Q2 2025 Bread Financial Holdings Inc Earnings Call
Good morning and welcome to bread Financial second quarter 2025 earnings conference call. At this time, all parties have been placed on a listen-only mode. Following today's presentation, the floor will be open for your questions to register a question. Please press star 1 1, it is now my pleasure to introduce Mr. Brian bhairab, Head of investor relations at bread Financial the floor is yours.
Thank you, copies of the slides. We will be reviewing in the earnings release can be found on our investor relations section of our website at breadfinancial.com.
Speaker Change: On the call today we have Ralph Andrea president and chief executive officer and Perry biberman Executive Vice President and Chief Financial Officer.
Speaker Change: Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions. May contain forward-looking statements,
These statements are based on Management's, current expectations, and assumptions, and are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC.
Speaker Change: Also on today's call, our speakers will reference certain non-gaap Financial measures which we believe will provide useful information for investors. Reconciliation of those measures to gaap are included in our quarterly, earnings materials posted on our investor relations website with that. I would like to turn the call over to Ralph Andrea.
Ralph Andrea: Thank you, Brian. And good morning to everyone joining the call today. Brett Financial reported strong second quarter, 2025 results.
Ralph Andrea: We delivered adjusted net income of 149 million and adjusted earnings for diluted share of $3.15 cents which excludes the 10 million post tax impact from expenses related to the debt. We repurchased in the quarter.
Ralph Andrea: Return on average tangible common Equity was 22.7% for the quarter ourselves reflect notable progress in advancing, operational excellence while at the same time, achieving responsible growth and practicing disciplined Capital allocation, which enabled us to deliver strong returns. Credit sales, grew 4% year-over-year for the second quarter spending continues to be more heavily weighted towards non-discretionary purchases enabled by our expanded co-brand and proprietary products. These product offerings represent more than 50% of our credit sales. Additionally lower gas prices, have positively influenced, retail spending, particularly for Prime and near-prime customers. We are encouraged by these spending Trends as well as the gradual improvement in our credit metrics, as a result of prudent risk management.
Ralph Andrea: Given the outperformance of our net loss rate in the first half of the year. We updated our full year outlook to an improved range of 7.8 to 7.9%.
Ralph Andrea: while the net loss rate remains elevated, compared to Historic Levels by improving trend is encouraging, we will continue to closely monitor consumer, health purchasing and payment patterns and adjust our credit strategies accordingly to achieve industry-leading risk adjusted returns,
Ralph Andrea: Our focus on expense discipline and operational. Excellence is producing the desired result.
Ralph Andrea: As adjusted total non-interest expense were essentially flat year-over-year. Despite continued technology, related, Investments inflation and wage pressures. We will continue to invest in technology modernization digital advancement artificial intelligence Solutions and product Innovation, that will drive future growth and efficiencies
Ralph Andrea: We continue to make progress on our ongoing initiatives to optimize, our balance sheet, with a completion of our 150 million share repurchase program in April and the successful 150 million tender offer for our senior notes. In the second quarter, these actions and the strong capital and cash flow generation of our business offered enhanced opportunities to deliver additional value to our shareholders. Additionally, our direct consumer deposits, continue to grow steadily increasing to 8.1 billion dollars at quarter end up 12.
Ralph Andrea: 12% year-over-year.
Ralph Andrea: We are pleased to announce the multi-year extension of our long-term relationship with Caesar's entertainment, a leading travel and entertainment partner with this, renewal our top 10 programs are secured into at least 2028. Furthermore, we recently launched an additional new fee based Caesars rewards Prestige Visa signature credit card, that gives members more ways to earn rewards and enjoy unique experiences.
Speaker Change: Program offering up to 5% in crypto rewards delivered through a frictionless user experience that is natively integrated into the crypto.com app.
Speaker Change: This new program is another example of bread. Financials leadership in loyalty Innovation and flexible Tech forward Payment Solutions.
Speaker Change: We are proud of the progress. We have made in our balance sheet, while providing increased value to our brand, Partners, our strong results, reflect a continued commitment and hard work of our dedicated Associates. We remain confident in our ability to successfully, execute our strategic objectives and operational excellence initiatives in summary. We are well, positioned to deliver strong returns, which we expect to translate into sustainable, long-term value for our shareholders. Now, I will pass it over to Perry to review the financials in more detail.
Perry Biberman: Thanks Ralph.
Perry Biberman: slide 3 highlights our second quarter performance during the quarter credit sales of 6.8 billion increased 4% year-over-year driven by new partner growth and higher general purpose spending
Perry Biberman: Average loans of 17.7 billion dollars decreased 1% as compared with historical Trends, continued, macroeconomic challenges, drove software, consumer spending and the cumulative effect of elevated gross credit loss. Over the past 12 months. Adversely impacted loan growth, more recent improved payment behaviors as evidenced by higher payments. Also pressured lung growth.
Perry Biberman: Revenue was 929 million in the quarter down. 1% year-over-year primarily due to lower finance charges and late fees. Partially offset by lower interest expense.
Perry Biberman: As Ralph mentioned in June, we completed a 150 million tender offer for our 9.75% senior notes. Due 2029 using excess cash on hand to reduce higher cost debt.
Perry Biberman: The repurchase increase our total non-interest expenses by 13 million, which is the primary driver of the 12 million or 3%. Year-over-year increase in total non-interest expenses in the quarter on an adjusted basis. Expenses were nearly flat year-over-year,
Perry Biberman: In continuing operations increased 6 million dollars, primarily due to a lower provision for credit losses, and lower income taxes.
