10-K: Bread Financial Reports Strong 2025 Earnings, Strategic Progress

Bread Financial Holdings, Inc. reported a significant increase in 2025 net income and EPS, alongside improved credit metrics and strategic capital optimization.

Summary

• Net income available to common stockholders increased to $518 million in 2025, up 87% from $277 million in 2024.
• Diluted income per share rose to $10.89 in 2025, a 98% increase from $5.49 in 2024.
• Credit sales for 2025 were $27.8 billion, a 3% increase compared to $26.962 billion in 2024.
• Average credit card and other loans decreased 1% to $17.9 billion in 2025, while end-of-period loans were flat at $18.8 billion.
• Total net interest and non-interest income remained flat at $3.8 billion in 2025 compared to 2024.
• Net interest margin improved slightly to 18.4% in 2025 from 18.3% in 2024, driven by decreased funding costs and growth in direct-to-consumer (DTC) deposits.
• Provision for credit losses decreased by 11% to $1.242 billion in 2025, primarily due to a $135 million reserve release and lower net principal losses.
• The Allowance for credit losses decreased to $2.106 billion as of December 31, 2025, from $2.241 billion as of December 31, 2024, with the reserve rate improving to 11.2% from 11.9%.
• Total non-interest expenses decreased 3% in 2025, influenced by lower debt repurchase impacts and reduced employee compensation and benefits.
• The Common Equity Tier 1 (CET1) capital ratio increased to 13.0% as of December 31, 2025, from 12.4% a year prior, exceeding well-capitalized standards.
• DTC deposits grew 11% to $8.5 billion as of December 31, 2025, now representing 48% of total funding sources.
• The delinquency rate decreased to 5.8% as of December 31, 2025, from 5.9% in 2024, and the net principal loss rate improved to 7.7% in 2025 from 8.2% in 2024.
• The company issued $500 million of 6.750% Senior Notes due 2031 and $400 million of 8.375% Subordinated Notes due 2035, while repurchasing all outstanding Convertible Notes and redeeming Senior Notes due 2029.
• The Board of Directors declared a quarterly cash dividend of $0.23 per common share and $26.35 per preferred share, payable March 16, 2026.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a generally positive report, reflecting strong financial performance in 2025 with significant increases in net income and EPS, coupled with improved credit quality metrics and a strengthened capital position. However, ongoing macroeconomic uncertainties, regulatory challenges, and significant litigation related to the LoyaltyOne spinoff temper the overall sentiment.

Positives

• Net income available to common stockholders increased significantly by 87% to $518 million in 2025.
• Diluted EPS nearly doubled, rising 98% to $10.89 in 2025.
• Provision for credit losses decreased by $155 million, driven by a $135 million reserve release, indicating improved credit performance.
• Credit quality metrics improved, with the delinquency rate decreasing to 5.8% and the net principal loss rate to 7.7% in 2025.
• The reserve rate improved to 11.2% as of December 31, 2025, reflecting better credit metrics and higher-quality new account acquisitions.
• The CET1 capital ratio increased to 13.0%, maintaining a strong capital position above well-capitalized standards.
• DTC deposits grew 11% to $8.5 billion, enhancing funding mix diversification.
• Successful capital structure optimization through new debt issuances and repurchases/redemptions of older notes.
• Customer care operations achieved an 'excellent' Net Promoter Score of 54.5 and received its twentieth consecutive 'Center of Excellence' certification from BenchmarkPortal.
• The company is investing in AI capabilities, technology modernization, marketing, and product innovation to drive growth and efficiencies.
• Positive operating leverage is anticipated for 2026, excluding the impacts from debt repurchases.

Negatives

• Average credit card and other loans decreased by 1% in 2025, and end-of-period loans were flat, indicating limited loan portfolio growth.
• Total interest income decreased by 2%, primarily due to lower billed late fees and a lower average loan balance.
• Net interest margin was negatively impacted by lower billed late fees and a gradual shift in product mix towards co-brand cards, which generally have lower revenue yields.
• Interchange revenue, net of retailer share arrangements, increased (a contra-revenue item), due to higher costs associated with brand partner retailer share arrangements and decreased merchant discount fees from lower big ticket credit sales.
• The company is involved in significant litigation related to the LoyaltyOne spinoff, with damages sought up to $775 million in Canada and $750 million in the U.S. adversary proceeding.
• Macroeconomic conditions, including persistent inflation, high interest rates, and recessionary pressures, continue to pose risks to consumer spending and credit performance.
• Current and near-term anticipated delinquency and net principal loss rates remain elevated relative to historical experience.
• A significant portion of revenue (49% of total net interest and non-interest income) is generated from a limited number of partners, creating concentration risk.
• Potential adverse impacts from new and non-traditional competitors, such as financial technology companies and stablecoins, which may not be subject to the same regulatory requirements.
• Illinois legislation prohibiting interchange fees on sales tax and gratuities, effective July 1, 2026, could negatively impact interchange revenue.
• A proposed Visa/Mastercard litigation settlement could reduce interchange fees and decrease card acceptance.
• Public statements by President Trump supporting a 10% cap on credit card interest rates could significantly limit the ability to extend credit to certain customers.
• Uninsured deposits were estimated at $638 million (5% of total deposits) as of December 31, 2025.

