8-K: Bread Financial Reports Solid Q2 Results, Announces Dividend
Summary
- Bread Financial announced its second quarter 2024 results, showing a net income of $133 million.
- The company's tangible book value per share increased by 25% year-over-year to $48.89.
- Average credit card and other loans increased by 1% compared to the second quarter of 2023.
- Revenue decreased slightly by 1%, or $13 million, while expenses decreased by 12%, or $61 million.
- Direct-to-consumer deposits grew by 20% year-over-year, reaching $7.2 billion and now represent 40% of total funding.
- The common equity tier 1 (CET1) capital ratio increased by 170 basis points year-over-year to 13.8%.
- The company signed a long-term agreement with Saks Fifth Avenue.
- The second quarter delinquency rate was 6.0%, and the net loss rate was 8.6%.
- The company expects the net loss rate to have peaked in the second quarter of 2024.
- The company's 2024 outlook assumes no impact from the CFPB late fee rule due to ongoing litigation.
Sentiment
Score: 6
Explanation: The sentiment is moderately positive due to strong growth in tangible book value and deposits, but tempered by revenue decline, increased credit losses, and uncertainty around the CFPB rule. The company is showing resilience but faces headwinds.
Positives
- The company's net income increased by $85 million compared to the second quarter of 2023.
- Tangible book value per share saw a significant increase of 25% year-over-year.
- Direct-to-consumer deposits grew substantially, indicating strong customer confidence.
- The CET1 capital ratio improved significantly, demonstrating a stronger capital position.
- Expenses were reduced by 12%, showing effective cost management.
- The company successfully reduced its double leverage ratio to 110%, achieving its target.
- The new partnership with Saks Fifth Avenue is expected to drive future growth.
- The company anticipates the net loss rate has peaked, suggesting improved credit performance ahead.
- The declaration of a $0.21 per share quarterly dividend is positive for shareholders.
Negatives
- Revenue decreased by 1% year-over-year, or $13 million.
- Credit sales decreased by 7% year-over-year, reflecting moderating consumer spending and strategic credit tightening.
- The delinquency rate increased to 6.0% from 5.5% in the second quarter of 2023.
- The net loss rate increased to 8.6% from 8.0% in the second quarter of 2023.
- The company expects average loan growth to be down low single digits for 2024.
- Total revenue growth is anticipated to be down lowto mid-single digits for 2024.
- The company anticipates a lower net interest margin for 2024.
Risks
- The company faces risks from macroeconomic conditions, including inflation and higher interest rates, which could impact consumer spending.
- There is uncertainty surrounding the outcome of the litigation related to the CFPB's final rule on credit card late fees.
- The company's credit performance is subject to risks, including potential increases in delinquency and write-off rates.
- The company's business is concentrated in U.S. consumer credit, which exposes it to regional economic risks.
- The company's models and estimates may be inaccurate, affecting the allowance for credit losses and credit risk management.
- The company's ability to access financial or capital markets could be impacted by its level of indebtedness.
- The company is subject to pending and future legislation and regulation, which could impact its operations.
- The company faces risks from failures or breaches in its operational or security systems, including cyberattacks.
Future Outlook
The company's 2024 outlook assumes no impact from the CFPB late fee rule due to ongoing litigation, and anticipates slower sales growth, lower net interest margin, and a net loss rate in the low 8% range.
Management Comments
- Actions we have taken over the past few years have enabled us to consistently generate solid results.
- We remain focused on disciplined capital allocation and proactive credit risk management, while maintaining the financial flexibility and resilience to successfully navigate through regulatory changes and economic volatility.
- We are confident in our ability to generate strong results and achieve our long-term strategic objectives and financial targets regardless of the litigation outcome.
- Our second quarter financial results reflect our commitment to delivering strong returns through a disciplined approach.
- We are confident in our ability to deliver strong financial results while remaining responsible and disciplined in our credit management and capital allocation.
Industry Context
The results reflect a challenging macroeconomic environment with moderating consumer spending and higher interest rates, which is impacting the broader financial services industry. The company's focus on digital capabilities and new partnerships aligns with industry trends towards technology-driven solutions and strategic collaborations.
Comparison to Industry Standards
- Bread Financial's CET1 ratio of 13.8% is above the regulatory minimum and compares favorably to many regional banks, but is lower than some larger national banks.
- The 25% increase in tangible book value per share is a strong performance compared to many financial institutions, which are facing headwinds from the current economic environment.
- The 20% growth in direct-to-consumer deposits is a positive sign, indicating a successful strategy in attracting retail funding, which is a key focus for many financial companies.
- The net loss rate of 8.6% is higher than some industry averages, but the company expects it to have peaked, which is a positive sign.
- The company's efficiency ratio of 49.9% is competitive, indicating effective cost management compared to peers.
Stakeholder Impact
- Shareholders will benefit from the declared dividend and the increase in tangible book value per share.
- Customers will have access to new payment solutions through the partnership with Saks Fifth Avenue.
- Employees will be impacted by the company's ongoing efforts to improve efficiency and manage expenses.
- Creditors will be impacted by the company's capital management and debt levels.
Next Steps
- The company will continue to implement its mitigation strategy in response to the CFPB's final rule on credit card late fees.
- The company will proceed with the acquisition of the existing portfolio and the new program launch with Saks Fifth Avenue in the third quarter.
- The company will continue to monitor consumer spending and adjust its credit risk management strategies.
- The company will continue to focus on disciplined capital allocation and expense management.
Legal Proceedings
- The company is involved in ongoing litigation related to the CFPB's final rule on credit card late fees.
Key Dates
- June 30, 2024: End of the second quarter for which financial results are reported.
- July 25, 2024: Date of the earnings release and dividend announcement.
- August 9, 2024: Record date for the declared dividend.
- September 13, 2024: Payment date for the declared dividend.
Keywords
Filings with Classifications
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Material Definitive Agreement
- The document indicates better results due to the extension of the maturity date, lower interest rates, and increased financial flexibility.
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.
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.
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.
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.
Performance Update
- The net loss rate and delinquency rate both increased compared to the previous year, indicating a worsening credit performance.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.