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

Good morning, everyone. My name is Jeff Adelson. I'm on the Morgan Stanley Consumer Finance Research team. Before we get started, I'm just going to read some quick disclosures. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. The taking of photographs and the use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. So good morning, everyone. Very happy to welcome back to our conference, Ralph and Perry from Bread Financial. Good to see you guys.

Happy to be here.

Thanks for coming.

Maybe just get started with the update you guys put out this morning on the credit side. I think from what I looked at, you did report the 8.4% charge-off rate. You have talked about it going up above 8% in May and then I think below that in June, your loan growth was something like a 3% handle year-on-year. I know you talked about the mid-single-digit growth for the year in the guide. Maybe just give us a quick update on what you're seeing.

Yes. So the 8.4% came in exactly as we had expected. It's elevated due to the conversion noise that we've been talking about, the post transition of our card processing and the customer-friendly accommodations that we put in place. In the quarter, we expect for the NCO rate to be 100 basis points impacted in total. And the last month, it will have any impact in it will be July and then all of that, I'll call it, noise is behind us. And really, it's all -- that was all about timing. So expect that the third quarter will come down around 7%. So a step down from what we are anticipating in the second quarter. And I think as you talk about credit, what we're seeing is an improvement in delinquencies and expect the stabilization delinquencies from this point forward. Some of it is the noise coming out from the conversion, that created some elevated delinquency through some of the buckets. But it's also a function of the product mix and credit tightening actions that we've taken to position the company to be resilient through whatever economic cycle we're in now. Right now, we're in a cycle where the broader set of consumers are impacted by inflation. Later in the year into next year, it could be that flips and there's a little bit of a pressure with the consumer as it relates to unemployment. So we feel like we're in a good position to achieve what we set out for our guidance for the year, which would be around at 7% full year for the credit losses.

And can you just remind us of the piece within 8.4% that is being affected by the actions you took from the processing platform issue.

Can you say it again?

Can you just remind us of the piece within 8.4% or the current run rate that's from the prior actions.

So over 100 basis points in the month of May is related to the card processing. So -- and the way I think about it is, look, the consumer is still feeling pressure. What we talk about is through the cycle for our company should be around 6% net credit losses when you're in periods of great time, you could be just below it. When you have periods of some stress, you're going to be above it. And right now, even stripping out the conversion noise, the consumers are feeling some stress as it relates to the inflation. And that can be seen, right? We talked about this before. We talked about the K economy, right? The top part of that economy is doing really well. Some of it -- some of them are really feeling the pressure of inflation. But the bottom part and the middle are feeling the pressures of inflation. And that's why with rising interest rates, that -- I mean that's putting some more pressure on folks, but it's trying to tame inflation. I don't -- haven't seen the numbers for today yet but hopefully, we're starting to see some improvement, and that will give relief to the broader set of consumers. And you can see it -- you talked about loan growth year-over-year. And we signaled at the onset that we were targeting to achieve mid-single digit but with an expectation. What I would say is when you think about what's happening with the economy overall, consumers are slowing down their spend. So we're seeing fewer buyers like new accounts, new applications coming in the top of the funnel and then responsible lenders are starting to tighten the credit buy backs -- buy box a little bit. That's producing some fewer accounts. So we're doing the responsible things. Consumers are being responsible, and that's going to result in some slower originations and loan growth. So I'd say we're going to be on the lower end of that mid-single-digit range.

And given the improvement that you guys are seeing in your early stage buckets right now and you talked about some of the incremental tightening that you're doing, how quickly as we get beyond this year, do you think you can get back down towards that 6% level? Are there some scenarios that we should be thinking about in the macro?

