Bread Financial ended a tumultuous year on a better note than many analysts expected, producing a surge in adjusted revenue and loan growth, although losses also rose sharply enough to make the quarter unprofitable.
The Dallas-based private label credit card firm said adjusted revenue was $1 billion, up 21% from $855 million versus the same quarter a year earlier, with credit sales up 16%, to $10.2 billion, compared with $8.8 billion in 2021. Average loan growth rose 23% during the quarter.
It reported a net loss of $134 million, versus net income of $61 million a year earlier, driven by higher loan-loss reserves required for Bread's acquisition last year of the American Automobile Association's $1.5 billion credit card portfolio.
After
Positive developments during the quarter included Bread signing co-branded credit card processing agreements with hospitality and casino giant Hard Rock International and with the New York Yankees. The company also renewed a card-processing agreement during the quarter with Helzberg Diamonds.
Bread continued to build its buy now/pay later operation with Sezzle, reaching a total of 200 participating merchants during the quarter, Bread CEO Ralph Andretta told analysts during a Thursday conference call.
Bread's consumer savings account program, also introduced last year, grew 72% during 2022 compared to the previous year, to $5.5 billion, and the facility now accounts for 26% of Bread's total loan funding, Bread reported.
Concerns facing Bread during the fourth quarter included rising credit card charge-offs, which increased 190 basis points. to 6.3%, over 4.4% a year earlier. The company attributed this to inflation and rising pressure on consumers. Delinquency rates rose steadily last year, peaking at 5.7% at the end of the third quarter, and ticked down slightly at the end of the fourth quarter to 5.5%, versus 3.9% at the end of last year.
Amid increasing economic headwinds, Andretta said consumer spending patterns are changing as consumers face ongoing pressure from inflation in food and utility costs.
"We are observing a shift toward non-discretionary spending with payment rates approaching pre-pandemic levels," he said, adding that Bread is tightening underwriting as needed to offset the changing economic environment.
Asked whether Bread expects significant hardship if the Consumer Financial Protection Bureau makes regulatory changes that could cut
"We have the ability to work with our brand partners to renegotiate terms if that's appropriate," Andretta said.
Bread's management team expects average loans will grow in the mid-single-digit range this year, assuming the unemployment rate will climb above 4% by the end of this year.
Bread faces steep risks this year from economic uncertainties and its exposure to brick-and-mortar stores and traditional shopping malls, but its fourth-quarter results were better than expected, said equity analysts at Jefferies in a Thursday note to investors.
"Similar to other card issuers, [Bread's forecast] reflects somewhat of a soft landing paired with a more conservative economic overlay," the analysts said.
