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Item 9A. Controls and Procedures

2024-02-20 compared with 2023-02-28 · 786 added, 681 removed, 1152 unchanged (56% of the section changed)

6 unchanged sentences

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;

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• 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.

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.

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, 2023.

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;

Based on those criteria and management’s assessment, with the participation of our Chief Executive Officer and Chief Financial Officer, we conclude that, as of December 31, 2023, our internal control over financial reporting was effective.

The effectiveness of our internal control over financial reporting as of December 31, 2023, 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.

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Other Information.

17 unchanged sentences

(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.

Separate financial statement schedules have been omitted either because they are not applicable or because the required information is included in the audited Consolidated Financial Statements.

(3) Exhibits.

16 unchanged sentences

8-K 10.1 11/24/17

Amendment effective January 1, 2024 to the Bread Financial Holdings, Inc.

Executive Deferred Compensation Plan.

(a) Bread Financial Holdings, Inc.

13 unchanged sentences

8-K 10.1 2/18/21

+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

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1 unchanged sentence

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

(a) Form of Performance-Based Restricted Stock Unit Award Agreement under the Bread Financial Holdings, Inc.

3 unchanged sentences

2022 Omnibus Incentive Plan.

*^+10.10

(a) Form of Performance-Based Restricted Stock Unit Award Agreement under the Bread Financial Holdings, Inc.

134 unchanged sentences

8-K 4.2 6/24/21

Series 2023-A Indenture Supplement, dated as of May 16, 2023, between World Financial Network Credit Card Master Note Trust and U.S.

Bank National Association.

First Amendment to Series 2023-A Indenture Supplement, dated as of December 22, 2023, between World Financial Network Credit Card Master Note Trust and U.S.

Bank National Association.

(d) Amended and Restated Trust Agreement, dated as of August 1, 2001, between WFN Credit Company, LLC and Chase Manhattan Bank USA, National Association.

2 unchanged sentences

8-K 4.2 5/28/21

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Incorporated by Reference

Filer Description Form Exhibit Filing Date

(d) Administration Agreement, dated as of August 1, 2001, between World Financial Network Credit Card Master Note Trust and World Financial Network National Bank.

4 unchanged sentences

10-D 99.2 6/15/22

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Incorporated by Reference

Filer Description Form Exhibit Filing Date

(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.

12 unchanged sentences

8-K 99.1 2/2/23

(d) First Amendment to Fourth Amended and Restated Service Agreement dated as of February 28, 2023, between Comenity Servicing LLC and Comenity Bank.

(d) Eighth Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of February 28, 2023, between Comenity Servicing LLC and Comenity Bank.

(d) Ninth Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of March 31, 2023, between Comenity Servicing LLC and Comenity Bank.

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Incorporated by Reference

Filer Description Form Exhibit Filing Date

(d) Tenth Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of April 30, 2023, between Comenity Servicing LLC and Comenity Bank.

(d) Eleventh Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of June 30, 2023, between Comenity Servicing LLC and Comenity Bank.

(d) Twelfth Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of July 31, 2023, between Comenity Servicing LLC and Comenity Bank.

(d) Thirteenth Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of August 31, 2023, between Comenity Servicing LLC and Comenity Bank.

(d) Fourteenth Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of October 31, 2023, between Comenity Servicing LLC and Comenity Bank.

(d) Fifteenth Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of October 31, 2023, between Comenity Servicing LLC and Comenity Bank.

(d) Sixteenth Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of October 31, 2023, between Comenity Servicing LLC and Comenity Bank.

(d) Seventeenth Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of November 1, 2023, between Comenity Servicing LLC and Comenity Bank.

99.2 11/15/23

(d) Second Amendment to Fourth Amended and Restated Service Agreement dated as of November 30, 2023, between Comenity Servicing LLC and Comenity Bank.

(d) Eighteenth Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of November 30, 2023, between Comenity Servicing LLC and Comenity Bank.

(d) Nineteenth Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of December 31, 2023, between Comenity Servicing LLC and Comenity Bank.

(d) Twentieth Addendum to Appendix A of Fourth Amended and Restated Service Agreement dated as of January 31, 2024, between Comenity Servicing LLC and Comenity Bank.

(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

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Incorporated by Reference

Filer Description Form Exhibit Filing Date

(a) Receivables Purchase Agreement, dated as of September 28, 2001, between World Financial Network National Bank and WFN Credit Company, LLC.

