Synchrony Financial (SYF) Earnings Call Transcript & Summary

Good morning. We're going to get started. Thanks for joining. I'm very pleased to be joined up on the stage by Brian Wenzel, CFO of Synchrony. This is going to be a fireside chat format. So I've got a number of prepared questions for Brian, then we'll pause for the audience response section, and then I'll open it up to the audience for questions for Brian. But just starting off, Brian, thanks again for joining. I wanted to start with an update -- sorry, that's probably...

I don't know much about aircraft.

Yes. You probably don't want that question. I want to start with an update on the environment and purchase volume trends. You saw some highest volume ever last quarter with volumes up 12% year-over-year, 16% on a core basis. Has that momentum continued into 3Q?

Yes. First of all, great to be here, Mark. Thanks for the invitation. For those in the back, there are seats in the front, if you want to sit down. But yes, as we exited the second quarter, we felt really good about our book of business. We saw strength across the majority of our sales platform, health and wellness, digital, continued strength in our diversified value. And as we moved through the quarter, we've continued to see that strength. And it's really a testament to the diversity that we have, not only across the sales platforms but inside the sales platforms. So we're positive about the growth. We feel really good about the accounts that we've taken on and really the expansion and how they're performing. They continue to spend reasonable ways. There is a little bit of what I'd say shifting in some of the things that they're buying because of inflation, but not dramatic. So again, we feel really good about the volume. And this morning, we released our 8-K a little early. Thank you for scheduling this couple days early. And we had loan receivable growth of 12%, which obviously is excluding Gap and BP year-over-year. So we feel good about where we are and how we continue to perform through the quarter.

Okay, great. And just the sales growth, is that lining up, I assume, well also with that strong loan growth that's what's driving that?

Yes. What you're seeing is continued strength in purchase volume, again, across all the sales platforms. We're really doing well in health and wellness, digital, diversified values got some really strong partners in there. Home and auto continues to do very well. Lifestyle is probably a little bit more challenged. What we're seeing in the asset growth now, particularly as you move through this quarter, is a slight deceleration on the payment rate, which is anticipated as part of the normalization that we see. It's not troubling. It's probably -- if I went back and thought about it from a January perspective, it's normalizing a little slower than expectations. But as we moved into this quarter, it's slowing probably in line with expectations, which is that's why you're starting to see a little bit more of the asset growth come through.

Okay. And to what do you attribute the strength that you've seen? How much of this is strength in new partners, just core spend trends across your customer base? And what's driving that?

Yes. The first thing you have to look at is the strength in the consumer. And I think you will probably hear that theme and you've heard that theme. When you look at the consumer, they delevered during the pandemic. They had the ability to accumulate savings, either directly through the transfer of the government under stimulus. You're really supported at the lower end by high or low unemployment, increasing hourly wages, and then, to be honest, you also have consumers who are not spending every day as much on certain items. So if I look out in this room and you did a poll, a lot of folks aren't going to the office 5 days a week, so you're not doing as much drycleaning, you're not spending $15 for lunch if you're going out, you're doing things at home, you may not have childcare because you're there when your kids get off the bus. There's lower spending on some of that stuff, which enables them to spend more and they feel confident. So as we see balances that go today, we're seeing some leverage effect -- positive leverage effect and average balances going up. That's mainly because they -- we're not troubled by that because they decelerated during the pandemic. So I think if you look at that, that's the starting point of a strong consumer. Then you look inside of our platforms. And one of the things that people think about our business is, well, you're just a heavy discretionary set of partners. I sit back and say, if you need tires, are you not going to get tires? You may not get Pirellis, you'll get Goodyears of Bridgestones. If your mattress is not giving you a good night sleep, you may not get the $4,000 mattress, you may get the $2,000 mattress. You go into health and wellness, yes, there is some things in there that are discretionary and cosmetic. But if you crack a tooth, you need a root canal, you need something like that, your kids' orthodontics, you're going to get it. So there's a lot of pieces inside of our portfolios, when you look inside the verticals, when you go up into the digital segment and you look at Amazon or PayPal, you can virtually get anything there. So it's the utility across the platforms, the diversification inside the platform. And then you have a strong consumer being able to access our partners.

Okay. Great color. You've already touched on this a little bit, the payment rate. I wanted to talk about that, I think you said it's starting to slow a little bit, but still remains well above the long-term average. Could you just talk about where that's trending right now and what the longer-term outlook is?

