This afternoon is Bread Financial. Welcoming back Perry Beberman, CFO. Perry, welcome back. Thank you for having me. Appreciate it. You must be happy campers today with the data you released this morning. Your May results look pretty solid. You've been stacking some wins recently. Looks like your charge-offs are on the cusp of breaking 7%. You're right on the dot there. It looks like your delinquencies are outperforming seasonality, and you're now sitting around 3.7% loan growth it looks like. Maybe just give us a quick update on what you're seeing in the data. Yeah, no. The data's coming in even a little better than what we had been expecting. As you note, when we talk about things in the first quarter, we had inflected to growth. That growth momentum has continued with our end-of-period loan growth reaching 3.7%, and that's really driven by some of the nice wins that we've put on the board with partners we launched in the fourth quarter, some more in the first quarter, and that's starting to manifest itself, along with the declining loss rate. As you note, loss rate's at 6.98%, a little better than expected. It's about 99 basis points better than last year. That trend is continuing to march in the right direction with delinquency formation also improving. One thing I would note for the second quarter is you should expect the losses to be about flat going into June for the month of June compared to May. I'll also note that net interest margin will seasonally be down in the second quarter compared to the first quarter, and expenses we already guided that they're going to be just under $500 million. The last thing is on non-interest expense during the first quarter earnings kind of guided that we would expect some pressure of about up to $40 million of higher RSA payments, which will pressure that net interest income linked quarter about $40 million. It's now looking like it's going to be closer to $30 million. It's a little better than what we thought it would be. Thanks for that. Maybe just talk a little bit about the NIM seasonality, rather. I know you've obviously saw some really nice expansion recently. I think you upgraded your outlook for the year last quarter to be above 2025. Just what are you seeing for this quarter, and what are the puts and takes as you think about the rest of the year? NIM is a very dynamic number. We've talked many times. There's so many moving parts in there. I'd say one of the things that now has stopped being a tailwind is the CD book repricing. It's now kind of repriced to the point where what's coming off or coming due that's rolling over is about the same rate as what we're putting on new. Before, the higher-priced CDs, they're getting replaced by lower-priced CDs. That's kind of flattened out. You're seeing some of our pricing actions continue to play through, but at a slowing pace as more of it's already built in. What's a little bit of a headwind in, I'll say yields, is mixing in some better credit risk associated with some of the new products we're putting on that are obviously better VantageScores and some higher lines. That can drag down the top-line yields. That's also a helper to long-term- Yeah loss rates. Your risk-adjusted margin holds up pretty well there. You also have improving delinquency at a faster pace, which means lower bill late fees. That pressures net interest margin. You've got lots of moving parts. As the portfolio continues to churn, it's dynamic, the pace of that churn will really predicate where net interest margin lands for the year, which should be pretty close to 2025, maybe a little better hopefully, but it depends on how quickly some of these other partners come online and grow. Okay. You'd probably take that trade-off any day of the year. Any day of the year. Any day of the week. Lower losses, lower NIM. Yep. Yep. Maybe just taking a step back before we get into some of the quarterly details as well. I wanted to ask you about your evolution. When investors think about Bread today, I think you're often bucketed through the lens of that old Alliance Data model. Highly promotional retail card, a focus on growth, higher levels of leverage in the balance sheet. Maybe just take a step back, remind us fundamentally how different is Bread today versus the one you joined about five years ago, and what do you think the market still underappreciates, maybe not today it seems like, but what do you think the market still underappreciates about your transformation? Well, I think that's true. I think there's still room to go in terms of getting us to a valuation that's appropriate for who we are. The transformation has been remarkable. I mean, we've focused from the day I've joined, and really since the day Ralph Andretta, our CEO, joined a little over six years ago, on running this place for the long term. Making the right decisions every day, whether it means the balance sheet, being responsible with how we're taking care of capital. We've paid down over 70% of our debt. The company when we joined was really over-levered and under-capitalized. Paid down 70% of our debt. We've built up our capital ratios to be where they are today, where we're in a position of a true excess capital above capital targets. Those capital targets are built the way mature financial services companies build them from building blocks, including stress components and positioning ourselves for future regulatory scrutiny, which we're pleased to do. We've run it the right way, and that transformation has been real. It's running it with good discipline, fundamentals, responsible growth, trying to deliver the right returns. Even under the hood, a lot of what we've done around enterprise risk management practices, that's not really well seen by everybody, but the rating agencies have seen it, the regulators have seen it, and it's really manifesting itself into a well-run company, and all while continuing to invest in our company. The improvements that