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    BFH
    Earnings call· Jun 2026(Q2 FY26)

    BREAD FINANCIAL HOLDINGS, INC. BFH

    Jul 23, 2026 Source

    Executive summary

    Bread Financial Q2 FY26 — Strong Loan Growth and Improving Credit Performance

    Bread Financial delivered strong Q2 FY26 results, marked by accelerating credit sales, robust loan and deposit growth, and improving credit performance. The company achieved a key milestone with direct-to-consumer deposits reaching 50% of its funding mix and optimized its capital stack through preferred stock issuance and share repurchases. Management remains cautiously optimistic, navigating macroeconomic uncertainties with disciplined underwriting and strategic investments in technology and AI.

    Highlights

    5

    • Net income was $146 million, up 5% year-over-year.

    • Tangible book value per common share increased 22% year-over-year to $63.66.

    • Adjusted PPNR grew 11% year-over-year, supported by 7% revenue growth.

    • Credit sales grew 11% year-over-year, driving 5% end-of-period loan growth.

    • Direct-to-consumer deposits grew 16% year-over-year to $9.4 billion, now comprising 50% of the funding mix.

    Concerns

    4

    • Persistent inflation continues to influence household decision-making.

    • Retailer share arrangements (RSAs) are expected to increase in Q3 due to continued growth and timing, impacting noninterest income.

    • Expenses are anticipated to increase sequentially in Q3 and Q4 due to growth-related variable expenses and continued investments.

    • July credit sales are showing signs of pulling back industry-wide after a strong June.

    Guidance & targets

    12
    CategoryTargetConfidence
    Full year 2026 average credit card and other loan growth
    up low to mid-single digits
    high materiality
    High
    Full year 2026 total revenue growth
    up low to mid-single digits
    high materiality
    High
    Full year 2026 net interest margin
    flat to slightly higher than 2025
    high materiality
    Medium
    Full year 2026 net loss rate
    7.0% to 7.1%
    high materiality
    High
    Full year 2026 normalized effective tax rate
    25% to 27%
    medium materiality
    High
    Long-term ROTCE target
    mid-20s percent
    high materiality
    High
    Third quarter net loss rate
    approximately 30 basis points better than the second quarter
    medium materiality
    High
    Pace of share repurchase activity
    will slow in the third quarter compared to the second quarter
    medium materiality
    High
    Common stock repurchase for July
    $25 million
    low materiality
    High
    Timing of potential additional preferred share issuance
    no sooner than the fourth quarter of this year
    medium materiality
    Medium
    Expenses
    will increase sequentially in the third and fourth quarters
    medium materiality
    High
    Operating leverage
    positive operating leverage in 2026
    high materiality
    High

    Operational metrics

    22
    Net income
    $146 millionup 5% YoY
    Q2 FY26

    Primarily due to loan growth resulting in higher revenue, partially offset by higher provisions for credit losses and income taxes.

    Diluted EPS
    $3.55
    Q2 FY26

    Reported for the quarter.

    Adjusted PPNR
    11%YoY growth
    Q2 FY26

    Excludes impacts from debt repurchases.

    Revenue
    $64 millionup 7% YoY
    Q2 FY26

    Primarily driven by average loan growth, pricing changes, lower interest expense, and higher interchange/merchant discount fees.

    Average loans
    $18.2 billionincreased 3%
    Q2 FY26

    Reflecting new partner and credit sales momentum.

    End-of-period loans
    $18.5 billionincreased 5%
    Q2 FY26

    Reflecting new partner and credit sales momentum.

    Direct-to-consumer deposits
    $9.4 billiongrew 16% YoY
    Q2 FY26

    Second strongest quarter of growth since program began in 2019.

    Direct-to-consumer deposits as % of total funding
    50%up from 45% a year ago
    Q2 FY26

    Achieved an important milestone for the company.

    Total noninterest expenses
    nearly flatYoY
    Q2 FY26

    Higher employee compensation and benefits offset by prior year impacts from debt purchases.

    Total noninterest expenses (ex-debt repurchases)
    $15 millionup 3%
    Q2 FY26

    Increase primarily due to higher wages, incentive compensation, and medical claims, partially offset by operational excellence initiatives.

    PPNR
    $62 millionincreased 14% YoY
    Q2 FY26

    Driven by loan portfolio growth and pricing/expense discipline.

    CET1 ratio
    12.9%down 10 bps YoY
    Q2 FY26

    Benefited by 340 bps from core earnings, reduced by 320 bps from common stock repurchases and dividends, and 30 bps from debt repurchases.

    Preferred stock issued
    $135 million
    Q2 FY26

    Further optimized capital structure.

    Common stock repurchased
    $241 million
    Q2 FY26

    Returned value to shareholders.

    Remaining stock repurchase authorization
    $449 million
    Q2 FY26

    Balance at quarter end.

    Total loss absorption capacity
    24.6%
    Q2 FY26

    Demonstrates a strong margin of safety.

    Cardholders with prime score (>650)
    65%
    Q2 FY26

    Reflects stronger credit risk distribution.

    Reserve release
    $3 millionvs $74 million last year
    Q2 FY26

    Variance primarily driven by strong sequential period-end loan growth.

    Liquid assets and undrawn credit facilities
    $6.7 billion
    Q2 FY26

    Liquidity position remains strong.

    Deposits as % of total funding
    80%
    Q2 FY26

    Majority being FDIC insured direct-to-consumer deposits.

