Bread Financial (BFH) 27 Oct 222022 Q3 Earnings call transcript

Good morning, and welcome to Bread Financial's Third Quarter Earnings Conference Call. My name is Drew, and I'll be coordinating your call today. [Operator Instructions]. It's now my pleasure to introduce Mr. Brian Vereb, Head of Investor Relations at Bread Financial. yours. is floor The

of release we the can our section Copies and Investor be the of earnings be website. the you. will slides reviewing Relations Thank found on

today, and Perry Executive and call On of Andretta, Financial and Beberman, have Bread of Financial; Officer Financial. Vice President the Bread Chief we Chief Executive Officer President Ralph

your certain information forward-looking Before I the measures, provide over other on filings website would are materials and SEC. some some These Andretta. With believe will made comments the call based our investors. we current we like and for included that on call contain to non-GAAP earnings Relations described release Ralph begin, with expectations financial to and turn on the risks measures of today's Also in will questions the on statements to are useful which to and posted the Investor in to responses of of uncertainties call, that, like Reconciliation earnings those our and quarterly GAAP I statements. are to remind would may the today's breadfinancial.com. management's our company's you reference at subject assumptions speakers

the Thank from the quarter. Brian, everyone few X Slide morning. I you will on updates for thank call to Good you, and joining start morning. a this by key highlighting

to progress financial strong towards make continue XXXX We our goals.

spiked in in card quarter year-over-year declined. low and spending The quarter, from both processing positive and to growth our sales with XX% strong consumer the for acceleration remained pressure third holiday temporarily growth growth partners of gradually year-over-year on up quarter fourth continued credit July, confidence are end-of-period offerings when partner improved Credit of growth. and and leading discretionary quarter promotions Notably, the transition services, from on that credit confidence loan fuel basis, sales impacted quarter. as sales September incentives new sales we direct-to-consumer for trend pleased July of the which anticipation August rates with revenue we by We for a XX% the in with our consumer the growth despite and to and loans fourth are additions driven the in of October. the traffic spending. Also, our growth in shifted looks seeing recovered, brand in-store the continue outlook and prices

ramp the in of at the sixth long Pretax portfolio X our up sequentially. are loan preparation billion made third funding other cost on growth over diversification We approximately over growth a to prior million and are from funding for focused balances. converted highlighting month, retail term. We progress the season. their deposit incentives the partners AAA periods sources. successfully double-digit holiday rate benefiting exceeded for year and $X.X already significant we Earlier in billion, improved $X deposits Retail quality and year-over-year funding the and mix accounts of consistently this relative we with growth XX% of and quarter delivering balances again earnings brand XX% in active both quarter, the seeing promotions over our improved pre-provision consecutive funds

that members cardholder are further our By more AAA's value will our our accounts. XX and leveraging quality with increased partners confident the suite, portfolio. and than product well remain to we continue new that improved driving to drive products engagement strengthen diverse full We U.S. further proposition AAA add sales positioned on million

also efforts. to invest We in transformation technology our modernization continue and business

the processing help cloud including collection Alberia, converting productivity enhance our our to transitioning in system, card We major of software the a upgrades collectors. have year, made integrating the and last credit state-of-the-art

long-term the plan, innovation. strategic resilient, From while our temporary disruptions markets some to differentiation driving experienced efficiencies are essential and we perspective, While enhance our labor macroeconomic further and upgrades our support a during remain these middle their XX% operating transition, to Americans lower-end to of of high internal feel spending cost study, of households consumer an changed overall of income persistently sort habits have increased pressure over inflation due inflation. debt. According and

consistently We targeted inflation present changes taken segments to when prudent. actions protect inflation-vulnerable to have to other underwriting management account proactively for factors and adjust our consumers. We in and credit and

environment. We consumer including how navigating increasingly challenging health will monitor indicators, consumers to closely continue are an economic

readiness team leadership and navigated experience management and recession cycles. seasoned successfully remain proactive has card planning. reasonable range has lending economic Our extensive of risk the full on credit We focused

confident are outlook resilience. in and financial We our

This X. a Slide relationship MARKET, specialty vast and our highlight of new retailer apparel a announced some decor, to morning, I a locations long-term and online Moving XXX furniture, assortment food home with products of across million over WORLD success. will we card business worldmarket.com. the with development international U.S. credit at

data and grown on customer and operates shopping over America's focus the analytics customers favorite with members a valued with Market We partnership lending quarter, retail guests with guests base. of renewal with and million offer partner Buckle solutions destinations with to wants and multiyear evolving Also coupled in customer we to tailored rewards will deep well enhanced providing retailers, leverage millennial payment their our stores an during This our to capabilities strong will sophisticated and serving Buckle expertise experience. reward needs. a as its our new World Buckle. become as one loyalty program buckle.com states a product specialty X.X and valuable e-commerce denim a XXX XX has site of signed

