Q4 2024 Bread Financial Holdings Inc Earnings Call
I'd like to introduce your host for today's program, Brian verb head of Investor Relations at Fred Financial. Please go ahead Sir.
Speaker Change: Thank you copies of the slides, we'll be reviewing in the earnings release can be found on the Investor Relations section of our website at Brett financial Dot Com.
Speaker Change: On the call today, we have Ralph and dry dock, President and Chief Executive Officer, and Perry P. Berman Executive Vice President and Chief Financial Officer before we begin I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward looking statements. These statements are based.
Speaker Change: Management's current expectations and assumptions and are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC.
Speaker Change: Also on today's call our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors reconciliation of those measures to GAAP are included in our quarterly earnings materials posted on our Investor Relations website with that I would like to turn the call over to Ralph in dry dock.
Ralph: Thank you, Brian and good morning to everyone joining the call before I begin I want to start by sending our thoughts to those impacted by the recent wildfires in California to underscore our commitment to the customers and the communities. We serve we continued to provide financial support to the American Red Cross for emergency relief efforts.
Speaker Change: Bert.
Speaker Change: We remain committed to all of our customers impacted by the fires and all providing hardship assistance during this time.
Speaker Change: We wish the individuals and families affected as well as the first responders and those delivering relief aid continued safety.
Speaker Change: Yes.
Speaker Change: Now to our presentation.
Speaker Change: Starting on slide two with our 2024 achievements. We are pleased with the progress we have made throughout the year our commitment to growing responsibly with our brand partners was evident as we added iconic partners like hard rock International HP as Saks fifth Avenue, while investing in our existing programs.
Speaker Change: With the addition of these new brand partners, along with continued strong renewal rates, including seven renewables in 2024, we now have more than 85% of our loan secured through 2026 and nine out of our top 10 programs secured through at least 2028.
Speaker Change: We have continued to cultivate strong partner relationships and diversify both our product offerings and our industry verticals. These actions helped to mitigate our risks and further ensure a solid run rate for performance in 2025.
Speaker Change: The macroeconomic and regulatory environment evolved throughout 2024.
Speaker Change: In turn we effectively adapted to prolonged inflationary pressures affecting our customers and uncertainty regarding regulatory outcomes.
Speaker Change: Our strategic proactive credit tightening actions during the year enabled us to maintain a stable credit risk distribution.
Speaker Change: Additionally, although the outcome and timing of the CFPB late fee will remain uncertain.
Speaker Change: We continue to execute on mitigation strategies to better position, our company and offset any potential impact.
Speaker Change: We made significant progress strengthening our balance sheet executing our long term funding plan and growing shareholder value.
Speaker Change: We improved our capital levels and succeeded in reducing our parent level debt, including the repurchase of 97% of our outstanding convertible notes and achieving our double leverage ratio target.
Speaker Change: Below 115%.
Speaker Change: These accomplishments underscore our disciplined approach to growing our business and allocating capital responsibly.
Speaker Change: Our strengthened balance sheet provides additional flexibility to further optimize our capital and a debt stack as we discussed during our Investor day in June of last year.
Speaker Change: Further due to our progress both Moody's and Fitch upgraded their rating outlooks to bread financial moving from stable to positive just one year after obtaining our inaugural rating kantar.
Speaker Change: Contributing to our success is our focus on operational excellence and technology advancements as we leverage innovation best practices and scale to gain efficiencies throughout the organization.
Speaker Change: We advanced our technology platform anchored and customer Centricity resiliency security and growth.
Speaker Change: And as a result of our expense discipline and efficiency gains we delivered on our positive operating leverage goal with lower expenses than our original 2020 for full year guidance.
Speaker Change: We achieved all of our 2020 for full year targets in spite of a more challenging than anticipated macroeconomic environment.
Speaker Change: Looking ahead, we expect to deliver solid.
Speaker Change: Financial results in 2025% fueled by our resilient business model.
Speaker Change: And capital allocation and operational excellence initiatives. This will move us closer to achieving the medium term financial targets, we provided during our investor event.
Speaker Change: Moving to key highlights from the fourth quarter on slide three.
Speaker Change: We opportunistically repurchased an additional $44 million.
Speaker Change: In principal amount of our convertible notes, leaving only $10 million of the original $360 million balance remaining.
Speaker Change: We also purchased $44 million of common shares in December completing our board authorized share repurchase plan.
Speaker Change: Additionally, our overall funding mix continued to improve with strong growth in our direct to consumer deposits, which reached $7 7 billion at quarter end.
Speaker Change: We generated adjusted income from continuing operations of $21 million and adjusted diluted EPS from continuing operations up 41.
Speaker Change: Both excludes $13 million post tax impact from the premium paid on our repurchase convertible notes tangible book value per share of $46 97.
Speaker Change: Increased 7% year over year, while our common equity tier one capital ratio increased 20 basis points year over year to 12, 4%.
Speaker Change: Further we are pleased with our year over year positive fourth quarter credit sales growth as beauty sporting goods and retail apparel as well as millennials and Gen. Z sales showed signs of improvement spending continues to be more heavily weighted toward non discretionary purchases leading to strong.
Speaker Change: Loan growth and our co brand and proprietary products during the holidays, while we continue to closely monitor ongoing economic and political uncertainties, including impacts from key legislative and monetary policies. We are cautiously optimistic that credit sales improvement will continue in 2025.
Speaker Change: Driven by new and existing partner growth.
Speaker Change: <unk> four depicts the results of our disciplined capital allocation strategy.
Speaker Change: As mentioned several of our accomplishments for the quarter and full year. It is worth looking at are improvements over a longer period of time to see the significant progress. We have made our CET. One ratio has increased 210 basis points over the last three years to 12, 4% since the fourth quarter.
Speaker Change: Of 2021, we have reduced our parent debt levels by 50% paying down more than $1 billion and decreasing our double leverage ratio to 105% achieving our targeted level.
Speaker Change: We have successfully increased our tangible book value over the past three years with an annual growth rate of 19%, resulting in a fourth quarter 2020 for tangible book value of nearly $47.
Speaker Change: I'll wrap up my initial remarks by sharing my sincere appreciation for the focus of the leadership team and the dedication of our thousands of talented associates throughout the year without whom our position of strength heading into 2025, we would not be possible great financial is a stronger.
Speaker Change: More resilient organization and I am excited to continue our momentum delivering on our commitments to key stakeholders I will now turn it over to Perry to discuss the financials.
Perry: Thanks Ralph.
