BREAD FINANCIAL HOLDINGS, INC. 10-K

Item 9A. Controls and Procedures. Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP), and include those policies and procedures that: • Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of assets; • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and 63 Tabl e of Contents • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013) . Based on those criteria and management’s assessment, with the participation of the Chief Executive Officer and Chief Financial Officer, we conclude that, as of December 31, 2022, our internal control over financial reporting was effective. The effectiveness of internal control over financial reporting as of December 31, 2022, has been audited by Deloitte & Touche LLP, our independent registered public accounting firm who also audited our Consolidated Financial Statements; their attestation report on the effectiveness of our internal control over financial reporting appears on page F-4. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 64 Tabl e of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance. Incorporated by reference to the Proxy Statement for the 2023 Annual Meeting of our stockholders, which will be filed with the SEC not later than 120 days after December 31, 2022. Item 11. Executive Compensation. Incorporated by reference to the Proxy Statement for the 2023 Annual Meeting of our stockholders, which will be filed with the SEC not later than 120 days after December 31, 2022. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Incorporated by reference to the Proxy Statement for the 2023 Annual Meeting of our stockholders, which will be filed with the SEC not later than 120 days after December 31, 2022. Item 13. Certain Relationships and Related Transactions, and Director Independence. Incorporated by reference to the Proxy Statement for the 2023 Annual Meeting of our stockholders, which will be filed with the SEC not later than 120 days after December 31, 2022. Item 14. Principal Accounting Fees and Services. Incorporated by reference to the Proxy Statement for the 2023 Annual Meeting of our stockholders, which will be filed with the SEC not later than 120 days after December 31, 2022. 65 Tabl e of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. a) The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements (2) Financial Statement Schedules. Separate financial statement schedules have been omitted either because they are not applicable or because the required information is included in the consolidated financial statements. (3) Exhibits. The following exhibits are filed as part of this Annual Report on Form 10-K or, where indicated, were previously filed and are hereby incorporated by reference. Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date 3.1 (a) Third Amended and Restated Certificate of Incorporation of the Registrant. 8-K 3.2 6/10/16 3.2 (a) Certificate of Amendment to Third Amended and Restated Certificate of Incorporation of the Registrant. 8-K 3.1 3/24/22 3.3 (a) Certificate of Designations of Series A Preferred Non-Voting Convertible Preferred Stock of the Registrant 8-K 3.1 4/29/19 3.4 (a) Sixth Amended and Restated Bylaws of the Registrant. 8-K 3.2 3/24/22 4.1 (a) Specimen Certificate for shares of Common Stock of the Registrant. 10-Q 4.0 8/8/03 *4.2 (a) Description of Registrant’s Common Stock +10.1 (a) Bread Financial Holdings, Inc. Executive Deferred Compensation Plan, amended and restated effective January 1, 2018. 8-K 10.1 11/24/17 +10.2 (a) Bread Financial Holdings, Inc. 2010 Omnibus Incentive Plan. DEF 14A A 4/20/10 +10.3 (a) Bread Financial Holdings, Inc. 2015 Omnibus Incentive Plan. DEF 14A B 4/20/15 +10.4 (a) Bread Financial Holdings, Inc. 2020 Omnibus Incentive Plan. DEF 14A A 4/23/20 +10.5 (a) Bread Financial Holdings, Inc. 2022 Omnibus Incentive Plan. DEF 14A A 4/13/22 +10.6 (a) Form of Time-Based Restricted Stock Unit Award Agreement under the Bread Financial Holdings, Inc. 2015 Omnibus Incentive Plan. 8-K 10.1 2/20/18 +10.7 (a) Form of Performance-Based Restricted Stock Unit Award Agreement under the Bread Financial Holdings, Inc. 2015 Omnibus Incentive Plan (2020 grant Strategic) 8-K 10.3 2/20/20 66 Tabl e of Contents Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date +10.8 (a) Form of Time-Based Restricted Stock Unit Award Agreement under the Bread Financial Holdings, Inc. 2020 Omnibus Incentive Plan. 8-K 10.1 2/18/21 ^+10.9 (a) Form of Performance-Based Restricted Stock Unit Award Agreement under the Bread Financial Holdings, Inc. 2020 Omnibus Incentive Plan. 8-K 10.2 2/18/21 *+10.10 (a) Form of Time-Based Restricted Stock Unit Award Agreement under the Bread Financial Holdings, Inc. 2022 Omnibus Incentive Plan. *^+10.11 (a) Form of Performance-Based Restricted Stock Unit Award Agreement under the Bread Financial Holdings, Inc. 2022 Omnibus Incentive Plan. +10.12 (a) Form of Non-employee Director Restricted Stock Unit Award Agreement under the Bread Financial Holdings, Inc. 2010 Omnibus Incentive Plan. 10-K 10.52 2/28/13 +10.13 (a) Form of Non-employee Director Restricted Stock Unit Award Agreement under the Bread Financial Holdings, Inc. 2015 Omnibus Incentive Plan. 10-Q 10.6 8/7/17 +10.14 (a) Form of Non-employee Director Restricted Stock Unit Award Agreement under the Bread Financial Holdings, Inc. 2020 Omnibus Incentive Plan. 8-K 10.1 6/15/21 *+10.15 (a) Form of Non-employee Director Restricted Stock Unit Award Agreement under the Bread Financial Holdings, Inc. 2022 Omnibus Incentive Plan. +10.16 (a) Bread Financial Holdings, Inc. Non-Employee Director Deferred Compensation Plan. 8-K 10.1 6/9/06 +10.17 (a) Form of Bread Financial Associate Confidentiality Agreement. 10-K 10.18 2/27/17 +10.18 (a) Form of Bread Financial Holdings, Inc. Indemnification Agreement for Officers and Directors. 8-K 10.1 6/5/15 +10.19 (a) Bread Financial Holdings, Inc. Amended and Restated 2015 Employee Stock Purchase Plan, effective March 23, 2022. DEF 14A C 4/20/15 10.20 (b) (c) Second Amended and Restated Pooling and Servicing Agreement, dated as of January 17, 1996 as amended and restated as of September 17, 1999 and August 1, 2001, by and among WFN Credit Company, LLC, World Financial Network National Bank, and BNY Midwest Trust Company. 8-K 4.6 8/31/01 10.21 (b) (c) (d) Second Amendment to the Second Amended and Restated Pooling and Servicing Agreement, dated as of May 19, 2004, among World Financial Network National Bank, WFN Credit Company, LLC and BNY Midwest Trust Company. 8-K 4.1 8/4/04 10.22 (b) (c) (d) Third Amendment to the Second Amended and Restated Pooling and Servicing Agreement, dated as of March 30, 2005, among World Financial Network National Bank, WFN Credit Company, LLC and BNY Midwest Trust Company. 8-K 4.1 4/5/05 67 Tabl e of Contents Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date 10.23 (b) (d) Fourth Amendment to the Second Amended and Restated Pooling and Servicing Agreement, dated as of June 13, 2007, among World Financial Network National Bank, WFN Credit Company, LLC and BNY Midwest Trust Company. 8-K 4.1 6/15/07 10.24 (b) (c) (d) Fifth Amendment to the Second Amended and Restated Pooling and Servicing Agreement, dated as of October 26, 2007, among World Financial Network National Bank, WFN Credit Company, LLC and BNY Midwest Trust Company. 8-K 4.1 10/31/07 10.25 (b) (d) Sixth Amendment to the Second Amended and Restated Pooling and Servicing Agreement, dated as of May 27, 2008, among World Financial Network National Bank, WFN Credit Company, LLC, and The Bank of New York Trust Company, N.A. 8-K 4.1 5/29/08 10.26 (b) (d) Seventh Amendment to the Second Amended and Restated Pooling and Servicing Agreement, dated as of June 28, 2010, among World Financial Network National Bank, WFN Credit Company, LLC, and The Bank of New York Mellon Trust Company, N.A. 8-K 4.2 6/30/10 10.27 (b) (d) Supplemental Agreement to Second Amended and Restated Pooling and Servicing Agreement, dated as of August 9, 2010, among World Financial Network National Bank, WFN Credit Company, LLC, and The Bank of New York Mellon Trust Company, N.A. 8-K 4.1 8/12/10 10.28 (b) (c) (d) Eighth Amendment to the Second Amended and Restated Pooling and Servicing Agreement, dated as of November 9, 2011, among World Financial Network Bank, WFN Credit Company, LLC, and The Bank of New York Mellon Trust Company, N.A. 8-K 4.1 11/14/11 10.29 (b) (c) (d) Ninth Amendment to Second Amended and Restated Pooling and Servicing Agreement, dated as of December 1, 2016, among Comenity Bank, WFN Credit Company, LLC, and MUFG Union Bank, N.A. 8-K 4.1 12/2/16 10.30 (b) (c) (d) Tenth Amendment to Second Amended and Restated Pooling and Servicing Agreement, dated as of August 16, 2018, among Comenity Bank, WFN Credit Company, LLC, and MUFG Union Bank, N.A. 8-K 4.1 8/20/18 10.31 (b) (c) (d) Eleventh Amendment to Second Amended and Restated Pooling and Servicing Agreement, dated as of June 11, 2020, among Comenity Bank, WFN Credit Company, LLC, and MUFG Union Bank, N.A. 8-K 4.2 6/16/20 10.32 (b) (c) Twelfth Amendment to Second Amended and Restated Pooling and Servicing Agreement, dated as of October 27, 2020, among WFN Credit Company, LLC, as transferor, Comenity Bank, as servicer, and MUFG Union Bank, N.A., as trustee. 8-K 4.1 10/30/20 10.33 (b) (c) Collateral Series Supplement to Second Amended and Restated Pooling and Servicing Agreement, dated as of August 21, 2001, among WFN Credit Company, LLC, World Financial Network National Bank and BNY Midwest Trust Company. 8-K 4.7 8/31/01 68 Tabl e of Contents Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date 10.34 (b) (c) First Amendment to Collateral Series Supplement, dated as of November 7, 2002, among WFN Credit Company, LLC, World Financial Network National Bank and BNY Midwest Trust Company. 8-K 4.3 11/20/02 10.35 (b) (c) (d) Second Amendment to Collateral Series Supplement, dated as of July 6, 2016, among WFN Credit Company, LLC, Comenity Bank and MUFG Union Bank, N.A. 8-K 4.1 7/8/16 10.36 (b) (c) Transfer and Servicing Agreement, dated as of August 1, 2001, between WFN Credit Company, LLC, World Financial Network National Bank, and World Financial Network Credit Card Master Note Trust. 8-K 4.3 8/31/01 10.37 (b) (c) First Amendment to the Transfer and Servicing Agreement, dated as of November 7, 2002, among WFN Credit Company, LLC, World Financial Network National Bank and World Financial Network Credit Card Master Note Trust. 8-K 4.2 11/20/02 10.38 (b) (c) (d) Third Amendment to the Transfer and Servicing Agreement, dated as of May 19, 2004, among WFN Credit Company, LLC, World Financial Network National Bank and World Financial Network Credit Card Master Note Trust. 8-K 4.2 8/4/04 10.39 (b) (c) (d) Fourth Amendment to the Transfer and Servicing Agreement, dated as of March 30, 2005, among WFN Credit Company, LLC, World Financial Network National Bank and World Financial Network Credit Card Master Note Trust. 8-K 4.2 4/5/05 10.40 (b) (d) Fifth Amendment to the Transfer and Servicing Agreement, dated as of June 13, 2007, among WFN Credit Company, LLC, World Financial Network National Bank and World Financial Network Credit Card Master Note Trust. 8-K 4.2 6/15/07 10.41 (b) (c) (d) Sixth Amendment to the Transfer and Servicing Agreement, dated as of October 26, 2007, among WFN Credit Company, LLC, World Financial Network National Bank and World Financial Network Credit Card Master Note Trust. 8-K 4.2 10/31/07 10.42 (b) (d) S eventh Amendment to Transfer and Servicing Agreement, dated as of June 28, 2010, among World Financial Network National Bank, WFN Credit Company, LLC, and World Financial Network Credit Card Master Note Trust. 8-K 4.4 6/30/10 10.43 (b) (d) Supplemental Agreement to Transfer and Servicing Agreement, dated as of August 9, 2010, among World Financial Network National Bank, WFN Credit Company, LLC, and World Financial Network Credit Card Master Note Trust. 8-K 4.3 8/12/10 10.44 (b) (c) (d) Eighth Amendment to Transfer and Servicing Agreement, dated as of June 15, 2011, among World Financial Network National Bank, WFN Credit Company, LLC, and World Financial Network Credit Card Master Note Trust. 8-K 4.1 6/15/11 69 Tabl e of Contents Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date 10.45 (b) (c) (d) Ninth Amendment to Transfer and Servicing Agreement, dated as of November 9, 2011, among World Financial Network Bank, WFN Credit Company, LLC, and World Financial Network Credit Card Master Note Trust. 8-K 4.3 11/14/11 10.46 (b) (c) (d) Tenth Amendment to the Transfer and Servicing Agreement, dated as of July 6, 2016, among Comenity Bank, WFN Credit Company, LLC and World Financial Network Credit Card Master Note Trust. 8-K 4.4 7/8/16 10.47 (b) (d) Receivables Purchase Agreement, dated as of August 1, 2001, between World Financial Network National Bank and WFN Credit Company, LLC. 8-K 4.8 8/31/01 10.48 (b) (d) First Amendment to Receivables Purchase Agreement, dated as of June 28, 2010, between World Financial Network National Bank and WFN Credit Company, LLC. 8-K 4.3 6/30/10 10.49 (b) (d) Supplemental Agreement to Receivables Purchase Agreement, dated as of August 9, 2010, between World Financial Network National Bank and WFN Credit Company, LLC. 8-K 4.2 8/12/10 10.50 (b) (c) (d) Second Amendment to Receivables Purchase Agreement, dated as of November 9, 2011, between World Financial Network Bank and WFN Credit Company, LLC. 8-K 4.2 11/14/11 10.51 (b) (c) (d) Third Amendment to Receivables Purchase Agreement, dated as of July 6, 2016, between Comenity Bank and WFN Credit Company, LLC. 8-K 4.2 7/8/16 10.52 (b) (c) (d) Fourth Amendment to Receivables Purchase Agreement, dated as of June 11, 2020, between Comenity Bank and WFN Credit Company, LLC. 8-K 4.3 6/16/20 10.53 (b) (c) Master Indenture, dated as of August 1, 2001, between World Financial Network Credit Card Master Note Trust and BNY Midwest Trust Company. 8-K 4.1 8/31/01 10.54 (b) (c) Omnibus Amendment, dated as of March 31, 2003, among WFN Credit Company, LLC, World Financial Network Credit Card Master Trust, World Financial Network National Bank and BNY Midwest Trust Company. 8-K 4 4/22/03 10.55 (b) (d) Supplemental Indenture No. 1, dated as of August 13, 2003, between World Financial Network Credit Card Master Note Trust and BNY Midwest Trust Company. 8-K 4.2 8/28/03 10.56 (b) (d) Supplemental Indenture No. 2, dated as of June 13, 2007, between World Financial Network Credit Card Master Note Trust and BNY Midwest Trust Company. 8-K 4.3 6/15/07 70 Tabl e of Contents Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date 10.57 (b (d) Supplemental Indenture No. 3, dated as of May 27, 2008, between World Financial Network Credit Card Master Note Trust and The Bank of New York Trust Company, N.A. 8-K 4.2 5/29/08 10.58 (b (d) Supplemental Indenture No. 4, dated as of June 28, 2010, between World Financial Network Credit Card Master Note Trust and The Bank of New York Mellon Trust Company, N.A. 8-K 4.1 6/30/10 10.59 (b) (c) (d) Supplemental Indenture No. 5, dated as of February 20, 2013, between World Financial Network Credit Card Master Note Trust and Union Bank, N.A. 8-K 4.2 2/22/13 10.60 (b) (c) (d) Supplemental Indenture No. 6 to Master Indenture, dated as of July 6, 2016, between World Financial Network Credit Card Master Note Trust and MUFG Union Bank, N.A. 8-K 4.3 7/8/16 10.61 (b) (c) (d) Supplemental Indenture No. 7 to Master Indenture, dated as of June 11, 2020, between World Financial Network Credit Card Master Note Trust and MUFG Union Bank, N.A. 8-K 4.1 6/16/20 10.62 (b) (c) (d) Agreement of Resignation, Appointment and Acceptance, dated as of May 25, 2021, by and among WFN Credit Company, LLC, U.S. Bank Trust National Association and Citicorp Trust Delaware, National Association. 8-K 4.1 5/28/21 10.63 (b) (c) (d) Succession Agreement, dated as of June 18, 2021, by and among Comenity Bank, World Financial Network Credit Card Master Note Trust, MUFG Union Bank, N.A. and U.S. Bank National Association. 8-K 4.1 6/24/21 10.64 (b) (c) (d) Succession Agreement, dated as of June 18, 2021, among WFN Credit Company, LLC, MUFG Union Bank, N.A. and U.S. Bank National Association. 8-K 4.2 6/24/21 10.65 (b (d) Amended and Restated Trust Agreement, dated as of August 1, 2001, between WFN Credit Company, LLC and Chase Manhattan Bank USA, National Association. 8-K 4.4 8/31/01 10.66 (b) (c) (d) First Amendment to Amended and Restated Trust Agreement, dated as of May 25, 2021, between WFN Credit Company, LLC and Citicorp Trust Delaware, National Association. 8-K 4.2 5/28/21 10.67 (b (d) Administration Agreement, dated as of August 1, 2001, between World Financial Network Credit Card Master Note Trust and World Financial Network National Bank. 8-K 4.5 8/31/01 10.68 (b (d) First Amendment to Administration Agreement, dated as of July 31, 2009, between World Financial Network Credit Card Master Note Trust and World Financial Network National Bank. 8-K 4.1 7/31/09 10.69 (b) (c) (d) Fourth Amended and Restated Service Agreement, dated as of June 1, 2022, by and between Comenity Bank and Comenity Servicing LLC. 10-D 99.2 6/15/22 71 Tabl e of Contents Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date 10.70 (b) (c) (d) First Addendum to Appendix A of Fourth Amended and Restated Service Agreement, dated as of July 29, 2022, between Comenity Servicing LLC and Comenity Bank. 8-K 99.1 8/4/22 10.71 (b) (c) (d) Second Addendum to Appendix A of Fourth Amended and Restated Service Agreement, dated as of August 31, 2022, between Comenity Servicing LLC and Comenity Bank. 8-K 99.1 9/7/22 10.72 (b) (c) (d) Third Addendum to Appendix A of Fourth Amended and Restated Service Agreement, dated as of October 7, 2022, between Comenity Servicing LLC and Comenity Bank. 8-K 99.1 10/12/22 10.73 (b) (c) (d) Fourth Addendum to Appendix A of Fourth Amended and Restated Service Agreement, dated as of October 31, 2022, between Comenity Servicing LLC and Comenity Bank. 8-K 99.1 11/2/22 10.74 (b) (c) (d) Fifth Addendum to Appendix A of Fourth Amended and Restated Service Agreement, dated as of November 30, 2022, between Comenity Servicing LLC and Comenity Bank. 8-K 99.1 12/1/22 10.75 (b) (c) (d) Sixth Addendum to Appendix A of Fourth Amended and Restated Service Agreement, dated as of January 11, 2023, between Comenity Servicing LLC and Comenity Bank. 8-K 99.1 1/12/23 10.76 (b) (c) (d) Seventh Addendum to Appendix A of Fourth Amended and Restated Service Agreement, dated as of January 31, 2023, between Comenity Servicing LLC and Comenity Bank. 8-K 99.1 2/2/23 10.77 (b) (c) (d) Asset Representations Review Agreement, dated as of July 6, 2016, among Comenity Bank, WFN Credit Company, LLC, World Financial Network Credit Card Master Note Trust and FTI Consulting, Inc. 8-K 10.1 7/8/16 10.78 (a) Receivables Purchase Agreement, dated as of September 28, 2001, between World Financial Network National Bank and WFN Credit Company, LLC. 10-Q 10.5 11/7/08 10.79 (a) First Amendment to Receivables Purchase Agreement, dated as of June 24, 2008, between World Financial Network National Bank and WFN Credit Company, LLC. 10-K 10.94 3/2/09 10.80 (a) Second Amendment to Receivables Purchase Agreement, dated as of March 30, 2010, between World Financial Network National Bank and WFN Credit Company, LLC. 10-K 10.127 2/28/11 10.81 (a) Supplemental Agreement to Receivables Purchase Agreement, dated as of August 9, 2010, between World Financial Network National Bank and WFN Credit Company, LLC. 10-K 10.128 2/28/11 10.82 (a) Third Amendment to Receivables Purchase Agreement, dated as of September 30, 2011, between World Financial Network Bank and WFN Credit Company, LLC. 10-Q 10.4 11/7/11 72 Tabl e of Contents Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date 10.83 (a) World Financial Network Credit Card Master Trust III Amended and Restated Pooling and Servicing Agreement, dated as of September 28, 2001, among WFN Credit Company, LLC, World Financial Network National Bank, and The Chase Manhattan Bank, USA, National Association. 10-Q 10.6 11/7/08 10.84 (a) First Amendment to the Amended and Restated Pooling and Servicing Agreement, dated as of April 7, 2004, among WFN Credit Company, LLC, World Financial Network National Bank, and The Chase Manhattan Bank, USA, National Association. 