we've had in our technology stack and our ability to meet partners where they are and what they need has continued to win us new deal after new deal, and that's been a big part of our transformation. I think one of the more interesting developments over the last few years has been your success in the co-brand business. Why do you think Bread has been taking share there, and what do your partners increasingly value today that they didn't maybe even a few years ago? As you look at the private label market, you can break co-brand into a couple components. One is you take a traditional, what used to be a private label card type of program, and now you're offering a co-brand product where customers can earn loyalty points and rewards on everyday spend that you can't if you're just doing an isolated private label. Private label is more geared for newer to credit, lower credit lines, and now you're stacking up on top of that more of a co-brand and using the private label could be more of a downsell. That's one aspect of the strategy that a lot of partners are adopting. The other part of co-brands are the co-brand wins like we've had with NFL, AAA, Ford, more recently Crypto.com. Those are true top-of-wallet type co-brands. Our ability to win there is we have a deep, experienced team who's good at running co-brand programs. You think about our commercial team, our client partnership team. These are people who run some of the largest co-brand programs in America, and they're now on our team. Similarly, the tech people that we've been hiring in know how to build the right tech to serve those. I think that's helping us win deals and our flexibility with our tech stack is really winning over a number of new partners. As you continue to develop the pipeline and win over new partners, what's the pipeline looking like today? I think you've had a strong run of wins in home, auto, digital. You just highlighted a few key examples there. Any new verticals you're looking at or any areas where you're noticing more inbound interest coming in? The fun thing being part of Bread Financial is that because of the team that we have in place that I just talked about, we're getting looks at almost every deal that's out there. Every deal is not going to be the right fit for us. Given return profiles, could be very highly competitive, could be $10 billion or bigger type deals. We're not giving those serious consideration because it doesn't make sense for us or our shareholders or the return profile that we're looking for. For deals that if some competitors are leaning out of the market in certain spaces and they are good size for us and we like the returns, we're going to lean in and be competitive. Look, we show up at most of the opportunities that are out there and we win more than our fair share, and I think we'll have some more announcements later this year. Great. We look forward to that. Maybe just you touched on the competitiveness or the competitive environment. Just what are you noticing today versus a year ago? Anything to call out or is it pretty consistent? Not getting into names of competitors specifically, I think you see this over the ebb and flowing over you look at the past five years, some of the really large banks have leaned out of some of the retail private label cards or some of those have focused more on the large scale programs. Some others have had some issues where they've had to pull back, and that's how we picked up some of those furniture brands that we talked about. You generally see some of the same people showing up to compete, and those are more mature competitors who are very rational, and you end up landing in the same spot. Really you win a deal based on the relationship or your ability to deliver tech and what they're striving for. Maybe just tying it back to the early part of the conversation on credit. I think another important aspect to your evolution has been what your target customer has become. I think Ralph has mentioned a few times now you're more middle America. You're not really the lower half of the K anymore in the customer that you target. To what extent has that shift contributed to the recent improvement in credit performance, and how do you see that evolving as you continue on from here? It's a good point. One of the things, you talk about what I don't think people understood about our company is we were out and talking to investors, I get these questions about comparing us to really deep subprime competitors. It's like, wait a second, this narrative is wrong about our company. When you look at the average income of the new customers we're bringing in, it's about $100,000 of household income, yet they're comparing us to companies that where their average income of the customer is $40,000- $50,000. When you think about the K economy, we're not serving the bottom end of that K, we're serving the middle portion of the K. We're not over-concentrating the top end either. We're not competing for those high spending, high annual fee card type customers. The middle part is our sweet spot, we're trying to make sure that we're educating investors about who we are, where we like to play, it's not low income. It's not people who are not credit worthy. It's really that space. What are you seeing from that customer right now? Even just the back book of customers you have as well as you think about higher gas prices from here. Are you seeing any noticeable shifts in behavior changes in discretionary spend or shopping trips, et cetera? Obviously when it costs more at the pump and if the average person's paying $100 more a month at the gas pump, it's real. They have to pay it. Some of them have enough cash reserves, maybe from some of the tax refunds. If the average household had a tax refund, on average about $350 higher, that absorbs some of the near term challenge that they may have with the higher fuel prices, that's probably run its course at this point. Now, what we're