Bread Financial Holdings, Inc. (BFH) Earnings Call Transcript & Summary

Well, we're going to get started. Up next, we're pleased to have Bread Financial joining us once again. They've continued to execute on the strategy of simplifying its company to focus on its core Private Label Credit Card business, while also greatly improving its funding and capital positions. In addition, it's posted both industry-leading growth, both organically and inorganic and has positioned the company well for any or whatever impending downturn we may see as they have some of the most conservative reserves in the industry. Joining us from the company is CEO, Ralph Andretta. Also joining us on the panel here, we have Chief Financial Officer, Perry Beber; and Chief Commercial Officer, Val Greer. Ralph is going to give us a short presentation, and then we're going to move on to Q&A.

Good. Thank you. Just a couple of things. So thank you for being here. I know it's late in the day. I really appreciate it. I've got some prepared remarks and then Perry, myself and Val are eager to take questions from anybody, quite frankly. So if you saw it on this slide, the credit sales growth is expected to reach double digits in the fourth quarter, driven by new partner additions and holiday spending. In October, we successfully converted the AAA portfolio of over 1 million active accounts and approximately $1.5 billion in loan balances. We are very confident in the new and improved cardholder value proposition on the AAA products and will drive further engagement. They have 56 million U.S. members driving, which would drive increased accounts, and I want every one of them, quite frankly. I think it's a really good value proposition, and we're really excited about the performance of AAA so far. By leveraging our full product suite, we remain well-positioned to continue to add quality partners that further strengthen our diverse portfolio. Our projected double-digit sales growth is trending above the retail sales industry, which is -- which saw a 12% year-over-year growth on Black Friday. We are continuing to see success in the health and beauty segment, in particular, as well as strong Black Friday weekend sales in home furnishings. As part of our ongoing business transformation, we're continuing to strategically invest in our digital platform, product innovation, data and analytics, marketing efforts and technology modernization. This all drives growth and efficiencies. As a result, we expect higher expenses in the fourth quarter aligned with higher credit sales, transaction processing expenses and a shift in marketing expense that was originally in the third quarter, we've now shifted it to fourth quarter, which we did discuss at our earnings call. From a macroeconomic perspective, we continue to see the normalization of consumer payment behavior as we expected. Our leadership team is experienced in managing through credit cycles, emphasizing responsible risk management and recession readiness planning. We proactively adjust our underwriting and credit management to account for challenges and inflation and other factors that present to consumers, especially from the most impacted by persistent inflation. We remain confident in our ability to manage credit risk through the full economic cycle. Despite continued macroeconomic headwinds, our full year 2022 outlook remains unchanged. We will continue to act prudently and responsibly in our allocation of capital and will moderate our growth appropriately. Our continued success in signing new partners strengthens our confidence in our 2022 outlook and provides optimism as we head into 2023. We are pleased to announce a new multiyear agreement with the New York Yankees. Big day for the Yankees, Red Financial and Aaron Judge, big day, although his contract is a little bit longer than ours. This relationship will diversify our brand partner base, where we're rewarding Yankees fan for their purchases and providing enhanced benefits through a branded New York Yankees co-brand team card. This relationship bolsters our momentum on an already strong year of new signings of over $2 billion in loans, including the additional AAA and the NFL. We remain focused on driving sustainable, profitable growth, leveraging our technology enhancements and the business development pipeline. If you look at Slide 4, it highlights our substantial business transformation over the past few years. We've made great strides in simplifying our business model, enabling a sharper focus on our investments and future plans. The development of our full suite of lending products allows us to balance our portfolio mix and diversify our brand partner base as evidenced by the new relationships in many renewals we announced this year. These balanced and strategic actions we have taken to improve our balance sheet are key components of our improved financial resilience and position the company to better drive sustainable potable growth. Our Board of Directors is aligned and confident in the strategic direction of the company and is supportive of our ability to make disciplined financial decisions in the best interest of all stakeholders. I'd like to close with Slide 5, which speaks to our financial resilience. Through our business transformation efforts, we have improved our capital levels, loss absorption capacity and profitability margins while also enhancing our credit risk management and underlying credit distribution. These advances strengthened our financial resilience, better positioning Bread Financial to outperform historic loss levels through an entire economic cycle. As you can see from the chart on the left, even at loss rates seen in the great financial crisis, our PPNR profit margin will remain positive given the strength of our risk-adjusted loan margins. And again, given the same conditions, we would expect to outperform these levels due to the transformational improvements we have made to our business. Our experienced leadership team will continue to manage our portfolio proactively as we continuously update our risk management models and underwriting criteria, utilizing our recession-readiness playbook for both new and existing accounts. We will primarily focus on managing open-to-buy authorization and help consumers better manage their credit, credit lines and balances. We placed extra emphasis on vulnerable segments of the population who most feel the pressure of persistently high inflation and increased cost of overall consumer debt to help ensure they can control their credit while maintaining purchasing power. We believe that our improved risk profile, coupled with our more diverse portfolio and brand partner base, leaves us in better position than ever to manage through a recessionary period. In closing, we have taken deliberate strategic actions to strengthen the financial resilience of our company and are confident in our ability to grow profitably with the expectation to outperform historic loss levels through a full economic cycle. With that, Perry, Val and I are happy to take questions.

