Bread Financial Q1 2026 Earnings Call - Inflection Point in Loan Growth Amidst Consumer Resilience

Michelle, Conference Call Coordinator, Bread Financial: Good morning, and welcome to Bread Financial’s first quarter 2026 earnings conference call. My name is Michelle, and I will be coordinating your call today. At this time, all parties have been placed on a listen-only mode. Following today’s presentation, the floor will be open to your questions. To register a question, please press star followed by 11. It is now my pleasure to introduce Mr. Brian Vereb, Head of Investor Relations at Bread Financial. The floor is yours, sir. Please go ahead.

Brian Vereb, Head of Investor Relations, Bread Financial: Thank you. Copies of the slides we will be reviewing and the earnings release can be found on the investor relations section of our website at breadfinancial.com. On the call today, we have Ralph Andretta, President and Chief Executive Officer, and Perry Beberman, Executive Vice President and Chief Financial Officer. 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. 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 Andretta.

Ralph Andretta, President and Chief Executive Officer, Bread Financial: 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 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 in higher fuel costs. In the quarter, we saw year-over-year sales growth across a broad set of verticals, 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 3,000 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 through earned 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 + Outdoors, 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 maintaining 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 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 capital and 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, Executive Vice President and Chief Financial Officer, Bread Financial: 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 bill late fees and higher Retail 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. Non-interest income was $13 million, lower year-over-year, driven by higher Retail Share Arrangements, which includes both higher credit sales-related partner payments and increased profit share driven by improved loan yields and credit losses. Total non-interest 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 costs increased $5 million, primarily due to higher wages related to annual merit increases in 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 six. 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 the first quarter of 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 repurchase 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 in the future by issuing additional preferred shares. The timing of potential additional preferred share issuances will be predicated based 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.

Our 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 $100,000. 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 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 pay-down of holiday-related transactor 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 then 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’re pleased to have reached an inflection point to 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 non-interest income, we expect meaningfully higher Retail 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 non-interest income 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 pre-tax 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%-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%-27%, with quarter-to-quarter variability due to the timing of certain discrete items. Our strong results in the first quarter of 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’re now ready to open up the line for questions.

Michelle, Conference Call Coordinator, Bread Financial: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one one on your telephone keypad. If you change your mind, please press star one one 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, Analyst, BTIG: 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’m a bit surprised to see loan growth and revenue growth guidance low single digits. Just wondering maybe if you can talk about what’s 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, Executive Vice President and Chief Financial Officer, Bread Financial: Yeah, Vincent, thanks for the question. Look, we are really pleased with the first 90 days of results. Our thoughts on guidance is we’re off to a really good start, and that gives us a high degree of confidence to share that we’re 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 victory yet that we can then up it. Again, if the trends continue on into the second quarter, I think there’s some optimism there. Remember, on average loan growth, that’s an average. What you’re seeing, we’re up almost 2% on ending. Expect the year that will continue to grow throughout the year to get us to that low single digit on average.

That’s going to build. We expect ending loans to be higher than low singles.

Vincent Caintic, Analyst, BTIG: Okay, great. That’s helpful. Thank you for that. 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 off of having to raise those preferred equities? Any thoughts on kind of long-term CET1 framework? Thank you.

Perry Beberman, Executive Vice President and Chief Financial Officer, Bread Financial: Yeah. When you think about the cadence, when we announced the additional share buyback program, we didn’t time-bound it. It’s open-ended. The cadence will be informed by first, the amount of growth that we have in any particular quarter, making sure that obviously we maintain our capital ratios, that we’re supporting the growth first and foremost, and then if we have additional capital at that point, we’ll try to return it to keep closer to our capital targets. As the cadence around additional share repurchases beyond that, we’ve talked before about the opportunity around preferred share issuance, and that will be largely market-dependent. It seems like you can’t wake up any morning and you don’t know what’s going to be the news cycle and what the markets are going to demand.

Obviously, we’re actively monitoring those markets, and we’ll opportunistically issue, and that would then generate some additional opportunity for capital return should that happen. That’s cared for in the overall share authorization. The cadence and the amount that we’re able to use this year will somewhat be dependent on obviously earnings generation and the preferred share issuance. As you look longer term, we said during our investor day back in 2024 that we’re looking to optimize our capital stack, and the preferred issuance is a component of that. The newest 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’s looking at it, and obviously, we’re very pleased that the Federal Reserve is thoughtfully looking to simplify in some cases and free up capital for banks. Again, that’s in proposal stage, so nothing we can bank on that yet.

Vincent Caintic, Analyst, BTIG: Okay, great. Very helpful. Thank you.

Perry Beberman, Executive Vice President and Chief Financial Officer, Bread Financial: Thanks, Vincent.

Michelle, Conference Call Coordinator, Bread Financial: Thank you. 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 Halon, Analyst, Bank of America: Hey, thanks for taking my question. This is Natalie Halon for Mihir. 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? Along with that, where are rate cuts increases fitting into this? Thank you.

