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

[Presentation] Welcome, and thank you all for joining us for Bread Financial's 2024 Investor Event. My name is Brian Vereb, and I'm the Head of Investor Relations here at Bread Financial. Today, members of our leadership team will highlight key aspects of our business strategy and outlook. Speakers may reference certain slides that can be found on our website at breadfinancial.com. A recording of this event will be posted shortly after the conclusion. Before turning the mic over to our President and CEO, Ralph Andretta, I will review the disclosures. I would remind you that some of the comments made during today's event and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties described in our filings with the SEC. Bread Financial has no obligation to update the information presented during the event. Also during today's event, our speakers may reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliation of those measures to GAAP will be posted on the Investor Relations website at breadfinancial.com. With that, over to you, Ralph.

Thank you, Brian, and welcome to everyone for joining. We are excited to have you with us today. The goal of today is to highlight the company's transformation and its energized culture and the strong capital return generation that our business model can deliver. Also, how our responsible capital allocation will create sustainable long-term value for our investors. But first, let's start with a message from our Chairman, Roger Ballou.

Good afternoon. On behalf of the Board of Directors of Bread Financial, I'd like to welcome all of you to today's investor event. As a member of the Board for the past 23 years, I've never been as pleased with the progress of the company as I am right now. The company has undergone a significant transformation over the past several years. Following a thorough assessment of needed Board skills, we implemented a Board succession plan and refreshed our board with 4 new members in the last 4 years that brought significant expertise in financial services and technology. We transformed our management team, beginning with the recruitment of Ralph and followed by a significant infusion of new, deeply experienced talent across our marketing, finance, technology and operations teams. We've simplified the business into a more streamlined tech forward financial services company, including rebranding from Alliance Data to Bread Financial. Ralph and his executive management team continue to execute on our strategy and build on our success while maintaining prudent capital and risk management and an associate and customer-first culture by supporting responsible growth, enhancing our financial resilience, investing in data and technology and advancing sustainability initiatives, Bread Financial has strengthened its market positioning. The team has an exciting agenda for you today, highlighting accomplishments of the past few years and discussing the opportunities that lie ahead. Bread Financial's future is bright, and the Board remains confident in our outlook and strategic direction. Thank you for joining us today and spending time with the company.

Thank you, Roger. We have a highly engaged and diverse Board of Directors that has decades of experience across various industries and discipline, and each member plays a unique perspective to bring the role they play in overseeing our company's long-term business performance. Our Board is firmly committed to our vision and our long-term strategy. Let me share an overview of our company's business strategy, highlighting our position of strength as an outcome of Bread Financial's transformation. I will then respond to investor feedback we have received. I joined the company in February of 2020. Since then, Bread Financial has undergone a transformation and as a result, grown into a stronger organization. We have successfully managed through challenging economic conditions and changing consumer preferences. We have put the customer at the center of everything we do from acquisition to underwriting to servicing. Today, with the actions we have taken to strengthen and improve our company, we are in that position of strength. And we have the flexibility and resilience to be nimble and to adapt to macroeconomic headwinds and regulatory change. Let's begin with our simplified business model. This is our first Investor Day after spinning off our noncore businesses and rebranding ourselves from Alliance Data to Bread Financial. Our company has evolved through a tech-forward financial services organization focused on providing simple, personalized payment, lending and saving solutions to a wide population of consumers varying in age and economic maturity. We provide financial flexibility and purchasing power to consumers through a variety of card and lending products, driving customer loyalty and sales for our partners. We have a fully integrated suite of products, including private label, co-brand cards, installment lending and buy now, pay later solutions. By expanding our product set, we have diversified and improved our loan portfolio and our credit risk profile. Over the past few years, our co-brand product has grown to more than 50% of our sales. We also launched direct-to-consumer products, including our 2 new proprietary cards that help round out our product suite, giving consumer choices on how they shop, spend and get rewarded. Also, we continue to successfully build our Bread Savings deposit program. We have eclipsed $7 billion. This deposit base is an important funding source, providing additional flexibility and diversification. Our product suite has expanded our total addressable market, leading to gains in consumers' wallets and more nondiscretionary spend. A key to our success and our business model is our enhanced fully integrated end-to-end credit risk management process. We have an experienced team that is proactive in managing our credit exposure and given the current macroeconomic conditions, they've tightened a little as appropriate. But while at the same time, maintaining the ability to underwrite to larger populations than our peers, driving value for both our company and our brand partners. With our expanded product suite, full-spectrum underwriting and the customer-focused mindset of our associates, we have been successful in adding and renewing iconic brands across various industries. We've added AAA, the NFL, Dell. We signed Ulta and Signet , just to name a few. And we are excited to welcome our newest partner, Saks Fifth Avenue. In fact, 9 of our top 10 programs, which represent over half of our loan balances, are now secured through 2028. You'll hear testimonials today from some of our valued brand partners. In addition to renewing and attracting new partners, we have spent our time executing on a plan to strengthen our balance sheet. This has resulted in a reduction of our corporate debt and improvement in our financial metrics. We paid down $1.8 billion or 58% of our parent debt. We have extended most of our debt maturities out to 2029. We significantly improved our capital ratios, including more than tripling our total company TCE to TA ratio to 10.6% and drove substantial growth in our tangible book value, nearly tripling it since the first quarter of 2020. We delivered on our capital priorities and as a result, are nearing our target for long-term leverage and capital ratios, which Perry will discuss shortly. Our strong balance sheet, streamlined business model and resulting efficiencies allow us to strategically invest in our business to drive innovation. This innovation revolves around accelerating our digital and technology capabilities, improving the customer experience and realizing expense efficiencies. We evolved from a user of technology to using technology as an enabler. And now we see it as a clear differentiator for our business. Our investments over the past 4 years provides tech forward offerings for our partners, including seamless integration for personalized marketing and payment offers and an enhanced digitally focused customer experience, including frictionless payment journeys, virtual card capabilities and a new direct-to-consumer app, all while building resilience and efficiency as we scale. We remain focused in building in our position of strength. As a more nimble, streamlined organization, we have agility, flexibility and resilience to successfully navigate through regulatory changes and economic volatility while positioned to capture opportunities as they arise. In summary, our focus has not changed. We continue to grow responsibly and profitably, manage through the macroeconomic and regulatory environment, accelerate digital and technology capabilities, and drive operational excellence. As always, our decisions are focused on creating sustainable value over the long term. Now I'd like to discuss topics where we've received investor feedback. They are the CFPB late fee, the status of the loyalty ventures litigation, the future of private label credit cards, our credit performance and our capital allocation. I, along with the Board and our leadership team, appreciate the candor and constructive dialogue we enjoy with our analysts, stockholders and prospective investors. So let's start with the CFPB late fee rule. We have discussed this topic in detail during our last 2 earnings calls. We disagree with the rule and believe that it will have unintended consequences on Americans. However, despite ongoing litigation, we will comply with the rule and we'll continue to take action to mitigate the financial impact of the rule. We are confident in our strategy and have an experienced leadership team that has successfully navigated through regulatory changes in the past, such as CARD Act. As Perry will highlight, while our results will be noticeably impacted in the quarter after the rule goes into effect, our mitigation efforts will lessen the impact over time, and we are confident we will remain -- will be return to strong results. Regarding the pending litigation related to the spin-off of Loyalty Ventures, Inc. While we're limited in what we can say with respect to ongoing litigation, we are steadfast in our belief that the claims against us are entirely without merit. Contrary to the allegations, we believe our process and decision-making was entirely appropriate. Throughout the spin-off process, we had every reason to believe the transaction will create 2 companies positioned for growth. This confidence was shared by the executive management team of Loyalty Ventures, who played a key role in structuring the transaction, developing the financial projections and securing ratings and financing. During and after the completion of the spin-off, we maintained a 20% stake in Loyalty Ventures. As its largest shareholder, our interests were aligned with those of Loyalty Ventures and all of its other shareholders and investors. We expected that the business would grow and thrive. As cited in public disclosures, Loyalty Ventures was adversely affected by a number of macroeconomic, geopolitical and other factors that were unforeseen and unfortunate. Our views regarding our process, decision-making, and Loyalty Ventures' financial soundness at the time of the spin have not changed and only have been reinforced by the work we have done since this litigation surfaced. Believe me, no one, no one was more disappointed in their failure than we were. Now let's talk about the future of private label credit cards. Private label is just one of our product offerings. We believe private label programs will continue to provide value and benefits to both our partners and our customers and will remain an important part of our business with potentially moderate growth. Private label credit cards provide responsible access to borrowing for consumers just establishing credit. These programs create a strong affinity, strengthening our customers' loyalty through reward programs and perks as they engage with a brand of their choice. The industry slowdown of private label credit cards can largely be attributed to our partners offering both private label and co-brand cards to the consumer. While private label programs may not grow at historic levels, our expectation is our co-brand and general purpose programs will continue to grow at higher levels. With our full suite of products, we remain confident in our ability to offer our partners and our consumers products that meet their needs. Now with respect to our credit metrics compared to peers. In short, we strategically choose to provide credit to a broader population. But importantly, we are prudent and experienced in underwriting with decades of data and analytics, and we get paid for the risk we take, as you can see by our industry-leading risk-adjusted loan yield. At this time, our net loss rate is currently elevated, which is expected given persistent high levels of inflation impacting our consumers' ability to pay. However, we remain confident in our credit risk management process, the execution of our strategy and achieving our long-term loss rate guidance. Finally, looking at the future capital allocation and growth. We remain committed to responsibly managing our business, which given current uncertainties, includes moderating near-term loan growth for our longer-term target. This company has a consistent track record of growth and partner renewals. We expect to return to faster growth as the economy improves. We remain long-term focused when evaluating partners, inclusive of purchasing their existing portfolios and ensuring partnerships meet our growth profitability hurdles. We'll continue to build capital in our target -- to our targeted levels and satisfy our dividend and debt obligations. We are very, very pleased with our debt reduction over the last 4 years. And while still important, going forward, debt reduction will likely have less of an impact on our capital utilization as we are nearing our targeted levels. Our capital priorities will continue to evolve and when appropriate, we will return capital to shareholders. Perry will provide a framework for our capital decisioning and the levels where we believe meaningful capital returns to investors should occur. As I look back on what we've accomplished, which what stands out to me the most is how fortunate I am to work with nearly 7,000 talented and dedicated associates of Bread Financial. The Board and I have the highest level of confidence in my leadership team and the caliber of associates in our organization. We are enabling and supporting the people that make our culture great, deliver our brand promise to customers and operate as responsible corporate citizens, including giving back to the communities where we live and work. We'll watch now a video that expands upon our dedication to our associates, customers and communities. [Presentation]

As you just saw, our corporate responsibility, governance and community engagement is integrated in our risk management process and overall business strategy. Bread Financial's sustainability is a combination of highly engaged Board, a proven executive leadership team, and unwavering dedication of our associates. As you listen to our leadership team, you'll see that our resilient business model was built to drive strong capital generation and long term value for our shareholders. As a result of the effective execution of our strategy and disciplined capital allocation, we expect to deliver a strong return on tangible common equity in the mid-20% range overtime. Our leadership team will share how deliver on this as well as our other long term targets. So our first group of presenters are Val Greer, Dennis McCarthy, and Allegra Driscoll. Val and Dennis joined shortly after I started in 2020 and together have more than 70 years of industry experience. They have brought significant credibility and opportunities to Bread Financial. Their teams are the driving force in our success in renewing and adding iconic partners like Saks Fifth Avenue. Allegra, our Chief Technology Officer, is the newest Corporate Officer and member of our executive leadership team. She joined Bread Financial at the beginning of the year to spearhead the evolution and execution of our technology strategy. She brings a fresh perspective, significant industry experience and focus to a changing and highly central part of our business. We are confident that Allegra will continue to innovate our technology capabilities in very new and exciting ways. With that, over to you, Val.

