Bread Financial Q3 2025 Earnings Report

Bread Financial EPS Results

• Actual EPS: $4.02
• Consensus EPS: $2.11
• Beat/Miss: Beat by +$1.91
• One Year Ago EPS: $1.83

Bread Financial Revenue Results

• Actual Revenue: $971.00 million
• Expected Revenue: $974.30 million
• Beat/Miss: Missed by -$3.30 million
• YoY Revenue Growth: -1.20%

Bread Financial Announcement Details

• Quarter: Q3 2025
• Date: 10/23/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, October 23, 2025
• Conference Call Time: 8:30AM ET

Bread Financial (NYSE:BFH), formerly known as Alliance Data Systems, is a Columbus, Ohio–based financial services company that specializes in providing private label credit programs, co-brand credit cards and digital payment solutions for retail partners. The company designs, issues and services proprietary credit products, enabling merchants to offer branded financing options that drive customer loyalty and increase basket sizes at the point of sale. Through its Bread technology platform, Bread Financial delivers installment-based payment options that integrate directly into e-commerce and in-store checkout experiences.

In addition to its core credit offerings, Bread Financial provides analytics, marketing and loyalty services to help merchants better understand consumer behavior and optimize promotional strategies. Its suite of data-driven tools includes customer segmentation, targeted campaigns and performance tracking, all aimed at enhancing the retailer-cardholder relationship. The company serves a diverse range of industries—including specialty apparel, home furnishings, automotive and pet care—across the United States, Canada and the United Kingdom.

Since its inception as Alliance Data in the mid-1990s, the company has evolved through strategic acquisitions and divestitures, most notably spinning off its marketing services business in 2021 and rebranding to Bread Financial in 2022. Bread Financial continues to leverage its deep expertise in consumer credit and loyalty program management to support retail partners in an increasingly digital and omnichannel marketplace.

Bread Financial Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong quarterly profitability and capital generation: Adjusted net income was $191M and adjusted EPS $4.20; tangible book value rose 19% YoY to $56.36 and return on average tangible common equity was 28.6%.
• Positive Sentiment: Credit metrics improving: Net loss rate fell to 7.4% in Q3 (down 40 bps YoY) and delinquencies improved, and management expects to finish the year toward the low end of its 7.8%–7.9% net loss guidance.
• Negative Sentiment: Revenue and margin headwinds from mix and lower billed late fees: Credit sales grew 5% but average loans declined 1% and total revenue was down 1% as lower delinquencies and a shift away from higher‑yield private label accounts reduced billed late fees and pressured NIM.
• Positive Sentiment: Shareholder returns and balance sheet strength: CET1 capital at 14% (top of target), Moody’s upgrade, $60M repurchased recently with a Board‑approved $200M increase to buyback authorization (≈$340M capacity) and a 10% dividend raise to $0.23.
• Positive Sentiment: Strategic growth and modernization: Added home‑vertical partners (e.g., Bed Bath & Beyond, Furniture First, Raymour & Flanigan), are expanding product mix (co‑brand, private label, BNPL) and investing in technology and AI to drive diversification and long‑term efficiency.

Presentation

[Operator]

Good morning and welcome to Bread Financial's third quarter 2025 earnings conference call. My name is Kevin, and I'll be coordinating your call today. At this time, all parties have been placed on listen-only mode. Following today's presentation, the floor will be open for your questions. To register a question, please press star followed by one one. It is now my pleasure to introduce Mr. Brian Vereb, Head of Investor Relations for Bread Financial. The floor is yours.

[Brian Vereb, Head of Investor Relations at Bread Financial]

Thank you. Copies of the slides we will be reviewing and the earnings release can be found on the Investor Relations section of our website at breadfinancial.com. On the call today, we have Ralph Andretta, President and Chief Executive Officer, and Perry Beberman, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are based on management's current expectations and assumptions and are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Also on today's call, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. Reconciliation of those measures to GAAP are included in our quarterly earnings materials posted on our Investor Relations website.

[Brian Vereb, Head of Investor Relations at Bread Financial]

With that, I would like to turn the call over to Ralph Andretta.

[Ralph Andretta, President and CEO at Bread Financial]

Thank you, Brian, and good morning to everyone joining the call. Today, Bread Financial reported strong third quarter 2025 results. We delivered net income of $188 million, adjusted net income, and earnings per diluted share of $191 million and $4.02, excluding the $3 million post-tax impact from expenses related to repurchased debt in the quarter. Our tangible book value per common share grew by 19% year-over-year to $56.36, and our return on average tangible common equity was 28.6% for the quarter. Consumer financial health remained resilient in the third quarter, as evidenced by strong credit sales, a higher payment rate, as well as lower delinquencies and losses. Credit sales increased 5% year-over-year in the face of ongoing inflationary concerns, a slowing yet stable job market, and continuing weak consumer sentiment.

[Ralph Andretta, President and CEO at Bread Financial]

The improvement was driven by strong back-to-school shopping early in the quarter, with notable improvement in apparel and beauty. Additionally, purchase frequency increased and spending trends improved across all consumer segments. Amidst these favorable results, we continue to monitor changes in monetary and fiscal policies, including tariff and trade policies, and their potential impacts on consumer spending and employment. Overall, positive year-over-year credit sales trends and gradual improvement in our credit metrics give us confidence in our outlook as we enter the final quarter of the year. Given current credit trends and slightly better-than-expected performance of our net loss rate year to date, we expect that we will be at the low end of our full-year outlook range of 7.8%-7.9%. While the net loss rate remains elevated compared to historic levels, the improving loss rate and delinquency rate trends are encouraging.