8 unchanged sentences

10-Q 10.4 11/7/11

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Incorporated by Reference

Filer Description Form Exhibit Filing Date

(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.

13 unchanged sentences

10-K 10.94 2/27/17

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Incorporated by Reference

Filer Description Form Exhibit Filing Date

(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.

8 unchanged sentences

10-Q 10.3 11/7/08

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Incorporated by Reference

Filer Description Form Exhibit Filing Date

(a) Amendment No.

10 unchanged sentences

(a) Receivables Purchase Agreement, dated as of June 17, 2022, between Comenity Capital Bank and Comenity Capital Credit Company, LLC.

10.98 2/28/23

(a) Transfer Agreement, dated as of June 17, 2022, between Comenity Capital Credit Company, LLC and Comenity Capital Asset Securitization Trust.

10.99 2/28/23

(a) Servicing Agreement, dated as of June 17, 2022, between Comenity Capital Credit Company, LLC, Comenity Capital Bank and Comenity Capital Asset Securitization Trust.

1 unchanged sentence

Bank Trust Company, National Association.

10.101 2/28/23

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Incorporated by Reference

Filer Description Form Exhibit Filing Date

(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.

6 unchanged sentences

10-K 10.110 2/26/19

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Incorporated by Reference

Filer Description Form Exhibit Filing Date

(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.

8 unchanged sentences

Bank National Association, as successor to MUFG Union Bank, N.A.

10.11 2/28/23

Ninth Amendment to Fourth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of February 1, 2023, between World Financial Network Credit Card Master Note Trust and U.S.

Bank National Association, as successor to MUFG Union Bank, N.A.

Tenth Amendment to Fourth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of December 22, 2023, between World Financial Network Credit Card Master Note Trust and U.S.

Bank National Association, as successor to MUFG Union Bank, N.A.

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Incorporated by Reference

Filer Description Form Exhibit Filing Date

(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.

14 unchanged sentences

10-K 10.102 2/27/17

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Incorporated by Reference

Filer Description Form Exhibit Filing Date

(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.

4 unchanged sentences

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.

Third Amendment to Fifth Amended and Restated Series 2009-VFN Indenture Supplement, dated as of April 25, 2023, between World Financial Capital Master Note Trust and U.S.

Bank National Association (successor to Deutsche Bank Trust Company Americas).

(a) Series 2023-VFN1 Indenture Supplement, dated as of September 29, 2023, 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.

(a) Credit Agreement, dated as of June 7, 2023, by and among Bread Financial Holdings, Inc., the subsidiary guarantors parties thereto, JPMorgan Chase Bank, N.A., as administrative agent, and other financial institutions as lenders.

8-K 10.2 6/13/23

2 unchanged sentences

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

(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).

2 unchanged sentences

10-Q 10.5 11/3/21

Indenture, dated as of June 13, 2023, among Bread Financial Holdings, Inc., certain of its subsidiaries as guarantors and U.S.

Bank Trust Company, National Association, as trustee (including the form of the Company’s 4.25% Convertible Senior Note due June 15, 2028).

Indenture, dated as of December 22, 2023, among Bread Financial Holdings, Inc., certain of its subsidiaries as guarantors and U.S.

Bank Trust Company, National Association, as trustee (including the form of the Company’s 9.750% Convertible Senior Note due March 15, 2029).

*21 (a) Subsidiaries of the Registrant

8 unchanged sentences

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.

B read Financial Holdings, Inc.

Compensation Recoupment Policy effective Octob er 2, 2023.

*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, 2023, 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 audited Consolidated Financial Statements.

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1 unchanged sentence

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:

*104 (a) Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

13 unchanged sentences

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

BREAD FINANCIAL HOLDINGS, INC.

7 unchanged sentences

Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021

Notes to Consolidated Financial Statements

Notes to audited Consolidated Financial Statements

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20 unchanged sentences

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

Allowance for Credit Losses for credit card loans — 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

The Allowance for credit losses is an estimate of expected credit losses, measured over the estimated life of its credit card 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 credit card loans, as well as the prevailing economic conditions and forecasts utilized.

The estimate of the Allowance for credit losses for credit card loans includes an estimate for uncollectible principal as well as unpaid interest and fees.

Principal losses, net of recoveries are deducted from the Allowance for credit losses.

