Synchrony Financial

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. In 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, synchronyfinancial.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 in our SEC filings, which are available on our website. During the call, we will refer to non-GAAP financial measures in discussing the company's performance. You can find a reconciliation of these measures to GAAP financial measures in 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 of Synchrony. Building on our strong foundation, I believe Synchrony is exceptionally well positioned for this next chapter of our growth journey. There is strong momentum in the business driven by the ongoing implementation of our strategy and the unwavering 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 in the new programs that we launched last year. I am very optimistic and excited about the opportunities ahead, and I'm honored to lead Synchrony into the future. 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, an increase of $1.28 over last year. The resilience of our business has been evident as we navigated the pandemic. From 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, seamless digital solutions, we have demonstrated that our business is structured to execute even in 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. Importantly, purchase volume increased a strong 8% over last year, with a substantial increase in purchase volume per account of 18%. While we're seeing strong trends on purchase volume, loan receivables are down 7% to $76.9 billion, given elevated payment rates with the infusion of additional stimulus this quarter. Though 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 13.98% as further stimulus continued to elevate payment rates, which lowered our receivable mix and yield. The efficiency ratio was 36.1% for the quarter. We are on track with our strategic plans to reduce our expense base, removing $210 million of expenses by the end of the year. Credit continued to perform exceedingly well with net charge of 3.62% this quarter compared to 5.36% last year. As a result of our liquidity and funding strategy in response to the COVID-19 impact on our balance sheet, deposits were 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, as our direct deposit platform remains an important funding source. Our ability to service and provide digital tools to customers makes our bank attractive to depositors, and we will continue to build out additional capabilities. During the quarter, we returned $328 million in capital through share repurchases of $200 million and $128 million in 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 that it's critical to ensure that our partnerships are structured with strong alignment that benefits both parties. Having said that, as we previously announced, we will not renew our partnership with the gap as 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 proposed renewal terms. We have been on a journey to grow with partners who leverage our digital capabilities to help them drive sales and meet 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 capabilities are 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 digital assets as well as our strong data analytics capabilities to make the entire consumer experience more personalized and meaningful. We have continued to expand our digital penetration across the customer journey from apply to buy to servicing. Approximately 60% of our applications were done digitally during the first quarter and we grew 14% in mobile channel applications. In retail card, 50% of our sales occurred online and approximately 65% of payments were made digitally. The investments we are making in digital and data analytics continue to pay off. During the quarter, we renewed 10 programs, including American Eagle, Ashley Home Store, Citgo, and Phillips 66. We also added 10 new programs, including Prime Healthcare, Mercy Health, and Emory Healthcare, which furthers our penetration of health systems. We are also expanding the utility of our care credit card, our patient financing app is now available in the Epic App Orchard. This makes CareCredit available to hundreds of healthcare organizations using Epic's MyChart and enabling cardholders to use CareCredit to pay co-pays, deductibles, and medical expenses not covered by insurance. Not only does this technology integration provide a way to increase usage and acceptance of CareCredit, it also helps health services and hospital providers run efficient, financially healthy organizations by helping to improve revenue cycle management and reduce debt risk. We are excited by the prospects to support patients beyond elective care as we expand to offer payment options for non-elective medical expenses and routine care. 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 CareCredit to become a more comprehensive solution for consumer financing and payments in healthcare, 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 receivables and acceptance at approximately 250,000 enrolled provider health and wellness retail locations. The card is used by more than 8 million cardholders. We are in more than 80% of dental offices nationwide and over 40 healthcare specialties, 13 of which we entered into since 2018. We see big opportunity in health systems and hospitals and have rapidly expanded our reach by launching eight new programs in 2020, bringing our total to 13. With the growth in our pet vertical, we are now in over 85% of vet practices and have grown pets enforced by 174% since our acquisition of the Pets Best Insurance business two years ago. A big part of our success is the engagement we have with our cardholders. Our 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 our cardholders place on the card, we've 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 and for 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% in seven years. We have also increased the breadth of our business with an increase in provider locations of 41% in that time frame. and active accounts currently stand at 5.7 million, another double-digit increase in seven years. We 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 in dental, veterinary, and specialty industries. We are making investments to simplify the customer and provider experience and leveraging technology to support more consumer-driven self-service capabilities. We have ample room for growth with increased penetration among our existing partners and through innovation to make it increasingly easy to engage with our network. Just recently, we acquired Allegro Credit, which has both deepened our penetration in audiology and other industries while also enabling new products and capabilities. With the steady increase in out-of-pocket healthcare costs, and the popularity of high deductible health care plans, consumers are assuming more of the financial responsibility for their health