Bread Financial Earnings Call: Solid Progress, Slower Growth

Bread Financial Holdings Inc ((BFH)) has held its Q4 earnings call. Read on for the main highlights of the call.

Bread Financial’s Earnings Call Balances Solid Progress With Near‑Term Friction

Bread Financial’s latest earnings call carried a cautiously upbeat tone, blending clear operational and balance sheet gains with an honest acknowledgment of near‑term pressure on growth and reported earnings. Management highlighted a stronger funding profile, healthier credit metrics, rising tangible book value and positive operating leverage, while reminding investors that debt repurchase costs, flattish loan balances, lower billed fees and interest‑rate uncertainty will keep results choppy in the short run. The overarching message: the franchise is sturdier and more efficient, but 2026 will be about grinding out low single‑digit growth and disciplined credit rather than rapid expansion.

New Brand Signings and Product Launches

Bread Financial underscored its ability to win and launch new partnerships, signing seven major brand partners slated for 2025, including Bed Bath & Beyond, Furniture First and Raymour & Flanigan. The company also deepened its presence in newer verticals with the rollout of a crypto.com relationship and BreadPay integrations with Cricket Wireless and Vivint. These moves broaden the company’s sector and product reach, diversifying its merchant base and creating multiple new channels for future loan and sales growth once payment rates normalize.

Co‑Brand Mix Expansion

The mix of co‑brand card activity continued to shift in Bread Financial’s favor, with co‑brand products making up 52% of credit sales in the fourth quarter of 2025, up from 48% in 2024. Management framed this as evidence that partner‑driven sales are gaining traction and that the portfolio is tilting toward more diversified, everyday‑spend cards. This mix shift can help smooth cyclicality tied to individual retailers and supports a broader, more resilient revenue base over time.

Direct‑to‑Consumer Deposit Growth and Funding Mix

On the liability side, Bread Financial continued to lean into direct‑to‑consumer deposits, which grew 11% year over year and have now increased for 20 consecutive quarters. These deposits comprised 48% of average total funding in the fourth quarter, up from 43% a year earlier, helping lower overall funding costs and improve funding stability. As deposits become a larger share of the funding stack, the company is less reliant on more expensive wholesale funding, which is particularly valuable if interest‑rate cuts compress yields on its loan book.

Capital Returned and Balance Sheet Optimization

Capital management was a major theme. Bread Financial returned $350 million to shareholders in 2025, including $310 million of share repurchases that reduced the year‑end 2024 share count by 12%, alongside a 10% dividend increase. At the same time, the company bolstered its regulatory capital by issuing $75 million of preferred equity to support Tier 1 ratios. The message to investors is that management sees room both to return capital and to keep a conservative buffer, even as it pursues further optimization of its capital structure.

Debt Refinancing and Rating Upgrades

The company took advantage of market windows to materially improve its funding costs, issuing a $500 million senior note at 6.75% and using the transaction to fully pay down a higher‑cost $900 million note carrying a 9.75% rate. This move cut the coupon by roughly 300 basis points and reduced the overall note size by $400 million, lowering interest expense over time despite near‑term charges. Credit rating agencies took notice: Bread Financial received upgrades from Moody’s and Fitch and saw positive outlooks from Moody’s and S&P, signaling growing confidence in the firm’s credit profile.

Improved Credit Metrics

Credit performance, a key concern for card‑focused investors, showed meaningful progress. The full‑year net loss rate improved to 7.7%, beating management’s outlook, while the fourth‑quarter net loss rate fell to 7.4%, 60 basis points better than a year ago. Delinquency trends also moved in the right direction, with Q4 delinquencies at 5.8%, down both year over year and sequentially. The reserve rate declined 70 basis points to 11.2%, reflecting both better portfolio performance and a more normalized risk environment, even though loss and reserve levels remain above long‑term targets.

Earnings, EPS and One‑Time Charges

Reported results were complicated by the cost of strategic balance‑sheet actions. Adjusted net income for the quarter was $95 million, translating into adjusted diluted earnings per share of $2.07, which management offered as a better gauge of underlying profitability. Net income available to common shareholders came in at $53 million after absorbing a $42 million post‑tax charge tied to debt repurchases. The call emphasized that while these charges depress current earnings and add volatility, they are expected to deliver structurally lower interest expense and stronger capital metrics going forward.

Tangible Book Value and Returns

Shareholder value creation was evident in the growth of tangible book value and returns. Tangible book value per common share climbed 23% year over year to $57.57, boosted by earnings, capital optimization and share repurchases. Return on average tangible common equity reached 8% for the quarter and a robust 20% for the full year, indicating that, on a normalized basis, the business is already delivering attractive returns and has room to improve as credit continues to normalize and funding costs trend lower.

Revenue, NII and NIM Momentum

Despite flat loan balances, Bread Financial eked out growth in its core revenue drivers. Full‑year credit sales rose 3% to $27.8 billion, with fourth‑quarter credit sales up 2% year over year. Total net interest income in Q4 increased 6% from the prior year, and net interest margin improved to 18.9%. These gains show the company’s ability to manage spreads and customer behavior, although management cautioned that some of the tailwinds, such as elevated spreads and higher rates, could fade as the rate cycle turns.

Operational Efficiency and Technology Progress

Cost discipline and technology investments helped deliver positive operating leverage. Adjusted total noninterest expenses declined by $29 million, or 1%, for the year, and fourth‑quarter adjusted noninterest expense fell 5% when excluding the impact of debt repurchase costs. Management pointed to ongoing cloud migration, automation and the use of artificial intelligence as levers for further efficiency and better customer and partner experiences. These efforts are intended to offset revenue headwinds and support margins even in a slower‑growth environment.