Losses for unpaid interest and fees, as well as any adjustments to the Allowance for credit losses associated with unpaid interest and fees are recorded as a reduction to

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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.

Interest and fees on loans.

The Allowance for credit losses is maintained through an adjustment to the Provision for credit losses and is evaluated for appropriateness.

In estimating its Allowance for credit losses for credit card loans, management utilizes modeling and estimation techniques based on historical loss experience, current conditions, reasonable and supportable forecasts and other relevant factors.

This modeling utilizes 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.

The Company considers the forecast used to be reasonable and supportable over the estimated life of the credit card loans, with no reversion period.

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.

2 unchanged sentences

• 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.

• We tested the completeness and accuracy of the historical data used in management’s modeling.

• 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.

33 unchanged sentences

February 20, 2024

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BREAD FINANCIAL HOLDINGS, INC.

14 unchanged sentences

Interchange revenue, net of retailer share arrangements ( 335 ) ( 469 ) ( 369 )

Gain on portfolio sale 230 — 10

Other 128 114 146

15 unchanged sentences

(Loss) income from discontinued operations, net of income taxes (1)

( 19 ) ( 1 ) 4

Net income $ 718 $ 223 $ 801

10 unchanged sentences

Diluted 50.0 50.0 50.0

See Notes to Consolidated Financial Statements.

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(1) Includes amounts that related to the previously disclosed discontinued operations associated with the spinoff of our former LoyaltyOne segment in 2021 and the sale of our former Epsilon segment in 2019.

For additional information refer to Note 1, “Description of Business, Basis of Presentation and Summary of Significant Accounting Policies” to the audited Consolidated Financial Statements.

See Notes to audited Consolidated Financial Statements.

BREAD FINANCIAL HOLDINGS, INC.

3 unchanged sentences

Net income $ 718 $ 223 $ 801

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 )

Other comprehensive income (loss)

Unrealized gain (loss) on available-for-sale debt securities 2 ( 25 ) ( 24 )

Tax benefits — 6 2

Unrealized gain (loss) on available-for-sale debt securities, net of tax 2 ( 19 ) ( 22 )

Unrealized gain on cash flow hedges — — 1

Tax benefits — — —

Unrealized gain on cash flow hedges, net of tax — — 1

Unrealized gain on net investment hedge — — 20

1 unchanged sentence

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)

Other comprehensive (loss) income, net of tax ( 19 ) 3 95

Foreign currency translation adjustments (inclusive of deconsolidation of $ 54 million for the year ended December 31, 2021, related to the disposition of business)

Other comprehensive income (loss), net of tax 2 ( 19 ) 3

Total comprehensive income, net of tax $ 720 $ 204 $ 804

See Notes to Consolidated Financial Statements.

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See Notes to audited Consolidated Financial Statements.

BREAD FINANCIAL HOLDINGS, INC.

9 unchanged sentences

Credit card and other loans, net 17,005 18,901

Investment securities 221 239

Property and equipment, net 195 215

Investments (Fair value:

2023, $ 217 ;

2022, $ 221 )

Property and equipment (less accumulated depreciation and amortization:

2023, $ 343 ;

2022, $ 287 )

Goodwill and intangible assets, net 762 799

11 unchanged sentences

authorized, 200.0 million shares;

issued, 49.9 million and 49.8 million shares as of December 31, 2022 and December 31, 2021, respectively

2023, 49.3 million shares;

2022, 49.9 million shares

Additional paid-in capital 2,169 2,192

Retained earnings (accumulated deficit) 93 ( 87 )

Retained earnings 767 93

Accumulated other comprehensive loss ( 19 ) ( 21 )

1 unchanged sentence

Total liabilities and stockholders’ equity $ 23,141 $ 25,407

See Notes to Consolidated Financial Statements.

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See Notes to audited Consolidated Financial Statements.

BREAD FINANCIAL HOLDINGS, INC.