Perry Biberman: Looking at the financials in more detail on slide 4, total net interest income for the quarter decreased 1% year-over-year resulting from a combination of a decreased in built. Late fees, resulting from lower delinquencies and a gradual shift in risk and product mix leading to a smaller proportion of private label accounts which generally have higher interest rates and more frequently. See assessments,
Perry Biberman: These headwinds were partially offset by lower. Interest expense the gradual build of pricing changes and an improvement in reversal of interest in fees related to improving gross credit losses.
Perry Biberman: Non-interest income was up, 3% of the recent paper statement pricing changes partially offset by lower net interchange Revenue driven by higher profit share.
Perry Biberman: Looking at the total non-interest expense variances, which can be seen on slide 11 in the appendix employee compensation. And benefits, decrease 2 million, despite Merit increases in other inflationary pressures. As a result of our increased focus on operational excellence.
Perry Biberman: Card and processing expenses. Increased $4 million primarily due to higher Network, fees driven by our gradual shift in product, mix and information processing and communication expenses. Increased million dollars driven by elevated software license renewal pricing
Perry Biberman: Other expenses increased 8 million primarily due to the 13 million of debt extinguishment costs.
Perry Biberman: Looking ahead, we anticipate higher marketing, and employee related costs in the second half of 2025 versus the first half following typical seasonality.
Perry Biberman: Adjusted pre-tax pre-provision earnings or adjusted pp&r which excludes gains on portfolio. Sales and impacts from repurchase debt decreased 7 million of 1% primarily due to a lower net interest income.
Perry Biberman: Turning to slide 5.
Perry Biberman: Both loan yield of 26.0% and net interest margin of 17.7% were lower sequentially, following seasonal Trends, net interest margin, which decreased 30 basis points. Year-over-year was impacted by the net interest income drivers. I noted earlier, as well as an elevated cash mixed position in the quarter.
Perry Biberman: On the funding side we are seeing fund and cost decreases. Savings accounts and new turn CD rates decline.
Perry Biberman: As we opportunistically repurchased. 150 million of our highest cost. 9.75% senior notes during the quarter,
Perry Biberman: We are pleased with our ongoing direct to consumer deposit growth represented in the chart on the bottom, right of the slide which increased to 8.1 billion dollars at quarter end, further improving our funding mix, direct to Consumer deposits. Accounted for 45% of our average, total funding up from 40% a year ago.
Perry Biberman: Conversely hostile deposits, decrease from 34% to 29% year-over-year.
Perry Biberman: To slide 6, we continue to optimize our funding capital and liquidity levels which is a key strategic initiative.
Perry Biberman: Our liquidity position remains strong.
Perry Biberman: Total liquid assets and undrawn credit facilities were 7.7 billion dollars. At the end of the second quarter of 2025 representing 35% of total assets at quarter end deposits. Made up 74% of our total funding with the majority resulting from direct consumer deposits.
Perry Biberman: Given the success of our over subscribed second quarter, senior note tender offer, we announced an additional tender offer this morning which is expected to be completed in the third quarter.
Perry Biberman: Shifting to Capital. We ended the quarter with cet1 and Tier 1 ratios at 13.0% and total risc-based Capital, at 16.5% over the past 12 months. In addition to the more than 200 basis points. Positive impact, on our total risk based Capital ratio from our subordinated debt issuance. In March, our Capital ratios were impacted by the repurchase of 194 million in common shares as well as the repurchase of 99% of our original 316 million convertible notes, outstanding
Perry Biberman: As a reminder.
Perry Biberman: The last diesel phase in adjustment occurred in the first quarter of 2025 resulting in a 74 basis, point reduction to our ratios, the impact from the last Cecil phase and adjustment along with the repurchase convertible and Senior notes. Accounted for more than 180 basis points of adjustment to cet1, since the second quarter of 2024,
Perry Biberman: Our cet1 ratio increased 100 basis, points sequentially from the first quarter.
Perry Biberman: Looking ahead. We expect to build Capital further in the third quarter, placing us within our medium-term. Cet1 ratio Target of 13 to 14%
Perry Biberman: As a result, we are well, positioned to strategically focus, our capital and sustainable cash flow generation on supporting responsible, profitable growth, and generating additional value for our shareholders.
Finally, our total loss absorption capacity. Comprising total company tangible, common Equity, Plus Credit reserves, end of the quarter at 25.7% of total loans, a 40 basis point increase. Compared to last quarter, demonstrating, a strong margin of safety. Should more adverse economic conditions arise
We have a proven track record of a creating capital and generating strong cash flow through challenging economic environments. We are well positioned from a capital liquidity and Reserve perspective. Providing stability and flexibility to successfully navigate an ever-changing economic environment while, delivering value to our shareholders.
Perry Biberman: Moving to credit on slide 7.
Our delinquency rate for the second quarter was 5.7% down 30 basis points from last year and 20 basis points sequentially.
Perry Biberman: Our net loss rate was 7.9% down 70 basis points from last year and down 30 basis points, sequentially.
despite the approximately 13 million for 30 basis points, negative impact from the customer-friendly, hurricane actions taken in the fourth quarter of 2024,
Perry Biberman: there will be no further impact to our credit metrics, as a result of those actions.
Perry Biberman: Credit metrics continue to benefit from our multi-year, credit tightening actions.
Perry Biberman: Product, mix shift and general stability in the macroeconomic environment.
Perry Biberman: We anticipate the July, net loss rate will be in line to slightly better than the reported June. Net loss rate of 7.8%.
Perry Biberman: With third quarter in the 7.4 to 7.5% range and then increasing sequentially in the fourth quarter, following typical seasonality.
Perry Biberman: Was a result of our improving credit metrics and higher quality new vintages.