Great. Thanks, Ralph. So I am excited to be here today to share with you our growth and our diversification story. As an integrated payment provider, we have a full product suite of lending, payment and saving solutions that position us well to continue to achieve profitable growth. Retail is changing. Consumer shopping behaviors and payment preferences are evolving. Spending power is shifting to the younger generation. We have economic cycles, regulatory changes, digital experiences, AI, the list goes on. You will see how this business is now more than ever positioned for profitable growth. We will highlight the strong competitive differentiation and solid foundation we have built here at Bread Financial. And you will hear how our transformation and innovation has repositioned the business to meet not only today's challenges, but capitalize on tomorrow's opportunities. You can trace our roots back to 1996, from a merger of retail card units that together formed Alliance Data that was mostly an apparel-based private label credit card company with loyalty solutions for consumers. We have never lost that partnership DNA. And as you've heard from Ralph, over the last 4 years, as we've rebranded to Bread Financial, we've innovated across the business. And you see a far more diversified credit card loan, savings and payment solution provider, aided by a strong balance sheet, modernized tech stack that is scalable. We are a top 5 issuer of private label credit card solutions and manage 100 credit programs and over 1,000 e-commerce merchants. We partner with iconic brands like Ulta, Signet, Saks, Wayfair and Toyota with noticeable partners in virtually every major category. With the addition of AAA and the NFL and the growth of existing partners like Caesars, travel and entertainment is now our largest vertical at more than 30% of originations. Health and beauty is 20%, almost double that since Q1 of 2019. And we continue to add iconic brands such as Saks and then along with Dell, growing our electronics vertical. We are customer-centric and facilitate more than $28 billion in spend. We have product solutions for all generational segments, supported by a digital-first mindset, robust data and analytics, tailored marketing campaigns and innovative value propositions along with optimized risk strategies, all of which create greater value to our brands through increased sales, revenue and lifetime customer value. Today, you will actually hear from some of our partners, including B&H Photo, a client that recently moved from one of our competitors and saw a meaningful lift in their program performance. Our business model has a built-in competitive advantage, a lower customer acquisition cost. We go to market through our brands' channels, including e-commerce, apps, point-of-sale, store associates, dealer reps and customer service agents to market our card to the end customer. Through our brands, we have thousands of digital properties and over 55,000 physical locations. They effectively market and promote our program of products in those channels. We operate a modern tech stack that last year saw nearly 30% of application volume processed via mobile and digital wallet provisioning was up 26%. With that in mind, we continue to invest in digital channels to meet customers in their channel of choice. Our investments in technology matter to our partners as more than 90% of them integrate with us through APIs. Our investment in digital and mobile ensure a seamless omnichannel shopping experience. And last year, we saw nearly $11 billion in sales processed through a mobile or digital device. Bread Financial is uniquely positioned in that we have a full suite of payment solutions: private label cards, co-brand cards, installment loans and split pay. We can offer them individually or in unison. Interestingly, while many of our competitors are classified as either a card issuer or a BNPL provider, they're not positioned as both. With our product set, we are able to serve a broader set of partner and customer needs. We have a strong reputation for successfully launching de novo programs in categories that previously may not have had a credit culture. A great example of that is our growth and expansion in the beauty category, where we currently partner with major beauty retailers like Ulta and Sephora and have now built this into a multibillion-dollar vertical. Ralph already covered the value private label brings our customers and partners, providing consumers establishing credit, responsible access to credit and rewards with their favorite brand. These programs unlock sales for our partners and create strong brand affinity and loyalty. Private label will remain an important part of our full suite of payment products. As part of our diversification journey, we made the strategic decision several years ago to proactively expand our footprint and focus within the co-brand arena, where we currently manage over 25 co-brand card programs and general purpose programs across all 3 networks: Visa, MasterCard and American Express, with programs that range in size from $200 million to several billion in annual spend. Many of these programs complement an existing private label card. And by offering customer choice and timely product graduation strategies, we attract and retain additional cardholders. On average, we see spend on co-brand cards 4 to 8x that of private label as customers can use their card more broadly and earn rewards on everyday spend. And having general purpose utility not only grows our loans, but also expands our revenue by capturing interchange on a broader basket of goods. Today, co-brand represents more than 50% of our total spend, and we know the project will continue to play a larger role given the current regulatory environment. Co-brand programs also enhance the overall credit risk profile of Bread Financial's card portfolio, given the majority of our cardholders maintain a vantage score of above 660 and the programs are less reliant on late fees as a source of revenue. As we've invested in co-brand product capabilities, we've leveraged our point-of-sale expertise and partnership DNA to deliver on growth commitment. When we converted the NFL and AAA co-brand programs from large key competitors, our first step was to redesign and refresh the cardholder value proposition and ensure both cards were top of wallet. We expanded acquisition channels, modernize the cardholder experience, collaborated extensively with the brands and within the first year of partnership, took new account acquisition to its highest level ever, which is impressive for mature programs have been around for more than 10 years. You will hear from Dennis McCarthy, our Chief Client Officer, on how our partnership model is a competitive advantage and why the average tenure of our partnerships is over 10 years. Growing via partnerships will always remain core to what we do. But as part of our broader diversification and rebranding strategy, we launched the direct-to-consumer program. We have a cash back in rewards American Express card, both offering a very strong value proposition. In addition to targeted invitation to apply offers, we have converted the back book for terminated partnerships into our proprietary portfolio. When we convert these qualified cardholders, we've seen very strong sales engagement with a 70% increase in spend per average and on average, a 22% reduction in attrition as customers now have greater utility and a greater value proposition. Another part of our direct-to-consumer strategy is the FDIC insured Bread Savings program. We have experienced rapid growth in balances and now manage over $7 billion in retail deposits with a competitive rate and a lower funding cost. And it's also a place where we can cross-sell our proprietary products. In addition to card, we have an emerging growth engine in our BNPL business. This aspect of our business includes installment loans and paying for products, and we go to market through direct integrations with over 1,000 e-commerce merchants, including large-scale clients such as Wayfair and Academy Sports. More than 95% of our BNPL business is big ticket in nature. Our partners use our suite of APIs, software development kits and plug-ins to integrate seamlessly in their experience and have a happy path shopping cart checkout. As I mentioned, consumer preferences continue to evolve, and we have taken action to empower our customers and partners to deliver their journey of choice. Today, consumers often start their journey in one channel and complete their shopping journey in another. For example, they may browse for a new gaming console on their tablet at home. Then drive to the store, check it out, grab their phone, scan a QR code or text to get access to promotional financing that unlocks increased purchasing power and checkout in store. Traditional checkout is beginning to phase out as Gen Z and millennials' preference for fast, easy payments drives mobile adoption. In fact, more than 50% of our customers have placed an order online and picked up in store in the last 12 months. Our digital investments ensure a consistent experience online and in-store across devices, mobile, tablet, in-store, offering a true omnichannel journey, which increases conversion rates, reduces card abandonment rates and drive sales for our brand. As a company, we've invested in creating more connections with customers in this payment ecosystem with our enhanced digital suite. This allows us to leverage unique data assets to provide timely personalized offers that create engagement with customers online throughout their shopping journey. More specifically, we can drive interest in our products and rewards by showing dynamic marketing content for either pay as low as messaging or rewards to increment sales with their purchase. This, along with our prefill and simple consumer experience, drives a 15% to 20% lift in incremental sales in our digital applications. With our dynamic ad server, we can also target messages to different cohorts, including cardholders, noncardholders and different loyalty tiers. In total, we do approximately 1 billion impressions a month or 33 million a day. Customers may get a message that they are prequalified informing them early in their journey of their potential approval amount, which is really important for big ticket items where we've seen a lift of 20% to 40%. Or they may receive a real-time prescreen offer, which leverages multi-tender loyalty data to proactively prompt an offer at checkout, driving higher conversion rates. Let's see what this experience looks like for a potential customer Sarah, as she shops for that gaming console I mentioned earlier. [Presentation]

As you saw, this simple intuitive experience is integrated at key moments in the customer journey, and that has driven our application completion rates as high as 80%. But our investments don't stop at acquisition, and neither do our customers. Last year, we launched our mobile app that you saw at the end of the video, and we leveraged our proprietary product to test out the functionality and customer experience before rolling it out. We have started to roll it out to our top 25 brands, including AAA in the first half of this year. And we have a 4.8 app store rating on our app. This is just another example of a deliberate investment to service and meet customers in their channel of choice. Understanding the customer is essential, not only as we help our brand partners acquire new customers, but also through the entire life cycle to deepen loyalty. Many of our larger brand partners provide SKU level and multi-tender loyalty program data. When we combine this data with that of our card program and further augment with demographic, behavioral and risk data, we create a very rich pool of information that we feed into our large language models and into our [ Gen AI ] functionality. Overall, our modeled campaigns leverage this rich pool of data drive more than a 40% incremental lift in sales. Our marketing best practices are underpinned by offering competitive and relevant value proposition. For example, we recently took a long-standing co-brand partner to the next level through a redesign of their value proposition that reinvigorated the entire portfolio, resulting in a 22% lift in new accounts and a 7% lift in overall sales. That unique intersection of voice of customer, robust data insights and analytical modeling is what enabled us to find the right balance of appeal and value that is relevant to that target customer. Our value proposition effectiveness is reflected in our reward offerings. In 2023, our cardholders earned 11 billion points and redeemed for $240 million in value. We offer cash equivalents such as pay with points as well as real-time redemption, statement credit and direct deposit. Our passion for anticipating the needs and wants of customers drives us to do better each day with our business and that of our diverse portfolio of brand partners. Our commitment to delivering excellence in our programs and to our partners is why we continue to see growth in launching new programs and converting long-tenured programs. Let's hear from our newest partner, Saks, why they chose Bread Financial. [Presentation]

So we're pretty excited to launch the Saks Program in the fall and grow that with them. I'd now like to welcome my friend and colleague, Dennis McCarthy, our Chief Client Officer, who's going to dive deeper into how we develop, manage and really grow our partnerships. Dennis?

Thanks, Val. As Val said, I'm Dennis McCarthy. I have the privilege of being our Chief Client Officer. I was also going to say I have the pleasure of being our Chief Client Officer until about 15 minutes ago when Ralph said Val and my name together with 70 years of experience. I think it was supposed to be a complement, but somehow it still hurts a little bit to hear, 70 years. Regardless, today, I'll spend a little time highlighting how we work alongside our partners and how that further differentiates us in the market as well as how that has led us to a strong partner contract renewal rate and new partners joining us here at Bread Financial. As Val mentioned, we're uniquely positioned to offer a full suite of payment solutions to our partners' customers to deepen brand loyalty across our payment channels. Our operating model is backed by our experienced leadership and account teams. And as Ralph said earlier, I can't overemphasize the importance of the team. Collectively, they support the distinct and different needs of each of our partners, and they help us drive program growth. Approximately 95% of our business is from our partner programs, and that deep experience and partner-centric focus really helps us provide a key strategic difference. Our investments are primarily focused on capabilities and experiences and infrastructure that are required to help us grow those programs, and we continue to invest significantly here to enhance our technology and our digital capabilities, and Allegra will talk a little bit more about that in a bit. We have decades of experience launching and growing both de novo and converted portfolios. The account teams and our cross-functional teams work closely with our partners, stakeholders to design and develop programs that are relevant to their customers. Post conversion, we've observed incremental sales lift ranging from roughly 20% up to 50% after conversion in that program moving over to us. And it doesn't stop at launch. In fact, really, we're just getting started. Our cross-functional teams in marketing, finance, risk, field support, data science and analytics, operations and reporting, they remain engaged throughout the entire relationship to ensure we're delivering on our commitments in driving profitable growth and cardholder engagement. We leverage both data and our brand expertise to understand the unique needs and deliver strategies that increase awareness, they drive acquisition and most importantly, build long-term engagement. We also create unique reward opportunities together with our partners. Imagine, customers treating themselves with the rewards from Ulta Beauty, Victoria's Secret and Sephora. Or creating an even easier path to platinum status if you're a Caesars customer with us as well as the ability to earn, redeem for game tickets or even Super Bowl tickets or on field experiences through the NFL. Overall, our partners view us as an extension of their team, partnering throughout the life cycle to develop goals, implement new technology and maximize program performance. As part of that extension, we focus on treating their customers as if they're our own because they see us, those customers see us, as an extension of the partner's brand. We've provided exceptional customer experience for the past 3 decades with 19 consecutive Center of Excellence awards from Benchmark Portal, and that's more than any other credit or financial services company. Val mentioned our products and our capabilities. But the key is how it all comes together. It's the proactive underwriting, our collaborative marketing and development, consumer trends and analysis, customized reward offerings, continuous analytics and reporting. And importantly, just as I mentioned a moment ago, the customer care that collectively all of those helped to set us apart. Now let's take a moment to hear from our brand partners on the value they see in the partnership with Bread Financial. [Presentation]

Selfishly, I love that video. After watching it, again, I feel like I almost should apologize because I sort of just skipped to that because really, if you think about it, Megan, Jeff, Josh, David and before them, Mark from Saks, they really say it better than I ever could. It's always great to hear it directly from the partners themselves and quite frankly, is better and more impactful coming from them. At Bread Financial, we do refer to our partners -- our brands as our partners because we truly believe that success requires partners to work toward mutual goals of both engagement and profitable growth. And that approach has led us to continued success, including the high renewal rate that I mentioned earlier and an average brand tenure of more than 10 years. Our partners see the value. Our partners see the value and as a result, we now have 90% of our receivables secured through 2025 and 81% through 2026. And importantly, as Ralph mentioned earlier, 9 of our 10 largest programs secured through at least 2028. I'm very proud of the programs we've built and the success that we've had with our valued brand partners, including those that you saw here today, plus the 1,000 or so others that Val mentioned earlier that work with us across all of our product offerings. So thank you for your time today, and I'll turn it back to Val to talk about our growth potential.