10-Q 10.7 11/7/08 10.85 (a) Second Amendment to the Amended and Restated Pooling and Servicing Agreement, dated as of March 23, 2005, among WFN Credit Company, LLC, World Financial Network National Bank, and The Chase Manhattan Bank, USA, National Association. 10-Q 10.8 11/7/08 10.86 (a) Third Amendment to the Amended and Restated Pooling and Servicing Agreement, dated as of October 26, 2007, among WFN Credit Company, LLC, World Financial Network National Bank, and Union Bank of California, N.A. (successor to JPMorgan Chase Bank, N.A.). 10-Q 10.9 11/7/08 10.87 (a) Fourth Amendment to Amended and Restated Pooling and Servicing Agreement, dated as of March 30, 2010, among WFN Credit Company, LLC, World Financial Network National Bank, and Union Bank, N.A. 10-Q 10.9 5/7/10 10.88 (a) Fifth Amendment to Amended and Restated Pooling and Servicing Agreement, dated as of September 30, 2011, among WFN Credit Company, LLC, World Financial Network Bank, and Union Bank, N.A. 10-Q 10.3 11/7/11 10.89 (a) Sixth Amendment to Amended and Restated Pooling and Servicing Agreement, dated as of December 1, 2016, among WFN Credit Company, LLC, Comenity Bank, and Deutsche Bank Trust Company Americas. 10-K 10.94 2/27/17 10.90 (a) Seventh Amendment to Amended and Restated Pooling and Servicing Agreement, dated as of September 1, 2017, among WFN Credit Company, LLC, Comenity Bank, and U.S. Bank National Association (successor to Deutsche Bank Trust Company Americas). 10-K 10.96 2/27/18 10.91 (a) Eighth Amendment to Amended and Restated Pooling and Servicing Agreement, dated as of November 16, 2020, among WFN Credit Company, LLC, Comenity Bank, and U.S. Bank National Association (successor to Deutsche Bank Trust Company Americas). 10-K 10.105 2/26/21 10.92 (a) Supplemental Agreement to Amended and Restated Pooling and Servicing Agreement, dated as of August 9, 2010, among WFN Credit Company, LLC, World Financial Network National Bank, and Union Bank, N.A. 10-K 10.134 2/28/11 10.93 (a) Receivables Purchase Agreement, dated as of September 29, 2008, between World Financial Capital Bank and World Financial Capital Credit Company, LLC. 10-Q 10.3 11/7/08 73 Tabl e of Contents Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date 10.94 (a) Amendment No. 1 to Receivables Purchase Agreement, dated as of June 4, 2010, between World Financial Capital Bank and World Financial Capital Credit Company, LLC. 10-Q 10.11 8/9/10 10.95 (a) Transfer and Servicing Agreement, dated as of September 29, 2008, among World Financial Capital Credit Company, LLC, World Financial Capital Bank and World Financial Capital Master Note Trust. 10-Q 10.4 11/7/08 10.96 (a) Amendment No. 1 to Transfer and Servicing Agreement, dated as of June 4, 2010, among World Financial Capital Credit Company, LLC, World Financial Capital Bank and World Financial Capital Master Note Trust. 10-Q 10.12 8/9/10 10.97 (a) Master Indenture, dated as of September 29, 2008, between World Financial Capital Master Note Trust and U.S. Bank National Association, together with Supplemental Indenture Nos. 1 - 3. 10-K 10.104 2/27/18 *10.98 (a) Receivables Purchase Agreement, dated as of June 17, 2022, between Comenity Capital Bank and Comenity Capital Credit Company, LLC. *10.99 (a) Transfer Agreement, dated as of June 17, 2022, between Comenity Capital Credit Company, LLC and Comenity Capital Asset Securitization Trust. *10.100 (a) Servicing Agreement, dated as of June 17, 2022, between Comenity Capital Credit Company, LLC, Comenity Capital Bank and Comenity Capital Asset Securitization Trust. *10.101 (a) Master Indenture, dated as of June 17, 2022, between Comenity Capital Asset Securitization Trust and U.S. Bank Trust Company, National Association. 10.102 (a) Fourth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of February 28, 2014, between World Financial Network Credit Card Master Note Trust and Union Bank, N.A. 10-K 10.129 2/27/15 10.103 (a) First Amendment to Fourth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of July 10, 2017, between World Financial Network Credit Card Master Note Trust and MUFG Union Bank, N.A., formerly known as Union Bank, N.A. 10-Q 10.8 8/7/17 10.104 (a) Second Amendment to Fourth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of December 1, 2017, between World Financial Network Credit Card Master Note Trust and MUFG Union Bank, N.A., formerly known as Union Bank, N.A. 10-K 10.109 2/27/18 10.105 (a) Third Amendment to Fourth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of May 3, 2018, between World Financial Network Credit Card Master Note Trust and MUFG Union Bank, N.A., formerly known as Union Bank, N.A. 10-K 10.110 2/26/19 74 Tabl e of Contents Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date 10.106 (a) Fourth Amendment to Fourth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of August 31, 2018, between World Financial Network Credit Card Master Note Trust and MUFG Union Bank, N.A., formerly known as Union Bank, N.A. 10-K 10.111 2/26/19 10.107 (a) Fifth Amendment to Fourth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of February 1, 2019, between World Financial Network Credit Card Master Note Trust and MUFG Union Bank, N.A., formerly known as Union Bank, N.A. 10-K 10.112 2/26/19 10.108 (a) Sixth Amendment to Fourth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of June 11, 2020, between World Financial Network Credit Card Master Note Trust and MUFG Union Bank, N.A., formerly known as Union Bank, N.A. 10-K 10.118 2/26/21 10.109 (a) Seventh Amendment to Fourth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of September 10, 2020, between World Financial Network Credit Card Master Note Trust and MUFG Union Bank, N.A., formerly known as Union Bank, N.A. 10-K 10.119 2/26/21 *10.110 (a) Eighth Amendment to Fourth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of August 1, 2022, between World Financial Network Credit Card Master Note Trust and U.S. Bank National Association, as successor to MUFG Union Bank, N.A. 10.111 (a) Third Amended and Restated Series 2009-VFC1 Supplement, dated as of April 28, 2017, among WFN Credit Company, LLC, Comenity Bank and Deutsche Bank Trust Company Americas. 10-Q 10.7 8/7/17 10.112 (a) First Amendment to Third Amended and Restated Series 2009-VFC1 Supplement, dated as of October 19, 2017, among WFN Credit Company, LLC, Comenity Bank and U.S. Bank National Association (successor to Deutsche Bank Trust Company Americas). 10-Q 10.4 11/8/17 10.113 (a) Second Amendment to Third Amended and Restated Series 2009-VFC1 Supplement, dated as of August 31, 2018, among WFN Credit Company, LLC, Comenity Bank and U.S. Bank National Association (successor to Deutsche Bank Trust Company Americas). 10-K 10.115 2/26/19 10.114 (a) Third Amendment to Third Amended and Restated Series 2009-VFC1 Supplement, dated as of June 28, 2019, among WFN Credit Company, LLC, Comenity Bank and U.S. Bank National Association (successor to Deutsche Bank Trust Company Americas). 10-K 10.123 2/26/21 10.115 (a) Fourth Amendment to Third Amended and Restated Series 2009-VFC1 Supplement, dated as of April 17, 2020, among WFN Credit Company, LLC, Comenity Bank and U.S. Bank National Association (successor to Deutsche Bank Trust Company Americas). 10-K 10.124 2/26/21 10.116 (a) Fifth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of November 1, 2016, between World Financial Capital Master Note Trust and Deutsche Bank Trust Company Americas. 10-K 10.102 2/27/17 75 Tabl e of Contents Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date 10.117 (a) First Amendment to Fifth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of November 1, 2017, between World Financial Capital Master Note Trust and U.S. Bank National Association (successor to Deutsche Bank Trust Company Americas). 10-Q 10.5 11/8/17 10.118 (a) Second Amendment to Fifth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of September 28, 2018, between World Financial Capital Master Note Trust and U.S. Bank National Association (successor to Deutsche Bank Trust Company Americas). 10-Q 10.3 11/6/18 *10.119 (a) Series 2022-VFN1 Indenture Supplement, dated as of June 17, 2022, between Comenity Capital Asset Securitization Trust and U.S. Bank Trust Company, National Association. 10.120 (a) Amended and Restated Credit Agreement, dated as of June 14, 2017, by and among Bread Financial Holdings, Inc., certain subsidiaries parties thereto, as guarantors, Wells Fargo Bank, National Association, as Administrative Agent, and various other agents and lenders. 8-K 10.1 6/19/17 10.121 (a) First Amendment to Amended and Restated Credit Agreement and Incremental Amendment, dated as of June 16, 2017, by and among Bread Financial Holdings, Inc., and certain subsidiaries parties thereto, as guarantors, Wells Fargo Bank, National Association, as Administrative Agent, and various other lenders. 8-K 10.2 6/19/17 10.122 (a) Second Amendment to Amended and Restated Credit Agreement, dated as of July 5, 2018, by and among Bread Financial Holdings, Inc., and certain subsidiaries parties thereto, as guarantors, Wells Fargo Bank, National Association, as Administrative Agent, and various other lenders. 10-Q 10.2 8/7/18 10.123 (a) Third Amendment to Amended and Restated Credit Agreement, dated as of April 30, 2019, by and among Registrant, and certain subsidiaries parties thereto, as guarantors, Wells Fargo Bank, National Association, as Administrative Agent, and various other lenders. 10-Q 10.7 5/6/19 10.124 (a) Fourth Amendment to Amended and Restated Credit Agreement, dated as of December 20, 2019, by and among Bread Financial Holdings, Inc., certain of its subsidiaries as guarantors, Wells Fargo Bank, National Association, as administrative agent, and various other agents and lenders . 8-K 10.2 12/23/19 10.125 (a) Fifth Amendment to Amended and Restated Credit Agreement, dated as of February 13, 2020, by and among Bread Financial Holdings, Inc., certain of its subsidiaries as guarantors, Wells Fargo Bank, National Association, as administrative agent, and various other agents and lenders. 10-K 10.125 2/28/20 10.126 (a) Sixth Amendment to Amended and Restated Credit Agreement, dated as of September 22, 2020, by and among Bread Financial Holdings, Inc., certain of its subsidiaries as guarantors, Wells Fargo Bank, National Association, as administrative agent, and various other agents and lenders. 8-K 10.2 9/23/20 76 Tabl e of Contents Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date 10.127 (a) Seventh Amendment to Amended and Restated Credit Agreement, dated as of July 9, 2021, by and among Bread Financial Holdings, Inc., certain of its subsidiaries as guarantors, Wells Fargo Bank, National Association, as administrative agent, and various other agents and lenders. 8-K 10.1 7/14/21 10.128 (a) Eighth Amendment to Amended and Restated Credit Agreement, dated as of December 13, 2022, by and among Bread Financial Holdings, Inc., certain of its subsidiaries as guarantors, Wells Fargo Bank, National Association, as administrative agent, and various other agents and lenders . 8-K 10.1 12/15/22 10.129 (a) Indenture, dated as of December 20, 2019, among Bread Financial Holdings, Inc., certain of its subsidiaries as guarantors and MUFG Union Bank, N.A., as trustee (including the form of the Company’s 4.750% Senior Note due December 15, 2024). 8-K 4.1 12/23/19 10.130 (a) First Supplemental Indenture, dated as of August 6, 2021, among Bread Financial Holdings, Inc., certain of its subsidiaries as guarantors and MUFG Union Bank, N.A., as trustee under the Indenture dated as of December 20, 2019. 10-Q 10.4 11/3/21 10.131 (a) Indenture, dated as of September 22, 2020, among Bread Financial Holdings, Inc., certain of its subsidiaries as guarantors and MUFG Union Bank, N.A., as trustee (including the form of the Company’s 7.000% Senior Note due January 15, 2026). 8-K 4.1 9/23/20 ^10.132 (a) First Supplemental Indenture, dated as of August 6, 2021, among Bread Financial Holdings, Inc., certain of its subsidiaries as guarantors and MUFG Union Bank, N.A., as trustee under the Indenture dated as of September 22, 2020. 10-Q 10.5 11/3/21 *21 (a) Subsidiaries of the Registrant *23.1 (a) Consent of Deloitte & Touche LLP *31.1 (a) Certification of Chief Executive Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. *31.2 (a) Certification of Chief Financial Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. **32.1 (a) Certification of Chief Executive Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code. **32.2 (a) Certification of Chief Financial Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code. 77 Tabl e of Contents Incorporated by Reference Exhibit No. Filer Description Form Exhibit Filing Date *101 (a) The following financial information from Bread Financial Holdings, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements. *104 (a) Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) ______________________________ * Filed herewith ** Furnished herewith + Management contract, compensatory plan or arrangement ∧ Certain exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Bread Financial Holdings, Inc. hereby undertakes to furnish supplementally copies of any of the omitted exhibits upon request by the U.S. Securities and Exchange Commission. (a) Bread Financial Holdings, Inc. (b) WFN Credit Company, LLC (c) World Financial Network Credit Card Master Trust (d) World Financial Network Credit Card Master Note Trust Item 16. Form 10-K Summary. None. 78 Tabl e of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS BREAD FINANCIAL HOLDINGS, INC. Page Bread Financial Holdings, Inc. and Subsidiaries Reports of Independent Registered Public Accounting Firm (PCAOB ID: 34 ) F- 2 Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020 F- 5 Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020 F- 6 Consolidated Balance Sheets as of December 31, 202 2 and 20 21 F- 7 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 202 2 , 202 1 and 20 20 F- 8 Consolidated Statements of Cash Flows for the years ended December 31, 202 2 , 202 1 and 20 20 F- 9 Notes to Consolidated Financial Statements F- 10 F-1 Tabl e of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Bread Financial Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying Consolidated Balance Sheets of Bread Financial Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related Consolidated Statements of Income, Comprehensive income, Stockholders’ equity, and Cash flows for each of the three years in the period ended December 31, 2022 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Credit Losses — Refer to Notes 1 and 3 to the financial statements Critical Audit Matter Description The Allowance for credit losses is an estimate of expected credit losses, measured over the estimated life of its credit card and other loans that considers forecasts of future economic conditions in addition to information about past events and current conditions. The estimate under the credit reserving methodology referred to as the Current Expected Credit Loss (CECL) model is significantly influenced by the composition, characteristics, and quality of the Company’s portfolio of credit card and other loans, as well as the prevailing economic conditions and forecasts utilized. The estimate of the Allowance for credit losses includes an estimate for uncollectible principal as well as unpaid interest and fees. Principal losses, net of recoveries are deducted from the Allowance. Principal losses for unpaid interest and fees as well as any adjustments to the Allowance associated with unpaid interest and fees are recorded as a reduction to Interest and fees on F-2 Tabl e of Contents loans. The Allowance is maintained through an adjustment to the Provision for credit losses and is evaluated for appropriateness. In estimating its Allowance for credit losses, for each identified group, management utilizes various models and estimation techniques based on historical loss experience, current conditions, reasonable and supportable forecasts and other relevant factors. These models utilize historical data and applicable macroeconomic variables with statistical analysis and behavioral relationships, to determine expected credit performance. The Company’s quantitative estimate of expected credit losses under CECL is impacted by certain forecasted economic factors. The Company considers the forecast used to be reasonable and supportable over the estimated life of the credit card and other loans, with no reversion period. In addition to the quantitative estimate of expected credit losses, the Company also incorporates qualitative adjustments for certain factors such as Company-specific risks, changes in current economic conditions that may not be captured in the quantitatively derived results, or other relevant factors to ensure the Allowance for credit losses reflects the Company’s best estimate of current expected credit losses. At December 31, 2022, the total Allowance for credit losses was $2.5 billion. Given the significant judgments made by management in estimating its Allowance for credit losses related to credit card loans, performing audit procedures to evaluate the reasonableness of the estimated Allowance for credit losses, including procedures to evaluate the qualitative adjustments, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our credit modeling specialists. How the Critical Audit Matter Was Addressed in the Audit • We tested the design and operating effectiveness of management’s controls over the determination and review of model methodology, significant assumptions and qualitative adjustments. • We evaluated whether the method (including the model), data, and significant assumptions are appropriate in the context of the applicable financial reporting framework. • We tested the completeness and accuracy of the historical data used in management’s models. • With assistance from credit modeling specialists, we evaluated whether the model is suitable for determining the estimate, which included understanding the model methodology and logic, whether the selected method for estimating credit losses is appropriate and whether the significant assumptions were reasonable. • We evaluated the reasonableness of the selection of forecasted macroeconomic variables, considered alternative forecasted scenarios and evaluated any contradictory evidence. • We evaluated whether judgments have been applied consistently to the model and that any qualitative adjustments to the output of the model are consistent with the measurement objective of the applicable financial reporting framework and are appropriate in the circumstances. • We considered any contradictory evidence that arose while performing our procedures, and whether or not this evidence was indicative of management bias. /s/ Deloitte & Touche LLP Columbus, Ohio February 28, 2023 We have served as the Company's auditor since 1998. F-3 Tabl e of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Bread Financial Holdings, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Bread Financial Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 28, 2023 expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Columbus, Ohio February 28, 2023 F-4 Tabl e of Contents BREAD FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2022 2021 2020 (Millions, except per share amounts) Interest income Interest and fees on loans $ 4,615 $ 3,861 $ 3,931 Interest on cash and investment securities 69 7 21 Total interest income 4,684 3,868 3,952 Interest expense Interest on deposits 243 167 238 Interest on borrowings 260 216 261 Total interest expense 503 383 499 Net interest income 4,181 3,485 3,453 Non-interest income Interchange revenue, net of retailer share arrangements ( 469 ) ( 369 ) ( 332 ) Other 114 156 177 Total non-interest income ( 355 ) ( 213 ) ( 155 ) Total net interest and non-interest income 3,826 3,272 3,298 Provision for credit losses 1,594 544 1,266 Total net interest and non-interest income, after provision for credit losses 2,232 2,728 2,032 Non-interest