[Ralph Andretta, President and CEO at Bread Financial]

As mentioned earlier, we will continue to closely monitor consumer health, purchasing, and payment patterns, and adjust our credit strategies accordingly to achieve industry-leading risk-adjusted returns. More broadly, we have remained consistent in our full-year financial outlook as we continue to navigate market volatility. Our expectations around the health of the consumer have not materially changed. We have maintained our long-term focus on responsible growth and executing our business strategy. Given the actions we have taken over the past five-plus years, we are well positioned to achieve our long-term financial targets and anticipate increasing shareholder value over time. Our focus on expense discipline and operational excellence continues to produce desired results, as adjusted total non-interest expense was down 1% year-over-year despite continued technology-related investments, inflation, and wage pressures.

[Ralph Andretta, President and CEO at Bread Financial]

We will continue to invest in technology modernization, digital advancement, artificial intelligence solutions, and product innovation that will drive future growth and efficiencies. Considering the progress we have made, we are confident in our ability to achieve full-year positive operating leverage, excluding the impacts of repurchased debt and any portfolio sale gains. With our CET1 ratio at the top of our targeted range of 13%-14%, we initiated the $200 million share repurchase program that the board approved in August, repurchasing $60 million during September and into October. This morning, we announced a board-approved $200 million increase to our share repurchase authorization. We also announced a 10% increase to our quarterly cash dividend, which is now $0.23 per common share, with the goal of increasing our dividend annually as we see growth in our book value.

[Ralph Andretta, President and CEO at Bread Financial]

These actions, along with our proven strong capital and cash flow generation, underscore our ability to execute all of our capital and growth priorities concurrently, providing a solid runway to deliver additional value to our shareholders. Moving to our new business activity. During the quarter, we expanded our home vertical foothold by signing new brand partners, including Bed Bath & Beyond, an e-commerce retailer with ownership interest in various retail brands, Furniture First, a national cooperative buying group that serves hundreds of independent home furnishings and bed retailers across the U.S., and Raymour & Flanigan, the largest furniture and mattress retailer in the Northeast and the seventh largest nationwide. These new signings provide expanded opportunity for profitable growth going forward. We will continue to leverage our full product suite and omnichannel customer experience to extend category leadership in existing industry verticals while expanding into new verticals.

[Ralph Andretta, President and CEO at Bread Financial]

Strategically, our vertical and product expansion efforts continue to have positive impact on both risk management and income diversification across our portfolio. Finally, as released last week, we are pleased to have earned a credit rating upgrade and positive outlook from Moody’s, recognizing the progress we have made in strengthening our financial resilience and enterprise risk management framework. In summary, we are pleased with our third quarter results. Our financial performance reflects steady progress in executing our strategic priorities and our ongoing commitment to return value to shareholders, including in the form of increased dividends and share repurchases. Now, I will pass it over to Perry to review the financials in more detail.

[Perry Beberman, EVP and CFO at Bread Financial]

Thanks, Ralph. Slide three highlights our third quarter performance. During the quarter, credit sales of $6.8 billion increased 5% year-over-year, even with the anniversary of the SACS portfolio addition in late August 2024. The increase was driven by new partner growth and higher general purpose spending. As Ralph mentioned, we saw strong back-to-school shopping in the early part of the quarter, with sales growth moderating in the latter part of the quarter. Average loans of $17.6 billion decreased 1% year-over-year. Higher payment rates, coupled with the ongoing effect of elevated gross credit losses, pressured loan growth. In line with lower average loans, revenue was down 1% year-over-year to $971 million.

[Perry Beberman, EVP and CFO at Bread Financial]

Our revenue growth was also impacted by lower billed late fees, resulting from lower delinquencies, higher retailer share arrangements, or RSAs, with partial offsets, including lower interest expense and our ongoing implementation of pricing changes and paper statement fees. Total non-interest expenses decreased $98 million, attributed to the prior year impact from repurchased debt. Excluding the impacts from our repurchased debt, adjusted total non-interest expenses decreased $5 million, or 1%, driven by our continued operational excellence efforts. Income from continuing operations increased $185 million, reflecting the prior year post-tax impact from our repurchased debt of $91 million, and the current year impacts from a lower provision for credit losses and a $38 million favorable discrete tax item. Excluding the impacts from our repurchased debt, adjusted income from continuing operations increased $97 million, or 104%.

[Perry Beberman, EVP and CFO at Bread Financial]

Looking at the financials in more detail on slide four, total net interest income for the quarter decreased 1% year-over-year, resulting from a combination of a decrease in billed late fees due to lower delinquencies, as well as a gradual shift in risk and product mix, leading to a declining proportion of private label accounts, which generally have higher interest rates and more frequent late fee assessments. These headwinds were partially offset by lower interest expense, the gradual build of pricing changes, and an improvement in reversal of interest and fees related to improving gross credit losses. Non-interest income was $7 million lower year-over-year, driven by higher retailer share arrangements, partially offset by paper statement fees.

[Perry Beberman, EVP and CFO at Bread Financial]

Looking at the total non-interest expense variances, which can be seen on slide 11 in the appendix, employee compensation and benefits costs decreased $6 million as a result of our continued focus on operational excellence. Card and processing expenses increased $4 million, primarily due to higher network fees driven by our gradual shift in product mix. Other expenses decreased $93 million, primarily due to the prior year impact of repurchased debt. Looking ahead, we anticipate a typical seasonal increase in fourth quarter expenses sequentially from the adjusted third quarter expenses due to increased holiday-driven transaction volume, higher planned marketing expenses, and higher expected employee compensation and benefits costs. Adjusted pre-tax, pre-provision earnings, or adjusted PP&R, which excludes gains on portfolio sales and impacts from repurchased debt, was nearly flat year-over-year.