Thanks, Dennis. It's always great to hear from our valued partners. Every day, we invest in our people, platforms and our capabilities. Every day, we improve the strength and scope of our product offering. And of course, every day, we obsess over the customer and how we can drive our brand partners' sales and revenue. We are keenly focused on proactively addressing the changes in consumer behavior. Nowadays, consumer shops in ways that we didn't even hear of 10 years ago. You have things like showrooming, where customers go into a physical store, check out the product and then go home and buy it online, things like web rooming where customers do all their research online and then go to store to buy. And of course, you have BOPIS, buy online, pick up in store, BOSS, buy online, ship from store. You add on to that curbside pickup, virtual cards, digital wallets and self-checkout. The trends are increasing at a considerable rate, and it is imperative that we develop innovative solutions such as intuitive mobile and digital services that enable choice of that preferred payment option for our customers. Our full product suite was strategically designed to serve all generational segments with simple solutions such as BNPL for the millennial and Gen Z customer, which comprise about 42% of the U.S. population as well as our private label and co-brand product for Gen X, which today holds the majority of spend power in the U.S. This flexible menu of product choice, consumer terms, repayment tenures, omnichannel experiences, risk optimization and robust analytics drives consumer adoption and sales engagement, delivering greater brand value, which is what you heard from our partners. Our brands are geographically dispersed with 100 card partners, more than 1,000 e-commerce merchants and more than 55,000 physical locations. Our cardholders are balanced across geographies and generational segments. With Gen Z and millennials combined, representing the largest group of our active balances, Gen X representing 1/3 and baby boomers slightly less than 1/3. In closing, I would leave you with these 3 things that showcase what is unique here at Bread Financial. First, we are not overly reliant on a specific product, industry, partner or demographic. And what that means is that we have additional flexibility as the macroeconomic environment shifts. We can be more responsive to regulatory changes, and we can take advantages of opportunities in the market. Second, and core to our DNA is our ability to partner with a brand and a customer. Our retail lineage serves us well in anticipating the needs of our partners and customers full stop. And finally, our recent transformation and expansion of product offerings and capabilities has unlocked multiple avenues of growth. We offer our suite of products through a large distributed network. We win more than our fair share of RFPs, and we can also grow through our direct-to-consumer business. Suffice it to say, we are very confident in the road ahead with our product, vertical and consumer diversification profile. And Bread Financial is well positioned to deliver on its commitments to investors. I will now turn it over to our Chief Technology Officer, Allegra Driscoll, to share more about how our management and technology and investment has played a critical role in our transformation.

Thank you, Val. As Ralph referenced, and even our partners reinforced, technology powers our strategy and our market differentiation as a tech forward financial services provider. Our technology capabilities allow us to deliver exceptional experiences for our brand partners, our customers and our associates. Our technology platform powers our leading consumer brand partners, processing more than $28 billion of annual spend and supporting nearly 40 million active credit accounts. Bread Financial's success is fueled by our investments in innovation, emerging technologies and robust data solutions. These enable us to execute and deliver on our priorities and our promises. Simply put, everything Bread Financial does relies on a robust technology platform and we will continue to invest in this platform over time to ensure it remains a differentiator. As Dennis mentioned, over the last several years, we've invested significantly to enhance and evolve our technology, data and analytics capabilities to stay ahead of rapidly changing consumer partner and associate needs. For example, we built streamlined omni-channel experiences for our customers. Do you remember Sarah, our gaming expert from the video? As was the case with Sarah, we know that customers may start their shopping journey on their phone or their tablet, visit a store to experience a product in person and then purchase online. We are committed to creating a consistent experience across any channel a consumer chooses and allowing our brands to do the same. As Val said, last year, we saw nearly 30% of application volume and over $11 billion in sales being processed via mobile. While expanding our omnichannel footprint, we've also enabled our brand partners and merchants to connect seamlessly and directly by offering simple API connections and more customizable capabilities like our software development kits. More than 90% of our brands are now integrated using one or more of our APIs to power their customer journeys. In our embedded finance partnerships, we use APIs to connect third-party front-end platforms like the recent Sezzle or pay tomorrow launch to efficiently distribute our loans. Across everything we do, we've leveraged our wealth of data and analytics to fuel innovation and differentiation in a number of areas across marketing, underwriting, fraud and account management. You heard Val talk about some of the personalized data-driven marketing efforts that we can support like the enhanced digital suite. And you'll hear from Tammy who's going to talk about our data-driven end-to-end underwriting fraud and account management capabilities, which include enhanced machine learning models and complementary intelligent automation. Beyond delivering new capabilities, we've invested in strengthening our underlying technology platform to make our end-to-end product delivery faster and more efficient. For example, we completed the Fiserv migration of our core processing engine. This has, on the one hand, given us more agility. And on the other, it's allowed us to focus on those differentiated digital capabilities that make us great. After completing our Fiserv migration, we moved our partner-facing APIs to the public cloud to drive scalability and availability. Over that same time frame, we put nearly 700 bots over 100 business processes into place. These bots have performed more than 3 million hours of work and have processed more than 35 million transactions on a cumulative basis since 2019, all savings that we've reinvested in our business. These efforts have created new experiences, enabled operational excellence and improved our speed to market. Our current focus is guided by the priorities that Ralph laid out and further elaborated on by Val and Dennis. This means we intensely focus on customer centricity and on growth while maintaining stability and security. We are working closer than ever across the enterprise to ensure our innovative capabilities enable exceptional customer experiences across all channels. For example, we help the NFL make sure that fans of all generations and geographies can easily sign up for their favorite team's credit card. Our customers and brand partners are at the center of everything we do in technology. Again, if you think about Sarah from the video, she's able to quickly and seamlessly get prequalified, review our offerings across Bread Financial products like our credit card products, our installment products, add them to her digital wallet, all powered by our technology platforms. We have rolled out and are constantly evolving the Bread financial mobile app while enhancing our account center web experience and our IVR capabilities, all with the goal of allowing our customers to self-serve. We've also brought to market the first of its kind, web to wallet virtual card that eliminates the need for friction and accessing buy now pay later within a store environment. We can populate a customer's information within their shopping cart, an experience that allows for application to approval to check out within seconds. And we can provision a loan into a digital wallet within a minute. Our technology and data capabilities drive growth. and are the backbone of our ability to quickly pivot. We are helping our partners drive sustainable growth using data. We have a long history of using predictive analytics and machine learning. We've enhanced our data platforms and models, which allow us to turn data into actionable insights, these insights that allow our brands to more accurately target and personalize their marketing efforts. For example, we built an AI-powered recommendation engine that leverages our partner's data and our predictive modeling to offer curated product suggestions to their customers. The results were 2x improvement in e-mail response rates. Not only were the results and use of AI market leading, but we are now a true extension of our partners' marketing and data science teams, allowing them to achieve their business goals. Our technology platforms are the connective tissue of our company and must be stable, resilient and secure. We continue investing to enhance our systems availability and flexibility across all channels. Our teams across information security, engineering, product, fraud, work closely together to innovate and extend our advanced tools, data and models to improve decision making, identify malicious intent and ultimately reduce risk. A good example is our seamless prescreening experience, which, on the one hand, reduces the likelihood of fraud. And it also improves the speed of the transaction for the customer. As we look ahead, we will continue to drive product enhancements and deliver innovation that powers business outcomes. We will expand the ways we leverage public cloud capabilities, automation, data and AI to bring product features to market in 1/3 of the time. You might be asking how we're going to do this. One, we're going to empower Bread associates via an innovation-led inclusive culture that supports continuous improvement. In tech, we're going to prioritize a hands-on keyboard approach that empowers our engineers to automate our tech delivery process. We are going to deliver policies and controls as code so engineers can focus even more time on delivering features for our customers and partners while improving our resiliency, security and efficiency. Second, we're going to directly align our product and engineering teams to make it easier for our associates to collaborate. Finally, we will continue to look for innovative ways to extend our tech and data platform. We are going to decouple some of our applications through APIs and micro services, taking advantage of cloud-native capabilities and connecting our decades of data across different areas to accelerate competitive differentiation using AI and generative AI. In addition to increasing our speed of delivery, we are going to delight our customers and partners by keeping them at the center of our efforts. We are investing in secure, seamless and personalized experiences across our full product suite. This will allow us to stay ahead of emerging consumer trends and more easily cross-sell our products. So what does this mean for Bread Financial? First, we're going to continue to fuel innovation and automation that delivers exceptional experiences that result in higher satisfaction and growth. Second, we will continue to leverage data and AI to create highly personalized experiences for customers, help brands offer the right product to the right customer at the right time and enhance our associates' productivity to increase their effectiveness and their excitement in their roles. Third, we're going to continue to scale our platform, ensuring efficiency, flexibility and security as we grow. We believe our technology platform and capabilities will drive scalable differentiated value creation for our company and our stakeholders. Thank you for your interest. We can now take a short break. [Break]

Okay. Welcome back after a very short break. So I'd like to introduce our next 2 speakers. First, Chief Credit Risk and Operations Officer, Tammy McConnaughey; and our CFO, Perry Beberman. Tammy has been with our company for more than 30 years. She has phenomenal institutional and industry experience and knowledge. Tammy leverages her experience to improve and refine our credit risk management process. Tammy will be followed by Perry, an experienced industry veteran. Under Perry's leadership as CFO, we have significantly improved our balance sheet and financial resilience. Perry has instilled an organizational-wide discipline to help us grow responsibly, manage our risks effectively and allocate capital appropriately. Tammy, I'm going to turn it over to you.

