Up next, we're pleased to have Bread Financial joining us once again. Bread has continued to execute on its strategy of being a leading provider in the credit card space through responsible growth and disciplined risk management. In addition, after significantly improving its financial position, it's become a capital return story, which should be a solid EPS level for the company looking ahead. Joining us from Bread is CEO Ralph Andretta and Chief Financial Officer Perry Beberman. Today's discussion is gonna be a fireside chat, so maybe I'll kick it off with you, Ralph. You know, you've done a ton to transform the company over the past few years. Maybe just talk a little bit about what are your, what have you done and what are your current areas of focus as we move into 2026?
Right. Thank you. And thank you for recognizing what we've done. And I think it's gonna be more of the same. It's, you know, I've got a very boring answer for you. It's gonna be, you know, continue to have responsible growth, and, you know, be very prudent about that. Navigate the macroeconomic environment. Come with me. We're gonna navigate that environment with good, prudent underwriting, doing the right thing. You know, we'll continue to manage our capital, you know, for the first time in a very long time or if ever, you know, we can execute on all our three capital priorities. We can invest in the business. We can maintain our strong balance sheet metrics and we return value to shareholders. We're gonna continue to do that.
And, you know, we're gonna lean on operational excellence, to really transform, continue to transform the business 'cause that fuels the business. That's how we invest in the business. So that's, you know, that's our recipe. That's been our recipe for the last few years. That's how we got where we are. And we're not changing, our focus.
Great. Maybe, let's talk a little bit about the state of the consumer, how the macroeconomic environment is influencing them, their spending patterns, and maybe any differential you see across different risk bands.
Yeah, so the consumer overall, you know, we've been pleasantly surprised over the past number of quarters that they've remained pretty resilient and stable too, slightly improving in terms of their metrics with us. Spending overall has been solid, meaning that you're seeing the higher risk bands spend a little bit more on things like travel, entertainment, and then those that are a little bit on the lower end are, you know, spending a little bit more on non-discretionary items, as you would expect too at this time of the year, but overall, you know, I think the benefit of what we're seeing with our consumers is they've been dealing with this high inflation environment now for the past four years, so while inflation's still a little higher than everyone's target rate, it's not compounding at the same rate it had been.
And so their wages have outpaced a little bit. It's given them a little more flexibility. They're budgeting well. And what I think we would say is resilient and choice-full, meaning customers are making choice in terms of what they're, how they're gonna spend. And I think you're gonna see that manifest itself into, and what we've seen so far in terms of holiday spend, looking for deals, meaning a little bit more activity on Black Friday, Cyber Monday, a little bit less on the Saturday, Sunday in between when you're looking at comps versus prior year. So I think that's a demonstration that they're kind of reverting to the way they used to be pre-pandemic 'cause they're looking for deals.
Maybe just to expand on that, Perry, in terms of how the holiday season is shaping up, I know that you had said October and early November strong, but there were some tricky comps from the, maybe from the election. You know, what are you hearing or seeing from your brand partners, any verticals in particular that you're more bullish on heading into next year? And, you know, just any spend updates relative to expectations?
Yeah. I think overall the consumer is again resilient. I expect that in, you know, fourth quarter, we'll probably end up in a low single digit 1%-2% growth year over year, and that's in terms of the spend.
Mm-hmm.
You know, like you said, there's some comp issues. When you look back at the third quarter, we lapsed the Saks acquisition.
Mm-hmm.
So that was a tailwind. But overall, I think we're just going into next year. There's some good new brands coming out. I mean, Ralph will talk about some of the pipeline.
Mm-hmm.
And so we're very optimistic that we're gonna inflect the growth.
So maybe just to build on that a little bit. So in terms of loan growth, you've got it to flatten slightly down for average loans in 2025. And, you know, we all know the reasons why, given, you know, the strategic tightening that you've done.
Yep.
I know you'll provide us specific guidance when we get to earnings, but just talk directionally about loan growth. Given the macro environment, do you see a path back to low to mid-single digits? And, what do you expect to be some of the key drivers behind it?
