As we watch the patterns this year, we’re going to really end up comparing by the time it’s done how this year compares to last year and whether collectively this year and last year represent sort of a new seasonality that we have to modify relative to the past. I think it’s premature on that. And relative to reading seasonality, it’s really hard to look at last year’s credit metrics just because there was so much normalization. So, we’ve had an eye on this. We have tended to stick with our seasonality benchmarks, which are developed over a number of years. And I think when this is — when we’re done with this period, we’ll sit back and look at it and say, “Did we learn something about the business that where seasonality might be less magnified in a business like ours than it was before?” I think it is too early to tell, but to your other point, even relative to last year, it has very recently crossed over in terms of tax refunds.
And yes, to your point, these are things that themselves then have lag effects because people have to get the refunds then they have to make payments. So, this is why very much we are flagging a phenomenon that is sort of in the middle of happening. And the key thing will be by the time it’s done, what’s the cumulative tax refund effect, and we’re just kind of sharing with you as we go along. And the reason I’m particularly leaning into this particular one is, because last time, we made a very near-term sort of extrapolation just from our windows of delinquency buckets about where the — given that in a year — the high part of the year is in the first half of the year, we were just kind of saying in that high part of the year where things were sort of settling out and I wanted to give that little bit — we’re not revising the number, but just to say if the seasonality patterns are probably driven by the tax refund effect, if it doesn’t catch up to historical patterns, then in the very near term, the numbers will be higher than that — in this very — this window we’re talking about, higher than the 15% number that I said.
Sanjay Sakhrani: Understood. The second derivative looked good nonetheless for March.
Richard Fairbank: Yeah. So, look, can I just…
Sanjay Sakhrani: Yeah.
Richard Fairbank: I want to just seize that point. The second derivative continues to be strong. In fact, when you look at sort of all the card players, that you can see the strength of Capital One’s second derivative. There’s another topic, so you didn’t know when you were studying all that calculus that this would be at the heart of what you do. But so, there’s lots of good to pull from this. I just wanted to just clarify the tax refund effect, which I think has a little bit more impact on Capital One than certain other players and to point out that we actually think we see that effect in both of our consumer businesses.
Sanjay Sakhrani: Great. Just one follow-up for Andrew, just on the capital return question earlier. Can we step up the run rate relative to some of the last quarters as we look ahead? I know there’s been a lot of volatility on some of the regulatory proposals on capital. But as we look ahead, I know there’s no limitations. But can we see a step up in the level of capital return relative to the past few quarters as we look ahead given your capital levels today?
Andrew Young: Well, there’s two parts to that, Sanjay. The first is, given the transaction, we are in the process of submitting a new capital plan. So, that’s just a procedural piece. So, once that new capital plan is approved, then we have unlimited capacity relative to the SCB in this intervening period, the amount that we repurchase is constrained to what we’ve requested.
Jeff Norris: Next question, please?
Operator: Thank you. Our next question comes from Bill Carcache with Wolfe Research. You may proceed.
Bill Carcache: Thanks. Good evening, Rich and Andrew. Following-up on your comments in auto, how much of an advantage is your excess capital position? Are you seeing competitors who are capital constrained and perhaps can’t take advantage of the attractive market conditions to the same degree? And then, I’ll just ask my follow-up now. As Capital One continues to grow, could you speak to your Category II preparedness?
Andrew Young: Yeah, I’ll start, Bill, with the — go ahead, Rich. Do you want to do the competitive dynamics in auto?
Richard Fairbank: Here my observation about the auto business is that it’s still a very competitive marketplace, but when we see our opportunities to grow, we tend to zig a little bit while others zag. And so, we sort of pulled back for a little while and others leaned in. And my point is really now I think we’re leaning in and others are pulling back a little bit more. I hadn’t really sort of analyzed it in terms of really capital choices really as much as just the very natural rhythms of the marketplace and some of the advantages that Capital One has by virtue of our choices that we made over the last couple of years. But we’ll have to think about that. But I just think this is just very much sort of — as you’ve seen numerous times in the past where there’s a little bit of an inflection point for Capital One at a time that’s a little different and occasionally in a different direction than the inflection points of others.