expenses Employee compensation and benefits 779 671 609 Card and processing expenses 359 323 396 Information processing and communication 274 216 191 Marketing expenses 180 160 143 Depreciation and amortization 113 92 106 Other 227 222 286 Total non-interest expenses 1,932 1,684 1,731 Income from continuing operations before income taxes 300 1,044 301 Provision for income taxes 76 247 93 Income from continuing operations 224 797 208 (Loss) income from discontinued operations, net of income taxes ( 1 ) 4 6 Net income $ 223 $ 801 $ 214 Basic income per share Income from continuing operations $ 4.48 $ 16.02 $ 4.36 (Loss) income from discontinued operations $ ( 0.01 ) $ 0.07 $ 0.11 Net income per share $ 4.47 $ 16.09 $ 4.47 Diluted income per share Income from continuing operations $ 4.47 $ 15.95 $ 4.35 (Loss) income from discontinued operations $ ( 0.01 ) $ 0.07 $ 0.11 Net income per share $ 4.46 $ 16.02 $ 4.46 Weighted average common shares outstanding Basic 49.9 49.7 47.8 Diluted 50.0 50.0 47.9 See Notes to Consolidated Financial Statements. F-5 Tabl e of Contents BREAD FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2022 2021 2020 (Millions) Net income $ 223 $ 801 $ 214 Other comprehensive (loss) income Unrealized (loss) gain on available-for-sale securities ( 25 ) ( 24 ) 22 Tax benefit (expense) 6 2 ( 1 ) Unrealized (loss) gain on available-for-sale securities, net of tax ( 19 ) ( 22 ) 21 Unrealized gain (loss) on cash flow hedges — 1 ( 1 ) Tax benefit — — — Unrealized gain (loss) on cash flow hedges, net of tax — 1 ( 1 ) Unrealized gain on net investment hedge — 20 — Tax expense — ( 13 ) — Unrealized gain on net investment hedge, net of tax — 7 — Foreign currency translation adjustments (inclusive of deconsolidation of $ 54 million and $ 4 million for the years ended December 31, 2021 and 2020, respectively, related to the disposition of businesses) — 17 75 Other comprehensive (loss) income, net of tax ( 19 ) 3 95 Total comprehensive income, net of tax $ 204 $ 804 $ 309 See Notes to Consolidated Financial Statements. F-6 Tabl e of Contents BREAD FINANCIAL HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS December 31, 2022 2021 (Millions, except per share amounts) ASSETS Cash and cash equivalents $ 3,891 $ 3,046 Credit card and other loans Total credit card and other loans (includes loans available to settle obligations of consolidated variable interest entities: 2022, $ 15,383 ; 2021, $ 11,215 ) 21,365 17,399 Allowance for credit losses ( 2,464 ) ( 1,832 ) Credit card and other loans, net 18,901 15,567 Investment securities 221 239 Property and equipment, net 195 215 Goodwill and intangible assets, net 799 687 Other assets 1,400 1,992 Total assets $ 25,407 $ 21,746 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $ 13,826 $ 11,027 Debt issued by consolidated variable interest entities 6,115 5,453 Long-term and other debt 1,892 1,986 Other liabilities 1,309 1,194 Total liabilities 23,142 19,660 Commitments and contingencies (Note 15) Stockholders’ equity Common stock, $ 0.01 par value; authorized, 200.0 million shares; issued, 49.9 million and 49.8 million shares as of December 31, 2022 and December 31, 2021, respectively 1 1 Additional paid-in capital 2,192 2,174 Retained earnings (accumulated deficit) 93 ( 87 ) Accumulated other comprehensive loss ( 21 ) ( 2 ) Total stockholders’ equity 2,265 2,086 Total liabilities and stockholders’ equity $ 25,407 $ 21,746 See Notes to Consolidated Financial Statements. F-7 Tabl e of Contents BREAD FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Additional Paid-In Capital Treasury Stock Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Amount (Millions) January 1, 2020 115.0 $ 1 $ 3,258 $ ( 6,733 ) $ 5,163 $ ( 100 ) $ 1,589 Net income — — — — 214 — 214 Cumulative effect of change in accounting principle — Allowance for credit losses — — — — ( 485 ) — ( 485 ) Other comprehensive income — — — — — 95 95 Stock-based compensation — — 21 — — — 21 Common stock issued as consideration for acquired business 1.9 — 149 — — — 149 Dividends and dividend equivalent rights declared ($ 1.26 per common share) — — — — ( 60 ) — ( 60 ) Issuance of shares to employees, net of shares withheld for employee taxes 0.2 — ( 1 ) — — — ( 1 ) December 31, 2020 117.1 $ 1 $ 3,427 $ ( 6,733 ) $ 4,832 $ ( 5 ) $ 1,522 Net income — — — — 801 — 801 Other comprehensive income — — — — — 3 3 Stock-based compensation — — 29 — — — 29 Dividends and dividend equivalent rights declared ($ 0.84 per common share) — — — — ( 42 ) — ( 42 ) Retirement of treasury stock ( 67 ) — ( 1,280 ) 6,733 ( 5,453 ) — — Spinoff of Loyalty Ventures Inc. — — — — ( 225 ) — ( 225 ) Issuance of shares to employees, net of shares withheld for employee taxes 0.1 — ( 2 ) — — — ( 2 ) December 31, 2021 49.8 $ 1 $ 2,174 $ — $ ( 87 ) $ ( 2 ) $ 2,086 Net income — — — — 223 — 223 Other comprehensive loss — — — — — ( 19 ) ( 19 ) Stock-based compensation — — 33 — — — 33 Repurchase of common stock ( 0.2 ) — ( 12 ) — — — ( 12 ) Dividends and dividend equivalent rights declared ($ 0.84 per common share) — — — — ( 43 ) — ( 43 ) Issuance of shares to employees, net of shares withheld for employee taxes 0.3 — ( 3 ) — — — ( 3 ) December 31, 2022 49.9 $ 1 $ 2,192 $ — $ 93 $ ( 21 ) $ 2,265 See Notes to Consolidated Financial Statements F-8 Tabl e of Contents BREAD FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2022 2021 2020 (Millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 223 $ 801 $ 214 Adjustments to reconcile net income to net cash provided by operating activities Provision for credit losses 1,594 544 1,266 Depreciation and amortization 113 123 184 Deferred income taxes ( 245 ) ( 15 ) ( 223 ) Non-cash stock compensation 33 29 21 Amortization of deferred financing costs 24 31 36 Amortization of deferred origination costs 86 75 74 Asset impairment charges — — 64 Other 67 ( 4 ) ( 36 ) Change in other operating assets and liabilities, net of acquisitions and dispositions Change in other assets ( 134 ) ( 30 ) 210 Change in other liabilities 87 ( 11 ) 73 Net cash provided by operating activities 1,848 1,543 1,883 CASH FLOWS FROM INVESTING ACTIVITIES Change in credit card and other loans ( 3,222 ) ( 1,805 ) 1,784 Change in redemption settlement assets — ( 113 ) ( 41 ) Payments for acquired businesses, net of cash and restricted cash — ( 75 ) ( 267 ) Proceeds from sale of credit card loan portfolios — 512 289 Purchase of credit card loan portfolios ( 1,804 ) ( 110 ) — Capital expenditures ( 68 ) ( 84 ) ( 54 ) Purchases of investment securities ( 43 ) ( 93 ) ( 40 ) Maturities of investment securities 30 73 77 Other ( 4 ) 4 26 Net cash (used in) provided by investing activities ( 5,111 ) ( 1,691 ) 1,774 CASH FLOWS FROM FINANCING ACTIVITIES Unsecured borrowings under debt agreements 218 38 1,276 Repayments/maturities of unsecured borrowings under debt agreements ( 319 ) ( 864 ) ( 1,320 ) Debt issued by consolidated variable interest entities 4,248 4,278 2,419 Repayments/maturities of debt issued by consolidated variable interest entities ( 3,587 ) ( 4,538 ) ( 4,096 ) Net increase (decrease) in deposits 2,778 1,228 ( 2,370 ) Debt proceeds from spinoff of Loyalty Ventures Inc. — 652 — Transfers to Loyalty Ventures Inc. related to spinoff — ( 127 ) — Payment of deferred financing costs ( 13 ) ( 13 ) ( 19 ) Dividends paid ( 43 ) ( 42 ) ( 61 ) Other ( 15 ) ( 4 ) 4 Net cash provided by (used in) financing activities 3,267 608 ( 4,167 ) Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash — — 15 Change in cash, cash equivalents and restricted cash 4 460 ( 495 ) Cash, cash equivalents and restricted cash at beginning of period 3,923 3,463 3,958 Cash, cash equivalents and restricted cash at end of period $ 3,927 $ 3,923 $ 3,463 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for interest $ 466 $ 357 $ 488 Cash paid during the year for income taxes, net $ 338 $ 325 $ 268 The Consolidated Statements of Cash Flows are presented with the combined cash flows from continuing and discontinued operations. See Notes to Consolidated Financial Statements. F-9 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE BUSINESS Bread Financial Holdings, Inc. (BFH) or, including its consolidated subsidiaries and variable interest entities (VIEs), the Company) is a tech-forward financial services company that provides simple, personalized payment, lending and saving solutions. The Company creates opportunities for its customers and partners through digitally enabled choices that offer ease, empowerment, financial flexibility and exceptional customer experiences. Driven by a digital-first approach, data insights and white-label technology, the Company delivers growth for its partners through a comprehensive product suite, including private label and co-brand credit cards and buy now, pay later products such as installment loans and “split-pay” offerings. The Company also offers direct-to-consumer solutions that give customers more access, choice and freedom through its branded Bread Cashback TM American Express ® Credit Card and Bread Savings TM products . Effective March 23, 2022, Alliance Data Systems Corporation was renamed Bread Financial Holdings, Inc., and on April 4, 2022, the Company changed its New York Stock Exchange ticker from “ADS” to “BFH”. Neither the name change nor the ticker change affected the Company’s legal entity structure, nor did either change have an impact on its Consolidated Financial Statements. The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). For purposes of comparability, certain prior period amounts have been reclassified to conform to the current year presentation, in particular, as a result of the spinoff of its LoyaltyOne segment and its classification as discontinued operations, the Company has adjusted the presentation of its Consolidated Financial Statements from its historical approach under Securities and Exchange Commission (SEC) Regulation S-X Article 5, which is broadly applicable to all “commercial and industrial companies”, to Article 9, which is applicable to “bank holding companies” (BHCs). While neither the Company nor any of its subsidiaries are considered a “bank” within the meaning of the Bank Holding Company Act, the changes from the historical presentation, to the BHC presentation, the most significant of which reflect a reclassification of Interest expense within Net interest income, are intended to reflect the Company’s operations going forward and better align the Company with its peers for comparability purposes. For a discussion of the prior period reclassifications, please refer to Note 22, “Discontinued Operations and Bank Holding Company Presentation” in our Annual Report on Form 10-K for the year ended December 31, 2021. As noted above, the Company’s Consolidated Financial Statements have been presented with its LoyaltyOne segment as discontinued operations, see Note 22, “Discontinued Operations”, for more information. SIGNIFICANT ACCOUNTING POLICIES The Company presents its accounting policies within the Notes to the Consolidated Financial Statements to which they relate; the table below lists such accounting policies and the related Notes. The remaining significant accounting policies applied by the Company are included following the table. Significant Accounting Policy Note Number Note Title Credit Card and Other Loans Note 2 Credit Card and Other Loans Allowance for Credit Losses Note 3 Allowance for Credit Losses Transfers of Financial Assets Note 4 Securitizations Investment Securities Note 5 Investment Securities Property and Equipment Note 6 Property and Equipment, Net Goodwill Note 7 Goodwill and Intangible Assets, Net Intangible Assets, Net Note 7 Goodwill and Intangible Assets, Net Leases Note 9 Leases Stock Compensation Expense Note 18 Stockholders' Equity Income Taxes Note 19 Income Taxes Earnings Per Share Note 20 Earnings Per Share F-10 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Principles of Consolidation The accompanying consolidated financial statements include the accounts of BFH and all subsidiaries in which the Company has a controlling financial interest. For voting interest entities, a controlling financial interest is determined when the Company is able to exercise control over the operating and financial decisions of the investee. For variable interest entities (VIEs), which are themselves determined based on the amount and characteristics of the equity in the entity, the Company has a controlling financial interest when it is determined to be the primary beneficiary. The primary beneficiary is the party having both the power to exercise control over the activities that most significantly impact the VIE’s financial performance, as well as the obligation to absorb the losses of, or the right to receive the benefits from, the VIE that could potentially be significant to that VIE. The Company is the primary beneficiary of its securitization trusts (the Trusts) and therefore consolidates these Trusts within its Consolidated Financial Statements. In cases where the Company does not have a controlling financial interest, but is able to exert significant influence over the operating and financial decisions of the entity, the Company accounts for such investments under the equity method. All intercompany transactions have been eliminated. Currency Translation The Company’s monetary assets and liabilities denominated in foreign currencies, for example those of subsidiaries outside of the United States of America (U.S.), are translated into U.S. dollars based on the rates of exchange in effect at the end of the reporting period, while non-monetary assets and liabilities are translated based on the rates of exchange in effect as of the date of the transaction giving rise to the asset or liability. Income and expense items are translated at the average exchange rates prevailing during the period. The resulting effects, along with any related hedge or tax impacts, are recorded in Accumulated other comprehensive loss, a component of stockholders’ equity. Translation adjustments, along with the related hedge and tax impacts, are recognized in the Consolidated Statements of Income upon the sale or substantial liquidation of an investment in a foreign subsidiary. Gains and losses resulting from transactions in currencies other than the entity’s functional currency are recognized in Other non-interest expenses in the Consolidated Statements of Income, and were insignificant for each of the periods presented. Historically, the Company’s impacts from foreign currency exchange rate fluctuations were most prevalent within businesses that have been spun off, such as LoyaltyOne. Amounts Based on Estimates and Judgments The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments about future events that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, as well as the reported amounts of income and expenses during the reporting periods. The most significant of those estimates and judgments relate to the Company’s Allowance for credit losses and Provision for income taxes; actual results could differ. Revenue Recognition The Company’s primary source of revenue is from Interest and fees on loans from its various credit card and other loan products, and to a lesser extent from contractual relationships with its brand partners. The following describes the Company’s recognition policies across its various sources of revenue. Interest and fees on loans : Represent revenue earned on customer accounts owned by the Company, and is recognized in the period earned in accordance with the contractual provisions of the credit agreements. Interest and fees continue to accrue on all accounts, except in limited circumstances, until the account balance and all related interest and fees are paid or charged-off, in the month during which an account becomes 180 days past due for credit card loans or 120 days past due for other loans, which are buy now, pay later products such as installment loans and the Company’s “split-pay” offerings (BNPL) loans. Charge-offs for unpaid interest and fees, as well as any adjustments to the allowance associated with unpaid interest and fees, are recorded as a reduction of Interest and fees on loans. Direct loan origination costs on Credit card and other loans are deferred and amortized on a straight-line basis over a one-year period for credit card loans, or for BNPL loans over the life of the loan, and are recorded as a reduction to Interest and fees on loans. As of December 31, 2022 and 2021, the remaining unamortized deferred direct loan origination costs were $ 46 million and $ 48 million, respectively, and included in Total credit card and other loans. F-11 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Interest on cash and investment securities: Represents revenue earned on cash and cash equivalents as well as investments in debt and equity securities, and is recognized in the period earned. Interchange revenue, net of retailer share arrangements: Represents revenue earned from merchants, including our brand partners, and cardholders from processing and servicing accounts, and is recognized as such services are performed. Revenue earned from merchants, including our brand partners, primarily consists of merchant and interchange fees, which are transaction fees charged to the merchant for the processing of credit card transactions and are recognized at the time the cardholder transaction occurs. Our credit card program agreements may also provide for royalty payments to our brand partners based on purchased volume or if certain contractual incentives are met, such as if the economic performance of the program exceeds a contractually defined threshold, or for payments for new accounts. These amounts are recorded as a reduction of revenue in the period incurred. Other non-interest income: Represents ancillary revenues earned from cardholders, consisting primarily of monthly fees from the purchase of certain payment protection products which are recognized based on the average cardholder account balance over time and can be cancelled at any point by the cardholder, as well as gains or losses on the sales of loan portfolios, and income or losses from equity method investments. Contract Costs: The Company recognizes as an asset contract costs, such as up-front payments pursuant to contractual agreements with brand partners. Such costs are deferred and recognized on a straight-line basis over the term of the related agreement. Depending on the nature of the contract costs, the amortization is recorded as a reduction to Non-interest income, or as a charge to Non-interest expenses, in the Company’s Consolidated Statements of Income. Amortization of contract costs recorded as a reduction of Interchange revenue, net of retailer share arrangements was $ 72 million, $ 64 million and $ 65 million for the years ended December 31, 2022, 2021 and 2020, respectively; amortization of contract costs recorded in Non-interest expenses totaled $ 12 million, $ 11 million and $ 12 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022 and 2021, the remaining unamortized contract costs were $ 344 million and $ 364 million, respectively, and are included in Other assets on the Consolidated Balance Sheets. The Company performs an impairment assessment when events or changes in circumstances indicate that the carrying amount of contract costs may not be recoverable. For the year ended December 31, 2020, due to the COVID-19 pandemic and resulting retail store closures and significant declines in credit sales, the Company recognized an impairment charge of $ 38 million in Non-interest expenses in its Consolidated Statement of Income. No impairment charges were recognized in either of the years ended December 31, 2022 or 2021. Cash and Cash Equivalents Cash and cash equivalents include cash and due from banks, interest-bearing cash balances such as those invested in money market funds, as well as other highly liquid short-term investments with an original maturity of three months or less, and restricted cash. As of December 31, 2022 and 2021, cash and due from banks was $ 288 million and $ 251 