John Greene: Sure. Yeah, I’ll take that one too, Sanjay. So, let me first start out by saying our capital allocation priorities aren’t changed. So, invest in the business and return excess capital to shareholders. That’s very clear from our business model, our management team and our Board. The second piece to the answer relates to our continued work on the card tiering issue and other governance issues. So, we’re making reasonably good progress on both of those. And what we’ll do as part of our 2024 planning process is we’ll make a recommendation to the Board regarding our capital actions and, specifically, the buyback. And then, we’ll provide an update on our January call associated with our fourth quarter earnings.
John Owen: Let me just add a little bit to John’s answer on kind of where we are from a regulatory standpoint. The FDIC consent order that was made public this month related really to findings from end of 2021 looking back. As we said before, we’ve made significant investments in our risk management compliance capabilities over the last 18 months. From a spending standpoint, we’ve increased our spending from $225 million in 2022 to about $460 million in 2023. But I would tell you, as we’ve made good progress resolving many of our issues, but we still have a significant amount of work to do before we’re satisfied with where we are. On the card misclassification issue, it’s not part of that FDIC consent order, that’s a separate matter.
And where we are on that? As we’ve mentioned before, we did have an outside law firm complete an investigation on the card misclassification issue. That work is substantially complete at this point in time. We’ve shared that result of that with our Board of Directors and also with our regulators. At this point in time, we’re awaiting feedback from regulators.
Sanjay Sakhrani: Thank you.
Operator: Thank you. Our next question will come from Bill Carcache with Wolfe Research. Your line is open.
Bill Carcache: Thank you. Good morning. I wanted to follow up on the reserve rate comments. John Greene, you’ve referenced several macro variables impacting the reserve and you also cited higher delinquencies, which are more idiosyncratic. Some investors are concerned that rising DQs may be a function of more than just seasoning. Maybe could you just help us with what your response would be to the concern that some investors have expressed that outsized reserve build is a sign that Discover may have reached for growth too aggressively during the pandemic and is now facing the consequences, perhaps what could ultimately end-up being greater credit degradation in 2024 and possibly beyond, particularly since we’re still in an environment where the unemployment rate is 3.5%?
John Greene: Yeah. Thanks, Bill. So, let me go back a little bit and be real clear about what happened in the second half of ’21 and ’22 in terms of originations. So, second half of ’21, we resumed and we went back to our traditional credit box. In the early part of ’22, we continued with that traditional Discover credit box. We did do a test in marginal prime and near prime which we turned on. We saw the results and we turned off in the second quarter or early third quarter of ’22. So, about six months of originations, not dramatic volume by any means, but certainly a test, it’s a good opportunity to learn to see if we could capture some unprofitable share. What we found was, those accounts weren’t meeting our return of volatility threshold.
So, they were shut down. The rest of the ’22 vintage was within the traditional credit box that Discover had. And ’23 remains there, although we’re peeling back. I will say this, the ’22 vintage was certainly outsized as a result of demand and great execution from our marketing team. The profitability of that still remains very, very strong in the short-term, medium-term and long-term. So, if we’re going to do it all over again, at this point, we’d certainly answer definitively, yes, we would continue to originate the loans that we put on the books. But that vintage is significantly larger than other vintages. So, the natural loss content of new originations is somewhere between 12 and 24 months, and we expect that to play out, and as I’ve said, the delinquencies and charge-offs to peak sometime in 2024.
