Welcome to the Synchrony Financial First Quarter 2020 Earnings Conference Call. My name is Vanessa, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded.
I will now turn the call over to Mr. Greg Ketron, Director of Investor Relations. Greg, you may begin.
Thanks, operator. Good morning, everyone, and welcome to our quarterly earnings conference call. Thanks for joining us. In addition to today's press release, we have provided a presentation that covers the topics we plan to address during our call. The press release, detailed financial schedules and presentation are available on our website, synchronyfinancial.com.
This information can be accessed by going to the Investor Relations section of the website. Before we get started, I wanted to remind you that comments today will include forward looking statements. These statements are subject to risks and uncertainty and actual results could differ materially. We list the factors that might cause actual results to differ materially in our SEC filings, which are available on our website. During the call, we will refer to non GAAP financial measures in discussing the company's performance.
You can find a reconciliation of these measures to GAAP financial measures in our materials for today's call. Finally, Synchrony Financial is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by 3rd parties. The only authorized webcasts are located on our website. On the call this morning are Margaret Keane, Brian Wenzel and Brian Doubles. I will now turn the call over to Margaret.
Thanks, Greg. Good morning, everyone. Today, our country and the world are facing an unprecedented global pandemic. I want to start by first thanking all of those working around the clock, especially our healthcare professionals and first responders on the front lines, as well as those behind the scenes, including our dedicated employees who are working to serve our customers and partners. While all of us have been impacted in different ways and we may suffer from sadness and loss, I am also encouraged and inspired by the resolve of our society to come together in this crisis.
I've seen much goodness, selfless acts and community support. It is certainly one of the things I hope continues long after this is done. I also commit to our employees, our partners, our customers and our communities. We will continue to do all we can to support you. This global health crisis is challenging us as individuals and as leaders.
It is also challenging companies to execute in an extraordinarily difficult environment. And one more word of thanks here to the leaders in Synchrony who have stepped up in so many extraordinary ways through this incredibly difficult time. Thank you. Our company was founded in the 1930s as we began financing refrigerators in the Great Depression. And Synchrony has faced many other difficult periods, most recently the great financial crisis in 2,009.
It is the combination of our heritage, strong culture and our talented associates that will enable us to use our strengths to navigate these uncertain times, protect our employees and continue to deliver for our cardholders, retailers, merchants and providers. Later in the call, I will provide greater details in our response to the COVID-nineteen outbreak. But first, let me share with you our results for the Q1. First quarter earnings were $286,000,000 or $0.45 per diluted share. This included an increase in provision for credit losses as a result of the CECL implementation in January.
The increase attributable to CECL was $101,000,000 or $76,000,000 after tax, which reduced EPS by $0.13 We generated solid growth in several key areas during the quarter. On a core basis, which excludes Walmart and Yamaha portfolio, loan receivables grew 4%, which drove a 5% increase in interest and fees. Purchase volume increased 6% and average active accounts increased 4%. The efficiency ratio was 32 point 7% for the quarter. We grew deposits over $500,000,000 or 1% over last year.
And although we slowed the growth of deposits given the excess liquidity from the Walmart portfolio sales, we did continue to grow lower cost direct deposits at 3% rate over the prior year. Our direct deposit platform remains an important funding source for our growth and we continue to invest in our bank to help attract new deposits and retain existing customers. We extended an added partnership. We renewed several key relationships and we added to our growing CareCredit network. We continue to be excited and are working closely with Verizon and Venmo to launch these new programs during 2020.
While the ultimate launch dates for the programs will be dependent on how the current environment develops, we anticipate a mid year launch for Horizon and a launch in the second half for Venmo. We continue to remain highly focused on digital innovation, accelerating our data analytics capabilities and creating frictionless customer experiences, which are key to the success of our programs and winning new relationships. Driving digital sales penetration is key to our success. In retail cards, digital sales penetration was 41% in the 1st quarter and digital applications were 56% of our total applications. The mobile channel alone grew 34% compared to the same quarter last year, excluding Walmart.
During the quarter, we repurchased $1,000,000,000 of Synchrony common stock and paid $135,000,000 or $0.22 per share in common stock dividends. We are pleased with the strength of our business. However, we did experience a significant reduction in purchase volume from COVID-nineteen in the second half of March, which Brian will cover later in the call. The ultimate impact from this crisis is very difficult to quantify right now, with the duration and magnitude still largely unknown. However, we believe we have an advantageous position to navigate through this uncertain time.
Our portfolio is well positioned from a credit perspective given changes we have made since the great financial crisis, in addition to some of the more surgical modifications we've made in recent years. Further, our RSAs have historically proven to be an effective buffer during times of stress. We have a partner centric business model and are more nimble than ever, giving us the ability to rapidly implement changes and enhancements. We have also built a robust data lake that gives us access to information across the business at an unprecedented level. Combine that with our analytics capabilities and we have another powerful tool to help our partners manage through this period.
The digital capabilities we've built, which have helped us win important digital partners, are another crucial tool in empowering our partners across the business to manage through this time by helping them to shift volume to online and mobile channels. Now, I would like to spend some time focusing on the actions Synchrony has taken for our employees, partners and communities. We have taken these actions in the spirit of assisting the communities in which we live and operate to assist in stemming the global health crisis, while still meeting the needs of our cardholders, retailers, merchants and providers. Each action we have taken has been with empathy and consideration for each constituency and we will continue to act as this crisis evolves. Our employees are the strength of our company.
We moved quickly and decisively to put actions in place that support the health, wellness and safety of our colleagues across the globe. We are implementing a plan for 100% work from home structure. In the U. S, employees from across our company, from support functions to our frontline contact center associates are all working from home. This has allowed us to stabilize our operations and service our customers while keeping our employees safe.
We are assisting our associates by covering the cost of co pays for virtual doctor visits for any employees who wishes to consult a medical professional and enhancing our benefits to include expanded backup emergency care benefits so that our colleagues have the childcare or eldercare support needed. We are also providing financial planning and employee assistance along with wellness programs. For our contact center associates, we provided a one time special bonus to thank them for their essential role they are playing in assisting our customers every single day without missing a beat. In addition, we are setting up an emergency fund to help our associates deal with unexpected financial challenges, which may impact them during this period. For consumers that are experiencing financial hardship, we have the ability to assist these cardholders during this extremely difficult period.
We will waive fees and interest charges, while we can extend promotional financing period. We will also waive minimum payments on existing balances for certain qualifying accounts. With those seeking the ability to expand their line for necessary purchases, we will evaluate credit limits if they meet our credit criteria. Many of our partners have been with us for decades, and we have been there to help them grow their businesses. We are now here to help them protect it.
