It doesn’t have as much impact on the annual efficiency ratio, but it still does have an impact. So, essentially, what’s implied underneath it, is quite a bit of progress on the efficiency ratio, behind the flat to modestly down guidance that includes that fourth quarter effect.
Jeff Norris: Next question, please.
Operator: Our next question comes from John Pancari with Evercore ISI. Your line is open.
John Pancari: Hi, thanks for taking my call. In the interest of time, given its late in the call, I’ll ask my two parter all upfront here. First on the marketing side, I know you indicated you expect to continue to lean in on marketing this year, does that — what does that imply on how you’re thinking about full-year marketing expense? I mean, could that mean that you will see marketing come in above the $4 billion level that you saw this year or could it be stable or a modest decline? And then my second question is on the credit side, on the commercial real estate office CRE. I know you had some lumpy losses this quarter and some pressure still in criticized and non-accruals. If you could just give us a little bit more color there in terms of what you charged-off and your outlook on that front? Thank you.
Richard Fairbank: Okay, John, thanks for your good questions here. We don’t typically give full-year marketing guidance. And the reason is because, marketing depends of course a lot on the opportunities that we see when we get there. So what I wanted to just share in response to Ryan Nash’s question is a continuation in the positivity that we feel both about the real-time numbers we’re seeing of response and performance of our vintages and all of that. And then also the sort of more structural investments that we’re making in the business, particularly with respect to the — going after the heavy spenders. So, we don’t have full-year guidance, but we certainly continue to like the opportunities that we see.
Andrew Young: And then, John, on the office side, it’s virtually impossible to generalize office, it is incredibly property-specific. We’ve talked in the past about us having a fair amount in gateway cities and having a mix of both A and B, C properties. But frankly, the decomposition matters a whole lot less than the individual properties. And so what we saw in the quarter was a little more than $80 million of losses tied to office loans. We continue to not originate there. Balances have come down to — about $2.3 billion, I think, down about $150 million in the quarter. It’s less than 1% of our total loans. But as we charged off in the quarter, we had essentially reserved entirely for that amount, and then we built back up a little bit for the remaining portfolio to maintain the coverage at around 13%.
Jeff Norris: Next question, please.
Operator: Our next question comes from Don Fandetti with Wells Fargo. Your line is open.
Don Fandetti: Rich, you’ve made a lot of progress on heavy spenders. As you sort of look out, where are we I guess on that expense cycle? Are we sort of still looking at many years of acceleration or do you hit some type of level where there is some scale kicking in? Just trying to get a sense on where we are on that investment cycle.
Richard Fairbank: Well, Don, it’s certainly, I think the quest to the heavy spender — to win in the heavy spenders of the marketplace, it will be a quest as far out as we can see. In the same way, it is for the players who — the small number of players who are really going after that business. The key part of it is, we’re getting more and more scale along the way. So you’ve seen over the years, the growth in purchase volume, what you don’t see as is the purchase volume growth rates by level of spender. And it — any segmentation we’ve been looking at, it monotonically — the growth rate is monotonically faster. The more you go up, the — toward the heavy spenders. So it’s just indicating, we’re getting a lot of traction there.
So, I wouldn’t want to say that we just have to do a blitz, and then we’re kind of done with the investment. The way that scale is achieved is by getting more and more customers in a business where all the players in the business, even including the largest, continue to invest in that business. But we’re really pleased with the traction and that’s why we continue to invest.
Don Fandetti: That’s all I had. Thanks.
Jeff Norris: Next question, please.
Operator: Our next question comes from Bill Carcache with Wolfe Research. Your line is open.
Bill Carcache: Thank you. Good evening, Rich and Andrew. I appreciate all of the very clear commentary on what you’re seeing in credit. There is a view that if we’d had a mild recession and experienced the purging of weaker credits, that would have provided a clear runway for growth coming out of that. But instead, the environment we’re in is arguably a little bit muddier and some would stay still late cycle. Could you speak to that dynamic, Rich, and whether that weighs on how you’re thinking about growth from here in any way? And as a follow-up, I’ll just ask it now for you, Andrew. Can you update us on how you’re thinking about capital return from here?
Andrew Young: Sure. Why don’t I start? Bill, look, at this point, there still remains a number of uncertainty around capital, not the least of which is the end-game proposal. We’re all aware there is been quite a bit of advocacy there and that there remains a fair amount of uncertainty of where the rule will land, including things like the impact of AOCI and phase-in and ops risk and other forces at play. So we are — you know as much as we do, and we’re waiting to see what the final rule holds there. But in addition to that, we’re coming up on CCAR, we don’t yet have the scenarios for this year. You look back at how impactful the scenario as well as the starting balance sheet is to those outcomes. You’ve seen our SCB fluctuate over the last four years, from I think 10.1% down to 7%, and now we’re sitting here at 9.3%.
So waiting to get a little bit more clarity of what CCAR will hold. And then in addition, we continue to see a range of outcomes in our own growth projections. And finally, just point to the economy, there is — the consensus view is growing of a soft landing, but there is still quite a wide range of outcomes there. And so given all of those factors, we’ve chosen to operate for the last few quarters around 13%. We recognize that, when we feel like we’re in an excess capital position, that returning it is one way to create value. And under the SCB framework, we have that flexibility to manage repurchases dynamically and we’ll use that flexibility when we think it’s prudent to do so.
Richard Fairbank: Bill, comment on our continuing to lean in, given that some people might argue that the economic environment is late cycle, so it’s certainly a great question. So there — first of all, the bottom line is, we are continuing to lean in. Obviously we keep a wary eye out for things that could change. But I sort of start with the health of the consumer. I think the US consumer remains a source of strength in the overall economy. And the labor market has proven strikingly resilient over the past year, really defining the expectations of many economists in the face of rising interest rates. Consumer debt servicing burdens remain relatively low by historical standards, again despite rising interest rates. Home prices are back and doing a bit better and are generally near all-time highs.
