Bread Financial Holdings, Inc. (BFH) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates positive financial performance with improved credit metrics, a strong CET1 ratio, and increased shareholder returns. The Q&A session highlights optimism in loan growth and product partnerships, despite some uncertainties in revenue growth and macroeconomic impacts. Share repurchase and dividend hikes further bolster the outlook. Given the market cap of $2.13 billion, the stock is likely to see a positive movement of 2% to 8% over the next two weeks.
Key Financial Performance
Direct-to-consumer deposit balances Increased 11% year-over-year and have grown 20 consecutive quarters, now representing 48% of the fourth quarter average total funding, up from 43% a year ago.
Capital returned to shareholders $350 million in 2025, including $310 million in common share repurchases (12% of year-end 2024 outstanding shares) and a 10% increase in quarterly common stock dividend during Q4 2025.
Net income available to common stockholders $53 million in Q4 2025, excluding $42 million post-tax impact from debt repurchases. Adjusted net income was $95 million, and earnings per diluted share were $2.07.
Tangible book value per common share Grew 23% year-over-year to $57.57 in Q4 2025.
Return on average tangible common equity 8% for Q4 2025 and 20% for the full year 2025.
Credit sales $27.8 billion for full year 2025, a 3% increase year-over-year, driven by new partner growth and higher general-purpose spending. Q4 2025 credit sales were $8.1 billion, a 2% increase year-over-year.
Average loans $17.9 billion for full year 2025, down 1% year-over-year. Q4 2025 average loans were $18.0 billion, also down 1% year-over-year.
Revenue Increased $7 million for full year 2025, primarily due to pricing changes and paper statement fees, partially offset by lower billed late fees. Q4 2025 revenue increased $49 million or 5% year-over-year.
Total noninterest expenses Decreased $72 million or 3% for full year 2025, driven by $43 million lower year-over-year net impact from debt repurchases. Adjusted total noninterest expenses decreased $29 million or 1%. Q4 2025 total noninterest expenses increased $19 million or 4% year-over-year, but adjusted expenses decreased $25 million or 5%.
Income from continuing operations Increased $242 million or 87% for full year 2025, benefiting from lower provision for credit losses and lower debt repurchase impacts. Adjusted income from continuing operations increased $188 million or 48%. Q4 2025 income from continuing operations increased $45 million, with adjusted income increasing $74 million.
Net interest income Increased 6% year-over-year in Q4 2025, driven by pricing changes and lower interest expense.
Net interest margin 18.9% in Q4 2025, an increase due to pricing changes and lower funding costs.
Delinquency rate 5.8% in Q4 2025, down 10 basis points year-over-year and 20 basis points sequentially.
Net loss rate 7.4% in Q4 2025, down 60 basis points year-over-year and flat sequentially. Full year 2025 net loss rate was 7.7%, better than initial expectations.
Reserve rate 11.2% in Q4 2025, down 70 basis points year-over-year and 50 basis points sequentially, reflecting improving credit metrics and higher quality new vintages.
CET1 ratio 13.0% at the end of Q4 2025, up 60 basis points year-over-year, benefiting from core earnings and offset by share repurchases and dividends.
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Operating Highlights
New Brand Signings: 7 major new brand signings in 2025, including Bed Bath & Beyond, Furniture First, Raymour & Flanigan, Crypto.com, Cricket Wireless, and Vivint.
Product Innovation: Launched an enhanced fee-based Caesars Rewards credit card offering accelerated rewards and unique experiences.
Product Diversification: Co-brand credit sales increased to 52% in Q4 2025, up from 48% in Q4 2024.
Market Expansion: Expanded home vertical with partnerships with Bed Bath & Beyond, Furniture First, and Raymour & Flanigan.
Direct-to-Consumer Deposits: Balances increased 11% year-over-year, representing 48% of Q4 average total funding, up from 43% in 2024.