care. This translates to a significant opportunity of more than $405 billion in out-of-pocket health expenditures in the U.S. But flexible and extended financing is 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 industries. and capitalizing on the evolving healthcare landscape that has increased focus on overall wellness. We have moved beyond elective care financing and now support patients by enabling them to pay for non-elective medical bills, planned procedures, and routine medical care as we expand into health systems and more healthcare specialties. This will be enhanced by ongoing integrations with practice management software and the recent news about CareCredit 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. Care credit is already accepted at more than 17,000 pharmacies nationwide, and we recently announced that we will become the issuer of the Walgreens co-branded credit card program in the U.S., the first such credit program in the retail health sector, and expect to launch the new program in the second half of 2021. 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 more than ever, Americans are invested in 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 vet practices with significant opportunity to provide new products, financing alternatives, and services. CareCredit supports a lifetime of care for pets, and with the acquisition of Pets Best Insurance, we currently offer a complimentary solution with veterinary care to support pet owners with simple, flexible financial options. We continue to integrate the Pets Best Insurance offering to capitalize on the payment and customer experience synergies. We're also looking for ways to expand into other pet agencies through products and services and retail. By 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 in 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. I share Brian's sentiment of appreciation on the unwavering commitment of our people. I want to thank all those involved in development, delivery, and administration of vaccines to help us emerge from this incredibly difficult period of time. I'll now provide an update on our first quarter results. The pandemic and resulting government stimulus actions have impacted several key areas of our business over the past year. However, our business mix has helped us to mitigate some impact from the pandemic, as certain areas have performed very well, including digital, home-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 reach a one-year high in March, unemployment continue to improve, and easing of some of the remaining local restrictions. This is evident in the increase in purchase volume per account, which is up 18% over last year. Average active accounts were down 8%. which marks a slowing in the rate of decline that remains impacted by the macroeconomic effects of the pandemic in 2020 and uneven recovery in the first quarter. We did originate over 5 million new accounts, an increase of 3% versus first quarter 2020, which is a positive sign and reflective of improved consumer sentiment. Loan receivables declined 7%, which was worse than our expectations. The driver was higher than expected elevation in 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% of the purchase volume in the first quarter and increased 6% from the prior year. On a loan receivable basis, they accounted for 23% of the portfolio and declined 10% from the prior year. Overall, we saw positive momentum in several of our growth metrics this quarter, so higher payment rates is impacting loan receivable growth. While we're still cautious about the state of the pandemic, with the recent rise in confirmed cases, we are encouraged by the progress made with the national rollout of the vaccine and lifting some of the remaining restrictions. We remain optimistic of the positive momentum and continuing improvement as we progress through 2021. RSA has increased $63 million, or 7% from last year, RSAs as a percentage of average receivables was 5.1% 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 an improved macroeconomic outlook combined with a decline in loan receivables. This, coupled with lower net charge-offs, resulted in a significant decrease in the provision for credit losses of $1.3 billion, or 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 in employee costs. Moving to our platform results on slide nine. Our sales platforms continue to be impacted in varying degrees due to the pandemic restrictions and elevated payment rates. Their trajectories have been different based on factors such as business and partner mix, digital concentration, provider access, and availability of hardline goods. We have seen broad-based momentum in purchase volume as consumers become increasingly confident as we begin to exit the pandemic. In retail card, loan 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 to the impact from the pandemic. We're excited with our renewal of 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 specialty in payment solutions continue to help offset some of the impact from pandemic shutdowns and higher payment rates. During the quarter, 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, all the result of the reduction in loan receivables. We did see positive momentum in purchase volume, which was up 3% over last year. Our focus on growing this platform resulted in several new programs being signed and renewing key partnerships, including Ashley Home Furniture during the quarter. We continue to drive organic growth through our partnerships and networks, managing over 3,900 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 CareCredits has seen the largest overall impact from the pandemic restrictions, improvement in this platform has continued into 2021 as providers have increased elective and planned services from the trough in the second quarter of last year. This improvement is evident in our purchase volume being flat to last year. Loan receivables were down 8% this quarter and drove a decrease in interest and fees on loans of 7% as we recorded lower late fees and merchant discounts. During the quarter, we continue to grow our care credit network and enhance the utility of our card. The expansion of our network and acceptance strategies helped us drive the reuse rate to 59% of purchase volume in the first quarter. This is a powerful growth platform for our business or remain excited about the opportunities to drive future growth as the impact of 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 payment rates we experienced pre-pandemic. The difference was as high as three and a half percentage points in March when the most recent stimulus plan was enacted. This has resulted in a reduction in loan receivables, which has had an impact on net interest income and net interest margin in the first quarter. Net interest income decreased 12% from last year, driven by lower finance charges and late fees. The net interest margin was 