Jan 23, 2014
Executives
Bill Franklin David W. Nelms - Chairman and Chief Executive Officer R.
Mark Graf - Chief Financial Officer and Executive Vice President
Analysts
Sameer Gokhale - Janney Montgomery Scott LLC, Research Division Betsy Graseck - Morgan Stanley, Research Division Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division Ryan M. Nash - Goldman Sachs Group Inc., Research Division Mark C.
DeVries - Barclays Capital, Research Division David Ho - Deutsche Bank AG, Research Division Bill Carcache - Nomura Securities Co. Ltd., Research Division Craig J.
Maurer - CLSA Limited, Research Division Donald Fandetti - Citigroup Inc, Research Division Kenneth Bruce - BofA Merrill Lynch, Research Division Bradley G. Ball - Evercore Partners Inc., Research Division David S.
Hochstim - The Buckingham Research Group Incorporated Moshe Orenbuch - Crédit Suisse AG, Research Division Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division Robert P.
Napoli - William Blair & Company L.L.C., Research Division Eric Edmund Wasserstrom - SunTrust Robinson Humphrey, Inc., Research Division Daniel Furtado - Jefferies LLC, Research Division Brian Foran - Autonomous Research LLP
Operator
Welcome to the Fourth Quarter 2013 Earnings Call. [Operator Instructions] Please note that this conference is being recorded.
I will now turn the call over to Bill Franklin, Investor Relations. You may begin.
Bill Franklin
Thank you, Alexandra. Good afternoon, everyone.
We appreciate all of you for joining us on this afternoon's call. Let me start on Slide 2 of our earnings presentation, which is on our website and we will be referencing during the call.
Our discussion today contains certain forward-looking statements about the company's future financial performance and business prospects, which are subject to risks and uncertainties and speak only as of today. Factors that could cause actual results to differ materially from these forward-looking statements are set forth within today's earnings press release, which was furnished to the SEC today in an 8-K report and in our Form 10-K for the year ended November 30, 2012, and in our Form 10-Q for the quarters ended March 31, June 30, and September 30, 2013, which are on our website and on file with the SEC.
In the fourth quarter 2013 earnings materials, which are posted on our website and have been furnished to the SEC, we have provided information that compares and reconciles the company's non-GAAP financial measures with the GAAP financial information, and we explain why these presentations are useful to management and investors. We urge you to review that information in conjunction with today's discussion.
Our call this morning will include formal remarks by David Nelms, our Chairman and Chief Executive Officer; and Mark Graf, our Chief Financial Officer. After Mark completes his comments, there will be time for a question-and-answer session.
Now it's my pleasure to turn the call over to David.
David W. Nelms
Thanks, Bill, and welcome to all of you who are joining the call with us today. After the market closed, we reported fourth quarter net income of $602 million or $1.23 per diluted share, up 16% over the prior year, driven primarily by loan growth and share repurchases.
During the quarter, we generated a return on equity of 22% and returned nearly $450 million of capital to shareholders through repurchases and common dividends. For 2013, we had 2 main priorities for the Direct Banking segment.
First, we wanted to continue growing our card receivables, while maintaining our leading credit performance. Second, we wanted to expand our non-card assets by growing personal and private student loans, as well as to broaden our product offerings.
I'm very pleased with the progress we made on both of these priorities last year. For the full year, we successfully grew card sales and receivables by 4%, as we continued our focus on the prime revolver segment.
This growth was driven both by increasing wallet share with existing customers and by acquiring more new accounts. We drove new card account growth by nationally launching Discover it, which is built upon our leadership in cash rewards and customer service, and includes a number of new consumer benefits.
Recently, we started offering Discover it card members free FICO scores on their monthly statements because of our commitment to helping people achieve personal and practical financial goals. Discover is currently the only major credit card issuer to do something like this.
We grew non-card assets by continuing to leverage our expertise in unsecured underwriting and by maintaining a customer-centric focus. In 2013, we originated roughly $2.5 billion in personal loans and over $1 billion in private student loans.
In 2011 and 2012, we had the benefit of originating private loans under 2 brands, Discover and Citi, as we had a 2-year agreement with Citi. Our student loan originations in 2013 were all originated under the Discover brand, and yet we originated even more private student loans than we did in 2011 or 2012.
During our first full year offering home loans, we originated approximately $4 billion of mortgages despite the significant decrease in refinanced volumes in the second half of the year caused by rising interest rates. We further broadened our direct bank product offerings by launching Cashback Checking, which has the potential of representing an important funding source for us over the long term.
Additionally, because of the housing recovery and rising first mortgage rates, we felt that it was the right time to launch our home equity installment loan product, which we did in the third quarter and fourth quarter of this year. For our Payments business, 2013 was a challenging year, but we continue to plant seeds for future growth.
PULSE volumes were flat year-over-year and margins were stressed, as we responded aggressively to an intensely competitive environment and expanded our focus to target volume historically run over signature debit networks. At Diners Club, while the European environment remains challenging, we believe we have put the most significant challenges behind us from a financial point of view.
Additionally, we saw the launch of some very exciting new franchises in China, Russia and India. In network partners, we were notified in the quarter that we would be losing the third-party issuing deal in the middle of 2014.
However, we remain excited about our growing portfolio of payments partnerships and our increasing global acceptance. While these newer partnerships will take time to ramp up, they position us well as the flexible payments partner.
Lastly, one of our top corporate priorities was to drive shareholder value through effective capital management. During the year, we repurchased 5% of our shares and increased our dividend in April, all-in deploying more than $1.5 billion of capital.
We also completed our inaugural CCAR filing and are looking forward to receiving the results in March. Our fourth quarter provided a strong finish to a record year, as our card business grew receivables by 4% versus the prior year despite tougher comps.
We achieved 11% growth in other consumer lending products, broadening our Direct Banking product offerings, and we drove outstanding credit performance across all asset classes. That concludes my prepared remarks on our fourth quarter and full year performance.
I look forward to providing you with an update on our business strategy and priorities at our annual financial community briefing on February 27. Now I'll turn the call over to our CFO, Mark Graf.
R. Mark Graf
Thanks, David, and good afternoon, everyone. I'll start by going through the revenue detail on Slide 5 of the earnings presentation.
Net interest income increased $141 million or 10% over the prior year, driven by loan growth and a higher net interest margin. Total noninterest income decreased $28 million to $560 million, primarily due to lower direct mortgage-related income, as well as lower protection product revenue.
