Business Context and Reporting Period
Company: Bread Financial Holdings, Inc. (BFH)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: BFH is a tech-forward financial services company providing payment, lending, and saving solutions to U.S. consumers. It operates through a single reportable segment, primarily generating revenue from interest and fees on loans via co-brand, private label, and direct-to-consumer (DTC) credit cards, as well as "Bread Pay" installment and split-pay products. The company operates through two insured depository institution subsidiaries: Comenity Bank and Comenity Capital Bank.
Key Financial Metrics
| Metric | 2025 | 2024 | Change |
|---|---|---|---|
| Total Net Interest and Non-Interest Income | $3,845 million | $3,838 million | Flat (+0.2%) |
| Provision for Credit Losses | $1,242 million | $1,397 million | Decreased 11% |
| Net Income Available to Common Stockholders | $518 million | $277 million | Increased 87% |
| Diluted EPS (GAAP) | $10.89 | $5.49 | Increased 98% |
| Adjusted Net Income (Non-GAAP) | $575 million | $388 million | Increased 48% |
| Credit Card and Other Loans (End-of-Period) | $18.8 billion | $18.9 billion | Flat |
| Total Deposits | $13.9 billion | $13.1 billion | Increased 6% |
| Net Interest Margin | 18.4% | 18.3% | Increased 10 bps |
| Delinquency Rate | 5.8% | 5.9% | Decreased 10 bps |
| Net Principal Loss Rate | 7.7% | 8.2% | Decreased 50 bps |
| Reserve Rate (Allowance/Loans) | 11.2% | 11.9% | Decreased 70 bps |
| Common Equity Tier 1 (CET1) Capital Ratio | 13.0% | 12.4% | Increased 60 bps |
Material Changes vs. Prior Period
- Profitability Surge: Net income nearly doubled (up 87%) driven by a $155 million decrease in the provision for credit losses and a $72 million reduction in non-interest expenses. The effective tax rate dropped significantly to 15.2% from 26.7% due to discrete tax benefits.
- Asset Quality Improvement: The Net principal loss rate improved to 7.7% from 8.2%, and the delinquency rate declined to 5.8%. The reserve rate decreased to 11.2%, reflecting improving credit metrics and higher-quality new account acquisitions.
- Revenue Composition: Total revenue remained flat year-over-year. Interest income decreased slightly due to lower billed late fees and a lower average loan balance, partially offset by lower reversals of finance charges. Non-interest income increased $13 million, driven by pricing actions (paper statement fees) offset by higher retailer share costs.
- Capital Structure Optimization: The company completed the repurchase of 100% of its outstanding convertible senior notes and redeemed all 9.750% Senior Notes due 2029. It issued $500 million of 6.750% Senior Notes due 2031 and $400 million of 8.375% Subordinated Notes due 2035. Additionally, it issued $75 million of Series A Preferred Stock.
- Deposit Growth: Direct-to-consumer (retail) deposits grew 11% to $8.5 billion, now representing 48% of total funding sources.
Guidance, Outlook, and Risks
2026 Outlook
- Loan Growth: Expects low-single-digit percentage point growth in Average credit card and other loans.
- Revenue: Anticipates low-single-digit percentage point growth in Total net interest and non-interest income.
- Net Interest Margin: Baseline expectation is flat to modestly higher than 2025, balancing pricing actions and lower funding costs against potential Federal Reserve rate decreases and lower billed late fees.
- Credit Quality: Expects a Net principal loss rate ranging from 7.2% to 7.4%.
- Tax Rate: Expects a normalized effective tax rate between 25% and 27%.
Key Risks and Contingencies
- Partner Concentration: The five largest credit card programs accounted for approximately 49% of total net interest and non-interest income in 2025. Significant partners include Signet Jewelers, Ulta Beauty, and Victoria's Secret & Co. The bankruptcy of Saks Fifth Avenue in January 2026 is noted as a potential risk factor.
- LoyaltyOne Spinoff Litigation: BFH faces significant litigation related to the 2021 spinoff of LoyaltyOne (LVI). LVI's liquidating trustee is seeking approximately $750 million in damages in U.S. bankruptcy and Delaware Chancery courts. A Canadian subsidiary of LVI is seeking $775 million in damages. The company believes these claims are without merit but acknowledges the uncertainty.
- Regulatory Environment: The company faces evolving regulations regarding credit card late fees, interchange fees, and interest rate caps. A proposed rule by the CFPB to reduce late fee safe harbors was vacated by a court in April 2025, but regulatory uncertainty remains.
- Bank Merger: BFH filed applications in December 2025 to merge Comenity Bank into Comenity Capital Bank, expected to close in the second half of 2026 pending regulatory approval.
Investor Verification Checklist
- Partner Dependency: Verify the financial health and ongoing relationship status of the top five brand partners, particularly in light of the Saks Fifth Avenue bankruptcy filing.
- Litigation Exposure: Monitor the status of the LVI spinoff litigation in Texas, Delaware, and Canada, as potential settlements or judgments could materially impact earnings.
- Credit Reserve Adequacy: Assess the sustainability of the 11.2% reserve rate given the company's exposure to moderate and lower-income households and potential macroeconomic shifts.
- Regulatory Capital: Confirm the successful regulatory approval and execution of the planned merger between Comenity Bank and Comenity Capital Bank.
- Debt Maturities: Review the maturity profile of the new debt issuances (2031 Senior Notes, 2035 Subordinated Notes) and the company's ability to service this debt in a changing interest rate environment.