8-K: Bread Financial Reports Slight Increase in Net Loss Rate for November 2024

Bread Financial's net loss rate increased slightly to 8.0% in November 2024, compared to 7.9% in November 2023, while delinquency rates decreased slightly.

Summary

• Bread Financial reported a net loss rate of 8.0% for November 2024, compared to 7.9% for the same period last year.
• The company's average credit card and other loans decreased year-over-year by 1%, reaching $17,947 million.
• Net principal losses were $118 million in November 2024, slightly down from $120 million in November 2023.
• Delinquency rates decreased slightly to 6.2% as of November 30, 2024, compared to 6.5% as of November 30, 2023.
• The company revised its calculation of average credit card and other loans in January 2024 to align with industry practice, incorporating an average daily balance.
• Hurricanes Helene and Milton caused a temporary freeze on delinquency progression for cardholders in affected areas, which will slightly lower net principal losses in Q4 2024 and increase them in Q2 2025.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While there are some positive aspects like a slight decrease in delinquency rates, the increase in net loss rate and decrease in loan balances temper the overall outlook. The company also faces significant risks related to the economy and regulatory changes.

Positives

• Delinquency rates decreased slightly to 6.2% as of November 30, 2024, compared to 6.5% as of November 30, 2023.
• Net principal losses decreased slightly to $118 million in November 2024, compared to $120 million in November 2023.

Negatives

• The net loss rate increased to 8.0% in November 2024, up from 7.9% in November 2023.
• Average credit card and other loans decreased by 1% year-over-year.

Risks

• Macroeconomic conditions, including inflation and higher interest rates, could impact consumer spending and debt levels.
• Global political and public health events, such as wars and natural disasters, could affect the company's performance.
• Future credit performance, including delinquency and write-off rates, is a risk.
• The loss of or reduction in demand from significant brand partners or customers could negatively impact the company.
• Inaccuracies in models and estimates, including the allowance for credit losses, could lead to adverse outcomes.
• The company's level of indebtedness and ability to access financial markets pose a risk.
• Pending and future regulations, including those related to late fees, could impact the company's business.
• Failures or breaches in operational or security systems, including cyberattacks, could disrupt operations.
• 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 forward-looking statements are subject to various risks and uncertainties, including macroeconomic conditions, regulatory changes, and credit performance. The company does not commit to updating these statements.

Management Comments

• The company provided a performance update as of and for the period ended November 30, 2024.
• The investor presentation may be used by the company's senior officers in connection with the company's participation in the Goldman Sachs Financial Services conference on December 11, 2024.

Industry Context

The report reflects the current trends in the consumer credit industry, where companies are facing challenges related to rising interest rates and potential economic slowdowns. The slight increase in the net loss rate and the decrease in loan balances are indicative of these challenges.

Comparison to Industry Standards

• Bread Financial's net loss rate of 8.0% is within the range of other subprime credit card issuers, but it is important to compare this to specific peers such as Capital One, Discover, and Synchrony Financial to get a more accurate picture.
• The delinquency rate of 6.2% is also within the expected range for this type of lender, but it is important to monitor this metric closely as it can be an early indicator of future credit losses.
• The company's change in the calculation of average credit card and other loans to incorporate an average daily balance is a move to align with industry best practices, which is common among major credit card issuers.

Legal Proceedings

• The company is subject to potential litigation related to the spinoff of its former LoyaltyOne segment and the bankruptcy filings of Loyalty Ventures Inc. and certain of its subsidiaries.
• The company is also subject to potential legal challenges related to the CFPB's final rule on credit card late fees.

Stakeholder Impact

• Shareholders may be concerned about the increase in the net loss rate and the potential impact of regulatory changes.
• Customers may be affected by changes in credit card terms and fees.
• Employees may be impacted by any changes in the company's financial performance or strategic direction.
• Creditors may be concerned about the company's ability to repay its debts.

Next Steps

• The company will participate in the Goldman Sachs Financial Services conference on December 11, 2024.
• The company will continue to monitor credit performance and the impact of macroeconomic conditions.

Key Dates

Keywords

credit cards, net loss rate, delinquency rate, consumer lending, financial services, credit risk, Bread Financial, loans