Perry: I will touch on our full year 2024 financial highlights on slide five before moving onto our fourth quarter 2024 results.
Perry: For the year credit sales of 27 billion.
Perry: Decreased 7% and average loans of $18 1 billion decreased 1%, reflecting moderated consumer spending our proactive credit tightening actions and elevated gross losses, partially offset by new partner growth.
Perry: Revenue of $3 8 billion decreased $451 million or 11% due to a $230 million gain on sale in the comparative 2023 period, while in 2024, we had lower finance charges and late fees, resulting from a gradual shift in risk and product mix, leading to a lower proportion.
Perry: Our private label accounts, our loan yield was impacted by lower average prime rate driven by the 100 basis points of fed rate cuts that started in September.
Perry: And lastly, reduced merchant discount fees, resulting from lower big ticket sales.
Perry: Total noninterest expense net income income from continuing operations and diluted EPS have all been adjusted for the impact from our repurchase convertible notes, which was primarily the premium paid for those repurchases.
Perry: All adjusted figures are non-GAAP financial measures and a reconciliation table can be found at the bottom of the slide as well as in the appendix along with our non-GAAP financial measures adjusted.
Perry: Adjusted total noninterest expenses decreased 7%, excluding the $107 million pre tax impact from our repurchased convertible notes.
Perry: The decline was primarily driven by lower card and processing expenses, which includes lower fraud expense.
Perry: Adjusted diluted EPS for the year was $7 60.
Perry: Slide six provides our fourth quarter financial highlights during the fourth quarter credit sales of $7 9 billion increased 1% year over year, reflecting new partner growth and stronger holiday sales, while average loans of $18 2 billion decreased 1%, reflecting lower.
Perry: Full year credit sales and elevated gross credit losses in the year.
Perry: Revenue was 0.9 billion for the quarter down 9% year over year and total non interest expenses increased $20 million or 4% income from continuing operations decreased $37 million.
Perry: Primarily due to the lower net interest income and a $13 million post tax impact from our repurchased convertible notes, partially offset by a lower provision for credit losses.
Perry: Adjusted income from continuing operations and adjusted diluted EPS, both of which exclude the impact from our repurchase notes were $21 million and 41, respectively.
Perry: Looking at the quarterly financials in more detail on slide seven total net interest income for the quarter decreased 8% year over year, primarily due to a lower loan yield which I will discuss further on the next slide non.
Perry: Noninterest income was down $4 million, which was primarily the result of reduced merchant discount fees due to lower big ticket credit sales.
Perry: Total noninterest expenses increased $20 million or 4%, including a $22 million increase in employee compensation and benefits cost and technology related transformation costs.
And an $11 million pre tax impact from our repurchase convertible notes, excluding the $11 million related to the convertible repurchases expenses increased 1% additional.
Perry: Additional details on expense drivers can be found in the appendix of the slide deck posted on our website pre.
Perry: Pre tax pre provision earnings or P. PNR decreased $111 million or 22%, primarily due to lower net interest income and higher employee compensation and benefits costs.
Perry: Finally note that the tax rate in the fourth quarter of 2024 benefited from favorable discrete items.
Perry: Turning to slide eight.
Perry: Both loan yield of 25, 7% and net interest margin of 17, 8% were lower sequentially. Following seasonal trends loan yield decreased 200 basis points year over year, primarily due to lower finance charges and late fees, resulting from a gradual shift in product and risk mix leading to a.
Perry: Lower proportion of private label accounts, lower average prime rate and higher seasonal transact or balances related to strong holiday spend.
Perry: On the funding side, we are seeing the rate on our funding cost decrease as savings accounts and new term CD rates decline with lower fed and U S treasury rates.
Perry: Note that repricing of our retail CD portfolio, which comprises over half of our direct to consumer deposits will lag the rate changes in both our savings portfolio and the overall loan portfolio.
Perry: Looking at the bottom right chart, you can see that our funding mix continues to improve fueled by growth in direct to consumer deposits, which increased to seven 7 billion at quarter end direct to consumer deposits accounted for 43% of our average total funding up from 35% a year ago concurrently wholesale.
Perry: Deposits decreased from 39% to 30%.
Perry: Moving to credit on slide nine our delinquency rate for the fourth quarter was five 9% down 60 basis points from last year and down 50 basis points sequentially.
Perry: Following seasonal trends. This gradual improvement provides an early sign of potential optimism for improved credit performance in the second half of 2025 subject to macroeconomic conditions continuing to improve.
Perry: The fourth quarter net loss rate was 8.0% flat to last year and slightly higher than the third quarter 2024 rate of seven 8% as previously mentioned, we estimate the net loss rate benefited by more than 20 basis points or approximately $10 million from the hurricane related costs.
Perry: We are friendly actions, we took in October and November, which consequently will have a negative impact on the May and June 2025, net loss rates, our reserve rate of 11, 9%.
Perry: Proved slightly year over year as expected, which is further evidence of stabilization in our credit portfolio.
Perry: We continue to maintain appropriately conservative waiting on the economic scenarios in our credit reserve modeling given the wide range of potential 2025 macroeconomic outcomes.
Perry: Further our total loss absorption capacity comprised of total company tangible common equity plus credit reserve ended the quarter at 24% of total loans, an increase of 90 basis points from a year ago, demonstrating a strong margin of protection should more adverse economic conditions arrive.
Perry: Looking at our credit risk distribution the percentage of cardholders with a 660 plus credit score improved slightly during the quarter to 58% up from 57% sequentially and above pre pandemic levels. Despite continued inflationary pressures. This is primarily a result of our ongoing.
Perry: <unk> credit tightening actions as well as our more diversified product mix, we continued to proactively manage our credit risk to protect our balance sheet and ensure we are appropriately compensated for the risk we take.
Perry: Moving to slide 10, our 2025 outlook acknowledges the economic progress in 2024 in terms of stabilizing inflation and improvements in real wages and a stable, albeit cooling label Mark labor market.
Perry: We anticipate our consumers will continue to responsibly moderate their spending due to ongoing elevated prices. We also recognize that consumer impacts related to the new administrations legislative and monetary policies are unknown at this time.
Perry: Our outlook assumes no late fee reduction related to the CFPB late D rule, given uncertainty surrounding the timing and outcome of the ongoing litigation.
Perry: It also assumes further interest rate reductions by the federal reserve, which will pressure total net interest income.
Perry: Note that as we remain slightly asset sensitive lower recent and future fed in prime rates will pressure net interest margin as our variable rate assets reprice faster than our liabilities.
