Right. So we're at the top of the hour. I think we'll get started. Welcome everyone to the 22nd Annual Barclays Global Financial Services Conference. My name is Terry Ma. I'm the consumer finance analyst at Barclays, and we're very pleased to have Synchrony Financial with us today. We have Brian Wenzel, the CFO. Thank you, Brian.
Great. First of all, Terry, thank you for the invitation to come today. You know, maybe just before we get started, you know, this week is an incredibly somber week for this city, our country, and hopefully the world, with what happened on 9/11, and you know, just want to say it's not lost on our company or myself, the people that directly impacted and indirectly impacted, and hopefully we'll all take them, you know, some time this week to think about that because today, they'll never be forgotten in our history. So thank you again for inviting me.
Yeah, and thanks for coming. So I think with that, maybe let's just jump right into it. Let's start with late fees. You know, it's probably not top of mind for investors as it was last year, but maybe it's obviously still an important outstanding item that can impact the industry and the company. So maybe just give us the latest update on litigation and the range of potential outcomes you're preparing for.
Yeah, you know, first of all, if anyone probably believes me on late fees, I've been wrong every time I thought about litigation. So, I wouldn't think we're six months plus a couple of days into this, and we're still arguing, you know, the industry's, you know, and the chamber's arguing venue and standing. But, you know, there was a hearing on 27th. You know, you obviously can get the transcript from that.
You know, we'll see what the court has not ruled yet on venue and standing, but I think the important part of that that came out of that hearing in advance. The defendants most certainly had argued that we were the only bank with standing as part of the Fort Worth Chamber, and that, you know, some larger banks than us by size, maybe not by credit card size, but by size, you know, JPMorgan, Truist, I think, PNC, et cetera. They're also part of that chamber. So we'll see what happens there. You know, Terry, we approach this as the rule is going to go in place.
That's how we're proceeding, and we won't back away from that because we think whether or not, you know, whether it's litigation or otherwise, the administration and the regulators want to do something here, and similar to how you see it with student loans. So we're going to proceed as if the rule goes into place, and our partners are on the same page with us.
Got it. So on the topic of mitigants, you mentioned more than 60% of the mitigation efforts have been rolled out, last quarter. Can you maybe just talk about where you stand to date and what else is left on the pipeline rollout?
Yeah, you know, what we talked about in July was that first wave that's been completed. I mean, to send over 50 million CITs in a period of six months is just, to be honest with you, a very difficult operationally, but I, you know, I can't be prouder of the team for what we've done here. That's the first wave. We have several partners who, or a few partners that we've agreed to mitigants, that will roll when the late fee rule actually goes into place. So it's remaining waves there.
And there's continuing waves that happen as new accounts activate, and we have accounts that were issued in the last twelve months, where new will get change in terms, and then we'll certainly, if you are inactive, we'll roll those out. So we'll continue to roll them out. We continue to look at the performance of those and continue to evaluate other types of terms changes or product changes that may come into play, but that's not a short term, not in the short term.
Okay. And in terms of the amount of mitigants, you guys had initially guided to $650 million-$700 million in mitigants. Do you still feel good about that number? And how should investors think about how much actually comes through this quarter and next quarter?
Yeah, so it's first important to think about that $650 million-$ 700 million, and there's a combination of things that are in there. Number one, we had some slower volume, as there could be a potential negative reaction by some consumers to the term changes. Two, there was a big RSA benefit that happens, particularly when the rule, you know, as we planned it to go into effect October 1st, you know, plays through. As we sit here today, I think we're going to have to make a decision with whether or not October 1st becomes realistic, you know, or not. So I think there's a handful of moving pieces in there.
The way I think about it, Terry, this is the first quarter, which we'll have the full effect of the CITs in place, and you know, we're roughly 35 days into the quarter. You know, when you look at it as a whole, right, when I think about attrition, when I think about conversion to e-bill from paper, on the whole, it's met or exceeded our expectations. You know, we'll be back, I think in October, to give you more detail, exactly what came through financially and probably, you know, what our thoughts are. You know, if the rule had not gone into effect by October 1st, you know, what that new timing looks like, and you know, what the update could be to the financial profile of the firm for 2024.
Got it. And this is probably a good time to pause for the first audience response question. Can you just queue that up? So the question is, assuming no late fee cap, in 2024, what do you think is the incremental pre-tax income from late fees and litigation for Synchrony in 2025. Is it one, $550 million-$700 million, two, $700 million-$850 million, three, $850 million to $1 billion, or four, over $1 billion? Just queue up using the controllers in front of you. Oh, so 50% think it's going to be $550 million-$700 million, 34%, $700 million-$850 million. The remainder are above $850 million. You have any comments on that?
