Bread Financial Holdings Inc.
02/13/2026 | Press release | Distributed by Public on 02/13/2026 06:33
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our audited Consolidated Financial Statements and related Notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly under "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." Unless otherwise specified, references to Notes to our audited Consolidated Financial Statements are to the Notes to our audited Consolidated Financial Statements as of December 31, 2025 and 2024 and for years ended December 31, 2025, 2024 and 2023.
OVERVIEW
We are a tech-forward financial services company that provides simple, personalized payment, lending, and saving solutions to millions of U.S. consumers. Our payment solutions, including Bread Financial general purpose credit cards and savings products, empower our customers and their passions for a better life. Additionally, we deliver growth for some of the most recognized brands in travel and entertainment, health and beauty, jewelry and specialty apparel through our private label and co-brand credit cards and pay-over-time products providing choice and value to our shared customers.
We have continued to diversify our product mix with our brand partners through growth of our co-brand credit card programs, which, relative to our private label credit card programs, have higher credit sales per account and an improved credit risk mix that generally results in higher transactor balances, lower delinquencies and late fees, as well as lower losses. We also offer our proprietary credit cards along with the expansion of our Bread Pay products, which are our installment loans and "split-pay" offerings.
Our partner base consists of large consumer-based businesses, including well-known brands such as (alphabetically) AAA, Academy Sports + Outdoors, Caesars, Dell Technologies, Hard Rock International, the NFL, Raymour & Flanigan, Saks Fifth Avenue, Signet, Ulta and Victoria's Secret, as well as small- and medium-sized businesses (SMBs). Our partner base is well diversified across a broad range of industries and retail verticals, including travel and entertainment, specialty apparel, health and beauty, jewelry, sporting goods, technology and electronics, as well as home and furniture. We believe our comprehensive suite of payment, lending and saving solutions, along with our related marketing and data and analytics, offers us a significant competitive advantage with products relevant across all customer segments (Gen Z, Millennial, Gen X and Baby Boomers). The breadth and quality of our product and service offerings, coupled with our customer-centric approach, have enabled us to establish and maintain long-standing partner relationships. We operate our business through a single reportable segment, with our primary source of revenue being from Interest and fees on loans from our various credit card and other loan products, and to a lesser extent from contractual relationships with our brand partners.
Throughout this report, unless stated or the context implies otherwise, the terms "Bread Financial," "BFH," the "Company," "we," "our" or "us" refer to Bread Financial Holdings, Inc. and its subsidiaries on a consolidated basis. References to "Parent Company" refer to Bread Financial Holdings, Inc. on a parent-only standalone basis. In addition, in this report we may refer to the retailers and other companies with whom we do business as our "partners," "brand partners," or "clients," provided that the use of the term "partner," "partnering" or any similar term does not mean or imply a formal legal partnership, and is not meant in any way to alter the terms of Bread Financial's relationship with any third parties. We offer our credit products through our insured depository institution subsidiaries, Comenity Bank and Comenity Capital Bank, which together are referred to herein as the "Banks."
NON-GAAP FINANCIAL MEASURES
We prepare our audited Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP). However, certain information included herein constitutes Non-GAAP Financial Measures. Our calculations of Non-GAAP Financial Measures may differ from the calculations of similarly titled measures by other companies. In particular:
•We have previously repurchased and may, from time to time, in the future continue to repurchase debt, including any outstanding senior unsecured notes, subordinated notes or convertible notes. In such transactions, we may pay a premium to induce these repurchases, or in certain cases repurchase at a discount, which, from a GAAP perspective, would result in an impact to Total non-interest expenses, with a corresponding impact also reflected
in Net income and consequently our Earnings per diluted share. For our prior debt repurchases, we show adjustments to these three financial statement line items, for total Company as well as for continuing operations, to exclude the impacts from our debt repurchases. We use Adjusted total non-interest expenses, Adjusted net income, and Adjusted earnings per diluted shareto evaluate the ongoing operations of the Company excluding the volatility that can occur from the impacts of our debt repurchases.
•Pretax pre-provision earnings(PPNR) represents Income from continuing operations before income taxes and the Provision for credit losses. PPNR excluding any gain on portfolio sale and impacts from debt repurchasesthen excludes from PPNR the gain on any portfolio sale in the period, as well as the loss or gain on any debt repurchases in the period. We use PPNRand PPNR excluding any gain on portfolio sale and impacts from debt repurchasesas metrics to evaluate our results of operations before income taxes, excluding the movements that can occur within Provision for credit losses and the one-time nature of a gain on the sale of a portfolio and/or the impacts from debt repurchases.
•Return on average tangible common equity(ROTCE) represents annualized Income from continuing operations less Dividends to preferred stockholders, divided by average Tangible common equity. Tangible common equity (TCE) represents Total stockholders' equity reduced by Preferred stock and Goodwill and intangible assets, net. We use ROTCE as a metric to evaluate the Company's performance.
•Tangible book value per common sharerepresents TCE divided by common shares outstanding. We use Tangible book value per common share, a metric used across the industry, to assess capital and performance, in conjunction with ROTCE.
We believe the use of these Non-GAAP financial measures provide additional clarity in understanding our results of operations and trends. For a reconciliation of these Non-GAAP financial measures to the most directly comparable GAAP measures, please see Table 6: Reconciliation of GAAP to Non-GAAP Financial Measuresthat follows.
BUSINESS ENVIRONMENT
This Business Environment section provides an overview of our results of operations and financial position for the year ended December 31, 2025, as well as our related outlook for 2026 and certain of the uncertainties associated with achieving that outlook. This section should be read in conjunction with the other information appearing in this Annual Report on Form 10-K, including "Consolidated Results of Operations," "Risk Factors," and "Cautionary Note Regarding Forward-Looking Statements," which provide further discussion of variances in our results of operations over the periods of comparison, along with other factors that could impact future results and the Company achieving its outlook.
Credit sales of $27.8 billion were up 3% when compared with 2024, reflecting new partner growth and higher general purpose cardholder spending. Average credit card and other loans of $17.9 billion decreased 1% while End-of-period credit card and other loans of $18.8 billion were flat; both being affected by an increasing payment rate and our disciplined credit management. Total interest income decreased 2% primarily as a result of lower billed late fees and a lower Average credit card and other loans balance, partially offset by lower reversals of finance charges and late fees, resulting from lower gross credit losses, and the ongoing implementation of pricing actions. Our lower delinquency volumes and the gradual shift in product mix to a lower proportion of private label accounts, which tend to have higher billed late fees, have resulted in lower overall billed late fees. Net interest margin was 18.4% in 2025 compared with 18.3% in 2024, primarily due to decreased funding costs which is reflective of our opportunistic debt actions and growth in our DTC deposits. Our net interest margin continues to be negatively impacted by lower billed late fees from lower delinquencies, as well as an elevated cash position and our gradual shift in product mix toward co-brand cards, offset by lower funding costs and the ongoing implementation of pricing actions. Non-interest income increased $13 million, due to the implementation of pricing actions, primarily paper statement fees, partially offset by an increase in costs associated with brand partner retailer share arrangements, along with a decrease in merchant discount fees from lower "big ticket" credit sales. Overall, Total net interest and non-interest income of $3.8 billion was flat versus 2024.
Provision for credit losses decreased relative to 2024 driven by a $135 million reserve release and net principal losses of $1.4 billion, compared with a $92 million reserve release and net principal losses of $1.5 billion in the prior year.
Our Allowance for credit losses decreased as of December 31, 2025 relative to December 31, 2024, due primarily to lower Credit card and other loans, as well as a decrease in the reserve rate over the period. Our reserve rate was 11.2% as of December 31, 2025 compared with 11.9% as of December 31, 2024, reflecting our improving credit metrics and higher-quality new account acquisitions. We continue to maintain appropriately prudent weightings on the economic scenarios in our credit reserve modeling to ensure the adequacy of our Allowance for credit losses given the wide range of potential macroeconomic outcomes, including ongoing uncertainty around inflation and unemployment. From an overall credit
quality perspective, our percentage of cardholders with Vantage scores greater than 660 remains above pre-pandemic levels due to prudent credit management and a more diversified product mix, with co-brand and proprietary cards representing a larger proportion of our portfolio.
Total non-interest expenses decreased 3% when compared with 2024, primarily as a result of the impacts from our debt repurchases of $74 million and $117 million for the years ended December 31, 2025 and 2024, respectively, as well as a decrease in Employee compensation and benefits due to prior year strategic adjustments in customer care staffing, partially offset by higher incentive compensation costs in the current year, along with a decrease in depreciation and amortization related to lower amortization from both capitalized software and premiums on historical credit card loan portfolios.
The efforts to strengthen and optimize our balance sheet continued in 2025. Throughout 2025 we engaged in a number of financing-related transactions, including the issuances of senior and subordinated notes, the completion of tender offers to repurchase certain outstanding senior and subordinated notes, the redemption of certain senior notes and the completion of the repurchases of 100% of our outstanding convertible senior notes. During the year we announced a total of $550 million in board-authorized common stock repurchase programs, repurchasing 5.7 million shares of common stock for a total of $310 million, and we issued 75,000 shares of preferred stock for gross proceeds of $75 million. Our Common equity tier 1 capital ratio (CET1) increased to 13.0%, from 12.4% as of December 31, 2024, driven by net earnings throughout the year, partially offset by the effects from both our repurchased shares and debt securities. Additionally, DTC deposits increased to $8.5 billion as of December 31, 2025, with average DTC deposits now representing 48% of our total funding sources, which is comprised of retail and wholesale deposits, and secured and unsecured borrowings, up from 43% a year ago.
Our 2026 financial outlook is based on continued consumer resilience, inflation remaining above the FRB's target rate of 2%, and a generally stable labor market. Our outlook also anticipates interest rate decreases by the FRB, which we would expect to result in slight Net interest margin compression.
Based on our current economic outlook and visibility into our new business pipeline and partner growth, as well as both expected continued improvement in our Net principal loss rate and our ongoing expectations for strong cardholder payment rates, we expect growth in 2026 Average credit card and other loans to be up low-single digits on a percentage point basis from full year 2025. Growth in Total net interest and non-interest income is also anticipated to be up in the low-single digits on a percentage point basis from 2025, in line with growth in Average credit card and other loans. Our outlook for full year Net interest margin has a wide range of potential outcomes given it is impacted by many variables; however, our baseline expectation is that it will be flat to modestly higher than 2025 as a result of continued benefits from implemented pricing actions and an improving cost of funds, partially offset by interest rate decreases by the FRB, lower billed late fees from improving delinquency trends and continued shifts in risk and product mix.
We manage expense growth based on revenue generation and investment opportunities, and expect to deliver positive operating leverage in 2026, excluding the pretax impacts from our debt repurchases, a Non-GAAP financial measure. We continue to invest in AI capabilities, technology modernization, marketing, and product innovation to drive growth and efficiencies. However, the degree of positive operating leverage will be dependent upon macroeconomic factors, and related to improvement in the credit environment, growth in Average credit card and other loans, and the pace and timing of further interest rate decreases by the FRB.
Our 2026 financial outlook also assumes a Net principal loss rate ranging from 7.2% to 7.4% given a resilient consumer, our disciplined credit management, and continued shifts in risk and product mix.
