But cautionary, we are continuing to build a reserve there. So, our coverage ratio is up to 1.58 this quarter, which I think is up 5 basis points or 6 basis points from last quarter. The charge-offs that we did see this quarter, there is no concentration. It was very granular business banking, TLS, middle market, but they’re very small in nature. So, I’m not really seeing any themes as of right now in terms of like where lost content would come from. Leverage would be one that it would be very possible, just again because of the elevated rate environment and the cumulative impact of the 500 basis points interest burden on those borrowers. Automotive production, we’ve got about $1 billion in automotive production loans. Obviously, we’ve been in this business for many, many decades, and we’ve been through many cycles with this customer base.
I would say, overall, they are very resilient. This particular pool has been relatively stressed, honestly, from 2019 on. You had the 2019 tariff, then you had COVID, then you had chip shortages and supply chain disruption. But we really haven’t experienced losses in this sector. So, we’re watching the UAW strike very closely. The longer it goes on, there will be more impact to the portfolio. We’re very well reserved, but again, we have a lot of experience managing through this, and we have a very, very strong customer base that knows how to do this. So, hopefully, I hit all of your questions, but happy to follow up.
Ebrahim Poonawala: No, that is comprehensive. Thank you so much.
Melinda Chausse: You’re welcome.
Operator: Thank you. Next question is coming from John Pancari from Evercore ISI. Your line is now live.
John Pancari: Good morning.
Curt Farmer: Good morning, John.
John Pancari: On the expense growth commentary for 2024, I know you indicated — the objective is for — keep expense growth modestly higher versus 2023. Can you — it looks like the Street is out there modeling maybe 3% to 4% or so year-over-year. Can you maybe help us think about what modestly higher could mean? What’s a reasonable pace of growth to assume as you’re looking at the initiatives playing out that you’re reviewing? Thanks.
Curt Farmer: John, this is Curt. I’ll start, and I’m going to ask Jim to add in some more color commentary. First of all, maybe just from a backdrop standpoint, as you and others on the call are aware, ’21 and ’22 were really record years of performance for our company across the board, revenue growth, loan growth, liquidity, really a great performance from a ROE standpoint. In fact, at the end of 2022, performed in the mid 20% range on ROE. And we were able to do all that and maintain a very low efficiency ratio. As Jim mentioned, and I think I did as well in my comments, I do think that we and the whole industry are in this period of transition and sort of recalibration as we’re looking at lower NII really based on the funding dynamics.
And then, the second thing I’d say here is just that there are some anomalies in our 2023 numbers. We certainly have a pension impact that others maybe do not have. Everyone has the FDIC components. So, when you factor that out, the rate of growth in 2023 over ’22 is not quite as high as might appear. That said, we are committed to managing expenses and managing efficiently as a company, and as you just said, a more modest growth in expenses ’23 over ’24. But I want to be careful here and just caution that we have been in a new investment — or net investment focus of the company. We’ve been doing a lot of things the last two years that we believe are driving revenue growth for us, helping us on the client acquisition side, a lot of investment in payments, treasury management, wealth management, capital markets.
We’ve expanded into some new markets, Southeast and Colorado, a lot of focus on small business. So, we’ve got a lot of initiative under underway, and I want to keep our focus on those because we believe those are the right things for our company long term, and once we get beyond sort of the period of time that we’re in right now. But having said all that, we are going to strike the right balance and we’ve proven over time in our history that we know how to manage expenses well, and we are looking at sort of what levers we have. We typically provide some guidance at our fourth quarter call. We can go into some more details at that point. But we are working on some initiatives we believe will help us reduce expenses and offset some of what we, I think, is really sort of more near-term pressure versus longer-term pressure.
Jim, what would you add to that?
Jim Herzog: The only thing I would add is, we — to reemphasize Curt’s comments, we do recognize the new funding paradigm, the new profitability equation, and I do think there’s a lot of work to be done and we’re committed to getting that work done. And I think we’re going to make significant progress for 2024, but I don’t view it as a one and done deal either. I think this is probably going to play out for some period of time, but we have to continue on the cost reduction initiatives to make sure that we can fund the necessary investments. So, something we’ve done before. We know how to do. We’re committed to. There was a pivot in the industry that’s occurred over the last few months, and we’re going to have to adjust to that, but we do recognize that. So, fully committed to getting it done, and we’ll be sharing more at some later point in time, as Curt said.
John Pancari: Okay. Thank you. Appreciate all that detail. And then, separately, I guess when it comes to capital, more specifically, capital deployment, maybe can you talk about what would you need to see to sort of be willing to ramp up buybacks here? Just want to get your updated thoughts on the potential for deployment. Thanks.
Jim Herzog: Yeah, John, I would say the number one factor for me is the uncertainty. That would be the uncertainty in the general economy and geopolitical events and so on, but also uncertainties related to interest rates and AOCI. We did take a step up this quarter as the whole industry did. And I’d like to see a better line of sight in terms of where that’s going before we turn on share repurchase. I would say capital rules are something we’re watching also. I would say that’s more of a secondary factor. We’re well below $100 billion, but we do want to be prepared in case things changed in the economy with, whether it be monetary policy or anything else that may catapult us towards $100 billion faster than we’re expecting.