Pay. Bread to Turning

medium-sized among the and have dozens third small- to pleased are signed quarter. in partners of WaterRower other new We

total base enhancements, while capabilities year, including regulatory Pay incremental our our merchant compliant. XX% have developing this by platform and are Bread grown over We products ensuring

building Sezzle to on forward Finally, in over our development long-term XXX our solutions now strategic lending access faster-than-expected to business experienced in able Bread quarters. the relationship with coming We enrolled since new additions with merchants merchant momentum quarter. and has Pay's first launching look the

suite for committed half our experience bottom customer customer improve and accessible a merchants remain a and This VERSATILE this preferred flow, it hundreds apply are consumers a the innovative and of to improved MARQETA not ready, We And to Moving into of the we've process of complete is digital to and enables extends and increases page. we with partners in-store in not sales which smoother finance brand to develop to distribution their solution has products our solution lending improves enhancing solution. approach providing a merchants CREDIT, have a market we prime first customers and the Pay in by diversified technology. step, puts solution. channel integrated with access investments Versatile medical the customer card of elective continuously payment brand app conversion can MARQETA consumer enhance virtual is label provide. MARQETA their wallet with lending eliminating rates. to Bread providers it and to that Bread pay how the Credit's by easier improvement largest ensuring installment access for broad products. virtual through sale, code integrating our faster access simple, merchant The continue VERSATILE does market brings through We products our experience payment example QR relationships with the consumers will with program of to the first. web Through developed working platform. with scan. home split and offering in making its The relationships checkout wallet-based Bread simple technology mobile expand digital download This disrupt a the the merchants, option and with furniture and to the app to to flexible took speed MARQETA Bread Pay a Pay's our download presence that card verticals does virtual card a an require and wallet choice. store. the while seamlessly and X partners developed of turnkey and purchase provision process payment into white store,

at these both pay of addition point-of-sale the online relationships, pay or in products loan and split installment delivers With Pay store. in Bread X X

continue our through transform execution strategy. the We to our of company successful

growth Financial it efficiencies to management sustainable, Beberman, operating turn Pay over to Bread We profitable innovation, improvement, have now continuous -- review the I'll Perry balance. CFO, risk positioned Bread our appropriate through and to the drive financials.

increased and XX% was brand and $XXX quarter Revenue million. credit Thanks, by well with noninterest product Revenue XX% up Ralph. of Financial EPS Slide year-over-year total Bread while continuing $X.X third to our increased as operations versus XX%. our the sales the partners quarter was up X driven was partner $X.XX in Income as and billion existing financial quarter. from quarter diluted new million, the XXXX, for were third highlights. expenses up $XXX provides additions. our XX%, growth from were X% loans end-of-period average loans

information to was the Looking loan write-down This interchange the expenses at retailer million financials quarter income average yields. and share Total carrying detail employee increased XX, investment The in processing an $XXX discount our and more third expenses processing ventures. from result cost our negative of as the up primarily included of loyalty the was $X loyalty as income, Noninterest impact with awards, due September XX% interest increased higher merchant in communication net quarter and value which services. of investment third ventures $XX of fees coupled noninterest revenue, our from our transition the improved compensation of in the XX% includes agreements and a customer carrying million of was value and million. XXXX from loan of Total card Slide XX% method credit of resulting from in third equity XXXX, balances, XXXX. increased on quarter benefit X.

