Bread Financial (BFH) Q1 2026 Earnings Transcript

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Date

Thursday, April 23, 2026 at 8:30 a.m. ET

Call participants

• President and Chief Executive Officer — Ralph Andretta
• Executive Vice President and Chief Financial Officer — Perry Beberman

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Takeaways

• Credit Sales -- $6.5 billion, up 7% year over year, primarily driven by new partner launches and increased spend among existing partners.
• Average Loans -- Increased 1% to $18.3 billion; end-of-period loans increased 2% to $18.1 billion, reflecting a positive inflection in loan growth.
• Direct-to-Consumer Deposits -- Rose 10% year over year to $8.7 billion, with average direct-to-consumer deposits comprising 48% of total funding, versus 43% the prior year.
• Total Revenue -- $48 million increase, or 5% growth year over year, attributable to pricing changes and lower interest expense, partially offset by lower billed late fees and higher retailer share arrangements.
• Net Income -- $181 million, with diluted EPS of $4.15, now reflecting preferred equity dividend impacts in calculations.
• Net Interest Income -- Increased 6% year over year, supported by risk-based pricing and reduced interest expense.
• Noninterest Income -- Declined $13 million year over year, due to higher retailer share arrangements stemming from higher credit sales and profit share.
• Total Noninterest Expense -- Down $5 million, or 1%, reflecting expense discipline and a credit received during the quarter.
• Pretax Pre-Provision Net Revenue (PPNR) -- Increased $53 million, or 11%, bolstered by higher revenue yield and controlled operating expenses.
• Net Interest Margin (NIM) -- 19.3%, improved year over year and sequentially, driven by repricing and improved funding costs.
• Liquidity -- $6.4 billion in total liquid assets and undrawn credit facilities, representing 29% of total assets at quarter end.
• Funding Mix -- Deposits made up 78% of total funding, largely through FDIC-insured direct-to-consumer channels.
• CET1 Ratio -- 13.3%, up 130 basis points year over year, benefiting mainly from core earnings.
• Share Repurchases -- 3.5 million shares retired (8% of outstanding at year-end 2025), comprised of ongoing buyback activity and capped call unwind; current share repurchase authorization totals $690 million.
• Debt Reduction -- $50 million in subordinated debt repurchased, leaving $350 million outstanding; parent senior notes reduced to $500 million with a 6.75% rate.
• Total Loss Absorption Capacity -- 25.5% of total loans, combining tangible common equity and credit reserves for a significant margin of safety.
• Delinquency Rate -- 5.59%, down 34 basis points year over year and 16 basis points sequentially.
• Net Loss Rate -- 7.33%, down 83 basis points year over year and 10 basis points sequentially.
• Reserve Rate -- 11.46%, improved by 73 basis points year over year, attributed to better credit quality and stable risk distribution; 64% of cardholders possess a prime credit score above 650.
• Guidance for 2026 -- Management affirmed full-year expectations for low single-digit average loan and revenue growth, a higher NIM compared to 2025, and a net loss rate at the low end of the 7.2%-7.4% targeted range.
• Noninterest Income Outlook -- Second quarter expected to be pressured by up to $40 million versus the first quarter due to higher retailer share arrangements.
• Expense Outlook -- Second quarter total expenses projected to be just under $500 million, up sequentially as investments continue.
• Tax Rate Guidance -- Normalized full-year effective tax rate is expected in the 25%-27% range, with quarter-to-quarter variability from discrete items.
• New Partnerships -- New credit card relationships launched with Ford and Ethan Allen; Bread Pay installment loans rolled out for AAA, Dell, and Ford; Academy Sports introduced to a full payment suite, including installment loans.
• Capital Management Strategy -- Management stated, "Our share repurchase cadence going forward will be contingent upon capital generation from our business, our growth outlook, incremental investment expectations, and the resulting capital levels against our capital policy targets."
• Operational Investments -- Ongoing investments in technology, including AI, aimed at productivity gains, innovation, and risk management, governed by a value-tracking ROI framework.
• Credit Risk Management -- Leadership emphasized continued improvement in credit metrics and disciplined risk practices, with management stating, "For six consecutive quarters, we have seen improvement in our credit metrics via the year-over-year change in our delinquency and net loss rates."
• Product and Partner Diversification -- Product suite expansion and a shift toward co-brand cards and installment products are described as contributing positively to risk profile and partner network strength.

