Thank you for joining, everyone. My name is Terry Ma. I cover consumer finance at Barclays. I'm very pleased to have on stage Ralph Andretta, CEO of Bread Financial, and also Perry Beberman, CFO of Bread Financial. Thank you for joining. Thank you. Yeah, let's jump right into it. Maybe let's begin with a quick update on third quarter. First, you know how our spend trends are shaping up in the third quarter. Last update, we had earnings, you mentioned July trends had been positive. Have that continued? Yeah, as it relates to third quarter, we just hit a couple of things. First, we're really pleased when we were able to announce the $200 million share repurchase authorization. I think that's an important step in where we are as a company, that the confidence of the executive leadership team in tandem with our board, that now we're able to, we're at the point where we can return some value back to shareholders in the form of share repurchases. That should be the beginning of the maturation of our capital plan as it relates to some of that return to shareholders. Ralph will talk more about our product capital priorities later. The second thing is, in the quarter, we're going to have a discrete tax item, which will be beneficial to the quarter. We'll give more guidance on what that means to the full-year tax rate during third quarter earnings. The last thing I would want to point out for the quarter is that in this quarter, we'll have an increase in revenue share. That will impact non-interest income, so it'll be a little bit lower non-interest income than what you might find, what you would have seen in the second quarter. Specific to your question on sales, sales momentum did continue, but a little bit at a slower pace. As you mentioned, July sales were good. You can almost look at the tale of two halves of August. The first part of August had a little bit more of an acceleration in it, and it slowed down a little bit in the second half of August, but still seeing positive growth year over year. One thing I would caution, because we get this question a little bit on loan growth with the comp versus last year, I think some folks might be forgetting that we had purchased the portfolio from Saks, which came through midway through August of last year. When you look at a comp, when you look at our stats, that was a $300 to $400 million portfolio. You could translate that into 1.5% to 2% loan growth. That now lapsed. Okay, that's helpful. Just the increase in revenues here you just called out, any color on kind of what's driving that and how persistent will that be kind of going forward? Some of it's timing. Some of it is, you know, some of it you pay on a little bit of a lag basis. Some of that should be more seasonal. Again, expect that to largely follow originations. In this case, there's also some renewals that happen and other things that cause some, you know, some one-time impacts within it. Got it. Okay, helpful. Maybe turning to credit, charge-offs were 7.9% in the second quarter, which improved quite dramatically from last year, largely a function of credit tightening. You put out the monthly update this morning. Maybe just talk about kind of credit as you're seeing it in the third quarter and going forward. Yeah, you saw what we posted today. Again, stable versus the prior month, continue that good improvement year over year. We still feel very confident with the guide that we gave that the third quarter will land in that 7.4% to 7.5% range and the full year in the 7.8% to 7.9% range. We remain pleased with the improvement that we're seeing in delinquency. When we say credit tightening, it's a function of a few things. One, I think the general consumer is healing, who's in our portfolio. We have taken credit actions early, and those have beared fruit in terms of seeing improvement, as well as a continued product mix shift as we put on more co-brand product, which has a little different spend criteria. One thing to also point out is that when you're seeing this improvement, we are seeing the improved delinquency that comes with higher payment rates, which is another thing that does suppress our loan growth a little bit. It also manifests itself into some lower late fees. All that we'll talk about more and probably go through some NIM conversation and the like down the road. Got it. Maybe touching or following up on the guides for the full year, 7.8% to 7.9%, that was revised lower from your initial guide of 8.0% to 8.2%. Kind of maybe just talk about what drove this revision. Is it just kind of outperformance or like what is it? Yes, it's largely outperformance in terms of the pace of the credit quality improvement. Delinquencies came down in the beginning part of the year. You saw that through the numbers that we posted. Once you get to July, you have a really good handle on what does that mean then for the balance of the year. Right now we're seeing really good stability in that early entry rate, and we're seeing some slight improvements in the backend roll rates, meaning when customers roll from one stage of delinquency to the next stage. We've said that all along that we needed to start to see some improvement of that. Once customers get into delinquency, they're starting to see some ability to pay throughout the delinquency bucket, so less result in ending charge-offs. All these things are culminating in a better credit quality outlook for us. Got it. That's helpful. Can you maybe just provide any updates on how borrowers with student loans are behaving? Sure. You know, we've still seen no material impact for customers with student