Risks

• Macroeconomic conditions, including market conditions, inflation, interest rates, labor market conditions, and recessionary pressures, could materially adversely affect business.
• Global political and public health events, including ongoing wars and military conflicts, may harm the business.
• Unsecured loans make the company reliant on future customer credit performance, increasing delinquency and charge-off rates if customers default.
• A significant percentage of revenue is generated through a limited number of partners, and the loss of any of these could cause a significant drop in revenue.
• Business is heavily concentrated in U.S. consumer credit, making results susceptible to fluctuations in that market.
• The Allowance for credit losses could be insufficient to cover actual losses on loans, and the CECL model may create volatility.
• Failure to successfully identify, complete, or integrate business acquisitions, divestitures, and other strategic initiatives.
• Intense competition in the industry from major financial institutions and fintechs, and with new products/technologies like agentic commerce and digital payment platforms.
• Results depend on the ability to retain existing partners and attract new ones, and on partners' active promotion and financial performance.
• Underwriting performance of acquired or new lending programs may not be consistent with existing experience.
• Reliance on models for business management, which may be inaccurate or misinterpreted, leading to poor decisions.
• Fraudulent activity associated with products and services could negatively impact operating results, brand, and reputation.
• Adverse financial market conditions or inability to effectively manage funding and liquidity risk could have a material adverse effect.
• Inability to effectively access securitization or other capital markets could limit funding opportunities.
• Competition for deposits and regulatory restrictions on deposit products can impact availability and cost of funds.
• Level of indebtedness may restrict ability to compete and grow the business.
• Market valuation has been, and may continue to be, volatile, limiting returns to stockholders.
• Extensive government regulation and supervision, including by the FDIC, CFPB, and state authorities, could adversely impact the business.
• Pending and future litigation could subject the company to significant fines, penalties, and judgments.
• As a holding company, dependence on dividends and other payments from banks is subject to legal and regulatory restrictions.
• Regulations relating to privacy, information security, and data protection could increase costs and limit business opportunities.
• Financial institution capital requirements may limit cash available for business operations, growth, and returns to stockholders.
• Reliance on third-party vendors, whose failures could adversely impact the business.
• Failures in data protection, cybersecurity, and information security, as well as business interruptions, could critically impair products and services.
• Inability to invest successfully in and compete at the leading edge of technological developments, and risks from complex technology transformation projects.
• Development and use of AI present risks and challenges, including compliance with new AI laws, model inaccuracies, and malicious use by bad actors.
• Adverse effects from LVI's ongoing bankruptcy proceedings or pending/future litigation related to the LoyaltyOne spinoff.
• Inability to retain and/or attract and hire a highly qualified workforce or maintain corporate culture, exacerbated by hybrid work.
• Operations and financial performance could be adversely affected by severe weather, natural disasters, climate change, and ESG-related regulations.
• Damage to reputation from various sources, including employee misconduct, cyber breaches, litigation, and social media.
• Tax legislation initiatives or challenges to tax positions could adversely affect results.
• Anti-takeover provisions in organizational documents and Delaware law may discourage or prevent a change of control.

Future Outlook

The 2026 financial outlook anticipates low-single digit percentage growth in average credit card and other loans, and total net interest and non-interest income. Net interest margin is expected to be flat to modestly higher, benefiting from pricing actions and improved funding costs, partially offset by anticipated Federal Reserve interest rate decreases and lower billed late fees. The net principal loss rate is projected to range from 7.2% to 7.4%, assuming continued consumer resilience and a stable labor market. The full-year normalized effective tax rate is expected to be between 25% and 27%, with positive operating leverage expected, excluding debt repurchase impacts.

Management Comments

• Our 2025 results reflect our prudent capital allocation, a disciplined credit management framework, and our focus on responsible growth.
• Supported by strong capital levels and cash flow generation, we are well positioned to execute on our capital and growth priorities while delivering sustainable, long-term value for our stockholders.
• We continue to invest in AI capabilities, technology modernization, marketing, and product innovation to drive growth and efficiencies.