Great. Thank you, Ralph. I'm happy to be here today to discuss our evolving and expanding credit management process. As you have heard from my colleagues today, we put the customer at the center of everything we do. That includes a balanced and customer-centric approach to our credit risk management strategy. Building on the foundation of our decades-long retail heritage, we believe that the customers across the credit risk spectrum deserve the opportunity to establish credit. With our balanced, responsible approach to underwriting, we empower consumers with the right product to meet their needs. This approach constantly seeks to optimize where our products, consumer profiles and our risk tolerances intersect. Our emphasis on full spectrum lending is a differentiator for Bread Financial and it's important for driving strong profitability. Our cardholders and brand partner relationships play a pivotal role in providing an appropriate balance between both profitability and risk. Our end-to-end credit management process ensures that we can deliver on that balance with the goal of meeting the needs of our cardholders and fueling the growth of our brand partners. We have a strategic and disciplined approach to credit, focusing on the most attractive segments from a return perspective. Our process balances credit risk and profitability. We do not just focus on a targeted loss rate or delinquency rate. As a result, we maintain a steady loss rate while delivering leading approval rates across a diversified product mix. All of this is supported by our well-established risk appetite metrics, which not only provide important guardrails and parameters for our decisions but are also thoughtfully inclusive of the desired profitability we want to attain to ensure we balance both the risk and the reward. In the deck, we included a chart showing the risk-adjusted revenue yield for each origination Vantage score segment as compared to the total. This shows that the most profitable segments are subprime to prime plus. Almost 95% of our loan balances come from accounts originated in the near prime to super prime segment with almost 80% in the near to prime plus and near prime to prime plus. We generate a strong risk-adjusted return in the subprime segment due to the advanced algorithms, data and tools we use to find and manage customers that are lower risk within this score segment. As a result, while this segment is small, these customers are highly incremental to both our business and our brand partners as we provide purchasing power through our grow and expand approach that provides manageable credit lines. The Bread Financial credit risk team is a tenured team with decades of experience, underwriting and managing full spectrum credit portfolio, averaging 20 years per liter. As we have expanded our product suite, we've invested in external talent with outside expertise in our newer products. Along with our experienced and talented associates, we believe that our external strategic partnerships are also key to our success as we navigate changes in the economy and the lending environment. Let's start with advancements we've made and continue to make in our credit risk strategy. We pride ourselves on continuous innovation. From early adoption of more predictive scoring mechanisms like Vantage score to making significant investments over the past several years in our data science capabilities along with more -- allowing more advanced tools, models and faster speed to market. We have advanced our machine learning algorithms across each phase of the customer life cycle with more than 80% of all of our credit models leveraging machine learning today. Thousands of data elements from multiple data sources like credit bureaus, alternative data sources and brand partners, plus our decades of cardholder data feed our suite of proprietary predictive models at each decision point. For years, we have used alternative data sources beyond the credit bureaus to manage the broad spectrum of brands and consumers that we serve today. With younger consumers likely to be underbanked, alternative data sources key to our ability to responsibly help consumers establish credit and ensure they can build their credit history over time. We remain focused on the best in the industry scores and have introduced multiple new customized models using internal and external data sources to create a robust, well-rounded view of the customer. These investments allow us to deploy sophisticated credit risk management strategies that involve multiple model overlays, which enhance our ability to optimize decisions and achieve strong profitability. All of this is supported by our flexible decisioning platform, which allows us to easily customize strategies and introduce new tools. A significant number of our attributes and models have been added at each phase of our customer life cycle. Now let's turn to how we prioritize protecting our consumers. We have advanced tools, data and models in place that allow us to swiftly identify and mitigate malicious intent and synthetic identity. These tools and technologies enable proper safeguarding of our customers which is even more critical as acquisition continues to trend towards digital channels. Our dedicated team continuously innovates and tests the latest methodologies along with external data sources that improve our decision-making and optimize the risk where we're trade-off. This includes investments in AI and other emerging technology where applicable. Our strategies are designed to be proactively adjusted recognizing that when challenges and macroeconomic trends, pandemics, or simply changes in consumer behaviors arise, we can move decisively and maintain our through-the-cycle loss rate expectations. The first step in our credit strategy is how we underwrite new accounts at acquisition. Bread Financial has a variety of acquisition channels available, including robust digital and in-store channels for consumers to prequalify without any impact on their scores. We also seamlessly accept preapproved offers and our customers can also complete a more traditional application to be approved for credit. With many data sources at our disposal, our advanced analytics, flexible platform and risk appetite, we have a proven track record of finding and approving more profitable customers than our competition. This is a result of our robust underwriting and collaboration with vast marketing strategies. To optimize full spectrum lending strategy, it's important to ensure that we grant the lines that are appropriate, providing consumers along our broad scoring spectrum, the ability to manage their purchasing power and payments. For lower scoring consumers, we seek to empower them with more manageable lines and then gradually grow their lines with good payment behavior. As a result, these consumers can better budget, finance and earn rewards while they're building their credit. For higher scoring customers, making certain that the credit line reflects their purchasing needs and supports the value proposition is equally important given the many choices these customers have at their disposal. Investments in data and analytics allows us to optimize credit lines and take actions as needed, dynamically adjusting based on the customers' performance and needs. We have introduced hundreds of new attributes to the process, including some that capture our customers' behavior over time or trended data. Real-time monitoring of these behavioral changes at the account, consumer and bureau level allow us to make timely and appropriate adjustments. And if a customer from time to time, experiences financial stress, we have an experienced and tenured collection team in place to continue our end-to-end service support. This team works with customers with the goal of maintaining or restoring utilization of their card and helping them to resolve an outstanding balance. For customers in need of assistance, we have a variety of programs to meet their needs. Our investments here in technology and data are designed to offer an omnichannel experience that allows the customers to self-service in the channel of their choice as they seek to resolve their unpaid balances, while simultaneously, we're assisting the team in reaching our customers. Our digital outreach over the last 2 years has increased more than 35%. Not all customers who miss a payment are going to become further delinquent. Our emphasis on modeling and advanced contact strategies are built to determine if a customer needs our assistance and if so, in what channel and what timing makes sense. This helps those customers that will resolve their delinquency without any interaction from us as well as ensures we allocate our resources to customers in the greatest need of assistance. As I mentioned earlier, our team has effectively managed credit risk for over 30 years, which includes a range of mild to severe macroeconomic conditions. Given the prolonged inflationary pressures on consumers, we continue to make targeted adjustments where appropriate. We proactively adjust segments that we believe are at risk, and that includes actions across the life cycle from acquisition and line assignment to authorization and reactivation. We have a recession readiness playbook that tracks a number of factors that drive proactive decisions. This includes external factors like inflation and unemployment as well as many internal customer behavior trends such as payment trends and card utilization. We activated our recession readiness playbook in 2019 before the pandemic when the economy appeared at risk of a recession. And we continue to adapt our strategies proactively. We did not open up the buy box during the pandemic, knowing that the increase in credit scores we were seeing were temporary due to government stimulus. While the broad-based inflationary pressures over the past few years has seen it difficult to isolate and therefore challenging, we continue to proactively protect cardholders and continue to adjust our strategies. Our credit risk process and strategic enhancements provide confidence that Bread Financial is positioned to perform well through a full economic cycle. Our expanded product mix and our industry diversification provides more balance in our portfolio. For example, our specialty apparel vertical historically runs at a higher net loss rate than the total portfolio. Now that represents 25% of our loans versus close to 40% only a few years ago. Not only has the product mix shifted but we have made proactive changes to our integrated strategies across the life cycle due to changes in underwriting when we compare first quarter 2024 to first quarter 2020, we have a higher share of newly opened accounts that score above prime, and our new account average Vantage score is higher than it has ever been. We have also reduced contingent liability, the amount of unused credit lines by more than 10% through proactive credit line management strategies. Even with a macroeconomic stress, we have improved our risk mix, our share of greater than prime loans has increased 300 basis points since 2020. Importantly, I would emphasize that our risk-adjusted loan yield has remained steady over that same time period. We recognize that our risk mix is different than that of our competitors. That is deliberate. It represents our full spectrum lending and reflects the benefit of our innovative underwriting, product mix and fair and responsible lending. Outside of credit actions, it will be important to return to macroeconomic landscape that's favorable to the consumer to improve and stabilize the loss rate. Additionally, strong consumer demand and consumer confidence will help loan growth, which in turn benefits our credit metrics. We are committed to providing full spectrum lending with an expanded product mix that ensures whatever the product or consumer our brands are targeting, we can meet their needs and help them grow. This is delivered through our innovative underwriting approach, coupled with our commitment to ensure we provide manageable credit lines and protect consumer identity. This gives consumers across the credit risk spectrum an opportunity to better budget, finance and earn rewards. In summary, our credit risk strategy across the customer life cycle comes together to ensure a steady predictable loss rate experience and to ensure we are driving profitable, responsible growth. These proactive and prudent credit actions enable our mission to deliver profitable growth and strong returns to our shareholders. Ultimately, we continue to run our business with a long-term focus. While there are always factors like inflation, rising interest rates that no one can fully predict, we manage what's controllable and make the best decisions for the long term. I thank you for your time, and I will now turn it over to Perry Beberman.

Thank you, Tammy. The financial results and targets we will discuss today are a direct result of the hard work of our associates and leaders. This team's dedication, discipline and long-term focus have positioned Bread Financial for success. Earlier, you heard Ralph highlight actions we have taken to strengthen our balance sheet and improve our company's financial resilience in the face of a challenging economic headwinds. These disciplined actions included responsibly moderating our loan growth and remaining committed to our capital priorities. Val, Dennis, Allegra and Tammy spoke to the continued investments we are making to accelerate the advancement of our capabilities across the business. These investments spur growth opportunities and innovation that lead to efficiency and scale as well as an enhanced customer experience. We have instilled an operational excellence mindset throughout the organization that focuses on continuous improvement and simplification of work, developing new capabilities, driving efficiency and effectiveness, improving controls and reducing risk and creating value in everything we do. As a leadership team, we are stewards of our company's capital and resources, responsibly balancing growth, investment and risk to drive long-term value for our shareholders. We will accomplish this by disciplined capital allocation. Bread Financial's success in improving our company's financial position over the past 4 years cannot be overlooked. We have significantly improved our capital ratios and provided increased transparency with the first quarter 2024 reporting of our total company regulatory capital ratios, including a Common Equity Tier 1 ratio or CET1 ratio of 12.6% for the total company. Our tangible common equity to tangible asset ratio or TCE to TA ratio was over 10%, 3x higher than in 2020. We successfully executed on our debt and funding plans, outperforming the original schedule that we had targeted. Additionally, while building capital, paying down debt and growing our core operating profit, we also prudently maintained a loan loss reserve substantially higher than our Day 1 CECL rate given the current macroeconomic environment. When you combine our loan loss reserve with tangible capital, our total loss absorption capacity is nearly 25% of ending loan balance. This robust loss absorption capacity, coupled with our strengthened balance sheet, provides Bread Financial with stability and flexibility to successfully navigate an ever-changing economic and regulatory environment. Digging in a little bit deeper on our parent debt and funding plan. Since 2020, our company has reduced parent-level debt by nearly 60%. That represents a $1.8 billion reduction of debt outstanding at the parent. We renewed our parent credit facilities in 2023 and subsequently paid off the $575 million term loan after only 6 months primarily through $500 million of dividends from our bank subsidiaries. Our company obtained its inaugural corporate credit ratings at the end of 2023 and returned to the bond market, extending the majority of our debt maturities to 2028 or later. We have materially restructured the way we fund our company and our banks. We now have a more diverse and stable funding base. This is best highlighted by the growth of our online direct-to-consumer deposit platform. These small balance deposits with an average size of $55,000 have grown at an annual growth rate of more than 50% since 2020 and now exceeds $7 billion. This impressive growth has allowed our company to better optimize our funding mix leading to reduced reliance on wholesale deposits and unsecured funding, benefiting our overall cost of funds. Given our current funding mix, our cost of funds should remain fairly stable going forward in a longer -- a higher rate environment that may be longer -- higher for longer and move lower, should the Fed begin to cut rates later this year or next, albeit decline at a slower rate than asset yields resulting in a modest NIM compression. Direct-to-consumer deposits now represent 36% of our total funding versus only 6% just 4 years ago. We are targeting our direct-to-consumer deposits to represent 50% of our funding over time. In Tammy's presentation, she spoke to the important dynamic of balancing credit risk and profitability. In other words, appropriately getting paid for the risk we take and delivering strong returns for -- on capital for our shareholders. To ensure we are appropriately pricing for the lending risk we take, 2 metrics that we closely monitor are risk-adjusted loan yield and our PPNR margin less credit losses. Our industry-leading loan yield is nearly 900 basis points above peers, and our risk-adjusted loan yield, which is calculated as loan yield less loss rate was 19.7% in 2023, more than 550 basis points above our peers. This outperformance demonstrates that we are getting paid for the risk we take. Next, to ensure we are running our company effectively on a risk-adjusted basis, I look at PPNR margin less credit losses. Our PPNR margin for the past 3 years has been around 11%. That implies that in any scenario where our annual loss rate is below 11%, our risk-adjusted PPNR margin would remain positive. Now for context, our annual net loss rate was around 9% during the severe economic conditions of the great financial crisis in 2008, 2009. At our current PPNR margin, our company would deliver positive risk-adjusted PPNR margin in that same loss scenario. To achieve these results, we have developed strong alignment of objectives between finance, credit and our client partnership teams regarding risk/reward dynamics and required returns. Our durable profit margin highlights the financial resilience of our business and our company's ability to accrete capital even in challenging macroeconomic environments. Let's look a little bit deeper and talk more about capital. We have remained extremely disciplined in our commitment to our capital priorities over the past 4 years. That discipline has paid off. We are now better positioned than ever to adapt our business to potential regulatory and economic changes and remain proactive when we see opportunities to drive long-term value for our shareholders. In adherence to our capital priorities, over the past 4 years, we have responsibly supported our partners' programs and growth while investing in new products, capabilities and technologies to move our company forward. We have improved our capital ratios and reduced our parent debt. In fact, we expect to be below our double leverage ratio target of being less than 115% and at the end of the second quarter of this year, fulfilling one of our key capital priority targets. So what's next regarding our capital plans? We will continue to build our capital levels targeting a total risk-based capital ratio around 16%, which would move us closer to peers on a total capital basis. Over time, we expect to optimize our capital stack by introducing additional Tier 1 and Tier 2 capital, which will allow us to lower our corresponding CET1 ratio. This will result in a more comparable capital stack to peers and an improved return on tangible common equity, or ROTCE, for our company. Regarding timing to achieve our target state. There are many different scenarios currently in play given the -- what's going on in the economy and potential regulatory changes. Depending on the scenario, we anticipate our company achieving a capital position in excess of our 16% total risk-based capital target at different times. Given the different possible scenarios, I thought it would be helpful to walk through how we think about capital -- the capital allocation process and framework. First, it starts with our core business and the capital it produces each year. Our business model provides strong cash generation, enabling us to support our growth and make investments in our business while continuing to fortify our balance sheet. We must ensure safety and soundness of our banks and the company. This means maintaining appropriate capital and reserves as well as satisfying our debt and business obligations. Then the next priority is to look at our debt levels and opportunities to optimize our debt stack. As I mentioned, we should be within our targeted leverage ratio this quarter and therefore, well positioned from a debt level perspective. We continue to invest in innovation to better and more efficiently serve our customers with a digital-first focus, ensuring we remain a tech-forward company. After covering our obligations and core business needs, we will look at new growth opportunities, such as brand partner additions and related partner acquisitions that meet our return hurdles. These investments are important to driving future capital generation. Finally, assuming there are not more financially attractive investment opportunities, we will return capital to shareholders in the form of share repurchases and/or increased dividends. Now given our current trading valuation, we would prioritize share buybacks over increasing dividends. Now turning to loan growth. We will responsibly grow in different economic conditions, appropriately regulating growth by tightening credit standards when consumers are in periods of more challenging macroeconomic conditions and unwinding those actions as the consumer and economies improve. As economic conditions improve, we expect losses to improve, which, in combination with increased consumer health, is a tailwind to balance growth. We have a strong pipeline of new business opportunities. When evaluating new partners, we ensure they meet our return profiles under stressed scenarios and thus allocating an appropriate amount of capital based on the risk profile. Each year, we anticipate some new partner signings, but we recognize some years we'll have more or less activity, depending on the opportunity pipeline and competition. Additionally, our investments in innovative technology will continue to competitively position us to attract new partners and drive increased customer engagement and spend resulting in additional growth. Overall, we are confident in our ability to grow profitably over time and will remain disciplined in our approach. As a growing and thoughtfully investing company, we have the opportunity to further leverage innovation, best practices and scale to gain efficiency throughout our organization. We are reimagining how we deliver service with a digital-first approach. We are ensuring that our associates have the right modern tools available to do their jobs efficiently and effectively. We will continue to optimize physical locations, offshore capabilities and leverage AI. As I said, we have instilled an operational excellence mindset that focuses on continuous improvement, improve controls and reducing risk and creating value in everything we do. We look to accelerate continuous improvement gains that drive improved customer experience, enterprise-wide efficiency and value creation. Our goal is to consistently generate expense efficiencies that enable reinvestment in our business and support our targeted returns. That means each year, a portion of the efficiency gain will be reinvested to fuel business or enhance our capabilities, help to offset naturally rising costs such as merit increases or inflation and the rest will fall to the bottom line to maintain or improve our returns. Operational excellence will help drive our commitment to targeting annual positive operating leverage and improving our efficiency ratio. Moving to our financial targets. We have provided phased targets, which will remain dynamic as we learn more about the timing and outcome of regulatory changes. The targets, as currently presented, assume the CFPB late fee rule change goes into effect on October 1 of this year on the terms set forth in the final published rule. As you would expect, our current focus is on executing our mitigation plans to offset the impact of the late fee rule change. On our last earnings call, we updated our view on the near-term potential impacts to our financials. Mitigating actions are underway, including various pricing actions. We began implementing higher APRs at the end of last year and continue to increase further this year once the final rule was published. We introduced a [ $2.99 ] paper statement fee to drive paperless adoption and digital paperless and digital adoption. We are evaluating the actual cost to collect as opposed to the lower $8 fee safe harbor amount. We continue to have ongoing frank and constructive discussions with our brand partners to ensure we can continue to provide credit to their customers while achieving appropriate returns. We expect the financial impact of the rule change to abate over time, with substantial progress expected within the first 4 quarters post implementation. Certain mitigation actions will require a longer time frame to reach full mitigation value such as APR changes which can take up to 3 years. Additionally, we expect there will be impacts to future loan growth due to necessary underwriting changes to ensure we maintain profitability thresholds, which unfortunately, will likely restrict access to credit for some consumers. We will provide updates to our outlooks as we receive clarity from the ongoing industry litigation challenging the CFPB late fee rule. Regardless of the litigation outcome, we remain focused on ensuring we deliver long-term value for our shareholders. Now let's get to targets. Over our medium term, which where we define medium term as 2 to 3 years from now, inclusive of successful late fee mitigation strategies. They are -- the strategy -- the targets include growing loans in the low to mid-single-digit range. Credit losses migrating to around 6% as the economy improves. Building total risk-based capital to approximately 16% and delivering a 20%-plus ROTCE. Our longer-term targets include growing loans mid- to high single digits, accompanied with benign economic conditions and improved consumer behaviors, providing annual positive operating leverage. Ensuring we deliver credit losses at or below our through-the-cycle average guidance of 6%, optimizing our capital stack over time, resulting in a target CET1 range of 12% to 13% and delivering an ROTCE in the mid-20s, which should also result in a return on equity above 20%. The specific dates for the medium- and long-term targets are dependent on whether the CFPB rule goes into effect and if so, when the rule is implemented. If the rule does not go into effect, our long-term targets will get pulled forward, and we will expect to achieve the results sooner than currently projected, ultimately resulting in a faster capital distribution opportunity. One of my favorite slides to look at each quarter is the growth of our tangible book value. In March of 2020, our tangible book value per share was just over $15. In March of this year, our tangible book value per share was nearly $46. That's a nearly 3x improvement and a compound annual growth rate of more than 30%. Our 4-year growth rate is more than double that of peers. We are building value in this company. Aligned with our proven ability to grow tangible book value, we strongly believe that the actions we have taken to fortify our balance sheet and improve our financial resilience combined with the strong returns and capital generation of our business, our valuation should be a multiple of tangible book value. Should economic conditions improve as expected, regardless of whether the CFPB rule goes into effect or not, I fully expect our tangible book value to be higher by the end of 2025 from where we are today. The Board and our leadership spoke to the confidence we have in our business. Actions taken place Bread Financial in a position of strength with strong capital, ample reserves and stable funding. I highlighted the strong returns our company can generate. Finally, once we achieve our targeted capital levels, we should be positioned to drive profitable growth while returning capital to shareholders through responsible, disciplined capital allocation. I'll turn it over to Ralph for his final remarks.