These items were partially offset by higher net discount and interchange revenue, which increased by $38 million year-over-year due to a lower rewards rate and Discover card sales volume growth. The rewards rate for the fourth quarter of 2013 was 11 basis points lower than the prior year.
You may remember that in the fourth quarter of 2012, we had 2 5% cashback categories as opposed to the most recent quarter's single category. Payment Services revenue decreased 2% year-over-year, mainly due to lower transaction processing revenue for PULSE.
Overall, we grew total company revenues by 6% for the quarter. Turning to Slide 6.
Total loan yield of 11.38% was 9 basis points higher than the prior year, as interest yield for card, private student and personal loans all increased. The year-over-year increase in card yield reflects lower interest charge-offs and a higher portion of balances coming from revolving customers.
This higher total loan yield, combined with the lower funding costs, resulted in a 41-basis-point increase in net interest margin over the prior year to 9.81%. Looking forward, net interest margin is expected to remain elevated above our long-term target for some time to come.
Turning to Slide 7. Operating expenses were up $35 million or 4% over the prior year.
The increase in employee compensation was primarily related to higher headcount to support growth and new product initiatives, as well as compliance with increased regulatory requirements. Information processing expenses were up $12 million, or 16%, largely due to a reclassification of expenses that were previously included in employee compensation and benefits.
Turning to provision for loan losses and credit on Slide 8. Provision was lower by $16 million compared to the prior year due to lower charge-offs and smaller reserve build.
Our $50 million reserve build during the quarter mainly reflects 2 things: first, a $28 million build driven by the accounting treatment for a portion of the purchased private student loans; and second, overall loan growth. Regarding the purchased student loans, certain pools are performing better than our original expectations and a few are performing below our original expectations.
PCI accounting requires pools that are performing better than expected to be accounted for by increasing the yield on the underlying loans, while a reserve addition is recognized for those pools performing below our initial expectations. I'll point out that the full effect of the increase in yield for pools performing better than expected isn't reflected in the fourth quarter, so student loan yield will tick up again this quarter.
The key takeaway here is that, in aggregate, the acquired student loans are performing slightly better than we expected at the time of purchase. Continuing on to Slide 8.
Sequentially, the credit card net charge-off rate increased by 4 basis points, from a record low last quarter to 2.09%, and the 30-day delinquency rate of 1.72% increased 5 basis points from the prior quarter. Our credit outlook for cards continues to remain relatively benign.
The private student loan net charge-off rate, excluding purchase loans, increased 41 basis points from the prior year and 8 basis points sequentially, due to more of the organically-originated portfolio entering repayment. Student loan delinquencies, excluding acquired loans, increased 6 basis points sequentially to 1.66%.
Switching to personal loans. The net charge-off rate remained relatively unchanged sequentially and the 30-day delinquency rate increased by 5 basis points to 70 basis points.
Turning to Slide 9. In 2013, we repurchased $1.3 billion of our common shares, paid almost $400 million in dividends to common shareholders, and grew total loans by 5%.
Despite these actions, the strong performance of our business resulted in us accreting more capital, as our Tier 1 common ratio increased by 70 basis points over the prior year to 14.3%. Sequentially, the Tier 1 common ratio was down a bit due to seasonal loan growth.
We were in a very strong capital position as we enter our inaugural CCAR review and we continue to generate great returns that support the capital actions we submitted to the Fed earlier this month. One item I would note is that this quarter's share repurchase activity will still be guided by last year's CapPR submission, which has us repurchasing closer to $300 million for this quarter as opposed to our recent cadence of about $350 million.
While not related to capital, one final call-out for the quarter is our lower effective tax rate. This was driven by a favorable resolution of a state tax matter.
To sum up, 2013 was a great year. We grew top line revenue by 7% through loan growth and a higher net interest margin.
This, combined with strong credit performance and focused expense management, drove record net income. Despite challenges in our Payments business, we continue to successfully lay the groundwork to drive future volume and profits for the segment.
And finally, we effectively deployed capital and repurchased over 5% of our net shares in 2013. Looking forward, we expect the credit environment will remain benign, NIM will remain elevated, and we will continue to remain disciplined with our expenses and investments for growth.
More to come on all this and more at our financial community briefing next month. That concludes our formal remarks.
So now I'll turn the call back to our operator, Alexandra, to open up for Q&A.
Operator
[Operator Instructions] Our first question comes from Sameer Gokhale from Janney Montgomery Capital Markets.
Sameer Gokhale - Janney Montgomery Scott LLC, Research Division
The first question was just on operating expenses. I know you've given some year-over-year comparisons, but I was just looking at the sequential increase in the other expense category, other going to $133 million from $118 million last quarter?
And I was just wondering what was responsible for that sequential increase in expenses.
Bill Franklin
So I think there was a little bit of a catch-up on depreciation of some technology investments, and that made up a good portion of that $11 million increase year-over-year.
R. Mark Graf
Very specifically, Sameer, what it was, is we changed the way we're accounting for certain technology investments. Previously, we had been capitalizing web development expenses.
We are now going to be expensing those going forward, and that's the first quarter you see that reflected.
Sameer Gokhale - Janney Montgomery Scott LLC, Research Division
So then run rate will be off of the Q4 number?
R. Mark Graf
I don't think Q4 is exactly going to be the run rate to build off of because that did include some catch-up, as Bill alluded to. But I think it's fairly close.
Sameer Gokhale - Janney Montgomery Scott LLC, Research Division
Okay, that's helpful. And then just the other thing, on the NIM dynamics, the net interest margin, and you look at your funding costs, it looks like you got, sequentially again, a significant benefit from a decline in your broker deposit costs.
And I know overall, they've been trending lower, but it seemed like the decline from Q3 to Q4 was a little bit bigger than you've seen in previous quarters. So can you just help us walk through just the sequential decline in your broker deposit costs?
And is there anything unusual going on there?
R. Mark Graf
No, I don't think there's anything unusual going on there because we've actually done 2 different things, Sameer. Not only have we effectively brought down the rate we're paying on our deposit book across-the-board, I would point out the direct-to-consumer deposits in addition to the broker deposits, we've also been pushing out maturities as we've been doing that.
So I'll call it a both-end benefit. We've brought down the effective rate we're paying as we've seen high-rate, longer-dated maturities rolling off, and we've been able to replace those with similar or longer-dated products at much lower rates in the current environment.
