BFH
Bread Financial Holdings, INC
NYSE
10-Q: Bread Financial Holdings Reports Mixed Q3 Results Amid Strategic Shifts
Sentiment:
Quarterly Report
30 October 2024 5:52 PM
Bread Financial Holdings saw a decrease in net income for the third quarter of 2024, impacted by strategic credit tightening and expenses related to convertible note repurchases, despite growth in direct-to-consumer deposits.
Worse than expected
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.
Summary
- Bread Financial Holdings reported a 5% decrease in total net interest and non-interest income to $983 million for the third quarter of 2024 compared to the same period last year.
- The company's provision for credit losses increased by 21% to $369 million, driven by a $22 million reserve build and higher net principal losses.
- Total non-interest expenses increased by 14% to $574 million, primarily due to a $96 million impact from repurchased convertible notes.
- Adjusted total non-interest expenses, excluding the impact of the convertible notes, decreased by 5% year-over-year.
- Credit sales were down 3% year-over-year to $6.5 billion, reflecting self-moderated consumer spending and strategic credit tightening.
- Average credit card and other loans increased by 1% to $17.8 billion, driven by new brand partner growth.
- Net interest margin decreased to 18.8% from 20.6% in the third quarter of 2023, due to decreased late fees and higher funding costs.
- Direct-to-consumer deposits increased to $7.5 billion, representing 41% of total funding, up from 35% a year ago.
- The company expects 2024 average credit card and other loans to be down low-single digits, and total net interest and non-interest income to be down in the lowto mid-single digits.
Sentiment
Score: 4
Explanation: The document presents mixed results with some positive aspects like growth in DTC deposits and improved capital ratios, but the negative aspects such as decreased income, increased credit losses, and higher expenses outweigh the positives, leading to a slightly negative sentiment.
Positives
- Adjusted total non-interest expenses decreased by 5% year-over-year, indicating improved cost management.
- Direct-to-consumer deposits increased significantly, improving the company's funding mix.
- The Common equity tier 1 capital ratio improved to 13.3%, indicating a stronger balance sheet.
- The company made progress in implementing its mitigation strategy in response to the CFPB's final rule on credit card late fees.
- The company has a diversified partner base across various industries.
Negatives
- Total net interest and non-interest income decreased by 5% year-over-year.
- Provision for credit losses increased by 21% year-over-year.
- Total non-interest expenses increased by 14% year-over-year, primarily due to the impact of repurchased convertible notes.
- Credit sales decreased by 3% year-over-year, reflecting a slowdown in consumer spending and strategic credit tightening.
- Net interest margin decreased to 18.8% from 20.6% in the third quarter of 2023.
- The company expects 2024 average credit card and other loans to be down low-single digits.
Risks
- The company faces risks related to macroeconomic conditions, including inflation, higher interest rates, and potential recessionary pressures.
- There is uncertainty surrounding the final rule on credit card late fees published by the CFPB and its potential impact on the company's business.
- The company's credit performance is subject to the level of future delinquency and write-off rates.
- The company's results are dependent on its brand partners, including their financial performance and reputation.
- The company faces risks related to its level of indebtedness and access to financial markets.
- Pending and future litigation could adversely impact the company's business.
- The company is subject to extensive federal and state laws and regulations, which could change and impact the business.
- The company faces risks related to failures or breaches in its operational or security systems, including cyberattacks.
Future Outlook
The company expects 2024 average credit card and other loans to be down low-single digits, and total net interest and non-interest income to be down in the lowto mid-single digits. Total non-interest expenses, excluding the impact from repurchased convertible notes, are expected to be down mid-single digits. The company also expects a full year net loss rate in the low 8% range.
Management Comments
- The company is confident in its ability to adapt its business to potential regulatory and economic changes while achieving strong financial results.
- The company remains disciplined in its commitment to its capital priorities.
