Bread Financial Holdings Inc at Morgan Stanley Financials Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jeffrey Adelson - Morgan Stanley - Analyst : <_ALACRA_META_ABSTRACT>So welcome. Why don't we get right into it? So before we dive into some of the bigger picture questions, could 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 and 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? Perry Beberman - Bread Financial Holdings Inc - Chief Financial Officer, Executive Vice President Yes. So speaking of the quarter, a few things. One, on the credit stats that came out this morning, that came in pretty good. Pleased with the progress we're making and you think about where we are now through May, the trends are coming a little better than we expected when we set up the outlook to start the year. So 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. And that is related to the hurricane-related accommodations that we have put in place for consumers, who are impacted by these storms late in 2024, and 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 the 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. And 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 noninterest income accordingly. And so the best correlation is to look at origination trends and then make sure that there's -- you factor in that RSA drag. And it's really -- you pay that upfront, but then the loans are on the books that roll in your interest on going forward. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. JUNE 11, 2025 / 5:45PM, BFH.N - Bread Financial Holdings Inc at Morgan Stanley Financials Conference

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Okay. And just on the Meta June dynamic, so lots of an impact in May, but even with that impact, still a pretty good outcome for the month in the credit data, but more to come in June for the hurricane impact?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Okay. And since we're on the topic, does that have any impact on how you're thinking about the full year guide, 8% to 8.2%?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : 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. In May you announced a cash tender to purchase up to $150 LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. JUNE 11, 2025 / 5:45PM, BFH.N - Bread Financial Holdings Inc at Morgan Stanley Financials Conference million of your 9.75% senior notes maturing in 2029. It 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?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Okay. Great. Now that we've gotten some of the near-term items out of the way, are we good on the near term? Anything else --

Question: Jeffrey Adelson - Morgan Stanley - Analyst : 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 has gone through quite a transformation in that time. Talk about how Bread changed and why investors should care about that? And what maybe [don't] they appreciate about Bread now?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : And 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?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Okay. Makes sense. And one other question I get is whether the retail card industry faces some secular growth challenges as 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? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. JUNE 11, 2025 / 5:45PM, BFH.N - Bread Financial Holdings Inc at Morgan Stanley Financials Conference

Question: Jeffrey Adelson - Morgan Stanley - Analyst : And we talked about the Bread's evolution on shifting to quality in co-brand, but another key aspect of that evolution is your credit and your underwriting. So you've improved that subprime mix from about half of the book in 2020, now down to the low 40% today. Considering that ship, is there maybe a case for you to outperform your through-the-cycle loss target of about 6%? And how do you think about the risk return for your business as that mix shift continues on from here?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Partner dependent, their goals and everything else, right? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. JUNE 11, 2025 / 5:45PM, BFH.N - Bread Financial Holdings Inc at Morgan Stanley Financials Conference

Question: Jeffrey Adelson - Morgan Stanley - Analyst : So what about the credit action stance? 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 don't target a loss rate, but is there maybe like a loss rate you want to get down to before you think about doing that?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Makes sense. I think that was quite clear. So it could have done summer, but maybe that's on positive now until you learn more. Let's talk about one aspect of credit or credit quality, just the recent focus on student borrowers. You've been quite clear that there's been pressure on the low-income consumer in this key economy. What are you seeing today from this consumer? Is any of this spreading to middle income, particularly student loan payments have started? I mean the middle-income consumer is quite impacted by student loans probably. So anything you're noticing there?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Makes sense. And who knows, if these consumers even know they were supposed to pay in their loans either, right?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Yes. Yes. Makes sense. Let's shift gears again. So regulatory side. You've got two rules in your favor lately. Late fees and I think the tush-push staying in place last [Saturday]?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Okay. Well, I think only you call it that. But, alright. Keeping into 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 in revenues for you over the next few years? Or do you think your partners want to reinvest this into rewards and other value props?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : And what about the promo fees ad? I mean, we heard from someone else that they're planning to probably take those off. So is that something on the --

Question: Jeffrey Adelson - Morgan Stanley - Analyst : And how many of these conversations have you had? Like 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?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Okay. Is there any way to maybe think about the benefits of route to your ROE from all these pricing changes?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Got it. Makes sense. And shifting to capital. You established medium-term capital targets of 16%, total risk based last year, 14% CET1 and then a longer-term CET1 of 12% to 13%. 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, so a lot happening, obviously. But 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 would employ. So first --

Question: Jeffrey Adelson - Morgan Stanley - Analyst : 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, BMPO with the Bread offering or look at some more capital light ways to do lending in your business?

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Okay. Great. And maybe in the last few minutes, we can wrap up here, Perry, with the strategic question for you. So 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, on how you think Bread can sustainably reach this medium-term ROCE target of 20% plus.

Question: Jeffrey Adelson - Morgan Stanley - Analyst : All right. Great, Perry. I think that's a nice place to end it. So with that, thanks for coming to our conference. Appreciate it, Perry.