13.98% compared to last year's margin of 15.15%, largely driven by the impact of the pandemic on loan receivables and increasing liquidity and lower benchmark rates. Specifically, The loan receivables yield of 19.32% was down 135 basis points versus last year and was the primary driver of 117 basis point reduction in our net interest margin. The mix of loan receivables as a percent of total earning assets declined over three percentage points from 81.7% to 78.6% driven by the higher liquidity held during the quarter. This accounted for 61 basis points of the net interest margin decline. the liquidity yield declined as a result of lower benchmark rates and accounted for 23 basis points reduction in our net interest margin. These impacts were partially offset by a 93 basis point decrease in the total interest bearing liabilities cost to 1.57%, primarily due to lower benchmark rates. This provided a 78 basis point increase in our net interest margin. We continue to believe that in the second half of the year, Excess liquidity will begin to be deployed into asset growth, and slowing payroll rates should result in higher interest and fee yields, leading to increasing net interest margin. Next, I'll cover our key credit trends on slide 11. In terms of specific dynamics for the quarter, I'll start with the delinquency trends. Our 30-plus delinquency rate was 2.83% compared to 4.24% last year. Our 90-plus delinquency rate was 1.52% compared to 2.10% last year. Higher payment rates continue to drive delinquency improvements. Focusing on net charge-off trends, our net charge-off rate was 3.62% compared to 5.36% last year. Our reduction in net charge-off rate was primarily driven by the improving delinquency trends as customer payment behavior improved over the last several quarters. Our allowance for credit losses as a percent of loan receivables was 12.88%. 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 in expenses. Moving to slide 13. Given the reduction in our loan receivables and strength in our deposit platform, we continue to carry a higher level of liquidity. While we believe it's prudent to maintain a higher liquidity level during uncertain and volatile periods, we are actively managing our funding profile to mitigate excess liquidity where appropriate. As a result of this strategy, there is a shift in the mix of our funding during the quarter. Our deposits declined by $1.9 billion from last year. Our securitized and unsecured funding sources declined by $2.1 billion. This resulted in deposits being 81% of our funding compared to 79% last year, with securitized funding comprising 9% 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 of the transition rules issued by the joint federal banking agencies, which has two primary benefits. First, it delays the effect of the CECL transition adjustment for an incremental two years. And second, it allows for a portion of the current period provisioning to be deferred and amortized with the transition adjustment. With this framework, we ended the quarter at 17.4% CET1 under the CECL transition rules, 310 basis points above last year's level of 14.3%. The tier one capital ratio was 18.3% under the CECL transition rules compared to 15.2% last year. The total capital ratio increased 320 basis points to 19.7%. And the tier one capital plus reserves ratio on a fully phased in basis increased to 28.7% compared to 24.1% last year reflecting the increase in the reserves as a result of implementing CECL. During the quarter, we returned $328 million to shareholders, which included $200 million in share purchases and paid a common stock dividend of $0.22 per share. Given the continued uncertainty in the operating environment, I thought it would 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 do consumers' willingness to spend. We currently believe these trends will hold and purchase volume will continue to recover across our platforms. In the second quarter, we will be comparing against the period of widespread shutdowns. In 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. In the second half of 2021, we assume payment rates will moderate as the effects of the stimulus abates and we return to more normalized consumer payment behavior patterns. Combining this with the expected increase in purchase volume from an improving macroeconomic environment, this should contribute to loan receivable growth. For net interest margin, we expect the higher payment rates will continue to pressure loan receivables and generate excess liquidity, impacting interest and fee yield and asset mix. We continue to believe that excess liquidity will be reduced through asset growth and slowing payment rates in the second half of the year, which will drive improving interest and fee yields and asset mix leading to increasing net interest margin. With respect to credit, delinquencies are expected to increase from their current levels, though we now believe the peak will occur later than we anticipated, likely in early 2022. While current delinquencies will result in lower net charge-offs in the second quarter, we expect net charge-offs to rise resulting from the increases in delinquencies as we move through 2021. Given the magnitude of the stimulus that was deployed during the pandemic, we believe the overall loss curve will be flatter than we initially thought, but it remains volatile and difficult to forecast due to the effects of the stimulus, and industry forbearance has abated. We expect reserves to be largely driven by asset growth, impacts from any changes in credit, and in our macroeconomic assumptions, and certain combinations of these factors could result in further reserve releases this year. We expect RSAs to remain elevated into the second quarter, primarily reflecting strong program performance, including an improvement in net charge-offs, partially offset by lower revenue. In the second half of the year, we continue to expect lower RSAs generally, reflecting higher net charge-offs, partially offset by higher revenue. As we outlined previously, we've implemented cost reductions across the organization and I'm pleased to report that we are on a pace to achieve our expense savings target of $210 million for the whole year. Partially offsetting these cost reductions will be the expense increases for any growth, in addition to anticipated increase in bill and quit accounts. We will continue to closely monitor how the pandemic develops and its impact on the macroeconomic environment. At the Foundation, it is our belief that we position ourselves well for the opportunities that will develop as the economic recovery takes firm or holds. Further, we've made the investments to support our partners as they've been required to rapidly transform their businesses to meet the new digital realities. And we'll continue to make investments in 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. I'll now turn the call back over to Brian for his final thoughts.