Perry: We expect 2025 average credit card and other loans to be relatively flat compared to 2024 based on our current economic outlook strategic tightening actions anticipated elevated gross credit losses and visibility into our pipeline and existing partner relationships.
Perry: As a result of new business growth and higher credit sales in the year. We anticipate year end 2025 loans will be slightly higher than year end 2024.
Perry: Total revenue growth excluding portfolio sale gains is anticipated to be up low single digits with the full year net interest margin.
Perry: Modestly higher than full year 2024, right. This is a result of the mitigation actions taken in response to the CFPB late fee Rome, partially offset by an expected continued shift in product mix the co brand proprietary and installment lending products, which would lead to lower finance charges and late fees.
Perry: As well as a lower average year over year prime rate too.
Perry: To expand a bit on a few of the key variables that are expected to drive NIM into 2025 first I would note the negative impact on loan yields from the 100 basis point reductions in prime rate in late 2024 and that impact rolling through on a quarter and full year basis, then factoring in the potential timing.
Perry: Potential additional fed interest rate cuts in 2025.
Perry: Next I would highlight the expectation for lower build late fees given better early stage delinquency trends as a result of our improving risk mix and more diversified product mix as I mentioned previously.
Perry: Third on a quarterly basis, you have seasonality from the buildup in transact or balances timing around tax refunds and the level of gross losses in each quarter. For example sequentially. The first quarter, we will see pressure from expected higher gross losses and expected lower early stage delinquencies, resulting in lower bill late fees.
Perry: But will benefit slightly from normal seasonality as holiday transact balances paid down.
Perry: Additionally, as we have said the result of the mitigation actions. We've taken in response to the CFPB late fee rule should gradually building to our portfolio over the coming quarters in the form of higher APR.
Perry: We recognize there are many moving pieces. So we will continue to provide additional insights regarding the loan yields throughout the year.
Perry: From the interest expense side, we are pleased with our continued progress in growing our direct to consumer deposits and lowering our rates, while remaining very competitive as I mentioned the impact from our CD rate reductions will lag relative to the changes in the yield curve, which leads to additional shorter term press.
Perry: <unk> on net interest margin.
Perry: As a result of efficiencies gained from ongoing operational excellence initiatives, along with disciplined investment and expense management, we expect to generate nominal full year positive operating leverage in 2025, excluding portfolio sales ended 2020 $407 million pre tax impact from our repurchase convertible.
Perry: Note. The degree of positive operating operating leverage will be macro dependent related to credit improvement loan growth and pace and timing of further fed interest cuts.
Perry: We anticipate a year over year net loss rate in the 8.0 to eight 2% range for 2025.
Speaker Change: As I mentioned earlier the customer friendly Hurricane actions, we took in October and November in 2024 will result in a modest shift of losses from the fourth quarter of 2024 to the second quarter of 2025 negatively impacted in the second quarter loss rate.
Speaker Change: We expect the net loss rate in the first half of the year to remain elevated.
Speaker Change: Given positive early indications, we project that the first quarter net loss rate will be at slightly or better than the first quarter of 2024 rate of eight 5% with a peak rate in the upper 8% range in February as a result of the day waiting calculation methodology that we have.
Speaker Change: Implemented last year.
Speaker Change: Delinquency performance over the next 90 days will help to shape our expectations for the second half of the year as there is still potential volatility in credit performance driven by the changing administration tax season and broader macroeconomic conditions.
Speaker Change: Overall, our baseline loss outlook assumes a slow gradual improvement in the macroeconomic environment as it will take time for the effects of a prolonged period of elevated inflation to be fully absorbed by consumers.
Speaker Change: Finally, our full year normalized effective tax rate is expected to be in the range of 25% to 26% with quarter over quarter variability to the timing of certain discrete items now I will turn it back to Ralph to review, our 2025 focus areas.
Speaker Change: Perry.
Speaker Change: Before we open it up for questions I wanted to provide a refreshed view of our focus areas for 2025 as seen on slide 11.
Speaker Change: While our focus areas have remained fairly consistent over the last few years.
Speaker Change: They continue to evolve with our transformation and the ever changing business environment.
First our commitment to responsible growth will not change.
Speaker Change: We have made significant progress diversifying our product suite over the last few years.
Speaker Change: This enables us to appropriately scale improve our risk mix and grow our partnerships expanding revenue generation opportunities.
Speaker Change: Second we will leverage our sophisticated end to end.
Speaker Change: Management process to continue balancing risk and reward and effectively manage changes in the macroeconomic environment.
Speaker Change: We will continue to adapt to regulatory uncertainty and closely monitor the potential impacts from legislative and monetary changes.
Speaker Change: Third.
Speaker Change: Due to the successful execution of our long term debt plan, including the paydown of more than $1 billion of debt over the last three years and our disciplined approach to allocating capital our balance sheet is stronger than ever.
Speaker Change: This provides the necessary foundation and flexibility.
Speaker Change: Continued business growth and resiliency, we look for opportunities to optimize our capital and debt stack and as we continue to generate capital. We will ensure appropriate returns are on that on our investments and maintain the balance sheet strength. We have worked so hard to build.
Speaker Change: Then over time, we will look to return excess capital to our shareholders and.
Speaker Change: In the last five years, we have made substantial progress enhancing our enterprise risk management practices, including capital planning as well as interest rate risk management.
Speaker Change: We will continue to strengthen and advance all aspects of risk management to ensure we are a prudent and well run financial services company.
Speaker Change: Finally, the successful integration and execution of our operational excellence efforts continue.
Speaker Change: We will look to accelerate continuous improvement and transform initiatives to deliver technology advancements.
Speaker Change: Groove customer satisfaction enterprise wide efficiency and value creation.
Speaker Change: In summary, our experienced leadership team remains focused on generating strong returns.
Speaker Change: Through prudent capital and risk management.
Speaker Change: This reflects our unwavering commitment to drive sustainable profitable growth.
Speaker Change: Build long term value for our shareholders and other stakeholders throughout dynamic economic and regulatory environments.
Speaker Change: We are proud of what we accomplished in 2024 and look forward to building on our momentum in 2025.
Speaker Change: Operator, we are now ready to open up the lines for questions.
Speaker Change: Certainly an honor.
Speaker Change: First question comes from the line of Sanjay <unk> from <unk>. Your question. Please.
Speaker Change: Thank you good morning.
Speaker Change: Terry I just wanted to talk about the path to your medium term targets I guess as we think about mitigation.
