Stephen Steinour : Thanks, John. We see the commercial pipeline for the second quarter, particularly the high probability of close level to be very, very good, very strong relative to the last five quarters. So as I said, each month has improved in the first quarter. Second quarter strength is obvious now at this stage. We’re also seeing good business banking, loan growth, and we have the benefit of these new initiatives, none of which have [books] (ph) that they’re carrying. So the three new initiatives, especially banking last year, and the Carolinas off to a really good start. Texas was there a couple of weeks ago. Got a great team there as well. All of those investments will bolster our activities throughout the year. And then, as you know, we’ve got one of the largest [split-up] (ph) finance companies in the country.
That tends to be somewhat seasonal fourth quarter. So those would be the combination of factors that give us a lot of confidence that we’ll be at or near that upper end of our guide for the full year.
Operator: Thank you. Our next question today is coming from Scott Siefers from Piper Sandler. Your line is now live.
Scott Siefers: Good morning, guys. Thanks for taking the question. I kind of wanted to revisit the margin as well. So on the deposit pricing, is it possible to make sort of a broad comment about is this sort of something that you’re seeing and reflecting kind of market pricing pressures or would you say you’re more on sort of the leading? Because it sounds like we’re trying to support the loan growth, which is obviously a very positive differentiated factor. But are you all kind of leading with pricing on the deposit side to fund that growth or what does the competitive dynamic look like as well?
Zach Wasserman : Great question, Scott. This is Zach. I’ll take it. I would characterize the competitive intensity of the market as generally consistent today with how it was at this time last quarter. So I don’t think there’s any substantive change. It remains a competitive market, and clients are clearly aware of rate and the competitive rate environment on the consumer, the small business, the commercial side. So it’s a transparent market. I think what has happened, part of what we’re seeing is, and I’m giving you guidance on it, it’s not just what’s happening right now in the market, but the outlook for the whole year. So that’s really, I think the way you should interpret these comments is. Whereas before, there was a fairly strong conviction of the marketplace, and even our prior guidance ranges had the first cuts beginning somewhere between March and August, clearly that time frame where cuts has been pushed out.
And so the period of time before we can begin to manage substantive downgrade actions has just been extended. And that’s really the main driver here. I think our pricing strategy is pretty much the same, which is, continue to price in competitive ways but not lead the markets to be clear and really drive the fundamentals of deposit growth from customer acquisition. We talked about 2% primary bank relationship growth in consumer, 4% in business banking, growing on the commercial side as well. And so that’s the underpinning of — the pricing strategy is really just designed to ensure that there’s fair and appropriate pricing as we got on those deposits.
Scott Siefers: Okay. All right. Perfect. And I think you actually touched on sort of my loan-growth questions in prior responses. So that does — I appreciate the color.
Zach Wasserman : Yeah. Thanks so much.
Operator: Thank you. Next question is coming from Steven Alexopoulos from JPMorgan Chasing Company. Your line is now live.
Steven Alexopoulos: Hey, good morning, everyone.
Zach Wasserman : Good morning, Stephen.
Steven Alexopoulos: Not to beat a dead horse on the net interest income guidance, but last quarter with three cuts, that got us to the high end of the range. And now three cuts get us to the low end of the range. And I’m somewhat confused. Zach, I always think your hedge fund magic keeps us relatively stable over short periods of time. I’m a little confused why three cuts now puts us down two versus up two last quarter.
Zach Wasserman : Yeah, good question. I appreciate it. And I think what I’ll just bring back to is the two key things here. Overall, the NIM outlook for us in both scenarios is a few basis points lower, mainly as a function of the timing of when rate reductions will begin and when we’ll see substantive downgrade action. It’s somewhat higher funding cost environment than we expected. And that’s with the main driver. Second thing I would say is the four key factors for us that are driving the NIM this year remains the same. The biggest positive factor is fixed asset repricing, which I’ve just shared in the prepared remarks, we expect to see about $4 billion quarterly repricing of fixed assets. We should drive substantive benefit on the order between 10 basis points and even 12 basis points or 13 basis points, depending on how the value of the curve maintains here over the course of this year.
The second positive factor is a gradual reduction to the amount of hedge drag we’ve got in the NIM. In Q1, we had 16 basis points of hedge drag. And I expect to see something between 5 basis points to up to 8 basis points, to maybe even 10 basis points, again, depending on how the curve moves here over the course of the rest of this year until Q4. Those are the two biggest positive factors. The other two factors are what’s going on with variable yields, and what’s going on with funding costs. Those are largely offsetting each other in both of those moving off of a direct cost direction, to be clear, in either a higher rate path or a lower rate path scenario. And those are modestly net negative for the full year. It would offset those positives and keep these overall NIM in a generally flat to rising position from here.