watching is what is customer behavior going to look like going forward. You have seen some, I'll say, pull back in some discretionary spend categories, like a little bit of maybe clothing and apparel has pulled down. You've seen a little bit lower restaurant spend, some increases in grocery. You start to see some of that movement that you actually expect. Consumers are resilient and choiceful, meaning they're making the choices. Yep To continue to manage their credit. That's what we're finding most encouraging is that, yes, there is inflation, but it's not rampant like it was post-COVID. Right now, customers are still in a position to deal with it. Labor market's still stable, pretty strong. While that's holding up, it seems like for now customers are dealing with the higher fuel prices. Maybe just sort of any update on post the holiday weekend we saw a few weeks ago, how your credit sales growth is looking this quarter. I think you put up around 7% the prior quarter. Maybe just how is that looking this quarter? Credit sales continues to remain very strong, in fact even accelerating a little bit. The quarter's not over. Right we'll continue to watch that. The consumer, again, it's resilient, healthy. Some of our growth is because of the new partners that continue to ramp. like for like, it's not necessarily as strong as what our reported numbers might be if you're looking at a comparable customer. Right we're putting on the retail verticals, you're seeing good growth in our Installment Lending is starting to pick up some growth with our Installment Lending offerings to The Home Depot, Vivint and Cricket Wireless. Okay, great. I think that feeds into the loan growth question here. As that spending comes back and as you add more partners, you are seeing an inflection in average loan growth already underway here. you're already kind of at the low single digit that you called out for the year. Why shouldn't we be thinking about even better than low single digit at this point given the recent trends? maybe just talk about the key drivers and the timeline to getting back to that mid to high single digit you target in the long run. I think we'll continue to see how this is playing out. So far, to your point, it seems like it's a little ahead of schedule so far at this point in the year. We're having very good success with some of the more recent launches. Some of these launch and plateau a little, so you have to see how that continues to build, what happens with the consumer. Do they remain as resilient throughout the back half of the year? I think the next half of the year, what happens with the Iran conflict with fuel prices will inform a bit more of how that momentum continues to go. Obviously I expect end of period loan growth to continue to get higher. Relative to where we are right now. I think there will be continued growth, but the average, whether we get much beyond that low single digit will yet to be seen. It really depends how the back half of the year performs. If things do sort of continue at the current pace and we don't see oil come down meaningfully and gas prices come down meaningfully, would you consider looking at tightening on credit to maybe deal with that? How would you think about the risk there? That's an excellent question. Our credit underwriting is a very dynamic process in that it's always on, and it's not a matter of doing wholesale tightening or expansion. It's really about the customer coming in the door, or that's already on our books, and how are they performing. We're able to monitor tens and tens of data points on them with their off-us activity, meaning what you're seeing on the trades, on the credit bureaus. You're able to see how they're performing on us, and it happens reflected in their scores. We have an internal proprietary score. When you combine your VantageScore plus a number of other internal data points. If they are showing signs of weakness, obviously you won't be increasing their lines, you'll be tightening accordingly through risk detection. Same with the customer coming in the front door looking for credit. What do they look like when they're coming in? You'll give them an appropriate line. We'll start them with a low line and grow that line over time as they deserve a higher line. You sort of touched on the RSA driver of the non-interest income this quarter coming in more at the $30 million as opposed to up to $40 million. Yep Anything to sort of flag there in terms of what drove that refinement? I think we talked about the rest of the year also continuing to see that impact grow as your credit sales grow. Yeah The partner programs sort of roll through. As a CFO, you never like to see that number get more negative in the P&L, but the reason for it is a good thing, right? It means that your margins have been expanding, there's more profit share to be provided back to the brand partners. Credit sales have been growing at an accelerating pace and for partners that are receiving compensation based on basis points on those sales, that grows. It's growing faster than average loans, right? You just mentioned 7% credit sale growth compared to 2.6% average loan growth for the month. That continues to exceed, so that's just causing a greater portion of that. It also goes to the product mix within that. It's not a bad thing. It's part of the business model. Right. Now, on expenses, I don't think this is an area we should overlook either. I think you've done a really good job maintaining some positive operating leverage in spite of some slower loan growth until recently. And you're also I think in the middle of a cloud migration. What do you think the key to this expense discipline has been, and how can you assure investors that you can maintain it going forward? Especially as we think about things like rising cost tokens. That's been very topical at this conference. That's an excellent topic, and one that we should touch on a little bit. When