Welcome to the Synchrony Financial First Quarter 2020 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 Mr.

Greg Ketron, Director of Investor Relations. Greg, you may begin..

Thanks, operator. Good morning, everyone, and welcome to our quarterly earnings conference call. Thanks for joining us. 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 risks 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 webcast are located on our website.

On the call this morning are Margaret Keane, Brian Wenzel, and Brian Doubles. I will now turn the call over to Margaret..

Thanks Greg. Good morning, everyone. Today, our country and the world are facing an unprecedented global pandemic.

I want to start by first thanking all of those working around the clock, especially our healthcare professionals and first responders on the frontlines, as well as those behind the scenes, including our dedicated employees who are working to serve our customers and partners.

While all of us have been impacted in different ways and we may suffer from sadness and loss, I am also encouraged and inspired by the resolve of our society to come together in this crisis. I've seen much goodness, selfless acts, and community support. It's certainly one of the things I hope continues long after this is done.

I also commit to our employees, our partners, our customers, and our community, we will continue to do all we can to support you. This global health crisis is challenging us as individuals and as leaders. It is also challenging companies to execute in an extraordinarily difficult environment.

And one more word of thanks here to the leaders in Synchrony, who have stepped up in so many extraordinary ways through this incredibly difficult time. Thank you.

Our company was founded in the 1930s as we began financing refrigerators in the Great Depression, and Synchrony has faced many other difficult periods, most recently, the great financial crisis in 2009.

This is a combination of our heritage, strong culture, and our talented associates that will enable us to use our strengths to navigate these uncertain times, protect our employees, and continue to deliver for our cardholders, retailers, merchants, and providers.

Later in the call, I will provide greater detail in our response to the COVID-19 outbreak. But first, let me share with you our results for the first quarter. First quarter earnings were $286 million or $0.45 per diluted share. This included an increase in provision for credit losses as a result of the CECL implementation in January.

The increase attributable to CECL was $101 million or $76 million after-tax, which reduced EPS by $0.13. We generated solid growth in several key areas during the quarter.

On a core basis which excludes Walmart and Yamaha portfolio, loan receivables grew 4%, which drove a 5% increase in interest and fees, purchase volume increased 6%, and average active accounts increased 4%. The efficiency ratio was 32.7% for the quarter. We grew deposits over $500 million or 1% over last year.

And although we slowed the growth of deposits given the excess liquidity from the Walmart portfolio sales, we did continue to grow lower cost direct deposits at 3% rate over the prior-year. Our direct deposit platform remains an important funding source for our growth.

And we continue to invest in our bank to help attract new deposits and retain existing customers. We extended and added partnership, we renewed several key relationships, and we added to our growing care credit network. We continue to be excited and are working closely with Verizon and Venmo to launch these new programs during 2020.

While the ultimate launch date for the programs will be dependent on how the current environment develops, we anticipate a mid-year launch for Verizon and a launch in the second half for Venmo.

We continue to remain highly focused on digital innovation, accelerating our data analytics capabilities and creating frictionless customer experiences, which are key to the success of our programs and winning new relationships. Driving digital self-penetration is key to our success.

In Retail Card, digital sales penetration was 41% in the first quarter, and digital applications were 56% of our total application. The mobile channel alone grew 34% compared to the same quarter last year, excluding Walmart.

During the quarter, we repurchased 1 billion of Synchrony common stock and paid $135 million or $0.22 per share in common stock dividends. We are pleased with the strength of our business. However, we did experience a significant reduction in purchase volumes from COVID-19 in the second half of March which Brian will cover later in the call.

The ultimate impact from this crisis is very difficult to quantify right now, with the duration and magnitude still largely unknown. However, we believe, we have an advantageous position to navigate through this uncertain time.

Our portfolio is well-positioned from a credit perspective given changes we have made since the great financial crisis in addition to some of the more surgical modifications we've made in recent years. Further, our RSAs has historically proven to be an effective buffer during times of stress.

We have a partner centric business model, and are more nimble than ever, giving us the ability to rapidly implement changes and enhancements. We have also built a robust data lake that gives us access to information across the business at an unprecedented level.

Combine that with our analytics capabilities, and we have another powerful tool to help our partners manage through this period.

The digital capabilities we've built, which has help us win important digital partner are another crucial tool, empowering our partners across the business to manage through this time by helping them to shift volume to online and mobile channel.

Now I would like to spend some time focusing on the action Synchrony has taken for employees, partners, and communities.

We have taken these actions in the spirit of assisting the communities in which we live and operate to assist in stemming the global health crisis, while still meeting the needs of our cardholders, retailers, merchants and providers.

Each action we have taken has been with empathy and consideration for each constituency and we will continue to act as this crisis evolve. Our employees are the strengths of our company. We moved quickly and decisively to put actions in place that support the health, wellness, and safety of our colleagues across the globe.

We are implementing a plan for 100% work from home structure. In U.S., employees from across our company from support functions, to our frontline contact center associates are all working from home. This has allowed us to stabilize our operation and service our customers, while keeping our employees safe.

We are assisting our associates by covering the cost of Copays for virtual doctor visits for any employee who wishes to consult a medical professional, and enhancing our benefit to include expanded backup emergency care benefits, so that our colleagues have the childcare or elder care support needed.

We are also providing financial planning and employee assistance along with wellness programs. For our contact center associates, we provided a one-time special bonus to thank them for their essential role they are playing in assisting our customers every single day without missing a bead.

In addition, we are setting up an emergency fund to help our associates deal with unexpected financial challenges which may impact them during this period. For consumers that are experiencing financial hardship, we have the ability to assist these cardholders during this extremely difficult period.

We will waive fees and interest charges, while we can extend promotional financing period. We will also waive minimum payments on existing balances for certain qualifying accounts. For those seeking the ability to expand our line to necessary purchases, we will evaluate credit limits if they meet our credit criteria.

Many of our partners have been with us for decades and we have been there to help them grow their businesses. We are now here to help them protect it. We have taken an aggressive approach to ensure we continue to provide our partners and their customers with dependable service and products that they can use during this time of disruption.

Our investments in making all of our digital assets fast and easy-to-use are helping them to serve their customers and our relationship managers are actively helping them and there has been no disruption to their availability to our partners.

Our agile structure is helping to foster real time solutions and our dedicated teams are tirelessly working to support our partners and their customers. The communities where we live and work are such a core part of the fabric of Synchrony's culture.