Industry Context

StockSavvy.ai notes that Bread Financial's strategic shift towards co-brand credit cards and proprietary direct-to-consumer (DTC) products aligns with broader industry trends of diversifying revenue streams and targeting specific consumer segments (Gen Z, Millennial) with cash flow management solutions like pay-over-time offerings. The emphasis on digital capabilities and AI investment reflects the competitive pressure from agile fintechs and the evolving payments landscape. The planned bank merger is a proactive step to streamline operations and enhance regulatory efficiency, a common theme among financial institutions seeking to optimize their structures in a complex regulatory environment. The company's strong Net Promoter Score and Center of Excellence certification indicate a focus on customer service, a key differentiator in a competitive market.

Comparison to Industry Standards

• The Net Promoter Score of 54.5 in 2025 is considered excellent or superior by industry standards.
• The company was certified by BenchmarkPortal as a Center of Excellence for the twentieth consecutive time, indicating sustained high quality in customer care operations, a benchmark for the industry.
• Delinquency and Net principal loss rates in 2025 (5.8% and 7.7% respectively) are lower than those experienced during the Great Recession (6.2% and 10.0% in 2009), but remain elevated relative to historical experience, suggesting ongoing credit quality management challenges compared to pre-crisis benchmarks.
• The company's capital ratios (CET1 13.0%) are above 'well-capitalized' standards, indicating strong financial health relative to regulatory benchmarks.

Corporate Governance

Legal Proceedings

• LoyaltyOne, Co. v. Bread Financial Holdings, Inc. et al. (Ontario Superior Court of Justice, October 2023): Lawsuit alleging breach of fiduciary duties by the company's general counsel in connection with the LVI spinoff, seeking $775 million in damages.
• Pirinate Consulting Group, LLC v. Bread Financial Holdings, Inc. (US Bankruptcy Court, Southern District of Texas, February 2024): Adversary proceeding alleging actual and constructive fraudulent transfers in connection with the LVI spinoff, seeking approximately $750 million in damages. A motion for partial summary judgment was denied in January 2026.
• Pirinate Consulting Group, LLC v. Bread Financial Holdings, Inc. (Delaware Chancery Court, March 2024): A substantially similar action to the Texas case, alleging breaches of fiduciary duties in connection with the LVI spinoff, seeking approximately $750 million in damages.
• LoyaltyOne, Co. Tax Matters Dispute (Canadian Companies Creditors Arrangement Act, Commercial List of Ontario Superior Court of Justice): LoyaltyOne, Co. is contesting the company's entitlement to certain potential tax refunds under a tax matters agreement. An order in the company's favor was issued in July 2024, and an appeal was dismissed in March 2025, but LoyaltyOne, Co. continues to contest, with a hearing scheduled for March 2026.
• Newtyn Partners, LP v. Alliance Data Systems n/k/a Bread Financial Holdings, Inc. (US District Court, Southern District of Ohio, April 2023): A putative federal securities class action concerning disclosures made about LVI's business prior to the spinoff. The lawsuit was dismissed in March 2025, and the dismissal was affirmed by the US Court of Appeals for the Sixth Circuit in January 2026.
• FDIC Consent Order to Comenity Servicing LLC (November 2023): Issued due to shortcomings in IT systems development, project management, business continuity, cloud operations, and third-party oversight related to the June 2022 credit card processing services transition. No monetary penalties were imposed.
• FDIC Civil Money Penalties (August 2024): Comenity Bank and Comenity Capital Bank each entered into an agreement with the FDIC to pay civil money penalties of $1 million, also related to the June 2022 credit card processing services transition.
• Colorado Interest Rate Cap Legislation: Colorado passed a law to opt out of the national standard interest rate for interstate loans, potentially capping interest rates at 21% and late fees at $15. A preliminary injunction against enforcement was reversed by the US Court of Appeals for the Tenth Circuit in November 2025, allowing Colorado to impose caps on out-of-state banks for Colorado borrowers. The plaintiffs are challenging this ruling.
• CFPB Credit Card Late Fee Rule: A final rule published by the CFPB in March 2024 to significantly reduce the safe harbor amount for late fees was vacated by the US District Court for the Northern District of Texas in April 2025.
• Proposed Visa/Mastercard Litigation Settlement (November 2025): A proposed settlement in long-standing litigation could reduce interchange fees and give merchants greater choice in accepting credit cards, potentially impacting the company's interchange revenue and card acceptance.
• CFPB Open Banking Rule: A final rule implementing a section of the Dodd-Frank Act, requiring data providers to make consumer financial product information available, was subject to a preliminary injunction in October 2025, barring its enforcement while being reconsidered by the CFPB.

