8-K: Bread Financial Reports Mixed Q4 Results, Announces Dividend

Bread Financial announced its fourth quarter and full year 2024 results, showing a decrease in revenue but improvements in capital ratios and tangible book value, while also declaring a quarterly dividend.

Summary

• Bread Financial reported a net income of $7 million for the fourth quarter of 2024, and $277 million for the full year.
• Adjusted net income was $20 million for the quarter and $381 million for the year, excluding the impact of repurchased convertible notes.
• The company's average loans decreased by 1% year-over-year, while credit sales increased by 1% in the fourth quarter.
• The common equity tier 1 (CET1) capital ratio increased to 12.4%, a 20 basis point improvement year-over-year.
• Tangible book value per common share rose to $46.97, a 7% increase year-over-year.
• The fourth quarter delinquency rate was 5.9%, and the net loss rate was 8.0%.
• Direct-to-consumer deposits grew by 19% year-over-year, reaching $7.7 billion.
• Bread Financial repurchased $44 million in convertible notes and $44 million in shares during the quarter.
• The company expects 2025 average credit card and other loans to be relatively flat to 2024.
• Total revenue growth, excluding gains on portfolio sales, is anticipated to be up low single digits in 2025.
• The net loss rate is expected to be in the 8.0% to 8.2% range for 2025.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with some positive developments like improved capital ratios and deposit growth, but also significant declines in revenue and earnings. The outlook is cautiously optimistic but faces considerable uncertainty, resulting in a neutral sentiment.

Positives

• The company achieved a double leverage ratio target of below 115%.
• Bread Financial received improved rating outlooks from Moody's and Fitch, moving from stable to positive.
• The company's funding mix improved with continued direct-to-consumer deposit growth.
• The company expects to generate full year positive operating leverage in 2025, excluding gains on sales and the impact from repurchased convertible notes.
• The delinquency rate decreased from 6.5% in the fourth quarter of 2023 to 5.9% in the fourth quarter of 2024.

Negatives

• Average loans decreased by 1% year-over-year due to lower full year credit sales.
• Revenue decreased by 9% in the fourth quarter, primarily due to lower finance charges and late fees.
• Income from continuing operations decreased by 83% in the fourth quarter, primarily due to lower net interest income and higher total non-interest expenses.
• The net loss rate for the full year 2024 was 8.2%, up from 7.5% in 2023.
• The company anticipates a net loss rate in the 8.0% to 8.2% range for 2025.

Risks

• The company faces macroeconomic uncertainty, including inflation and potential recessionary pressures.
• The ongoing litigation related to the CFPB late fee rule creates uncertainty about future revenue.
• The company's 2025 outlook assumes no late fee reduction related to the CFPB late fee rule, given the uncertainty surrounding the timing and outcome of the ongoing litigation.
• The company's outlook is subject to changing conditions as the impacts from key legislative and monetary policies are still unknown.
• Interest rate decreases by the Federal Reserve will pressure total net interest income.

Future Outlook

Bread Financial anticipates relatively flat average loan growth in 2025 compared to 2024, with year-end 2025 loans expected to be higher due to new business growth. Total revenue growth, excluding portfolio sales, is expected to be up low single digits. The company expects to achieve positive operating leverage in 2025, excluding gains on sales and the impact from repurchased convertible notes. The net loss rate is projected to be in the 8.0% to 8.2% range for 2025. The company's 2025 outlook assumes no impact from the CFPB late fee rule due to ongoing litigation.

Management Comments

• Our successes in 2024 place Bread Financial in a position of strength going into 2025 with increased capital flexibility and financial resilience.
• We made significant progress enhancing our balance sheet, executing on our long-term funding plan, and increasing shareholder value.
• We improved our capital ratios, while concurrently reducing parent-level debt and achieving a double leverage ratio target of below 115%.
• Our funding mix improved throughout the year with continued direct-to-consumer deposit growth momentum.
• We continue to add iconic brand partner relationships and further invest in our existing programs.
• We are pleased with our year-over-year positive fourth quarter credit sales growth as retail apparel sales and millennial and Gen Z sales showed signs of improvement.
• Looking ahead, we remain focused on growing responsibly, managing the macroeconomic and regulatory environments including ongoing implementation of CFPB late fee rule mitigation strategies, disciplined capital allocation, and continued execution on our operational excellence efforts.
• Our resilient business model allows us to generate capital, deliver strong returns, and create sustainable, long-term value for our shareholders.
• The fourth quarter showed signs of gradual economic improvement with credit sales growth of 1%, stable to improving credit performance, and a lower reserve rate of 11.9% compared to year-end 2023.
• We continued to strengthen our balance sheet by reducing debt and dilution risk while growing our CET1 to 12.4%, representing a 20 basis point year-over-year improvement.
• We repurchased $44 million in principal amount of our convertible notes in the fourth quarter and in January 2025 redeemed the remaining $100 million principal balance of our 2026 senior notes.
• Given the macroeconomic uncertainty that still exists for 2025, we remain vigilant around credit policy while cautiously optimistic for a gradual improvement in economic conditions.
• Looking ahead, we expect our resilient business model, prudent capital allocation, and operational excellence initiatives to deliver responsible growth and achieve solid financial results in 2025.

Industry Context

The results reflect a mixed environment for financial services companies, with some positive trends in consumer spending and credit quality, but also ongoing challenges from inflation, regulatory uncertainty, and interest rate pressures. The company's focus on diversifying its partner base and strengthening its balance sheet aligns with industry best practices for navigating these challenges.

Comparison to Industry Standards

• Bread Financial's CET1 ratio of 12.4% is within the range of other consumer finance companies, but specific comparisons would require a deeper analysis of peer group data.
• The company's net loss rate of 8.0% in Q4 2024 is higher than some industry benchmarks, indicating potential credit quality concerns, but is also impacted by the transition of credit card processing services in June 2022.
• The growth in direct-to-consumer deposits to $7.7 billion is a positive trend, as it provides a stable funding source, similar to other financial institutions focusing on retail deposits.
• The company's focus on operational excellence and technology advancement is consistent with industry trends towards digital transformation and efficiency improvements.
• The repurchase of convertible notes and shares is a common capital management strategy, but the impact on earnings needs to be evaluated in the context of the company's overall financial performance.

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.

Stakeholder Impact

• Shareholders will receive a quarterly cash dividend of $0.21 per share.
• Customers may experience changes in pricing and fees due to the implementation of CFPB late fee rule mitigation strategies.
• Employees may be impacted by ongoing operational excellence initiatives and technology-related transformation costs.
• Brand partners will benefit from the company's continued investment in existing programs and the addition of new partners.

Next Steps

• The company will continue to implement mitigation plans for the CFPB late fee rule.
• Bread Financial will focus on growing responsibly, managing the macroeconomic and regulatory environments, and executing on operational excellence efforts.
• The company will continue to invest in technology modernization, marketing, and product innovation.
• The company will monitor the ongoing litigation related to the CFPB late fee rule.

Key Dates

Keywords

credit cards, financial services, consumer lending, dividends, capital ratios, net loss rate, revenue, earnings, CFPB, macroeconomic conditions