We're doing that in the CD book on the direct-to-consumer side. We're also doing that in the broker deposit side.
Operator
We have Betsy Graseck from Morgan Stanley with a question.
Betsy Graseck - Morgan Stanley, Research Division
A couple of questions. One on, while we're on broker deposits, I'm just wondering what the decision was behind increasing year-on-year -- Q-on-Q?
You had about a $1.8 billion increase in the broker deposits -- or I'm sorry, a $2.3 billion in the broker deposits.
R. Mark Graf
Yes, I would say it's a couple of things, Betsy, but the primary driver there is our funding strategy overall is what we like to describe as a constrained optimization. So we want to make sure we're accessing all of our channels all the time and tapping out none of our channels at any time, to have a balanced profile from a risk perspective and a funding standpoint.
And subject to that overall constraint, we target the lowest cost of funding at specific duration points at the curve. And in the fourth quarter, it was a very attractive source of longer-dated funding.
Betsy Graseck - Morgan Stanley, Research Division
So do you see that as an opportunity to kind of pre-fund loan growth in 2014?
R. Mark Graf
Yes, I think that was an attempt to not only pre-fund the growth, but extend out the maturity on the book overall. I think we also took down some 10-year banknote money in the fourth quarter that I would put in the same category.
We didn't have a need for at the time, but it was really managing the complexion of the balance sheet, as well as pre-funding loan growth earlier this year.
Betsy Graseck - Morgan Stanley, Research Division
So we should expect to see, all other things equal, the securities portfolio kind of tail -- trend down as you grow loans into the next couple of quarters?
R. Mark Graf
Yes, I would say generally speaking that's correct, but we're obviously going to be looking at other maturities we have upcoming, as well as other obligations, and making sure we're carrying enough on-balance-sheet liquidity to meet our needs. So as a general rule, I think what you said is correct.
Operator
We have Sanjay Sakhrani from KBW online with a question.
Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division
I also got a couple of questions. I guess, first, could you, Mark, maybe help us think about the yield benefit from the student lending PCI accretion in the first quarter?
Is it fair to assume that it's a comparable step function up in the yield, as we saw in the fourth quarter? And then secondly, David, you mentioned a third -- a loss in the third-party issuing area.
Could you just talk about the materiality of that and kind of some more color on that?
R. Mark Graf
Yes. With respect to the PCI loan yields, Sanjay, what I would say is, essentially 100% of the increase you saw in student loan yield in the fourth quarter was driven by the movement in accretable yield on the pools that are performing better.
And that reflected that being in place for 1 month of the fourth quarter. So you'll get it for the full 3 months in the first quarter, and that should give you a pretty good idea how to a range it in, I think.
David W. Nelms
And, Sanjay, your second question, this is the third-party issuing deal that we've been calling out as a risk for the last couple of quarters, but we actually received notice this quarter. And in terms of materiality, I'd say, it's -- we expect it to have a meaningful impact on network partners' volumes and profits, but immaterial to EPS overall.
Operator
We have Ryan Nash from Goldman Sachs online with a question.
Ryan M. Nash - Goldman Sachs Group Inc., Research Division
Just a question on credit. How should we think about the pace of loan loss reserve build in 2014?
If you take out the PCI charges, I think you built about 22, is that a good estimate for growth as well as seasoning of the portfolio? And just on the reserve, do you think we're at the bottom in terms of the reserve level?
How should we think about those 2 items?
R. Mark Graf
Yes. I think in terms of the environment overall, Ryan, the right way to think about things is, we are somewhere at or near the plateau in improvement, right?
I think what we've been saying for some time is, we do expect this environment will continue for a while. We don't see any kind of inflection point in the credit environment in the plan, the 12-month-forward planning cycle we use to set our loss reserves.
So provisioning is really principally going to be driven from this point forward by growth in the loan portfolio. And to a lesser degree, I think a bit of a tapering effect continuing on recoveries of the Omni-age charge-offs kind of from the recession period of time.
So I guess what I would say is, they won't be -- while I say they're relatively stable, I wouldn't have an expectation they're exactly flat. I think quarter-over-quarter, economic factors and other inputs to the models are going to cause them to tick up a little bit or tick down a little bit, as the case might be.
But think about it as, in general terms, somewhat flat.
Ryan M. Nash - Goldman Sachs Group Inc., Research Division
Great. And if I could just ask one follow-up unrelated.
If you look at your marketing expense, it was basically flat in the back half of the year in 2012 versus 2013. So given that, I believe, a lot of the marketing budget for 2013 was driven by the launch of the it card, so given that, how do we think about the trajectory of marketing expense from here?
Could we actually see a decline, given that a lot of the spend was put into the it card?
R. Mark Graf
Ryan, I would expect you probably won't see a decline in the marketing expense. As we said in a couple of forums recently, we continue to see great returns on the investments we're making in the it card, both in terms of not only the cost per account acquired being very low, but the engagement we're seeing out of those it card members being very, very strong.
In other words, they're using the card sooner and more frequently than our traditional More card members have. And I think you've heard me say before, I grew up on a farm, so I believe and David believes in making hay while the sun shines.
So while those great returns continue and those great opportunities are there, we're going to keep investing into that.
Operator
We have Mark DeVries from Barclays online with a question.
Mark C. DeVries - Barclays Capital, Research Division
First question, Mark, I was hoping you can give us a little more detail about what you mean by margin remaining elevated for some time to come. Based on what you know and are seeing on kind of asset yield trends and your CD repricing opportunities, is there a potential for a little bit more expansion in the NIM over the next couple of quarters, before we see that eventually trend down?
R. Mark Graf
I would say the very quick answer to the last part of your question is yes. There is opportunity for a little bit more improvement.
What I would say is I think we're going to provide a greater degree of insight to that at our financial community briefing next month. So to keep the anticipation up, I think I'm going to say more to come on that front come February.
Mark C. DeVries - Barclays Capital, Research Division
Okay, fair enough. And then a separate question.
Sallie Mae took a $70 million charge this past quarter on expected compliance remediation efforts related to ongoing regulatory inquiries, which we assume is tied to the CFPB's kind of ongoing review of student loan servicing. Is that something we should potentially expect to see from you in the coming quarters?
David W. Nelms
I don't really have any good visibility as to what their practices are or what the CFPB is -- may or may not be suggesting to them. I would just say that we're obviously under continuous supervision by the CFPB and our student loan business and our other consumer businesses.