loans. We have about 20% of our portfolio as student loans. We know that at the time of underwriting, we can see the customers who have student loans, who don't have student loans, how they perform. They're basically on top of each other from a delinquency standpoint. What we have seen are some customers who have student loans who have not made payment on their student loans are continuing to pay on their credit cards. That means what we saw in the great financial crisis, where you saw consumers doing something called, you know, making payment hierarchy decisions, meaning they prioritize paying credit cards, which has utility over mortgages, over auto loans, over home equity loans, over student loans, because they want to free up some of their credit lines so they can reuse it to buy everyday goods. You're starting to see that now with student loans. What we are seeing, though, are consumers who have student loans who have not paid, you know, we see on the bureaus, their credit scores are starting to decline. They're starting to have more delinquency on their bureaus getting reported. That will impact them from a credit strategy standpoint at card issuers like us, meaning that they might have been eligible for a credit line increase. Now they won't be if their scores drop, you know, a certain amount. Or, you know, they may actually get to a point where their credit score declines to a point where we have to contract their credit lines or freeze their accounts. We do take that into contemplation. In terms of delinquency, payment behavior on us, there's no difference between those that have and don't have student loans at this point. Okay, that's helpful color. Longer term, you previously guided to 6% charge-offs. How do you feel about that guide and your pace for returning to that kind of target? We still feel very good about the guide. The pace of how long it takes to get there is largely going to be a function of the churn in the portfolio over time, the credit risk mix distribution that we have for the new vintages coming on, and just the general healing of the consumer. I think we've said all along it's going to be a slow, steady, gradual improvement. I still think that's the case. The one thing that's unique about us, compared to some of the other big issuers, is that we don't target, we say there's a through-the-cycle view that we should get to around that 6%. We're not driving the portfolio there through contractions that would limit profitable growth. For us, we talk about we're going to write for profit, meaning that every customer, every vintage we put on should deliver a certain return and get us to that 6% view. When we look at month-on-book vintages, is the new vintage tracking to deliver both the return, but also that loss trajectory we're expecting? The new vintages are aligning to, say, the 6%. If you were running at 8% losses, you're putting on 6% new vintage, you're gradually going to bring down the overall portfolio loss rate as it blends in. We could have taken a more dramatic approach if we were maniacally focused on getting to 6% and say, OK, we're going to put on new vintages at a 4% loss rate, and you'd accelerate that pace of improvement, but we'd be foregoing the profit and the return that we like for that vintage. We've maintained, we're going to write for profit. It just means we're going to see a slower, gradual improvement over time. Okay, got it. Maybe turning to loan growth, you touched on that a little bit. You're currently guiding for growth to be flat to slightly down year over year by year-end 2025. How are you kind of tracking to that guide? Maybe digging in a little bit deeper, is there any interesting behavior you can kind of call out with the cohorts? I think we'll be, we're tracking to our growth of slightly down. I think our loans will be slightly down. I think the primary reason is, and I think Perry mentioned earlier, we're seeing payment rates improve. We're seeing payment rates improve across all Vantage scores, which is a good thing. While payment rates improve, so does our loss rate. That's a nice trade-off. We'll get a little less loan growth, but we'll see improvement in the loss rate. Again, it's across all Vantage scores, not any particular segment. there anything in particular that you think is kind of driving that improved payment rate? It could be a whole host of things, right? We're seeing people pay, the zero pay is going to MINDU, and we're seeing that happen. The decline in gas prices is helpful to us. If you think about when energy prices come down, that really affects our customers in our portfolio. We see that, and they have more disposable income, and they tend to pay down a bit more. Okay. Obviously, you, like many of the lenders, have tightened underwriting over the last few years. When would you start to feel comfortable kind of unwinding or loosening those tightening actions again? Yeah, so you know, we tightened underwriting responsibly, right? I think that's the right thing to do when you've got a macro environment that's turbulent. You really focus on tightening and being very focused on where you will loosen. What I think will happen going forward, I think credit is getting better. It's not where it needs to be yet. It continues to get better, but you know, more work to do. We'll look at the macroeconomic environment. We'll look at interest rates. We'll look at inflation. We'll look at payment behaviors of our current base. You know, then we'll decide where and when and how we actually either loosen, keep, or tighten to some degree some of our strategies. It's going to be