Bread Financial Holdings, Inc. Q4 FY2025 earnings call

• Responsible growth: 7 major new brand signings in 2025, including Bed Bath & Beyond, Furniture First, Raymour & Flanigan, and partnerships with crypto.com, Cricket Wireless, and Vivint. Renewed multiple brand partners, including a multiyear extension with Caesars Entertainment. • Credit sales and credit metrics: Consumer finance health resilient, driving 2% YOY credit sales increase. Fourth quarter net loss rate 7.4%. • Capital allocation: Returned $350 million to shareholders in 2025, including $310 million in common share repurchases and a 10% increase in quarterly common stock dividend. • Operational excellence: Achieved positive operating leverage, progressed multiyear technology transformation including cloud migration and AI adoption. • Balance sheet: Strengthened and optimized by reducing and refinancing senior debt, issuing subordinated debt and preferred equity, and received credit rating upgrades from Moody's and Fitch.

In the fourth quarter, co-brand comprised 52% of credit sales, up from 48% in 2024. Direct-to-consumer deposit balances increased 11% year over year and now represent 48% of fourth quarter average total funding, up from 43% a year ago. Credit sales in 2025 were $27.8 billion, up 3% YOY. Average loans were $17.9 billion, down 1%, and end-of-period credit card and other loans were $18.8 billion, nearly flat. Fourth quarter credit sales were $8.1 billion, up 2% YOY, with average loans $18 billion, down 1%, and end-of-period loans $18.8 billion, nearly flat YOY.

• 2026 loan growth: Expected low single digits compared to 2025. • Revenue growth: Anticipated low single digits, largely in line with average loan growth. • Net interest margin: Baseline estimates near to slightly above 2025 rate, impacted by pricing changes, cost of funds, interest rate reductions, and risk/product mix shifts. • Operating leverage: Expect positive operating leverage in 2026 excluding pre-tax impacts from debt repurchases. • Net loss rate: Anticipated 7.2% to 7.4% range for 2026. • Tax rate: Full-year normalized effective tax rate expected in 25%-27% range with quarter-to-quarter variability.

• Macroeconomic uncertainties: Potential impact of changing economic conditions on consumer behavior and credit metrics. • Interest rate changes: Federal Reserve interest rate reductions could pressure net interest income. • Consumer response: Uncertainty in how consumers will respond to macroeconomic changes, affecting credit performance and sales. • Regulatory risks: Changes in regulations could impact operations and financial performance.

Q: Sanjay Sakhrani asked about loan growth drivers and BreadPay growth.

A: Ralph Andretta said loan growth driven by resilient consumer sales, stable partner base, and improving credit, with no loosening of underwriting. Anticipated BreadPay to pick up with added partners.

Q: Sanjay Sakhrani followed up on credit quality.

A: Perry Beberman said underlying data shows improvements in roll rates and late-stage roll rates, with consumer being resilient but monitoring economic pressures.

Q: Moshe Orenbuch asked about T&E product and NIM.

A: Ralph Andretta discussed T&E products like Caesars and AAA, and Perry Beberman explained NIM factors including pricing changes, delinquency improvement, product mix shift, and RSA impacts.

Q: John Hecht asked about direct-to-consumer deposits and reserve rate.

A: Perry Beberman said goal is to have DTC deposits 70%+ of portfolio, with competitive pricing, and reserve rate improvement tied to credit metrics, expected to continue improving but not back to day-one levels.

Q: Mihir Bhatia asked about credit priority and 2026 revenue outlook.

A: Perry Beberman said credit priority is to get back to 6% over time without forcing, and 2026 revenue slowdown due to easier 2024 comp with fee waivers.

Q: Jeffrey Adelson asked about NIM and delinquencies.

A: Perry Beberman discussed NIM tailwinds from pricing changes and product mix, and delinquency path influenced by tax refunds and late-stage roll rates.

Q: John Pancari asked about operating leverage and buybacks.

A: Perry Beberman said operating leverage dependent on macro conditions, and buyback pace tied to loan growth and capital targets.

Q: Reginald Smith asked about personal loans and AI.

A: Ralph Andretta said personal loans are a small part of the business on balance sheet, and AI is used for operational excellence, fraud protection, underwriting, and customer experience with over 200 ML models and thousands of bots deployed.

Q: Reginald Smith followed up on credit sales and deposit beta.

A: Ralph Andretta said credit sales expected low single digits with tax refund impact, and Perry Beberman discussed deposit beta range 60-80% depending on market.