And so we will remain vigilant to make sure we're doing the right thing and -- but I couldn't comment on Sallie.
Mark C. DeVries - Barclays Capital, Research Division
Okay. But has there been any kind of intensification of kind of the level of activity you're seeing in the interaction with them?
David W. Nelms
As I say, it's ongoing. So there's not -- we have interaction with them and have had pretty continuous level of interaction with them since they were stood up, and we would expect to continue to have that level of activity and scrutiny.
Operator
David Ho from Deutsche Bank is online with a question.
David Ho - Deutsche Bank AG, Research Division
Just a question on capital. With CCAR around the quarter, one of your competitors has been out warning of potential wide gap between its internal stress modeling scenarios and that of the Feds.
Can you talk about how you're tackling this potential risk and potentially narrowing the gap in kind of work you've done over the past year?
R. Mark Graf
Sure. It's hard for me to comment, quite honestly, on what the Fed's model is going to produce until we actually have a chance to see what the Fed's model is going to produce.
So I think that part of the question I can say better directed at them. I think if you look back at the actual results from last year, I think last year there was a pretty meaningful disconnect between the submitted stress losses and the calculated stress losses that came back from the Fed.
So just extrapolating that forward, I think there is probably a high degree of probability that, that situation persists. With respect to our CCAR filing on balance, we filed what I would say we believe to be an appropriately aggressive ask a few weeks ago, David.
And I think we've been pretty transparent with the market about where we kind of believe the orange cones are set with respect to payouts in this environment. And we've also tried hard to keep front and center the fact that we are required to submit our request in terms of payout dollars and aren't allowed to submit a request for a payout ratio.
So we, along with a number of our competitors who received approvals for some pretty high theoretical payout ratios last year, didn't really approach those percentages due to the strong year we both -- or several of us turned in relative to what's forecast by some pretty locked down quantitative models. So I guess what I would say is, there's no way for me to handicap exactly what the Fed's models are going to say, but we think we made an aggressive ask.
We understand our shareholders want us to increase the already high levels of capital distributions we've got. And within the current environmental constraints, we're working hard to achieve that goal.
David Ho - Deutsche Bank AG, Research Division
Okay, that's helpful. And switching gears a little bit.
Obviously, you're getting good growth in personal loans. Can you talk a little bit about where in the credit spectrum you're seeing the most growth?
And maybe the competitive landscape, you obviously have very strong market share in the prime space. Is that where you're seeing a lot of competition?
And how about near prime?
David W. Nelms
Well, I would say it is very focused on the prime space. In fact, the FICO scores that we see in our originated personal loans are significantly higher than what we have even in the credit card space, whereas you know, we're a prime lender there as well.
There's a good amount of it that's cross-sell. And so that is very helpful.
And I think in terms of competition, I'm not -- I think that we have focused maybe more on this opportunity than others, some others who were not in the prime space a number of years ago and got burned. And so I think that is -- it means that we're one only a few that are really focused on this, and especially when you look at the prime space.
David Ho - Deutsche Bank AG, Research Division
Is there any risk of competition heating up anytime soon or is it mostly a vacuum at this point?
David W. Nelms
There's always competition. And I think if you look at our growth, you can see that we're doing well in the face of the competition we're seeing.
So I think I'd kind of leave it at that, other than we're continuing to evolve the product and to offer more options for customers, more value for customers. And so even as more people maybe sort of get back in the water, I would think we could hold our own because we're continuing to improve the segmentation, the marketing and the products itself.
Operator
Bill Carcache from Nomura is online with a question.
Bill Carcache - Nomura Securities Co. Ltd., Research Division
You've touched on this a little bit, but I wanted to follow up on -- you guys -- on loan growth, you guys are continuing to put up industry-leading credit card loan growth, but it's decelerated a bit. At this time last year, the year-over-year growth rate was well above 5%, but now it's gradually fallen to, last December, I think it was 3.9%.
I realize that you're comping against tougher numbers. But could you talk a little bit more?
Is it really just the segmentation that you talked about just now or are there other things that perhaps you would expect to kickstart that growth back towards the 5% range?
David W. Nelms
Well, as you have said, the comps are getting a bit tougher, and being at right at the top end of our 2% to 5% range wasn't necessarily something we thought we could hold forever. But that being said, we are absolutely looking at opportunities to stay as close to the top of that 2% to 5% range as we can.
And if we can find additional opportunities to accelerate the growth, Mark talked about the marketing spend, that's certainly one of the levers that we're going to continue to look at. We're continuing to add features.
And I would note the new FICO score is unique and has been well-received so far. And so we'll do everything we can to maintain our industry-leading loan growth in the prime credit space.
Bill Carcache - Nomura Securities Co. Ltd., Research Division
Okay. And a follow-up on your outlook.
Can you give an update on your interest level in the general-purpose reloadable prepaid space? And then also perhaps discuss your outlook for transaction processing revenue growth from PULSE?
David W. Nelms
I would say that most of our involvement with prepaid has been as a network to some of the leaders in prepaid. It's still an evolving market.
You've seen some new people make big moves in it. You've also seen people announce they're withdrawing from it.
And so I'd say we're being cautious. And I think it's -- there's -- the thing that we are most interested in is doing sort of nonstandard things that are really maybe out of the box, maybe with partners.
And if we can find the right opportunities, we would maybe expand in the future. But we don't have a big interest of just being 1 of 100 cards on the rack in the retailer right now.
We're more interested in doing things that are really going to help consumers.
Bill Carcache - Nomura Securities Co. Ltd., Research Division
And the transaction processing revenue growth outlook for PULSE? That's it.
David W. Nelms
I think what you're seeing is that we've somewhat stabilized a bit. We're still facing some challenges both in -- on the PULSE volume and margins, which we talked about numerous times before, as well as continuing challenges in Europe, in particular on Diners Club.
But we are working on additional opportunities to try to really get back to more of the level of growing profits and revenue, more like we -- the numbers we've put on the board for 5 years before this recent difficult patch.
Operator
Craig Maurer from CLSA is online with a question.
Craig J. Maurer - CLSA Limited, Research Division
Regarding your spend growth on your proprietary cards, it looked fairly anemic to the better players we look at in the segment. So I'm wondering, do you think this is a demographic issue?
Or what would you attribute that to? Secondly, you discussed you had trimmed the categories of 5% cashback year-on-year in half, from 2 to 1.