In our 2026 financial outlook we also expect our full year normalized effective tax rate to be in the range of 25% to 27%, with quarter-over-quarter variability due to the timing of certain discrete items.
Our 2025 results reflect our prudent capital allocation, a disciplined credit management framework, and our focus on responsible growth. Supported by strong capital levels and cash flow generation, we are well positioned to execute on our capital and growth priorities while delivering sustainable, long-term value for our stockholders.
Note: We are unable to provide a quantitative reconciliation of the forward-looking 2026 financial outlook for the Non-GAAP financial measure above, to its most directly comparable forward-looking GAAP measure, as we cannot reliably predict all of the necessary components of such a forward-looking GAAP measure without unreasonable effort.
CONSOLIDATED RESULTS OF OPERATIONS
The following discussion provides commentary on the variances in our results of operations for the year ended December 31, 2025, compared with the year ended December 31, 2024, as presented in the accompanying tables. This discussion should be read in conjunction with the discussion under "Business Environment," above. For a discussion of the financial condition and results of operations for 2024 compared with 2023, please refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)" in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 14, 2025, which discussion is incorporated herein by reference from such prior report on Form 10-K.
Table 1: Summary of Our Financial Performance
| Years Ended December 31, | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 |
2025 to 2024 |
2024 to 2023 |
2025 to 2024 |
2024 to 2023 |
|||||||||||||||||||||||||||||||||||
| (Millions, except per share amounts and percentages) | |||||||||||||||||||||||||||||||||||||||||
| Total net interest and non-interest income | $ | 3,845 | $ | 3,838 | $ | 4,289 | $ | 7 | $ | (451) | - | (11) | |||||||||||||||||||||||||||||
| Provision for credit losses | 1,242 | 1,397 | 1,229 | (155) | 168 | (11) | 14 | ||||||||||||||||||||||||||||||||||
| Total non-interest expenses | 1,988 | 2,060 | 2,092 | (72) | (32) | (3) | (2) | ||||||||||||||||||||||||||||||||||
| Income from continuing operations before income taxes | 615 | 381 | 968 | 234 | (587) | 61 | (61) | ||||||||||||||||||||||||||||||||||
| Provision for income taxes | 94 | 102 | 231 | (8) | (129) | (9) | (56) | ||||||||||||||||||||||||||||||||||
| Income from continuing operations | 521 | 279 | 737 | 242 | (458) | 87 | (62) | ||||||||||||||||||||||||||||||||||
|
Loss from discontinued operations, net of income taxes (1)
|
(3) | (2) | (19) | (1) | 17 | 40 | (87) | ||||||||||||||||||||||||||||||||||
| Net income available to common stockholders | 518 | 277 | 718 | 241 | (441) | 87 | (61) | ||||||||||||||||||||||||||||||||||
|
Adjusted net income *(2)
|
$ | 575 | $ | 388 | $ | 719 | $ | 187 | $ | (331) | 48 | (46) | |||||||||||||||||||||||||||||
| Net income per diluted share | $ | 10.89 | $ | 5.49 | $ | 14.34 | $ | 5.40 | $ | (8.85) | 98 | (62) | |||||||||||||||||||||||||||||
|
Adjusted net income per diluted share *(2)
|
$ | 12.09 | $ | 7.69 | $ | 14.36 | $ | 4.40 | $ | (6.67) | 57 | (46) | |||||||||||||||||||||||||||||
| Income from continuing operations per diluted share | $ | 10.96 | $ | 5.54 | $ | 14.74 | $ | 5.42 | $ | (9.20) | 98 | (62) | |||||||||||||||||||||||||||||
|
Adjusted income from continuing operations per diluted share *(2)
|
$ | 12.16 | $ | 7.74 | $ | 14.76 | $ | 4.42 | $ | (7.02) | 57 | (48) | |||||||||||||||||||||||||||||
|
Net interest margin (3)
|
18.4 | % | 18.3 | % | 19.5 | % | 0.1 | (1.2) | |||||||||||||||||||||||||||||||||
|
Return on average tangible common equity *(4)
|
20.4 | % | 11.4 | % | 38.0 | % | 9.0 | (26.6) | |||||||||||||||||||||||||||||||||
| Effective income tax rate - continuing operations | 15.2 | % | 26.7 | % | 23.8 | % | (11.5) | 2.9 | |||||||||||||||||||||||||||||||||
______________________________
*Represents a Non-GAAP financial measure. See "Non-GAAP Financial Measures" and Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures.
(1)Includes amounts that related to the previously disclosed discontinued operations associated with the spinoff of our former LoyaltyOne segment in 2021 and the sale of our former Epsilon segment in 2019. For additional information refer to Note 1, "Description of Business, Basis of Presentation and Significant Accounting Policies" to the audited Consolidated Financial Statements.
(2)Adjusts Net income, Net income per diluted share, and Income from continuing operations per diluted share for the impacts from our debt repurchases.
(3)Net interest margin represents annualized Net interest income divided by average Total interest-earning assets. See also Table 5: Net Interest Margin.
(4)Return on average tangible common equity (ROTCE) represents annualized Income from continuing operations, less Dividends to preferred stockholders, divided by average Tangible common equity. Tangible common equity (TCE) represents Total stockholders'equity reduced by Preferred stock and Goodwill and intangible assets, net.
Table 2: Summary of Total Net Interest and Non-interest Income, After Provision for Credit Losses
| Years Ended December 31, | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 |
2025 to 2024 |
2024 to 2023 |
2025 to 2024 |
2024 to 2023 |
|||||||||||||||||||||||||||||||||||
| (Millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||||||||||||||||||||
| Interest and fees on loans | $ | 4,739 | $ | 4,820 | $ | 4,961 | $ | (81) | $ | (141) | (2) | (3) | |||||||||||||||||||||||||||||
| Interest on cash and investment securities | 173 | 204 | 184 | (31) | 20 | (16) | 11 | ||||||||||||||||||||||||||||||||||
| Total interest income | 4,912 | 5,024 | 5,145 | (112) | (121) | (2) | (2) | ||||||||||||||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||||||||||||||
| Interest on deposits | 554 | 608 | 541 | (54) | 67 | (9) | 12 | ||||||||||||||||||||||||||||||||||
| Interest on borrowings | 300 | 352 | 338 | (52) | 14 | (15) | 4 | ||||||||||||||||||||||||||||||||||
| Total interest expense | 854 | 960 | 879 | (106) | 81 | (11) | 9 | ||||||||||||||||||||||||||||||||||
| Net interest income | 4,058 | 4,064 | 4,266 | (6) | (202) | - | (5) | ||||||||||||||||||||||||||||||||||
| Non-interest income | |||||||||||||||||||||||||||||||||||||||||
| Interchange revenue, net of retailer share arrangements | (416) | (381) | (335) | (35) | (46) | 9 | 14 | ||||||||||||||||||||||||||||||||||
| Gain on portfolio sale | 3 | 11 | 230 | (8) | (219) | (71) | (95) | ||||||||||||||||||||||||||||||||||
| Other | 200 | 144 | 128 | 56 | 16 | 38 | 12 | ||||||||||||||||||||||||||||||||||
| Total non-interest income | (213) | (226) | 23 | 13 | (249) | (6) | nm | ||||||||||||||||||||||||||||||||||
| Total net interest and non-interest income | 3,845 | 3,838 | 4,289 | 7 | (451) | - | (11) | ||||||||||||||||||||||||||||||||||
| Provision for credit losses | 1,242 | 1,397 | 1,229 | (155) | 168 | (11) | 14 | ||||||||||||||||||||||||||||||||||
| Total net interest and non-interest income, after provision for credit losses | $ | 2,603 | $ | 2,441 | $ | 3,060 | $ | 162 | $ | (619) | 7 | (20) | |||||||||||||||||||||||||||||
______________________________
(nm)Not meaningful, denoting a variance of 1,000 percent or more.
Total Net Interest and Non-interest Income, After Provision for Credit Losses
Interest income:Total interest income decreased for the year ended December 31, 2025, due to the following:
•Interest and fees on loansdecreased due primarily to lower billed late fees and lower Average credit card and other loans balances, partially offset by lower reversals of finance charges and late fees, resulting from lower gross credit losses, and the ongoing implementation of pricing actions; collectively decreasing the yield on finance charges and late fees by approximately 10 basis points. Our lower delinquency volumes and the gradual shift in product mix to a lower proportion of private label accounts, which tend to have higher billed late fees, have resulted in lower overall billed late fees.
•Interest on cash and investment securitiesdecreased due to lower average interest rates which decreased interest income by $37 million, partially offset by higher average balances, which increased interest income by $6 million.
Interest expense: Total interest expense decreased for the year ended December 31, 2025, due to the following:
•Interest on depositsdecreased primarily due to lower average interest rates which decreased interest expense by $65 million, partially offset by higher average DTC deposit balances which increased funding costs by $11 million.
•Interest on borrowingsdecreased due to lower average borrowings which decreased funding costs by $30 million, and lower average interest rates which decreased funding costs by $22 million.
Non-interest income:Total non-interest income increased for the year ended December 31, 2025, due to the following:
•Interchange revenue, net of retailer share arrangements,typically a contra-revenue item for us, increased due to an increase in costs associated with brand partner retailer share arrangements, along with a decrease in merchant discount fees from lower "big ticket" credit sales.
•Otherincreased due to our implemented pricing actions, primarily paper statement fees, which we began assessing in the second quarter of 2024.
Provision for credit lossesdecreased for the year ended December 31, 2025, driven by a $135 million reserve release and net principal losses of $1.4 billion, compared with a $92 million reserve release and net principal losses of $1.5 billion in the prior year. Our reserve rate was 11.2% as of December 31, 2025, reflecting our improving credit metrics and higher-quality new account acquisitions. We continue to maintain appropriately prudent weightings on the economic scenarios in our credit reserve modeling to ensure the adequacy of our Allowance for credit losses given the wide range of potential macroeconomic outcomes, including ongoing uncertainty around inflation and unemployment.
Table 3: Summary of Total Non-interest Expenses
| Years Ended December 31, | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 |
2025 to 2024 |
2024 to 2023 |
2025 to 2024 |
2024 to 2023 |
|||||||||||||||||||||||||||||||||||
| (Millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||
| Non-interest expenses | |||||||||||||||||||||||||||||||||||||||||
| Employee compensation and benefits | $ | 880 | $ | 897 | $ | 867 | $ | (17) | $ | 30 | (2) | 3 | |||||||||||||||||||||||||||||
| Card and processing expenses | 322 | 326 | 428 | (4) | (102) | (1) | (24) | ||||||||||||||||||||||||||||||||||
| Information processing and communication | 308 | 300 | 301 | 8 | (1) | 3 | - | ||||||||||||||||||||||||||||||||||
| Marketing expenses | 150 | 147 | 161 | 3 | (14) | 2 | (9) | ||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 80 | 90 | 116 | (10) | (26) | (11) | (22) | ||||||||||||||||||||||||||||||||||
| Other | 248 | 300 | 219 | (52) | 81 | (17) | 36 | ||||||||||||||||||||||||||||||||||
| Total non-interest expenses | $ | 1,988 | $ | 2,060 | $ | 2,092 | $ | (72) | $ | (32) | (3) | (2) | |||||||||||||||||||||||||||||
|
Adjusted total non-interest expenses (1)
|
$ | 1,914 | $ | 1,943 | $ | 2,091 | $ | (29) | $ | (148) | (1) | (7) | |||||||||||||||||||||||||||||
__________________________________
(1)Adjusts Total non-interest expenses for the impacts from our debt repurchases, representing $74 million and $117 million and $1 million for the years ended December 31, 2025, 2024 and 2023, respectively, and therefore represent Non-GAAP financial measures. See "Non-GAAP Financial Measures" and Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures.