Uh, no.
Okay, fair enough.
Not how I would have voted, but yeah.
Okay, great. Maybe just turning to recent trend. Last quarter, you mentioned, you expected flat to low single digit year-over-year decline in purchase volume in the second half. How's spending shaping up so far in the third quarter across each of your sales platforms?
Yeah, you know, a couple of things. You know, the consumer, you know, and particularly the lower-income consumer, struggling with affordability, right? When you think about everything, utilities, rent, gas, groceries, everything just costs more. So they most certainly have been more discerning. I think when you move up the income ladder, we continue to see, you know, people pulling back on discretionary purchases, you know, not in a troubling way, but just pulling back. So I think that low single digit type sales number probably is still the right view.
You know, interestingly enough, we did have a, let's say, a stronger, you know, relative to current trends, a stronger, you know, Labor Day weekend, which partially was a lot of promotions in the home space, as well as back to school kind of coming through there. The important thing, you know, Terry, when we look at the spend and we pulled this data, we don't see signs of stress in the consumer. Like I pulled, and even though you had, you know, just really tremendous earnings out of Walmart and Target, when we look at spend on our cards for Walmart, Target, Costco, BJ's, we do not see any shifts in behavior. So people aren't trading down yet to, you know, those types of discount retailers.
When I look at, you know, and I got it over the weekend, thank you for having this conference on Monday. ATF and ATV, we're not seeing troubling signs, right, relative to where the consumer is going. So the consumer right now is more managing than it's doing anything else, which we feel good about. You know, I know there's a ton of focus, and you may get to unemployment rate, but the unemployment rate is more people trying to enter the job market and losing jobs. So again, we don't feel the pressure yet that the consumer is under duress. It's just more discerning given affordability.
Got it. Any noticeable differences in spend behavior between lower income versus higher income?
Yeah, I mean, we continue to see the same trend. So if you think about being a low single digits, you know, your lower income lower credit score, like, folks are down high singles, and then you have positive variances when it comes to, you know, the higher income, higher credit grades. You know, and one of the things when you look across the board, and I talked about, you know, pulling back on discretion, and most certainly, you know, home and auto lifestyle for us feel a little bit more because they are more discretionary, they are more bigger ticket. But we're starting to feel it even a little bit in health and wellness, where you see some of the more discretionary oriented purchases, whether it's cosmetic, LASIK, pulling back, so that's demand.
Again, that demand ultimately come back, you know, it just gets deferred to a large degree in an environment like this. But it is, you know, generally across the board, and it's more discerning to discretionary versus non-discretionary.
Got it. Helpful. Maybe just turning to credit. You indicated last quarter you expect delinquencies to be in line, or better than normal seasonality in the second half. You're also expecting second half charge-offs to be lower than the first half. July managed data showed a continuation of maybe the delinquency trends, August as well. You guys saw the 8-K. Maybe just talk about how the third quarter is shaping up and what gives you confidence in the charge-off guide.
Yeah, you know, as you enter the back half of the year, when you think about delinquency, your losses are contained in the delinquency formation at that point. So you have some line of sight into the back half of the year. You know, unfortunately for us, being such a large credit card issuer, we have variation in cycles, which makes it a little bit difficult for people to discern, or do extra math in order to kind of get it right. You know, we printed a loss, you know, charge-off rate for August that was, you know, five-seven, but we had less cycles. I think when you cycle adjust it and then you go back to seasonality and just seasonality for the change in average balance, we generally continue to see improvement.
We're seeing sequential improvements as I go year over year, is what we expected. You know, some people are talking about we're not seeing the same seasoning as ours. Our new accounts didn't balloon during the post-pandemic period, so we're more the effect of others who have issued a lot of credit into the consumer space, some which probably shouldn't have been there, that we have a shared consumer. But, you know, we feel good about the trends, you know, how they're developing. You know, now we're saying what, you know, we're entering a period where we should start to see some of the credit actions that we took in the early part of the short begin to take effect, and that's something we'll watch closely as we move through the back half of the year.
