Bread Financial's Q4 2024: Key Contradictions on Loss Rates, Regulatory Impacts, and Loan Growth Prospects

These are the key contradictions discussed in Bread Financial's latest 2024Q4 earnings call, specifically including: Loss Rate Expectations and Credit Performance Improvements, Impact of Regulatory Mitigants on Financial Performance, Loan Growth Expectations, and CFPB Impact on NIM and Revenue:



Financial Stability and Capital Management:
- Bread Financial reduced its parent debt levels by 50% over the last three years, paying down more than $1 billion, and achieved a double leverage ratio target of below 115%.
- The company improved its capital levels and strengthened its balance sheet, reflected in a 210 basis points increase in CET1 ratio to 12.4%.
- This was a result of disciplined capital allocation and long-term funding plans, which included the buyback of 97% of outstanding convertible notes.

Credit Risk Management and Economic Environment:
- Credit sales in Q4 decreased due to moderated consumer spending and elevated gross losses, affecting average loans which decreased 1%.
- Bread Financial maintained a stable credit risk distribution with 58% of cardholders having a 660+ credit score, despite inflationary pressures.
- The company adapted to macroeconomic and regulatory environment changes by implementing proactive credit tightening actions, ensuring stable credit risk distribution.

Earnings and Financial Highlights:
- Credit sales for Q4 were $7.9 billion, showing 1% year-over-year growth, with average loans of $18.2 billion decreasing 1%.
- Revenue was $0.9 billion, down 9% year-over-year, attributed to a $230 million gain on sale in the comparative 2023 period and reduced merchant discount fees.
- Adjusted income from continuing operations was $21 million, and adjusted diluted EPS was $0.41.

Operational Excellence and Technology:
- Bread Financial achieved positive operating leverage, with lower expenses than originally guided, reflecting improvements in operational efficiency.
- The company advanced its technology platform anchored in customer centricity, resiliency, security, and growth, resulting in reduced expenses.
- These advancements were part of an ongoing focus on operational excellence and technology advancements to drive efficiencies throughout the organization.