Thank you everyone for being here. Next fireside chat is with Bread Financial. We have Ralph Andretta and Perry Beberman representing the company. Most of you know, I think, what Bread Financial is all about, but let's have you, Ralph, just give a quick overview, describe Bread and, then we'll go to Perry and talk some of the- Sure. We're formerly Alliance Data Systems, but we're full spectrum consumer lending, ranging from private label credit cards, co-brand credit cards, direct to consumer credit cards, buy now, pay later, and Pay in four and installment loan. We also collect deposits. We're a couple of banks, so it's full consumer lending. Mm-hmm. Okay. Just We'll get to Perry on the numbers here. Either of you, big picture, what's your assessment of the economy and the consumer health and, you know, how are you thinking about that? Well, just dandy. [crosstalk] No. Yeah. I think a couple of things. You know, the first quarter, first couple of months are coming in as expected. You know, we're seeing, you know, good spend. We're also seeing some pressure on spend at the, you know, the lower FICOs, the lower VantageScore. We're seeing a little pressure on spend. Mm-hmm. Pretty much what we expected. Okay. Perry, any updates or tweaks to some of the financial expectations for the quarter? Anything that you wanna add? Yeah. As Ralph mentioned, we're seeing some decelerating spend in cohorts instead of pressures. The Middle America, middle-income, lower-income families who are trying to make it with deal with this grappling with elevated inflation. Some of that you're gonna see coming through is we're seeing some rise in loss rates, which is part of the expectation of this type of environment. For us specifically, we have some conversion accommodations that were done live last year that are finally putting February reported numbers to be similar before. We expect February to be at over 100 base points higher than January's numbers. You can see that is just below 80%. I would expect for the quarter that our expenses will be flat to slightly down, but [audio distortion] fourth quarter. For the quarter, it's gonna do that and start to come down after that point and s pecifically around net interest margin, we guided that net interest margin should be essentially consistent with what it was in 2022. Think about it around 90.2%. But the first quarter, it should come in a little better than that because when you got periods with a little bit higher delinquencies, you get more late fees in there. In the second quarter, I expect losses to be higher than the first quarter as transitory items in there from conversion-related accommodations that we did through the back part of 2022. They'll more impact second quarter. Today I have more reversal issues with lower net interest margins. You're gonna have a little bit of movement, but still hold into that full year net interest margin. I think a little bit more dynamics within the quarters. Okay. Can you just so people understand it, the card transitioning impact on charge-offs, just explain that a little bit more? Sure. One of the things when we went through this transition, anyone that's ever done one of these massive, core processing transitions, there's some bumps in the night. One thing you wanna make sure is that you're being, you know, very accommodative to customers that if for some reason their system went down for a period of time or you had an issue with getting a statement out, that you're not doing anything that would adversely affect the customer. You might not want to create that or age that through delinquency if for any reason they were unable to make a payment. We're quick to notify that, "Hey, you got something coming due." Anytime we thought there was an issue of any sort, we just come to a customer-friendly accommodation, and what that would do is, we would take that population that we believe were impacted and hold them, not age them for credit, or through the delinquency bucket. What happens is, you know, the follow that it works its way through as they re-normalize that age. Mm-hmm. Okay. Got it. With all the sessions, we're open for questions, so if any of you have questions. Yeah. I think the most important thing he said, we're very customer-centric. Mm-hmm. We kept the payment windows open. We didn't age customers. We didn't charge fees as appropriate. You know, and you'll see that roll through. Mm-hmm. Not unexpected, but, you know, our focus was to make sure that the customer was not harmed. How important was the transition, I mean, to the new technology? Yeah. You know, We had to modernize the entire company. Yep. You know, it was, you know, we were on a mainframe, dusty, old technology that took forever to change if you wanted to change something. I think it will pay benefits. You know, it's, you know, it's quicker to market. It's a, you know, gives us pricing flexibility. It's a, it's a compliant system. It's