Thank you, Perry. Some of my favorite charts that Perry has. First, I want to thank my experienced leadership team and our dedicated associates for their hard work and making Bread Financial the strong company we are today. To recap what we've heard today, the transformation actions we have taken place Bread Financial in a position of strength to capture -- to capitalize on future opportunities and drive long-term value creation. Our full product suite, diversified portfolio of partners across different industries enable Bread Financial to deliver growth and value through changing dynamics, including evolving customer preferences and regulatory and economic changes. Our investment in technology is fueling innovation to power our products, improve the customer experience and drive world-class resiliency and efficiency. We remain confident in our ability to overcome the impact of the CFPB rule change and deliver on our through-the-cycle average net loss rate. We will build our capital to our targeted levels and then look for opportunities to optimize and return capital to shareholders. We have a vibrant, adaptive, effective business model. We have experienced leaders with proven abilities to execute business strategies and manage through regulatory and macroeconomic uncertainty. We are focused on delivering on our financial targets, including a mid-20s return on tangible common equity while remaining responsible and disciplined. We are entering a new phase of our company's journey in a position of strength with increased capital flexibility and financial resiliency. Our business is more equipped to address uncertainty than ever before, allowing us to generate substantial long-term value for our shareholders. We're going to take a couple of minute break now, and we're going to be right back to answer questions. [Break]

All right. Welcome back. So before we take questions, I want to do a couple of things. One, is to thank the people that made the trip to Columbus. I appreciate that very much, and to the virtual viewers. Thank you for all your continued interest in our business.

Again, before we take your questions, I'm going to ask a couple of questions of my leadership team to spur some discussion. The first one is going to be easy one, and I'm sure none of you have this on your mind. It's about the CFPB rule change. Val and Dennis, you're probably closest to it from a pricing and a change in things we have to do on a partner perspective, give your assessment. How do you think we're doing, where are we? How are our partners reacting to it? And what are we doing? How are we doing?

Sure. Thanks, Ralph. So as soon as the proposal was announced in early 2023, we started leaning in and working with our brands immediately to try to mitigate those impacts of that rule. And that really happened across really 4 key activities. One, you heard me talk earlier about we have a very broad product suite. And so how do we make sure that other products, many of our brands have more than one of our products. Those other products capture greater outside spend, how do we shift sales in a way that is advantageous. Two, what do we do for cardholder terms? And so over the last 12 months, we've been increasing terms on the APR in finance charge and others, always keeping an eye to the market, make sure we see what's going on there. Three, we also took a look at different types of ways to generate revenue. So we've implemented things like paper statement fees as well as promo fees. Again, keeping an eye to the market and making sure that we are within a competitive set. And then four, really leaning in with our brands, including around underwriting, if those first 3 levers weren't effective enough on the item from the CFPB late fee. So I'll turn it over to Dennis to talk a little bit more when we talk to our partners.

Sure. So I tell my team all the time, you don't build relationships for the good times. You build them for the challenging times. And these last 15 months have been some challenging times in terms of having conversations with our partners. What I would say though is the partners have received it, I would say, better than even we expected. They've been reasonable conversations. They've been good conversation. We started early. And really, we started from anywhere from partners not believing it was ever going to happen to really gradually over time, people kind of seeing, okay, it's going to happen, how do we react to it? And how do we make sure we do it the right way across all of our customer base. So it's really been a collaborative effort since we started, and we've made great progress.

Thanks. Allegra, this is going to take flawless execution. A lot of this is dependent on technology, operational excellence. How are you feeling about where we are from an execution perspective on what we need to do?

Yes, feeling great. So all of the key levers that Val mentioned have been developed. And at this point, the sort of rollout and implementation is being sequenced in line with the partner conversations that Dennis mentioned. So feeling great.

Good. Good. Tammy, 30 years with the company must have been a grammar school work study program. One of the things I was grateful for 4 years ago was Tammy had 26 years with the company when I got here. And really impressed, especially I came from the big banks and in the big banks, we thought we knew everything about underwriting and collections and really impressed with the process that I found here. And it continues to get better, use of data and analytics, everything we do. I'm wondering, and I'm sure so is Perry, how you're feeling about the -- through the cycle, 6% loss rate?

Yes. Thanks, Ralph. I started when I was 10, in case anyone would like to know. I'm confident in our ability to achieve through the cycle loss rate expectations. And here's why. One, if you look at our historical loss rate, we are very close to historically that 6% range. Then when you layer in the vertical diversification we've talked about, you layer in the credit actions that we've taken, you layer in our continued advancements in data and technology, also with that flexible platform, that gives me even more confidence to achieve that. And then as our organization, as the macroeconomic environment starts to become stable and improve, consumers return to spending, and we will also have the tailwind of continued growth in our business. So I'm confident in our ability to achieve the through-the-cycle loss rate expectations.

Good. Good to hear. Val, Dennis, again, being close to the partners and our consumers, what are you seeing out there in terms of spend? And in this inflationary period, are they self-regulating, are they still spending robustly? What are you guys seeing and hearing from our partners?

Sure. So from a consumer perspective, we lend to mid-market America. And really, that mid-market America consumer has been impacted by inflation. So if you think about just the cost of rent, the cost of groceries, the cost of energy. That has impacted our customers, and we have seen a pullback on some of that discretionary spend in that consumer segment. As you move up more into the affluent customer, you see the affluent customer continuing to spend at a pretty rapid rate. But until that wage growth starts to catch up to the inflation of prices, you're going to see a little bit of moderation in that mid-market customer.

Yes. We've seen that really across products. So you'll see that the co-brand products have remained pretty strong, and that external spend on those co-brand products has remained strong. Some of our retail partners, as you might imagine, are still struggling to really find an opportunity figure out how to grow and you can see retail sales not growing as fast as I think everyone had hoped. So what we're emphasizing is really how do we get out there, how do we use our field team, how do we get out in front of our partners and help them because we want -- selfishly, we want to help them drive credit, but really everything we can do helps them drive sales. So we're seeing that they're still struggling a little bit to drive sales. They're still struggling to get employees in the store and then to teach them how to sell their own product, let alone move on to selling credit. That's a challenge that we have to stay in front of them every day, and we have a field team out there on the street doing that every.

Perry, I'm looking for a forecast. What's your perspective on the -- what you've heard and for the rest of the year?

For the rest of the year? Do you want me to give guidance? We're doing that at the end of the -- in earnings. Look, I think we are largely in line with what we've already guided. And with this team and the colleagues and the associates we have, I feel very confident we'll deliver on what our commitments are.

Okay. That's all I'm going to get out of you? Okay.

All you're getting.

Allegra, you're the new rookie on the block so a couple of things. What attracted you to Bread Financial? And you've been here about 6 months now. And what are we doing well and where do we need to up our game?

Yes. Great. So early observations first. One, I've been really impressed with the speed of decision-making and the level of collaboration across this group. Two, we have so much talent in the organization, not just in tech. But if you look at product, you look at data, you look at the teams that need to come together to deliver the magic, we have incredible talent. And three, you heard today, right, the team has built a lot of incredible things. But with that, the team also is really open-minded I'm really excited about the future. If I think about all of the conversations that I've had with Val's team or Dennis' team and brainstorming on the product and data opportunities, it's really -- it's been great. In terms of what drew me to Bread, I'm a developer, I've led product organizations. So Bread's mission of being a place that considers themselves to be tech forward that wants to deliver simple, personalized experience for customers is something that's really exciting to me. Two, there's a lot of white space when you think about consumer finance and payments. And so seeing our product mix and opportunities there, I think, is also very exciting. And three, all the conversations that I had before I joined with this group, with the Board, all the conversations revolved around tech as a differentiator, as a growth engine. And having worked in a lot of banks where sometimes the conversation can be focused on just be cheaper, it's really exciting to work in a place that, yes, we want to focus constantly on being efficient and effective, but we really think about tech as a core part of what drives our business.

Well, this is my only pun today. We brought Allegra in to take a fresh look at Bread. And she has been doing it.

It's not going to be his only pun for the day. It won't be.

Yes, yes. We'll see. We'll see.

I just have one more question for the group, and I'll ask it. So aside from the pure joy of working with me for the next 3 to 5 years, what do you see out there for Bread? So Dennis and Val, 70 years experience combined. What do you see in your 71, 72 and 73?

Gray hair.

I wish I had that problem.

Yes. I mean really building on what Allegra said, right? 4 years ago, we really started to lean in around investing in our technology, in digital, in mobile. We are leaning in as a tech forward payment company. And I see us continuing to be a leading provider of tech forward solutions in the payment space for our brand partners and for our consumers.

Yes. I would say just to add on to that, we went through the conversion that Allegra talked about. Then we come into the CFPB ruling and having to work with all of our partners, I am really looking forward to a future we really are talking about growth. We talked about growth probably 10x earlier today. And really, we can get down and focus with our partners and talk about how do we help them grow and grow their business. And I think that's what's going to make the next few years really fun.

Tammy? 31, 32 and 33?

Look, I look through getting through this current macroeconomic environment, the regulatory environment and really returning to supporting my colleagues here and growth objectives and bringing on new partnerships, new verticals for our business and continuing to watch our business grow.

Perry, between you and I, can't count that high. So what do you see?

No, what I look forward to is really building upon what my colleagues here just said. You saw my favorite chart that up into the right trend, it's going to really accelerate, particularly once we get past this little speed bump of the CFPB late fee rule, and that cash generation in this business to see what the possibilities are and the ability to return capital to shareholders is going to be an exciting time.

