Christophe Le Caillec: So on Basel, Bill, there are various things that we’re discussing with regulators. I don’t think it would be useful to go through the list here this morning on the call. But you raise either an important element here, which is that nothing is really changing in our business, right? We’re still doing the exact same thing. And so we need to figure out with regulators what the right level of capital here and not be dependent upon accounting treatment or anything like that. So, too early to discuss this in detail. When we have more clarity, we’ll provide you with a ton of out of Basel III detail.
Operator: Thank you. The next question is coming from Dominick Gabriele with Oppenheimer. Please go ahead.
Dominick Gabriele: Hi, good morning. Pleasure to meet everybody. And, Kerri, thanks so much for all the help. I was just curious on your card member rewards as a percentage of billed business. It stepped down quite nicely quarter-over-quarter and year-over-year. I was just curious if you’re seeing anything in particular on the utilization of rewards recently or any commentary around that. Thank you so much.
Christophe Le Caillec: Yeah. So, yes, and our total VCE, I called out, was lower this quarter at 40%. So as you know, variable card member engagement and rewards is the biggest number there. It’s a very large expense base. So we’re constantly looking at when we do product refreshes, when we launch products, we’re looking at ways to make sure that these value proposition works best and we price for this. And there’s always changes, there’s always changes as well in terms of how the Card Members choose to redeem their points from one quarter to another. As you know, we are also adding constantly new redemption partners that change the mix in terms of their weighted average cost per point. So there’s, at any point in time, a lot of variables that will impact that ratio.
We are very focused on making sure that we have the right ratio versus revenue and we also have the right value proposition that would be compelling in the marketplace. So it’s a little bit lower this quarter. I think we said 42% for the full year because we are seeing it’s a bit better as well from a full year standpoint. It’s still going to be an area of investments for us. It drives a lot of growth as well. That’s one of the key reason why Card Members sign up for the cards and engage with it. And we’re going to keep working on those value propositions and make sure that we have the right balance here.
Steve Squeri: The only other point I’ll add is that within our value propositions, because of our really premium card base, lots and lots of partners want to work with us and include benefits within our value propositions to reach our Card Members. And so, you know, when you look at the overall value proposition, it’s just not rewards-based. It is partner-based, and there are different mechanisms from a funding perspective of how that all works out. So that’s part and parcel of our value proposition as well.
Operator: Thank you. The next question is coming from Arren Cyganovich of Citi. Please go ahead.
Arren Cyganovich: Thanks. You continue to outperform on credit, at least very much relative to your peers and below pre-pandemic levels. What are your thoughts on net charge-offs heading into 2024? And maybe you could touch a little bit on how the season-end curves are happening for your recent vintages.
Christophe Le Caillec: Yeah, yeah. So we’re not going to give you a lot of details about 2024 on this call. We plan to do that at the beginning of next year when we speak about 2024 guidance. But what I can tell you is that the starting point for us of our credit performance and all our credit decisions is the quality of the products and the fact that it attracts premium Card Members. That’s the starting point, right? We have a very talented risk organization. We have a very disciplined execution of our risk decision, but it starts with the quality of the product and that’s the key differentiator vis-a-vis our peers and that’s what we are focused on. And as you know, we’ve said this many times on this call, if anything, we are focused even more on the premiumness of the portfolio.
We are — the new Card Members, because you’re talking about the vintages, the new Card Members we’re bringing in, 70% of those consumer Card Members are joining the franchise on a fee-paying product. That’s a big statement to join the franchise. And so, that’s what we used to start projecting out. There’s still, as I’ve said before, there’s still a little bit of either COVID noise and normalization going on, but we are very pleased with our credit performance that we’re seeing. And as you pointed out, the gap versus competitors, if anything, is increasing further.
Operator: Thank you. The next question is coming from Craig Mauer of FT Partners. Please go ahead.
Craig Mauer: Yeah, good morning. Thanks for taking the questions and congrats, Kerri and Kartik on your new roles. The net interest yield on card member loans saw a nice improvement in the quarter of 50 basis points quarter-on-quarter and were — you’re now above Q4 ‘19 and while I understand what rates are doing, the increase was pretty substantial this quarter, so I was — versus prior quarter. So I was wondering how we should expect that to trend. And secondly, given your visibility due to the accounting treatment of card fees, how should we expect that to trend over the coming quarters considering it’s decelerated for several quarters in a row? Thank you.
Christophe Le Caillec: Yeah, yeah. So on the yield, the key thing here, there are many moving parts, right? There are, as you know, in terms of the funding, in terms of their pricing, in terms of their various vintages. But the key, the biggest element that is driving that small increase in the yield is the revolve rate. So the share, the revolving balances, the interest-bearing balances in our total loan balances is actually is increasing a little bit. And that’s an outcome of our tenured Card Members rebuilding their balances, which is something we’ve called out for several quarters now. And I just want to point out again that most of that growth is coming from, most of that growth, i.e. 70%, is coming from tenured Card Members that we know well and we can underwrite well.
So that’s the key driver behind the yield improvement. When it comes to card fees, you’re right. We have good visibility because we amortize those fees over 12 months. So we see that trend. So you should expect that trend to continue a little bit, i.e., the growth rate to moderate. As I said, a key driver to this is going to be the cycle of product refreshes. And it’s also going to be a function of us investing more marketing dollars, bringing on more fee paying Card Members. And that dynamic is just going to play out. So you should expect in the next few quarters, a bit of a moderation there, but I need to call out that it’s a moderation from a very high level and as we used to say on this call, even during the pandemic, that specific category was still growing so it’s still going to grow strongly in double digits.
Steve Squeri: Right. And if you go back to the pandemic, we were growing in the 10% to 11%. And so when you look at the outsized — what’s called the outsized growth rates that we had in Q3 and Q4 of 2022, you did — you had not acquired cards in really in 2020. And so when you got to that amortization in the third and fourth quarter of 2021, it was lower. So the growth rate was a little bit higher as we got in there. But look, we’re pretty happy with 19% growth rate over numbers that continue to get bigger.
