BFH
Bread Financial Holdings, INC
NYSE
10-Q: Bread Financial Holdings Reports Mixed Q2 Results Amidst Strategic Credit Tightening
Sentiment:
Quarterly Report
31 July 2024 5:51 PM
Bread Financial Holdings saw a decrease in credit sales and net interest margin in Q2 2024, while also experiencing a reserve release and reduced non-interest expenses.
Worse than expected
The company's credit sales decreased by 7% year-over-year, indicating a slowdown in consumer spending.
The net interest margin decreased to 18.0% from 18.7% in the same quarter last year, due to higher funding costs.
The company expects 2024 average credit card and other loans to be down low-single digits.
Delay expected
The final rule on credit card late fees published by the CFPB had an original effective date of May 14, 2024, but was delayed by a court injunction.
Summary
- Bread Financial Holdings reported a 7% year-over-year decrease in credit sales, totaling $6.6 billion, due to moderating consumer spending and strategic credit tightening.
- Average credit card and other loans increased by 1% to $17.9 billion, primarily driven by growth in co-brand products.
- Total interest income rose by 3% due to increased finance charge yields, but this was partially offset by lower late fees and higher reversals of interest and fees.
- Net interest margin decreased to 18.0% from 18.7% in the same quarter last year, due to higher funding costs, particularly with direct-to-consumer deposits.
- Non-interest income decreased by $8 million, mainly due to lower merchant discount fees from reduced big-ticket credit sales.
- The company experienced a $92 million reserve release, compared to a $15 million release in the prior year, but this was offset by net principal losses of $382 million.
- Total non-interest expenses decreased by 12% to $469 million, driven by lower card and processing expenses, depreciation, amortization, and marketing expenses.
- Direct-to-consumer deposits increased to $7.2 billion, representing 40% of total funding, up from 33% a year ago.
- The company's double leverage ratio decreased to 110.1%, and the common equity tier 1 capital ratio increased to 13.8%.
Sentiment
Score: 5
Explanation: The document presents a mixed picture with both positive and negative aspects. While the company has made progress in cost control and capital management, the decrease in credit sales and net interest margin, along with the uncertainty surrounding the CFPB rule, temper the overall sentiment.
Positives
- The company experienced a $92 million reserve release, indicating improved credit quality.
- Total non-interest expenses decreased by 12%, reflecting cost-cutting measures.
- Direct-to-consumer deposits increased significantly, improving the funding mix.
- The double leverage ratio decreased, and the common equity tier 1 capital ratio increased, strengthening the balance sheet.
- The company is making progress with its mitigation strategy in response to the CFPB's final rule on credit card late fees.
Negatives
- Credit sales decreased by 7% year-over-year, indicating a slowdown in consumer spending.
- Net interest margin decreased to 18.0%, driven by higher funding costs.
- Non-interest income decreased by $8 million, primarily due to lower merchant discount fees.
- Net principal losses were $382 million, offsetting the reserve release.
- The company expects 2024 average credit card and other loans to be down low-single digits.
Risks
- The company faces risks from moderating consumer spending and strategic credit tightening.
- There is uncertainty surrounding the final rule on credit card late fees published by the CFPB and its potential impact.
- The company's 2024 financial outlook assumes multiple interest rate decreases by the Federal Reserve Board, which will slightly decrease total net interest income.
- The company expects a full year net loss rate in the low 8% range.
- The company is involved in various legal proceedings, including those related to the spinoff of its former LoyaltyOne segment.
Future Outlook
The company expects slower credit sales growth, a decrease in average credit card and other loans, and a lower net interest margin for 2024. Total non-interest expenses are expected to be down mid-single digits, and the full year net loss rate is projected to be in the low 8% range. The company also anticipates multiple interest rate decreases by the Federal Reserve Board in the second half of the year.
Management Comments
- The company intends to maintain a conservative weighting of economic scenarios in its credit reserve modeling until it sees sustained improvement in delinquencies and an improved macroeconomic outlook.
- The company is confident in its ability to deliver strong financial results while remaining responsible and disciplined in its credit management and capital allocation.
Industry Context
The company's results reflect broader trends in the financial services industry, including moderating consumer spending, strategic credit tightening, and increased competition for deposits. The company's focus on digital-first solutions and data insights aligns with the industry's move towards technology-driven financial services.
Comparison to Industry Standards
- Bread Financial's net interest margin of 18.0% is within the range of other consumer finance companies, but the decrease from 18.7% indicates pressure from higher funding costs.
- The company's reserve rate of 12.2% is elevated compared to pre-pandemic levels, reflecting a conservative approach to credit risk management, similar to other lenders in the current economic environment.
