Q1 2021 Synchrony Financial Earnings Call
[music].
Welcome to the Synchrony financial first quarter 2021 earnings Conference call. My name is Vanessa and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference.
Is being recorded I will now turn the call over to Jennifer Church, Vice President of Investor Relations you may begin.
Thank you and good morning, everyone welcome to our quarterly earnings Conference call. And addition to today's press release, we have provided a presentation that covers the topics we plan to address during our call. The press release detailed financial schedules and presentation are available on our website synchrony and financial Dot com.
This information can be accessed by going to the Investor Relations section of the website.
Before we get started I wanted to remind you that our comments today will include forward looking statements. These statements are subject to risk and uncertainty and actual results could differ materially we list the factors that might cause actual results to differ materially and our SEC filings, which are available on our website. During the call we will refer to non-GAAP financial measures and <unk>.
Scuffing and the company's performance you can find a reconciliation of these measures to GAAP financial measures and our materials for today's call.
Finally, synchrony financial is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference. Transcripts provided by third parties. The only authorized webcasts are located on our website on the call. This morning are Brian doubles, and Brian Wenzel I will now turn the call over to Brian doubles.
Thanks, Jennifer and good morning, everyone.
It is truly an honor and a privilege to talk to you today for the first time as the CEO and Greg.
Moving on our strong foundation I believe synchrony is exceptionally well positioned for this next chapter of our growth journey.
Strong momentum and the business driven by the ongoing implementation of our strategy and the <unk>.
Waiver and hard work and commitment of our people.
While this past year has been challenging and unprecedented in many ways. We are starting to see positive signs of recovery and we are seeing the benefits of the strategic initiatives that we accelerated and the new programs and we watch last yes.
I'm very optimistic and excited about the opportunities ahead, and I'm honored to lead synchrony and of the future and.
And with that I'd like to get into some of the highlights of our first quarter results.
Earnings were 1 billion or $1 73 per diluted share and increase of $1 28 over last year.
And the resilience of our business has been evident as we navigate it depend on it from.
And the underlying fundamentals of our business, including diverse programs and networks and solid underwriting to our ability to quickly adapt to meet the moment with easily integrated and seamless digital solutions, we have demonstrated that our business and structure to execute even and the most challenging operating environments.
And as we begin to emerge from this challenging period, we have seen many of our growth drivers outperform pre pandemic levels experienced during the first quarter of last year.
And importantly purchase volume increased a strong 8% over last year with a substantial increase and purchase volume per account of 18%.
While we're seeing strong trends in purchase volume loan receivables were down 7% to $76 9 billion given elevated payment rates with the infusion of additional stimulus this quarter.
So average balances per account have rebounded increasing 1% over the first quarter of last year as have new accounts, which were up 3%.
Net interest margin was down 117 basis points to 13 nine 8% as further stimulus continues to elevate payment rates, which lowered our receivable mix and yield.
The efficiency ratio was $36 one per cent for the quarter and we are on track with our strategic plans to reduce our expense base and moving $210 million and expenses by the end of the year.
Credit continued to perform exceedingly well and net charge offs of 362% this quarter compared to five 3% last year.
As a result of our liquidity and funding strategy and response to the COVID-19 impact on our balance sheet.
And as it went down $1 9 billion or 3% versus last year.
Given our excess liquidity, we have been slowing our overall deposit growth.
Total deposits comprised 81% of our funding is our direct deposit platform remains an important funding source.
Our ability to service and provide digital tools to customers and makes our bank attracted to depositors and we will continue to build out additional capabilities.
During the quarter, we returned 328 million and capital and share repurchases of $200 million and $128 million and common stock dividends.
We continue to have a solid pipeline of new opportunities across our platforms, but we are being very disciplined around risk and returns and it is critical to ensure that our partnerships are structured with strong alignment that benefits both parties.
Having said that as we previously announced.
Our partnership with the GAAP is we were not able to reach terms that made sense for our company.
We expect that exiting this partnership and redeploying the capital will be EPS neutral relative to current program economics and accretive to propose renewal times.
We have been on a journey to grow with partners, who leverage our digital capabilities to help them drive sales and.
And the rapidly changing needs of their customers.
Our ability to win programs with transformational digital innovation has been demonstrated with a number of recent wins. These.
And these capabilities and also integral to the success of all of our programs as consumers are rapidly adopting technologies that enable contactless commerce and expect engagement along their digital purchase journeys, we are leveraging our vast and real assets.
Well as a strong data and analytics capabilities to make the entire consumer experience more personal lines and meaningful.
We have continued to expand our digital penetration across the customer journey from there.
Apply to buy for servicing.
And at least 60% of our applications were done digitally and the first quarter and we do.
And with 14% and mobile channel applications and.
And retail card, 50% of our sales occurred on nine and approximately 65 per cent of payments from a discipline.
The investments, we are making and digital and data analytics continued to pay off during the quarter, we renewed 10 programs, including American Eagle asking Homestar picked out and Phillips 66.
We also added 10, new programs, including Prime healthcare Mercy health, and Emory healthcare, which furthers our penetration of health system and.
And we are also expanding the utility of our care credit card.
<unk> financing App is now available and the Epic's App Orchard. This net.
Share credit available to hundreds of health care organizations, using ethics, My chart, and enabling cardholders to use care credit to take Copays and deductibles and medical expenses not covered by insurance.
Not only does this technology integration and provide a way to increase the usage and acceptance and share credit but.
But also helps health services and hospital providers.
And financially healthy organizations by helping to improve revenue cycle management and reduce debt risk and we are excited by the prospects to support patients beyond elective care as we expand to offer payment options and non elective medical expenses and routine share.
I'll spend a few minutes today outlining our care credit strategy and providing a framework to think about the opportunities that lie ahead.
Over the last several years, we've been transforming care credit to become a more comprehensive solutions and consumer financing and payments and health care pet care and wellness by expanding our relationships with providers retailers payers and pharmacies.
We have unparalleled scale and depth in this space with $9 3 billion and receivables and acceptance at approximately 250000, and well provider health and wellness retail locations.
The card is used by more than 8 million cardholders.
And more than 80% of dental offices nationwide and.
And over 40 health care specialties, 13 of which we entered into since 2018.
We see big opportunity and health systems, and hospitals and <unk>.
<unk> expanded our reach by launching eight new programs and 2020, bringing our total to 13.
With the growth and our pet vertical we are now and over 85% of that practices and have grown pets and forced by 174% since our acquisition of pets best insurance business two years ago.
A big part of our success is the engagement and we have with our cardholders are cardholders give us high marks as we have increased our customer satisfaction score to 92% from 78% back in 2009.
Our net promoter score is nearly double the credit card industry average.