Speaker Change: And no leads deregulation I would think that that accelerates the path to this potential maybe you can just talk about how youre thinking about that give us a sense of some of the points that you made on NIM and how much mitigation is coming through over the next couple of years.
Speaker Change: Sure, Yes, I play and thanks, Andrew for the question.
Speaker Change: We're well on the path to achieving those medium term targets.
Speaker Change: Because some of the key things to look at is when you start to look at what happened in the fourth quarter, how we expect that the pull through in the first half of the year, we're still operating in a period of elevated losses right and so gross losses, you have that higher period of reversal of interest and fees from prior periods. So that was occurring and will continue.
Speaker Change: To occur into the first part of the year, when we're still north of 8% on gross losses, so that needs to come back down to that 6% level to really achieve those.
Speaker Change: Those targets and then you take into consideration that we did see marked improvement in delinquency. So the 50 basis point improvement linked quarter at 56 basis points year over year is starting to bend the curve and so in that period you are starting to have a lower build late fee. So youre kind of getting that double whammy in that transition period.
Speaker Change: Credit quality is improving you are getting billed.
Speaker Change: <unk> fees that is pulling back on your net interest margin a little bit by the same time, you still have elevated reversal of interest and fees from prior periods. When you had more of those built piece. So that's going to play through in that transitional period as you start to work towards that I'll call. It more normalized credit as that starts marching downward at the same time, we did.
Speaker Change: The 100 basis points of fed cuts and transient prime cuts that happened pretty rapidly in the fourth quarter us beings.
Speaker Change: Asset sensitive that's pulling through and impacted yield as the liabilities catch up in terms of repricing youll start to see NIM normalized as well and then to your point.
Speaker Change: The CFPB late fee mitigation actions that are in flight.
Speaker Change: When we put this out it was a year of building to get all of those apr's higher APR is translating into the interest income on those revolving balances. So we are moving closer to those medium term targets, but really it's going to be largely credit dependent feel very confident with the the way we are managing expenses to deliver.
Speaker Change: Positive operating leverage and a lot of that we macro dependent to the degree of which we deliver positive operating leverages as we talk about and we talk more about what those impacts are possibly economy, or but thats kind of the way I think about the glide path as we March through the back half of this year really be set up nicely to start to hit those medium term targets got it.
Ralph: And then just a follow up maybe Ralph.
Ralph: I'm just trying to think about how we see a reacceleration.
Ralph: NIM accretive loan growth I know, there's been some mixed impacts you guys are growing and co brand, which is definitely helping credit.
Ralph: But as I look ahead, how do we get loan growth to accelerate is it is it a function of credit.
Ralph: Are you guys tightening so that's having an impact as well or can we see some loosening that can drive that I mean, you talked a little bit about the spending trends specifically and then are there any portfolio acquisition opportunities. Thank you.
Ralph: Yes, if you think about.
Ralph: Let me ask that with.
Ralph: Fourth quarter shows a lot of green shoots we saw some pickup in specialty apparel TNA <unk> millennial and millennial spend in Gen. Z, we were really comfortable with that and if you think about what we executed in 2020 for those portfolios are going to mature as we move through 2025, and we do have a robust pipeline.
Ralph: If I look at year end, our loans, where our end of period loans were up in the period sales were up I was pretty encouraged by that I am cautiously optimistic as we move forward through 2025 that that sales will increase and then consequently loan growth will increase.
Ralph: Thank you.
Ralph: Thank you.
Speaker Change: And our next question comes from the line of Vincent and Kent.
Speaker Change: From <unk> your question please.
Speaker Change: Oh, sorry.
Good morning, Thanks for taking my questions first one is actually just a follow up on the NIM and mitigates rollout if you could maybe update us on the progress there and.
Speaker Change: With the.
Speaker Change: The new administration coming in and I think expectations now with the CBB going away Im just wondering how your conversations are going with maybe some of the the.
Speaker Change: The merchants, who have not yet signed up.
Speaker Change: That progress is and how much.
Speaker Change: More could we see in many cubes.
Speaker Change: Yes, so as it relates to the mitigation, we have taken a thoughtful approach with our brand partners in terms of how we phase. These and we said previously this was a phased in approach it wasn't going to be a big Bang, where all happen at some point last year. So there's still I will say like APR increase.
Speaker Change: This rolling out this year.
Speaker Change: We have 95% of the brand partners understand the contractual commitments of what's going to happen should the late fee will go into effect and Vincent to your point.
Speaker Change: I think the optimism just from the litigation that was in flight.
Vincent: In terms of hoping for a positive outcome, but we got to keep marching forward because the timing and the outcome of what's going to play forward and the court is still uncertain, but judge fitments early indication that late fee should be a deterrent gives us some encouragement that that would be.
Vincent: It goes so more broadly obviously I think the industry wide is feeling more optimistic.
Vincent: With the change of administration on the regulatory side, but there's other consequences that could be out there with policy changes and things that we just don't know, but as it rolls.
Vincent: Do think theres going to be some positivity in terms of what that means to.
Vincent: Net interest margin over time, and how that plays forward into 2026 as well, but there's still some pressures on this year with rate cuts.
Vincent: The compression that we will see from that improved delinquency lowers late fee. So you've got all these moving parts within that.
Vincent: Which is why we're guiding lower but we do expect NIM to be slightly higher this year than last year, largely because of the mitigation playing through.
Vincent: Okay, great. Thanks for that update and then.
Vincent: Maybe asking.
Just on the medium term guidance and I think so.
Vincent: Getting back.
Vincent: Investor Day, and all the great detail you gave there I think we are looking at.
Vincent: Kind of getting to a run rate 20%, 25%.
Vincent: ROE by the fourth quarter of 2025, and so I'm just wondering with NIM is coming up a bit.
Vincent: And then you have the losses, improving as well as credit reserves coming down. So it's nice to see the 30 basis point benefit just wondering if we're on track of that and what other pieces, maybe we need to to.
Vincent: Yeah to that medium term. Thank you.
Vincent: Yes, I think.
Vincent: It's what you said that right how does the fourth quarter credit performance come in where does reserve rate come down I would expect if things play out positively.
Vincent: In credit really continues to hold and even slightly improve as you March through the next 90 days that is going to be a good indication that.
Vincent: We'll finish the year with a lower reserve rate than where we finished this year and losses coming better obviously that then youre starting to drive those returns and that should set us up for 2026.
Vincent: Okay, great. Thanks very much.
Vincent: Yes.
Vincent: Thank you.