    AI investment
    —
    Q2 FY26

    Strategically integrating AI to advance operational excellence by improving productivity and efficiency, enabling innovation, and enhancing risk management. Collaborating with partners on use cases in agentic commerce and servicing.

    Employee compensation and benefits costs
    increased
    Q2 FY26

    Part of total noninterest expenses.

    Industry KPIs

    13
    MetricValueDetails
    Fee revenuelower by $1 millionUSD
    Funding mix$9.4 billionUSD
    Payment ratestable
    Delinquencies5.25%%
    Capital returns$241 millionUSD
    Credit quality mix65%%
    Net charge off rate6.98%%
    Loans card receivables$18.5 billionUSD
    Provision reserve rate11.23%%
    Rewards engagement costspaying more back
    New accounts card acquisitions—
    Billed business purchase volume11%%
    Net interest margin yield on receivables18.5%%

    Product announcements

    3
    ProductTypeDetails
    Ford programlaunch
    Home partnerships (Raymour & Flanigan, Furniture First, Ethan Allen)launch
    Bread Pay partnership with Vivintlaunch

    Deals & partnerships

    3
    FordNew program launch

    Expanded reach through a new program with Ford.

    Raymour & Flanigan, Furniture First, Ethan AllenNew home partnerships

    New partnerships in the home furnishing sector.

    VivintBread Pay partnership

    Partnership to expand Bread Pay offerings.

    Risks & headwinds

    4
    Persistent inflationongoing

    influences household decision-making

    Mitigation: Consumers' financial health remains resilient, evidenced by continued sales growth, stable payment rate, and improving credit performance; proactive credit risk management.

    Macroeconomic uncertaintyongoing

    ongoing uncertainty related to global conflicts and their downstream impacts, including on inflation

    Mitigation: Applying prudent weightings on downside economic scenarios in credit reserve modeling; maintaining strong capital, liquidity, and reserves.

    Industry-wide slowdown in credit salesQ3 FY26

    July is showing signs of pulling back

    Mitigation: Management expects spending growth but not as robust as Q2; monitoring across the board.

    Fuel pricesongoing

    elevated fuel prices

    Mitigation: Consumers' financial health remains resilient, helping to blunt inflationary pressure; watchful of potential impact on consumer spending if fuel prices increase.

    What to watch in Q3 FY26

    5

    Credit sales growth

    next quarter
    Current11% YoY in Q2; July showing signs of pulling back
    TargetStability or recovery from July slowdown

    Why it matters

    Credit sales growth is a key indicator of consumer demand and directly impacts loan growth and revenue.

    I think across the industry, the month of June in and of itself was a stronger-than-usual month. And I think already July is showing signs of pulling back, and that's industry-wide, not just unique to us.

    Q&A highlights

    6

    Given the current mid-single-digit period-end loan growth, what is the possibility of further acceleration in the second half, considering credit sales and other factors?

    Management noted uncertainty in H2, with June being strong but July showing signs of pullback industry-wide. They also mentioned tougher comps against new partner launches from late 2025. While end-of-period loans might exceed mid-single digits, holiday spend variability will be a factor.

    “I think across the industry, the month of June in and of itself was a stronger-than-usual month. And I think already July is showing signs of pulling back, and that's industry-wide, not just unique to us.”

    asked by Moshe Orenbuch · answered by Perry Beberman

    2 min read5 chapters

    Detailed Narrative

    01

    Strong Q2 Performance and Strategic Execution

    Bread Financial reported a solid second quarter with net income of $146 million and a 22% year-over-year increase in tangible book value per common share to $63.66. Adjusted PPNR grew 11% year-over-year, driven by 7% revenue growth and disciplined expense management. The company saw accelerating credit sales of 11% year-over-year and 5% end-of-period loan growth, reflecting broad strength across existing co-brand partnerships and new business launches.

    02

    Funding Mix Optimization and Capital Stack

    The direct-to-consumer deposit platform continued its strong growth, increasing 16% year-over-year to $9.4 billion, now comprising 50% of the total funding mix. This achievement marks a significant milestone for the company, reinforcing a cost-effective and reliable funding source. Bread Financial also optimized its capital stack by issuing $135 million of 8.875% preferred stock and repurchasing 2.8 million common shares for $241 million, demonstrating a disciplined capital allocation strategy.

    03

    Improving Credit Performance and Risk Management

    Credit performance showed significant improvement, with the delinquency rate at 5.25% (down 48 basis points YoY and 34 basis points QoQ) and the net loss rate at 6.98% (down 90 basis points YoY and 35 basis points QoQ). These improvements are attributed to proactive credit risk management, sophisticated underwriting, and the maturation of higher-quality new accounts. The reserve rate improved 66 basis points year-over-year to 11.23%, with 65% of cardholders having a prime score above 650.

    04

    Investments in Growth, Efficiency, and AI

    The company continues to make targeted investments in digital and technology enhancements, including the responsible use of AI. AI is being strategically integrated to improve productivity, efficiency, innovation, and risk management. Collaborations with partners are also focused on developing AI use cases in agentic commerce and servicing, aiming to remove friction and drive measurable progress for brand partners and customers.

    05

    Revised 2026 Outlook and Long-Term Targets

    Based on strong first-half results and a stable macroeconomic forecast, Bread Financial revised its full-year 2026 guidance, expecting average loan growth and total revenue growth to be up low to mid-single digits. The net loss rate guidance was improved to 7.0% to 7.1%. The company remains confident in its path to achieving a long-term mid-20s percent ROTCE target, driven by PPNR growth, operating efficiency, and capital optimization.

    AI-generated summary of the company’s earnings call. Not investment advice.