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BF

BREAD FINANCIAL HOLDINGS, INC. (BFH)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 delivered solid credit and capital progress: adjusted EPS of $3.15 and adjusted net income of $149M, with CET1 at 13.0% and total liquidity of $7.7B, while credit sales rose 4% YoY to $6.8B and net loss rate improved to 7.9% .
  • Versus consensus, EPS was a significant beat (reported $3.15 vs $1.94*), while revenue was modestly below ($929M vs $940.2M*). Management tightened full‑year net loss rate guidance to 7.8%–7.9% (from 8.0%–8.2%), citing better delinquency trends and payment behaviors .
  • NIM of 17.7% and loan yield of 26.0% tracked normal seasonality and mix shifts; lower billed late fees (from improving delinquencies) and product mix toward co‑brand tempered revenue, partially offset by pricing changes and lower interest expense .
  • Capital actions and funding mix improved: direct‑to‑consumer deposits climbed to $8.1B (45% of average funding), and BFH launched a $150M modified Dutch auction tender for 2029 senior notes and 2035 subordinated notes; dividend maintained at $0.21 per share .

What Went Well and What Went Wrong

What Went Well

  • Strong EPS and ROATCE: “adjusted EPS of $3.15” and “return on average tangible common equity was 22.7%,” reflecting operational excellence and disciplined capital allocation .
  • Credit metrics improved: delinquency rate fell to 5.7% (down 30 bps YoY, 20 bps QoQ) and net loss rate to 7.9% (down 70 bps YoY, 30 bps QoQ), enabling loss guidance cut to 7.8%–7.9% for 2025 .
  • Funding and partner momentum: direct‑to‑consumer deposits reached $8.1B (45% of funding) and multi‑year extension with Caesars plus launch of Crypto.com co‑brand program strengthened pipeline and diversification .

What Went Wrong

  • Top‑line pressure: revenue of $929M declined 1% YoY due to lower finance charges and late fees from improving delinquencies and mix shift away from private label .
  • NIM headwinds: net interest margin (17.7%) compressed YoY, reflecting prime rate reductions, lower billed late fees, elevated cash mix, and mix shift toward co‑brand .
  • Expense uptick from debt actions: total non‑interest expense increased 3% YoY largely due to $13M debt extinguishment costs tied to a 9.75% 2029 senior note tender, offset on an adjusted basis by discipline in core expenses .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$900 $970 $929
GAAP Diluted EPS - Continuing Ops ($)$0.14 $2.86 $2.93
Net Interest Margin %17.8% 18.1% 17.7%
Loan Yield %25.7% 26.5% 26.0%
Net Loss Rate %8.0% 8.2% 7.9%
Delinquency Rate %5.9% 5.9% 5.7%
Average Loans ($USD Billions)$18.2 $18.2 $17.7
Credit Sales ($USD Billions)$7.9 $6.1 $6.8

Segment/Operating Mix and Funding

MetricQ4 2024Q1 2025Q2 2025
Direct-to-Consumer Deposits ($USD Billions)$7.7 $7.9 $8.1
DTC Deposits as % of Avg Total Funding43% 43% 45%
Wholesale Deposits as % of Funding30% 29% 29%
Deposits as % of Total Funding72% 72% 74%
Total Liquidity ($USD Billions)$7.4 $7.4 $7.7

Capital & Credit KPIs

MetricQ4 2024Q1 2025Q2 2025
CET1 Ratio %12.4% 12.0% 13.0%
Total Risk-Based Capital %—15.5% 16.5%
Reserve Rate %11.9% 12.2% 11.9%
Cardholders with 660+ Prime Score %58% 57% 58%
Total Loss Absorption Capacity (% of Total Loans)24.0% 25.3% 25.7%

Q2 2025 vs Consensus (S&P Global)

MetricConsensusActual ReportedBeat/Miss
EPS ($)1.94*3.15 Beat (+$1.21)
Revenue ($USD Millions)940.2*929 Miss (−$11.0M)
EPS – # of Estimates12*——
Revenue – # of Estimates10*——

Values marked with an asterisk (*) were retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Loss Rate (%)FY 20258.0%–8.2% 7.8%–7.9% Lowered
Average LoansFY 2025Flat to slightly down Flat to slightly down Maintained
Total Revenue (ex portfolio sales)FY 2025Flat to slightly up Flat vs 2024 Tightened lower
Net Interest MarginFY 2025Slight improvement Slight improvement (seasonal variability) Maintained
Normalized ETRFY 202525%–26% 25%–26% Maintained
Net Loss RateQ3 2025—7.4%–7.5% New quarterly guide
Net Loss RateQ4 2025—Sequentially higher (seasonal) New quarterly commentary
Dividend per shareQ3 2025$0.21 (prior quarterly)$0.21 payable 9/12/25 Maintained