[Perry Beberman, EVP and CFO at Bread Financial]

Turning to slide five, both loan yield of 27.0% and net interest margin of 18.8% were higher sequentially following seasonal trends. Net interest margin was flat year-over-year. A number of variables continue to impact our NIM, including the drivers I noted on the prior slide, as well as an elevated cash position and changes in Fed rates. Given continued improvement in payment rate and delinquency rate trends, we anticipate lower billed late fees for the remainder of the year to pressure NIM, while the gradual benefit from pricing changes will continue to be realized over time. On the funding side, we are seeing costs decrease as savings accounts and new term CD rates decline. During the quarter, we completed a $31 million tender offer for our senior and subordinated notes using excess cash on hand to reduce higher cost debt, which also improved our cost of funds.

[Perry Beberman, EVP and CFO at Bread Financial]

Direct-to-consumer deposit growth remains steady year-over-year, ending the quarter with $8.2 billion in direct-to-consumer deposits, further improving our funding mix. Direct-to-consumer deposits accounted for 47% of our average funding, up from 41% a year ago. Moving to slide six, optimizing our funding capital and liquidity levels continues to be a key strategic initiative. As history shows, we will be opportunistic in evaluating and executing plans to continue to enhance our structure. Along those lines, as Ralph mentioned, we are proud to have earned a credit rating upgrade from Moody’s to a Ba2 while maintaining a positive outlook. This was a result of the actions we have taken to improve our capital and funding profiles, along with our improved enterprise risk management framework and strong financial performance. Our liquidity position remains strong.

[Perry Beberman, EVP and CFO at Bread Financial]

Total liquid assets and undrawn credit facilities were $7.8 billion at the end of the quarter, representing 36% of total assets. At quarter end, deposits comprise 77% of our total funding, with the majority being direct-to-consumer deposits. Shifting to capital, we ended the quarter with a CET1 ratio of 14.0%, up 100 basis points sequentially, and up 70 basis points compared to last year. As you can see in the upper right table, our CET1 ratios benefited by 260 basis points from core earnings. Common dividends and the repurchases of $234 million in common shares over the past year impacted our capital ratios by 146 basis points.

[Perry Beberman, EVP and CFO at Bread Financial]

Additionally, the last CECL Phase In adjustment occurred in the first quarter of 2025, resulting in a 73 basis point reduction to our ratios, and the impact from repurchased debt accounted for approximately 30 basis points of adjustment to CET1 since the third quarter of 2024. Finally, our total loss absorption capacity, comprising total company tangible common equity plus credit reserves, ended the quarter at 26.4% of total loans, a 70 basis point increase compared to last quarter, demonstrating a strong margin of safety should more adverse economic conditions arise. We have a proven track record of accreting capital and generating strong cash flow through challenging economic environments. We have demonstrated our commitment to optimizing our capital structure through the issuance of subordinated debt and the return of capital to shareholders. We will continue to opportunistically optimize our capital structure, which includes potentially issuing preferred shares in the future.

[Perry Beberman, EVP and CFO at Bread Financial]

Our commitment to prudently returning capital to shareholders is evidenced by today's board-authorized announcements of both a 10% increase in our common share dividend and an additional $200 million share repurchase authorization. This $200 million increase to our existing repurchase authorization, in combination with unused capacity under the previous authorization, means we have approximately $340 million available for share repurchases at this time. We are well positioned from a capital, liquidity, and reserve perspective, providing stability and flexibility to successfully navigate an ever-changing economic environment while delivering value to our shareholders. Moving to credit on slide seven, our delinquency rate for the third quarter was 6.0%, down 40 basis points from last year, and up 30 basis points sequentially, which was slightly better than normal seasonal trends. Our net loss rate was 7.4%, down 40 basis points from last year, and down 50 basis points sequentially.

[Perry Beberman, EVP and CFO at Bread Financial]

Credit metrics continue to benefit from our multi-year credit tightening actions, ongoing product mix shift, and general stability in the macroeconomic environment. We anticipate the October and fourth quarter net loss rates will increase sequentially following typical seasonal trends. The third quarter reserve rate of 11.7% at quarter end, a 50 basis point improvement year-over-year, and 20 basis points sequentially, was a result of our improving credit metrics and higher quality new vintages. We continue to maintain prudent weightings on the economic scenarios in our credit reserve modeling, given the wide range of potential economic outcomes. We expect the reserve rate to decline at year-end before increasing again in the first quarter of 2026 following normal seasonality. As mentioned, our disciplined credit risk management and ongoing product diversification has continued to benefit our credit metrics.

[Perry Beberman, EVP and CFO at Bread Financial]

As you can see on the bottom right chart, our percentage of cardholders with a 660+ prime score increased 100 basis points year-over-year to 58%, in line with our expectations. However, macroeconomic uncertainty persists, with inflation above the Fed's target rate, evolving trade and government policy impacts to both inflation and labor, and continued low consumer sentiment. As a result, we continue to actively monitor these trends while remaining vigilant with our credit strategies. At this point, we do anticipate a continued gradual improvement in the macroeconomic environment. Turning to slide eight and our full-year 2025 financial outlook, overall, our results have trended in line with our expectations, and our outlook remains unchanged from the previous quarter. We continue to expect average loans to be flat to slightly down. Our outlook for total revenue, excluding gains on portfolio sales, is anticipated to be roughly flat versus 2024.