We are taking an aggressive approach to ensure we continue to provide our partners and their customers with dependable service and products that they can use during this time of disruption. Our investments in making all of our digital assets fast and easy to use are helping them to serve their customers. And our relationship managers are actively helping them and there has been no disruption to their availability to our partners. Our agile structure is helping to foster real time solutions and our dedicated teams are tirelessly working to support our partners and their customers. The communities where we live and work are such a core part of the fabric of Synchrony's culture.
That's why we've committed $5,000,000 to help local and national organizations assist those areas of the country most affected by COVID-nineteen. We will be supporting groups like Feeding America and Meals on Wheels in the U. S, as well as organizations in Puerto Rico, India and the Philippines. Also, our employees have contributed numerous hours to Synchrony's TRF initiative. Employees have engaged in our communities to assist in making certain protective devices such as face shields using 3 d printing, as well as sewing gowns and masks through our network of cardholders who are actively engaged in the sewing community, where we have a number of partners who sell sewing machines.
We have also leveraged our CareCredit network and Synchrony is serving as a location in our communities where people can donate PPE items and we are engaging in the transfer of items of need to various medical facilities. We are facing an extraordinary and unprecedented time. But Synchrony has the strength, the resources and the resolve to fight this global health crisis for our employees, partners, customers and communities. Having been in business for nearly a century, we have navigated various times of economic uncertainty by maintaining our focus on supporting our associates, partners and their customers, but also continuing to invest in our businesses for the long term. I am proud of what actions we have taken for our constituents.
And I have confidence that through the strength of our business model and balance sheet, we will continue to navigate this crisis successfully, while maintaining our focus on the significant opportunities in our business, our long term objectives and strategic initiatives. With that, I'll turn the call over to Brian Wenzel to review some of the key business trends we are seeing, the financial performance for the quarter and views on a framework to help consider the impact of COVID-nineteen on our key outlook drivers.
Thanks, Margaret, and good morning, everyone. First, let me echo Margaret's thanks for everyone who's working to keep our communities safe and secure from our healthcare workers, first responders to those in grocery stores or working on vaccines. The selflessness and dedication of these workers is awe inspiring and deeply appreciated. In addition, I want to thank our employees around the world for all adjusting to new ways of working to continue to serve our partners and customers. Thank you.
Now turning to our financial results for the Q1. I'll start on Slide 4 of the presentation. Before I move into the Q1 results, I want to cover some of the early trends we're seeing from the impact of COVID-nineteen from a purchase volume perspective as well as key aspects of our business that are important to highlight given the current environment we are now facing. Slide 4 shows the year over year purchase volume growth for the total company as well as for world sales from our dual and co branded cards for January, February March. March is split between the first half of the month and then the second half where the impact related to COVID-nineteen increased significantly.
Purchase volume growth was strong through mid March with double digit growth for both total company and world sales volumes. In the second half of March, as mandates increased at the federal and state levels, travel, entertainment and event activity were significantly curtailed and a high number of deemed non essential retail stores closed. As a result, purchase volume for both the total company and world sales declined significantly, decreasing by 26% 27% respectively in the second half of March. The trends are continuing into April. Looking at the year over year growth rates of world sales by category, during the pre travel restriction period defined as the month of January and then the growth post travel restriction period through the end of the Q1, we expect changes in spend categories similar to overall industry trends.
Grocery, discount, drugstore spend increased significantly post January, while restaurant, entertainment, gas and especially travel declined significantly during the same period. While restaurants, entertainment, gas and travel were significantly impacted, only 27% of the 2019 world sales incurred in these categories. Obviously, these are trends that will impact our purchase volume and loan receivable growth going forward. The ultimate impact is still uncertain given the duration and the magnitude of this pandemic is still largely unknown at this point. Moving to Slide 5, we highlight the higher quality asset base today versus our 2,008 asset base going into the great financial crisis.
This is a direct result of our strategy to improve asset quality through disciplined underwriting and advance we've made in our underwriting processes that have been very effective in managing overall credit quality. I'd like to highlight various aspects of our credit management program. 1st, we have a very experienced credit team and we're very disciplined in our approach to underwriting. 2nd, we control all underwriting and credit decisions in our programs and across our sales platforms. Our credit strategies are tailored to the partner industry in which we operate and is unique by channel for origination and account management.
As shown on the left side of the page, using FICO as comparative measure, 73% of the portfolio has a FICO score above 660 compared to 61% in 2,008. More importantly, in the higher loss generating FICO range of 600 or lower, we've reduced our exposure to 9% of the portfolio compared to 19% in 2,008. This is a significant improvement in portfolio quality. We shifted 12% of the portfolio from balances atorbelow660 FICO to above 660 FICO with a 4% increase in balances with FICO's that are 7.21 or higher. As we exited the great financial crisis, we made the strategic decision to improve the credit quality of our portfolio, and this is reflected in the quality of our new account origination mix since 2010.
Over 80% of the accounts we've originated since 2010 have FICO's above 660 with 45% of the accounts having FICO 721 or higher. Less than 1% of what we originated had FICO's that were 600 or lower. We are also using advanced underwriting techniques in managing the portfolio. Some examples of this are, for account acquisition, we're utilizing up to 16 different data sources and more than 4,000 attributes to value creditworthiness and to authenticate customer identity. We are employing a multi algorithmic approach to target specific outcomes, credit, fraud, synthetic IDs and other malicious behavior as well as leveraging client specific data to use customer engagement with our partners to assign more effective credit lines.
For account management, we're continuing to utilize internal and credit bureau triggers to dynamically reevaluate a customer's creditworthiness to manage credit exposure as well as leveraging the latest technology to passively authenticate customers and more selectively target iris behavior. This is evident in the improved purchase volume mix from the time we deployed these underwriting techniques in 2016. The chart on the right hand side of the page shows the improvement in the purchase volume mix from Q1 2016, which shows 65% of the purchase volume mix being at a 7.21 plus cycle for the Q1 compared to 61% in the Q1 of 2016. Finally, it should be noted that our portfolio is well diversified by industry and we've been growing payment solutions and CareCredit portfolios at a faster rate than retail card and we don't have any significant geographic concentrations. In summary, we have substantially improved the asset quality of our portfolio compared to the portfolio we had during the great financial crisis.
We have developed better tools and capabilities and can deploy underwriting changes more quickly and with greater efficacy than ever before. Slide 6 shows you a longer term view on how we performed from a loss perspective, dating back to the great financial crisis when loss rate for card issuers peaked in 2,009. The general perception is that private label credit cards will perform slightly worse than general purpose cards in periods of higher credit losses. But you can see in the top chart that our credit performance was relatively in line with general purpose card issuers in the 10% to 11% loss range in 2,009 on a managed basis. One of the keys to the loss experience being similar is that the severity of loss is lower for us due to the average balance being generally lower than general purpose cards.
