Alliance Data Systems(BFH) - 2025 Q2 - Quarterly Results

Second Quarter 2025 Results Overview Bread Financial reported Q2 2025 net income of $139 million, improved credit quality, and executed significant capital allocation initiatives Second Quarter 2025 Key Highlights Bread Financial reported Q2 2025 net income of $139 million, improved credit quality, and completed capital allocation programs Q2 2025 Key Financial Metrics | Metric | Value | Change (YoY) | | :--- | :--- | :--- | | Net Income | $139 million | +4% | | Diluted EPS | $2.93 | +11% | | Adjusted Net Income(1) | $149 million | +12% | | Adjusted Diluted EPS(1) | $3.14 | +18% | | Revenue | $0.9 billion | -1% | | Credit Sales | $6.8 billion | +4% | | Average Loans | $17.7 billion | -1% | | Delinquency Rate | 5.7% | -0.3 ppt | | Net Loss Rate | 7.9% | -0.7 ppt | - Completed a $150 million board-authorized share repurchase program, with 3.2 million shares repurchased year-to-date[5] - Completed a $150 million tender offer for its 9.75% senior notes due 2029, resulting in $13 million in debt extinguishment costs[5][11] - Renewed a long-term partnership with Caesars Entertainment and launched a new, fee-based credit card[5] - Direct-to-consumer deposits grew 12% year-over-year to $8.1 billion, now representing 45% of average total funding[5] Financial Performance Analysis Q2 2025 financial performance analysis covers P&L, net interest margin, funding, capital, liquidity, and credit quality metrics Summary P&L Results For Q2 2025, revenue decreased by 1% year-over-year to $929 million, while net income increased by 4% to $139 million Q2 2025 vs Q2 2024 Profit & Loss Statement | ($ in millions) | 2Q25 | 2Q24 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $929 | $939 | -1% | | Provision for credit losses | $274 | $290 | -6% | | Total non-interest expenses | $481 | $469 | +3% | | Income before income taxes | $174 | $180 | -3% | | Net income | $139 | $133 | +4% | YTD 2025 vs YTD 2024 Profit & Loss Statement | ($ in millions) | YTD '25 | YTD '24 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $1,899 | $1,929 | -2% | | Provision for credit losses | $570 | $611 | -7% | | Total non-interest expenses | $958 | $949 | +1% | | Net income | $280 | $269 | +4% | - Adjusted Pre-tax Pre-provision Net Revenue (PPNR) was $458 million in Q2 2025, a slight decrease of 1% from $465 million in Q2 2024[12][13] Net Interest Margin The net interest margin for Q2 2025 was 17.7%, a slight decrease from 18.0% in Q2 2024, with direct-to-consumer deposits comprising 45% of average interest-bearing liabilities Key Margin and Yield Metrics | Metric | 2Q25 (%) | 2Q24 (%) | Change (ppt) | | :--- | :--- | :--- | :--- | | Net Interest Margin | 17.7% | 18.0% | -0.3 ppt | | Loan Yield | 26.0% | 26.4% | -0.4 ppt | | Avg. Earning Asset Yield | 21.7% | 22.0% | -0.3 ppt | | Cost of Total Interest-Bearing Liabilities | 4.9% | 5.4% | -0.5 ppt | - The funding mix has evolved, with direct-to-consumer deposits increasing to 45% of average interest-bearing liabilities in Q2 2025, up from 40% in Q2 2024[16] Funding, Capital, and Liquidity The company maintained a robust capital and liquidity position in Q2 2025, with a CET1 ratio of 13.0% and stable total liquid resources of $7.7 billion Capital Ratios | Ratio | 2Q25 (%) | 2Q24 (%) | | :--- | :--- | :--- | | CET1 Capital Ratio | 13.0% | 13.8% | | Tier 1 Capital Ratio | 13.0% | 13.8% | | Total Risk-Based Capital Ratio | 16.5% | 15.1% | | TCE + Credit Reserve Rate(1) | 25.7% | 25.9% | - The CET1 ratio decreased from 13.8% in Q2 2024 to 13.0% in Q2 2025, primarily impacted by share repurchases (-1.1%) and repurchased debt (-1.1%), partially offset by net earnings (+2.2%)[19] - Total end-of-period liquid resources stood at $7.7 billion, representing 35.1% of