the credits to the we than network fourth anticipated were quarter. received shifted expenses payment quarter, and that some expenses were as quarter third expense The of were the projected fourth lower in

credit in impacts, quarter we pre-provision XX% out have in was in drivers of PPNR. that of PPNR found are and higher Overall, we our improved expense year-over-year offset Additional double-digit on operations down pleased for by a versus can provision be consecutive earnings, provision marking quarter. continuing PPNR, was quarter the million or Taking $XX income losses the improvement deck. the year-over-year, third quarter details the slide tax that XXXX growth from sixth appendix pretax for as the the the in generated

on right making to earnings. our quality As produce the focus said, to be decisions we continues have

to slide X. Turning side and yields The highlights Slide the asset our of earning balances. left

yields as year-over-year high points typically well increases basis third yields driven quarter. following higher interest is earning sequentially, quarter the points in the late trends. margin and contribution funds. yield loan delinquencies basis year-over-year points improved drop fee outpaced year, in loan to cost by the yield to increase the approximately as quarter XXX XXX asset the in Note, quarter in for loan resulting in expect increase rate increased Net fourth prime the Third increased the in yield the seasonal each XXX point of improved and we normal basis as

we saw expectations On the to in funding costs date. liability given rate the increase our side, interest the Fed with third in increases line quarter

the right, to on bars XX% As of the total now from and you stacked can liabilities. bottom represent deposits grow direct-to-consumer continue interest-bearing see our our

our will We expect as an base funding balances over time. meaningful deposit more retail stable it to continue of even a that our becomes funds portion increase, providing

Moving rate. the in with to Slide starting the upper and X, left delinquency

from processing normal X.X%, quarter both XX in impacts below rate high a of delinquency quarter. of points loss seasonal delinquency point XXXX the Third our third experienced rate card quarter that basis with the influenced for and our performance. transition pre-pandemic remains temporary services We our credit which is

In continued payment by rate addition, rates were both impacted normalization.

early-stage given the upper buckets. we right, expect quarter fourth meaningfully rate to delinquency delinquency seeing was in move lower for in We are improvements the the quarter. In loss net that the rate the X%

services As been processing would we credit net would rate July have with suggested previously Historic had accommodations disclosed, for normalization, completed our seasonality, higher customer-friendly transition. loss mid-X% along around in losses the third a our have not card quarter.

bottom XX to with and points XX.X%, the previous the economic second Moving basis to quarter from consistent left. our The increased rate uncertainty. continued reserve the comments

points of reserve increase growth credit potential possible a seasonal third maintain a current to moving rate and model is quarter credit holiday portfolio on intention concerns be it XX%. the normalization model, with loan as net is into basis AAA scenarios closer growth, that along nearly has compensated improved economic in on credit key factors performance through impact ability risk as we positively element Slide managing take, On up as the of our economic which the payment weighting provides well XXXX. rates the sustainable, our tolerance season, credit management a and of our drive the margin, our remain manage and If reserve being also macroeconomic year is confident our of in of and for We the at will XXX cycle. conversion of properly the year-end. will the impacted that full conservative While and the XX.X% risk the our for quite outlook metrics, our of our financial team year-over-year and metrics. continue, to trends to business economic remain note, X fundamental rate performance risk the recognition impact profitable growth which full interest has

quarter. loans approximately to to double-digit $X.X of billion low the expected XXXX the Our portfolio in are addition full of range grow average the relative in AAA fourth year with

first between portfolio seasonal XXXX quarter loans We be to $XX in off. run exit expect the BJ's $XX before billion and the balances we as and of billion year-end dropping

this credit and dollar with a in the quarter on of result, the terms build a equal. significant in else the allowance in a a likely XXXX, losses fourth quarter all impact being dollar balance first As large for release our then of

growth of net over interest credit seasonality be with year elevated full improved net billed with average prepandemic interest is The reversing points, expected down and expect expected upside quarter quarter in XXXX to fees around the related with interest consistent losses. of margin We loan XX%. to from fourth to both consistent and fourth growth margin be XXX basis revenue

in for continue positive track to XXXX. year on We operating remain full leverage

increase sequentially We expect the to quarter. fourth expenses in

fuel strategic $XXX in over million investments discussed, efficiencies. previously operating to opportunities and advancement, digital XXXX of incremental our marketing technology innovation modernization, spend and includes growth we've future product As

joint also as well and associated offerings. expanding the campaigns partner We anticipate fourth with and expenses higher marketing new as in brand quarter on marketing brand higher our direct-to-consumer sales product

