BREAD FINANCIAL HOLDINGS, INC. Q1 FY2025 earnings call

• Reported strong first quarter 2025 earnings with net income of $138 million and earnings per diluted share of $2.78. • Completed a $400 million subordinated notes offering and a $150 million share repurchase program. • Direct-to-consumer deposits grew to $7.9 billion, up 13% YOY, with direct-to-consumer deposits accounting for 43% of average total funding. • Credit sales grew 1% YOY driven by higher general purpose spending. • Positive credit performance trends from prudent underwriting, disciplined credit line management, and product diversification. • New partner signings like Crypto.com, expanded relationship with AAA, and renewed agreements with brand partners such as Academy Sports.

Credit sales grew 1% year over year in the first quarter. Direct-to-consumer deposits increased to $7.9 billion at the end of the quarter, up 13% year over year, accounting for 43% of average total funding. Average loans were $18.2 billion, down 2% primarily due to the macroeconomic environment. Revenue was $970 million, down 2% year over year primarily due to lower net interest income.

• Expect 2025 average loans to be flat to slightly down. • Total revenue excluding gains on portfolio sales anticipated to be flat to slightly up. • 2025 net loss rate expected in the 8.0% to 8.2% range. • Full-year normalized effective tax rate expected to be in the range of 25% to 26% with quarter-over-quarter variability.

• Risk of economic weakness growing due to lower consumer and small business confidence. • Tariffs, trade policies, and inflation may adversely impact consumer strength. • Uncertainty around macroeconomic conditions and policy shifts affecting the business.

Q: Could you talk about payment behavior and credit trends in real-time and how it's incorporated into the reserve?

A: Perry Beberman mentioned being encouraged by consumer payment patterns and credit quality results, but macroeconomic uncertainty is a key factor. The reserve is maintained with a prudent risk overlay, using adverse and severely adverse scenarios.

Q: Any explicit unemployment rate assumption?

A: Perry Beberman said scenarios run high unemployment, with weighting averaging around 7%.

Q: Thoughts on late fee regulation and partner discussions?

A: Ralph Andretta said pleased with late fee litigation outcome, working with partners and monitoring competitive landscape.

Q: Underlying causes of better late stage roll rates?

A: Perry Beberman said combination of wage growth outpacing inflation and better vintages.

Q: Partner business interplay between pricing and growth?

A: Perry Beberman said intersection of pricing, profitability, and value proposition to consumer and partner is important, with pricing changes not materially impacting retail sales.

Q: Consumer trading down and pull-forward dynamic?

A: Perry Beberman said seeing pull-forward of purchases in certain categories, but uncertainty around higher-end consumers.

Q: Incremental strategic credit tightening actions?

A: Perry Beberman said maintaining consistent posture with targeted adjustments, but uncertainty pushing off credit unwind actions.

Q: Pace of buybacks and margin trajectory?

A: Perry Beberman said maintaining capital priorities, still expecting slight margin expansion despite headwinds.

Q: Reserve rate and unemployment rise?

A: Perry Beberman said reserve rate likely stable for 2Q, with weightings adjusted as baseline unemployment increases.

Q: New originations spreads and late fee regulation risk?

A: Perry Beberman said pricing for risk at underwriting, Ralph Andretta said late fee regulation decision makes reinstitution difficult.

Q: ROE and charge-off guide reconciliation?

A: Perry Beberman said modest improvements across FICO buckets, slow and steady.

Q: Pull-forward effect quantification?

A: Perry Beberman said hard to quantify precisely, but seeing mix shift in spending.

Q: Levers if hard data follows sentiment?

A: Perry Beberman said conservative credit posture, slower credit metric improvement, and slower spend.

Q: Merchant conversations and Crypto.com partnership?

A: Ralph Andretta said constant merchant conversations, Crypto.com partnership won due to tech investment and seamless integration.