Thanks, Brian. 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 impacts and has in many ways changed the way we do business. This quarter 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 in 10 months. Our business is showing its resilience as growth has accelerated with purchase volume of 8% and 5 million new accounts opened this quarter. And although these solid growth metrics were 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 expand our care credit network, delivering new products, financing alternatives, and experiences with a focus on overall wellness and pets. The bottom line is that we demonstrated that we were able to rapidly adapt to operate in a new environment while continuing to keep our eye on the long term, positioning ourselves well for the future. And in my opinion, we have never been in 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, please 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 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, please pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then 1 on your touchtone phone. And our first question comes from Moshe Orenbach with Credit Suisse.

Great, thanks. Brian, I was hoping that you could talk just a little bit about this return to normalcy with respect to things like late fees and how that's impacted the net interest margin and the timing, as well as perhaps the prepay speeds. What are the actual, besides the injections of stimulus, the ongoing effects, how should we think about the timeframe for both of those to get back to something approximating normal? Thanks.

Thanks, Moshe, and good morning. So, yeah, clearly we've seen the headwind relative to stimulus. We saw the cash flow really start back in mid-March around the 14th or so when stimulus 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 into the 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 field, if you went back and looked at our number of delinquent accounts, they're down over 30% from the 19 period, so pre-pandemic. So again, as you think about a rising net charge off or even just a return to normalcy when you think about the charge off environment, that late fee yield will come back into the book. and come in advance of when the charge-offs actually hit. So we would expect to see that yield begin to increase in the back half of the year. What I'd say, Moshe, is a lot of people focus on the margin of the business. We're at 14% today. We've kind of guided people to call it the 16% range in a normalized environment. If you break down the components of that for a second... You know, the first piece is really the excess liquidity, which I started with with the stimulus factors, right? So if you went back and looked at excess liquidity pre-pandemic, applied that to the book today, you'll probably pick up about 90 basis points in net interest margin from there. We previously talked about there's probably 25 or so basis points, 30 basis points in the benchmark rates, which, you know, we'll see how prime comes. And the residual amount, right, which is the the mainly late leafy yield and interest yield will come back into the book and that will rise. So I think you can see a trajectory where this begins to accelerate in the back half of the year and begins to approach normalcy for us as we move into 22. Great.

And as a follow-up, you mentioned the 5 million new accounts. I'm assuming that's still with you know, kind of sluggish retail openings. Could that number get better? And any update that you can give us on, you know, the Verizon and Venmo programs specifically? Thanks.

Yeah, Moshe, this is Brian Delos. I think we would certainly expect that number to continue to grow. You know, 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 a consumer, you look at, The trends on jobs, you know, unemployment back to 6%. I think consumer balance sheets are strong. They're starting to spend again. I think the fact that we saw 8% purchase volume growth and 11% in retail card is a really positive indicator. But that's not, you know, where it should be in a fully functioning open economy. And so I think there's still room across all the growth metrics to go further from here. We're still in the early innings in terms of a recovery, but you know, most of the trends that we're seeing are pretty positive. You know, the fact that we grew purchase volume per account up 18% is a really good indicator that consumers are spending again. And I do think that will turn into more revolving behavior over time. I mean, the effects of the stimulus, as Brian said, are going to wane over time. I think you're going to start to see that pretty soon. As confidence gets better, you tend to see consumers take on more debt and revolve a little bit more, which will help on balances and margins as well.

The other thing I'd add, Brian, is you think about the new account originations. We haven't 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 haven't done that acquisition. So that will also provide a tailwind as we move throughout the year in motion.

And in motion, just on Venmo and Verizon... A lot to be excited about on both of those programs. Venmo, it's still early, but we're ahead of our expectation in terms of new accounts and spend. The feedback from customers on the card has just been phenomenal. They love the ValProp and the fact that it automatically optimizes the rewards for the spending categories where you're spending the most. They love the card design, the QR code, so the feedback has just been terrific. And then Verizon, which is a little bit further along, I'd say, you know, we're seeing really good purchase volume. It's definitely behaving like a top-of-wallet card, which is what we wanted. So, you know, so far so good on both, and I continue to believe that both can be top-ten programs for us in the future. Thank you very much. Great.

Thanks, Moshe. Have a good day.

We have our next question from Sanjay Sakrani with KBW.

