BFH
Bread Financial Holdings, INC
NYSE
10-Q: Bread Financial Reports Mixed Q1 Results Amidst Economic Headwinds and Regulatory Changes
Sentiment:
Quarterly Report
1 May 2024 5:50 PM
Bread Financial's first quarter saw a decrease in revenue and increased credit loss provisions, influenced by the sale of a major portfolio and a challenging economic environment.
Worse than expected
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.
Summary
- Bread Financial's Q1 2024 results show a mixed performance with a 23% decrease in total net interest and non-interest income compared to Q1 2023, reaching $991 million.
- Credit sales were down 18% year-over-year to $6.0 billion, and average credit card and other loans decreased by 4% to $18.5 billion, primarily due to the sale of the BJ's Wholesale Club portfolio and tighter underwriting standards.
- Net interest margin decreased slightly to 18.7% from 19.0% in the same period last year.
- Non-interest income decreased by $233 million, mainly due to the absence of a $230 million gain from the sale of the BJ's portfolio in the prior year.
- Provision for credit losses increased significantly due to a smaller reserve release of $73 million compared to $235 million in the prior year, and net principal losses of $394 million.
- The company maintains an elevated reserve rate of 12.4% due to economic uncertainties.
- Total non-interest expenses decreased by 12% to $482 million, driven by lower card processing, marketing, and employee compensation costs.
- Direct-to-consumer deposits grew to $7.0 billion, representing 36% of the average funding mix.
- The company anticipates a low-single-digit percentage decrease in average credit card and other loans for 2024.
- Total net interest and non-interest income is expected to be down in the midto high-teen range due to the CFPB late fee rule and other factors.
- The net loss rate is projected to be in the low 8% range for the full year, peaking at around 9% in the second quarter.
Sentiment
Score: 4
Explanation: The document presents a mixed picture with significant challenges and uncertainties. While there are some positives like cost control and deposit growth, the negative impacts of the CFPB rule, decreased revenue, and increased credit losses weigh heavily on the overall sentiment.
Positives
- Total non-interest expenses decreased by 12% due to cost-cutting measures.
- Direct-to-consumer deposits grew to $7.0 billion, diversifying the funding base.
- The company opportunistically extended senior debt maturities and reduced parent-level debt by $100 million.
- Capital ratios improved, with the TCE/TA ratio at 10.6% and the Common equity tier 1 capital ratio at 12.6%.
Negatives
- Credit sales decreased by 18% year-over-year.
- Average credit card and other loans decreased by 4%.
- Total net interest and non-interest income decreased by 23%.
- Provision for credit losses increased due to a smaller reserve release and higher net principal losses.
- The company anticipates a decrease in average credit card and other loans for 2024.
- Total net interest and non-interest income is expected to be down in the midto high-teen range.
Risks
- The CFPB's late fee rule is expected to significantly impact revenue, with a potential mid-teen percentage point reduction in Q4 2024 total net interest and non-interest income.
- Ongoing litigation related to the CFPB late fee rule creates uncertainty regarding its implementation.
- The company faces risks from macroeconomic conditions, including inflation, rising interest rates, and potential recession.
- There are risks associated with the credit performance of customers, including potential increases in delinquency and write-off rates.
- The company is exposed to risks related to the loss of or reduction in demand from significant brand partners.
- There are risks associated with the transition of credit card processing services to third-party providers.
- The company faces potential liabilities and adverse impacts from the spinoff of its former LoyaltyOne segment and related litigation.
Future Outlook
The company expects a low-single-digit percentage decrease in average credit card and other loans for 2024, and total net interest and non-interest income to be down in the midto high-teen range. The net loss rate is projected to be in the low 8% range for the full year. The outlook is significantly impacted by the potential implementation of the CFPB late fee rule.
Management Comments
- Management is focused on generating strong returns through prudent capital and risk management.
- Management remains confident in the ability to deliver on the 2024 full year financial outlook.