always upgraded. It's, you know, it's always upgraded for any new issues or regs. We feel really good about the transition and the conversion to Fiserv. You know, it's a, you know, whatever we save in terms of, you know, operating costs will then reinvest into the business. The real opportunity is, you know, better enhanced data and analytics, better products, and that will drive top-line growth. It will also ability to buy our first COBOL program, which is no longer in alignment. Yeah, [crosstalk] you're gonna see some of the noise still coming through. One thing with Black Honey, I think when we get through May, it'll be our high point, probably more than 80% loss rate for that month. Yeah. You know, we should see all that advance. Yeah. Funny you say that. My colleague and I say you have to find the COBOL programmers in the nursing homes- Right where you need to go find it. Right. I haven't talked about this. I'm gonna watch Brian's face drop. I think that's why he's leaving. Yeah, he's running. There's a lot going on at your company. There's a lot of transition. You transition technology. You've got some portfolios that are coming in and out. You probably spend most of your time answering questions like that. Just step back and give us an idea, what are you trying to do and what are you trying to build? Sure. You know, we're trying to turn around a company that had some... You know, that didn't fare well in the marketplace. It was confusing to the market. Were we a credit card company? Were we a a technology company? Were we an information data management company? The first thing we said is, "We've got to simplify this business." You know, we gotta stand for something. We can't be all things to all people. We simplified the business. In simplifying the business, you know, we, you know, we revamped the board. You know, focusing on financial services, we brought in some financial services heavyweights. John Gerspach in particular is former CFO of Citi. We brought him in as a board member. Then we leaned heavily into e-enhancing our product set. In 2020, we were a one-trick pony. We were private label, mall-based. We wanted to enhance that product set. If you look at us today, we have a diverse portfolio. We have enhanced product set. We have a portfolio with different portfolios to different jobs. We're not focused on any one category or one vertical, and it gives us some flexibility. We also wanted to upgrade the management team. The management team had been there for a while, and we wanted to upgrade the management team with seasoned professionals. You see Perry as a seasoned professional. Val Greer joined us as a professional. We have a revamped business development team. There were really good people in place. We just wanted to have a melding of new and the old in the development team. Our view was, we wanted, at the end of this rainbow, we wanted our investors to see, one, we were transparent and clear, and that the story we're telling was a consistent story. When we say we're going to do something, we demonstrate that we are getting it done. Two, that our earnings are not jerking all around. They're clear, repeatable, quality earnings and that's important to us. Three, that our balance sheet was strong. When Perry and I got there, it was hard to find a balance sheet, let alone build it. We built and we'll continue to build a strong balance sheet in this organization. We're gonna pay down our debt at the parent. You know, our ultimate goal is to return value to shareholders. Mm-hmm. You know, we wanna do that from a position of strength, as an organization. Yep. How far along do you think you are to... I mean, it's never ending. I understand that, but- You know, I think we'll probably just teed off on the back nine. You know, we, you know, we've got through some of the, you know, some of the heavy stuff. You know, listen, taking the job three weeks before COVID hit. Mm-hmm ... you know, was, you know, I had three good weeks. Well said. was, you know. Then, you know, it became, "Oh, you know, let's change the company," to, "Okay, let's make sure we have enough liquidity. Let's make sure our employees are safe and sound. How are we gonna manage through this thing?" That, there was two years of that. You know, in that process, In some ways, it raised our... It raised the concerns that the company had, right? You knew who your A players were, you knew who your A players weren't, and you knew you had to replace, right? Because you needed field generals. That, you know, quickly we found out who our good people and the field generals were, who they weren't. We had some product gaps and said, "Boy, you know, the world is changing. You know, people aren't going to the mall anymore, aren't going to the store. They're buying digital. Boy, we've really got to catch up on that. We've got to make those digital investments. We bought Bread, we enhanced our. You know, we started investing