Perry Biberman: We continue to maintain prudent weightings on the economic scenarios. In our credit Reserve model and given the wide range of potential. Macroeconomic outcomes. We expect the reserve rate to remain relatively steady in the third quarter before dropping at year-end, following normal seasonality,
Perry Biberman: On the bottom, right chart, our percentage of card holders with a 660 plus Prime score improved by 100 basis. Points sequentially to 58% in line with our expectations.
Perry Biberman: Our credit risk strategy remains unchanged managing risk while delivering industry-leading risk, adjusted returns.
Perry Biberman: Our segmented underwriting models, incorporate recent performance data, Baseline macroeconomic variables and various stress. Scenarios ensuring appropriate returns for us and value for our partners.
Perry Biberman: At this time, we remain balanced in our consumer Outlook and related credit actions given uncertainty regarding the potential Downstream impacts on consumer spending and employment from recent monetary and fiscal policies, particularly Terror and trade policies.
Perry Biberman: Turning the slide 8 and our full year 2025 Financial Outlook. We continue to expect average loans to be flat to slightly down.
Perry Biberman: Our outlook for total revenue excluding gains on portfolio sales is anticipated to be flat versus 2024. As a result of our implemented pricing changes offset by interest rate reductions by the Federal Reserve flat to lower average loan balances and continued shift in Risk in product mix.
Perry Biberman: Given in improving delinquency Trends and payment behaviors. We are projecting lower. Build late fees for the remainder of the Year modestly. Pressuring our full year Revenue Outlook. We continue to expect to generate nominal full year positive, operating leverage in 2025, excluding portfolio sales in the pre-tax impact from our repurchase debt which includes both convertible and Senior note repurchases. We are confident in our ability to deliver on our operational excellence initiatives by investing in the business while maintaining expense discipline.
Perry Biberman: Given the better than expected improvements in our credit metrics, in the first half of the year, we adjusted our 2025. Net loss rate guidance to a range of 7.8 to 7.9% from the previous range of 8.0 to 8.2%.
Perry Biberman: Current consumer resiliency, despite concerns on how the macroeconomic environment May evolve in the future. Provided us with confidence in our revised, net loss rate guidance for this year.
Perry Biberman: Finally, our full year. Normalized effective tax rate is expected to be in the range of 25 to 26% with quarter over quarter variability, due to the timing of certain discrete items.
Perry Biberman: In closing, our second quarter results and capital actions underscore our confidence, in our ability to achieve solid Financial results in 2025 and deliver strong long-term returns.
Operator. We are now ready to open up the lines for questions.
Perry Biberman: Thank you.
Perry Biberman: At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 1 on your telephone, and wait, for your name to be announced.
Perry Biberman: To withdraw your question. Please press star, 1 1 1, again please, stand by while we compile the Q&A roster,
Speaker Change: Our first question.
Speaker Change: Comes from the line of mihar by hatia from Bank of America. The floor is yours.
Mihar Hatia: Hi uh thank you for taking my question. Um I wanted to start maybe with uh just the
Health of the customer, particularly with an eye on, you know, credit sales and Loan growth. Um, I guess it sounds like you said, they are credits. The health of the consumer is pretty stable and you're seeing, you know, you saw 4% growth, in credit sales but maybe just talk a little bit about the monthly Trends uh that you're seeing. Was that steady throughout the quarter, any update on July and then, how does that 4% credit sales, growth translate down to loan growth,
Mihar Hatia: I mean some of the hard data is showing that resilience where on the other hand sentiment and confidence indicators been more volatile. So we think there's going to still be there's still a lot of uncertainty out there and what the impacts of trade immigration tax policy may end up with the tax policies resolved. But so when we look at it, you know, we're we're still feeling very encouraged with the hard data with the unemployment steady, you know, the 4.1%. So, we don't think there's going to be pressure on, on jobs wages. Have been growing at about 3%, which is outpacing inflation. That's 7 out of 9 of the last 9 quarters and for us. And our consumers who we serve, that's really important. That's the thing. We said in order for things to turn for us, we needed that to occur. Um, so when we look at it, we think about the back part of the year and the the in, I'll say, the better Improvement or continued Improvement in sales that we've seen uh, that's going to be important. And that's why, when we think about, we look ahead the things that are happening with trade policy.
Mihar Hatia: Is so important because of this turns out to be inflationary, that's going to probably slow down the progress that we've seen with our consumers, where they've been increasing spend payments have been improving and it would just slow the Improvement, I don't think it would, you know, reverse it, but that's what we're watching real carefully. Um you know these trade deals are you know we don't know the outcomes and we're seeing some things every day. Uh I think some of them if they're the good outcomes would be you get more jobs uh that come and investment into the US. That could be a good thing on the other hand.
Mihar Hatia: And if countries disinvest in us and, um, it goes the other way that can be bad. So there's a lot of moving Parts. But our expectation is continued, gradual improvement with the consumer, and I think that's going to happen. And it's going to take us to be over a prolonged period of time. Now, to your question on what we're seeing so far. In July, it's been a real positive trend. So there's momentum, building from what we saw in this last quarter, and it's continuing on so far into July. So we're optimistic, can't really tell if it's a pull forward of purchases, because of what could be consumers concern about, uh, pending inflation. But
Mihar Hatia: That's that's uh that's that's a positive as well as we're seeing some good strength in our co-brand and higher quality customers. Uh, you know, so right now we I'd say we're in a very optimistic point but being very watchful of what's going to unfold with the, uh, the macro environment.
Mihar Hatia: Good. Uh, just to be clear. Uh sorry on July. Uh are you are you seeing an acceleration from the 4%? Is that? I mean you said I just want to make clear on exactly what you said that.