Allegra, I may give you a pass on this one.

Well, as your CTO and a former computer science major with a concentration in AI, I would feel sad if someone up here didn't talk about the power of generative AI and the excitement in the next 3 to 5 years.

We'll watch that together. So at the risk of being sentimental, I am thrilled to work with this leadership team day in and day out. And I always tell them, if we weren't working together, I'd want them all as friends and they are friends. And I -- it's a collaboration and comradery I have never known as a professional. It is just really terrific. And we energize each other in what we do. So I thank you all for helping me manage this company and the achievements that we've had. It's been terrific. With that, we're going to open it up to the group for questions.

Good afternoon, everyone. Ryan Nash from Goldman Sachs, and thank you for all the information today. Maybe just tie together some of the things that Tammy and Perry said, I think one of the keys to reaching a mid-20s return is your better-than-peer risk-adjusted margin. Perry, you highlighted a couple of competitors. When you look at your closest competitor, you're talking about a similar loss rate, 6%, but significantly higher yield, 600-plus basis points higher. Now Tammy, I know you talked about your risk being different from some of the competitors, but what do you attribute this excess yield to? And do you think you could maintain this excess yield and also have similar loss rates to competitors?

Yes. So I think -- so I don't look at any one specific peer when we say that. But that comparison is important, right, because we price for risk and you underwrite a little deeper. And so we do have a little bit higher loss rate. But with that, you're getting the outsized risk-based pricing. So it is competitive. But I think you heard Val and Tammy will speak to, that's a competitive differentiator where we go call through our data to find those additional approvals where we can get paid for the risk we take, even though it's a little bit lower line, a little lower balance, but that's how we deliver it. And it's through -- I mean really proud of the work that Tammy and her team do in proactively managing that risk throughout the life cycle of the customer. And that is a differentiating aspect.

Yes. I think, Ryan, to just continue on what Perry said, right? We certainly have a unique way of finding within those segments, those customers that have lower risk that we can help them build their credit over time, become loyal to our brands, loyal to our products and continue on with us, and then we can actually grow that relationship with them, whether that's expanding in the existing products that they have or potentially graduating them to a different product. But I feel confident in our ability to do that. We've been doing that, and we'll continue to do that. And as our products have expanded, it gives us more opportunity.

And then, Ralph, you talked about this company should have returned significant amounts of capital. I know that Perry showed needing to reach 14%, I'm guessing until we see that happen. But once that does happen, what do you think about the right use of capital generation between organic dividend and repurchase? And do you see acquisitions at all playing a role in the use of your capital?

Our capital priorities haven't changed really. We're going to invest in this business, right? We're going to continue to invest in this business because if you don't, it's hard to kick start it again. So we're going to continue to invest in this business. Paying down our debt was a key priority. And I think we've showed you the magnificent job the team has done, $1.8 billion, almost 60%. So although that will always be a priority, now it's a little less of that priority. There is opportunity to think about when -- I think about organic and acquisitions a little differently. So if you think about organic, investing in products and capabilities, particularly digital and technology capabilities, to drive even deeper in your current customer base and get better yield. And then there's always going to be a portfolio out there that we're looking at. And we talked about it. I think we've got very sophisticated on evaluating the portfolio, what's the impact of CECL, what's that going to do to our capital, how much capital we have to give to that? Is it -- what's the balance between that and maybe returning to shareholders in terms of timing and making sure that it hits our hurdles because every portfolio that we look at does a different job, right? So the part of label portfolio is higher yield, a little more risk, and then it goes through the cycle. So those priorities always be the same. But again, we're in a position now that we can have those discussions where we couldn't have them years ago about returning capital to shareholders. That's what I'm excited about. But we're going to continue to grow the business, continue to meet our obligations, pay down the debt and do the things that we need to be responsible for. And I never want to weaken this balance sheet again because it took 4 years to get it strong. So when we make those decisions, it's going to be from a position of strength, not a position that we need to do it because somebody is demanding it.

Yes. And Ryan, if I could just build on what Ralph just said for a second. You asked a question around dividends versus buybacks. As long as our stock is trading below tangible book value, buybacks will always be preferred. I think preferred by all investors. And then as it relates to acquisitions beyond portfolio acquisitions that come with a partner, it's something where we can then be opportunistic if we have something that's of strong value. So we'll be value seekers in the marketplace for others who aren't much in a position of strength going through this economic period and the regulatory changes.

It's Sanjay Sakhrani from KBW. Thank you for all that information. It was very good. We've talked a lot over the years about the changing complexion of private label. Obviously, you guys talked a lot about it today. Maybe you could just look into your crystal ball and talk about how dramatically things might change in the future. There's a lot of intermediaries now. All these digital wallets, Apple Pay talked about how they're going to get issuers involved on the front end. I'm just curious how you think you'll evolve over time? And how much of a risk that is for you guys from an origination standpoint? I don't know if the low single-digit expectation -- I don't think that's related to the low single digits. That's more sort of transitory stuff. But then also on customer acquisition, you talked about the online channel and originating customers. I assume a lot of the originations come through point of sale, that's getting phased out. Could you just talk about how that will evolve and how much success you're having from an online channel standpoint now?

Yes. I'm going to ask Val to answer that question. The only thing I would say is that 4 years ago, it would have been more impactful to us because we were a one-trick pony. If you look at our portfolio of products now, we can lean in, in many different places. I personally think private label will always be part of the family. It may have a different place at the table, but it will be part of the family. And I'm excited about it because we do bring value to our partners and their customers. With that, I'll just let Val look in her crystal ball.

Yes. Yes, certainly. And thank you for the question. We have been leaning in very hard on investing in digital, in mobile because of all of the consumer trends that you've talked about and that we talked about, right? Consumers are now really preferring, in many cases, to come in through their mobile channel versus even a point of sale. So if I look at some of what we've done even recently over the last year, we have some large national retailers who have thousands of POS, but we actually prefer to come to market with a QR code because their customer is mobile active. They come in, they can scan a QR code. It immediately pops up a pre-filled application, they get approved, it pushes into their digital wallet, they go up to the register and they check out. And so making sure, as Allegra said, we continue to invest in those products and experiences that evolve with the customer is what makes me feel really good about our ability to continue to acquire new accounts. We're not reliant on a point of sale anymore because that has shifted and behaviors have shifted to be much more mobile and digitally adoptive. And so even with that, on the product side, all of our products now can be positioned into a digital wallet. So 4 years ago, we weren't in digital wallets. Today, of course, all your co-brand cards are. But even many of our PLC cards, the way that we code those up and where we run them on a rail, we actually can put those into a digital wallet and provision them. So consumers have access even to their private label programs within their digital wallet. We also, Allegra talked about virtual card, where you can start porting, right, some of the BNPL products directly into physical locations through that same virtual card process that I talked about on like a QR code side. So continue to invest in mobile, in digital, in those consumer journeys that are moving with the evolution of the customer, and we feel very good about our ability to continue to acquire.

So Ralph stole my question, Tammy, but I do have another one for you. I guess if we're realistically considering a soft landing, right, and you guys say 6% sort of the long-term target for the charge-off, right? How quickly do we get there? And then is the difference between 6% and where we are today all inflation? Or is there still some lingering effects of the conversion? I'm just curious to try to understand what the delta is right now.

Yes. Let me start with that first. I think it goes back to what Val said. Our consumers are impacted by persistent inflation. They have been. Payments are up, high interest rates. The average consumer is paying more on monthly bills than they ever have before. And so that certainly is impacting credit. It's impacting delinquency rates, it's impacting credit. In addition to that, Sanjay, we've pulled back on who we're granting credit to given the macroeconomic environment, which also impacts our denominator and some of that spend. So that is definitely impacting our loss rate. When I think about longer term, and I think about a soft landing, I'd like to see us get there, yes. Do I have a crystal ball? No. But what I would tell you is what I have seen transpire in the first quarter of this year and what I've seen so far going into the second quarter, I feel good about where we're at. I feel we are delivering upon what our expectations were in regards to losses and delinquency. I've started to see stabilization not only in the early-stage delinquency but also in the mid- to late-stage delinquency, which gives me confidence that we'll continue to trend towards that 6% loss rate through the cycle. I do think we'll step down going into next year, and then we'll start to see that play out and get closer to that average through the cycle loss rate.

John Pancari, Evercore ISI. On the medium term low to mid-20s ROTC expectation, could you maybe unpack that a little bit more? I know you gave the low to mid-single-digit loan growth expectation. You also mentioned approaching the 6% loss rate. But maybe can you talk about maybe efficiency ratio expectations, revenue growth that might be behind that? The direct-to-consumer deposit expectation that might be behind that, that would help a lot.

Yes. I think when you look at that medium term, it's basically how we look right when we get through some of the mitigation from the CFPB rule change. So you can expect as we're out the other side that we're going to get back to strong returns. The revenue growth should be in line -- largely in line with loan growth. We don't -- we're not providing the specificities of it. However, with that said, expenses should grow slower than revenue growth because we're going to deliver positive operating leverage. So how we get there, we talked about operational excellence a lot, but we really -- it's building its way, finding its way into our DNA across everything all of us here at the front of this room are doing and leading and everybody in the team is across the 7,000 associates are getting involved. So we're going to get there through just continue to drive efficiency, keep putting on good business that we look at to make sure the new business we're putting on is delivering the returns that are going to support that -- the 20% ROTCE that we talked about in the medium term.

And also on that, the direct-to-consumer deposit expectation behind that?

It's just going to be slow, steady growth. I mean we have had really positive flows almost every week since I've been around, it just -- it continues to go up. And so we will stay towards the top of the league table. We don't have brick-and-mortar branches. We like it as a funding alternative. It's been sticky and growing. It's attractive for us as a funding source particularly given our asset yields. We don't have operating accounts where we have a whole bunch of costs with checking accounts in the nature. So it's an attractive funding source that you should expect and we can put out there, we'd like to get to 50% over time, and we'll see where it goes from there. But it's -- that's just a marker on the way to what we believe it could be even longer term than that.

Okay. And then a little bit more near term also for you, Perry, but I guess in terms of the expectation around loss rate, the net loss rate, I think, looking for a low 8% range for 2024. I think you're approximately 9% for second quarter. Maybe if you could just talk about your confidence in that, your confidence in peak loss rates near term. I know both of you might want to talk about that. But maybe if you can just give us your updated expectation based upon what you're seeing more near term.

I think you just gave the expectations, so thank you for that. And the confidence I have is thanks to the person sitting next to me to my right is it's been a team that is fully dedicated, focused on managing the credit side, but also the collection side. And then through Val and Dennis and their teams, putting on really good partners and the new account acquisition. So I have a lot of confidence. And the reason I do as well is when I think about the macro environment, it's easing a little. It's not this thing that's rapidly improving, which is why when -- I think someone asked a question about the crystal ball looking forward. If you tell us what's inflation going to look like 6 months, 12 months from now, what's unemployment going to look like, we could probably spit out a different answer to you. But our hypothesis is it's going to be a slow, steady, gradual improvement of inflation. And unfortunately, that means a slow gradual improvement in the credit environment overall for the consumer because inflation is still above that 2% target. It's a compounding effect. Wage growth has to outpace that for consumers to really feel the relief. So -- but I do have confidence it will improve, and I have a lot of confidence in the view we've given for this year, the guidance we've given for this year.

Jon Arfstrom, RBC Capital Markets. Just to follow up on that. Is the consumer better, worse, the same right now? Are you seeing any change?

Relative to?

Relative to what you may be seeing a quarter or 2 ago?

I'd say yes.

I would say yes. So I would say what we're seeing is similar to what I said is seeing early-stage delinquency levels come down and continue to be stable. They've been stable for quite some time. What I really needed to start to see is that mid- to late-stage delinquency levels start to stabilize and start to see improvements. They've stabilized. And so we are seeing, and we're seeing more from our collection results. We're seeing more customers engage with us, talking to us about what we may be able to do to help them in their delinquency. And so there was a time where I would say our contact levels were dropping and relatively low. And now that those consumers are starting to engage with us, that tells me they have signs of hope in that we're starting to start to see some improvements in stabilization.

But Jon, I think to more narrowly answer that question, too, in addition to what Tammy just said, that's our customer, right? So if you think about consumers, because I think everybody sees and read things that is struggling on the lower end. When you look at the full spectrum of the consumer, yes, we call ourselves a more full spectrum lender, but there's a huge population that is not deemed creditworthy. And I think when you see things or you hear things out in the marketplace around how the broader consumer is acting and reacting to this environment, that lower-end consumer, ones that are unbanked or not banked by us, are feeling it. And so I think what Tammy is saying is because of the credit actions we've taken, because of the risk mix improvement, the product mix improvement, we are seeing signs of improvement in our consumers.

Okay. Maybe a tougher question, but what are you watching on the late fee ruling that maybe we can't see? Is there anything you can share with us on that? And then the second part. As you go through some of these partners, I don't want to say renegotiations, but discussions, how do you feel about mitigation and -- maybe full mitigation and potentially the time line on that?

