Good day, ladies and gentlemen, and welcome to the goeasy first quarter 2021 financial results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Farhan Ali Khan. Your line is You may begin.
Thank you, operator. Good morning, everyone. My name is Farhan Ali Khan, the company Senior Vice President of Corporate Development and Investor Relations, and thank you for joining us to discuss goeasy Ltd. results for the first quarter ended March 31st, 2021. The news release, which was issued yesterday after the close of market, is available on GlobeNewswire and on the goeasy website. Today, Jason Mullins, goeasy's President and Chief Executive Officer, will review the results for the first quarter and provide an outlook for the business. Hal Khouri, the company's Chief Financial Officer, will also provide an overview of our capital and liquidity position. Jason Appel, the company's Chief Risk Officer, is also on the call. After the prepared remarks, we will then open the line for questions from investors.
Before we begin, I remind you that this conference call is open to all investors and is being webcast through the company's investor website and supplemented by a quarterly earnings presentation. For those dialing in directly by phone, the presentation can also be found directly on our investor site. All shareholders, analysts, and portfolio managers are welcome to ask questions over the phone after management has finished the prepared remarks. The operator will poll for questions and provide instructions at the appropriate time. Business media are welcome to listen on this call and to use management's comments and responses to questions in any coverage. However, we would ask that they do not quote callers unless that individual has granted their consent. Today's discussion may contain forward-looking statements. I'm not gonna read the full statement, but I will direct you to the caution regarding forward-looking statements included in the MD&A.
I will now turn the call over to Jason Mullins.
Thanks, Farhan. Welcome to today's call, everyone. I want to first extend our sympathies to the families and communities, both here in Canada and around the world, that continue to deal with the ongoing effects of COVID-19. As an incredibly diverse organization represented by over 70 nationalities, many of our team members have friends or family in other countries and call those places home. In addition to prioritizing the health and safety of our team, we will continue to assist others through various charitable causes, we hope that the support helps make an impact. Turning to first quarter results, it was a strong start to the year in which our business continued to perform well, we produced record reported and adjusted earnings. Furthermore, subsequent to the quarter, we were pleased to announce our successful acquisition of LendCare, one of Canada's leading point-of-sale financing platforms.
In the first quarter, we experienced a gradually improving level of demand for consumer credit, though seasonal trends and provincial stay-at-home orders continue to keep borrowing at more modest levels. After our second strongest quarter for web traffic, loan originations during the quarter were CAD 272 million, up nearly 13% compared to the first quarter of 2020, and our strongest ever first quarter origination volume. Loan growth was CAD 30.5 million, bringing our portfolio at quarter end to CAD 1.28 billion in consumer loans. With the second and third waves of COVID continuing to impact our communities and moderate demand for our traditional direct-to-consumer lending channels, our point-of-sale financing channel has continued to perform well.
As we highlighted last quarter, we had experienced continued growth in the proportion of new customers being acquired through our frictionless full credit spectrum offering with Affirm or directly through our merchant platform. The portion of new customers we acquired in the 1st quarter from this channel lifted to 28%. We also continued to execute on our strategy of focusing on lifetime value by offering an expanded range of lower priced products while graduating customers to progressively better rates, collectively bringing down their overall cost of borrowing. The weighted average interest rate on our portfolio declined by 35 basis points in the quarter to 37.5%, with the total portfolio yield, including all ancillary product revenue, finishing at 44.3%.
Combined with another stable performance from our leasing portfolio, revenue for the first quarter was CAD 170 million, an increase of 2% over 2020. As closures and restrictions continue to come and grow across various regions and industry sectors, we continue to dynamically adjust our credit tolerance and underwriting practices. The improving credit quality of our portfolio and the continued reduction in the overall discretionary expenses for the average Canadian contributed to another quarter of strong credit performance. The net charge-off rate for the first quarter was 9.1%, down from 13.2% in the first quarter of 2020. We are also proud that our loan protection product continues to provide a reliable source of insurance for those remaining customers who have been displaced from their employment due to the recent pandemic-related business closures.
