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

Well, let's get started with that. So good afternoon. Thank you, everyone, for joining us. I'm Mihir Bhatia. I cover consumer finance and specialty payments here at Bank of America. Delighted to be joined by Perry Beberman from Bread here with us today. Firstly, Perry, congrats. Thank you for doing this event. And congratulations on the Eagles win.

Thank you. I wish I could say it had something to do with it, but it was certainly a fun game to watch.

That's great. Let's start with credit. And the -- this morning, you put out January numbers, markets reacted well to the people. They do seem to show some pretty nice trends. Maybe talk about how they came in relative to your expectations, what should people keep in mind in February, March and the rest of the year?

Yes. We're pleased and encouraged by some of the trends that we're seeing. We saw a nice improvement in December. And one month didn't make a trend. It came in -- delinquency came in about 50 basis points better in December year-over-year. In January, they came in about 65 basis points better than January of last year. So that's a trend that's improving a little, and we're encouraged by that. Still a lot of the year to go before we can call, that they declare victory on turning the tide on credit in a meaningful way. To your point on February, when you move from January to February, there's a day weighting issue because it's only 28 days in February relative to 31 in January. So that's about an 80 basis point impact to the loss rate. Just if you took the losses from this month into next month, you're going to see that kind of tick up. So we've signaled, we expect high 8s for February. And then obviously, they should come back down. When you look to the second quarter, we still have the impact rolling through from some of the FEMA-related storm impacts that we said would be about $10 million in losses that will get split between May and June. And from there, we think you're looking at a continued improvement, the things taking hold from the credit actions that we've taken. And look, if inflation continues to stay stable to improving, we're optimistic that we're going to come in on that guidance or hopefully slightly better if that plays out.

Got it. I guess the next question inevitably comes on, what do you need to see to call a peak in losses to say the cycle has turned? What are you not seeing today that you need to see to be able to make that call?

We're close. I think when we see -- if February continues to come in better in March, I think we'll be able to call it for the year. And I think then at that point, we'll feel pretty confident that it's behind us. Now that said, that's assuming we're operating in a stable macro environment where inflation kind of remains where it is, or it comes down steadily throughout the year. We'll probably talk more about policy with the new administration and what that impact could be, because that's the unknown, right? There's still a lot of moving parts and shifting policies and how that plays through the economy is really what's going to determine, I think, the pace of improvement with inflation. And I think you're seeing that from people way closer to the economic data than me in the Fed, right? Fed Chairman Powell is indicating, hey, we're pausing a little bit. They've got to watch some things unfold. That's kind of our position as well.

Right. I do want to stay on credit for just one more second, and then I will actually turn to policy. But on credit, when you think about the -- if we get a stable macro, what is the pace of improvement going to be like, right? Like, okay, the cycle is turning February, March, then what does the pace of improvement look like? Are we looking at 2026 to get into closer to the 5.5%, the 6-ish-percent loss rates? Or is that still like '26 is too optimistic?

Yes. Without giving specifics to a particular year, I think our thesis still holds that you're looking at slow, steady incremental improvement every month, every quarter, that's going to grind its way better throughout 2026. I think you could exit '26 with that trajectory that gets you feeling better about '27. It's just this isn't an unemployment-driven cycle that we're operating in. It was a slow steady burn up in losses. And I think it's going to be that slow, steady burn down. And new vintages are coming in strong back on the curves that we're looking for. We look at month on book curves, performing very well. It's just we've got those -- the back book of the existing portfolio that has to cure, and that's what we're looking at.

Okay. So we talked about the release from this morning, so continuing to work backwards from news -- on the news. This weekend, we had big news around the CFPB. I guess I'll just leave this very open ended. Any comments, what are your thoughts on what's going on with the CFPB? Where do we go from here? How is Bread reacting? What is Bread doing in response? Take it whatever you want.