Yes. Let me start, and I'll turn it over to the team. So obviously, watching what's going on in the courts, right? We're watching that like you all are watching that. We're also watching what our competitors are doing. What's in the marketplace? What moves are people making today out there? Are they changing pricing? Are they adjusting how they underwrite? So we're looking at those things too as we move forward. And then we're looking at what are we seeing, what are we hearing about cost to collect? Where are people landing on the $8 versus something else as we move forward? So those are kind of things we discuss and watch pretty much on a weekly basis.

Yes. And we feel good about our mitigation efforts. As I said, we really started this back early last year when the initial rule was proposed. And so we have some brand partners who are fully through the mitigation and we're good. We have some partners where we've got it all lined up, and some of the levers will be pulled when the rule becomes effective. But the plan is in place, the last lever will get pulled once the plan becomes effective, the rule becomes effective. So we feel good about where we are in those mitigation efforts. I don't know if you want to add, Dennis?

The only thing I would say is we through -- since we started 15 months ago, we've been able to do that without being heavy-handed about it with the partner. So it hasn't been a -- your contract says this, we have to do this. It's been a conversation of what's the best way to solve it together so that the customer ends up with a value proposition that they like. The partner is still allowed to underwrite and bring new customers into them and then we can make the returns that we need and really finding that right balance is what we've been striving for. And we've had now 15 months to do it, and we haven't had to say, your contracts as this. And that's been the beauty of how it's been able to work out. It's not perfect. They're not easy discussions, but we've really generally been able to have good solid discussion but to get there.

Vincent Caintic, BTIG. I wanted to thank you again for the Investor Day. It's been very helpful. So wanted to ask Val and Dennis on the merchant pipeline and actually the competition. So it's been great to see a lot of the recent wins that you've had, especially even last week and in the midst of the CFPB issues that are going on. So great to see those. And so I wanted to talk about how that pipeline looks, what the merchants are maybe waiting for or what the sales cycle is like? And then in the -- if you could talk a bit about the competition, it's been nice to see you win accounts away from others and what's been if you could talk about what's driving that.

Yes, you bet. I'll kick off and feel free to jump in, Dennis. So it is always a very competitive environment out there. So it continues to be very competitive. It is a very active market. So we continue to see a lot of activity across different types of programs, be it both ones that come long tenured with the portfolio, others that might be more newer, new to credit, but it is very active. I would say, as you saw, yes, we won Saks, which has been great, such an iconic brand, super excited about that. But if you look over the last 2 to 3 years, we have had some very good wins in the marketplace, right? We've had the AAA, we have that NFL. We had Dell, with B&H Photo who you heard from. And so we have taken a really nice program, some -- from some very large competitors. And some of the differentiation that you heard up here today is what allows us to do that. We are very focused on our partners and their customer, how they go to market, what's important, the investments that we've made in all of the channels that we've modernized so that, that customer experience around, "Gosh, how do I want to transact as a consumer today" that we can actually meet that through our investments that we've made in mobile and digital. And so we do expect to continue to win in the market responsibly. Perry would be kicking me if I didn't say it right. This is not about winning at all costs, which you've heard Ralph say before, it's about winning responsibly. And so we have felt very good about what we've won, and we feel good about what we see out there. It remains active. So CFPB rule aside, it remains a very active market.

[ I connect. ]

I'll add just a little bit to that because you asked about the future and what's happening. I mean, Val and I were just talking about this yesterday. We -- there's an article about one of the big banks basically getting out of some of the partnership stuff because they had a big misstep. And this partnership, you'd win deals any cost and Ralph says you get all the cost -- but you've seen Goldman get out of the business. You're seeing a bigger peer to get out, say, basically, so that means there's going to be some less competition for those types of deals that are in our wheelhouse. And so I think it positions us well because you've got to know how to run this type of business to be successful at it. And others have tried and haven't been as successful.

Yes. Vince, the other thing I would say is not to embarrass a team, but the wins are great. I love the wins, but the renewals are even better, right? Because you've got -- if you looked at when we talked about 9 of our 10 programs, 2028, percentage of receivables that are you know to '25 and '26, there's a lot of work there, right, because you've got consultants banging on everybody and do, hey, go out for bid, you can't lose, what's the problem? We avoid a lot of that because how we work with partners, how we're proactive with them, the new capabilities we bring, how we surround them not just with a marketing team, with the marketing and technology, a finance team, an underwriting team. I have teams that wake up every day and say, okay, my job is to make this partner successful. I'm going to pull down on all these capabilities that we have. And so we celebrate wins but we celebrate renewals as well because that's a big part of our business.

I thought Ralph was going to say something different that -- and I say this with a lot of pride, it's we celebrate ones we stop pursuing, meaning that I can't get over the number of RFPs that we get to look at as a team. And I am one of them really proud of working with Val on, we put a lot of energy into these to say, "Hey, can we make this work for us? Can we make it work for you all and the shareholders?" And there's times you take it to a certain point, and we know when to walk away. So there's been a lot of things where we're taking looks, and we'll take it to a certain point and then we say, we bow out because it's not going to be right for us.

We may celebrate that quietly because we want to.

You don't want to tip our hand that we didn't what you all don't hear about, right?

Appreciate that. So a follow-up on Perry. So it was a I think a strong statement and a great statement that you think about 2025, your book value will be higher than where it is today.

Yes.

So -- and regardless of what the CFPB does -- and if you look at maybe quarter 1, that 20% revenue hit, maybe that's -- and if I calculate that, that's an earnings hit on that negative earnings. And so you're able to make up for that within -- so the mitigants and everything by the end of 2025, we should be at a good trend sort of what I'm reading as the implication of that.

Well, I'll make it even more clear, right? So between now and October 1, we'll be accreting capital, accreting tangible book value. If that 20% hit happens in the quarter, that's the most impactful quarter. And then because of the mitigation actions that will be in flight by then and that will also get initiated, leading up to an effective rule date, the first 4 quarters after that will, again, accrete. At the same time, you also have an improving economic environment. So I expect our reserve rate to be a nice tailwind as well because I expect to exit 2024 below where we were in '25 with improving trends into -- rather where we're '23 with improving trends into '25.

Terry Ma, Barclays. Just had a follow-up on the risk-adjusted yield for Perry. Just given all the potential changes on the horizon with late fee cap, mitigation measures and credit -- can you maybe just quantify the risk-adjusted yield in the near term, intermediate term and where it shakes out at in the long term?

Yes. So I can't give a lot of specificity to that. But if you think about all the things that the team has talked about in terms of mitigation actions, it centers around the consumer, the consumer is paying the late fee today. The first objective is find ways for the consumer to continue to pay for the access to credit that they enjoy today, whether it's through higher APRs, promotional fees on big ticket purchases could be introduced. Other fees, whether it's [ bounty ] pricing, things that basically do revenue replacement. And then we also talked about tightening credit in places. So we expect to maintain strong risk-adjusted returns as these mitigating factors or mitigations build into the financials over the, I'll say, near to medium term.

It's David Scharf at Citizens JMP. Kind of go the other, thanks for putting on this event. A lot of very helpful disclosure in color. A question on credit. I guess this is for Tammy. Really focused on BNPL. It's up to about 30 billion volumes, growing quickly, not your BNPL product but all that other stuff that's out there. It's no longer a rounding error and there is so much talk of shadow debt. So many of these transactions are not generating trade lines. They're not out there being reported to credit bureaus. Is that factoring into, number one, how you're approaching underwriting? Is there a certain fudge factor of tightening just based on knowing that's out there and it's getting bigger? Or is it right now just a sound bite. I mean, how does it factor how you quantify those types of decisions? And where is this ultimately going?

Yes, it's a good question and something we have been closely monitoring for quite some time. And I would say, an area where we believe, right, there is likely some unknown in the consumers' credit profile in regards to some of these loans. And so over time, some of our tightening and our focus has been on just that, right? There are some things that we do not know. But also what I -- as I mentioned earlier, we also are not just using that credit bureau score to determine how we're going to underwrite our balance of credit. So we're looking at attributes, trended data, other things. And while those other things may not be reported to the bureau, if a consumer's behavior starts to shift or change in their credit profile before their score is impacted, I can see that and have visibility. So if some of those buy-now-pay-later loans are causing them to pay less on other trade lines or we're seeing just lower payment trends or delinquency and it's not yet reflected in their score, I can start to take action or not take action on some of those accounts based on what we're seeing there. So certainly, some of the data and analytics we have invested in, help us to try to monitor our consumers' behavior over time even though those scores -- some of that is not reported.

And I would add to what Tammy just said, I think there's a notion that everybody that uses buy-now-pay-later is actually credit eligible. I think we've seen some things that maybe only 30%. So you talk about 30 billion, probably only 30% would actually be credit qualified. A lot of people who use buy-now-pay-later live between debit and get into the next paycheck, using that split pay or other things so that they can -- that's a very appealing product, and they don't actually won't even get qualified for a private label credit card. So I think that's something I want to throw out for you as well.

Yes. No, no, very helpful. I mean it's obviously evolving as we speak. Just one follow-up on APRs. And I guess, this is an outgrowth of the late fee discussion in different processes for mitigating that. This is more general. Is -- based on kind of your -- what you're seeing out there as well as feedback from merchants, is 36% is much of a regulatory sacred cow as it once was. I mean we -- the CFPB provided small dollar high-cost rule making a few years ago. They've kind of been quiet on that. We haven't seen a lot of state level rate cap, which isn't your business, but nevertheless, that noise has sort of died down. As you've explored mitigation options and if you've gotten feedback from partners as well, is 36% as big a deal as it once was?

Val, I'm going to ask you...

Yes, sure. So I won't speak to the regulatory, how others might view it from a regulatory standpoint. But if you look at where cost of funds has gone over the last 2 years, it's gone pretty high. APRs have also started to go up. So even as the CFP rule was being proposed, you had some, what I'd call some of the other fintech players or players that delve maybe more into the second look side of the pool with very high APRs in the high 30s. So those have been out there. What we have seen since the CFP rule has come in, is it much more mainstay banks and credit card providers are moving into that low 30%, mid-30% range. And you've seen it, I'm sure, in the change of terms that have come to market over the last 7 or 8 months, you see it anywhere really from like 33% up to 36%, 37%. So I can't speak to what others might view from the regulatory standpoint, but I do think we've seen the whole market shift pretty into that mid-30% range from an APR standpoint.

Bill Carcache, Wolfe Research. This deck is going to have a very long shelf life. So let me add my thanks for all the work that you put into putting it together. I did want to follow up on the risk-adjusted yield comments. Tammy and Perry, you said that part of the reason for the industry-leading risk-adjusted yields is that you go a little bit deeper and I think, Tammy, you talked about the consistency over time. Can you talk a little bit about how that differs across the full spectrum from the very highest end customers to the sort of more subprime customers? And is the fact that you go a little bit deeper, sort of adding kind of more disproportionately greater juice to that risk-adjusted yield versus at the other end? Maybe if you could just give a little bit of flavor there.

Yes. So as I mentioned, right, some of those segments that we are growing in the full spectrum in some of the lower segments and really the near prime segment, it is a smaller portion of our portfolio, right, in regards to originations and who we're granting credit to. But what we find within that segment are the profitable segments that do help us when we talk about the yields that we have. So we're certainly finding those that have lower risk. And certainly, as the credit spectrum as you get to the higher end of the credit spectrum, they are less, right? They're more of your transactors, et cetera. So it is in that sweet spot that we talked about, which is really in that near prime to prime plus segment where we see a lot of our returns coming and our yields coming.

And I would just build on Tam, that chart that Tammy showed with the risk-adjusted yields by risk cohort. When we talk about our mix of customers, we are mixed differently to near prime, prime and prime plus where a lot of some of these -- give you -- if we had a hotel or airline co-brand, it would be bringing a lot more of the super prime customer, which would dramatically change the risk-adjusted revenue. So it really goes to the composition of our partners as well as how we underwrite and who we are, and that's why we can deliver those levels of returns.

And following up, Perry, I believe you said the average deposit size is $55,000. Did I hear that right?

Correct.

So -- and you mentioned how the higher yield gives you the -- without having the brick-and-mortar infrastructure gives you the capacity to pay a little bit higher rate and it's an attractive funding source. Can you talk about -- a little bit about how many of those relationships are deposit-only customers that are perhaps looking for that deposit relationship that don't have a relationship maybe on the card side of the business. What's the opportunity there?

Yes. So I can speak to that one. If you think about the fact that we have 30 million or more card customers. And we have -- you can do the math, right, divide 7 billion by $55,000. It's probably less than 150,000 card deposit customers. So the opportunity to cross-sell into that 150,000 or so deposit customers isn't going to yield a lot in terms of growth, and those are typically more prime customers, those that have that type of deposit whereas the consumers we serve who are near prime and prime probably don't have $55,000 of stuff in the bank with us. So the cross-sell opportunity, I think, will evolve over time into the 30 million customers as we continue to put on more co-brand products and things that we can cross-sell. But the opportunity going into the other way into the deposit base isn't going to produce a significant growth opportunity.