Mihar Hatia: Yeah, the we're still continue to see a positive trend.
Mihar Hatia: Okay. Uh, maybe just turning in the capital plans and BuyBacks. Uh, look, you have a healthy Roe. It doesn't sound like you're anticipating much loan growth at least for the next couple of quarters. Uh, C. Is it a good place? I understand, you're doing stuff on the dead side, but maybe just talk a little bit about BuyBacks how you're thinking about those.
Mihar Hatia: Uh, any thoughts to go get uh, authorization and do stuff there?
Mihar Hatia: Yeah, excellent question. I'm not surprised we're getting that question. Um, you know, as you know, we set those uh, targets for our Capital ratios, particularly cet1, which is our currently our binding constraint. Um, we stated that the uh, medium-term Target for that was in the 13th to 14% range. And as noted, when we hit 13.0%, we just hit the bottom end of that range. I would expect in, um, the third quarter to continue to increase capital. And so we will continue to uh, execute against our Capital plan. We'll have discussions with our board around what's appropriate looking at our pipeline as well as um, you know, we do stress scenarios. And again, we'll follow the discipline. And we'll we'll determine what's a what's appropriate. But first and foremost, we'll continue with our Capital priorities. That remain unchanged, which is the fund responsible profitable growth that needs to return hurdles because I'll generate more capital in the future. We're going to continue investing in our business and again, a lot of that's being funded, through operational excellence, uh, efforts to contain
Mihar Hatia: Expenses and reinvest that and then you know we're obviously need to hit the capitol targets that we've stated and then uh return Capital when appropriate, you know and again we'll continue against that Capital plan but we'll optimize the balance sheet and capital stack into next year. We might start to introduce preferred at some point next year, but, you know, it's still more opportunity. And uh, but we are very excited to be in the position that we're in right now.
Got it. Thank you for taking my questions.
Mihar Hatia: Thank you.
Thank you for your question.
Speaker Change: Our next question comes from the line of Sanjay sakrani from K. The floor is yours.
Some Crosswinds here with Better Credit and that affects late fees, but you also have some of the mitigation impacts that would be rolling through over time. Could you just help us think about the progression of the Top Line. Specifically nii over the next, you know, whatever 6 to 12 months.
Speaker Change: Yeah, and thanks for the question. You're you're right. There's so what's occurred that drove us to tighten up our, um, guide on Revenue was really the Improvement that we're seeing in delinquency and having lowered build late fees, um, that happening, faster than what we had expected is, what's putting pressure on the the top line knee, uh, in to your point. There are other Tailwind in there. But, you know, we go down the list of things that I talked about in the past, right? We've got headwinds in there from prime rate reductions that are still we're pulling through this year. There could be more If the Fed actually starts to act sooner on some of the, the following, uh, primary reductions. And because again, we're slightly acid sensitive. The lower build late fees coming through that. We're now seeing, um, that's, you know, again related to delinquency. I'll take that all day for now. It just means we're going to move towards a more normalized environment. Um, the shift in a, a product mix that we have, we have a little bit more co-brand,
Speaker Change: Uh and proprietary card. They have lower risk, which means you have a lower assigned, APR at the time of underwriting them. And I also come with some lower late fees and right now we're running with a little bit higher cash. Mix. And that's honestly, a result of a little bit lower loan growth so we're taking that cash and trying to, you know, action it and prudent way, which is why we announced another tender this morning. So those are the headwinds and the Tailwinds are some of the, you know, the pricing changes that we put in place and they continue to slowly build. But you know, those will reach a certain point because, you know, obviously the late fee rule changes. It didn't go into effect so we don't have to go as aggressive on on some of those things. Um, and another Tailwind has the gross losses, improved, they'll be less reversal of interest in fees and so the fact that we're having a lower abilities, now means you know a few quarters out, say 6 months from now that will have less reversals related to those accounts. Um you know so then as you think about what's happening with each quarter there's going to be a lot of variability in terms of
Speaker Change: The the seasonality the timing of these things and and that's where it makes it really hard to give uh you know, direct and I'll say quarterly because it is fluid. And I think that's evidence by what we just saw with late fees, the build late fees this recent quarter
Speaker Change: Okay. Um,
Speaker Change: Maybe this is a question for both you, and you and Ralph. Um, obviously credits. Now, I think going the right direction, you guys seem to have some control over it. The macro, you know, tariffs withstanding seems to be stable if not improving some um you know now that those factors which have been headwinds. Um are not the headwinds.
Speaker Change: How do you guys play offense from here? Um, you know, you talked a little bit about the excess Capital position. You have maybe a little bit. If you could talk about the growth prospects, Etc. You know how how do we build? How do we lean in and grow from here? Thanks.
Speaker Change: Okay. Hey Sandra drop, how you doing? Um, you know, I I I think a couple of things, you know, when you talk about Capital, our priorities haven't changed, we're going to continue to invest in the business, strengthen the balance sheet, and return value to shareholders. And, you know, now we have the ability to do all 3. So it's a nice balance. That's a nice position to be in, you know, in terms of growth, you know, um, I am pleased with the progress we've made on credit. We're not there yet entirely, we need to make more progress and we'll continue to do that, continue to manage it. Um, I'm pleased with the sales growth in the second quarter and what your lives look like. That's a, you know, a real positive green shoot for us as we move forward, you have to take a step back. You think about a 10 largest Partners? They are secured to the end of the decade. So we have our 10 largest Partners where we could continue to, you know, Drive value for our for them and for our customers that that's that's our Focus to invest in that.