That's why we have committed $5 million to help local and national organizations assist those areas of the country most affected by COVID-19. We will be supporting groups like Feeding America and Meals on Wheels in the U.S., as well as organizations in Puerto Rico, India, and the Philippines.

Also, our employees have contributed numerous hours to Synchrony's GearUp initiative.

Employees have engaged in our communities to assist in making certain protective sizes such as a face shield using 3D printing, as well as selling gowns and masks through our network of cardholders who are actively engaged in the sewing community where we have a number of partners who sell sewing machines.

We have also leveraged our CareCredit network and Synchrony is serving as a location in our communities where people can donate PPE items, and we are engaging in the transfer of items of need to various medical facilities. We are facing an extraordinary and unprecedented time.

But Synchrony has the strength, the resources, and the resolve to fight this global health crisis for our employees, partners, customers, and communities.

Having been in business for nearly a century, we have navigated various times of economic uncertainty by maintaining our focus on supporting our associates, partners, and their customers, while also continuing to invest in our businesses for the long-term. I am proud of what actions we have taken for our constituents.

And I have confidence that through the strength of our business model and balance sheet, we will continue to navigate this crisis successfully, while maintaining our focus on the significant opportunities in our business, our long-term objectives, and strategic initiatives.

With that, I'll turn the call over to Brian Wenzel to review some of the key business trends we are seeing, the financial performance for the quarter, and views on the framework to help consider the impact of COVID-19 on our key outlook drivers..

Thanks, Margaret, and good morning, everyone. First, let me echo Margaret's thanks for everyone who's working to keep our community safe and secure from our healthcare workers, first responders, to those in grocery stores or working on vaccines. The selflessness and dedication of these workers is a lot inspiring and deeply appreciated.

In addition, I want to thank our employees around the world who are all adjusting to new ways of working to continue to serve our partners and customers. Thank you. Now turning to our financial results for the first quarter. I'll start in Slide 4 of the presentation.

Before I move into the first quarter results, I want to cover some of the early trends we're seeing from the impact of COVID-19 from purchase volume perspective, as well as key aspects of our business that are important to highlight given the current environment we are now facing.

Slide 4 shows year-over-year purchase volume growth for the total company, as well as for world sales from our Dual and Co-Branded cards for January, February, and March. March is split between the first half of the month and then the second half where the impact related to COVID-19 increased significantly.

Purchase volume growth was strong through mid-March with double-digit growth for both total company and world sales volumes. In the second half of March as mandates increased at the federal and state levels, travel, entertainment and event activity were significantly curtailed and a high number of the non-essential retail stores closed.

As a result, purchase volume for both the total company and world sales declined significantly decreasing by 26% and 27% respectively in the second half of March. The trends are continuing into April.

Looking at the year-over-year growth rates of world sales by category, during the pre-travel restriction period, defined as the month of January, and then the growth post-travel restriction periods through the end of the first quarter, we experienced changes in spend categories, similar to overall industry trends.

Grocery, discount drugstore spend increased significantly post-January, while restaurant, entertainment, gas, and specialty travel declined significantly during the same period. While restaurants entertainment, gas, and travel were significantly impacted, only 27% of 2019 world sales incurred in these categories.

Obviously, these are trends that will impact our purchase volume and loan receivable growth going forward. The ultimate impact is still uncertain given the duration and the magnitude of this pandemic is still largely unknown at this point.

Moving to Slide 5, we highlight the higher quality asset base today versus our 2008 asset base going into the great financial crisis. This is a direct result of our strategy to improve asset quality through disciplined underwriting and advance we've made in our underwriting processes that have been very effective in managing overall credit quality.

I'd like to highlight various aspects of our credit management program. First, we have a very experienced credit team and we're very disciplined in our approach to underwriting. Second, we control all underwriting and credit decisions in our programs and across our sales platforms.

Our credit strategies are tailored to the partner industry in which we operate as unique by channel for origination and account management. As shown on the left side of the page, using FICO as comparative measure 73% of the portfolio have the FICO score above 660 compared to 61% in 2008.

More importantly, in the higher loss generating FICO range of 600 or lower, we've reduced our exposure to 9% of the portfolio compared to 19% in 2008.

This is a significant improvement in portfolio quality; we shifted 12% of the portfolio from balances at or below 660 FICO to above 660 FICO with a 4% increase in balances with FICOs that are 721 or higher.

As we exited the great financial crisis, we made the strategic decision to improve the credit quality of our portfolio and this is reflected in the quality of our new account origination mix since 2010.

Over 80% of accounts we have originated since 2010 have FICOs above 660, with 45% of the accounts having FICO of 721 or higher, less than 1% of what we originated had FICOs that were 600 or lower. We're also using advanced underwriting techniques in managing the portfolio.

Some example of this are for account acquisition, we are utilizing up to 16 different data sources and more than 4,000 attributes to validate creditworthiness and to authenticate customer identity.

We are employing a multi algorithmic approach to target specific outcomes, credit, fraud, synthetic IDs, and other malicious behavior, as well as leveraging clients designated to use customer engagement with our partners to assign more effective credit lines.

For account management, we're continuing to utilize internal and credit bureau triggers to dynamically reevaluate the customers' creditworthiness to manage credit exposure, as well as leveraging the latest technology to passively authenticate customers and more selectively target high risk behavior.

This is evident in the approved purchase volume mix from the time we deployed these underwriting techniques in 2016.

The chart on the right hand side of the page shows the improvement in the purchase volume mix from first quarter 2016, which shows 65% of the purchase volume mix being at 721 plus FICO for the first quarter compared to 61% in the first quarter of 2016.

Finally, it should be now that our portfolio is well diversified by industry and we've been growing payment solutions in CareCredit portfolios at a faster rate than Retail Card and we don't have any significant geographic concentrations.

In summary, we have substantially improved the asset quality of our portfolio compared to the portfolio we had during the great financial crisis. We have developed better tools and capabilities and can deploy underwriting changes more quickly and with greater efficacy than ever before.

Slide 6 shows you a longer-term view on how we perform from a loss perspective, dating back to the great financial crisis when loss rate for card issuers peaked in 2009. The general perception is that private label credit cards will perform slightly worse than general purpose cards in periods of higher credit losses.

But you can see in the top chart that our credit performance was relatively in line with general purpose card issuers in the 10% to 11% loss range in 2009 on a managed basis. One of the keys to the loss experience being similar is that the severity of loss is lower for us due to the average balance being generally lower than general purpose cards.