significantly into digital, right? We had some product gaps. We couldn't be, you know, just private label. We had to expand our product set. You know, that was the heavy lifting. Yeah. We've brought in some good people. Then we began to, you know, work with investors to restore credibility and say, "This is who we are, this is what we do, this is what we stand for, and here's, you know, what we say we're gonna do, we're gonna do." We've been more transparent with investors. We're gonna talk about, you know, GAAP earnings and quality earnings, not, you know, not except for, instead of. You know, we're gonna talk about real earnings, and that's, you know, what we've done. Now, you know, as I get to the back nine, we'll continue to invest in digital. You know, we've got some challenges. The macroeconomic environment is a challenge now. You know, I'm sure you'll get to the CFPB and rules, and that's a challenge. Those are challenges that, you know, my seasoned team has met in the past, and we'll, you know, we'll meet and conquer again. Yeah. you know, we've won our more than fair share of partners. Mm-hmm. The beauty is we can go up and down the scale. You can win a partner like the NFL and AAA, and you can win partners in that $100 million-$200 million range. Those partners are great because it's limited customization, it's good returns, and you get five or six of those, that's $1 billion of a really good returning portfolio. Mm-hmm. You know, I feel we'll continue to do that. We'll continue to build the organization and be responsible with growth. Okay, that's good. I have to say, as an analyst here, the transparency on the numbers has been great. These two guys have done a great job with that. Yeah. There's a lot of stuff to get through. Yeah ... to get over in terms of the portfolio movements and the loss rates and things like that, but. You know, Like, the earnings now are just starting to get clearer. Yeah. Right? There's not a lot of noise in the numbers. Yeah. Okay. You showed up and you thought three weeks later, you're gonna shelter in place for a couple of weeks and bend the curve. Yeah. You know, we thought, you know, it's like when the, when I was in Asia, you know, the bird flu, [audio distortion] whatever. [audio distortion], it's how calm it could be, right? Then it went on over and over. Okay, we'll close the office for a week. We'll close the office for two weeks. We closed the office for two years. But again, it's interesting. I think in a larger company, it was harder to accommodate, you know, the remote workforce. We switched pretty quickly. You know, probably two or three weeks of disruption, and then we have people working at home, and they were productive. It was, you know, it was an exciting challenge to say the least. Yeah. Yeah. Okay. You brought up the CFPB, we might as well tackle it. Well, I, you know, before you did, I'll bring it up. Yeah. Listen, I, you know. Just frame it for people so they understand kind of... The CFPB came out with a proposed new rules on late fees for $8 as opposed to what it is today in Safe Harbor, $38, whatever that number is, a real reduction in late fees and some other rules around that. Our perspective is it will have a number of unintended consequences. Credit will be more expensive and there'll be less of it. You know, we're going through the proposal now, as a, you know, a bank and being safe, you know, safety and soundness, we'll close those gaps. You know, there are a number of ways to do that. We'll do that. I think the, you know, quite frankly, the estimate on what the late fee cost is low. It's not about collecting a late fee. It's the cost to lend. Mm-hmm. That's what the late fee is part of that. You know, we'll work with our partners. We'll work internally to think through, you know, how you close that gap. We're, you know, we're working through it now. We're in the comment period. We don't expect it to be a 2023 issue. I think it'll be a 2024 issue, but we'll be prepared for it. Yeah. Okay. I was just gonna ask the cadence of it. Yeah. How should we think about that? I mean, maybe you just answered the question, but... Yeah. You know, as we have the comment period now. We'll go through the rules. I think, you know, they'll propose something probably back end of the year. You know, based on what the proposals are, we'll, you know, pull down on the levers we need to pull down on. We've been planning for it prior to the announcement because we, you know, you hear it in the wind. We'll, you know, based on what it is, we'll be able to, you know, pull the levers we need to pull to close the gap. Perry, is it unfair to talk about the magnitude of it, or is it just too difficult to really know how this all? Yeah. I'd say it's, I wouldn't say it's unfair to ask the question. It's certainly fair. It is, challenging to quantify the magnitude because it depends where the final rule lands. Mm-hmm. The levers that we use