And as proof of the value of our cardholders placed on the card.
Been able to increase our repeat sales to nearly 60% that is a testament to the hard work that we've put into creating a strong value proposition for the card.
We're increasing utility as we build our network one office and provider at a time.
And our growth numbers reflect these efforts and the position we hold in this space.
Our receivables have increased 44% and seven years. We have also increased the breadth of our business with an increase and provider locations or 41% and that timeframe and active accounts currently stand at $5 7 million another double digit increase and seven years.
And have built an incredible platform for growth and we are in an enviable position as we chart. The course forward continuing to evolve to capture further opportunity.
There is still tremendous opportunity to continue to unlock growth and dental veterinary and specialty industries. We're.
We are making investments to simplify the customer and provider experience and leveraging technology to support more consumer driven and self service capabilities with.
We have ample room for growth with increased penetration among our existing partners and through innovation and make it increasingly easy to engage with our network.
Just recently, we acquired Allegro credit.
Which is both deepened our penetration and audiology and other industries, while also enabling new products and capabilities.
With the steady increase and the out of pocket health care costs and the popularity of high deductible health care plans and consumers are assuming more of the financial responsibility for their health care, which translates to a significant opportunity of more than 405 billion and out of pocket health expenditures and the U S.
<unk> and extended financing, it's only a small component of overall health care payments. So there is significant runway for growth.
We're also expanding beyond the traditional care credit and industries and capitalizing on the evolving health care landscape that is increased focus on overall wellness.
We have moved beyond elective care financing and now support patients by enabling them to pay for and non elective medical bills and procedures and routine medical care as we expand and the health systems and more health care specialties and.
And this will be enhanced by ongoing integrations with practice management software and the recent news about care credit becoming available through Epic's App Orchard.
Further we have expanded our utility creating more ways to access health care services by partnering with pharmacies.
Sure credit is already accepted at more than 17000 pharmacies nationwide and we recently announced that we will become the issuer of the Walgreens co branded credit card program and the U S. The first such credit program and our retail health sector and expect to launch the new program and the second half of 2020 one.
We are also transforming our pet business to be a more comprehensive financial solution provider and to meet the needs of pet parents throughout their pet care journey now.
And now more than ever Americans are invested and their pets with both pet ownership and cost increasing significantly over the past several years and that trend grew even more during the pandemic.
Americans spend more than 100 billion on pet expenditures.
There is a large market outside of that practices with significant opportunity to provide new products financing alternatives and services.
Care credit supports a lifetime of care for pets and with the acquisition of pets Best insurance and we currently offer a complementary solution with veterinary care to support pet owners with simple flexible financial options. We continue to integrate the pets best insurance offering and to capitalize on the payment and customer experience synergies. We're also looking for ways and.
And into other pet adjacencies to products and services and retail price.
Focusing on the needs of our partners and customers and bringing substantial scale and expertise. We believe we will drive loyalty to the care credit network and as a result should see outsized growth and the future.
With that I'll turn the call over to Brian.
Thanks, Brian and good morning, everyone. This is an important period of time for our company and the world as we continue to emerge from the pandemic.
Our business and the actions we've taken over the past year leave us well positioned to take advantage of the opportunities, which lie ahead of us.
Sure, Brian and sentiment of appreciation on the unwavering commitment of our people want to thank all those involved and development delivery and administration and vaccines and help us emerge from this incredibly difficult period of time.
I'll now provide and update on our first quarter results.
Pandemic and resolved and government stimulus actions have impacted several tiers of our business over the past year.
However, our business mix has helped us to mitigate some impact from the pandemic and certain areas that performed very well, including digital AUM related products and services veterinary services electronics and appliances.
Performance in these areas have provided support against the overall effects of the economic downturn as we exit the first quarter, we are starting to see greater signs of economic recovery more broadly.
Purchase volume increased 8% versus last year and exceeded our expectations for the quarter from a macroeconomic perspective, we have seen consumer confidence reached one year high and March unemployment continued to improve and easing and some of the remaining local restrictions.
And as evident and the increase and purchase volume per account, which is up 18% over last year average.
Average active accounts were down, 8%, which marks a slowing and the rate of decline remains impacted by the macroeconomic effects and pandemic and 2020 and uneven recovery and the first quarter.
We did originate over 5 million, new accounts and increase of 3% versus first quarter 2020, which is a positive sign and reflective of improved consumer sentiment.
And when receivables declined 7%, which was worse than our expectations. The driver was higher than expected elevation and payment rates, which resulted primarily from the recently enacted stimulus.
Interest and fees on loans were down 14% from last year, driven by the elevated payment rate in addition to lower delinquencies.
Dual and co branded cards accounted for 38% and purchase volume and the first quarter and increased 6% from the prior year and.
The loan receivable base and free cash for 23% and portfolio and declined 10% from the prior year.
Overall, we saw positive momentum and several of our growth metrics and score the higher payment rates is impacting loan receivable growth.
So cautious about the state of the pandemic with the reach and ryzen and confirmed cases.
We're encouraged by the progress made with the national rollout of a vaccine and <unk>.
Lifting and some of the remaining restrictions.
We remain optimistic of the positive momentum and continued improvement and as we progress through 2021.
Rfps increased $63 million or 7% from last year <unk> as a percentage of average receivables was five 1% for the quarter.
This was elevated from the historical average primarily due to the significant improvement in net charge offs.
We reduced our loan loss reserves this quarter due to improved macroeconomic outlook combined with a decline and loan receivables. This coupled with lower net charge offs resulted in a significant decrease and the provision for credit losses of $1 3 billion.
And we're 80% from last year.
Other income increased $34 million, mainly due to investment income.
Other expense decreased $70 million or 7% from last year due to lower operational losses, and lower marketing costs, partially offset by an increase and employee costs.
Moving to our platform results on slide nine.
Our sales platforms continued to be impacted and varying needs due to the pandemic restrictions and elevated payment rates their trajectories had been different based on factors such as business and partner mix to juul concentration and wider access and availability of hard line goods we.
We have seen and broad based momentum and purchase volume as consumers become increasingly confident as we begin to exit the pandemic and.
Retail card receivables declined 9%, but showed momentum with purchase volume increasing 11% versus last year average active accounts were down 7% and interest and fees were down 16% due the impact from the pandemic.
We're excited with our renewable and the American Eagle program and continue to see significant opportunity with our recently launched programs with Verizon and venmo as those programs begin to build.
The strength of our power sports and home of specialty and payment solutions continue to help offset some of the impacts from pandemic shutdowns and higher payment rates.
During the quarter and loan receivables declined 1% and average active accounts were down 9% interest and fees were down 11%, which was driven primarily by lower late fees finance charges and merchant discount and all the result of reduction and loan receivables.