Yes. I mean, we'll give more guidance around what 2024 looks like. Hopefully, when we get together during our investor event in September. But right now, honestly, it's -- there's so many possible outcomes. And when we look at forecast, I think 80% of economists are predicting a recession next year in 2024. So for that to happen, my expectation is while things will improve for the broader set of Middle America, as it relates to inflation, I think you could start to see a scenario where perhaps you're at that 5% unemployment rate, and that could keep the losses above our through-the-cycle range as you would expect when you're in that period of loss. But the idea is to manage it, get it to stabilize and you know from the risk-adjusted margins that we have, we're at I'll say, where we've targeted for this year, we're going to produce very healthy returns next year.

Yes. I think for us, it's -- we've been prudent, pre-COVID. We've been prudent through the cycle, right line assignments, tightening where we need to tighten in. And so what come with May in terms of the economy, I think we're focused and navigate through any scenario that's out there.

Got it. And maybe let's just kick back to the other topic that's top of mind with everyone with the parent debt actions you've done recently, this has been on everyone's radar for a while now, and it looks like you finally got around to it, so we appreciate that. But it looks like you're reducing your debt by $0.5 billion, you refinance the next 2 slices of debt, you have another one coming up in January 2026. Just talk a little bit about why you decided to do it the way you did? Why you pursued a convertible debt offering and what you think your plans are from here?

I'm going to let Perry answer that. But it shouldn't go and notice that since 2020, we've paid down with this $500 million additional pay down nearly 60% of our parent debt. So that's a good move in that period of time. Our TCE to TA ratio is 3x what it was in 2020. So we are moving in the right direction. Our tangible book value is up. So our balance sheet is strongest, it's been in a number of years. I think what the actions we've taken to refinance, I think were appropriate at the time. And I'll let Perry talk to that. But our focus was to reduce our double leverage at the parent, and we're going to continue to do that.

Yes. And thanks for the question, too. And Ralph is exactly right. I mean, we are incredibly pleased with the actions that we've taken. I think we've been talking about reducing debt, improving our capital ratios, bringing up capital from the bank to the parent to further pay down debt. And we've demonstrated -- because we're getting lots of questions. Well, will the FDIC allow you to do this? Well, we just demonstrated that we took $500 million up from the banks and will further pay down debt. Tom McGuire is in the audience today, many of you have spoken with, is our Treasurer and has done a fabulous job designing a plan that we've put in place over the past 6 months, and we've got a 3-year plan and we plan to execute that. So today was a major -- the announcement was a major first step in that direction. And so renewing our credit agreement was important. Our goal is to get out of the term loan space. So that means this is a great first step, and we're going to get rated. The next step of what we'll do and then enter the traditional high-yield bond market starting hopefully next year. So -- and then that's how we will start to address those '26 and then at the same time, get out of the term loan. Your question around the convertible, we've gotten a ton of questions around that. And I'll tell you, it's a -- it's an; interesting process and one when we spoke to all of these banks who were pitching the ideas, it became pretty apparent that the right thing for us was to pair this refinancing with a convertible for a number of reasons: one, it demonstrated a third-party capital coming into the -- to our -- I'll say, to our capital stack and that gives a validation to the lenders that, okay, that's a positive. It also produced some additional returns because a lot of these banks are doing this on a relationship basis. And commercially, they basically bank for bank came in and said, look, the return models have gotten tighter and a lot more rigorous. So they needed to do things to make their things work within their space. And a lot of banks, honestly, you -- anyone is following, these folks are tightening. As I was watching CNBC today -- hey, the banks are tightening credit. It's real. So what we got done with the total package, we're incredibly pleased with. And the confidence we had when we bought a capped call on the convertible, it's 100%. We have no dilution, net of the capped call until it reaches I think $61.48 and at the same time, we went out with a tender offer to start bringing down the bonds that are coming current at the end of this year. So overall, we're really pleased with this. And the other thing I liked about the convertible, it took with the greenshoe over $300 million past a 3-year mark. So it's a 5-year note, but that puts something out there when you think about laddering your debt maturities that's another step in the right direction.

So it sounds like the convertible will be dealt after the term debt and getting the high yield...