For the first quarter, the average balance per active account was $1,171 which is flat to last year. If you look at this on a risk adjusted yield basis, we outperformed the general purpose card peers by a wide margin through the crisis, with a risk adjusted yield running over 700 basis points higher than the peer group.

As we move beyond the cycle, and losses have declined, our risk adjusted yield outperformance compared to general purpose card issuers has remained over 600 basis points post-crisis. RSAs also provide a buffer.

This was evident in 2009 and again beginning 2016 through 2018 as credit costs increase as shown in the chart in the lower right hand corner of Slide 6. While the driver of the countercyclical nature of RSAs are credit related, other factors also impact the RSAs such as program revenue, expenses, and mix.

In 2009, RSAs as a percentage of average receivables declined to 1.6%, 64% below the more normalized RSA average of 4.43% for 2013 through 2016.

The strong risk adjusted yield and countercyclical nature of RSAs were important elements in our ability to remain profitable through the great financial crisis as both highlight the earnings resiliency of our business model. The company generated around a 1% return on assets at the height of the crisis in 2009.

Given the items I've highlighted earlier, while we're not expecting the level of charge-offs resulting from the current situation to be similar to the great financial crisis, we felt it was important to give you some historical context on the key elements that sets our business apart from others in the industry.

Moving to the first quarter financial results on Slide 7. This morning, we reported first quarter earnings of $286 million or $0.45 per diluted share. This included an increase in the provision for credit losses, as a result of the implementation of CECL in January. The increase was $101 million or $76 million after-tax which reduced EPS by $0.13.

We generated solid year-over-year growth in several areas as noted on Slide 8. On a core basis, which excludes the Walmart and Yamaha portfolios, loan receivables were up 4% and interest and fees on loan receivables were up 5% driven by growth in receivables.

On a core basis purchase volume was 6% and average active accounts increased 4% over last year. On Slide 8, we have included Dual and Co-Branded card purchase volumes and loan receivable balances to provide the level of diversification we have to these products.

Dual and Co-Branded cards account for 38% of the total purchase volume in the first quarter and grew 8% over prior-year. They accounted for 24% of the total loan receivables portfolio and grew 6% over the prior-year. Overall, we're pleased with the underlying growth we generate across the business.

As I noted earlier the impact of COVID-19 accelerated as we move through the quarter with most of the impact occurring late in the quarter. We are expecting a more substantial impact this quarter, but given the duration and the magnitude is still largely unknown at this point, it's difficult to provide a more precise forecast of the impact.

RSAs decreased $20 million or 3% from last year. RSAs as a percentage of average receivables were 4.4% for the quarter at the lower end of the range we expected in the first quarter, due to higher credit loss reserve builds. The provision for credit losses increased $818 million, or 95% from last year.

The increase was primarily driven by the Walmart credit loss reserve reduction last year that totaled $522 million. The higher reserve build in the first quarter partially offset by lower net charge-offs accounted for the remaining increase.

The reserve build in the first quarter was $552 million and largely due to the projected impact of COVID-19 related losses. Other income increased $5 million. Other expense was down $41 million, or 4% due to cost reductions from Walmart, partially offset by higher operational losses and expenses related to the COVID-19 response.

So overall, the company continued to generate solid results in the first quarter outside of the impacts from COVID-19. I will take a moment to highlight our platform results on Slide 9.

In Retail Card core loan receivable growth was 3% with solid growth driven primarily by our digital partners; other metrics were down driven by the sale of the Walmart portfolio.

Payment Solutions delivered a strong quarter with broad-based growth across the sales platform and strength in home furnishings and home specialty that resulted in core loan receivable growth of 7%. Interest and fees on loan increased 3% primarily driven by loan receivable growth. Purchase volume and average active accounts increased 2%.

We signed a number of new partners and renewed key partnerships this quarter. We continue to drive growth organically through our partnerships with card networks.

These networks, along with other initiatives, such as driving higher card reuse, which now stands at approximately 30% of purchase volume excluding oil and gas that helps us to drive solid results. CareCredit also delivered another strong quarter; receivable growth of 7% was led by our dental and veterinary specialties.

Interest and fees on loans increased 9% primarily driven by the loan receivable growth. Purchase volume was up 2% and our average active accounts increased 5%. We continue to expand our network and the utility of our card as we've added over 2,000 new provider locations to our network during the quarter.

Network expansion has helped to drive the reuse rate to 56% purchase volume in the first quarter. We did start to see the effects of COVID-19 on the platform results as the quarter progressed. In Retail Card, while store closing impacted results, we also saw strong growth in digital purchase volume that helped offset some of the COVID-19 impact.

In Payment Solutions while store closings have a less pronounced impact, promotional offerings and the growth in areas such as home specialty help mitigate some of this impact. For CareCredit, we continue to see good performance in areas such as veterinary partially offset by reductions in elective procedures.

We do expect the effects will carry into the next quarter, and be more pronounced as many of the store closings occurred during the latter part of March. I'll move to Slide 10 and cover our net interest income and margin trends.

Net interest income decreased 8% from last year, primarily driven by a 7% decrease in interest and fees on loan receivables due to the sale of the Walmart portfolio. On a core basis interest and fees on loans increased 5%. The net interest margin was 15.15% compared to last year's margin of 16.08%.

The main factors driving the margin performance were a decline in loan receivables mix as a percent of total earning assets. The mix declined from 84.4% to 81.7% driven by the higher liquidity during the quarter that mainly resulted from the proceeds of the Walmart portfolio sale in October of last year.

A 47 basis point decrease in loan receivables yield to 20.67% primarily driven by the sale of the Walmart portfolio, partially offset by a 14 basis point decrease in total interest bearing liabilities cost of 2.50% primarily driven by lower benchmark rates. Next, I'll cover our key credit trends on Slide 11.

In terms of specific dynamics in the quarter, I'll start with the delinquency trends. The 30-plus delinquency rate was 4.24% compared to 4.92% last year and the 90-plus delinquency rate was 2.10% compared to 2.51% last year.

If you exclude the impact of the Walmart portfolio, the 30-plus delinquency rate was down approximately 15 basis points, and the 90-plus delinquency rate was down approximately five basis points compared to last year. Focusing on net charge-off trends. The net charge-off rate was 5.36% compared to 6.06% last year.

The reduction in net charge-off rate was primarily driven by Walmart and improving credit trends. Excluding the impact of the Walmart portfolio, net charge-off rate was approximately 15 basis points lower than last year. This was better than expectation of around 50 basis point increase in the fourth quarter net charge-off rate of 5.15%.

