All right. Good afternoon, everybody. We have Bread Financial with us here today. Before we get started, I'm going to read some quick disclosures. For important disclosures, please see Morgan Stanley's research disclosure website at morganstanley.com. Research disclosures, the taking of photographs, and use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. I think I get faster every time I do that. So with us today, we have Perry Beberman, CFO of Bread Financial. Perry, welcome back. I think this is, now your fourth year, seasoned vet of the conference. I think that sounds right. Welcome. Why don't we get right into it? Before we dive into some of the bigger picture questions, can we get a quick update on what you're seeing on the consumer quarter to date? Last quarter, you did note some evidence of a pull forward, you think, in spend ahead of tariffs. Are you seeing that continue? Has your view shifted? Can you also talk about what you've seen in your credit sales and how that's evolved so far this quarter? Yeah. So, speaking of the quarter, a few things. One, on the credit stats that came out this morning, they came in pretty good. Pleased with the progress we're making. You think about where we are now through May, I think the trends are coming a little better than we expected when we, you know, set up the outlook to start the year. Encouraging signs there. I do want to remind everyone that we still anticipate a $13 million impact in the quarter, or about 30 basis points of impact in the quarter for the NCL rate for second quarter. That is related to the hurricane-related accommodations that we had put in place for consumers who were impacted by those storms, late in 2024. That will be the end of it. As you get through June, June's impact will be a little higher than what it was in May, but in aggregate, $13 million or 30 basis points of a loss rate. As it relates to credit sales, credit sales continue to be pretty good. We're seeing some improvement year- over- year comp-wise and expect to see an increase in second quarter versus first quarter. To remind folks that when that occurs, you're going to have a little more drag on the RSA in the second quarter, so impacting non-interest income accordingly. The best correlation is to look at origination trends and then make sure that, you know, you factor in that RSA drag. It's really, you know, you pay that upfront, but then the loans are on the books that roll in your interest on going forward. Any sort of way to think about that impact sizing-wise, or? No. Okay. Just on the May to June dynamic, less of an impact in May, but even with that impact, still pretty good outcome for the month on the credit data, but more to come in June for the hurricane impact. More impact will be in June. I would expect a slight tick up in the NCL loss rate in June compared to May as a result of that. Other than that, you look at year-over-year comp, you know, for May being down 83 basis points, even with the hurricane impact in there. I think, you know, we're encouraged by the trends that we're seeing. Okay. Since we're on the topic, does that have any impact on how you're thinking about the full-year guide, 8-8.2%? It does, in that, you know, where we are right now, had you told me at the beginning of the year that Liberation Day would not have occurred and there was not pressure on tariffs and what that might mean to consumer payment behavior in the second half of the year, I would have told you that, you know, we are probably going to be maybe below that low end of the guide. Right now, I would say I feel very confident in the low end of the guide at the 8% level. I want to see June come in. I want to see a little bit more in terms of this tariff resolution. Today was an encouraging day, right, where it sounds like, you know, the high end, the top end of tariffs is starting to pull down. The question is, how does it play through the economy, consumer sentiment, spend payment, any uptick in unemployment? The back half of the year is, you know, not necessarily playing out as optimistically as what I think we thought at the beginning of the year, where you're going to have that soft landing with, you know, continuing improvement in inflation, lower interest rates. It feels like the improvement is slowing. You know, again, I think we'll be able to guide a little tighter on that, after we see the June data, because then you have your delinquency formation that will play through the rest of the year. And then really what you're talking about, do you continue to see the improvement in roll rates that ultimately manifests itself into, you know, the ultimate loss, losses for the year? As of right now, things are, you know, I'm encouraged by the trends that we've seen, stability, and that's been a good thing. Okay. So it sounds like near-term shaping up positively, but maybe a little bit more uncertainty in the back half of the year, more to come there. Another near-term item to address, the bond tender you recently did. You announced a cash tender to purchase up to $150 million of your 9.75% senior notes maturing in 2029. Looks like we got the results last week. Some good demand there. Can you talk about why you pursued this, what your plans are from here? Yeah. Thank you for bringing that up. We did have good demand. We had over $500 million in opportunity, you know, through the tender offer. We only took $150 million of it, right? We're looking at the cash position we had. When we have excess cash, you know, keeping a