That's exactly how...

Is there an opportunity to do that before the 3 years? Or do you -- Okay. And then as we think about that impact for this year on the financials, I think we all understand the dilution, no impact or you'll adjust it out once you get above the convert strike and below the capped call. Anything on the NIM or a few lines expenses we should be aware of as well?

It's pretty neutral. I mean it's slightly beneficial, but pretty neutral.

The obvious next question is, okay, what do you do with the capital from here? You're at 9%. You've got a healthy reserve ratio as well. The macro overhang is out there. Any kind of preference for what you want to do before you come to that step?

I don't think our thesis has changed on use of capital. We're going to continue to invest wisely in the business to grow the business. I think that's really important. We're still going to pay down debt at the parent. We're going to continue to pay down that debt at the parent. And then we want to return capital to shareholders and in the form of buybacks or primarily buybacks and then dividends. But -- that hasn't changed. I don't think we're there yet. I want to get that ratio to where my peers are in terms of double leverage and keep 9% TCE/TA ratio is a start. It's not an end and we want to continue to build that and build our capital.

Okay. So look for the tangible common equity to keep building from here. And the regulators, you said, are aware of the 3-year plan. So they're all on board with that as well, the FDIC. Okay. Great. One other Q-to-date update I wanted to talk about was the deposit growth. It looks like you did put the $5.9 billion of retail deposits in the slides as well. So it looks like you're still seeing some flows. I know you're out there with the [ 4 75 ] rate as well, which is right below the fed fund, so what are you thinking about for your flows and your outlook on that front?

Yes. If you think about our deposit base, we were -- we had almost probably $1 billion in 2020. We're almost at $6 billion now. So it's a significant part of how we're going to fund our business going forward. I've stated we want at least 50% of our funding to come from direct-to-consumer deposits, and it's good funding for us. Even during the crisis with -- at Silicon Valley, we are -- we have positive flows, and we had a positive intake. So we feel good about that. We think our rates are competitive. They continue to be competitive because we think it's a good source of funding for us.

And then just on the consumer, what are you seeing of late in the month of May? Are you -- I think there's been a lot of chatter about maybe slowing discretionary spend, low-end consumer pulling back. I know your active sales were growing double digits and you've had some noise under the hood with additions and removals. So any way to think about the trend on your consumer same store something like that.

Yes. Same-store -- Perry mentioned a little earlier. Same-store sales were down a little bit. So consequently, top of the funnel, we're seeing less applications come in the door and those that come in the door, we're being very prudent in terms of underwriting. For us, I think consumers are self-regulating right now. So they're self-regulating their spend. They're coming in -- they're spending, but they're self-regulating that spend. And discretionary spend is down a bit. But if you think about some of it, they're moving from -- when gas prices come down, they're flipping that spend to more experiential things, T&E and a little bit of dining experiences. So we're seeing that. And we're lucky now because years before, we wouldn't been able to capture that spend. But with our new products, with our direct-to-consumer products and our cards and co-brand card, so multipurpose cards, we're able to keep that spend where before, it would have been on private label or it would have been a switch, and we would have lost that spend, but we're able to keep that spend. But we are seeing the consumer slow down a little bit. And given our range of underwriting, we would see it first.

Is there anything to call out from April to May since you've been looking at the data or...

No.

And you're talking about, I think, about a Q-over-Q decline in credit sales given the BJ's exit which is normally a better...

Yes. We put the BJ's out, we're seeing that, but our ongoing portfolios are spending well.

Any categories? I know you talked about restaurants and beauty previously?

Beauty still is a very strong category for us. It's a very strong -- and Entertainment is a strong category as well. So we're seeing continued spend. We have market share in Beauty with our terrific partners, and we're seeing that spend continue to be strong.