The allowance for credit losses as a percent of loan receivables was 11.13% post-seasonal implementation, which included a $3.02 billion day one transition adjustment. Excluding the effect of CECL, the allowance under the ALLL method would have been 7.34%.

The reserve build in the first quarter was $552 million under CECL and $451 million under the ALLL method. The overall reserve provisioning was higher than expected due to the impact of COVID-19 which accounted for most of the reserve build in the first quarter.

In summary, the first quarter credit trends were slightly better than our expectations excluding the COVID-19 impact. We expect credit trends will be impacted by this as we move forward.

The extent of the impact is difficult to assess at this point, given the uncertainty around the duration and the magnitude of the pandemic, as well as the potential effects from the CARES Act and our efforts to providing relief to cardholders impacted by COVID-19. Moving to Slide 12, I'll cover expenses for the quarter.

Overall expenses came in at $1 billion down $41 million or 4% from last year. The decline was driven by cost reductions from Walmart. This was partially offset by higher expenses attributable to operational losses and certain expenditures related to our response to COVID-19. The efficiency ratio for the quarter was 32.7% versus 31% last year.

Excluding the impact from operational losses, and the COVID-19 expenses, the efficiency ratio was flat compared to the prior-year. Moving to Slide 13, over the last year, we've grown our deposits over $500 million, or 1%. This puts deposits at 79% of refunding compared to 75% last year.

While we slowed the overall deposit growth in the first quarter, given the excess liquidity for the Walmart portfolio sale in the fourth quarter of last year, we did continue to grow our lower cost direct deposits at a slightly higher 3% pace over the prior year.

Total liquidity including undrawn credit facilities was $24.8 billion which equates over 25% of our total assets. This is up from 22% last year.

Before I provide detail on our capital and liquidity position, it should be noted that we're electing to take the benefit of the transition rules issued by the joint federal banking agencies in March, which had two primary benefits.

First, it delays the effects of the transition adjustment for an incremental two years; and second, allows a portion of the current period provisioning under CECL to be deferred and amortized with the transition adjustment. With this framework, we ended the first quarter at 14.3% CET-1 under the CECL transition rules.

They're the same levels last year. Tier-1 capital ratio is 15.2% under the CECL transition rules, compared to 14.5% last year reflecting the preferred stock issuance last November. The total capital ratio increased 70 basis points as well to 16.5% also reflecting the preferred issuance.

And the Tier-1 capital ratio plus reserves ratio on a fully faith-in basis increased to 24.1%, a 280 basis point increase over the prior-year, reflecting the increase in reserves as a result of implementing CECL and the preferred stock issuance. During the quarter, we continue to execute on the capital plan we announced last May.

We paid a common stock dividend of $0.22 per share and repurchased $1 billion or 33.6 million shares of common stock during the first quarter. At the end of the first quarter, we had 366 million of remaining share repurchase capacity of the $4 billion authorized plan for the current capital plan cycle.

Given the current economic uncertainty, and being as prudent as possible, we've made the decision to halt further share purchases under this plan so we had greater visibility of the depth and magnitude of the current environment. Overall, we continue to execute on the strategy we outlined previously.

We're committed to maintaining a very strong balance sheet with diversified funding sources, and operating with strong capital and liquidity levels. In closing, we normally provide updates to our outlook.

Given the number of uncertainties that exists regarding the severity and the duration of the COVID-19 pandemic, and the countering impact of actions such as the CARES Act, payment assistance for our customers, government and regulatory actions that may have is very difficult to assess the ultimate impact at this time.

As a result, our expectations have changed versus the outlook we provided in January, and that guidance should no longer be relied upon. Since the duration and magnitude of the current environment is uncertain, we can't provide any ranges around the key outlook drivers for 2020.

But I want to provide a framework to help consider the impacts on our key outlook drivers. Regarding loan receivable growth, COVID-19 has significant impact on the purchase volume particularly late in the first quarter.

We anticipate continued deterioration of purchase volumes on a year-over-year basis until the situation improves, presumably later this year. What may help mitigate some of this impact is growth in digital. And we're well-positioned for this through our digital partners, as well as leveraging our expertise to help other partners and providers.

The overall net deterioration in purchase volume will ultimately impact our receivable growth rate.

When considering net interest margin, we will be impacted by the reduction in prime rates resulting from the Fed rate cuts, a reduction in investment income from our liquidity portfolio, as well as a potential impact of forbearance in terms of interest in fee waivers for a temporary period of time.

Partially offsetting the margin compression is the expected higher interest income generated from an increase in the number of accounts of revolver in the loan receivable portfolio and lower interest expense as benchmark rates are lower. While it should be noted we also share the impact of revenues and funding costs to the RSA.

Regarding RSAs in addition to sharing the net interest income impacts, we'll also see a more pronounced impact from higher credit costs as we move through the year. Also as noted in January, the impact of CECL on RSAs will be more fully realized in the second half of the year.

While we expect an increase in net charge-off rate as the year progresses, it should be noted that the overall portfolio quality and credit trends as we entered this pandemic are strong and the tools and capabilities that we have are more advanced in the great financial crisis, which were highlighted earlier in the call.

Finally, we also believe higher recoveries will ultimately materialize partially mitigating the impact of higher losses. Similar to revenue, we also share the impact of higher credit costs for the RSA.

While we expect the reserve builds to be higher than original expectations, until we gain more visibility into the duration and severity of the current pandemic, we cannot provide more specific guidance. Once we have greater visibility, we'll be in a better position to define the expected charge-off and reserve build expectations going forward.

Regarding the efficiency ratio, activity levels will impact revenue and expense levels. And we look to mitigate some of this impact through expense reduction opportunities. We will continue to assess the situation and provide guidance when we have greater visibility into the effects of the current environment.

Fundamentally, the business remains strong and is resilient, and we go into this situation with a strong balance sheet, capital, and liquidity position. With that, I'll turn the call back over to Margaret..

Thanks, Brian. I'll provide a quick wrap up and then we'll open the call to Q&A. We continue to believe that the strength in our business model and the resiliency of our associates will help us navigate this global health crisis.

We are focused on continuing to execute for our retailers, merchants, and providers and support our cardholders with empathy during this difficult period.

We are focused on execution today, but also focused on continuing to make strategic investments in our business, to build on our strengths to deliver the products and services, our customers will expect beyond this period. Thank you for participating on the call today.

And I want to wish you and your families all the very best as we continue to deal with this very typical situation. I'll now turn the call back to Greg to open up the Q&A..