Speaker Change: Um, we have a extremely robust Pipeline and, you know, we win more than our fair share. And there's a lot of denovo opportunities in that pipeline that we can grow opportunities, and move forward. So, you know, if you look about, look at all of that, you know, I remain optimistic about our growth opportunities as we move forward.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Moshe Orbach, from TD Cowen. The floor is yours.
Speaker Change: Great. Thanks very much. Um,
Consumers and more general purpose, spend has that had an impact on balanced growth in addition to yield, like what should we think about in terms of that and are those consumers revolving on their balances?
Speaker Change: Yeah, thanks for the question. So when we talk about mix shift, it's slow and gradual. I mean you can see it in our our our Vantage risk scores. Um we when we talk about, you know, co-brand mix, um, I think people think about that, super Prime customer those Airline programs hotels. You know, our co-brands are different. We underwrite those, uh, deeper than others. We had we we we certainly follow our Mantra of underwriting for profitability. We look for programs that have good revolved behaviors. Um and that's so we think about retail partner co-brands, they perform like high-end private label in a way um and then you have other ones that are top of wallet co-brands, uh, you know, like a, a triple A um, you know, Caesars that may be performed somewhere in between what you'd think of those traditional uh, big co-brand. So it's not a tectonic shift in the portfolio. It's a slow, gradual shift, and 1 that is giving us um a little different type of behavior.
Speaker Change: Over time. Uh, and it will as we said it can influence, uh, loan, yield somewhat. But not to the point where it's going to be dramatically different. Because we do, make sure that we're being disciplined in the value propositions that we have that works with the partner works for us and that we're, you know, it's delivering the right type of capital returns but we do get more, um, sales from that and the sales, you know, to your point, they do have a little higher payment rate in there but often they do turn to revolving, they lead to loans. Gotcha.
Speaker Change: Thanks, maybe. Uh, you know, you talked a little bit about the effects, you know of the late fee mitigants and the pricing could you maybe flush that out a little more? Like where where do you see yourselves in that and how is that going to impact the margins? You know kind of over the coming quarters and any discussions with Retail Partners about uh either
Speaker Change: Pulling them back or reinvesting them, elsewhere, thoughts like that. Thanks.
Speaker Change: Yeah, it it's honestly, it's exactly what you kind of just said, right? I mean we are, um, you know,
Speaker Change: Working with all the partners as we normally do. That's what we call business. As usual type activity. We have a very engaged commercial team, a client partnership team that is meeting with them almost daily and trying to make sure that, you know, our shared interests are aligned. And that we're trying to grow the program, uh, create the best value propositions we can for those customers and then for us to be able to underwrite, as deep as we do, and
Speaker Change: You know, some of the pricing that's in place is what was important in order for us to continue to support the program. The way we do now, I'd expect you know, much of the industry pricing to remain in place um as everybody's dealing with the ever-changing macro environment and and Regulatory changes. And and for us it comes down to continual underwrite and provide access to credit while ensuring the competitive value. Um, you know, I think you're going to see continued to chretien into the, uh, the yield over the next year or so, but it's going to be slow and gradual. And as there's other things happening, that will offset some of that as we talked about just earlier as delinquency. Improves materially that, um, you know, have pressure on the on the yield on that front. So it may not be as evident as if it was a steady state and just pure, you know, Revenue accretion.
Speaker Change: Got it. Thanks very much.
Speaker Change: Thank you for your question.
Terry Maw: Our next question comes from Terry maw of Barclays. The floor is yours.
Terry Maw: Hey, thank you. Good morning. Um, can you maybe just expand a little bit more um in terms of what you need to see before you kind of unwind, some of those tightening actions? Is it kind of more under performance side or just more kind of macro driven?
Terry Maw: Yeah, like if I heard your question, right? You're you're asking what would it take for us to consider unwinding more?
Terry Maw: Yep. Um, yeah, as a credit. So it's very Dynamic and, you know, I don't want to have an impression out there that we haven't been, um, you know, giving customers line increases to our worthy. We have, it's just as you think about a posture when
Terry Maw: it's been a a tighter posture because of the environment and being cautious about
Terry Maw: Some some some areas, we've loosened a little bit meaning we've put more lines out there or new accounts we realize hey there's better performing Pockets so we're going to give them higher line assignments when they're coming in the door others you tighten up. So we've been Dynamic we've actually started to reintroduce some of that but it's going to be very gradual and and if you think about I think there's an idea out there in the industry that when when you think about loosening it means you're going to approve a lot more accounts. Well I can tell you on the margins, we're approving accounts that have a much higher loss rate than the average that we have today because that's margin which most means you have customers? Your pockets are 2% loss rates. You're going to have those are much higher. So to go deeper means, you're going to go really out there and you know for us the reason 1 of the reasons why you're going to see a slow steady gradual improvement, in our loss rate is because the new account vintages that we put on, are trying to get something that's close to the Target that we've stated. Um, you know, our long-term Target around 6%, if we really wanted to drive our loss rate lower, we could
Terry Maw: put on an even smaller, new account, vantages, and Target up 4%, and, and some others do something like that. So we're being very disciplined and how we approach this. Um, but I expect that, you know, our team will continue to, to offer credit. Um, line increases approvals as appropriate and it'll help continue to a growth. The biggest thing is seeing better consumers, come in the top of the funnel with improved credit and as they perform better, it's going to naturally. Uh, you know, the the corresponding credit actions will follow
Speaker Change: Got it and it's helpful and then maybe just to follow up on credit. Um you called out last quarter improving row rates and I think you mentioned it was kind of broad-based across FICO cohorts, has that continued and then um can you maybe just quantify how elevated those row rates are relative to kind of what you expect to be kind of um normalized. Thank you.