Summary

Bread Financial (NYSE:BFH) reported positive momentum across key financial and credit metrics, with senior management highlighting new partner launches as a central driver of credit sales and loan growth. The company’s liquidity and capital positions were reinforced through substantial deposit growth, debt reduction measures, and a higher CET1 ratio. Management reaffirmed 2026 financial guidance, specifically outlining continued positive trends in loan growth, revenue, and net loss rate targets, while also navigating expected pressures on noninterest income and sequential expense increases. AI integration and incremental operational investments were announced as critical levers for future efficiency and innovation, framed within a disciplined capital return and risk management approach.

• Leadership provided transparency on the interplay of pricing changes, late fee dynamics, and product mix evolution as drivers impacting both net interest margin and overall revenue yields going forward.
• Questions from analysts elicited clear disclosures around capital allocation strategy, highlighting that future share repurchase activity depends on both internal capital generation and the external market environment for preferred issuance.
• The company updated its published credit risk distribution ranges to more closely align with peers, clarifying for investors the 64% mix of prime score cardholders and its relevance for ongoing reserve modeling.
• New co-brand and installment product launches in automotive and home sectors were positioned as building blocks for partner and vertical expansion, while competitive positioning was linked to underwriting sophistication and partner reputation.
• Macroeconomic sensitivity was acknowledged directly, with management stating increased caution on outlook given low consumer sentiment and the immediate impact of higher fuel costs, though no revision to base-case guidance was made.
• Delinquency and net loss rates continue to improve, and management restated their intent to achieve and sustain a loss rate target near 6% if the product mix continues to shift favorably.

Industry glossary

• Capped Call Transaction: An options strategy that offsets potential dilution from convertible notes by retiring shares upon settlement, as noted in the company’s share repurchase activity.
• Retailer Share Arrangement (RSA): Contractual agreements under which Bread Financial shares a portion of profit or economics with retail partners, typically varying with loan yields and credit performance.
• Net Interest Margin (NIM): A financial metric measuring the difference between interest income generated and interest paid, relative to average earning assets.
• Pretax Pre-Provision Net Revenue (PPNR): Income before taxes and credit provision costs, highlighting underlying operating performance.

Full Conference Call Transcript

Ralph Andretta: Thank you, Brian, and good morning to everyone joining the call. Before speaking to our results, as we celebrate 30 years in business and 25 years as a public company in 2026, I want to take a moment to thank our current and former associates. Your commitment to excellence in how we serve both our brand partners and customers is reflective of our enduring value-driven culture. We are extremely proud of our history and the continued transformation of our company. We remain committed to delivering on our brand promise each and every day.

Today, Bread Financial Holdings, Inc. reported strong first quarter results, which were underscored by a return to loan growth alongside increasing growth in credit sales and continued improvement in our credit metrics. Credit sales grew 7% year over year in the first quarter, driven by successful new partner launches across our full product suite and increased shopping activity with our long-standing partners, especially among Gen Z and millennials. Consumers are being thoughtful and budgeting actively amid lower sentiment and confidence and higher fuel costs. In the quarter, we saw year-over-year sales growth across a broad set of categories including health and beauty, jewelry, and travel and entertainment. Additionally, our expanding home vertical grew nicely in the quarter.

In the current macroeconomic environment, consumers continue to demonstrate resilience as highlighted by credit sales growth as well as improving delinquency rates. We will continue to closely monitor and adapt appropriately to consumer spend and payment behaviors. On the new brand partner front, we were excited to launch new credit card relationships with Ford and Ethan Allen in the quarter. Our long-term agreement with Ford, which has one of the largest dealer networks in the U.S. with nearly 3 thousand franchise dealerships, includes co-brand credit card and installment loan programs.