Thanks. Good morning. want to follow up on the comments on loan growth I guess when I think about your framework and an outlook 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 an offline recovery because it would seem like it would impact that loan growth more significantly than others yes good morning Sanjay yeah as we think about loan growth here

You know, we entered the quarter optimistic in the positioning. As we exit the quarter, we're 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. I think from a receivable 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 as I think about loan growth, I think you probably will see an inflection point here in the second quarter and acceleration into the back part of the year. So I do think you'll see positivity come through the portfolio. And again, we have the tailwinds that still exist in the CARE credit platform, right, as you have dental and plan services opening up and you still have the supply chain issues in in the payment solutions platform. So there's a lot of tailwinds that are in place besides what we've already seen. So again, 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 how the back half of the year looks.

Great. And just to follow up, Brian Doubles, maybe you could just talk a little bit more about the gap relationship loss and sort of how you see it affecting the industry as a whole with newer players coming in and possibly doing some aggressive pricing type stuff. How do you think that affects the 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, our capabilities. 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. where 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 was really only so far you could go to guarantee those types of payments on a program like that. So look, we tried to reach an agreement. At the end of the day, there just wasn't a way for us to get our interests 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 with very strong partners at attractive returns where our interests are aligned, and I think that is so important. We've talked about this for a number of years. We want programs where our interests are aligned and growing the program. We're doing that in a way that benefits both parties. So I still feel really good about the pipeline as I look across all three platforms. Thank you. Great. Thanks, Sanjay. Have a 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% CT1. If I look at this quarter, you're earned over a billion dollars. reserves are likely coming down. And even with the return of growth, you're likely to accrete quarter capital in the coming quarters, even using the existing $1.6 billion buyback. So I was wondering, maybe can you just talk about the strategy for getting CET1 back towards peer levels? And is there the potential for you to revisit your capital return as for the coming quarters? Thanks.

Yeah, thanks, Ryan. So, you know, obviously in the first quarter 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 went to the board and discussed with the board that authorization, that was in the December timeframe off the models. As we move through the quarter, clearly we have more information We've updated our scenarios. We submitted our capital plan to the Fed in March and look forward to their feedback later this quarter. So obviously, we'll see what the results of that come back, but we're optimistic with regard to their support for our capital plan. It's not lost on us that we have the excess capital, Ryan. In the second quarter, we'll again be subject to the limitations by the Fed, which will cap us out around $390 million. for the current quarter with regard to the amount of repurchases that we can do. I would make the presumption we will be, you know, depending upon market conditions, you know, 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 dealt anything with GAAP and if that portfolio conveys that we would potentially revisit that and go back to the Fed. if 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, clearly we want to get back to our long-term goal of being in line with peers, and we'll do that as prudently as possible. But obviously we want to do it with the support of all our constituents. There are not barriers to doing it. We just want to do it 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 sanity check to follow up to Moshe's question, 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 materially outpacing loan growth as we normalize? Thanks.

Yeah, I would probably think the more moving in sequence as of, you know, in the early part, you know, of this quarter. As you get to the back part of the year, when you start seeing the late fee yield come in, you may see the NII accelerate a little bit faster. But it really depends upon that delinquency formation, Ryan.

Got it. Thanks for taking my questions.

Thanks, Ryan. Thanks, Ryan. Have a good day.

Our next question is from Betsy Grosick 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 over the next cycle here? And part of the reason for the question is I'm trying to understand how you're 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 you know, mix shift. So just give us some color there would be helpful. Thanks.

Yeah, let me start with the latter part of your question. Clearly, you know, the excess liquidity we have, we believe, sustains us with the loan growth that we see coming to the portfolio, which, again, gets back to more normalized level back half of the year. We've talked about a potential acceleration into 2022 as there's 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 that 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, I mean, we talk about peer targets, so you think about the cap ones, the discovers down in that, you know, 11 to 12, you know, maybe 10.5 range. We'll see how the portfolio develops. We're We're optimistic we can get there in a reasonable period of time. I think if you go back, you know, we exited G with 18%. We made it down to 14 before the pandemic hit. And we think we can get back in a 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. We're $3.3 billion into it. So we think we can employ it fairly rapidly, you know, once we feel comfortable.

Okay, thanks, Brian. And then, Brian, you were talking at the beginning of the call about care credit, and maybe you could help us understand the impact of the Walgreens portfolio over time. I think you mentioned that you could see Verizon and Venmo getting a top 10 program. Maybe you could give us a sense as to how you're thinking about Walgreens. And then also, how should we think about care credit impact on RSAs? Is it similar to the way that the retail program is run, or is there any differences that we should be aware of? Thanks.

