Bread Financial Holdings, Inc.

Good morning, and welcome to Brad Financial's first quarter earnings conference call. My name is Shannon, 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 for your questions. To register a question, please press star followed by 1-1. It is now my pleasure to introduce Mr. Brian Verup, head of investor relations at Brad 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 at BredFinancial.com. On the call today, we have Ralph Andretta, President and Chief Executive Officer, and Perry Biberman, 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 risk 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.

Thank you, Brian, and good morning to everyone joining the call. Starting with the key highlights from the first quarter on slide three, I am pleased with our solid start to the year. During the quarter, we generated net income of $134 million and earnings per diluted share of $2.70, driven by a strong risk-adjusted loan yield despite higher credit losses as expected. Importantly, we continue to strengthen our balance sheet. We increased our tangible bulk value by 20% year-over-year to nearly $46 per share, increased our direct-to-consumer deposits to $7 billion, and continue to improve our regulatory capital ratios. Our solid financial position was acknowledged by the investment community as evidenced by strong investor demand for our 2023 senior unsecured notes offerings, which we opportunistically upsize in January of this year. This extended the majority of our debt maturities to 2029. At the same time, we reduced our parent level debt by $100 million. Additionally, we completed $11 million of our $30 million share repurchase authorization in the quarter. On the economic front, consumer spending in the first quarter continued to moderate given persistent inflation and higher interest rates. We observed a continued reduction in discretionary and big-ticket spending in the quarter, with many consumers focusing on non-discretionary purchases. Although consumers increased the frequency of shopping in-store and online, average transaction value decreased on the non-discretionary purchases, pressuring sales and loan growth. First quarter loan growth was further impacted by elevated gross losses as well as our proactive credit tightening initiatives. We remained disciplined with our credit risk management actions given economic pressures affecting consumers' spending and payment capacity. Evidence of our credit action impacts can be observed through our improved linked quarter delinquency rate, which we are observing improvements particularly in early stage buckets. In response to the CFPB's final rule regarding credit card late fees, we have continued taking necessary steps to improve our financial resilience and adapt our pricing to the rule change. I am pleased that we have made meaningful progress in the core to working closely with our brand partners to jointly identify necessary actions and determine timing to implement our plans. This resulted in improved financial projections and better visibility of the expected net financial impact of the rule versus what we previously disclosed, regardless of the effective date. Prager will share more details when he discusses our outlook. Some of the early mitigating actions underway include various consumer pricing actions, such as increased APRs and statement fees, among others. The combination of our mitigation strategies and the diversification of our products and industry verticals and our approved credit profile over the past five years position us well to adapt to the rule change over time. We are closely monitoring the ongoing litigation related to the final CFPB late fee rule, but will continue to implement our mitigation strategy given the uncertainty surrounding the timing and outcome. I would like to reiterate what I have said in the past. We, along with prominent industry and business associations, continue to believe this late fee rule negatively impacts consumers. Not only will a lower late fee serve far less as a deterrent or penalty for consumers praying late, meaning more customers will pay late and therefore impacting their credit scores. The CFPB late fee rule change will also ultimately result in consumers paying more for credit through higher APRs and additional fees, and in some cases, consumers losing access to credit. Regardless of the litigation against the CFPB, we remain focused on ensuring we deliver long-term value for our shareholders. Turning to slide four. Our disciplined capital allocation strategy focuses on funding responsible, profitable growth, improving our capital metrics, reducing parent debt, and driving long-term shareholder value. Looking at the chart on the left, you can see since the first quarter of 2020, we have more than tripled our TCE to TA ratio to 10.6%, and we see room for further improvement. We will host an investor event on June 18th, where we will further discuss our capital targets and allocation strategies and how we will balance achieving these targets with continued investments in our business while driving long-term growth. We're also making progress on debt reduction. As shown in the second chart, in just over four years, we have reduced parent-level debt by 58%, paying down more than $1.8 billion, including the most recent $100 million pay down in January. We improved our double leverage ratio from over 400% to 118% during this time period. As previously mentioned, we have $100 million remaining in our 2026 bonds, which we intend to pay off later this year, reducing our leverage ratio. Finally, our tangible book value of $46 per share has grown at a 31% 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 further over time. We believe this growth, combined with our financial resilience, which we displayed this quarter, and strengthened balance sheet should yield a valuation that's multiple of our tangible book value. Our experienced leadership team has a decades-long track record of successfully managing through economic cycles and regulatory changes. We remain focused on generating strong returns through prudent capital and risk management, reflecting our unwavering commitment to drive sustainable, profitable growth and build long-term value for our shareholders through challenging economic and regulatory environments. Turning to slide five. Our key focus areas for 2024 have not changed. To reiterate, they are growing responsibly, managing the macroeconomic and regulatory environment, accelerating digital and technology offerings, and driving operational excellence. We are laser focused on generating responsible growth while further scaling and diversifying our product offerings to align with the challenging economic landscape. Although our sales and loan growth may moderate in 2024, reflecting ongoing challenging macroeconomic conditions, we are focused on creating long-term value for our shareholders. Managing the macroeconomic and regulatory environment effectively is fundamental to our success. With the CFPB credit card late fee rule effective date looming, we continue to execute numerous mitigation strategies intended to help offset the anticipated financial impact As I discussed, accelerating our digital and technology capabilities remains a top priority. Throughout 2024, we will focus on further building out our capabilities to enhance customer experience and satisfaction, including the continued rollout of our mobile app to brand partners' customers. Finally, our heightened focus on operational excellence to drive improved customer experience, enterprise-wide efficiency, and reduced risk and value creation is embedded in all our decision making. We have seen early success in our customer care area where we are utilizing our investments in digital technology, machine learning, and bots to better serve our customers. For example, our enhanced interactive voice response system provides cardholders with self-service options and enhanced issues classification, leading to faster call resolution, higher satisfaction, and lower cost to serve. Our goal is to consistently generate operation and expense efficiencies that enable a reinvestment in our business, support responsible growth, and achieve our targeted returns. As I mentioned earlier, we will host an investor day on June 18th where our leadership team will provide a more comprehensive update on our business strategy and refresh long-term financial targets. Now we'll turn it over to Perry to review the quarter's financials and discuss our outlook. Thanks, Ralph, and good morning, everyone.