Total Non-interest Expenses
Non-interest expenses:Total non-interest expenses decreased for the year ended December 31, 2025. Adjusted total non-interest expenses, which represents a Non-GAAP financial measure and has been adjusted for the impacts from our debt repurchases, also decreased over the periods of comparison.
•Employee compensation and benefitsdecreased due primarily to strategic adjustments in customer care staffing in the prior year, partially offset by higher incentive compensation in the current year.
•Depreciation and amortizationdecreased due to lower amortization related to both capitalized software and premiums on historical credit card loan portfolio acquisitions.
•Otherdecreased due primarily to higher year-over-year net impact from our debt repurchases.
Income Taxes
The Provision for income taxes decreased for the year ended December 31, 2025. The effective tax rate was 15.2% and 26.7% for the years ended December 31, 2025 and 2024, respectively. Both the decreases in the Provision for
income taxes and in the effective tax rates over the periods of comparison were primarily driven by a discrete tax benefit in the current year and larger non-deductible items in the prior year, partially offset by a $234 million increase in Income from continuing operations before income taxes in 2025.
On July 4, 2025, President Trump signed into law "The One Big Beautiful Bill Act" (the Bill). The Bill reinstates several provisions of the 2017 Tax Cuts and Jobs Act for businesses. The Bill did not have a significant impact on our financial position, results of operations or cash flows, nor do we expect it to have a significant impact in future periods. We also do not anticipate any significant changes to operational processes, controls or governance as a result of the Bill, either currently or in future periods.
Discontinued Operations
The Loss from discontinued operations, net of income taxes includes amounts that relate to the previously disclosed discontinued operations associated with the spinoff of our former LoyaltyOne segment in 2021 and the sale of our former Epsilon segment in 2019, and primarily relates to contractual indemnification and tax-related matters. For additional information refer to Note 22, "Discontinued Operations and Bank Holding Company Financial Presentation" to the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Table 4: Summary Financial Highlights - Continuing Operations
| As of or for the Years Ended December 31, | % Change | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 |
2025 to 2024 |
2024 to 2023 |
|||||||||||||||||||||||||
| (Millions, except per share amounts and percentages) | |||||||||||||||||||||||||||||
| Credit sales | $ | 27,777 | $ | 26,962 | $ | 28,900 | 3 | (7) | |||||||||||||||||||||
|
PPNR *(1)
|
1,857 | 1,778 | 2,197 | 4 | (19) | ||||||||||||||||||||||||
|
PPNR excluding gain on portfolio sale and impacts from debt repurchases *(1)
|
1,928 | 1,884 | 1,968 | 2 | (4) | ||||||||||||||||||||||||
| Average credit card and other loans | 17,850 | 18,084 | 18,216 | (1) | (1) | ||||||||||||||||||||||||
| End-of-period credit card and other loans | 18,805 | 18,896 | 19,333 | - | (2) | ||||||||||||||||||||||||
| End-of-period direct-to-consumer (retail) deposits | 8,523 | 7,687 | 6,454 | 11 | 19 | ||||||||||||||||||||||||
|
Return on average assets (2)
|
2.4 | % | 1.3 | % | 3.3 | % | 1.1 | (2.0) | |||||||||||||||||||||
|
Return on average equity(3)
|
15.8 | % | 8.7 | % | 27.1 | % | 7.1 | (18.4) | |||||||||||||||||||||
|
Return on average tangible common equity *(4)
|
20.4 | % | 11.4 | % | 38.0 | % | 9.0 | (26.6) | |||||||||||||||||||||
|
Net interest margin (5)
|
18.4 | % | 18.3 | % | 19.5 | % | 0.1 | (1.2) | |||||||||||||||||||||
|
Loan yield (6)
|
26.6 | % | 26.7 | % | 27.2 | % | (0.1) | (0.5) | |||||||||||||||||||||
|
Efficiency ratio (7)
|
51.7 | % | 53.7 | % | 48.8 | % | (2.0) | 4.9 | |||||||||||||||||||||
|
Adjusted efficiency ratio (7)
|
49.8 | % | 50.8 | % | 51.5 | % | (1.0) | (0.7) | |||||||||||||||||||||
|
Common equity tier 1 capital ratio (8)
|
13.0 | % | 12.4 | % | 12.2 | % | 0.6 | 0.2 | |||||||||||||||||||||
|
Tangible book value per common share *(9)
|
$ | 57.57 | $ | 46.97 | $ | 43.70 | 23 | 7 | |||||||||||||||||||||
| Cash dividend per common share | $ | 0.86 | $ | 0.84 | $ | 0.84 | 2 | - | |||||||||||||||||||||
|
Payment rate (10)
|
14.9 | % | 14.5 | % | 14.9 | % | 0.4 | (0.4) | |||||||||||||||||||||
|
Delinquency rate (11)
|
5.8 | % | 5.9 | % | 6.5 | % | (0.1) | (0.6) | |||||||||||||||||||||
|
Net principal loss rate (12)
|
7.7 | % | 8.2 | % | 7.5 | % | (0.5) | 0.7 | |||||||||||||||||||||
|
Reserve rate (13)
|
11.2 | % | 11.9 | % | 12.0 | % | (0.7) | (0.1) | |||||||||||||||||||||
______________________________
Note: Beginning in 2024, we revised the calculation of average balances to more closely align with industry practice by incorporating an average daily balance. Prior to 2024, average balances represent the average balance at the beginning and end of each month, averaged over the periods indicated.
*Represents a Non-GAAP financial measure. See "Non-GAAP Financial Measures" and Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures.
(1)PPNR represents Income from continuing operations before income taxes and the Provision for credit losses. PPNR excluding gain on portfolio sale and impacts from debt repurchases excludes from PPNR any gain on portfolio sale in the period, as well as the impacts from our debt repurchases in the period.
(2)Return on average assets represents annualized Income from continuing operations divided by average Total assets.
(3)Return on average equity represents annualized Income from continuing operations divided by average Total stockholders' equity.
(4)Return on average tangible common equity (ROTCE) represents annualized Income from continuing operations, less Dividends to preferred stockholders, divided by average Tangible common equity. Tangible common equity (TCE) represents Total stockholders'equity reduced by Preferred stock and Goodwill and intangible assets, net.
(5)Net interest margin represents annualized Net interest income divided by average Total interest-earning assets. See also Table 5: Net Interest Margin.
(6)Loan yield represents annualized Interest and fees on loans divided by Average credit card and other loans.
(7)Efficiency ratio represents Total non-interest expenses divided by Total net interest and non-interest income. Adjusted efficiency ratio excludes any gain on portfolio sale and impacts from debt repurchases.
(8)Common equity tier 1 capital ratio represents tier 1 capital reduced by Preferred stock divided by total risk-weighted assets. In the calculation of tier 1 capital, we follow the Basel III Standardized Approach and therefore Total stockholders'equity has been reduced by Goodwill and intangible assets, net. For additional information, see "Legislative, Regulatory Matters and Capital Adequacy" included elsewhere in this report.
(9)Tangible book value per common share represents TCE divided by common shares outstanding.
(10)Payment rate represents consumer payments during the period, divided by the aggregate of the opening monthly Credit card and other loans balances during the period, including held for sale in applicable periods.
(11)Delinquency rate represents outstanding balances that are contractually delinquent (i.e., principal balances greater than 30 days past due) as of the end of the period, divided by the outstanding principal amount of Credit card and other loans as of the same period-end.
(12)Net principal loss rate, an annualized rate, represents net principal losses for the period divided by Average credit card and other loans for the same period, using an average daily balance calculation methodology. Net principal loss rate for the year ended December 31, 2023 was impacted by the transition of our credit card processing services in June 2022.
(13)Reserve rate represents the Allowance for credit losses divided by End-of-period credit card and other loans.
Table 5: Net Interest Margin
| Year Ended December 31, 2025 | |||||||||||||||||
| Average Balance | Interest Income / Expense | Average Yield / Rate | |||||||||||||||
| (Millions, except percentages) | |||||||||||||||||
| Cash and investment securities | $ | 4,232 | $ | 173 | 4.08 | % | |||||||||||
| Credit card and other loans | 17,850 | 4,739 | 26.55 | % | |||||||||||||
| Total interest-earning assets | 22,082 | 4,912 | 22.24 | % | |||||||||||||
| Direct-to-consumer (retail) deposits | 8,087 | 349 | 4.31 | % | |||||||||||||
| Wholesale deposits | 5,252 | 205 | 3.91 | % | |||||||||||||
| Interest-bearing deposits | 13,339 | 554 | 4.15 | % | |||||||||||||
| Secured borrowings | 3,306 | 192 | 5.79 | % | |||||||||||||
| Unsecured borrowings | 1,115 | 108 | 9.72 | % | |||||||||||||
| Interest-bearing borrowings | 4,421 | 300 | 6.78 | % | |||||||||||||
| Total interest-bearing liabilities | 17,760 | 854 | 4.81 | % | |||||||||||||
| Net interest income | $ | 4,058 | |||||||||||||||
|
Net interest margin (1)
|
18.4 | % | |||||||||||||||
| Year Ended December 31, 2024 | |||||||||||||||||
| Average Balance | Interest Income / Expense | Average Yield / Rate | |||||||||||||||
| (Millions, except percentages) | |||||||||||||||||
| Cash and investment securities | $ | 4,116 | $ | 204 | 4.96 | % | |||||||||||
| Credit card and other loans | 18,084 | 4,820 | 26.65 | % | |||||||||||||
| Total interest-earning assets | 22,200 | 5,024 | 22.63 | % | |||||||||||||
| Direct-to-consumer (retail) deposits | 7,174 | 349 | 4.86 | % | |||||||||||||
| Wholesale deposits | 5,919 | 259 | 4.38 | % | |||||||||||||
| Interest-bearing deposits | 13,093 | 608 | 4.64 | % | |||||||||||||
| Secured borrowings | 3,576 | 236 | 6.58 | % | |||||||||||||
| Unsecured borrowings | 1,247 | 116 | 9.33 | % | |||||||||||||
| Interest-bearing borrowings | 4,823 | 352 | 7.29 | % | |||||||||||||
| Total interest-bearing liabilities | 17,916 | 960 | 5.36 | % | |||||||||||||
| Net interest income | $ | 4,064 | |||||||||||||||
|
Net interest margin (1)
|
18.3 | % | |||||||||||||||
______________________________
(1)Net interest margin represents annualized Net interest income divided by average Total interest-earning assets.
Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures
| Years Ended December 31, | % Change | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 |
2025 to 2024 |
2024 to 2023 |
|||||||||||||||||||||||||
| (Millions, except per share amounts and percentages) | |||||||||||||||||||||||||||||
| Adjusted net income available to common stockholders | |||||||||||||||||||||||||||||
| Net income available to common stockholders | $ | 518 | $ | 277 | $ | 718 | 87 | (61) | |||||||||||||||||||||
| Impacts from debt repurchases | 57 | 111 | 1 | (49) | nm | ||||||||||||||||||||||||
| Adjusted net income available to common stockholders | $ | 575 | $ | 388 | $ | 719 | 48 | (46) | |||||||||||||||||||||
| Adjusted net income available to common stockholders per diluted share | |||||||||||||||||||||||||||||
| Net income available to common stockholders per diluted share | $ | 10.89 | $ | 5.49 | $ | 14.34 | 98 | (62) | |||||||||||||||||||||
| Impacts from debt repurchases | $ | 1.20 | $ | 2.20 | $ | 0.02 | (46) | nm | |||||||||||||||||||||
| Adjusted net income available to common stockholders per diluted share | $ | 12.09 | $ | 7.69 | $ | 14.36 | 57 | (46) | |||||||||||||||||||||
| Adjusted income from continuing operations per diluted share | |||||||||||||||||||||||||||||
| Income from continuing operations per diluted share | $ | 10.96 | $ | 5.54 | $ | 14.74 | 98 | (62) | |||||||||||||||||||||
| Impacts from debt repurchases | $ | 1.20 | $ | 2.20 | $ | 0.02 | (46) | nm | |||||||||||||||||||||
| Adjusted income from continuing operations per diluted share | $ | 12.16 | $ | 7.74 | $ | 14.76 | 57 | (48) | |||||||||||||||||||||
| Adjusted total non-interest expenses | |||||||||||||||||||||||||||||
| Total non-interest expenses | $ | 1,988 | $ | 2,060 | $ | 2,092 | (3) | (2) | |||||||||||||||||||||
| Impacts from debt repurchases | 74 | 117 | 1 | (36) | nm | ||||||||||||||||||||||||
| Adjusted total non-interest expenses | 1,914 | 1,943 | 2,091 | (1) | (7) | ||||||||||||||||||||||||
| Pretax pre-provision earnings (PPNR) | |||||||||||||||||||||||||||||
| Income from continuing operations before income taxes | 615 | 381 | 968 | 61 | (61) | ||||||||||||||||||||||||
| Provision for credit losses | 1,242 | 1,397 | 1,229 | (11) | 14 | ||||||||||||||||||||||||
| Pretax pre-provision earnings (PPNR) | 1,857 | 1,778 | 2,197 | 4 | (19) | ||||||||||||||||||||||||
| Less: Gain on portfolio sale | (3) | (11) | (230) | (71) | (95) | ||||||||||||||||||||||||
| Add: Impacts from debt repurchases | 74 | 117 | 1 | (36) | nm | ||||||||||||||||||||||||
| PPNR excluding gain on portfolio sale and impacts from debt repurchases | 1,928 | 1,884 | 1,968 | 2 | (4) | ||||||||||||||||||||||||
| Average tangible common equity | |||||||||||||||||||||||||||||
| Average total stockholders' equity | 3,293 | 3,214 | 2,722 | 2 | 18 | ||||||||||||||||||||||||
| Less: Average preferred stock | (7) | - | - | nm | - | ||||||||||||||||||||||||
| Less: Average goodwill and intangible assets, net | (733) | (753) | (780) | (3) | (4) | ||||||||||||||||||||||||
| Average tangible common equity | 2,553 | 2,461 | 1,942 | 4 | 27 | ||||||||||||||||||||||||
| Tangible common equity (TCE) | |||||||||||||||||||||||||||||
| Total stockholders' equity | 3,327 | 3,051 | 2,918 | 9 | 5 | ||||||||||||||||||||||||
| Less: Preferred stock | (71) | - | - | nm | - | ||||||||||||||||||||||||
| Less: Goodwill and intangible assets, net | (716) | (746) | (762) | (4) | (2) | ||||||||||||||||||||||||
| Tangible common equity (TCE) | $ | 2,540 | $ | 2,305 | $ | 2,156 | 10 | 7 | |||||||||||||||||||||
(nm)Not meaningful, denoting a variance of 1,000 percent or more.
ASSET QUALITY
Given the nature of our business, the credit quality of our assets, in particular our Credit card and other loans, is a key determinant underlying our ongoing financial performance and overall financial condition. When it comes to our Credit card and other loans portfolio, we closely monitor Delinquency rates and Net principal loss rates, which reflect, among other factors, our underwriting, the inherent credit risk in our portfolio and the success of our collection and recovery efforts. These rates also reflect, more broadly, the general macroeconomic conditions, including the compounding effect of persistent inflation relative to wage growth, and higher interest rates. Our Delinquency and Net principal loss rates are also impacted by the size of our Credit card and other loans portfolio, which serves as the denominator in the calculation of these rates. Accordingly, changes in the size of our portfolio (whether due to credit tightening, acquisitions or dispositions of portfolios, or otherwise) may cause movements in our Delinquency and Net principal loss rates that are not necessarily indicative of the underlying credit quality of the overall portfolio.
Delinquencies:An account is contractually delinquent if we do not receive the minimum payment due by the specified due date. Our policy is to continue to accrue interest and fee income on all accounts, except in limited circumstances, until the balance and all related interest and fees are paid or charged-off. After an account becomes 30 days past due, a proprietary collection scoring algorithm automatically scores the risk of the account becoming further delinquent; based upon the level of risk indicated, a collection strategy is deployed, which may include tech-enabled, targeted collections strategies to engage with cardholders in the most efficient communication channel. If after exhausting all in-house collection efforts we are unable to collect on the account, we may engage collection agencies or outside attorneys to continue those efforts, or sell the charged-off balances.
The Delinquency rate is calculated by dividing outstanding principal balances that are contractually delinquent (i.e., principal balances greater than 30 days past due) as of the end of the period, by the outstanding principal amount of Credit card and other loans as of the same period-end.
The following table provides the delinquency trends on our Credit card and other loans portfolio based on the principal balances outstanding as of December 31:
Table 7: Delinquency Trends on Credit Card and Other Loans
| 2025 |
% of Total |
2024 |
% of Total |
||||||||||||||||||||
| (Millions, except percentages) | |||||||||||||||||||||||
| Credit card and other loans outstanding ─ principal | $ | 16,886 | 100.0 | % | $ | 17,418 | 100.0 | % | |||||||||||||||
| Outstanding balances contractually delinquent: | |||||||||||||||||||||||
| 31 to 60 days | 283 | 1.7 | % | 299 | 1.7 | % | |||||||||||||||||
| 61 to 90 days | 215 | 1.3 | % | 223 | 1.3 | % | |||||||||||||||||
| 91 or more days | 473 | 2.8 | % | 512 | 2.9 | % | |||||||||||||||||
| Total | $ | 971 | 5.8 | % | $ | 1,034 | 5.9 | % | |||||||||||||||
As part of our collections strategy, we may offer temporary and short term programs in order to improve the likelihood of collections and meet the needs of our customers. For example, as a result of hurricanes Helene and Milton in September and October of 2024, respectively, we froze delinquency progression for cardholders in FEMA identified impact zones for one billing cycle. Our modifications, for customers who have requested assistance and meet certain qualifying requirements, come in the form of reduced payment requirements, interest rate reductions and late fee waivers. We do not offer programs involving the forgiveness of principal. These temporary loan modifications may assist in cases where we believe the customer will recover from the short-term hardship and resume scheduled payments. Under these consumer relief programs, those accounts receiving relief may not advance to the next delinquency cycle, including charge-off, in the same time frame that would have occurred had the relief not been granted. We evaluate our consumer relief programs to determine if they represent a more than insignificant delay in payment granted to borrowers experiencing financial difficulty, in which case they would then be considered a Loan Modification. For additional information, see Note 2 "Credit Card and Other Loans - Modified Credit Card Loans" to our audited Consolidated Financial Statements.
Net Principal Losses: Our net principal losses include the principal amount of Credit card and other loans that are deemed uncollectible, less recoveries, and exclude charged-off interest, fees and third-party fraud losses (including synthetic fraud).
Charged-off interest and fees reduce Interest and fees on loans, while third-party fraud losses are recorded in Card and processing expenses. Our credit card loans, including unpaid interest and fees, are generally charged-off in the month during which an account becomes 180 days past due. Our pay-over-time products, which include installment loans and "split-pay" offerings, including unpaid interest, are generally charged-off when a loan becomes 120 days past due. However, in the case of a customer bankruptcy or death, Credit card and other loans, including unpaid interest and fees, as applicable, are charged-off 60 days after receipt of the notification of the bankruptcy or death, but in any case no later than 180 days past due for credit card loans and 120 days past due for installment loans and "split-pay" offerings.
The Net principal loss rate is calculated by dividing net principal losses for the period by the Average credit card and other loans for the same period. Beginning in January 2024, we revised the calculation of Average credit card and other loans to more closely align with industry practice by incorporating an average daily balance. Prior to 2024, Average credit card and other loans represent the average balance of the loans at the beginning and end of each month, averaged over the periods indicated. The following table provides our net principal losses for the periods presented:
Table 8: Net Principal Losses on Credit Card and Other Loans
| 2025 | 2024 | 2023 | |||||||||||||||
| (Millions, except percentages) | |||||||||||||||||
|
Average credit card and other loans
|
$ | 17,850 | $ | 18,084 | $ | 18,216 | |||||||||||
|
Net principal losses (1)(2)
|
1,377 | 1,489 | 1,365 | ||||||||||||||
|
Net principal losses as a percentage of average credit card and other loans (1)(2)
|
7.7 | % | 8.2 | % | 7.5 | % | |||||||||||
______________________________
(1)As a result of hurricanes Helene and Milton we froze delinquency progression for cardholders in FEMA identified impact zones for one billing cycle, which resulted in modestly lower Net principal losses and Net principal losses as a percentage of average credit card and other loans in the fourth quarter of 2024, and consequently these actions negatively impacted Net principal losses and Net principal losses as a percentage of average credit card and other loans in the second quarter of 2025.
(2)Net principal losses and Net principal losses as a percentage of average credit card and other loans for December 31, 2023 were impacted by the transition of our credit card processing services in June 2022.
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
Overview
We maintain a strong focus on liquidity and capital. Our funding, liquidity and capital policies are designed to ensure that our business has sufficient liquidity and capital resources necessary to support our daily operations, our business growth, and our credit ratings related to our Parent Company's senior unsecured notes, subordinated notes, preferred stock and our public secured financings, and meet our regulatory and policy requirements, including capital and leverage ratio requirements applicable to Comenity Bank (CB) and Comenity Capital Bank (CCB) under FDIC regulations, in a cost effective and prudent manner through both expected and unexpected market environments.
Our primary sources of liquidity include cash generated from operating activities, our bank credit facility, issuances of senior unsecured, subordinated or convertible debt securities and preferred stock by our Parent Company, financings through our securitization programs, and deposits with the Banks. More broadly, we continuously evaluate opportunities to renew and expand our various sources of liquidity. We aim to satisfy our financing needs with a diverse set of funding sources, and we seek to maintain diversity of funding sources by type of instrument, by tenor and by investor base, among other factors, which we believe will mitigate the impact of disruptions in any one type of instrument, tenor or investor.
Our primary uses of liquidity are for underwriting Credit card and other loans, scheduled payments of principal and interest on our debt, operational expenses, capital expenditures, including digital and product innovation and technology enhancements, repurchases of equity and debt securities, and payments of dividends.