That concludes our comments on 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 the question-and-answer session. [Operator Instructions]. Our first question comes from John Hecht with Jefferies..

Good morning guys and thanks very much for the comments in the call..

Good morning, John..

Good morning..

I'm just wondering, Brian, you guys cited your volumes and sales down about 25%, 26% in the second half of March. Just trying to think about your modeling for the near-term quarters.

Is that the type of contraction seen thus far through April and how do we think about the kind of what you've seen thus far in April?.

Yes, thanks, John. Good morning. From the back half of March, which was down again about 26% it accelerated slightly. So we're running in the range of down 30% to 35% pretty consistently for the first part of April.

Again, when you think about the world spend categories we highlighted in the earnings chart, they're very similar with regard to being down in travel, gas and entertainment and a little stronger in grocery, drugstore, et cetera.

But again, that's just on the Dual card, but the strength of the digital assets, we do have some retailers that are deemed essential that are open and clearly the digital and e-commerce is continue to drive it. So it's pretty steady in that, that low 30% decline year-over-year..

Okay, great. Thanks, that's very helpful.

And second question just kind of think about the context of this versus the Great Recession where I guess what in your economic models that have driven your -- the allowance levels, what level kind of unemployment are you contemplating at this point in time or how do we think about the economic -- the economic assumptions relative to the 2009 period?.

Sure John. So let me kind of go through how we think about or how we thought about this quarter in building the ACL reserve. As you know the economic assumptions vary pretty widely across many of the institutions that provide -- that -- we don't come up with our own assumptions, we use external assumptions.

So given the variation that we saw across many, many institutions, we modeled several different scenarios and looked at several different scenarios in how they would perform relative to our book and then we settled in on a set of assumptions from one -- one place that really looked at a unemployment rate approaching 10% for the second quarter as kind of the peak and then a second half recovery where unemployment was down to around 7%.

And then a very kind of more gradual decline in 2021 and gets back to probably about a 4.5% unemployment as you think about it in 2022. With that, bankruptcy is rising about 50% and staying elevated for the next couple of years, was also very key assumption in that.

And then a significant contraction in GDP for the second quarter again with the second half recovery but obviously being down for the full-year. So that's kind of how we thought about it.

Now, when you take that and go back to the great financial crisis, very, very different set of scenarios where you had a consumer that was stressed, you had unemployment lag, you do not have the timing and the amount of the stimulus coming through to the consumer. So it's pretty -- it's a pretty different scenario to try to compare back to it.

And then if you really go back and look at the portfolio, John, the portfolio is fundamentally different. Obviously, Walmart's gone, the amount of assets that we have above 660 shifted significantly. The amount we've invested in our advanced underwriting the tools and technology is very, very different. So, we feel comfortable.

As we kind of sit here today that the portfolio is in very good credit quality up until mid-March, we actually saw credit quality improving or continuing to improve year-over-year which was positive to us. So the consumer came in a great stead.

We have this kind of economic situation really coming out of the pandemic, and then we have a ton of stimulus loan through, so, very, very different from our perspective..

We have our next question from Moshe Orenbuch with Crédit Suisse..

Great.

I was hoping that you could kind of just give a little bit of little more kind of detail around the -- what you would like to achieve with the deferments and how it's going to work like, any kind of granularity about what people are asking for, what are you giving and what do you see as the percentage of the portfolio that's likely to be in that bucket in some future point, say, end of the second quarter?.

Sure, good morning, Moshe. So let me break down the forbearance that we're providing to our customers. So the first thing that we're doing is if a customer calls in and has been impacted, if they're asking for a waiver of a late fee or interest charges, we are waiving those. For qualifying counts, we also will waive the min payment.

So if actually defer the min payment on the account for up to three months and kind of hold them in their due stage if you're current, bring that back if you're too due to current. So really give them the opportunity to kind of get their situation a little bit more in a word.

We're also in the promotional book are extending for periods up to 90 days, the deferral of the expiration of the promo. So those are the primary forms of relief that we're providing to those people. So if you look at how many people have taken advantage of that for us, it's about 800,000 accounts to-date, and about $1.6 billion in balances.

So if you think about it, a small percentage yet has taken advantage of the program. And we have not seen tremendous amount of people needing that that min pay deferral at this point. But again, we'll continue to offer that to help our cardholders through this time..

Got it. Thanks for that.

And maybe just can you talk a little bit either Brian, you or Margaret, about just the discussions you're having with your retail partners now and what it is, they're asking from you and what are you asking from them?.

Yes, so I'd say right out of the gate, probably the biggest thing was really stabilization of the operation. Obviously, one of the things we worked hard to do, which was pretty miraculous actually was to get our employees all work from home including our call center. So we're pretty close to 100% work at home right now.

So from a servicing level, we're meeting and making sure we're exceeding the service levels for our customers. And I think that was really important. We kind of have a mixed bag here because we have retailers who are opening and servicing customers, we have very big online partners who are servicing their customers.

And then we have retailers who have actually closed. So I would say all our teams are highly focused on both our retail partners and our providers having the relationship managers connecting with them.

Obviously they're -- they want to make sure that we're reacting in the right way for their end consumer and doing the right things both from a forbearance perspective, but also from a credit perspective. And we're in daily dialogues with them.

I would say, we feel pretty good about where we are we got a pretty nice note from one of our partners who was really thrilled to see how we've been able to service our customers through this. So highly engaged, we're not sitting back. We're having those conversations and making sure that we have clear dialogue all along the way..

We have our next question from Don Fandetti with Wells Fargo..

Hi, good morning. Brian, I was wondering if you could talk a little bit you'd mentioned the unemployment assumption you have is around 10%. I assume that's higher in April. Can you sort of flush that out? And I feel like your allowance at around 11%, I would assume that needs to go higher.

Can you talk about the reserve build, let's say in Q2 versus Q1 that would be helpful. Thank you..

Yes, thank you, Don. So if you think about it, really under the CECL methodology and ACL, we obviously use a set of assumptions at the point in time, which we make the estimate for the reserve. As we stepped into April again, there's a pretty wide disparity among people with regard to peak unemployment that will happen in the second quarter.

But again, a lot of it, one of the most important parts is what is the recovery period look like? And from that peak, as you move down how quickly does it move down and how does it move down? So, most certainly the development of the retail landscape, the development of how the consumer in the stimulus bridges people through this period of time is going to be critical.