you think about what we've been talking about for the past two years, we really instilled a culture of operational excellence, and that means we're constantly encouraging our associates to find better ways of doing work. We invest in that. It's delivered tens of millions of dollars per year that allows us to reinvest into the business, in new capabilities, and contain our overall expenses to hold them kind of, say, flattish. Now we're seeing some of that loan growth. At the same time, dovetailing into this year, I think there's some expenses that I think I should say I know that we've had to invest in a little maybe more than what we thought we'd have to do towards the back half of last year as agentic commerce type investments need to be made into AI capabilities that aren't going to pay dividends probably till next year or beyond. Your point on tokens, it's one that I don't think anybody has a real handle on yet. We certainly aren't at the point where we have any agentic engineers in motion, we're not consuming a huge portion of tokens, we are very focused on understanding those costs, understanding the ROI on the AI investments that we make, and being very smart and disciplined about that. That is fundamental to the way we do things in general. There's going to be no change in that discipline. You have to understand the cost to deploy something and the value you're going to get in return. Otherwise, it's not worth doing. You're not going to just build something and hope it has a return. It really has to have a sound business case. Speaking of AI and agentic, Ralph did characterize Bread as more of a fast follower in the agentic world. I guess maybe as the technology evolves and larger platforms begin adopting this, embedding this into their ecosystems, how do you ensure Bread stays competitive as you sort of follow that trend? Where do you think we are? I think we've heard some others say we're still in the on-deck circle. We're not even in the first inning. I think that's a nice way to frame that. I might refine Ralph's comment. In this case, I'm not sure we're a fast follow. I think we're right there with others in the industry at the same place. I would have thought we would have been a fast follow, it's not a huge investment. You're working with all the big players, making sure that we are dialed in with what AWS is thinking, Google, everybody, and then working with our partners, understanding where are they in their agentic journey, because we need to be with them and however they want to go with a solution, whether it's us prototyping something, a full agentic commerce capability for them, or plugging the payment solution into their agentic ecosystem. We have to have a flexible approach to this. We have an amazing tech team with Allegra Driscoll at the helm and some of the newer people she's hired in that this is an exciting time. I think we're well-positioned to be right there at the front. Not, I'll say, the first one to go to be going at the same pace. Again, I also want to caveat this, that with the agentic commerce, it will be a portion of e-commerce sales. My understanding is that e-commerce in general is, what, about 15%-20%, maybe around 18% of overall retail sales? Say it grows to 25%-30%. What portion of that will actually be agentically completed? It's important to have the capability because it's going to be important to our brand partners so they don't get disrupted in some portion of their sales. We'll make sure we have that capability, but I don't see it as the overarching defining win-loss for anybody in this industry. It's going to be a table stakes capability that you have to have as a means for our brand partners to complete their payments. Well, it sounds exciting. Maybe you can automate your Eagles tickets purchases through agentic next year. Don't be jealous. A little bit. I'm not too jealous. No. We have A.J. Brown now, so. Yeah. Good luck with that. Yeah. I think it'll work out. Good luck. Anyways, maybe moving on to capital. I think you recently just did another preferred equity raise, put your Tier 1 ratio back above 14%, as I understand it. What kind of buyback cadence should we be thinking about here with the remaining, I believe, $765 million of authorization you had at the end of last quarter? As you think about the new capital proposal, not finalized yet, obviously, that incremental 100 basis points of capital relief, how are you thinking about deploying that? Sure. We did do the $135 million of additional preferreds. First and foremost, we're going to make sure that we maintain our capital ratios in that 13%-14%. At the end of every quarter, we'll know where we're tracking, and we'll try to deploy capital appropriately. In this quarter, we're going to have a decent amount of new loan growth. We'll fund that first. We'll continue to invest in the business, and what's left over above that capital amount, we'll try to return to shareholders. We'll keep that cadence going of returning to shareholder. I think we've repurchased over 20% of our shares from 50 million to now under 40 million of shares outstanding. I think we now have a track record of being disciplined on that front. As you look forward, we have another, I'd say about $100 million to go on the preferreds that we could issue to really get ourselves fully optimized. I don't think that'll happen until in the fourth quarter or early next year, depending upon what the markets are looking like. To your other point on the Basel III endgame, that is an opportunity because with the standardized approach as it's currently written, it would reduce the amount of risk-weighted assets that we have. Our capital targets remain the same, 12%-13%, but you're holding it on a lower amount of RWA, which produces some additional capital to either accelerate future growth or return to shareholders. I think one other aspect of the model that supports capital over time and some other benefits you get