8-K: Bread Financial Reports Increased Net Loss Rate in January 2024
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
- February 15, 2024: Date of the performance update press release and 8-K filing.
- January 31, 2024: End of the reporting period for the performance update.
- January 31, 2023: Comparative period for the performance update.
- February 21, 2024: Bread Financial participation in the Bank of America 2024 Financial Services Conference.
- February 27, 2024: Bread Financial participation in the KBWs 2024 Fintech & Payments Conference.
Keywords
Filings with Classifications
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Material Definitive Agreement
- The document indicates better results due to the extension of the maturity date, lower interest rates, and increased financial flexibility.
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.
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.
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.
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.
Performance Update
- The net loss rate and delinquency rate both increased compared to the previous year, indicating a worsening credit performance.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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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