During the first quarter, the product paid out approximately CAD 7 million in claim payments on behalf of our customers. With over CAD 50 million in payments made in 2020, the product continues to provide customers with meaningful value during a period of economic disruption. While we expect the credit performance of our existing easyfinancial portfolio to trend back toward our optimal range in the coming quarters, the underlying credit trends of the portfolio remain healthy, and we are confident in long-term performance and stability of our loan book. As the broader economic environment has begun to show signs of recovery, and as the timing of a return to more normal conditions is gradually becoming more clear, we have updated the probability-weighted economic scenarios used to determine the appropriate loan loss allowance that would fairly account for the future expected credit losses.
As a result, our allowance for future credit losses reduced slightly from 10.08% to 9.88%, a reduction of 20 basis points from the previous quarter, while still providing ample coverage to account for unforeseen changes in the current economic environment. Improved operating leverage and lower credit losses led to record operating income of CAD 63.9 million, up 45% from CAD 44.2 million in the first quarter of 2020, while the operating margin expanded to a record 37.6%, up from 26.4% in the prior year. During the quarter, our retail point-of-sale financing partner, Affirm, formerly PayBright, completed an initial public offering, with shares beginning to trade on the Nasdaq Global Select Market.
Through the sale of PayBright to Affirm, which closed in early January, we received consideration of CAD 23 million in cash, 655,000 common shares in Affirm subject to a customary lock-up agreement, and 468,000 common shares held in escrow subject to revenue performance achieved in 2021 and 2022. Shortly after the public listing, we entered into a six-month total return swap agreement to substantively hedge our market exposure related to the non-contingent 655,000 common shares. The total return swap effectively results in the economic value of our non-contingent shares in Affirm being settled in cash at maturity for a price of $108.87 USD per share, net of applicable fees.
After considering the impact of the hedging arrangement and the likelihood of achieving the contingent equity, during the quarter, we recorded a pre-tax unrealized fair value gain of CAD 87.3 million, bringing the total value derived from our original CAD 34 million investment to in excess of CAD 140 million. Through our ongoing partnership with Affirm, we continue to offer a market-leading full-spectrum point-of-sale financing solution to major retail brands such as Wayfair, Samsung, and Casper and look forward to working together for many years to come. During the quarter, we also invested CAD 6.5 million to acquire a strategic minority equity interest in Brim Financial, an early-stage private Canadian fintech platform. Brim offers a turnkey suite of consumer and business card products, a white label digital banking platform, and a globally open rewards and loyalty ecosystem.
With a future roadmap to launch new products, enhance our mobile and digital platform for consumers, and eventually increase the rewards for our customers, Brim can help augment and accelerate our product, digital, and loyalty and rewards roadmap. We also believe that Brim offers one of the best cards, mobile banking, and loyalty rewards solution on the market, presenting a unique investment opportunity. In connection with our investment, we are also entitled to preferential commercial terms for use of the Brim platform in the future. Including the gain associated with our investment in Affirm, net income in the first quarter was a record CAD 112 million, up from CAD 22 million in the same period of 2020, which resulted in diluted earnings per share of CAD 7.14, up from CAD 1.41 in the first quarter of 2020.
After adjusting for the CAD 78.5 million after-tax fair value gain related to the appreciation of our investment in Affirm, adjusted net income was a record CAD 36.7 million, up 67% from the first quarter of 2020, and adjusted diluted earnings per share was CAD 2.34, up 66%. Adjusted return on equity was 29.5% in the quarter, up from 25.8% in the first quarter of 2020. I'll now pass the call over to Hal to discuss our balance sheet and capital position before providing some comments on our outlook.
Thanks, Jason. During the first quarter, we continued to invest in our business while also improving our liquidity position and de-leveraging our balance sheet in preparation for our LendCare acquisition. To help simplify and highlight the free cash-generating capability of our portfolio, last quarter, we began to publish a new non-IFRS measure in our disclosures, which is the cash provided by operating activities before the net charge-offs for the consumer loan portfolio. From this figure, we can invest that free cash into incremental growth in consumer loans, invest in new business or initiatives, reduce our debt, or return capital to shareholders through dividends or share repurchases.
