Bread Financial is feeling the pressure of higher inflation as consumers pull back on discretionary spending — but the credit card firm is better positioned to weather the economy this year than last year, according to company executives.
After last year's
Bread's general-purpose cash-back credit card, introduced last year, and the popularity of the company's high-yield Bread Savings account, are also helping to insulate Bread from economic shocks as consumers pull back from discretionary spending amid rising inflation, company executives said.
"Our strategic shift to increase our cobrand and proprietary offerings over the past three years allows us to retain this nondiscretionary general-purpose spend," said Perry Beberman, Bread's chief financial officer, adding that cobranded and private-label cards now make up more than half of Bread's credit sales.
Deposits came in through its Bread Savings direct-to-consumer platform. During the first quarter of 2023, deposits were up 70% from the first quarter of 2022, to $5.6 billion. Deposits increased 3% between the end of the year and March 31, helped by a surge during the last two weeks of March when many banks experienced net deposit outflows, according to Beberman.
"These deposits represented 28% of our total funding mix versus 19% during the same period last year, and we expect that direct-to-consumer deposits will continue to make up a large portion of our overall funding over time," Beberman said. He noted that Bread Financial also recently renewed two secured funding of about $5 billion.
During the first quarter, Bread Financial also completed the sale of the BJ's Wholesale Club credit card portfolio to Capital One, which boosted revenue and income, while the company also flagged several new credit card programs signed recently with retailers including All Pet Credit, Cleveland Cavaliers, Michaels, The New York Yankees and World Market.
Credit sales during the quarter were up 7% year over year, to $7.4 billion. Bread ended the quarter with average loans up 17%, to $19.4 billion.
Revenue for the quarter was $1.3 billion, up 40% over the first quarter of 2022, boosted by a $230 million gain from divesting the $2.3 billion BJ's card portfolio in February, plus higher average loan balances. Net income was $455 million, which also reflected a release of loan-loss reserves with the exit of the BJ's portfolio.
Total non-interest expense during the quarter rose 28% year-over year to $544 million, driven by higher costs for personnel — including hiring in customer service and collections — along with card processing and marketing, the company said.
Bread increased its credit loan-loss reserves during the quarter by 300 basis points, as
delinquency rates ticked up to 5.7% at the end of the first quarter, compared with 4.1% a year earlier. Charge-offs during the quarter rose to 7%, compared with 4.8% a year earlier. Overall, Bread's loss rate has improved from its pandemic-era peak of 7.6%.
Looking ahead, Bread Financial expects the company's full-year average loans to grow in the mid-single-digit range over last year's loan total.
Overall, Bread's results beat Wall Street's expectations, with adjusted revenue slightly surpassing the forecasts of seven analysts Zacks Investment Research surveyed, Zacks said in a Thursday report.