Because, you know, the effects of that generally are about a year out, so we should really see the effects in the first quarter. But you should start to see some impact. Most certainly, the way in which we've adjusted new account origination, we have seen the benefit of that kind of coming through, and it's been reflected in our new accounts. So the credit, you know, for us, we haven't been as volatile as others. You know, slightly higher than our historical period, you know, our historical trends, but we continue to manage and generally feel good about the profile.
Got it. And you touched on the unemployment trend or the unemployment rate a little bit. Is that something you're concerned about? And have you seen any early signs of higher unemployment take effect on your portfolio?
No, I again, I think, I think you have to get to why did unemployment go up. There were more people looking for jobs, but no, it has not. There's been no discernible change when we look at collections and what's flowing into collections, how people are settling in collections, yeah, you know, related to unemployment at this level. You know, a move, a movement of 10 basis points or 20 basis points isn't that really meaningful, to be honest with you, from a reserve standpoint or from an actual flow-through effect to our books. So no.
Got it. And longer term, you guys have kind of indicated that 5.5%-6% net charge-offs is kind of the right way to think about where losses drift back. Maybe just talk about the timeline to get there and what gives you confidence that you will get there.
Yeah, you know, look, I'll start with the last point. What gives us confidence is that's where we underwrite to. You know, we look at probability of default, exposure at default, and we're trying to manage inside that range. Because when we look at that range, when I look at the revenue that comes from it, so risk-adjusted, that gives us the most optimal return for value, right? If we underwrite before that, we're going to have to, you know, in theory, enhance the revenue profile in order to make it meaningful to do that. So we're targeting that across the board, and we do that at a partner and channel level. So that's what we have. Now, you do have external influences.
You know, I talked about, you know, historically, you know, this industry put out two of the largest vintages ever the last couple of years. People expanded their credit boxes in order to kind of gain share during the post-pandemic period. There was too much credit put into the system across the board at that point, and that flows through for all issuers. That's why you see people have loss rates that were, you know, 3% or 2% being above that now. There's just too much credit in the system. So that will work its way through. You know, we look at the way in which our trends on delinquency have moved, and we ultimately feel we will, you know, migrate back to that level. You know, we haven't given guidance beyond 2024.
In 2024 , we focused more on EPS, giving the moving pieces with late fees. You know, we're back in January and give you a view probably on a loss perspective, where we expect that rate to be for full year 2025.
Got it. Maybe just to follow up on that point, on the two larger vintages, which I think you're talking about 2021 and 2022 Any color on how 2023 is performing, the 2023 vintage relative to 2021 and 2022, and then also relative to what you saw pre-pandemic?
Yeah. We tend to break vintages into six-month snapshots. So when you look at first half of 2023, that's performing better than 2021 or 2022, but, you know, probably not in line with 2018. Second half of 2023, first half of 2024, which is early, are performing better than in 2018. That tells us the underwriting actions we took and put in place during that period had that desired effect, as it goes through. But again, you know, we wouldn't upsize our vintage level, like many others during that 2021 and 2022. So it's not as pronounced, the impact on our portfolio versus others.
Got it. That's helpful color. Maybe turning to the reserve ratio. You indicated you expect to end the year with a flat reserve ratio relative to year-end 2023. You know, does the recent unemployment number change that qualitative portion on the reserve? And maybe asked another way, what level of unemployment does your reserve actually contemplate?
Yeah, you know, we got it to a flattish end of period. You know, I don't think. You know, between here and the end of the year, it, unless there's a significant movement in unemployment, I don't expect it to have a material effect on the reserve per se. I think when you look at 3Q versus 4Q, you know, the question for us will be: Do we have better line of sight on the macroeconomy, and what's happening here? Well, certainly, I think the market expects the Fed to cut rates, you know, I think on the 18th, when they meet or third week of September. You know, we'll see what they do there and see how much they do there, but we're in the reserve-setting process now.
I don't think that unemployment in and of itself will change our view that at the end of the day, it will be flattish, whether that's more 3 Q or 4 Q. Again, you're going to have pulse. It just may be you have growth pulse offset by rate, you know, in 3 Q or 4 Q.
Got it. Then the reserve ratio, if you exit the year flat relative to 2023, it's going to be about 40 basis points above CECL day one. Is CECL day one still the right reference point for investors to kind of anchor to? And what do you need to see to actually have you release reserve ratio back down there?
Yeah, you know, first of all, let's make sure we level set on what the kind of day one CECL was, which was day one and only day one because of the pandemic and things that happened. It was a 9.9% rate. When you adjust it for the change in accounting for TDR, it's probably 9.6%. If you think about a flattish, you know, reserve rate being around, you know, I think it was 10.3% end of last year. That 10.3% number is probably, you know, 60 basis points or 70 basis points. There's nothing structurally in the portfolio that says we can't get back to that day one rate, to be honest with you. So we expect it to migrate there over time.