Yeah. We definitely expect to inflect, right? I mean, so while this year's coming out to be kind of exactly where we thought it would be, you know, slightly down, I expect next year to be slightly up. And that inflection is a result of continuing credit performance, you know, less gross losses, continued good build of new partners coming in that will create new growth, and then just a continued healing of the existing portfolio.
You know, that makes sense. I mean, you've been in a, you know, I'll say restrictive underwriting stance for a period of time here, just given, you know, all the things you talked about, Perry, the cumulative inflation. Can you maybe talk about what underwriting curtailments still remain in place? And what do you wanna see to remove what, you know, inevitably what you still have that is kept loan growth at bay?
So, you know, the restrictive, or underwriting standards, if I look back over the past few years, I'd say the degree of decrease year over year in the amount of line increases we gave, so the change every year has continued to be less and less. You got that less benefit from line increase. At the same time, we were putting in place more line decreases. Call it risk detection program.
Mm-hmm.
So if somebody looks like they have a little challenge, we do more of that. So over the past couple of years, I'd say the year over year is getting tighter and tighter in terms of the net impact. I'd say right now it's kind of neutral where the risk detection is being offset by the line increase. So we are doing line increases for those customers coming in the door. And I think next year will be a net positive situation. But what I would really want you to walk away with is that regardless of which way it goes, it's not material to growth. So that's not going to be.
Yep.
A material driver next year, but it's gonna be data-driven. You know, we've got a very sophisticated credit underwriting team. We've done this for 30 years, and so it's gonna be a customer-by-customer decision. There's not gonna be some watershed moment where the gates are gonna open and all of a sudden you're gonna see us, you know, lean in on credit.
Mm-hmm.
'Cause that would be a fool's game. You know, we know what we're doing. It's gonna be, you know, at a data-driven, decision-based point where we make sure we're getting paid for the risk we take.
Gotcha. Ralph, wanted to talk about partners for a minute. You know, I know in past years you've even announced new partners at the conference. Maybe just talk about what your pipeline for new customers looks like. And I know you had a couple of wins in the home vertical space. I think Perry alluded that there's more to come. Maybe just talk about how does it compare to prior years and are you seeing any differences.
Mm-hmm.
In the type of partners that are emerging?
Yeah, so, you know, our partner, or, you know, our pipeline continues to be robust, and one of the things I really love about our business development team is we're being asked now to bid instead of trying to push our way in.
Mm-hmm.
People are pulling us in. So that's a really good place to be. You know, just three recent announcements, Bed Bath & Beyond, Furniture First, and Raymour & Flanigan, our three new partners that are, you know, we think will give us some momentum going into 2020, 2026. And those partners are what we call de novo partners, right?
Mm-hmm.
And there's two types of de novo partners. There's a de novo partner where, they've never had a card program before. We launch it together and, you know, we, you know, they learn from us and we move forward. And that would be like a Crypto.com.
Yep.
And then you have these three partners that have a proven track record that build, you know, receivables quickly and we work with them. And that's a good thing, good place to be. So either one of those are really good. We're not laying out a lot of capital and we're just, you know, off and running. And I feel really good about those types of partners. You know, there are partners in our pipeline with portfolios and we evaluate those and, you know, those have a little bit of a longer tail.
Yep.
But we feel good. You know, we have some announcements to make next year. I'd love to make an announcement now, but my GC won't let me. But I'd love to make a couple. But you know, we continue to have momentum. Partnerships are good. And I think aside from the new partners we're adding, the focus on keeping existing partners is equally as important. If you think about our book, our top 10 partners are with us till 2028 and beyond, most of them beyond the end of the decade.
Mm-hmm.
That's a good place to be, 'cause what we focus on is how do we grow the pie, not how do we renegotiate the pie, but how do we grow the pie?
Mm-hmm.
And so that's a really solid focus on, you know, driving spend and introducing new products and for our top 10 partners. And that's equally as important as adding partners.
And I'll come back to your top partners in a second. But just curious, when you guys have talked historically, you've talked about hundreds of $500 million sort of portfolios.
Yep.
As being sort of your sweet spot. And obviously we know.