Yes, we spend a lot of time looking at the demographics, looking at behavioral patterns, to try to understand there's something structural inside a payment rate that's going to lead us to a different outcome. We don't see anything that says, I'm not going to get back to it as we sit here today. So it's really just the slope to get back to the mean. We've talked about our base case has us getting back to a more normalized loss rate in the end part of 2023, so that fourth quarter you'd be at the average and then you'd really be from a charge off perspective. In order to get to that rate, you're going to have to normalize your payment rate. So it's really the slope to there. We don't see anything radically going to change the trajectory of that or be permanent. So it really comes into is there something in the environment that will dramatically affect that. A lot of people talk to us about interest rates, what the Fed is doing. That doesn't directly impact the consumer as much because over 80% of the financial obligations for consumers are fixed. So it may impact if you're going for a mortgage or going for a new car. That will be curtailing cost more, but it's not going to impact the consumer directly as much. So you're really into the inflationary pressures, you're really into whether or not businesses are going to curtail employment, which they may be reluctant to do after coming through the last couple of years where you shrunk your employee base, then you've added it back. I don't think you want to shrink again. So there's some pressures that are against that, but we don't see anything structural in payment rate to get back to the mean.

Okay. And it sounds like based on your comments that a lot of these forces are temporary. Can you just talk a little more specifically about what some of those temporary benefits are and how you see them fading over the next 1.5 year or so?

Yes, you do see inflation taking a bigger share of the wallet. So that's impacting 2 things. Some of the wage gains you see most certainly at the lower end of the spectrum, there's a lot of people in the middle who jumped companies and got 20%, 30% raises and things like that. Some of that will be consumed by this inflationary pressure. They're going to use and have drawn down some of the savings. I think we use a firm to help us look at the industry. And last time we looked at it, when you looked at people who got stimulus payments, 1/3 of those had spent it all, so they had no incremental savings. You had 1/3 that saved all of it, and roughly you had 1/3 that had used some of it. I think you're going to continue to see that burn down. And I think once you get down to, what I call, back to a normalized savings level, that will then see the change potentially in behavioral patterns on purchase volume.

Okay, great. As we've already touched on, despite these elevated payment rates, you've had very strong loan growth. You recently updated your full year loan growth guidance to above 10% from approximately 10%. Is there any update based on 3Q trends and how should we think about loan growth into 2023?

Yes. Again, I look at 2 things. I look structurally at our sales platforms. They're going to continue to perform. The one thing about our business for the folks in the room to take away is we are, what I'd say, less volatile, so with the highs and the lows. So people saying you're having great growth here and in some instances we may be trailing some of our competitors. But we were not as low as in the pandemic. We're much more consistent because we're everyday spend. So, again, we'll have to see how we exit out of the third quarter. We're very encouraged about holiday, to be honest with you. Feels like this is going to be closer to a normal holiday, if I can call it that, for consumers over the past couple of years. So we'll take a fresh look and see how we think we're going to exit the year.

Okay. And then just touching a little bit more like what do you view as some of the key drivers of the growth that you've had? And how does that get tempered with the risk of recession?

Yes, the drivers of the growth, first of all, you have to be with great partners and you have to be with great distribution. I think when you look across our platforms, we have tremendous long-term partners that really resonate with our consumer base. The kind of customer we get is the most loyal customer of all these people. So if you're an average person that doesn't go into a retailer or one of our merchants, you're not likely to take our card, and we probably don't want you to take our card because you're really just credit needy. So it starts with the consumer that's highly engaged with the brand which we talk, so that's number one. Number 2, we're consistently working on our value propositions and making sure that they're strong, they resonate with consumers, you refresh them periodically. So that value proposition back to them really means a lot. So when you combine that with a strong consumer, you're going to continue to see that growth. So I think we're probably going to be more consistent. I think Brian and I have talked about there's potentially this year and next year where you're going to have elevated loan growth and then you're going to be solidly back to our long-term guide, which is 7% to 10% per annum growth. But it goes back into the partners, goes back into value proposition, and it goes back into a strong consumer that will continue to drive that.

Okay. Great. For the NIM, you indicated full year NIM could be at high-end of your guide of 15.5%. Can you remind investors how many rate hikes you've assumed in that and also what the drivers are that gets you to above that range?