For the Q1, the average balance per active account was $11.71 which is flat to last year. If you look at this on a risk adjusted yield basis, we outperformed the general purpose card peers by a wide margin through the crisis with our risk adjusted yield growing over 700 basis points higher than the peer group. As we move beyond the cycle and losses have declined, our risk adjusted yield outperformance compared to general purpose card issuers has remained over 600 basis points post crisis. RSAs also provide a buffer. This was evident in 2,009 and again beginning 2016 through 2018 as credit costs increased as shown in the chart in the lower right hand corner of Slide 6.
While the driver of the countercyclical nature of RSAs are credit related, other factors also impact the RSAs such as program revenue, expenses and mix. In 2,009, RSAs as a percentage of average receivables declined to 1.6%, 64% below the more normalized RSA average of 4.43% from 2013 through 2016. The strong risk adjusted yield and countercyclical nature of RSAs were important elements in our ability to remain profitable through the great financial crisis as both highlight the earnings resiliency of our business model. The company generated around a 1% return on assets at the height of the crisis in 2,009. Given the items I've highlighted earlier, while we're not expecting the level of charge offs resulting from the current situation to be similar to the great financial crisis, we felt it was important to give you some historical context on the key elements that sets our business apart from others in the industry.
Moving to the Q1 financial results on Slide 7. This morning, we reported 1st quarter earnings of $286,000,000 or $0.45 per diluted share. This included an increase in the provision for credit losses as a result of the implementation of CECL in January. The increase was $101,000,000 or $76,000,000 after tax, which reduced EPS by $0.13 We generated solid year over year growth in several areas as noted on Slide 8. On a core basis, which excludes the Walmart and Yamaha portfolios, loan receivables were up 4% and interest and fees on loan receivables were up 5% driven by growth in receivables.
On a core basis, purchase volume was 6% and average active accounts increased 4% over last year. On Slide 8, we've included dual and co branded card purchase volumes and loan receivable balances to provide the level of diversification we have to these products. Dual and co branded cards account for 38% of the total purchase volume in the Q1 and grew 8% over prior year. They accounted for 24% of the total loan receivables portfolio and grew 6% over the prior year. Overall, we're pleased with the underlying growth we generated across the business.
As I noted earlier, the impact of COVID-nineteen accelerated as we moved through the quarter, with most of the impact occurring late in the quarter. We are expecting a more substantial impact this quarter, but given the duration and the magnitude is still largely unknown at this point, it's difficult to provide a more precise forecast of the impact. RSAs decreased $28,000,000 or 3% from last year. RSEs as a percentage of average receivables were 4.4% for the quarter at the lower end of the range we expected in the Q1 due to higher credit loss reserve build. The provision for credit losses increased $818,000,000 or 95% from last year.
The increase was primarily driven by the Walmart credit loss reserve reduction last year that totaled $522,000,000 A higher reserve build in the Q1 partially offset by lower net charge offs accounted for the remaining increase. The reserve build in the Q1 was $552,000,000 and largely due to the projected impact of COVID-nineteen related losses. Other income increased $5,000,000 Other expense was down $41,000,000 or 4% due to cost reductions from Walmart, partially offset by higher operational losses and expenses related to the COVID-nineteen response. So overall, the company continued to generate solid results in the Q1 outside of the impacts from COVID-nineteen. I will take a moment to highlight our platform results on Slide 9.
In retail card, core loan receivable growth was 3% with solid growth driven primarily by our digital partners. Other metrics were down driven by the sale of the Walmart portfolio. Payment Solutions delivered a strong quarter with broad based growth across the sales platform and strength in home furnishings and home specialty that resulted in core loan receivable growth of 7%. Interest and fees on loans increased 3%, primarily driven by the loan receivable growth. Purchase volume and average active accounts increased 2%.
We signed a number of new partners and renewed key partnerships this quarter. We continue to drive growth organically through our partnerships and card networks. These networks, along with other initiatives such as driving higher card reuse, which now stands at approximately 30% of purchase volume excluding oil and gas that helps us to drive solid results. CareCredit also delivered another strong quarter. Receivable growth of 7% was led by our dental and veterinary specialties.
Interest and fees on loans increased 9%, primarily driven by the loan receivable growth. Purchase volume was up 2% and average active accounts increased 5%. We continue to expand our network and the utility of our card as we've added over 2,000 new provider locations to our network during the quarter. Network expansion has helped to drive the reuse rate to 56% of purchase volume in the Q1. We did start to see the effects of COVID-nineteen on the platform results as the quarter progressed.
In retail card, while store closing impacted results, we also saw a strong growth in digital purchase volume that helped offset some of the COVID-nineteen impact. In Payment Solutions, while store closings had less pronounced impact, promotional offerings and the growth in areas such as home specialty helped mitigate some of this impact. CareCredit, we continue to see good performance in areas such as veterinary, partially offset by reductions in elective procedures. We do expect the effects will carry into the next quarter and be more pronounced as many of the store closings occurred during the latter part of March. I'll move to Slide 10 and cover our net interest income and margin trends.
Net interest income decreased 8% from last year, primarily driven by a 7% decrease in interest and fees and loan receivables due to the sale of the Walmart portfolio. On a core basis, interest and fees on loans increased 5%. The net interest margin was 15.15% compared to last year's margin of 16.08%. The main factors driving the margin performance were a decline in loan receivables mix as a percent of total earning assets. The mix declined from 84.4 percent to 81.7% driven by higher liquidity during the quarter that mainly resulted from the proceeds of the Walmart portfolio sale in October of last year.
A 47 basis point decrease in loan receivables yield to 20.67 percent primarily driven by the sale of Walmart portfolio, partially offset by a 14 basis point decrease in total interest bearing liabilities cost of 2.50 percent primarily driven by lower benchmark rates. Next, I'll cover our key credit trends on Slide 11. In terms of specific dynamics in the quarter, I'll start with the delinquency trends. The 30 plus delinquency rate was 4.24% compared to 4.92% last year and the 90 plus delinquency rate was 2.10% compared to 2.51% last year. If you exclude the impact of the Walmart portfolio, the 30 plus delinquency rate was down approximately 15 basis points and the 90 plus delinquency rate was down approximately 5 basis points compared to last year.
