Alliance Data Systems(US:BFH)2025-10-27 21:54Financial Performance - Credit sales reached $6.8 billion, up 5% year-over-year, driven by new partner growth and increased general-purpose spending[19] - Total net interest and non-interest income for the quarter was $971 million, down 1% compared to the third quarter of 2024[21] - Net income for the three months ended September 30, 2025, was $188 million, an increase of $186 million compared to $2 million in 2024[33] - Adjusted net income per diluted share increased by 120% to $4.02 for the three months ended September 30, 2025, compared to $1.83 in 2024[33] - PPNR (Pre-Provision Net Revenue) rose by 21% to $495 million for the three months ended September 30, 2025, from $409 million in the prior year[45] - Adjusted net income for Q3 2025 was $191 million, a 105% increase from $93 million in Q3 2024[49] - Net income per diluted share rose to $3.96 in Q3 2025, compared to $0.05 in Q3 2024, marking a significant increase[49] Credit Losses and Provisions - Provision for credit losses decreased, with a $28 million reserve release and net principal losses of $327 million, compared to a $22 million reserve build and net principal losses of $347 million in the prior year[21] - Provision for credit losses decreased by $70 million or 19% to $299 million for the three months ended September 30, 2025, compared to $369 million in 2024[34] - Net principal losses for Q3 2025 were $327 million, down from $347 million in Q3 2024, resulting in a net principal loss rate of 7.4%[54] - The reserve rate for credit losses was 11.7% as of September 30, 2025, reflecting improving credit metrics[37] Expenses and Efficiency - Total non-interest expenses decreased 17% year-over-year to $476 million, primarily due to a $93 million decrease in other expenses[23] - Total non-interest expenses decreased by $98 million or 17% to $476 million for the three months ended September 30, 2025, compared to $574 million in 2024[38] - Efficiency ratio decreased to 49.0% for the three months ended September 30, 2025, down from 58.4% in the prior year[45] Capital and Liquidity - Common equity tier one capital ratio (CET1) increased to 14.0% from 13.3% in the third quarter of 2024, driven by net earnings[24] - The company maintains a strong focus on liquidity, with primary sources including cash from operating activities and bank credit facilities[55] - The company has a robust liquidity risk management framework to monitor liquidity and funding positions against risk appetite metrics[62] - The company met all capital requirements as of September 30, 2025, maintaining capital ratios in excess of the minimums required to qualify as well capitalized[109] - Common equity tier 1 capital ratio for the total company is 14.0%, significantly above the minimum requirement of 4.5%[113] - The company has a tier 1 leverage capital ratio of 12.4%, well above the minimum requirement of 4.0%[113] Deposits and Funding - Direct-to-consumer (DTC) deposits increased 9% to $8.2 billion, with average DTC deposits now representing 47% of total funding, up from 41% a year ago[24] - End-of-period direct-to-consumer deposits grew by 9% to $8,188 million as of September 30, 2025, compared to $7,483 million a year earlier[45] - As of September 30, 2025, total interest-bearing deposits increased to $13,511 million from $13,055 million as of December 31, 2024, representing a growth of 3.5%[86] - Direct-to-consumer (retail) deposits rose to $8,188 million, up from $7,687 million, indicating an increase of 6.5%[86] Tax and Financial Outlook - The effective tax rate for 2025 is expected to be in the range of 19% to 20% due to larger discrete items realized in 2025[29] - The 2025 financial outlook anticipates a full year net principal loss rate ranging from 7.8% to 7.9%[28] - The effective income tax rate for continuing operations was 4.3% for the three months ended September 30, 2025, down from 92.2% in 2024[41] Shareholder Returns - A quarterly cash dividend of $0.23 per share was declared on October 23, 2025, payable on December 12, 2025, to stockholders of record[98] - The company repurchased a total of 3.8 million shares for $190 million during the nine months ended September 30, 2025, with $160 million remaining for future repurchases as of that date[97] - The company’s stock repurchase program was increased by an additional $200 million on October 23, 2025, bringing the total available for future repurchases to $340 million[96] Debt and Financing Activities - The company issued $400 million in aggregate principal amount of 8.375% Fixed-Rate Reset Subordinated Notes due 2035 in March 2025[83] - The company completed a cash Tender Offer repurchasing $150 million of Senior Notes due 2029, resulting in a $13 million loss on extinguishment[81] - The company redeemed $100 million of Senior Notes due 2026 in January 2025 using cash on hand[73] - The company maintained a $700 million undrawn Revolving Credit Facility as of September 30, 2025, maturing in October 2028[71] Regulatory and Compliance - The consent order issued by the FDIC in November 2023 does not impose any monetary penalties on the Servicer[118] - The Servicer has submitted nearly all required deliverables under the consent order to the FDIC for review[119] - Credit ratings for senior unsecured debt improved, with Moody's upgrading to Ba2 and S&P changing outlook to "Positive" as of October 2025[66] Market and Risk Management - Market risk exposure remains stable with no material changes reported since the 2024 Form 10-K[265]