million, respectively, interest-bearing cash balances were $ 3.5 billion and $ 2.7 billion, respectively, and short-term investments were $ 130 million and $ 80 million, respectively. Restricted cash primarily represents cash restricted for principal and interest repayments of debt issued by consolidated VIEs, and is recorded in Other assets on the Consolidated Balance Sheets. Restricted cash totaled $ 36 million and $ 877 million as of December 31, 2022 and 2021, respectively. Derivative Financial Instruments From time to time, the Company uses derivative financial instruments to manage its exposure to various financial risks; the Company does not trade or speculate in derivative financial instruments. Subject to the criteria set forth in GAAP, the Company will either designate its derivative financial instruments in hedging relationships, or as economic hedges should the criteria in GAAP not be met. The Company’s derivative financial instruments were insignificant to the Consolidated Financial Statements for the periods presented. F-12 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) CONCENTRATIONS The Company depends on a limited number of large partner relationships for a significant portion of its revenue. As of and for the year ended December 31, 2022, the Company’s five largest credit card programs accounted for approximately 47 % of its Total net interest and non-interest income and 41 % of its End-of-period credit card and other loans. In particular, the Company’s programs with (alphabetically) Ulta Beauty and Victoria’s Secret & Co. and its retail affiliates each accounted for more than 10% of its Total net interest and non-interest income for the year ended December 31, 2022. A decrease in business from, or the loss of, any of the Company’s significant partners for any reason, could have a material adverse effect on its business. The Company previously announced the non-renewal of its contract with BJ’s Wholesale Club (BJ’s) and the sale of the BJ’s portfolio, which closed in late February 2023. For the year ended December 31, 2022, BJ’s branded co-brand accounts generated approximately 10 % of the Company’s Total net interest and non-interest income. As of December 31, 2022, BJ’s branded co-brand accounts were responsible for approximately 11 % of the Company’s Total credit card and other loans. RECENTLY ISSUED ACCOUNTING STANDARDS In March 2022, the Financial Accounting Standards Board issued new accounting and disclosure guidance for troubled debt restructurings effective January 1, 2023, with early adoption permitted. Specifically, the new guidance eliminates the previous recognition and measurement guidance for troubled debt restructurings while enhancing the disclosure requirements for certain loan modifications, including requiring disclosure of gross principal losses by year of loan origination. Effective January 1, 2023, the Company adopted the guidance, with no significant impact on its financial position, results of operations and regulatory risk-based capital, or anticipated impacts on its operational processes, controls and governance in support of the new guidance. 2. CREDIT CARD AND OTHER LOANS The Company’s payment and lending solutions result in the generation of credit card and other loans, which are recorded at the time a borrower enters into a point-of-sale transaction with a merchant. Credit card loans represent revolving amounts due and have a range of terms that include credit limits, interest rates and fees, which can be revised over time based on new information about the cardholder, in accordance with applicable regulations and the governing terms and conditions. Cardholders choosing to make a payment of less than the full balance due, instead of paying in full, are subject to finance charges and are required to make monthly payments based on pre-established amounts. Other loans, which again are BNPL products such as installment loans and the Company’s “split-pay” offerings, have a range of fixed terms such as interest rates, fees and repayment periods, and borrowers are required to make pre-established monthly payments over the term of the loan in accordance with the applicable terms and conditions. Credit card and other loans are presented on the Consolidated Balance Sheets net of the Allowance for credit losses, and include principal and any related accrued interest and fees. The Company continues to accrue interest and fee income on all accounts, except in limited circumstances, until the related balance and all related interest and fees are paid or charged-off; an Allowance for credit losses is established for uncollectable interest and fees. Primarily, the Company classifies its Credit card and other loans as held for investment. The Company sells a majority of its credit card loans originated by Comenity Bank (CB) and by Comenity Capital Bank (CCB), which together are referred to herein as the “Banks”, to the Trusts, which are themselves consolidated VIEs, and therefore these loans are restricted for securitization investors. All new originations of Credit card and other loans are determined to be held for investment at origination because the Company has the intent and ability to hold them for the foreseeable future. In determining what constitutes the foreseeable future, the Company considers the average life and homogenous nature of its Credit card and other loans. In assessing whether its Credit card and other loans continue to be held for investment, the Company also considers capital levels and scheduled maturities of funding instruments used. The assertion regarding the intent and ability to hold Credit card and other loans for the foreseeable future can be made with a high degree of certainty given the maturity distribution of the Company’s direct-to-consumer deposits and other funding instruments; the demonstrated ability to replace maturing time-based deposits and other borrowings with new deposits or borrowings; and historic payment activity on its Credit card and other loans. Due to the homogenous nature of the Company’s credit card loans, amounts are classified as held for investment on a brand partner portfolio basis. From time to time certain Credit card loans are classified as held for sale, as determined on a brand partner basis. The Company carries these assets at the lower of aggregate cost or fair value, and continues to recognize finance charges on an accrual basis. Cash flows associated with Credit card and other loans originated or purchased for investment are classified as Cash flows from investing activities, regardless of any subsequent change in intent and ability. F-13 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) The Company’s Credit card and other loans were as follows, as of December 31: 2022 2021 (Millions) Credit card loans $ 21,065 $ 17,217 Installment or other loans 300 182 Total credit card and other loans (1)(2) 21,365 17,399 Less: Allowance for credit losses ( 2,464 ) ( 1,832 ) Credit card and other loans, net $ 18,901 $ 15,567 ______________________________ (1) Includes $ 15.4 billion and $ 11.2 billion of Credit card and other loans available to settle obligations of consolidated VIEs as of December 31, 2022 and 2021, respectively. (2) Includes $ 307 million and $ 224 million, of accrued interest and fees that have not yet been billed to cardholders as of December 31, 2022 and 2021, respectively. Credit Card and Other Loans Aging An account is contractually delinquent if the Company does not receive the minimum payment due by the specified due date. The Company’s 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. If after exhausting all in-house collection efforts the Company is unable to collect on the account, it may engage collection agencies or outside attorneys to continue those efforts, or sell the charged-off balances. The following table presents the delinquency trends on the Company’s Credit card and other loans portfolio based on the amortized cost: Aging Analysis of Delinquent Amortized Cost Credit Card and Other Loans (1) 31 to 60 days delinquent 61 to 90 days delinquent 91 or more days delinquent Total delinquent Current Total (Millions) As of December 31, 2022 $ 444 $ 296 $ 732 $ 1,472 $ 19,559 $ 21,031 As of December 31, 2021 $ 262 $ 186 $ 401 $ 849 $ 16,284 $ 17,133 ______________________________ (1) BNPL loan delinquencies have been included with credit card loan delinquencies in the table above, as amounts were insignificant as of each period presented. As permitted by GAAP, the Company excludes unbilled finance charges and fees from its amortized cost basis of Credit card and other loans. As of December 31, 2022 and 2021, again, accrued interest and fees that have not yet been billed to cardholders were $ 307 million and $ 224 million, respectively, included in Credit card and other loans on the Consolidated Balance Sheets. From time to time the Company may re-age cardholders’ accounts, which is intended to assist delinquent cardholders who have experienced financial difficulties but who demonstrate both an ability and willingness to repay the amounts due; this practice affects credit card loan delinquencies and principal losses. Accounts meeting specific defined criteria are re-aged when the cardholder makes one or more consecutive payments aggregating to a certain pre-defined amount of their account balance. Upon re-aging, the outstanding balance of a delinquent account is returned to Current status. For the years ended December 31, 2022, 2021 and 2020, the Company’s re-aged accounts as a percentage of total Credit card and other loans represented 1.4 %, 1.7 % and 2.8 %, respectively. The Company’s re-aging practices comply with regulatory guidelines. F-14 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Net Principal Losses The Company’s net principal losses include the principal amount of losses 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 (including synthetic fraud) are recorded in Card and processing expenses. Credit card loans, including unpaid interest and fees, are generally charged-off in the month during which an account becomes 180 days past due. BNPL loans, 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 in each month subsequent to 60 days after the receipt of notification of the bankruptcy or death, but in any case not later than 180 days past due for credit card loans and 120 days past due for BNPL loans. The Company records the actual losses for unpaid interest and fees as a reduction to Interest and fees on loans, which were $ 651 million, $ 456 million and $ 717 million for the years ended December 31, 2022, 2021 and 2020, respectively. Modified Credit Card Loans Forbearance Programs As part of the Company’s collections strategy, the Company may offer temporary, short term (six-months or less) forbearance programs in order to improve the likelihood of collections and meet the needs of the Company’s customers. The Company’s modifications for customers who have requested assistance and meet certain qualifying requirements, come in the form of reduced or deferred payment requirements, interest rate reductions and late fee waivers. The Company does not offer programs involving the forgiveness of principal. These temporary loan modifications may assist in cases where the Company believes the customer will recover from the short-term hardship and resume scheduled payments. Under these forbearance modification programs, those accounts receiving relief may not advance to the next delinquency cycle, including to charge-off, in the same time frame that would have occurred had the relief not been granted. The Company evaluates its forbearance modification programs to determine if they represent a more than insignificant delay in payment, in which case they would then be considered a troubled debt restructuring (TDR). Loans in these short term programs that are determined to be TDR’s, will be included as such in the disclosures below. Credit Card Loans Modified as TDRs The Company considers impaired loans to be loans for which it is probable that it will be unable to collect all amounts due according to the original contractual terms of the cardholder agreement, including credit card loans modified as TDRs. In instances where cardholders are experiencing financial difficulty, the Company may modify its credit card loans with the intention of minimizing losses and improving collectability, while providing cardholders with financial relief; such credit card loans are classified as TDRs, exclusive of the forbearance programs described above. Modifications, including for temporary hardship and permanent workout programs, include concessions consisting primarily of a reduced minimum payment, late fee waiver, and an interest rate reduction. The temporary programs’ concessions remain in place for a period no longer than twelve months, while the permanent programs remain in place through the payoff of the credit card loans if the cardholder complies with the terms of the program. TDR concessions do not include the forgiveness of unpaid principal, but may involve the reversal of certain unpaid interest or fee assessments, and the cardholder’s ability to make future purchases is either limited, or suspended until the cardholder successfully exits from the modification program. In accordance with the terms of the Company’s temporary hardship and permanent workout programs, the credit agreement reverts back to its original contractual terms (including the contractual interest rate) when the customer exits the program, which is either when all payments have been made in accordance with the program, or when the customer defaults out of the program. TDRs are collectively evaluated for impairment on a pooled basis in measuring the appropriate Allowance for credit losses. The Company’s impaired credit card loans represented 1 % and 2 % of total credit card loans for year ended December 31, 2022 and 2021, respectively. As of those same dates, the Company’s recorded investment in impaired credit card loans was $ 257 million and $ 281 million, respectively, with an associated Allowance for credit losses of $ 70 million and $ 81 million, respectively. The average recorded investment in impaired credit card loans was $ 257 million and $ 383 million for the year ended December 31, 2022 and 2021, respectively. F-15 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Interest income on these impaired credit card loans is accounted for in the same manner as non-impaired credit card loans, and cash collections are allocated according to the same payment hierarchy methodology applied for credit card loans not in modification programs. The Company recognized $ 15 million, $ 26 million and $ 30 million for the year ended December 31, 2022, 2021 and 2020, respectively, in interest income associated with credit card loans in modification programs, during the period that such loans were impaired. The following table provides additional information regarding credit card loans modified as TDRs for the years ended December 31: 2022 2021 Number of Restructurings Pre- modification Outstanding Balance Post- modification Outstanding Balance Number of Restructurings Pre- modification Outstanding Balance Post- modification Outstanding Balance (Millions, except for Number of restructurings) Troubled debt restructurings 149,815 $ 227 $ 227 171,993 $ 254 $ 254 The following table provides additional information regarding credit card loans modified as TDRs that have subsequently defaulted within 12 months of their modification dates for the years ended December 31; the probability of default is factored into the Allowance for credit losses: 2022 2021 Number of Restructurings Outstanding Balance Number of Restructurings Outstanding Balance (Millions, except for Number of restructurings) Troubled debt restructurings that subsequently defaulted 63,726 $ 88 114,531 $ 154 Credit Quality Credit Card Loans As part of the Company’s credit risk management activities, the Company assesses overall credit quality by reviewing information related to the performance of a credit cardholder’s account, as well as information from credit bureaus relating to the cardholder’s broader credit performance. The Company utilizes VantageScore (Vantage) credit scores to assist in its assessment of credit quality. Vantage credit scores are obtained at origination of the account and are refreshed monthly thereafter to assist in predicting customer behavior. The Company categorizes these Vantage credit scores into the following three credit score categories: (i) 661 or higher, which are considered the strongest credits and therefore have the lowest credit risk; (ii) 601 to 660, considered to have moderate credit risk; and (iii) 600 or less, which are considered weaker credits and therefore have the highest credit risk. In certain limited circumstances there are customer accounts for which a Vantage score is not available and the Company uses alternative sources to assess credit risk and predict behavior. The table below excludes 0.6 % and 0.1 % of the total credit card loans balance as of December 31, 2022 and 2021, respectively, representing those customer accounts for which a Vantage credit score is not available. The following table reflects the distribution of the Company’s credit card loans by Vantage score as of December 31: Vantage 2022 2021 661 or Higher 601 to 660 600 or Less 661 or Higher 601 to 660 600 or Less Credit card loans 62 % 26 % 12 % 62 % 26 % 12 % BNPL Loans The amortized cost basis of the Company’s BNPL loans totaled $ 299 million and $ 182 million as of December 31, 2022 and 2021, respectively. As of December 31, 2022, approximately 86 % of these loans were originated with customers with Fair Isaac Corporation (FICO) scores of 660 or above, and correspondingly approximately 14 % of these loans were F-16 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) originated with customers with FICO scores below 660. Similarly, as of December 31, 2021, approximately 84 % and 16 % of these loans were originated by customers with FICO scores of 660 or above, and below 660, respectively. Unfunded Loan Commitments The Company is active in originating private label and co-brand credit cards in the U.S. The Company manages potential credit risk in its unfunded lending commitments by reviewing each potential customer’s credit application and evaluating the applicant’s financial history and ability and perceived willingness to repay. Credit card loans are made primarily on an unsecured basis. Cardholders reside throughout the U.S. and are not significantly concentrated in any one geographic area. The Company manages its potential risk in credit commitments by limiting the total amount of credit, both by individual customer and in total, by monitoring the size and maturity of its portfolios and applying consistent underwriting standards. The Company has the unilateral ability to cancel or reduce unused credit card lines at any time. Unused credit card lines available to cardholders totaled approximately $ 128 billion and $ 112 billion as of December 31, 2022 and 2021, respectively. While this amount represented the total available unused credit card lines, the Company has not experienced and does not anticipate that all cardholders will access their entire available line at any given point in time. Portfolio Sales In August 2021, the Company sold a credit card portfolio for cash consideration of approximately $ 512 million and recognized a gain of approximately $ 10 million on the transaction, which was recorded in Other non-interest income. As of December 31, 2022 and December 31, 2021, there were no credit card loans held for sale and no portfolio sales were made during the year end December 31, 2022. The Company previously announced the non-renewal of its contract with BJ’s and the sale of the BJ’s portfolio, which closed in late February 2023, for a total preliminary purchase price of approximately $ 2.5 billion on a loan portfolio of approximately $ 2.3 billion, subject to customary purchase price adjustments. Portfolio Acquisitions In April 2022, the Company acquired a credit card portfolio for cash consideration of approximately $ 249 million, which primarily consisted of credit card loans, and also included intangible assets (primarily purchased credit card relationships) and rewards liabilities. For Consolidated Financial Statement disclosure purposes, allocation of the purchase price to the credit card loans and intangible assets acquired is not significant. In October 2022, the Company acquired the AAA credit card portfolio for cash consideration of approximately $ 1.6 billion, which primarily consisted of $ 1.5 billion of credit card loans, and also included $ 118 million of intangible assets (primarily purchased credit card relationships) and reward liabilities, and is subject to customary purchase price adjustments. 