It's just, you know, most certainly when you think about the reserving methodology today and your qualitative overlays, it's just, you know, when does the macroeconomic environment clear it up, where you don't have a lot of that concern? You know, most certainly if I go back to the end of 2019 to 2020, I don't think we had macroeconomic concerns. There was concerns about a pandemic, which we all probably got differently, wrongly, because I don't think we expected the world to shut down the way it did. But there wasn't a big macro concern back in 2019 to 2020. Maybe there should have been more, but there wasn't. So I think when that clears, we'll migrate back towards that level. There's nothing structurally that's different.
Got it. Helpful. Switching gears a little bit to talk about partnerships. Can you maybe just touch on the market for co-branded and private label? What are you seeing, with respect to competition, especially from the new, newer startups entering the space? I think a company called Imprint recently picked up Brooks Brothers. Any comments on that?
Yeah, you know, the marketplace, you know, remains competitive, for the most part, rational. I'd sit back and say, you see in different spots, different players, historically. So where it was a Cap One at a certain point, you know, a Citibank at certain points, you know, Barclays has become more active. You see other kind of, you know, other issuers coming in, whether it's U.S. Bank, et cetera, for certain types of relationships. I think we continue to see that. It's going to be interesting, the dynamic that develops here in, you know, probably the next two years. You know, you've got, Cap One, which is, you know, very, very focused on closing the Discover transaction, so we'll see what their participation rate is within, within the space.
You know, Citi, Citi most certainly has realigned some of its business, and whether or not they continue to have some focus on the retail part of their business, and they just want to hold what they have. You know, Barclays continues to be an aggressive, you know, suitor in the space, but again, they've had some RWA management issues here in the U.S., so we'll, you know, see how that plays through that. Those are things that we'll have to watch, but you know, again, for our existing clients, we try to win them every day. For the ones that we're going after, you know, we're going to be very disciplined on pricing.
You know, we'll always price recession through the contract life, because if you do a seven-to-ten-year deal, you probably will see a recession. We're probably not the lowest priced company, but we think we have the assets that demand a premium price and value proposition that demands that. So there's competition. I wouldn't say it's shifted a lot. I think the dynamics in the industry, you're going to have to see how people react here in the next couple of years.
Got it. In terms of renewals, are there any material partnerships coming up from renewal on the horizon, either in your portfolio or maybe out there? Obviously, Walmart's out there. Can you maybe just talk about, broadly, your approach at selecting retail partners separately?
Yeah, let me start where you ended. Like, how do we select partners? And this is an important piece for us. We want someone who views a credit program as something that's integral into their value proposition. It's one that's going to focus on their loyal customers. It's part of their business model. It's supported fully at the C-suite level. That gives you great engagement rate relative to the program and importance. For someone who just wants to use it as a vehicle to try to extract or monetize their customer base is probably not a partner for us. I think you look at loyal customers, so you look back to, you know, Venmo, Verizon and Walgreens, the last three big, you know, de novo programs we launched.
They were programs that had customers who were very loyal to their brands, very strong brands. You didn't see people flipping around between Walgreens and CVS and Rite Aid. You know, most certainly once you engage with the phone, you're not probably switching between Verizon and another carrier. You know, Venmo, once you get used to a cash transfer app or a payment-to-payment, you know, vehicle, you're not flopping around. So that's important to us. It's important to them and how they drive value with their customers. You know, you know, we expanded Verizon, but the important part of Verizon was we also added equipment financing now. So we're able to expand, you know, given our product suite into a multi-product setting. So when I think about, you know, relationships, it's really where the customer wants to go.
When you talk about our existing customers, again, I think we have well over 90% of our contracts from 2026 and beyond. There are a few that are kind of coming up here that, but again, you know, we work to try to extend these ones every day. If there's natural points which we can extend before it gets closer to maturity date, we'll do so. But we like the brands we're with, and we like the opportunities that are on our pipeline today.
Got it. What about sales platforms? Any particular sales platform you have, you're looking to build out or increase exposure to?
