Bread Financial Holdings, Inc.

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 followed by one. It is now my pleasure to introduce Mr. Brian Verab, Head of Investor Relations at Bread Financial. The floor is yours.

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. On the call today, we have Ralph Andretta, President and Chief Executive Officer of Bread Financial, and Perry Beaverman, Executive Vice President and Chief Financial Officer of Bread Financial. 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 subjects 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 at bredfinancial.com. With that, I would like to turn the call over to Ralph Andretta.

Thank you, Brian, and good morning to everyone joining the call. Starting with slide three, I will highlight our major accomplishments for 2023. We continue to execute on our strategic initiatives by growing responsibly and strengthening our balance sheet. Additionally, we continue to optimize data and technology while investing to capture future growth opportunities. Inclusive of the sale of the BJ's portfolio in February of 2023 and our strategic credit tightening, loans grew at a low to mid single-digit rate compared to 2022 as forecasted. PPNR, or profit less tax and loan loss provisions, grew for the full year as well as for each quarter in 2023, demonstrating our ability to deliver sustainable, profitable growth. During 2023, we launched and renewed several key brand partner relationships. New partners included iconic brands such as Dell Technologies and the New York Yankees. And we were pleased to renew multiple partners, including our long standing business relationship with Signet. Importantly, our top five partners are currently secured through 2028 and more than 85% of our current loan portfolio is contracted through 2025. Our continued success reflects the dedication of our associates, our nimble customer first approach, and our enhanced technology capabilities. We achieved significant progress in reducing our parent level debt during the year while refinancing both our term loan and revolving line of credit. We also obtained our inaugural holding company issuer credit rating in November. Following, we completed a $600 million senior unsecured note offering in December that was opportunistically upsized to $900 million earlier this month. With a portion of this new financing, we paid off our term loan early in December of 2023. Consistent with our parent-level debt reduction plan, we paid down approximately $500 million of parent unsecured debt in 2023 and an additional $100 million in January of 2024. Additionally, we strengthened our balance sheet, highlighted by 18% year-over-year growth to direct-to-consumer deposits of $6.5 billion at year-end. These actions, coupled with our strong cash flow generation and disciplined capital allocation, improved the company's financial flexibility and capital ratios, further fortifying our balance sheet. Investments in technology and driving innovation are paramount to our success. In 2023, we hired more than 100 new engineers with cloud expertise and optimized our data and technology by adding new systems capabilities. These included API enhancements, and rich software development kits, unified Salesforce integration, virtual card commercialization, as well as the launch of the Bread Financial mobile app. We also successfully converted a majority of our community MasterCard portfolio to the new Bread Rewards American Express program for everyday spend, achieving strong activation and balance build post-conversion. Finally, we strengthened our relationship with our brand partners by delivering enhanced value propositions that help drive sales as well as meet the evolving needs of our customers. We are pleased with the progress we achieved in 2023 and remain focused on driving continued success throughout 2024 and beyond. Moving to the highlights for the fourth quarter on slide four. The fourth quarter marked our 11th consecutive quarter of year-over-year PPNR growth, further demonstrating our ability to deliver sustainable, profitable growth. That income was $43 million despite credit losses above or through the cycle average in a current challenging macroeconomic environment. Additionally, we continue to deliver on our commitment to build long-term shareholder value as our tangible book value per share approached $44, representing a 49% year-over-year increase. We are proud of the progress we have made in executing on our debt plan strengthening our balance sheet, and enhancing our financial resilience. The economy continued to be impacted by macroeconomic headwinds, including persistent inflation, high interest rates, and the resumption of student loan repayments. These factors led to a moderation in consumer spending and pressured consumers' ability to pay. As we enter 2024, we maintain disciplined credit risk management given continued economic pressures that affect consumer spending and ability to pay. Our ongoing prudent credit tightening is driven by both the current environment and uncertainty around future economic conditions, persistent inflation pressure, and the impact of elevated interest rates. We have continued to