XXXX loss our be above net from fourth loss of the mid-X% net the the loss we this that normal to full rate being XXX September normal range, be Fourth with to aligned are higher a up quarter. are rate low quarter outlook, would the rates and mid- in year to quarter our losses seeing high the in basis seasonality range. at to result delinquency of to trends. historic from in October impact late-stage the Regarding loss points nearly rate higher anticipate seasonal end trend expected Note rate we continued that normalization the addition

processing net impact remain losses this expect in from Over rate average of our through-the-cycle elevated and normalization. the We rate next historic X quarters, system due the payment continued confident elevation transition to X%. card credit below remaining average the loss our see as and of temporary our

As to impacts. should improvement early-stage the delinquency for post fourth quarter in transition meaningful in we our the performance, I performance seeing delinquency are the lead bodes and in reduction good a which mentioned, well rate

historic strengthened Finally, bank sheet, ongoing in financial balance highlights parent transformation. quarter-over-quarter we in including our XX%, of a expect be The XX various resilience year financial normalized discrete our with tax items. improvement higher rate XX% levels, to our full effective variability and capital to to and timing results. higher outcomes of mix well the due Slide ability PPNR range as and confidence enhancements reserve significantly sustain and improved economic credit for funding marked and our credit products, more distribution, as of evidence of continued diversification provide outperform margin losses our increased in challenging enhanced our partner to financial brand transformation. offer These mix underlying

manage our healthy existing helping portfolio lines and We both their with proactively, place balances and on focus playbook in will for open-to-buy continue a authorizations We a manner. manage to managing credit recession-ready new a accounts have in and consumers

of profitable with the growth levels to loss our now expectation ability historic and to to to our lines confident full financial outperform we sustainable, company are the continue an through questions. Operator, open strengthen deliver cycle. in We economic a resilience further ready are for

Instructions]. [Operator

from comes today question from first Sakhrani KBW. Our Sanjay

factors the in increases? a Obviously, Perry Perry. And really for do talk it? betas, hit have one some just could well. too. talk done going maybe through with the point you question rate start in impact But but I'm the just about of A forward then Ralph, and passing different for curious, deposit just Perry, NIM you about maybe yields that

lot NIM trajectory, the into A product right? mix, the transactor. parts, for there moving question. Yes. of equation percent that's And spenders. number including of transactions the have Thanks in us, your don't revolver, Sure. come rate. a of portfolio, Obviously, We're good you're revolve With to going NIM. have and your We things are of the more more super those variable We for a high-end price. rate lot negative portfolio. target that's don't for that looking portfolio

that APRs funding, front, rates too. the on So as up go up in go

So can good we're we our occur. getting during expect a dynamic, And NIM, in really to that this, performance. continue you period like see to

in And of that. grow when talked direct-to-consumer funds price. the do Now leading you market higher front NIM, guidance periods up, the about, that the assets full and with on have fees. we think -- a funds, billed talked you our can about But market we we some overall mostly are When of interest moving as go we've you continue to about about, reversal think fine deposits. as year and because as of our about variable Fed cost we've good feel we're losses, of given we've XX%

alternative in those direct-to-consumer move So terms costs. forward is a deposits -- and they of as still better funding

that strong we about towards. very So of guided that steady feel XX% good NIM having we've a

there Maybe chat fintech last seeing. curious just then, of can out quarter. there. to be it's think been And it's lot I you're impacting just offensive? a Ralph, by through last Great. has felt out what market you Bread. I'm sort pain mean, dynamic you space you we see the spoke how obviously, A Okay. of very opportunity more do since

of us that of and things we Financial the are one Yes. Bread regulated what a Sanjay. know benefits I -- owning that the challenges do Bread of platform is one -- of institution. in the

that step We So how platforms back we to sure know were made how regulatory-compliant. know We a underwrite. took collect. our and to

We the emphasize cycles. base for fintechs don't offer of the terms products our different have hundreds through have paying many our And with of of those of just and base. team oneX is they're again, in of managing years A we products that consumer partner lot would brand that. experience I

market towards, So whatever into. can leaning is lean the we

So I feel that. about good

relationships. That's we as pricing our is price us for Our competitive another advantage well. because

So I underwrite, have that's statutory are we're stability the consumers. there, we our for how of we a getting And regulatory of basket from the how back feel good rewards risk and where taking system. about a a perspective, perspective, we the -- we're that offerings it's product a and and

today Our next question Robert from comes Napoli from William Blair.

the confidence credit the look just Perry, your in Ralph, as XXXX. on rate -- into we loss

Given that be you've of confident macro just volatile on some Have number a gives rate? portfolios, tightened good some you in lost that. in you've the in What X% the some any why so delinquencies, it with rise environment, above there hard credit? you're new well like be seems it And to you confidence charge-off Or got commentary portfolios. marketing, wouldn't credit.