If you kind of follow through and say yes, there is a deterioration in the assumptions on the unemployment peak in that recovery period and the effects of the stimulus then that there would be higher reserve posts coming in the second quarter, but we're only 20 days into the quarter at this point, Don.

So I really can't give you with clarity, the exact reserve posts, we would see. We need to see how those assumptions really develop here in the second quarter as we move through and again that recovery period and the effects of the stimulus are really important attributes..

And we have our next question from Ryan Cary with Bank of America..

Good morning. I hope you're all well and thank you for taking my question. Given all the moving pieces, could you provide a little more insight on how you're seeing the pace of charge-offs ramping.

Well I understand the turning the magnitude itself is hard to predict, with the forbearance plans and government support programs all else equal, is it fair to assume net charge-offs will be pushed out further than they would otherwise? And how you think about potential impact, assuming unemployment is elevated for a couple of quarters versus a couple of months?.

Yes, good morning, Ryan, and thank you for your wishes. So as we think about it today, obviously the forbearance which isn't, hasn't been that much for us could delay potential net charge-offs. Again, I think the stimulus package will help bridge some consumers here for a period of time.

We would begin to expect that you would see charge-offs really begin to elevate in the latter part of the third quarter, probably the fourth quarter and into 2021.

Again, the magnitude of that we think we've covered in our ACL reserve here at the end of the first quarter, but the timing that is really going to depend again on this peak and how the recovery begins to come out as we develop here in the second quarter to be honest with you..

Okay. And I was hoping you could spend some time on the discussions you're having with retailers around signing new programs or renewing partnerships. I know you called out a couple during the quarter.

But how does the current environment impact the prospect pipeline? And can you discuss the impact of the pace of new business deals both in 2020 and beyond?.

Yes, believe it or not, there are deals in the pipeline. And we are having conversations and we are sitting on deals, I would say things, conversations, maybe have slowed a little bit, just as people have been trying to deal with all the challenges facing but we feel pretty good about the pipeline that's there.

We've been able to be -- I think and going to be very discriminatory on the things we do look at to make sure they fit where we want to go with the business. But I would say in all three platforms, we've had good activity and I think continue to have that good activity. We'll have to see as the rest of the year progresses.

But right now, we do have a decent pipeline..

Yes, what I would add, Ryan, to that, as we think about these relations, Margaret really, really highlighted when you target them, when we go to think about the economics with them.

Clearly, we will always price through a deterioration economic plan, whenever you think about a seven year deal or a 10-year deal, we, as an enterprise, think about through the cycle. Clearly as we would look at this scenario, the cycle is at the beginning of that potential relationship and the depth of it.

So we are probably a little bit more conservative and really will do that deal only if it meets a -- what we view as a risk adjusted return that we think is conservative at this point..

We have our next question from Betsy Graseck with Morgan Stanley..

Two questions.

First on the RSA, I think Brian you mentioned in the prepared remarks that the RSA impact will related to CECL day two would be coming in the back half of the year maybe could you give us some of the puts and takes there and degree of magnitude that you're looking for?.

Yes, thank you, and good morning. So, as you think about it, world's kind of changed from January a little bit. First, I just want to make sure that that we have a perspective on the reserve provision for the quarter and the difference between CECL and ALLL.

If you think about the total reserve build for the quarter being $551 million, $515 million, I’m sorry $511 million of that is really related to COVID-19 and $40 million.

So less than our expectations as we entered the quarter kind of came from the core book, which really reflected the higher credit quality that we experienced in the vast majority of the quarter. As you think about it, the whole $551 million is CECL. So we highlighted if we did ALLL, the $451 million, if we did CECL it's $551 million.

But as you think about the $551 million that ultimately is what's going to pass-through to the extent that is subject to the RSA will pass-through to the RSA. So we would expect, what I would say a sequential dollar -- lowering dollars of the RSA as we step through the year and it obviously as a percent of ALR.

So you will see that that in the second quarter and then really more into the second half of the year..

Okay.

And so that is the reason it's moving into the second half of the function of the revenue recognition on the part of your retailer clients, I'm assuming?.

No, Betsy, it's -- as we implemented CECL and through the RSAs again, we did not change the economic. Sharing is just really the mechanics of how it passed from us through the RSA. And that just had a slight lag to it. So, there is no difference.

If you think about through the RSA in 2020, whether it's CECL or ALLL the reserve itself just comes on a slight lag. So you'll begin to feel that more in the second half.

And it's more than just the mechanics of how it works through the program agreements with our retail partners, then their revenue recognition or some other type of change to the economics, just was more mechanics on it -- on how it works in the program agreement. But again, we expect the sequential benefit as we move throughout the year..

Right, got it. And then just the follow-up question, Margaret, for you is given the changes that we've had here over the last couple of months.

How are you thinking about opportunities to either expand your functionality or what you can deliver to your retail partners or your CareCredit partners? I'm just wondering if there is opportunities for picking up technology or other types of systems or functionality that could enhance your offerings?.

Yes, I'd say two things. One, even before the pandemic, we were starting to get a little bit of opportunities out there that were starting to perk our interests. We've kept those warm. I think right now you got to really wait to see how valuations play out. So we're not going to jump into anything too quickly.

But there are things that are out there, but that are certainly of interest to us. On the second piece, I think the other thing that we've done is we have actually, we looked our strategic initiatives for 2020 and have realigned our teams a little bit to focus and accelerate some of the digital things that we were working on or planning to do.

We've stopped some things that we think we can hold off till 2021. And took those agile teams and are putting them against more digital capability for the company. And I think that's going to help us as we come out of -- or go through this and we give our partners and the end consumers more digital capability.

Obviously, we're certainly winning on the digital side in terms of our online penetration and our volume coming through there. So we know this is a really critical thing. So even not only the opportunities externally, but I think we have and have already started the teams and kicked it off and driving it forward.

I don't know Brian Doubles, if you would add anything there..

Yes, the only thing maybe I would add as, Margaret said, we did move very quickly. And we actually went through every strategic project in the business. And there were things that were obvious things that our partners were asking us to accelerate for them to help them get through this difficult time. So we redeployed agile in there.

And then there were some things that, we did around special promotions for some of our partners that still have stores open and are still very active online. And then, as Margaret said, some things that we paused were just things that in this environment didn't make sense.

So we had some card reissues, Dual card upgrade, things like that, that we repositioned or delayed and moved to the kind of the back half of the year when things become a little more stable..

Our next question is from David Scharf with JMP Securities..