Moshe Orenbuch from TD Cowen. Tammy, you talked in your presentation a little bit about some of the steps that you believe Bread has taken over the last few years to kind of ensure that you get back to the -- to your long-term credit loss rate. Could you just talk a little bit about obviously, the biggest single driver might be improving inflationary and macro environment. But could you talk about any of those steps that you think will have an important part in getting you from where you are today to that 6-and-change percent?

Yes, absolutely. So I think there's a couple of things. One, certainly, the macroeconomic environment, the improvements there will help us. In addition to that, our continued mix of our products will also support, as we talked about our co-brand growth, as we talked about what our co-brand customers look like will also support us in getting to the 6% loss rate. In addition, I would say our credit action over the last 2 years primarily will definitely continue to support. You saw our average Vantage score in regards to originations is higher. Our overall credit risk mix has improved as well. And so I think all of those things together will continue to support getting there. In addition to that, as we get through this macroeconomic cycle, we'll also return to growth, which that will also be a tailwind in helping us support getting to the loss rate that we need to.

Got it. And maybe one of the things that I've been trying to think about a lot is all of these discussions, Val and Dennis, you talked about with the partners during this late fee process, but obviously part of your entire relationship with them. Do you think that the private label provider today is more important to that retailer than they used to be. I mean it certainly feels that way. Maybe if you could talk about that a little bit and if Perry just wants to add, which of those deals you passed on in.

Yes. I mean, private label has been around for 30 years. It has always been really important to retailers. And if you think of where private label grew up from, it really is from retailers who started their own credit for their own customer base. As that cycle moved, of course, many of the retailers sold their portfolio because just investments needed that we've talked about today around payments that you need to make sure that you're able to support the customer in the channel that they want. I think a card program will always be important to retailers. I think private label will always have a place to play with retailers. I think some of the other products that we talked about, many of our retailers today do have two products. They have a co-brand and a private label. Some of them are consumer choice. Some is a downsell model, some is an upgrade model. I think those models might start to become more uniform because of the CFPB late fee. And one product is going to assume a little bit more volume from the other as a result. But there, in my view, private label will always play a role for that retailer because it is specific to them for that customer that may not have other payment options. It opens up that ability to buy more and purchase more.

Yes. And what I would add to that is we've definitely seen that in our conversations with the partners since the CFPB ruling came out and really has driven them to be probably more open than most would think about making sure that we get this right and that they make adjustments because, as Tammy talked about credit adjustments, in a credit to her team, those credit adjustments over the last 2 years haven't been dramatic swings. They've been minor tweaks along the way to make sure that we're doing the right thing. The partners do understand and they really are reliant upon the card income, and you see that. That varies but you definitely see those that are more reliant are absolutely ready to come to the table and figure out how to get it to work out. So it's an important part of a significant number of our partners business.

Reggie Smith with JPMorgan. I guess thinking about the slide that showed the risk-adjusted returns, is there a way to frame how much of those returns were driven historically by late fees? And then as you think about -- and you talked about kind of looking across the landscape and how people have adapted. What are you seeing in terms of APR increases across the board, minimum fee increases? And then I guess the last piece of that is when do you expect your things to start to kind of roll in? I know that the APRs have to bleed in, but like is there a time line for minimum fees, how should we think about that? And I got a few other follow-ups.

Yes.

Why don't you start and...

Exactly. And feel free to jump in. So we actually started some of our mitigation efforts around increasing APRs last September. So we took a couple of portfolios -- we raised the APR, in some cases, 500 basis points. We wanted to understand what that would mean in terms of consumer adoption for the product, right? Was there going to be a flat lining? Was that going to really deteriorate the acquisition numbers. And what we did find was that as long as you retain a strong value proposition on the product, that APR was not going to make -- even that 500 basis point swing did not change the applications per transaction that we were seeing from the cardholders. So we then move forward, in this year we have done quite a number of CIT changes where we have increased the APR, very much in line with the rates I mentioned earlier anywhere in that mid-30s to upper 30s bracket. And we are continuing to monitor to say how is that going to change consumer adoption. Again, we haven't seen that yet, but we're going to keep our eye on it. And we've seen the industry move in that same direction. So I think the interesting thing here is you're not standing up by yourself. If they were to go to other retail competitors, those APRs are very much in that same level now. Things like paper statement fees, promotion fees, we have put those out in our change of terms. They will become effective next month on some of our clients. And we'll -- again, we'll continue to keep an eye on that. We had promotion fees a number of years ago with some of our brands. And so we've been able to use that experience to make sure that we're putting it in, in a way that is clear for the consumer. They know what they're being asked for upfront. We've got the right disclosures and with our retail brand, but we will be keeping an eye on that for sure.

And I would just say you'll see most all of that out across all partners between now and October. So you'll see all of that out in the marketplace with almost all of the partners. And again, the private label partners probably disproportionately, you'll see it more than the straight co-brands are a little less impacted by the late fee rule.

And Reggie, you asked about the question around the chart that Tammy spoke to with the risk-adjusted returns, yes, it's intuitive that the subprime customer had a more of an impact of late fees in there because the risk is, right? They're going to get call with a late fee, because they're smaller balances, a late fee has a little bit more impact to yield. But as Tammy also noted that we have less than 5% of annual originations that are happening in that cohort. So I think that's going to be one of the impacts of this late fee rule changes of that group of consumers and perhaps some in the near prime, particularly in more of the soft good retailer space, which are going to be impacted with this late fee rule change, where they're low lines, a little higher risk. That's where you have to trim to still make sure we're getting the right returns. But what Ralph talked about from day 1, and I've continued to say this, everybody who pays on time is not going to pay more for credit for those that didn't. And that's the unintended consequence of this late fee rule change. Everyone is going to pay more, and there will be some that won't get accessing more for credit.

Yes. I would just add to that, Reggie. Certainly, our objective in partnership with Val and Dennis on those mitigations, right, in regards to the CFPB is to really identify and ensure that with those mitigations, what segments will continue to be profitable for us. And that's how we will make some -- make our changes in regards to underwriting. I spoke earlier about our focus is on profitability. It will continue to be that way. So as we work to close some of these -- some of the gap, then we'll certainly look at what that means for underwriting going forward, with our goal to continue to be competitive and continue to be strong from an underwriting perspective.

Sure. And if I could sneak two more in. I guess, Ralph, you joined probably at the worst time ever.

I had 3 good weeks, right?

You had the CFPB. So when I look at historically, the returns on equity or tangible equity, like -- that number has bounced around a lot. For your forecast here, like should we expect that to kind of stabilize in the mid-20 range? Or is it still going to be pretty volatile from year to year? Like what's -- what does the model look like longer term?

I think long term, right? So I don't think quarter-to-quarter or month-to-month. So to me, our commitment is a mid-20s ROTCE. That's what we're focused on. And everything we do is to get there, right? The decisions we make interimly are to get to that return for our shareholders and our investors. So it may fluctuate. I can't predict the macroeconomic environment. Who the hell knows if there's going to be another COVID, right? Those things are going to impact us. And I don't -- God forbid. But our focus is every decision we make, how do we influence all long-term targets?

If I can sneak one more in. Last one. Your BNPL split-pay product, I would have expected that to be a lot larger today than it is. Is that intentional? Or was it a product gap? Like what's been the...

Yes. And I'll let Val join in too. So the BNPL product is a product and a basket of products for us, right? And our first focus was to do 2 things, it was: one, to make sure it was scalable that we can scale a product because it was a fintech and how do we scale it; but as important, if not more important to make sure it was compliant from a regulatory perspective. And I know the CFPB is going to come around the corner and say, "Well, this BNPL stuff, is it compliant? Are we -- do they have the right disclosure?" We do, right? Because we're a regulated bank. So that took a little bit of time and you get to it. So I view it as very much a product in our arsenal that we go to, to partners with. And what you're seeing now is partners are -- the -- we didn't have the products as some of our partners took our competitor's product, but we didn't have -- now they're coming back to us and say, "Hey, you got this product, and we know you're on our side that you're not going to try to just intermediate us by having somebody else download an app." So it's going to be an evolution, not a revolution. But I feel good about the product we bought, the stability and the scale we put into it, and its compliance.

Yes. Yes. I would lean in on that piece on the compliance piece, right? [ Says easy, does hard]. One of the reasons why that product has grown so much is because of consumer adoption on the experience. And so when we went in to make it compliant, you want to do so in a way you don't lose the experience, which is that was the hard part, but we did it. We feel really good about the product compliance that we have. I think the second piece is, and you probably remember, 2-3 years ago, it was very much around ELV, right, the loan value, how much could you really book and that was driving prices in the market for these fintechs. Profitability was not on their scorecard, right? And so we saw even some of our merchants get 8-digit sign-on bonuses for the BNPL that are oftentimes not even an exclusive contract. And so that was something we were not about to play with, right? So we sort of stepped back and said, let's get the market. One, we're going to be ready when the market gets ready. And now you have start to see that the measurement on the scorecard for many of these BNPL providers is profitability. And so you started to see many of the merchants starting to have their contracts renegotiated because the current terms were not profitable. And as Ralph said, as those are now coming through we're able to lean in and make good solid business decisions with products that drive value for our brands like folks like Academy Sports that we just launched with as well as folks like Wayfair. So we expect that we will continue to lean in there in a responsible way.

And I would add that we have incredible talent that came to our company as part of that acquisition. That entire product lives in the public cloud, modern, now as Ralph said, compliant. So it's really an advantage to us even beyond sort of that individual product as we think about the power of our company and our talent.

[ Shannan Ku from Barclays ]. I guess you guys have done a really good job reducing parent-level debt. And I know last year was a heavy lift for all of you to refinance that. Now that parent level debt is that $1.3 billion, I guess, how should we think about the magnitude of further reduction and given limited prepayable debt, the $900 million of that being due in 2029. I guess, what's the time line?

Yes. I think you can expect us to continue to be opportunistic and I'll say, optimize our parent debt. The first thing is we still have $100 million stub hanging out there. So that will get paid off by the end of the year would be the expectation on that piece. And then we'll figure out are there certain things we like better in a debt stack than what we have out there today. We have a convertible out there. We've talked about introducing subordinated debt at some point. There could be some substitution. And we'll figure out what's right for the shareholders, and we look at each of those. Tom McGuire who's here in the audience has done a great job. We have funding plans, but nothing is set in stone because I think you have to look at the environment, the funding environment that's out there and what's the right time for us to take certain actions. But you can be sure, if you're right. Last year was a heavy lift. We have better times ahead, and we're going to be opportunistic in taking advantage to make sure that we're optimizing that capital stack.

[indiscernible] from Morgan Stanley. Again, thanks for the great Investor Day, very, very informative. This is a question for Val, Tammy and Perry. You previously spoke on the push you guys are making in millennial and Gen Z. I think you also mentioned that these 2 cohorts combined represent, I think, the majority of card balances, if I'm not mistaken. So my question is, what differences are you seeing in credit performance and spend behavior, if any, between these cohorts and their older counterparts? And are you seeing any risks unique to millennial and Gen Z when you think about getting down to your long term through the cycle loss rate?

Yes. And I'll just -- when I was talking about the segment, Millennial and Gen Z combined are our largest segment of balance active. And then we had the other two that were just over -- one was over 1/3, one was under 1/3. So just to balance that pie chart out. But yes, many of our -- so just over -- almost 40% of our applications last quarter came in digitally. That was over-indexed against our Millennial and Gen Z customer. And so we do see, as you acquire customers through different channels, they also have different behaviors. And so that is also something that we take a look at from the risk perspective. But we are seeing a really nice input of the Millennial and Gen Zs, which will be -- that's where the purchasing power is shifting, although it's sitting with Gen X today. And so managing those well is certainly something that we do.

Yes, absolutely. So I would say from a credit perspective, regardless of generation, we are really focused on monitoring that consumer's behavior. So it can be different within that generation based on where they're at in their income levels, where they're at in their credit history, what does their behavior look like. And so all of that goes into factors. And as I mentioned, all of the data that we get on a regular basis on that consumer helps us make those decisions, which then in turn gives us confidence in our proactive strategies to ensure that we're going to get to that long term through the cycle loss rate.

Yes. And I would say one of the things that we have seen as we continue to invest in on the digital and mobile, is that those customer segments are very responsive in those channels. So it does give us an opportunity to engage a little bit more frequently and in a channel that we know that they respond to.

Yes. As I mentioned, in our collection strategy, right? Our focus as that generation has shifted is to ensure that we can also communicate with that customer digitally in collections. So our digital focus has increased by 35% over the last 2 years. That's because that's where that customer wants to engage with us. If they're delinquent, we can text them, we can have that communication with them. So we definitely will -- you'll see us continue to make investments in digital, not just on the servicing side, but also on our collection side when we think about customers who potentially are going delinquent.

So we're at the end of our Investor Day. I want to thank you for your kind comments about our presentations and the transparency of what you've seen before you. I can assure those targets that you see, this team will work hard to achieve those targets that we put forth. I also want to thank the team for both on-stage and off-stage for the enormous amount of time and effort and presentation that goes into this. Really have done a marvelous job. So thank you. Thank you, all. And lastly, I want to thank you all for your continued interest in our company, for coming out here and making the trip. For those that joined us virtually, we really appreciate it and really focused on the future. So thank you all very much.

Thank you.