8-K: Bread Financial Reports December 2024 Performance Update, Net Loss Rate at 8.1%

Bread Financial's December 2024 performance update reveals a net loss rate of 8.1% and a delinquency rate of 5.9%.

Summary

• Bread Financial released a performance update for December 2024, showing a net loss rate of 8.1% for the month and 8.0% for the three months ended December 31, 2024.
• The company's average credit card and other loans were $18,647 million for the month and $18,156 million for the three-month period.
• Net principal losses were $129 million for the month and $367 million for the three months ended December 31, 2024.
• The delinquency rate was 5.9% as of December 31, 2024, compared to 6.5% at the end of 2023.
• The company revised its calculation of average credit card and other loans in January 2024 to align with industry practice, which impacts year-over-year comparisons.
• Hurricane-related freezes on delinquency progression will modestly lower net principal losses and net loss rates in the fourth quarter of 2024 but will negatively impact these metrics in the second quarter of 2025.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly negative due to the high net loss rate, but the decrease in delinquency rate is a positive sign. The company also faces several risks and uncertainties.

Positives

• The delinquency rate decreased from 6.5% at the end of 2023 to 5.9% as of December 31, 2024.

Negatives

• The net loss rate was 8.1% for December 2024 and 8.0% for the three months ended December 31, 2024.
• Net principal losses were $129 million for the month and $367 million for the three months ended December 31, 2024.

Risks

• The company faces risks related to macroeconomic conditions, including inflation and interest rates, which could impact consumer spending and debt levels.
• Global political and public health events, such as wars and natural disasters, could also affect the company's performance.
• Future credit performance, including delinquency and write-off rates, is a risk factor.
• The loss of or reduction in demand from significant brand partners or customers could negatively impact the company.
• Inaccuracies in models and estimates, including the allowance for credit losses, pose a risk.
• The company is subject to regulatory risks, including potential impacts from the CFPB's final rule on credit card late fees.
• Operational and security system failures, including cyberattacks, are a risk.
• The transition of credit card processing services to third-party providers could pose risks.
• The spinoff of the former LoyaltyOne segment and the bankruptcy filings of Loyalty Ventures Inc. could lead to liabilities or adverse impacts.

Future Outlook

The company's future performance is subject to various risks and uncertainties, including macroeconomic conditions, regulatory changes, and credit performance. The company also notes that hurricane-related freezes on delinquency progression will impact net principal losses and net loss rates in the fourth quarter of 2024 and the second quarter of 2025.

Industry Context

The performance update provides insight into Bread Financial's credit portfolio health in the context of the broader consumer lending industry. The company's net loss and delinquency rates are key metrics that investors and analysts will use to assess its performance relative to peers.

Comparison to Industry Standards

• Bread Financial's net loss rate of 8.1% for December 2024 is a key metric to compare against other credit card issuers such as Capital One (COF) and Discover Financial Services (DFS).
• The delinquency rate of 5.9% is also important to benchmark against industry averages and competitors' performance.
• The change in calculation of average credit card and other loans to align with industry practice makes direct comparisons to prior periods more challenging, but is a standard practice.
• The impact of hurricane-related freezes on delinquency progression is a unique factor that needs to be considered when comparing Bread Financial's results to peers.

Legal Proceedings

• The company is subject to potential legal challenges related to the CFPB's final rule on credit card late fees.

Stakeholder Impact

• Shareholders will be interested in the company's credit performance and its ability to manage risk.
• Customers may be impacted by changes in credit card terms and conditions.
• Employees may be affected by changes in the company's performance and strategy.
• Brand partners may be impacted by changes in the company's lending practices.

Key Dates

Keywords

credit cards, net loss rate, delinquency rate, consumer lending, financial services, Bread Financial, performance update, credit risk, loans