Hi, good morning, and thanks for taking my question and thanks for providing as much color as I guess recently can be expected, given all the circumstances. Hey I wanted to follow-up just quickly on the previous question on forbearance, the relatively modest number of accounts and balances you highlighted.

Just curious have most people been through a billing cycle, I mean in the sense that you get a sense that they're aware of what potential relief is available to them, just trying to get a sense for how we should think about the number of accounts and balances that ultimately maybe a month from now take advantage of these policies?.

Yes, great. Thanks for the question. So we have used our assets or digital assets, social media channels, et cetera to get out to our cardholders the benefits that are available for them if they've been impacted by COVID-19. So we have this outreach program. Well, certainly we are still taking a large number of calls to our call center.

So we are talking to the consumers about we not they needed, part of it when you think about the dollar is different than some of our other peers. Our average balance is much smaller than theirs given the percentage of private label. But again even our retail Duel cards are more low and growth strategy.

So again 2% of the balances we think it's pretty reasonable. But everyone has been through a billing cycle. And again, I think part of it is as they go through this, we put this plan in place in I think on March 11.

We will begin to see the effects, I mean, obviously, certain people have had continued to work for a period of time or maybe on a furlough plan, but they may be just starting to realize that they need assistance and we will continue to provide that assistance as we move forward, so that number will grow.

But again, we're using our assets to make sure that customers who do need forbearance, we're helping them..

Got it, got it. And just a follow-up on the retail partner side and I appreciate the color on purchase volume trends in April to-date. Ignoring for the moment, the fact that digital is somewhat of a mitigating factor.

I'm wondering just within Retail Card and within well, actually all three product segments are you able to provide sort of a percentage of the number of partners that are physically closed obviously, you've benefited from having exposure to discount clubs, home improvement places that are staying open deemed to be essential services.

Just trying to get little bit of a --?.

Yes, we've been monitoring that but I would say most on the Retail Card side, while they may be actually closed, they all have some digital presence.

So that's a little bit of what we're seeing, it gets a little more complicated on the Payment Solutions side, where we have over close to 200,000 merchants to really know which one of them are actually closed slowly or doing some online. Obviously, there are certain things that I think or some of our partners don't have online capability.

And then obviously in CareCredit, really what we're seeing there is two things, emergency dental is still happening. Emergency that's still happening. Believe it or not, we've seen a little spike for all of you who have young kids out there we've seen a little spike in orthopedics.

So people are hurting themselves in their home and on their bikes and things like that. So it's a little hard to give you a number. I would say what we're trying to do is wherever there is a digital capability; we're very focused with those partners to make sure we're delivering.

But and it also varies by region as you know, we have some states that are still open where the stores are open. So little hard to give you a percentage or a number because it's such a mix..

And thank you. Our next question is from Vincent Caintic with Stephens..

Hey, thanks. Good morning and thanks so much for taking my question. Just two quick ones. So understanding and thinking about the purchase volume declines and maybe assets start to shrink.

On the funding side of that, how are you thinking about deposits and pricing deposits? Or I just -- I'm just thinking how low are you willing to price deposits to rightsize in the case of the asset?.

Yes, thanks for the question, Vince. And so the way we think about the funding side of the stack clearly, in the economic environment that we're in, our view is using the unsecured or secured market is not as cost effective.

So deposits for us, which are 79% of the debts back at the end of the first quarter, we'll continue to grow that probably as a percent of the overall funding stack. So look to lean a little bit more there. For us, it's going to be, we have a couple of primary competitors in that market. And we look to stay competitive there.

So this way, we don't have to invest as much in marketing and things like that. So on a rate basis, we actually have moved down this year with regard to high yield savings, we're down 30 basis points on the high yield savings; we were also down at least 30 on our certificate deposit movements on top of what we already moved down in 2019.

So we'll continue to evaluate that market, but that would be one of our primary sources relative to that. So our view is hopefully we'll be able to trend that down or continue to trend that down throughout 2020..

Okay. Thank you and a follow-up, quick follow-up question RSAs. When I look on Slide 6 of your deck and see the net charge-off ratio was 11% in 2009 and the RSAs were 1.5%.

Is that still a appropriate correlation or is there any way to think about that?.

Yes, clearly, what I tell you, Vincent, is RSAs will move and provide that countercyclical buffer. So as charge-offs do come through, you will see a reduction in the RSA percentages.

The exact correlation of the percent to the charge-off rate again, as I indicated, earlier on this call, the fact that we don't have Walmart, the fact that you have a very different economic scenario between the great financial crisis.

And now I don't want to draw the direct correlation, but you will see the similar shape to that curve when the benefit as it comes through..

Our next question is from Dominick Gabriele with Oppenheimer..

Thanks so much for taking my question. I really do also appreciate all the detail that you've provided. When you think about the reserve builds from CECL versus growth, for growth versus changes in your unemployment expectations, given the reduction and year-over-year purchase volume and the potential contraction of the loan book.

Wouldn't that provide a cushion as far as reserve releases and create some really big quarter-over-quarter variability? So do you think about -- how do you think about those two pieces? And do you think about them over the full-year instead of quarter-to-quarter? And it looks like to me that perhaps the reserve build could be basically zero given the -- for the full-year given the reduction possibility in the actual loans?.

Yes, the first thing, first thank you for your question. I think we have to be a little bit careful here on data points, right. We gave you a snapshot to try to be transparent about what happened between March 15 and March 31 on purchase volume being down 26% and then for the first couple of weeks of April being down around 30% to 35%.

What's really unclear is when the mandates left, right, and retail comes back online, what that retail landscape will look like and the shape of that curve. So I'm not necessarily sure if I were you, I would be thinking about, we're going to have a 30% decline in retail purchase volume or purchase volume for the company for the remainder of the year.

So that's, that's number one. Number two, you also have to remember in this period of time, when you're going through economic environment that we are, you are going to see the payment rates decline. So you'll see an upward bias in theory on the asset rate, so you have those two things moving against each other.

It will then really look to what for us from a reserving perspective will be as we think about the portfolio at that point in time. What is the economic assumption? So I'm not necessarily sure I'd say okay, your portfolio is going to decline and therefore you'll be at zero.

There are several factors that are moving in different directions, inside of that. Again, if you see the deterioration in the macroeconomic assumptions that we've used for March, you do see retail come back online, then I do believe you're going to see provisions for credit losses as we move forward..

Great, thanks. So appreciate the clarification there.

And then your consumer installment loan yields actually had a nice little jump, what do you think the trajectory on those yields are over, is that because of kind of the expectation for added risk and so you upped the yield or what are you thinking on the go-forward trajectory there and is that sustainable?.

