Synchrony Financial (SYF) Earnings Call Transcript & Summary

Good morning, everyone. And thanks for joining us. This is Brian Foran from Autonomous. I cover the regional banks and credit card stocks. Delighted to have Synchrony here with us for the 9 a.m. slot. Both Margaret Keane, the CEO, and Brian Wenzel, the CFO, are joining us today. We're going to structure the conversation in 3 parts: first, Margaret and Brian are going to go through some opening remarks; then I'll move to a little bit of Q&A; and the third part, we will take investor Q&A as well. Hopefully, everyone has been through the drill at this point, but if you're logged in via the conference website, you should see 2 links on the left-hand side of your screen. One of those links is going to be the Pigeonhole system, where you can enter a question or vote on a question. So if you see a question you like and you want to move it to the top of the stack, you can do that as well. The second link is going to be for a Procensus poll. This is where you can answer a couple of questions on the stock and key issues to provide your insights on key drivers. So with that, maybe thank you, Margaret and Brian, for taking the time today. Let me turn it over to you for some opening remarks, and then I'll come back through with questions after that.

Sure. Thank you, Brian. Thank you for having us. And thanks for everyone who's out there. I can't see you, but thank you. First, let me start off by -- I just feel it's important we continue to thank everyone on the front lines who are doing a tremendous job out there making sure that we're safe in hospitals. All our firemen and ambulance drivers and nurses and doctors and essential workers who are out there working really hard. I want to continue to thank them. I really also want to thank our associates who, honestly, have been extraordinarily resilient and flexible as we move from working in a call center environment to sending them all at home. I think that was a great move and decision on our part because it allowed us, and the thing that we've continued to focus on is really -- it's really important we were stabilized in our business operationally to really support our partners and our customers. And we've been able to do that through this period, which is really great. And I think we're in a really good spot right now in terms of how we're delivering service to our customers. And the other is really just protecting our employees. We have pretty much everyone work at home. We're going to do a very slow back to the office, return to the office kind of process and making sure that's a top priority. In terms of the business itself, I'd say it's a tale of 2 worlds, the pre-pandemic, post-pandemic and then maybe where we are in this opening up phase. I'd say pre-pandemic, we had strong sales, strong credit. The consumer was in good position. Our partners were doing well. I'd say now, as we've gone through this pandemic, we've had an enormous shift in terms of where sales were -- and Brian is going to talk about this in a minute -- where sales were, where it ended in the middle and what we're seeing now. I think one of the important elements and the unknown, in my mind, around this versus maybe another crisis is the consumer has gotten a lot of support financially through this process. And it's really hard to figure out post that what happens. The consumer was strong. We've had -- I think the number is up to 40 million people now in the U.S. out of work who applied for assistance. The question for us is really how many of them come back. What does that look like? I would also say -- so we're paying a lot of attention to that. We're trying to figure that out. It's very hard to map out because it's -- we've never had something like this happen before. I'd also say that we are hard at work trying to figure out the consumer behavior. Clearly, online and digital has become an even more important element of our strategy. We've shifted resources to really try to accelerate there. And we're really working with our partners, because we definitely have seen that shift occur and it continues to grow. We also -- as everyone is seeing, the retail landscape is shifting pretty quickly. I think the retail landscape, in general, retail world was shifting already. I think the pandemic is accelerating that shift and change even more quickly. But we were over retailed in the U.S. Everybody knows that. I think what we're seeing is a big adjustment. I think the hard part is it's happening all at once. So there's a lot of stress in some retailers. I could say that for us, we're feeling good about the portfolio we have. We know how to handle these types of situations. We've been in the business a long, long time, and we know how to help our partners through those processes, how to stay connected at the most senior levels through those processes and making sure that we're supporting them as they go through that. So we did shift our investment into digital. We went through our whole process pretty quickly. Many of you know, Brian Doubles. I've asked Brian to really take a big chunk of helping us figure out where do we focus our resources, short term, midterm, long term, so that we're ready to really think about how we come out of this. And so what we did is we looked at all the strategic initiatives we had, the spend we were doing on IT and investment and our agile teams, and we readjusted the teams, stopped some things that we can hold off to 2021 and probably make more sense to roll out when we're not in a pandemic. And refocused those teams on accelerating digital capabilities and analytics and the like. So I think that's really been a positive. It's been also a positive actually for the organization because I think it's really important as you go through something like this, that your team, your organization, your company really has a look towards the future because it's pretty easy to get bumped out by what's happening right now. But if they see us really working towards the future of our company, it just lifts -- it lifts us all up, and that's been really, really important. So a lot of work on that in terms of really driving digital. I'd say, ultimately, all of this is still a little uncertain. We're seeing early effects of it in terms of sales and things like that. But I think it's really too early to really say what happens post this. And we're in this interim phase right now where we're partially open, right? We're seeing stores open and driving and moving in that direction, but how does that all turn out. Some of our platforms are in businesses that may make it easy to open up and others are a little harder. So you think about the stores they're opening up, I think that's okay. But think about dental as one example, that's going to go slower probably. I've been joking that since we're all on video, our plastic surgery business is going to top up. And certainly, we've already seen that, by the way. That was something that I think would happen as we're all looking at our faces every day. And then I think we really got to see where the big volume comes through as we start opening up. I think, obviously, you and I were talking about New York City right now. New York City is still shut down. That's obviously, big economy for the U.S. We'll see how that turns out. And then I think we also have to see, does the government do more stimulus? Do they let the stimulus run out? And how does that stimulus then really impact the consumer? I think the one thing, like someone said to me, what I worry about, we have done -- we're working closely and trying to really help out, I think, small business. I think small business is the one area, whether it's a restaurant or a local store or even a local dentist. How do we help them through this process? And we've been doing webinars to help them figure out how to apply for things. We've been holding actual webinars with them on how to reopen their offices, what you need to do. So we've had our Head of Crisis Management really get on the call and help. We serve about 1 million small businesses in our own company. So I think that's something -- the more we can get small business back up and running, I think that's just going to be good for the economy and for us and for where we head. So I think we're stabilized. We kind of see at least a path of where we are today. I would just end by saying that the business is an extraordinarily resilient business. We've been through lots of crises before. Our book going into this crisis was much better than the book we went in, in the last crisis. And I think since then, we've invested a lot in tools and capabilities, particularly on our credit and analytics side that helped us move quicker, adjust faster and honestly, to be a little more surgical than we were in the last crisis. So where -- I think the trick in all of this is -- and it's a trick a little bit, you kind of look at the metrics, you look at what's happening. You don't want to underreact, but you also don't want to overreact. And so I think since this is an experience none of us have gone through before, and what we're seeing is hard to really get your arms around because all the stimulus and everything that's happening, I think we're being very practical, very thoughtful and really trying to make sure we're protecting our book, but at the same time, supporting our clients, which is something that we have to be very thoughtful of as we go through this.