to remediate. Is it a, you know, across the board, it's higher APRs? Is it a combination of some additional fees for credit or the change to retail share agreements with the brand partners? As Ralph said, is the ultimate where you start to restrict credit at certain points. There's a number of levers to pull to mitigate whatever the impact ultimately be. Yeah. Messy calculus. The retail share arrangements, agreements, how quickly can you make changes to those if this happens? It's a process, right? Okay. The goal of this is today the consumer is paying those late fees. Ideally, you make it up in pricing so that whatever the financial impacts are neutralized, and therefore, you know, from a retail partner, they're left whole, we're left whole, the consumer's whole as they are today. It may just be more consumers across the board paying for those that go late instead. It just depends how it all plays out. You know, ultimately, we're not looking to, you know, mitigate the financial impacts to us by the retail partner paying for it, 'cause, you know, we're in this together as in the partnerships. You wanna treat your partners like partners, not like vendors. No. That's true. You know, we'll work through those issues, and we'll get to a spot where, you know, we are able to mitigate the issue. Yeah. Where it matters is when you end up in a situation where there's a cohort of customers who may not hurdle for us anymore the way they might have previously, if you can't fully make up that late fee income for that population. For the retail partner, they may wanna forgo their revenue share or bounties for those accounts because for them, it unlocks the sale. You know, for them it's the merchandise they're trying to sell. For us, it could increase profitability, that's not the, you know, the first lever you're looking to do from top to bottom. It's sort of the last thing or we just don't underwrite them. You know, going back to a greater talent, across the board, my leadership team has been through this, you know, a greater magnitude with CARD Act. We know that, you know, we know what the leverage to pull, we know where the focus has to be. You know, we'll get through it and, you know, come out the other side, but there will be unintended consequences. Yeah. Absolutely. A lot on your plate. I mean, there's a lot of stuff- Yeah. You guys are, you're dealing with, but through it all, you're starting to add business wins, nice business wins. Yes. Are there things you can do today that you couldn't do before, say, you did the conversion or when you were working on other things that you were trying to clean up? Yeah. You know, this, you know, when you're converting technology or buying technology, like we bought Bread, we bought the platform, there's always some cleanup you have to do, right? You have to make the platform compliant. You know, we're a bank, we gotta be compliant. That's, you know, clearly job one. The new technology, as I said, you know, faster speed to market, gives you more pricing flexibility. Some of the data analytics that come out of it help us make decisions with partners that much quicker. You know that as we put the conversion in our rear view mirror, which is, you know, hopefully, you know, by the end of the second quarter, there won't be any lingering effects. The focus is now to, you know, use the capabilities that we signed up for as we move forward. Yeah, we are adding partners. You know, AAA was a terrific add at the end of last year. The NFL was a nice add. Those are big partners for us where, you know, we won them from places where they may have been a partner, but not a big partner. We revamped the value propositions. We're very focused on, you know, making sure that we got, you know, top-notch data and analytics to acquire cards, to increase spend. That's, you know, that's how we're gonna, you know, part of the way we'll grow this business. Mm-hmm. For what it's worth, I get the AAA emails all the time. Yeah. Trying to get me to open up a card. Good. I hope you get one. Maybe I should. I'll mow your lawn[crosstalk]. I'll come mow your lawn. Okay. When you it's interesting, right? Because you sit back and you think about it, if you're not familiar with the business, you think NFL, AAA, interesting, right? How big is the opportunity? Do you see opportunity everywhere you look? We do. You know, those are marquee names, right? NFL, AAA, really marquee names. Ulta and Sephora, really marquee names. We renewed Ulta to a longer-term contract. Victoria's Secret has been a part with us for a very long time. We have a lot of verticals, and that beauty vertical is really humming. Beauty continues to grow. But we see, as I mentioned, we see that value at those new and emerging middle markets, $100 million, $200 million. I'll give you an example of one that we, you know, we work with. I share B&H Photo, you know, it's headquartered here in New York. Mostly online audiovisual