I think maybe David said the average was 102 or 106, 107 from ‘14 and ‘19. And we’ve guided to 40 to 50 basis points of charge-offs, which we think is in-line with our expectations for potential loss in the portfolio over time. So I think we feel we have good insight into the credits that we’re managing as to why, I would say the burden of increasing interest rates, increasing cost, cost of labor, operating costs, all those things have had an impact specifically on the industries that we’ve historically now called out transportation, senior housing, office, consumer discretionary. Now with respect to the allowance, we have a process we follow and go through every quarter. And I think we believe – we currently believe, obviously, that we’ve provided for potential losses in the portfolio over time, unless we experienced growth in the portfolio or paydowns in the portfolio, some changes in outstandings in the portfolio or in economic conditions.
You can assume that our allowance is appropriate and likely won’t change the trajectory of it will not change unless the economy changes.
David Turner: And the only other thing, John, on that would be if the risk ratings change, then that up or down. That also impacts your provisioning or release reserves. So I add that point with the two or three that John mentioned.
John Pancari: And David, I’m sorry, if I could just add regarding that last point, if the risk rating migration negatively assume – is it now assumed as part of your outlook, just given where we are in this downturn.
David Turner: Yes, that’s right. You look at your reasonable and forecast period and think about where the credits are going if that changes, so to go the other way, that can cause you not to have to provide any more. So we provided what we think we need to have. If things get better, then you don’t need the reserves that you put up and you can release those reserves. If things get worse, then you have to provide more. Generally, loan growth is also a driver of having to add to the provision. If your loans are going the other way, then you don’t need the reserves that you had set up for them so you can have a release related to that. Economic conditions got a little better in the fourth quarter than the third. So that was a positive. But net-net, we are continuing to look at the life of the loan and where that’s going to go and we think we have appropriate reserves for losses that are there.
John Pancari: Okay. Great. Makes sense. Thank you, David.
Operator: Our next question comes from the line of Dave Rochester with Compass Point. Please proceed with your question.
Dave Rochester: Hey. Good morning guys. On the NII guide, I was just wondering how Slide 6 might change if we don’t get those cuts you are factoring in for the year. I know you mentioned you are neutral to those, so maybe this range wouldn’t change much. Just figured that might maybe change some of the deposit flow and beta assumptions in here and maybe some other stuff.
David Turner: Yes. So, we tried to put that in. If you look at the lower box, on the lower end of that, we say stable, that was trying to address exactly what your question is. So, to the extent that we are kind of where we are.
Dave Rochester: That was all within this range.
David Turner: That’s right. But the lower end.
Dave Rochester: Yes. Got it. And then for the $12 billion to $14 billion in the fixed rate loan production and securities investment you mentioned per year. I was just curious what the breakdown of that was for securities and loans and what yields you are putting on today and on both the securities investment and new loan production, just on average? I know you have got many different categories and loans you are producing.
David Turner: Yes. So, I think in total, the kind of the front book, back book between those two is about 200 basis points, 250 basis points of pickup. If you look at that $12 million to $15 million, about a quarter of that’s related to securities. That going on as front book, back book pieces of, call it, 300 basis points in loans front book, back book are probably in the 150 basis points to 200 basis points range.
Dave Rochester: Okay. Great. And then just on capital, given your comments on 10% CET1 targeting that unadjusted, what does that mean for the pace of buybacks here? Is the fourth quarter pace is a good one going forward for the next few quarters maybe? And then as it relates to your adjusted CET1 ratio, which is just over 8% you have got here, how are you thinking about where you want that to be over time as the new regs kick in?
David Turner: Well, one, we don’t know what the new rules are going to be. So, we fully loaded it with 8.2 to say – to show you that, that doesn’t impact our stress capital buffer, our absolute minimum. We are in good shape there. We just need to see where the rules come out. By the time all that happens, AOCI is going to be in a different spot than it is today, assuming rates continue to come down a bit. We saw a pretty big move in all of the peers with AOCI this quarter. From a capital standpoint, we think 10 is the right number – what was…