Focusing on net charge off trends. The net charge off rate was 5.36% compared to 6.06% last year. The reduction in net charge off rate was primarily driven by Walmart and improving credit trends. Excluding the impact of the Walmart portfolio, net charge off rate was approximately 15 basis points lower than last year. This was better than expectation around a 50 basis points increase in the 4th quarter net charge off rate of 5.15%.
The allowance for credit losses as a percent of loan receivables was 11.13% post CECL implementation, which included a $3,020,000,000 day 1 transition adjustment. Excluding the effects of CECL, the allowance under the ALLL method would have been 7.34%. The reserve build in the Q1 was $552,000,000 under CECL and $451,000,000 under the ALLL method. The overall reserve provisioning was higher than expected due to the impact of COVID-nineteen, which accounted for most of the reserve build in the Q1. In summary, the Q1 credit trends were slightly better than our expectations excluding the COVID-nineteen impact.
We expect credit trends will be impacted by this as we move forward. The extent of the impact is difficult to assess at this point given the uncertainty around the duration and the magnitude of the pandemic as well as the potential that's from the CARES Act and our efforts providing relief to cardholders impacted by COVID-nineteen. Moving to Slide 12, I'll cover expenses for the quarter. Overall expenses came in at $1,000,000,000 down $41,000,000 or 4% from last year. The decline was driven by cost reductions from Walmart.
This was partially offset by higher expenses attributable to operational losses and certain expenditures related to our response to COVID-nineteen. The efficiency ratio for the quarter was 32.7% versus 31% last year. Excluding the impact from operational losses and the COVID-nineteen related expenses, the efficiency ratio was flat compared to the prior year. Moving to Slide 13. Over the last year, we've grown our deposits over $500,000,000 or 1%.
This puts deposits at 79% of our funding compared to 75% last year. While we slowed the overall deposit growth in the Q1 given the excess liquidity from the Walmart portfolio sale in the Q4 of last year, we did continue to grow our lower cost direct deposits at a slightly higher 3% pace over the prior year. Total liquidity, including undrawn credit facilities, was $24,800,000,000 which equated to over 25% of our total assets. This is up from 22% last year. Before I provide detail on our capital liquidity position, it should be noted that we're electing to take the benefit of the transition rules issued by the joint federal banking agencies in March, which had two primary benefits.
First, it delays the effects of the transition adjustment for an incremental 2 years and second, allows for a portion of current period provisioning under CECL to be deferred and amortized with the transition adjustment. With this framework, we ended the first quarter at 14.3 percent CET1 under the CECL transition rules near the same level as last year. Tier 1 capital ratio was 15.2% under the CECL transition rules compared to 14.5% last year reflecting the preferred stock issuance last November. The total capital ratio increased 70 basis points as well to 16.5% also reflecting the preferred issuance. And the Tier 1 capital ratio plus reserves ratio on a fully phased in basis increased to 24.1%, a 280 basis point increase over the prior year, reflecting the increase in reserves as a result of implementing CECL and the preferred stock issuance.
During the quarter, we continued to execute on the capital plan we announced last May. We paid a common stock dividend of $0.22 per share and repurchased $1,000,000,000 or 33,600,000 shares of common stock during the Q1. At the end of the Q1, we had 366,000,000 of remaining share repurchase capacity of the $4,000,000,000 authorized plan for the current capital plan cycle. Given the current economic uncertainty and being as prudent as possible, we've made the decision to halt further share repurchases under this plan to be a greater visibility of the depth and magnitude of the current environment. Overall, we continue to execute on the strategy we outlined previously.
We're committed to maintaining a very strong balance sheet with diversified funding sources and operating with strong capital and liquidity levels. In closing, we normally provide updates to our outlook. Given the number of uncertainties that exist regarding the severity and the duration of the COVID-nineteen pandemic and the countering impacts of actions such as the CARES Act, payment assistance for our customers and other government and regulatory actions it may have, it is very difficult to assess the ultimate impact at this time. As a result, our expectations have changed versus the outlook we provided in January and that guidance should no longer be relied upon. Since the duration and magnitude of the current environment is uncertain, we can't provide any ranges around the key outlook drivers for 2020, but I want to provide a framework to help consider the impacts on our key outlook drivers.
Regarding loan receivable growth, COVID-nineteen has significant impact on the purchase volume, particularly late in Q1. We anticipate continued deterioration of purchase volume on a year over year basis until the situation improves presumably later this year. What may help mitigate some of this impact is growth in digital and we're well positioned for this through our digital partners as well as leveraging our expertise to help other partners and providers. The overall net deterioration in purchase volume will ultimately impact our receivable growth rate. When considering net interest margin, we will be impacted by the reduction in prime rates resulting from the Fed rate cuts, a reduction in investment income from our liquidity portfolio, as well as the potential impact of forbearance in terms of interest and fee waivers for a temporary period of time.
Partially offsetting the margin compression is the expected higher interest income generated from an increase in the number of accounts that are involved in the loan receivable portfolio and lower interest expense as benchmark rates are lower. Volley should be noted, we also share the impact of revenues and funding costs through the RSA. Regarding RSAs, in addition to showing the interest income impacts, we'll also see a more pronounced impact from higher credit costs as we move through the year. Also, as we noted in January, the impact of CECL on RSAs will be more fully realized in the second half of the year. While we expect an increase in net charge off rate as the year progresses, it should be noted the overall portfolio quality and credit trends as we enter this pandemic are strong and the tools and capabilities that we have are more advanced than the great financial crisis, which were highlighted earlier in the call.
Finally, we also believe higher recoveries will ultimately materialize, partially mitigating the impact of higher losses. Similar to revenue, we also share the impact of higher credit costs through the RSA. While we expect the reserve builds to be higher than original expectations, until we gain more visibility into the duration and severity of the current pandemic, we cannot provide more specific guidance. Once we have greater visibility, we'll be in a better position to define the expected charge off and reserve build expectations going forward. Regarding efficiency ratio, activity levels will impact revenue and expense levels and we will look to mitigate some of this impact through expense reduction opportunities.
We will continue to assess the situation and provide guidance when we have greater visibility into the effects of the current environment. Fundamentally, the business remains strong and is resilient and we go into the situation with a strong balance sheet, capital and liquidity position. With that, I'll turn the call back over to Margaret.
Thanks, Brian. I'll provide a quick wrap up and then we'll open the call for Q and A. We continue to believe that the strength in our business model and the resiliency of our associates will help us navigate this global health crisis. We are focused on continuing to execute for our retailers, merchants and providers and support our cohosts with empathy during this difficult period. We are focused on execution today, but also focused on continuing to make strategic investments in our business to build on our strengths to deliver the products and services our customers will expect beyond this period.
Thank you for participating on the call today. And I want to wish you and your families all the very best as we continue to deal with this very difficult situation. I'll now turn the call back to Greg to open up the Q and A.
