Steve Steinour: Ken, great question. And auto has performed very, very well for us. We have confidence in its credit and spreads are very attractive. It’s a cyclical product and in the past, we — when spreads have widened, we’ve chosen to do a bit more. We’ll be dynamic as we look at this as the interest rate environment clarifies. And it’s a short — it’s a relatively short asset. It’s roughly a two year average duration. So we like this asset class a lot, and we certainly like it counter cyclically. And that will be something we’ll be looking at closely as we go into 2024 and 2025.
Ken Usdin: Okay. Great. And then last thing, Zach, just looking at what you moved around a little bit on the swaps portfolios. Can you just kind of walk us through some of your decision trees with regards to this quarter’s terminations and locking in here and any anticipated future activity you’re thinking about in terms of just the book as it stands going forward? Thank you.
Zach Wasserman: Absolutely, absolutely. And I will tell you this is a very dynamic and active discussion, it’s really a pretty rigorous data and analysis process that we do. And it’s always focused on two key strategies. Protecting capital against upgrade scenarios and projecting NIM against downgrade scenarios. I’d like — in the prior question around the pay fix swaptions, you did add during the quarter to that, anticipating that rates had the strong potential of moving higher and want to protect capital against that and we did [indiscernible] as you saw, clearly, and so that benefited us there. But what’s interesting as well is that the curve has steepened, the long end has come up as much as it has. The opportunity to optimize and can take incremental downgrade hedging opportunities in a more efficient manner with less upfront negative carry is increasing.
I would say as it relates to that, our view is still lagging into it, no big bets, and we’re seeing very significant benefits that come through in the base asset sensitivity, clearly, but over the longer term, I think out into 2025, 2026, 2027, we certainly want to protect those revenue streams and will we see the opportunity to increase downward hedging here if the environment continues to be what it is. In the meantime, it’s more of an optimization effort, I would say. You saw us exit some received fixed swaps in Q3. This was mainly a shorter duration, just less efficient structures by [indiscernible] increased the capacity to re-up for longer structures. We entered in some collars, which would give us the option for downgrade hedging rates are attractive out of the future.
And I do suspect that there’ll be more of that downgrade hedging opportunity, as we go throughout Q4 and into the part of next year if the curve continues to be the way it’s shaped now.
Ken Usdin: Okay. And is there a way of kind of just putting all that together in terms of like the net impact of the swaps book on your NII and is that getting better going forward or worse? Can you just kind of help us put it in context, if you can?
Zach Wasserman: Yes. That’s a great question. So just zooming into 2024 for a second, based on the swaps that we’ve got in the portfolio today, I do expect we’re seeing roughly a 15 basis point to 17 basis point drag in [indiscernible] 15 in Q3, I expect to be roughly 17 bps of drag in Q4 of 2023 from the overall swaps coming through NIM. As I noted one of the earlier questions in this hour, by 2024 I expect that to reduce by about 5 bps, particularly into the second half of the year when the curve starts to fall in the forecast. So that’s probably the best way to answer your question. And the goal is to call it a NIM really just to support it in this type of range for years we can.
Ken Usdin: Thank you.
Operator: Our next question is from the line of Erika Najarian with UBS. Please proceed with your question.
Erika Najarian: My questions have been asked and answered. Thank you.
Steve Steinour: Thank, Erika.
Zach Wasserman: Thank, Erika.
Operator: Our next question is from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question.
Jon Arfstrom: Hi. Thanks. Good morning.
Steve Steinour: Good morning, Jon.
Jon Arfstrom: Rich or Brendan, what’s the message you want to send us on the outlook for provision and reserves. I mean it feels like you feel fine on credit, but I’m curious if you feel you need to build reserves and how you want us to think about provision?
Rich Pohle: Yes. Let me just start with kind of where we are in the quarter. We bumped up by 3 basis points our coverage ratio. It was really a 1% dollar increase, it went up $26 million, and we put most of that into the commercial real estate reserve, just given the uncertainty that we’ve got there. Where we go from here, I mean, we don’t give specific guidance around the coverage ratio, particularly around the provision. But it’s going to depend on where the economy goes to the extent that we see further weakening, we’ll reevaluate it. But I would imagine that any builds from here would be similar to what you would see in the third quarter, fairly nominal from a dollar standpoint, we might be moving some things around. But in general, we feel really good about where the reserve is right now.
And as we get to the other side of this and the economic outlook starts to improve, you can see us bringing the coverage ratio back down into that 160 range over time. So we’ll look at it every quarter, Jon, and — but we feel good about the 196 right now.
Jon Arfstrom: Okay. Late in the call, Steve, but just a bigger picture question for you. You had a good quarter. But when I saw the guide for the fourth quarter for lower NII and higher expenses and then for the expense guide for 2024, you kind of pulled back some of that optimism. I guess my bigger — and I think you understand that. But my bigger picture question is, what’s the message for 2024? Is that — is it a year of investment and you’re not going to push revenue growth? Or are we just all being a little bit too pessimistic here and just focusing on the expenses and some of the near-term NII headwinds?