Yep.
We all have a good sense of who the top 10 partners are. But when you think about some of those recent announcements, Bed Bath & Beyond, Furniture First.
Yep.
Raymour & Flanigan, like any context in terms of are these the type of partners who could be top 10 partners over time?
Yeah. I mean, not to pick out one, but I think Raymour & Flanigan because of its expansive footprint could be a really one of our bigger partners. They have over a hundred stores. They have discount stores. They have showrooms, you know. And it's right off the bat a really engaged partner. You know, Furniture First is number one in mattresses, which is a big, big selling item. So, you know, that could.
You gotta have 'em.
Yeah. Gotta have 'em. I think they'll be a, you know, a partner that'll be on the come. But, you know, Raymour & Flanigan I think is the biggest furniture dealer in Northeast.
Mm-hmm.
Probably one of the top five or six in the country.
Mm-hmm.
And I think there's really opportunity there for that type of partner.
Gotcha. So you mentioned that the top 10 partners are locked up well into 2028.
Yep.
Some through the end of the decade. Obviously, that means a lot of them have been renewed over the last.
Yep.
Over the last period of time here. Maybe just talk about any emerging trends with the renewal, whether it's sharing economics or trends in value?
Yep.
Propositions that you've seen.
Yeah. You know what we've noticed about the partners? They're getting smarter, right? I think maybe because, you know, each of them maybe uses a consultant, that's credit consultant that gets out there.
Mm-hmm.
But they're, you know, getting smarter on the business. They know that this, you know, what we do is not just a bolt-on. It really can drive their economic value. So they're really interested in, you know, when they come to the table again, it's not all about price. You know, it's not all about another buck. It's about, hey, what data analytics do you have? What kind of technology do you have? How, you know, could we have a new product that, you know, expands our reach? So, you know, in a lot of our, you know, those top 10 partners, we have, you know, if they have private label partners, we now have introduced a co-brand. So you have partner upgrades.
Mm-hmm.
That matters, that matters to the partner. You know, our data and analytics in terms of, you know, how do we find, you know, how do we penetrate your base deeper and how do we think about that? How do we redo the value proposition so it's more appealing? All those matter when you're doing a renewal, quite frankly.
Yeah. That makes a ton of sense. Perry, let's shift gears a little bit and talk about credit. You guys have had very successful credit performance throughout the year. We've seen improving trends. You released your 8-K this morning. That showed, you know, continued improvement in charge-offs. Still, you can see that I think we're in line to slightly miss. You know, I think you noted that you expect to come in on the lower end of your 7.8-7.9 loss rate guidance. Maybe just talk about what you're seeing in credit in the near term and what gives you confidence that you'll be on the low end.
Yeah. I mean, well, already two months in the quarter.
11. We already left.
I was gonna say 11 months out of the 12. So I'm pretty confident.
Mm-hmm.
We've all done the math. And I think I saw an analyst report today that did some math that looked pretty, pretty accurate. So, you know, the math is basically there where we're gonna come in on the low end. And I think that's a good testament that, you know, from we lowered the range at the beginning from what we thought at the beginning of the year to where we are, things are improving faster than what we thought. And so that gives us high confidence of where we are. And, you know, obviously the credit quality, delinquency came in.
Mm-hmm.
But pretty, very much in line with what we were expecting.
Mm-hmm.
And so when you look at that, the delinquency formation right now and what that sets us up for the beginning of next year, you know, I think, you know, as if I would say as a starting position, I'd say, you know, we should be able to improve 30-40 basis points off of where things may come in this year because this year's coming a little better than we thought.
Yep.
That's probably a good launch point for next year. But, you know, as we go into our planning cycles, we do things at a partner-by-partner basis.
Mm-hmm.
We'll have updated macroeconomic outlooks, and so when we formulate, we come back to you in January with our guidance. Obviously we'll tighten that up, but you know, I think we expect continued improvement through next year.
By that point, we should have all 12 months.
Yeah. By then I'll have all 12 months.
It'll be.
As a long.
Basis point.
Extremely accurate.
Just for the basis point.