total assets[18] Credit Quality and Allowance Credit quality metrics improved year-over-year in Q2 2025, with the delinquency rate declining to 5.7% and the net loss rate decreasing to 7.9% Credit Quality Metrics | Metric | 2Q25 (%) | 2Q24 (%) | Change (ppt) | | :--- | :--- | :--- | :--- | | Delinquency Rate | 5.7% | 6.0% | -0.3 ppt | | Net Loss Rate | 7.9% | 8.6% | -0.7 ppt | Allowance for Credit Losses (ACL) | Metric | 2Q25 ($ in millions) | 2Q24 ($ in millions) | | :--- | :--- | :--- | | ACL Balance | $2,098 million | $2,172 million | | Reserve Rate | 11.9% | 12.2% | - The revolving credit risk distribution remained consistent, with 58% of the portfolio having a VantageScore greater than 660, 27% between 601-660, and 15% at 600 or below[23] 2025 Financial Outlook Bread Financial provided its full-year 2025 outlook, anticipating average loans to be flat to slightly down compared to 2024, with revenue relatively flat and an improved net loss rate Full Year 2025 Guidance The company projects flat to slightly down average loans for 2025, with flat revenue, targeted positive operating leverage, and an improved net loss rate between 7.8% and 7.9% Full Year 2025 Financial Outlook | Metric | Full Year 2024 Actuals ($ in millions) | Full Year 2025 Outlook | | :--- | :--- | :--- | | Average loans | $18,084 million | Flat to slightly down | | Revenue (excl. gain on sale) | $3,827 million | Flat | | Adjusted total non-interest expenses | $1,943 million | Positive operating leverage | | Net loss rate | 8.2% | 7.8% to 7.9% | Appendix The appendix details strategic focus, comprehensive financial tables, and non-GAAP reconciliations for in-depth analysis Strategic Focus and Portfolio Details The appendix details the company's four strategic focus areas for 2025, explains the 3% YoY rise in non-interest expenses, and illustrates the loan portfolio's diversification - The company's 2025 strategic pillars are: Responsible growth, Managing the macroeconomic and regulatory environment, Disciplined capital allocation and risk management, and Operational excellence[29][30] - Total non-interest expenses increased 3% YoY in Q2 2025[33][35] - The loan portfolio is diversified by product, with co-brand cards accounting for 54% of credit sales and 55% of end-of-period loans in Q2 2025[40] Detailed Financial Tables This section provides extensive historical financial data, including summary financial highlights, quarterly trending data, detailed net interest margin calculations, and historical capital and credit quality trends - Provides a comprehensive summary of financial highlights for Q2'25, comparing YoY, QoQ, and YTD performance across sales, loans, deposits, returns, margins, capital, and credit rates[43] - Includes detailed quarterly trending data from Q2 2023 to Q2 2025 for P&L results, financial highlights, capital ratios, and credit quality, allowing for in-depth trend analysis[45][47][51] - A detailed table breaks down the components of the Q2 2025 Net Interest Margin, showing average balances, interest income/expense, and average yields for all interest-earning assets and interest-bearing liabilities[49] Non-GAAP Financial Measures and Reconciliations This section defines non-GAAP financial measures like Adjusted Net Income and PPNR, and provides detailed reconciliation tables to their most directly comparable GAAP measures for historical periods - Defines key non-GAAP metrics used by management to evaluate performance, including Adjusted Net Income (excluding debt repurchase impacts), PPNR, ROTCE, and Tangible Book Value per common share[65][66] - Presents detailed tables reconciling GAAP to Non-GAAP financial measures, including Total non-interest expenses, Net income, EPS, and PPNR, for quarterly periods from Q2 2023 to Q2 2025[67][69]