8-K: Bread Financial Reports Increased Net Loss Rate in January 2024

Bread Financial's January 2024 performance update reveals an increase in the net loss rate to 8.0% compared to 6.7% in the same period last year.

Summary

• Bread Financial released a performance update for January 2024, showing a net loss rate of 8.0%, up from 6.7% in January 2023.
• The average credit card and other loans decreased year-over-year by 9%, from $20.7 billion to $18.9 billion.
• Net principal losses increased to $128 million in January 2024 from $115 million in January 2023.
• The delinquency rate rose to 6.8% as of January 31, 2024, compared to 5.8% the previous year.
• The company revised its calculation of average credit card and other loans to align with industry practice, using an average daily balance.

Sentiment

Score: 3

Explanation: The document indicates a negative trend with increased net loss and delinquency rates, along with a decrease in average loans, suggesting potential financial challenges. The forward-looking statements also highlight significant risks.

Positives

• The company is aligning its calculation of average credit card and other loans with industry practice.

Negatives

• The net loss rate increased significantly year-over-year, from 6.7% to 8.0%.
• Average credit card and other loans decreased by 9% year-over-year.
• Net principal losses increased from $115 million to $128 million year-over-year.
• The delinquency rate increased from 5.8% to 6.8% year-over-year.

Risks

• The company faces risks related to macroeconomic conditions, including inflation and rising interest rates.
• There are risks associated with potential changes in consumer payment and savings behavior.
• The company is exposed to risks from global political and public health events.
• Future credit performance, including delinquency and write-off rates, poses a risk.
• The company is subject to risks related to the loss of or reduction in demand from significant brand partners or customers.
• There are risks associated with inaccuracies in models and estimates, including credit risk management models.
• The company faces risks related to its level of indebtedness and ability to access financial markets.
• Pending and future legislation and regulatory actions, particularly regarding late fees, pose a risk.
• The company is exposed to risks from failures or breaches in operational or security systems.
• A final CFPB rule on credit card late fees could significantly impact the business.

Future Outlook

The company's future performance is subject to various risks and uncertainties, including macroeconomic conditions, regulatory changes, and credit performance. The company is monitoring the potential impact of a final CFPB rule on credit card late fees.

Management Comments

• The company revised the calculation of average credit card and other loans to more closely align with industry practice.
• The company's performance in January 2023 was impacted by the transition of credit card processing services.

Industry Context

The increase in net loss and delinquency rates may reflect broader trends in the consumer credit industry, potentially influenced by macroeconomic factors such as inflation and rising interest rates. The company's move to align its loan calculation with industry practice is a common step for financial institutions.

Comparison to Industry Standards

• Bread Financial's net loss rate of 8.0% is higher than the industry average for credit card issuers, which typically ranges between 3% and 6% depending on the risk profile of the portfolio.
• Companies like Capital One and Discover Financial Services, which also operate in the consumer credit space, have reported lower net loss rates in recent periods, suggesting Bread Financial may be facing more significant credit quality challenges.
• The delinquency rate of 6.8% is also on the higher end compared to industry benchmarks, where rates typically range from 2% to 5% for major credit card issuers.
• The 9% year-over-year decrease in average credit card and other loans is a significant contraction, which could be a result of tighter lending standards or reduced consumer demand, and is not typical of the growth seen in the broader credit card market.

Stakeholder Impact

• Shareholders may be concerned about the increased net loss and delinquency rates.
• Customers may be affected by potential changes in lending practices.
• Employees may be impacted by any potential restructuring or cost-cutting measures.

Next Steps

• The company will participate in the Bank of America 2024 Financial Services Conference on February 21, 2024.
• The company will participate in the KBWs 2024 Fintech & Payments Conference on February 27, 2024.

Key Dates

Keywords

credit cards, net loss rate, delinquency rate, consumer lending, financial services, credit risk, Bread Financial, loan portfolio