Bread Financial Holdings Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Sanjay Sakhrani - Keefe, Bruyette & Woods - Analyst : Thank you. Good morning. Perry, I just wanted to talk about the path to your medium-term targets. I guess as we think about mitigation and the no late fee regulation, I would think that, that accelerates the path to this potential. Maybe just talk about how you're thinking about that and give us a sense of some of the points that you made on NIM and how much mitigation is coming through over the next couple of years.

Question: Sanjay Sakhrani - Keefe, Bruyette & Woods - Analyst : Got it. And then just a follow-up maybe, Ralph. I'm just trying to think about how we see a re-acceleration in NIM-accretive loan growth. I know there's been some mix impacts. You guys are growing in co-brand, which is definitely helping credit. But as I look ahead, how do we get loan growth to accelerate? Is it a function of credit? Like are you guys tightening so that's having an impact as well? Or can we see some loosening that can drive that? I mean you talked a little bit about the spending trends specifically. And then are there any portfolio acquisition opportunities? Thank you.

Question: Sanjay Sakhrani - Keefe, Bruyette & Woods - Analyst : Thank you.

Question: Vincent Caintic - BTIG - Analyst : Good morning. Thanks for taking my questions. First one is actually just a follow-up on the NIM and on the mitigants rollout. If you could maybe update us on the progress there. And with the new administration coming in and I think expectations now with the CFPB going away, I'm just wondering how your conversations are going with maybe some of the merchants who have not yet signed up, just how that progress is and how much more could we see in mitigants.

Question: Vincent Caintic - BTIG - Analyst : Okay, great. Thanks for that update. And then maybe asking just on the medium-term guidance again. I think sitting back at the Investor Day and all the great detail you gave there, I think we were looking at kind of getting to a run rate 20%, 25% ROE by the fourth quarter of 2025. And so I'm just wondering with NIM is coming up a bit and then you have the losses improving as well as credit reserves coming down, so it's nice to see the 30 basis points benefit. Just wondering if we're on track of that and what other pieces maybe we need to get to that medium term. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:30PM, BFH.N - Q4 2024 Bread Financial Holdings Inc Earnings Call

Question: Vincent Caintic - BTIG - Analyst : Okay, great. Thanks very much.

Question: Jeff Adelson - Morgan Stanley - Analyst : Hey, Perry. Thanks for all the color into the moving pieces on the NIM. I just wanted to make sure we understood. So for the first quarter, should we be expecting more of a -- more pressure on the NIM? Or should that be more flat? I mean you talked about the seasonality of transactors, which tends to benefit in the first quarter. I just want to make sure we put a finer point on that.

Question: Jeff Adelson - Morgan Stanley - Analyst : Okay. And then just around the green shoots of spending there, how do we balance that against your expectation for consumers to kind of be cautiously moderating their spend here? I get you highlighted some of the key areas of growth you're seeing. Is any of that coming from any account growth that you're maybe leaning into at this point? Or can you just help us understand what that looks like? And then related to that, like are there any sort of trends that you're noticing under the hood? Just an update on the state of the consumer, whether it be by high versus low income or FICO.

Question: Jeff Adelson - Morgan Stanley - Analyst : Okay, great. Thank you.

Question: John Pancari - Evercore ISI - Analyst : Good morning. On the linked quarter loan yield change, I know the yield was down about 170 basis points linked quarter. Just to get a little bit more detail there, how much of that was the impact -- the lagged impact of the Fed cuts versus how much of that was the impact from the lower big-ticket sales that you cited and then a potential impact from the shift away from private label? Is there a way to help us kind of size that up to assess the magnitude of each?

Question: John Pancari - Evercore ISI - Analyst : Okay. Right. Okay. All right. And then just one more. My second -- my follow-up is kind of a two-parter. On the private-label shift away towards co-brand, is that happening at about the pace you had expected or maybe at a faster clip than anticipated? And then when you look at your expectation for flat average loans, but end of period slightly higher, I was wondering if you could -- it seems a bit modest, just given the backdrop that should be strengthening here. So is there anything impacting your expectation on balances here as you look at the year that you might be approaching it conservatively? Thanks.

Question: John Pancari - Evercore ISI - Analyst : It does. All right, thank you.