That concludes our comments on the quarter. We will now begin the Q and A session. So that we can accommodate as many of you as possible, I'd like to ask the participants to please limit yourself to one primary and one follow-up question. If you have additional questions, the Investor Relations team will be available after the call. Operator, please start the Q and A session.
Thank you. We will now begin the question and answer session. Our first question comes from John Hecht with Jefferies.
Good morning, guys, and thanks very much for the comments in the call. Good morning, John. I'm just wondering, Brian, you guys cited volumes and sales down about 25%, 26% in the second half of March. Just trying to think about modeling for the near term quarters. Is that the type of contraction you've seen thus far through April?
And how do we think about kind of what you've seen thus far in April?
Yes. Thanks, John, and good morning. From the back half of March, which was down, again about 26%, it accelerated slightly. So we're running in the range of down 30% to 35% pretty consistently for the 1st part of April. Again, when you think about the world spend categories we highlighted in the earnings chart, they're very similar with regard to being down in travel, gas and entertainment and a little stronger in grocery, drugstore, etcetera.
But again, that's just on the dual card, but strength of the digital assets. We do have some retailers that are deemed essential that are open. And clearly, the digital and e commerce is continuing to drive it. So it's pretty steady in that low 30% decline year over year.
Okay, great. Thanks. That's very helpful. And second question, just trying to think about the context of this versus the Great Recession. Where I guess what in your economic models that have driven your the allowance levels, what level of kind of unemployment are you contemplating at this point in time?
Or how do we think about the economic assumptions relative to the 2,009 period?
Sure, John. So let me kind of go through how we think about or how we thought about this quarter in building the ACL reserve. As you know, the economic assumptions vary pretty widely across many of the institutions that provide that. We don't come up with our own assumptions. We use external assumptions.
So given the variation that we saw across many, many institutions, we modeled several different scenarios and looked at several different scenarios in how they would perform relative to our book. And then we settled in on a set of assumptions from one place that really looked at an unemployment rate approaching 10% for the 2nd quarter as kind of the peak. And then a second half recovery where unemployment goes down to around 7% and then a very kind of more gradual decline 2021 and gets back to probably about a 4.5% unemployment as you think about it in 2022. With that, bankruptcy is riding about 50% and staying elevated for the next couple of years, was also a very key assumption in that. And then a significant contraction in GDP for the Q2, again with the second half recovery, but obviously being down for the full year.
So that's kind of how we thought about it. Now when you take that and go back to the great financial crisis, very, very different set of scenarios where you had a consumer that was stressed, you had unemployment lag, you did not have the timing and the amount of the stimulus coming through to the consumer. So it's a pretty different scenario to try to compare back to it. And then if you really go back and look at the portfolio, John, the portfolio is fundamentally different. Obviously, Walmart's gone.
The amount of assets that we have above $660,000,000 has shifted significantly. The amount of and that we've invested in our advanced underwriting, the tools and technology is very, very different. So we feel comfortable as we kind of sit here today that the portfolio is in very good credit quality. Up until mid March, we actually saw credit quality improving or continuing to improve year over year, which was positive to us. So the consumer came in in great strength.
We have this kind of economic situation really coming out of the pandemic and then we have a ton of stimulus flowing through. So very, very different from our perspective.
That detail is very helpful. Thanks very much guys.
Thanks, John. Have a good day.
We have our next question from Moshe Orenbuch with Credit Suisse.
Great. I was hoping that you could kind of just give a little bit of little more kind of detail around the what you would like to achieve with the deferments and how it's going to work? Like any kind of granularity about what people are asking for? What are you giving? And what do you see as the percentage of the portfolio that's likely to be in that bucket at some future point, say, end of the second quarter?
Sure. Good morning, Moshe. So let me break down the forbearance that we're providing to our customers. So the first thing that we're doing is if a customer calls in and then it's been impacted, if they're asking for a waiver of a late fee or interest charges, we are waiving those. For qualifying accounts, we also will waive the MIM payment.
So it's actually deferred the MIM payment on the account for up to 3 months and kind of hold them in their due stage of your current, bring them back if you're too due to current. So really give them the opportunity to kind of get their situation a little bit more in a word. We also in the promotional book are extending for periods up to 90 days the deferral of the expiration of the promo. So those are the primary forms of relief that we're providing to those people. So if you look at how many people have taken advantage of that for us, it's about 800,000 accounts to date and about $1,600,000,000 in balances.
So if you think about it, a small percentage yet has taken advantage of the program, and we have not seen a tremendous amount of people needing that admin pay deferral at this point. But again, we'll continue to offer that to help our cardholders through this time.
Got you. Thanks for that. And maybe just can you talk a little bit either Brian you and Margaret about just the discussions you're having with your retail partners now and what it is they're asking from you and what are you asking from them?
Yes. So I'd say right out of the gate, probably the biggest thing was really stabilization of the operation. Obviously, one of the things we worked hard to do, which was pretty miraculous actually was to get our employees all work from home, including our call center. So we're pretty close to 100% work at home right now. So from a servicing level, we're meeting and making sure we're exceeding the service levels for our customers.
And I think that was really important. We kind of have a mixed bag here because we have retailers who are opening and servicing customers. We have very big online partners who are servicing their customers. And then we have retailers who have actually closed. So I would say all our teams are highly focused on both our retail partners and our providers having the relationship managers connecting with them.
Obviously, they want to make sure that we're reacting in the right way for their end consumer and doing the right things both from a forbearance perspective, but also from a credit perspective. And we're in daily dialogues with them. I would say, we feel pretty good about where we are. We got a pretty nice note from one of our partners who was really thrilled to see how we've been able to service our customers through this. So highly engaged, we're not sitting back, we're having those conversations and making sure that we have clear dialogue all along the way.
Thanks and
best of luck. Thank you. Have a good day.
We have our next question from Don Fandetti with Wells Fargo.
Hi, good morning. Brian, I was wondering if you could talk a little bit, you had mentioned the unemployment assumption you have is around 10%. I assume that's higher in April. Can you sort of flush that out? And if you look at your allowance at around 11%, I would assume that needs to go higher.
Can you talk about the reserve build, let's say, in Q2 versus Q1? That would be helpful. Thank
you. Yes. Thank you, Don. So as you think about it, really under the CECL methodology and ACL, we obviously use a set of assumptions at the point in time which we make the estimate for the reserve. As we stepped into April, again, there's a pretty wide disparity among people with regard to peak unemployment that will happen in the Q2.