Great. Brian, anything from your end or should we launch into questions?

Yes. No, I'd like to share a little bit of the data, Brian. First of all, thank you, and good to be with you virtually. And let me just start by echoing Margaret's comments about thank you to all the people out there, the essential workers and everyone, their empathy, their caring, their resiliency are just really models for us. What I want to just share are some of the underlying trends that we see in the business before we start, and I'm sure you're going to dive into them deeper. The interesting thing about this period is you had the pre-pandemic period, then you have these waves that are coming at us kind of post-pandemic, post-mandate. So we talked back in April, if you looked at purchase volume, our purchase volume after mid-April through -- or mid-March through the end of March was down 26%. We had indicated in the first 2 weeks of April, we were going to be down 30% to 35%, that actually came in at 31%. Then you look at the period, the latter part of April, so the 15th to 30th, down 23%. The first part of May -- so through May 15, down 16%, and now we're down 10%. So we've seen this gradual improvement across the business. It's really across all platforms. So we are encouraged by the trend. Obviously, it's still largely unknown where sales ultimately go, right, with the economy opening with the retail environment really shifting, consumer behavior shifting as well as some of the credit refinements that we've put in place. So -- but we are encouraged that we're running now down around 10%. Another thing I just wanted to kind of touch on is forbearance, right? When we talked back in April with -- about earnings, we'd indicated we had put about 800,000 accounts and $1.6 billion in balances into deferral or forbearance status. And just to be clear, that number is when you ask for the deferral, that is the amount of the balance at the time which goes in deferral. If you look at the accounts that have totally received forbearance through a couple of days earlier this week, we're up to 1.4 million accounts that had received some type of forbearance and $2.7 billion of balances. But when you dial that back a little bit, 75% of those balances have already come out of deferral status. So they are either current, making payments, but are not in a payment deferral status. So we're very encouraged by that. Majority of the accounts are making payments. Only 60% of the accounts were subprime. So when you look at those accounts, they're not necessarily as toxic as some people might think that they went into forbearance. They needed help. Some people called early as they're trying to stabilize. But again, having most of the accounts making payments, 75% not receiving deferrals today, we're pretty encouraged. For the accounts that are still in forbearance, it's a little bit unclear, right? They're getting help from majority of financial institutions. They're probably getting help from the stimulus package. So we will see how that plays out as we continue to move through, and we're continuing to offer forbearance for customers that really need help during this time. So then you think about the receivable growth. And this is another interesting pattern that we have seen is we were up 2.6% of receivables in the first quarter. If you looked at what we filed in our 8-K for the end of April, we were actually down 2.2%. So we had a sequential swing of 4.4%. So clearly, we talked about the purchase volume being down. What's really echoing Margaret's comments about the strength of the consumer is if you looked at the pre-pandemic period, payment on a cumulative dollar basis, right, was up 5% to 10%. So it was outpacing purchase volume growth. So it was really strong from the consumer. In the period of mid-March to mid-April, it was running about 5%. So even though sales were down, payments were still very strong during that period. And in the latter part of April, payments were actually up 10%, which we really attribute to the stimulus pack and dollars flowing through. And now if you think about May, we're essentially flat to prior year. So even though sales are down, there is pressure on the receivable balance. But it just goes to show you that the consumer is deploying their cash to pay down balance and manage their personal balance sheets pretty well. So we are encouraged by that strength. But obviously, it puts pressure on our receivable balance. And the last thing I'll kind of close on is really credit. If you looked at our April delinquencies, our 30-plus delinquencies were 4.1%, flat to prior year. Stripping out Walmart and stripping out the decline in the receivables, the core base was about 20 basis points better. So that's really encouraging there. And then when you think about the net charge-off rate at 5.9%, again stripping out Walmart, stripping out the receivables, it was actually 10 basis points better. So I think the message is when you look at the consumer today, the consumer today is strong, but it is clearly being masked and being aided by stimulus, is being aided by forbearance. We clearly expect that when those 2 fade and the full ramifications come through, we will see higher delinquencies and higher charge-offs as we move later into the year and into 2021. And most certainly, from our view from the first quarter, the macroeconomic forecasts have deteriorated. So we will have incremental reserve provisioning here in the second quarter to deal with that. But the fundamental base of the business has trended upwards as strong, but again, clearly benefiting from stimulus and forbearance. So I don't know, Margaret, is there anything else you want to add before we go to Q&A?

