Brian Wenzel: Great. Thanks for the question, John. So when I think about year-over-year net interest margin, right. It’s down 67 basis points. The biggest driver of that, if I do net funding costs, so think about your interest-bearing liability costs offset by your income coming off the investment portfolio, that’s about 88 points of decline that came off of that. There’s another 19 basis points of decline of having a higher liquidity portfolio year-over-year, that’s then offset by the interest and fee yield, which is plus 40. Again, as we think about how that develops through the year, the asset and the ALR kind of mix will neutralize back out. We believe, we’ve peaked on interest-bearing liability costs from here. So in theory, as you step through, net interest margins should really improve as you move throughout the year.
To your second question around pricing, really, when you think about the various tenors, if you looked at our 12 month CD rate, we’re down 50 basis points from the end of the year, 4Q ’23, down to a 4.8% (ph) rate as we followed other people down, which is generally flat to the second quarter of 2023. All issuers or all digital banks do have promo rates. So we have one promo rate still over 5%, which is our 15 month. And that’s really to manage at the end of the day, our retention on CDs and be competitive with other people which have kind of off-tenor. I would expect as we see people who are trying to manage their balancing their liquidity down, we’ll follow the market down here. We generally lag the brick and mortar banks, but we will follow the digital banks down as it moves throughout the year.
The final piece I’d say, John is we still have three rate cuts in, but we didn’t really have them coming into September, so there’s no real impact unless something was more significant and moved sooner in the year from the Fed.
John Hecht: Okay. And then maybe this is a little sticky of a question, but if — and I know you’ve pulled EPS guidance, but ex-late fees, would the — your original $5.75 to $6 EPS still hold or are there other changes that we should consider reflective of, kind of, just the trend changes that we want to consider in terms of modeling?
Brian Wenzel: Yeah. So just to be clear, John, we put out the 8-K on March 5 that has the EPS guidance. We have not pulled that guidance. We just didn’t reiterate it because it’s only 45 days ago. So we didn’t put it on the page this morning. If I think about that core business, what I’d say, Brian and I would probably tell you is that we’re ahead of where we thought we’re going to be. I think interest-bearing liability costs are up, but we’re better than our expectations. Charge-offs generally in line with our expectations. And then when you start to think about some of the things I’ve highlighted about, number one, interest-bearing liabilities, cost peaking. Number two, charge-offs peaking in the second half, and I mentioned on this call that you’re going to see a sequence of decline in delinquencies, that’s in line.
I think when you then think about the reserve rate being lower than 10.26%, I think that sets up and is consistent with the guidance we provided out on March 5, but again, it’s only 45 days or so ago.
John Hecht: That’s great color. Thanks so much.
Brian Wenzel: Thanks, John.
Operator: Thank you. We’ll take our next question from Jeff Adelson with Morgan Stanley. Please go ahead.
Jeffrey Adelson: Hey. Good morning, guys. Thanks for taking my questions. Just on the credit outlook, wanted to dig in a little bit more on the mid ’24 versus first half ’24. Just given the nice delinquency formation improvement you’ve been seeing, and your second quarter tends to be the seasonally best for NCO’s. Just wanted to help — understand what mid-2024 looks like here. Is that more of a seasonally adjusted peak, year-over-year growth peak or maybe just help us understand what you’re thinking about there?
Brian Wenzel: Yeah. Maybe I’ll try to simplify this, Jeff, but thanks for the question. Everything is seasonally adjusted, so we built our plan. It has the seasonal overlays which have been muted the last couple of years, given the normalization that happened as we move back to the pre-pandemic levels of delinquency. I would think about in this way. It’s just fairly simple. First half losses will be higher than second half losses. And I think if you just kind of roll most certainly our 30 plus and 90 plus out, you can kind of see how that will play through. If you believe that you’re going to get a bend here in April for the bend on dollars, you can see how it flows out. So I just think about in half to simplify it versus trying to get to an exact date when it peaks.
Jeffrey Adelson: Got it. And again, on the late fee that you mentioned how difficult it would be to implement operationally in May. Could you just talk about what that specifically might look like for you and how we maybe can think about the $0.15 to $0.25 impact you laid out previously if that does happen? And kind of as part of the question as well, I know you mentioned 60% of the changes are out. Can you just talk a little bit about the consumer behavior response rate in terms of how they’re reacting to those changes so far?
Brian Doubles: Yeah. I’ll take the first part of that. So operationally, it’s very challenging from a number of different angles, and obviously it’s for the issuer, but also the lenders that the issuers rely on. I think it’s important to note, too, that this is across the industry. It’s not specific to us. Everybody’s got the same challenges if in the event we do have to implement this on May 14. I think we — we’re prepared to make the systematic changes and things like that. The real challenges come around, terms changes and updating collateral and things like that. So that’s where a lot of the operational complexity sits. And I’ll turn it over to Brian.