So again, we're monitoring the situation with the CFPB. There's a couple of pieces within that, that obviously, we're watching carefully. What does this mean to the CFPB late fee rule? I would tell you that we're still continuing to march forward with our mitigation actions. At this point, late fee rule is the rule. It needs to go through -- there's 1 or 2 paths for it to going away as I understand it. The first path we all know is -- it goes through litigation. All indications are from Judge Pittman's early comments about the industry has a strong case on its merits. So should we win, we think with the new CFPB, they won't appeal and hopefully, the late fee is repealed. The other way it goes away is if the new CFPB makes a new rule that retracts the current one and places something new in place. Our hope is it goes through litigation, and that's it. Now with the events from this weekend or even yesterday where Judge Pittman requested the CFPB to file a briefing of what their intentions are. I don't know what exactly that means. External counsel and the industry is following that carefully. I don't know if that means if they say, hey, whatever the ruling is, we're not going to appeal it. We just don't know. So I don't want to speculate on that, but something that with the new administration sounds like there'll be a more balanced, fair CFPB more I'm going to say pro business. But one thing about regulators. I've always said, good regulation is good for business. It eliminates bad practices, bad actors. It creates a more competitive even late level playing field. So I don't want there to be a thought that regulation isn't good. I think we -- industries need it. Now when it gets a little political, that's where it becomes challenging for business to operate within. So we'll watch it carefully. We have good relationships with the FDIC, who's our primary regulator. We had good relationships with the CFPB. We're all trying to do the right thing. It's just that you don't want to be operating in a punitive way or where there's consequences that weren't fully thought through on regulation.

We will talk about the mitigants around the CFPB in a bit. But before we do that, let's just take a step back, big picture, health of the consumer more generally. Your base is a little more subprime than some of the other large issuers. So how are those customers doing? Any callouts that you want to make, whether by income, FICO score in terms of just health of the customer and what you're seeing?

We've talked over the past couple of years around the K economy and the tail of to consumers, right? You have the high-end consumer who is the large driver of the economy, right? The top 20% drive a lot of the retail sales and a lot of the spend in the economy. Most of them, if you talk to them, are feeling pretty good, right? If they've got a wealth management account homes, everything is up and to the right. Markets are doing really well. Their home prices have appreciated. But for most Americans who maybe have their first home or trying to get a home out today where it has been expensive, interest rates are expensive. Inflation has been a compounding problem, they're feeling it a bit more. So that near prime customer, modern income, middle income Americans have been feeling the pain of inflation for a while. And that's what they're trying to dig out from under. So what we've been seeing, as you talk about our credit statistics, where we are a little more near prime oriented. They've been handling this and adjusting to the new realities of this inflation, making choices in spend, whether shifting from discretionary to nondiscretionary spend, making choices. And so a little bit of wage improvement is helping them get back on their feet and get a handle on things. I think what you're seeing is some of this challenge is starting to creep up the prime ladder and that's where you're starting to see more min pay at higher income bands or risk bands than perhaps what was there before, where the population we serve largely has been seeing that. And now we're starting to see some improvement in min pay in some of those cohorts that brought nearer prime and you're starting to see a bit more of that go up. So it's something everybody's watchful of, right, because interest rates, higher home prices, higher insurance costs impact those at our homeowners. And so we don't have as much of a mix as others. But again, I think through the credit tightening actions, the consumer improving modestly, we're seeing some positive trends.

Got it. Staying with trends you're seeing. Fourth quarter, purchase volumes really across the industry, but even for you all came in a little bit better than at least what we were expecting. Has that strength held up in the first quarter? Any quarter-to-date updates you can share in terms of just purchase volume numbers? What are you seeing?

Nothing specific to call out on purchase volume numbers, but the strength that we saw coming through December into the holiday season, we continue to see strength in -- so far in January, nothing to call out of concerns. It was interesting to see that in the fourth quarter through the holiday season, retail clothing was a strong performer that was a little bit of an unexpected surprise. And I think some of it is the rotation of people back to clothings is a need, right? And maybe they were more big ticket buying jewelry or electronics, and that was actually a soft spot in the fourth quarter compared to what it had been. So big ticket was a little soft, but retail and apparel was stronger. And I think, again, it goes back to consumers making choices.