You did see Pos momentum and purchase volume, which was up 3% over last year.
Our focus on growing this platform resulted in several new programs being signed and renewed key partnerships and putting Ashley home furniture during the quarter.
We continue to drive organic growth through our partnerships and networks and agile to 3900, new merchants during the quarter.
We also continue to drive higher card reuse, which now stands at approximately 34% of purchase volume excluding oil and gas.
Although care credit sustained and the largest overall impact from the pandemic restrictions improvement and this platform has continued into 2021 and providers have increased elective and plant services from the trough and the second quarter of last year.
This improvement is evident and our purchase volume being flat to last year.
Receivables were down 8% this quarter and drove a decrease in interest and fees on loans of 7% as we reported lower late fees and merchant discounts.
During the quarter and we continue to grow our share traded network enhance the utility of our card.
The expansion of our network and acceptance strategy helped to strategy, we use free to 59% of purchase volume and the first quarter.
And so the powerful growth platform for our business and remain excited about the opportunities to drive future growth as the impact from the pandemic subsides.
I'll move to slide 10, and cover our net interest income and margin trends.
During the quarter recently enacted stimulus contributed to an elevation of payment rates, which were up about two percentage points on average compared to the average premium rates, we experienced pre pandemic.
The difference was as high as three five percentage points of March when the most recent stimulus plan was enacted.
And it resulted in a reduction and loan receivables, which has had an impact on net interest income and net interest margin and the first quarter.
Net interest income decreased 12% from last year, driven by lower financial charges and late fees.
The net interest margin was 13, nine 8% compared to last year's margin of 15, 5%.
And driven by the impact of the pandemic on loan receivables and increase and liquidity and lower benchmark rates specifically the loan receivables yield was $19 three 2% was down 135 basis points versus last year and was the primary driver of 117 basis point reduction and our net interest margin.
It makes a bone receivables as a percentage of total earning assets declined over three percentage points from 81, 7% to 78, 6% driven by the higher liquidity held during the quarter.
<unk> accounted for 61 basis points of day net interest margin decline.
And liquidity yield declined as a result of lower benchmark rates and accounted for 23 basis points reduction and our net interest margin. These impacts were partially offset by 93 basis point decrease and the total interest bearing liabilities cost to 157% primarily due to lower benchmark rates. This.
Providers, and 78 basis point increase and our net interest margin.
We continue to believe that and the second half of the year excess liquidity will begin to be deployed and to asset growth and strong pain rates should result in higher interest and fee yields leading to increasing net interest margin.
Next I'll cover our key credit trends and slide 11.
In terms of specific dynamics for the quarter I'll start with the delinquency trends are 30, plus delinquency rate was 223% compared to $4 two 4% last year.
Our 90, plus delinquency rate was 152% compared to two per 100% last year.
Your payment rates continue to drive delinquency improvements.
Focusing and net charge off trends, our net charge off rate and the street six 2% compared to 536% last year.
A reduction in net charge off rate was primarily driven by the improving delinquency trends as customer payment behavior and proved over the last several quarters.
Allowance for credit losses, as a percent of loan receivables was 12, 8%.
Moving to slide 12, I'll cover our expenses for the quarter.
Overall expenses were down $70 million or 7% from last year to $932 million as we continue to execute on our strategic plan to reduce costs.
Specifically, the decrease was driven by lower operational losses, and lower marketing and business development costs, partially offset by higher employee costs.
The efficiency ratio for the first quarter was 36, 1% compared to 32, 7% last year.
The ratio was negatively impacted by lower revenue that resulted from lower receivables and lower interest and fee yield which was partially offset by the reduction and expenses.
Moving to slide 13.
Given the reduction and our loan receivables and strengthen our deposit platform, we continue to carry a higher level and liquidity.
We believe it's prudent to maintain a higher liquidity levels during uncertain and volatile periods.
<unk> and our funding profile to mitigate excess liquidity where appropriate.
As a result of this strategy there is a shift and the mix of our funding during the quarter. Our deposits declined by $1 $9 billion from last year are securitized and unsecured funding sources declined by $2 1 billion.
This resulted in positive being 81% of our funding compared to 79% last year, the securitized funding comprising 9% and.
And unsecured funding comprising 10% of our funding sources at quarter end.
Total liquidity, including Undrawn credit facilities was $28 billion.
Which equated to 29, 2% of our total assets up from 25, 3% last year.
Before I provide details on our capital position. It should be noted that we elected to take the benefit the transition rules issued by the joint Federal banking agencies, which has two primary benefits.
First it delays the effect of the seasonal transition adjustment for an incremental two years and <unk>.
And it allows for a portion of current period provisioning to be deferred and amortized with the transition adjustment.
With this framework we ended the quarter at 17, 4% CET, one and really the seasonal transition rules 310 basis points above last year's level of 14, 3%.
And the tier one capital ratio was 18, 3% ended the seasonal transition rules.
Share to 15, 2% last year.
The total capital ratio increased 320 basis points to 19, 7%.
And the tier one capital plus reserve ratio and a fully phased in basis increased to 28, 7% compared to 24, 1% last year, reflecting the increase and the reserves as a result of implementing seasonal.
During the quarter, we returned $328 million to shareholders.
<unk> $200 million and share repurchases and paid a common stock dividend of <unk> <unk> per share.
Given the continued uncertainty and the operating environment I thought it'd be helpful to provide color on our current view on the key earnings drivers for 2021, which we've laid out on slide 14.
Our views assume that the pressure from the pandemic and a slower economic recovery continues into the second quarter with the second half seeing the pandemic largely under control and the acceleration of the economic recovery.
First quarter purchase volume was stronger than we anticipated as we entered the year as local restrictions are lifted with consumer confidence improving so to consumers' willingness to spend we currently believe these trends will hold and purchase volume will continue to recover across our platforms and.
And the second quarter, we will be comparing against the period of widespread shutdowns and the second half, we anticipate improving growth trends as the pandemic impact moderates and macroeconomic growth accelerates.
Regarding loan receivable growth, we expect that stimulus will continue to have an impact on payment rates and therefore loan receivables into the next quarter.
And the second half of 2021, we assume payment rates will moderate as the effects of this day knows debates and we returned to more normalized consumer payment behavior patterns.
And this would be expected to increase and purchase volume from and improving macroeconomic environment. This should contribute to loan receivable growth.
For net interest margin, we expect to hire payments reach will continue to pressure and loan receivables and generate excess liquidity impact and interest and fee yield and asked index.
And you to believe that excess liquidity will be reduced through asset growth and slowing payment rates and the second half of the year, which will drive improving interest and fee yield and asset mix, leading to increasing net interest margin.