Leveraging our deep expertise in the automotive retail landscape, the program will increase customer loyalty by enhancing their car ownership experience to earn rewards and increasing accessibility to subscriptions, parts, and services. The addition of Ethan Allen, America's number one premium furniture retailer with nearly 140 design centers and a significant online presence in the U.S., strengthens our prominence in the home vertical with flexible financing options. We are also offering Bread Pay installment loans for AAA, Dell, and Ford, as we continue to expand this product offering. Additionally, we are pleased to announce the new comprehensive suite of payment options with Academy Sports, including co-brand, private label, and installment loans.

Our full product suite, technology advancements, sophisticated underwriting, enhanced loyalty programs, and a differentiated partner model are central to our success in winning new partnerships and retaining and strengthening existing relationships and driving higher lifetime customer value. Our first quarter financial results highlight our company's strong capital and cash flow generation, earning net income of $181 million, generating revenue growth of 5% year over year, and growing tangible book value per common share by 26% to $61.57. Additionally, during the quarter, we continued to build shareholder value as we retired a total of 3.5 million shares of common stock, or 8% of our outstanding shares at year-end 2025.

This was a result of both our ongoing stock repurchase activity and the unwind of our capped call transactions. For six consecutive quarters, we have seen improvement in our credit metrics via the year-over-year change in our delinquency and net loss rates. We are pleased with this trend and remain confident that this improvement will continue over time. We believe our emphasis on disciplined credit risk management, coupled with product diversification towards co-brand credit cards and installment products, continues to positively impact our risk distribution. Overall, our solid, sustainable results underscore the success of our efforts and emphasis on allocating capital efficiently, growing responsibly, and advancing our operational excellence initiatives.

Finally, moving to our investment priorities, we continue to invest in our business to drive growth for both Bread Financial Holdings, Inc. and our partners. These investments include digital and technology advancements across our business, including AI. We are deploying AI responsibly across the enterprise to accelerate operational excellence, which includes increasing productivity and efficiency, driving innovation, and strengthening risk management. Our investments are reinforced by a disciplined value-tracking framework ensuring a strong return on investment. Supported by technology advancements, strong capital levels, and cash flow generation, we are well-positioned to execute on our growth priorities while delivering sustainable long-term value for our shareholders.

We remain confident that we will deliver on our 2026 financial targets, which Perry will discuss in more detail. Now I will pass it over to Perry.

Perry Beberman: Thank you, Ralph. Slide 3 highlights our first quarter performance. During the quarter, credit sales of $6.5 billion increased 7% year over year, which can be attributed primarily to new partner growth as well as increased general-purpose spending. We are pleased that loan growth has inflected positively as average loans increased 1% to $18.3 billion, and end-of-period loans increased 2% to $18.1 billion. We plan to continue building on this momentum throughout 2026. Direct-to-consumer deposits increased 10% year over year to $8.7 billion at quarter end, with our average direct-to-consumer deposits representing 48% of total funding, up from 43% a year ago.

Revenue increased $48 million, or 5%, primarily reflecting the implementation of pricing changes and lower interest expense, partially offset by lower billed late fees and higher retailer share arrangements. In total, we generated net income of $181 million and diluted EPS of $4.15. Note that our EPS calculations now reflect dividends paid on preferred equity. Looking at the financials in more detail, on Slide 4, first quarter total net interest income increased 6% year over year, driven by the gradual build of our pricing changes and lower interest expense.

Noninterest income was $13 million lower year over year, driven by higher retailer share arrangements, which includes both higher credit sales-related partner payments and increased profit share driven by improved loan yields and credit losses. Total noninterest expenses decreased $5 million, or 1%, reflecting our ongoing expense discipline and a credit received during the quarter. Looking at the expense line item variances, which can be seen in the appendix, employee compensation and benefits cost increased $5 million primarily due to higher wages related to annual merit increases and incentive compensation. Information processing and communication expenses decreased $5 million primarily due to lower outsourced data processing costs as a result of a credit received in the quarter.