solid liquidity buffer, you know, putting it into the Fed at 4-5% interest rate when you can take out some bonds that were at 9.75%, which is good interest, you know, rate management there. We did that. You know, going forward, we're going to continue to see what kind of growth is in front of us. We'll, you know, maybe if there's a time to be opportunistic. Again, to remind you on those bonds that were, you know, senior notes, $900 million were outstanding, down to $750 million. We have a first call option that is in, I think, May 15th of next year at 104 and seven-eighths. You know, we were able to do it at 107 eighth, a little bit of premium. That premium will hit in the quarter to the amount of $13 million as a one-time, non-recurring item. I do not know if it will end up non-recurring or not, but bottom line is it was a $13 million one-time hit. That will become net inter, you know, NIM positive for us going forward. It is a pretty quick payback on that, you know, the spread between treasuries and taking down the 9.75s. You know, as we look into next year, you know, for the rest of this year, you have the interplay between making sure we get to our capital levels and then how do you use that cash, make sure you keep the right amount of liquidity buffers, hitting capital levels, supporting growth, and so the interplay of all those will come to play into what we do with the remaining senior notes. Knowing that March of next year, we have the option to do some refinancing of it. Okay. Great. Now that we've gotten some of the near-term items out of the way, I think are we, are we good on the near-term? Anything else to add? I'm good on the near-term. Okay. Great. Let's maybe shift back to the big picture for a bit, Perry. You're coming up on four years with Bread. The company's gone through quite a transformation in that time. Talk about how Bread's changed and why investors should care about that. What maybe don't they appreciate about Bread now? I hope folks appreciate what we've done. I mean, we have been on this journey. When you say four years, it's crazy that it's already been four years. The amount of transformation that this company has gone through has been pretty remarkable. When it started with the board having the vision, I'll say it was five years ago, to simplify this company, right, to shed all non-related businesses that, you know, and really focus on the two banks and the financial services component of this, brought in a, you know, a CEO in Ralph Andretta, a seasoned financial services executive, who then formed the management team of the likes of Val Greer, who came in with a lot of financial service experience, myself and others. You know, elevating people from within the company who were in a lot of those bank roles of financial services. We are really trying to operate with the financial discipline, capital discipline. You can see it in the results. I mean, this did not happen overnight, but four years seems like a short period of time. It has been just by a maniacal focus on being disciplined, and building out better enterprise risk management processes, which takes years to get that type of uplift in that. You know, the focus on, you know, you've seen it through the financial results, the capital levels, the capital discipline, the capital policy, liquidity, liquidity risk management, things that matter to regulators, you know, the FDIC, matter to rating agencies where we, you know, we're able to get our, the first time we had a rated, you know, bond, you know, back in the end of last year. All the things that we've been working towards is starting to play out, and you're starting to see that inflection point. What matters is we're hitting the markers, right? You saw the first material buyback, stock buyback in the first quarter as a result of that when we introduced subordinated debt. We're really close to hitting the targets that we've laid out there. The discipline, the capabilities, hiring a new chief technology officer who's upskilling the team and modernizing how we deliver tech, all these things are helping us hit our stride. For us, you know, the economy is what it is. You got to navigate it. We have a seasoned team to do that. The transformation of this company from what it was, you know, four to five years ago to where it is today is pretty remarkable. You know, you've also shifted the business mix towards quality, co-brand. Talk about how you've been able to win deals, or win the deals that are actually driving this outcome and the continued path there. What strategic goals and KPIs are your partners most focused on, as you engage with them in those conversations? Sorry. Yeah. I mean, in the business of partnerships, it's a partnership business. We have a retail partner, a co-brand partner. A lot of it comes down to relationships. You know, when you're pursuing a new partner, you're meeting with them many times. We meet with them at all different levels and across different functions. Before, it might have just been the person who is the relationship or the business development person out there. Now, our CEO will go meet with them. I'll meet with them. We'll bring our Chief Technology Officer to meet with their Chief Technology Officer. How can we integrate? You're having multiple functions come to the table to bring the capabilities, to have an understanding, to build the rapport, the relationship. Again, it's a partnership model, which means you are partnering together for the greater good of both entities. When it