Great. Ralph, thank you for the update. You did mention the Yankees contract was not as long. Hopefully, it was not as expensive for you either.

I got no reaction, must be a lot of Mets fans in the room.

Absolutely. Maybe just -- you guys gave an update, maybe just to start off with the consumer. Obviously, the consumer has been a good place, but there's clearly impacts of rising inflation, roughly 40% of the book is below 660. Maybe just provide an update on the health of the consumer and how the changing macroeconomic environment is impacting your cardholder.

Sure. Well, I'll start and I'll ask Perry and Val to chime in. So I would characterize the overall health of the consumer is still good. They're still spending. We're starting to see some stress, as you would imagine, in a lower vantage of FICO score. We're starting to see a little stress there. We have taken the appropriate action, whether it's not issuing credit line increases or credit line decreases, but we've taken the appropriate action. So I feel we are really positioned well to manage through this economic cycle.

Yes. I would just add to that, which is, overall, we are seeing a little bit of deceleration in spend, particularly during the holiday period. We have seen a shift in those lower-income buckets to more nondiscretionary versus discretionary items. We have had very good sales growth in our Beauty segment. And so interestingly enough, the Beauty & Health segment is really almost nondiscretionary. So we still see very good solid engagement there. We saw a little bit of softness around the mid-tier apparel, and then we saw a good pickup after Black Friday around home improvement. So overall, as Ralph said, consumers are engaging. There's a lot of holiday spend promotions out. So really trying to gather -- get the eyeballs from the customer. And we are seeing trips increase. So people are starting to manage more paycheck-to-paycheck. So the number of trips is increasing consistent with people making smaller repurchases but in that biweekly budget flow with their paychecks.

Maybe Val, just to build on some of you just hit on in terms of what you're seeing. Maybe if you could just talk about what you're hearing from your merchant partners, how are they preparing for what could be an inevitable economic downturn? What are they doing differently? And how are you buffering them across the various verticals to manage their business?

Sure. So from -- one of the value-adds that we add to our merchants is really driving that lifetime value of the customer. And so really important that we drive penetration on their customer base on the product, they become much stickier and their trips and their engagement and their sales and their revenue grow up from there. If you think about what do we do to do that this year, they've been very focused around driving promotions. So if you think about spend and get discount offers, last year, with the supply chain, we didn't really need to drive a whole lot of promotion, right? They could sell a lot of their product at full price. This year, the consumer is conscientious about the inflation that's out there. There is a little drop in the consumer confidence, and they are looking for value out of their purchases. So for us, really supporting our brand partners with making sure that we're strong on marketing, we're being target on the campaigns. We're helping to drive the acquisitions in this very important fourth quarter and holiday sale. And then really already looking forward into Q1 around those engagement campaigns to make sure that they're coming back and that they're aware of the new merchandise coming in to drive those sales forward.