But again, a lot of it one of the most important parts is what does the recovery period look like? And from that peak, as you move down, how quickly does it move down and how does it move down? So most certainly, the development of the retail If you If you kind of follow through and say, yes, there is a deterioration in the assumptions on the unemployment peak in that recovery period and the effects of the stimulus then that there would be higher reserve posts coming in the Q2. But we're only 20 days into the quarter at this point, Don. So I really can't give you, with clarity, the exact reserve post we would see.
We need to see how those assumptions really develop here in the Q2 as we move through. And again, that recovery period and the effects of the stimulus are really important attributes.
Okay. Thank you.
Thank you. Have a good day.
And we have our next question from Ryan Carey with Bank of America.
Good morning. I hope you're all well and
thank you for taking my question.
Given all the moving pieces, I hope you can provide a little more insight on how you're seeing the pace of charge offs ramping. Well, I understand determining the magnitude itself is hard to predict with the forbearance plans and government support programs, all else equal, is it fair to assume that charge offs will be pushed out further than they would otherwise? And how are you thinking about potential impact assuming unemployment is elevated for a couple of quarters versus a couple of months?
Yes. Good morning, Ryan, and thank you for your wishes. So as we think about it today, obviously the forbearance, which isn't hasn't been that much for us, could delay potential net charge offs. Again, I think the stimulus package will help bridge some consumers here for a period of time. We would begin to expect that you would see charge offs really begin to elevate in the latter part of Q3, probably the Q4 and into 2021.
Again, the magnitude of that, we think we've covered in our ACL reserve here at the end of the Q1. But the timing of that's really going to depend again on this peak and how the recovery begins to come out as we develop here in the Q2, to be honest with you.
Okay. And I was hoping you could spend some time on the discussions you're having with retailers around signing new programs or renewing partnerships. I know you called out a couple during the quarter, but how does the current environment impact the prospect pipeline? And can you discuss the impact of the pace of new business deals, both in 2020 beyond?
Yeah. Believe it or not, there are deals in the pipeline and we are having conversations and we are bidding on deals. I would say, things conversations maybe have slowed a little bit just as people have been trying to deal with all the challenges facing. But we feel pretty good about the pipeline that's there. We've been able to be, I think, and going to be very discriminatory on the things we do look at to make sure they fit where we to go with the business.
But I would say in all three platforms, we've had good activity and we'll I think continue to have that good activity. We'll have to see as the rest of the year progresses. But right now, we do have a decent pipeline.
What I'd add, Ryan, to that is, as we think about these relationships, and Margaret really highlighted, when you target them, when we go to think about the economics with them, clearly, we've always priced through a deterioration economic event whenever you think about a 7 year deal or 10 year deal. We as an enterprise think about through the cycle. Clearly, as we would look at this scenario, the cycle is at the beginning of that potential relationship
and the depth of it. So we are probably a
little bit more conservative. Risk adjusted return that we think is is is is a risk adjusted return that we think is conservative at this point.
Great. Thank you for taking my questions.
Thanks, Ryan. Have a good day.
We have our next question from Betsy Graseck with Morgan Stanley.
Good morning.
Good morning, Betsy.
Two questions. First on the RSA, I think Brian you mentioned in the prepared remarks that the RSA impact will related to CECL day 2 would be coming in the back half of the year. Maybe you could just give us some of the puts and takes there and degree of magnitude that you're looking for?
Yes. Thank you and good morning. So as you think about it, the world's kind of changed from January a little bit. First I just want to make sure that we have a perspective on the reserve provision for quarter and the difference between CECL and the ALLL. If you think about the total reserve bill for the quarter being $551,000,000 $515,000,000 I'm sorry $511,000,000 of that is really related to COVID-nineteen and $40,000,000 so less than our expectations as we entered the quarter kind of came from the core book, which really reflected the higher credit quality that we experienced in the vast majority of the quarter.
As you think about it, the whole 5.51 is CECL. So we highlighted if we did ALLL, it'd be 451. If we did CECL, it's 551. But as you think about the 551, that ultimately is what's going to pass through to the extent that it is subject to the RSA will pass through the RSA. So we would expect what I would say a sequential dollar lowering dollars of the RSA as we step through the year and obviously as a percent of ALR.
So you will see that into the second quarter and then really more into the second half of the year.
Okay. And so that is the reason it's moving into the second half as a function of the revenue recognition on the part of your retailer clients, I'm assuming?
No, Betsy, as we implemented CECL and through the RSAs, again, we did not change the economic sharing. It's just really the mechanics of how it passed from us through the RSA. And that just had a slight lag to it. So there is no difference as you think about through the RSA in 2020, whether it's CECL or ALLL. The reserve itself just comes on a slight lag.
So you'll begin to feel that more in the second half. And it's more than just the mechanics of how it works through the program agreements with our retail partners than their revenue recognition or some other type of change to the economics. It just was more mechanics on how it works in the program agreement. But again, we expect a sequential benefit as we move throughout the year.
Right. Got it. And then just a follow-up question, Margaret, for you is given the changes that we've had here over the last couple of months, how are you thinking about opportunities to either expand your functionality or what you can deliver to your retail partners or your CareCredit partners. I'm just wondering if there is opportunities for picking up technology or other types of systems or functionality that could enhance your offerings?
Yes. I'd say 2 things. One, even before the pandemic, we were starting to get a little bit of opportunities out there that were starting to perk our interest. We've kept those warm. I think right now you got to really wait to see how valuations play out.
So we're not going to jump into anything too quickly. But there are things that are out there that are certainly of interest to us. On the second piece, I think the other thing that we've done is, we have actually relooked our strategic initiatives for 2020 and have realigned our teams a little bit to focus and accelerate some of the digital things that we were working on or planning to do. We've stopped some things that we think we can hold off till 2021 and took those agile teams and are putting them against more digital capability for the company. And I think that's going to help us as we come out of the or go through this and we give our partners and the end consumers more digital capability.
Obviously, we're certainly winning on the digital side in terms of our online penetration and our volume coming through there. So we know this is a really critical thing. So even not only the opportunities externally, but I think we have and have already started the teams and kicked it off and driving it forward. I don't know, Brian Doubles, if you'd add anything there.
I know the only thing maybe I would add is, as Margaret said, we did move very quickly and we actually went through every strategic project in the business. And there were things that were obvious things that our partners were asking us to accelerate for them to help them get through this difficult time. So we redeployed Agile teams there. And then there were some things that we did around special promotions for some of our partners that still have stores open and are still very active online. And then as Margaret said, some things that we paused were just things that in this environment didn't make sense.
So we had some card reissues, dual card upgrades, things like that that we repositioned or delayed and moved to the kind of the back half of the year when things become a little more stable.