[Perry Beberman, EVP and CFO at Bread Financial]

We continue to expect to generate full-year positive operating leverage in 2025, excluding portfolio sale gains and the pre-tax impact from our repurchased debt. Our results underscore our ability to deliver operational excellence and maintain expense discipline while investing in the business. Given the continued gradual improvement in our credit metrics, we are confident that we can deliver a full-year net loss rate in our guided range of 7.8%-7.9%. As Ralph mentioned, based on current trends, we expect to come in toward the lower end of that range. Finally, with the $38 million favorable discrete tax item in the quarter, we have adjusted our full-year effective tax rate guidance to 19%-20%. While there is variability, we would anticipate future years to align more closely with our historical target effective tax rate range of 25%-26%.

[Perry Beberman, EVP and CFO at Bread Financial]

Overall, our third quarter results underscore the financial resilience and strong return profile of our business model. We remain confident in our ability to achieve our 2025 financial targets and to deliver strong long-term returns. Operator, we are now ready to open up the lines for questions.

[Operator]

Ladies and gentlemen, if you would like to ask a question, please press star followed by one one on your telephone keypad now. If you change your mind, please press star followed by one one again. When preparing to ask your question, please ensure your phone is unmuted locally. We will pause for a moment while we compile our Q&A roster. Our first question comes from Sanjay Sakhrani with KBW. Your line is open.

[Sanjay Sakhrani, Managing Director and Senior Analyst at KBW]

Thank you. Good morning. Sounds like you're seeing constructive trends across the portfolio, and I'm sure you've heard of some of the concerns on some cracks we've seen in consumer credit across some lenders and subprime. I'm just curious, as you've looked across your portfolio, have you seen any signs of weakness? Obviously, it seems like things are trending in the right direction. Maybe Perry, just related to that, maybe just the progression of the reserve rate, you know, and the loss rate as we go forward if things are stable. Thanks.

[Perry Beberman, EVP and CFO at Bread Financial]

Yeah, Sanjay, thanks for the question. I think it starts with a quick view of the macro environment that I think you mentioned everybody's kind of seeing is that at least through Q3, the consumers and macro metrics have been, I'll say, surprisingly resilient, meaning unemployment and inflation are only slightly different than the prior quarter, which means we've got a pretty stable macro environment. I think some of the concerns that are out there is just that consumers remain nervous about what the future might look like. That's really showing up in both consumer confidence and consumer sentiment, which is down pretty meaningfully versus last year. There's going to be more to come on that. For our consumers, as we've talked about, something that was very important is that wages needed to outpace inflation for them to get a handle on their finances and their budgeting.

[Perry Beberman, EVP and CFO at Bread Financial]

That's been good, right? Wages have continued to outpace with, I think it was August data, was around a little over 3%, close to 3.5%, like 3.4% growth, and inflation only being 2.9%. That's good for our customers. Again, what does it mean going forward is going to be dependent on what happens around the Fed policy and what that then means to inflation as the tariffs unfold and what happens with labor. More to come on that. Within our own portfolio, we are seeing stable gradual improvement. I'd say that's across all vantage bands. As you know, we don't have a high concentration of subprime. We focus on pretty much the prime customer, maybe some near prime. We are seeing across the board really good stability. That for us means we're not seeing the cracks in there at this point. We're very cautious. We're watching it very carefully.

[Perry Beberman, EVP and CFO at Bread Financial]

I'll say the entry rates into delinquency are better than what they were pre-pandemic. That's a good sign for us. We're starting to see some improvement in the later stage roll rates. The macro is going to be real important. I think our credit strategies and the risk mix shifts that we've been seeing are starting to play through.

[Sanjay Sakhrani, Managing Director and Senior Analyst at KBW]

Okay.

[Perry Beberman, EVP and CFO at Bread Financial]

Oh, your question on reserve rate. Sorry.

[Sanjay Sakhrani, Managing Director and Senior Analyst at KBW]

Please, I'd love to answer for that.

[Perry Beberman, EVP and CFO at Bread Financial]

Yeah. As it relates to the reserve rate, the only thing that drove the change this quarter was credit quality improving. As the credit quality improves, that's the core input into it. The loans we have on the books, similar to last quarter, that's all it was. The macro inputs quarter to quarter are very similar. That didn't really drive any change in the reserve rate. We kept our credit risk mix, the overlays, exactly as it was last quarter. As you look forward, as we have more confidence in how the current policies, the government policies, are going to play forward, I think you'll start to see us be able to shift back off of those adverse and severely adverse scenarios to get into more of a balanced weighting.

[Perry Beberman, EVP and CFO at Bread Financial]

That will be a tailwind to the reserve rate, coupled with continued improvement that we expect to see in our overall credit metrics as it pushes through into next year.

[Sanjay Sakhrani, Managing Director and Senior Analyst at KBW]

Okay. That's great. That's encouraging. I guess, like, as a follow-up to that, I know there's this push and pull between loan growth and credit quality, but I'm just curious, as we think ahead, knowing what we know right now, do you envision loan growth picking up as we move into next year? Maybe you could just talk about the portfolio acquisition opportunities to the extent there are any.

[Perry Beberman, EVP and CFO at Bread Financial]

Yeah, I'll ask Ralph to take that one.

[Ralph Andretta, President and CEO at Bread Financial]

Hey, Sanjay. Good morning. Good to hear your voice. If I think about it, if I take a step back, we've seen credit sales move in the right direction, 5% for the quarter. We've seen credit is moving in the right direction, more work to do. We're signing new partners. We announced three new partners today, and we have a really robust pipeline and a consumer that is resilient. Payment rates are higher, obviously, and fees are lower. I'll take a healthy consumer any day of the week in terms of payment and credit. Given the fact that we're seeing growth, we're seeing the macroeconomic environment kind of be steady and new partners, I think you will see some loan growth going forward.

[Sanjay Sakhrani, Managing Director and Senior Analyst at KBW]

Thank you.

[Operator]

One moment for our next question. Our next question comes from Moshe Orenbuch with TD Cowen. Your line is open.