Perry Beberman, Executive Vice President and Chief Financial Officer, Bread Financial: Yeah. When you’re talking about pricing changes, that has been a nice, sorry, tailwind for us. Largely, it’s working its way through, and so the degree of benefit that we’re going to see incrementally throughout the year is going to slow. It’ll gradually still be in accretive, but it is slowing. We’ve got most of the portfolio, it is repriced. That’s something that’s been a tailwind. With net interest margin, as we look outward, I’d like to say it’s 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, the good and the bad in that. I mean, in that as credit quality improves, you may have some lower top-line APRs.

You will have lower reversal issue fees. That’s also good, but you’ll also have lower late fees. That’s a drag. There are a lot of moving parts in there. On net interest margin as well, you have funding that, with the work that our treasury team has done and that we’ve done in terms of increasing direct-to-consumer deposits, that’s been a positive. There’s a lot of moving parts. I think when you think about it’s stability, but we’re very pleased with where we are. Our philosophy as it comes to underwriting is going to pay for the risk that we take, and making sure that we’re appropriately assigning APRs at that time. You can see that with our strong risk-adjusted margin that we have been delivering.

Natalie Halon, Analyst, Bank of America: Got it. Thank you. If I could ask really quickly 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 guys looking at the rest of the year?

Ralph Andretta, President and Chief Executive Officer, Bread Financial: Yeah. This is Ralph. The consumer’s being thoughtful on how they spend their money. As gas prices go up, they may decide to pull back on T&E. T&E has been a strong category of ours for some time, and we see it being a strong category in the future.

Natalie Halon, Analyst, Bank of America: Got it. Thank you.

Michelle, Conference Call Coordinator, Bread Financial: Thank you. 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, Analyst, Seaport Research Partners: Hi. Good morning, and thanks for taking my questions. First question is on the loan growth. I know you made some pricing changes, and 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. I guess looking forward, how much impact is that going to have on the receivables growth going forward? Is it going to stabilize at some point as a percentage of the portfolio? Or do you still expect that to increase?

Perry Beberman, Executive Vice President and Chief Financial Officer, Bread Financial: Yeah, Bill, I appreciate the question. What you’re referring to is the change that we had made last year to our minimum payment due payment hierarchy. What we did is we adjusted it to conform with what we’re able to do with CARD Act. It just changes the mix a little bit between what portion of interest and fees would be paid versus principal. Maybe you’re looking at trust data or principal-only data, so that’s what influences. Total loans includes both principal and interest, so there is no effect in total.

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

Perry Beberman, Executive Vice President and Chief Financial Officer, Bread Financial: Yeah. It’s Ralph. The announcement was about American Express being now the brand partner for the NFL, and we’re thrilled about that because we’re partners with both the NFL and American Express. We’re still the issuer of the NFL card, so we believe between the NFL, American Express, and us, it’s a real touchdown in terms of good for our consumers and good for the fans. We’re excited about it. Yet to be determined what we’ll do together, but rest assured it’ll be a very exciting partnership.

Bill Ryan, Analyst, Seaport Research Partners: Okay. Thank you.

Michelle, Conference Call Coordinator, Bread Financial: Thank you. 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, Analyst, TD Cowen: Great. Thanks. I was hoping you could kind of talk a little bit about the competitive dynamic in terms of kind of new customers. What’s out there, and are there specific verticals of yours that you’re thinking about as areas for potentially either new partnerships or portfolio kind of purchase type opportunities?

Ralph Andretta, President and Chief Executive Officer, Bread Financial: Yeah, Moshe. Yeah, it’s Ralph. How you doing? Listen, the home vertical has been real strong for us with the addition of Ethan Allen. We’ve got Raymour & Flanigan, 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. 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 and as well as the reputation our teams have in the marketplace. We feel pretty confident that as we move forward, we’ll continue to add partners to each of our verticals.

Moshe Orenbuch, Analyst, TD Cowen: Got it. Thanks. I apologize to the extent that you talked about this was on the call with your NFL partner for some of that time. Essentially, the macroeconomic kind of variables that are out there, outlook has kind of bounced around. Obviously gas prices kind of matter a lot to your customer. Can you just talk a little bit about to the extent, how are you thinking about that in terms of your outlook for both credit and spend?

Perry Beberman, Executive Vice President and Chief Financial Officer, Bread Financial: Yeah. Thanks much. This is Perry. You’re right. There is 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’ve seen that come through in both the spend and credit metrics we put out there. Yet, while that looks good, you look at then the sentiment and confidence are really low, some historic lows. With the good support of the employment wage growth, consumers are still engaging, like I said, in purchasing. They’re managing their credit obligations, so the payments have been still solid. More so they’re probably adjusting their lifestyle, which is good. That’s how we’ve used the word choiceful in the past, and they’re adjusting.

Now, related to the elevated oil prices, that’s something that we’re watching because consumers are immediately feeling that at the pump. It hasn’t yet really pulled through in the form of, I’ll say, other price increases yet on goods and services, because as you know, the higher oil and higher fertilizer costs or helium costs.