Okay. Another hot topic. I'm sure you love talking about it CFPB late fees. I think everyone is expecting something to come out later this year. Any high-level way to quantify immediate impacts to Bread of this rule going through? Talk a little bit about the offsets that you have to these lost revenues and maybe give us a little insight in the conversations you're having with your retail partners at this point?

Yes. Why don't I start and then I'll turn it over to Perry. So immediate impact, 2023, there is nothing, right? So we think it's going to be a 2024 or beyond impact. So I don't see an impact in 2023. The comment period is over. We're all waiting to see what the CFPB thinks about the comments that were made. We lined up with the right industry groups. We made our comments and we'll see where that goes. Our answers have not changed, and they're consistent with other issuers. You're going to look at APR increases, you're going to look at fee -- fees for credit, fees on cards, you're going to look at partner, how do we think about profit shares with our partners as we move forward. And finally, you're going to draw that line where you're not going to underwrite people because it's too risky. And that's an unintended consequence. And there's a number of unintended consequences where if the late fee is low and people no longer view a speed bump to payment, people's credit is going to be impacted as well because some report [indiscernible] late payments. So there's a bunch of unintended consequences. But our -- we're focused on it, just like we're focused on Card Act. How do you close the gap that this may open for us in terms of less late fees. And like I said, APR increases, you work with your partners, fees for credit and your -- you decide where you're going to underwrite for profitability is our answer to whatever comes.

Yes. I'll add in terms of financial impact. Once we're -- we've done a lot of working through the analysis and still working through it, and it depends where the final rule comes out. And then if it holds up in court, obviously, we're lining up behind any litigation that comes about from this. But one of the nuances that Ralph just talked about, when you start to draw that line for credit, think about this the way credit works today, right? We underwrite every account, we can see the cash flows for the next 5 years and you make that decision on, call it, a net present value basis or shareholder value add. So you feel good about that. Well, under this new rule, if we say, hey, these customers no longer hurdle, you're actually accretive in the current period. It's like a direct mail account to a super prime customer, you've got to say cost $1,000 to put that account on, and it takes you 3 years to get that payback. Well, for the lower-end customer, you're putting up a larger CECL -- credit reserve, and it draws a higher amount of capital. So those customers that you cut out while you lost that cash flow for the future years in the initial period, you actually get a benefit by contracting the credit a little bit on them. I'm not saying that's a great thing overall from the long term but near term, it doesn't dig as deep a whole as you're working to do the offsets and the burning periods of higher APRs as Card Act basically prescribes payment higher fee.

And is the APR route the most likely for you if this were to go through? Or could you envision doing some more fees in that part...

I think it's all -- it will be all of the above, as Ralph talked about.

Yes. I don't think there's a silver bullet. There's a number of tactics that we would we would employ.

But that is -- and that is one of the consequences is everybody in this room will be paying a higher amount on your credit cards for those that we're paying their late fees before.

The 80 will pay for the 20 at the end of the day.

I'll just cut your...

Not that you guys all balances, doesn't...

Okay. All right. We won't spend too much more time on that one. But what's sort of a related subject tightening, you've been doing that for a few quarters. Can you talk a little bit about approval rates where they stand versus a year or 2 ago, historical. What factors when you're taking customers into that funnel, are you looking at most closely at this point and turning them down or approving them.

Look, one of the things we've talked about and Ralph talked about for a long time is we had never reopened our buy box from pre-pandemic. And the proof point in that is we are -- we have lower, I'll say, tighter underwriting and approval rates today than what we did pre-pandemic. So we're about -- and again, if you risk mix the portfolio, I want to say we're about 500 basis points tighter than what we were pre-pandemic and 300 basis points tighter than we were during their pandemic. So that's kind of a demonstration of, again, risk-adjusted, the tightening that's occurring. So it's -- we've talked about proactive credit management, whether it's initial at the time of approval, initial line assignment, we're at, I'll say, some of the highest levels of line decreases that we've done. So we've been decreasing more and the lowest amount of line increases. So that's the way you dynamically manage both on the front end and through the existing portfolio to make sure you're trying to manage that future exposure. And then as things improve, customers demonstrate they can pay. And like you said, we watching for. You're looking for their income. You're looking at the bureaus -- so you're looking at the things that are bureau-related attributes, looking at the onus payment behaviors and then as they demonstrate strong behavior payment patterns, you can then do the line increases, but as well with an eye towards what they can't see, which is those future economic outlooks to make sure that we're protecting the balance sheet and helping them to manage their credit responsibly.