Industry Context
The results reflect a broader trend of consumer spending moderation and strategic credit tightening in the financial services industry. The company's focus on growing direct-to-consumer deposits aligns with a trend of financial institutions seeking more stable and cost-effective funding sources. The company's ongoing efforts to mitigate the impact of the CFPB's final rule on credit card late fees are also reflective of the regulatory challenges facing the industry.
Comparison to Industry Standards
- Bread Financial's net interest margin of 18.8% is lower than some of its peers in the credit card industry, which may indicate higher funding costs or lower yields on assets.
- The company's delinquency rate of 6.4% is within the range of other consumer lenders, but the net loss rate of 7.8% is higher than some industry benchmarks, suggesting a need for improved credit risk management.
- The increase in direct-to-consumer deposits to 41% of total funding is a positive trend, as it reduces reliance on wholesale funding, which can be more volatile and expensive.
- The company's Common equity tier 1 capital ratio of 13.3% is above the regulatory minimum, indicating a strong capital position compared to industry standards.
- The company's efficiency ratio of 58.4% is higher than some of its peers, suggesting a need for further cost optimization.
Stakeholder Impact
- Shareholders may be concerned about the decrease in net income and the increase in credit losses.
- Employees may be affected by ongoing strategic adjustments in customer care staffing.
- Customers may be impacted by changes in credit card terms and conditions.
- Brand partners may be affected by changes in the company's business strategy and financial performance.
- Creditors may be impacted by changes in the company's credit ratings and access to financial markets.
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's final rule.
- The company will continue to focus on growing its direct-to-consumer deposits and reducing its Parent Company unsecured borrowings.
- The company will continue to evaluate opportunities to renew and expand its various sources of liquidity.
Legal Proceedings
- The company is involved in various lawsuits, claims, disputes, or potential claims or disputes, arising in the ordinary course of business.
- The company is a defendant in an adversary proceeding filed by the liquidating trustee in LVIs Chapter 11 bankruptcy case, alleging fraudulent transfers.
- The company is a defendant in an action in Delaware Chancery Court, alleging breaches of fiduciary duties in connection with the LVI spinoff.
- The company is a defendant in a lawsuit filed by LoyaltyOne, Co. in Canada, alleging breaches of fiduciary duties in connection with the LVI spinoff.
- The company is a defendant in a putative federal securities class action, concerning disclosures made about LVIs business prior to the spinoff.
Key Dates
- 2023-02-28: Date of the sale of the BJ's Wholesale Club portfolio.
- 2023-06-13: Original maturity date of the Revolving Credit Facility.
- 2023-06-15: Date of first semi-annual interest payment for the 4.25% Convertible Senior Notes due 2028.
- 2023-12-22: Date of initial issuance of the 9.750% Senior Notes due 2029.
- 2024-01-31: Date of additional issuance of the 9.750% Senior Notes due 2029.
- 2024-02-21: Date the Board of Directors approved a stock repurchase program.
- 2024-05-14: Original effective date of the CFPB's final rule on credit card late fees.
- 2024-05-31: Date of issuance of Series 2024-A public term asset-backed notes.
- 2024-08-22: Date each Bank entered into an agreement with the FDIC to pay civil money penalties.
- 2024-08-31: Date of issuance of Series 2024-B public term asset-backed notes.
- 2024-09-30: End of the quarterly period covered by this report.
- 2024-10-01: Date the Convertible Notes became convertible at the option of the holders.
- 2024-10-18: Date the Revolving Credit Facility was amended to extend the maturity date.
- 2024-10-24: Date the Board of Directors declared a quarterly cash dividend.
- 2024-10-25: Date of share count disclosure.
- 2024-12-13: Date of payment for the declared quarterly cash dividend.
- 2028-06-15: Maturity date of the 4.25% Convertible Senior Notes due 2028.
- 2028-10-18: New maturity date of the Revolving Credit Facility.
- 2029-03-01: Maturity date of the 9.750% Senior Notes due 2029.
Keywords
credit cards, loans, financial services, consumer lending, deposits, securitization, non-interest expenses, net interest margin, credit losses, CFPB, convertible notes, capital adequacy
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.
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
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.
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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