[Moshe Orenbuch, Managing Director and Senior Analyst at TD Cowen]

Great, thanks. Maybe to just follow up on that, Ralph and Perry, a little bit, in terms of, you know, clearly there's things going on in terms of still temporary moves in the payment rate. If you think about the new mix of your card base, is there a way to think about the ranges of, you know, if you had 5% growth in spend volume, what that would mean in loan growth once that phenomenon is fully played out or what those normal gaps would be given you've got now a different kind of base, more of it being co-brand spending and the like.

[Perry Beberman, EVP and CFO at Bread Financial]

Yeah, I think you're asking a question that's really relevant. It depends on the mix of the business that comes on. I mean, you heard Ralph mention the new brand partners coming on in the home space. Those would typically be larger ticket, probably a little bit lower payment rate. That would have a mixed effect. If you have more of a top-of-wallet co-brand credit card, that's going to have a higher payment rate. It's really going to be mix dependent on what we have on. I don't think it's very easy to say that if you had 5% sales growth all through next year, that 80% of that translates into loan growth. Certainly, there's a factor on that. It is going to be dependent on mix, and some of that is yet to be seen what that'll look like as we get into next year.

[Moshe Orenbuch, Managing Director and Senior Analyst at TD Cowen]

Okay. Thanks. Maybe, in terms of some of the commentary on the margin and the impacts of the pricing changes versus kind of lower billed late fees, just given the way you think about the kind of the credit improvement, is there a way to kind of dimensionalize how long it's going to take till you no longer have that or that billed late fee kind of bottoms out? So that the pricing changes actually will start to increase faster and outweigh that. Any way to kind of dimensionalize that, thanks.

[Perry Beberman, EVP and CFO at Bread Financial]

Yeah. Again, another good question, of course. The way to think about it is, you know, the billed late fees are obviously going to follow delinquency trends. That is what we're all eager to see, how quickly does delinquency get to its steady state of what gets it towards that through the cycle number. That will be leading. Trailing within six months, I guess you then have that improvement in the reversal of billed interest and fees. Those kind of will be some, it's a headwind on the lower billed late fees with delinquency. You do have the tailwind that goes with the gross loss improvement. Those two things come together. You also then have a shifting risk mix, product mix within the business, which, when you put on some more higher quality co-brand has a little bit lower APRs and yield versus private label. That comes through.

[Perry Beberman, EVP and CFO at Bread Financial]

You do have pricing changes that have been made that continue to build. There's a lot of moving parts in there, coupled with prime rate reductions when we're slightly asset sensitive. I wish there was something to say, hey, where's that perfect inflection point? With all those moving parts, we'll obviously give more guidance as we get closer to January so that we have a better line of sight to exactly what our view is of mix and tie that into what the macro improvement will be, as well as the credit improvement within the portfolio.

[Moshe Orenbuch, Managing Director and Senior Analyst at TD Cowen]

Okay, thank you.

[Operator]

One moment for our next question. Our next question comes from Mihir Bhatia with Bank of America. Your line is open.

[Mihir Bhatia, Director and Senior Equity Research Analyst at Bank of America]

Hi. Thank you for taking my question. I did want to just continue this conversation around credit sales and loan growth. Maybe just how are you thinking about credit sales in forecast and into 2026? I think you mentioned there was a little bit of moderation as you moved through the quarter after a strong back-to-school season. Just trying to understand, do you think we're in a little bit of an air pocket right now before you get to holiday shopping? How are you thinking about holiday shopping? What are you hearing from your retail partners? Thanks.

[Perry Beberman, EVP and CFO at Bread Financial]

Yeah. Credit sales, again, we're seeing some pretty good growth in credit sales right now. As mentioned, it was early in the quarter with back-to-school was stronger. September moderated a little bit, still positive. We're seeing a similar trend in October, still being up year-over-year. I think we're seeing different reports, but expectation is retailers are going to be pretty aggressive trying to draw the customers in possibly early. Consumers are looking for discounts. They're looking for promotions. Reward programs are going to be real important to make that happen. I mean, consumers, and I think we've said this for a while now, we've been very impressed with how consumers have been responsible with their budgets. In this period of time, they're going to be looking for deals and ways to make that budget stretch or go further.

[Perry Beberman, EVP and CFO at Bread Financial]

If retailers come out early in the holiday season with good deals, I expect consumers will spend on that. Maybe it could be somewhat like some, I'll say old historical days when I'd go to the day before Christmas and go look for that great deal when I didn't have the money to get things and pay full price early. It really is going to depend on how that looks and what the inventory situation is and how motivated retailers are to take care of their inventory.

[Mihir Bhatia, Director and Senior Equity Research Analyst at Bank of America]

Got it. Thanks for that. That's helpful. When I think about the interchange revenues, you know, pretty big step up in that one, in that line item this quarter. I think even if you look at it as a percent of credit sales, can you maybe just talk about how you expect that line to trend? What are you expecting to happen? I suspect it's got to do with the RSAs and some of the big ticket items. Just how should we be thinking about that line item from here going forward? What do you expect?

[Perry Beberman, EVP and CFO at Bread Financial]

Yeah. Again, it's one of the, I say this, I say NIM's hard to forecast. RSAs is another one that's pretty hard to forecast because of the netting that goes on in there. The RSA is going to be pressured as we see increased sales. Increased sales, there's some compensation to partners or in the rewards and loyalty funding, loyalty funding as well as some compensation. Also, when you have revenue shares, when you have losses coming down, it leads to a higher revenue share, profit share with partners. You've got sales-based rebates, you've got the revenue share in there, you've got the profit share, and everything I just mentioned around the rewards funding. In addition, when we've been seeing some lower big ticket purchases, then MDFs are pressured because of that softness.