Question: Bill Carcache - Wolfe Research - Analyst : Hi, good morning Ralph and Perry. Following up on the comments you just made, Perry, around the increase in co-brand versus private label and remixing towards higher-credit quality customers that we're seeing, is the return profile of the business and the risk-adjusted yields you generate changing with a less volatile but potentially a bit lower-yielding revenue stream? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:30PM, BFH.N - Q4 2024 Bread Financial Holdings Inc Earnings Call Any color that you can give on sort of how to think about the persistence of those trends? And if this is something we should think about as structural? And does that align with the expectations with the guidance that you gave at Investor Day?

Question: Bill Carcache - Wolfe Research - Analyst : That's great. As a follow-up, if the loan growth outlook remains flat as you expect, how should we think about your buyback capacity over the course of the year, Perry? And then Ralph, could you give some color around the renewal process and how you -- do you think that potentially could change as a result of some of the mitigating actions that have been taken?

Question: Bill Carcache - Wolfe Research - Analyst : Great. Thank you for taking my questions. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:30PM, BFH.N - Q4 2024 Bread Financial Holdings Inc Earnings Call

Question: Moshe Orenbuch - TD Cowen - Analyst : Great, thanks. Ralph, in you -- in the guide, you talked about positive operating leverage in an environment of kind of low single-digit revenue growth. And you made some comments in your closing remarks about operating efficiency. I was wondering if you can expand on that because I think it's going to take on some increased importance.

Question: Moshe Orenbuch - TD Cowen - Analyst : Okay. Maybe as a follow-up and to an earlier question, could you just talk a little bit specifically about the pricing impacts on your expected margin for 2025? And perhaps, how much by the end of '25, you would have expected of the impact of late fees to have been in your pricing and yield?

Question: Moshe Orenbuch - TD Cowen - Analyst : Okay. Thank you.

Question: Mihir Bhatia - Bank of America - Analyst : Good morning and thank you for taking my questions. Wanted to start by asking about capital returns. You've improved your CET1 ratio. You've been cleaning up your balance sheet. You've talked about lowering the double leverage. So where are we in that process? What are your thoughts on capital returns here heading into 2025? What should we expect? Thank you.

Question: Mihir Bhatia - Bank of America - Analyst : Got it. And then I wanted to talk about credit a little bit more. And so like your 2025 guidance, right, it's still about 200 bps above -- a little bit more than 200 bps above your long-term target. So I'm just wondering, this is a two-part question. But, A, do you need to tighten underwriting further to get to your long-term target? Or is your current underwriting posture sufficient to get there just from mix shift and, I guess, a little bit more time passing and easing of the inflation and macro pressures? And then part B is, do you have a time line you can share on when you can get to your target range, just assuming a stable macro?

Question: Mihir Bhatia - Bank of America - Analyst : Thank you for taking my questions.

Question: Terry Ma - Barclays Bank - Analyst : Hey, thank you. Good morning. I appreciate all the color on NIM. But maybe just on revenue growth for the year and the guide of low single digits. Any color you can provide on kind of the cadence as we kind of step through the year? Since you have the mitigants rolling in, should we expect accelerating revenue growth and then maybe you exit the fourth quarter higher than the full year guide?

Question: Terry Ma - Barclays Bank - Analyst : Got it. Okay. Then maybe as a follow-up to credit, should we expect the historical relationship between delinquencies and charge-offs to kind of hold? Or is there something else there? I seem to recall in prior quarters, you guys may have called out elevated roll rates. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:30PM, BFH.N - Q4 2024 Bread Financial Holdings Inc Earnings Call

Question: Terry Ma - Barclays Bank - Analyst : Got it. Thank you.

Question: Dominick Gabriele - Compass Point - Analyst : Great. Thanks, good morning. You guys have talked about a mix shift to higher FICO scores. Maybe just asking Bill's question earlier from a different way. Could there -- how does this pressure your yields on a like-for-like basis? Because you're talking about trimming but the portfolio. I was just curious if this trimming is really around the edges. Or as things normalize, will the portfolio mix on average higher like 10% in Vantage Scores? Like what kind of mix shift towards higher FICO scores are you -- are we really thinking about? And how does this affect the seasonality of the yields in the business? And I just have a follow-up. Thanks.

