huge change from NIB.
Operator: Our next question comes from the line of Matt O’Connor with Deutsche Bank.
Matthew O’Connor: Was just wondering if you could elaborate a little bit on some of the fee trends the deposit service charges were up nicely. And I know the treasury management is a big part and a positive driver, but there is weaker seasonality. So I was wondering if you can scale that out.
John Turner: Yes. So if you look at — just talk about fee revenue across different parts of the business. Treasury management is up 7% year-over-year, and that’s a reflection both of increases in fees and increases in relationships and activities. So the nice growth in that business. Similarly, wealth management is up over 6% year-over-year, which is both reflective of increases in asset valuations and increases in assets held for customers increasing relationships. We also saw a really nice increase in mortgage activity during the quarter, and we would expect that to continue. Consumer fees are down modestly, and that’s a reflection really of the implementation of all the changes we’ve made to benefit customers with respect to overdrafts.
And more specifically, as a result of the implementation of overdraft grades, we’ve seen about a 25% reduction in the number of customers who are actually overdrawn. So that is resulting in some decline in fee revenue, offset by our — currently by interchange activity and customers use of their debit cards. So generally, fee income is solid. We’re seeing good growth in the wholesale parts of our business and in wealth management that reflect growth in relationships and growth in activities.
Matthew O’Connor: Okay. And then capital markets, that also came in strong, and I think you’ve had this like $60 million to $80 million range in the past with wind for upside. And yes, just talk to, were there any deals that — just talk to how sustainable you think that is? Obviously, it’s somewhat market dependent, but a little more color on the 1Q driver there and the thoughts going forward.
John Turner: Yes. I think we still stick to that range generally and incorporate our expectations for capital markets into the broader guidance of around $2.3 billion to $2.4 billion in adjusted NIR. But we do see good pipelines. Capital markets activity is picking up. There’s more M&A activity. We’re seeing more customers go to the institutional market to raise debt, which has been helpful. Our M&A activity was pretty diverse during the quarter. And then real estate capital markets, which is a really important business for us is also very active. And so we feel pretty good about the $60 million to $80 million range for the quarter.
Operator: Our next question comes from the line of Gerard Cassidy with RBC.
David Turner: Gerard, before you ask your question, let me clean something up from a question that just came up in terms of the, what’s the charge-off percentage would have been had we not had those two large credits. I said 7 basis points. It’s 13 basis points actually. So we would have been at 37 had we not had those two. I didn’t do the math correctly. I just want to make sure that gets fixed in the transcript.
Gerard Cassidy: Very good. All set?
John Turner: Gerard, fire away.
Gerard Cassidy: Can you give us an update where the proposal is going for the long-term debt? And when do you think that will be finalized in the NPR that’s out there? And second, as part of that, what your latest estimate is? I know you’ve given us some color on this in the past, but what’s your latest estimate and what it might cost you once you have to — and your peers, of course, have to issue the debt and carry higher levels of debt?
David Turner: Yes. So Gerard, the whole Basel III and long-term debt has kind of gone into a little bit of a hold at the time. We’re not sure when that will get taken care of. We suspect it will be this year at some point. The proposal on debt was to have 6% of RWA, which is about $7 billion for us. To give you credit for what you have outstanding, which is a couple of billion. So you’re talking about raising $5 billion. We can leverage that and put it to work. And it wasn’t a terrible drag on NII, less than 1% drag on NII for us. It’s fully implemented and this was going to take time to do that. We need to have some — our $2 billion of existing long-term debt is — it’s something we were going to address just in a natural order of things.
But with loan growth being muted, there’s no need to go out and raise debt if you don’t have to have it. We’re hoping that the proposal cuts down from the 6% number. There’s been talk of it maybe being in the 2% to 3% range of RWA, but we don’t know. We’ll just have to adapt and overcome when the new rule gets put out.
Gerard Cassidy: Very good. And then as a follow-up, you’ve been very clear about the identification of the stress portfolios with credit. In your prepared comments, David, you mentioned that some of the increase in the nonperformers was due to — I think you said, yes, some of it was due to the downgrades in certain — in those industries that you have identified. Can you share with us what — within those downgrades, what process — or not the process, but what caused the downgrades? Was it debt service coverage? Was it the business, the borrowers’ business is deteriorating for some reason? Can you give a little more color on the downgrade part of that?