Was there less opportunity to go after spending so you trimmed what you were willing to spend to go after that? I'm curious because, again, the spend growth on the proprietary cards looked weak.
David W. Nelms
What I would say is that our spend growth was still a little bit higher than retail spending. So we're continuing to grow with merchants.
You are right that there are a number of competitors who are putting up much bigger numbers on sales volume. One of the things we look at is sales volume with revolvers versus the highest transactors.
And one of the things that's happening in today's economy is that the big spending in transacting -- transactor volume is growing a lot. And the prime revolver sales are not growing a lot.
But we're actually doing very well compared to our competitors in that segment that we're focused on. And so corporate spending, high T&E, high-end T&E, we just don't participate in some of those segments the way some of our competitors are.
We think that our model is more sustainable in the long run, especially when the cost of funds returns to more normal levels. And especially if there's ever any downward pressure on and interchange, we think we're in a more sustainable place.
R. Mark Graf
And rewards.
David W. Nelms
So I didn't exactly understand the rewards question.
Bill Franklin
Craig, the second part of your question was around the rewards, the amount of expense we had? For the fourth quarter...
Craig J. Maurer - CLSA Limited, Research Division
Well, it was the decision to trim the categories that have high cashback levels.
David W. Nelms
Oh, I'm sorry. I would think about the fourth quarter of last -- of 2012 as being the more unusual time.
I mean, we normally would have one big promotion in each quarter. That particular year, we had 2.
That drove some incremental sales last year, and we didn't repeat it this year. So you've seen a nice benefit on the Cashback Bonus expense.
But as you'd expense[ph] , especially looking at that high comp last year, we didn't repeat the extra sales burst that we had a year ago.
R. Mark Graf
Yes, Craig, what I would say is that going forward, I would expect continued variability in the rewards line because quarter-over-quarter, we're going to tackle different things to kind of drive the result we're looking for at that particular time, and make sure we're getting the customer engagement we're looking for. I think over the long haul, kind of a 1% rewards rate is still the right way to think about what we're targeting.
But you're going to have some degree of variability around that number quarter-over-quarter.
Operator
Don Fandetti from Citigroup is online with a question.
Donald Fandetti - Citigroup Inc, Research Division
David, I was just curious if you wouldn't mind maybe talking about the industry in card loan growth in general, what your general outlook is? I mean, it seems like if you look at some of the data, it might suggest a slight improvement in the trajectory, but I'm not sure if you're seeing that or what you think the pluses and minuses are for industry growth.
David W. Nelms
Don, I'm expecting a pickup in loan growth. I have not very many data points that support it.
I mean, if I look through our competitor results, recently, I didn't see really anyone besides us and American Express that grew loans. And so I think that it's -- the industry as a whole is just kind of flat with a couple of us growing and more people shrinking.
I think that as we go through this year, I still expect that loan growth for the industry ought to return to more like at least GDP growth. And I think that if that happens, then that would obviously be good for us because I would hope to participate in some of that faster industry growth, because right now, all of our growth is from taking share.
Donald Fandetti - Citigroup Inc, Research Division
Okay. So I mean, the industry is generally flat now.
So I guess GDP, maybe 2% or 3%, that's actually a decent little pickup.
David W. Nelms
That would be a decent pickup. I don't -- I'm not -- our plans across the next few years don't have the industry returning to rapid industry growth.
I think there was a period of time when there was rapid growth, product innovation, balance transfer, all kinds of innovations. Big reset, big deleveraging after the financial crisis, 3 years of down in the industry, 3 years of flat.
I think it probably returns to slow single-digit growth as an industry, and what -- our strategy is to continue to grow faster than the industry.
Operator
Ken Bruce from Bank of America Merrill Lynch is online with a question.
Kenneth Bruce - BofA Merrill Lynch, Research Division
My question really picks up where you left off with Don's question. I guess as you look forward into this slow-growth environment, you've commented that you expect to keep the marketing spend high in terms of driving your growth.
This is all about card acquisitions, I suppose. And certainly, it's what you've been driving with Discover.
Can you give us some sense as to how you think you can continue to gain share and what the competitive backdrop is doing within the revolving credit space, since that's really where you're going to take share?
David W. Nelms
Well, when I think, Ken, about growth, I think about it in 3 ways. One of those ways is putting on new accounts, as you say, and having strong products.
I'm very proud of Discover it. I'm proud of our marketing, our commercials, our online digital presence.
And that's very important. I would say that maybe an even bigger share of our growth will actually come from our existing base.
We still have -- we have a very loyal customer base. We still have our customers who have a lot of spend and balances elsewhere.
And we've been making good inroads to gradually move them over with our better service and value, but that's the best place to pick up growth. And the third area is retention.
And as long as we can maintain lower charge-offs and lower attrition because we're keeping our customers happier, we're not having as much of a leaky bucket as the rest of the industry has. And so I would think about those 3 together, and growing an extra 1% faster, 2% faster, 5% faster, I mean, obviously really adds up and will, in conjunction with the new products that we've put on, which are growing much faster than credit cards, help offset the credit tailwind that will eventually become at least somewhat of a headwind, at least from a -- especially from a provision and reserves perspective.
Kenneth Bruce - BofA Merrill Lynch, Research Division
Okay. And then -- and just following on with that, you've pointed out in a number of occasions that the Discover it product is slightly different than some of your prior products from the standpoint of how you would expect loan growth to come into the portfolio over time.
Is there any way to dimension that in terms of how much back-end loaded that might be in terms of the embedded growth that's actually coming into the portfolio through Discover it?
David W. Nelms
I'm not prepared to address that in this call. We'll think about what we might be able to share at our Investor Day on that, Ken.
Operator
Brad Ball from Evercore is online with a question.
Bradley G. Ball - Evercore Partners Inc., Research Division
Regarding the PCI private student loan pools that were underperforming, Mark, I wondered if you could talk about what was -- what drove that underperformance relative to your expectations. And are you seeing any of that -- those factors impacting your non-PCI private loan book?
R. Mark Graf
The quick answer, Brad, is that the pools are stratified based on origination vintage. And it is one pool in particular from one particular vintage year of originations that is underperforming the expectation there.
So it's not -- the underperformance issue doesn't bleed across, shall we say, to the other pools at all. And with respect to whether or not we're seeing the same impact in our own organically-originated book, the answer is no.
We're not seeing the same impact in our own originally -- organically-originated book.