7 unchanged sentences

Shares Amount

January 1, 2020 115.0 $ 1 $ 3,258 $ ( 6,733 ) $ 5,163 $ ( 100 ) $ 1,589

Balance as of December 31, 2020 117.1 $ 1 $ 3,427 $ ( 6,733 ) $ 4,832 $ ( 5 ) $ 1,522

Net income — — — — 801 — 801

Cumulative effect of change in accounting principle — Allowance for credit losses — — — — ( 485 ) — ( 485 )

Other comprehensive income — — — — — 3 3

Stock-based compensation — — 29 — — — 29

Common stock issued as consideration for acquired business 1.9 — 149 — — — 149

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, 2020 117.1 $ 1 $ 3,427 $ ( 6,733 ) $ 4,832 $ ( 5 ) $ 1,522

Balance as of December 31, 2021 49.8 $ 1 $ 2,174 $ — $ ( 87 ) $ ( 2 ) $ 2,086

Net income — — — — 223 — 223

Other comprehensive income — — — — — 3 3

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 )

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 0.3 — ( 3 ) — — — ( 3 )

December 31, 2021 49.8 $ 1 $ 2,174 $ — $ ( 87 ) $ ( 2 ) $ 2,086

Balance as of December 31, 2022 49.9 $ 1 $ 2,192 $ — $ 93 $ ( 21 ) $ 2,265

Net income — — — — 718 — 718

Other comprehensive loss — — — — — ( 19 ) ( 19 )

Other comprehensive income — — — — — 2 2

Stock-based compensation — — 44 — — — 44

Capped call transactions for convertible senior notes due 2028, net of tax — — ( 30 ) — — — ( 30 )

Repurchase of common stock ( 0.9 ) — ( 35 ) — — — ( 35 )

2 unchanged sentences

Issuance of shares to employees, net of shares withheld for employee taxes 0.3 — ( 2 ) — — — ( 2 )

December 31, 2022 49.9 $ 1 $ 2,192 $ — $ 93 $ ( 21 ) $ 2,265

See Notes to Consolidated Financial Statements

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Balance as of December 31, 2023 49.3 $ 1 $ 2,169 $ — $ 767 $ ( 19 ) $ 2,918

See Notes to audited Consolidated Financial Statements

BREAD FINANCIAL HOLDINGS, INC.

11 unchanged sentences

Amortization of deferred origination costs 92 86 75

Asset impairment charges — — 64

Other 67 ( 4 ) ( 36 )

Gain on portfolio sale ( 230 ) — ( 10 )

Change in other operating assets and liabilities, net of acquisitions and dispositions

1 unchanged sentence

Change in other liabilities — 87 ( 11 )

Other 32 67 6

Net cash provided by operating activities 1,987 1,848 1,543

4 unchanged sentences

Proceeds from sale of credit card loan portfolios 2,499 — 512

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

Purchases of credit card loan portfolios ( 473 ) ( 1,804 ) ( 110 )

Purchases of investments ( 50 ) ( 43 ) ( 93 )

Maturities of investments 14 30 73

Other, including capital expenditures ( 48 ) ( 72 ) ( 80 )

Net cash provided by (used in) investing activities 788 ( 5,111 ) ( 1,691 )

CASH FLOWS FROM FINANCING ACTIVITIES

3 unchanged sentences

Repayments/maturities of debt issued by consolidated variable interest entities ( 4,807 ) ( 3,587 ) ( 4,538 )

Net increase (decrease) in deposits 2,778 1,228 ( 2,370 )

Net (decrease) increase in deposits ( 209 ) 2,778 1,228

Debt proceeds from spinoff of Loyalty Ventures Inc.

2 unchanged sentences

Payment of deferred financing costs ( 63 ) ( 13 ) ( 13 )

Payment of capped call transactions ( 39 ) — —

Dividends paid ( 42 ) ( 43 ) ( 42 )

Repurchase of common stock ( 35 ) ( 12 ) —

Other ( 2 ) ( 3 ) ( 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

Net cash (used in) provided by financing activities ( 3,086 ) 3,267 608

Change in cash, cash equivalents and restricted cash ( 311 ) 4 460

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Cash paid during the year for income taxes, net $ 292 $ 338 $ 325

Cash and cash equivalents reconciliation

Cash and cash equivalents $ 3,590 $ 3,891 $ 3,046

Restricted cash included within Other Assets 26 36 877

Total cash, cash equivalents and restricted cash $ 3,616 $ 3,927 $ 3,923

The Consolidated Statements of Cash Flows are presented with the combined cash flows from continuing and discontinued operations.

See Notes to Consolidated Financial Statements.

See Notes to audited Consolidated Financial Statements.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF THE BUSINESS

We are a tech-forward financial services company that provides simple, personalized payment, lending and saving solutions.