I think just in terms of the consumer, I think as Brian said, going into this, they were very strong. We were seeing when we -- before the pandemic, things related to the Home were very strong. That continues to hold true. I think people are out and especially now that they're sitting at home, we continue to see that area be an area of strength for us. And we did launch the HOME Network 2 years ago, I guess, already. So that's been a positive. And we're seeing -- whether it's home improvement or actual furniture and things for the home being -- continue to be strong. We have a very small power sports business. By the way, everyone is buying power sports right now because -- and if you go to try to buy these things, we're actually busier than ever because people are spending their time at home. So things related, whether it's actual furniture or things like that are outside activities, it's playing to how people are using their time. I think the fact that people are probably not doing vacations, they've decided to take some of that money in and put it to use around the home or around their second home or whatever that is. So it's interesting to continue to watch consumer behavior.

I don't know if I would have predicted ahead of time, that 20% unemployment would be a boon for motor boats.

It's an interesting fact. I think if you talk -- listen to any of the heads up retailer are all saying they continue to see this shift of what people are buying every week, right? It was food, then toilet paper or whatever. Now it's arts and crafts and then it's bicycles, can't get into adult bicycle as an example. So I think those shifts are really showing the being at home, fishing poles apparently are hard to get for kids. I mean, these are just -- these are the -- but I think this shows that people are being active at home and looking to do things around the home and whether it's inside or outside.

You touched on a lot of themes in those remarks. I do want to circle back to maybe some of the near-term credit and lending and spending trends. But maybe we could start on some of your comments about retailers. Clearly, this is the key distribution partner for you historically. There is a lot of concern about what is physical retail going to look like coming out of this but you've also done a great job pivoting and growing in digital channels as well, and that's an increasing part of your business. So maybe let's start with the physical side. What are your thoughts on the future of physical retail? And as some of your partners maybe go into challenges or even bankruptcy, maybe touch on how that flows through to your business.