Got it. That's helpful. Maybe just a couple of questions on the update that you provided. So double-digit sales growth driven by the addition of AA (sic) [AAA]. Do you have any sense how sales growth is looking if we were to remove the addition from acquisitions? Are we continuing to see strong sales growth? One of the things that we heard a lot about from other card lenders yesterday was the notion of decelerating sales growth. Yours is obviously coming in better. But I'm curious, under the hood, are you seeing any underlying trends that are notable?

Yes. And that's why I mentioned we are seeing that deceleration in growth. So particularly, again, in the lower-income segments, they're being much more cash conscious, budget conscious, hence, that increased in trips but decrease in average ticket per trip, right? Because it's more paycheck-to-paycheck. So we do see, again, the inflation and the macroeconomic environment putting pressure on segments of the consumer base. I think on the very high-end affluent, of course, there hasn't been a big shift in purchase behavior yet. But in that lower income segment, we are seeing that much more shifting to the nondiscretionary side.

Got it. And then, Perry, just one clarification. So Ralph talked about higher expenses in the fourth quarter. This has been part of the $125 million investment that you guys are making in digital and technology and marketing. Is there any difference -- just to clarify, I got a couple of investor questions, any difference to what the expectations were in terms of the uplift on costs? Or is it -- is this generally in line with what your expectations were?

Yes. I think when we think about expenses, clearly, we guided something for the third quarter and came in lower for a couple of reasons. One was we had an expense credit that we were expecting to get from the networks in the fourth quarter got accelerated into the third quarter. And then we were very thoughtful about, with everything that's going on with the conversion, working with partners to push more promotions from marketing programs into the fourth quarter that would have been in the third quarter. So some of that was happening there. We're also seeing some -- with increasing delinquency, we're seeing some increase in collections with collectors in the fourth quarter. So as it relates to our investment, we're still investing, focused on the things that matter for long-term viability of the company and then re-pacing some of the marketing or other investments to make sure we deliver positive operating leverage.

Great. So maybe to move away from the quarter and think about the forward look. So you had laid out a plan to get to $20 billion of receivables. More recently, you've talked a little bit about being dependent on the environment, which is obviously prudent. Maybe just talk about some of your -- what is behind your expectation of high single-digit growth into '23. What are some of the key drivers behind that?

Sure. So it's interesting. We put that number up over 2 years ago. And that was in a blue-sky environment. And we're going to come close to that number. We're not going to do anything irrational to hit a number. We're going to hit our number responsibly. But kind of 4 areas as I think about it. One is deeper penetration in your current client base is clearly a way to drive receivables and drive revenue, too. We've introduced a number of new products over the last couple of years. So selling those products into that product to the kind of existing base and then having new customers join us. So for example, we have 2 proprietary cards out there. We have the community card, and we have the American Express 2% cash card. They're growing nicely. That will add to our receivables in 2023 as well. There's always the opportunity of inorganic growth. So there'll be some portfolios that will join us in 2023. The portfolios that joined us in 2022 really will drive some growth in 2023. I'm excited about the NFL and AAA because their portfolios have a lot of growth potential. We've put in new value propositions for those portfolios. We're really focused on acquisition. We're using state-of-the-art acquisition tools, prequalifications in a digital way that Val will talk about in a second. So that gives me optimism as we move forward. But again, we've had prudent growth.

Let me clarify a little bit because I think the $20 billion is what we've been talking about for, as Ralph said, a few years. As -- the last time we had a conversation, I said, hey, it's going to be in that $19 billion to $20 billion and that we weren't going to chase the growth and we said that all along. Now as we start to think about what we're observing, and Val just mentioned a deceleration of consumer spend, I think as that pulls through that would guide that number a little lower. And then as you think about operating in an environment that has a little more risk in it, we're going to be very thoughtful about the credit management, as Ralph talked about it in his prepared remarks, I would expect some targeted pullback. So I would expect it to be on the lower end of that range for next year and that's perfectly good, particularly when you think about capital rate.

