Consumer credit remained healthy by nearly all measures in the second quarter, but the credit card issuer Bread Financial is holding steadfast to a conservative outlook as it keeps watch on the potential inflationary impacts of the Trump administration's ever-evolving trade policies.
"The thing that drives
That's not to say the Trump administration's more restrictive trade policy is bad, Beberman said. "If it opens up European markets or Japanese markets for U.S. goods, that's good. It creates demand for our products. That's going to be good for employment.
"The bad outcomes would be if they don't reach a positive resolution with some of these trade deals, and other countries disinvest in our companies and start shutting down their markets or pivoting their buying in their country to other countries. That then backfires on us [and] could be detrimental to employment," he said.
For now, Bread isn't seeing any evidence of deteriorating consumer credit health in its portfolio. The company's 30-plus-day delinquency rate fell to 5.7%, down 30 basis points from the same reporting period last year, and its net loss rate tallied 7.9%, down 70 basis points. The provision for credit losses was $274 million, a 5% decrease from the same reporting period last year.
Still, Bread is maintaining what Beberman called "prudent" risk weightings as it evaluates the impacts of the administration's moving tariff policies. The credit card lender's reserve rate under the Current Expected Credit Losses accounting standard — which requires lenders to set aside credit reserves based on loss estimates for the entire life of the loan — came in at 11.9%, 30 basis points lower than it was a year ago.
"We've held back on really evaluating those weightings and moving back towards neutral," Beberman said. "We're going to maintain that until we get more clarity on what the impacts of the current administration's policies will be. But it looks like things are starting to resolve."
Consumers' resiliency drove downward revisions in Bread's guidance for its 2025 net loss rate and revenue. The company now anticipates a net loss rate of 7.8%-7.9%, down from
Bank earnings have been largely positive in the second quarter despite concerns that tariffs would increase inflation and stifle economic activity. Payment divisions at banks reaped the rewards, too.
Top line revenue in the second quarter came in at $929 million, a 1% decrease from the same prior-year period and behind analysts' estimates of $939 million. The slight drop in revenue was largely due to lower finance charges and late fees resulting from lower delinquencies and a shift in product mix toward co-branded cards.
Net income landed at $139 million, or $2.94 per diluted share, a 5% increase from the same reporting period a year ago, beating consensus estimates. Analysts expected $89.79 million, or $1.85 per share, according to S&P Capital IQ.
Net interest income fell to $974 million, down from $987 million in Q2 2024, according to the bank. Net interest margin fell 30 basis points to 17.7% on lower billed late fees and lower delinquencies.
Total noninterest expenses increased 3% to $481 million, primarily driven by a $150 million tender offer to purchase outstanding commercial debt.
The second quarter brought a mixed bag in terms of loan growth and credit sales — or the volume of purchases that customers made with deferred payment. Credit sales jumped 4% year over year to $6.8 billion, largely due to new partner growth, increased general-purpose spending and an expansion of co-brand and proprietary products, which accounted for over 50% of the quarter's credit sales.
Average loans inched down 1% to $17.7 billion, mostly because of softer consumer spending over the course of the prior 12-month period.
Beberman said he expects the increased credit sales to turn into loan growth. "Right now, we're seeing a little bit higher payment rate, too, which is good. When you have [higher] payment rate, it means all those credit sales don't translate into [loan growth]."
Shares in Bread Financial were trading at $62.08 as of 1:04 p.m. in New York on Thursday, down 3.2%, or $2.05, from market open.