Question: Dominick Gabriele - Compass Point - Analyst : Right. Okay. Great. And then your efficiency, given the revenue growth, has actually been pretty solid. When the company thinks -- when the company moves back towards perhaps a normal revenue growth rate, can you talk about scale benefits to the efficiency ratio you have in your business model? And are you guys going to be still focused on the expense discipline? I guess I'm just kind of curious if the company -- if the management team is happy with the 50% to 51% efficiency ratio as a run rate today. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:30PM, BFH.N - Q4 2024 Bread Financial Holdings Inc Earnings Call

Question: Dominick Gabriele - Compass Point - Analyst : Great, thanks.

Question: Reggie Smith - JP Morgan - Analyst : Yes, thank you. Good morning. Did you guys disclose what your Fed rate assumption was? And then I was curious, I know that your merchant partners have to approve any APR increases. But have you guys talked about what proportion of your book has been repriced for late fees? Obviously, that takes a while to bleed in. And then on that note, like how -- like what could those increases look like? Maybe frame that. And then finally, when those increases are applied, are they kind of uniform by merchant? Or do you actually look at the different credit tiers? So mechanically, like how does that -- how are they pushed down to the consumer? And then I have a follow-up. Thank you.

Question: Reggie Smith - JP Morgan - Analyst : Got it. So if I'm hearing this right, 95% have agreed to it. Some have allowed you to go ahead and reprice even in advance of a change. Is that the right way to -- that I'm hearing that correctly?

Question: Reggie Smith - JP Morgan - Analyst : Got it. And then at the -- it sounds like at the merchant level, you're pricing these changes based on the mix. But like do you consider individual personal credit profile and performance as well? Or is it just universal? So merchant A, like it's a 300 basis points increase or is a slice and dice within each?

Question: Reggie Smith - JP Morgan - Analyst : Okay. Perfect. And then last one for me. I wanted to hear like your latest thinking on the Bread BNPL product. You haven't talked about it in a while. Just curious, I know you guys have tightened credit. I'm not sure if that's what's been the issue with that business. But like how are you thinking about that? And how is the white-label BNPL resonating with merchants today, given all of the other options that are out there? I thought that, that would be something really compelling for merchants, but maybe it's not. So any color there would be great.

Question: Sanjay Sakhrani - Keefe, Bruyette & Woods - Analyst : Thank you. Good morning. Perry, I just wanted to talk about the path to your medium-term targets. I guess as we think about mitigation and the no late fee regulation, I would think that, that accelerates the path to this potential. Maybe just talk about how you're thinking about that and give us a sense of some of the points that you made on NIM and how much mitigation is coming through over the next couple of years.

Question: Sanjay Sakhrani - Keefe, Bruyette & Woods - Analyst : Got it. And then just a follow-up maybe, Ralph. I'm just trying to think about how we see a re-acceleration in NIM-accretive loan growth. I know there's been some mix impacts. You guys are growing in co-brand, which is definitely helping credit. But as I look ahead, how do we get loan growth to accelerate? Is it a function of credit? Like are you guys tightening so that's having an impact as well? Or can we see some loosening that can drive that? I mean you talked a little bit about the spending trends specifically. And then are there any portfolio acquisition opportunities? Thank you.

Question: Sanjay Sakhrani - Keefe, Bruyette & Woods - Analyst : Thank you.

Question: Vincent Caintic - BTIG - Analyst : Good morning. Thanks for taking my questions. First one is actually just a follow-up on the NIM and on the mitigants rollout. If you could maybe update us on the progress there. And with the new administration coming in and I think expectations now with the CFPB going away, I'm just wondering how your conversations are going with maybe some of the merchants who have not yet signed up, just how that progress is and how much more could we see in mitigants.

Question: Vincent Caintic - BTIG - Analyst : Okay, great. Thanks for that update. And then maybe asking just on the medium-term guidance again. I think sitting back at the Investor Day and all the great detail you gave there, I think we were looking at kind of getting to a run rate 20%, 25% ROE by the fourth quarter of 2025. And so I'm just wondering with NIM is coming up a bit and then you have the losses improving as well as credit reserves coming down, so it's nice to see the 30 basis points benefit. Just wondering if we're on track of that and what other pieces maybe we need to get to that medium term. Thank you.

Question: Vincent Caintic - BTIG - Analyst : Okay, great. Thanks very much.