With respect to credit delinquencies are expected to increase from the current levels, but we now believe the peak will occur later than we anticipated likely in early 2022.
Current delinquencies will result, and lower net charge offs and the second quarter, we expect net charge offs to rise, resulting from the increase in delinquencies as we move through 2021.
Given the magnitude of stimulus that was deployed during the pandemic. We believe the overall loss curves will be flatter than we initially thought and it remains volatile and difficult to forecast and through the effects of the stimulus and industry forbearance has abated we.
We expect reserves to be largely driven by asset growth impacts from any changes in credit and and our macroeconomic assumptions and certain combination of these factors could result in further reserve releases this year.
We expect Rfps to remain elevated until the second quarter, primarily reflecting strong program performance, including an improvement and net charge offs, partially offset by lower revenue.
And the second half of the year, we continue to expect low rfps generally reflecting higher net charge offs.
We offset by higher revenue.
As we outlined previously we are implementing cost reductions across the organization and I'm pleased to report that we are at a pace with G of our expense savings target of $210 million for the full year, partially offsetting these cost reductions will be the expense increases.
Growth in addition to anticipated increase and delinquent accounts, we will continue to closely monitor how the pandemic evolves and give back to the macroeconomic environment.
At the foundation is our belief that we position ourselves well for the opportunities that will develop as the economic recovery takes from or hold.
Further we've made the investments and support our partners and they've been required to rapidly transform their businesses to meet the new digital realities.
And we will continue to make investments and our people products technology and platforms to drive long term value and continue to ensure the safety of our employees, while meeting the needs of our partners merchants providers and cardholders and.
And I'll turn the call back over to Brian for his final thoughts.
Thanks, Brian and I'll provide a quick overview of key themes for the quarter and then turn it over so we can begin Q&A.
Clearly the pandemic has had significant impact and has in many ways changed the way we do business this quarter and made it evident that we are beginning to emerge on the other side of this period consumer sentiment has improved the unemployment rate has dropped and U S retail posted the largest gain and 10 months.
Our business is showing its resilience as growth has accelerated with purchase volume up 8% and 5 million New accounts opened this quarter and although these solid growth metrics, where tamped down by higher payment rates, which impacted loan receivables and NIM.
These are headwinds that we anticipate will soon abate credit performance has continued to outperform and we continue to extend our care credit network, delivering new products financing alternatives and experiences with a focus on overall wellness and Pat.
The bottom line is that we demonstrated that we were able to rapidly adapt to operating and a new environment, while continuing to keep our eye and the long term positioning ourselves well for the future and in my opinion, and we have never been and a stronger position.
I'll now turn the call back to Jennifer to open the Q&A that concludes our comments for the quarter. We will now begin the Q&A session. So that we can accommodate as many of you as possible I'd like to ask the participants to please limit yourself to one primary and one follow up question. If you have additional questions. The investor relations team will be available after the call operator.
And you start the Q&A session.
Thank you we will now begin our question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the hash key if youre using a speakerphone. Please pick up the handset first before pressing the numbers. Once again, if you have a question. Please press star.
Star then one on your Touchtone phone and our first question comes from Moshe Orenbuch with credit Suisse.
Great. Thanks.
Sure.
Brian I was hoping that you could talk just a little bit about the.
About this return to normalcy with respect to things like late fees.
And how that's impacted the net interest margin and timing as well as perhaps the.
The prepay speeds like what are the actual and besides.
The injections of stimulus the ongoing effects.
How should we think about the timeframe for both of those two to get back to something.
Approximating normal thanks.
Thanks, Moshe and and good morning. So so yes, clearly we've seen the headwind relative to stimulus. We saw the cash flow really start back in mid March around the 14th and so and so when stimulus or started to hit.
So from there we continue to see.
Elevated payments they are starting to trend down a little bit now as we get get into latter part of April obviously, we have a converging factor with tax returns. So stimulus clearly is the number one factor when you think about the late yield if you went back and looked at our number of delinquent accounts theyre down over <unk>.
30%.
From from a from the 19 period, so pre pandemic. So so again as you think about a rising net charge offs or even just a return to normalcy and when you think about the charge off environment that.
At least the yield will come back into the book and.
And come in advance of when the charge offs actually hit so we would expect to see that debt yields begin to increase and in the back half of the year.
What I would say Moshe it is a lot of people focus on the margin and the business we're at 40% today.
And kind of guided people to call up to 60% range in a normalized environment.
If you breakdown the components of that for a second.
And the first piece is really the excess liquidity, which they started with with the stimulus factors right. So so if you went back and looked at excess liquidity pre pandemic applied that to the book today, you'll you'll probably pick up about 90 basis points and net interest margin from there.
We previously talked about there's probably 25 or so basis points 30 basis points and the benchmark rates, which.
We'll see how prime comes and the residual amount.
Right, which is the.
Mainly let and.
Lately fee yield and interest yields.
And we'll come back into the book and that will rise. So I think you can see a trajectory where this begins to accelerate and the back half of the year and begins to approach normalcy.
And for Us as we move into 'twenty two.
Great and just a follow up you mentioned, the 5 million new accounts Im assuming thats still with cash.
And a sluggish retail openings could that number get better and any update that you can give us on the Verizon and venmo programs specifically thanks.
Yes, Moshe this is Brian doubles, I think we would certainly expect that number to continue to grow.
We're not in a fully open economy right now as you know I think there's look there's a lot of reasons to be.
Bullish when you look at the consumer you look at the trends on jobs unemployment and back to 6% and and consumer balance sheets are strong and they're starting to spend again.
I think the fact that we saw 8% purchase volume growth and 11% and retail card is a really positive indicators.
But that's not where where it should be and Ah.
Fully functioning open economy, and so I think there's still room.
Across all of the growth metrics to go further from here and we're still and the and the early innings in terms of a recovery, but most of the trends that we're seeing are pretty positive.
And the fact that we grew purchase volume per account up 18%.
And really good indicator that consumers are spending again and I do I do think that will turn into more revolving behavior over time, I mean, the effects of the stimulus as Brian said aren't good enough.
And theyre going to wane over time.
I think youre going to start to see that pretty soon as confidence gets better.
<unk> tend to see consumers take on more debt.
And revolve a little bit more which will which will help on balances and margins as well.
The other thing I'd add Brian as you think about the new account originations, we havent touched the credit box right I do think as we begin to continue to move through the year, we are making credit refinements to expand credit, but we havent done that acquisition. So that will also provide a tailwind.
As we move throughout the year motion and then Moshe just on just on Venmo and Verizon.
A lot to be excited about on both of those programs Venmo, it's still early but we're.
We're ahead of our expectation in terms of new accounts and spend the free.
Feedback from customers on the card has just been phenomenal.