gradual. It's going to be an evolution, not a revolution. We're not going to just open up and buy a box. It'll be over time and gradual. As the economy improves and things get better, we will continue to be, you know, to open up as appropriate. Got it. I guess looking out longer term, are you still expecting mid to high single digits kind of loan growth? Where do you see additional opportunities in terms of verticals and/or products? Yeah, I do. I mean, you know, we talked about at investor day our mid and long-term targets. Our mid targets were mid single digits and longer targets were higher single digits. I still see that as we go forward. We have a good product mix. We have private label credit cards. We have co-brand credit cards. We have our proprietary products. We have installment loans. We have buy now, pay later. We have a basket of really good products out there that help us with our installed base. That's a really good thing. Our 10 largest partners are booked to almost the end of the decade, at least 2028. Having those negotiations behind us really focuses on how we grow those, how we grow with those partners going forward. New partners have come on, like Crypto.com has come on recently. It's a new partner that really, you know, will accelerate as we go through the next couple of years. As credit abates, it will give us a nice tailwind. All those combinations of things really give me confidence that the mid single digits in the midterm and higher single digits in the long term is there for us. Great. Maybe just switching gears, turning to NIM. You know, it's been lower this year, a function of several different things, credit tightening, lower late fees, improved credit, and just overall product mix. How should we think about the NIM in the medium and longer term, and particularly as you kind of again start rolling through the portfolio? Yeah, so I think you called out a lot of the moving parts within net interest margin. That is one of the hardest things for our teams to forecast, and certainly as analysts and investors alike. Just starting with the fact that there's going to be a little bit of a headwind as interest rates start coming down. We're still slightly asset sensitive. You can think about some of that pulling through, offsetting some of the, we'll call it the tailwind of some of the pricing actions we've taken to put increased APRs in market as what used to be, you know, the late fee mitigation. Even on that one, I think there's a little bit of a misnomer out there that we had hoped did a wholesale pricing change across the entire portfolio. We've been saying all along, we work with our partners, they're very deliberate in how those pricing changes were rolling out. Some partners adopted that early with an agreement on the revenue share or investment back in the program. Some came along a little later in the cycle, and some were never, you know, agreeing to changes in advance of the actual late fee change. They didn't participate in that. Anytime you do an APR change, we've talked about it, it's years before it fully builds in for the ones that we did change. We'll continue to work with the partners on that and how that influences them. It'll be slightly accretive over time. The tailwind that you talk about, I mean, the headwind of delinquency improves is great for payment rate, great for charge-offs down the road. Near term, there's fewer incidences of late fees. That's a drag on yield. You also do have a tailwind of improving losses. You have less reversal of interest in fees. You're going to hit that normalized inflection point at some point, I would think next year or the year after, where the NIM has stabilized from all these counterforces. At the same time, as you improve the credit mix of the portfolio, you know, I'll say better credit risk scores have lower interest rates. Your top line yield is a little lower, but it also has lower reversal of interest in fees from charge-offs. Lots of moving parts, but I expect overall it's going to be pretty stable. We'll give obviously a guide, you know, as we get to each, you know, new year, try to say, hey, here's what we think is going to happen for the year and adjust as we go. Got it. Yeah, it sounds like there's a lot of moving pieces, but at least in terms of the tailwind from, I guess, higher APR, any sense or color you can give on what ending you're in in terms of that pricing rolling through and benefiting portfolios. Sorry, say that one more time. In terms of the APR increases, what ending are you kind of in in terms of that? Ending, ending. I think we are probably in the seventh-eighth inning of the pricing changes. In terms of the impact, it just takes time. There are discussions with partners even now. Some partners are good with it as it is, working on the revenue share component, so we give more back. Some want a better value prop for the customer. That's what we've talked about all along. What we would do is, I can see you as business as usual. With some, they don't love, say, the paper statement fee. We love it because it gets people digital, and the new breed of customer is very digitally inclined. If there are some that are concerned they're getting too many calls coming in, we roll that back in that place. Others are very good with it, and they understand it gets a lower servicing cost. They improve their revenue share. Got it. I guess on that point, what% of your partners have kind of thought about or have you talked to about kind of rolling back some of the mitigants? I don't want to put a sign of% to it. I think it's just business as usual. How do we grow