And then I’ll give a perspective on what we — what could happen in 2024. So macro is relatively benign. So unemployment levels, we ended the year at 3.7 what we’ve assumed is an unemployment level of 4.2. So a mild increase, household worth, mild decrease, savings rate, mild increase and GDP to be in 2024 to be about 1.3%. So relatively conservative, but not overly optimistic of assumptions. Now what will come into play in 2024 is obviously the macros, which will continue to be important. The portfolio performance and — by the way, it is tracking to our expectations with month-over-month delinquency formation declining. The credit quality of the book remains relatively consistent with what we’ve done historically. So our expectation is that assuming the macros remain consistent and the portfolio performance remains to our expectation that there will be some level of opportunity to reduce the reserve rate in 2024.
Now that’s subject to a significant amount of governance, and we’re going to make sure that we comply with our internal processes and generally accepted accounting principles. So they’re my caveats. But there’s a lot of things that are different today than day one. So the step down will be aligned with those points I just mentioned.
Sanjay Sakhrani: Okay, great. Thank you very much.
Operator: Thank you. Our next question will come from Bill Carcache with Wolfe Research. Please go ahead.
Bill Carcache: Thank you. Good morning and thanks for taking my questions. John, I wanted to follow-up on your credit commentary, given that it is such an important area of focus for investors. So you’ve been saying all along that you didn’t move down the credit spectrum, but the concern for many investors had been that other card issuers also experienced outsized growth as we emerge from COVID and they had also experienced some normalization headwinds, but they were now starting to see delinquency reformation start to roll over. As Discover’s DQ rate formations as recently as prior months data showed that your formations remain on and up until to the right trajectory. So I guess the question is, does the new disclosure on Slide 14 confirm that your delinquency rate formations are indeed now also starting to roll over? And if so, does that really just reinforce your confidence that we could see peak NCOs hit in 2024, all else equal?
John Greene: Yes. And thanks for the question, Bill. So, I just to give you kind of the benefit of some data here. From September through December this year, so the 30-plus delinquencies have declined month-over-month. So in September, we peaked at an increase month-over-month of 26 bps. What we said in the fourth quarter is we expected that to decline. Our October formation increased 20 bps, so relative to decline to the prior month. November, 15 bps, December, 11 bps, and our expectation is that will continue to decline. Where it becomes negative, we’re not going to get into that because it will be subject to a number of different things, including kind of our origination path and broad macro. So to get to the essence of your question, we do have a level of confidence regarding kind of what’s happening in the portfolio and the trend.
And as we progress in 2024 that will be reflected in hopefully, tightening guidance and then also — tightening guidance to the lower end and then also, hopefully, reserve rate changes.
Bill Carcache: That’s helpful. Thank you. And following up on your expense commentary, I believe you said that expenses may need to increase further potentially. Maybe if you could frame the possibility of their being — what you would view as another step function higher from here? Or how should we think about the risk of further increase in expenses? And how are we — how should we think about your sustainable long-term efficiency ratio? I think as we look at historically, Discover has been very, very — lowest efficiency ratio in the industry. To what extent is that still something that we can expect?
John Greene: Okay. Yes. Thanks, Bill. So our expectation is that the long-term efficiency ratio will be sub-40%. So there’s still a view that, that will happen. The reason we put the — what I’ll call is the caveat in the 2024 expense guidance was a number of different institutions when they’ve been on this compliance and risk management journey have not been able to call what the actual compliance and risk management spend would be. We had that remediation reserve in the fourth quarter. There were some indications that we might have to put something up for that. But we didn’t know. There’s still some level of unknowns, unknowns. And I wanted to make sure we’re clear to the people listening to this call that, there is some level of risk to the expense guidance.
Now that said, 5% on our expense base is a significant amount of dollars. We feel like we have nearly a full complement of resources around risk and compliance today, which is good news. Our issues management capabilities significantly improved. Our path to improving overall governance is certainly on the right trajectory. So those factors give me confidence that we’re not going to have a huge surprise. But there could be just don’t have enough certainty given where we are on our compliance journey. Now, the rest of the cost base, there’s a couple of things to keep in mind here. So right — today, we have nearly 3,000 resources dedicated to risk and compliance management. A significant amount of those resources are dedicated to issues related to student loan servicing, which with a successful exit and transfer, it will give us an opportunity to scrutinize the cost base in a different way.