Yes. And what I will say, too, it's not a sledgehammer to scalpel, right? So we're looking at verticals, we're looking at different partners and a variety of things, right? So private label is a little bit different than co-brand. They act differently in terms of behavior. So it's not one size fits all. It's just a focused on where we think we need to tighten around the edges and why.

And just curious, those customers, I think you mentioned you're doing some of the highest level of line decreases at this point. How are those customers reacting at this point when those lines are cut.

I'd say, well, they're not closing their accounts. I mean, it's some of the things where you get it and you just are trying to reduce open to buy, which doesn't mean we're taking them all the way down to 0. But in some cases, you are. Look, if they go delinquent before perhaps -- they were -- you let that go. Now if they go delinquent, the rule may be, okay, tighten it down to what their current balance is so that you reduce that future exposure because you're seeing something that I would say there's strain coming for that customer. And that look, you're seeing it in the overall loss rate. So that's exactly what you'd expect us to do in a period when you're seeing higher delinquencies going through those buckets or the initial delinquency, you start tightening it down just to reduce future exposure. And then if they get payments under control, then you can give the line increases in the future.

And in student loans, we all know the more term is set to end early late August, early September payments, I think, started in October. Have you -- what percentage of your book do you think hold student loans? Have you done any work into kind of the cash flow impact on your portfolio from that going away or coming back?

We have a good handle on the number of accounts that have student loans. So we're not disclosing the percentage. But it's not the vast majority of our book. That said, one of the things that I think we are going to be interested in observing, we don't believe it's going to be a material impact to us. But what will be interesting in observing is what is the payment hierarchy that consumers undertake with the student loans. Those that can pay, I'm sure we'll get after it, but when some start to feel -- is that still at the top of their payment hierarchy they're going to pay? Or is it going to be like the last financial crisis, where credit cards remained higher in the payment hierarchy than home equity or mortgages. Where do student loans fit into that? And if there's wage garners or something, does the Fed really put that into place? I mean the government to do that in this period. It's -- I think there's a lot to be seen around what's going to happen with student loans. And certainly, it's something we're going to monitor very carefully.

And I think maybe what you're alluding to is the income-driven plan proposal, things like that. Okay. So it sounds like more to come there. And you're underwriting those consumers for that today or that cash flow or...

Yes.

Okay. Got it.

On their bureau. So yes, we know who has it, and we evaluate that at the time and assuming that will -- that they will have to make those payments.

Okay. And just as we think about the reserve on that front, I know everyone looks at the day 1 number. That was something like 1,200 60 days ago. So it doesn't feel very much like a day 1 anymore, but the economic uncertainty there is obviously a key driver. Any signposts that we should be looking for before you start to get a little bit more confident in the outlook and maybe get that. I mean, do you just need the loss rate to come down? Is it as simple as that? Or is there something else in there?