Yes. And I've got a lot of follow-ups. But one thing Perry, you didn't mention in terms of the drivers of the growth it's just been the normalization of the payment rate. And maybe can you just spend a minute talking about what you're seeing versus pre-pandemic? And at least in the near term, how is that contributing to growth in margins?

Okay. It certainly has contributed. So when you think about pre-pandemic versus today, the portfolio is constructed differently in terms of product composition. So each of the various products, whether it's co-brand private label, some of the buying apparel, all have different payment dynamics, and we published those payment rates today. Obviously, all were elevated during the pandemic. They're coming back down. So the rate is getting closer to where it was pre-pandemic. And where that goes from here is dependent again on composition. So when BJ's comes out in the first quarter, payment rates should continue to come down because it has a higher payment rate than that. Now as payment rates have come down, I mean, delinquency is often going up. So you do have more revolve behavior, a little bit better yield. So you see a little bit of improvement in them in the near term. And then as losses come about later, some of that is called back through a reversal of interest and fees with elevated charge-offs.

Ralph, when you talked about the drivers of growth, you mentioned inorganic and there'll be some into '23. When I think about this year, AAA, B&H, the NFL, Michaels, now the Yankees, maybe we got the Mets and Rangers coming at some point. But can you maybe just talk about what the opportunity set looks like for new business wins? Are you seeing opportunities on the smaller size? Are you seeing any larger ones like AAA? What is the -- and also what is the organic opportunities that look like?

Yes. So I think over the last 2 or 3 years -- 2 years in particular, we have really upped our game in business development and an exceptionally talented team. And there's no substitute for good talent. And that team, previous teams had a business development list. We have business development that we are fairly certain that we're going to have a high rate of success, which I think is a good thing. And not everything goes on our list. We take a look at what's out there and we say, you know what, low margins, highly complex. I'm not sure we can be a competitor there. So we don't waste any mindshare on that. I think we've proven over the last 3 years, we can play with the big guys, right? So the NFL and AAA, all came from top league banks. But the beauty of this company and be on this business and our platform is we can play in that mid-market as you mentioned, right? So we call them internally this string of pearls. So instead of $1 billion portfolio, $500 million or $600 million portfolios will yield such a great margin, and they're easier to convert or there's less customization. The margins are high. They're willing to work with us and do really interesting things to acquire acquisition. So we feel really good about that. We'll put our shoulder into next year to a degree. We've kind of pulled back a little bit on our proprietary products, but we'll reinvest in that going forward. And again, that's not going to be blistering growth, but it's going to be good growth, and it just gives our customers another reason to be part of the franchise.

You did a big systems conversion this year with Fiserv and it gave you significant additional capabilities. Maybe just talk about what's next on the technology road map for 2023 [indiscernible].

Yes. Val, why don't you take that?

Sure. So as you noted, we made a big step this year when we outsourced our processing and then moved kind of that integration layer that connects us to the processor to the cloud through API. So big tech modernization this summer. We continue, though, as you say, to invest in digital, mobile and technology. So a great example of that is we just went into a beta launch with several clients with our new virtual card product. It is the first virtual card product that we are baiting with Marqeta and Apple that you scan the QR code from your phone, you can get a selection of installment lending, be it a 12, 24, 36-month installment loan, you pick consumer choice or a split-pay product. And then you can immediately download that choice into your Apple or Google wallet and checked out. Every other virtual card process out there today requires you to download an app before you can then go ahead and checkout. And if any of you are in the middle of a retail store and have ever tried to download an app, it's hard because Wi-Fi is difficult. And so you'll continue to see us invest in those experiences and products that really remove friction out of it, make it much seamless and easier for the customer and drive that acquisition for our clients.

Now that you're through this, do you foresee anticipated cost savings from putting this through? Or is this more just that process improvement?