Yeah, sure, Betsy. I think, look, CareCredit, I think, is probably the most exciting growth opportunity that we've got in the company today, and we tried to lay that out for you in a couple of slides. I think, first, just going after a market of this size that's growing as fast as it is. You know, obviously, healthcare costs are rising. High deductible plans are increasing in popularity, so less and less is being covered by insurance, and that's really where CareCredit comes in. We're a big player in the space today, but financing options in 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. I think about the growth in really three components. One is growing the core. We're in care credits accepted in about 250,000 locations today. We're in 40 different specialties. We just entered into 10 new specialties just over the last two years. And we're in 80% of dental offices, 85% of vets. So we've got a lot of scale. But with that said, there's still a lot of room to grow penetration inside of those providers because third-party financing options is 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. That's a growing part of our business. We're paired up with big players like Kaiser Permanente, Cleveland Clinic. And then we talked about pets as really that third leg of the strategy. We're seeing just unbelievable growth in our pet insurance business that we bought a couple years ago, up 174% since we bought it. So just a lot to be excited about. And then you touched on Walgreens. You know, 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, this can be a top-ten program for us. And we're tapping into 90 million MyWalgreens customers. So the opportunity is just huge. And, you know, we're actively working to get that launched in the second half of the year.

Okay, and the RSA...

I was going to say, Betsy, the RSA will operate similar to how you see things operate in the retail car platform, so it would be a similar type of alignment. For Walgreens.

Got it. Would you ever go after the opportunity with individual doctor practices for their personal needs, or is this going to stay at the business level? Just wondering.

Yeah, no, in terms of financing the actual practice, Betsy.

Yeah, exactly.

Yeah, that's an adjacency we've looked at in the past. It's on the screen. We don't have any immediate plans to go there, but definitely something to consider in the future.

Okay, thank you.

Thanks, Betsy. Have a good day.

Our next question is from John Hecht with Jefferies.

Morning, guys. Thanks for taking my questions. How are you? I guess just going a little bit more, it's clear you did emphasize care credit, you know, in the prepared remarks. I'm wondering, you know, and you talked about the scale. Maybe can you give us an update? I think from a competitive positioning perspective, you're dramatically larger than the next largest. I mean, maybe talk about the competitive framework and just given the growth momentum there, you know, how much bigger as a percentage of, call it loans or receivables, might Care Credit be over the next few years?

Yeah, John, we're certainly probably the biggest player in this space that does what we do, but we have seen competition come and go into 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 in you know, 250,000 locations. So I would expect going forward to see outsized growth in CareCredit relative to the rest of the business. So I definitely think this becomes a bigger part of the business going forward. We're also increasing the level of investment that we're making in CareCredit. You know, we've invested quite a bit, obviously, over the last 10 years, but 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 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 ads recently, but clearly there's been some churn, as there always is in the portfolio. Is there any change in characteristics of where you're seeing some of the churn come from?

Yeah, John, I don't think we see anything different. Clearly, the opening up of more traditional retail, we see an influx there and a little bit through the door population, but there's no real fundamental shifts.

Okay. Thanks, guys, very much.

Thanks, John. Thanks, John. Have a good day.

And we have our next question from Don Fandetti with Wells Fargo.

Hi, good morning. Brian, obviously, there's been a big proliferation of fintech companies. And 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're watching closer? And I'd be curious on CareCredit, it seems like that could be susceptible to fintech players maybe more so than other areas, but I could be wrong on that. I just want to get your thoughts.

Yeah, no, look, I think you can't limit it 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 I think the team's doing a really good job at doing that. So I don't think that we feel it more acutely in one area than than another. I think, you know, what we tend to feel from fintechs is they tend to do one thing really well, and that's a luxury that they have. 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, look, competition's good at the end of the day. It makes us better. I don't feel like we're losing... I don't feel like we're losing share in any of our three platforms. We've still got a lot of opportunity for growth, but it's something we've got to stay all over. Our teams watch this. They're 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. I feel really good about our position competitively, but you can never let your guard down. You've got to stay all over this.

Yeah. not really touching credit underwriting standards. It seems like some of the peers have started to loosen up. Are you just being cautious or do you still need to see something to get comfortable?

No. So, Don, the way I would think about it is we have started to make refinements in our credit underwriting. If you remember when we started back in the pandemic, we did Tightening more on proactive type of credit extension, so we shifted the cutoff down on 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 2021, what we started to do in places where we actually have known customers, we've begun to unwind a lot of those credit refinements. So we are shifting the cutoff so more people will get a dual card, which would be a slightly higher line, but it most certainly stimulates some spending in the world. We have begun a number of credit line increase type programs, which are customers that we've known and seen credit behavior and payment behavior patterns. And then we've also begun to upgrade accounts from private level to dual card. that would have qualified for a 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 cutoff, things like that. 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, you know, 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 in our eyes. Got it. Thank you. Thanks, Dan. Have a good day.

Our next question is from Rick Shane with JPMorgan.