Yes. Thanks for the question.

XXX-plus I levels to we're that we I'll back basis XXX as improved risk better So our rate from and points were where pre-pandemic speaking mix, with which about credit our portfolio, think than then. what in start we've

talked cycle. we credit leadership with move about, as well, imagine. active very where into as will all that for weekly and focused is routine. I'll mean, readiness day, dynamic, recession be Ralph playbook, it's we next got that focused a as tailwind I people continue it's every So as And talked day, I've living it, And have it breathing. a would mix about on say, you the us on to we've favorable,

but our a very not making and any all wholesale dynamic going point, So change its customers. it's in about surgical and deliberate and we taking into data the you're being at have

that some that's losses we're platform. to is where a we about quarter the key year part do fourth through. transition elevated of went then so a point. going and the of what with And a in to we lot And card we're processing next now, first quarter see when think seeing

we're we seeing. so do about And feel what good

we so right delinquency -- stage the now said, early good. as And looking really I is

our mid- that evidence what through customer that delinquency that's accommodations, as our, -- what was to of as of we say, we part So terms our we're platform. late-stage of we saw the did work some doing actions took conversion I'd we in of

understand we're we very that, environment. also ensure population key with is just high with that making this inflationary And is we're that changes, targeted impacted Now proactive. the the being

that we're business a We is we're profit. this for underwriting overall, understand us, at. good For that

So this, our return. risk-adjusted we're sure cycles, that margins that as calculate right see the making you can we be getting even And we'll through we're fine. do

the growth average your And this return relates asked are right will. for then right it business just as thoughts you this on I And on is what think XXXX? on the if time, XXXX, question what loan over to -- equity I've for before,

have Yes years to -- bob, we out and those targets. X fast think I ago, put We targets our we're holding

we're So be ROE of billion, around $XX the to loss in receivables rate X%. through average and mid-XXs expecting that cycle XXXX

XXXX. the that, that's have to for not grow said for But target that. with macroeconomic this sake we're loans. all to to And return. environment of an the impact on is kind going We're at the responsibly growing loans our them of having right going point, going grow Now

to at grab exactly Rob, billion. bit, that could said, $XX things could just and need if a deteriorates I it way is $XX turn billion if do asked business. it won't say what handle. -- If about you And chase handle. we billion you the Ralph underlying credit And add, look I'd at economy a really to a number slows to $XX more that. a I question ROE. we're look think If economy Yes. as do hit the a what little The to to around, not hesitate little pullbacks, could going like we the bit, Ralph said, And be

the build underlying can the If performance out build strip you of business. you the see -- reserve there, the in

Bhatia . today from next from Our Mihir Bank of America. question comes

-- losses go to guess credit XQ. mentioned credit back in losses. to increasing want I you do I

give I calculation or or like your guidance take X.X% implies suggests something our there. something think

actions the I appreciate You guidance, also impact But is year based from what custom took. through your basis. full have the and on on XQ a the the X% in you're you below you cycle stay you think the X% seeing do now level while? data, a above XQ, expect X% exiting and early-stage in back level? the the you're do your to for delinquencies Or

Yes. are look, you I where cycle, bit starting mean, economic I to the think there think about a we in of with out consumer. the when softness see you're little

We a through as next of be be I'm overall soft in every of we what year. little down taking level us, normalization some it and occurring. be be that, proactively based through through have may around march cycle who we think to see customers payment about will it, And again, more when above talk cycle, different. that guidance we'll around for as X%, X% do as I we And we a not it strain a be on We're is caring hoping, I think the we to we're below recession But we every now. can that the looks you going the landing expecting you down quarters know But and next think to we period. up are about year think through-the-cycle experience expect others more it. where are sure different. materially move we for go. up but making economic actions the above But that

you just much just then quarter. out quarter-over-quarter, it how loan how out Okay. yields pass just benefit interest just given this increased maybe in Could there? -- And driven the can was much pass payment rate versus the you normalization on that was just