Yes. For the most part, I start with we are generally interest rate insensitive. So we try to match the book as evenly as we can. So we're not, on either side -- I think right now we're probably slowly liability sensitive because we've increased the number of CDs in the book. The factors when we think about margin, for us, the couple things that are going to play through on a tailwind side is going to be that return of normal revolver rate as the portfolio as payment rate comes down, you're going to see late fees increase as delinquencies rise partially offset by the write-offs of those. So you have some structural, what I call, tailwinds in there. On the interest-bearing liability side, I think we assumed, call it, 10 at the start of the quarter. We have probably had 10 hikes in. Probably less about the number of hikes, where the absolute rate is. And I think we're probably generally in line with where the market is. But, again, we're somewhat insensitive to that. Our liability cost is more dictated by what the competitive forces are doing with the digital bank peers that we look at. And a couple things happened there: one, with their need to access more deposits with their growth, some of that may be more mortgage oriented, auto oriented, potentially student loans that they may curtail a little bit, not need as much growth than us. But it's really going to be But it's really going to be that. And really, where does our rates relative to market, money market funds, et cetera, where they play out and how do you remain competitive, we tend to be at the top because we have an access for funding. Most certainly, what's impacting margin for this quarter is pre-funding growth for the fourth quarter. This is always, as we step in to get the funding really to -- at hopefully attractive rates to fund a large asset growth as we move forward at the holiday.

Okay. Turning to credit performance, it continues to be very strong. You improved the full year guide to 3.15% from last quarter on charge-offs. Any update to the outlook based on what you've seen so far in 3Q?

Yes. I'll talk about. So, hopefully-- I know you guys got an early start today, but we did release our 8-K. Again, thank you, Mark, for doing that for us. So we released that. If you look at those trends that are there, let me start with the charge-off rate, it was 3.10%. I think it was up 60 basis points. When you cycle adjust July to August, they're flat. So charge-offs are performing as our expectation and in that normalization back to the 5.5%, Delinquency is at 3.10%. I think on a relative basis, it is down a little bit more than last month because we're coming off of a peak last year [indiscernible] the trough, so the year-over-year growth wasn't as big, but it's been what I would say very stable normalization for us. So we're pleased with credit. I think the one thing about our firm, we didn't have to open the credit box in order to get the growth we're getting. Yes, we were prudent. At start of pandemic, we allowed some of that stuff. We are ones that are less volatile when it comes to dramatic changes in our credit tools. But through that because of the fact that we have a lower line structure, lower exposure to default, so we don't have volatility as much in the loss rate. And you combine that with our tools, which we outlined, and people can look at Investor Day, our PRISM tools. We get tons of data from our partners. We use triggers at bureaus. We are very sophisticated with regard to that. So, as we look forward, there's nothing that we see that says it's outside our expectations of normalization, and we don't see any stress in the consumer. Now, that being said, there are cohorts inside the portfolio that are performing like 2019, so call it pre-pandemic levels, so that's normal. And I think the last thing I'd highlight, Mark, is there's a lot of talk about how subprime is performing. Subprime is a percentage of our portfolio, not a very large percent relative to historical means. And people are focused on the '21 vintage. If I look at both of those things, the subprime piece for us is not performing like other subprimes. So a lot of times people talk about subprime, those are deep subprime, and people really changed some of the attributes of what they were underwriting at the time. So we are not having performance like that, number 1. Number 2, our '21 and '22 vintages, if you look at them in 6 months buckets, both of those are performing better than pre-pandemic levels and the '21 vintage, which is getting some talk about performing significantly worse, we are outperforming -- when we look at the Bureau data, we're outperforming our peers. But, again, '21 is performing better than pre-pandemic. That's how I'd -- that's overall frame I'll give you on credit.

Okay. Is there any call you can give us on what you think you need to see before credit really starts to soften more materially?

It really comes down to we are a leading indicator, so we'll see it before it actually manifests itself in unemployment. We will generally see it before it manifests itself in other metrics. We look a lot at what's happening with the consumer. On us, you look at spending patterns, you look at payment behavioral patterns, you look at their engagement with our partners. Off us, we look at triggers at bureau. So if you go delinquent on 2 accounts, even though you may be current on us, we get a trigger, and we'll take action. So I think when you start to see those data attributes and the performance both on us and off us shift, that's when we'll take more surgical actions, and we could take that relatively quickly, and we could take it in the places which we're having challenges. Again, we would use more account management options that would curtail the loss rate versus origination options, which are much longer to impact your overall loss rate. But, again, we're set up to look at this. We've been through the cycles. Again, we're not seeing that today, but we're always prepared for it.

Okay. Do you have a sense for how many of your borrowers have student loans and what the benefits to credit could be if any of those balances are forgiven?