comes to what they're looking for, they want to look you in the eye and believe that you're going to be able to deliver on the promise of helping them better understand their data, analytics, marketing opportunities, helping them construct a value proposition that will resonate with their customer to, again, unlock more sales or more engagement, more loyalty, and then have an appropriate set of economics. It's very easy for, you know, two finance guys in the room. We can hash out what economics might look like. It's way more than that. That's what they're looking for, is who can help them unlock the sales, but also retain loyalty and engagement with their customers. Okay. Makes sense. You know, one other question I get is whether the retail card industry faces some secular growth challenges as, you know, buy now, pay later and other fintechs are competing with you. What's your pushback there? What do you think folks are getting wrong with that assumption? You know, I think there's always going to be competition for lending. And when I think about buy now, pay later, and I've said this before, there are probably only about 30% of the people who get buy now, pay later would qualify for private label cards or the low-end credit cards. A lot of people are displacing debit card usage with buy now, pay later. Before, they would swipe their debit card. Now, okay, they maybe can't afford it right away. They want to get it paid out of the next paycheck. So they're doing some more of that split pay, buy now, pay later. and that's just a different cohort. Buy now, pay later tilts a little more subprime than prime, where credit card, you know, we could be near prime and up. So the, there is some crossover. There could be some pressure on the lower end, but I don't think it's something that's pressuring, you know, your prime plus customer. Maybe puts a little more pressure on the near prime. You know, we talked about Bread's evolution on, you know, shifting to quality and co-brand. Another key aspect of that evolution is your credit and your underwriting. You have improved that subprime mix from about half of the book in 2020, now down to the low 40% today. Considering that shift, is there maybe a case for you to outperform your through-the-cycle loss target of about 6%? How do you think about the risk return for your business as that mix shift continues on from here? Yeah. Yeah, I think there's a, it's a really good question. You know, I'd like to say yes, we could outperform it if the risk mix continues and the overall credit environment improves. The challenge is, you know, you mentioned, you know, we're close to that 43% of subprime. Given where we are with the macro and how we got here in that a very large portion of Americans are feeling the pressure for what's been the past four-plus years of elevated inflation, that persistent impact to their, I'll say, the average basket of goods they're purchasing. Wage growth has started to improve there. It's going to take a while to get back down to that 6% through the cycle just because it needs to work its way through. It's not like typical unemployment-driven, you know, credit cycles where a stripe of customers go bad up and down the risk score. Then everyone that's left, the 98% that are left, are called good, meaning they have good credit. You end up with a cleaner portfolio. Here, everybody's still working their way through it. As you go through the cycle and you get out there, it's possible that with the different types of partners that come online, a little bit higher credit scores, it's possible to come below that, the 6%. It's really going to, as you said, be dependent on risk mix. At the same time, because of our underwriting approach, we don't target a loss rate when we are underwriting a particular customer cohort. We are targeting a return on capital. We assign a different type of economic capital depending on if you're a 2% loss expectation cohort or you might be a 15% loss cohort, which can still be very profitable if you have a 35% interest rate and 15% losses. Lately, as you can imagine, there's still money made there. It's when you underwrite deeper, how do you end up? No matter whether it's co-brand or not, we're underwriting for return less than rate. Right. Less than loss rate, if that makes sense. Partner-dependent, you know, their goals and everything else, right? Yep. What about the credit action stance? You, you've taken some tightening actions in recent years. Where are you on that today? Are you continuing to tighten? Are you largely done? Are you thinking about lifting? What would you need to do to start lifting your foot off the pedal? You do not target a loss rate, but is there maybe like a loss rate you want to get down to before you think about doing that, or? I wouldn't say there's a loss rate that we have to get down to to consider some unwind of the credit actions. In fact, I'd almost argue that if the time were right and you can unwind some credit actions by increasing credit lines on customers who are performing really well, that can bring in some new balances, better balances with better risk profile that could help your loss rate eventually. It can actually help you work the loss rate down. In terms of credit posture, we've been in a pretty restrictive posture, expecting that summertime we could have started to unwind some of these things based on what the original hypothesis was or thesis was on macro. Right now, I mean, anybody who's seen the latest Moody's outlook looks like