So look, I've been one who believes that you still will have physical retailers, okay? I think people still do like to go out and shop and like that experience. And I think what's really going to happen is, it's kind of been a slow death to some of these retailers where whether they kept cutting back, cutting back, didn't have the right inventory, stores weren't looking up to what they should be. But I think the formats of stores will be smaller. I think they'll have less inventory in those stores, and you can probably have a kiosk where you can order things online. But I do still think you're going to have folks who want to go into physical stores. Where I think some of the challenge comes in is when you get into the bigger malls and you have these big anchor stores that might not be there, how do you change that space to something different that attracts people to that particular mall. But I do think we will have physical retail. I think it will be very different. I think it'll be a combination of buying in store and then ordering in store and getting it shipped at home, and it will be contactless. We're definitely seeing that increase for sure, and we're preparing for more of that. And I think the retailers will drive that particular experience. So I think it's going to come down to experience and product and how that experience plays out when you're in the physical location. There'll be a less physical stores, for sure, and we're seeing that. The big chains are cutting back. But I don't think it's going away forever. And I do think people like to browse and go in and try things on and have that experience and that, I think, will continue. It will just be in a different format and much smaller with a different experience. In terms of our -- how things work when -- we've had experience through our 90-year history almost of folks going through bankruptcies, and there's different forms of bankruptcy. Obviously, there's full liquidation, which we've had. Toys"R"Us is a good example of that, where we were able to take that book, convert that book to a general-purpose credit card. That book is performing well, and we can do that. We know how to do it. H.H. Gregg was another bankruptcy. We actually used that customer base as the launch of a HOME Network. So we know how to do that. When it's not a full liquidation and they're restructuring and planning on coming out of bankruptcy, this is probably one of the most critical things that we have to really ensure we're supporting their customer and that consumer. Because at the end of the day, our real risk is with the consumer, not the retailer. It's that customer feeling like they have use of their card, the customer wants to pay us back. So we have to make sure we're highly engaged with the retailer on that card. And in most cases, the card customer is their most loyal customer. So if you have a retailer who has a credit card and has very high penetration on that card, we have to make sure we keep the offers up, we're marketing, we're servicing and driving that forward. The other thing I would say, in many of our contracts, we do have protections, and we will institute and execute those protections. And then the other thing I would say is we, obviously, have increased our surveillance of our retailers in terms of their strength, and we are working closely with anyone we think might be struggling a bit. The good news for us, anyway, is most of our relationships are at the most senior level of the company, CEO, CFO, Treasurer. So we have very tight relationships with them and are closely working with them, if they're planning anything. And we try to do this in a way that -- I know this sounds silly, but it's true, ask them go -- because they're -- look, they're completely stressed out when they're going through these experiences. We're trying to like support and help them go through that, but we also have to protect Synchrony. So it's a little bit of back and forth, but we try to have good relationships when we're going through that process to ensure we're protecting us, but also at the same time helping them. It's sometimes a little challenging, but believe it or not, it works.

And maybe on the digital side, the other side of the coin, and I think even pre-pandemic, you had disclosed that, that was approaching 30% of revenue in the Retail Card space. I think in the earnings call, you mentioned it had gotten over 40% of the most recent purchase volume. Talk through your ambitions there. Maybe help us understand what Synchrony brings that's unique to the table. And obviously, you've got some big partnerships coming up, Venmo and Verizon. So help us think through what the future of our digital channels looks like.

Yes. I think at a very simplified level, what we really want to do with our digital strategy is integrate into the app of that particular retailer or merchant or whoever it is. And you want that process to be completely frictionless. So we are continuing to enhance and drive forward the simplicity of applying for a card. And one of the unique things about us is you can apply and buy right away. So the uniqueness of that puts a lot of ownership on our side of the table to make sure we're giving the card to the right person, for instance. So a lot of the investment is simplifying the actual application process, which we've done. It's a couple of fields now. The second is making sure we're authenticating that you're that person, and we have some really cool tools and partnerships that we've been leveraging, like PayPal, which have really helped us a lot. And then making sure, once you have that card and you're integrated with that partner, that all your servicing can be done in app. You can ask for a credit line increase, you can change your address, get a paperless statement all the way through. So what we want to make sure is that, that process is wing-to-wing. And you're not going in and out of an app feeling like you're with Synchrony 1 minute and, let's say, Lowe's the other side of the coin. So we try to integrate totally. And that takes work. We have to make sure we have APIs that are simple, that our partners can plug into so that we're not adding a bunch of burden on their side because, obviously, systems are always -- and IT is always a challenge for everybody. So we're trying to simplify all of our plug-ins to make sure that we can service that customer from beginning to end. And I'd say the one other area that we're focused on now really suggests, I'm going to say why cheap it, is collections. Collection processes have been the same as long as I've been around. I've been around a while. We have to rethink how we connect with customers on that end and get much more digitally savvy, I think, as customers are in that process of collections. Because today, it's still -- it's very similar to how it's been done. We have e-mails and some texts, but I wouldn't say we're state-of-the-art there. And I think we have to just rethink that whole process. So we have a whole team focused on that right now to really map that out.

And maybe before we leave the topic of retailers, you mentioned on the earnings call, you gave some historical perspective on the retailer sharing arrangements, the RSAs. I think you mentioned they've gotten as low as 1.6% during the crisis versus 4.4% recently. I get that follow-up question a lot from investors, how low can that go as they think through the near-term earnings offset? So any thoughts you want to share there on the near-term outlook for the RSA.

Yes. I'd let Brian handle that one. Brian?