responsibly manage our underwriting and credit line management while proactively limiting our exposure by tightening approval rates, pausing line increases, and prudently implementing credit line decreases. Although these actions impacted our 2023 sales and loan growth, our credit distribution has stabilized above pre-pandemic levels. In anticipation of the CFPB's final rule on credit card late fees, we are proactively implementing our plans intended to address the change in regulation, which if left unmitigated would have a significant impact on our business. We are engaged with our brand partners regarding necessary mitigating actions and expect to implement many of these actions prior to the final rule becoming effective. Additionally, we continue to strategically diverse our business to be less reliant on late fees with continued growth in our co-brand and proprietary products and our improved credit profile. We expect the rule to be challenged in court and we'll be monitoring the situation closely. Having successfully managed through significant regulatory changes and varied credit cycles in the past, our seasoned leadership team is focused on addressing the impact to our business while continuing to generate strong returns through prudent capital and risk management. Turning to slide five, as we have highlighted previously, our disciplined capital allocation strategy, which focuses on profitable growth, improving metrics, and reducing parent-level debt has driven substantial growth in tangible book value over the past several years. Looking at the first chart, you can see that since the first quarter of 2020, we have more than tripled our TCE to TA ratio. We aim to further enhance our total company capital metrics from where we are today. Additionally, we will balance achieving these targets with continued investment in our business and long-term growth consistent with our capital priorities. Later this year, we plan to host an investor day where we will further discuss our capital targets and allocation strategies. Moving to the second chart, I will again highlight the progress we have made with respect to debt reduction. In just over three years, we have reduced parent-level debt by 54%, paying down more than $1.7 billion, and we paid down an additional $100 million this week, which is not included in that figure. Finally, the improvement in our tangible book value per share has grown at a 38% compounded annual rate since the first quarter of 2020. Supported by our strong cash flow generation, we expect to continue to grow our tangible book value. We believe this growth combined with our meaningfully improved financial resilience and strengthened balance sheet should yield a company valuation that is a multiple of our tangible book value. We remain confident in our strategy and are focused on managing our business responsibly to build long-term value for our stakeholders. Turning to slide six, let's review our key focus areas for 2024. Our initiatives build on the momentum we generated in 2023 while enabling us to proactively adapt to evolving macroeconomic conditions. Our key focus areas for 2024 include growing responsibly, managing the macroeconomic and regulatory environment, accelerating digital and technology offerings, and driving operational excellence. We remain committed to generating responsible growth while further scaling and diversifying our product offerings to align with the challenging economic landscape. In doing so, we will optimize brand partner growth and revenue opportunities. Although our sales and loan growth may moderate in 2024, our responsible decisions are focused on creating long-term value for shareholders. Managing the macroeconomic and regulatory environment effectively is fundamental to our success. With the proposed CFPB credit card late fee rule coupled with persistent macroeconomic headwinds pressuring consumers, we are executing several mitigation strategies intended to help offset the anticipated financial impact. Perry will provide more details in his remarks. Accelerating our digital and technology capabilities remains a top priority, and I am pleased to welcome Allegra Driscoll to our organization as a new Executive Vice President and Chief Technology Officer. Allegra's proven track record as an innovative and vision leader will combine with a deep understanding of financial services will be essential as we advance our tech innovation and modernization. Throughout 2024, we will focus on further building our capabilities to enhance customer experience and satisfaction. Finally, we will intensify our focus on operational excellence to accelerate continuous improvement gains that drive improved customer experience, enterprise-wise efficiency, reduced risk, and value creation. Our goal is to consistently generate expense efficiencies that enable reinvestment in our business, support responsible growth, and achieve our targeted returns. Before I turn it over to Perry, I want to thank our associates for their continued dedication and hard work. Our seasoned leadership team remains committed to generating strong returns through prudent capital and risk management as we move forward. I will now turn it over to Perry.