We create opportunities for our 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, we deliver growth for our partners through a comprehensive product suite, including private label and co-brand credit cards and buy now, pay later (BNPL) products such as installment loans and our “split-pay” offerings.

We also offer direct-to-consumer solutions that give customers more access, choice and freedom through our branded Bread Cashback TM American Express ® Credit Card and Bread Savings TM products.

Our partner base consists of large consumer-based businesses, including well-known brands such as (alphabetically) AAA, Academy Sports + Outdoors, Caesars, Dell Technologies, the NFL, Signet, Ulta and Victoria’s Secret, as well as small- and medium-sized businesses (SMBs).

Our partner base is well diversified across a broad range of industries, including travel and entertainment, health and beauty, jewelry, sporting goods, home goods, technology and electronics and the industry in which we first began, specialty apparel.

We believe our comprehensive suite of payment, lending and saving solutions, along with our related marketing and data and analytics, allows us to offer products relevant across all customer segments (Gen Z, Millennial, Gen X and Baby Boomers).

The breadth and quality of our product and service offerings have enabled us to establish and maintain long-standing partner relationships.

We operate our business through a single reportable segment, with our primary source of revenue being from Interest and fees on loans from our various credit card and other loan products, and to a lesser extent from contractual relationships with our brand partners.

Throughout this report, unless stated or the context implies otherwise, the terms “Bread Financial”, “BFH”, the “Company”, “we”, “our” or “us” refer to Bread Financial Holdings, Inc.

and its subsidiaries on a consolidated basis.

References to “Parent Company” refer to Bread Financial Holdings, Inc.

on a parent-only standalone basis.

In addition, in this report we may refer to the retailers and other companies with whom we do business as our “partners”, “brand partners”, or “clients”, provided that the use of the term “partner”, “partnering” or any similar term does not mean or imply a formal legal partnership, and is not meant in any way to alter the terms of Bread Financial’s relationship with any third parties.

We offer our credit products through our insured depository institution subsidiaries, Comenity Bank and Comenity Capital Bank, which together are referred to herein as the “Banks”.

In December 2020 we acquired Lon Inc., known at the time as Bread, which has been fully integrated into our ongoing business strategy and operations.

Effective March 23, 2022, we changed our corporate name to Bread Financial Holdings, Inc.

from Alliance Data Systems Corporation, and on April 4, 2022, we changed our ticker to “BFH” from “ADS” on the NYSE.

Neither the name change nor the NYSE ticker change affected our legal entity structure, nor did either change have an impact on our audited Consolidated Financial Statements.

BASIS OF PRESENTATION

The audited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

Beginning in the year ended December 31, 2021, as a result of the spinoff of our LoyaltyOne segment and its classification as discontinued operations, we adjusted the presentation of our audited Consolidated Financial Statements from our 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 BFH nor any of our 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 our operations going forward and better align us with peers for comparability purposes.

The audited Consolidated Financial Statements also include amounts that relate to the previously disclosed discontinued operations associated with the spinoff of our former LoyaltyOne segment in 2021 and the sale of our former Epsilon segment in 2019.

Such amounts have been classified within Discontinued operations and primarily relate to the after-tax impact of contractual indemnification and tax-related matters.

For additional information about the adjusted presentation of our audited Consolidated Financial Statements and our previously disclosed discontinued operations please refer to Note

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.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

22, “Discontinued Operations and Bank Holding Company Presentation” in our Annual Report on Form 10-K for the year ended December 31, 2021.

SIGNIFICANT ACCOUNTING POLICIES

The Company presents its accounting policies within the Notes to the Consolidated Financial Statements to which they relate;

We present our accounting policies within the Notes to the audited 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.

The remaining significant accounting policies applied are included following the table.

Significant Accounting Policy Note Number Note Title

2 unchanged sentences

Transfers of Financial Assets Note 4 Securitizations

Investment Securities Note 5 Investment Securities

Property and Equipment Note 6 Property and Equipment, Net

Investments Note 5 Investments

Goodwill Note 6 Goodwill and Intangible Assets, Net

5 unchanged sentences

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO AUDITED 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 accompanying audited Consolidated Financial Statements include the accounts of BFH and all subsidiaries in which we have a controlling financial interest.

For voting interest entities, a controlling financial interest is determined when we are 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, we have a controlling financial interest when we are 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.

We are the primary beneficiary of our securitization trusts (the Trusts) and therefore consolidate these Trusts within our audited Consolidated Financial Statements.