the relationship? How do we grow the economic value of the partnership for us, for them, and for the customer? Yeah, I think that's right. You know, it's an ongoing conversation with partners. Pricing, it's not a one time or twice a year. It's an ongoing conversation, and it's about being competitive, right? They have a competitive set, so we want to be right in the sweet spot of that competitive set. They don't want to be on the high end. They don't want to be on the low end. They want to be right in the sweet spot, and that's how we think about it. Not as, you know, we're going to raise rates to make profits. Like, will we be competitive? Are we going to be able to acquire cards? Are people going to spend on these cards? Of course, it's, you know, a competitive rate. Okay. Got it. That's helpful. And then maybe just, you know, on the allowance coverage ratio, it's lower year over year. A lot of that due to positive credit performance and also a mix of products. What's the outlook for that? Yeah, I think we've talked about this, that you could see where we were going to see some out towards peaking in loss rate, as you saw in the second quarter, could still have a lower reserve rate. We lowered our reserve rate in the second quarter despite having elevated losses because the delinquency is one of the most important feeds into the CECL reserve model. I would expect as credit improves going forward, you're going to continue to see that rate come down. I expect it to be probably pretty stable in the third quarter, but then seasonally drop in the fourth quarter. Does it drop in line with seasonality or a little better than seasonality? It'd be more so dependent on how credit quality is performing, as well as what are the economic outlooks that we put into the model. Again, the last reduction that we had in the rate was solely driven because of the credit outlook, not because we started to adjust back towards more of, I'll call it, a neutral position on the credit risk overlay that we have in there. That's still an opportunity as we have more confidence in what the outlook will be for the economic views that, you know, we still expect to move back towards a more neutral position versus right now we're very heavily weighted into those we call adverse and severely adverse scenarios for that credit risk component. Got it. Maybe we'll switch gears. How are you seeing competition in the partnership space shaping up? You recently renewed your Caesars partnership. Can you expand a little bit on your thoughts on that, as well as how you look at the partnership pipeline? Yeah, not to date myself, but I've been doing this for about 30 years. I've seen partners, and it's as competitive now as it was when I first started doing this. Entrance may be different. Products may be a little bit different, but the competition is there. We are absolutely uniquely positioned to compete well. As I mentioned earlier, our renewal rate, our biggest 10, are renewed to almost the end of the decade. That's a really good stat to have. We have a full product suite. Even when we're competing, we're not competing just on a private label credit card or buy now pay later. We go with a basket of products. We can give you buy now pay later, pay in full, installment loans, private label, co-brand. We can even do deposit raising if we had to with some partners that we do. It's a complete set. That really bodes well with the industry. We have a very seasoned team that's respected in the industry. That bodes well. We've had a really good hit rate. We've had really good response to our offers. As you mentioned, crypto, there are other things we're seeing that'll come down the pike. We feel really good that we can compete up and down the spectrum. Our sweet spot is probably that $100 million to $500 million portfolio. You get those de novo. They're easy to integrate. There's not a lot of custom to do. You get them at a really good price. You grow them, and you don't have to put up a lot of capital in the beginning because you're starting from scratch. Those are the ones that we've really grown. We've had ones that have grown into terrific portfolios like Alta. That was a de novo, and it's now become one of our bigger portfolios. We feel good about it. Competition is always going to be there. We're always going to be competing. It's not just on price, it's about experience and product. We feel good when it's about experience and product because we've got them both. Got it. Maybe staying on the points of de novo partnerships, what are you seeing in the pipeline for that? Where are some opportunities that Bread Financial can tap into? It's across the board. We see it in a number of different industries, and we're pretty happy about that. We see it in furniture, home goods, travel, and automotive. Across the board, we see a lot of de novo partnerships. That's right in our sweet spot because we can get them up and on board pretty quickly. Right across the board, we see a lot of those, and they're good for us. They're not capital intensive in the beginning, and they're easy to integrate. Growing with them is really the right way to approach. Got it. What's the, I guess, level of competition like for those de novo partnerships? What is it about Bread Financial that allows you to kind of keep winning those? It's the, I'm going to go back to the experienced team and the reputation the team has. Pricing always comes into it, right? Pricing is always an issue. Our team is really respected in the marketplace. We're known. We joke about it. We sit on a table. It's 200 years of experience on one side