3. ALLOWANCE FOR CREDIT LOSSES The Allowance for credit losses is an estimate of expected credit losses, measured over the estimated life of its Credit card and other loans that considers forecasts of future economic conditions in addition to information about past events and current conditions. The estimate under the credit reserving methodology referred to as the Current Expected Credit Loss (CECL) model is significantly influenced by the composition, characteristics and quality of the Company’s portfolio of credit card and other loans, as well as the prevailing economic conditions and forecasts utilized. The estimate of the Allowance for credit losses includes an estimate for uncollectible principal as well as unpaid interest and fees. Principal losses, net of recoveries are deducted from the Allowance. Principal losses for unpaid interest and fees as well as any adjustments to the Allowance associated with unpaid interest and fees are recorded as a reduction to Interest and fees on loans. The Allowance is maintained through an adjustment to the Provision for credit losses and is evaluated for appropriateness. In estimating its Allowance for credit losses, for each identified group, management utilizes various models and estimation techniques based on historical loss experience, current conditions, reasonable and supportable forecasts and other relevant factors. These models utilize historical data and applicable macroeconomic variables with statistical analysis and F-17 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) behavioral relationships, to determine expected credit performance. The Company’s quantitative estimate of expected credit losses under CECL is impacted by certain forecasted economic factors. The Company considers the forecast used to be reasonable and supportable over the estimated life of the credit card and other loans, with no reversion period. In addition to the quantitative estimate of expected credit losses, the Company also incorporates qualitative adjustments for certain factors such as Company-specific risks, changes in current economic conditions that may not be captured in the quantitatively derived results, or other relevant factors to ensure the Allowance for credit losses reflects the Company’s best estimate of current expected credit losses. Credit Card Loans The Company uses a “pooled” approach to estimate expected credit losses for financial assets with similar risk characteristics. The Company has evaluated multiple risk characteristics across its credit card loans portfolio, and determined delinquency status and credit quality to be the most significant characteristics for estimating expected credit losses. To estimate its Allowance for credit losses, the Company segments its credit card loans on the basis of delinquency status, credit quality risk score and product. These risk characteristics are evaluated on at least an annual basis, or more frequently as facts and circumstances warrant. In determining the estimated life of the Company’s credit card loans, payments were applied to the measurement date balance with no payments allocated to future purchase activity. The Company uses a combination of First In First Out and the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act) methodologies to model balance paydown. BNPL Loans The Company measures its Allowance for credit losses on BNPL loans using a statistical model to estimate projected losses over the remaining terms of the loans, inclusive of an assumption for prepayments. The model is based on the historical statistical relationship between loan loss performance and certain macroeconomic data pooled based on credit quality risk score, term of the underlying loans, vintage and geographic location. As of December 31, 2022 and 2021, the Allowance for credit losses on BNPL loans was $ 21 million and $ 14 million, respectively. Allowance for Credit Losses Rollforward The following table presents the Company’s Allowance for credit losses for its Credit card and other loans. With the acquisition of Lon, Inc. in December 2020, the Company acquired certain BNPL loans which represented a separate portfolio segment; the amount of the related Allowance for credit losses was insignificant and therefore has been included in the table below. The amounts presented are for the years ended December 31: 2022 2021 2020 (Millions) Beginning balance (1) $ 1,832 $ 2,008 $ 1,815 Provision for credit losses (2) 1,594 544 1,266 Change in estimate for uncollectible unpaid interest and fees 10 — 10 Net principal losses (3) ( 972 ) ( 720 ) ( 1,083 ) Ending balance $ 2,464 $ 1,832 $ 2,008 ______________________________ (1) The 2020 Beginning balance includes an increase of $ 644 million as of January 1, 2020, related to the adoption of the CECL methodology. (2) Provision for credit losses includes a build/release for the Allowance, as well as replenishment of Net principal losses. (3) Net principal losses are presented net of recoveries of $ 187 million, $ 163 million and $ 205 million for the years ended December 31, 2022, 2021 and 2020, respectively. Net principal losses for the year ended December 31, 2022 include a $ 5 million adjustment related to the effects of the purchase of previously written-off accounts that were sold to a third-party debt collection agency; no such adjustment was made in the comparative periods. For the year ended December 31, 2022, the factors that influenced the increase in the Allowance for credit losses are a higher End-of-period credit card and other loan balance, a higher reserve rate due to economic scenario weightings in the F-18 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Company’s credit reserve modeling as a result of weakening in macroeconomic indicators, elevated inflation, and the increased cost of overall consumer debt . 4. SECURITIZATIONS The Company accounts for transfers of financial assets as either sales or financings. Transfers of financial assets that are accounted for as sales are removed from the Consolidated Balance Sheets with any realized gain or loss reflected in the Consolidated Statements of Income during the period in which the sale occurs. Transfers of financial assets that are not accounted for as a sale are treated as a financing. The Company regularly securitizes the majority of its credit card loans through the transfer of those loans to one of its Trusts. The Company performs the decision making for the Trusts, as well as servicing the cardholder accounts that generate the credit card loans held by the Trusts. In its capacity as a servicer, the Company administers the loans, collects payments and charges-off uncollectible balances. Servicing fees are earned by a subsidiary of the Company, which are eliminated in consolidation. The Trusts are consolidated VIEs because they have insufficient equity at risk to finance their activities – being the issuance of debt securities and notes, collateralized by the underlying credit card loans. Because the Company performs the decision making and servicing for the Trusts, it has the power to direct the activities that most significantly impact the Trusts’ economic performance (the collection of the underlying credit card loans). In addition, the Company holds all of the variable interests in the Trusts, with the exception of the liabilities held by third-parties. These variable interests provide the Company with the right to receive benefits and the obligation to absorb losses, which could be significant to the Trusts. As a result of these considerations, the Company is deemed to be the primary beneficiary of the Trusts and therefore consolidates the Trusts. The Trusts issue debt securities and notes, which are non-recourse to the Company. The collections on the securitized credit card loans held by the Trusts are available only for payment of those debt securities and notes, or other obligations arising in the securitization transactions. For its securitized credit card loans, during the initial phase of a securitization reinvestment period, the Company generally retains principal collections in exchange for the transfer of additional credit card loans into the securitized pool of assets. During the amortization or accumulation period of a securitization, the investors’ share of principal collections (in certain cases, up to a maximum specified amount each month) is either distributed to the investors or held in an account until it accumulates to the total amount due, at which time it is paid to the investors in a lump sum. The Company is required to maintain minimum interests in its Trusts ranging from 4 % to 10 % of the securitized credit card loans. This requirement is met through a transferor’s interest and is supplemented through excess funding deposits which represent cash amounts deposited with the trustee of the securitizations. Cash collateral, restricted deposits are generally released proportionately as investors are repaid. Under the terms of the Trusts, the occurrence of certain triggering events associated with the performance of the securitized credit card loans in each Trust could result in certain required actions, including payment of Trust expenses, the establishment of reserve funds, or early amortization of the debt securities and/or notes, in a worst-case scenario. During the years ended December 31, 2022, 2021 and 2020, no such triggering events occurred. The following tables provide the total securitized credit card loans and related delinquencies as of December 31, and net principal losses of securitized credit card loans for the years ended December 31: 2022 2021 (Millions) Total credit card loans – available to settle obligations of consolidated VIEs $ 15,383 $ 11,215 Of which: principal amount of credit card loans 91 days or more past due $ 307 $ 159 2022 2021 2020 (Millions) Net principal losses of securitized credit card loans $ 554 $ 453 $ 756 F-19 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 5. INVESTMENT SECURITIES The Company’s investment securities consist of available-for-sale (AFS) securities, which are debt securities and mutual funds. The Company also holds equity securities within its investment securities portfolio. Collectively, these investments are carried at fair value on the Consolidated Balance Sheets within Investment securities. For any AFS debt securities in an unrealized loss position, the CECL methodology requires estimation of the lifetime expected credit losses which then would be recognized in the Consolidated Statements of Income by establishing, or adjusting an existing allowance for those credit losses. The Company did not have any such credit losses for the periods presented. Any unrealized gains, or any portion of a security’s non-credit-related unrealized losses are recorded in the Consolidated Statements of Comprehensive Income, net of tax. The Company typically invests in highly-rated securities with low probabilities of default. Gains and losses on investments in equity securities are recorded in Other non-interest expenses in the Consolidated Statements of Income. Realized gains and losses are recognized upon disposition of the investment securities, using the specific identification method. The table below reflects unrealized gains and losses as of December 31, 2022 and December 31, 2021, respectively: 2022 2021 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value (Millions) Available-for-sale securities $ 175 $ — $ ( 23 ) $ 152 $ 173 $ 4 $ ( 2 ) $ 175 Equity securities $ 69 $ — $ — $ 69 $ 64 $ — $ — $ 64 Total $ 244 $ — $ ( 23 ) $ 221 $ 237 $ 4 $ ( 2 ) $ 239 The following tables provide information about the Company’s AFS debt securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 2022 and December 31, 2021, respectively: December 31, 2022 Less than 12 months 12 Months or Greater Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (Millions) Available-for-sale securities $ 95 $ ( 9 ) $ 57 $ ( 14 ) $ 152 $ ( 23 ) Total $ 95 $ ( 9 ) $ 57 $ ( 14 ) $ 152 $ ( 23 ) December 31, 2021 Less than 12 months 12 Months or Greater Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (Millions) Available-for-sale securities $ 57 $ ( 1 ) $ 15 $ ( 1 ) $ 72 $ ( 2 ) Total $ 57 $ ( 1 ) $ 15 $ ( 1 ) $ 72 $ ( 2 ) As of December 31, 2022, the amortized cost and estimated fair value of the Company’s AFS debt securities, which are mortgage-backed securities with no stated maturities, was $ 175 million and $ 152 million, respectively. There were no realized gains or losses from the sale of any investment securities for the years ended December 31, 2022, 2021 and 2020. F-20 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 6. PROPERTY AND EQUIPMENT, NET Furniture, equipment, buildings and leasehold improvements are carried at cost less accumulated depreciation, and depreciation is measured on a straight-line basis. Costs incurred during construction are capitalized; depreciation begins once the asset is placed in service. As of December 31, 2022, the Company’s furniture and equipment has remaining estimated useful lives ranging from less than one year to 10 years. Leasehold improvements are depreciated over the lesser of the remaining terms of the respective leases, or the economic lives of the improvements, and range from less than one year to 16 years, as of December 31, 2022. Costs associated with the acquisition or development of internal-use software are also capitalized and recorded in Property and equipment, net. Once the internal-use software is ready for its intended use, the cost is amortized on a straight-line basis over the software’s estimated useful life. As of December 31, 2022, the Company’s internal-use software has remaining estimated useful lives ranging from less than one year to 10 years. The Company reviews long-lived assets and asset groups for impairment whenever events or circumstances indicate their carrying amounts may not be recoverable. An impairment is recognized if the carrying amount is not recoverable and exceeds the asset or asset group’s fair value. Property and equipment consists of the following as of December 31: 2022 2021 (Millions) Internal-use computer software and development $ 305 $ 263 Furniture and equipment 96 107 Land and leasehold improvements 72 76 Construction in progress 9 25 Total 482 471 Accumulated depreciation and amortization ( 287 ) ( 256 ) Property and equipment $ 195 $ 215 Depreciation expense totaled $ 19 million, $ 26 million and $ 57 million for the years ended December 31, 2022, 2021 and 2020, respectively, and includes purchased software. Amortization expense on capitalized internal-use software costs totaled $ 68 million, $ 37 million and $ 15 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022 and 2021, the net amount of unamortized capitalized internal-use software costs included in Property and equipment, net on the Consolidated Balance Sheets was $ 112 million and $ 113 million, respectively. 7. GOODWILL AND INTANGIBLE ASSETS, NET Goodwill Goodwill is reviewed at least annually for impairment, or more frequently if circumstances indicate that an impairment is probable, using qualitative or quantitative analysis. No goodwill impairment has been recognized during any of the years ended December 31, 2022, 2021, or 2020. F-21 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021, respectively, were as follows: (Millions) Balance as of December 31, 2020 $ 634 Goodwill acquired during the period — Balance as of December 31, 2021 $ 634 Goodwill acquired during the period — Balance as of December 31, 2022 $ 634 ______________________________ There were no accumulated goodwill impairment losses as of both December 31, 2022 and 2021. Intangible Assets, net The Company’s identifiable intangible assets consist of both amortizable and non-amortizable intangible assets. Definite-lived intangible assets are subject to amortization and are amortized on a straight-line basis over their estimated useful lives; indefinite-lived intangible assets are not amortized. The Company reviews long-lived assets and asset groups, including intangible assets, for impairment whenever events and circumstances indicate their carrying amounts may not be recoverable; recognizing an impairment if the carrying amount is not recoverable and exceeds the fair value of the asset or asset group. No impairment of intangible assets has been recognized during any of the years ended December 31, 2022, 2021, or 2020. Intangible assets consist of the following as of December 31: 2022 Gross Assets Accumulated Amortization Net Useful Life (Millions) Definite-Lived Assets Customer contracts and lists $ 9 $ ( 6 ) $ 3 3 years Premium on purchased credit card loan portfolios $ 230 $ ( 73 ) $ 157 4 - 13 years Non-compete agreements $ 2 $ ( 1 ) $ 1 5 years $ 241 $ ( 80 ) $ 161 Indefinite-Lived Assets Tradename $ 4 $ — $ 4 Indefinite life Total intangible assets $ 245 $ ( 80 ) $ 165 2021 Gross Assets Accumulated Amortization Net Useful Life (Millions) Definite-Lived Assets Customer contracts and lists $ 9 $ ( 3 ) $ 6 3 years Premium on purchased credit card loan portfolios 133 ( 89 ) 44 1 - 13 years Non-compete agreements 2 — 2 5 years $ 144 $ ( 92 ) $ 52 Indefinite-Lived Assets Tradename 1 — 1 Indefinite life Total intangible assets $ 145 $ ( 92 ) $ 53 F-22 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Amortization expense related to intangible assets was approximately $ 26 million, $ 29 million and $ 34 million for the years ended December 31, 2022, 2021 and 2020, respectively. The estimated amortization expense related to intangible assets for the next five years and thereafter is as follows for the years ending December 31: (Millions) 2023 41 2024 37 2025 29 2026 24 2027 8 Thereafter 22 161 8. OTHER ASSETS The following is a summary of Other assets as of December 31: 2022 2021 (Millions) Deferred tax asset, net $ 552 $ 302 Deferred contract costs 344 364 Accounts receivable, net (1) 164 151 Right-of-use assets - operating 88 97 Restricted cash (2) 36 877 Investment in Loyalty Ventures Inc. (LVI) 6 50 Other (3) 210 151 Total other assets $ 1,400 $ 1,992 ______________________________ (1) Primarily related to federal, state and foreign income tax receivables (including a tax-related receivable in the amount of $ 49 million, net, which the Company is entitled to receive through LVI), and amounts receivable from various brand partners. (2) The balance as of December 31, 2021 represents principal accumulation for the repayment of debt issued by consolidated VIEs that matured in 2022. (3) Primarily comprised of prepaid expenses and non-income-based tax receivables. 