Bradley G. Ball - Evercore Partners Inc., Research Division
Okay. So is the underperformance then related to the structure of the loans in that pool or whether they were co-signed?
Or is there some other factor there?
R. Mark Graf
I think it relates to the origination criteria, for lack of a better term, that were utilized in that particular year of origination. And I think it just relates to the fact that, that particular year, the market was a little bit more heated, shall we say, than it was in subsequent and prior years.
David W. Nelms
Remember that it's versus our expectations that were made at the time of the purchase as well.
R. Mark Graf
Correct.
David W. Nelms
So if our expectations -- it may be different on an absolute basis even. But if our expectations were off from actual, that's what causes the accounting.
R. Mark Graf
Yes. So if you think about it, there's -- if you look across the pools, there are a couple that are performing better than expectations when we acquired them.
There are a couple that are performing worse, one of which is really the driver here, to be honest. And there's several that are performing right in line with expectations.
So if you look at the portfolio in aggregate, overall, it's performing better than we expected at the time we acquired it.
Bradley G. Ball - Evercore Partners Inc., Research Division
So a onetime impact, no reason to expect that there'll be future reserve adjustments related to that one pool?
R. Mark Graf
I wouldn't say it's onetime. I would think about it the same way I would think about -- but it's -- you have to bifurcate it.
So it's a unidirectional kind of issue, if that's a real word. Basically, if that pool's performance gets worse from here relative to our expectations, you would see us post additional reserves against that pool.
If the pools that are performing better than our expectations get even better yet, you'll look to see us post further accretable yield on those portfolios going forward. So it's -- you have to bifurcate because the accounting for deterioration is reserves.
The accounting for improvement is yield accretion.
Bradley G. Ball - Evercore Partners Inc., Research Division
Okay, fair enough. And then if I may, on the personal loan book, you grew 27% this year, I think, over 20% last year.
What are the constraints on growth? Or are there any?
Could you grow that even greater than you have? And are you seeing a distinct pickup in demand for debt consolidation loans in the current environment?
David W. Nelms
Well, I would say that we feel like we're growing it appropriately. And at some point, the growth rate will start to slow down just by the law of large numbers.
But I've been very pleased that we've maintained those kind of growth rates. I think that if I look longer-term, the personal loan market is a lot smaller than the home equity market.
And so if you think about what are the reasons strategic we entered the home equity market this year was; a, we think the timing is right from an interest rate perspective and the fact that home equity is being rebuilt for a number of consumers; and secondly, because we think there's good growth over time in a market that is much larger, which is home equity being much larger than personal loans and certainly than student loans as well, private student loans.
Bradley G. Ball - Evercore Partners Inc., Research Division
And do you see the home equity product playing a debt consolidation role in the future?
David W. Nelms
Yes. I think that it's a combination of home improvement, as well as debt consolidation.
But to some degree, it gives us a more continuous product line. If someone is just doing a small consolidation, maybe a balance transfer on the credit card is fine.
If someone's doing a moderate consolidation, that's what our personal loans are for, generally $15,000, $20,000 kind of range. If someone has a larger amount they're consolidating or they're doing a major improvement, that's where the $20,000 to $100,000 line secured by -- with -- as a secured loan, and home equity kicks in.
Operator
David Hochstim from Buckingham Research is online with a question.
David S. Hochstim - The Buckingham Research Group Incorporated
I wonder, could you give us any update on what's happening with the Paypal and Ariba partnerships in Payment Services? Is there anything in revenues or expenses there this quarter that's meaningful?
David W. Nelms
I'd say that they're continuing -- there's nothing unusual in terms of expenses this particular quarter on either of those. Obviously, we have a lot of work to do.
We've made really good progress on both, especially PayPal. We've signed a lot of acquirers and put up some merchants.
Ariba, it's still in the development phase, then we'll go on to the pilot phase. So it's not going to be -- neither one of them have really -- have launched.
So we're continuing to make progress with our partners towards an ultimate launch.
David S. Hochstim - The Buckingham Research Group Incorporated
Okay. Maybe just related, there's a $2 million provision for losses in Payment Services.
Is part of that Italy or anywhere we're familiar with?
R. Mark Graf
I'm sorry, David, you faded out there?
David S. Hochstim - The Buckingham Research Group Incorporated
In Payment Services this quarter, you had another very tiny, but reported, provision for losses?
R. Mark Graf
Yes.
David S. Hochstim - The Buckingham Research Group Incorporated
I'm wondering what that is?
R. Mark Graf
Yes, that's related to the Diners Club line of business. And it specifically as a provision related to a loan that we have outstanding to a European franchisee.
David S. Hochstim - The Buckingham Research Group Incorporated
Okay. And then could you just tell us what we should think about for a tax rate for 2014?
R. Mark Graf
Yes. I would think about, really, our more normalized tax rate to be in the 37% to 38% range.
We'll give you some more guidance on that at Investor Day. But for right now, I think that's a pretty good way to range it.
Operator
Moshe Orenbuch from Crédit Suisse is online with a question.
Moshe Orenbuch - Crédit Suisse AG, Research Division
David, I was struck by your comment about cost per account being low. And I'm sure that's going to be a significant competitive advantage.
I mean, do you -- can you talk a little bit of what you ascribe that to? I mean, is it the fact that everybody else is beating one another over the head to issue Visa cards or MasterCards?
Or is it product design? Or I mean, how do you think about that and how do you think about using that going forward?
David W. Nelms
Well, first, I would say we don't have great visibility as to what our competitors' cost per account are. And I think they vary all over the place.
They might ascribe incrementally low costs for a branch-originated account, as an example. And we, obviously, don't originate through bank branches.
When we think about cost per account, I'm thinking more compared to our historical averages. And ours are lower than they have been as -- because we've got a differentiated product with a large number of unique features in Discover it.
And I think we've also gotten better at marketing it as we've strengthened our brand, strengthened our acceptance, leveraged some of our major sponsorships. And so I think that we need to continue to go to market as a differentiated brand.
We are Discover. We're not just another Visa or MasterCard.
We've got unique features. We keep adding to them.
And then we provide -- increasingly, people know that we stand for great service, as well as value. The Internet and the move to digital I think is another thing that I would point you to, because I think that we face a lot of rejection in direct mail.
And increasingly, we're finding ways to leverage the Internet and to be the account-generation machine.