Operational Excellence: Achieved positive operating leverage with reduced adjusted expenses and investments in technology, including AI adoption and cloud migration.
Credit Management: Net loss rate improved to 7.7% for 2025, better than initial expectations, with further improvement expected in 2026.
Capital Allocation: Returned $350 million to shareholders in 2025, including $310 million in share repurchases and a 10% increase in quarterly dividends.
Debt Optimization: Reduced and refinanced senior debt, issued subordinated debt and preferred equity, and received credit rating upgrades from Moody's and Fitch.
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Risk or Challenges
Economic Environment: Potential adverse impacts from inflation remaining above the Federal Reserve target rate of 2%, and the uncertainty of consumer responses to changing macroeconomic conditions.
Interest Rate Sensitivity: Lower recent and future Federal Reserve and prime rate reductions could pressure net interest margin (NIM) as variable rate assets reprice faster than liabilities.
Credit Losses: Although improving, the net loss rate remains high at 7.4%, and there is uncertainty about sustaining credit improvement momentum throughout 2026.
Regulatory Vigilance: The need to maintain strong risk and control effectiveness while reinforcing regulatory compliance could pose challenges in a dynamic regulatory environment.
Debt Management: Debt repurchases and refinancing actions, while reducing costs, have impacted capital ratios and could limit financial flexibility.
Operational Costs: Continued investments in technology modernization, AI, and product innovation may increase operational expenses, potentially impacting profitability.
Consumer Behavior: Shifts in consumer spending patterns, including higher allocation to nondiscretionary spending, could affect revenue growth.
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Guidance & Outlook
2026 Financial Outlook: The company expects full-year 2026 average credit card and other loans growth to be up low single digits compared to 2025, supported by a stable partner base, new business launches, building credit sales growth, and continued credit loss rate improvement. Total revenue growth is anticipated to be up low single digits, largely in line with average loan growth.
Net Interest Margin (NIM): The company anticipates full-year NIM to be near to slightly above the full-year 2025 rate, driven by benefits from implemented pricing changes and improving cost of funds, offset by interest rate reductions by the Federal Reserve, lower billed fees from improving delinquencies, and a continued shift in risk and product mix.
Expense Management: The company expects to deliver positive operating leverage in 2026, excluding the pretax impacts from debt repurchases. Investments will continue in technology modernization and product innovation, including AI, to drive growth and efficiencies.
Credit Metrics: The company anticipates a year-over-year net loss rate in the 7.2% to 7.4% range for 2026, reflecting stable to improving macroeconomic conditions, continued risk and product mix shifts, and a resilient consumer.
Tax Rate: The full-year normalized effective tax rate is expected to be in the range of 25% to 27%, with quarter-to-quarter variability due to the timing of certain discrete items.
Long-Term Financial Targets: The company aims to achieve a mid-20% ROTCE target in the coming years, driven by responsible, sustainable growth, efficiency initiatives, gradual improvements in credit metrics, and capital optimization opportunities.
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Shareholder Return Plan
Dividend Increase: Increased quarterly common stock dividend by 10% during the fourth quarter of 2025.
Share Repurchase Program: Returned $350 million in capital to shareholders in 2025, including $310 million in common share repurchases, resulting in the repurchase of 12% of year-end 2024 outstanding shares.
Fourth Quarter Share Repurchase: Repurchased $120 million or 1.9 million common shares in the fourth quarter of 2025, with $240 million remaining on the current share repurchase authorization.
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Key Q&A
Q:What is driving the loan growth into 2026?
A:The loan growth is driven by a resilient consumer, sales momentum, stability of the partnership base, new partners, and improving credit. There is no loosening of underwriting standards, and underwriting remains thoughtful and profit-focused.
Q:Do you anticipate growing Bread Pay in 2026?
A:Yes, Bread Pay volume is expected to pick up in 2026 due to the addition of new partners like Cricket and Vivint. The company regularly adds partners to the Bread Pay platform and has a good handle on underwriting for this platform.
