BFH
Bread Financial Holdings, INC
NYSE
8-K: Bread Financial Reports Mixed Q3 Results, Repurchases Convertible Notes
Sentiment:
Quarterly Report
24 October 2024 6:55 AM
Bread Financial's third quarter results were impacted by a strategic decision to repurchase convertible notes, alongside a slight increase in delinquency and net loss rates.
Worse than expected
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.
Summary
- Bread Financial announced its third quarter 2024 results, which included a net income of $2 million, or $0.05 per diluted share.
- Adjusted net income was $93 million, or $1.83 per diluted share, excluding a $91 million post-tax impact from repurchased convertible notes.
- The company repurchased $262 million in principal amount of convertible notes, incurring a $96 million pre-tax expense.
- Average loans increased by 1% year-over-year to $17.8 billion, driven by new partner growth and stabilizing consumer spending.
- The common equity tier 1 (CET1) capital ratio increased by 40 basis points to 13.3%.
- Tangible book value per common share increased by $5.02, or 12%, to $47.48.
- The third quarter delinquency rate was 6.4%, and the net loss rate was 7.8%.
- Direct-to-consumer deposits grew 23% year-over-year to $7.5 billion, representing 41% of total funding.
- Total revenue decreased by 5% year-over-year to $983 million, primarily due to lower late fees and reduced merchant discount fees.
- The company's 2024 outlook remains unchanged from the second quarter, assuming no impact from the CFPB late fee rule.
- The company expects average loan growth to be down low single digits, total revenue to be down low to mid-single digits, and the net loss rate to be in the low 8% range for 2024.
Sentiment
Score: 4
Explanation: The sentiment is moderately negative due to the significant impact of the convertible note repurchase on net income and the increase in credit losses. While there are some positive aspects, such as the growth in deposits and the improved capital ratio, the overall tone is cautious due to the challenging macroeconomic environment and regulatory uncertainty.
Positives
- The company's CET1 capital ratio improved, indicating a stronger capital position.
- Tangible book value per share saw a significant increase, enhancing shareholder value.
- Direct-to-consumer deposit growth was strong, improving the funding mix.
- The company successfully launched the Saks Fifth Avenue credit card program.
- Adjusted expenses decreased year-over-year, demonstrating cost management efforts.
- The company extended the maturity of its undrawn $700 million revolving credit facility from June 2026 to October 2028.
Negatives
- Net income was significantly impacted by the repurchase of convertible notes.
- Total revenue decreased by 5% year-over-year.
- The delinquency and net loss rates increased compared to the same quarter last year.
- Income from continuing operations decreased significantly due to the convertible note repurchase and higher credit losses.
- The company anticipates a decrease in average loan growth and total revenue for 2024.
Risks
- The company faces uncertainty regarding the outcome of litigation related to the CFPB's late fee rule.
- Consumer spending is moderating, impacting credit sales and loan growth.
- The company is experiencing higher gross credit losses, which are pressuring revenue and net interest margin.
- Potential interest rate decreases by the Federal Reserve could further pressure net interest income.
- The company is exposed to macroeconomic conditions, including inflation and potential recessionary pressures.
Future Outlook
The company's 2024 outlook remains unchanged, anticipating a decrease in average loan growth and total revenue, with a net loss rate in the low 8% range. The outlook assumes no impact from the CFPB late fee rule due to ongoing litigation.
Management Comments
- Ralph Andretta, president and chief executive officer, stated that the results demonstrated a commitment to growing the business responsibly and opportunistically allocating capital.
- Ralph Andretta also noted that consumer spending patterns have remained consistent with the second quarter, with a shift towards non-discretionary purchases.
- Perry Beberman, executive vice president and chief financial officer, mentioned that the company is proactively managing credit and remains cautiously optimistic for gradual improvement following the broader economic recovery.
- Perry Beberman also stated that the company remains disciplined in its commitment to capital priorities and is confident in its ability to adapt to potential regulatory and economic changes.
Industry Context
The results reflect a challenging environment for consumer finance companies, with moderating consumer spending and increased credit losses. The company's focus on direct-to-consumer deposits and strategic capital allocation aligns with industry trends towards strengthening balance sheets and diversifying funding sources. The ongoing litigation regarding the CFPB late fee rule is a significant industry-wide concern.
Comparison to Industry Standards
- Bread Financial's CET1 ratio of 13.3% is generally considered healthy compared to other financial institutions, although specific benchmarks vary.
- The company's net loss rate of 7.8% is higher than some industry averages, indicating potential credit quality concerns.
- The 23% year-over-year growth in direct-to-consumer deposits is a positive sign, as many financial institutions are focusing on growing their deposit base.
- Compared to companies like Synchrony Financial and Capital One, Bread Financial's results show a similar trend of managing credit risk and adapting to changing consumer behavior.
- The repurchase of convertible notes is a strategic move to reduce debt and dilution risk, which is a common practice among companies with similar capital structures.
Stakeholder Impact
- Shareholders may be concerned about the decrease in net income and the increase in credit losses.
- Employees may be affected by potential cost-cutting measures.
- Customers may experience changes in pricing and fees due to the company's mitigation strategies.
- Creditors may be impacted by the company's debt management activities.
Next Steps
- The company will continue to implement mitigation strategies to offset the potential impact of the CFPB's final rule on credit card late fees.
- The company will continue to monitor consumer spending patterns and proactively manage credit risk.
- The company will focus on driving digital and technology capabilities to enhance product offerings and customer experience.
Legal Proceedings
- Litigation associated with the CFPB late fee rule is ongoing, and the outcome and timing of the implementation of the rule is still unknown.
Key Dates
- October 24, 2024: Date of the earnings release and dividend announcement.
- November 8, 2024: Record date for the quarterly cash dividend.
- December 13, 2024: Payment date for the quarterly cash dividend.
Keywords
credit cards, financial services, consumer lending, convertible notes, capital ratio, delinquency rate, net loss rate, direct-to-consumer deposits, CFPB, dividends
BFH
Bread Financial Holdings, INC
NYSE
Sector: Financial Services
Filings with Classifications
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.
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
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.
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
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.
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.
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