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, I know there's obviously T&E has a big pullback. 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. I think we're certainly well positioned to benefit from that. And then I think, frankly, the digital trends that we saw over the last year, while we're going to have some tough comps there coming up over the next few quarters, I feel like some of that shift was certainly permanent and will stay and will benefit there as well. So, you know, look, 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 the providers in CareCredit, is there is a real pent-up demand for pretty much everything. This pent-up desire to spend and get back to normal. We're talking to our providers in CareCredit, and they can't keep up with the appointments because so many people over the last year, they postponed things that weren't critical. They didn't want to go into the practices And now you're 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 travel and entertainment, dining, those things come back, I think that also spurs other types of spend that we'll see both on our dual cards but also in some of our adjacencies.

I think it's also, Brian, as you kind of pointed out, we're so broad-based when you think about inside retail cart which is up 11 percent in the first quarter. I mean think about the breadth of lifestyle slash specialty groups that are in there. Think about not only the American Eagles but the exporting goods. When you go to value-oriented retailers such as Sam's Club, etc., TJX that are in there, we have such a wide breadth of coverage with regard to where spend happens. It actually is a fairly nice tailwind as we come out of this period.

Got it. That's very helpful. And, Brian, 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 borrow?

A higher percentage of borrow? Is that what you said, Rick?

Yeah. 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 through CareCredit, there would be more revolve.

Yeah, no, certainly we would expect to see that in CareCredit with some of the bigger ticket purchases. We tend to see really good revolve rates there. And I do think it does depend a little bit on the size of the ticket. I mean, if somebody's getting braces for their kids, that's a big ticket item. They typically don't want to tie up their general purpose card utility with that purchase, and that's where CareCredit comes in. And that can be done on an equal pay installment loan. It can be done on a promotional financing product, and we tend to see really good revolve rates there as well. Great. Thank you guys very much. Yep. Thanks, Rick. Thanks, Rick. Have a good day.

And we have our next question from Mahir 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 you're currently thinking about just buy now, pay later. And I'm thinking more in terms of the pay in four type program versus some of the larger ticket things like in payment solutions where you basically have a buy now, pay later solution. I'm thinking more just the smaller ticket paying for it. How are you thinking about it? Is that something you're considering? Should we be expecting you to be in the market with something like that? Any time frames that you can share there?

Yeah, look, I can tell you it's definitely going to be a product that we offer. We're going to have something in market with a couple partners later this year. You know, just to take a step back more broadly, our strategy is really to provide a full suite of products. you know, we have such a diverse array of partners that we really can't have a one-size-fits-all strategy. We've got to be able to offer revolving products, short-dated installment, longer-term installment, equal pay products, buy now, pay later products. And we want to do that in 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, you know, bigger ticket items tend to steer more towards a longer term installment. That can be on a revolving product or closed end. And then smaller ticket, it tends to be shorter term, either through a product like set pay or a pay in four 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 to select from that menu in terms of what meets their customer needs based on the products that they're selling and their strategy.

Okay. And any timelines or anything more? I guess I'll move on from that. I just wanted to clarify, in terms of just your comments on loan balances, I just wanted to make sure I understood that right. Do you think loan balances have troughed or are pretty close to troughing at this point? I guess what I'm asking is do you see more pressure from payment rates into Q or 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 would be great too. Thank you.

Yeah, thanks, Mehran. So I think as you think about the beginning part of April, we continue to see elevated payment rates from historical average that has tended to trail down a little bit. We expect that to burn off during this quarter. So with regard to a loan receivable trough, my expectation would be that we are going to trough here. Most certainly we have seen very strong sales in the first 20 or so days of April. So our hope would be that we trough here in the second quarter and begin begin that acceleration up.

Understood. Thank you. Thank you. Have a good day. You too.

We have our next question from David Scharf with JMP Securities.

Good morning and thanks for squeezing me in here. Brian, I just had one follow-up on CareCredit. Most questions have been addressed. Can you just provide a little more maybe granularity or specificity around just how the payment product is marketed, awareness is created for the transition to more kind of non-elective you know, procedures. I'm just, you know, I've seen care credit displays at vets, you know, at the countertops of vets and other elective outlets, but I'm trying to understand how, as a member myself, you know, of a large healthcare system, how I would even become aware of this as a payment option, how it's going to be marketed to me.

Yeah, a lot of it is, you know, again, we built this business over decades, and a lot of it is awareness at the point of sale. So when you're sitting in the waiting room for a vet appointment or a dental appointment, you see the promotional financing offer, you see care credit. We actually talk about it in 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. What we're trying to do is move up funnel a bit so that at the time that you're booking your appointment, because a lot of that is now happening online, you're actually getting, you're seeing the promotional financing offer so that that becomes kind of part of how you're thinking about your treatment. So it's not, you know, once you actually get to your appointment, that you become aware of it, you can actually go through the whole process well in advance of your appointment and think about how you're going to pay for whether it's braces or whatever your treatment is going to be. And we found that to be really successful. So 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 through direct marketing and other channels.