- The decrease in non-interest expenses by 12% is a positive sign, indicating better cost control compared to some peers who may be struggling with rising operational costs.
- The increase in DTC deposits to 40% of total funding is a strategic move to diversify funding sources, which is a common practice among financial institutions to reduce reliance on wholesale funding.
- The company's double leverage ratio of 110.1% and common equity tier 1 capital ratio of 13.8% are within the range of well-capitalized financial institutions, indicating a strong balance sheet.
Stakeholder Impact
- Shareholders may be concerned about the decrease in credit sales and net interest margin, but may be encouraged by the cost-cutting measures and improved capital ratios.
- Employees may be affected by the reduction in headcount and outsourced labor.
- Customers may be impacted by the strategic credit tightening and changes in late fee policies.
- Brand partners may be affected by the company's strategic credit tightening and changes in marketing expenses.
- Creditors may be encouraged by the company's improved capital ratios and diversified funding sources.
Next Steps
- The company will continue to implement its mitigation strategy in response to the CFPB's final rule on credit card late fees.
- The company will continue to monitor the ongoing litigation related to the CFPB rule.
- The company will continue to focus on disciplined expense management and technology modernization.
- The company will continue to monitor and manage credit risk in its loan portfolio.
Legal Proceedings
- The company is involved in various legal proceedings, including those related to the spinoff of its former LoyaltyOne segment.
- The company is also facing litigation related to the bankruptcy filings of Loyalty Ventures Inc. (LVI) and certain of its subsidiaries.
Key Dates
- 2023-02-01: Mention of the BJ's Wholesale Club (BJs) portfolio sale.
- 2023-02-28: Mention of the BJ's Wholesale Club (BJs) portfolio sale.
- 2023-06-13: Issuance of 4.25% Convertible Senior Notes due 2028.
- 2023-10-18: LoyaltyOne, Co. filed suit against Bread Financial Holdings, Inc.
- 2023-11-20: FDIC issued a consent order to Comenity Servicing LLC.
- 2024-01-01: Adoption of the proportional amortization method of accounting for tax credit investments.
- 2024-01-01: Start of the period for service-based and performance-based restricted stock unit awards.
- 2024-01-01: Revision of the calculation of average balances to incorporate an average daily balance.
- 2024-01-22: Issuance of additional 9.750% Senior Notes due 2029.
- 2024-02-21: Board of Directors approved a stock repurchase program.
- 2024-02-20: Pirinate Consulting Group, LLC filed an adversary proceeding against Bread Financial Holdings, Inc.
- 2024-03-20: Pirinate Consulting Group, LLC commenced a similar action in Delaware Chancery Court.
- 2024-04-01: Sale of a credit card portfolio.
- 2024-05-14: Original effective date of the CFPB's final rule on credit card late fees.
- 2024-05-10: United States District Court granted an injunction and stay of the CFPB's final rule on credit card late fees.
- 2024-05-21: WFNMNT issued $570 million of Series 2024-A public term asset-backed notes.
- 2024-06-30: End of the quarterly period.
- 2024-07-25: Board of Directors declared a quarterly cash dividend of $0.21 per share.
Keywords
credit cards, loans, deposits, financial results, net interest margin, credit sales, non-interest expenses, reserve release, CFPB, capital ratios, delinquency, credit tightening, BNPL
BFH
Bread Financial Holdings, INC
NYSE
Sector: Financial Services
Filings with Classifications
Better than expected
11 June 2025 7:01 AM
Performance Update
- The net loss rate improved to 8.0% from 8.8% year-over-year.
- Net principal losses decreased to $120 million from $133 million year-over-year.
- The delinquency rate improved to 5.7% from 5.9% year-over-year.
- 30 days+ delinquencies decreased to $926 million from $976 million year-over-year.
- Despite the company's forward-looking statement that hurricane-related actions would negatively impact Q2 2025 metrics, the reported actuals for May 2025 show year-over-year improvement in key credit quality indicators.
Delay expected
11 June 2025 7:01 AM
Performance Update
- The company froze delinquency progression for cardholders in Federal Emergency Management Agency (FEMA) identified impact zones for one billing cycle due to hurricanes Helene and Milton. This action delayed the recognition of certain losses, resulting in modestly lower Net principal losses and Net loss rate in the fourth quarter of 2024, and will consequently negatively impact these metrics in the second quarter of 2025.
Better than expected
5 June 2025 7:45 AM
Current Report Tender Offer Results
- The tender offer was significantly oversubscribed, with approximately $536.8 million in Notes tendered against a $150 million Tender Cap. This indicates strong participation and allows the company to achieve its debt reduction goals effectively.