9. LEASES The Company has various operating leases for facilities and equipment which are recorded as lease-related assets (right-of-use assets) and liabilities for those leases with terms greater than 12 months. The Company does not have any finance leases. The Company determines if an arrangement is a lease or contains a lease at inception, and does not separate lease and non-lease components. Right-of-use assets are recognized as of the lease commencement date at amounts equal to the respective lease liabilities, adjusted for any prepaid lease payments, initial direct costs and lease incentives. The Company’s lease liabilities are recognized as of the lease commencement date, or upon modification of the lease, at the present value of the contractual fixed lease payments, discounted using the Company’s incremental borrowing rate as the rate implicit in the lease is typically not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. As of both December 31, 2022 and 2021, the weighted average discount rate applied by the Company was 5.8 %. As of December 31, 2022, the Company’s leases have remaining lease terms ranging from less than one year , up to 16 years, some of which may include renewal options, while the weighted average remaining lease term was 8.8 years and 9.8 years F-23 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) as of December 31, 2022 and 2021, respectively. Leases with an initial term of 12 months or less are not recognized on the Consolidated Balance Sheets; lease expense for these leases is recognized on a straight-line basis over the lease term. As with other long-lived assets, right-of-use assets are reviewed for impairment whenever events and circumstances indicate their carrying amounts may not be recoverable. The components of lease expense were as follows for the years ended December 31: 2022 2021 2020 (Millions) Operating lease cost $ 17 $ 23 $ 25 Short-term lease cost — — 1 Variable lease cost 3 2 2 Sublease income ( 7 ) ( 5 ) ( 1 ) Total $ 13 $ 20 $ 27 Supplemental lease-related cash flow information was as follows for the years ended December 31: 2022 2021 2020 (Millions) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 23 $ 25 $ 28 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ — $ 5 $ 1 Future, maturities of the Company’s lease liabilities, by year, were as follows as of December 31, 2022: (Millions) 2023 $ 19 2024 20 2025 19 2026 18 2027 16 Thereafter 70 Total undiscounted lease liabilities 162 Less: Amount representing interest ( 36 ) Total present value of minimum lease payments $ 126 F-24 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 10. DEPOSITS Deposits were categorized as interest-bearing or non-interest-bearing as follows, as of December 31: 2022 2021 (Millions) Interest-bearing $ 13,787 $ 11,027 Non-interest-bearing (including cardholder credit balances) 39 — Total deposits $ 13,826 $ 11,027 Deposits by deposit type were as follows as of December 31: 2022 2021 (Millions) Savings accounts Direct-to-consumer (retail) $ 2,782 $ 1,713 Wholesale 3,954 3,873 Certificates of deposit Direct-to-consumer (retail) 2,684 1,467 Wholesale 4,367 3,974 Cardholder credit balances 39 — Total deposits $ 13,826 $ 11,027 The scheduled maturities of certificates of deposit were as follows as of December 31, 2022: (Millions) 2023 (1) $ 4,437 2024 1,333 2025 482 2026 234 2027 565 Thereafter — Total certificates of deposit $ 7,051 __________________________________ (1) The 2023 balance includes $ 9 million in unamortized debt issuance costs, which are associated with the entire portfolio of certificates of deposit. As of December 31, 2022 and December 31, 2021 , certificates of deposit that exceeded applicable FDIC insurance limits, which are generally $250,000 or more, in the aggregate, were $ 822 million and $ 500 million, respectively. F-25 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 11. BORROWINGS OF LONG-TERM AND OTHER DEBT Long-term and other debt consisted of the following as of December 31: Description 2022 2021 Contractual Maturities Interest Rates (Millions, except percentages) Long-term and other debt: Revolving line of credit $ — $ — July 2024 (1) Term loans 556 658 July 2024 (2) Senior notes due 2024 850 850 December 2024 4.750 % Senior notes due 2026 500 500 January 2026 7.000 % Subtotal 1,906 2,008 Less: Unamortized debt issuance costs 14 22 Total long-term and other debt $ 1,892 $ 1,986 Debt issued by consolidated VIEs: Fixed rate asset-backed term note securities $ — $ 1,572 Conduit asset-backed securities 6,115 3,883 Various – Jun 2023 to Oct 2023 (3) Subtotal 6,115 5,455 Less: Unamortized debt issuance costs — 2 Total debt issued by consolidated VIEs $ 6,115 $ 5,453 Total borrowings of long-term and other debt $ 8,007 $ 7,439 ______________________________ (1) The interest rate in 2022 is based upon the Secured Overnight Financing Rate (SOFR) plus an applicable margin. The interest rate in 2021 is based upon the London Interbank Offered Rate (LIBOR) plus an applicable margin. (2) The interest rate in 2022 is based upon SOFR plus an applicable margin. The interest rate in 2021 is based upon LIBOR plus an applicable margin. The weighted average interest rate for the term loans was 3.24 % and 1.85 % as of December 31, 2022 and 2021, respectively. (3) The interest rate in 2022 is based upon SOFR, or the asset-backed commercial paper costs of each individual conduit provider plus an applicable margin. The interest rate in 2021 is based upon LIBOR, or the asset-backed commercial paper costs of each individual conduit provider plus an applicable margin. As of December 31, 2022, the interest rates ranged from 5.08 % to 5.93 %. As of December 31, 2021, the interest rates ranged from 0.89 % to 0.96 %. Certain of the Company’s long-term debt agreements contain various restrictive financial and non-financial covenants. If the Company does not comply with these covenants, the maturity of amounts outstanding may be accelerated and become payable and the associated commitments may be terminated. As of December 31, 2022, the Company was in compliance with all such covenants. Long-term and Other Debt Credit Agreement The Company, as borrower, and certain of its non-Bank wholly-owned subsidiaries, as guarantors, are party to a Credit Agreement with various agents and lenders dated June 14, 2017, as amended (the Credit Agreement). As of December 31, 2022, the Credit Agreement had $ 556 million aggregate principal amount of term loans outstanding (the term loans) and provided for a $ 750 million revolving credit facility (the revolving line of credit) which was undrawn as of December 31, 2022. The Credit Agreement matures on July 1, 2024. The Credit Agreement contains the usual and customary negative and affirmative covenants, including, but not limited to, restrictions on the Company’s ability and in certain instances, its subsidiaries’ ability to consolidate or merge; substantially change the nature of its business; sell, lease, or otherwise transfer any substantial part of its assets; create or incur indebtedness; create liens; and make acquisitions. The negative covenants are subject to certain exceptions as specified in the Credit Agreement. The Credit Agreement also requires the Company to comply with certain financial covenants and F-26 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) includes customary events of default. The Credit Agreement was amended in December 2022 to index borrowings SOFR, with the discontinuation of LIBOR. SOFR is based on short-term repurchase agreements that are backed by Treasury securities. Senior Notes Due 2024 and 2026 The Senior Notes set forth below are each governed by their respective indenture that includes usual and customary negative covenants and events of default. These Senior Notes are unsecured and are guaranteed on a senior unsecured basis by certain of the Company’s existing and future domestic restricted subsidiaries that incurs or in any other manner becomes liable for any debt under the Company’s domestic credit facilities, including the Credit Agreement. Due December 15, 2024: In December 2019, the Company issued and sold $ 850 million aggregate principal amount of 4.750 % Senior Notes due December 15, 2024 (the Senior Notes due 2024). The Senior Notes due 2024 accrue interest on the outstanding principal amount at the rate of 4.750 % per annum from December 20, 2019, payable semi-annually in arrears, on June 15 and December 15 of each year, beginning on June 15, 2020. The Senior Notes due 2024 will mature on December 15, 2024, subject to earlier repurchase or redemption. Due January 15, 2026: In September 2020, the Company issued and sold $ 500 million aggregate principal amount of 7.000 % Senior Notes due January 15, 2026 (the Senior Notes due 2026). The Senior Notes due 2026 accrue interest on the outstanding principal amount at the rate of 7.000 % per annum from September 22, 2020, payable semi-annually in arrears, on March 15 and September 15 of each year, beginning on March 15, 2021. The Senior Notes due 2026 will mature on January 15, 2026, subject to earlier repurchase or redemption. Debt Issued by Consolidated VIEs An asset-backed security is a security whose value and income payments are derived from and collateralized by a specified pool of underlying assets – in the case of the Company, its credit card loans. The sale of the pool of underlying assets to general investors is accomplished through a securitization process. The Company regularly sells its credit card loans to its Trusts, which are consolidated by the Company. The liabilities of these consolidated VIEs include asset-backed securities for which creditors, or beneficial interest holders, do not have recourse to the general credit of the Company. Asset-Backed Term Notes For the year ended December 31, 2022, no asset-backed term notes were issued, and $ 1.6 billion of asset-backed term notes matured and were repaid, of which $ 74 million were previously retained by the Company and therefore eliminated from the Consolidated Balance Sheets. Conduit Facilities The Company maintained committed syndicated bank Conduit Facilities to support the funding of its credit card loans for its Trusts. Borrowings outstanding under each private Conduit Facility bear interest at a margin above SOFR, or the asset-backed commercial paper costs of each individual conduit provider. During the year ended December 31, 2022, the Company obtained increased lender commitments under its Conduit Facilities of $ 2.1 billion and extended the various maturities to June 2023 and July 2023. Specifically, in April 2022, the World Financial Network Credit Card Master Trust III amended its 2009-VFC Conduit Facility, increasing the capacity from $ 225 million to $ 275 million and extending the maturity to July 2023. In addition, in April 2022, the World Financial Capital Master Note Trust amended its 2009-VFN Conduit Facility, increasing the capacity from $ 1.5 billion to $ 2.5 billion and extending the maturity to July 2023. In June 2022, the Comenity Capital Asset Securitization Trust was formed for the purpose of funding a portfolio acquisition completed in October 2022. The capacity was negotiated to be $ 1.0 billion and the maturity was set as June 2023. As of December 31, 2022, total capacity under the Conduit Facilities was $ 6.5 billion, of which $ 6.1 billion had been drawn. F-27 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Maturities The future principal payments for the Company’s long-term and other debt are as follows, as of December 31, 2022: Year Long-Term and Other Debt Debt Issued by Consolidated VIEs Total (Millions) 2023 $ 152 $ 6,115 $ 6,267 2024 1,254 — 1,254 2025 — — — 2026 500 — 500 2027 — — — Thereafter — — — Total maturities 1,906 6,115 8,021 Unamortized debt issuance costs ( 14 ) — ( 14 ) $ 1,892 $ 6,115 $ 8,007 12. OTHER LIABILITIES The following is a summary of Other liabilities as of December 31: 2022 2021 (Millions) Accounts payable and other brand partner liabilities $ 398 $ 291 Accrued liabilities (1) 306 314 Long-term tax reserves 306 313 Operating lease liabilities 126 140 Other (2) 173 136 Total other liabilities $ 1,309 $ 1,194 ______________________________ (1) Primarily related to accrued payroll and benefits, marketing, taxes and professional services expenses. (2) Primarily comprised of long-term unearned revenue and cardholder liabilities. 13. OTHER NON-INTEREST INCOME AND OTHER NON-INTEREST EXPENSES The following table provides the components of Other non-interest income for the years ended December 31: 2022 2021 2020 (Millions) Payment protection products $ 154 $ 141 $ 156 Loss from equity method investment ( 44 ) 2 — Other 4 13 21 Total other non-interest income $ 114 $ 156 $ 177 F-28 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) The following table provides the components of Other non-interest expenses for the years ended December 31: 2022 2021 2020 (Millions) Professional services and regulatory fees $ 142 $ 136 $ 114 Asset impairment charges — — 64 Other (1) 85 86 108 Total other non-interest expense $ 227 $ 222 $ 286 ______________________________ (1) Primarily related to occupancy expense and non-income based taxes. 14. FAIR VALUES OF FINANCIAL INSTRUMENTS Fair value is defined under GAAP as the price that would be required to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; with such transaction based on the principal market, or in the absence of a principal market the most advantageous market for the specific instrument. GAAP provides for a three-level fair value hierarchy that classifies the inputs to valuation techniques used to measure fair value, defined as follows: Level 1: Inputs that are unadjusted quoted prices for identical assets or liabilities in active markets that the entity can access. Level 2: Inputs, other than those included within Level 1, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, or inputs other than quoted prices that are observable for the asset or liability. Level 3: Inputs that are unobservable (e.g., internally derived assumptions) and reflect an entity’s own estimates about estimates market participants would use in pricing the asset or liability based on the best information available under the circumstances. In particular, Level 3 inputs and valuation techniques involve judgment and as a result are not necessarily indicative of amounts the Company would realize in a current market exchange. The use of different assumptions or estimation techniques may have a material effect on the estimated fair value amounts. The Company monitors the market conditions and evaluates the fair value hierarchy levels quarterly. For the years ended December 31, 2022 and 2021, there were no transfers into or out of Level 3, and no transfers between Levels 1 and 2. The following table summarizes the carrying values and fair values of the Company’s financial assets and financial liabilities as of December 31: 2022 2021 Carrying Amount Fair Value Carrying Amount Fair Value (Millions) Financial assets Credit card and other loans, net $ 18,901 $ 21,328 $ 15,567 $ 17,989 Investment securities 221 221 239 239 Financial liabilities Deposits 13,826 13,731 11,027 11,135 Debt issued by consolidated VIEs 6,115 6,115 5,453 5,467 Long-term and other debt 1,892 1,759 1,986 2,053 F-29 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Valuation Techniques Used in the Fair Value Measurement of Financial Assets and Financial Liabilities Credit card and other loans, net: The Company’s Credit card and other loans are recorded at historical cost, less the Allowance for credit losses, on the Consolidated Balance Sheets. In estimating the fair values, the Company uses a discounted cash flow model (i.e., Level 3 inputs), primarily because a comparable whole loan sales market for similar loans does not exist, and therefore there is a lack of observable pricing inputs. The Company uses various internally derived inputs, including projected income, discount rates and forecasted write-offs; economic value attributable to future loans generated by the cardholder accounts is not included in the fair values. Investment securities: Investment securities consist of AFS securities, which are debt securities and mutual funds, as well as equity securities, and are recorded at fair value on the Consolidated Balance Sheets. Quoted prices of identical or similar investment securities in active markets are used to estimate the fair values (i.e., Level 1 or Level 2 inputs). Deposits: Money market and other non-maturity deposits carrying values approximate their fair values because they are short-term in duration and have no defined maturity. Certificates of deposit are recorded at their historical issuance cost on the Consolidated Balance Sheets, adjusted for unamortized fees, with fair value being estimated based on the currently observable market rates available to the Company for similar deposits with similar remaining maturities (i.e., Level 2 inputs). Interest payable is included within Other liabilities on the Consolidated Balance Sheets. Debt issued by consolidated VIEs: The Company records debt issued by its consolidated VIEs at historical issuance cost on the Consolidated Balance Sheets, adjusted for unamortized fees, as well as premiums or discounts, as applicable. Interest payable is included within Other liabilities on the Consolidated Balance Sheets. Fair value is estimated based on the currently observable market rates available to the Company for similar debt instruments with similar remaining maturities or quoted market prices for the same transaction (i.e., Level 2 inputs). Long-term and other debt: The Company records its long-term and other debt at historical issuance cost on the Consolidated Balance Sheets, adjusted for unamortized fees, as well as premiums or discounts, as applicable. Interest payable is included within Other liabilities on the Consolidated Balance Sheets. The fair value is estimated based on the currently observable market rates available to the Company for similar debt instruments with similar remaining maturities, or quoted market prices for the same transaction (i.e., Level 2 inputs). The following tables summarize the Company’s financial assets and financial liabilities measured at fair value on a recurring basis, categorized by the fair value hierarchy described in the preceding paragraphs, as of December 31: 2022 Total Level 1 Level 2 Level 3 (Millions) Investment securities $ 221 $ 44 $ 177 $ — Total assets measured at fair value $ 221 $ 44 $ 177 $ — 2021 Total Level 1 Level 2 Level 3 (Millions) Investment securities $ 239 $ 48 $ 191 $ — Total assets measured at fair value $ 239 $ 48 $ 191 $ — Financial Instruments Disclosed but Not Carried at Fair Value The following tables summarize the Company’s financial assets and financial liabilities that are measured at amortized cost, and not required to be carried at fair value on a recurring basis, as of December 31, 2022 and 2021. The fair values of these financial instruments are estimates as of December 31, 2022 and 2021, and require management’s judgment; therefore, these figures may not be indicative of future fair values, nor can the fair value of the Company be estimated by aggregating all of the amounts presented. F-30 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 2022 Fair Value Level 1 Level 2 Level 3 (Millions) Financial assets: Credit card and other loans, net $ 21,328 $ — $ — $ 21,328 Total $ 21,328 $ — $ — $ 21,328 Financial liabilities: Deposits $ 13,731 $ — $ 13,731 $ — Debt issued by consolidated VIEs 6,115 — 6,115 — Long-term and other debt 1,759 — 1,759 — Total $ 21,605 $ — $ 21,605 $ — 2021 Fair Value Level 1 Level 2 Level 3 (Millions) Financial assets: Credit card and other loans, net $ 17,989 $ — $ — $ 17,989 Total $ 17,989 $ — $ — $ 17,989 Financial liabilities: Deposits $ 11,135 $ — $ 11,135 $ — Debt issued by consolidated VIEs 5,467 — 5,467 — Long-term and other debt 2,053 — 2,053 — Total $ 18,655 $ — $ 18,655 $ — Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Certain assets and liabilities are recognized or disclosed at fair value on a nonrecurring basis, including property and equipment, right-of-use assets, deferred contract assets, goodwill and intangible assets. These assets are not measured at fair value on a recurring basis but are subject to fair value adjustments in certain circumstances, such as upon impairment. For the year ended December 31, 2022, the Company recognized a write-down of its equity method investment in LVI of $ 44 million; as of December 31, 2022, the carrying amount of its investment was $ 6 million and the fair value was $ 11 million. The Company did no t have any impairments for the year ended December 31, 2021. 