I'll say 2 things. One, I could see a scenario where loss rates are flat, but the reserve rate is coming down because the economic outlook is that much improved. And you can see the early stage delinquencies improving dramatically. So you have the combination of the portfolio itself, then the behavior of the accounts within the portfolio of the credit mix and the delinquency outlook that we have for the portfolio and then that credit risk overlay that's still -- we're leaning in pretty strongly into some of the more adverse scenarios as those outlooks improve both in the baseline and in the stress scenarios, that is where you would start to see the reserve rate come down. So even if the loss rate was still a little higher, the reserve rate could start coming down. What I'm seeing right now is what we had been expecting and why we have been more conservative with our risk overlay has played out and so the things around inflation that wasn't really cared for in past economic cycles in terms of the modeling has remained elevated. You've got unemployment, which is going to be one of the biggest drivers. So as unemployment goes up, that's something that's going to impact the reserve rates but our overlay could be coming down because inflation comes on which is holding us to have higher interest rates. There's lots of things -- I mean so many variables that go into it. But those are the markers. I mean just general economic improvement. At this point, I don't see the reserve rates going up materially. I think everything is under control. We've got it well cared for and should be stable at this point.

Yes, and I agree with it. I think we are adequately reserved and able to absorb losses as we navigate through this uncertain period. I think that's the prudent right thing to do rather than surprise a street with an increase in reserves. I think we are adequately reserved for this uncertain time.

And are you surprised that -- maybe this is -- are you surprised at the level of strength that you're seeing in the jobs market and how that is leading to these outcomes where you're holding a high reserve, your losses are ticking up, but it does seem like there's a really robust labor market in play there. I just -- I think a lot of folks are having a little bit of trouble squaring those 2 elements. I'm just curious if there's, I mean, obviously, this is the inflation element as well, but...

As I say, that's the part that I think people have a hard time squaring is because traditionally, losses and reserve rates are driven by unemployment, right? Change in employment. And this time, it's the stress that's caused on consumers because of inflation, and you have to have a job full economy, but you are hearing stories of people getting less hours than what they were getting before. And so it doesn't surprise me that employees are hesitant to pull back on the hirings and openings because I think they learned a lesson during COVID that if you let those jobs go let the employees go, it's really hard to get them back. So I think people are holding on. Attrition rates at companies are well down. While we are starting to see some headlines of companies paring back. I think broadly, the numbers speak for themselves that the consumers are in a pretty good spot. It's just this inflation things got to get under control. But with what's going on, do you think you're going to continue some credit tightening more broadly and more normalization of customers up and down the credit spectrum, where the lower end, I think is already normalized.

Just maybe pulling back more high level. You've had recent success in diversifying into more co-brand in recent years. I think it's something like more than 40% of your loan balances now when you include the proprietary, you only had less than 10% in 2009. How is this helping you today? Where do you plan to take this kind of ratio? And what are some of the other benefits you're expecting to...

One of the things that we, as a leadership team -- a new leadership team want to do was balance the portfolio. We were -- if you go back to 2019, early '20, we were one-trick pony, right? Private label credit cards, particularly soft goods in the mall. Wow, that's not going to last. What are you going to do? What's going to happen as you move forward and then COVID hit. And our balanced book is just that, right? So we have private label, which will traditionally be always probably 50% of our business, and it's high yield and the loss is a little higher than you would think in co-brand where co-brand is -- has good returns and the losses are -- the risk is a little bit -- risk profile is a little bit better. That gives us the ability to manage that private label portfolio to high returns with a little bit of a higher loss rate. The direct-to-consumer card was another indication for us to just diversify our portfolio, make sure we're not reliant on any one partner. From that perspective, we don't share that with that -- those returns we don't share with partners. Those are our returns. So we diversified our portfolio. We're not dependent on any one segment or any one vertical and we spaced out our renewals nicely. So if you think about it, our top 4 partners, I'm going to make 5 partners, and thank you [ guide ] from the audience. Our top 5 partners are renewed for the majority of this decade. And the -- I think almost 90% of our books to 2025. So that's a good place to be at this point. And we feel good about that. And again, it's a diversified portfolio. I think we'll continue to look at buy now, pay later and installment loan is out there. And if the -- if consumer is going to lean in there, we're going to lean in with the consumer. So we have -- now we have a basket of lending products that we never had before, and that product, and it really helps us balance that portfolio. Like I said, that private label will always be a cornerstone of our portfolio. But we have a very diversified product portfolio now that has the different types of returns. And every product does a different job in the portfolio.