- The successful execution of the early tender results means the company can proceed with purchasing the desired amount of Notes, thereby managing its debt obligations and potentially reducing future interest expenses.
Better than expected
13 May 2025 7:01 AM
Performance Update
- The net loss rate improved from 8.6% to 7.8% year-over-year.
- The delinquency rate decreased from 6.0% to 5.7% year-over-year.
- Net principal losses decreased from $127 million to $114 million year-over-year.
Worse than expected
28 April 2025 9:49 PM
Quarterly Report
- Average and end-of-period credit card and other loans decreased, indicating a contraction in lending activity.
- Total interest income decreased due to lower late fees and average loan balances, suggesting weaker revenue generation from core lending operations.
- The 2025 outlook has been adjusted to reflect slower credit sales growth and slightly higher inflation, signaling a less optimistic future performance.
Worse than expected
24 April 2025 6:56 AM
Performance Update
- The net loss rate increased to 8.1% for the month and 8.2% for the quarter, indicating worsening credit performance.
- Net principal losses were $123 million for the month and $365 million for the quarter, suggesting increased credit risk.
Better than expected
17 March 2025 7:31 AM
Performance Update
- The net loss rate improved from 8.9% to 8.6% year-over-year.
- The delinquency rate improved from 6.7% to 6.2% year-over-year.
Capital raise
6 March 2025 1:32 AM
Debt Offering Announcement
- Bread Financial is raising $400 million through a private offering of subordinated notes.
- The net proceeds are expected to be approximately $395 million after deducting the initial purchasers' discount.
- The company intends to lend at least $250 million of the proceeds to Comenity Capital Bank.
- The remaining proceeds may be used for general corporate purposes, including share repurchases.
Capital raise
5 March 2025 7:45 AM
8-K Filing
- Bread Financial intends to offer $400 million aggregate principal amount of fixed-rate reset subordinated notes in a private offering.
- The company intends to lend no less than $250 million of the net proceeds of the Notes offering as subordinated debt to one of its subsidiary banks, Comenity Capital Bank, with the remaining proceeds intended to be used for general corporate purposes, which may include share repurchases.
Worse than expected
30 January 2025 6:52 AM
Quarterly Report
- The company's net income and adjusted net income decreased significantly year-over-year, indicating worse than expected results.
- Revenue decreased by 9% in the fourth quarter, primarily due to lower finance charges and late fees, indicating worse than expected results.
- Income from continuing operations decreased by 83% in the fourth quarter, primarily due to lower net interest income and higher total non-interest expenses, indicating worse than expected results.
Worse than expected
30 October 2024 5:52 PM
Quarterly Report
- The company's net income decreased significantly due to increased provision for credit losses and expenses related to convertible note repurchases.
- The company's net interest margin decreased due to decreased late fees and higher funding costs.
- The company's credit sales decreased, reflecting a slowdown in consumer spending and strategic credit tightening.
Worse than expected
24 October 2024 6:57 AM
Performance Update
- The net loss rate increased to 7.4% for the month and 7.8% for the three-month period, indicating a deterioration in credit quality.
- The delinquency rate also increased slightly to 6.4%, suggesting a higher proportion of loans are becoming past due.
Worse than expected
24 October 2024 6:55 AM
Quarterly Report
- The company's net income and earnings per share were significantly lower than the previous year due to the impact of the convertible note repurchase and increased credit losses.
- Revenue decreased year-over-year, indicating a slowdown in business activity.
- The delinquency and net loss rates increased, suggesting a deterioration in credit quality.
Better than expected
21 October 2024 5:06 PM
Material Definitive Agreement
- The document indicates better results due to the extension of the maturity date, lower interest rates, and increased financial flexibility.
Worse than expected
16 September 2024 7:31 AM
Performance Update
- The net loss rate increased from 6.7% to 7.8% year-over-year.
- Net principal losses increased from $99 million to $118 million year-over-year.
- The delinquency rate increased from 5.9% to 6.2% year-over-year.
Worse than expected
15 August 2024 7:31 AM
Performance Update
- The net loss rate increased from 7.4% to 8.0%, indicating a deterioration in credit quality.
- The delinquency rate rose from 5.7% to 6.2%, suggesting more borrowers are falling behind on payments.
- Net principal losses increased from $108 million to $120 million, reflecting higher credit losses.
Delay expected
31 July 2024 5:51 PM
Quarterly Report
- The final rule on credit card late fees published by the CFPB had an original effective date of May 14, 2024, but was delayed by a court injunction.
Worse than expected
31 July 2024 5:51 PM
Quarterly Report
- The company's credit sales decreased by 7% year-over-year, indicating a slowdown in consumer spending.