it's softening now in the second half of the year. Makes us a little more cautious as the macro inputs are a variable into the decisioning on expected losses. Is now the time to do some of that unwind? I think we just need to be cautious, prudent. When I say that, there's still always been little pockets that you're doing some unwind to while you're doing other restrictions in other areas. It's never been, you know, binary. It's all off or it's all on. It's always going to be as we unwind, it's going to be slow, gradual as you see the credit improvement, as you see the on-us behaviors look better. It'll give us confidence that, coupled with the macro outlook, to then strategically do some things to, you know, do some more line increase programs, maybe a little higher initial line assignment. In terms of approval rates, that, that'll still end up being kind of where it's at because we underwrite as deep as it makes sense for the profit that we expect. Makes sense. I think that was quite clear. Could have done summer, but maybe that's on pause for now until you learn more. Yep. Let's talk about one aspect of credit or credit quality. Just, you know, the recent focus on student borrowers. You've been quite clear that there's been pressure on the low-income consumer in this K-economy. What are you seeing today from this consumer? Is any of this spreading to middle income, particularly as student loan payments have started? I mean, the middle-income consumer is quite impacted by student loans probably. So anything you're noticing there? Yeah. You know, we have gotten a lot of questions on, student lending is something that, you know, we've been trying to be transparent about for a while, that we do monitor our consumers that have student loans. About 20% of our population has a student loan on their credit bureau. What we've observed is they perform pretty much in line with the rest of the population, whether you had a student loan or not. Again, they were benefiting from not having to make payments on those student loans. Now, when we underwrote those customers, we underwrote them with the expectation, when you look at their discretionary income, that they were going to have to make that payment. So they had a cash flow at the time of underwriting as if they were going to make the payment. What we've seen since, now we're able to see customers, are you making, are they making payments on those student loans or not? What we can see is a bifurcation of customers who have made payments on their student loans. Their delinquency on their credit cards with us has remained stable, consistent with the rest of the portfolio. There's been no material uptick. What we've actually seen with those customers is their risk scores have gone up. They're improving. Customers who are resuming payments on their student loans are seeing an improvement in their risk score, which would tell us down the road that's going to make them more eligible for a future line increase. Right? That's shown good payment behavior, strength of the customer. You have other customers, who have chosen not to make their student loan payment, and they're showing increased delinquency on their student loan on the bureau. We're seeing very stable delinquency with them as well. No separation from those who are making payments on student loans versus those who weren't. What you're seeing with them, they've prioritized, continue to make payments on their mortgage, you know, auto, credit cards because credit cards have utility. If you think about payment hierarchy, they're choosing that credit card payments have more value to them near-term than paying on the student loan. What's happening is now this report on the credit bureau, their risk scores are going down. Yeah. That will make them more likely to be subject to a future risk action if necessary. Makes sense. Who knows if these consumers even know they were supposed to pay on their loans either, right? That's a good point. Then the other question we get, and I'm sure you get it as well, is, well, geez, what happens if the government decides to do garnish wages and do those types of things? Look, I don't know the probability of that. There's certainly, it's out there as a possibility. When you think about populism or a populist-type administration, that's pretty punitive to say you're going to put your student loan payment as the first thing the customer has to pay out of every paycheck or Social Security check before making a mortgage payment, a rent payment, or anything else. Yeah. I don't think there's a high probability of that. But that is something that could change, delinquency or payment patterns on credit cards. Yep. If that were to happen for those cohort of customers who today are choosing not to pay. Yep. Yep. Makes sense. Let's shift gears again. Regulatory side. You've had two rulings in your favor lately. Late fees and I think the tush push staying in place last I heard. Yeah. We like to call it the Philly shove, but yes. Okay. I think only you call it that, but all right. Keeping it to the business side of things, you said you believe higher pricing changes across the industry can stay in place. Can this provide more of a tailwind to NIM and revenues for you over the next few years, or do you think your partners want to reinvest this into rewards and other value props? Yeah. Excellent question on the, you know, we're obviously pleased that we, the regulatory environment, or that the regulatory, but the environment change on the CFPB