Yes.

couple said I right? what NIM going think it's things earlier, the got expansion, a So when on. I with You've of

have faster cost NIM the expansion were some on funds. of do because moving up on assets our the You rate rate than our

You you also rate contributing are into aspect. means look have more yields. late And delinquency rising, our at you fees that have as that that

And seasonally have fourth items of quarter it's I happening You seasonally X higher. lower. mention, it's period. should the -- combination is a in also those And the

Our Carcache next Bill Wolfe comes from from Research. question

DQ you your you credit give NCO by if rates more And impacted services? of the of lines, along could would detail maybe outlook? discuss a is why implicit Can behind also and little processing bit rates unemployment say you card in transition similar what level were

the chime and take in I'll Perry kind I'll half, on the rate. ask unemployment first So to of

from state-of-the-art there change So when of a you you way. in aging system legacy going along make our to that an are we've and cloud, to the and be going go to made a bound concerns system from the magnitude as technology issues

Our and sure focus was harmed. to that consumers not our brand were partners make

make So to a make those because we kept that more help again because give that accounts disruption. longer things. time promotional harmed, consumers to We they a that conversion And payment payment weren't aging around of to then we've technology could payments. open of done the of extended plans ensure were expiring the that, couple consumers of time to a of payments. window our the delay make We consumers

next all of itself during impacted conversion. those That So the the rates out a well, combination the work of time kind all couple of quarters. will of kind of, over

rate. payment was but it extended consumers time and impacted harmed. feel XXXX. We of window have that been confident the our But not And have in issue. So to X% consumer that payments, confident was a focus of timing in that the guidance aging everything our did for ensure make feel some we it's the in That's disruptive still how ability may a accounts. the We to period to us. that ensure we and could

economic reserve your about in follow a around what to question you I'd maintained tell CECL we've weighting there. scenario Look, up And the the then Yes. on is rate. conservative reserve rate

those other and bit as And variables what's into the baseline our XX considerations continue we XQ, take to, the risk we place. a into of model scenarios a so the with the those happened days the end last we I'll put overlay, when days that that in input say, do little And deteriorate both you at the risk modeling from in macroeconomic XX then weighting from ago.

there the views, And inflation of the just to an going what increase but persistent some bit a recession. you as one a high unemployment, And variable. is little probability you mentioned. there's That's start all it's So will that there to the are higher looking move then there -- like in through as scenarios debt. in consumer baseline increase even variables this, combined do in be in

through, it's in we this period time get for get whatever think to posture until peak is to side. the say, a So appropriate other maintain conservative and the we I'd

us a some engaging the thinking super a issue? as eliminate recently late Ralph late over provision give legal surfaced an safe CFPB altogether. and have concerns fee harbor Rather CFPB Perry, safe on current I the that that's follow-up. may in around Can more you helpful. may, around harbor dispute If update fees, the the your than

if would model. engaged with potential in have to characterize economics the about changes that super discussions you Just curious around private partners their responses? be the you label of Anything retail how If business any guys your that you can give so, would helpful.

a our I with we consumer our of have the continue regulators. think don't relationship appropriate and that supportive to Since answer good provides has regulation changed. protections, we're

fair and responsible We'll I to think our continue lending. mantra is do that.

with partners actively engaged not on we've this brand -- our subject. Our

continue than I But to reduced safe do continue move will Rule be to harbor the but that do. it as what would probable, likely evolves, rather making that. eliminated. lean forward. think regulators appropriate it's predict be it more we we we'll into is But As think the they'll can't we I

Adelson from Jeff Morgan comes . Our from next Stanley. question

on on securitization to recent thinking us removal ABS Trust around the funding whether you and be little your the you Just color Master wondering of back market may just coming here, the that. from funding could if give a

Yes.

thanks So Yes. the for question.

last outstanding you that So noted September. in security matured our asset-backed

public was we balances. ABS million deal It's that so about only $XXX the And of had. securitized that

with syndicated and We has is that lot $X billion through outstanding. a billion, lenders about have over which of conduit facilities $X bank

