8-K: Bread Financial Reports Mixed Credit Performance in March 2024 Update

Bread Financial's March 2024 performance update reveals a rise in net loss and delinquency rates compared to the previous year, alongside a change in loan calculation methodology.

Summary

• Bread Financial released a performance update for March 2024, showing an end-of-period loan balance of $18,185 million.
• The average credit card and other loans for the three months ended March 31, 2024, were $18,546 million, a 4% decrease year-over-year.
• Net principal losses for the three months ended March 31, 2024, totaled $394 million, with a net loss rate of 8.5%.
• The 30+ day delinquency principal was $1,048 million as of March 31, 2024, compared to $963 million the previous year.
• The delinquency rate increased to 6.2% as of March 31, 2024, up from 5.7% the previous year.
• The company revised its calculation of average credit card and other loans to incorporate an average daily balance, aligning with industry practice.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some negative trends in credit performance, including increased delinquency and loss rates. The change in calculation methodology is a positive move, but the overall tone is cautious due to the increased risks.

Positives

• The company's end-of-period credit card and other loans remained stable at $18,185 million for both the month and three-month periods ending March 31, 2024.

Negatives

• The net loss rate increased to 8.8% for the month ended March 31, 2024.
• The delinquency rate rose to 6.2% as of March 31, 2024, indicating a higher proportion of loans past due.
• Average credit card and other loans decreased by 4% year-over-year for the three months ended March 31, 2024.
• Net principal losses for the three months ended March 31, 2024, were $394 million.

Risks

• The company faces risks from macroeconomic conditions, including inflation, rising interest rates, and potential recession.
• Global political and public health events could impact the company's performance.
• Future credit performance, including delinquency and write-off rates, poses a risk.
• The loss of or reduction in demand from significant brand partners or customers could negatively affect the company.
• Inaccuracies in models and estimates, including credit risk management models, could lead to adverse outcomes.
• The company is exposed to risks related to its level of indebtedness and ability to access financial markets.
• Pending and future legislation and regulatory actions, particularly regarding late fees, could impact the company.
• Failures or breaches in operational or security systems, including cyberattacks, are a risk.
• The company faces potential tax liabilities and other adverse impacts related to the spinoff of its former LoyaltyOne segment.
• The CFPB's final rule on credit card late fees could significantly impact the company's business and results of operations.

Future Outlook

The company's future performance is subject to various risks and uncertainties, including macroeconomic conditions, regulatory changes, and credit performance. The company does not provide specific guidance on future financial results.

Management Comments

• The company revised the calculation of average credit card and other loans to more closely align with industry practice by incorporating an average daily balance.
• The month ended March 31, 2023, 30 days + delinquencies principal and Delinquency rate were impacted by the transition of our credit card processing services in June 2022.

Industry Context

The update reflects the challenges faced by consumer lending companies in the current economic environment, with rising delinquency and loss rates. The change in loan calculation methodology is an attempt to align with industry standards.

Comparison to Industry Standards

• The change in the calculation of average credit card and other loans to incorporate an average daily balance is a move to align with industry practice, which is common among major credit card issuers such as Capital One and Discover.
• The reported delinquency rate of 6.2% is higher than the average for major credit card issuers, which typically range between 2% and 4% in a stable economic environment, suggesting Bread Financial is experiencing higher credit risk than some of its peers.
• The net loss rate of 8.5% is also higher than the industry average, which is typically between 3% and 5%, indicating a higher level of charge-offs compared to competitors like American Express and Synchrony Financial.

Stakeholder Impact

• Shareholders may be concerned about the increased delinquency and loss rates, which could negatively impact the company's profitability.
• Customers may face stricter lending criteria or higher interest rates due to the increased credit risk.
• Employees may be affected by potential cost-cutting measures if the company's financial performance deteriorates.

Key Dates

Keywords

credit cards, delinquency rate, net loss rate, consumer lending, financial services, Bread Financial, loan performance, credit risk, payment solutions