late fee rule. As it relates to pricing, I think I've been pretty clear on this over time that my expectation is long-term, it gets competed away. Near-term, it can provide a little bit of a tailwind, or at least can help buffer, you know, the impact of what we're seeing right now where we have elevated losses. It creates the appropriate margin to care for this period of elevated losses. You know, in time, you expect that, you know, some of this will get reinvested into a value prop, better value proposition for the customer. Some of it gets shared with a partner. In time, you know, five years out or more, you know, these things, you know, tend to work themselves out through, you know, different economic sharing when renewals or, you know, RFPs come to market. There's always somebody, a newer entrant that wants to, you know, is willing to have a certain return. Again, it goes back to this rational pricing. You know, there could be some rolling back. Some of the things in place are surprisingly not having any, I'll say, statistical impact to credit sales. That's a good thing, which means, you know, we can, you know, work with a partner to maintain some of that. That's a positive. What about the promo fee side? I mean, we heard from someone else that they're planning to probably take those off. Is that something on the. I think it's probably a partner-by-partner decision. I mean, if they're sharing in that, both parties are impacted. If you can demonstrate and show them the statistical data that says sales are not being suppressed from that, I mean, somebody can get a 12-month financing, same as cash, 0% interest, and you pay upfront 2% fee. That's a pretty good deal. Again, we're not seeing suppression. I think some of it might be psychological for the partner, not looking at the data. I think it depends on the motivation often of the partner. How many of these conversations have you had? I'm assuming you've not yet unwound anything or reinvested yet, but like, what's the cadence of conversations looking like at this point? Is it still too early? Look, we have an amazing, you know, client partnership team. They're talking to partners every day. Yeah. Some may become more front and center if they're feeling sales pressure. You know, maybe they want to believe that it's because of the higher APR on, you know, new accounts or promotional fee, and you try to show them data. A lot of times, you know, if you're a private label card and the pricing is at 33% or 34%, 35%, or even 30%, is the customer really going to make a different choice about whether to take the card to make the purchase? It's still, you know, somebody who's newer to credit, maybe a little damaged credit, and it's still a square, pricing, value, value proposition for them. Okay. Is there any way to maybe think about the, you know, benefits of ROTS or ROE from all these pricing changes, or? I think the best way to maybe articulate is probably what the impact has been to net interest margin for the year and let that translate a little. For this year, you know, when you think about the effects of the interest rate, the prime reductions, the Fed funds reductions from the back part of last year, a couple more may be expected this year. For us being asset sensitive, that would have given us some net interest margin compression. We have had, you know, elevated losses the first part of the year. Again, there's higher reversal of interest and fees, which is a drag. You continue to have a risk mix improving, which better risk mix, lower APRs, that's a little bit of a drag. Then you also have lower billed late fees because delinquency is improving. As delinquency improves, you get less late fees billed. These things would have actually, all else being equal. We would have said, you know, net interest margin would likely be down year over year. Our guide is now that net interest margin will be slightly up, like nominally up. So the pricing actions that we've put in place are helping to maintain or slightly increase, you know, net interest margin in the near term. Got it. Makes sense. Shifting to capital, you established medium-term capital targets of 16% total risk base last year, 14% CET1, and then a longer-term CET1 of 12-13%. You, you've talked about being more opportunistic on the buybacks. It looks like you did that more recently. You did the $150 million buyback authorization, execute on the full amount last quarter, or also through April, I believe. You also did the sub-debt issuance. We touched on the bond tender. A lot happening, obviously. With your CET1 now at 12%, what do you think about the trade-off of buybacks versus dividends versus growth from here? Is there a valuation framework you employ? First, you know, look, we are really pleased with the way we executed on supporting a debt deal and then swiftly being able to execute this stock buyback below tangible book value. That was, you know, again, being opportunistic. We struck, we got agreement with the board to do so. And to your point, we ended the quarter at a 12.0% CET1. Our target is probably closer to 13-13.5% is where we should be living right now, with CET1. We need to get to those spot rates. And again, you know, we do look at a four-quarter forward role, but, you know, we are mindful of the relationship we have with the FDIC, our regulators, rating agencies. We want to make sure we hit these numbers. The first thing in terms of priority is supporting our business growth. The second thing is hitting those capital ratios. That