Persistent inflation and higher interest rates caused a sharp increase in charge-off and delinquency rates for Bread Financial's co-branded credit card accounts during the fourth quarter, forcing the firm to lower its 2024 growth forecast.
But several of Bread's other metrics for the quarter that ended Dec. 31, 2023, were more positive, with the firm posting revenue of $1 billion, just 2% lower than the same period a year earlier. Net income came in at $43 million, compared with
While profits exceeded analysts' expectations, Bread's charge-off rate during the quarter bounced up to 8%, compared with 6.9% at the end of the third quarter and 6.3% during the same period a year earlier. Delinquencies also rose to 6.5%, from 5.5% at the end of 2023.
Bread Chief Financial Officer Perry Beberman told analysts during a Thursday conference call that he expects Bread's delinquency rates to continue rising through the first half of this year, then begin to decline as a result of Bread tightening consumer credit approvals, pausing credit-line increases and cutting some users' credit lines.
The Columbus, Ohio-based lender has made further progress in diversifying its mix of customers by introducing more products beyond its heavy concentration on retailers, he said.
"In the past few years, we have diversified our product mix through partner co-brand growth, the introduction of two proprietary cards and the launch and expansion of Bread Pay installment lending," Beberman said.
The firm recently rolled out the Bread Rewards American Express card, enabling Bread to capture general-purpose sales "as consumer spending patterns shift to more non-discretionary spend in response to evolving economic conditions," Beberman said.
Bread also pared down noninterest expenses during the fourth quarter by 6%, compared with the same period a year earlier, through operational efficiencies and controlling expenses, although Bread also hired 100 engineers within the last year and recently launched a mobile app.
Bread also announced this week the appointment of Allegra Driscoll as executive vice president and chief technology officer. Most recently, Driscoll was senior vice president and unit chief information officer for global commercial services at American Express.
The lender recently said it's
A major looming cloud over Bread's prospects is the Consumer Financial Protection Bureau's potential implementation of its
The rule, slated to go into effect in October of this year, could reduce the firm's total revenue by 25% compared to the same period last year, Beberman said. Bread is in discussions with retail partners about "mitigation" strategies to offset the shock from lower late fees, including possibly imposing higher interest rates on customers' cards or introducing fees, depending on retailers' preferences.
Bread CEO Ralph Andretta expects credit card issuers will initiate litigation that could alter the rule, but as the company plans for its effects this year and in 2025, he worried that Bread may have to push credit card interest rates as high as 30%.
"Unfortunately, I think the consequences of this [late fee reduction], wherever it lands, is that credit is going to be more expensive for everyone, and people that have access to credit today may not have access to credit tomorrow."
Analysts noted that while Bread's results for the quarter beat expectations, economic headwinds and Bread's ability to navigate the credit card late-fee changes create uncertainty for the rest of the year.
"Our sense [is that] a strong quarter will be overlooked as investors digest new disclosures and potential for downward out-year revenue revisions," said analysts at J.P. Morgan in a Thursday note to investors.