Right. And that could just be a little bit like you said, it's a need. If you're a stressed consumer, maybe the needs become the Christmas presence, the holiday presence versus...

And that's exactly what we were talking about with some investors earlier it's exactly consumers make rational choices. So rather than buy the new big 65-inch TV, well, maybe they got that last year. And this year, maybe the kids really did need some new clothes.

Big-ticket spending is an important piece though, of especially the promotional financing. When do you see that bouncing back? Are you hearing anything from retail partners? Are they seeing any green shoots?

Yes, it's all cyclical. I mean, so really, it goes back to how does the labor market hold up if the labor market holds as it has is expected to and inflation comes down, I think you're going to see things fall back to normal trends. I think they're coming off some pretty high comps. I mean, when people had all that stimulus, they were able to go out and buy a lot of big ticket purchases that maybe otherwise they orderly might not have. So than last year may have softened a little bit. It will bounce back.

So let's talk about '25 outlook. We don't need to go through every number in the guidance, but big picture. Where is the biggest opportunity? Where is the biggest risk? Anything you're seeing early in the quarter that gives you more confidence, less confidence?

I think the big drivers of risk would be rapid reduction of interest rates or rapid increase in tariffs. And for us, we're slightly asset sensitive. So if we ended up like we had in the fourth quarter, a rapid decline of prime rate. So the Fed cuts rates, prime comes down 100 basis points. That rolls through into lower loan yields for us, and it takes a little while for our liabilities to catch up. So we get a little bit of net interest margin compression. We talked about that in our earnings call that you're going to see that come through in the first quarter. So if something like that happens again earlier than anticipated, that creates some pressure to our revenue. Likewise, if something happens policy-wise and there's a tick up in inflation in a meaningful way and puts more pressure on consumers. Well, most likely, that means the improvement that we're seeing in credit quality won't materialize to the good. So the opportunity is there's no continued upward pressure on inflation, things moving pretty stable, and you can come in better on the credit quality side, and that would be a nice -- and it goes back to the pace of what credit quality improves. That's the big unknown right now.

And one other topic I did want to touch on from a policy perspective is tariffs. I don't think like the average customer is being like , there might be tariffs. Let me go buy this thing today. right? But there are knock-on effects from tariff.

Absolutely.

Talk about that a little bit about how -- what do you do when you do all the talk of tariffs? And how is that impacting how you manage the business, what you're hearing?

It's probably my chief concern with the new administration, if it's a negotiating tactic, okay, I love it, fine. If we get better deals for American companies that benefit to consumers, fine. But if it comes through in a way that drives up prices of goods and services, that's problematic. And you just don't know how that will play out. I mean I'm not an economist, but read and listen to what economists have to say, when 95% of them say, tariffs will put upward pressure on inflation. I listen to that. So that's something that, again, I said our #1 concern is inflation, which means my #1 concern has got to be tariff policy. So we're watching that. So that's the one in particular. You're seeing some of it come through. already, I mean, I read something today where people who are concerned about the goods and services or the goods that would come across from China or other countries, they would buy used goods. So I thought that was a fascinating pace because the U.S. consumer only has so much of a basket of money to spend, and they want it to go as far as it can.

Maybe let's turn to credit a little bit. Actually, before we turn to credit, let's do the mitigants because we were talking about NIM a few minutes ago. The mitigants from the late fee rule, the largest mitigant really, if you think about like from the charts you've laid out, is going to come from higher interest rates as loans reprice. So I guess the first question is just seems like the loan might -- the room might not even go in effect, right? So what does that mean for you all? Like, is there mitigants you've already put in place? That people are getting charged the higher interest rate? You're going to get that benefit until it gets competed away or whatever or -- like I'm just trying to understand like, can you help us size some of that? Like how much mitigants is already in the numbers already in process versus something that maybe never gets implemented?

