BREAD FINANCIAL HOLDINGS, INC. (BFH)·Q4 2024 Earnings Summary

Executive Summary

• Q4 showed ongoing top-line pressure and margin compression: revenue fell 9% YoY to $926M and net interest margin (NIM) declined to 17.8% (vs. 19.6% in Q4’23; 18.8% in Q3’24) as lower prime, fewer late fees, and mix shift to co-brand/proprietary weighed on loan yield; adjusted EPS from continuing ops was $0.41 after excluding $13M post-tax premium on convertible note repurchases .
• Credit trends stabilized: delinquency rate improved to 5.9% (6.5% in Q4’23, 6.4% in Q3’24); net loss rate held at 8.0% YoY with a >20 bps benefit in Q4 from hurricane-related hardship actions that will shift losses to Q2’25; reserve rate edged down to 11.9% .
• 2025 outlook introduced: average loans “flat” YoY; total revenue up low single digits (NIM modestly higher vs 2024); positive operating leverage; net loss rate 8.0%–8.2%; tax rate 25%–26%; assumes no CFPB late fee rule impact but continued mitigation roll-in (APR and fee changes) .
• Capital and funding resilient: CET1 12.4% (+20 bps YoY), direct-to-consumer deposits up 19% YoY to $7.7B (43% of funding mix), $44M of converts repurchased (only $10M remaining), $44M of shares repurchased; quarterly dividend declared at $0.21 payable Mar 21, 2025 .

What Went Well and What Went Wrong

• What Went Well

  • Stabilizing credit and early green shoots in spend: Q4 delinquency 5.9% (down 60 bps YoY) with positive credit sales growth (+1% YoY), aided by beauty, sporting goods, apparel, and stronger millennial/Gen Z spending; “cautiously optimistic” this continues in 2025 .
  • Balance sheet progress and funding mix: CET1 12.4% (+20 bps YoY), tangible book value per share (TBVPS) $46.97 (+7% YoY), DTC deposits $7.7B (43% of funding vs 35% a year ago), wholesale deposits down to 30% of funding .
  • Execution on mitigation and capital allocation: 95% of partners under contractual understanding of APR/fee mitigation; continued repurchases of convertibles and common shares; CFO expects 2025 NIM “slightly higher” than 2024 as mitigants build despite rate cuts .

• What Went Wrong

  • Revenue and NIM pressure: Q4 revenue down 9% YoY to $926M; NIM fell to 17.8% on lower prime, fewer late fees with improving early-stage delinquencies, and holiday transactors; loan yield dropped to 25.7% (−200 bps YoY) .
  • Expense mix and PPNR: Total non-interest expense rose 4% YoY (including $11M pretax for convert repurchases), and PPNR fell 22% YoY; excluding convert impact, adjusted expenses +1% .
  • Losses remain elevated: Net loss rate steady at 8.0% with roll rates still high; management guides 2025 loss rate 8.0%–8.2% and notes Q2’25 will see a modest loss shift due to Q4 hurricane accommodations .

Financial Results

KPIs

Product Mix (4Q24)

Estimates vs. Actuals

• Wall Street consensus from S&P Global (EPS, revenue) was unavailable at time of analysis due to API limits; no beat/miss assessment included herein. Values were not retrievable from S&P Global at this time.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “We now have more than 85% of our loans secured through 2026 and 9 out of our top 10 programs secured through at least 2028…These actions help to mitigate our risks and further ensure a solid run rate for performance in 2025.” .
• CFO on Q4 margin drivers: “Loan yield decreased 200 basis points year-over-year primarily due to lower finance charges and late fees…lower average prime rate and higher seasonal transactor balances.” .
• CFO on 2025: “Total revenue growth, excluding portfolio sale gains is anticipated to be up low single digits, with the full year net interest margin modestly higher than full year 2024…we anticipate a year-over-year net loss rate in the 8.0% to 8.2% range for 2025.” .
• CEO on 2025 priorities: “Responsible growth…balance sheet is stronger than ever…continue to generate capital…then over time, we will look to return excess capital to our shareholders.” .

Q&A Highlights

• Path to medium-term targets/mitigation glidepath: Management emphasized the “double whammy” transitional period—improving early-stage delinquency lowers billed late fees while reversals remain from prior periods; NIM normalization expected as losses and rate cuts stabilize and APR mitigants build through 2025 .
• NIM cadence: Q1 expected “seasonally slightly up” vs Q4 as holiday transactors pay down, partly offset by full-quarter prime cuts; mitigants provide a tailwind .
• Mitigation status: ~95% of partners have contractual understanding; some repricing already in market; outcomes vary by partner and customer cohorts; benefits wedge in across 2025–2026 .
• Loan growth: “Green shoots” in Q4 holiday spend; robust pipeline, but 2025 average loans guided flat as management remains conservative amid macro and policy uncertainty .
• Credit trajectory: Back-end roll rates remain elevated but showing recent slight improvement; Q2’25 losses will reflect hurricane-related shifts; management expects gradual normalization rather than a “fast fix” .
• Capital returns: Priority remains funding growth and hitting capital targets (TRBC ~16%, CET1 ~14% over time); buybacks contingent on progressing capital and credit outlook .

Estimates Context

• Consensus (S&P Global) for Q4’24 EPS and revenue was unavailable at time of analysis due to data access limits; no beat/miss assessment provided. (S&P Global consensus unavailable.)

Key Takeaways for Investors

• Mix and macro drove NIM/loan yield compression in Q4; 2025 guide calls for low-single-digit revenue growth and modest NIM improvement as APR/fee mitigants build—watch quarterly NIM cadence versus rate cuts and billed late fee trends .
• Credit stabilization is encouraging (delinquency down; NLR flat YoY), but losses remain elevated and Q2’25 will be optically worse due to hurricane shifts; trajectory into H2’25 hinges on roll rates and consumer relief from disinflation and wage growth .
• Funding mix upgrade continues (DTC 43%); deposit repricing lags should aid margins later in 2025 as CDs reset lower; monitor deposit beta and balances as rates drift down .
• Capital stack improving with converts nearly eliminated and CET1 at 12.4%; share repurchases resumed in Q4; path to higher capital returns likely requires further credit normalization and achievement of capital objectives .
• Strategic durability: partner renewals secured beyond 2026, diversification to co-brand/proprietary and T&E vertical reduces cyclicality; pipeline supports end-of-year loan growth even as average balances remain flat .
• Trading stance: Near-term stock moves may hinge on quarterly NIM prints versus guidance, loss rate cadence (especially Q2), and any developments in the CFPB late fee litigation; 2025 setup is a “prove-it” year for margin and credit improvements to translate into positive operating leverage .

Additional Notables

• Q4 actions/capital: Repurchased $44M converts (only $10M remaining) and $44M common stock in December; TBVPS $46.97 (+7% YoY); CET1 12.4% .
• Dividend: $0.21 per share declared, payable March 21, 2025 (record date Feb 14, 2025) .
• December update: Q4 net loss rate 8.0%; delinquency 5.9%; spare detail on hurricane-related timing effects reiterated .

All figures and statements are sourced from Bread Financial’s Q4 2024 earnings materials and call unless otherwise noted. Citations: .