Matt O’Connor: Good morning. Can you talk about the pace of the capital build from the 8.4% to around 9% by the end of the year? And then also, if the macro is worse than expected and you have to build reserves more, I realize that doesn’t move the capital that much. But obviously, everyone else is starting at a higher point of capital, and there is focus on how quickly you can get to that 9% or even higher. So, I guess the question is like what levers can you pull to kind of aren’t that painful if you need a little bit more, such as issuing preferreds or some other assets that you could kind of exit without hitting earnings that much? Thank you.
Terry Dolan: Yes, I mean, obviously, Matt, from a balance sheet optimization perspective, we’re going to be very focused on profitability, returns. And capital is precious. So, we want to make sure that we are dedicating our resources from an asset growth perspective in the right spots. The pace of growth from 8.4% to a little above 9% by the end of 2023, it’s fairly ratable across the four quarters. Obviously, first quarter is going to be a little bit lower simply because we will not have seen the cost synergies, and we will be going through and incurring more merger-related costs probably in the earlier part of the year simply because of the timing of the system conversion. So, the pace is probably a little bit more weighted towards the back end.
But that hopefully, Matt, kind of gives you some perspective. Again, I’d kind of come back from a reserve point of view, we feel like we look at a lot of different scenarios. We look at the five different approaches, one of which is a severe recession. We take that into consideration. We could see unemployment move up to around 6%, 6.5%, and we still feel like we would be in a pretty good spot from a reserving point of view. So, if it ends up getting — if it ends up being at a level that’s higher, then we’ll have to focus on other balance sheet optimization activity.
Matt O’Connor: Okay. Thank you very much.
Andy Cecere: Thanks, Matt.
Terry Dolan: Thanks, Matt.
Operator: And we’ll go to Ken Usdin with Jefferies. Please go ahead.
Andy Cecere: Good morning, Ken.
Ken Usdin: Good morning guys. First question, I just wanted to ask is just to follow on the outlook for the year. Can you just walk us through just your underlying assumptions for how NII just projects, if we just think about the core business and in terms of what deposit costs and betas do and how that impacts the underlying trajectory from this first — from the fourth quarter of NII?
Terry Dolan: Yeah. So obviously, net interest income is going to be driven by the earning asset growth that we have in here as well as the margin expansion. We expect that margin expansion to take place five to 10 basis points in the first quarter because of the Union — full quarter effect of Union Bank. And then again, our modeling is that the margin is — reasonably moderates from there, reasonably flat, maybe up just a little bit. From a deposit point of view, clearly, deposit betas are going to accelerate. I think that’s the reason why you’ll see the moderation in terms of net interest income, or net interest margin expansion in the second half of the year. But keep in mind — and again, this is kind of — we see that in the first quarter. The Union Bank effect associated with the value of those deposits that we’re bringing on, and we’ll continue to look at opportunities to optimize the deposit portfolio.
Ken Usdin: Okay. And then just one follow-up on the deal impact. Can you just remind us what type of like amortization period you’re using for both the purchase accounting accretion and the CDI in terms of like, is this the run rate that we keep around for a few years, or does that change as you look past 2023? Thanks.
Terry Dolan: Well, I think that, again, in 2023, we expect the purchase accounting accretion to be $350 million to $400 million and the CDI to be about $500 million. As I mentioned earlier, I think on the CDI, it steps down over time. But if you use a 10-year assumption and sum of year’s digits, I think that will get you from a modeling perspective pretty close to how I think it will end up amortizing off. The purchase accounting is really going to be tied to the asset lives because about half of it is mortgage and half of it is corporate and commercial, et cetera, and shorter-lived assets. I think you can think about that four to five-year sort of time frame, and it probably accretes down into a similar fashion, a little more front-end weighted.
Ken Usdin: Okay. Got it. Thank you, Terry.
Terry Dolan: Yeah.
Operator: And next, we can go to Chris Kotowski with Oppenheimer. Please go ahead.
Terry Dolan: Hi Chris.
Chris Kotowski: Good morning. Hi. Following up a bit on Mike and Ken’s questions. If I look at your very helpful slide 18 on the guidance and I take the midpoint of $7.1 billion to $7.3 billion revenue range and I day weight that to the full year, I kind of get the lower range end of the full year guidance. 29.2 is actually what I get. So that implies like a couple percent growth in the back half of the year, which again, I guess, is better than what a lot of banks are saying. And I’m wondering, is that just underlying loan growth or fee income growth, or is it the tag-ins of the benefits of rising rates, or what do you see driving that?
Terry Dolan: Well, again, I think you do see kind of the full year effect associated with rising interest rates kind of come into play. Fee revenue, on a legacy basis, as an example, we should see a little bit more of a tailwind next year as opposed to what we experienced this year. So I think that those are kind of coming into play. And then I think that just timing of being able to get cost synergies on the expense side.
Andy Cecere: Yeah. And I’d add, it’s probably just mathematically, as you were talking about it, you’re right. And it’s a little bit of a growth in the earning asset that you see there going up from 605 to 610 to 610 to 620. That’s number one. And then maybe going towards the high end of that range and net interest margin versus the mid or low end in the early quarters.
Chris Kotowski: Yeah. Well, it’s interesting because if I do the same analysis on the non-interest expense side, you’re at the high end of that. So it implies kind of nice growth in pre-provision earnings through the course of the year. So €“ but anyway, that’s it for me.
Andy Cecere: All right.
Terry Dolan: Thanks, Chris.
Operator: And our last question in queue will come from Mike Mayo with Wells Fargo Securities.