Yes, it's a combination of all of that, right? So it's -- we put in place and been rolling out higher APRs. I think we're up to 9 waves of change in terms that have rolled out, and there will be more waves coming. And so really, it was a matter of going partner by partner, being very thoughtful in consideration with them, like this is the reality of what may happen and making sure that we're prepared and putting some things in place. Some were eager to go sooner. Some wanted to wait further along, sharing different economics and then others who really just want to wait until the rule actually happened. So like I said before, 95% of our partners had contractual agreements of what would happen or already has happened in terms of putting things in place. So everybody is at a different stage. And as the chart has shown that when you're increasing APRs on the existing portfolio, because of Card Act, because of payment hierarchy, it takes years for it to fully burn in. And so you take that, coupled with rolling these out partner by partner throughout time, it just -- there's a benefit in this year. That's why when we gave NIM guidance, we said NIM would be slightly higher. But if you take into consideration of things that we've laid out before, that would take -- be a little bit of a headwind to net interest margin, the net interest margin compression from lower prime rate. The improving delinquency actually reduces billed late fees. So that can become a bit of a headwind. Yes, you will have some improving reversal of interest and fees from improving losses, but the losses aren't improving at the pace delinquency improves. So the net-net of all that is kind of a headwind and you also have improving credit risk mix that tend to have lower APRs. All that said, we still guide a little bit higher net interest margin because of the mitigations that are in flight. Now longer term, you move through into next year, that's when you -- we'll look at this and figure out with partners. There's some pricing elasticity. It's just -- there just is for private label cards. Different than if you're trying to compare proprietary branded cars where you can go online and say, okay, for general purpose card, you're comparing rates, fees, features. For here, you're in a private label environment, somebody wants credit to buy something now and then pay for it over months and months. That's the product that's offered and they can earn rewards. So there's more price elasticity, but you're trying to make sure it's competitive nonetheless. And so we'll work with each partner of what's right for them, the program and how long that will last. I have said many times, I don't expect this to be an over-earning opportunity for our company. If it is, it's for a short period of time. This is something that we're reacting to that has happened to our industry, to our company, to our partners. And if it makes sense to roll it back, you roll it back, reinvest into the program, or if you don't do that essentially at some point in the next few years as renewals come about RFPs, these things tend to get competed away.

Right. I'm going to stay on this for a couple of more things. One of the things you mentioned was invested back in the product, right? You put choose, but like you just send a bunch of change of terms out, you don't want to send another change of terms out 6 months later. So you might say, okay, I get this extra revenue, I'll reinvest it back. How are we talking about reinvestment back? Does it expand the credit box? Is it more marketing? What are we doing there?

I'm going to go definitely not expand the credit box No. I mean it could be.

Well, from a retailer, I'm going to be like, hey, getting more sales by expanding the credit box.

It could be. Now again, if you're trying to get to through the cycle loss rate. But again, we do underwrite for profit. So it's possible, but then you got to be really sure that APR is going to stick with a higher APR. When I say reinvested in the program, it might be more marketing dollars, so you can expand the universe of people you're marketing to, maybe investing into some promotions that offer more loyalty book points or bonus points. Again, that attracts more customers and attracts more spend that builds more balances. So that's what I meant by reinvesting in the program. More on the loyalty side of it, less on necessarily underwriting deeper and taking on a lot more risk.

And that's why I wanted to ask because that is absolutely like concern one for investors is that if that's not happening, it becomes to your point, like how sustainable is the higher interest rates. The other question that we get a lot on these mitigants is, you gave some color around, okay, you have these headwinds, we're still showing NIM is going up, which means a meaningful percentage of the portfolio has mitigants in place, which is going to make NIM go up. But we still don't know how much that is. And I'll ask again. Like is there anything you can give us which will help us figure out like this percent of the portfolio is never going to get mitigants, this percent of the portfolio has it? Like, I guess, why the hesitancy to make that disclosure?

It's in part because of the -- let me just -- it's product by product, right? So big ticket when you have a much higher average balance requires much less mitigation. You might be able to do it through a promotional fee. And you don't -- you're not trying to offset. It's not as impacted by late the yield as a low line, low balance private label card that's high risk. So -- and each of those varies by partner, right? We have some co-brand cards that are higher risk score and others are lower. And so it really varies. And how they sequence in terms of the rollout of the mitigation. Clearly, we had a focus on the, I'll say, more of the private label portfolio, the higher risk that were more late fee driven earlier in the mitigation cycle. But as a percent of loans, it may not have been as much as low. So it's not as simple as that. And the statement fee that we rolled out, I mean, look, I'm a big fan of the paper statement fee, not because it will be a huge revenue driver, but it drives people to digital behavior that will then lower operating costs in the future.