Yes, I think a couple of things. So the Fiserv conversion was -- we took a very old legacy system that's been there since day 1 and move to a state-of-the-art environment. So think about it as all these fixed costs that we had now becomes variable. So you pay by the volume, right? So volume goes up, that's great for us. Revenue goes up, and we pay -- volume comes down, we can manage the transaction expenses. That's a good thing. So that's -- to me, that's -- we'll reinvest that money into product, right? The second is the Fiserv because it is a state-of-the-art system. It has just great capabilities, right? So speed to market, tiered pricing, all the things you would want, better data and analytics, all that is going to help us manage our business as we move forward. And third and not unimportant, as our industry changes, you need to update your technology. So we will not do that individually. We'll do that as part of the Fiserv family. There's an inherent benefit to that, right? It gets done. It's going to get done in regulatory, statutory way. It's going to be consistent with the industry and we become a -- we draw from the well and not have to create that ourselves. So the combination of those 3 made the move to Fiserv, the conversion, very advantageous for us.

Yes. Perry, maybe let's spend a minute talking about expenses going forward. You guys obviously spent an incremental $125 million this year. Will that continue into '23? Are they more onetime in nature? Second, how do you think about operating leverage given we're entering a very uncertain environment here?

That's a good question. So when Ralph talked about the investment made this year and being able to reinvest some of the savings, I think when -- and Val talked about the -- keeping our state-of-the-art platform and then digital capabilities and mobile, that's not changing. This has been underinvested in for years. So this is going to continue. I think we're committed in pacing our investments. And you mentioned positive operating leverage, that is one of our objectives as we move through next year and beyond. It's going to continue to deliver that. So I mentioned earlier, collection costs are going up a little bit. Okay. Well, that means we'll throttle back on some other things to make sure we can deliver that positive operating leverage. So we have levers to pull, whether you go into a bit of a credit cycle, you pull back on marketing to offset other things. We'll re-pace projects if we need to. But right now, we are committed to continue to invest in this business, so we don't fall behind and try to stay on the forefront.

Yes. Those of who are familiar with financial service, consumer financial services, particularly cards business, if you don't invest in the business, it's hard to jump-start again. So we'll continue to invest. We have levers to pull down on. Our True North is operating leverage, positive operating leverage, that's our focus. And our investments need to pay back, whether it's a reduction in operating expenses or incremental revenue, but that's where our focus is.

Got it. Maybe let's spend a little bit of talking about credit. First, Perry, there's a lot of moving pieces on credit over the next couple of quarters, given the pieces from the conversion. Can you maybe just remind us what is the expectation? And maybe just talk a little bit about your current level of confidence for the '23 outlook that you had provided?

So for '23, I think we'll come out through the cycle 6%, and we'll give an updated outlook in the late January time frame. But I will give some -- a bit more insights into what to expect in the fourth quarter and think about the first quarter, maybe than what that means thereafter. Third quarter was suppressed from some of the conversion-related actions that we took to accommodate customers where we didn't age them through delinquency buckets the same way, and we were very thoughtful about how to handle that to make sure there's no harm done to our consumers. And so you're starting to see that coming back through in the fourth quarter. And effectively, we've said we're going to be on the high end of our range, coming in closer to 5.5% for the year, which implies if you do the math at 6.5% for the fourth quarter. Then, when you get to the first quarter, we would expect that to elevate up as that January-August activity, which were really suppressed where we held those come into that quarter. So that should be our peak period and then expect that to come back down in the subsequent quarter. Now what happens when you're in the back half of next year, a lot of that is dependent upon what type of macroeconomic environment we're in. But right now, the first half looks very manageable, and I think the back half does look as well manageable.

You were, I think, one of the few -- probably the only issuer that outperformed expectations in recent times in terms of delinquencies. I don't want to make 1 month be a trend, but you did see some good progression. Can you maybe just talk about what is driving the improvements? And is it due to the underwriting changes that you referenced earlier? Is there anything specific that is causing the improvement?