And so I'd mature. you're I the in expect right time being going then is And forward -- think times the public that's about at one, market. per in the should market multiple what ABS that back we say, year talking be what we'll you opportunistic is, let

is goal numerous again, direct-to-consumer funding. instrument mentioned important an remain will get for to our of funding. to that over And as our So part our of funding diversified XX% we've deposits us times,

growth. a that funding future critical of be element our So will

Understood. the basis of saw like seasonality the going It down. September October is roughly net rate And point Perry, loss bps to then seems benefit. on a quick that just, comment the like around XXX XXX also in back math

I probably we correctly. layering that thinking So if well, be about as removal in should understand it

with the fourth for What quarter the when we're range say sharing be going for you math that rate not to jump was in that we the the October quarter but the you and the say we up fourth is. to it math full you the total, the do high in the to loss year, X%. do And is we're we'll on mid-X% in what for call, I'm going expect quarter

to to elevate it's start So next seen we after work that come way should its the that, in through, did I'll back going as And then that accommodation those, the be customer-friendly say, two will quarters. down.

JMP next question Scharf David Our comes from Securities. from

in made you of on one up Ralph, comments to I the remarks. wanted prepared your follow

the of actions in raised a of targeted all wondering, You new coming and Wholesale breakdown. been rolling to sort we've of my given in And particularly I'm gotten It's since of portfolio And business actually segments. it sort mix broader kind to AAA a with inflation-sensitive question activity made kind the onboard, protect mind, portfolio. the BJ's reference while off.

the mix been current us apparel Maybe on bring as update an end just year, think a of both of for rough XXXX is or about there discussed a well as we've since As nonapparel? since to digital it's the and traditional and in-store while we that. kind

Yes.

where now, balanced as and are with now digital. about of our specialty XX% we if portfolio, sales we XX% are about and I have less are our you sales we where retailers than were think of think

we of -- that's So the kind how shifted. the how -- portfolio has

We great sales have like apparel And our variable so and greater partner said, I now, than Specialty portfolio our XXXX it's less made XX% XX%. diversification. than up loan of -- is price. and department,

how and our and we've that the co-brand, So portfolio between added the diversified additions direct-to-consumer. about the we feel good we've PLCC core portfolio to

related just it's I've the few POS Got derivative horizon XXXX, earlier maybe I'm new for asking this been been of a ecosystem maybe just competition, was at anything years not there of kind I as companies survey competitive since just it's generalized Money around about just it. a week you And earlier Sanjay question is because even struck as how a fintechs. Maybe but follow-up, what overly were very on there. was many environment, the the entrants? to booths and financing. lenders broadly whole by there financing, point-of-sale or BNPL new But seeing, asking you're

booths, say, well, I a It's well, Vegas. of it's lot interesting. would

Fair enough.

consumers take you've sale great. of day, those Well, me, be which think responsibly you've things, I But it's and because advantage lot important the at I transact. because interesting to there this is think a we'll underwrite could got to those of around are that's market end technology of the of innovation point and them. people, want these got that's way to the I types about service to of And guess

bad to make if got debt. you collect sure You've them there's that on if

regulated. You're going be to

make a And we're always what is got competitive not develop us. It's advantage those funding Your out -- is with be it The I that things, just there. new all we'll got competitive be help has technology." All great it's give them, of a a But partner We'll are institution, we'll funding financial to a appropriate. you just, us we'll ourselves. of advantage. this to You've "Oh, core borrow appropriate. sure technology your our so works about. going quick. to not piece bank and how for we've technology believe, We're it, that's is either either got

from Regi Smith question next from Our JPMorgan. comes

mentioned I portfolios. of better narrative of you that there terms that in that. guess, out managing you market fintechs a some -- through I positioned like more is little recession are and their better things nimble and these cycle? for you you Ralph, talked they're you Because managing bit, What other have, data to about, playbook. guys, agile is sense that kind know us. than guess I guys my I guys the a guess, I more there's was credit and lines than open curious, capabilities manage have guys of do the giving your tools you than maybe

you And follow-up. bit talk I little a that? about could a So have

appreciate that. interesting. It's I Yes.

opposite. the quite it's think I

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Yes.