Okay. Thanks.
Great. Thanks, Betsy.
Our next question is from David Sharp with JMP Securities.
Much color as I guess reasonably can be expected given all the circumstances. Hey, wanted to follow-up just quickly on the previous question on forbearance. The relatively modest number of accounts and balances you highlighted, I'm just curious, have most people been through a billing cycle? I mean, in the sense that you get a sense that they're aware of what potential relief is available to them? Just trying to get a sense for how we should think about the number of accounts and balances that ultimately maybe a month from now take advantage of these policies?
Yes, great. Thanks for the question. So we have used our assets, our digital assets, social media channels, etcetera, to get out to our cardholders the benefits that are available for them if they've been impacted by COVID-nineteen. So we have this outreach program. Well, certainly, we are still taking a large number of calls through our call center.
So we are talking to the consumers about when not they need it. Part of it when you think about the dollar is different than some of our other peers. Our average balance is much smaller than theirs, given the percentage of private label. But again, even our retail dual cards are more low in growth strategy. So again, 2% of the balances, think is pretty reasonable, but everyone has been through a billing cycle.
And again, I think part of it is as they go through this, we put this plan in place in, I think on March 11th. We will begin to see the effects. I mean, obviously, certain people have had continued to work for a period of time or maybe on a furlough plan, but they may be just starting to realize that they need assistance and we'll continue to provide that assistance as we move forward. So that number will grow. But again, we're using our assets to make sure that customers who do need forbearance, we're helping them.
Got it. Got it. And just a follow-up on the retail partner side. And I appreciate the color on purchase volume trends in April to date. Ignoring for the moment the fact that digital is somewhat of a mitigating factor.
I'm wondering just within retail card and within well, actually all three product segments, are you able to provide sort of a percentage of the number of partners that are currently that are physically closed? Obviously, you've benefited from having exposure to discount gloves, home improvement, places that are staying open, needing to be essential services and just trying to get a little bit of a
step back.
Yes. We've been monitoring that, but I would say most on the retail card side, while they may be actually closed, they all have some digital presence. So that's a little bit of what we're seeing. It gets a little more complicated on the payment solution side where we have over close to 200,000 merchants to really know which one of them are actually closed fully or doing some online. Obviously, there are certain things that I think are some of our partners don't have online capability.
And then obviously in CareCredit, really what we're seeing there is 2 things. Emergency dental is still happening. Emergency vet still happening. Believe it or not, we've seen a little spike for all of you who have young kids out there. We've seen a little spike in orthopedics.
So people are hurting themselves while they're home and on their bikes and things like that. So it's a little hard to give you a number. I would say what we're trying to do is wherever there is a digital capability, we're very focused with those partners to make sure we're delivering. But and it also varies by region, as you know. We have some states that are still open where the stores are open.
So a little hard to give you a percentage or a number because it's such a mix.
And thank you. Our next question is from Vincent Caintic with Stephens.
Hey, thanks. Good morning. Thanks so much for taking my question. Just two quick ones. So understanding and thinking about the purchase volume declines and maybe assets start to shrink.
On the funding side of that, how are you thinking about deposits and pricing deposits? And I guess I'm thinking how low are you willing to price deposits to right size in case of a asset shortage?
Yes. Thanks for the question, Vincent. So the way we think about the funding side of the STACK, clearly, in the economic environment that we're in, our view is using the unsecured to secured market is not as cost effective. So deposits for us, which are at 79% of the debt stack at the end of the Q1, we'll continue to grow that probably as a percent of the overall funding stack. So look to lean a little bit more there.
For us, it's going to be we have a couple of primary competitors in that market, and we look to stay competitive there. So this way we don't have to invest as much in marketing and things like that. So on a rate basis, we actually have moved down this year with regard to high yield savings. We're down 30 basis points on the high yield savings. We were also down at least 30 on our certificate of deposit movements on top of what we already moved down in 2019.
So we'll continue to evaluate that market, but that would be one of our primary sources relative to that. So our view is hopefully we'll be able to trend that down or continue to trend that down throughout 2020.
Okay. Thank you. And a follow-up quick follow-up question on RSAs. When I look on Slide 6 with your deck and see the say that net charge off ratio was 11% in 2,009 and your RSAs were 1.5 percent. Is that still an appropriate correlation?
Or is there any way to think about that?
Clearly, what I'd tell you, Vincent, is the RSAs will move and provide that countercyclical buffer. So as charge offs do come through, you will see a reduction in the RSA percentages. The exact correlation of the percent to the charge off rate, again, as I indicated earlier on this call, the fact that we don't have Walmart, the fact that you have a very different economic scenario between the great financial crisis and now, I don't want to draw out a direct correlation, but you will see a similar shape to that curve when the benefit is as it comes through.
Great. Thanks very much and be safe.
Thank you, sir.
Our next question is from Dominic Gabriel with Oppenheimer.
Thanks so much for taking my question. I really do also appreciate all the detail you provided. When you think about the reserve builds from CECL versus growth for growth versus changes in your unemployment expectations, given the reduction in year over year purchase volume and the potential contraction of the loan book, wouldn't that provide a cushion as far as reserve releases and create some really big quarter over quarter variability. So do you think about how do you think about those two pieces? And do you think about them over the full year instead of quarter to quarter?
And it looks like to me that perhaps the reserve build could be basically 0 given the for the full year, given the reduction possibility in the actual loans?
Yes. The first thing first, thank you for your question. I think we have to be a little bit careful here on data points, right? We gave you a snapshot to try to be transparent about what happened between March 15 March 31st on purchase volume being down 26% and then for the 1st couple of weeks of April being down around 30% to 35%. What's really unclear is when the mandates lift, right, and retail comes back online, what that retail landscape will look like and the shape of that curve.
So I'm not necessarily sure if I were you, I would be thinking about we're going to have a 30% decline in retail purchase volume or purchase volume for the company for the remainder of the year. So that's number 1. Number 2, you also have to remember in this period of time, when you're going through an economic environment that we are, you are going to see the payment rate decline. So you'll see an upward bias in theory on the asset rate. So you have those two things moving against each other.
It will then really look to what for us from a reserving perspective will be, as we think about the portfolio at that point in time, what is the economic assumption. So I'm not necessarily sure I'd say, okay, your portfolio is going to decline and therefore you'll be at 0. There are several factors that are moving in different directions inside of that. Again, if you see a deterioration in the macroeconomic assumptions that we've used for March, you do see retail come back online, then I do believe you're going to see provisions for credit losses as we move forward.
Great. Thanks. I appreciate the clarification there. And then your consumer installment loan yields actually had a nice little jump. What do you think the trajectory on those yields are over is that because of kind of the expectation for added risk and so you upped the yield?