The value prop and the fact that it automatically optimizes.
The rewards for the spending categories, where youre spending the most.
And the car design the QR code.
So the feedback has just been terrific.
And then Verizon, which is a little bit further along and I'd say, we're seeing really good purchase volume.
It's definitely behaving like a top of wallet card, which is what we wanted.
So.
And so far so good on both and I continue to believe that both can be top 10 programs for us and the future.
Thank you very much.
Great. Thanks, Marcia and good day.
We have our next question from Sanjay <unk> with K VW.
Thanks, Good morning.
Wanted to follow up on the comments on loan growth I guess, when I think about your framework and and now.
Book for the year do you feel like you're more constructive on loan growth as we look out for the rest of the year and then just specifically to that offline recovery are you guys anticipating and offline recovery because it would seem like it would impact that loan growth.
More significantly than others.
Yes, good morning, Sanjay, Yes, as we think about loan growth here.
We entered the quarter optimistic and the positioning.
We exited the quarter, where probably a bit more optimistic than that so we've seen broad based recovery. When you look at retail card up 11% that is both the expansion of digital as well as some of the as you call them offline.
Retailers kind of coming into play.
Seek from receivables standpoint, we are seeing strong volume some of that is obviously buoyed by the stimulus dollars that came in in March.
But we saw strength across each of the months and the quarter. So it outperformed what our expectations are and.
And as I think about loan growth I think you probably will see an inflection point here and the second quarter and acceleration into the back part of the year. So I do think Youll see positivity come.
Through the portfolio and again, we have the tailwind that it still existed in the care credit platform right. As you have dental and plant services opening up and you still have the supply chain issues in in the payment solutions platform. So there's a lot of tailwind that are in place. Besides what we've already seen so so again, we're we're optimistic about where we are.
And how the second quarter will play out and what we've seen to date in the quarter and then.
Back half of the year looks.
And just a follow up Brian doubles, maybe you could just talk a little bit more about the GAAP relationship loss and sort of how you see it.
Affecting the industry as a whole with newer players coming in and possibly from.
Doing some aggressive pricing type stuff and how do you think that affects the.
Our future pipeline and are you seeing deals in your pipeline that look interesting.
Yeah. Thanks, Sanjay look I think this was a bit of a unique situation.
I'd say, we had a really good partnership for a number of years, we had great feedback actually from the client on our partnership model, our products or capabilities and I think at the end of the day. This one just came down to terms and price.
And our competition was just a lot more aggressive on both.
There were some.
I would call them really out of market terms.
They were looking for guaranteed revenue that increased annually, regardless of how the program performed and.
For context, just given the turnaround that they've been working through the program had been shrinking and so there is there's really only so far you can go to guarantee those types of payments on a program like that so low.
We tried to reach an agreement at the end of the day there just wasn't a way for us to get our interest aligned but I do think this is a pretty unique situation.
I look at the pipeline today across all three platforms.
We've got really attractive opportunities.
And with very strong partners that attractive returns were.
Our interest are aligned and I think that is so important and we've talked about this for a number of years and.
And we want programs where.
Our interest or online and growing the program, we're doing that and a way that benefits both parties. So.
And I still feel really good about the pipeline as I look across all three platforms.
Thank you.
Great. Thanks, Sanjay and good day.
Our next question is from Ryan Nash with Goldman Sachs.
Hey, good morning, guys.
Good morning, Ryan.
So Brian you're running at 17, 4% CET one if I look at this quarter you earned over $1 billion.
Reserves are likely coming down and even with the return to growth you're likely to accrete quarter capital in the coming quarters.
<unk> been using the existing $1 $6 billion buyback. So I was wondering maybe can you just talk about the strategy for getting.
And one back towards peer levels and is there the potential for you to revisit your capital return ask for the coming quarters. Thanks.
Yeah. Thanks, Brian So so obviously and the first quarter, we were we repurchased $200 million of shares.
In the quarter that was part of the $1 $6 billion, we announced in the early part of January and just to put that frame of reference obviously when we when we went to the board and discussed with the board that authorization that was that was in the December timeframe off the models as we move through the quarter clearly we.
And have more information.
David our scenarios, we submitted our capital plan to the fed in March and and look forward to their feedback.
And this quarter. So so obviously, we'll see what the results of that come back, but we are optimistic with regard to their support for our capital plan.
It is not lost on us that we have the excess capital Ryan and the second quarter.
We will again be subject to the limitations by the fed which will capex at around $390 million.
For the current quarter with regard to the amount of repurchases that we can do.
And make the presumption would be depending upon market conditions.
And at that maximum and then we'll be back to you and talk about.
The capital plan that we submitted back to the fed.
That being said to the extent that the income profile of the business changes, we have not in that capital plan and Delta anything with GAAP and if that portfolio conveys that we would potentially revisit that and go back to the deferred.
It's warranted. So we'll continue those discussions and dialogues with the board and most certainly with our regulators. So there is an opportunity with regard to your cadence question and clearly we want to get back to our long term.
Long term.
Goal of being in line with peers, and we will do that as prudently as possible, but obviously, we want to do with the support of all our constituents.
They are not barriers to doing that and we just wanted to do and in a prudent fashion and most certainly we're not totally done with the pandemic here, but we'll move as prudently as possible to execute that.
Got it and maybe just as a Saturday checked a follow up to moshe's question.
And how should we think about the pacing of NII improvement relative to the pacing of loan growth given all the dynamics on margin and the normalization of credit over time as we see these factors abating should we see NII and materially outpacing loan growth and as we normalize. Thanks.
Yes, I would probably think of them more moving and sequence as of and.
And the early part of this quarter as you get to the back part of the year. When you start seeing the late the yield come and you may see the NII accelerated a little bit faster.
But it will really depend upon that think delinquency formation Brian.
Got it thanks for taking my questions.
Thanks, Brian Thanks, Ryan and I have a good day.
Our next question is from Betsy <unk> with Morgan Stanley.
Hi, good morning.
Good morning Betsy.
A couple of questions just on the capital targets could you just give us a sense as to where you think optimized is for you.
And over over the next.
And a cycle here and part of the reason for the question is I'm trying to understand how youre going to be thinking about your capital to fund loan growth or on the flip side do you feel like your loan growth can be fully funded by the liquidity.
Mix shift zone.
Give us some color there would be helpful. Thanks.
Yes, let me let me start with the latter part of your question clearly the excess liquidity, we have we believe.
Sustains us with the loan growth that we see.
And the portfolio, which again gets back to more normalized level back half of the year, we've talked about and potentially acceleration.
Into 2022 is there is pent up demand and we believe the excess liquidity is ample enough to support that and most certainly with the earnings power of the business. So we expect this year from a capital standpoint, we should be able to support it.
