Kenneth Usdin : Wondering, Bruce heard your earlier comments about we’re at 1.30 ACL day 1 adjusted for the deals in the low 1.40s now and your comments about 1.45, 1.50 year-end. I’m just wondering if you can help us, given that you’re slowing loan growth and letting the auto book run out, how do you just help us understand what you’re seeing in terms of what your CECL impact might be looking ahead versus the impact of slower loan growth in terms of that endpoint that you’re expecting?
Bruce Van Saun : Sure. I’ll start. John, you can pick up. But I’d say what we’ve done for the past several quarters is kind of keep looking forward as to what’s the macro forecast and are there any particular segments of the portfolio that could come under stress given that the Fed has continued to push higher and the economic growth has been downgraded. So I think there’s — like I read today that over 60% of the leading economists are projecting a forecast for this year. So the reason that we’ve been building gradually is just taking that into account. I think at some point, you kind of get the cards turned up in 2023, and you’ll have more information and less uncertainty, but we don’t see that where we sit today. So I think it’s prudent to continue to view the course — likely course, is that the ACL will go up a couple of basis points a quarter like we’ve done and get into that 1.45 to 1.50 range.
At some point, then you’ll have seen whatever the recessionary impact is, and then you’ll be looking forward and then you may get to the point where you can release some of those reserves depending on what your charge-off experience is. Clearly, Ken, the slower loan growth plays into that, to some degree is mitigating what the build could have been, but anyway, those are the dynamics that like, John, I don’t know if you want to add to that?
John Woods : Yes. I’ll add that. I mean just for the last couple of quarters, we’ve had a mild-to-moderate recession built into the. And so our peak-to-trough GDP decline that we have built into our models are 1.5%. That would be a moderate recession at this point. I think the changes you may have seen in the second half of ’22 were not quite as much on the expectation that there would be a recession as much as what the collateral value outlook really impact was. So when you think about house prices and used car prices, et cetera, we’ve been increasing the amount of decline expected. So you’ve got sort of the low to mid-teens declines now built into our models for both house prices and auto prices over the foreseeable and kind of period.
And so that’s really — and that’s not really driving a lot of losses, just we’ve been having a lot of recoveries in the portfolio over the last year or so. And so you may then — you might see some lower recoveries and that will have the — you saw our loss that’s built into our loss forecast for ’23. But I think that’s an important item that you saw in 4Q in terms of our outlook for 2023 and 2024.
Kenneth Usdin : Got it. Okay. And just one quick follow-up on the capital point. You’re nearing 100% implies a nice incremental step up in the buyback. I’m just wondering how you’re thinking about the mix of the dividend versus the buyback going forward, yet you obviously moved to $0.42 in the third quarter. Should we also think about that you would be moving the dividend up in line with increased earnings potential as well within that context?
John Woods : Yes. I’d say what we do here is every year, we’re on a cadence where post-CCAR, we basically take that as the opportunity to broadly update our capital return profile. Over the medium term, we’re looking at 35% to 40% dividend payout. And you saw that in some of our medium-term outlook. We’ve updated that this is going to be more of a buyback return year in ’23 because of the outlook for RWAs. But we take a look at a dividend policy and earnings outlook and update whether there should be a change in the dividend after CCAR.
Bruce Van Saun : Yes. And I would just add to that, Ken, that clearly, with the uncertainty in the environment, we are being cautious in terms of the lending of kind of risk appetite. And so I think that, in and of itself, creates some additional capital versus what we’ve had in prior years. I also think we still have our plate full integration of existing acquisitions and we haven’t seen a whole lot that’s attractive at valuations that we’re interested in on the acquisition front. And so I think the combination of operating at very high profitability levels with ROTCE returns in the high teens plus more modest loan growth than historical, more modest acquisition activity than historical creates the opportunity. And I think it’s appropriate given the uncertainty and chance for recession that returning capital to shareholders is the right course of action here.
So you could expect we would like to raise the dividend during the course of the year, and we’d also like to get close to that 100% return of capital to shareholders.
Operator: Your next question comes from the line of John Pancari with Evercore.
John Pancari : On the overall deposit dynamics, I know you expect a 2% to 3% year-over-year spot decline. Can you maybe give us a little more color on how you expect overall deposit trends to progress through 2023 to get to that 2% to 3% spot decline? Maybe help us with the magnitude of declines that you think is reasonable here in the coming quarters as you look at deposit flows?
John Woods : Yes, sure. I’ll jump in there. I mean I think…
Bruce Van Saun : You can just start and then maybe pass it to Don and have Brendan.