Moshe Orenbuch - Crédit Suisse AG, Research Division
Just a follow-up on the discussion of the difference between the growth rate, your growth rate in spending volume versus balances and compared to the industry. One of the things we've talked about in the past is that, obviously, you could get there by increasing balance transfers.
The numbers that I would look at suggest that actually you're doing less balance transfer than in prior periods. Is that a fair characterization?
David W. Nelms
That is correct. We are more -- and so it is a little difficult to parse through because what you don't see is the mix.
If we just backed off from balance transfer, and that was the only change, then you'd see maybe sales growing faster than receivables. But as I say, we kind of look at revolvers versus transactors.
And we are fundamentally giving up share purposefully in transactors, and we're gaining shares on prime revolvers. And that's why the numbers are -- sales and receivables for the year were both up by about 4%.
And that's pretty well matched up.
R. Mark Graf
And Moshe, if you look at the growth on the quarter, about 2/3 of it comes from what I would call regular way[ph] spend and about 1/3 -- only about 1/3 of that is going to come out of any type of promotional activity, of which BT is only a subset of that 1/3. So the nature of the growth in the quarter from my perspective feels very, very healthy.
David W. Nelms
And we have a healthy payment rate, and it's -- but it's pretty stable. If you look at most of our competitors, their payment rates are continuing to rise.
So they're basically bringing money in and it's more being paid off at a faster and faster rate. And we're not doing that.
Operator
Chris Donat from Sandler O'Neill is online with a question.
Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division
Mark, just wanted to ask one more question on the private student loans and the timing of the recognition on the accretable yield. Is that safe to assume we're talking a number that's a little north of $28 million that gets spread out over something like 5 to 10 years?
R. Mark Graf
It's going to be spread out over about 5 years or so. In terms of timing, in terms of the way to think about it and from the standpoint of more or less a specific number, what I guide you back to is essentially 100% of the increase in yield in the fourth quarter was driven by that accretion.
And that represented only 1 month's worth of inclusion of that accretion. So you can kind of calculate what a full month's worth of that would look like and extrapolate that over 5 years with a slightly declining balance due to payoffs, and you'll get to your number.
Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division
Got it, okay, all right. That helps me on that.
And then just to ask a hypothetical with the news on PayPal. There's nothing that, as far as PayPal is separated from eBay, that would trigger any changes in your current relationship and plans, right, that -- you're steady as you go with PayPal, I imagine, right?
David W. Nelms
Well, I think you'd be jumping to a conclusion that they're going to separate in the first place. I mean, certainly, we're seeing a lot more well-run, large companies with activists in the stocks.
And so I personally would be really surprised if we saw a change there.
Operator
Bob Napoli from William Blair is online with a question.
Robert P. Napoli - William Blair & Company L.L.C., Research Division
Just like to get some insight on your thoughts about the economy, David, where you -- your view on whether the economy in the U.S. is getting a little bit better or stable from your view?
David W. Nelms
I'd say the numbers I'm seeing at the moment suggest stability. I think that we have the potential to accelerate, and we need to get past this debt limit without self-inflicting wounds to ourselves.
And -- but if I look at a whole number of things, the less fiscal constraint, as we saw last year with tax increases and reduced spending, that certainly reduced GDP growth. That shouldn't occur nearly as much this year.
So that's helpful. The unemployment rate continues to tick down.
We've seen some -- mostly better numbers coming out. I don't think it's really translated into sales growth that's sustained.
And we went through 3 years of feeling better in the first quarter and then things deteriorated. I'm hopeful that this year, they'll actually maintain or even get better through the year.
So I'm hopeful, but I don't really have -- we need a couple of data points of GDP growth and unemployment that keep going in the right direction before we can, I think, declare a strong upward trend.
Robert P. Napoli - William Blair & Company L.L.C., Research Division
Then on the growth side, I mean, you talked about hoping to get a little bit of a pickup in the card loan growth, the personal loans, still very strong growth. Now the student loan market seems to have slowed a little bit.
Looking at your growth this quarter, Sallie Mae's growth, I mean, I think there is good news in that maybe college prices are going up a little less than they have been in prior years but maybe there are less people going into colleges. I'm just wondering what you felt like on the outlook for loan growth on the student loan side.
And then how quickly will the home equity loan become material to you? Is this a material product in '14 or are we looking a few more years down the road?
David W. Nelms
Well, I guess I would be hopeful that we could achieve a little bit higher loan growth this year than last on private student loans ourselves, because last year, we had the headwind of going from 2 brands to 1, which we overcame. But this year, we don't have that same headwind.
But we're not looking for anything quite dramatic. As you mentioned, tuition costs finally seemed to at least slowed down their increase.
And I think that is a good thing. And -- but that impacts the size of the market.
In terms of the personal loans, I think that I'm thinking about...
Robert P. Napoli - William Blair & Company L.L.C., Research Division
Home equity.
David W. Nelms
I'm sorry, home equity. In terms of home equity, I think that this is our first year, and I think just like when we entered student loans and personal loans, our first year was pretty modest in terms of easing into a new business.
So I think we'll err on the side of being cautious year 1. And then I think in subsequent years, we would hope to accelerate it as we have more testing under our belts and understand, in particular, what marketing sales work better versus less well, what is the best marketing pitch, our operations are all -- are starting to scale up.
And so I would think modestly about this first year.
Robert P. Napoli - William Blair & Company L.L.C., Research Division
If I could sneak this in. On the capital side, you've grown capital this year even while aggressively buying back stock.
And I mean the Fed, I mean, through the CCAR, it doesn't seem like they'll let you buy back more capital than what you generate in a current year. Are there any thoughts on more, maybe looking at acquisitions?
I mean, it's a great problem to have. And where your stock is, it's very accretive buying back that stock, but what are your thoughts?
I mean, you don't want to continue to see the capital level build, I'm sure.
David W. Nelms
Yes. I would -- we've noticed that as well.
We're doing what we can to be good stewards of our shareholders' capital. But I guess it's a nice problem to have that we're so profitable that we still built book value, I think, 15% this year, despite buying back and having dividends of about $1.5 billion.
We will -- I think there's the potential because we submit the capital request on a dollar basis, not a percentage basis, and we really can't adjust easily. We would be a lot closer to paying out our full earnings in a year if we didn't exceed our earnings by so much.
Now I don't know which one you'd rather have. Probably exceeding earnings and accreting capital is probably the better problem to have, but it does result in putting pressure on our ROE.
The fact that we got a 22%, achieved a 22% ROE. Even with the higher capital, though, I think you should feel good about this quarter.