Cash provided by operating activities before gross consumer loans receivable in the quarter was CAD 63.2 million, an increase of 17% over 2020. Based on the cash at hand at the end of the quarter and the borrowing capacity under the company's revolving credit facilities, goeasy had approximately CAD 435 million in total funding capacity. At quarter end, the company's fully drawn weighted average cost of borrowing reduced to 4.8%, down from 5.5% in the prior year, with incremental draws on its senior secured revolving credit facility bearing a rate of approximately 3.5% and incremental draws on its revolving securitization warehouse facility bearing a rate of approximately 3.4%.
As of March 31st, 2021, the company also estimates that once its existing and available sources of capital are fully utilized, it could continue to grow the loan portfolio by approximately CAD 150 million per year solely from internal cash flow. When factoring in the gains recorded in the quarter and the cash produced by the business, we have continued to reduce our leverage position. As at quarter end, our net debt to net capitalization declined to 58%, well below our target of 70%, and the equity on our balance sheet improved to over CAD 550 million. Subsequent to quarter end, we also completed two successful capital raises to support the acquisition of LendCare, which closed on April 30th, 2021.
First, we completed an equity offering of 1.4 million subscription receipts at a price of CAD 122.85 for gross aggregate proceeds of CAD 172.5 million. As a result of the completion of the acquisition, each of the 1.4 million outstanding subscription receipts were automatically exchanged for one common share of the company. Subsequent to quarter end, the company also closed its offering of $320 million , 4.375% senior unsecured notes maturing on May 1st, 2026. Concurrently with the offering, the company entered into a cross-currency swap agreement, effectively hedging the obligation at CAD 400 million, with a Canadian dollar interest rate of 4.818%.
At the close of our second quarter financial results, which will now include a partial consolidation period with LendCare and the inheritance of new funding facilities, we estimate that our total funding capacity will be in excess of CAD 600 million. Looking forward, we also believe there is an opportunity to syndicate and increase the size of our current CAD 200 million revolving securitization warehouse facility, which we recently launched in January with National Bank Financial Markets. With the continued strength of our business model, the stability and credit performance, and the positive growth outlook of the company, we have received expressions of interest from several large and reputable financial institutions to participate in the syndication and related increase in the facility capacity. We look forward to updating everyone on our progress in the quarters ahead.
During the 1st quarter, our common shares were also added by Dow Jones to the S&P/TSX Composite Index, effective March 22, 2021. The index is considered the principal benchmark measure for the Canadian equity markets and consists of the 231 largest Canadian companies as measured by market capitalization and liquidity. goeasy is also included in the S&P/TSX Canadian Dividend Aristocrats Index as a result of consistently increasing dividends for more than five consecutive years. We continue to use a portion of our free cash to return capital to shareholders through our regular dividend program. The board has approved a quarterly dividend of CAD 0.66 per share, payable on July 9, 2021 to the holders of common shares of record as at the close of business on June 25, 2021.
I'll now pass the call back over to Jason for some comments on our outlook.
Thanks, Hal. While 2021 is presenting a new round of challenges as we navigate through the third wave of the pandemic, our business continues to perform well, and we see a renewed sense of optimism beginning to build as vaccination distribution accelerates and the economy builds momentum toward a recovery. To help further accelerate our growth, we were pleased to announce the closing of the acquisition of LendCare within the last few weeks. LendCare is one of Canada's leading point-of-sale financing platforms in the powersports, retail, healthcare, and home improvement verticals. Through approximately 3,000 merchants, LendCare offers a consumer-focused loan origination platform that enables their merchant partners to process installment loans quickly and easily for their customers, with rates between 9.9% and 34.9%.
The company has deep and longstanding relationships with retailers, dealers, and major name brand OEMs, such as Bombardier Recreational Products and CFMOTO. LendCare consumers range across the entire credit spectrum with 2/3 in the non-prime segment, where they have especially deep expertise in credit and underwriting in their respective verticals. The transaction is a highly complementary and meaningful end-market acquisition, which increases our scale, extends the product line for customers, and diversifies our channels of distribution through expansion into new verticals. We have already begun to work with the LendCare team and collaborate on new opportunities together. We also remain on track to launch the pilot of our direct-to-consumer auto secured loan product in the next 60 days. We will first activate our new digital auto loan application so that we can toggle and moderate traffic.