Thanks, Brian. So again, we were in the 4% plus range in the first quarter. And what we indicated during that, as you step through the quarters this year, on a dollar basis and as an ALR basis, that's going to step down, right? So as our revenue, which will come under pressure with the asset decline, the reserve post, which really phases in, it's on a little bit of a lag. You'll see that in the back half of the year, you'll begin to see that effect on the RSA. So the reserve is lagged, but as losses come through, as revenue comes through, there's a participation. So there's nothing structurally different from back in the GFC to now that says it couldn't go back down to that type of level. Obviously, the biggest thing is mix, right? The RSAs are predominantly in the retail card business. They obviously vary by partner. So mix plays a little bit of role into that. But that's one of the real attributes of our business is that resiliency of the RSA. And again, sequentially, as we move second quarter to third quarter, fourth quarter, you will see that on a dollar basis and then there is a percentage ALR step down and provide that offset and that buffer, which gives us really some protection to the ROA and the ROE of the business.

And maybe sticking with credit. I think you mentioned several times, both of you, the uncertainty in the current environment as well as what happens when stimulus rolls off or when benefits, I should say, roll off. But maybe to the extent you do want to share any thoughts on a point forecast for provisions, feel free. But maybe one way to frame it is, relative to where we were back in mid-April, what would you say has gone better than expected and anywhere where you've seen maybe more challenges than initially expected?

I think we've been a bit surprised by how quick sales have come back. Wouldn't you agree, Brian?

Yes. No, I do think that the sales bounce back. And when people think about sales bounce back, they're going to think, well, hey, listen, it's going to be because you opened up certain states. It's not really the case. We've seen across geographies, across our partners, sales have risen. Now clearly, in states where the restrictions have lapsed, they are doing a little bit better if you look at the period most impacted to now. So take the state of Florida. They're probably 20 -- mid-20-plus percent better than they were, still down significantly. But if you look at New York, it's high teens, down from where it was. So the shift between -- so I think from the sales perspective, there is some resiliency that we're seeing earlier than we anticipated. The payment strength, to be honest with you, is a bit -- continues to be a bit surprising. This is such an atypical economic cycle. And Brian, you mentioned the 20% unemployment. We -- that number to us doesn't mean as much as what it's going to be in December. And when you ask about reserve and provision, that's really the key. What is it going to be December of this year? What is it going to be December of next year? The artificial employment number in the second quarter is not the driving factor. It's really, as the stimulus wears off, what really happens to the fundamental economy. So I think we've been encouraged on sales. We've been encouraged on payments. We actually have seen very good collections performance. So it is clearly the forbearance and the stimulus that is masking what it's going to be now. If you're at a 10% unemployment rate at the end of the year, that will clearly, ultimately, provide some pressure to credit. But again, we've taken actions, we continue to take credit refinement actions, and we will be very prudent when it comes to that. As Margaret said, we don't want to be overaggressive, but you don't want to be unaggressive. So it's a balance by industry, by partner. We look at by credit grade, by channel. But the good news for us is if you go back, we talked about this in April, our book fundamentally now is really different than it was back in great financial crisis. We shifted from a much heavier subprime book. We've moved 10 percentage points out into prime. We've added a lot of tools. We've added a lot of technology and data attributes and how we manage credit. So we are much better able to deal with credit pressure today than we were 12 years ago. So I think we've been encouraged, but we're very cautious about what lies ahead of us when some of the things that are masking true performance wears off.

And maybe following up on that spend comment. I completely agree. I mean down 10% is better than I would have guessed. And even some of your competitors, Chase, Amex, for instance, have both given updates of down 30% to 35% still as of mid-May. So when you look at where the recovery is happening, I like the bicycle sample. I actually tried to buy a bike last week and was told, there's 3 left at the store and the cheapest is $1,400. I had no idea bicycles could cost $1,400, let alone that's the starting price. Any -- first, any other observations you're seeing on interesting divergences? But second, where do you think -- I can't imagine bicycles are going to be selling out forever, so maybe that's a short-term phenomenon. But where do you see shifts that you think are maybe a little bit more permanent in the spending behavior in your book?

Well I think probably the biggest shift is just people buying more digitally, right? So I think obviously, we have very savvy digital customers, like Amazon, PayPal, and people are investing in themselves and the house. So I think we were not -- are not big travel restaurant book, which I think presents some challenges, maybe for some of our general purpose credit card folks. But I do think we see spend up in different categories that are related more to being at home. Now how long does that hang in there as people start to venture out, I think, is what we have to see. Like is this -- I was going to go on vacation to Disney, and now I'm not, so I'm going to take that and buy my kids, blah, blah, blah, right, which is I think, a little bit of what we're seeing. So if we -- if some of this spend being pulls forward -- and we don't know, we don't know. We've been trying to do some surveys around this, we're -- to kind of get a grasp of how the consumer is thinking. So I think the question for us is, does this hold for the rest of the year? Do people continue to spend around this? Or do they start shifting as they go outside? So I think a little bit of not sure yet, but certainly pleased by what we're seeing. Another example, and I'm sure you're reading this. We have our Pets Best business, which -- the sale of pet insurance is way up, because people are getting pets. That business held really well through this crisis. They were down a bit, but they bounced back very quickly. So pets are another area of focus. And we just named a new leader that we've put in there that we were planning on doing anyway to really kind of take a more strategic view of how we can grow our pet vertical, if you will. So pets is another big area for -- still a small percentage of our business, but I'm just saying. It's an area where people spend a lot of money. I think I've mentioned before, U.S., people spend about $80 billion, is that right, Brian, $80 million? $80 million.