Finally, PPNR was strong as it increased $53 million, or 11% year over year. This is a result of risk-based pricing discipline driving higher revenue yield while at the same time delivering sound operating expense management. Turning to Slide 5, net interest margin of 19.3% increased year over year and sequentially as loan yield continued to benefit from the gradual build of pricing changes and funding costs continued to improve. To that end, we are seeing interest expense decrease as our cost of funds benefits from the actions we took last year to reduce our parent senior notes from $900 million to $500 million and reduce the rate paid from 9.75% to 6.75%.

Additionally, during the quarter, we repurchased $50 million of our subordinated debt using excess cash and now have $350 million in principal outstanding. Moving to Slide 6, our liquidity position remains strong. Total liquid assets and undrawn credit facilities were $6.4 billion at the end of the quarter, representing nearly 29% of total assets. At quarter end, deposits comprised 78% of our total funding, with the majority being FDIC-insured direct-to-consumer deposits. Shifting to capital, we ended the quarter with a CET1 ratio of 13.3%, up 130 basis points compared to last year. As you can see in the upper right table, our CET1 ratio benefited by 340 basis points from core earnings.

Common stock repurchases and preferred and common stock dividends reduced our capital ratios by 210 basis points, while the impact from costs related to debt repurchases accounted for approximately 40 basis points of impact to CET1 since 2025. Additionally, we are very pleased with the outcome of our capped call transactions, which we retained after fully repurchasing our convertible notes last year. We elected to unwind the capped call in exchange for shares of common stock, and the result of the full unwind was the retirement of 1.5 million shares in the quarter. As of quarter end, our remaining stock authorization was $690 million.

Our share repurchase cadence going forward will be contingent upon capital generation from our business, our growth outlook, incremental investment expectations, and the resulting capital levels against our capital policy targets. Additionally, we look to further optimize our capital structure by issuing additional preferred shares. The timing of potential additional preferred share issuances will be predicated on market conditions. That timing will influence the cadence of subsequent common share repurchases. Finally, looking at the bottom right of the slide, our total loss absorption capacity comprising total company tangible common equity plus credit reserves ended the quarter at 25.5% of total loans, demonstrating a strong margin of safety should more adverse economic conditions arise.

We have a proven track record of accreting capital and generating strong cash flow and remain well positioned from a capital, liquidity, and reserve perspective. This provides stability and financial flexibility to successfully navigate an ever-changing economic environment while generating increased value for our shareholders. Moving to credit on Slide 7, delinquency rate for the first quarter was 5.59%, down 34 basis points from last year and down 16 basis points sequentially. Our net loss rate was 7.33%, down 83 basis points from last year and down 10 basis points sequentially.

We remain pleased with the ongoing gradual improvement in our credit metrics, which continue to benefit from our prudent credit risk management framework, ongoing product mix shift, and overall consumer resilience. New investors often ask how to think about our portfolio and typical customer. Our typical customer represents a middle-income American. For context, our new customers have an average annual income of around $100 thousand. As Ralph mentioned, our consumers remain resilient as evidenced by improving credit trends in our monthly external credit performance data, what we are seeing in our internal data, and what we are hearing from customers contacting us that our teams monitor continuously.

The first quarter reserve rate improved 73 basis points year over year to 11.46% due to our improving credit metrics and higher credit quality new vintages, as well as stability in our credit risk distribution with 64% of cardholders having a greater than 650 prime credit score. Note that per investor request, we have updated our published credit risk distribution ranges to more closely match peer ranges. Compared to the prior quarter, the reserve rate increased 26 basis points, which was impacted by the seasonal paydown of holiday-related balances during the first quarter.