Yes. So we actually do -- we have not disclosed, but we do understand the percentage of our book that has student loans. I think you've heard us talk in the past mainly when it came to reserving, we had, had some reserves as the financial obligations returned for some of those borrowers because it's been such a long period of time with whether or not we would experience a heightened sense of delinquency or losses. Again, it's a percentage of our portfolio. We've estimated what we think the reduction in student loan debt would be and obviously it's a fraction of what the overall piece is, but it's not going to be anything material to us, as we look at it.

Fair enough. Wanted to touch on the topic of late fees, just given the investor interest there. Synchrony appears to be more indexed to late fees than other issuers. So any commentary you can provide on how investors should think about late fees and the risk to them from regulation here.

Yes. So an interesting topic and let me give you -- I want to give you some background, Mark, and talk about our positions. First, the CFPB is looking at what we'd say is probably the most regulated, most transparent fee in the industry, different than overdraft, different than other fees where in other practices which were not defined. This is clearly a very defined fee and how it operates. The key portion for us, it's less about dollars, it's more about the deterrence feature. When we sit back and say, if you had a low dollar amount on the fee, you're less likely to pay on time, I'll skip a payment, I'll pay a late. Now you see people have concerns about their credit. When it's more significantly at the levels that are today, there is a deterrence element to it. That's what it's designed to do. And the reason why it may be a little bit more prominent in our portfolio versus others is we underwrite to a 5.5% loss rate. So if I wasn't underwriting to that, we probably wouldn't need as much late fees. So I'll just give you that backdrop. When you look at the implications to us, what I'll point a lot of people back to is the infamous Page 7 of our earnings deck last quarter where we showed the margin of the business overtime. And if you go back and look at when the CARD Act came into place, our margin didn't move. So when you look at late fees for us, a couple things exist. Over 95% of our arrangements with our partners is we control repricing rights or we have the ability to renegotiate or alter certain things. So we have a high percentage where we're protected contractually with partners, number 1. Over 60% run through the retailer share arrangements. And again, the way the retailer share arrangements work, there's a first-take we keep and then there's a percentage. Depending on the first take, it could be a higher percentage to the partner. So there's a buffer that exists there. And then I'd say third is the extent you go through those 2 levers. There are different levers, whether it's pricing with the consumer, value proposition with the consumer, credit where I think we'll be able to, if the CFPB is so inclined to change it, that we'd be able to navigate it financially. And then last, most certainly, depending upon if they did something more dramatic, I'm sure that the industry as well as ourselves would look at the legal course of and what we can do there. So, again, there's a long road to go down here because it's highly regulated in what they're going to have to do in order to change it if they're so inclined. And then we're in a position where we can deal with it either way.

Okay, that's helpful. Catherine?

Sorry. Can you just [indiscernible] technical difficulties for those listening through the webcast. So I was hoping if you could please just briefly overview what your first 2 questions were and our [indiscernible] response to them.

Oh, sure. Oh, sure. Okay, so backing up, wanted to start with an update on the environment and purchase volume trends. We saw the highest volume ever last quarter, volumes up 12% year over year, 16% on a core basis. Has that momentum continued through 3Q?

Yes. What I'd say is, as we exited the second quarter, we were optimistic about our business and where the performance was. We saw strength across majority of our sales platforms. When you look at it, we continue to see that strength as we moved here through the third quarter. And, again, it goes back to the partners and the strength of consumer. We had some terrific brands in digital when you think about the Amazons, the Paypals, when you think about you go into health and wellness, the strength that's in there and our depth of relationships with partners. So we really see strength across the franchise and that continuing throughout this quarter, which leads us into a very optimistic view as we enter into the holiday season in the fourth quarter.

Okay, great. And then what do you attribute the strength to and how is the inflation impacted the consumer that you can see?

Yes. What I attribute the strength to is, one, the consumer is in a very strong position. So you think about the accumulation of savings that they got either through stimulus through lower everyday spend rate, most people aren't going to the office 5 days a week, there's lower drycleaning, lower food when you're not eating out lunch every day, maybe you're making lunch, you could be at home when your child gets off the bus, you may not need help there. So that lower spending allows them to redirect dollars into different things. So they have access there. You have a certain set of consumers where unemployment is very low, they have jobs, that have seen hourly wage increase. So you've had the middle tier where a lot of people have changed jobs and got fairly significant increases. So consumer is in great strength. You then couple that with strong brand partners, when you think about TJX, Sam's, Lowe's, PayPal, Amazon, you think about those partners, those are really strong partners and then you combine it with the value prop, it's really buoying the strength of our volume and really performance.