Speaker Change: Yeah, our our role rates have been improving. And that's the thing that we talked about is 1 of the most important, um, aspects for us to get comfortable in, uh, you know, improving our, our lost guide. I mean, we're, we're benefiting 2 things right now. Our role rates have improved. So the mid to late stays roll rates. They're still elevated above pre-pandemic. But improving, but another encouraging part though, is that our entry rate in the collections is now. Well, below pre-pandemic levels due to the Strategic actions that we have and the changing mix of the portfolio. So we still want to see improving back. End mid to back, end, roll rates and I think there's still room for that to happen. Uh, but a lot of, that's going to be macro dependent. Um, so I, I say we're encouraged there. And again, some of what it's, it's hard to, um, you know, put a, you know, a fine point on what's happening. But there's been a little bit of a shift in how customers are using their tax refunds. So that's also, as we look at roll rates throughout the months and
Speaker Change: Orders, uh, that that's that has shifted. Um, you know, I'll give you a, you know, a factoid on that. I mean, when, when you think about pre-pandemic levels, uh, people talk about using 20% of their tax refund on everyday purchases, which means more of the refunds to pay down their debt. So times like this, these months, you'd get more Debt, Pay down and that would improve your role rates. Well, now, more consumers, 35 to 37% is what I've read recently are using their tax refunds for every day per, uh, purchase. That's almost 2x, which means there's less being used to, uh, put against their, their existing debt, which means you're getting a little different payment dynamic as, um, you know, in these months that you typically would have seen it. So, I think that's some of what's going to affect some of the seasonality and month-to-month movement when people are going back to compare to, um, prior prior years.
Speaker Change: Would you like to add anything? Additionally.
Speaker Change: Terry.
Speaker Change: Okay, thank you for your question.
Moderator: Our next question comes from Reginald Smith from JP Morgan. The floor is yours.
Speaker Change: Hey, good morning. Next day the question.
Speaker Change: If you think about the new accounts that come on, um what can you tell us in terms of like engagement? Um, other using the card versus maybe previous cohorts, um, any type of metric or or color, you could give there would be great and I have 1 follow-up. Thank you.
Speaker Change: That was a, uh, a lot of questions and that question. So, yeah, you know, I, you know, obviously it depends by partner, right? So if you look at it by calling a bip partner, we're seeing, you know, application Flows at the top of the funnel and we're going to we're going to see those. We still see in Store applications still see online applications as we move forward. Uh, you know, it's a it's a strong flow um and I think our approval rate is appropriate, given the economic and macro conditions and we continue to see that, you know, once I once we do a approve, a a applicant, we're very focused on their, you know, early time on book to make sure they're engaged, to make sure they understand what the opportunities are for the spend on the card, the benefits. They get. How to how do you, how do you use the card appropriately? If it's a co-brand card, make sure they understand the opportunities for outside spend from uh, I suppose, you know, as opposed to in partnership with all that is, you know, is kind of a normal business as usual and, and we continue to, um, to to do that. Um,
Speaker Change: You know, we just um, we we just uh, uh um, have a partnership with crypto.com. That's our latest partnership. Uh, it is, you know, 1 where um, their their, uh, you know their customers could apply for the card in a native app, its state of the art uh it really works well and once they apply for that app there's really it's a opportunity for them to to use the card appropriately and to um redeem for for currencies that they like and we are actually getting a halo effect uh, with that. Because, you know, it is kind of state-of-the-art technology and we're able to meet the needs of their customers and meet the needs of the partners. So we feel really good about about all of that.
Speaker Change: But again, it depends, you know, we we see a good application flow. We see our approval rates based on where on the economy. Well once we once we we do wish you a card. We're very focused on engagement and ensuring that the customer and the part, they understand the opportunities that they get to spend on that card.
Speaker Change: so I appreciate the Andy does, it sounds like there's nothing like, you know,
Speaker Change: Nothing hard. You can tell us about about those Trends um which I guess is fine. I guess. My next question. You mentioned your your top 10 Partners earlier? I think in response to Sanjay's question and um
Speaker Change: Is there a way to, you know, kind of frame your wallet.
Speaker Change: Here today with those partners and maybe you know what, your longer-term stretch goal could be there. Like just to give us a sense of of of your penetration there and um
Speaker Change: And what you guys are driving to or or or how you would think about that longer term. Thank you.
Speaker Change: Yeah, so I mentioned our top 10 our top 10 partners and that was and and just to be clear that's based on, you know, uh, loans and receivables. So what's that's how I we view our top 10, our top 10 partners. And, you know, they're secured and I I say to the end of the decade, but to at least the 2028, obviously it varies going back and forth. You know, the, the, the, the the opportunity there is to focus on, um, deepening our relationships with their customers, uh, you know, instead of negotiating, New Deals and stuff like that, that's behind us. Now, we're focused on how do we execute well on the partnership Drive new new incentives, new technologies to make it easier for the partner to interact with uh, with with the customer to interact with the partner and interact with us. So that's the beauty of having these um, big relationships locked up to the end of the decade.
Speaker Change: You focus on growing the business, not renewing the business.
Speaker Change: Right. Okay. Um, thanks for the color, I appreciate it.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from Jeff. Add from Morgan Stanley. The floor is yours.