We continue to apply prudent weightings on the economic scenarios used in our credit reserve modeling given the wide range of potential macroeconomic dynamics, including ongoing uncertainty regarding trade policy and global conflicts, and the downstream impacts on inflation and unemployment. These weightings remained unchanged from the prior quarter. Turning to Slide 8 and our full year 2026 financial outlook. Our 2026 outlook is unchanged and is based on our strong first quarter business results, continued consumer resilience, inflation remaining above the Federal Reserve target of 2%, and a generally stable labor market. As we mentioned earlier, we are pleased to have reached an inflection point with positive loan growth in the first quarter.

We expect full-year 2026 average credit card and other loan growth to be up low single digits compared to 2025. Growth will continue to be supported by our stable partner base and new business launches, credit sales growth, and continued credit loss rate improvement, partially offset by higher cardholder payment rates. Total revenue growth is anticipated to be up low single digits, largely in line with average loan growth. We anticipate full-year net interest margin to be higher than 2025 as a result of continued benefits, albeit slowing, from implemented pricing changes and improving funding costs. The incremental benefits tied to pricing changes slow throughout the year as the majority of our portfolio will have repriced.

These NIM tailwinds will be partially offset by lower billed late fees from improving delinquency trends, higher payment rates, and a continued shift in risk and product mix. For noninterest income, we expect meaningfully higher retailer share arrangements, or RSAs, going forward as a result of both higher credit sales-related partner payments and increased profit share driven by improved loan yields and credit losses. Specifically for the second quarter, we expect this dynamic to pressure noninterest income by up to $40 million compared to the first quarter of 2026. We manage expense growth based on revenue generation and investment opportunities and expect to deliver positive operating leverage in 2026, excluding the pretax impacts from debt repurchases.

We expect second quarter total expenses to be up sequentially from the first quarter as we continue to invest in our business to drive growth, build new capabilities for our partners and customers, and deliver future efficiencies. Initial estimates of the second quarter expenses are just under $500 million. Given the ongoing gradual improvement in our credit metrics, we are on track to achieve a net loss rate at the low end of our 7.2% to 7.4% targeted range for 2026. This guidance contemplates stable macroeconomic conditions, continued risk and product mix shifts, and a resilient consumer.

We continue to expect our full-year normalized effective tax rate to be in the range of 25% to 27%, with quarter-to-quarter variability due to the timing of certain discrete items. Our strong results in 2026 are a testament to the successful execution of our company's transformation efforts, the capital generation power of our business model, and our financial resilience due to our relentless and disciplined focus on capital and risk management. We are proving that we will deliver on what we say we will. Our PPNR growth, continued improvement in our credit metrics moving toward our historical loss target, and ongoing capital optimization demonstrate our commitment and path to achieving our longer-term mid-20% ROTCE target in the coming years.

In closing, we remain confident in achieving our 2026 outlook and further in our ability to generate attractive returns and increase value for our shareholders throughout the dynamic economic and regulatory environments. Operator, we are now ready to open up the lines for questions.

Operator: Thank you. Star followed by 11 on your telephone keypad. If you change your mind, please press 11 again. When preparing to ask your question, please ensure your phone is unmuted locally. One moment for our first question. Our first question will come from the line of Vincent Caintic with BTIG. Your line is open. Please go ahead.

Vincent Caintic: Hi, good morning. Thanks for taking my questions. First one, kind of a broad question on guidance. First quarter was strong. Revenues grew 5% year over year and your credit sales were up 7%, and loan growth is nice to see that be positive. I am a bit surprised to see loan growth and revenue growth guidance at low single digits. So I was just wondering maybe if you can talk about what is baked into guidance and any conservatism there and how we should kind of expect that cadence of growth to be for the rest of the year? Thank you.

Perry Beberman: Vincent, thanks for the question. Look, we are really pleased with the first 90 days of results, and our thoughts on guidance are we are off to a really good start, and that gives us a high degree of confidence to share that we are able to reaffirm guidance and feel very confident in our ability to achieve the guidance across all the things that you just talked about. With the degree of uncertainty in the macro environment, it feels a little premature to declare a big change such that we can then up it. But, again, if the trends continue on into the second quarter, I think there is some optimism there.