Okay, good. Okay. I want to pause here for the audience response section. Brian, this may be new for you. We've got some questions we're going to ask the audience and get their views. So if you'd be willing to pick up the controls in front of you and register.

Can I vote -- respond? No, I'm just kidding.

What factor do you view as the most likely to determine whether Synchrony outperforms over the next year? 1, better-than-expected loan growth; 2, upside to NIM; 3, stable credit; 4, more aggressive capital return; 5, other. So 80% stable credit. Next question? What do you view as the biggest risk to shares? Lower-than-expected loan growth; higher than expected RSA; 3, normalizing credit; 4, lower-than-expected NIM, 5, late-fee regulation? Okay. So still mostly concerned about credit. Next question. Over the next year, would you expect your position in Synchrony to: 1, increase; 2, decrease; 3, remain the same? Okay. Mostly remain the same at 57%. So thank you, all, for participating in that. I want to open it up to the audience for questions if there are any. Got one over here. Ryan? Is it on?

Can you talk about your partnership with PayPal and the potential to do maybe another deal where you take over loans from them?

Yes, first of all, we value our relationship with PayPal. It goes back, gosh, 16 years. We've continued to expand at different parts. Most certainly they've said some things publicly about what they're trying to do on their balance sheet. We stand ready to partner with them on, first of all, taking the products we have today and making sure they're the highest quality. Our memo experience, if you go and look at it, it's in the app, it's seamless, it's terrific. We're doing that with the SuperApp and our Dual Card. So we have a very good relationship. We launched PayPal Savings. And we have a good number of accounts there. So I think the positives, and if you saw Dan Schulman's testimonial during our Investor Day, we have a very good relationship with them. So I think we would be a natural partner for them [indiscernible] do some of that. But, again, they have to do what's in their best interest. So certainly, there's a lot of products that we would be interested in continuing to partner with them, but we have a huge opportunity with the stuff we do today. So we're glad they're a partner. We're glad we're one of their biggest partners. And we'll continue to look to expand that where it makes sense.

All right, if there are no others, I'm happy to continue. Switching gears, what's the level of competitive intensity that you're seeing right now and how is that changing?

Yes. What I would say is it appears to still be very rational. I think when we look at the set you do see certain competitors at different points. They're not all -- not everyone showing up for everything. So I think people have a strike zone. They're willing to stay within that strike zone. And I don't think absent what happened with Gap, I just don't -- we don't see a lot of things that are irrational. I think what's best for us is for us to get into a scenario where we can go in and talk about our digital assets and our innovation. I think if someone does that comparison across the group, we will come out on top, because we've invested heavily. This is our core business. That's the only thing that we do, and hopefully, it shows in the way in which we go to market. And on the pricing side, we always price things through the cycle. So we haven't had to shift our pricing at any point in time. We feel good, and I think the pipeline across all our platforms is pretty robust. So people think there's not a lot of motion, there's always a lot of motion.

Okay, great. Your account growth has been quite strong. Do you still view this as an attractive environment to go after new accounts just given the level of competition and some of the uncertainty around the macro?

Well, the great thing about our business model, Mark, is we don't have to go out and do a lot of marketing. Our cost to acquire is in the USD15 to USD20 range because they're going through our partners distribution and because we're getting the most loyal customers. So we don't have to invest billions of dollars in order to generate the 25 million new accounts that we put on. So we're in a competitive advantage there. I think when we look at the growth we feel really good about the credit we're putting on. The one big difference for us versus a lot of our peers is we have enormous data shares with our partners. So when you come in to apply to credit, we generally understand how long you've been active with that partner, what's potentially your annual purchase volume, that's how many times you shop there, things like that, down to very simple things, bill-to, ship-to, so we can weed out frauds. So I think when we put accounts on, we feel pretty good about the vintages. And the one thing about our model different than a lot of our competitors, we don't come on or off the gas. If you think about the partner base, if I was going to our partners and say, we're going to get a whole ton of origination right now and then we're going to open back up, they don't want that. They want more consistency. So I think we're more prudent to start and that allows us to be a little bit more consistent. And when you look at the low cost to acquire and the fact that we don't have to spend a lot of marketing for that, we feel good about the ability to get a lifetime value just under USD400.

And how does your approach to account growth change in an environment like this where there's a little bit more macro uncertainty?