Operator
Eric Wasserstrom from SunTrust Robinson is online with a question.
Eric Edmund Wasserstrom - SunTrust Robinson Humphrey, Inc., Research Division
Just a couple of quick follow-ups. The first is, I'd be interested to understand, in your process of going through the CCAR exam for the first time, what you thought the most meaningful differences were from your former CapPR experience?
R. Mark Graf
Sure. I would say the cases we look at and the stresses we're required to run, I would say, are essentially the same.
The big difference between the CapPR and the CCAR is we have to ship a significant amount of raw data to the Fed, measured as in hundreds of billions of dollars, billions with a B, hundreds of billions of fields of data actually gets shipped to them so that they can run their own models on us and come up with the independent perspective there. So I would say the differences are really more in terms of, in a CapPR process, they come in and pressure-test your submission, your models and your stresses.
In the CCAR process, they do all of that, but then they also come in on top and run their own models. And I think our first year through it, the most telling thing will come out in a couple of months when we get a sense for how their models view the loss rates that our data produced under a stress scenario.
So what I would say is hold that question to the next quarter's Q&A and we'll be able to give you a pretty clear perspective on the deltas between how we're looking at our loss picks and how the Fed is.
David W. Nelms
The other thing that I would add is just the process itself is even more rigorous with more board involvement and more validation of models and so on. And so not so much the bearing of the cases, but the strength of the process, which we have made major investments on and have dramatically enhanced this year versus last year.
R. Mark Graf
Yes. I think one of the things I've said in a couple of settings is that we've not been shy about spending money to make sure we're ready for the CCAR process this year.
It is our first year. We were lucky we acknowledged that, and for us not to bring in external resources who've helped others through this process in the past, and have the benefit of those learnings, I think, would have been shortsighted.
And we've not been shy about making sure we've invested to be prepared.
Eric Edmund Wasserstrom - SunTrust Robinson Humphrey, Inc., Research Division
Great. And then if I could just sneak in a couple of follow-ups.
What should we think about in terms of your go-forward tax rate from here?
R. Mark Graf
I'd think about it as 37% to 38% range is the right approach.
Eric Edmund Wasserstrom - SunTrust Robinson Humphrey, Inc., Research Division
Okay. And the other income that was up sequentially, I was surprised at that, given your continued decline in mortgage origination.
What accounted for that small sequential uptick?
Bill Franklin
Are you referring to the $3 million in other, other income?
Eric Edmund Wasserstrom - SunTrust Robinson Humphrey, Inc., Research Division
Yes, correct.
Bill Franklin
I think it was a bunch of cats and dogs.
R. Mark Graf
It is cats and dogs.
Bill Franklin
I don't have the detail in front of me.
R. Mark Graf
Yes, it is cats and dogs is the answer to the question. There's nothing specific to call out in there.
Operator
Daniel Furtado from Jefferies is online with a question.
Daniel Furtado - Jefferies LLC, Research Division
I have one question, and I don't know if you'll be able to answer it or not, but how meaningful do you anticipate the rewards checking product to be for your funding base? And what type of impacts, broadly speaking, would you anticipate this product to have on your funding costs?
David W. Nelms
Well, Danny, I would think about it as not being meaningful in the short term. In the long term, we certainly expect it to be meaningful.
I'm really excited about it because it is uniquely valuable to consumers having cashback bonus, no fee, no monthly fees and a very feature-rich product. And so far, we've only sold it through cross-sell this year.
We are on track for launching a broad market. So the good news is it's a great product.
And the bad news is that it's a very sticky product. And so we think it's going to take a long time to get people aware of the savings that they can have from this product, as well as to wean them from what they're used to, which is the bank down the street.
And so I think we have modest growth plans in the near term as we launch this, because it is new and different.
Operator
Brian Foran from Autonomous is online with a question.
Brian Foran - Autonomous Research LLP
I guess [indiscernible]
Bill Franklin
Brian, your phone's breaking up. Can you speak louder?
Brian Foran - Autonomous Research LLP
I'm sorry about that. At the Investor Day last year, you had laid out the 6 strategic initiatives, and you've touched on most of them.
I was wondering, maybe just to clean up, if you can remind us where the core banking system replacement or upgrade stands. And then more broadly, the it card clearly has been a big success.
The mortgage business, notwithstanding the recent refi slowdown, has been a success. When you touched on home equity, when you think about the other 4 you had laid out, clearly, there have been some headwinds.
And I wonder, of those other 4, the deposit, the checking, the PayPal, et cetera, is it just a delay in the ultimate opportunity or is there anywhere where you've kind of downgraded your internal thinking on what the opportunity actually is?
David W. Nelms
Sure. Well, I don't want to go through all those because we'll have to cancel our Investor Day, because as you know, we always do a report card on how we did and then talk about our priorities for the coming year.
But I'd say generally, the ones that we had hoped to launch but didn't are all delayed as opposed to -- I don't think any of them have sort of been canceled. And so you started off by asking about the core banking system.
We had originally hoped to get that live at the end of last year. And that's moved into this year, but we are on track for putting it in.
But obviously, it's more important, a lot more important to put a system in right with low risk as opposed to getting it in fast. And I think that's true with some of the other priorities.
And many of them, we nailed during the year, and some others have slipped from '13 into '14.
Brian Foran - Autonomous Research LLP
And then just circling back to the acquisitions question. I mean, clearly, you guys have always been very low risk, very conservative and thoughtful over time doing acquisitions.
But I wonder, specifically on the topic of portfolio acquisitions, if there's anything floating around out there that is worth looking at and interesting to you at this point?
David W. Nelms
You mentioned portfolio acquisitions, and that's not really -- I think if you look at what we've done, it's been more business acquisitions, if you think about student loans or mortgages or even PULSE and Diners Club over the years. And we continue to look at potential acquisitions, but I just wouldn't count on anything because, as you say, we're cautious.
It is a lot more difficult making acquisitions with the sort of regulatory environment. And we want to make sure that we don't buy something that then has problems or what have you.
So we're -- maybe in this current environment, we're even more cautious than we normally are. But that being said, if it's the right fit, the right financials and unique for us, we would love to put some of our capital to work.
Operator
We have no further questions at this time. Thank you, ladies and gentlemen.
This concludes today's conference. Thank you for participating.
You may now disconnect.
David W. Nelms
Thank you, all.
R. Mark Graf
Thank you.