was more of an opportunistic thing that we did. And then as you roll forward, you, I mean, you could tell the amount of cash and capital accretion that we're able to generate. I think to get down to the 12% target, we're going to need to better optimize our balance sheet, which would include introducing preferreds into the capital stack. And that's something that I would, you know, hope to be able to execute against, you know, sometime into next year and build that over time. And that will drive down the binding constraint to closer to that 12% that you mentioned long-term. Mm-hmm. In terms of priorities, look, the priorities that we've had haven't changed. They really haven't. Right? Support growth. It's got to be good growth. It's got to meet the right capital returns that we're all happy with, the, you know, the expected return on capital. Keep funding the things we need to fund on technology and capabilities. That helps fund the operational excellence that will continue to drive down our efficiency ratio over time. As you mentioned, between dividends and share buybacks, we definitely have more of a bias towards buybacks, particularly while we're trading, you know, well below what we believe is the appropriate multiple for us. Okay. Great. A couple more from me. Any potential thoughts strategically? Strategic question here. Any thoughts on potentially expanding outside of other areas, into other areas outside of retail card? Any ways you can lean more into things like embedded finance, BNPL with a Bread offering, or look at some more capital light ways to do lending in your business? No, that's a, so we do, we do evaluate different strategic options. And, you know, for all the things we just talked about of how to deploy capital, we got to make sure we're doing it in a way that is the next best use of capital at a place where we have, I'll say, the right to win, meaning we have the skill set, we have the capability within technology, and that we're not putting other technology priorities at risk of not delivering on things we have for our current partners to go, you know, play in a field that maybe we won't be as successful. But you mentioned a number of things where we do believe we can be successful. We've announced a couple of enterprise deals that will come through on our buy now, pay later platform on Bread Pay, where, you know, we'll do more of the installment lending. I expect that can grow. We can grow on some personal loans. Again, very much in the wheelhouse of what we do and leveraging the capabilities that we have. There are some capital light opportunities of some sponsor bank type things we could explore. Again, that's more about making sure the enterprise risk management framework is in place. Again, leaning on core capability. I think that's the important thing. Where it gets a little looser is if you were to say, and, and I think where we evaluate all different opportunities for adjacent op, products is not to get into things that are not within that. Meaning you start doing small business lending, very different than consumer lending. You want to go into auto loans, you know, there's a different type of capital intensive businesses or mortgages, not so much of interest to us. Okay. Great. And maybe in the last few minutes, we could wrap up here, Perry, with a strategic question for you. So you, you talked about Bread's evolution at the beginning. What's the next phase of Bread's evolution? What are your top three strategic priorities as we look out the next few years? And maybe you could layer on how you think Bread can sustainably reach this medium-term ROTS target of 20% +. Yeah. I am really excited about the next few years. I mean, I was excited about the past four, what we've accomplished, and those were in some really challenging times. When I think about the team that's been built and the environment and hitting our stride in terms of generating capital and how we've deployed capital, we've cleaned up our balance sheet, right? We took out more than half our debt or hitting the capital ratios. We're going to have lots of options of how to deploy capital. Again, doing it smart. The fact that we are uplifting our technology organization to really be able to deliver things faster for the customer, faster for our brand partners, there's opportunity there. I've been very excited about operational excellence, and I know that's just a term, but the amount of engagement we've had from our employee base, we've taken thousands of ideas on how to improve processes, end-to-end processes, small and big, and some transformational work that we have going on, and what we are delivering even in year that manifests itself into multiples of values over the coming years. I have a lot of confidence in driving down efficiency ratio, which is an important way to achieving that ROTS and then further optimizing our balance sheet, which we talked about earlier. I think we've demonstrated the strength of our team in executing against things that we said we were going to do and doing it faster than we believe could be done. I think as we look forward to, you know, the next year or two, I expect to have an optimized balance sheet and then really be able to generate those returns that we talked about and then, you know, return available capital as appropriate to shareholders. All right. Great, Perry. I think that's a nice place to end it. All right. With that, thanks for coming to our conference. Appreciate it, Perry. Thank you very much for having me.