Speaker Change: And our next question comes from the line of Jeff Adelson from Morgan Stanley. Your question. Please.
Jeff Adelson: Hey, Barry Thanks for all the color on the moving pieces on the NIM I just wanted to make sure we understood. So for the first quarter should should we be expecting more of a.
Jeff Adelson: More pressure on the NIM or should that be more flat I mean, you talked about the seasonality of trans actors, which tends to benefit in the first quarter I just want to make sure you put a finer point on that.
Jeff Adelson: Yes.
Jeff Adelson: Thanks for your question, so again, the moving parts transact balances coming.
Jeff Adelson: <unk>.
Jeff Adelson: That helps to increase man, we've got the prime rate pull through for the full quarter that puts pressure on NIM you got some.
Jeff Adelson: <unk>.
Jeff Adelson: CFPB mitigation, so thats going to help so you got a couple of positives offset with one negative so I'd say, we should be seasonally slightly up.
Jeff Adelson: From fourth quarter going into first quarter.
Speaker Change: Okay. Thanks for that and then just just around the green shoots are spending there.
Jeff Adelson: Ed.
Jeff Adelson: How do we balance that against your expectation for consumers to kind of be cautiously moderating their spend here.
Jeff Adelson: You highlighted some of the key areas of growth Youre seeing is any of that coming from.
Jeff Adelson: Any account growth that youre, maybe leaning into at this point or.
Jeff Adelson: Can you just help us understand.
Jeff Adelson: What that looks like and then related to that like are there any sort of trends that you're noticing under the hood just an update on the state of the consumer whether it be by high versus low income or Franco.
Jeff Adelson: Yes so.
Jeff Adelson: When I think about spend I think more broadly about the economy right and then you figure out economy. There has clearly been signs of strength and stabilization, where unemployment's remained right around four 1% that outlook is to be consistent through next year based on what everybody is saying.
Jeff Adelson: We're seeing encouraging signs with.
Jeff Adelson: CPI dropping a three 2%, which is which is positive so our consumers I think pricing and same thing as the low end consumer is actually seeing some slight improvement.
Jeff Adelson: Maybe start creeping up the ladder to the prime plus or starting to feel a pressure were watching things carefully with min pay.
Jeff Adelson: We're starting to see stabilization and maybe some slight improvement on the lower end of who we underwrite when you're starting to see a little bit of an increase as you start to go up the ladder. So it's interesting to watch the two tails of the economy right. There at the low end of the tail will talk about the <unk> economy in the past, we've actually seen stabilization to improvement and that's a lot of where we live in.
Jeff Adelson: We serve those customers and so we.
What was breaking trend a little bit with the more broad.
Jeff Adelson: Industry on that because of the actions that we've taken in the past couple of years around underwriting as we think about almost call. It bottomed bottoming out in terms of our credit strategy and where we are at the vintages from here, we should start to see that continued improvement and the actions we've taken set us up for that again, we're just remaining cautious as it is.
Jeff Adelson: Relates to 2025 because of the unknowns right and one of the unknowns. As an example is when a customer is going to do with their tax refunds are they going to spend more or are they going to pay down debt or they're going to put the savings and just giving you a little factoid on this front.
Jeff Adelson: Some past actions in 2023% to 8% of the people use their tax refunds to pay down debt in 2024, 19% you saw a significant drop that was one of the lowest that we've seen in over a decade.
Jeff Adelson: This year. This this morning, something came out that said our survey, 37% plan to use it to pay down debt, so that would bode well for delinquency and creating more capacity. So there's a lot of moving parts here and then similarly, what it's going to happen with policies that could put upward pressure on inflation that would change how we think about things.
Jeff Adelson: We remained in our outlook very cautious on inflation not assuming things are going to continue to improve materially, but if things remain on track as they have I think you could see some upside there.
Okay, great. Thank you.
Jeff Adelson: Youre welcome.
Speaker Change: Thank you and our next question comes from the line of John <unk> from Evercore ISI. Your question. Please.
Good morning.
Speaker Change: On the on the linked quarter.
Speaker Change: Loan yield change I know the yield was down about 170 basis points linked quarter just to.
Speaker Change: Get a little more detail there how much of that was the impact the lagged impact of the fed cuts versus how much of that was the impact from the lower big ticket sales that you cited and then a potential impact from the shift away from private labels are a way to help us kind of size that up too.
Speaker Change: The magnitude of each.
Speaker Change: There's a lot of moving parts in there.
Speaker Change: I don't want to say its a third a third a third but.
Speaker Change: The.
Speaker Change: Thank you.
Speaker Change: <unk>.
Speaker Change: A large part of our portfolio. The vast majority is variable priced so that quick movement in prime means that the loan yields dropped almost instantaneously within 45 days of those.
Speaker Change: Prime rate reductions that pulls through and as we've talked about.
Speaker Change: The.
Speaker Change: Liabilities catch up over time, so that will happen over the coming quarters because of the Cds and other things then as we mentioned with the improvement delinquency. We saw lower build late fee. So you take that is the other piece that dragged down.
Speaker Change: The yield loan yield, but while not seeing material improvement in gross losses, which has that reversal of interest and fee. So it was a double whammy effect, you're kind of catching that that faster reduction in loan yield and liabilities are that will smooth out as we March through 2025, and then as the <unk>.
Speaker Change: <unk> interest and fees improve as low gross losses improve throughout the year, then you're going to start to get that NIM expansion again.
Speaker Change: Following normal seasonality.
Speaker Change: Right, Okay, alright, thanks for that and then.
Speaker Change: Just one more my second my follow up is kind of a two parter on the private label shift away towards co brand is that happening at about the pace you had expected or maybe at a faster clip than anticipated and then when you look at your expectation for.
Speaker Change: Flat average loans, but in the period slightly higher I was wondering if you could it seems a bit modest just given the backdrop that should be strengthening here. So is there anything impacting what are your expectation on balances here as you look at the year that you might be approaching it conservatively.
Speaker Change: Yes, I think what you just said there.
Speaker Change: Last point it is conservative right because we just don't know what the economy and policies are going to hold and what that means to consumer growth but.
Speaker Change: As we've talked about and we've been talking about the diversification of our portfolio and the continued move.
Speaker Change: Move to more co brand within the <unk> brand.
Speaker Change: I gave a lot of credit to our business development team and working with existing brand partners. Many used to have only a private label.
Speaker Change: Count or card, we're still abusing the store so a lot of the brand partners now have some co brand as well as private labels. So you can think about taking the top tiers of private label and now they're getting the co brand card and they get to know us aircard for more general purpose spend outside of the store. So that's given us a nice diversification of spend and thats, helping to create the shift.