Q:Are there any concerns about underlying credit quality given the labor market conditions?
A:The company is encouraged by improvements in roll rates and early entry rates, which are now below pre-pandemic levels. While there could be economic pressures, the consumer has been resilient, and the company remains constructive on credit quality.
Q:What is the company's position in the T&E product category?
A:The company has a range of T&E products, including partnerships with Caesars and AAA, as well as proprietary cards focused on travel rewards. This category has shown substantial growth, particularly in the fourth quarter of 2025.
Q:What are the factors affecting net interest income (NIM) growth in 2026?
A:NIM growth will be influenced by the timing and number of prime rate reductions, lower billed late fees due to improved delinquency, product mix shifts, and continued pricing changes. Retail share arrangements with brand partners will also impact NIM as profitability improves.
Q:What is the company's objective for direct-to-consumer deposits?
A:The company aims to increase direct-to-consumer deposits to 70%+ of total funding over time. Pricing will remain competitive, and this funding source is more cost-effective than brokered CDs.
Q:What is the outlook for the reserve rate given improving credit?
A:The reserve rate, currently at 11.2%, is expected to gradually decrease as credit quality improves. It may not return to day 1 levels due to portfolio differences and risk weighting adjustments, but it could approach around 10% over time.
Q:Is the company prioritizing credit quality improvement or growth?
A:The company prioritizes getting back to a 6% credit target over time without forcing it. They aim to balance growth and credit quality by dynamically underwriting and gradually improving the portfolio.
Q:What is driving the revenue growth slowdown in 2026?
A:The slowdown is partly due to easier comps in 2025, including fee waivers and interest waivers related to hurricanes. The company expects stable to slightly up net interest margin in 2026.
Q:What is the company's approach to personal loans?
A:Personal loans are a small but growing part of the portfolio. They are held on the balance sheet and are seen as a way to acquire new customers. Growth in this area will be gradual and responsible.
Q:How is the company leveraging AI?
A:The company uses AI for operational excellence, fraud protection, underwriting, call center effectiveness, and automation. They have over 200 machine learning models and thousands of bots, saving over 1 million hours of manual work. Future focus areas include improving productivity, modernizing technology, and enhancing customer experiences.
Q:What is the company's outlook for credit sales in 2026?
A:The company expects low single-digit growth in credit sales, supported by stable credit, a resilient consumer, and a stable partner base. The impact of tax refunds on spending remains uncertain.
Q:What is the company's view on deposit betas?
A:Deposit betas are expected to range between 60% and 80%, depending on market conditions. This is lower than previous expectations of high 70s to 80%.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the expected magnitude of operating leverage in 2026, stating that it depends on macroeconomic conditions and revenue growth. Additionally, they did not provide a clear outlook on how tax refunds would impact consumer spending or credit sales, citing uncertainty in consumer behavior.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
Bread Financial
Caesars
Federal Reserve
Moody
Slide interest
balance
benefit focus
benefit pricing
capital share
card loan
commitment capital
consumer resilience
cost fund
credit card
debt repurchase
digit
diversification
end period
impact debt
inflection point
loan driver
loan end
momentum
partner base
payment option
rate benefit
rating
repurchase impact
repurchase income
retailer share
sale credit
sale loyalty
share arrangement
share stock
shift consumer
statement fee
stock dividend
upgrade
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Bread Financial Holdings, Inc. (BFH) Q4 2025 Earnings Call Transcript
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The earnings call indicates positive financial performance with improved credit metrics, a strong CET1 ratio, and increased shareholder returns. The Q&A session highlights optimism in loan growth and product partnerships, despite some uncertainties in revenue growth and macroeconomic impacts. Share repurchase and dividend hikes further bolster the outlook. Given the market cap of $2.13 billion, the stock is likely to see a positive movement of 2% to 8% over the next two weeks.
BFH Slides
BFH Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