15. COMMITMENTS AND CONTINGENCIES Regulatory Matters CB is regulated, supervised and examined by the State of Delaware and the Federal Deposit Insurance Corporation (FDIC). The Company’s industrial bank, CCB, is regulated, supervised and examined by the State of Utah and the FDIC. The Consumer Financial Protection Bureau (CFPB) promulgates regulations for the federal consumer financial protection laws and supervises and examines large banks (those with more than $10 billion of total assets) with respect to those laws. Banks in a multi-bank organization, such as CB and CCB, are subject to supervision and examination by the CFPB with respect to the federal consumer financial protection laws if at least one bank reports total assets over $10 billion for four consecutive quarters. While the Banks were subject to supervision and examination by the CFPB with respect to the federal consumer financial protection laws between 2016 and 2021, this reverted to the FDIC in 2022. However, CCB’s total assets then exceeded $10 billion for four consecutive quarters as of September 30, 2022, and both Banks are now again subject to supervision and examination by the CFPB with respect to federal consumer protection laws. F-31 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Quantitative measures established by regulations to ensure capital adequacy require CB and CCB to maintain minimum amounts and ratios of Tier 1 capital to average assets, Common equity tier 1, Tier 1 capital and Total capital, all 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 those of the Company. Based on these regulations, as of December 31, 2022 and 2021, 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 are considered well capitalized and seek to maintain capital levels and ratios in excess of the minimum regulatory requirements inclusive of the 2.5% Capital Conservation Buffer. The actual capital ratios and minimum ratios for each Bank, as well as the Combined Banks, are as follows as of December 31, 2022: Actual Ratio Minimum Ratio for Capital Adequacy Purposes Minimum Ratio to be Well Capitalized under Prompt Corrective Action Provisions Comenity Bank Common Equity Tier 1 capital ratio (1) 18.4 % 4.5 % 6.5 % Tier 1 capital ratio (2) 18.4 6.0 8.0 Total Risk-based capital ratio (3) 19.7 8.0 10.0 Tier 1 Leverage capital ratio (4) 16.7 4.0 5.0 Comenity Capital Bank Common Equity Tier 1 capital ratio (1) 16.1 % 4.5 % 6.5 % Tier 1 capital ratio (2) 16.1 6.0 8.0 Total Risk-based capital ratio (3) 17.4 8.0 10.0 Tier 1 Leverage capital ratio (4) 14.9 4.0 8.0 Combined Banks Common Equity Tier 1 capital ratio (1) 17.0 % 4.5 % 6.5 % Tier 1 capital ratio (2) 17.0 6.0 8.0 Total Risk-based capital ratio (3) 18.3 8.0 10.0 Tier 1 Leverage capital ratio (4) 15.6 4.0 5.0 (1) The Common Equity Tier 1 capital ratio represents common equity tier 1 capital divided by total risk-weighted assets. (2) The Tier 1 capital ratio represents tier 1 capital divided by total risk-weighted assets. (3) The Total Risk-based capital ratio represents total capital divided by total risk-weighted assets. (4) The Tier 1 Leverage capital ratio represents tier 1 capital divided by total average assets, after certain adjustments. Indemnification On July 1, 2019, the Company completed the sale of its Epsilon segment to Publicis Groupe S.A. (Publicis). Under the terms of the agreement governing that transaction, the Company agreed to indemnify Publicis and its affiliates from and against any losses arising out of or related to a U.S. Department of Justice (DOJ) investigation. The DOJ investigation related to third-party marketers who sent, or allegedly sent, deceptive mailings and the provision of data and services to those marketers by Epsilon’s data practice. Epsilon actively cooperated with the DOJ in connection with the investigation. On January 19, 2021, Epsilon entered into a deferred prosecution agreement (DPA) with the DOJ to resolve the matters that were the subject of the investigation. Pursuant to the DPA, Epsilon agreed, among other things, to pay penalties and consumer compensation in the aggregate amount of $ 150 million, to be paid in two equal installments, the first in January 2021 and the second in January 2022. A $ 150 million loss contingency was recorded as of December 31, 2020. Pursuant to F-32 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) its contractual indemnification obligation, in January 2021 the Company paid $ 75 million to Publicis, and in January 2022 the Company paid the remaining $ 75 million installment to Publicis. Legal Proceedings From time to time the Company is involved in various claims and lawsuits and other proceedings, arising in the ordinary course of business that it believes will not have a material adverse effect on its business, consolidated financial condition or liquidity, including claims and lawsuits alleging breaches of the Company’s contractual obligations, arbitrations, class actions and other litigation, arising in connection with its business activities. The Company is also involved, from time to time, in reviews, investigations, subpoenas, supervisory actions and other proceedings (both formal and informal) by governmental agencies regarding its business, which could subject the Company to significant fines, penalties, obligations to change its business practices, significant restrictions on its 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 the Company’s reputation. 16. EMPLOYEE BENEFIT PLANS Employee Stock Purchase Plan In March 2015, the Company’s Board of Directors adopted the 2015 Employee Stock Purchase Plan (the 2015 ESPP), which was subsequently approved by the Company’s stockholders on June 3, 2015. The 2015 ESPP became effective July 1, 2015 with no definitive expiration date. The Company’s Board of Directors may at any time and for any reason terminate or amend the 2015 ESPP. No employee may purchase more than $ 25,000 worth of stock under the 2015 ESPP in any calendar year, and no employee may purchase stock under the 2015 ESPP if such purchase would cause the employee to own more than 5 % of the voting rights or value of the Company’s common stock. The 2015 ESPP provides for six-month offering periods, commencing on the first trading day of the first and third calendar quarter of each year and ending on the last trading day of each subsequent calendar quarter. The purchase price of the common stock upon exercise is 85 % of the fair market value of shares on the applicable purchase date as determined by averaging the high and low trading prices of the last trading day of each six-month period as defined above. An employee elects to participate and have contributions deducted through payroll deductions. The 2015 ESPP provides for the issuance of any remaining shares available for issuance under the 2005 ESPP, which were 441,327 shares at June 30, 2015. The 2015 ESPP reserved an additional 1,000,000 shares of the Company’s common stock for issuance under the 2015 Plan, bringing the maximum number of shares reserved for issuance under the 2015 ESPP to 1,441,327 shares, subject to adjustment as provided in the 2015 ESPP. During the year ended December 31, 2022, the Company issued 100,951 shares of common stock under the 2015 ESPP at a weighted-average issue price of $ 31.48 . Since its adoption on July 1, 2015, 672,776 shares of common stock have been issued, with 768,551 shares available for issuance under the 2015 ESPP. 401(k) Retirement Savings Plan The Bread Financial Holdings, Inc. 401(k) and Retirement Savings Plan (the RSP) is a defined contribution plan that is qualified under Section 401(k) of the Internal Revenue Code of 1986. The Company amended the RSP effective December 3, 2020. The RSP is an IRS-approved safe harbor plan design that eliminates the need for most discrimination testing. Eligible employees can participate in the RSP immediately upon joining the Company and after 180 days of employment begin receiving company matching contributions; “seasonal” or “on-call” employees must complete a year of eligibility service before they may participate. The RSP covers U.S. employees of Bread Financial Holdings, Inc. who are at least 18 years old, one of the Company’s wholly-owned subsidiaries, and any other subsidiary or affiliated organization that adopts the RSP; employees of the Company and all of its U.S. subsidiaries are currently covered. The RSP permits eligible employees to make Roth elective deferrals, which are included in the employee’s taxable income at the time of contribution, but not when distributed. Regular, or Non-Roth elective deferrals made by employees, together with contributions by the Company to the RSP, and income earned on these contributions, are not taxable until withdrawn from the RSP. The Company matches an employee’s contribution dollar-for-dollar up to five percent of the employee’s eligible compensation; all Company matching contributions immediately vest. For the years ended December 31, 2022, 2021 and 2020, Company matching contributions were $ 17 million, $ 15 million and $ 16 million, respectively. F-33 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Participants in the RSP can direct their contributions and the Company’s matching contribution to numerous investment options, including the Company’s common stock. On July 20, 2001, the Company registered 1,500,000 shares of its common stock for issuance in accordance with the RSP pursuant to a Registration Statement on Form S-8, File No. 333-65556. As of December 31, 2022, 241,603 of such shares remain available for issuance. Executive Deferred Compensation Plan The Company also maintains an Executive Deferred Compensation Plan (EDCP). The EDCP permits a defined group of management and highly compensated employees to defer on a pre-tax basis a portion of their base salary and incentive compensation (as defined in the EDCP) payable for services rendered. Deferrals under the EDCP are unfunded and subject to the claims of the Company’s creditors. Each participant in the EDCP is 100 % vested in their account, and account balances accrue interest at a rate established and adjusted periodically by the Compensation & Human Capital committee of the Company’s Board of Directors. As of December 31, 2022 and 2021, the Company’s outstanding liability related to the EDCP, which was included in Other liabilities on the Consolidated Balance Sheets, was $ 20 million and $ 18 million, respectively. 17. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS The changes in each component of accumulated other comprehensive loss, net of tax effects, are as follows: Net Unrealized Gains (Losses) on AFS Securities Net Unrealized Losses on Cash Flow Hedges Net Unrealized Losses on Net Investment Hedge Foreign Currency Translation Losses (1) Accumulated Other Comprehensive Loss (Millions) Balance as of January 1, 2020 $ 2 $ — $ ( 7 ) $ ( 95 ) $ ( 100 ) Changes in other comprehensive income (loss) 21 ( 1 ) — 71 91 Recognition resulting from the sale of Precima's foreign subsidiaries — — — 4 4 Balance as of December 31, 2020 $ 23 $ ( 1 ) $ ( 7 ) $ ( 20 ) $ ( 5 ) Changes in other comprehensive (loss) income ( 21 ) 2 — ( 37 ) ( 56 ) Recognition resulting from the spinoff of LoyaltyOne's foreign subsidiaries ( 1 ) ( 1 ) 7 54 59 Balance as of December 31, 2021 $ 1 $ — $ — $ ( 3 ) $ ( 2 ) Changes in other comprehensive (loss) income ( 19 ) — — — ( 19 ) Balance as of December 31, 2022 $ ( 18 ) $ — $ — $ ( 3 ) $ ( 21 ) ______________________________ (1) Primarily related to the impact of changes in the Canadian dollar and Euro foreign currency exchange rates from the Company’s former LoyaltyOne segment, which was spun off in November 2021. With the spinoff of the Company’s former LoyaltyOne segment on November 5, 2021, the $ 7 million net unrealized loss on its net investment hedge related to its net investment in BrandLoyalty was reclassified into net income. Upon the sale of Precima on January 10, 2020, $ 4 million of accumulated foreign currency translation adjustments attributable to Precima’s foreign subsidiaries sold were reclassified from Accumulated other comprehensive loss and included in the calculation of the gain on the sale of Precima. F-34 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 18. STOCKHOLDERS’ EQUITY Stock Repurchase Programs On February 28, 2022, the Company’s Board of Directors approved a stock repurchase program to acquire up to 200,000 shares of the Company’s outstanding common stock in the open market during the one-year period ending on February 28, 2023. As of March 31, 2022, the Company had repurchased all 200,000 shares of its common stock available under this program for an aggregate of $ 12 million. Following their repurchase, these 200,000 shares ceased to be outstanding shares of common stock and are now treated as authorized but unissued shares of common stock. Stock Compensation Plans The Company has adopted equity compensation plans to advance the interests of the Company by rewarding certain employees for their contributions to the financial success of the Company and thereby motivating them to continue to make such contributions in the future. The 2015 Omnibus Incentive Plan (the 2015 Plan) became effective July 1, 2015, subsequently expired on June 30, 2020, and reserved 5,100,000 shares of common stock for grants of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock unit awards (RSUs), performance share awards, cash incentive awards, deferred stock units, and other stock-based and cash-based awards to selected officers, employees, non-employee directors and consultants who performed services for the Company or its affiliates, with only employees eligible to receive incentive stock options. The 2020 Omnibus Incentive Plan (the 2020 Plan) became effective July 1, 2020 and reserved 2,400,000 shares of common stock for grants of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, RSUs, performance share awards, cash incentive awards, deferred stock units, and other stock-based and cash-based awards to selected officers, employees, non-employee directors and consultants performing services for the Company or its affiliates, with only employees being eligible to receive incentive stock options. The 2020 Plan expires on June 30, 2030; provided that, pursuant to the terms of the 2022 Plan (as defined below), no new grants shall be made under the 2020 Plan. In March 2022, the Company’s Board of Directors adopted the 2022 Omnibus Incentive Plan (the 2022 Plan), which was subsequently approved by the Company’s stockholders on May 24, 2022. The 2022 Plan became effective July 1, 2022 and expires on June 30, 2032. The 2022 Plan reserves 3,075,000 shares of common stock for grants of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, RSUs, performance share awards, cash incentive awards, deferred stock units, and other stock-based and cash-based awards to selected officers, employees, non-employee directors and consultants performing services for the Company or its affiliates, with only employees being eligible to receive incentive stock options. The maximum amount that may be awarded to any independent member of the Company’s Board of Directors in any one calendar year may not exceed $ 1 million. On June 22, 2022, the Company registered 3,075,000 shares of its common stock for issuance in accordance with the 2022 Plan pursuant to a Registration Statement on Form S-8, File No. 333-265771. Terms of all awards under the 2022 Plan are determined by the Board of Directors or the Compensation & Human Capital Committee of the Board of Directors or its designee at the time of award. Stock Compensation Expense Stock-based compensation expense is measured at the grant date of the award, based on the fair value of the award, and is recognized ratably over the requisite service period. Stock-based compensation expense recognized in Employee compensation and benefits expense in the Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020 was $ 32 million, $ 25 million and $ 15 million, respectively, with corresponding income tax benefits of $ 5 million, $ 4 million and $ 3 million, respectively. As the amount of stock-based compensation expense recognized is based on awards ultimately expected to vest, the amount recognized in the Company’s Consolidated Statements of Income has been reduced for estimated forfeitures. The Company estimates forfeitures at each grant date based on historical experience, with forfeiture estimates to be revised, if necessary, in subsequent periods should actual forfeitures differ from those estimates; forfeitures were estimated at 5 % for each of the years ended December 31, 2022, 2021 and 2020. F-35 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) As of December 31, 2022, there was approximately $ 55 million of unrecognized expense, adjusted for estimated forfeitures, related to non-vested, stock-based equity awards granted to employees, which is expected to be recognized over a weighted average remaining period of approximately 2.2 years. Restricted Stock Unit Awards The following table summarizes RSUs activity under the Company’s equity compensation plans: Market- Based (1) Performance- Based (1) Service- Based Total Weighted Average Fair Value Balance as of January 1, 2020 24,288 230,272 258,572 513,132 $ 172.06 Shares granted 20,770 219,186 241,610 481,566 89.11 Shares vested — ( 42,097 ) ( 127,921 ) ( 170,018 ) 175.09 Shares forfeited ( 22,831 ) ( 186,135 ) ( 38,447 ) ( 247,413 ) 166.93 Balance as of December 31, 2020 22,227 221,226 333,814 577,267 $ 103.89 Shares granted (2) 2,641 111,542 774,062 888,245 88.18 Shares vested — ( 24,677 ) ( 167,723 ) ( 192,400 ) 118.78 Shares forfeited ( 5,801 ) ( 216,675 ) ( 291,201 ) ( 513,677 ) 93.16 Balance as of December 31, 2021 19,067 91,416 648,952 759,435 $ 89.14 Shares granted — 82,513 766,178 848,691 63.22 Shares vested — ( 8,983 ) ( 218,077 ) ( 227,060 ) 78.23 Shares forfeited ( 19,067 ) — ( 89,390 ) ( 108,457 ) 65.83 Balance as of December 31, 2022 — 164,946 1,107,663 1,272,609 $ 68.86 Outstanding and Expected to Vest 1,238,212 $ 69.17 ______________________________ (1) Shares granted reflect a 100 % target attainment of the respective market-based or performance-based metric. Shares forfeited include those restricted stock units forfeited as a result of the Company not meeting the respective market-based or performance-based metric conditions. (2) Shares granted reflect a November 2021 make-whole equity adjustment to unvested shares due to the reduction in the Company’s share value resulting from the spinoff of LVI. This adjustment increased shares granted by 2,641 shares, 12,659 shares and 96,556 shares for market-based, performance-based and service-based awards, respectively. These shares were excluded from the weighted average fair value calculation. For performance-based and service-based awards, the fair value of the RSUs was estimated using the Company’s closing share price on the date of grant. Service-based RSUs typically vest ratably over a three year period. Performance-based RSUs typically cliff vest at the end of three years , if specified performance measures tied to the Company’s financial performance are met, which are measured annually over the three year period. For the performance-based RSUs awarded in 2022 and 2021, the pre-defined vesting criteria typically permit a range from 0 % to 150 % to be earned. Accruals of compensation cost for an award with a performance condition are based on the probable outcome of that performance condition. The total fair value of RSUs vested was $ 18 million, $ 23 million and $ 30 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, the aggregate intrinsic value of RSUs outstanding and expected to vest was $ 47 million. Dividends For the years ended December 31, 2022, 2021 and 2020, the Company paid $ 43 million, $ 42 million and $ 61 million, respectively, in dividends to its shareholders of common stock. On January 26, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.21 per share on its common stock, payable on March 17, 2023, to stockholders of record at the close of business on February 10, 2023. F-36 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Treasury Stock On July 30, 2021, the Company retired its 67.4 million shares of treasury stock outstanding, which increased Treasury stock by $ 6,733 million, reduced Retained earnings by $ 5,453 million, reduced Additional paid-in capital by $ 1,280 million and reduced Common stock by an immaterial amount, with no impact to total stockholders’ equity, on the Consolidated Balance Sheets. 