That is really being driven by the disposition of Yamaha in the first quarter..

Okay, great. Thanks so much. I really appreciate it. Thank you..

So we have time for one more question..

And thank you. Our last question comes from Sanjay Sakhrani with KBW..

Thank you. Good morning. And I hope you guys are staying healthy and safe. I guess, Margaret, you mentioned the Venmo and the Verizon product launches are on track. When we think and you mentioned they're sort of subject to the evolving macro landscape. I guess when we think about any commitments you had made to grow the portfolio.

So how should we think about that? And then maybe I'll just ask my second question related to that, as we think about some of the investment spend that you had, that you guys were embarking on and other broad investment spend, how can we think about the flexibility of those expenses in this backdrop? Thanks..

Sure. So let me answer the first one. So, clearly we were really excited when we won both Verizon and Venmo. And those are two I think very strategic programs for us as we continue to really build out our digital capabilities. So those agile teams that have been focused on the launch of those two programs have full speed ahead.

And we haven't reduced any focus, if anything; we're even maybe accelerating some things there. So we're really excited about being able to launch them, obviously, the launches will be dependent upon the environment, we believe mid-year for Verizon and the second half for Venmo. So excited about those and the teams are really working hard.

In terms of the other investments.

It's a little bit of what Brian Doubles said, we actually took a step back -- let me step back even one step further, what we did as a leadership team, I mean despite all the negative things that are happening around pandemic, there's also opportunities right? And so what we really tried to do is step back and say, how do we take part of our leadership team to focus on the operation and get the operation stabilized.

We have another group that are working on what do we look like coming out of this? And how quick do we come out? And what are the initiatives we have to have in place to come out? And then, three, what are the long-term opportunities and implications for the company. And so we've kind of organized ourselves that way.

And we have seven work streams that Brian is leading to really kind of set us up for the future. So Brian, I don't know if you want to comment a little more on our flexibility in some of the things we've been doing..

Yes, I think that's right. So we went. As I said earlier through every strategic project in the business, we kind of looked at that through the lens of the current realities that we're facing, and we said, okay, some of these things we need to move faster on based on what our partners are trying to achieve as they go through the crisis.

And then some things frankly, just don't make sense to do right now. We're going to push those out, delay, pause, et cetera. And then some things we'll just continue and Verizon and Venmo are examples of things that will continue, as Margaret said, a little bit uncertain. But then we also said, okay, we need to be thinking beyond 2020.

We need to be thinking coming out of this, how can we best position ourselves for the future.

And we said, look there are, we came up with seven or eight different work streams that are really all encompassing and we said forget about whether this is a V or U shape, we know that every aspect of our business is going to change in some degree coming out of this. So our customers are going to use our products differently.

We know that they're going to shop differently, they're going to spend differently, they're going to pay differently. We know our partners are going to come out of this looking differently, and they'll have different strategies that we need to flex to. And we know that the way that we work together as a team is going to change as well.

And so we looked in really those three broad buckets and we said, okay, we need to have a really good strategic plan and a vision around each one of those to that we emerge from this as strong as possible. And I think as we kind of move through that work we will obviously share more in the future..

And I guess just a follow-up -- just a follow-up on that is the conclusion that the cost base might not need to be realigned a little bit lower, given some of the challenges your retailers might have?.

No, we will definitely have to realign our cost base. I think we just, we’re trying to see what this -- we want to get a little more feeling for how this comes out. But one thing that we and we just, we did that with the departure of Walmart, we know how to adjust the cost base, we've froze jobs, so we're not hiring anybody right now.

We've done all those kinds of actions already out of the gate. Obviously, we're saving on some of the things like travel and things like that. But if we have to reset the cost base of the business as we come out of this because we're smaller, we will do that. And we have our eye on that ball.

That's a little bit of some of the work streams Brian even has on his list. So --.

Sanjay, this is Brian. So let me just kind of put a bow on where you had started, right. So your first question on Verizon and Venmo, the timing really hasn't shifted that much when you think about the cost associated with those two. And I know we highlighted to be $0.20 a share for the year.

The marketing research costs, the launch costs, the development costs to develop all the in-app capabilities for let's say, Venmo, that also has to occur, right, the shifting of the programs and the reserves which was a component of that cost isn't that significant now.

As Margaret said, we'll see how the current environment and whether or not there is a more material shift in that and we will obviously provide transparency as we get to our call in July. So with regard to -- we have started, there isn't really a change from, I think the guidance that we provided earlier in the year.

Second, just to highlight what Margaret said obviously the development of the retail landscape, the development of the consumer, once we have more transparency to that, obviously, we'll look to maintain the same type of efficiency. And we'll work through that as obviously there are large portions that are variable.

But obviously, we may take action on the fixed costs part of the business in order to rightsize it, so that's how I would think about it..

That's perfect.

I'm sorry, one last question, because I'm being asked this question quite a bit, capital ratios, dividend sustainability, sort of how are you guys thinking about it? Obviously, Brian Wenzel, you talked about the balance sheet shrinking? How should we think about capital free-up to the extent that were even to occur, does that qualify as sort of excess capital and therefore it provides a cushion or maybe could you just walk us through the discussions you're having with regulators? Thanks..

Yes, sure. So with a capital position, capital is something that we've come out from our separation from GE as a strength. We came out with a higher capital ratio, CET-1 capital ratio, then we probably needed but we need to demonstrate our ability to stand up as a separate public company and withstand events like this.

So our ultimate goal was really to migrate our capital ratios down to that of our peers, that has not changed through this. We feel as we start into this economic period that we have a significant amount of capital to weather the storm. Obviously, the CECL transition helps as well.

But we'll continue to migrate that that capital down to peer levels over time. With regard to your second question around the dividend. Obviously, the dividend is important to us as we think about the business and really the PP&R resiliency of the business.

We believe that we can continue to generate capital as we think about our priorities for the use of capital is really the growth of our existing programs, number one. The second really is the dividend.

And as we sit here today, we believe we're going to continue to pay that dividend based upon the current environment and based upon our forecasts that we have the financial strength, the capital liquidity to continue to do that.

And that's a high priority for us and then as you move through obviously, then it would be share repurchases and then down the road, whether it's portfolio acquisitions or M&A. But from a dividend perspective again given the current environment and our assessment, we're committed to pay that dividend..

Thanks, everyone for joining us this morning. The Investor Relations team will be available to answer any further questions you may have..

And thank you, ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..