Speaker Change: No, thank thanks for the question. Um, you know, as we did make sure we we called out that we do anticipate the July, net loss rate to be in line to slightly better than the reported, um, June net loss rate of 7.8%. And that's then we gave the guidance for the third quarter and that's 7.4 to 75. And then fourth quarter is generally seasonally, um, sequentially higher. So yeah, I think that's the point. We're trying to say and, you know, we did share. I mean, we're still cautious with what's happening with the consumer. Those those back-end role rates, while there's been some near-term improvement that we've seen recently, that could reverse. So, I think, you know, we're giving a view, which is hey, if things hold steady, this is how, uh, we, we think the second half of the Year could materialize, you know? There's certainly uh, I think as we talked about in the economic Outlook, there's things that could go against us a little bit but there's definitely, you know, positive
Speaker Change: Momentum and things that could go to the favorable side. Uh so you know again we are encouraged by the trends and and for right now where we are at this is our our view for the second half of the year and I don't know if I want to say it's cautious but it's some of our best thinking but probably more on the cautious side than it is aggressive if that makes sense.
Speaker Change: Yeah, that makes sense. Thanks Barry and and if I could um ask you a question you know Ralph you you mentioned Partners focused on growth. Not renewing Technologies. Customer engagement, I'm curious has bnpl come up more in the conversations lately. I know 1 of your peers has been introducing more of their pay later product. Um you you've obviously had that acquisition several years ago is that coming up more or are there any sort of um you know key features and and focal points your partners are looking at and and then as a follow up to that um and then you just highlighted the crypto. When you have last quarter, any other areas of focus you're having in in New Perspective, client conversations by by the industry vertical. Thanks?
Speaker Change: Yeah, you know.
Speaker Change: you know, the beauty of
Speaker Change: Of of of bread, is that bmpl is a product and a product set.
Speaker Change: Right. So we absolutely can um you know, accommodate bmpl. We can accommodate the installment loan. We can establish a co-brand, a private label direct to Consumer deposits, direct to consumer credit cards. We have a basket of, we have a basket of products and bnpl is 1 of them, so we can Lean Forward. On whatever is a popular in the marketplace. We can move forward with our partners and, and, um, and fulfill the need of the customer and the partner. So we feel really good about that.
Speaker Change: Um, you know if um if you think about our pipeline it is robust. And as I said earlier, we win more than our fair share, we win more than our fair share because we have the right technology. We have the right offers and we have the right team, that's a nice combination to have. And a lot of the things we're winning are um, denovo. So we get to, they get to grow with us. We get to grow as we move forward. And we've had great example of that in the past, particularly with the with with, you know, down in the 1 of the verticals that we grew in Beauty. Uh, We've grown Beauty from a denovo, to a really, uh, industry-leading, um, vertical for us, there are verticals out there that were yet to conquer, and we're excited about excited about those. Um, they're in the pipeline, um, you know, you'll probably hear about them soon. Um, uh, as, uh, as as time and, and contracts will allow. But we're excited about, um, our pipeline in the future and what that will do for our growth.
Speaker Change: Okay, great. Thank you guys.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from Bill kokash from Wolfe research Securities. The floor is yours.
Thanks uh good morning Ralph and Perry following up on the Caesar's renewal. And you know, I guess any perspective that could offer on future renewals, can you give some color on whether it was a competitive process? How did the pricing actions that you've taken impact the renewal discussions? You know, are there any changes to your risk adjusted returns that you anticipate under under the new terms?
Speaker Change: Important, which is growing the business and ensuring that they're, you know, that we can can meet meet the requirements of the partners. So, as I said, you know, our renewal rate is is exceptional and that renewal rate spans from being proactive with the partner and resigning early to, you know, meeting, you know, looking at an RFP and deciding how we will move forward together. So either way, you know, there is always some, some, you know, compression in the marketplace. It's just that, that's what competition does. Uh, but you know, as long as they meet our hurdle rates, we're very focused on continuing to invest in those partners and and moving their business in our business forward uh for the benefit of of Our Mutual customer
Speaker Change: Thanks Ralph and then separately can you discuss what you're seeing when it comes to penetration of retail partner sales? Any Trends, you're seeing across different categories? That stand out and sort of any notable efforts to
Ralph Andrea: to to drive that higher particularly, you know, to the extent that we see you guys. Maybe expand your credit box if um, you know, macro conditions, sort of support that. How does that look in terms of that penetration?
Speaker Change: You know, I I what I would say there is that if you think about where we were and where we are, um, you know, we have multiple different verticals. Now, we've got verticals in, uh, Beauty. We have verticals in in sports, in travel and entertainment. Uh, we're able and, and, and we have products that, um, support all of those, whether it's a private label product, a co-brand product at bmpl, you know,
Speaker Change: Academy Sports, I'll give you as an example. They have uh, private label. They have co-brand and bnpl full Suite of products, uh, that's in the, in the, in the, you know, in the, in the, in the sports area. So we're pretty much, you know, consistent across our top 10 partners and what we offer, and how we offer it, um, data and analytics plays a big part for us, you know, we're able to, you know, use data and analytics with our partners to to identify opportunities to increase penetration, we continue to do that across all channels, whether that's in store, whether that's, uh, digital or or any other channel that might be out there. So, um, the most important thing is, we're giving products that are customers want with the right value proposition and make it easy for them to apply and, and acquire, um, you know, and be acquired. And that, that, um, partner becomes a lifetime partner for us. Because we have products that meet their needs, no matter where they are in the spending in the credit cycle.
Speaker Change: That's helpful. Thank you.
Speaker Change: Thank you for your question.
Speaker Change: Our next question.
Speaker Change: Comes from the line of Ryan. Shelley with Bank of America Securities. The floor is yours.