[indiscernible]

$80 million, sorry. $80 million on pets and about 1/3 of that is vets. So everything else is like food and grooming. And so we think that's a vertical that's going to continue to be popular coming out of this.

Brian, maybe just to frame it a little bit. I think sort of like stimulus, there are some bridges here. So like take Margaret's example on pet. If you go and try to get a puppy now, you are on a long waiting list. So people invested there. When you go into our Payment Solutions business, Margaret talked about power. And it's power sports, it's actually power equipment tractors, things like that. I mean that business, volume there, again, it's small for us, but up over 100%. When you look at home improvement, people are doing HVAC. They're doing windows because they're not going on vacations. I view that as a little bit of a bridge. You see people who have invested digitally. So if you go into the Retail Card platform or Amazon platform or PayPal platform, the retail partners that are more digitally savvy and omnichannel doing well. So I think there's some bridges here in the short run as people spend dollars where until we see what the landscape comes out more permanently is the way I'd probably think about it a little bit.

I think we've been surprised by the little areas, like as you were surprised by power sports so are we. And we dug in deep and talked to our partners, and they're saying they can't even keep up, they're so busy.

Before I transition to investor Q&A, maybe one more I find when the market's going down, everyone asked me about your near-term credit losses and when the market is going up, everyone is asking about your normalized earnings. So thankfully, we're focused a little bit more on normalized earnings the past couple of days. When you think -- maybe approach it 2 ways. I mean, I think one concern people have is how much consumer deleveraging will there be, where will the loan book ultimately end up? So any thoughts you have or framing there? And then I think the other question that comes up a lot is regardless of the size of the business, has the underlying ROE changed at all? Or is this just cyclical? So I'm sure you get the same questions, how would you think through? What is the long-term size of the business? And is the ROE -- whether it's 2, 3, 4 years out, however long it takes to normalize, is the ROE potential changed at all?

Yes, the way I think about it, Brian, our business entering into this period, we were 2.5% pre-CECL, right? So put CECL off to the side for 1 second and, call it, 20-plus percent ROE-type business. Our business, because of the margin level we have and the pricing structure we have and how the retailers participate in the RSA, participate in the value proposition across the consumer, fundamentally, that does not shift and we believe on the back side of this, structurally, there should not be a fundamental difference of returns. That being said, I think the question for us will be, is there a different mix of our platforms and our retail partners that will ultimately attack that return? You may ship very well into a much -- our growth rate has been 5% to 7%. You can see that growth rate potentially trending up a little bit, right, which is necessarily a good thing because you can add accounts you can get leverage, but building new accounts and building balances has some cost to it. It could slow down a little bit, which would make us actually more profitable because you can get the maturing balances. So I think to some degree, it's going to be really related to mix on the back side. The one thing that we talked quite a bit about is, in this intermediate stage, right, which is we're going to feel pressure, we're going to get a little bit smaller here, how do we manage the business through that period until we get to really on the other side? What does that retail landscape look like? When you talk about the consumer balance sheet, we're in a unique position, right? Because our primary book is a prime book, but not the super prime book. So we're in a position where the consumers will deleverage a little bit, but much more -- maintain more leverage than most. And we have a much higher revolving portion of the book. So I think in that element, we play in a very sweet spot relative to a lot of our peers. So as we look at the book, we clearly are focused, we talk to our Board about how do we think about what the normalized ROA will be on the business, but we're encouraged. We don't think fundamentally, there's going to be some degradation to the book on the back side of this. But it's really going to be a little bit mix related and most certainly in the short term, how much volume does come out of the portfolio.

And I'd add one thing. I think the other piece that is important for us and we, I think, hopefully, prove this when we -- when Walmart left is really the cost actions that we can take. There's a volume equation to this business that automatically adjusts, but we're already taking a very strong lens, if you will, to thinking through our costs and how we reset the cost structure of the business as we come out of this and being a bit smaller. So obviously, we're looking at all those things. And there's big opportunities here. We froze hiring T&L, no one's really traveling. I think our real estate landscape might end up being different as we've learned a lot about work at home. So there's a lot we can do, and we're going to look at on the cost side to make sure we're in a good position from a cost perspective and the size -- and rightsize costs to the right size of the -- size of the business.