[Perry Beberman, EVP and CFO at Bread Financial]

As the big ticket bounces back, if that happens in some of the verticals, that could be a tailwind. As the spend grows, you also have some more partner share and revenue share. There's a lot going on in there.

[Mihir Bhatia, Director and Senior Equity Research Analyst at Bank of America]

Understood. Thank you.

[Operator]

One moment for our next question. Our next question comes from Jeff Adelson with Morgan Stanley. Your line is open.

[Jeff Adelson, Executive Director at Morgan Stanley]

Hey, good morning, guys. Just wanted to focus a little bit more on the pipeline and the signings you announced this quarter. It seems like the home vertical was more of a focus for you this quarter. Is that something you're looking to focus on here, maybe creating a little bit more of a network effect around the home area and, you know, launching a joint card like one of your competitors has? Are there any other verticals you'd call out as areas of focus for you going forward? You mentioned the healthy or the robust pipeline. Maybe just sort of focus on what's in the pipeline.

[Ralph Andretta, President and CEO at Bread Financial]

Yeah, thanks for the question. The home vertical is a good one for us, right? Because it's discretionary, non-discretionary. There's home repairs and there's this other discretionary furniture. We view that as a very active vertical for us and a very strong vertical. We'll most likely add to that as we move forward, which I think is positive for us. We'll again be one of the leading contenders in that vertical as we are in beauty and a couple of others. We look across our portfolio, it's diversified now. We've de-risked it in terms not only of product, but also of industry. We feel really good about that. The pipeline is robust across all those verticals. We're looking forward to adding new partners within this vertical, establishing new ones. We've got a travel vertical that's doing very well. Beauty is still a big contender.

[Ralph Andretta, President and CEO at Bread Financial]

Now with this home improvement and home furnishings vertical, we feel that also as we move forward. We are kind of insulating ourselves from any one vertical that there'd be an issue with. Usually, it was if the mall went bad and apparel was a bad vertical, that would throw us off. Now we're kind of insulated from those type of one-off verticals that may be impacted by the economy.

[Jeff Adelson, Executive Director at Morgan Stanley]

Okay, great. Maybe just to follow up on the capital return, you've been on a little bit of a roll here with the buyback authorizations. I guess just maybe any sort of way to think about what needs to happen for you to move past this medium term, 13%-14%? Is it just settling the preferred, maybe getting your credit rating up to investment grade? I think you're now a couple of notches away. Have you thought about maybe establishing a larger repurchase authorization, or do you prefer to be a little bit more on the quarterly cadence or half-year cadence here?

[Perry Beberman, EVP and CFO at Bread Financial]

Yeah, real good question. As we think about capital, one, let me start with we've not changed our capital priorities, right? We have always said we're going to fund responsible, profitable growth. Some of what will inform our capital authorizations or share repurchase authorizations in the future will be based on the growth that we have in front of us. We'll continue to invest in technology and our capability to serve our brand partners and customers. We'll make sure we maintain those strong capital ratios. Obviously, return capital is appropriate. To your point, though, right now, our binding constraint is CET1 and around that 13%-14%, which we say was our medium-term target. We got to the top end of that this quarter. We have confidence in what we see going forward.

[Perry Beberman, EVP and CFO at Bread Financial]

The important part was that we wanted to make sure we had enough authorization out there to provide us capital flexibility should we choose to do something to further optimize our capital stack. When you talked about what would it take to lower our binding constraint to CET1 down to that 12%-13%, which is what we said in our investor day would be our longer-term target, it does mean introducing some tier-one capital in the form of preferreds over time. Really, the ratings upgrade is less relevant to that. That's more around what happens with senior debt or senior notes in the future and other financings that are keyed off of those ratings.

[Jeff Adelson, Executive Director at Morgan Stanley]

Okay, great. Thank you.

[Perry Beberman, EVP and CFO at Bread Financial]

We don't need to get to an investment grade to take capital actions.

[Operator]

One moment for our next question. Our next question comes from Richie Smith with JPMorgan. Your line is open.

[Richie Smith, Business Analyst at JPMorgan]

Hey, good morning, guys. I was looking through your slide deck and my rough math has like your BNPL sales volume up, you know, maybe 100%. That's probably a dirty calculation. I guess there's a lot of investor interest in the BNPL space, certainly over the last couple of months. I was just curious, do you guys offer or have like a dual BNPL proprietary card today? Is there an opportunity there to kind of do more on that, you know, kind of blended dual-purpose card? I have one follow-up. Thank you.

[Ralph Andretta, President and CEO at Bread Financial]

Yeah. I think you got to look at our full product offerings, right? I think if the way you look at it, we have co-brand credit cards. That's a, you know, I think co-brand credit cards right now are probably the majority of our spend in terms of going forward, discretionary and non-discretionary. Private label credit cards, we absolutely have private label credit cards. We see, you know, spend continuing on those cards. We have pay-over-time products. Now, pay-over-time products are a paying for an installment loan, right? You have two types of pay-over-time products out there as well. Lastly, we have our prop cards, right? Our prop card is a, you know, a small but growing portfolio. It becomes a, you know, a basket of products we have, and it's a kind of a uniform process that we go through.

[Ralph Andretta, President and CEO at Bread Financial]

We can offer a consumer wherever they are in their kind of, in their kind of, you know, credit, you know, establishing credit where they are in that journey, we have a product for them. We have a product for them, you know, through a partner or directly to them. We feel very, very good about, you know, our diverse portfolio in terms of product and our diverse portfolio in terms of different industry verticals.

