Russell Hutchinson: Yes. Sure. Thanks, Sanjay. It’s a great question. It’s obviously one that’s complicated by the fact that these are proposals. And as JB mentioned earlier, we’re working with BPI and other industry constituents to make sure our feedback is reflected. And as you’ve heard, the industry has had a reaction to the proposals as they’re currently stated. All that being said, and maybe I’ll start with Basel III endgame. The biggest impact for us is in terms of AOCI. And I’ll just make it clear. We can manage within the transition time period that has been proposed so far without doing anything unnatural, that is we can manage it organically. As you can imagine, it’s obviously curtailed our share repurchases. And quite frankly, if you look at our Auto business, just looking at the attractiveness of the assets that we’re seeing from our dealer partners, we have certainly had to be restrained in terms of our origination volume.
And it’s also forced us to really make hard decisions around the growth trajectory of some of our growth businesses. All that being said, we can manage within the time frame that’s been provided. And the only significant real impact for us on the capital line is that AOCI inclusion. When you look at long-term debt, and it’s very early, and as JB laid out on his slide, the binding requirement for us is the 6% of IDI at the bank level. Because as you can imagine, our unsecured debt is issued at our holding company level. We actually don’t have unsecured debt at the bank level today. And so that’s going to require us to — as the proposal is currently stated, it’s going to require us to really look through the liquidity we have at the holdco versus the bank level and look at our issuance, and that could drive incremental issuance from where we sit today, which would obviously — which would obviously come with additional interest expense.
Sanjay Sakhrani: Okay. And then, I mean, just in terms of like you could take that liquidity and invest it too, so it wouldn’t be the full impact, right?
Russell Hutchinson: Yes. Absolutely correct. And just to be clear, when you think about Basel III end game from an RWA perspective, there are puts and takes, but we don’t see any significant change to our RWA. That is the increase in operational RWAs completely offset by some of the benefits we see in our retail loan portfolio.
Sanjay Sakhrani: Okay, great. Thank you very much.
Operator: Thank you. One moment for our next question, please. It’s coming from the line of Jon Arfstrom with RBC Capital Markets. Please proceed. Jon, please verify your mute button.
Jon Arfstrom: Can you hear me all right?
Operator: Yes, sir. Go ahead.
Jeffrey J. Brown: Got you now, Jon.
Jon Arfstrom: Alright, thank you. Appreciate that. Question for you on Slide 19. Just curious what the big picture message is on auto credit performance on what — it sounds simple, but on one hand, the charge-offs are going up. On the other hand, the delinquencies are going down. What’s the message that you’re trying to send and as we look past the fourth quarter into 2024 with the delinquency numbers, it feels like credit should actually be getting better, is that too simple?
Russell Hutchinson: Yes. I mean, maybe I’ll start just to try and be as clear as possible about it. We very much see ourselves on track towards the 1.8% NCO rate that we advertised last quarter. That being said, there’s seasonality in terms of our delinquency trends. And so what you see in the bottom left on Page 19, as you see that seasonality expressed through the NCO trajectory as we go from second quarter to third quarter to fourth quarter. So fourth quarter is typically when we see our highest level of NCO activity. And so we show the 2.2% 2.4%. That 2.2% to 2.4% for the fourth quarter is consistent with a full year 1.8% NCO rate. So that’s an expression of the seasonality in our portfolio. On the bottom right, what we’re doing is we’re showing year-over-year change to get through some of that seasonality issue.
So the comparisons that you’re seeing as you look at each of those quarters is 3Q 2023 versus 3Q 2022 — 2Q 2023 versus 2Q 2022. And so when you look at it on a year-on-year basis, you can see that those elevated — the elevated delinquency levels that we’re currently seeing, you can see they’re actually coming down, that year-over-year change is coming down each quarter sequentially and it has been for the last three quarter straight. And we think that’s a reflection of a couple of things. One, we implemented, through curtailments and pricing, a lot of changes to our portfolio recently. And we are seeing that in terms of the performance of our recent vintages. It’s early to tell, we’re very early in those vintages, but we’re seeing real impact to our curtailment and pricing actions.
On the other side of that, when you look at our 2022 vintages, we are seeing improvement in those vintages with respect to our original expectations as well. And so again, early days, but we continue to see positive signs that keep us on track to that 1.8% NCO rate.
Jon Arfstrom: Okay. That’s helpful, Russ. I appreciate that. And then just one follow-up on Slide 12. The 4.04 deposit rate that you had for the quarterly average you talked about intense pricing competition on deposits. But if the Fed is done, is it as simple as that 4.04 just marches to your 4.25 savings rate or is there something else happening on deposit costs? Thanks.
Russell Hutchinson: No, it’s also a great question. So we raised during early in the quarter, and so you’ll see the full impact of our latest OSA raise over the course of fourth quarter. And look, it’s our expectation that because of the competition, and we’ve always expected this, you — we continue to see deposit competition even after the last raise. And so where we are now, we’ve — and you probably noticed in the presentation, we talked about our outlook, we’ve changed our guidance. We were at 4.1% overall deposit yield for fourth quarter. We’ve moved that up now to say it’s 4.1% to 4.2%. So we’re not ruling out the possibility of continued pressure on deposits and the possibility of increased pricing going forward.