I think you have to feel good about the credit [indiscernible]. Our line sizes are, if I think about nonprime, are lower than what they were pre-pandemic. So I think we're being prudent there. I think we have the ability to, what I would say, is just different types of credit. So credit line increases, maybe a little bit more prudent there. So we feel good about credit. I know on your 2 questions credit's a big thing. We do not see the consumer stressing at this point in time. And I think if we start to see some of those early indicators, we can take action but what we feel good. So the accounts that we're putting out today, and I go back to the last 2 years of vintages, '21 and '22, are performing better than the pre-pandemic. So I do think we feel good about the early performance of those vintages during the pandemic and what we're doing here in '22.

Okay. Got it. So you highlighted at your Investor Day last year some longer-term opportunities to grow sales volume through increasing tender share, acquiring new customers, and increasing wallet share of current customers. Can you just update us on your efforts there?

Yes. So we are very pleased. It goes back to having compelling value propositions where you -- what's the addressable spend you can get from our customers. We refresh the value props quite often. We continue to look at ways in which we can expand distribution and utilization. So, take our CareCredit business. The fact that we're in health systems now, and the majority of the health systems. Take AdventHealth. When you go in and have, let's say, knee surgery and things like that, you have a deductible, the ability to have that card accepted there, even though it may have been originated at a veterinary practice where [indiscernible] are creating that ability, our relationship with Clover, the ability to get out into the distribution lanes is really important for us to continue to grow our consumers and their engagement with us. So we feel really good about our progress there, but that journey's never done. It's going to continue to work for us and as we expand different ways in which we can drive customers to our partners, and we'll certainly keep customers engaged. And we think we've seen it. When you look at our purchase volume growth, we clearly are getting share of wallet from them.

Okay, excellent. And you just alluded to Clover. Can you provide an update on the partnership there and the pay-in-4 products?

Yes. So we're excited about the ability for our products to be in the app and to be out in Clover devices. So, therefore, merchants are able to really take our products and allow for our product to be accepted at that merchant. And we have a great relationship with Fiserv and that team. So we're excited it's getting out. It's really early days to be honest with you on that and getting merchant adoption. But when you could take friction out of that process for these folks and get that broad distribution, we think there's a lot of potential there as we move forward.

Okay. As you alluded to, it's early days, but any color you can give us some where you think that can get to?

We haven't, mainly because Fiserv doesn't disclose the number of merchants that they have. So it gets a little bit complicated for us to front-run them a little bit with the merchant size and acceptance, to be honest with you. But we'll continue. We're going to lean into it a little bit. We'll see what comes out from the test, and we'll adjust in order to optimize the channel. But it gives us -- the one key about our business distribution, it just gives us one to the masses different than some of our other partners.

Okay, great. Turning to reserves. How should investors think about reserve ratio longer term? It's currently above CECL Day 1, but losses remain well below normalized. Where can the reserve ratio go if losses migrate -- yes, start migrating a little higher?

Yes. So if you look at where we are today, I think if you ignored the macroeconomic backdrop and you just looked at the quantitative side of the model, it would tell you you're significantly probably below Day 1 rates, which with the loss rate of this last month of 3.1%, you would expect that. So it's the scenarios you run, the qualitative overlays you run that you're back above the CECL Day 1. I think as you see the migration up of the portfolio to the mean loss rate, the environment becomes more certain, those 2 converge a little bit. There's nothing for us that says that you're not going to get back to at least Day 1 rates at some point or potentially below that. I think we've operated at CECL for probably about 2 days before the pandemic impacted, but we don't see a reason why you can't get back to it. And we want to be prudent now. There's more uncertainty in the environment and you have scenarios where things could get worse, not necessarily the base case, but there are scenarios that you need to say you're protected for. So I think as you think about reserving in the short-term is probably going to be more growth driven at this point than it is, what I call, rate or performance driven.

Okay. And what kind of impact might we see on the reserve ratio if we do go into recession?

Well, in theory, if your mean loss rate encompasses part of the recession for us and encompasses part of the GFC. So your mean loss rate includes that. It's just really in that short-term outlook net-net reasonable in support forecast period, how high those losses could get above your targeted loss rate. So it's hard to say because we haven't been in that situation yet and it's going to be what's the duration of that. But, again, I think because you are preparing for lifetime losses today and because your mean includes that, it's going to be a little bit potentially less volatile from that sense as you move in. But we'll have to see where your starting point is at that point and how severe the losses get over a 12-month horizon.

Okay, great. Any last questions from the audience? If not, we will end on that note. Please join me in thanking Brian for all his thoughts.

Thank you.