On average loan growth, remember that is an average. So what you are seeing is we are up almost 2% on ending. Expect that will continue to grow throughout the year to get us to that low single digit on average. So that is going to build, but we expect ending loans to be higher than low singles.

Vincent Caintic: Okay. Great. That is helpful. Thank you for that. And then second question on the share repurchases. Very nice to see the strong quarter and also nice to see the increased authorization. You talked a little bit about it, but if you could maybe help us on how to think about cadence, how much of future share repurchases are based on having to raise those preferred equities, and then any thoughts on kind of long-term CET1 framework? Thank you.

Perry Beberman: Yes. When you think about the cadence, when we announced the additional share buyback program, we did not time-bound it, so it is open-ended. The cadence will be informed by, first, the amount of growth that we have in any particular quarter, making sure that we maintain our capital ratios, that we are supporting the growth first and foremost, and then, if we have additional capital at that point, we will try to return it to keep closer to our capital targets. As for the cadence around additional share repurchases beyond that, we have talked before about the opportunity around preferred share issuance, and that will be largely market-dependent.

You cannot wake up any morning and know what is going to be the news cycle and what the markets are going to demand. So, obviously, we are actively monitoring those markets, and we will opportunistically issue. That would then generate some additional opportunity for capital return should that happen. That is cared for in the overall share authorization. So the cadence and the amount that we are able to use this year will somewhat be dependent on earnings generation and the preferred share issuance. As you look longer term, we said during our investor day back in 2024 that we are looking to optimize our capital stack, and the preferred issuance is a component of that.

The new-to-story would be the Basel III endgame opportunity, should that go into effect. For us, we would look at that as the standardized approach, and that could be an opportunity where, if it lowers our risk weighting for our assets, that could free up maybe another 100 basis points of opportunity around capital. More to come on that. Obviously, everybody is looking at it, and we are very pleased that the Federal Reserve is thoughtfully looking to simplify in some cases and free up capital for banks. But, again, that is in proposal stage, so nothing we can bank on yet.

Operator: One moment for our next question. Our next question will come from the line of Mihir Bhatia with Bank of America. Your line is open. Please go ahead.

Natalie Howe: Hey, thanks for taking my question. This is Natalie Howe on for Mihir. I wanted to ask a little bit about how pricing changes are flowing through the model. You talked about how it would be a tailwind through 2027 and you highlighted it as a driver for the quarter. As that flows through, what else are you looking at for the year as levers for NIM stability? And along with that, where are rate cuts or increases fitting into this? Thank you.

Perry Beberman: Yes. On the pricing changes, that has been a nice tailwind for us. Largely, it is working its way through, and so the degree of benefit that we are going to see incrementally throughout the year is going to slow. It will gradually still be accretive, but it is slowing, as most of the portfolio is repriced. With net interest margin, as we look outward, I would like to say it is going to be reasonably stable because we do have some rate cuts still playing in there, and we are slightly asset sensitive at this point. You also have ongoing product mix that will affect NIM. Cash mix will affect NIM.

Credit quality has puts and takes: as your credit quality improves, you may have some lower top-line APRs; you will have lower reverse fees, which is good, but you also have lower late fees, which is a drag. There are a lot of moving parts in net interest margin as well. On funding, with the work that our treasury team has done to increase direct-to-consumer deposits, that has been a positive. There are a lot of moving parts, so we think about it as stability, and we are very pleased with where we are.

Our philosophy as it comes to underwriting is to pay for the risk that we take and make sure that we are appropriately assigning APRs at that time. You can see that with our strong risk-adjusted margin that we have been delivering.

Natalie Howe: Got it. Thank you. And if I could ask about travel and entertainment, you said that there was strength there in the quarter, but right now, with current fuel prices and sentiment, how durable is that as a driver right now, and how are you looking at the rest of the year?

Ralph Andretta: Yes. This is Ralph. The consumers are being thoughtful on how they spend their money. As gas prices go up, they may decide to pull back on T&E. But T&E has been a strong category for us for some time. We see it being a strong category in the future.