Speaker Change: And then on top of that we're signing some new partners, who have just co brands. So that is just pure so it is a slow migration I wouldn't say, it's moving faster or slower.
Speaker Change: And then you would imagine as you are having this period of elevated losses your highest risk customers are the ones charging off and you are not filling them back in with the same type of product because we're still in a tighter credit environment. So youre not maybe not underwriting as deep into the private label base, So youre charging where those off replacing them with.
Speaker Change: A better credit quality and Thats part of whats happened with this natural migration right now I hope that answers your question.
Speaker Change: It does alright, thank you.
Speaker Change: Yes.
Speaker Change: Thank you and our next question comes from the line of Bill Kirk Patchy from Wolfe Research. Your question. Please.
Speaker Change: Hi, Good morning, Ralph in period following up on the comments you just made around the increase in co brand versus private label and Remixing towards higher credit quality customer that we're seeing.
Speaker Change: Is the return profile of the business and the risk adjusted yields you generally changing with less volatile, but potentially a bit lower yielding revenue stream.
Speaker Change: Any color that you can give on sort of how to think about the persistence of those trends and if this is something we should think about as structural.
Speaker Change: Yeah.
Speaker Change: And is that does that align with the expectations.
Speaker Change: With the guidance that you gave at Investor day.
Speaker Change: Yeah, what I'd say is that 100% of lines to the guidance. We gave at Investor day that was all contemplated in our long term targets now I would say im making this up completely but if there was something where we bought a $10 billion portfolio, which were not but if we were and it had a very different profile, Kate we would have to come back and revisit that but no.
Speaker Change: What we put out therefore, our growth targets and the business that we're in we again, we underwrite for profit, we're making sure we get paid for the capital.
Speaker Change: We are committed to those returns and something would have to move very large and chunky to really move us off those those targets.
Speaker Change: We expect to deliver the returns we're focused on operational excellence continue to manage our expense base and to deliver positive operating leverage as well as making sure that we get the right return for the risk we take.
Speaker Change: That's great as a follow up.
Speaker Change: Yes.
Speaker Change: If the loan growth outlook remains flat as you expect how should we think about your buyback capacity over the course of the year periods and then Ralph could you give some color.
Ralph: Color around the renewal process.
Ralph: And how do you think that potentially could change as a result of.
Ralph: Some of the mitigating actions that.
Ralph: It had been taken.
Ralph: Yes.
Ralph: So when you think about loan growth.
Ralph: Again.
Ralph: Really an excellent question right you'd have to care for you have to take care.
Ralph: Anticipated loan growth throughout the year and into 2026 first we have to hit our capital ratios right. So let's start with that we're not quite there yet we need to get there and then we'll have a better line of sight into pipeline consumer behavior and that will really dictate.
Ralph: Dictate.
Ralph: What type of capacity, there would be and if credit quality continues to improve or does it weekend all of those things factor into our discussions around capital planning and we'll give more insight on that as we march through the year.
Ralph: Yes.
Speaker Change: Good to talk to you.
Speaker Change: I'm really pleased with our renewal process and the results that we have if you think about where.
Speaker Change: Where we are I think we talked about earlier, we've got 85% of our portfolio is renewed through 2026.
Speaker Change: Nine out of our 10 biggest programs, let's call it almost to the end of the decade.
Speaker Change: Really really well we're proactive on renewals.
Speaker Change: Starting them well before their do and.
Speaker Change: Sidestepping, Rfps, which gets a little crazy out there.
Speaker Change: A little bit of compression, but nothing that is unexpected nothing that we haven't haven't kind of incorporated in our in our outlook.
Speaker Change: And the team does a terrific job and unlike years in the past, we don't give away our piece of the pie, we grow the pie and we both benefit from a positive renewal with new.
Speaker Change: New data new information new products, so I feel very.
Speaker Change: Very very positive about what we do on renewals.
Speaker Change: Okay.
Speaker Change: Great. Thank you for taking my questions.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Moshe Orenbuch.
Speaker Change: TD Cowen your question please.
Speaker Change: Great. Thanks.
Speaker Change: Ralph in your.
Speaker Change: The guide you talked about.
Speaker Change: Positive operating leverage in an environment of kind of low single digit revenue growth.
Speaker Change: Made some comments in your closing remarks about the operating efficiency I was wondering if you can expand on that because I think it's going to take on some increased importance.
Speaker Change: Yes.
Speaker Change: Last year, we put and we focus on operational excellence.
Speaker Change: And for us that means looking at everything we do.
Speaker Change: And doing it more effectively and more efficiently and we've had some really good success in 2024 that success rolls into 2025, we continue to look at everything we do from a process perspective from an automation perspective, using artificial intelligence to do things better faster and quicker and all of that results in reducing our cost to serve reducing.
Speaker Change: Our.
Speaker Change: Cost to acquire.
Speaker Change: All results are positive.
Speaker Change: Operating leverage will continue and will continue to invest in our tech modernization, which drive down our operating expenses will look at expanding mobile and web based accounts.
Speaker Change: Account account generation drives down our expenses and.
Speaker Change: We will continue to deploy the right efficiencies across the organization and I think operating leverage will be something we focus on every day.
Speaker Change: I'm confident that we'll have.
Speaker Change: As we said positive operating leverage in 2025, the level of positive operating leverage will depend on the macroeconomic environment.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Okay, maybe as a follow up.
Speaker Change: To an earlier question could you just talk a little bit specifically about the pricing impact on your expected margin for 2025 segments, perhaps how much by the end of 'twenty five you would've expected.
Speaker Change: The impact of late fees to have been.
Speaker Change: You are.
Speaker Change: Our pricing and yield.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: Okay.
Speaker Change: Yes so.
Speaker Change: We charter articulate as all the moving parts that we're going to see throughout the year.
Speaker Change: The.
Speaker Change: Headwinds as we said it was going to be NIM compression from the current.
Speaker Change: <unk> rate cuts as well as what may be a couple more throughout the year.
Speaker Change: We expect delinquency to hopefully continue to improve that would have lower fees, which means you'll have less loan yield from that.
Speaker Change: And then as you go through the year and start to hopefully have better credit losses, you'll get some offset with the lower reversal of interest and fees and then to your point it's the.
Speaker Change: I will then ask you that you saw.
Speaker Change: <unk> and risk mix shift going on which will also.