Got it. On the credit side, I think one thing we did not touch on when we talked about the improvement in credit is the reserve rate, right? And how are you thinking about the reserve rate? Like what is going to make it come lower? Because even as delinquencies have improved, we haven't seen the bigger improvements in reserve rate yet. So like what do you need to see? What -- how should investors be thinking about the reserve rate from here?

Look, I'm really encouraged the fact that our reserve rate continued to come down as delinquencies come down, the credit quality, it will be the driver of that reserve rate coming down. So if we believe that we do better than guidance, use that -- if you believe the delinquency holds and continues to improve. Well, that's going to be a good precursor to being able to have that reserve rate come down in tandem, slowing gradually throughout the year. I don't expect big step downs because of a lot of things we talked about with the unknowns. Like in the first quarter, you say, you know what, we believe there's going to be no impact of tariffs, inflation solve, everything is grand. There's no increase in employment and you start to unwind risk overlays and things, I think the more prudent action right now is to let credit quality when it runs the models. Remember, at every stage, and you kind of have an idea of what the loss expectation is, the credit quality of the early stage and those that aren't delinquent yet, that's going to be the big driver. And I do believe we're building a portfolio with a better credit risk mix. And as you come through this, it will come down. And the one thing that we talk about with investors a lot is the simple rule of thumb is if we're trying to get down to 6%, we have a 1.5-year average life take 6x, 1.5x, you get 9% is it kind of a core rate 100 basis points of risk overlay and you kind of get to that 10%. So between now and then, you'll just glide down to that as credit improves.

Then so everyone always talks about day 1 CECL. I appreciate day 1 CECL is a different management team, different risk profile for the business even arguably a little bit. We didn't know pandemic could happen, there's all this stuff. So is 10% the right way to think about for your -- rather than think of day 1 CECL, think of 10% as more the -- where the reserve rate ends up at a 6-ish percent? .

Yes, that's a thumb in the air type of guide where -- look, if we end up over the next 2 years, improving the credit risk mix and you end up coming down to 5.5%, well then you hold. And if you have far more confidence in the stability of the economy to the point where you don't have 100 basis points. It's a lot between now and we'll obviously talk a lot more about that over the coming quarters.

Maybe switching, one of the interesting things that Bread with the new management team has been the willingness to go after larger portfolios, if you will, AAA a couple of years ago, NFL maybe not in size, but in terms of being high profile. So I did want to ask you about what are you seeing on the horizon for 2025? Are there interesting large deals that you could go after that are coming to market that you're in the RFP process for? Give us a little preview of what 2025 looks like from an acquisition deal standpoint.

Yes. So there's a tremendous pipeline of opportunity. There always is. And our team, what I've been delighted about since joining here a few years ago was how we get pulled into every meaningful opportunity, even ones that are clearly, I'll say, too large for us to take on ourselves. But if the economics don't work, we'll move on. If there's creative solutions to work with a partner, we're excited to do so. We've got one of the top business development teams in the industry, and it's been a lot of fun to work with them and see what we can bring to the table. We've got some exciting new partners, I'm sure we'll be announcing over the course of the year. if I could announce it now, I would, but I'd get in trouble with my IR team and communications team, and my legal team. But nothing -- I don't think there's anything big that we're -- that is going to concern investors that we're doing something that's outside of who we are. And we talk about letting the balance sheet drive our growth. I mean we're generating capital. We've got to make sure we're hitting the capital returns and have the capital to fund these. So there is good opportunity out there. And we're excited for the future and the growth that we've got ahead of us.

What about -- what are you hearing or seeing on competitive intensity in general? Is other players behaving rationally? Has the fact that this late fee rule, it feels more and more like it's going to go away. Are people -- is that increasing the willingness to do deals, willingness to look at programs? What are you seeing? What's the latest on the competitive side?