In cases where we do not have a controlling financial interest, but we are able to exert significant influence over the operating and financial decisions of the entity, we account 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;

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 audited 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 our Allowance for credit losses, Provision for income taxes and Goodwill;

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.

Consolidated Statements of Income

Our primary source of revenue is from Interest and fees on loans from our various credit card and other loan products, and to a lesser extent from contractual relationships with our brand partners.

The following describes our recognition policies across the various sources of revenue we earn.

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.

Represents revenue earned on customer accounts owned by us, 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 which happens 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 consist primarily of buy now, pay later (BNPL) products such as installment loans and our “split-pay” offerings.

Charge-offs for unpaid interest and fees, as well as any adjustments to the Allowance for credit losses associated with unpaid interest and fees, are recorded as a reduction of Interest and fees on loans.

As of December 31, 2023 and 2022, the remaining unamortized deferred direct loan origination costs were $ 60 million and $ 46 million, respectively, and included in Total credit card and other loans.

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.

in debt securities, and is recognized in the period earned.

Interchange revenue, net of retailer share arrangements:

1 unchanged sentence

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.

Costs of cardholder reward arrangements are recognized when the rewards are earned by the cardholders and are generally classified as a reduction of revenue with the related liability included in Other liabilities on the Consolidated Balance Sheets.

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.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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.

We recognize as an asset contract costs, such as up-front payments made 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.

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 Consolidated Statements of Income.

Amortization of contract costs recorded as a reduction of Interchange revenue, net of retailer share arrangements, was $ 59 million, $ 72 million and $ 64 million for the years ended December 31, 2023, 2022 and 2021, 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.

amortization of contract costs recorded across various Non-interest expense categories totaled $ 12 million, $ 12 million and $ 11 million for those same years, respectively.

As of December 31, 2023 and 2022, the remaining unamortized contract costs were $ 285 million and $ 344 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.

We perform an impairment assessment when events or changes in circumstances indicate that the carrying amount of our contract costs may not be recoverable.

Our impairment assessment for certain of our deferred contract costs resulted in a $ 7 million impairment charge which has been recognized in Other non-interest expenses in our Consolidated Statements of Income for the year ended December 31, 2023.

No such impairment charges were recognized during either of the years ended December 31, 2022 or 2021.

Interest expense:

Represents interest incurred primarily to fund Credit card and other loans, general corporate purposes and liquidity needs, and is recognized as incurred.

Interest expense is divided between Interest on deposits, which relates to interest expense on Deposits taken from customers, and Interest on borrowings, which relates to interest expense on our Long-term and other debt.

Card and processing expenses:

Primarily represents costs incurred in relation to customer service activities, including embossing, and postage and mailing, as well as fraud and credit bureau inquiries.

These costs are expensed as incurred.

Information processing and communication expenses:

Represents costs incurred in relation to data processing, and software license and maintenance charges.

These costs are expensed as incurred.

Marketing expenses:

Represents costs incurred in campaign development and initial placement of advertising, which are expensed in the period in which the advertising first takes place.

Other marketing expenses are expensed as incurred.

Consolidated Balance Sheets

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.

Includes 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, 2023 and 2022, respectively, cash and due from banks was $ 410 million and $ 288 million, interest-bearing cash balances were $ 2.9 billion and $ 3.5 billion, and short-term investments were $ 250 million and $ 130 million.

Restricted cash primarily represents cash restricted for principal and interest repayments of debt issued by our consolidated VIEs, and is recorded in Other assets on the Consolidated Balance Sheets.

Restricted cash totaled $ 26 million and $ 36 million as of December 31, 2023 and 2022, 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.

From time to time, we use derivative financial instruments to manage our exposure to various financial risks;

we do not trade or speculate in derivatives.

Subject to the criteria set forth in GAAP, we will either designate our derivatives in hedging relationships, or as economic hedges should the criteria in GAAP not be met.

Our derivative financial instruments were insignificant to the audited Consolidated Financial Statements for the periods presented.

Property and equipment :

Furniture, equipment, buildings and leasehold improvements are carried at cost less accumulated depreciation, and depreciation is recognized on a straight-line basis.

Costs incurred during construction are capitalized;

depreciation begins once the asset is placed in service and is also recognized on a straight-line basis.