- The net interest margin decreased to 18.0% from 18.7% in the same quarter last year, due to higher funding costs.
- The company expects 2024 average credit card and other loans to be down low-single digits.
Worse than expected
25 July 2024 6:56 AM
Performance Update
- The net loss rate and delinquency rate both increased compared to the previous year, indicating a worsening credit performance.
Worse than expected
25 July 2024 6:52 AM
Quarterly Report
- The company's revenue decreased by 1% year-over-year, indicating a worse performance than the previous year.
- The company's credit sales decreased by 7% year-over-year, indicating a worse performance than the previous year.
- The company's net loss rate increased to 8.6% from 8.0% in the second quarter of 2023, indicating a worse performance than the previous year.
Worse than expected
12 June 2024 7:31 AM
Performance Update
- The net loss rate increased from 8.4% to 8.8%, indicating a deterioration in credit quality.
- The delinquency rate increased from 5.5% to 5.9%, suggesting a higher risk of future losses.
Worse than expected
15 May 2024 7:31 AM
Performance Update
- The net loss rate increased from 7.8% to 8.6%, indicating a deterioration in credit quality.
- The delinquency rate increased from 5.5% to 6.0%, suggesting a higher risk of future losses.
- Net principal losses increased from $114 million to $127 million, reflecting higher credit losses.
Worse than expected
1 May 2024 5:50 PM
Quarterly Report
- The company's total net interest and non-interest income decreased by 23% year-over-year.
- Credit sales decreased by 18% year-over-year.
- The provision for credit losses increased due to a smaller reserve release and higher net principal losses.
Worse than expected
25 April 2024 6:57 AM
Performance Update
- The delinquency rate increased from 5.7% to 6.2%, indicating a worsening credit quality.
- The net loss rate increased to 8.5% for the three months ended March 31, 2024, compared to the previous year, indicating higher losses.
Worse than expected
25 April 2024 6:54 AM
Quarterly Report
- The company's revenue and net income decreased significantly compared to the same quarter last year, primarily due to the sale of the BJ's portfolio in the prior year and the impact of the CFPB late fee rule.
- The company's net loss rate increased to 8.5% from 7.0% in the first quarter of 2023, indicating a deterioration in credit quality.
- The company expects average credit card and other loans to be down low-single digits relative to 2023, indicating a slowdown in growth.
Worse than expected
13 March 2024 7:02 AM
Performance Update
- The net loss rate increased from 7.8% to 8.9% year-over-year.
- The delinquency rate increased from 6.0% to 6.7% year-over-year.
Worse than expected
20 February 2024 7:13 AM
Annual Results
- The company's Delinquency rate of 6.5% as of December 31, 2023 exceeded the peak rate during the Great Recession.
- The company's Net loss rate of 7.5% for 2023 is high relative to historical experience.
- The company's 2024 financial outlook anticipates lower revenue and a higher Net loss rate.
Delay expected
20 February 2024 7:13 AM
Annual Results
- The document mentions that certain lenders of private placement commitments within the company's securitization trusts have sought and obtained amendments to their respective transaction documents permitting them to delay disbursement of funding increases by up to 35 days.
Capital raise
20 February 2024 7:13 AM
Annual Results
- The company issued and sold $316 million aggregate principal amount of 4.25% Convertible Senior Notes due 2028.
- The company issued and sold $600 million aggregate principal amount of 9.750% Senior Notes due 2029.
- The company issued and sold an additional $300 million aggregate principal amount of Senior Notes due 2029 in January 2024.
Worse than expected
15 February 2024 7:35 AM
Performance Update
- The net loss rate increased from 6.7% to 8.0%, indicating a deterioration in credit quality.
- The delinquency rate increased from 5.8% to 6.8%, suggesting more borrowers are falling behind on payments.
- Average credit card and other loans decreased by 9%, indicating a contraction in the loan portfolio.
Worse than expected
25 January 2024 6:56 AM
Performance Update
- The delinquency rate increased from 5.5% to 6.5% year-over-year, indicating a deterioration in credit quality.
- The average loan balances decreased year-over-year, suggesting a potential slowdown in business growth.
- The net loss rate of 8.2% for the month is higher than the 8.0% for the three months, indicating a worsening trend.
Worse than expected
25 January 2024 6:52 AM
Quarterly Report
- The company's revenue decreased by 2% in Q4 2023 compared to Q4 2022.
- The company's net loss rate increased to 8.0% in Q4 2023 from 6.3% in Q4 2022.
- The company expects average loan growth to be down low-single digits in 2024.
- The company anticipates a decrease in total revenue for 2024.
- The company expects a lower net interest margin in 2024.
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