Our first phase will involve enabling customers to purchase from their dealer of choice or through a private sale, followed by the introduction of an approved dealer network and then an online car buying experience over the course of 2021. Further, we will also begin testing offering customers with existing vehicles that are declined for unsecured credit the opportunity to provide their vehicle as security as a way to borrow and build credit. We also continue to work on our new cloud-based core lending platform called Fusion. This platform will not only enable us to scale the enterprise under a multi-product, multi-channel model, but will unlock features and functionality that can drive a greater experience and new sources of revenue. We expect to complete the configuration of the new platform over the coming quarters, then carefully stage our migration amongst our other major initiatives.
As we noted in our earnings release yesterday evening, we plan to provide a new three-year forecast, including the impact of LendCare, when we report our second quarter results. With the transaction closing on April 30th. The second quarter will include a partial consolidation period, which will influence some of the typical portfolio metrics we report, such as yield and net charge-off rates, which are calculated on the average consumer loan book during the period. As such, we will temporarily move to providing an outlook on the upcoming quarter in the form of the total revenue and net charge-offs we expect provided in CAD. After accounting for the loan growth during the quarter and the adjustments associated to the merge of the LendCare business, we expect to finish the second quarter with a consumer loan portfolio of between CAD 1.79 billion and CAD 1.8 billion.
While the calculation of the total yield generated on the loan portfolio will be skewed by the partial consolidation period, we expect total company revenue of between CAD 195 million and CAD 205 million during the quarter. Lastly, while the credit trends on our existing easyfinancial portfolio are expected to gradually return to more normal levels, the amalgamation of the higher credit quality LendCare business will serve to improve the overall credit performance. During the second quarter, we expect to record net charge-offs of between CAD 36 million and CAD 40 million, excluding the change in the allowance for credit losses associated with the growth in the consumer loan book.
As we move into the third quarter and beyond, we will return to providing both the short and longer term forecast using traditional portfolio metrics such as portfolio yield and net charge-off rate, as we have done in the past. With a highly strategic acquisition now complete, the pending launch of a new auto loan product and the economy set to experience meaningful recovery in the quarters ahead, there is much excitement in our business. We continue to be in the early stages of our journey to becoming the largest and best performing lender in the large and underserved CAD 200 billion non-prime consumer credit market.
Even more important, with a wider range of rates and products now available, our mission to help the 9 million non-prime Canadians get access to credit while improving their financial health, lowering their cost of borrowing and graduating to prime is stronger than ever. I want to once again welcome LendCare to the goeasy organization and thank our now over 2,200 team members for continuing to work diligently to take great care of our merchant partners and our customers. With those comments complete, we will now open the call for any questions.
Thank you. We have our first question coming from the line of Etienne Ricard with BMO Capital Markets. Your line is open.
Thank you and good morning.
Morning, Etienne.
With the closing of LendCare, now behind us, could you share how the integration is progressing, your near term priorities as well as, growth achieved by the business in 2021 year to date?
I guess on your first question, integration goes well. We've obviously spent the last couple weeks now working together with the LendCare team, getting to know everybody, figuring out what each business's individual priorities and focus areas are. You know, we continue to have a heavy list of key strategic priorities that we're focused on. The launch of the auto product, the new core platform. LendCare continues to be focused on adding new merchants to their existing verticals, making improvements to their customer experience through their technology.
We've already started to now collaborate on ways that we can work together in the future, of which we highlighted some of them during our announcement of the transaction, which primarily revolve around being able to offer more of their customers loan products through our easyfinancial scoring models, and then also being able to cross-sell customers across the two businesses. We'll obviously start to explore when and how we implement those particular new initiatives over the next couple of months. Both businesses of course have quite a robust organic growth plan as it is now under one umbrella. We don't, we haven't broken out in our Q2 projections the exact split of the growth coming from the contribution of each of those two portfolios.