equipment. Great partner, growing faster than we thought it would grow. That's saying, you know, that's, you know, it's not a household name, but it's a name people know that are in the industry and are familiar with and are using our services to, you know, to buy equipment and growing faster than we thought. You can lean in there, quite frankly. We, you know, for the first time ever, we have direct-to-consumer credit cards. We have two portfolios. One was designed to just save customers. That portfolio has 1 million customers in it now. That gave us the confidence to go to market with the American Express double cash credit card. That's been, you know, continuing to grow. Through all this, we're collecting deposits. You know, our deposit business has increased 77% over the last couple of years, which helps our funding. We'll continue to grow deposits to offset our funding costs. When you say save 2% cashback? What did I say? Double cash. 2%. 2 is double cash. Double. You know what? It's all the same. I put a double cash card at Citi. My apologies. 2% cash. That was better than double. yeah. When you said save- Yeah. that just means somebody's gonna leave, and you have another product for them to... No, I said, what? Save. [audio distortion] The commodity card. The commodity card. Yeah. In the past, when, if a retail partner was leaving or if they went, you know, bankrupt and you had to do something with the portfolio, the former, before Ralph got here, they would sell the portfolio into the market, so the assets would leave, the customers leave. Now you can rebrand them into a branded product. Right. That's typical what you see at all other large players. No injury card. Which was very foreign to me. I'd say, we just sell the portfolio, let's try to save it. We grew that portfolio to 1 million customers. Yeah. Okay. Sorry. Yeah. No, that's okay. The commercial bank discussions are all about deposit betas. The margins are much thinner than yours. You, you're kind of, I don't want to say proud of your deposit beta, but explain your deposit gathering strategy. How far do you want to take this? Sure. Are you concerned at all about deposit beta, so to speak? I know. Look, it's always great if you can, you know, lower the deposit beta, [audio distortion]? It's because of the way our margins are, as you mentioned, really strong, right? We've got over 19% net interest margin. Variable priced assets that go up with Prime. If, you know, we wanna raise our deposit rates in lockstep with Fed funds increases or Prime, we could and stick to a, we'll say, a neutral net interest margin approach. We're not trying to create rate arbitrage. Yeah, we are proud of that. We're not passing along 100% of that increase so far. We're slightly acid accretive. Because we want to increase deposits as a% mix of our funding because of our star point, we're good staying towards the top of the league table and still planning to grow the business the rate we plan to for the future. Mm-hmm. You know, we're, you know, a bit slow cost with digital. It's helpful to our funding. Yeah. Okay. Okay. capital, Perry, anything you want to touch on there in terms of your capital goals and where eventually you'd like the company to be? Yeah, I think overall, you know, our priorities have remained very consistent. We said we're gonna fund, you know, profitable, responsible business growth, and we're doing that. Continue to invest in important things in the business in terms of capability. That Ralph said is the priorities for the firm. We're doing that. We are planning to increase our capital levels, and you've seen that, you know, since the time I started. Ralph was joking about not being able to, you know, find a tangible capital ratio, but we're getting up close to the marker that we said we were targeting to at least 9% minimum TCE to TA ratio. With the gain on sale, we're seeing this in the first quarter, coupled with some provision release, even with increasing our provision rate, that will have a nice step-up in our capital levels. We've established, you know, company-wide, enterprise-wide capital targets for the company that we'll share more about when we get to our investor day later in the year. We're on the path of where, you know, we wanted to be when we set the agenda 18 months ago to improve our balance sheet. We are fortifying the balance sheet. Our goal then is to get up to peer levels with disciplined internal operating targets. I can tell you from, you know, speaking to the regulators, they're very pleased with the progress we've made and the advances we made and the discipline we're putting in place in how we operate the company. That will determine when we look at our three-year growth plans, how much capital do we unlock at that point. Okay. Good. We do a lot of modeling with Brian, and he does a great job of helping us tune up the models. Your stock looks cheap. It comes back to this credit question, and I know we kind of started with it. I listened to one of the credit bureaus yesterday who presented, and they were talking about the K-shaped recovery, and then the middle was okay. Let's just go back to it. You talked about a little bit of pressure for either of you, a little bit of pressure on, you know, some of your lower-end, you know, subprime clients. I don't know if you wanna call it that. What is the assessment? What are you really seeing in the economy? Is credit gonna get worse for you other than normalization, or what's your overall assessment of it? Yeah. I think the way I think about it, and I really don't understand the K recovery. I think we're past the point of recovery. We're the K economy. Okay.