We have in the past, and may from time to time in the future, retire or repurchase our outstanding debt, including our senior unsecured notes or subordinated notes, through redemptions, cash purchases or exchanges for other securities, in open market purchases, tender offers, privately negotiated transactions or otherwise. Such repurchases or exchanges would depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors, and may be funded through cash on hand, borrowings under our revolving credit facility, the issuance of new debt securities or other sources of liquidity. The amounts involved may be material.
We will also need additional financing in the future to repay or refinance our existing debt at or prior to maturity, and to fund our growth, which may include the issuance of additional debt or equity securities or engaging in other capital markets or financing transactions. In 2025, as part of our financing strategy and capital structure optimization, we issued our inaugural series of subordinated notes and publicly-traded preferred stock, and in the future we may continue to seek to further optimize our capital structure. Given the maturities of certain of our outstanding debt instruments and depending on the prevailing macroeconomic conditions, it is possible that we may be required to repay, extend or refinance some or all of our future debt maturities in volatile and/or unfavorable markets.
Because of the alternatives available to us, as discussed above, we believe our short-term and long-term sources of liquidity are adequate to fund not only our current operations, but also our near-term and long-term funding requirements including dividend payments, debt service obligations and repayment of debt maturities and other amounts that may ultimately be paid in connection with contingencies. However, the adequacy of our liquidity could be impacted by various factors, including pending or future legislation, regulation or litigation, macroeconomic conditions and volatility in the financial and capital markets, limiting our access to or increasing our cost of capital, which could make capital unavailable, or available but on terms that are unfavorable to us. These factors could significantly reduce our financial flexibility and cause us to contract or not grow our business, which could have a material adverse effect on our results of operations and financial condition.
We have a robust liquidity risk management framework in place which includes ongoing monitoring of our liquidity and funding positions against our risk appetite metrics and key risk indicators. During times where there may be potential risks from adverse developments in the banking industry and/or increased financial sector volatility, we may invoke our contingency funding plans to enhance daily monitoring of our liquidity and funding positions, determine potential mitigating actions, if necessary, and provide enhanced reporting to our Boards of Directors, at both the Bread Financial and Bank-levels, and regulators.
We maintain a significant majority of our liquidity portfolio on deposit within the Federal Reserve banking system, and we also have a small investment securities portfolio, classified as available-for-sale, which we hold in relation to the Community Reinvestment Act. We do not have any investment securities classified as held-to-maturity.
Credit Ratings
We obtain credit ratings for our Parent Company from the major credit rating agencies, Moody's Investor Services (Moody's), Standard & Poor's (S&P) and Fitch Ratings (Fitch), in order to facilitate debt financings and broaden the investor base for our Parent Company debt securities.
Our management approach is designed, among other things, to maintain appropriate and stable credit ratings from the credit rating agencies which help support our access to cost-effective unsecured funding as a component of our overall liquidity and capital resources.
In October 2025 all three credit rating agencies issued their updated credit ratings and related outlooks. The table below provides a summary of the credit ratings for the outstanding senior unsecured debt, subordinated debt and preferred stock of Bread Financial Holdings, Inc. as of December 31, 2025:
| Bread Financial Holdings, Inc. | Moody's | S&P | Fitch | ||||||||||||||
| Senior unsecured debt | Ba2 | BB- | BB | ||||||||||||||
| Subordinated debt | Ba2 | B | B+ | ||||||||||||||
| Preferred stock | B1 | - | B- | ||||||||||||||
| Outlook | Positive | Positive | Stable | ||||||||||||||
We also seek to maintain appropriate and stable credit ratings for our credit card securitizations issued through World Financial Network Credit Card Master Note Trust (WFNMNT) from the rating agencies (DBRS, S&P and Fitch). The table
below provides a summary of the structured finance credit ratings for certain of the asset-backed securities, specifically the outstanding Class A notes of WFNMNT as of December 31, 2025:
| WFNMNT |
DBRS (1)
|
S&P | Fitch | ||||||||||||||
| Class A notes | AAA | AAA | AAA | ||||||||||||||
______________________________
(1)Does not include our Series 2024-B public asset-backed-notes.
Credit ratings are not a recommendation to buy or hold any securities and they may be revised or revoked at any time at the sole discretion of the rating agency. Downgrades in the ratings of our unsecured or secured debt could result in higher funding costs, as well as reductions in our borrowing capacity in the unsecured or secured debt markets. We believe our mix of funding, including the proportion of our DTC and wholesale deposits, to total funding, reduces the impact that a credit rating downgrade could have on our funding costs and capacity.
Funding Sources
As referenced above, our primary sources of liquidity include cash generated from operating activities, our bank credit facility, issuances of senior unsecured, subordinated or convertible debt securities and preferred stock by our Parent Company, financings through our securitization programs, and deposits with the Banks.
Throughout 2025 we engaged in a number of financing-related transactions, including the issuances of senior and subordinated notes, the completion of tender offers to repurchase certain outstanding senior and subordinated notes, the redemption of certain senior notes and the completion of the repurchases of 100% of our outstanding convertible senior notes, as well as the issuance of preferred stock. Each of these transactions, as well as other matters relating to our liquidity and capital resources during the year, are described in more detail below.
Certain of our long-term debt agreements include various restrictive financial and non-financial covenants. If we do not comply with certain of these covenants and an event of default occurs and remains uncured, the maturity of amounts outstanding may be accelerated and become payable, and, with respect to our credit agreement, the associated commitments may be terminated. As of December 31, 2025, we were in compliance with all such covenants.
Credit Agreement
In October 2024, we entered into our amended credit agreement with the Parent Company, as borrower, certain of our domestic subsidiaries, as guarantors, JPMorgan Chase Bank, N.A., as administrative agent and lender, and various other financial institutions, as lenders, which provides for a $700 million senior unsecured revolving credit facility (the Revolving Credit Facility), which matures in October 2028. As of December 31, 2025, our Revolving Credit Facility was undrawn and all $700 million remained available for future borrowings.
7.000% Senior Notes Due 2026 - Redemption
In January 2025, with cash on hand, we redeemed the remaining $100 million in aggregate principal amount of our 7.000% Senior Notes due 2026.
4.25% Convertible Senior Notes Due 2028 - Repurchases
In June 2023, we issued and sold $316 million aggregate principal amount of 4.25% Convertible Senior Notes due 2028 (the Convertible Notes). Before we repurchased 100% of our outstanding Convertible Notes, the Convertible Notes bore interest at an annual rate of 4.25%, payable semi-annually in arrears on June 15 and December 15 of each year. The Convertible Notes were scheduled to mature on June 15, 2028, unless earlier repurchased, redeemed or converted.
During 2025, through discrete, privately-negotiated repurchase transactions, we repurchased the remaining $10 million in aggregate principal amount of outstanding Convertible Notes. The aggregate purchase price, or settlement value, for the repurchases during 2025 was $16 million, which was funded with cash on hand. In connection with the repurchases, we recognized a $3 million inducement expense in Other non-interest expenses representing the total settlement value, inclusive of transaction fees, in excess of the total conversion value (calculated in accordance with the indenture governing the Convertible Notes), as well as a $4 million reduction in Additional paid-in capital (APIC) related to the total conversion
value paid in excess of the carrying value of the Convertible Notes repurchased and a deferred tax impact. As of December 31, 2025, all of the Convertible Notes had been extinguished and no Convertible Notes remained outstanding.
Prior to the repurchases of the Convertible Notes, the embedded conversion feature within the Convertible Notes was both considered indexed to the Company's own equity and met the equity classification conditions; therefore, it did not require derivative accounting. Upon entering into the repurchase agreements that themselves required cash settlement of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes, the embedded conversion feature no longer met the equity classification conditions; therefore, requiring bifurcation and derivative accounting.
In connection with the issuance of the Convertible Notes, we entered into privately negotiated capped call (Capped Call) transactions with certain financial institution counterparties. At that time, these transactions were expected generally to reduce potential dilution to our common stock upon any conversion of Convertible Notes and/or offset any cash payments we were required to make in excess of the principal amount of the Convertible Notes, with such reduction and/or offset subject to a cap, based on the cap price.
All of the Capped Call transactions continue to remain outstanding, notwithstanding that no Convertible Notes remain outstanding. Although we do not trade or speculate in derivatives, we may seek to opportunistically terminate the Capped Call transactions (in full or in part from time to time) or leave the Capped Call transactions outstanding, possibly until maturity, in any such case with the objective of optimizing the stockholder value we receive under these transactions. The value that we ultimately realize from the Capped Call transactions (either in the form of cash or shares of our common stock, at our election) is subject to a number of variables, most significantly our stock price at the time the Capped Call transactions are terminated, and is subject to other potential adjustments based on the amount of our quarterly dividend, the volume of our share repurchases and other factors.
For additional information on the June 2023 issuance of our Convertible Notes and the subsequent repurchases in 2024, as well as information on our Capped Call transactions, refer to Note 10, "Borrowings of Long-Term and Other Debt" to the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2024.
9.750% Senior Notes Due 2029 - Tender Offers, Repurchase and Redemption
In June 2025, we completed a cash tender offer (the Tender Offer) pursuant to which we repurchased $150 million aggregate principal amount of our 9.750% Senior Notes due 2029 (Senior Notes due 2029). The consideration paid in the Tender Offer for each $1,000 principal amount of the Senior Notes due 2029 was $1,071, plus accrued and unpaid interest. In connection with the repurchase, we recognized a $13 million loss on extinguishment in Other non-interest expenses representing the total settlement value, inclusive of transaction fees, in excess of the carrying value of the Senior Notes due 2029.
In August 2025, we completed another cash tender offer (the Third Quarter Tender Offer) pursuant to which we repurchased $31 million in aggregate principal amount of our Senior Notes due 2029, as well as $0.1 million aggregate principal amount of 8.375% Subordinated Notes due 2035. The consideration paid in the Third Quarter Tender Offer for each $1,000 principal amount of the Senior Notes due 2029 was $1,070, plus accrued and unpaid interest. In connection with the repurchase, we recognized a $3 million loss on extinguishment in Other non-interest expenses representing the total settlement value, inclusive of transaction fees, in excess of the carrying value of the Senior Notes due 2029. See further discussion of our 8.375% Subordinated Notes due 2035, below.
In November 2025, we redeemed the remaining $719 million in aggregate principal amount of our Senior Notes due 2029 with the net proceeds from the issuance of the 6.750% Senior Notes due 2031 (as discussed below), together with cash on hand. The consideration paid in the redemption for each $1,000 principal amount of the Senior Notes due 2029 was $1,068, plus accrued and unpaid interest. In connection with the redemption, we recognized a $55 million loss on extinguishment in Other non-interest expenses representing the total settlement value, inclusive of transaction fees, in excess of the carrying value of the Senior Notes due 2029. There were no Senior Notes due 2029 outstanding as of December 31, 2025. For additional information on the issuance of our Senior Notes due 2029, refer to Note 10, "Borrowings of Long-Term and Other Debt" to the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2024.