- Management is focused on preserving program profitability and returns over the long-term, and ensuring the safety and soundness of the Banks throughout all periods.
Industry Context
The results reflect broader industry trends of moderating consumer spending and increased credit pressures. The company is navigating a challenging macroeconomic and regulatory landscape, similar to other financial institutions in the consumer credit space. The CFPB late fee rule is a significant industry-wide concern.
Comparison to Industry Standards
- Bread Financial's decrease in credit sales and loan balances is consistent with trends seen in other consumer lending companies facing economic headwinds.
- The elevated reserve rate of 12.4% is indicative of a conservative approach to credit risk management, which is common among financial institutions in the current environment.
- The company's net interest margin of 18.7% is relatively high compared to traditional banks, reflecting its focus on credit card lending.
- The projected net loss rate of low 8% is within the range of other subprime lenders, but the company is taking steps to mitigate this through credit tightening.
- The company's focus on digital-first approach and white-label technology is a competitive advantage in the fintech space, similar to companies like Affirm and Upstart.
Stakeholder Impact
- Shareholders face potential risks from decreased revenue, increased credit losses, and ongoing litigation.
- Employees may be affected by cost-cutting measures and potential changes in business strategy.
- Customers may experience changes in credit terms and fees due to the CFPB late fee rule and the company's mitigation efforts.
- Brand partners may be impacted by changes in the company's business strategy and potential non-renewals of certain relationships.
- Creditors may be affected by changes in the company's financial performance and credit ratings.
Next Steps
- The company will continue to monitor the impact of the CFPB late fee rule and implement mitigation strategies.
- The company will focus on prudent capital and risk management to drive sustainable growth.
- The company will continue to invest in technology modernization and digital advancement.
- The company will continue to evaluate various funding sources and maintain a diverse funding base.
Legal Proceedings
- Bread Financial and its general counsel were named as defendants in an adversary proceeding filed by the liquidating trustee in LVI's Chapter 11 bankruptcy case, alleging fraudulent transfers.
- The liquidating trustee also filed an action in Delaware Chancery Court against Bread Financial, its board members, and certain management, alleging breaches of fiduciary duties related to the LVI spinoff.
- LoyaltyOne, Co. filed a lawsuit against Bread Financial and its general counsel in Canada, alleging breaches of fiduciary duties related to the LVI spinoff.
- Bread Financial and certain current and former members of its management team were named as defendants in a putative federal securities class action concerning disclosures made about LVI's business prior to the spinoff.
Key Dates
- 2023-02-28: Sale of the BJ's Wholesale Club portfolio completed.
- 2023-10-18: LoyaltyOne, Co. filed suit against Bread Financial and its general counsel.
- 2024-02-20: Liquidating trustee filed an adversary proceeding against Bread Financial in connection with the LVI spinoff.
- 2024-02-21: Bread Financial's Board of Directors approved a stock repurchase program.
- 2024-03-31: End of the first quarter of 2024.
- 2024-04-25: Bread Financial's Board of Directors declared a quarterly cash dividend.
- 2024-04-26: Date of share count disclosure.
- 2024-05-10: Record date for the declared dividend.
- 2024-05-14: Potential effective date of the CFPB late fee rule.
- 2024-06-14: Payment date for the declared dividend.
Keywords
credit cards, consumer lending, financial services, BNPL, credit risk, regulatory compliance, interest rates, credit losses, deposits, securitization
BFH
Bread Financial Holdings, INC
NYSE
Sector: Financial Services
Filings with Classifications
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
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.
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.
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.
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
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.
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.
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
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.
Disclaimer: This summary was generated by artificial intelligence and its accuracy is not guaranteed. The information provided here is for general informational purposes only and does not constitute financial advice, recommendation, or endorsement of any kind. It may contain errors or omissions. You should not rely on this information to make financial decisions. Always seek the advice of a qualified financial professional before making any investment or financial decisions. Use of this information is at your own risk.