19. INCOME TAXES The Company files income tax returns in federal, state, local and foreign jurisdictions, as applicable. Provisions for current income tax liabilities are calculated and accrued on income and expense amounts expected to be included in the income tax returns for the current year. Income taxes reported in earnings also include deferred income tax provisions and provisions for uncertain tax positions. Differences between the Consolidated Financial Statements and tax bases of assets and liabilities give rise to deferred tax assets and liabilities, which measure the future tax effects of items recognized in the Consolidated Financial Statements. Changes in deferred income tax assets and liabilities associated with components of Other comprehensive (loss) income are charged or credited directly to Other comprehensive (loss) income. Otherwise, changes in deferred income tax assets and liabilities are included as a component of Provision for income taxes. The effect on deferred income tax assets and liabilities attributable to changes in enacted tax rates are charged or credited to Provision for income taxes in the period of enactment. Deferred tax assets require certain estimates and judgments in order to determine whether it is more likely than not that all or a portion of the benefit of a deferred tax asset will not be realized. In evaluating the Company’s deferred tax assets on a quarterly basis as new facts and circumstances emerge, the Company analyzes and estimates the impact of future taxable income, reversing temporary differences and available tax planning strategies. Uncertainties can lead to changes in the ultimate realization of deferred tax assets. A liability for unrecognized tax benefits, representing the difference between a tax position taken or expected to be taken in a tax return and the benefit recognized in the Consolidated Financial Statements, inherently requires estimates and judgments. A tax position is recognized only when it is more likely than not to be sustained, based purely on its technical merits after examination by the relevant taxing authority, and the amount recognized is the benefit the Company believes is more likely than not to be realized upon ultimate settlement. The Company evaluates its tax positions as new facts and circumstances become available, making adjustments to unrecognized tax benefits as appropriate. Uncertainties can mean the tax benefits ultimately realized differ from amounts previously recognized, with any differences recorded in Provision for income taxes, along with amounts for estimated interest and penalties related to uncertain tax positions. The components of the Company’s Provision for income taxes included in the Consolidated Statements of Income were as follows for the years ended December 31: 2022 2021 2020 (Millions) Current Federal $ 280 $ 218 $ 228 State 41 49 36 Total current income tax expense 321 267 264 Deferred Federal ( 201 ) ( 13 ) ( 143 ) State ( 44 ) ( 7 ) ( 28 ) Total deferred income tax benefit ( 245 ) ( 20 ) ( 171 ) Total Provision for income taxes $ 76 $ 247 $ 93 F-37 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) A reconciliation of the Company’s expected income tax expense computed by applying the federal statutory rate to income from continuing operations before income taxes, to the recorded Provision for income taxes, is as follows for the years ended December 31: 2022 2021 2020 (Millions) Expected expense at statutory rate $ 63 $ 219 $ 63 (Decrease) increase in income taxes resulting from: State and local income taxes, net of federal benefit ( 2 ) 33 6 Impact of 2017 Tax Reform — ( 8 ) ( 2 ) Non-deductible expenses 6 4 6 IRC Section 199, net of tax reserves 4 — 12 Basis difference in unconsolidated subsidiaries ( 8 ) — — Valuation allowance 16 — — Other ( 3 ) ( 1 ) 8 Total $ 76 $ 247 $ 93 For the year ended December 31, 2022, the Company increased its reserve for Internal Revenue Code (IRC) Section 199 deductions by approximately $ 4 million as a result of an unfavorable court ruling. In addition, the Company recorded an income tax benefit (deferred tax asset) of approximately $ 8 million related to the initial recognition of the basis difference in an unconsolidated subsidiary, against which the Company recorded a $ 16 million valuation allowance as of December 31, 2022. H.R. 1, originally known as the Tax Cuts and Jobs Act of 2017 (the 2017 Tax Reform) was enacted on December 22, 2017 and permanently reduced the corporate tax rate to 21% from 35%, effective January 1, 2018. For the year ended December 31, 2021, the Company recorded an income tax benefit of approximately $ 8 million related to the 2017 Tax Reform rate differential that was released from Other comprehensive (loss) income due to the divestiture of the Company’s former LoyaltyOne segment. For the year ended December 31, 2020, the Company recorded an income tax benefit of approximately $ 2 million related to the rate benefit for a capital loss that will be carried back to a year preceding the 2017 Tax Reform rate reduction. The Company is currently under audit with the Internal Revenue Service and as a result of the preliminary audit findings, the Company increased its reserve for IRC Section 199 deductions by $ 12 million during the year ended December 31, 2020. On August 16, 2022, the Inflation Reduction Act (the Act) was signed into law in the U.S., which includes a new 15 percent corporate minimum tax on certain large corporations and a one percent excise tax on stock repurchases made after December 31, 2022. The Company does not anticipate the Act will have a significant impact on its financial position, results of operations or cash flows, nor does it expect significant changes to operational processes, controls or governance as a result of the Act. F-38 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) The following table reflects the significant components of Deferred tax assets and liabilities as of December 31: 2022 2021 (Millions) Deferred tax assets Deferred revenue $ 14 $ 17 Allowance for credit losses 598 447 Net operating loss carryforwards and other carryforwards 39 42 Operating lease liabilities 30 33 Accrued expenses and other 88 65 Total deferred tax assets 769 604 Valuation allowance ( 26 ) ( 8 ) Deferred tax assets, net of valuation allowance 743 596 Deferred tax liabilities Deferred income $ 148 $ 221 Depreciation 7 28 Right of use assets 20 22 Intangible assets 16 23 Total deferred tax liabilities 191 294 Net deferred tax assets $ 552 $ 302 Amounts recognized on the Consolidated Balance Sheets: Other assets $ 552 $ 302 As of December 31, 2022, included in the Company’s U.S. tax returns are approximately $ 124 million of U.S. federal net operating loss carryovers (NOLs) and approximately $ 34 million of foreign tax credits. With the exception of NOLs generated after December 31, 2017, these attributes expire at various times through the year 2037. As of December 31, 2022, the Company has state NOLs of approximately $ 231 million and state credits of approximately $ 2 million, both available to offset future state taxable income, and state capital losses of approximately $ 7 million to offset capital gains. The state NOLs, credits and capital losses will expire at various times through the year 2040. The Company uses the portfolio approach relating to the release of stranded tax effects recorded in Accumulated other comprehensive loss. Under the portfolio approach, the net unrealized gains or losses recorded in Accumulated other comprehensive loss would be eliminated only on the date the entire portfolio of Available-for-sale investment securities is sold or otherwise disposed of. F-39 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) The following table presents changes in unrecognized tax benefits: (Millions) Balance as of January 1, 2020 $ 215 Increases related to prior years’ tax positions 59 Decreases related to prior years’ tax positions ( 23 ) Increases related to current year tax positions 11 Settlements during the period ( 5 ) Lapses of applicable statutes of limitation ( 2 ) Balance as of December 31, 2020 $ 255 Increases related to prior years’ tax positions 1 Decreases related to prior years’ tax positions ( 13 ) Increases related to current year tax positions 12 Settlements during the period ( 8 ) Balance as of December 31, 2021 $ 247 Increases related to prior years’ tax positions 8 Decreases related to prior years’ tax positions ( 25 ) Increases related to current year tax positions 14 Settlements during the period ( 2 ) Balance as of December 31, 2022 $ 242 The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in Provision for income taxes. The Company has potential cumulative interest and penalties with respect to unrecognized tax benefits of approximately $ 74 million, $ 76 million and $ 69 million as of December 31, 2022, 2021 and 2020, respectively. For the years ended December 31, 2022, 2021 and 2020, the Company recorded approximately a $ 1 million benefit and $ 8 million and $ 9 million expense, respectively, in Provision for income taxes for potential interest and penalties for unrecognized tax benefits. As of December 31, 2022, 2021 and 2020, the Company had unrecognized tax benefits of approximately $ 238 million, $ 241 million and $ 243 million, respectively, that, if recognized, would impact the effective tax rate. The Company does not anticipate a significant change to the total amount of unrecognized tax benefits over the next twelve months. The Company files income tax returns in U.S. federal, state and foreign jurisdictions, as applicable. With some exceptions, the tax returns filed by the Company are no longer subject to U.S. federal income tax, and state and local examinations for the years before 2015, or foreign income tax examinations for years before 2018. 20. EARNINGS PER SHARE Basic earnings (losses) per share (EPS) is based only on the weighted average number of common shares outstanding, excluding any dilutive effects of stock options, unvested restricted stock awards, or other dilutive securities. Diluted EPS is based on the weighted average number of common and potentially dilutive common shares (dilutive stock options, unvested restricted stock awards and other dilutive securities outstanding during the year) pursuant to the Treasury Stock method . F-40 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) The following table sets forth the computation of basic and diluted EPS attributable to common stockholders for the years ended December 31: 2022 2021 2020 (Millions, except per share amounts) Numerator Income from continuing operations $ 224 $ 797 $ 208 (Loss) income from discontinued operations, net of income taxes ( 1 ) 4 6 Net income $ 223 $ 801 $ 214 Denominator Basic: Weighted average common stock 49.9 49.7 47.8 Weighted average effect of dilutive securities Net effect of dilutive unvested restricted stock awards (1) 0.1 0.3 0.1 Denominator for diluted calculation 50.0 50.0 47.9 Basic EPS Income from continuing operations $ 4.48 $ 16.02 $ 4.36 (Loss) income from discontinued operations, net of income taxes $ ( 0.01 ) $ 0.07 $ 0.11 Net income $ 4.47 $ 16.09 $ 4.47 Diluted EPS Income from continuing operations $ 4.47 $ 15.95 $ 4.35 (Loss) income from discontinued operations, net of income taxes $ ( 0.01 ) $ 0.07 $ 0.11 Net income $ 4.46 $ 16.02 $ 4.46 ______________________________ (1) For the years ended December 31, 2022, 2021 and 2020, an insignificant amount of restricted stock awards were excluded from each calculation of weighted average dilutive common shares as the effect would have been anti-dilutive. 21. SUPPLEMENTAL CASH FLOW INFORMATION The Consolidated Statements of Cash Flows are presented with the combined cash flows from continuing and discontinued operations. The following table provides a reconciliation of cash and cash equivalents to the total of the amounts reported in the Consolidated Statements of Cash Flows as of December 31: 2022 2021 (Millions) Cash and Cash Equivalents $ 3,891 $ 3,046 Restricted Cash included within Other Assets 36 877 Total cash, cash equivalents and restricted cash $ 3,927 $ 3,923 Non-cash investing and financing activities for the year ended December 31, 2021 included the Company’s equity method investment in LVI upon spinoff, on November 5, 2021, which totaled $ 48 million, and the Company’s retirement of its outstanding treasury stock in July 2021. For more information, see Note 22, “Discontinued Operations”, and Note 18, “Stockholders’ Equity”, respectively. F-41 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 22. DISCONTINUED OPERATIONS LoyaltyOne On November 5, 2021, the separation of LVI from the Company was completed after market close (the Separation). The Separation, which has been classified as discontinued operations, was achieved through the Company’s distribution of 81 % of the shares of LVI common stock to holders of the Company’s common stock as of the close of business on the record date of October 27, 2021. The Company’s stockholders of record received one share of LVI common stock for every two and a half shares of the Company’s common stock. Following this distribution, LVI became an independent, publicly-traded company, in which the Company has retained a 19 % ownership interest. The Company accounts for its 19 % ownership interest in LVI following the equity method of accounting. As of December 31, 2022, the carrying amount of the Company’s ownership interest in LVI, which totaled $ 6 million, is included in Other assets in the Consolidated Balance Sheets, while earnings (losses) are recorded in Other non-interest income in the Consolidated Statements of Income. The following table summarizes the results of operations of the Company’s former LoyaltyOne segment, direct costs identifiable to the former LoyaltyOne segment, and the allocation of interest expense on corporate debt, for the years ended December 31: 2022 2021 2020 (Millions) Total interest income $ — $ 1 $ 1 Total interest expense (1) — 11 17 Net interest income — ( 10 ) ( 16 ) Total non-interest income — 574 765 Total non-interest expenses 1 519 656 Income before provision from income taxes ( 1 ) 45 93 Provision for income taxes — 36 6 Income from discontinued operations, net of income taxes $ ( 1 ) $ 9 $ 87 ______________________________ (1) The Company’s Credit Agreement, as amended, required a $ 725 million prepayment of term loans in conjunction with the LoyaltyOne spinoff. As a result, the interest expense reflected above is the allocation to discontinued operations of interest on the basis of this $ 725 million mandatory prepayment. The following table summarizes the depreciation and amortization, and capital expenditures of the Company’s former LoyaltyOne segment for the years ended December 31: 2022 2021 2020 (Millions) Depreciation and amortization $ — $ 31 $ 78 Capital expenditures $ — $ 15 $ 24 The Company did not have any assets or liabilities of its former LoyaltyOne segment as of December 31, 2022 or 2021. 23. PARENT COMPANY FINANCIAL STATEMENTS The following BFH financial statements are provided in accordance with the rules of the SEC, which require such disclosure when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets. Certain F-42 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) of the Company’s subsidiaries may be restricted in distributing cash or other assets to BFH, which could be utilized to service its indebtedness. The stand-alone parent-only financial statements are presented below. Parent Company – Condensed Balance Sheets December 31, 2022 2021 (Millions) Assets Cash and cash equivalents $ 5 $ — Investment in subsidiaries 4,159 4,446 Investment in LVI 6 50 Other assets 119 123 Total assets $ 4,289 $ 4,619 Liabilities Long-term and other debt $ 1,892 $ 1,985 Intercompany liabilities, net 86 482 Other liabilities 46 66 Total liabilities 2,024 2,533 Stockholders’ equity 2,265 2,086 Total liabilities and stockholders’ equity $ 4,289 $ 4,619 Parent Company – Condensed Statements of Income Years Ended December 31, 2022 2021 2020 (Millions) Total interest income $ 11 $ 12 $ 13 Total interest expense 107 103 110 Net interest expense ( 96 ) ( 91 ) ( 97 ) Dividends from subsidiaries 382 535 256 Loss from equity method investment ( 44 ) — — Total net interest and non-interest income 242 444 159 Total non-interest expenses 1 1 1 Income before income taxes and equity in undistributed net income of subsidiaries 241 443 158 Benefit for income taxes 22 36 21 Income before equity in undistributed net income of subsidiaries 263 479 179 Equity in undistributed net (loss) income of subsidiaries ( 40 ) 322 35 Net income $ 223 $ 801 $ 214 Parent Company – Condensed Statements of Comprehensive Income Years Ended December 31, 2022 2021 2020 (Millions) Net income $ 223 $ 801 $ 214 Other comprehensive (loss) income, net of tax ( 3 ) 7 — Total comprehensive income, net of tax $ 220 $ 808 $ 214 F-43 Table of Contents BREAD FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Parent Company – Condensed Statements of Cash Flows Years Ended December 31, 2022 2021 2020 (Millions) Net cash used in operating activities $ ( 219 ) $ ( 398 ) $ ( 138 ) Investing activities: Investment in subsidiaries — — ( 3 ) Dividends received 383 533 256 Purchases of available-for-sale securities — ( 10 ) — Net cash provided by investing activities 383 523 253 Financing activities: Debt proceeds from spinoff of LVI — 750 — Borrowings under debt agreements 218 38 1,276 Repayments of borrowings ( 319 ) ( 864 ) ( 1,320 ) Payment of deferred financing costs — ( 4 ) ( 9 ) Dividends paid ( 43 ) ( 42 ) ( 61 ) Other ( 15 ) ( 3 ) ( 1 ) Net cash used in financing activities ( 159 ) ( 125 ) ( 115 ) Change in cash, cash equivalents and restricted cash 5 — — Cash, cash equivalents and restricted cash at beginning of year — — — Cash, cash equivalents and restricted cash at end of year $ 5 $ — $ — Non-cash investing and financing activities related to the Parent Company – Condensed Statements of Cash Flows for the year ended December 31, 2022 included the dissolution of a subsidiary, ADS Foreign Holdings, Inc. Non-cash investing and financing activities for the year ended December 31, 2021 included the Company’s equity method investment in LVI upon spinoff, on November 5, 2021, which totaled $ 48 million. Non-cash investing and financing activities related to the Parent Company – Condensed Statements of Cash Flows for the year ended December 31, 2020, included the issuance of approximately 1.9 million shares of the Company’s common stock as non-cash consideration in the acquisition of Lon Inc. on December 3, 2020. F-44 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Bread Financial Holdings, Inc. has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Bread Financial Holdings, Inc. By: /S/ RALPH J. ANDRETTA Ralph J. Andretta President and Chief Executive Officer DATE: February 28, 2023 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Bread Financial Holdings, Inc. and in the capacities and on the dates indicated. Name Title Date /S/ RALPH J. ANDRETTA President, Chief Executive Officer and Director February 28, 2023 Ralph J. Andretta /S/ PERRY S. BEBERMAN Executive Vice President and Chief Financial Officer February 28, 2023 Perry S. Beberman /S/ J. BRYAN CAMPBELL Senior Vice President and Chief Accounting Officer February 28, 2023 J. Bryan Campbell /S/ ROGER H. BALLOU Chairman of the Board, Director February 28, 2023 Roger H. Ballou /S/ JOHN C. GERSPACH, JR. Director February 28, 2023 John C. Gerspach, Jr. /S/ KARIN J. KIMBROUGH Director February 28, 2023 Karin J. Kimbrough /S/ RAJESH NATARAJAN Director February 28, 2023 Rajesh Natarajan /S/ TIMOTHY J. THERIAULT Director February 28, 2023 Timothy J. Theriault /S/ LAURIE A. TUCKER Director February 28, 2023 Laurie A. Tucker /S/ SHAREN J. TURNEY Director February 28, 2023 Sharen J. Turney