6.750% Senior Notes Due 2031 - Issuance
In November 2025, we issued $500 million aggregate principal amount of 6.750% Senior Notes due 2031 (Senior Notes due 2031). The Senior Notes due 2031 accrue interest on the outstanding principal amount at a rate of 6.750% per annum from November 6, 2025, payable semi-annually in arrears, on May 15 and November 15 of each year, beginning on May 15, 2026. The Senior Notes due 2031 will mature on May 15, 2031, unless subject to earlier repurchase or redemption. We used the net proceeds from the offering of the Senior Notes due 2031, together with cash on hand, to fund the redemption in full of our outstanding Senior Notes due 2029.
8.375% Subordinated Notes Due 2035 - Issuance, Tender Offer and Repurchase
In March 2025, we issued and sold $400 million in aggregate principal amount of 8.375% Fixed-Rate Reset Subordinated Notes due 2035 (the Subordinated Notes). The Subordinated Notes accrue interest on the outstanding principal amount (i) at a rate per annum equal to 8.375% from, and including, March 10, 2025, to, but excluding, June 15, 2030 (the Reset Date), and (ii) from, and including, the Reset Date to, but excluding, the maturity date at a rate per annum equal to the Five-Year U.S. Treasury Rate as of the date that is two business days prior to the Reset Date, plus 430 basis points. Interest on the Subordinated Notes is payable semiannually in arrears on June 15 and December 15 of each year. The Subordinated Notes will mature on June 15, 2035, unless subject to earlier repurchase or redemption. As noted above, as part of the Third Quarter Tender Offer, we repurchased $0.1 million aggregate principal amount of Subordinated Notes.
We used $250 million of the net proceeds from the Subordinated Notes offering to enter into a subordinated promissory note between Parent Company, as lender, and CCB, as borrower, on terms substantially the same as those of the Subordinated Notes. The subordinated promissory note is eliminated in consolidation.
Deposits
The Banks use a variety of deposit products to finance their operating activities, including funding for non-securitized credit card and other loans, and to fund their securitization enhancement requirements. The Banks offer DTC retail deposit products, including Individual Retirement Accounts, as well as deposits sourced through contractual arrangements with various financial counterparties (often referred to as wholesale deposits, and includes brokered deposits) and various non-maturity deposit products that are generally redeemable on demand by the customer, and as such have no scheduled maturity date. The Banks also issue certificates of deposit with scheduled maturity dates ranging between January 2026 and December 2030, in denominations of at least $1,000, on which interest is paid either monthly or at maturity.
The following table summarizes these retail and wholesale deposit products by type and associated attributes as of December 31:
Table 9: Interest-bearing Deposits
| 2025 | 2024 | ||||||||||
| (Millions, except percentages) | |||||||||||
| Deposits | |||||||||||
| Direct-to-consumer (retail) | $ | 8,522 | $ | 7,687 | |||||||
| Wholesale | 5,369 | 5,368 | |||||||||
| Total interest-bearing deposits | $ | 13,891 | $ | 13,055 | |||||||
| Non-maturity deposit products | |||||||||||
| Non-maturity deposits | $ | 7,700 | $ | 6,827 | |||||||
| Interest rate range | 0.70% - 4.05% | 0.70% - 4.75% | |||||||||
| Weighted-average interest rate | 3.74 | % | 4.16 | % | |||||||
| Certificates of deposit | |||||||||||
| Certificates of deposit | $ | 6,191 | $ | 6,228 | |||||||
| Interest rate range | 0.85% - 5.31% | 0.80% - 5.7% | |||||||||
| Weighted-average interest rate | 4.12 | % | 4.64 | % | |||||||
As of December 31, 2025 and 2024, retail deposits that exceeded applicable FDIC insurance limits, which are generally $250,000 per depositor, per insured bank, per ownership category, were estimated to be $638 million (5% of Total deposits) and $531 million (4% of Total deposits), respectively. The measurement of estimated uninsured deposits aligns with regulatory guidelines.
Securitization Programs Including Conduit Facilities
We sell the majority of the credit card loans originated by the Banks to certain of our master trusts (the Trusts). These securitization programs are a principal vehicle through which we finance the Banks' credit card loans. For this purpose, we use a combination of public term asset-backed notes and private conduit facilities (the Conduit Facilities) with a consortium of lenders, including domestic money center, regional and international banks. Both our public term asset-backed notes and borrowings under the Conduit Facilities are included in Debt issued by consolidated variable interest entities (VIEs) in the Consolidated Balance Sheets.
The table below summarizes our conduit capacities, borrowings and maturities for the periods presented:
Table 10: Conduit Borrowing Capacity Rollforward and Maturities
| (Millions) | December 31, 2024 | Commitment | December 31, 2025 | |||||||||||||||||||||||||||||||||||
| Conduit Facilities | Capacity |
Drawn(6)
|
Change | Capacity | Drawn |
Maturity Date(7)
|
||||||||||||||||||||||||||||||||
| Comenity Bank | ||||||||||||||||||||||||||||||||||||||
|
WFNMNT 2009-VFN(1)
|
$ | 2,650 | $ | 1,955 | $ | (900) | $ | 1,750 | $ | 1,363 | October 2026 | |||||||||||||||||||||||||||
|
WFNMT 2009-VFC1(2)
|
- | 141 | - | - | - | - | ||||||||||||||||||||||||||||||||
| Comenity Capital Bank | ||||||||||||||||||||||||||||||||||||||
|
WFCMNT 2009-VFN(3)
|
2,250 | 867 | (250) | 2,000 | 712 | February 2027 | ||||||||||||||||||||||||||||||||
|
CCAST 2023-VFN1(4)
|
250 | 250 | (250) | - | - | - | ||||||||||||||||||||||||||||||||
|
CCAST 2024-VFN1(5)
|
200 | - | (200) | - | - | - | ||||||||||||||||||||||||||||||||
| Total | $ | 5,350 | $ | 3,213 | $ | (1,600) | $ | 3,750 | $ | 2,075 | ||||||||||||||||||||||||||||
__________________________________
(1)2009-VFN Conduit issued under World Financial Network Credit Card Master Note Trust (WFNMNT). In October 2025, the 2009-VFN Conduit commitment was reduced by $900 million to $1.75 billion, and the Maturity Date was extended to October 2026.
(2)2009-VFC1 Conduit issued under World Financial Network Credit Card Master Trust III (WFNMT) was retired following controlled amortization, meaning the period in which principal collections are accumulated to pay down the outstanding principal amount of the notes issued under the Conduit Facility, in June 2025 pursuant to the termination, consent and waiver agreement.
(3)2009-VFN Conduit issued under World Financial Capital Master Note Trust (WFCMNT). In February 2025, the 2009-VFN Conduit commitment was reduced by $250 million to $2 billion, and the Maturity Date was extended to February 2026. Then in December 2025, the Maturity Date of the 2009-VFN Conduit was further extended to February 2027.
(4)2023-VFN1 Conduit issued under Comenity Capital Asset Securitization Trust (CCAST). The purchase commitment expired on September 29, 2025 and the 2023-VFN1 Conduit was retired on October 1, 2025 pursuant to the termination, consent and waiver agreement.
(5)2024-VFN1 Conduit issued under CCAST was retired in February 2025 pursuant to the termination, consent and waiver agreement.
(6)Amounts drawn do not include $1.1 billion of debt in the form of subordinated notes issued by WFNMNT and WFCMNT as of December 31, 2024, which were not sold, but were retained by us as credit enhancements and therefore have been eliminated from the Total. The credit enhancements represented by subordinated notes issued by WFCMNT and WFNMNT were replaced with excess collateral amounts in February 2025 and October 2025, respectively, as defined in the relevant indenture supplements.
(7)Maturity Date with respect to conduit borrowings means the date on which the revolving period for the applicable Conduit Facility expires. The revolving period may be extended or renewed (unless an early amortization event occurs prior to the Maturity Date). Absent the extension or renewal of the revolving period, the Conduit Facility shall enter controlled amortization on the Maturity Date and may no longer be drawn upon.
As of December 31, 2025, we had approximately $10.7 billionof securitized credit card loans. Securitizations require credit enhancements in the form of cash, spread deposits, additional loans and/or subordinated classes. The credit enhancement is principally based on the outstanding balances of the series issued by the Trusts and by the performance of the credit card loans in the Trusts.
Early amortization events as defined within each asset-backed securitization transaction are generally driven by asset performance. We do not believe it is reasonably likely that an early amortization event will occur due to asset performance. However, if an early amortization event were declared for a Trust, the trustee of the particular Trust would retain the interest in the loans along with the excess spread that would otherwise be paid to our Bank subsidiary until the investors were fully repaid. The occurrence of an early amortization event would significantly limit or negate our ability to securitize additional credit card loans.
We have secured and continue to secure the necessary commitments to fund our credit card and other loans. However, certain of these commitments are short-term in nature and subject to renewal. There is no guarantee that these funding sources, when they mature, will be renewed on similar terms, or at all, as they are dependent on the availability of the asset-backed securitization and deposit markets at the time.
Regulation RR (Credit Risk Retention) adopted by the FDIC, the SEC, the FRB and certain other federal regulators mandates a minimum five percent risk retention requirement for securitizations. Such risk retention requirements may limit our liquidity by restricting the amount of asset-backed securities we are able to issue or affecting the timing of future
issuances of asset-backed securities. We satisfy such risk retention requirements by maintaining a seller's interest calculated in accordance with Regulation RR.
Equity
Preferred Stock
In November 2025, we authorized and issued 75,000 shares of preferred stock as depositary shares (the Depositary Shares) for gross proceeds of $75 million, with each Depositary Share representing a 1/40th interest in our Series A 8.625% Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share (the Series A Preferred Stock). The Series A Preferred Stock has a liquidation preference of $25 per Depositary Share (equivalent to $1,000 per share of Series A Preferred Stock) and as of December 31, 2025, the aggregate liquidation value was $75 million. We used the net proceeds of the offering to enter into a preferred stock transaction with one of our subsidiary banks, CCB, pursuant to which CCB issued preferred stock to Parent Company on terms substantially the same as those of the Series A Preferred Stock. The CCB preferred stock is eliminated in consolidation.
We will pay dividends on the Series A Preferred Stock quarterly in arrears, when, as, and if declared by our Board of Directors, and to the extent that we have lawfully available funds to pay such dividends, on March 15, June 15, September 15, and December 15 of each year. We expect to pay dividends on our Series A Preferred Stock beginning on March 15, 2026, subject to the above referenced conditions. We may redeem the Series A Preferred Stock at our option, subject to any regulatory approval requirements as are in effect at such time, (i) in whole or in part, on any dividend payment date on or after December 15, 2030 or (ii) in whole but not in part, at any time within 90 days following a regulatory capital treatment event, in either case at a redemption price equal to $1,000 per share (equivalent to $25 per Depositary Share), plus any declared and unpaid dividends. In the event we liquidate, dissolve or wind-up our business and affairs, either voluntarily or involuntarily, as noted above holders of the Series A Preferred Stock are entitled to a liquidation preference of $25 per Depositary Share, plus any declared and unpaid dividends, before we make any distribution of assets to the holders of our common stock. Holders of the Depositary Shares are entitled to all proportional rights and preferences of the Series A Preferred Stock (including dividend, voting, redemption and liquidation rights).
Stock Repurchase Programs
Periodically, we enter into stock repurchase programs, as approved by our Board of Directors. The rationale for our repurchase programs, and the amounts thereof, is to execute against our previously disclosed capital priorities to grow responsibly, maintain balance sheet strength, and return value to stockholders.