I think that's a true one.
Just for the basis point. I guess while we're talking about near-term stuff, Perry, I mean, you know, we talked about spend being up one to two. We talked about the credit. Anything else that you wanted to highlight for the fourth quarter, given that we're more than two months in, whether it's top line growth?
Mm-hmm.
Expenses, reserves, anything else you wanted to touch upon, you know, in your remarks?
Probably the one thing I'd wanna make sure that folks don't lose sight of is that, you know, we did a big debt refinancing and paid off $719 million of our senior notes that we were paying 9.75% interest on. And now we have a $500 million senior note at 6.75. So a good 300 basis point improvement there. But with that, you'll see about a $60 million of debt extinguishment cost.
Mm-hmm.
In the quarter. So while we're doing a great job managing expenses, you know, fourth quarter expenses are typically seasonally a little higher because of benefits cost in the quarter, marketing, and just transaction cost because of the higher transactions. But beyond that, that $60 million is something I don't want people to lose sight of.
Yep. And that's obviously 'cause it's from the termination of debt. That makes total sense. So you mentioned in your remarks, just before that you expect losses could improve 30- 40, which is sort of consistent with what you've been saying, particularly now that you're, you know, we're confirming we're gonna be on the low end of the guidance. Maybe just dig a little bit deeper on your early expectations for 2026. First, what's driving the improvement? And then secondly, what's giving you the confidence in the improvement?
Yeah. I mean, confidence is what we just talked about. I mean, you look at the quality of the portfolio that we're gonna enter next year with versus where we were this time last year. That gives us a high degree of confidence that the credit quality is already better. As well, we've continued to see resiliency in the consumer in terms of consumer behavior, and the expectation that I think we'll continue to see the consumer, hopefully if inflation continues to moderate, is in a better position going into next year, and then the growth that, you know, Ralph commented on, some of the new partner signings that we've had. That's gonna be good, new, clean quality growth that we're gonna put in place, and then we also talked about, you know, a little bit of the improving credit actions that we can take.
So I think all these things together give us a high degree of confidence that next year should continue to improve. Now, that's based on a stable macro outlook to slightly improving. If things go a little sideways or get, you know, worse from unemployment, if labor, you know, a lot of this stuff has to unfold in terms of what the policies are.
Mm-hmm.
But I think we all believe that the policies that are in place are intended to help the American consumer. Just has to take a little time to play out.
Absolutely. And look, you know, your consumer more than most has been impacted by the cumulative inflation you and I've talked about.
Absolutely.
A lot. And, you know, that's sent loss rates above eight. Now we're working our way back down. And you've had this sort of long-term historical average of around six. Can you talk about what gets you back there over what period of time? And can, you know, given the upward pressure that it puts on losses, can you resume growing at sort of mid-single digit levels and continue to make progress on credit over time?
Absolutely, so a couple of things. One, as you know, we put on newer business with good growth, that's gonna help just because of the credit risk mix that's in flight, so that will help drive down the loss rate, then you're also putting on new loans that are, you know, I'll say, I call them clean loans that are good credit quality. That's gonna help average in, so the newer vintages make it a little larger and help average down that rate, and then the existing portfolio is going to slowly cure over time as they.
Mm-hmm.
As a consumer, it continues to manage their own personal balance sheet. So that gives us high confidence that we'll get there. It's just not gonna happen next year, right? It's gonna happen gradually over time. Kind of the way you're seeing it unfold is how I expect to unfold over the next few years. But we are remaining focused on underwriting for profitability.
Yep.
We could drive that rate down faster if we wanted to put on an even smaller, new vintage. If we said, "Hey, let's put on a vintage that achieves 4% loss rate instead of the 6% loss rate," we could drive it down faster. But that would do damage to our partnership business that we're in. And our goal is not to, I'll say unduly, harm our partners just to make our loss rate look good. And that'll also be detrimental to profitability.
Sure. Maybe to round out the discussion on credit, so you know, the reserve rate has been declining a little bit over the past few quarters.
Yep.