As our plan and our intent as we highlighted, when we made the announcement, is that these are really going to become one consumer loan portfolio and we'll just be providing the growth on a consolidated basis. As you can imagine, part of the strategy, which is to be able to move customers back and forth across products, means that cross-pollination, you know, is going to murky the waters as to what exactly belongs to each individual channel of distribution. It's really only going to make sense for that to be part of one consolidated loan portfolio.
Okay, great. I mean, part of the strategic rationale for the deal is that it expands your point of sale presence. Could you share how you think about customer acquisition economics for this channel and how that would compare to your branch and online channels?
Yeah, sure. Generally speaking, in our direct to consumer, we think of the branch and the online as direct to consumer, and point of sale as indirect. In that we're in point of sale using more of a B2B2C model where you're working through a merchant relationship and partnership. In the direct-to-consumer business, our marketing and advertising dollars, which, as you know, goeasy historically, has invested approximately 4%-5% of our annual revenues into, is where we acquire our customers. Through that channel, we would generally speaking, obviously ebbs and flows with the impacts of COVID as of late, but we would generally acquire a customer for around CAD 300 when you take our marketing and advertising investment over the number of new customers we acquire.
In the point-of-sale channel, because you're leveraging the traffic of that existent merchant base, you really have a cost of acquisition that's only two CAD. It's really just the operational transaction costs, if you will, of actually processing it, as that merchant partner really does the heavy lifting in promoting and advertising their products that drive the customer traffic. That difference in the cost structure, which includes both the cost of acquisition and the operating costs of the business because you don't have, you know, a big platform of retail branches, for example, is what enables that channel to be able to still generate comparable returns, comparable return on assets, even though it has a lower overall yield from the portfolio coming through, coming through point of sale.
Once a customer comes in through a point of sale acquisition, whether that be our existing business or LendCare, we will then over time be able, of course, to take off of those customers' other products. We've seen from our prior point of sale experience that over a quarter of our customers we acquire through point of sale, eventually migrate within that first year into one of our other traditional lending products. We don't know, of course, what that exact experience will look like as we start to work with LendCare, but we do think there will be, there will be an interest on those consumers' parts to wanna consider other products.
All right. Awesome. Last one for me. On the investment at Brim Financial, could you provide a bit more details as to the background of this investment? How should we think about the potential for goeasy to introduce maybe at some point revolving loan products?
Yeah, sure. The background thesis is, we've known about Brim for a little while, started to connect and talk to them about some of the things that they had on the go and some of their new business initiatives and really get to look at their platform and their technology carefully over the last 6 months. What really became clear to us is that their platform, their technology business enables 3 key features that are of interest to us. The first one is, they have a card platform that enables you to issue a variety of different types of card products. Cards connected to bank accounts, revolving credit cards, and prepaid cards. They offer these variety of card products.
We think from a product expansion perspective, in the future, some of those card products might make sense in our suite. For example, for the consumer that's just declined for unsecured credit, there might be an opportunity to offer a secured credit card similar to the one that Capital One would offer to its non-prime customers, where the customer puts forth some full or partial amount of security in order to get access to a card product that can build credit. On the upper end of our credit spectrum, and particularly now that we're moving more toward near-prime through our business and the acquisition of LendCare, we think there might be an opportunity down the road for a traditional non-prime credit card product.
In fact, if you look at, you know, kind of the largest North American peer group member, OneMain Financial, in the U.S., that's a product they've actually been working on and announced over the last year, and I believe they're bringing to market later this year as well. It has this card platform that we think can be useful to us in the future. Secondly, they also offer a kind of white label digital mobile customer platform. While we've done a phenomenal job at building a mobile-first web experience for both the main core websites and our application, we have not yet invested in the creation of a mobile app that creates another point of engagement with our customers.
As we think about expanding that product strategy and customers over time having multiple products, giving them access to a mobile app that allows them to interact and engage with us more frequently, we think is gonna deepen the relationship with the customer. They have that, and we think that's interesting. Then lastly, they also have a loyalty platform that uses the credit card rails to allow the participation in both issuing and redeeming points across different retailers that are part of the network. Of course, again, our view is over time, we wanna be able to strengthen the reward system for our customers.