The following table provides information about our common stock repurchases under our various Board of Directors approved share repurchase authorizations, for the periods presented:
Table 11: Authorized Share Repurchases
| (Millions) | Amount Authorized for Repurchase |
Number of Shares Repurchased(1)
|
Approximate Dollar Value of Shares Repurchased (2)
|
Amount Remaining for Future Repurchases | ||||||||||||||||||||||
| For the three months ended: | ||||||||||||||||||||||||||
|
March 31, 2025
|
$ | 150 | 2.1 | $ | 102 | $ | 48 | |||||||||||||||||||
|
June 30, 2025
|
- | 1.1 | 48 | - | ||||||||||||||||||||||
|
September 30, 2025
|
200 | 0.6 | 40 | 160 | ||||||||||||||||||||||
|
December 31, 2025
|
200 | 1.9 | 120 | $ | 240 | |||||||||||||||||||||
| Total | $ | 550 | 5.7 | $ | 310 | |||||||||||||||||||||
______________________________
(1)Following their repurchase, these shares ceased to be outstanding shares of common stock and are now treated as authorized but unissued shares of common stock.
(2)Excludes excise taxes on stock repurchases.
Dividends
The table below summarizes the cash dividend activity we had on our common stock for the dates presented:
Table 12: Dividends
|
(Millions, except per share amounts)
|
||||||||||||||||||||
| Dividend Declaration Date | Dividend Payment Date | Amount Per Common Share |
Amount(1)
|
|||||||||||||||||
| January 30, 2025 | March 21, 2025 | $ | 0.21 | $ | 10 | |||||||||||||||
| April 24, 2025 | June 13, 2025 | $ | 0.21 | 10 | ||||||||||||||||
| July 24, 2025 | September 12, 2025 | $ | 0.21 | 10 | ||||||||||||||||
| October 23, 2025 | December 12, 2025 | $ | 0.23 | 10 | ||||||||||||||||
| $ | 40 | |||||||||||||||||||
______________________________
(1)Excludes dividend equivalent rights paid during the period.
No cash dividends were declared or paid on our preferred stock during 2025.
On January 29, 2026, our Board of Directors declared a quarterly cash dividend of $26.35 per share on our preferred stock and $0.23 per share on our common stock, payable on March 16, 2026, to stockholders of record at the close of business on February 27, 2026.
Contractual Obligations
In the normal course of business, we enter into various contractual obligations that may require future cash payments, the vast majority of which relate to deposits, debt issued by consolidated VIEs, long-term and other debt and operating contracts and leases.
We believe that we will have access to sufficient resources to meet these commitments.
Cash Flows
The table below summarizes our cash flow activity for the periods indicated, followed by a discussion of the variance drivers impacting our Operating, Investing and Financing activities:
Table 13: Cash Flows
| 2025 | 2024 | 2023 | |||||||||||||||
| (Millions) | |||||||||||||||||
| Total cash provided by (used in): | |||||||||||||||||
| Operating activities | $ | 2,092 | $ | 1,859 | $ | 1,987 | |||||||||||
| Investing activities | (1,371) | (1,169) | 788 | ||||||||||||||
| Financing activities | (807) | (592) | (3,086) | ||||||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (86) | $ | 98 | $ | (311) | |||||||||||
Cash Flows from Operating Activities primarily include Net income adjusted for (i) non-cash items included in Net income, such as Provision for credit losses, Depreciation and amortization, deferred taxes and other non-cash items, and (ii) changes in the balances of operating assets and liabilities, which can fluctuate in the normal course of business due to the amount and timing of payments. We generated Cash flows from operating activities of $2.1 billion and $1.9 billion for the years ended December 31, 2025 and 2024, respectively. The net cash provided by operating activities during these periods was primarily driven by cash generated from Net income, after adjusting for the Provision for credit losses and Loss on debt extinguishment.
Cash Flows from Investing Activities primarily include changes in Credit card and other loans. Cash used in investing activities was $1.4 billion and $1.2 billion for the years ended December 31, 2025 and 2024, respectively. For the years
ended December 31, 2025 and 2024, the net cash used in investing activities was primarily due to Net principal losses, and for the year ended December 31, 2024, the purchase of a credit card loan portfolio, partially offset by the paydown of Credit card and other loans and the sale of a credit card loan portfolio.
Cash Flows from Financing Activitiesprimarily include changes in deposits and long-term debt. Cash used in financing activities was $807 million and $592 million for the years ended December 31, 2025 and 2024, respectively. For the year ended December 31, 2025, the net cash used in financing activities was primarily driven by net repayments of both debt issued by consolidated variable interest entities (i.e., securitizations) and of unsecured borrowings, as well as repurchases of common stock, partially offset by a net increase in deposits. For the year ended December 31, 2024, the net cash used in financing activities was primarily driven by net repayments of unsecured borrowings, including our repurchased Convertible Notes, and a net decrease in wholesale deposits, partially offset by the net borrowings of debt issued by consolidated variable interest entities.
INFLATION AND SEASONALITY
Although we cannot precisely determine the impact of inflation on our operations, we have generally sought to rely on operating efficiencies from scale, technology modernization and digital advancement along with other operational excellence initiatives, as well as expansion in lower cost jurisdictions to offset increased costs of employee compensation and other operating expenses impacted by inflation. We also recognize that a customer's ability and willingness to repay us has been negatively impacted by factors such as recent inflation and higher interest rates, and any persistent effects therefrom, which may result in higher delinquencies and increased credit losses, as reflected in our elevated Reserve rate. If the efforts to control inflation in the U.S. and globally are not successful and inflationary pressures continue to persist, including due to changes to, or the imposition of, tariffs and/or trade barriers, they could further increase repayment pressure on consumers as well as the risk of a recessionary environment or stagflation which may adversely impact our business, results of operations and financial condition.
With respect to seasonality, our revenues, earnings and cash flows are affected by increased consumer spending patterns leading up to and including the holiday shopping season in the fourth quarter of each year and, to a lesser extent, during the first quarter of each year as Credit card and other loans are paid down. Net principal loss rates for our Credit card and other loans portfolio also have historically exhibited seasonal patterns and generally tend to be the highest in the first quarter of the year and lowest in the third quarter. While the effects of the seasonal trends discussed above remain evident, macroeconomic trends, such as those discussed within the Business Environment sections of our quarterly and annual reports on Forms 10-Q and Form 10-K generally have a more significant impact on our key financial metrics and can outweigh any seasonal impacts that we may experience.
LEGISLATIVE, REGULATORY MATTERS AND CAPITAL ADEQUACY
Our business is subject to extensive federal and state laws and regulations, as well as related regulation and supervision, including by the FDIC, CFPB and other federal and state authorities. Pending and future laws and regulations (federal and state) may adversely impact our business. Without limiting the foregoing, CB is subject to various regulatory capital requirements administered by the Delaware Office of the State Bank Commissioner and the FDIC. CCB is also subject to various regulatory capital requirements administered by the Utah Department of Financial Institutions and the FDIC. Failure to meet minimum capital requirements can trigger certain mandatory and possibly additional discretionary actions by our regulators. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, both Banks must meet specific capital guidelines that involve quantitative measures of their assets and liabilities as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by these regulators about components, risk weightings and other factors. In addition, both Banks are limited in the amounts they can pay as dividends to the Parent Company. For additional information about legislative and regulatory matters impacting us, see "Business-Supervision and Regulation" under Part I of this Annual Report on Form 10-K, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) - Business Environment" and "Risk Factors - Legal, Regulatory and Compliance Risks."
Quantitative measures, established by regulations to ensure capital adequacy, require the Banks to maintain minimum amounts and ratios of Tier 1 capital to average assets, and Common equity tier 1, Tier 1 capital and Total capital, each to risk weighted assets. Failure to meet these minimum capital requirements can result in certain mandatory, and possibly additional discretionary actions by the Banks' regulators that if undertaken, could have a direct material effect on CB's and/or CCB's operating activities, as well as our operating activities. Based on these regulations, as of December 31, 2025 and 2024, each Bank met all capital requirements to which it was subject, and maintained capital ratios in excess of the
minimums required to qualify as well capitalized. The Banks seek to maintain capital levels and ratios in excess of the minimum regulatory requirements inclusive of the 2.5% Capital Conservation Buffer. Although Bread Financial is not a bank holding company as defined under the Bank Holding Company Act, we seek to maintain capital levels and ratios in excess of the minimums required for bank holding companies.
The Banks adopted the option provided by the interim final rule issued by joint federal bank regulatory agencies, which largely delayed the effects of the CECL model on their regulatory capital for two years, until January 1, 2022, after which the effects were phased-in over a three-year period through December 31, 2024. Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period included both the initial impact of our adoption of CECL as of January 1, 2020, and 25% of subsequent changes in our Allowance for credit losses during each quarter of the two-year period ended December 31, 2021. In accordance with the interim final rule, we began to ratably phase-in these effects on January 1, 2022, and as of January 1, 2025 had fully phased-in all such effects.
On December 17, 2025, we filed applications with the federal and respective state banking regulators for permission to merge CB with and into CCB, with CCB being the surviving entity. Pending regulatory approval and the expiration of any applicable waiting periods, the merger of CB and CCB is expected to occur in the second half of 2026. The merger is not expected to have a significant impact on our consolidated financial position, results of operations, or liquidity. For additional discussion, refer to "Part I, Item 1. Business - Supervision and Regulation - Planned Merger of CB with and into CCB."
The following table provides the actual capital ratios and minimum ratios for the Company, as well as each Bank, as of December 31:
Table 14: Capital Ratios
| Ratio/Dollar Value |
Minimum Ratio for Capital Adequacy Purposes * |
Minimum Ratio to be Well Capitalized under Prompt Corrective Action Provisions |
|||||||||||||||||||||
| (Millions, except percentages) | 2025 | 2024 | |||||||||||||||||||||
| Total Company | |||||||||||||||||||||||
|
Common equity tier 1 capital ratio (1)
|
13.0 | % | 12.4 | % | 4.5 | % | N/A | ||||||||||||||||
|
Tier 1 capital ratio (2)
|
13.4 | 12.4 | 6.0 | N/A | |||||||||||||||||||
|
Total risk-based capital ratio (3)
|
16.8 | 13.8 | 8.0 | N/A | |||||||||||||||||||
|
Tier 1 leverage capital ratio (4)
|
12.4 | 11.5 | 4.0 | N/A | |||||||||||||||||||
|
Total risk-weighted assets (5)
|
$ | 19,755 | $ | 19,928 | |||||||||||||||||||
| Comenity Bank | |||||||||||||||||||||||
|
Common equity tier 1 capital ratio (1)
|
15.1 | % | 16.5 | % | 4.5 | % | 6.5 | % | |||||||||||||||
|
Tier 1 capital ratio (2)
|
15.1 | 16.5 | 6.0 | 8.0 | |||||||||||||||||||
|
Total risk-based capital ratio (3)
|
16.5 | 17.9 | 8.0 | 10.0 | |||||||||||||||||||
|
Tier 1 leverage capital ratio (4)
|
14.1 | 15.3 | 4.0 | 5.0 | |||||||||||||||||||
| Comenity Capital Bank | |||||||||||||||||||||||
|
Common equity tier 1 capital ratio (1)
|
13.5 | % | 15.4 | % | 4.5 | % | 6.5 | % | |||||||||||||||
|
Tier 1 capital ratio (2)
|
14.1 | 15.4 | 6.0 | 8.0 | |||||||||||||||||||
|
Total risk-based capital ratio (3)
|
17.5 | 16.7 | 8.0 | 10.0 | |||||||||||||||||||
|
Tier 1 leverage capital ratio (4)
|
13.2 | 14.3 | 4.0 | 5.0 | |||||||||||||||||||
______________________________
*The listed capital adequacy ratios exclude the Capital Conservation Buffer.