comes from merging the subsidiary banks you have. Maybe just talk about latest timing there, thoughts around that. We are real pleased. The team has submitted the application to merge our two banks into one bank. Really, we're at the point now where we've gone through the iterations with the FDIC, we're thinking it could be any week now that we'll get the notification that we're able to merge these two banks. We get a little bit of capital benefit by being more, I'll say, optimized across the two versus having a little bit of a mismatch on some things. Really, the ultimate benefit there is allowing our treasury team to holistically fund one pool of assets with all our capability of directed consumer deposits, our asset-backed securities platform that we just built out at our Utah bank, and wherever else we need to do. We're looking forward to that. It's not a huge cost benefit. It's really more a funding opportunity to be more efficient on that front. I think I see Tom smiling pretty widely over there at your comment there. Yes. Nodding his head. I think he agrees. Maybe just to touch on a longer-term question here. You spent several years repositioning the business, as we talked about already. Maybe just put a finer point on it. How do you balance the desire to lower your credit losses while driving a higher ROTCE to your return against your desire to also drive partner sales? How are you balancing all that in today's world? You're competing for these partners. They like what you're offering, but you also want to be disciplined at the same time. Yeah. It's an excellent question, and it really goes to the mosaic of the company that you're putting together, the portfolio that is constantly shifting. The discipline is when you're evaluating new business, obviously you have a loss projection anticipation depending upon the profile of the customer. Some new business might have sub 2% losses, others might have 8% expected losses. You're piecing it all together, and you want to make sure you're getting paid for the risk you take. The pricing component is very important with the loss component, and then what capital gets assigned to that, and ensuring that the new business that we're putting on hurdles that mid-20s ROTCE, at least on a marginal basis to ensure that it's going to be accretive or hit the mark for what we're looking for. When you put it all back together, do you have confidence that it lands us on a glide path that we're on to get at or below 6% losses? Our goal is, and we've talked about this before, is not to drive to the 6% ahead of schedule, meaning we're not going to do something draconian and really tighten up credit on our existing partners. It's one of the things that we do really well, is supporting partners, supporting and unlocking value for them through credit sales and underwriting as deeply as appropriate so that we like the returns we get on the margins. We do, and that's why we continue to underwrite in that fashion. It's been one of the strengths of our company. It's not the only strength, but it is something that's foundational and that we do really well. I'm curious, I think you always get asked the question about buy now, pay later. Yeah The fintech threat, so to speak. When you go to your partners, is the offering you have from a big-ticket Bread Pay perspective, is that helping you at all? Are you seeing that come up in conversations more? What are you hearing on that debate as well? It is interesting. I think when you think about the brand partners, a lot of them feel like they do have to have that button of one of the big buy now, pay later offerings as an option for customers to pay with. That's fine because a lot of those customers are traditional debit card customers who can't pay cash for something. They need to space it over a few payments, and that's not the space we're looking to play in. We want to offer more installment loan-type products for larger purchases, and we like the profitability in that space. We like to keep the customer in our brand partner's ecosystem, whether it's a co-brand product, in a private label, or installment loan. More of these types of customers or brand partners want to see that as well because we can white label it for them. They also understand they need to have the payment mechanism of some of these other offerings just because you want to make sure your customers can pay any way they want. Awesome. Perry, maybe just as we sort of wrap up our conversation today, if we fast-forward three years from now, where do you see Bread? Where do you think investors most underestimate, or what do you think investors most underestimate about your earnings power? Yeah. I think where maybe investors were underestimating us, and maybe even so today, is the durability of our returns and our ability to continue to grow and win new business, and have a right to win, and that we're getting stronger and stronger every day. You're going to see that continue to manifest itself in our results. When you talked about our path to delivering those mid-20 ROTCEs, its credit is a piece of it. Credit gets down to 6%, our returns go up. We've optimized our balance sheet. That helps optimize those returns. The last piece is scaling. Not, again, seeking growth just for growth's sake, but the good profitable growth. That helps with our overall efficiency ratios and the things that we've invested in. It's just the confidence and belief that we will continue to accelerate our growth, and we're going to do it the right way. We're running this place for the long term. You look out three years from now, we should be a larger, stronger company than we even are today. All right. Well, we look forward to seeing that play out. Thank you very much, Perry. It's always a pleasure. Likewise. Hopefully it's Eagles-Patriots in the Super Bowl. Yeah, we'll see. We'll have to make a little side bet on that, right? All right. It's a deal. Take care. All right.