Probably I think about 3 things. First, AAA portfolio came in, in October. That has a much lower delinquency rate. So that's a big part of it. Some of it was -- some of the noise around the conversion that got cleaned up. So that -- the month looked better for that as well. And then as you mentioned, I'd say the other 2 pieces are probably harder to figure out is what exactly has happened with the consumer. They -- you're seeing continued normalization. But as you mentioned, credit strategies, collection strategies, big team manage it well.

Ralph, you've been around the card business for a very long period of time. You've seen a handful of cycles. We had a lot of your peers presenting yesterday talking about back half of the year next year, there's a lot of uncertainty. How are you preparing for what could be an inevitable downturn? What strategies did you put in place? What is the playbook to Bread Financial in case we do see a little bit of harder landing?

So I -- when I first got here in early 2020, I was certainly impressed by in early 2020, we're already enacting our recession playbook, right? We're already getting prepared for the recession. We have a pretty comprehensive playbook. And it's a living book, right? So it's an if/when. If this happens, we're going to do this. We're going turn them around the edges. We've invested in technology for collections. We've invested in collectors. We've invested in back-end technology, because I think end-to-end, we have to have that. We've got -- and I applaud Perry for this, but when we upped our loss rate, we got some feedback that we were being too conservative. But if you think about where we are, and I feel good about it because we can absorb higher losses, and it helps us manage through uncertainty. So from that perspective, I feel good as we go into 2023, that we are properly reserved. I think it's a good thing to be properly reserved. We are focused on making sure that we are doing the right things, particularly for those individuals who are part of our portfolio that feel that stress that we are managing them appropriately, and we are predictive about -- and we are readying ourselves for what may be a rough second half of the year in terms of loss rate and how do we collect and how we do the right things and how do we use the technology we invested in 1.5 years ago to our benefit at the end of -- back end of 2023. So those things in place, plus just on this stage, you've got 90 years of going through cycles. And if you look at other people, we'll have about 150 years of going through the cycle. So intuitively, you know what to do in the cycle. And that's where we differ from the fintechs because they have never been through a cycle. We've been through the Great Recession. We've been through good cycle, and we know how to manage appropriately through this. Listen, I don't want a recession. I don't wish you a recession, but I would say that we're ready for what will come.

Sure. No, that makes sense. So Perry, maybe let's spend a little bit of time and I'm sure it is your favorite topic, and that's the allowance.

I don't know you're going to ask something like that. I just came -- I just didn't [indiscernible].

[indiscernible]. So your allowance of 11.4% is one of highest, if not the highest, in the peer group. Can you maybe just talk about your expectations for the trajectory of the allowance in 4Q and beyond? And there's a lots of moving impacts, the impact to AAA coming on, BJ is leaving in 4Q and 1Q, maybe just remind us some of the moving pieces. And then I think lastly, if we do see this environment, unemployment is back at, let's call it, 5.5%. What do you think something like that would mean for the allowance?

Sure. So with regard to the allowance, the philosophy we've had is, let's get ahead of it a little bit. And the feeling is that the Moody's economic variables from the baseline were lagging what we were seeing or expecting could happen. So as the -- you go back 3 quarters ago, there's a 25% probability of recession. It went to 50% in the 2 quarters ago. This last quarter was 75%, and now we're closer to 100% of people thinking, yes, it's probably something happening in mid-next year. So we had really strong earnings happening. So it's like let's increase the reserve. Let's get ahead of it. And so what we did is we leaned in on a risk overlay on top with the baseline model. So anticipating that the next quarter you got to, the baseline macroeconomic variables would deteriorate a little bit to reflect more of what was anticipated. And so what we've been doing is getting ahead of that a little as we had a line of sight into what the outcome could be, and that's what the risk overlay is for in the reserve. So we've been stepping that up. So we get to in the third quarter around an 11.4% rate. There are some moving parts, as you mentioned. AAA comes on. You'd expect that the reserve rate would go down some in the end of the fourth quarter. But with the pace at which I just mentioned, the way things have been going with the outlook, it's quite possible than likely that that benefit would be offset or could be offset by economic duration. So that would hold it. We could hold it flattish. And then you roll to the first quarter. So you have a big dollar build for AAA coming out of seasonal growth. Get to the first quarter, you're going to have a big dollar release. But when AAA -- when BJs goes out, it goes -- it leaves the portfolio at a lower reserve rate. So therefore, I would expect 30, 40 basis points lift in the reserve rate even though there's going to be a big dollars, if not the dollars coming out.