With regard to the first part of your question with regard to those targets.
And talk about Pierre targets are you thinking about.
The cap ones and discovers down and that.
11% to 12.
<unk> 10, and a half range, we'll see how the portfolio develops where.
And we're optimistic we can get there and a reasonable period of time I think if you go back.
We exited <unk> with 18% we've made it down in 2014 before the pandemic hit and we think we can get back and Ah.
Fairly reasonable period of time, and if you remember right before the pandemic hit.
We were on a path to execute a $3 $6 billion capital plan and were $3 $3 billion into it. So we think we can employ a fairly rapidly.
Once we feel comfortable.
Okay. Thanks, Brian and then.
And Brian you were talking at the beginning of the call about care credit and maybe you could help us understand the.
The impact of the Walgreens portfolio overtime, and I think you mentioned that you could see Verizon and venmo getting the top 10 program, maybe you could give us a sense as to how youre thinking about Walgreens and then also how how should we think about care credit impact on RSA is is it is it similar to the way that.
And at the retail program as Ron or is there any differences that we should be aware of thanks.
Yes, sure Betsy I think.
Care credit I think is probably the most exciting growth opportunity that we've got and the company today and we tried to lay that out for you and a couple of slides I think first just going after a market of this size, it's growing as fast as it is.
Obviously health care costs are rising.
High deductible plans are increasing in popularity, so less and less is being covered by insurance and Thats really where our care credit comes in.
And we're a big player and the space today, but.
Financing options and this space is still a very small fraction of the potential spend that's out there so.
There is just a ton of room for growth.
And I think I think about the growth and really three components one is growing the core.
We're in care.
Aircrafts accept and about 250000 locations today.
And 40 different specialties, we just entered into 10, new specialties just over the last two years.
And we're and 80% of dental offices and 85% of that so we've got a lot of scale, but.
With that said Theres still a lot of room to grow penetration inside of those providers because third party financing options, it's still a relatively small percentage so.
A lot of room for growth there and then we talked a little bit about both health systems. We're in 13 large health systems today.
A growing part of our business were paired up with big players like Kaiser Permanente Cleveland clinic.
And then we talked about pets is really that third leg of the strategy.
We're seeing just unbelievable growth and our pet insurance business that we bought a couple of years ago up 174% since we bought it so.
A lot to be.
Excited about and then you touched on Walgreens, we had.
Our care credit cards were accepted at Walgreens.
We expanded that relationship to launch a new program and I think similar to venmo and Verizon and this can be a top 10 program for us and.
And we're tapping into 90 million my Walgreens customers. So the opportunity is just huge and.
We're actively working to get that launched in the second half of the year.
Okay, and the R&D day.
Yeah, Oh, sorry Betsy.
The RSA will operate similar to how you see things operated and the retail card platform. So it would be a similar type of alignment for Walgreens to Walgreens.
Oh got it and would you ever go after the opportunity with individual doctor practices for their personal.
<unk> needs or is this going to stay at.
Business level and just wondering.
Yes no.
In terms of financing the actual practice Betsy.
Yeah exactly yes, yes, that's an adjacency we've looked at on the path.
On the screen and we don't have any immediate plans to go there, but definitely something to consider and the future.
Okay. Thank you.
Thanks, Betsy and good day.
Okay.
Our next question is from John Hecht with Jefferies.
Good morning, guys. Thanks for.
For taking my questions and how are you.
I guess just go into a little bit more it's clear you did emphasize care credit and the <unk>.
Prepared remarks.
And I'm wondering and <unk>.
And you talked about the scale, maybe can you give us an update I think from a competitive positioning perspective, you are dramatically larger than the next largest and maybe talk about the competitive framework and.
And just given the volume the growth momentum there.
How much bigger as a percentage of.
Call it loans and receivables might care credit be over the next few years.
Yes, John we're certainly probably the biggest player in this space that does.
What we do but.
We have seen competition come and go and.
And to this space over time.
I Love. The fact that we have the scale that we have it's taken us decades to build this kind of scale and get embedded and <unk>.
And 250000 locations so.
I would expect going forward to see outsized growth and care credit relative to the rest of the business. So I definitely think this becomes a bigger part of the business going forward.
And we're also increasing.
The level of investment that we're making and care credit.
We've invested quite a bit obviously over the last the last 10 years, but.
And I'd say, just recently with acquisitions and pet insurance, we just recently acquired Allegro credit.
We're definitely seeing a lot of opportunities to invest both organically and Inorganically, which I think it will just accelerate the growth rate here relative to the rest of the business.
Okay.
And then you guys you cited some good trends with respect to account adds recently, but.
Clearly there has been some churn as there always is and the portfolio is there any change and characteristics of where youre seeing some of the churn come from.
Yes, John.
Don't think we see anything different clearly the opening up of more traditional retail, we see and influx, there and and a little bit through the door population, but there's no real fundamental fundamental shifts.
Okay. Thank you guys very much thanks.
Thanks, John Thanks, John and I have a good day.
And we have our next question from Don Vendetti with Wells Fargo.
Good morning.
Obviously, there's been a big proliferation of Fintech companies.
I was just curious as you look at your three businesses.
Is there one or how would you rank them in terms of where you are watching closer and it would be.
Curious on care credit it seems like.
That could be susceptible to fintech players.
More silver and other areas.
I could be wrong on that just wanted to get your thoughts.
Yes look I think you can't.
You can't limited to just one of the platforms, obviously, it's a very competitive space right now.
The Fintech landscape is changing every minute and we have to stay all over it across all three of our businesses and.
And I think the team is doing a really good job and doing that.
So I don't think that we feel it more acutely and one area.
And then another I think what we tend to feel.
From fin taxes, they tend to do one thing really well.
And that is a luxury that they have and and we are.
Given our scale, we have to do a lot of things really well to compete with them.
But I feel like we're doing that across all three of our platforms. So.
And the competition is good at the end of the day it makes us better.
We don't feel like we're losing.
I don't feel like we're losing share and any of our three platforms. We still got a lot of opportunity for growth, but it's something we got to stay all over.
Our team's watch this theyre talking to our partners and when they see people come into the space.
We're doing our best to keep them out and solidify our relationship. So I feel really good about how we're positioned competitively, but you can never let your guard down and you've got to stay you got to stay all over this.
And then in terms of not really touching credit underwriting standards and it seems like some of the peers have started to loosen up or you're just being cautious or.
Do you still need to see something to get comfortable.
So down the weighted.
I would think about it is we have started to make refinements and our credit underwriting.
If you remember when we started back in the pandemic we did.
Obtaining more on proactive type of credit extension, so we shifted the cutoff down and our private label and dual card product mix.
We reduced the number of proactive credit line increases.