We're, you know, we're in the high 11s now. I guess first, do you think the trajectory, assuming the macro holds, can continue? And, you know, how much more room is that? And over what time to get back to sort of that 10% level that I think that you have talked about as a more steady state reserve?
Yeah. There's definitely room for that to improve, as you just said. I mean, my expectation is it gets back down to around 10% over the next couple of years. The pace at which it gets there will be highly dependent on predominantly the credit quality of the portfolio. So you think about where we're going. I would expect the fourth quarter reserve to seasonally drop down. It's possible it does a little better than that if the.
Yep.
Delinquency ends the year in an improved position, but then as you go into next year, again, I expect it to continue to improve, but again, it's gonna be largely based on the credit quality of the portfolio and the macro inputs. As well as we have more confidence in the macro environment, today we're very heavily weighted into the adverse and severely adverse scenarios for our credit risk weighting 'cause that was prudent. Again, right now we're in this bit of uncertainty, so I would've liked to unwound that a little bit. Again, that's not gonna be the big driver of what drives 170 basis points improvement, it's but it will make a difference, and that we should be able to start to move back to a little bit more neutral position over the next year.
Ralph, you, since you've taken over as CEO, I guess it's probably a little over five years now, five and a half years.
Mm-hmm.
Give or take. You've made tons of investments in the business, repositioned the technology, done tons of things to upgrade the standing of the company. Maybe just talk about, you know, the investments that what is on your agenda for right now. And how do you balance that with, you know, an improving yet not, like, great revenue environment? Obviously, we've seen.
Yeah.
You guys, you know, have taken a lot of actions across the board on the revenue side, but just talk to us how you think about the overall investment picture.
Yeah. You know, our investment thesis hasn't changed at all. You know, maybe it's changed a little bit from 'cause we've improved it. But we'll continue to invest in, you know, in our partnerships and our products, particularly around digital and technology. We'll continue to make those investments. You know, I was up here a few years ago. I said, "We're gonna pay off our debt." Done. Right? We paid off our debt. So we're gonna continue to make that, you know, make sure our balance sheet metrics are strong and we're doing the right thing and, you know, making sure that we're there with competitors, and, you know, returning value to shareholders is a really good thing to do. You know, we've been able to do that. We've increased our dividend a couple of cents.
You know, we have some buybacks. So those are our priorities. They continue to be our priorities. But what really makes it gratifying for me is we don't have to choose. Right? We can do all three because we have adequate capital and a strong balance sheet. So that's a really good place to be.
And, when I think about it, and again, I know we'll get guidance in January, and this is a question for either of you. As you think about balancing investments in an improving revenue environment with positive operating leverage, how do you think about the balance? I mean, you've continued to post year in and year out positive operating leverage, even in more challenging revenue environments. How are you thinking about it into 2026?
I think one of the things we do have, you know, operational excellence has played a pretty big role in our efficiency and our operating leverage. We, you know, we focus on doing things better, smarter, reinventing the way we do things. And that has helped us, you know, manage our cost base, you know, drive a little bit of revenue. But we have a really good handle on expenses. So as we add revenue, you don't get that add of expenses, you know, commensurate expenses to that. That's really due to all the things we do with operating leverage. Some of it's common sense. Some of it comes from the people.
Mm-hmm.
Some of it's focused on, you know, new and different technologies. Some of it's common sense, to get these things done. So that's been our focus to help us drive that positive operating leverage as we move forward.
What are the things a lot of companies have been talking about at the conference has been AI and just the heightened focus on how it's being utilized in businesses. Maybe just talk to us about how you guys evaluate opportunities to use it, how you're currently leveraging it, and what your plans are to deploy new technology.
Sure.
And capabilities in 2026.
Listen, I think, you know, I could go back and say we've been using some form of AI for a number of years, whether it's machine learning, robotics. We've been using it.
Mm-hmm.
And we've been, you know, in the market. But when it comes to, you know, this emerging AI, whether it's agentic or AI in general, you know, we're a fast follower. You know, we're gonna focus on, you know, what's out there and how does it solve our problems. We're not gonna chase the shiny object and say, "Here are our use cases. And what's out there that can help us, you help with these use cases?" And, you know, do we get the payback for the expense that we're gonna get out there? And I think that's our focus. We're working with partners on, you know, point of sale agentic AI. How do you think about, you know, getting in the purchase path when somebody's making a recommendation? So we're there.