[Richie Smith, Business Analyst at JPMorgan]

Yeah. I guess what I'm getting at is, you know, I look at, you know, companies like Klarna and Affirm. They're really leveraging that point of sale to bring, you know, customers into their ecosystem. I guess what I'm asking is, you know, what are your thoughts around, you know, I know Bread historically has been kind of a white label solution for retailers, but is there an opportunity to be a little more aggressive on the front foot there to kind of bring more customers into the platform?

[Ralph Andretta, President and CEO at Bread Financial]

Yeah, you know, unlike the two you mentioned, we are focused on partnerships. That's where we're focused. We're focused on not just bringing people into our ecosystem, but making sure people are in that partner ecosystem. We can provide the right product, right credit products for them for our partners. That's what's important to us. We have some direct-to-consumer. As you know, we have direct-to-consumer in terms of our credit card. We have direct-to-consumer, you know, even on Bread Pay, we're on certain sites where you'll see our, you know, you'll see our button. Our main focus is ensuring that we provide our partners with the right products for their customers to drive loyalty no matter where they are in their credit journey. We have that basket of products to do it.

[Richie Smith, Business Analyst at JPMorgan]

That actually makes sense. Okay. Real quick for me, last one, thinking about AI and automation and the potential there. I've seen some reports that AI and automation could have a triple-digit kind of basis point impact on efficiency ratios in the credit card and banking space. How are you guys thinking about that longer term? I would imagine there's an opportunity there, but maybe can you frame that out longer term for us? Thank you.

[Perry Beberman, EVP and CFO at Bread Financial]

Yeah, Richie, thank you. We agree, there's definitely an opportunity with AI. We've been engaged with it for a while. For us, we look at AI as an opportunity to accelerate our operational excellence objectives. We've talked about that, right? Simplifying and streamlining, automating our business processes, driving increased efficiency, it allows us to deploy new capabilities. It reduces risk and improves controls while enhancing the customer and employee experiences. It also allows us to accelerate innovation and move things through the tech pipeline faster. We're able to do that. You're able to drive growth. It's beyond just efficiency. As it relates to AI, one thing I'll tell you is our approach is to be a fast follower. We are learning from the early adopters who spent a lot of money on both what worked and what didn't work.

[Perry Beberman, EVP and CFO at Bread Financial]

We're very thoughtful in identifying and focusing on those use cases that have the highest likelihood of being impactful to our business. That means we're looking for immediate business value. We want long-term platform scalability as well. Being regulated, we've got to make sure there's regulatory confidence in what we're doing. All of this should continue to drive positive operating leverage over time. The one thing also around Bread Financial and with our terrific technology team that we have, we're nimble in how we can deploy things across the company. AI is not new to us. That's the thing that I think I want to be clear on as well is, we have over 200 machine learning models out there across many functions, including credit, collections, marketing, and fraud. We've enhanced over 100 processes to date with leveraging robotic process automation. There's a lot of opportunity ahead of us, right?

[Perry Beberman, EVP and CFO at Bread Financial]

Generative and agentic AI are exciting developments, and we're going to be ready to go with some of those. We're excited about what the future holds with this, and there are opportunities. I would look at it as continuing to help contribute to driving growth and driving positive operating leverage and helping with efficiency ratios over time. I think our approach is very prudent, as Perry said. We're a fast follower. At the end of the day, we're a regulated industry. We're going to protect our customers' data and protect all their information. We're going to make sure nothing enters our environment that is harmful in this world of ever-changing technology. Our focus on AI is to enhance the customer experience, make sure our employees have the tools in their hand to better serve our customers and partners, and make sure that we gain efficiencies across the patch.

[Perry Beberman, EVP and CFO at Bread Financial]

That way, we're using it for better decision-making and better revenue generation.

[Richie Smith, Business Analyst at JPMorgan]

Perfect. Thank you, guys.

[Operator]

One moment for our next question. Our next question comes from Dominick Gabriele with Compass Point. Your line is open.

[Dominick Gabriele, Managing Director and Senior Equity Research Analyst at Compass Point Research]

Hey, guys. Thanks so much for the call. I don't know what else to say. Congrats on the buyback and the execution here. It's many years in the making. At some point, though, when do you think the industry stops using the terminology resilient consumer? Because at the end of the day, we mentioned that across the credit spectrum, all the vintage scores improving. You said that actually it sounds like there's acceleration in the improvement of your delinquencies at quarter end. I mean, when do we get to the point when we just say the consumer is solid across the spectrum and credit looks pretty good and it's trending back down? I guess, what are you guys seeing as far as that? I just have a follow-up.

[Perry Beberman, EVP and CFO at Bread Financial]

I think I'd go on record saying I think the consumer is stable and credit is improving. Now, again, we're still seeing elevated delinquencies and elevated losses. We're not where we need to be. I think the caution in there that you're hearing from most folks is they've been resilient in dealing with this prolonged period of inflation, which has compounded. They're getting a handle on it. It's more what I said earlier. It's caution with sentiment being down. Everybody's a little nervous with the uncertainty that's out there of what's to come. I think as soon as this certainty comes forward with what the tariff implications would be and other policy things, what it means to labor and businesses can start to invest confidently in jobs, I think you're going to see the narrative flip.

[Perry Beberman, EVP and CFO at Bread Financial]

I think it's the uncertainty component right now that is why you're hearing a little bit of cautiousness.

[Dominick Gabriele, Managing Director and Senior Equity Research Analyst at Compass Point Research]

Yep, yep. There's always cracks, right? There's always something that in credit land where there's some sort of issue. It feels like generally the consumer, I mean, is improving. I guess when you, you know, MasterCard came out actually with their holiday spend, and it looks like, you know, they expect some deceleration in year-over-year versus their last estimate, about a 1% deceleration. If you think about, you know, what you guys are seeing at the end of the quarter, you mentioned that spending is actually decelerated a little bit. That's pretty much in line with what we're seeing on an interquarter basis. Do you think that retailers seeing that potential forecast within their own models would trigger more discounts? How do those discounts kind of affect Bread in a period where maybe versus a period where less discounts were given?