Moshe Orenbuch, Analyst, TD Cowen: Yeah

Perry Beberman, Executive Vice President and Chief Financial Officer, Bread Financial: It’s going to pull through. It’s just a matter of when. That’s something we’re cautious about. We think we have it covered in our outlook in terms of being cautious with the reserve rates. Tax refunds, we talked a little about that earlier in the call. Overall, it’s been a good guide, and it’s helped consumers weather the hopefully short-term price impacts in fuel. We haven’t seen an overwhelming amount of that be used to pay down credit card debt and really improve payments more than you otherwise would’ve thought. A number of customers, when you look at surveys, particularly for those under 100,000, are saying they’re going to try to save a little bit, and maybe it’s trying to build a buffer for what’s to come for them. Those things are what we’re watching. We’re cautious.

Before, I’d say we’re cautiously optimistic entering the year. Now I’d say we’re more cautious for what’s happening out there. The consumer as of right now is resilient, and that’s encouraging. We’re monitoring it very carefully.

Moshe Orenbuch, Analyst, TD Cowen: Great. Thanks, Perry and Ralph.

Michelle, Conference Call Coordinator, Bread Financial: Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. Our next question will come from the line of Sanjay Sakhrani with KBW. Your line is open. Please go ahead.

Sanjay Sakhrani, Analyst, KBW: Thank you. Good morning. I guess I first wanted to talk a little bit about the late fee mitigation impact. Perry, I think you mentioned in the press release that that’s coming on. I’m just 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? I want to make sure I understand it. How does it sort of continue into next year? Thanks.

Perry Beberman, Executive Vice President and Chief Financial Officer, Bread Financial: Yeah. 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 basically the portfolio’s churning through payments and the new purchases coming on at the higher pricing and things of that nature, we’re largely most of the way through that pricing pulling through. You’re going to see, over the course of the year, a gradually declining amount of benefit. Think about this first quarter, where net interest margin’s landing. It’s 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. That’s going to pull through.

Similarly, you’re going to see maybe some rate cuts. I think there’s a lot of things happening in there, and even from I talked about it earlier, on credit, that there’ll be lower bill 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 some of those what would have been headwinds. As you go throughout the year, the benefit of pricing changes alone will start to be muted, as most of it will have been affected through actuals.

Sanjay Sakhrani, Analyst, KBW: Got it. I guess I have a higher-level question about the charge-off rate. I know we tend to compare it relative to sort of the historical averages, but the mix has shifted on the portfolio as well, right? You guys have moved more towards co-brand, maybe upmarket a little bit more. I’m just curious, as we think about the path going forward towards normalization, is the target the same or a little bit lower than it was in the past? Maybe just as we’re talking about credit quality, Perry, you sort of alluded to tax refunds and people saving more. I’m just curious, how should we think about the magnitude of the impact of tax refunds in the first quarter and if there’s any residual impact into the-

Perry Beberman, Executive Vice President and Chief Financial Officer, Bread Financial: Yes

Sanjay Sakhrani, Analyst, KBW: ... the April month? Thanks.

Perry Beberman, Executive Vice President and Chief Financial Officer, Bread Financial: Thanks, Sanjay. I’ll start with the first piece of the equation around the target state of our losses because I think there’s a view that all co-brands are created equal. We do have some top-of-wallet type of co-brands. You hear Ralph talk about the NFL card earlier or AAA or Caesars partnership. We also have a lot of retail partner co-brands. In those partner programs, we’re still underwriting deep, and we’re getting paid for that risk. The loss profile is kind of replacing what was just only private label. When we talk about our loss rate target, we’re still looking to get to a loss rate target that is around 6% or below.

Now, if the product mix really shifts, I’ll say strongly towards top-of-wallet co-brand, yes, 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, that around 6% is where we want to live, because that’s where we get the best return. That’s what we’re putting out there and what we’re striving to get. Because if we went too far upstream, then we wouldn’t be able to deliver the returns that we’re looking for.

Specific to tax season, I’ve mentioned this a little bit earlier, or tried to, is that our consumers have seen $300-$350 of higher tax refunds on average, which is nice, but many who are below 100,000 have stated that they’re looking to save some more of that. We have not seen a material increase in payments to date above what you otherwise might have expected. I think it’s helping, but it’s also, they’re probably using some of that to offset some of the near term gas price impacts that they felt at the pump. We’re encouraged overall. In some years, you’d think that might have been more of a stimulus to pay down debt, but consumers are always looking to use it different ways, either to spend on some near-term needs, to save or pay down debt.

In this case, it really hasn’t bent the curve in payments as it related to payments. That said, our credit metrics for the quarter and even starting through April, we’re seeing that the payments are remaining strong. It just isn’t excessively better than what we would’ve liked to have seen.

Sanjay Sakhrani, Analyst, KBW: Okay. Well, great. Thank you, guys.

Michelle, Conference Call Coordinator, Bread Financial: Thank you. I’ll pass it back to Ralph Andretta for closing remarks.

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

Michelle, Conference Call Coordinator, Bread Financial: This concludes today’s conference call. Thank you for participating, and you may now disconnect.