Question: Jeff Adelson - Morgan Stanley - Analyst : Hey, Perry. Thanks for all the color into the moving pieces on the NIM. I just wanted to make sure we understood. So for the first quarter, should we be expecting more of a -- more pressure on the NIM? Or should that be more flat? I mean you talked about the seasonality of transactors, which tends to benefit in the first quarter. I just want to make sure we put a finer point on that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:30PM, BFH.N - Q4 2024 Bread Financial Holdings Inc Earnings Call

Question: Jeff Adelson - Morgan Stanley - Analyst : Okay. And then just around the green shoots of spending there, how do we balance that against your expectation for consumers to kind of be cautiously moderating their spend here? I get you highlighted some of the key areas of growth you're seeing. Is any of that coming from any account growth that you're maybe leaning into at this point? Or can you just help us understand what that looks like? And then related to that, like are there any sort of trends that you're noticing under the hood? Just an update on the state of the consumer, whether it be by high versus low income or FICO.

Question: Jeff Adelson - Morgan Stanley - Analyst : Okay, great. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:30PM, BFH.N - Q4 2024 Bread Financial Holdings Inc Earnings Call

Question: John Pancari - Evercore ISI - Analyst : Good morning. On the linked quarter loan yield change, I know the yield was down about 170 basis points linked quarter. Just to get a little bit more detail there, how much of that was the impact -- the lagged impact of the Fed cuts versus how much of that was the impact from the lower big-ticket sales that you cited and then a potential impact from the shift away from private label? Is there a way to help us kind of size that up to assess the magnitude of each?

Question: John Pancari - Evercore ISI - Analyst : Okay. Right. Okay. All right. And then just one more. My second -- my follow-up is kind of a two-parter. On the private-label shift away towards co-brand, is that happening at about the pace you had expected or maybe at a faster clip than anticipated? And then when you look at your expectation for flat average loans, but end of period slightly higher, I was wondering if you could -- it seems a bit modest, just given the backdrop that should be strengthening here. So is there anything impacting your expectation on balances here as you look at the year that you might be approaching it conservatively? Thanks.

Question: John Pancari - Evercore ISI - Analyst : It does. All right, thank you.

Question: Bill Carcache - Wolfe Research - Analyst : Hi, good morning Ralph and Perry. Following up on the comments you just made, Perry, around the increase in co-brand versus private label and remixing towards higher-credit quality customers that we're seeing, is the return profile of the business and the risk-adjusted yields you generate changing with a less volatile but potentially a bit lower-yielding revenue stream? Any color that you can give on sort of how to think about the persistence of those trends? And if this is something we should think about as structural? And does that align with the expectations with the guidance that you gave at Investor Day?

Question: Bill Carcache - Wolfe Research - Analyst : That's great. As a follow-up, if the loan growth outlook remains flat as you expect, how should we think about your buyback capacity over the course of the year, Perry? And then Ralph, could you give some color around the renewal process and how you -- do you think that potentially could change as a result of some of the mitigating actions that have been taken? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:30PM, BFH.N - Q4 2024 Bread Financial Holdings Inc Earnings Call

Question: Bill Carcache - Wolfe Research - Analyst : Great. Thank you for taking my questions.

Question: Moshe Orenbuch - TD Cowen - Analyst : Great, thanks. Ralph, in you -- in the guide, you talked about positive operating leverage in an environment of kind of low single-digit revenue growth. And you made some comments in your closing remarks about operating efficiency. I was wondering if you can expand on that because I think it's going to take on some increased importance.

Question: Moshe Orenbuch - TD Cowen - Analyst : Okay. Maybe as a follow-up and to an earlier question, could you just talk a little bit specifically about the pricing impacts on your expected margin for 2025? And perhaps, how much by the end of '25, you would have expected of the impact of late fees to have been in your pricing and yield?

Question: Moshe Orenbuch - TD Cowen - Analyst : Okay. Thank you.

Question: Mihir Bhatia - Bank of America - Analyst : Good morning and thank you for taking my questions. Wanted to start by asking about capital returns. You've improved your CET1 ratio. You've been cleaning up your balance sheet. You've talked about lowering the double leverage. So where are we in that process? What are your thoughts on capital returns here heading into 2025? What should we expect? Thank you.

