Bread Financial NYSE: BFH CFO Perry Beberman said the company is seeing a “resilient” middle-America consumer, continued gradual improvement in credit trends, and an inflection toward loan growth as new partner programs scale. Beberman made the comments in a discussion with UBS analyst Nick Holowko.
Consumer trends: “Middle America” remains resilient
Beberman said Bread primarily serves the “middle part of the K” economy—near-prime to prime customers—rather than high net worth spenders or the lowest-income consumers. He noted that new vintages Bread underwrites have about $95,000 average income, while the overall portfolio is just under $80,000.
He said customers have adjusted household budgets to cope with what he described as 30% to 35% compounded inflation post-COVID, and Bread is seeing consumers remain “choiceful” about what and when they purchase. While he acknowledged there is still “a little bit of strain” in the portfolio, he said the company expects continued improvement in credit quality and a resumption of spend as inflation moderates and the labor market remains stable.
Credit: January in line, seasonal February uptick expected
Beberman said January credit results were “good numbers” and came in around expectations. He also flagged a seasonal increase in February, though he expects it to improve year-over-year. He said the company expects metrics to move “near 8” (but “not all the way to 8%”) as seasonal factors play out.
He said credit improvement for the year is expected to come from two sources:
- The existing portfolio (“back book”), which he said should continue to see gradual improvement due to credit strategies and consumer adaptation, with potential tailwind from tax refunds.
- New vintages, which he said carry lower loss rates than the existing portfolio and are increasingly mixing into overall results.
Loan growth: Partner launches and portfolio mix
Beberman said Bread was flat year-over-year on growth in January, which he framed as an improvement and an early sign of an expected inflection to growth. He reiterated the company’s expectation for low single-digit average loan growth, with higher ending loans as the year progresses.
He pointed to partner launches from last year as a key tailwind as those programs begin to generate loans. He cited launches including Raymour & Flanigan, Cricket Wireless, and Vivint, and said there are also “yet-to-be-announced” new launches. He added that the company’s guidance does not assume inorganic growth such as portfolio acquisitions.
On tax refunds, Beberman said refunds typically help in one of three ways—paying down debt (supporting delinquencies), incremental spending, or savings—and the impact depends on customers’ income and debt levels. He said Bread will monitor timing closely, noting the effect can extend into March and potentially beyond April into May.
Bread Pay and buy now, pay later
Beberman said buy now, pay later has grown across the payments ecosystem and generally serves consumers who want to pay over time but may not be “credit-worthy in the traditional sense,” often taking share from debit and “low-end credit.” He described Bread Pay as another product in Bread’s suite and said it represents about 2% of outstanding loans and sales.
He said the company is working with partners on white-labeled offerings and “enterprise-type” buy now, pay later programs, citing Vivint, Cricket Wireless, and Home Depot (including in-store launches). He added these programs tend to involve larger-ticket purchases and longer durations, and he said Bread “like[s] the economics.”
Margin, expenses, capital, and structural initiatives
On pricing and margin, Beberman said Bread made pricing changes beginning in early 2024 after prime rates rose rapidly, including moving past an earlier APR cap of 29.9% to avoid net interest margin (NIM) compression. He said those pricing actions have continued to flow through the portfolio and support the company’s outlook for flat to slightly higher NIM, particularly as improving delinquencies can reduce late-fee yield and as product mix shifts through risk-based pricing. He said the benefit from pricing changes should help “throughout 2027,” and by then will have “largely probably ran its course.”
On expenses, Beberman said the company’s “operational excellence” efforts have produced “$ tens of millions” of opportunities each year for the past couple of years, with expectations for similar results this year. He said savings are being reinvested into priorities such as technology, AI initiatives, and cloud migration, supporting the company’s goal of positive operating leverage as revenue grows.
Strategically, Beberman said achieving a mid-20s return on tangible common equity (ROTCE) depends on continuing efficiency gains (including some scale from growth), credit normalization toward a 6% loss-rate range, and a final stage of capital stack optimization, which he said could include issuing up to $300 million of preferred stock.
He also discussed a plan to merge Bread’s two legacy banks—its Utah industrial bank and its Delaware credit card bank—after submitting an application in December to merge into the Utah bank. He said the goal is funding flexibility, including expanding direct-to-consumer deposits toward “more pure levels,” which he described as closer to 70% over a number of years, and building out a public asset-backed securities (ABS) capability in Utah. He said operating cost savings would be nominal, with potential modest cost-of-funds benefits.
On capital return, Beberman said the company’s capital priorities remain unchanged: fund profitable growth, invest in the business, and reduce debt—steps he said Bread has made progress on by reducing debt from $900 million at the start of last year to $500 million at year-end, adding subordinated debt, and issuing a first leg of preferred stock. He said the company began buying back shares after building capital and hitting targets, and ended the year with $240 million of share repurchase authorization remaining. Beberman said Bread intends to maintain capital targets in the 13% to 14% CET1 range and return excess capital beyond that when appropriate.
About Bread Financial NYSE: BFH
Bread Financial, 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.
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