You know, I see, and I believe you may have mentioned my chart at one point. I mean, once again, just reflecting on particularly over the pandemic.

Yeah, getting integrated into the practice management software system is huge for us. That is a really important aspect of the growth strategy here. And, you know, for health systems, our integration with Epic, inside of the dentists and the vets, their practice management software, regardless of what they use, we want to be completely integrated there so that it becomes part of the process for the office manager that's working there. And, you know, you can imagine with 250,000 providers, we have a wide range of, you know, big providers, small providers, and keeping care credit top of mind as a, as a payment option is really critical to the future growth of that business.

Got it. And just one last follow-up, more program-specific on Venmo. I know you had mentioned it's still very early stages, and I think you had commented it's, you know, I'm honestly kind of exceeding kind of expectations at this time. Can you give us a little color, though, on, you know, perhaps what percentage – of the Venmo user base is initially being targeted. It's obviously a very younger skewing demographic. I got to believe a lot of Venmo users have very thin credit files. Just trying to get a sense for how we should think about the opportunity there in terms of the mix of current users.

Yeah, I mean, 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 a huge opportunity for us. Again, no doubt this is going to be a top ten program, and, you know, the early returns in terms of what we're seeing on spend and accounts is, is ahead of what we thought it would be. And we had, you know, we were pretty aspirational in terms of our expectations. So very positive, even though it's only been in full launch mode for a couple months.

The 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, you know, where Venmo may know a customer for a period of time, watch the payment velocity. see how long they've been affiliated. They can pass us that information. So it actually helps us, even though they may have a ThinkCredit or Bureau, the richness of the data that they have with PayPal and Venmo 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 it, I just want to go back to the total business, and I really appreciate all the color on care credit, but if we think about the CET1 and where that can go versus the general purpose players, I think historically there's been a buffer between private label and general purpose CET1s. So do you expect that spread to close, and have you had conversations with the regulators of them feeling comfortable with that closure? And then I just have a follow-up. Thanks so much.

Yeah, thanks, Dominic. You know, I don't think we've had a conversation with regard to the product private label versus general purpose. I think they look at the loss scenarios that we run, right, the stress scenarios that we run. We are having a very unique feature in the RSAs which provide a buffer against some of the outlays. So I think when you look at the output of those, you know, we don't really view it differently than some of our competitors when you think about a Capital One for argument's sake with regard to how their 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, you know, demonstrating to them the resiliency of this business and this customer because of the point of origination. we actually get stronger yields and risk-adjusted returns off it. Again, when you combine that with the RSA buffer, it provides particular strength when it comes to having a lower capital ratio. Those are the conversations we're having with them.

Makes a lot of sense. I would argue you should be below the general purpose players to some extent because of all those factors on a risk-adjusted basis. And then 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 some of the tailwinds of the overall economy but when we think of GAAP when we think about all the various factors of 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 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 the retail card there? Thanks so much. I really appreciate being on the call. Thank you.

Thanks, Dominic. So I think the way to think about efficiency is when we went through last year, we we underwent a strategic outlook that said if I look out to 2025, think about the mix of business I'm going to have, think about trying to be a top ROA profile company, and I look at the revenue characteristics, the lost content characteristics, the RSA characteristics, what does my expense and efficiency ratio have to be in order to be a top-tier ROA and ahead of all of our peers to really generate that 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's delivering over $210 million of benefit this year from a cost-out perspective. I think the greater pressure on the efficiency ratio in the short term, to be honest with you, is the revenue headwind that we have with the net interest margin and NII being a little bit impacted or being impacted by stimulus and the really terrific credit and late fee impact that comes from that. That's a little bit ahead. I do think you're going to see this. This business model, right, we were built off a foundation of running expenses at a very manageable level given the loan balance size. I think as you see CareCred and these other businesses grow, you should be able to get operating leverage because they run on higher average balances if you think about the bigger ticket size associated with those accounts. And then 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 an industry probably best or very attractive cost to acquire customers, which really puts us at a competitive advantage versus our peers. So we will tightly manage the efficiency. And while we're doing this, we're going to continue to invest in the future, 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 it's a combination of investing and really having a business model and set of partners where we can leverage it and generate that operating efficiency as we probably grow above average with peers and have a higher return than average with peers is how I would think about it, Dominic.

All right, great. Thanks so much. I really appreciate it. Great. Have a good day. Thanks.

And thank you. Ladies and gentlemen, this concludes our question and answer session. Our call is now concluded, and we thank you for your participation. You may now disconnect.