of the table. Not everybody has 200, but pretty close. It's the experienced team, it's the reputation that we have in the marketplace, and the products that we offer. We have a really diverse set of products. A partner could say, you know what? I want a co-brand, and I want to have installment loan. We can give them both. I think that helps us really bode well for us in terms of the competition. Some of the traditional partners just aren't there anymore, right? You think they're off doing different things, particularly the larger ones in terms of acquisitions and mergers. It gives us the opportunity to kind of focus on what we do best, which is these de novo partnerships. Great. In terms of products, comparing private label to co-brand partnerships, what's more attractive for Bread Financial and why? It certainly seems there's been an increasing shift in the mix to co-brand compared to private label. Maybe just walk us through your thought process between them. Yeah, I'll start with every portfolio has a job in the greater portfolio, right? Every portfolio doesn't do the same job. If you think about private label, private label is high returns, but a higher risk, a higher loss rate. If you think about our co-brand portfolios, they're good returns, but the loss rate is lower. It helps you balance to that 6%, right? It helps you balance your loss rate. With the co-brands, which we didn't have, if you rewind us five years ago, we didn't have outside spend. We now have general purpose spend. If you think about where people are spending money, if they're spending money on, you know, non-discretionary, years ago, we wouldn't have been able to catch that spend. We have that spend now. About a little over 50% of our portfolio spend is on that general purpose co-brand spend, which I think is a really good spend. Most of our partners have offered both cards, right? We'll have a private label card and a co-brand offering. The co-brand is, you know, sometimes it's not the top of wallet card. It's a card that they still spend on to get points at that particular partner. We find that the returns are very acceptable and the loss rates are acceptable. It balances, you know, the higher loss rate, but the higher returns in the private label credit cards. You throw in installment loans and pay in full, which are also really good products for us. We even have two proprietary products out there in the marketplace. Like I said, a full suite of products that we can offer any partner. Got it. I guess when you look at your full suite of products, what do you think is most exciting for you, and where do you see the most growth potential? I think there's growth in installment loans, quite frankly. I think there's a lot of growth in installment loans as we move forward. I think we'll continue to see growth in co-brand credit cards as people use these products because they want to, they're engaged with the brand, but they also need to buy non-discretionary items. We'll continue to see growth there. I think private label credit cards will always be a part of our portfolio. It's not going to be the biggest, highest growing part of our portfolio, but I think we'll always be there. I'm bullish on what I like about our portfolio. What makes me excited is we have a lending instrument for no matter where you are in your credit journey, we have an instrument for you from paying for private label credit cards, co-brand credit cards, proprietary card. We can raise deposits as well. We have a full suite of products. That's what makes me excited. Got it. Crypto has been highly topical this year, particularly in the card space. You recently partnered with Crypto.com yourself to launch a new card. Can you expand on the opportunities you see in that space and also maybe just talk about the risks that you're kind of mindful for? Just to be clear, we're not exposed to crypto. It's a natural native currency card. What it has done for us is when you partner with a tech-forward company like Crypto.com and they say Bread Financial has the technology know-how to meet our needs, we've integrated with their native app for acquisition. That's given us a halo effect. As we go to the marketplace, people see that we are tech-forward and we're kind of state-of-the-art in our technology. That has helped us a great deal as we go to the marketplace and look for and work with other partners. Quite frankly, working with Crypto.com has taught us what it's going to, you know, showed us what it takes now to be competitive in a marketplace and things that we have to do. Early days, really good product, high spending, higher spending engaged base, but early days on a product. We were really pleased to be chosen by Crypto.com. Got it. Maybe we'll switch gears and turn to capital. You touched on it a little bit at the beginning of the presentation, but you recently announced a new share buyback program of $200 million. Your CET1 ratio is about 13% and at the lower end of your medium-term guide. How are you thinking about the uses of kind of capital, and also how do we reconcile your share repurchase authorization with the commentary last quarter that you're going to treat capital in the third quarter? Yeah, so I think what the demonstration of the authorization was that we hit the marker in the quarter on the low end. It also demonstrates the confidence we have in continual capital generation, capital accretion in the third, fourth, you know, through the first quarter of next year. We look at, you know, when you're doing an authorization, like any company is doing an authorization, you're looking at maybe the