We reduced the number of invitation to apply and pre screen type offers on new accounts as we move through into into 2021, what we started to do and in places where we actually have known customers. We began to unwind a lot of those.
Refinement. So we are we are shifting the cutoffs and more people will get a dual card, which will be a slightly higher line, but.
And most certainly stimulate some spend and the world.
We have begun a number of.
Credit line increase type programs, which are customers that we've known and GE and credit behavior and payment behavior patterns and then we've also begun to upgrade accounts from private label to dual card that would have qualified for dual card a year ago. So we're doing a number of things proactively we just have not touched at the point of acquisition changed any cut off things.
But again, we didn't do a lot of that last year. So I don't really expect us to do a lot of it.
Changes now, but we have begun proactive increases and the good news is given our portfolio, we're able to do that with customers, we know and we're not taking incremental risk.
Our eyes.
Got it thank you.
Thanks, Dan and have a good day.
Our next question is from Rick Shane with J P. Morgan.
Good morning, guys. Thanks for taking my questions.
Look when we think about the nature of private label.
There is more.
By category concentrated behavior than you would expect to see with for example general purpose.
When you look forward to where there are opportunities for further recovery.
How do you think the portfolio and the opportunity index is against that.
Yeah, Rick I think probably the best way to think about it is you have to look at.
And I know there is.
Obviously <unk> has a big pull back we're a little bit less concentrated there, but certainly our dual cards will benefit from that and our general purpose card will benefit from that I think the fact that.
Brick and mortar stores are opening again, and I think we're certainly well positioned to benefit from that.
And then I think frankly, the digital trends that we saw last year.
Well, we're going to have some tough comps they are coming up over the next few quarters.
I feel like some of that shift was certainly permanent.
And we will stay and will and will benefit there as well so.
If you look across the portfolio. The one thing that I think about quite a bit and we hear this from all of our partners.
Including all of the providers and care credit is there is a real pent up.
And demand right for pretty much everything.
This pent up desire to spend and get back to normal.
Talking to our providers and care credit.
And they can't keep up with the appointments because so many people over the last year.
Postpone things that weren't critical they didn't want to go in to the practices and now youre seeing all of that start to flush through so I think regardless of the category.
There's a ton of pent up desire to spend and I think if if travel and entertainment dining and those things come back I think that also spurs other types of spend that we will see both on our dual cards, but also.
And some of our Adjacencies.
I think it's also Brian as you kind of pointed out we're so broad base. When you think about inside retail car, which is up 11% and the first quarter.
And think about the breadth of lifestyle slash specialty groups are and they're thinking about the not only the American Eagles, but the Dick's sporting goods. When you go to value oriented retailers, such as Sam's club et cetera tea jacks that are in there we have such and such a wide breadth of coverage with regard to where spend happens.
It actually has a fairly nice.
Tailwind as we come out of this period.
Got it and that's very helpful and.
Brian and you bring up a really interesting point in terms of care credit and it leads to my follow up question, which is do you think that there are certain categories of spend that translate naturally into a higher percentage of barra.
A higher percentage of borrowers that what you said right. Yes. So so for example people may be more inclined not to borrow on a gas card, but certainly if it's a larger transaction like you might see repair credit.
There would be more revolving debt.
Yes, no certainly we would expect to see that and care credit with some of the bigger ticket purchases.
We tend to see really good revolve rates.
Are there and I do think it does depend a little bit on the size would take and I mean, if somebody's getting braces for that because that's a big ticket item. They typically don't want to tie up their general purpose card.
Utility with that purchase and Thats, where care credit comes in and.
And that can be done on a equal pay installment loan and it can be done on a promotional financing.
And and we tend to see really good revolve rates there as well.
Great. Thank you guys very much.
Yes, Thanks, Brian Thanks, Rick and good day.
And we have our next question from Mihir Bhatia with Bank of America.
Hi, Good morning, and thank you for taking my questions. Maybe just to start I was hoping you could share some color on how youre currently thinking about just buy now pay later and I'm thinking more in terms of the theme for type program versus some of the larger ticket things like payment solutions, but you basically have a buy and opened new distribution and thinking.
And just.
Mahler ticket being forward just how are you thinking about it is that something you are considering should we be expecting you to be and the market with something like that any time frames that you can share there. Thanks.
Yeah look I can tell you, it's definitely and be a product that we offer we're going to have.
Something to market with a couple of partners later this year.
And just to take a step back more broadly.
Our strategy is really to provide a full suite of products, we have such a diverse array of partners.
That we really can have.
One size fits all strategy, we've got to be able to offer revolving products.
Short dated installment.
Our longer term installment equal pay products buy now pay later products and we want to do that and a way that.
We can bring that full suite of products to our partners and basically allow them to choose which products are best for their customers based on not only their customer, but what types of products are they selling.
So not surprisingly.
Bigger ticket items tend to steer more towards the longer term installment.
And that can be on a revolving product are closed and.
And then smaller ticket and it tends to be shorter term either through a product like <unk> pay or paying for type product. So.
That's really the strategy to provide that comprehensive suite of products and then take that to our partners and really allow them.
To select from that menu.
In terms of what what meets their customer needs based on the products that they are selling and their strategy.
Okay.
And.
Any timelines or anything.
Yes.
I'll move on from that I was just wanted to clarify in terms of.
Just your comments on loan balances.
Just wanted to make sure I understood that right do you think loan balances of trust are pretty close to crossing at this point I guess, what I'm asking is do you see more pressure from payment rates and into Q or do you do you think that those balances start increasing from here and if you've seen anything in April that you'd be willing to share that'd be great. Thank you.
Yes, Thanks, Margaret So I think as you think about it to be any prior April we continue to see elevated payment rates from historical average debt has tended to trail down a little bit we expect that to.
To burn off during this quarter, so with regard to a loan receivable trough.
My my expectation would be that we are.
We are going to trough here and most certainly we've seen very strong sales.
And the first 20 or so days of April.
So our hope would be that debt, we trough here and the second quarter and begin.
Again that debt acceleration.
Understood. Thank you.
Thank you and good day.
Could you.
We have our next question.
From David Scharf with JMP Securities.
Good morning, and thanks for squeezing me in here.
Brian just had one follow up on care credit most questions have been addressed can you just provide a little more.
Maybe granularity or specificity around just how.
The payment product is marketed and we earn this has created for.
The transitional.
And to more.
Kind of non elective.
Procedures I'm just.
Seed care credit displays admits and the countertops events and other elective outlets, but I'm trying to understand how is.
And as a member myself.
A large health care system, how I would even become aware of this.
A payment option, how it's going to be marketed to me.
Yes, a lot of it is.
And we built this business over decades, and a lot of it is awareness at the point of sales so.