Hey guys, thanks for the question. Uh, appreciate it. Um, my name is around the, um, the capital structure in today's that tender. So, uh, you know, offer out there for both the unsecured and the sub notes. The sub notes are relatively new issuance, I guess. Can you give any color for the reasoning ongoing after this sub notes? And just general thoughts, uh, around the capital structure as we move forward? Here would be much appreciated. I know you mentioned potentially doing some preference before so just you know how it should that investors specifically be thinking about this capital structure going forward. Thank you.
Speaker Change: Yeah, thanks for the question. Um, yeah, so right now, as I we talked about a second mentioned earlier, we, we were in an excess cash position. Well above a buffer that, uh, we we want to maintain. So we were opportunistically, uh, you know, looking at our, our debt structure and to your point that the subordinated notes are a newer issue when we initially issue that, um, we issued, what we call it, more of a benchmark size deal, for our balance sheet optimization, it was, you know, well, above what it needed to be, but we have optional optionality on this particular tender, right? If you think about the senior notes, the the ones that are 9.75. Uh, we have an option to call those in February at a, you know, defined price. So right now we're in a live offering and we are going to, um, you know,
Speaker Change: You'll be appropriate with, uh, how we how we uh, end up balancing the outcome.
Speaker Change: Likely. Um,
You mentioned the February call. Prices is likely you'd wait till then. See exactly how this tender goes or it's just up in the air.
Speaker Change: Yeah. Look we have optionality right. I think that's the point of when when you have a a call option. There's there's optionality, there's no decision. Uh definitively A lot's going to happen between now and then.
Thanks for the question.
Speaker Change: Thank you for your question.
Speaker Change: Comes from Vincent Titanic.
Speaker Change: From btig. The floor is yours.
Speaker Change: Hey, good morning, thanks for uh, taking my questions. Um, just uh, some follow-ups. So actually going back to uh credit, um, just wanted to understand, maybe a bit further of what's baked into the the loss expectations for the second half of the year. And also what's, you know, assumed in your credit Reserve rate, you you already provided a lot of helpful detail you know, um for the third quarter um and the fourth quarter. But I guess when I look at the second quarter, you know, if you strip out that 30 basis points of Hurricane impacts, uh, you've had a 60 basis points. Quarter of a quarter Improvement is like 7.6%.
Speaker Change: And I guess the second half of the Year kind of assumes that that 7.6 stays there, um, in that range. So I'm kind of just wondering, you know what, maybe what's baked into that? Because it does seem conservative and maybe putting in another way if we had the same kind of environment as we have today, or as we had in the second quarter, you know, could your that charge off be better than what you were going to. Thank you.
Speaker Change: Yeah, thanks for the question. Um,
Speaker Change: Look, when we're looking at things right now, what we're seeing is, you know, we're trying to guide. I think we've got a good handle on the third quarter uh and gave you our best thinking there, um, you know, we gave a range. So let's all hope it comes in on the lower end but we'll, we'll see how things play out. And then again seasonally things go, you typically increase in the fourth quarter so we're trying to give you our best thinking. I mean look there's if we continue to see momentum in back in mid to back-end role rates. Okay. Could come a little better. Say stable, we've kind of given you our view. So and some of its going to be dependent on what type of, uh, seasonal loan growth, we have in in the fourth quarter and then, on top of that, as I stated earlier, we've seen a, a little bit softer, tax refund season. So that's changing some of the seasonal, uh, views. And, and what our thoughts are on third quarter at this point. So that that's influencing it. And and so that's a, a key point on the loss side. Um, you know, as it relates to your your question on C. So I'm surprised to
The first time I'm getting a question on Cecil, so that's pretty good. Um, you know, pleased with the the progress there that we were able to lower the Cecil rate by 30 basis points, um, blink quarter, and and year-over-year and what I'd share with you, um, Insight on that is that Improvement in rate was solely due to credit quality. So in this environment, you know, I would have liked to have been in a position where we could start to ease back on some of our weightings on the adverse and severely adverse scenario.
Speaker Change: But given the uncertainty that still is out there around terrorists and the downstream impacts to inflation. We've got to wait, you know, another quarter or 2 to see how that, you know, pulls through. Um, but really, if we can continue to see momentum, I expect that, you know, a stable Reserve in the third quarter. And then seasonally come down in the fourth and, you know, we'll see if credit continues to improve. Maybe it's a little better than that but don't know until until that plays out. Um, because you, you run the models at the end of a quarter based on where things are at. Um but you know, certainly more encouraged right now, uh, and I just hope we get a fast resolution on the macro pieces because again, the consumer's performing, well, the portfolio is performing. Well, um and we just need uh, for macro to resolve itself.
Speaker Change: Okay, great. That's helpful. Thank you. Um, and then follow kind of on the the merchant discussions we had earlier. I mean, if you could talk about, you know, from the merchant engagement perspective, the environment, the pipeline and also how are the economics of new business, you're putting on doing versus, you know, prior business. Thank you.
Speaker Change: yeah, you know, I'll go back to what I um, what I said, previously the pipeline is robust
Speaker Change: Uh, we have a lot of terrific opportunity. Uh, we always win more than our fair share. Um, we look at it on a partner by partner basis and the economics have to be right for us and the partner, and we remain very disciplined in our economics, and our returns and our pricing, and we'll continue to do that.
Speaker Change: Okay great. Uh, thank you.
Thank you for your question.
Speaker Change: That concludes the question answer session, I will now pass it back to Ralph andretta for closing remarks.
Speaker Change: Uh, thank you and thank you all for joining, uh, our call today and your continued interest in bread Financial uh we look forward to uh speaking to you again in uh next quarter. And uh everyone have a terrific day. Thank you. All
Speaker Change: Thank you for your participation. In today's conference, this does conclude the program. You may now disconnect