Operator: Thank you. And one moment for our next question. Our next question will come from the line of Bill Ryan with Seaport Research Partners. Your line is open. Please go ahead.

Bill Ryan: Hi. Good morning, and thanks for taking my questions. First question is on the loan growth. I know you made some pricing changes in terms of how payments are applied that has led to an increase in the accrued interest and fee component of the portfolio. It was up fairly nicely in Q1. Looking forward, how much impact is that going to have on receivables growth? Is it going to stabilize at some point as a percentage of the portfolio, or do you still expect that to increase?

Perry Beberman: Yes, Bill. I appreciate the question. What you are referring to is the change that we made last year to our minimum payment due payment hierarchy, and we adjusted it to conform with what we are able to do with the CARD Act. It changes the mix a little bit between what portion of interest and fees would be paid versus principal. If you are looking at trust data or principal-only data, that is what includes it. But total loans include both principal and interest, so there is no effect in total.

Bill Ryan: Okay. And just one follow-up question related to the NFL portfolio. I know there were some announcements during the first quarter. Maybe if you could highlight for investors what those changes were. Are you expecting some acceleration in the portfolio growth? Just give us some highlights of that. Thanks.

Ralph Andretta: Yes. The announcement was about American Express being now the partner for the NFL, and we are thrilled about that because we are partners with both the NFL and American Express. We are still the issuer of the NFL card, so we believe between the NFL, American Express, and us, it is a real touchdown in terms of good for our consumers and good for the fans. We are excited about it. Yet to be determined what we will do together, but rest assured, it will be a very exciting partnership.

Operator: Thank you. And one moment for our next question. Our next question comes from the line of Moshe Orenbuch with TD Cowen. Your line is open. Please go ahead.

Moshe Orenbuch: Great. Thanks. I was hoping you could talk a little bit about the competitive dynamic in terms of new customers. What is out there, and are there specific verticals of yours that you are thinking about as areas for potentially either new partnerships or portfolio purchase-type opportunities?

Ralph Andretta: Yes. Moshe, how are you doing? The home vertical has been really strong for us. With the addition of Ethan Allen, we have Raymour & Flanigan and Furniture First. We find that vertical to be extremely strong. Our vertical in beauty with our beauty partners is extremely strong as well. Adding Ford to our automotive vertical continues to strengthen that with our existing partners. We have a number of de novo opportunities in the pipeline, and the pipeline continues to be robust. We win more than our fair share because of our product set and the sophistication of how we underwrite, as well as the reputation our teams have in the marketplace.

We feel confident that as we move forward, we will continue to add partners to each of our verticals.

Moshe Orenbuch: Got it. Thanks. The macroeconomic variables that are out there and the outlook have kind of bounced around, and obviously gas prices matter a lot to your customer. Can you talk a little bit about how you took that into account and how you are thinking about that in terms of your outlook for both credit and spend?

Perry Beberman: Yes. Thanks, Moshe. You are right. There are a lot of moving parts with the economy right now. As we look at it top line, with full employment and wages outpacing inflation, that continues to provide resilience to the consumer. You have seen that come through in both the spend and credit metrics we put out there. While that looks good, sentiment and confidence are really low, some historic lows. With the good of the employment and wage growth, consumers are still engaging and purchasing, and they are managing their credit obligations, so the payments have been solid. They are probably adjusting their lifestyle, which is good, and that is how we have used the word “choiceful” in the past.

Related to elevated oil prices, that is something we are watching because consumers are immediately feeling that at the pump. It has not yet really pulled through in the form of other price increases on goods and services because, as you know, higher oil can end in higher fertilizer costs and heating costs. It is going to pull through; it is just a matter of when. That is something we are cautious about, and we have it cared for in our outlook in terms of being cautious with the reserve rates. On tax refunds, overall it has been a good guide and has helped consumers weather the hopefully short-term price impacts in fuel.