But, you know, our focus is to be very thoughtful, like with everything else. You know, we've got partner data. We've got customer data. We're not gonna risk that. but we're gonna focus on where, you know, where AI can help us from a customer service perspective, you know, driving down, you know, first call resolution, getting that done, making sure that our reps have knowledge at their fingertips, using collections. How do we think about it from a collections perspective? Fraud is a big area in terms of AI, how we manage our fraud and manage down our fraud. You know, beat the fraudsters at their own game, quite frankly. But, you know, it's across and pervasive across the, you know, across the network. 100% monitoring on, you know, on risk, on regulation.
Those are areas that really make sense for us as a regulated industry, and that's where we're gonna invest.
And I guess just sort of building on that, obviously there's a ton of technological change that's happened. We talked about AI, there's things like digital wallets, host of other things. Like, what is Bread doing to assure that, you know, you guys remain top of mind for your partners and don't get lost in the mix, given, you know, new players in the space and, you know, like I said, all these things that are involved?
Yeah, well, part of it comes down to relationships, right? We have relationships with these partners. You know, some of these partners have been with us for 20 years.
Yes.
When they started and we were their first partner and continue to be their first partner. The constant curiosity about how we can make the partnership better really resonates with the partners. That's important.
Mm-hmm.
You know, being, feeling you're part of their business, so we continuously meet with them. You know, a lot of our renewals are far in advance of the, you know, never go to RFP because we're with them and we renew based on, you know, mutual, you know, mutual goals and how we move forward, so we're always with them on a pretty regular basis. You know, there's the quarterly meetings and all those types of things, but we're very much focused on their success, and they feel that. You know, it's not a transaction. It's a relationship where sometimes new entrants, particularly around BNPL, you know, Buy Now, Pay Later, that's a transaction.
Yep.
You know, we build relationships. And that's what's important to the partners. It's not that one transaction. It's those five other transactions that come behind it. And how do we make that work? And how do we drive deeper into their base? How do we help them be successful and grow the pie? And it resonates with partners. Nothing is better than an engaged partner.
Yep. Absolutely. And maybe we'll come back to Buy Now, Pay Later. So wanted to talk a little bit about capital. I like your acronym, Ralph. What was it? Grow, maintain, distribute. But I think it was the three things that you highlighted. You could phrase that if you want. You've spoken about the progress that you've made, you know, building capital, paying down debt. I think you recently issued preferred. Maybe just talk about, Perry, what are the next steps on capital from here in terms of just overall cap structure?
Yeah. So, again, really proud of the work that the team's done and where we've come over the past few years. I think when you and I first met, the capital structure looked a lot different, and, you know, this quarter was really an inflection point in that we hit our capital targets that we set out there, being mid-13% to 14%, with our CET1 ratio. The next step, I mean, we've already cleaned up our debt structure. So we've paid down, as we talked about earlier, a big chunk of our parent debt. So now we have $500 million of senior notes out there at a rate that we think is pretty attractive compared to what it was. So really not a lot more to do on that front.
Mm-hmm.
Don't see any new issuance. The preferreds, we just came into market with a first tranche of preferreds at, you know, $75 million. We do have an opportunity to put preferreds on the balance sheet of up to about 1.5% of RWA. So that would be about $300 million total. So you can think that we're gonna look to issue another $225 million over the coming year or so. But again, opportunistically, you can tell from the size of the deal that we just did, we could've chased a larger deal if we wanted to pay a more of a rate. So we'll look at the market and figure out the right time to introduce that. But that would be the next step.
Yep.
Because by doing so, we'll reduce our binding constraint on capital targets down to 12 to.
Yep.
13 percent.
And I remember when you guys. I've been around long enough to remember when you guys barely had any capital. So.
Exactly.
You guys have done a great job rebuilding it.
Or a balance sheet. Exactly. Yeah.