We're going to test everybody after to see if they got all that.

Why not.

He has a chart if you...

That's all else being equal because, again, there's -- macro is going to continue to evolve.

Perry, sort of a two-part question. Obviously, big game of the year has been the pace of rising rates. You guys have been able to hold the margin kind of steady in this 19% range. How are you feeling about that going forward? And then I guess related to that, a big part of it has been the build-out of the retail deposits. You're now over $5 billion. Maybe just talk about how that strategy is progressing? Do you think you can continue to grow at these levels? And what's a reasonable time frame to reach your funding goals in terms of a percentage of the overall funding base?

There's a lot in there.

We're running up against time. We got to get all in.

All right. So net interest margin, we've guided to 19% in kind of a steady state with some quarters being higher, some being lower with seasonality, some timing, you'll see some quarters where delinquency is a little higher, a little more late yield coming into the loan yield, but then you have periods where you have higher losses, you have reversals of some interest in fees that you may have collected and captured earlier. So you're going to have the -- it's called purifications. So you have that movement happening up in loan yields. And as you mentioned, funding right now with about an 80% deposit beta, we're not passing along for every, call it, 25 basis points of increase in Fed funds increases, almost 100% of that goes into your loan yield because we're variable priced loans. And we're only passing on a portion of that increased deposit costs. As long as we continue to grow our deposits, which is currently our lowest cost of funds, we expect to be slightly NIM accretive for a period of time when that's happening. And to your point, we love direct-to-consumer deposits. And because we are -- because we're largely variable assets, we could pass along most of those rate increases if we want to keep leading the way with Internet banks. I'm not being out there with some of the fringe players, but we feel very comfortable where we are and there's no NIM compression as a result of that.

I got 2 questions to go and about a little over a minute, both, I think, for Ralph. But Perry, you can probably chime in too. So you guys have improved the capital levels by a ton. We're now approaching -- we should approach 9% TCE-to-TA. What are the plans and capital priorities? And obviously, we're entering an uncertain environment. How are you and the Board thinking about the capital return to shareholders over time?

It's nice to have a balance sheet that's positive. So we feel really good about that. And that 9%, it's not our final destination. You got to keep up with competitors and -- but it's good to have that number out there. I don't think our capital position has changed, right? We are going to continue to invest in this business. That's important for us to do. It's important to have good repeatable earnings. So you have good repeatable earnings as you invest in this business. Secondly, we still have debt at the corporate level. It's still highly leveraged, and we've got to pay that down, that's important to pay down. And then we could -- then, we'll continue to talk about how we return value to shareholders. But those are our priorities, have always been our priorities, active discussions with the Board on those priorities as we go forward. But I think from -- when I came in, Perry came in, and Val came in, we're in a much better position than we were. We don't want to erode that position. We want to ensure that we have enough capital for that next deal that Val brings to the table, and we want to make sure that we have that healthy balance between paying down debt and returning value to shareholders and continuing to invest in the business. So it's a puzzle. And then the environment comes in for -- the environment also adds a little bit of complexity to it. But it is not our discussions.

I guess in our last 30 seconds for you, Ralph. Obviously, there's a lot of concerns over recession and the like, stock's been under a lot of pressure this year. What do you think the market is missing most regarding the Bread story?

I think a few things. One, I'm not sure that our transformation is really well understood. And that's how -- we've got to articulate that better because it's not just -- that's just changing systems. We have a completely different management team and a seasoned professional team that knows how to drive value. Secondly, I think the digital investments we made, we've got to bring those to the forefront. I think those are important as well. And then our new product set. I think that combination, I think we've got to articulate that in a way that captures the minds of our investors. I think those are the things we need to look at.

Great. Well, we're out of time, but please join me in thanking the team.