(1)Common equity tier 1 capital ratio represents tier 1 capital reduced by Preferred stock divided by total risk-weighted assets. In the calculation of tier 1 capital, we follow the Basel III Standardized Approach and therefore Total
stockholders' equity has been reduced by Goodwill and intangible assets, net. See below for a reconciliation of our Total stockholders' equity under GAAP to tier 1 and tier 2 capital under the Basel III Standardized Approach.
(2)Tier 1 capital ratio represents tier 1 capital divided by total risk-weighted assets. In the calculation of tier 1 capital, we follow the Basel III Standardized Approach and therefore Total stockholders' equity has been reduced, primarily by Goodwill and intangible assets, net. For us, tier 1 capital is primarily comprised of CET1 capital and Preferred stock. See below for a reconciliation of our Total stockholders' equity under GAAP to tier 1 and tier 2 capital under the Basel III Standardized Approach.
(3)Total risk-based capital ratio represents total capital divided by total risk-weighted assets. In the calculation of total capital, we follow the Basel III Standardized Approach and therefore tier 1 capital has been increased by tier 2 capital, which for us is comprised of subordinated notes, as well as the allowable portion of the Allowance for credit losses. See below for a reconciliation of our Total stockholders' equity under GAAP to tier 1 and tier 2 capital under the Basel III Standardized Approach.
(4)Tier 1 leverage capital ratio represents tier 1 capital divided by total average assets, after certain adjustments.
(5)Total risk-weighted assets are generally measured by allocating assets, and specified off-balance sheet exposures, to various risk categories as defined by the Basel III Standardized Approach.
The following table provides a reconciliation of our Total stockholders' equity under GAAP to Basel III Standardized Approach Common equity tier 1 capital, Tier 1 capital, Tier 2 capital and Total capital, as of December 31:
Table 15: Capital Reconciliations
| 2025 | |||||
| (Millions) | |||||
| Total stockholders' equity | $ | 3,327 | |||
| Less: | |||||
| Preferred stock | 71 | ||||
| Total common stockholders' equity | 3,256 | ||||
| Less: | |||||
|
Goodwill (1)
|
593 | ||||
| Other intangible assets | 82 | ||||
| Other | 12 | ||||
| Common equity tier 1 capital | 2,569 | ||||
| Add: | |||||
| Preferred stock | 71 | ||||
| Tier 1 capital | 2,640 | ||||
| Subordinated notes | 400 | ||||
|
Qualifying allowance for credit losses (2)
|
270 | ||||
| Tier 2 capital | 670 | ||||
| Total capital | $ | 3,310 | |||
__________________________________
(1)Goodwill, net of the related $41 million deferred tax liability.
(2)Represents the allowable portion of the Allowance for credit losses, which is a maximum of 1.25% of RWA.
The following table provides the changes in our Basel III Standardized Approach Common equity tier 1 capital, Tier 1 capital and Tier 2 capital as of December 31:
Table 16: Capital Rollforwards
| 2025 | |||||
| (Millions) | |||||
| Common equity tier 1 capital beginning balance | $ | 2,474 | |||
| Net income available to common stockholders | 518 | ||||
| Dividends declared on common stock | (42) | ||||
| Repurchases of common stock | (313) | ||||
| CECL phase-in adjustment | (139) | ||||
| Changes in additional paid-in capital | 36 | ||||
| Changes in intangible assets | 30 | ||||
| Other | 5 | ||||
| Common equity tier 1 capital | 2,569 | ||||
| Additional Tier 1 capital beginning balance | - | ||||
| Change in preferred stock | 71 | ||||
| Tier 1 capital | 2,640 | ||||
| Tier 2 capital beginning balance | 271 | ||||
| Change in subordinated notes | 400 | ||||
| Change in qualifying allowance for credit losses | (1) | ||||
| Tier 2 capital | 670 | ||||
| Total capital | $ | 3,310 | |||
Further information about each Bank's capital components and calculations can be found in each Bank's Consolidated Reports of Condition and Income Form FFIEC 041 (Call Reports) as filed with the FDIC.
We are also involved, from time to time, in reviews, investigations, subpoenas, supervisory actions and other proceedings (both formal and informal) by governmental agencies regarding our business, which could subject us to significant fines, penalties, obligations to change our business practices, significant restrictions on our existing business or ability to develop new business, cease-and-desist orders, safety-and-soundness directives or other requirements resulting in increased expenses, diminished income and damage to our reputation.
In November 2023 following the consent of the Board of Managers of Comenity Servicing LLC (the Servicer), the FDIC issued a consent order to the Servicer. The Servicer is not one of our Bank subsidiaries, but is our wholly-owned subsidiary that services substantially all of our loans. The consent order arose out of the June 2022 transition of our credit card processing services to strategic outsourcing partners and addresses certain shortcomings in the Servicer's information technology (IT) systems development, project management, business continuity management, cloud operations, and third-party oversight. The Servicer entered into the consent order for the purpose of resolving these matters without admitting or denying any violations of law or regulation set forth in the order. The consent order does not contain any monetary penalties or fines.
The Servicer continues to take significant steps to strengthen the organization's IT governance and address the other issues identified in the consent order, working diligently to ensure that all requirements of the consent order are satisfied. Without limiting the generality of the foregoing, the Servicer has taken steps to address each provision within the consent order and continues to comply with each ongoing requirement. The Servicer is committed to complying with the longer-term requirements of the consent order, including the enhancement of its compliance management processes and related corporate governance, compliance with the applicable system conversion requirements, and enhanced risk management and reporting. The Servicer has submitted all required deliverables under the consent order to the FDIC for its review and consideration. The Board of Managers of the Servicer continues to oversee its compliance with the requirements of the
consent order and provide effective challenge to the Servicer's management toward that end. The Board of Directors of each of the Banks also receives reporting about the Servicer and monitors the Servicer's compliance with the provisions of the consent order.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our results of operations and overall financial condition is based upon our audited Consolidated Financial Statements, which have been prepared in accordance with the accounting policies described in Note 1, "Description of Business, Basis of Presentation and Significant Accounting Policies" to our audited Consolidated Financial Statements included as part of this Annual Report on Form 10-K. The preparation of the audited Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates and judgments in determination of our financial position and operating results. Estimates are based on information available as of the date of the audited Consolidated Financial Statements and, accordingly, actual results could differ from these estimates, sometimes materially. Critical accounting estimates are defined as those that are both most important to the portrayal of our financial position and operating results, and require management's most subjective judgments, which for us is our Allowance for credit losses and Goodwill impairment.
Allowance for Credit Losses
The Allowance for credit losses represents our estimate of expected credit losses over the estimated life of our Credit card and other loans, incorporating future macroeconomic forecasts in addition to information about past events and current conditions. Our estimate under the CECL approach involves significant judgments from a modeling and forecasting perspective, and is significantly influenced by the composition, characteristics and quality of our Credit card and other loans portfolio, as well as the prevailing economic conditions and forecasts utilized.
In estimating our Allowance for credit losses, for each identified segment of loans sharing similar risk characteristics, management uses modeling and estimation techniques that leverage historical data and behavioral relationships, together with third-party projections of certain macroeconomic variables, to estimate expected credit losses based on historical correlation of realized losses to macroeconomic conditions. We consider the macroeconomic forecast used to be reasonable and supportable over the estimated life of the Credit card and other loans portfolio, with no reversion period. Since our implementation of the CECL guidance, we have maintained a consistent approach to modeling the life of loan losses in establishing our Allowance for credit losses.
In addition to the quantitative estimate of expected credit losses, we also incorporate qualitative adjustments to the modeled output in order to address risks not inherently captured by that modeled output, such as Company-specific risks, changes in current macroeconomic conditions, or other relevant factors to ensure the Allowance for credit losses reflects our best estimate of current expected credit losses.
If we used different assumptions in estimating our current expected credit losses, the impact on the Allowance for credit losses could have a material effect on our consolidated financial position and results of operations. For example, a 100 basis point increase in the Allowance for credit losses as a percentage of the amortized cost of our Credit card and other loans could have resulted in a change of approximately $184 million in the Allowance for credit losses as of December 31, 2025, with a corresponding change in the Provision for credit losses.
Goodwill Impairment
Goodwill is recognized for business acquisitions when the purchase price is higher than the fair value of acquired net assets. As required by GAAP, goodwill is not amortized but is tested for impairment at least annually or when events or circumstances arise that would more likely than not reduce the fair value of our single reporting unit below its carrying value.
We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying value. Alternatively, we can perform a more detailed quantitative assessment of goodwill impairment. Qualitative factors considered in evaluating goodwill impairment include macroeconomic conditions, industry and market considerations, our overall financial performance and other relevant entity-specific factors, and/or a sustained decrease in our share price. If, after assessing these qualitative factors we conclude that it is not more likely than not that the fair value of our reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is
not necessary. However, if the qualitative factors indicate it is more likely than not that the fair value of our reporting unit is less than its carrying amount, or we elect to skip the qualitative assessment, we would perform a quantitative impairment test.
We apply significant judgment when testing goodwill for impairment, especially when performing the quantitative test where we perform a valuation of our reporting unit leveraging a combination of the income approach based on discounted cash flows and the market approach based on valuation multiples. The key assumptions used to determine the fair value are primarily unobservable inputs (i.e., Level 3 inputs as defined under GAAP) including internally developed forecasts to estimate future cash flows, growth rates and discount rates, as well as market valuation multiples (for the market approach). Estimated cash flows are based on internal forecasts grounded in historical performance and future expectations. To discount the estimated cash flows, we use the expected cost of equity taking into account a combination of industry and Company-specific factors we believe a third-party market participant would incorporate. We believe the discount rate applied appropriately reflects the risks and uncertainties in the financial markets generally and specifically in our internally developed forecasts. When using valuation multiples under the market approach, we apply comparable publicly traded companies' multiples (e.g., price to tangible book value or return on tangible equity) to our reporting unit's operating results.
Given the inherent uncertainty in the judgments involved, we could be exposed to goodwill impairment as a result of adverse impacts from various factors including regulatory or legislative changes, or if future macroeconomic conditions or future operating results differ significantly from our current assumptions.
In connection with our annual goodwill impairment evaluation for the year ended December 31, 2025, we performed a qualitative assessment and determined that it was not more likely than not that the fair value of our reporting unit was less than its carrying amount. See Note 6, "Goodwill and Intangible Assets, Net"to our audited Consolidated Financial Statements for additional information.
RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS
See "Recently Adopted and Recently Issued Accounting Standards" in Note 1, "Description of Business, Basis of Presentation and Significant Accounting Policies" to the audited Consolidated Financial Statements.
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