[Dominick Gabriele, Managing Director and Senior Equity Research Analyst at Compass Point Research]

Thanks so much, guys, and great results.

[Perry Beberman, EVP and CFO at Bread Financial]

I think you will see the retailers probably push discounts and reward opportunities more forward in the buying cycle for the Christmas holidays to pull that forward. I think consumers are savvy. They're going to look for those discounts. They're going to look for those, how do I monetize and optimize my reward programs out there? I don't think that's changed from any year. I think you'll see that, you've seen that in the past. I think you'll see that in the future. You may see it a bit earlier. It may be a bit steeper by certain consumers or certain verticals, but I think you'll end up seeing that.

[Operator]

Thank you. One moment for our next question. Our next question comes from Vincent Caintic with BTIG. Your line is open.

[Vincent Caintic, Managing Director and Specialty Finance Analyst at BTIG]

Hey, good morning. Thanks for taking my questions. Actually, two of them and they're kind of follow-ups to some earlier questions. Kind of to the point about your good credit trends and where you're underwriting. I mean, you're talking about a positive consumer. Late fees are coming down, but that's an output of the better credit that you're experiencing. You're expecting a gradual improvement to the macroeconomic environment. I'm wondering if you still consider your underwriting to still be tight. If so, at what point do you lean into growth? Thank you.

[Perry Beberman, EVP and CFO at Bread Financial]

Yeah. One thing, Vince, thanks for the question. As we've said for a long time, we're running the business for a long-term focus. We've been making targeted adjustments to our underwriting segments as we go, looking at risk and reward to make sure we get paid for the risk we take. That's been dynamic. As customer behavior improves, both on us as well as off us, what you see in the bureaus, as well as macro considerations, are all factors into our decision. We've been executing a gradual unwind of what was just there for the macro tightening. It's been deliberately improving the mix of accounts that's been moving us more towards prime plus. Again, it's not this wholesale change. At the same time, you have tightening happening in other places where you might see a little bit of weakness in certain cohorts. Our underwriting philosophy has remained profit-focused.

[Perry Beberman, EVP and CFO at Bread Financial]

We're looking to deliver some industry-leading ROEs, return on equity, and you can get our losses down to 6%. As we think about the improvement that we're looking to see in our loss rate over time, it's not going to be fast and furious getting down to 6%. We're not doing things that would be overly detrimental to our brand partners, right? When we talk about trying to get to 6%, we're trying to get each vintage to perform in line with expectations. We could have taken a more, I'll say, draconian approach and really driven, I'll say, a new vintage down to, say, 4% losses, which would get our overall loss rate faster, but that would be detrimental to our brand partners. If we were just mainly a branded business, we could probably do something like that to ourselves. This isn't the business we're in.

[Perry Beberman, EVP and CFO at Bread Financial]

We're very thoughtful about that. I think you're going to see that consumer health and macro considerations will help drive what we do with underwriting. We're really pleased with the new accounts that we're seeing coming in, with the average Vantage scores around 720, with over 72% being prime. We're very thoughtful on how we manage line assignments. Obviously, customers that come in the door that are more near prime are getting a much lower line assignment. All those things factor in. That helps with that low and grow strategy we have with credit. We're a very seasoned credit team, and we're very thoughtful about how this goes.

[Perry Beberman, EVP and CFO at Bread Financial]

All this together, as Ralph said, we're going to hit this inflection point of growth as credit improves, meaning we have less losses, macro improves, the book we're putting on, this is going to start to translate into growth as we start to march in through next year. I think if I had to put a sentence on our philosophy, our underwriting is prudent with a focus on profitability. That's how I would put a soundbite on how we think about credit.

[Vincent Caintic, Managing Director and Specialty Finance Analyst at BTIG]

Okay, great. Thank you both. Perry, just a kind of a follow-up, and it's great to see the additional share repurchases and your execution of that. You mentioned that it would take issuing preferreds to get down to the 12%-13% CET1. I'm just wondering what you need to see to feel comfortable kind of executing on maybe issuing those preferreds. Thank you.

[Perry Beberman, EVP and CFO at Bread Financial]

Yeah, it's just consistent with what we've said for, you know, I think since last Investor Day, it's, you know, just being opportunistic and making sure that it's the right time and our company's in the right position to do so. It's market dependent.

[Vincent Caintic, Managing Director and Specialty Finance Analyst at BTIG]

Okay, great. Thank you both.

[Operator]

I'm not showing any further questions at this time. I'll now pass it back to Ralph Andretta for closing remarks.

[Ralph Andretta, President and CEO at Bread Financial]

Thank you all for joining the call today and for your continued interest in Bread Financial. We look forward to speaking to you next quarter. Everyone, have a terrific day. Thank you.

[Operator]

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Participants

Executives

• Perry Beberman, EVP and CFO
• Ralph Andretta, President and CEO
• Brian Vereb, Head of Investor Relations

Analysts

• Sanjay Sakhrani, Managing Director and Senior Analyst at KBW
• Vincent Caintic, Managing Director and Specialty Finance Analyst at BTIG
• Richie Smith, Business Analyst at JPMorgan
• Moshe Orenbuch, Managing Director and Senior Analyst at TD Cowen
• Dominick Gabriele, Managing Director and Senior Equity Research Analyst at Compass Point Research
• Jeff Adelson, Executive Director at Morgan Stanley
• Mihir Bhatia, Director and Senior Equity Research Analyst at Bank of America