Alliance Data Systems(BFH) - 2023 Q2 - Quarterly Report

Financial Performance - Total net interest and non-interest income increased by $59 million (7%) to$ 952 million for the three months ended June 30, 2023, compared to the same period in 2022[62] - Provision for credit losses decreased by $68 million (17%) to$ 336 million for the three months ended June 30, 2023, compared to the same period in 2022[62] - Net income increased by $36 million to$ 48 million for the three months ended June 30, 2023, compared to the same period in 2022[62] - Total interest income increased by 12% year-over-year, with a net interest margin of 18.7% for Q2 2023[79] - Non-interest income increased by $45 million, primarily due to merchant discount fees and interchange revenue[79] - Net principal losses increased by$ 113 million and $256 million for the three and six months ended June 30, 2023, respectively[90] Expenses and Efficiency - Total non-interest expenses increased by$ 57 million (12%) to $530 million for the three months ended June 30, 2023, compared to the same period in 2022[62] - Total non-interest expenses increased by 12% year-over-year, driven by higher employee compensation and technology investments[80] - The company expects second half 2023 total non-interest expenses to be lower than the first half, driven by improved operating efficiencies and lower intangible amortization expense[59] Credit and Loans - Credit sales decreased by 13% year-over-year to$ 7.1 billion, driven by the sale of the BJ's Wholesale Club portfolio and macroeconomic headwinds[79] - Average credit card and other loans increased by 4%, while end-of-period loans increased by 1%, driven by new brand partners and moderation in consumer payment rates[79] - The company expects full-year 2023 average credit card and other loans to grow in the low- to mid-single digits relative to 2022[83] - The 2023 financial outlook assumes a full-year net loss rate in the low-to-mid 7% range, with a reserve rate of 12.3% as of June 30, 2023[84] Capital and Liquidity - The company's TCE/TA ratio was 9.4% as of June 30, 2023, reflecting a strengthened balance sheet and improved capital ratios[56] - Direct-to-consumer (DTC) deposits comprised 33% of the funding mix as of June 30, 2023, with a reduction in debt of over $500 million[82] - The company maintains a significant majority of its liquidity portfolio on deposit within the Federal Reserve banking system[110] Reserves and Credit Quality - The reserve rate increased to 12.3% as of June 30, 2023, compared to 11.5% as of December 31, 2022, due to the sale of the BJ's portfolio and softening economic indicators[55] - The company's Vantage 660+ cardholder percentage remains materially above pre-pandemic levels due to prudent credit tightening actions and a more diversified product mix[55] Tax and Dividends - The company expects full-year normalized effective tax rate to remain in the range of 25% to 26% for 2023[60] - Dividends paid to common stockholders were$ 11 million and $21 million for the three and six months ended June 30, 2023, respectively[366] - Quarterly cash dividend of$ 0.21 per share declared on July 27, 2023, payable on September 15, 2023[366] Comprehensive Loss and Fair Value - Accumulated Other Comprehensive Loss increased from $(19) million to$ (20) million for the three months ended June 30, 2023[362] - Accumulated Other Comprehensive Loss increased from $(9) million to$ (14) million for the three months ended June 30, 2022[362] - Accumulated Other Comprehensive Loss decreased from $(21) million to$ (20) million for the six months ended June 30, 2023[362] - Accumulated Other Comprehensive Loss increased from $(2) million to$ (14) million for the six months ended June 30, 2022[362] - Money market and other non-maturity deposits carrying values approximate their fair values due to short-term duration and no defined maturity[353] Market and Interest Rate Risk - No material change in exposure to interest rate risk or other market risks compared to 2022 Form 10-K[385] - No transfers into or out of Level 3, and no transfers between Levels 1 and 2 for the three and six months ended June 30, 2023 and 2022[351] Financial Outlook - The company's 2023 financial outlook reflects slowing sales growth due to self-moderated consumer spending and targeted credit tightening[58]