Related Party Transactions

• The company limits payments to, or sales/transfers of assets to, or purchases of assets from, or transactions with any Affiliate of the company involving aggregate payments or consideration exceeding $50.0 million, unless the terms are not materially less favorable than those obtainable from an unrelated person.
• Exceptions to Affiliate Transaction limitations include employment/compensation arrangements, transactions between the company and its Restricted Subsidiaries, transactions with Affiliates solely due to company ownership, issuance of Qualified Capital Interests, Permitted Investments, stock option grants, investments by Affiliates in Qualifying Deposits or Debt of the company, existing agreements, transactions to comply with Regulatory Requirements, transactions with customers/clients/suppliers in the ordinary course of business, intellectual property licenses, transactions with Funding Entities, payments to employees/officers/directors, transactions with Joint Ventures, transactions with minority holders of Debt or Capital Interests, transactions where an entity becomes an Affiliate as a result, transactions permitted by Section 5.01, and pledges of Capital Interests in, or Debt of, Unrestricted Subsidiaries.

Stakeholder Impact

• Shareholders: Benefited from significant increases in net income and EPS, a stronger capital position (CET1 ratio increase), common stock repurchases, and continued dividend payments. However, ongoing litigation and regulatory uncertainties pose potential risks to future returns and stock price volatility.
• Employees: Provided with a flexible work experience, competitive total compensation, benefits, wellness resources, and robust training and development programs. The Insider Trading Policy and Compensation Recoupment Policy apply to ensure ethical conduct and compliance.
• Customers: Offered personalized payment, lending, and saving solutions, enhanced digital and mobile capabilities, and high-quality customer service (Net Promoter Score of 54.5, Center of Excellence certification). Potential impacts from macroeconomic conditions on repayment ability and regulatory changes affecting product terms (e.g., interest rate caps, late fees) are ongoing concerns.
• Brand Partners: Supported with co-brand and private label credit card programs, customer insights and analytics, and a broader digital product suite. Risks include dependence on partners' financial performance, intense competition for partner relationships, and potential changes in interchange fees.
• Creditors: Benefited from the company's strong capital levels, diversified funding sources (including growth in DTC deposits), and active debt management strategies. Compliance with debt covenants and maintaining stable credit ratings are crucial for continued access to capital markets.
• Regulatory Authorities: The company is subject to extensive federal and state regulation and supervision. The planned bank merger aims to streamline regulatory complexity, and the company is actively addressing regulatory findings (e.g., FDIC consent order, civil money penalties) and adapting to evolving laws (e.g., Open Banking, GENIUS Act).

Next Steps

• The merger of Comenity Bank (CB) with and into Comenity Capital Bank (CCB) is expected to occur in the second half of 2026, pending regulatory approval.
• The company expects to pay its first quarterly dividend payment on its preferred stock in March 2026.
• The Board of Directors declared a quarterly cash dividend of $0.23 per common share payable on March 16, 2026.
• The company plans to continue investing in AI capabilities, technology modernization, marketing, and product innovation.
• The company will continue to monitor and enhance its ID Theft Prevention Program.
• Comenity Servicing LLC is committed to complying with the longer-term requirements of the FDIC consent order, including enhancing compliance management processes and risk management.
• LoyaltyOne, Co. will continue to contest the company's entitlement to certain potential tax refunds, with a hearing scheduled before the Ontario Superior Court of Justice in March 2026.
• The appeal of the Illinois legislation prohibiting interchange fees on sales tax and gratuities is ongoing.
• The proposed Visa/Mastercard litigation settlement remains subject to court approval.
• Federal banking regulators are in the process of reproposing rules implementing Basel III Endgame, targeting a new proposal in 2026 and a phase-in several years later.
• The CFPB is reconsidering its Open Banking rule, with an advance notice of proposed rulemaking published in August 2025.

Key Dates

Recommendation

Bread Financial demonstrated strong financial performance in 2025 with significant net income and EPS growth, coupled with improving credit quality metrics and a robust capital position. Strategic initiatives like product diversification and the planned bank merger are positive. However, the company faces substantial legal and regulatory uncertainties, including significant litigation related to the LoyaltyOne spinoff and potential adverse impacts from evolving regulations on interchange fees and credit card interest rates. While the 2026 outlook is positive, these external factors introduce considerable risk, suggesting a 'Hold' recommendation until there is greater clarity on these headwinds.

Keywords

Financial services, Credit cards, Private label, Co-brand, Installment loans, Split-pay, Savings products, SEC filing, 10-K, Financial results, Credit quality, Capital structure, Risk management, Regulatory compliance, Cybersecurity, AI, Fintech, Consumer credit, DTC deposits, Debt management, Share repurchases, Dividends