Because they have these capabilities and this platform that really has a number of pieces that we need and want and are interesting to us, similar to what we've done in the past with those types of relationships, became this really great unique opportunity to take a small minority equity interest as we work together with the business. That also helped enable us to get some preferential commercial terms for the use of that platform in the future.
All right. Great. Thank you for your comments.
We have our next question coming from the line of Gary Ho with Desjardins Capital. Your line is open.
Thanks, Linda. Good afternoon. I just wanna dig into one element of your Q2 guidance, which is the net charge-off, CAD 36 million-CAD 40 million. Can you help me segment kind of what would be on a percentage basis roughly on the easyfinancial versus the LendCare side? Just wanna gauge kind of your expectations on a sequential basis relative to the 9.1% in Q1, and whether you're looking for, I guess, it sounds like some gradual increase as the portfolio normalizes as you've mentioned in the past.
I can start, Gary, and then based upon can add if there's any additional comments. Again, similar to my comment earlier, we are reporting the portfolio as one consolidated portfolio for the reasons highlighted earlier, as that's just inevitably how the portfolio mix is going to change and evolve through the, through the cross-sell of products that I highlighted. What I can tell you, just for some extra color there, is as you know, we had anticipated that our core easyfinancial portfolio would gradually migrate back to the range we originally provided for this year, which is between 10.5% and 12.5%. That was what we believe is the steady state and optimal range for our book.
Of course, down from where it used to be pre-pandemic as a result of the credit enhancements we've made and the evolution of the mix of our business. We expected that it would be around the second quarter, we would start to see the return to those more normal levels begin to occur. We are beginning to see a little bit of that trend back towards those more normal levels. We're not all the way back there yet, but some of that correction is occurring, and I would expect that provided that over the next several months, they begin to reverse some of the lockdowns and some of the things that are gonna drive growth occur, we will, we are right on track to drift to that exact range that we targeted.
What you also know, of course, is that the LendCare portfolio that we are inheriting has a, as we quoted before, mid-single digit loss rate performance. The amalgam of those, of course, produces a charge-off rate that, as we quoted before, would be around 10%. We will, of course, provide more clarity on what that consolidated portfolio looks like, now and in the future, when we put out the new forecast projections, in the next next quarter.
Okay. Perfect. My next question, maybe just on the liquidity. Hal, you mentioned almost creating the CAD 600 million financial flexibility currently. Wondering relative to the Q3 2023 run rate for growth that you published last quarter, where do you stand today factoring in the potential growth of the LendCare book over the coming years?
Hey, Gary. I think we'll be producing as part of our Q2 financial outlook. We'll be providing that guidance in terms of the liquidity runway as we integrate the LendCare portfolio. What I would say, though, is that, you know, the balance sheet's been in the best position that it's been in quite a long time. As we look at securitization, in particular, we've received quite a bit of expression of interest from our syndicate of banks that we deal with. We would be looking to upsize our securitization facility over the coming quarters, and that will unlock additional liquidity. Of course, we have a multi-year runway that would be available to us.
We would expect, notwithstanding the accelerated growth from both, the goeasy business and the new LendCare, business being integrated, that we'd have ample runway, over the next 12 to 24 months.
Okay. Thanks for the color for that. My last question, you just said numbers questions related to LendCare. On the corporate segment, will any of LendCare's corporate costs fall under there, or will it all fall through in the easyfinancial side? Any early read as to kind of what that day one credit provision might look like. I think, you know, you'll back that out in the adjusted EPS, but any color would be helpful.
Yeah. Hey, Gary. Just in terms of the bifurcation of overall costs, we would expect that a portion of the LendCare costs would actually be attributed to the corporate segment. Typical things like back office technology, admin, typical to what we currently do with our existing EFS and EH business on that front. In terms of the day one provision, we are still examining that and we'll be looking to provide an update as part of our Q2 earnings.
Hey, Gary, just to add to that, I think in terms of trying to model, you know, what does the provision rate look like for the business, you obviously have a good grounding as to where the provision rate of our existing business lies today.
