John Greene: Yes. Yes. Well, there’s a couple of different components, right? There is — there’s a bankruptcy bucket. There’s a non-bankruptcy bucket that just flows through the buckets. And then there’s also the recovery element. So if you put those three together, sometimes the bankruptcy bucket is it will pop in a particular quarter, depending on flow of work in the court system and the non-bankruptcy just flows quarter-over-quarter. So, I would certainly look at this quarter, prior quarter and what comes out in the first quarter, and that will be the insights you’re looking for.
Operator: Thank you. Our next question comes from Mihir Bhatia with Bank of America.
Mihir Bhatia: I wanted to just talk a little bit more about credit. So specifically, I think you mentioned a little bit of mild deterioration in credit among the lower bands. Does your guidance contemplate that stress in your prime core revolver portfolio at all as unemployment increases, I guess said differently, what I’m trying to understand is, do you think we go from credit formalization to deterioration for DFS overall? Or is it just normalization with just the vintage seasoning impacts that we’ve been talking about?
John Greene: Yes. Thank you. It’s the latter. It is normalization and seasoning, which we contemplated fully in both our kind of origination strategy, our reserving strategy and obviously in the guidance we’re providing.
Roger Hochschild: Yes. And maybe just to clarify, the lowest income segments which are a pretty small portion of our base are the ones that get additional pressure from inflation, right? By and large, a prime book can adjust. They trade down, they readjust their pattern. So I think John was referring to incremental stress there. But there’s no reason to believe that the vast majority of our portfolio will be driven by the traditional drivers of losses, which is charge-offs — I’m sorry, which is unemployment.
Mihir Bhatia: Got it. And then, I did want to offer maybe a little bit of a big picture question, just longer term. I think — we appreciate that you have added a lot of business and increase the earnings power because some of these assets will obviously last a long time past and into seasoning. But the portfolio has changed a lot and your guidance for the next year and it sounds like potentially even ’24 is a little bit above where credit losses have been running. So maybe just remind us, what is the normal loss rate for DFS or for the card portfolio or something like that? Maybe give us a range. Just trying to understand where a typical portfolio settles out? Is it in that 3%, low 3% range where does that settle up?
John Greene: Yes. Thanks, Mihir. So — we’ve been asked that question over the years many, many times. And what I typically refer people back to is, if you take a look at the details of the kind of the charge-off history, you can go back through 2008. And see kind of quarter-over-quarter what’s happening on the charge-off front, you can discern kind of normalized charge-off rate from that and then make adjustments for economic periods or kind of vintage-based seasoning.
Operator: Thank you. Our next question comes from Kevin Barker with Piper Sandler.
Kevin Barker: And in regards to your employment forecast and your base assumptions, you’re pretty clear that the low end, the 3.5% assumes the 4.5% to 5% unemployment rate. But can you help us understand or just confirm that the — is it the 3.9% higher end of the range, implying a 6% unemployment rate or some other scenario out there within your expectations?
John Greene: Yes. So the high end does not weight the 6% entirely. It actually could reflect a scenario with unemployment is actually higher than the 6%, but it would depend on the depth of it and kind of what industry. So, there’s multiple scenarios in there. So, the guidance I provided in terms of 4.5% or over 6% is intended to kind of get the kind of the meat of the scenarios that were contemplated and weighted.
Kevin Barker: Okay. And then with your baseline assumption of 4.5% to 5%, is that something that we make our way to throughout the year and then maintain that level or something where you expected to peak there and then startly drift lower?
John Greene: Yes. So it would run through slowly increase through 2023 and how we’ve thought about it.
Operator: Thank you. Our next question comes from Don Fandetti with Wells Fargo.
Don Fandetti: Can you dig in a little bit more on the credit card spend growth rate and kind of what you’re seeing in terms of any pattern changes. I think the last update through November showed a little bit of a step-down in the growth rate. And can you talk about December and I think maybe you touched on January?
Roger Hochschild: Yes. I’ll start. January is off to a very strong start. So, we’re seeing about a 13% year-over-year growth in sales, and again, reflects the new accounts we put on last year, but also, again, for those who aren’t employed a robust environment. We have been seeing increases in the day-to-day category commensurate with inflation and so more spending shifting there. And a lot of what you heard from retailers in terms of softness around home improvement, and hard goods, but a lot of that was just, I think, some of the challenging comparisons to really robust levels from before. So, overall, I’d say, stable, but we’re certainly encouraged by what we’re seeing so far in January.
Operator: Thank you. Our next question comes from Arren Cyganovich with Citi.