We have not seen an overwhelming amount of that used to pay down credit card debt and really improve payments more than you otherwise would have thought. A number of customers under $100 thousand are saying they are going to try to save a little bit, maybe to build a buffer for what is to come. Those things are what we are watching. We were cautiously optimistic entering the year; now I would say we are more cautious for what is happening out there. But the consumer, as of right now, is resilient, and that is encouraging. We are monitoring it very carefully.

Operator: Thank you. And as a reminder, if you would like to ask a question, please press star followed by 11. Our next question will come from the line of Sanjay Sakhrani with KBW. Your line is open. Please go ahead.

Sanjay Sakhrani: I first wanted to talk a little bit about the late fee mitigation impacts, Perry. I think you mentioned in the press release that is coming on. I am curious, as we think about the magnitude of the contribution of those mitigation impacts, how does it sequence over the course of the year? Does it get more significant as the loan growth materializes more? And then how does it continue into next year?

Perry Beberman: When you look at the new portfolio coming on, that is at our target-state pricing. When the repricing on the existing portfolio has taken hold and the portfolio is churning through payments and new purchases coming on at the higher pricing, we are largely most of the way through that pricing pulling through. Over the course of the year, you will see a gradually declining amount of benefit. Think about this first quarter and where net interest margin is landing: it is expected to be more stable throughout the year, not really expanding as a result of pricing because other things influencing net interest margin are going to play into effect, which is a more diversified product suite.

As more customers come in with better credit risk, they have lower APRs, and that is going to pull through. Similarly, you are going to see maybe some rate cuts. There are a lot of things happening there. On credit, there will be lower billed late fees as credit continues to improve. A lot of influences in there, which allowed for those pricing changes that have been made to offset what would have been headwinds. But as you go throughout the year, the benefit of pricing changes alone will start to be muted, as most of it will have been reflected in actuals.

Sanjay Sakhrani: Got it. And then I have a higher-level question about the charge-off rate. We tend to compare it relative to the historical averages, but the mix has shifted on the portfolio as well. You have moved more toward co-brand, maybe upmarket a little bit more. As we think about the path toward normalization, is the target the same or a little bit lower than it was in the past? And since we are talking about credit quality, you alluded to tax refunds and people saving more. How should we think about the magnitude of the impact of tax refunds in the first quarter, and is there any residual impact into the April month?

Perry Beberman: Thanks, Sanjay. I will start with the target state of our losses. There is a view that all co-brands are created equal. We do have some top-of-wallet type of co-brands that you hear Ralph talk about—the NFL partner earlier, or AAA, or our Caesars partnership—but we also have a lot of retail partner co-brands. In those partner programs, we are still underwriting deep, and we are getting paid for that risk. So the loss profile is kind of replacing what was just only private label. When we talk about our loss rate target, we are still looking to get to a loss rate target that is around 6% or below.

If the product mix really shifts strongly towards top of wallet, you may end up with something lower than that, but largely for what we expect and how we underwrite, how we get paid for the risk, and the ROTCE targets that we put out there, around 6% is where we want to live because that is where you get the best return. If we went too far upstream, then we would not be able to deliver the returns that we are looking for.

Specifically to tax season, consumers have seen $300 to $350 of higher tax refunds on average, which is nice, but many who are below $100 thousand have stated that they are looking to save more of that, and we have not seen a material increase in payments to date above what you otherwise might have expected. I think it is helping, but they are probably using some of that to offset near-term gas price impacts that they felt at the pump. We are encouraged overall. In some years, that might have been more of a stimulus to pay down debt, but consumers are always looking to use it different ways—spend on near-term needs, save, or pay down debt.

In this case, it has not really bent the curve in payments. That said, our credit metrics for the quarter and even starting through April show that payments are remaining strong. It just is not excessively better than what we would like to see.

Operator: Thank you. I will pass it back to Ralph Andretta for closing remarks.

Ralph Andretta: I want to thank you all for joining the call and your continued interest in Bread Financial Holdings, Inc. Looking forward to our next quarterly call, and everybody have a wonderful day.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

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