next 12 to 18 months out to see how much available capital will you have, what capital generation will be there, what uses will you have. Like for us, you know, Ralph has said from the early days, we're going to stay focused on our capital priorities, which is to grow the company responsibly, invest in technology and the things we have to do internally, pay down our debt, and then return capital to shareholders. This is the first step in hitting that fourth leg of the stool with returning capital to shareholders. It's just the beginning. What that says is we have confidence that in the third quarter, we will be above the mark where we said we were going to be in that 13 to 14% range, I think about the midpoint, right? We will have some capital return. I mean, the $200 million carries us into next year. It's not all expected to be this year. I think it's a statement of where we have matured to, and now we can do all these things. I would expect some point next year, you know, we'll obviously then have another authorization in market that'll carry us into 2027. I think this is the time now where you're starting to see the maturity of our capital priorities and us delivering what we said we were going to do. When we manage the company as we are, again, Ralph talked about, you know, that mid-single-digit growth in the near term or mid-term and where we go. If we were focused on doing the right thing, make sure we get the right returns and driving ourselves towards that mid-20s% ROTC, which remains in focus as well. I feel very good about the capital, the capital ratios. The other thing that's going to happen next year, hopefully, is if we enter the preferred market, we'll further optimize our capital stack. The binding constraint within our capital ratios have been 13 to 14%. Maybe we can get it optimized to 12 to, you know, 13% over time. That won't happen probably next year alone. It just, again, is a continued maturation of our capital stack and the strengthening of this company. I couldn't be more pleased when Perry and I joined. It wasn't, you know, our aspirations were just what we said. Invest in a business, pay down our debt, keep our metrics high, and return back to shareholders. Now we don't have to choose. We have capital to do all three. I think that's a really good position for us to be in. It's been over the last few years to get there. I'm pleased about the progression we've made. Great. We have a little less than 10 minutes left. I'm going to pause here and open it up to the audience and see if there's any questions. Questions, anyone? They're not this quiet in the roundtables that we do in the one-on-one meetings. Everyone's shy in the audience usually. Maybe I'll have one more. With the late fee rule out of the way, are there any concerns you see on the horizon on the regulatory front for cards? This administration has been more business-friendly, which I think is a real sigh of relief as we move forward. It's not to say there are state regulations that are out there that we have to address. Those are more difficult to address because it's like a house-to-house battle. One state talks about interchange, another state talks about an interest rate cap, and you've got to address those one-on-one. To me, that's where I probably see regulation as a concern for us as we move forward. Settling on tariffs will be very welcome. As you know, we're seeing change. It's kind of fluid. Getting that settled will be a good thing as well. To me, as we look out, we have our eye on state regulation. Okay, got it. One more time, any more questions from the audience? Okay, one more from me. Maybe just talk about tech. You know, AI, you know, has been quite a catchphrase recently. Maybe you just talk about that. Anything you're looking at in that area that could potentially benefit? Yeah, I'll start. I want Perry to chime in too. Our approach has been to be a fast follower, not to be on the cutting edge, but to be a fast follower because we want to invest thoughtfully and wisely. We took a step back and said, where are our use cases? What challenges do we have as an organization? How could AI solve those problems? Instead of going out and saying, I want to invest in AI, now I'm going to go look for a problem to solve, right? I'll give you a couple of examples. One is a requirement. We have to listen to all our phone calls, right? We have to listen to all our calls, right? We would do that, and then you would sample a portion of those calls to look for complaints and trends. We used a whole bunch of people to do that, only listen to 2% or 3% of the calls. Now with AI, we can listen to the calls and then get trends based on what we're learning from those calls. That's a big change. I can go to the regulators now and say, hey, we listen to 100% of our calls. Here are the trends. Here's what we're seeing. By the way, the next step is we're going to take those trends and we're going to train our reps so those complaints, we can abate those complaints. That's a really practical use of AI. We have reps in the field and we have this technology where AI is learning what the customer is asking and how the customer is asking. The reps could pull down on that to solve the customer's issue faster and more satisfactory to the customer. That's continuous learning. Those are practical uses for us, for AI that make good sense for the business that we're in. We'll continue to find those across the organization. If there are no more questions, I think we'll wrap it up there. I'll let everyone off for lunch. Great. Thank you. All right, thank you. Thank you. Questions?