I think you can, you can safely say that the provision rate on the portfolio we're acquiring from LendCare, similar to our business, is gonna be, you know, approximately the annualized charge-off rate. If you're using, again, a mid-single digit provision rate on the growth associated with the portfolio we're acquiring, that'll give you on a weighted average basis some sense and direction as to what that combined provision rate is likely to be. As Hal said, we do have some work ahead to still complete our analysis and merge all the financials and then be in a position to provide a new consolidated provision rate at the end of next quarter.
Yeah. Gary, maybe just to bolt on to that. As you might know already that LendCare was on ASPE reporting and will be required to convert them over to IFRS. There's some additional work to be done on that front as well.
Okay. Great. Those are my questions. Thanks very much.
Thanks.
We have our next question coming from the line of Stephen Boland with Raymond James. Your line is open.
Thanks. Just want to follow up to that last question because I guess I go back to your previous three-year guidance and that 10.5% to 12.5%. You know, to average even to 10.5%, you have to assume a pretty, I won't say steep, but, you know, you're getting into the 10%, 11%, 12% to get to that 10.5% average for the year. What's the real driver of that? Is that, you know, is it government subsidies kind of falling off? Is it growth in the portfolio, as you mentioned? Or what would be the real cause if you think that of that rate coming up pretty quickly over the next several quarters?
Really the same factors that we've seen cause the lower level of losses over the last period of the pandemic that are having the inverse correlation on growth. As consumers get more comfortable living in a state of the pandemic or as they come out of lockdowns and return to more normal spending behavior, you know, cars go back on the road and they begin to break down again. Summer camps look like they're now opening back up and families have to put kids in camp. All of those normal spending matters are what drive both the demand for credit and contribute to a more normal spending pattern that results in a standard probability of default for any given segment of customers.
We've modeled our credit tolerance to be such that the velocity of customers we approve and the credit profile of those customers we approve would have a normal run rate of losses in that 10.5%-12.5% range. Therefore, if the environment is more normal, regular, normal behaviors in terms of spending and financial household liability, that should be the range that our portfolio operates at. We intentionally try to manage the credit risk and optimize for that range because we think that's the way in which we maximize the combination of velocity and ultimately returns for the business. We could of course tighten credit criteria further and slow the rate of the change in the rate or even bring down further the standard go-forward rate on that portion of the portfolio.
That wouldn't be in the best long-term interest of the business. It's ultimately the reality of that, over the next several quarters, we should see and in fact, we hope a correction, because that would be the correction that also is going to lift and drive overall loan growth.
Okay, that makes sense. Maybe just a second. You know, another piece of your, of your guidance was the opening of locations. You know, it was 20%- 25% for 2021. I think you did 3% in this quarter. Obviously, COVID may be still impacting that. Is that prior guidance still achievable, that 20%- 25%? Like should we expect an acceleration for the remainder of the year?
Yeah, I think we'll still be in good shape to get to that range. As you noted, COVID, particularly in the first little bit of the year here, has slowed down some of that expansion effort. We will be heavily back end weighted in the year in terms of new locations. The vast majority of the locations that we have planned for this year, you know, we've already got leases signed up. We've got contractors assigned. You know, our real estate expansion plan is, you know, only being held up in the short term just as it relates to the complexities of dealing with health and safety protocols and lockdowns related to COVID.
As soon as those lockdowns start to subside in the next, you know, what should be hopefully a few months, depending on the course of the province, that will allow us to get in and quickly complete the real estate build-out. There might be a small bit of delay, but I would say generally speaking, we're still on track in the back half of the year to get to or very, very close to our real estate expansion plans.
Okay. Thanks, guys.
We have our next question coming from the line of Patrick Lauzière with Fiera Capital]. Your line is open.
Good afternoon. I think that was a mistake. I don't have a question. Thanks for your time.
Thanks.
Thank you. There are no further questions on the queue. I will now turn the call over to Jason Mullins for additional comments.
Well, thanks everyone for joining our Q1 earnings release call. We appreciate your ongoing support and we look forward to updating everyone when we release our second quarter results in August, where we'll have the opportunity to showcase the combined consolidation of the business and as noted, provide new long-term forecasts for the organization. Hope everyone has a fantastic day. Thank you very much. Bye now.
This concludes today's conference call. Thank you for participating. You may now disconnect.