That's great. In looking through the investor questions, probably no surprise, several on capital, several on credit and also competition. So maybe I'll start with that third one. What are you seeing in terms of changes in competition? Are you seeing a little bit of back off? Is that a silver lining coming out of all of this?

Yes. I would just -- I've been in the business for a while. We tend to do better in difficult times, to be frank. And it's because I think we just have experience of going through this. And it gets back to this, you can't overreact and you can't underreact. And what I would say is we're seeing opportunities right now from our competitors in the sense that maybe some have overreacted, and we're getting inquiries now that we probably wouldn't have gotten before. I think we feel really good about our competitive position. We've invested in the right areas. And I think really the challenge of really this business is the partnership part where you have to be there for the partner in good and bad times. And you have to make sure you're having the right dialogue with those partners. So look, we're making credit changes. There's no question. But we're not just like slashing and burning either, and we're also sitting at the table and saying, okay, here's what we need to do. Here's how we're going to do it. Here's when we're going to do it. So that you at least -- we're not saying everyone buys into all that and are happy about those things, but in our retailer share agreements, of course, they are happy because they pay part of that cost. But we have a lot of partners that we don't have retailer share arrangements, but we have those conversations, too. And I think the partnership aspect of this business is really critical. And how do you play through difficult times or when you win. And I would tell you coming out of the last crisis, we got a number of partners that were not ours because of what happened or how they were treated during that period. So we're already getting calls. So it tells me that we have opportunities. I think we're going to be smart about those opportunities. You can't win them all, and we're going to make sure we continue to be disciplined about pricing and what we want to do and what makes sense. And is the retailer strong or not? Or -- but I would tell you that we feel very good about our competitive strength right now.

Maybe piggybacking on that into capital. It's funny I've got questions here about whether you have enough capital, and I've also got questions about deploying excess capital. So for people who are worried that maybe there's a capital shortfall, what stats would you give to reassure them? And then you touched on the ability to attract partners. What would you need to see to maybe feel comfortable whether it's buybacks, whether it's portfolios, whether it's bolt-on capabilities that you acquire, what would you need to see to feel the all clear sign, so to speak, to start deploying capital in those ways?

Brian, you'll answer that?

Yes. So let me answer that, Brian. So first, we entered this pandemic with capital being a strength for the company, right? We believe we had both the Tier 1 and CET1 in excess of our peers. And again, partially, that was by design as we exited General Electric and we were on a journey to get there. Obviously, the pandemic hit. We're going to be very prudent with regard to capital, right? So our priority, first of all, when you think about capital, is to grow our existing partners to deploy it in areas, Verizon and Venmo are great examples, where we have relationships that we want to deploy the capital. The next thing is going to be the dividend. And we want to protect the dividend. We have the capacity to continue to pay that. We're going to do that. Buybacks and M&A and portfolio purchases, that's -- buybacks would be third and portfolio purchases would be fourth as you think about the piece. Now as you think about the short-term here, right, with the asset decline going down, we're actually generating freeing up capital. So from a capital perspective, the capital ratios in theory rise regardless of even if we're provisioning, we will have significant capital here in the short term and can really maintain the safety and soundness we move through. Your question with regard to when do you begin to deploy that capital, there's a point when we get comfortable enough that we have visibility into where the trough may be here in the pandemic and the effects on the economy where we would begin to deploy capital and we deploy it prudently. And I think Margaret talked about competition, we are very prudent when it comes to price. There may be some things that we can do as we get to the later side of the cycle here that can accelerate that or we'll deploy it back to shareholders. But we want to have that visibility into what the economy is and see that kind of stabilization and see the performance of credit and what's kind of coming through. And when we see that, then I think -- and we run our stress tests, we'll be in a position to say, okay, what's the right way to do it. And it very well may be a smaller portfolio acquisition, it may be through share repurchases. So -- but again, we want to maintain the dividend. We want to grow our existing partners as that. And capital really is our strength and continues to be a strength here in the early stages of this economy.

That's great. Maybe one other I could ask on the liquidity side. I mean, it does seem like deposit growth has been pretty strong for everyone. It's obviously been a big initiative for you guys for several years now. Any update you can give us on general deposit trends, both volumes and pricing. How are you feeling on all that?