Yeah, you know, the two platforms that I'd say stand out, number one is health and wellness. It has a tremendous market presence. It's one where we have tremendous connectivity with providers. We've overindexed into our investment into that platform. So I think as you look both, you know, you can see the effects over the last, you know, 18 months or so. But look forward, you're going to see that platform overperform and overindex relative to the company average. And we're looking at that space as far as the number of specialties we're in, and the specialties we're not in that we think that have a good opportunity for us to continue to expand and go into.
The other space I'd say you see us kind of going to a little bit more the digital platform. That will overindex relative to growth versus the others. And there, you know, we just have some exciting partners that continue to grow in this environment. We have expanded relationships, and, you know, you probably saw, you know, we-- you know, a deal was announced with Apple Pay, where our product will, you know, as one of three, you know, as of now, one of three banks in there. If you look, you know, closely at the press release of our product, that shows in there that you have installment financing now on cards that can be loaded into the Apple Wallet. So you'll see that on our Synchrony Mastercard that's in the wallet.
You know, we'll be out the early part of next year with installment financing. And listen, Apple is just a tremendous, a tremendous company. Their customer experience is terrific, and I think you partner that with, you know, someone like us who has tremendous scale and the ability for us to get more cards into the Apple Pay ecosystem, we'll be able to drive that forward. So we're excited about that opportunity, but it comes from scale, it comes from having multi-products, et cetera. So I think you'll see us overindex in those two platforms, particularly, you know, over the course of the next couple of years.
That's helpful. Maybe just turning to receivables growth. You've generated double-digit loan growth in 2022 and 2023. Any color you can provide on the drivers there, i.e., how much has come from the rebuilding of balances from existing customers versus the acquisition of new accounts?
Yeah, so Terry, I mean, you go back and look at our new accounts. Our new accounts have did not materially change pre-pandemic, post-pandemic. Obviously, during the pandemic period when you had maybe less in-store traffic, our new accounts were down, but we had we never flexed new accounts, so it's not really coming from there. Most certainly, I think as you exited the pandemic period, the flow of money to consumers drove, you know, velocity higher. So a lot of the growth in the last couple of years has been more purchase line growth. Now, I think as you see purchase line coming back to more normalized levels, you also see payment rates coming back, albeit not back to its pre-pandemic period. So you're getting a little bit of asset build from the payment rate.
But again, historically, it's been a little bit more purchase volume. Most certainly, I think this year you see a little bit slower purchase volume, a little bit more coming from, again, a payment rate. But a payment rate that's still, you know, meaningfully above historical levels. So it's not a troubling fact that we're seeing growth come from there.
Got it. You indicated you expect receivables growth to continue to moderate year over year, and end the year with 6%-8% receivables growth. Is that still the case? And then maybe just talk about longer term, what's the right level of growth in this business?
Yeah, you know, we guide our long-term financial framework between 7% and 10%, which is, you know, two times or so GDP. And that really goes back to the fact that we are engaged with consumers who are the most loyal, you know, customers of our partners. So we expect above average growth, excuse me, relative to GDP. You know, when I think about this year, most certainly this year is a little bit more transitory with regard to the macroeconomic background kind of playing through. But again, I think you think about a business that should generate 7%-10% receivable growth per annum. Again, that's an average rate. Some years it could be a little less than that. Some years, as you saw during the pandemic, a little bit more than that.
But again, we're not necessarily growth at all costs, and that's why we didn't necessarily change our credit box or other things as we moved into the pandemic. It's more about being consistent with our partners. You know, our model, because we're tied into partners, you can't come on and off credit or other things. You need to be there consistently, you know, through them, both in good times and bad times.
Got it. Can we just queue up the last audience response question? We have about ten minutes left. So over the next year, would you expect your position in Synchrony to, one, increase, two, decrease, or three, stay the same? Okay, so the majority, 53%, stay the same, 29% increase. So relatively bullish. Do you want to comment on this one?
Yeah, you know, listen, I think for number three, for people who say stay the same, you know, I presume that many investors right now are just trying to focus on, hey, listen, what's happening with late fees, and how do we get through the macroeconomic? I think as those two things clear, I think more people will shift relatively short. But I go back to, you know, Terry, fundamentally, the investment thesis in our company, you'd want a company if you want to have probably above average growth when it comes to receivable, a higher returning, you know, portfolio over the long term, right? ROA, most certainly, it's been, you know, a little bit pressured with higher interest rates, and then a capital structure that has excess and a better return.
That, you know, to me, a strong investment thesis, and I think you just got to work through a little bit of this cloudiness relative to late fees in the macro. And I hope we get more one than two.