I have found that, generally speaking, as long as I've been doing this for over 30 years, I go back to the '90s and there was competition, between Cap One. First USA, MBNA was the city, there's always competition. So competition isn't new. Who is leaning in at any point in time and leaning out is always changing, right? And so I don't want to use any competitors by name currently, but some have some consent order issues might be leaning away. Another one is trying to swallow a big network. The small deals that we like to play and we call them small, midsized deals are perfectly in our sweet spot may become less strategically important to them. Some others may be leaning back in. So I think there's always ebbs and flows of who's in and out. But generally speaking, you have rational economics unless there's particular partner like an airline partner or something where there's some other commercial opportunity to help fund aircraft or do something that's a bit more of an enterprise deal, which makes sense for that company. But for us, as more of a pure play credit card company, you want to make sure that the economics work for the card product.

And then I guess maybe talk a little bit about investments this year. OpEx. I think the guidance is a nominal full year positive operating leverage. So what are some of the larger investments that are being made this year?

So we have continued with our investment in our tech stack. You'll recall that we moved to Fiserv for card processing and a lot of the core processing for our business. It's taken time as any time you're a large-scale conversion, you get all the features, functionality and everything else operating the way you want. We're continuing to invest in our platform to move, say, more of applications to the cloud, deploying knowledge management through an AI-enabled agent-assisted service out there. So the things that we will continue to advance are all the things that our customers and brand partners are looking for. It's now just a matter of methodically going about it and not trying to drive a big step-up in expense to do so, making sure that we're doing it in a deliberate way. And the way we're able to unlock the capability to do that, the funds to do that is through something we call operational excellence, where we are focused on -- and it's the whole enterprise coming together, focused on expense efficiency, value creation deploying new tool sets to work smarter, doing process redesign. I mean, it is amazing the amount that we're able to generate from, I'll say, good business practice, good business engagement to drive enough savings to fund the investments that we want to make, and that's what helps us contain our expense base while make sure we're continuing to invest in things that are critical to our customers and brand partners.

I guess maybe somewhat related, but doesn't have to be OpEx related. But like in general, you've been there a few years now. You've had experience at other places goes up. You'll have obviously put in place some improvements like you mentioned the outsourcing of processing, things like that. But like what are the big opportunities, the big areas for Bread, where you still look at it and you say, well, there's a lot more we can do there, a lot of improvement potential?

It's funny. I have been in bigger places and one that you might be currently working for, where I've learned a lot of -- I did learn a lot of great lessons. And one thing that being at Bread Financial, we are effectively more like a monoline. We can make decisions far faster. We're nimble, I'll call it agile, right? And that's beneficial when you're trying to do things for customers. I think as we get our tech stack really dialed in and we can actually be -- do things even faster, more creatively, and we're still trying to move off what I call legacy architecture to a more modern architecture, but we can do that faster than big firms can. So that's going to be a real positive. We continue to make sure that we have the right approach to our global footprint, and we have a large operation in Bangalore, India that I'm actually going to visit next week. We've grown that substantially. So we still have opportunity to further optimize that mix to help our business. I mean, there's tremendous talent there. And so I think these are things that you just got to make sure you're deploying modern technology, modern analytics, leveraging the global workforce, and that will help make sure that we're able to continue to contain expenses and continue to drive positive operating leverage every year.

We have about 5 minutes left. So I just wanted to see if anyone had any questions, happy to open it up for the audience. Do we have a mic? Okay, just go ahead. I'll repeat it. Go ahead. [indiscernible]

