April marks the first month of Giveback™ Period number 9. The good news is that results are much better than where Giveback Period 8 ended. The bad news is that we still aren’t quite back to hitting our profit sharing target. We had a community pre-profit share Profit Before Tax (PBT) of $375K, which translated to a 1.4% ROO (Return On Outstanding) Our Giveback target is 1.5% ROO. Our profit share for the month is ($47K).
Granted, not great to start a Giveback Period in a hole again, but there are positives to consider.
The PBT number of $375K is higher than every month of the last Giveback Period except February – which was $472K. But the next closest month was just $25K (Jan). A huge improvement over most months.
We are also experiencing tremendous growth. April ended with an Average Outstanding Balance (AOS) of $330.4mm. October of 2015 (the first month of the last period) ended with an AOS of $257.1mm. That’s a 28.5% AOS increase in six months! We also booked 32.5K accounts in Period 8 which was the largest number of accounts booked for a Giveback Period to date. We booked another 3,562 accounts in April.
OK, so you are probably thinking 2nd highest PBT in a while, tremendous growth, yet no Giveback. What gives?
The main drag is one we have discussed several times in these blogs. Losses. And when we talk of loses there are two line items that drive the impact – Gross Credit Losses (GCL) and the change in Loan Loss Reserves (LLR). The Gross Credit Losses are balances we have to charge off in the current month because they are too delinquent – typically greater than 180 days past due at the time of billing cycle closing for that account. The Loan Loss Reserve are funds we need to set aside to account for future losses and the act of setting those funds aside counts as an expense in the current month.
The Barclaycard Ring product, as you know, has a very low rate for a credit card product. This low interest rate makes the P&L very sensitive to fluctuations in losses. How sensitive? These are the combined GCL and change in LLR rates for the last seven months – 6.1%, 6.3%, 5.7%, 5.6%, 4.9%, 5.5%, 5.3%. The 4.9% and 5.3% were February and April where we finished above or close to the Giveback target of 1.5% PBT. Those other months? Not even close. Ranging from (0.4%) to 0.1% PBT.
The silver lining is that the last three months combined rates are the three lowest of the last seven. Should that trend continue, we should be back to positive Giveback in the near future.