And what's in the pipeline today? I mean, what are the conversations there like? Is there maybe kind of this wait-and-see period with the CFPB late rule? Or is that having no impact on the conversations.

The -- one of the things I will say over the last 3.5 years since we've been here and we've built an exceptional business development team. And that pipeline is -- continues to be strong. And our pipeline is not about chasing things for the sake of chasing. When we go after something in the pipeline, we believe that we have the ability to win it and win it profitably for the organization. That's how we've gone after the pipeline. And what I love about this company is we can go after things at the top end, like AAA and the NFL and win those big portfolios, but then you've got the magic middle where profitability is really good on those $100 million portfolios, whether they are de novo or it's your startup, whatever they might be, you put 10 of those together, that's $1 billion, and you can do that with good rates. And the competition there is less because the big banks tend not to focus on those, and we are able to win those and grow them profitably over a period of time. So pipeline is strong, up and down the chain. So there's some big ones in the pipeline, but there's that magic middle that we continue to win on a pretty regular basis.

And I think inevitably, some of those -- a couple of the string of pearls within those pearls are going to actually go to be bigger. You lost one recently with BJ's. Is there anything that you feel like you need to improve upon or opportunities for you to do better and maybe hang on to those and prevent the big banks from taking those.

Yes. It's interesting with BJ's. And when I walked in to the company, Wayfair was walking out, and Williams-Sonoma was walking out and BJ's was about to walk out because we weren't listening to our partners in a very big way. Partners were pushing for digital, pushing for more innovation and the previous regime wasn't focused on that. We're focused on that now. And we work with a partner to demonstrate to them that we can grow this pie for both of us profitably and grow their business as well and lean in digitally and lean in with innovation and different types of products. And we've demonstrated that with AAA. We won AAA, and I will tell you, we probably weren't the highest bidder, we're able to demonstrate AAA through different value props and things we wanted to do, that we were going to be a good part and able to grow their book. And I don't think that was happening in the way it's happening today back in 2019 and 2020. And the big partners like BJ's, they're 2 years before they go, they will [indiscernible] in the market for where they might go. So that was unfortunate. I hate to lose a partner. But I think we're more equipped now than we were in the past to attract partners and hold on to our current book. And Ulta is a clear example of that. We re-signed Ulta, which is a partner that was one of those string of pearls and that was growing nicely, we re-signed Ulta recently as a partner.

And maybe just to wrap things up, one last question for me. Where do you see the company in 5 years? What do you -- other products you need to add to the [ quiver ] so to speak? Or how do you intend to get there?

Well, we're looking at adjacencies now. Where are the -- where is that next horizon for us. I'm bullish on direct-to-consumer. Would we see another direct-to-consumer product possibly...

I think the answer show up to the Investor Day in September, and we'll give more details.

I'm going to give you a...

I'm going to give you a little bit more insight into the second quarter. How is that because I didn't give you a couple of tidbits that I wanted to get out, basis, we talked about credit losses, right, being 100 basis points higher, around that 8% level. With that 8% credit loss rate, you should expect a higher impact of purification, reversal of interest and fees against net interest margin, about 40 basis points of impact to net interest margin will happen. Think about that versus linked quarter to first quarter. And then as you get into third quarter, and losses improve, then you get that interest margin improvement again. And so and we talked about credit sales, we talked about loans, but I wanted to make sure that was there. And as it relates to expenses expected in the second quarter, expenses to be flat to the first quarter and then stepping down in the third quarter and on. So I just want to make sure we gave some of that. I can't give you that full answer we asked about trends we were seeing in the quarter.

I appreciate you're still sneaking that one in.

Well, I think in 5, you'll see a stronger balance sheet and less debt. But we'll talk about more at our Investor Day.

Got that in on the [ wire ]. All right. Thank you guys for your time today.

Thanks, Jeff.