Speaker Change: Higher quality customer has a lower contractual APR. So those things combined would put pressure on them. Then you have the offset being the mitigation apr's and as we put out on the slide a while ago. It just takes years for the burn in of all the APR increases to.
Speaker Change: Come through I mean, if you were dealing with a like for like population.
Speaker Change: From two years ago, when you had more private label, who had the highest apr's. Yes, you may be see a bit more of an impact, but when youre doing a little bit of a tighter and youre operating at a tighter credit environment with say fewer new accounts were higher credit quality.
Speaker Change: The burn in of the new vintage at the higher APR is less impactful than what it would have been had we been mixed a lot more to private label as an example, so there's a lot of moving parts and we will continue to provide more refinements on guidance as we march through the year.
Speaker Change: Okay. Thank you.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of Mihir Bhatia from Bank of America. Your question. Please.
Mihir Bhatia: Good morning, and thank you for taking my questions.
Mihir Bhatia: I wanted to start by asking about capital returns.
Mihir Bhatia: Improved deal CET, one ratio <unk> been cleaning up your balance sheet, you talked about lowering the double leverage.
Mihir Bhatia: Or are we in that process what are your thoughts on capital returns you are heading into 2025, what should we expect.
Mihir Bhatia: <unk>.
Mihir Bhatia: Yes.
Look we've remained very consistent for the past I'll say three years around our capital deployment first and foremost we're going to fund responsible profitable growth and we've done that I know it may not always feel like it because we are operating in an environment, where you have had elevated losses, we've had tighter underwriting.
Mihir Bhatia: And unlike but that remains our first commitment and that is what we are doing and will continue throughout this year. We continue to invest in technology and digital capabilities. We're offsetting a lot of that is getting funded through that operational excellence.
Mihir Bhatia: Program, we have instituted we.
Mihir Bhatia: Still are not all the way home yet on our capital ratios. So we still need to hit those numbers.
Mihir Bhatia: We have a goal to build our total risk based capital to around 16% with it with CET one around 14%, obviously as we March through the year into next year, we hopefully can optimize our balance here a little bit by introducing some tier one and tier two.
Mihir Bhatia: And then when we look at what we've achieved we've achieved all that that frees US up then for how do we use our capital to deploy it back to shareholders in form of buybacks or whatever.
Speaker Change: Got it thanks, and then just wanted to talk about credit a little bit more.
Speaker Change: So like your 2025 guidance right, it's still about 200 bps above a little bit more than 200 bps above your long term target.
Speaker Change: So I'm just wondering the two part question but.
Speaker Change: Do you need to tighten underwriting slowed though to get to your long term target is your current underwriting posture sufficient to get there just from mix shifts.
Speaker Change: I guess, a little bit more time, passing an easing of inflation and macro pressures and then part B is do you have a timeline you can share on when you can get to your target range, just assuming a stable macro.
Speaker Change: Yes.
Speaker Change: So this is it.
Speaker Change: It is an excellent question, one that I really wish I had that crystal ball because this one this macro environment is very different than what most of us have experienced.
Speaker Change: During our decades of being in the credit card industry. This period of high inflation.
Speaker Change: Higher interest rates than the pace at which this has moved in the I'll say the slow steady improvement of inflation. It just takes time I feel very comfortable with the credit posture. We're in certainly not a time to loosen because like you mentioned, we're a couple of hundred basis points above.
Where we are I would tell you. The recent vintages are performing really well and back in line with what we want to see out of vintage performance. So that means as those come in and as the existing portfolio I'll say cleansers, a little bit as the riskiest customers kind of charge off.
Speaker Change: With the new vintages coming on we're bending that curve back down it's just the first part of the year.
Speaker Change: First quarter, we're going to have a of a loss rate that approaches. The peak we saw in the first quarter of last year of eight 5%.
Speaker Change: Hopefully then we can continue to improve from there, but it goes back to this being macro dependent on the pace at which this can improve structurally I feel very comfortable with the actions that our credit team has taken the new the new partners, we're putting on the new business. We're putting on is just now working its way through its just not going to happen fast because this is not in.
Speaker Change: Unemployment driven environment, that's causing the pressure and loss rates were usually that cleanses out much faster. This is because of the macro environment is just a slow steady.
Speaker Change: Improving so again with our delinquencies trends improving.
Speaker Change: We think that if that consistently holds at the sign that losses are going to come down and the pace of that improvement is what will drive how quick we get back down to the 6%, but structurally around credit underwriting the new business, we're putting on its setting us up to definitely get there.
Speaker Change: I'm not going to say at the end of the years, that's not likely but certainly as we March through next ending next year and beyond.
Speaker Change: Thank you for taking my questions.
Terry MA: Thank you and our next question comes from the line of Terry MA from Barclays. Your question. Please.
Terry MA: Hey, Thank you good morning, I appreciate all the color on NIM, but maybe just on revenue growth for the year.
Speaker Change: The guide of low single digits any color you can provide on kind.
Speaker Change: The cadence as we kind of step through the year since you have.
Speaker Change: The mitigates rolling in so we expect accelerating revenue growth and then maybe you exit the fourth quarter higher than the full year guide.
Speaker Change: Yes, I think what youre going to see is net interest margin is.
Speaker Change: Kind of walk through the pieces in the first quarter Youre going to have some seasonality in there. Some of this is going to be dependent on the timing of rate cuts throughout the year do they happen.
Speaker Change: The early part of the year or are they late part of its later, obviously then we won't see as much impact from that in terms of compression if.
Speaker Change: If delinquency continues to improve faster, okay that means we're going to be collecting less late fees.
Speaker Change: But that should set us up very nicely for the back part of the year with lower losses. So this business a lot of moving parts on this.
Speaker Change: And again, we do have the mitigation actions, we've got in flight from the potential CFPB late fee rule to help set us up and that's where we've guided to the full year net interest margin being a little bit higher than what it was last year.
Speaker Change: Got it Okay, and then maybe as a follow up to credit.
Speaker Change: We expect the historical relationship between delinquencies and charge offs to kind of hold or is there something else. There I seem to recall in prior quarters, you guys may have called out elevated roll rates.
Speaker Change: Yes, <unk>. So that is one of the key factors in terms of how delinquency will translate into losses.
Speaker Change: <unk>.
Speaker Change: That exact point, what we've been experiencing in some of the highest roll rates in history.
Speaker Change: So that's what we've been commenting that we need to see some of that improve and we are starting to see some slight improvement in all of the different buckets in terms of that roll rate improvement and if that actually starts to reverse back to I'll say historical norms that would so there should be an acceleration of losses now.