So I guess, Perry, maybe to build on that, you have, I think, you put out two different buyback authorizations. You got like over, you know, almost $350 million outstanding. How should we think about the pace of utilization? And then that transition that you just talked about from the 13- 14 to 12 to 13, do we have to get all the way there on the preferred issuance to be able to formally do that? Or can we start plugging into that over the next couple of quarters?
Yeah. We'll continue to deploy that authorization over time. So, first and foremost, we've gotta continue to make sure we maintain that. I'll call it 13.5%.
Yep.
And make sure we're caring for growth that's right in front of us. But with the capital accretion that this company is able to generate, I would expect that, you know, we'll continue to revise the authorization in time as we're able to consume it. And then as we're able to, you know, issue more preferreds, that obviously unlocks that as well as you go.
Yep. So you mentioned returns. And I know you've talked about wanting to get to mid-20s returns.
Mm-hmm.
And you've had some successful quarters where credit's been strong. Well, you've been in that range. Maybe just talk about the two to three main drivers to achieving that goal and over what time frame. Obviously, getting the credit losses down is a big piece of it. But maybe just spend a minute just talking about the key components of that.
Yeah. I would say there's really three components for us to get there. I mean, you're gonna see a meaningful step up in our returns next year. But the three key requirements, as you mentioned, credit, getting back towards that 6%, the capital optimization. So us, you know, getting that full $300 million of preferreds on the balance sheet and then driving down our efficiency ratio, which is basically what Ralph talked about earlier. Operational excellence is gonna drive us towards that.
Is there any sort of formalized efficiency level you guys are hoping to get to? Or is it more just broad strokes continuing to make progress?
Every year continues to better than it was this year. Because if every year we deliver positive operating leverage.
Yep.
The inverse of that is your efficiency ratio continues to come down.
No, that's fair enough. Just a couple other areas I wanted to hit on. Ralph, when you talked about repeat partners, you know, obviously you brought up BNPL. Maybe just talk about how this fits into your ecosystem and what the competitive landscape this looks like. And obviously, these companies are growing at a fast pace. But, and people are constantly asking me, are they taking share from the incumbents? Or are these more parts of the market that you guys really don't play in? Just help contextualize.
Yeah. Oh, first of all, you know, we do have the BNPL products.
Yep.
Right? So we have pay in full. We have installment loan. We prefer installment loan because that's where the profitability is, right? Pay in full, there's really not a lot of profitability there. And if you think about the pay in full customer, they're usually skewed towards debit, right? They're the debit customer. And some of them may not even qualify for a credit card or a private label card. So from that perspective, they're not really taking our share. Then maybe we couldn't underwrite those. And if they're, you know, they're debit users. So from that perspective, we don't see it. You know, that said, we have, you know, this basket of products from private label to Buy Now, Pay Later, to installment loan, to proprietary card, to, you know, deposits. We've really expanded our to co-brands. We've really expanded our base.
So we are able to accommodate both the partner and the customer on any type of lending they would like in any particular time when in their you know in their lending journey. So we feel good about our partner you know product set, and Buy Now, Pay Later is a you know a member of that product set, but not our only one.
Yep.
I feel good about that.
Gotcha. Perry, maybe I wanted to spend a minute or two just talking about margins. And I know that there's lots of moving pieces, late fees, revenue suppression, movements in rates, payment rates, APR repricing, a handful of other things. But when you put all those together and you think about the rate backdrop, you know, how do you think about the trend in your base case expectation? Can we see expansion? Or do the negatives outweigh the positives?
You definitely hit on all the moving parts. And,
Every one of them.
No, you're right, but that's the thing, right? Yeah. So, you know, think about the rate backdrop as an example, right? So the pace at which rates come down, we're slightly asset sensitive. So that could put a little near-term squeeze on us. We do have pricing actions in flight that are continuing to accrete and drive, I'll say, increased loan yield. We have an improving delinquency environment. So that would mean you're gonna have lower late fees, which go into yields. That would be a headwind against that. You've got product mix changing and credit risk mix improving. You have higher payment rates. So that could put a little pressure on. So, you know, it all.