Or what are you thinking on the go forward trajectory there? Is that sustainable?
That is really being driven by the disposition of Yamaha in the Q1.
Okay, great. Thanks so much.
I really appreciate it. Thank you.
Hey, Vanessa, we have time for one more question.
Thank you. Our last question comes from Sanjay Sakhrani with KBW.
Thank you. Good morning. And I hope you guys are staying healthy safe. I guess, Margaret, you mentioned the Venmo and the Verizon product launches are on track. And you mentioned they're sort of subject to the evolving macro landscape.
I guess when we think about any commitments you had made to grow the portfolio? So how should we think about that? And then maybe I'll just ask my second question related to that. As we think about some of the investment spend that you had that you guys were embarking on and other broad investment spends, how can we think about the flexibility of those expenses in this backdrop? Thanks.
Sure.
So let me answer
the first one. So clearly, we were really excited when we won both Verizon and Venmo. And those are 2, I think, very strategic programs for us as we continue to really build out our digital capabilities. So those agile teams that have been focused on the launch of those two programs are full speed ahead and we haven't reduced any focus. If anything we're even maybe accelerating some things there.
So we're really excited about being able to launch them. Obviously, the launches will be dependent upon the environment. We believe mid year for Verizon in the second half for Venmo. So excited about those and the teams are really working hard. In terms of the other investments, it's a little bit of what Brian Double said.
We actually took a step back. Let me step back even one step further. What we did as a leadership team, I mean, despite all the negative things that are happening around pandemic, there's also opportunities, right? And so what we really try to do is step back and say, how do we take part of our leadership team to focus on the operation and get the operation stabilized? We have another group that are working on what do we look like coming out of this and how quick do we come out and what are the initiatives we have to have in place to come out?
And then 3, what are the long term opportunities and implications for the company? And so we've kind of organized ourselves that way and we have 7 work streams that Brian is leading to really kind of set us up for the future. So Brian, I don't know if you want to comment a little more on our flexibility and some of the things we've been doing.
Yes. No, I think that's right. So we went, as I said earlier, through every strategic project in the business. We kind of looked at that through the lens of the current realities that we're facing and we said, okay, some of these things we need to move faster on based on what our partners are trying to achieve as they go through the crisis. And then some things frankly just don't make sense to do right now.
We're going to push those out, delay, pause, etcetera. And then some things will just continue. And Verizon and Venmo are examples of things that will continue, as Margaret said, a little bit uncertain. But then we also said, okay, we need to be thinking beyond 2020. We need to be thinking coming out of this, how can we best position ourselves for the future?
And we said, look, there are we came up with 7 or 8 different work streams that are really all encompassing. And we said forget about whether this is a V or U shaped. We know that every aspect of our business is going to change in some degree coming out of this. So our customers are going to use our products differently. We know that they're going to shop differently.
They're going to spend differently. They're going to pay differently. We know our partners are going to come out of this looking differently and they'll have different strategies that we need to flex to. And we know that the way that we work together as a team is going to change as well. And so we looked in really those 3 broad buckets and we said, okay, we need to have a really good strategic plan and a vision around each one of those so that we emerge from this as strong as possible.
And I think as we kind of move through that work, we'll obviously share more in the future.
And I guess just a follow-up on that. Is the conclusion that the cost base might not need to be realigned a little bit lower given some of the challenges your retailers might have?
No. We will definitely have to realign our cost base. I think we just we are trying to see what this we want to get a little more feeling for how this comes out. But one thing that we and we just we did that with the departure of Walmart. We know how to adjust the cost base.
We've froze jobs, so we're not hiring anybody right now. We've done all those kinds of actions already out of the gate. Obviously, we're saving on some other things like travel and things like that. But we if we have to reset the cost base of the business as we come out of this because we're smaller, we will do that. And we have our eye on that ball.
That's a little bit of some of the work streams Brian even has on his list.
Sanjay, this is Brian with you. Let me just kind of put a bow out where you started, right? So your first question on Verizon and Venmo, the timing really hasn't shifted that much. When you think about the costs associated with those 2, and I know we highlighted it to be $0.20 a share for the year, the marketing research costs, the launch costs, the development costs to develop all the in app capabilities for, let's say, Venmo, that also has to occur, right? The shifting of the programs and the reserves, which was a component of that cost, isn't that significant now.
As Margaret said, we'll see how the current environment and whether or not there is a more material shift in that and we'll obviously provide transparency as we get to our call in July. So with regard to where you started, there isn't really a change from, I think, the guidance that we provided earlier in the year. 2nd, just to highlight what Margaret said, obviously, the development of the retail landscape, the development of the consumer, once we have more transparency to that, obviously, we'll look to maintain the same type of efficiency and we'll work through that as obviously there are large portions that are variable. But obviously, we maybe take action on the fixed cost part of the business in order to right size it. So that's how I would think about it.
That's perfect. I'm sorry, one last question because I'm being asked this question quite a bit. Capital ratios, dividend sustainability, sort of how are you guys thinking about it? Obviously, Brian, Wendell, you talked about the balance sheet shrinking. How should we think about capital free up to the extent that were even to occur?
Does that qualify as sort of excess capital and therefore it provides a cushion or maybe you could just walk us through the discussions you're having with regulators? Thanks.
Yes, sure. So with the capital position, capital is something that we've come out from our separation from GE as a strength. We came out with a higher capital ratio, a CET1 capital ratio than we probably needed, but we need to demonstrate our ability to stand up as a separate public company and withstand events like this. So our ultimate goal was really to migrate our capital ratios down to that of our peers. That has not changed through this.
We feel as we start into this economic period that we have a significant amount of capital to weather the storm. Obviously, the CECL transition helps as well. But we'll continue to migrate that capital down to peer levels over time. With regard to your second question around the dividend, obviously the dividend is important to us. As we think about the business really the PPNR and resiliency of the business.
We believe that we can continue to generate capital. As we think about our priorities for the use of capital, it's really the growth of our existing programs, number 1. The second really is the dividend. And as we sit here today, we believe we're going to continue to pay that dividend based upon the current environment and based upon our forecast that we have the financial strength, the capital liquidity to continue to do that. And that's a high priority for us.
And then as you move through, obviously, then it would be share repurchases and then down the road, whether it's portfolio acquisitions or M and A. But But from a dividend perspective, again, given the current environment and our assessment, we're committed to pay that dividend.
Thank you, guys.
Thanks, Sanjay.
Thank you, Sanjay.
Thanks, everyone, for joining us this morning. The Investor Relations team will be available to answer any further questions you may have.
And thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.