Earnings Call Themes & Trends

TopicQ4 2024 (Prior-2)Q1 2025 (Prior-1)Q2 2025 (Current)Trend
Credit metrics & roll ratesDelinq. 5.9%, NLR 8.0%; elevated roll rates noted NLR 8.2%; improving late-stage roll rates; reserve 12.2% Delinq. 5.7%, NLR 7.9%; reserve 11.9%; continued roll-rate improvement Improving
Tariffs/macro impactMonitoring policy shifts; macro uncertainty Caution on tariff-driven inflation; soft sentiment vs hard data Balanced outlook; watch downstream impacts from trade policy Mixed but stabilizing
Pricing mitigants/late feesMitigation actions to offset CFPB rule; NIM modestly higher guided Phase-in APR increases; 95% partners aligned Pricing changes continue to build; lower billed late fees from better delinq. Tailwind building, offset by mix/late fee declines
Capital returns & debtRepurchased converts; buybacks completed; improved DTC funding $400M sub notes; $150M buybacks; CET1 12.0% $150M senior note tender; CET1 13.0%; potential preferred in 2026 Strengthening balance sheet
Deposits/funding mixDTC deposits $7.7B; 43% of funding DTC deposits $7.9B; 43% of funding DTC deposits $8.1B; 45% of funding; deposits 74% of funding Mix improving
Partner renewals & pipeline9/10 top programs secured to ≥2028 New Crypto.com; expanded AAA; robust pipeline Caesars extension; Crypto.com launch; secure top programs to ≥2028 Strong execution
BNPL/Product suiteBNPL scalable/compliant; part of product basket Crypto co-brand tech integration emphasized BNPL available; Crypto.com card launch with up to 5% crypto rewards Diversifying offerings
Technology/AI & OpExTechnology modernization; op. excellence driving leverage OpEx discipline; elevated license renewals Continued investment in AI and digital; adjusted OpEx flat YoY Efficiency focus sustained

Management Commentary

  • “We delivered adjusted net income of $149 million and adjusted earnings per diluted share of $3.15… Return on average tangible common equity was 22.7%” — Ralph Andretta, CEO .
  • “Revenue was $929 million in the quarter, down 1% year-over-year… lower finance charges and late fees… partially offset by lower interest expense” — Perry Beberman, CFO .
  • “Given the outperformance of our net loss rate… we updated our full year outlook to an improved range of 7.8%–7.9%” — Ralph Andretta, CEO .
  • “Direct‑to‑consumer deposits increased to $8.1 billion… accounted for 45% of our average total funding” — Perry Beberman, CFO .
  • “We launched a Crypto.com co‑brand credit card… up to 5% in crypto rewards… integrated into the Crypto.com app” — Ralph Andretta, CEO .

Q&A Highlights

  • Growth outlook and capital returns: Management expects capital accretion in Q3 and will consider buybacks subject to CET1 targets and pipeline visibility; optimizing capital stack with potential preferred next year .
  • Top-line progression/NII: Lower billed late fees from improving delinquencies and prime rate cuts are headwinds; pricing changes and reduced reversals as losses improve are tailwinds, with variability intra‑year .
  • Credit strategy: Gradual loosening in targeted pockets; vintages underwritten to ~6% long‑term loss target; roll rates improving but still above pre‑pandemic .
  • Quarterly loss cadence: July net loss rate in line/slightly better than June (7.8%); Q3 guided 7.4%–7.5%, then seasonal increase in Q4 .
  • Funding and tenders: Excess cash enabled $150M tender; optionality on calling 9.75% 2029 notes in Feb; balancing outcomes across senior and subordinated notes .

Estimates Context

  • EPS materially beat consensus as operating discipline and improving credit trends flowed through earnings; revenue was modestly below consensus given faster‑than‑expected declines in billed late fees and mix shift toward co‑brand products with lower APRs and late fee incidence .
  • Consensus details: EPS $1.94* vs reported $3.15; Revenue $940.2M* vs reported $929M. The magnitude of the EPS beat suggests upward revisions to models on credit normalization and OpEx discipline; revenue forecasts may temper for H2 given management’s updated “flat” revenue outlook and lower late fee trajectory .

Values marked with an asterisk (*) were retrieved from S&P Global.

Key Takeaways for Investors

  • Credit normalization is tracking ahead: delinquency and net loss rates improved, and full‑year loss guidance was lowered to 7.8%–7.9% — a clear tailwind for EPS durability .
  • Revenue headwinds from lower late fees are a “good problem”: improving delinquency reduces billed late fees, pressuring NII near term but lowers reversals over coming quarters; mix shift toward co‑brand also tempers yield .
  • Capital flexibility rising: CET1 at 13.0% with deposit funding at 74% and DTC deposits 45% of funding; live $150M tender optimizes cost of funds and supports NIM recovery into 2026 .
  • Pipeline and partnerships underpin growth: Caesars renewal secures top programs to ≥2028; Crypto.com launch highlights product innovation and tech integration, supporting sales momentum .
  • Expect H2 cadence: Q3 net loss rate guided to 7.4%–7.5% with seasonal uptick in Q4; management’s revenue outlook is “flat” for FY25, but EPS should benefit from credit and OpEx execution .
  • Trading lens: The strong EPS beat vs consensus and lowered loss guide are positive catalysts; watch for tender outcomes and additional capital actions (buybacks authorization, preferred) as CET1 builds .
  • Risk monitor: Macroeconomic uncertainty (tariffs/trade) and timing of Fed cuts keep NIM variability elevated; continued improvement in roll rates and payment behaviors are key indicators to track .