Speaker Change: That trend is very recent that we've seen a slight improvement, but really for the gift to get back to historical correlation between delinquency and losses, there needs to be more material improvement in the roll rates and that just hasnt manifest yet.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Dominick Gabriele from Compass point Your question. Please.
Speaker Change: Great. Thanks, good morning.
Speaker Change: You guys have talked about a mix shift to higher FICO scores, maybe just asking Bill's question earlier from a different a different way.
Speaker Change: How does this pressure your yields on a like for like basis, because youre talking about trimming. The portfolio I was just curious if this trimming is really around the edges or as things normalize.
Speaker Change: The portfolio mix.
Speaker Change: Average higher like 10% advantage scores like what kind of mix.
Speaker Change: Mix shifts towards higher FICO scores are you.
Speaker Change: Are you really thinking about and how does this affect the seasonality of the yields in the business.
Speaker Change: Follow up thanks, Yes, I would tell you is can be very gradual mix shifts we've cut out a lot of great New partners de Novo programs. It is going to blend in as credit improves you can underwrite I'll say, a little deeper, but basically I think the credit scores coming in it will be improve it's just a gradual improvement I don't.
Speaker Change: Youre going to see a tech user example, a 10% jump in.
Speaker Change: Vantage score improvement in terms of mix happened quickly could happen over time, we expect to continue to diversify our product set and continue to drive down losses, and if we did have a material mix shift you would expect our through the cycle guide of 6% to go lower than that and that would also mean, we could lower.
Speaker Change: Our capital targets I think there's a lot of these things will play together, but let's just go back to what we put out there in our Investor day targets, we are committed to hitting those returns.
Speaker Change: Alright, Okay, great and then.
Speaker Change: Your efficiency given the revenue growth has actually been pretty solid.
Speaker Change: When the company thanks.
Speaker Change: The company moves back towards perhaps a normal revenue growth rate can you talk about scale benefits to the efficiency ratio you have in your business model.
Speaker Change: Are you guys still focused on.
Speaker Change: <unk> discipline.
Speaker Change: I'm just kind of curious if the company if the management team is happy with the $50 to 51% efficiency ratio as a run rate today. Thanks.
Speaker Change: Operational excellence is all about efficiency ratio and doing things better and taking taken advantage of scale and becoming expense an elastic so.
Speaker Change: There is always room for improvement and we will we will continue to focus on expense management and continue to focus on scale opportunities.
Speaker Change: Okay.
Speaker Change: Great. Thanks.
Speaker Change: Yes.
Speaker Change: Thank you and our final question for today comes from the line of Reggie Smith from Jpmorgan. Your question. Please.
Reggie Smith: Yes. Thank you good morning.
Speaker Change: Can you guys disclose what your <unk>.
Reggie Smith: Right, Okay assumption.
Reggie Smith: And then I was curious.
Reggie Smith: I know that you had merchant partners have to approve any and.
Reggie Smith: APR increases, but have you guys talked about what.
Reggie Smith: A portion of your book has been repriced.
Speaker Change: Late fees.
Speaker Change: Obviously that takes a lot of bleed in and then on that note like how.
Speaker Change: What could those increases look like maybe frame that and then finally.
Speaker Change: When those increases are applied are they kind of uniform by merchant or do you actually look at the different credit tiers. So mechanically how does that how are they.
Speaker Change: Pushed out to the consumer and I have a follow up thank you.
Speaker Change: Great.
Speaker Change: Thanks for the question. So right now we've disclosed that we do have some fed cuts in there we've got to put in there for the year think about that as a mid and late year cut it's going to be fluid. Obviously, I think there's still different opinions on when that will occur.
Speaker Change: As it relates to.
Speaker Change: <unk>.
Speaker Change: The APR increases, it's really partner dependent it's really partner dependent in terms of how much private label that they have where are they on their risk profile right a higher credit quality portfolio requires less late fee dependent so the less impacted so that may look different a big ticket merchant looks different terms of wisdom promotional fees and other things so it <unk>.
Speaker Change: Does vary partner by partner and that's why I said, 95% of those partners have contractual understanding of what would occur should the late fee change go into effect. Many of those changes are phasing in in preparation for that and that's really the best we can give you, but it does as it burns in over the course of the.
Speaker Change: The year and into next year and thereafter, because of how the way APR increases play through.
Speaker Change: Got it so if I'm hearing this right 95, who have agreed to it Tom has allowed <unk> to go ahead and reprice, even in advance of a change.
Speaker Change: Is that the right way that I'm hearing that correctly.
Speaker Change: That's exactly the right way to think about it we're still phasing in changes.
Got it and then it sounded like at the.
Speaker Change: Merchant level, you're pricing these changes based on the mix, but do you consider individual.
Speaker Change: Personnel credit profile and performance as well or is it just a universal so merchant a like a 300 basis points increased slightly.
Speaker Change: Slice and dice within each.
Speaker Change: Yes, it varies based on.
Speaker Change: The credit profile of the cohorts again, whether more late fee dependent cohorts or not.
Speaker Change: Then that determines the degree to which the APR increases need to happen in order to ensure appropriate returns for that account for that cohort of customers.
Speaker Change: Okay Perfect and then last one from me wanted to hear your latest thinking on the Brad be NPL product.
Speaker Change: I've talked about it in a while just curious I know you guys tightened credit I'm not sure if thats whats been the issue with that business, but like.
Speaker Change: How are you thinking about that and how is the white label. The NPL resonating with merchants today, given all of the other options that are out there I thought that that would be something really compelling platform for merchants bank.
Speaker Change: Maybe it's not so any color there would be great. Thank you.
Speaker Change: Yes, I think I'll be NPL business will continue to grow.
Speaker Change: It's a regulatory compliant it's scalable we are adding new partners.
Speaker Change: Very consistently.
Speaker Change: We are managing it in a in a very efficient and effective way.
Speaker Change: The rationality has come back to pricing.
Speaker Change: And as as contracts.
Speaker Change: <unk> expire we are able to work with our partners and convinced them that we are.
Speaker Change: We expect this basket of.
Speaker Change: <unk> and <unk> is one of them and we can give them.
Speaker Change: Good pricing good optionality as we move forward.
Speaker Change: No.
Speaker Change: It's a business for us and we'll continue to manage it as such with that I want to thank you all for joining the call today and for your interest in Great financial and we look forward to speaking to you in the next quarter and everybody have a terrific day. Thank you.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
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Speaker Change: Okay.
Speaker Change: Okay.