Question: Mihir Bhatia - Bank of America - Analyst : Got it. And then I wanted to talk about credit a little bit more. And so like your 2025 guidance, right, it's still about 200 bps above -- a little bit more than 200 bps above your long-term target. So I'm just wondering, this is a two-part question. But, A, do you need to tighten underwriting further to get to your long-term target? Or is your current underwriting posture sufficient to get there just from mix shift and, I guess, a little bit more time passing and easing of the inflation and macro pressures? And then part B is, do you have a time line you can share on when you can get to your target range, just assuming a stable macro?

Question: Mihir Bhatia - Bank of America - Analyst : Thank you for taking my questions.

Question: Terry Ma - Barclays Bank - Analyst : Hey, thank you. Good morning. I appreciate all the color on NIM. But maybe just on revenue growth for the year and the guide of low single digits. Any color you can provide on kind of the cadence as we kind of step through the year? Since you have the mitigants rolling in, should we expect accelerating revenue growth and then maybe you exit the fourth quarter higher than the full year guide?

Question: Terry Ma - Barclays Bank - Analyst : Got it. Okay. Then maybe as a follow-up to credit, should we expect the historical relationship between delinquencies and charge-offs to kind of hold? Or is there something else there? I seem to recall in prior quarters, you guys may have called out elevated roll rates.

Question: Terry Ma - Barclays Bank - Analyst : Got it. Thank you.

Question: Dominick Gabriele - Compass Point - Analyst : Great. Thanks, good morning. You guys have talked about a mix shift to higher FICO scores. Maybe just asking Bill's question earlier from a different way. Could there -- how does this pressure your yields on a like-for-like basis? Because you're talking about trimming but the portfolio. I was just curious if this trimming is really around the edges. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:30PM, BFH.N - Q4 2024 Bread Financial Holdings Inc Earnings Call Or as things normalize, will the portfolio mix on average higher like 10% in VantageScores? Like what kind of mix shift towards higher FICO scores are you -- are we really thinking about? And how does this affect the seasonality of the yields in the business? And I just have a follow-up. Thanks.

Question: Dominick Gabriele - Compass Point - Analyst : Right. Okay. Great. And then your efficiency, given the revenue growth, has actually been pretty solid. When the company thinks -- when the company moves back towards perhaps a normal revenue growth rate, can you talk about scale benefits to the efficiency ratio you have in your business model? And are you guys going to be still focused on the expense discipline? I guess I'm just kind of curious if the company -- if the management team is happy with the 50% to 51% efficiency ratio as a run rate today. Thanks.

Question: Dominick Gabriele - Compass Point - Analyst : Great, thanks.

Question: Reggie Smith - JP Morgan - Analyst : Yes, thank you. Good morning. Did you guys disclose what your Fed rate assumption was? And then I was curious, I know that your merchant partners have to approve any APR increases. But have you guys talked about what proportion of your book has been repriced for late fees? Obviously, that takes a while to bleed in. And then on that note, like how -- like what could those increases look like? Maybe frame that. And then finally, when those increases are applied, are they kind of uniform by merchant? Or do you actually look at the different credit tiers? So mechanically, like how does that -- how are they pushed down to the consumer? And then I have a follow-up. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 1:30PM, BFH.N - Q4 2024 Bread Financial Holdings Inc Earnings Call

Question: Reggie Smith - JP Morgan - Analyst : Got it. So if I'm hearing this right, 95% have agreed to it. Some have allowed you to go ahead and reprice even in advance of a change. Is that the right way to -- that I'm hearing that correctly?

Question: Reggie Smith - JP Morgan - Analyst : Got it. And then at the -- it sounds like at the merchant level, you're pricing these changes based on the mix. But like do you consider individual personal credit profile and performance as well? Or is it just universal? So merchant A, like it's a 300 basis points increase or is a slice and dice within each?

Question: Reggie Smith - JP Morgan - Analyst : Okay. Perfect. And then last one for me. I wanted to hear like your latest thinking on the Bread BNPL product. You haven't talked about it in a while. Just curious, I know you guys have tightened credit. I'm not sure if that's what's been the issue with that business. But like how are you thinking about that? And how is the white-label BNPL resonating with merchants today, given all of the other options that are out there? I thought that, that would be something really compelling for merchants, but maybe it's not. So any color there would be great.