Bread Financial (NYSE:BFH) 2026 Conference Transcript

Summary of Bread Financial Conference Call Company Overview - Company: Bread Financial (NYSE: BFH) - Industry: Consumer Finance, Credit Card Issuing Key Points Consumer Health and Economic Environment - Bread Financial primarily serves Middle America, focusing on near-prime to prime customers with an average income of approximately $95,000 for new vintages and just under $80,000 for the overall portfolio [3][4] - The company has observed a K-shaped economy, where consumers in the middle segment are adapting to elevated inflation, which has been around 30%-35% compounded since COVID-19 [4] - Consumers are making more deliberate purchasing choices, showing resilience despite some strain in the portfolio [5] Credit Quality and Loan Growth - January data indicated continued progress in credit quality, with expectations for credit losses to improve throughout 2026 [6][8] - The company anticipates average loan growth in the low single digits for the year, supported by new partner launches and tax refunds [12][14] - Tax refunds are expected to be a tailwind for consumers, potentially used for debt repayment or discretionary spending [10][11] Strategic Partnerships and Market Position - New partner launches in 2025, such as with Raymour & Flanigan and Cricket Wireless, are expected to contribute positively to loan growth [12][14] - Bread Financial is focused on maintaining a competitive edge by securing partnerships and exploring new opportunities in the market [15] Buy Now, Pay Later (BNPL) Segment - The BNPL segment is growing, now representing around 2% of outstanding loans and sales, appealing to consumers who may not qualify for traditional credit [17][19] - The company is working on white-labeled BNPL offerings with brand partners to enhance consumer engagement [18] Revenue and Margin Outlook - Pricing changes implemented in previous years are expected to support net interest margins, which are projected to remain flat to slightly up [21][22] - The company aims to achieve positive operating leverage by growing revenues faster than expenses [25] Operational Efficiency and AI Integration - Bread Financial has established a culture of operational excellence, generating tens of millions in savings annually, which are reinvested into technology and efficiency improvements [24] - The company has over 200 machine learning models in place and is exploring AI applications to enhance customer service and operational efficiency [35][38] Regulatory Environment and Capital Management - The company is cautious about potential price caps on credit cards, believing they could restrict credit access for many consumers [41] - Capital levels have improved significantly, with CET1 at 13%, and the company is focused on supporting profitable growth while returning capital to shareholders through buybacks [46][47] Future Outlook - Bread Financial expresses cautious optimism for 2026, anticipating continued credit improvement and a stable labor market, which could support consumer spending [49][50] - The company is committed to growing responsibly and profitably, focusing on enhancing customer service and expanding partnerships [48][50] Additional Insights - The merger of the two banks (Utah and Delaware) is aimed at improving funding flexibility and capital management [31][33] - The company is not currently focused on major disruptions but is adapting to changes in the market and consumer behavior [38]