Andrew Young: And then, Bill, with respect to Category II, well, first, let me just note we’re going to be below the $700 billion threshold at closing and the trigger is really a four-quarter average beyond that. So, I just wanted to mention the specifics of what is going to trigger it. But within Category II to Category III, there’s really three big distinctions. The first one is losing the tailoring benefit for LCR and NSFR and you can see based on the ratios that we hold there and our conservatism around liquidity, we feel very well prepared. The other two, which are the inclusion of AOCI in regulatory capital and the DTA threshold going from 25% to 10%, those are both already included at least in what was proposed for the Basel III endgame rules.
We all know that those proposals are being debated and refined, but ultimately we were looking at those two implications as part of the proposal anyway. And so, we don’t really see a big difference in the long-term implications. At least as we sit today again the proposal may take a different form, but from a planning perspective those were two things that we already had our eye on. And so, we ultimately feel well prepared all of the implications of either Category II or the Basel III endgame proposals if they were to go in as currently constructed.
Jeff Norris: Next question, please?
Operator: Thank you. And our final question comes from Jeff Adelson with Morgan Stanley. You may proceed.
Jeff Adelson: Hey, good evening. Thanks for fitting me in. Rich, I just wanted to circle back on your comment about how you continue to kind of trim around the edges. I think last quarter you were suggesting that the trimming was sort of abating after a number of years of trimming. But given your comments today about how you’re continuing to lean in, how the U.S. consumer remains a strength of source, how are you thinking about potentially opening up the credit box a little bit more from here? And relatedly, does the pending deal with Discover factor into how you’re thinking about allocating capital at all into more growth at this point?
Richard Fairbank: Thanks, Jeff. The trimming around the edges is of course what we do all the time in reactively to not only what we observe in the marketplace, but what we think may be coming in the marketplace. We are very much sort of in the same place we were three months ago when we’ve been talking about this. In other words, the trimming around the edges and the dialing back was a little bit more pronounced in the quarters during the big credit normalization than it has been as we see things settling out. And the drivers of that continue to be probably, in addition to what I said about the consumer, very much also the observing our credit performance not only just the overall portfolio performance, but very much the performance of our originations.
And strikingly, our originations continue to come out generally on top of each other quarter after quarter. Obviously that’s lagged data that we’re viewing, but we’ve been struck by how long it’s been and how consistently it’s been that our originations have been generally on top of each other and a lot of that comes from the trimming around the edges that we have been doing even as there has been some underlying a little bit sort of worsening of overall consumer credit metrics. So, we’re in a very similar place to where we were. We feel good about our credit performance and origination performance. We are leaning in across the credit spectrum. With respect to the Discover deal, it’s not really altering our origination strategy. That’s very much continuing as it was before.
Obviously, we’re very excited about the Discover deal, but I think that with respect to our own strategy, it’s really pretty much the same as it was before.
Jeff Adelson: And I also wanted to just ask really quickly about the small business card strategy. I know you recently just launched that new Venture X Business card recently. Seems like a really unique value proposition with the charge card component. Can you just talk a little bit more about the opportunity to drive growth there? Maybe how that’s going so far? Any early reason to the type of customers you’re getting?
Richard Fairbank: Okay. Yes, Jeff. So, we launched the Venture X Business card broadly in the third quarter of last year and we’re pleased with the market response and the customer engagement so far. So, Venture X Business much like our Spark Cash Plus card was developed to help business owners run and invest in their business with no pre-set spending limit, great travel benefits and elevated earn everywhere. And it’s a great example of our businesses leveraging each other’s innovations because we’ve taken many of the industry-leading travel features of our consumer Venture X product and combined them with the business-grade capabilities of our small business offerings, including the flexible spending capacity that is designed for larger businesses.
So, we have been investing in our small business card program, and more broadly, to win at the top of the market for years and this launch stands on the shoulders of all of that investment, it stands on the shoulders of our technology transformation and is another example in the continuing drive of Capital One to win at the top of the market across consumers and small business. So, I appreciate the question and we certainly are excited by our continuing progress.
Jeff Norris: Thanks, Rich and Andrew. Thanks everybody for joining us this evening and for your continuing interest in Capital One. Have a great evening.
Operator: Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.