Yes. So I'll repeat the question. So the question is of the 95% comment that I made related to brand partners who have contractual understanding of what changes need to take effect should the $8 late fee go into effect at some point later in the year. Yes, there's a portion of them, as I noted, have all -- we've already put change in terms into the marketplace. So they were early adopters. They're good. Others is a portion, a smaller portion who really they're on board, they understand that should the late fee drop down to $8, their compensation is going to change. APRs are going to go up. We are going to restrict credit on -- the buy box is going to tighten. But they didn't want to affect things early. Some started from that position and came on board as we kept the conversation going, and they were coming in, in some of the pricing APR increases now. The 5%, those are just the ones who are still in negotiation. We, at some point, would probably get to 10%. But then there are some that are really not overly impacted because they're not as late fee dependent. So some of them were easy. Others are hard. Some programs within a 5%, you might terminate because the economics don't work for the program. And I've said this previously, when you have 100-plus partners, you're always pruning. You're trying to make -- some programs launch, you think it's a good idea, and it just doesn't perform and you both agree, this is going to work, and we don't renew the program. So that's where I think the context of the spectrum at 95%, I think that's a tremendous success rate by our team to get that far, that fast.

Right. Anyone else? Not seeing any. So maybe I'll just continue. A couple more questions for me. So maybe the first one I wanted to ask about was just as you think about -- the -- actually, the proprietary product, right? You launched a proprietary product with Amex. Where does that fit in? Do you want to grow that product bigger? Do you -- or is that more of a hey, if some program is going to go away, we can just convert the cardholders. It's a strategic optionality, but not really a focus.

No, I would say it's a both. I love having it because we do choose to have a partner go away and they don't have conveyance rights or the rights to the portfolio to take with them. We can convert it into a Bread cashback product. And with that, we tend to get a lift in spend because you're broadening out. And those are for the people who are credit qualified to qualify for that product. Strategically, we clearly have a sweet spot where we can target and pick up customers there and grow that. And I think that will continue to be something of a of a strategic opportunity, but not one where I expect to see tremendous outsized growth because when you're -- if you really want to go big and if we want to create a Bread brand that is of scale to compete with the likes of the Cap One, Chase cards and they're very expensive cost to acquirers. But where -- if you can target it and keep growing it nicely, it can become a really nice portfolio within our business. But we're not going to overspend in so just because of the J curve, as we call it, to the investment and the return. But again, nice methodically going after, I think it's going to turn to a nice portfolio.

So maybe we can end with this one. We've talked about a few different topics today. When you sit back and look at -- think about 2025 when Ralph and you meet and -- what are the 2, 1, 2, 3 things that you're most focused on that it's like if we get these 1, 2, 3 initiatives, right, the rest of it will kind of fall in place might be up, down a little bit. But longer term, we need to get this stuff right.

Yes, excellent question. I think when we focus at this company on a number of things. One is credit, just never lose your discipline with credit. And I think you're seeing that come through now. And as credit turns that's going to unlock a lot of potential in a number of places. I think then your returns start to normalize. You start to hit those targeted returns that we're looking for. As credit turns, you can start to reintroduce line increases, then growth starts to come back naturally. We've got a lot of tailwinds for growth coming at us as gross losses come down, credit improves. You start to put line increases back in, more approvals come through the front door, more demand comes through. So we're going to end with all the new programs we've been launching that are de novo or new, I'm expecting that to go well. Our capital prioritization has been of tremendous success. We paid down over $1.5 billion of debt over the past few years while building capital ratios that we're almost hitting our targets. So when we talk about capital and those capital projections, it's getting focused now on, okay, we're going to generate a lot of capital. And how can we further optimize our capital stack? We're exploring and we talked about during our Investor Day, how do we introduce some Tier 2 capital, Tier 1, Tier 2, and probably explain, hey, what would a subordinated debt issuance look like? Going to get a feel for the market on that and how can we bring that into the capital stack because that will lower somewhere or binding constraints. And if we can do that, again, we're getting closer to points where there could be a capital return at some point out in the future, but that's getting sooner because of the improvements that we're seeing. And we're really focused on getting to those capital returns that we've said, not just return to capital shareholder, but delivering the returns in the mid-20 ROE type thing. So we're real happy with where things are going. We're making the right investments, got to execute against that, the credit to turn, and we're firing on all cylinders.

Great. I think with that, we ran at time. So again, thank you so much for joining us. Really appreciate you taking the time.

Well, thank you for having me. Thanks everyone for joining today.