And when Youre sitting and waiting room for.
Of that appointment our dental appointment and you see the promotional financing offer you seek care credit.
And we actually talk about it in the and the providers.
And talk about the benefits of it and so that's the primary channel and at least has been historically, we also have a provider locator and what we're trying to do.
Is move.
Our funnel of debt so that at the time that you are booking your and your appointment because a lot of that is now happening online and youre actually getting.
Youre seeing the promotional financing.
So that that becomes kind of part of how youre thinking about your treatment.
So it's not once you actually get to your appointment.
You become aware of that you can actually go through the whole process well in advance of your of your appointment and think about how youre going to pay for whether it's braces or whatever your treatment is going to be and when.
We found that to be really successful.
We have been.
We've been building that brand awareness over time it originated largely inside of the Provider's office, but has certainly expanded to be.
More digital in nature, and direct marketing and other channels.
I see and I believe you May have mentioned my chart and one point.
Once again, just reflecting on particularly with the pandemic.
Yes.
And then integrate.
Yes, getting integrated into the practice management software system is huge for us.
That is a really important aspect of the growth strategy here and.
For health systems are integration with epic.
And side of the Dennis and the vets and their practice management software.
So what they use we want to be completely integrated there so that it becomes part of.
Part of the process for the office manager, that's working there and.
You can imagine with 250000 providers, we have a wide range of.
Big providers small providers and.
Keeping care credit top of mind as a as a payment option is really critical to the future growth and that business.
Got it and just one last follow up.
Mark.
Program specific.
On Venmo I know you had mentioned and it's still very early stages and.
I think you.
And you had commented it's.
Modestly kind of exceeding expectations at this time can you give us a little color, though on.
And perhaps what percentage of the venmo user base.
Is initially being targeted just trying to get its obviously, a very younger skewing demographic.
And I got to believe a lot of venmo users have.
And credit files, just trying to get a sense for how we should think about the opportunity there in terms of.
The mix it makes it a current users.
Yeah, nothing I can provide specifically, but I mean this is a huge opportunity to tap into 70 million venmo customers. I mean, obviously they have to meet our underwriting criteria and our screen.
But that's just it's a huge opportunity for US again no doubt this is going to be a top 10 program and.
The early returns in terms of what we're seeing on spend and accounts as is ahead of what we thought it would be and we had we were.
Pretty aspirational.
In terms of our expectation so.
Very positive even though it has only been and full launch mode for a couple of months.
Only other thing I'd add here. This is another point of the strength that we have Brian right, which is the ability to get data from our providers. So when you think about where venmo may know a customer for a period of time watched payment velocity.
And they've been affiliated they can pass that information so it actually helps us even though they may have a thin credit Bureau, the richness of the data that they have with with Paypal and venmo and may be a help for us as we underwrite.
Got it thank you very much.
Have a good day.
Thanks, David Vanessa we have time for one more question.
Thank you our last question comes from Dominic Gabriel with Oppenheimer.
Hey, Thanks, so much for taking my question.
If you think about I just want to go back to the total business and I really appreciate all the color on care credit, but if we if we think about the CET, one and where that can go versus the general purpose players I think historically there has been.
Excuse me a buffer between private label.
And.
General purpose.
One's and so do you expect that spread to close and have you had com.
Conversations with the regulators of them feeling comfortable with that closure and then I just have a follow up thanks so much.
Yes, thanks Dominic.
And I don't think we've had a conversation with regard to debt.
Product private label versus general purpose I think they look at the Los <unk>.
Scenarios that we've run stress scenarios, we run.
We are have a very unique feature and the RSA, which provide a buffer against some of the outlays. So I think when you look at the output of those.
We don't we don't.
Early view it differently than some of our competitors when you think about a capital one for argument sake.
With regard to how the stress capital buffer comes out so we're in line with those it's not really product oriented and most certainly for us as we have those conversations really derma.
Demonstrating to them the resiliency of this business and this customer because of the point of origination.
Actually gets stronger yields and risk adjusted returns off and again when you combine that with the RSA buffer. It provides particular strength when it comes to.
Having a lower capital ratio and that those are the conversations we're having with them.
It makes a lot of sense I would argue you should be below the.
The general purpose players to some extent because of all of those factors on a risk adjusted basis and then if you if you.
Think about the.
Efficiency of the business as we move forward, there's obviously going to be some pressure from multiple factors on the loan book.
And obviously you could see some good cycle growth given that some of the tier ones or the overall economy, but.
And when we think of GAAP and we think about all the various factors of just the size of your loan book, how do you think about the long term efficiency of the business.
Moving forward over the next few years is there a is there some pressure on efficiency until you get back to maybe your more traditional.
Average loan book size.
And is there some dynamics between the credit care credit and retail card. There. Thanks, so much I really appreciate you being on the call day.
Okay. Thanks, Dominic So I think the way to think about efficiencies when we went through last year we.
We underwent a strategic outlook that said if I look out to 2025 to think about the mix of business and going to have.
Think about trying to be a top our OE.
Profile company.
And I look at the revenue characteristics to lost content characteristics the RSA characteristics.
Expense and efficiency ratio has to be in order to be a top tier ROA and ahead of all of our peers.
It really generate debt investment thesis, we then rolled that back into the plans that we put in place in the latter part of 2020. So I think we've engaged upon that part of that is delivering over $210 million of benefit this year from a cost out perspective.
I think the greater pressure on the efficiency ratio and the short term to be honest with you is is the revenue headwind that we have with the net interest margin and in NII and being a little bit impact that are being impacted by stimulus.
And it really terrific credit and late fee.
Impact that comes from that and Thats, a little bit and I do think youre going to see this business model right. We were built off a foundation of <unk>.
Running running expenses at a very manageable level given that the loan balance size.
As you see care credit needs of our business grow you should be able to get operating leverage because they run at a higher average balances. If you think about the bigger ticket side.
And is associated with those accounts and what can't be lost is the fact that we don't have to spend as much on marketing as our peers relative to generate those new accounts. So we are and industry probably best.
Or very attractive cost to acquire customers, which really puts us at a competitive advantage versus our peers. So so we will tightly manage tightly manage the.
And the efficiency and why we're doing this we're going to continue to invest and the future of the digital assets that we put in play over the last several years, we're going to continue to invest for our long term future. So its a combination of investing and really having a business model and a set of partners, where we can leverage it and generate data operating efficiencies, we probably grow above average with peers and have a higher return.
And on average and here's how I would think about it Dominic.
Alright, great. Thanks, so much I really appreciate it.
Great and have a good day.
And thank you ladies and gentlemen. This concludes our question and answer session. I'll call has now concluded and we thank you for your participation you may now disconnect.
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