Bob Napoli: Many — some commentary, Roger, on the competitive environment for rewards. I mean, you’ve seen very strong growth out of a number of players in the industry, including yourselves. Can you — are you seeing more competition? Where are you seeing more competition, more people getting more aggressive, if you would?
Roger Hochschild: Yes. Thanks Bob. It remains, I would say, intensely competitive. But as you’ve seen from the growth and especially the performance in new accounts, our value proposition is competing well. And again, I want to give credit to some of the advancements on the analytics that let us sort of personalize the marketing messages across different channels. I guess where competition has lightened a bit is in the personal loan space. I think there are a lot of non-bank funded folks there who may have some challenges on the other side of the balance sheet. And obviously, one big player who had been active is pulling out. On the deposit side, I would see there, I think you’re starting to see the gap between the direct banks, the branch banks really get wide enough that you’re seeing flows to the direct system, right?
It’s now at 3.3% for a savings rate. It’s now a lot more worth your money. So again, really excited about how our products are competing across every segment. And so that’s part of why we’re optimistic going into 2023.
Bob Napoli: What new products, I mean your cash-back debit is something that you’ve talked about? What new products are you most excited about?
Roger Hochschild: You’re highlighting probably the big launch for next year, which will be the re-launch of cash-back debit and we hope to be doing some mass-market advertising of that. Beyond that, I really believe we have the right product set. We’re seeing great demand, for example, on the home equity side, given how rates have moved and the lack of cash-out refi. So I think part of how we keep our costs as low as they are, is a very simple, lean operating model. So I wouldn’t expect anything other than the re-launch of the cash-back debit and we’ll put a lot of weight behind that.
Operator: Thank you. Our next question comes from John Pancari with Evercore ISI.
John Pancari: Back to the credit topic, anything about the charge-off guidance that baked into your guidance, that is a surprise at all in terms of what you’re observing. I know you talked about the seasoning and the vintages and it sounds like there’s nothing there that really surprised you. But I’m wondering, anything about the credit migration within the vintages, within the portfolio in the past dues and/or customer behavior that surprised you that led to the increase in the charge-off guidance that seems to be well above where The Street was expecting?
John Greene: Yes. Thanks, John. Actually, no surprises in the portfolio performance whatsoever, and I want to reiterate that. And that’s essentially why the reserve rate is flat, right? So, they are connected. So what that says is that charge-off guidance was essentially contemplated in the reserving of life of loan losses. So, we feel very good about that and there is consistency. I did talk about in my prepared remarks that the lowest end of the credit spectrum that we have in our portfolio. So some near-prime and some folks without FICO scores or those who fell below 660 are certainly feeling the impact from inflation. But internally, we completely anticipated that we had run some analysis on inflation shocks and what it would do to some of the card members, and it’s performing essentially where we thought it would come out.
So I’m actually quite pleased about that. The other important thing that I want to make sure that the audience here is I think what 2022 did for us is it increased the earnings power of the firm. And there’s a lot of focus from these questions on kind of the charge-off and peak good assets consistent with what we’ve done historically. So loans increased $18 billion. So, there’s going to be some seasoning, but overall, the earnings power of the firm has increased as a result of great execution by our teams.
John Pancari: Okay. That’s helpful. And then, again, just — I know this gets to CECL and the whole spirit of it. But given your commentary and that you just indicated reserve flat, so if the macro outlook progresses within your scenarios and the loss migration progresses as you described here into 2024 of this 2022 vintage, and no other surprises elsewhere, then would you expect accordingly that the reserve at 660 would generally remain around that level in that case? Or could there be incremental upside to the reserve, assuming that macro backdrop remains as they’re within the scenario bands.
John Greene: Yes. So, there’s — I appreciate the question. A lot of assumptions in there, but as you laid out, I would expect the overall reserve rates to be relatively close to kind of where they are today.
Operator: Thank you. Our next question comes from Bill Carcache with Wolfe Research.
Bill Carcache: First, I wanted to ask if you could give us a sense of what kind of delinquency rates you’d expect based on that 3.5% to 3.9% NCR rate outlook?
John Greene: Yes. I mean we don’t typically forecast the delinquency rates. You would — what I suggest you do is take a look at the trust data and the relative difference between the trust data historically and where the total company is coming out, that will give some insights. And then also, the trends in delinquencies typically are pretty consistent, right? You can go point to point to point. And then I’ve given some views in terms of where we see the slope starting to flatten and then perhaps spend. So, I’d use that information in order to — if you’re interested in calculating overall delinquency rates for firm.
Bill Carcache: Okay. That’s helpful. I guess just the spirit of the question was, there isn’t anything unique happening with that increase in charge-offs that would lead to a breakdown between the historical relationship that exists between delinquencies and charge-offs. In other words, the sharp increase that you’re expecting in delinquencies — or sorry, in charge-offs, it would be reasonable to expect sort of a commensurate sharp increase in delinquencies as the data start to come through?
John Greene: Yes, there obviously, a relationship there, certainly. Although remember, you should have — you should take into account the kind of the vintage impact and what I’ll say normal seasoning, right? So, there’s $18 billion of incremental loans. Some of those are just going to perform extremely well and a small percentage will season, out as we typically see. So, I would consider that in the analysis, but nothing at it. There should be no substantial break.
Bill Carcache: Okay. And my follow-up is, if I might have missed this, but why did an increase in early-stage delinquencies drive higher credit card and zero rates this quarter. Is my initial thought was that early stage delinquencies would have to flow through the various delinquency buckets before charging off? So what was it following how that early stage increase this quarter impacted NCOs? Just a clarification there would be great.