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from John comes question from Evercore ISI. next Our Pancari

within expectation elevated contribute could the that and your to about much -- also improvement? how separately, us over think And quarters? improvement for platform you losses just quantify seeing card impact are what's that driving can some in we processing on that Where the the could of you next then And And -- delinquency the should couple underlying that? continue? you On transition, tied and your how early-stage help it indicated buckets. delinquency possibly

Yes.

so upper should of our will is, mid-X% given come what the is So year good do I math one compute for to thing going guidance of fourth of that in out a full end to again, you the quarter. that and think the low I've pretty where

the when the we And we we I'll give went I'm in So some to right delinquency that we here. delinquency period stuff some, this definitely early-stage say, from the that, across elevated improvement where I period, guidance had that transition specific during of that, that seeing not the board. going -- that's in just expected. We're anomalies say through

So, and as about, when we accommodations. talked some Ralph did customer-friendly

next couple in start and the you'll that release of we -- that we're our to . that's months. shortly see So delinquent when see seeing

Okay.

to was the transition. of elevated So impact the mainly that improvement tied

Sorry, Ralph. it transition. But of elevated was the because yes, the

that, And that we actions coupled targeted so credit to the with improvement is some continue make. we're seeing very

it. Got

terms terms the the like your in how being on much transition by was first of of loss Okay. trajectory my elevated is All of part versus in right. this the And . of my then question underlying losses, conditions ratio just elevation brought economic

Well, rate. right at loss we're now, X%

loss transition. the lower it's it, I So quarter is much due of in rate the how have inverse the to is do think this of we which

my the remarks, mid-Xs. in it in I guided And so would prepared been kind of have

So that to quarter could then seasonality normal you the some would points this would you plus quarter fourth normalization of difference what that next roughly in the plus drive apply in that be components was basis betterment tells the the quarter.

it. Got

credit Okay. dynamic. on September I saw August, said All know you right. sales and the improvement some And lastly, just year-over-year then October. you

expecting you that continue. could think You're --

you can cetera? around your cooling how of up terms economic In modeling moderation us from do et that expect you how the on And and outlook, talk would you ultimately to Fed actions, you size front? some backdrop what -- maybe

Yes.

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Our Villalobos from Jefferies. Alexander from final question comes

earnings. on the charge-offs, more But ask John call net next Hecht rate be about year. because the other more into a going bit he to of reserve can't did want and but little

should on You year? would that, helpful. XQ. about a there's be about guys but were any that how just of lot following But Obviously, if there's think pretty guide clear we the uncertainty,

Yes.

until right, the then that rate macroeconomic and could kind indicate moves improving that stay the us happening fourth are quarter over you some portfolio got I with bit, variables we've in peak you dollar-based that again, you've continue say, remarks, would the soften And the first in the quarter. reserve a gave So outlooks. large elevated that get seen. particular, that If what prepared I'll to, for of comments couple between my reserve, a and then in

plus do portfolio close we we the on put if then fourth billion, in much the math portfolio of you in AAA first the quarter, normal do same in a you the portfolio. quarter. a a out, have pretty quarter that reserve today, about reserve you to in with type could the BJ's you've would expect math dollar seasonal in for quarter, going something that with that coming the large build So exact got rate And $X.X at release reserve movement on large the

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now. we internal things, overall want had. to they There's a all -- there's talked still Look, monitor think interesting, those going When the is about you high-end has that really be for inflation it's there's on bank. So be in performance, almost back to lot a unemployment those jobs. that's a and consumer absorbing the If at to of from going macro the we've X right It's economies tale and trends. about the is overall, the a strong we're traveling, want be healthy. The a jobs lot consumer and job, environment, things of economy them. to of right? They're open

doubled we're it be ratio actions the is to we're past what Now And see they're rate Mortgage going other pressure. has making being all way. -- with feeling months. inflation of thinking we in we're our Middle the our with watching in the they X that of so And this home. until credit a prices go necessities. America may start the feel to reserve deliberate going If and very we're side. buy along is sure more they're conservative mortgage to

We have I'll no to now it for remarks. further pass back so Ralph questions, Andretta closing

day, joining your our for a all call Financial. thank you you and continued Thank today very much. and interest have in Bread Everyone, terrific

QX That Call. concludes Financial Bridge Earnings XXXX Conference today's