Yes. Liquidity is a strength for us. We actually are continuing to build liquidity, which, from a net interest margin perspective and the rates that we can earn on it, puts a little bit of pressure from a revenue perspective. So we're looking to deploy liquidity and really try to get the investment yield up and think about how we can get it down. We have taken actions. If you look at back where our high-yield savings rates were at the fourth quarter last year, they're down over 50 basis points or 70 basis points. We will continue to reduce that. There is some floor. We will find that, but we have been a leader with regard to taking both semi-pricing and high-yield pricing down, and we will continue to do that. And we have been a source of safety for a lot of folks. So liquidity has been not a problem for us. It's actually -- we're continuing to build it, and we will continue to try to adjust price as we move forward. And the good news is, with the amount of liquidity we have, we don't really need to access the public markets, whether it be secured or unsecured. So we're in a real period of -- or a position of strength both from a capital and liquidity perspective, and we'll continue to try to manage that as we manage the P&L.

Maybe -- we've got a couple of minutes left here. Maybe one final question. Margaret, in your prepared remarks, right at the end, you really emphasized the resiliency of the business. And I wonder if you could just speak to that a little bit. What do you think is underappreciated by investors and market -- and the market as we think through the resiliency of the Synchrony business?

I put myself on mute, because -- sorry. I think the -- I think there are a couple of things that make this business really resilient. I think, number one, and it's hard to describe this because it feels fluffy, I think, it's really the partnerships that we have, the engagement and the level of ties to our partners is just extraordinarily strong. And our ability to pivot for them, I think, really makes the huge difference. So if you think about our partners that have been open, whether it's Lowe's or Sam's Club, folks that were keeping their stores open, we prioritized pretty quickly to make sure we were delivering everything we could for those stores and those customers as they were open. So I think the partnership aspect and our level of engagement to really make sure we're servicing them and being part of what they're trying to do strategically, I think it's hard to figure out when you're looking from the outside end. But I would just tell you, our partnership, our ability to flex, our ability to engage with our partners, our ability to drive their strategy, I think, is really important. And I think that's part of the resiliency. And that's where you get into -- we've had relationships for over 40 years. Lowe's is over 40 years now. P.C. Richard is another partner of ours. We started doing business with them like 1957. So being there for them, working with them, partnering with them on their strategic initiatives, delivering capabilities that they need, I think, is really a key element of strength. And being there through a cycle, understanding what it means to be going through a cycle and managing a partnership like that, I think, is hard to actually map out. I think the second is, look, we have tremendous experience. When I surround my table and we're going through this cycle, my team, Henry, Brian, Brian, we've all gone through a number of big challenges in this business. And we move fast. We don't like sit around and debate. We have a team that's really experienced, knows how to make decisions, knows how to move forward and we execute. I think that's the other piece that makes us very resilient. And then look, I think we deliver for our partners day in and day out from a customer service perspective and things like that. And then financially, RSAs certainly help us because it allows us to have the level of engagement with our partners, where we're jointly deciding on things. So even in a situation like this, where we have to make maybe marketing changes, we're going to not do a campaign, we're going to hold these marketing dollars, we're going to divert and put it over here, we're going to do credit changes. Extremely important that the RSA helps us all be very aligned to those decision-making aspects of what we're going to do with that partnership and I think are critical. So we're having all those dialogues, right? We're sitting across the table with many -- not across the table, across video with many of our partners really having those conversations. So it really all comes back when you think about it to this unique aspect of being B2B with our partner, servicing their consumers and our ability to really flex and customize and be there for them and understand what it means. Like we're very integrated. I think that makes a big difference. I don't know if you want to add anything, Brian?

Yes. Yes. I was just going to add, just on the financial points, Brian, because I do think it's important because I think at times, we feel the intrinsic value of the business isn't really reflected in the multiple. When you look at the margin of the business, right, go back to the great financial crisis, we operated at a margin much higher than our peers and that stayed resilient during the GFC. It should stay resilient now, and that provides a bigger buffer to maintain profitability and return and Margaret hit on the RSA. If you think about an RSA that was mid-4s, and even if you go back to the number you quoted at 1.6%, 300 basis points of buffer on an average loan receivable basis provides tremendous resiliency to the ROA. So those 2 factors, I think, are generally a little longer appreciated. And the last one, we talked a little bit about digital here. I mean we don't win clients like Venmo, like PayPal, like Amazon, like Verizon, without tremendous digital assets and our ability to deliver whether it's an application, whether it's at servicing, whether it's a value prop delivery, any of the aspects of that. And I think the technology piece, which sometimes people take for granted, combined with the financial profile of the business just doesn't get the valuation it deserves. And again, when you put that with how we transform the book from a credit perspective, we're very optimistic for long term and the value of the company.

That's great. Thank you both for the thoughtful answer both of that question and all the questions today, and thank you, everyone, for joining us. Margaret, Brian, really appreciate the discussion and really appreciate your time. Thanks, everyone.

Thanks, Brian. Have a great day.

Thanks, Brian.