Yep.
Kinda comes together. But, you know, I'd say right now I go stable-ish. But it depends. Macro is gonna move it one way or another. And obviously, as I mentioned earlier, look, we're doing the whole bottoms up.
Yep.
Partner by partner. We'll get better guidance in January.
Yep.
Maybe that we're gonna get more revenue guidance and that interest margin because there's so many moving parts in there.
No, that's super helpful. And, you know, one thing that's helped the margin over time is you've been on a journey to improve the overall funding base. We just talked about.
Yes.
Debt.
Yep.
And we talked about preferred. But, you know, maybe let's spend a minute just talking about the deposit side. Where are you on the journey? Where would you like to take this to over the medium term and over what time frame?
Yeah. So one, we're really pleased with the deposit program. We were around $8.2 billion at the end of last quarter. It's continued to grow throughout this quarter. And I expect to continue to see that grow. I mean, Ralph put out a target of getting to 50%. I think that was almost five years ago of our total funding being direct to consumer, 47% at the end of last quarter and growing. You know, we're gonna look at things around our bank structure. And is there things that we can do that would allow us then to fund more of our assets, using deposits? So, you know, we have a simplified structure, thinking about merging the bank at some point down the road. Then we could bring that.
Into more.
Yes. Because in one of our banks today, we can't offer direct to consumer deposits. So that will be helpful. But overall, we're very pleased with the direct to consumer deposit program and expect to see that continue to grow, probably up to 70% over a long period of time. But again, that's gonna be because we can be towards the top of the league table given our expansive margins that we have.
Two last questions I want to hit on now that we're under the two-minute warning. I don't wanna talk about football, Perry.
No time to.
I don't know. No football. No football. It's a soft subject for both Perry and I, much, much more so than me. But, you know, we've spoken about the impacts of, you know, APR repricing. You know, some others have made some tweaks or rollback. Maybe just talk a little bit about the partner response. You've seen, I know, that there's still more to go as it layers in. And are there any other changes you're expecting over the next 12-18 months?
Yeah. I think we've had very constructive, you know, relationships with our brand partners. And some, you know, moved quickly with a bit, with a very strong revenue share in there. So again, that remains in place. Not having to see a lot of rollbacks. Some were a little bit more, I'll say, middle innings coming to agree on some of the repricing. One of the things with all the partners, it's a partner by partner decision.
Mm-hmm.
And they're looking at a competitive peer set. And I'd say there has not been a lot of pushback to roll things back. We're in a good place. We're underwriting, you know, as deeply as we normally will for them. So it's been constructive. And a lot of this also gets reinvested back into their program. So, you know, there's trade-offs when you do certain things. And right now, I'd say we're kind of in more of a BAU mode of those types of partnerships.
So maybe one last question. I think I've asked this for a handful of years, Ralph.
Yeah.
So might not. Why stop now, although maybe a little nuance. So the stock is now trading above tangible book value. I think last year it was below. So good, good for you guys. Obviously, there's still uncertainty around the macro landscape. But, you know, what are you telling investors to get them excited about owning shares of Bread right now?
Yeah. We might have to go into overtime.
That's okay.
So, you know, a couple of things. I tell them, judge us by what we've done and not by what we're gonna, what we said we were gonna do. Judge us by our acts, our outcomes. I think our outcomes have been consistent with what we said we would deliver. And I think that's important. We've got, you know, I think we've gained back integrity with our, you know, shareholders. Our balance sheet is strong. I mean, our balance sheet is as strong as it's ever been. We no longer have to choose. It is, you know, we can, you know, accrete cash capital, and we can use it the right way for our, you know, shareholders and our customers and our partners and our employees. I think that's critically, critically important. You know, credit's getting better.
You know, it's not where it needs to be. It's moving in the right direction. We're signing partners. We've got some good momentum going into 2026, and you know, we have a handle on expenses, you know, so that, to me, are all really good signs of a very, you know, stable company, so you know, buy now and buy often.
I hear the coughing next door. The mic's right on time. So please join me in thanking the team.