[crosstalk] [crosstalk] I think that's the right-. Fair enough. The right way to think about it. The reason why the Fed has been so focused on taming inflation is exactly for what you're saying. It's a regressionary tax where it's hurting middle American, moderate-income families across the entire consumer base. For us, I look at it as, you know, the portfolio of the consumer has a cold. They're not severely ill, but they all don't feel well. The sooner we get inflation under control, they'll all feel a little better. The longer inflation remains elevated, the longer people don't feel right 'cause they're having to tackle and grapple with higher utility bills or higher grocery bills. They're doing what they can to make ends meet, but they're living a little bit more maybe paycheck to paycheck and, you know, making the choices in spend. You're seeing a little bit less spend. You're seeing shifts in spend, but it is putting pressure. Inflation is something that is concerning. While employment remains very strong, even though I think I saw something today that perhaps open jobs came down some, but payrolls went up. There's still this dynamic if they can pick up additional hours. They're able to get a second job if they need to, so they're doing what they can. I don't think there's systemic stress, but we're past the point of normalization for the near-prime customer because they've already used up their stimulus savings. They're now grappling with the reality of this period of inflation. Hopefully, that does moderate, you know. The outlook for us is that, you know, does the Fed go too far where jobs do get restricted, end up with higher unemployment later in the year, which affects really more 2024? Right. That should then replace this period of elevated inflation. There's lots of possible outcomes, and that's what, you know, I think we're all wrestling with and being, you know, prudent about pulling back on risk along the way. You know, you probably saw from our guidance, we pulled down on our expected growth rate this year for that exact reason. As the consumer's moderating, as are we in terms of some of the underwriting. Okay. You have this charge-offs rising but unemployment relatively flat. How do you think about that relationship? If the unemployment rate does deteriorate, how should we think about that? Yeah. Sure. When I think about the charge-offs rising, you know, for us, you're gonna have this first and second quarter that are impacted because of this conversion stuff. Yeah. If you were to take normalize, you know, that noise out, the second half of this year would've been is higher than what 2022 was. That's because if you think about our through the cycle loss rate of 6%, you have periods above, you have periods below. When you're above, you're in a more stressed environment. Our rate will be above 6%. You're in this period of stress even with unemployment being low. That's the effects of this elevated inflation and the pressures it's putting on the consumer. What it means long term, it really is dependent on how quick does it come down. I don't believe you have a scenario where you have a compounding effect of high inflation, high unemployment. Right. Our outlook for our loss rate assumes this elevated inflation throughout the year. What is the investor date planned? We haven't landed on a date yet, but probably sometime in the fourth quarter. Okay. By that time, it's all gonna be clean, right? Mm. [audio distortion] I mean, there's a lot of accounting nuances, is what I'm saying. Yeah. Q1 and even Q2... Yeah. Well, obviously we'll have a better perspective. Yeah ... where the CFPB is coming out. We'll have a better perspective on inflation, you know, the impact on the economy loan. You know, a lot of the, you know, a lot of the questions now will be answered towards the back end of the year. Yeah. I agree. Yeah. It's getting clearer. There won't be any new ones by that point.[crosstalk] What's that?[crosstalk] Sure.[crosstalk] There won't be any new questions by then.[crosstalk] Yeah. I'm sure. I'm sure. Yeah. Yeah. All right. Well, good. We're out of time. Thank you guys for being here. You bet. All right. Thank you.[crosstalk] [crosstalk] Thank you.