Liquidity and Capital Strength

Bread Financial stressed its ample liquidity and robust capital ratios as competitive advantages. Total liquid assets and undrawn credit facilities stood at $66 billion, representing 26.4% of assets, while deposits made up 78% of total funding. The CET1 capital ratio rose to 13%, up 60 basis points from the prior year, and total loss‑absorption capacity reached 24.7% of total loans. These metrics provide a substantial cushion against macro volatility and regulatory shifts, giving management flexibility to pursue growth, return capital and absorb credit shocks.

Debt Repurchase Costs and Expense Volatility

Strategic debt actions, while economically beneficial over time, created noise in the expense line. The fourth quarter included a $42 million post‑tax hit from debt repurchases, and other expenses rose by $46 million, largely due to these transactions. Management highlighted that adjusted expenses are trending lower and that the elevated reported expenses are transitory, but acknowledged that these swings complicate quarter‑to‑quarter comparisons and may obscure the underlying improvement in operating leverage.

Loan Growth Constraints and Elevated Payment Rates

Average loans fell 1% year over year to $17.9 billion, with end‑of‑period loans essentially flat at $18.8 billion. The key factor was elevated payment rates, as consumers continue to pay down balances faster than usual, limiting growth despite steady sales volumes and new partnerships. Management framed this as a near‑term headwind rather than a structural issue, but it nonetheless caps revenue growth and delays the full earnings benefit from recently added partners and products.

Revenue Headwinds from Lower Billed Fees

Top‑line growth remained muted as lower billed fees offset pricing changes and new charges. Full‑year revenue increased by only $7 million, as reductions in billed late fees—reflecting improved delinquencies and regulatory and customer dynamics—offset gains from pricing adjustments and paper statement fees. Management expects late fee income to stay under pressure as credit quality improves, creating an unusual dynamic where better credit performance can weigh on near‑term revenue.

Noninterest Income Pressure

Noninterest income also came under strain, declining by $10 million in the fourth quarter compared with the prior year. The main drag was higher retailer share arrangements, which return more economics to retail partners as portfolio performance improves. While this supports long‑term partner relationships and sales, it dilutes Bread Financial’s share of the upside. Paper statement fee benefits partially offset this pressure, but the trend underscores that noninterest revenue will be a tougher growth lever than in prior years.

Interest‑Rate Sensitivity and NIM Risks

Management spent time detailing the company’s rate sensitivity as markets anticipate a Federal Reserve easing cycle. Bread Financial is slightly asset‑sensitive, meaning that rate cuts could pressure net interest margin as yields on variable‑rate assets reset faster than funding costs. The team cited uncertainty around deposit betas in the 60%–80% range, acknowledging that the pace at which deposit costs adjust will be critical for preserving NIM. This adds another layer of complexity to the 2026 outlook, especially given already elevated competition for deposits.

Credit Reserves Still Above Long‑Term Targets

Even with improving charge‑offs and delinquencies, management highlighted that reserve and loss levels remain above historical norms. The current reserve rate of 11.2% and a full‑year net loss rate of 7.7% are still higher than the company’s long‑run target loss rate of around 6%. This suggests that while credit risk has moderated, the portfolio is not yet fully normalized and that some caution in underwriting and provisioning will continue, potentially dampening near‑term earnings upside but protecting the balance sheet.

Macro Uncertainty and Seasonal Factors

Executives noted several external risks that could create quarter‑to‑quarter volatility. These include uncertainty around the timing and depth of potential Fed rate cuts, trade policy and tariff developments, and broader political risks such as possible government funding disruptions. Seasonality is another factor: first‑quarter reserve builds are typically higher, which can temporarily pressure earnings even if full‑year credit trends stay on track. Taken together, these factors make management wary of over‑promising on the pace of improvement.

Expense Volatility from Strategic Actions

Beyond debt repurchases, other strategic initiatives also introduced noise into the expense base. The timing and accounting treatment of these actions drove swings in reported noninterest expenses, even as adjusted cost metrics moved lower. Management reiterated that the underlying trajectory is one of improving efficiency and positive operating leverage, but investors were cautioned to look through headline volatility and focus on the adjusted numbers when assessing progress toward long‑term profitability targets.

Guidance and Forward‑Looking Outlook

Looking ahead to 2026, Bread Financial guided to low single‑digit growth in average credit card and other loans, with total revenue expected to grow at a similar modest pace. Management anticipates net interest margin to be near to slightly above the full‑year 2025 level, though exposed to downside from anticipated Fed cuts, ongoing pressure from lower billed fees and shifts in product and risk mix. The full‑year net loss rate is projected in the 7.2%–7.4% range, reflecting continued but gradual credit normalization, and the effective tax rate is expected at 25%–27%. Adjusted total expenses, excluding debt‑repurchase costs, are expected to be slightly below the fourth‑quarter adjusted run‑rate of about $500 million, supporting positive operating leverage. Management expects stable existing partners, contributions from new launches and continued capital optimization—including potential additional preferred issuance—to collectively move the company toward its longer‑term goal of a mid‑20% return on tangible common equity.

In sum, Bread Financial’s earnings call painted a picture of a company that has strengthened its balance sheet, sharpened its cost base and improved credit quality, yet remains constrained by subdued loan growth and fee‑income pressures. Investors are being asked to look past near‑term volatility from strategic debt actions and macro uncertainty and instead focus on the steady progress in deposits, capital, technology and returns. If management can execute on its conservative 2026 targets and maintain credit discipline, the building blocks are in place for a more compelling earnings and return profile in the years ahead.