Good. We have about seven minutes left, so I'll just open it up to the audience for questions. We have one up front over here.
Talk about the potential kind of regulatory outlook under both a Republican and a Democrat administration. On the one hand, Democrats, especially the CFPB, have been pretty activist in terms of consumer protection. We can argue whether they're actually protecting the consumer, but actually, already even the conservative courts have overturned a number of kind of regulatory decisions. So how do you see the sort of the variables looking forward?
Yeah, you know, one of the fortunate things of being in business over ninety years, you learn to live with both sides of the parties, Republican or Democratic, and we'll just work with whoever. I mean, you know, I think if you ask which is better for you know, business, one would argue, you know, one administration, one argue the other administration. Most certainly, we expected a probably more active regulatory market. Most certainly, the regulatory framework has been a little bit more aggressive given some of the bank failures that you've seen. So, you know, we continue to work forward, and it's just an environment we prepare for.
You know, most certainly, if we think that there are things that happen that are not in line with law or done fairly, you know, we'll work with others to try to push back on that. Late fees being a great example. It's the most transparent fee ever known, and if you just pay it on time, you never get to pay. And so to put adjectives on, like it's a junk fee or things like that, and then you know, put a law out that we feel it's not complying with the Card Act, you know, the industry will take action, and we'll continue to do that. Whether that's Republican or Democratic, you know, we'll work through it.
You know, that's the one thing about having a long history is you understand you need to work through, you know, different types of regimes and philosophies relative to regulation.
We have one question up front here.
Why do you think Synchrony has had such long-standing relationships with partners such as Lowe's? And is there ever a concern about concentration risk having such large partners in your portfolio?
Yeah, you know, to answer the first one, you know, we work hard every day. Our culture is around being partner-centric, right? So if I sat back today, I wouldn't be surprised that if this is 9:00 A.M. on a Monday, that we have people in Lowe's offices that are going through what sales happened over the weekend. We understand how to operate with that. That's our core. And I think, you know, what people struggle trying to come into this space is, how do I replicate that model? You think it's like issuing a credit card, it's really not. So I think it's built up over a lot of time. Our ability to execute both in store and digitally and know what works gives us a competitive advantage.
That's why I talk about, you know, hopefully getting a higher return for our value proposition. We know how to execute in the space. Most certainly, I think for a lot of different reasons, we watch concentration. We have some very large partners, which are great, and we know how to operate within that. We know how to plan our capital around that, but it's one that doesn't drive us away from the marketplace. We're uniquely, you know, situated here. We're not going to pivot and go right and do other products. This is what we do, and I think it's a barrier to entry. Even some, you know, names that come in, and one, you know, large relationship from us, they have not done very well when they left us.
It's a really tough marketplace to work in and execute it, and that's why we've been focused on it since, you know, 1930 s doing it. So we love the partners, we love you know, alongside our partners some of which have been with us, you know, four plus decades.
Any other questions from the audience?
Could you just talk about the capital structure a little bit? There's been a remix from CET1 to preferred equity over time. So just, you know, maybe let us know if that's kind of steady state, if there is more preferred that you can see in the capital structure, and maybe even other types of instruments like Tier two and the total capital stack.
Yeah, so I think over the last five or six years, you've seen us develop the capital stack. We had CET1, and to be honest with you, above our target CET1. As we move closer to our target, in order to maximize Tier one risk-based capital, we wanted to make sure that, you know, I'll start with Tier 2, that we had enough subordinated debt in there to maximize the risk-based capital, so that didn't become a binding constraint. When you think about Tier 1, getting enough preferred out there where you can maximize that, we're not quite there yet. We probably have another $200 million-$300 million of preferred to go in order to fully maximize, you know, our Tier 1 ratio, and we continue to look to take our CET1 down to get down to target.
You know, there's been a lot of discussion of our company about our ability to get to target and whether or not we would or could. You know, this company, back in, I want to say, 2016, had a 17+% CET1, and we've migrated that down into the 12s, and we're going to continue to go. And there's a pace and a cadence as you bring your stakeholders along with you, whether that's the regulators, the rating agencies, most certainly investors. So we're focused on being efficient there. So the only thing I'd say left is we have a little bit more preferred in order to be optimal relative to making sure we don't have a binding constraint on Tier 1 or risk-based capital.
I think we probably have time for one more there, Ernie. Okay, I think that's a wrap.
Terry, I appreciate the opportunity today and, you know, great attendance at the conference, so thank you for inviting us.
Thank you for coming.