Our furniture and equipment is depreciated over the estimated useful lives of the assets , which range from less than one year to 11 years, while 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 24 years.

Depreciation expense, including

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

purchased software, totaled $ 19 million, $ 19 million and $ 26 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Costs associated with the acquisition or development of internal-use software are also capitalized and recorded in Property and equipment.

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, 2023, our internal-use software has estimated useful lives ranging from one year to 10 years.

As of December 31, 2023 and 2022, the net amount of unamortized capitalized internal-use software costs included in Property and equipment on the Consolidated Balance Sheets was $ 78 million and $ 112 million, respectively.

Amortization expense on capitalized internal-use software costs totaled $ 60 million, $ 68 million and $ 37 million for the years ended December 31, 2023, 2022 and 2021, respectively.

We review 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.

No impairment was recognized during the years ended December 31, 2023, 2022 and 2021.

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.

We depend on a limited number of large partner relationships for a significant portion of our revenue.

As of and for the year ended December 31, 2023, our five largest credit card programs accounted for approximately 47 % of our Total net interest and non-interest income excluding the gain on sale and 37 % of our End-of-period credit card and other loans.

In particular, our programs with (alphabetically) Signet Jewelers, Ulta Beauty and Victoria’s Secret & Co.

and its retail affiliates each accounted for more than 10% of our Total net interest and non-interest income for the year ended December 31, 2023.

A decrease in business from, or the loss of, any of our significant partners for any reason, could have a material adverse effect on our business.

We previously announced the non-renewal of our 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 our Total net interest and non-interest income, and BJ’s branded co-brand accounts were responsible for approximately 11 % of our Total credit card and other loans as of December 31, 2022.

RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS

In March 2022, the FASB issued new accounting and disclosure guidance for troubled debt restructurings effective January 1, 2023, with early adoption permitted.

Effective January 1, 2023 we adopted the guidance, with no significant impact on our results of operations, financial position, regulatory risk-based capital, or on our operational processes, controls and governance in support of the new guidance.

In March 2023, the FASB issued new accounting guidance expanding the election to apply the proportional amortization method of accounting to tax credit investments beyond low-income-housing tax credit investments, when certain conditions are met.

Effective January 1, 2024 we adopted the guidance;

the accounting policy election from which did not have a significant impact on our results of operations, financial position, regulatory risk-based capital, or on our operational processes, controls and governance in support of the new guidance.

In November 2023, the FASB issued new segment reporting guidance that will be effective beginning with segment disclosures for our Annual Report on Form 10-K for the year ending December 31, 2024, and effective for interim reporting periods beginning in 2025.

Early adoption is permitted;

although, we do not plan to early adopt.

The new guidance requires interim and annual disclosure of significant segment expense categories and amounts that are regularly provided to the chief operating decision maker, as well as disclosure of the aggregate amount and description of other segment items beyond significant segment expenses.

The guidance will result in expanded disclosures for our single reportable segment but is not expected to have a significant impact on our financial reporting, or on our operational processes, controls and governance in support of the new guidance.

In December 2023, the Financial Accounting Standards Board (FASB) issued new income tax disclosure guidance, with the biggest changes impacting disclosures provided on an annual basis, that will be effective beginning with our income tax disclosures for our Annual Report on Form 10-K for the year ending December 31, 2025.

Early adoption is permitted;

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

although, we do not plan to early adopt.

The new guidance requires greater disaggregation of rate reconciliation and income taxes paid information, as well as other changes intended to enhance the transparency and decision-usefulness of income tax disclosures.

The new guidance will require enhancements to our income tax disclosures but is not expected to have a significant impact on our financial reporting, or on our operational processes, controls and governance in support of the new guidance.

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.

Our payment and lending solutions result in the origination 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 lines of credit 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;

Other loans, which consist primarily of BNPL products such as installment loans and our “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 include principal and any related accrued interest and fees and are presented on the Consolidated Balance Sheets net of the Allowance for credit losses.

We continue 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.

We generally classify our Credit card and other loans as held for investment.

We sell a majority of our Credit card loans originated by Comenity Bank (CB) and by Comenity Capital Bank (CCB), which together are referred to herein as the “Banks”, to certain of our master trusts (the Trusts), which are 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 we have the intent and ability to hold them for the foreseeable future.

In determining what constitutes the foreseeable future, we consider the average life and homogenous nature of our Credit card and other loans.

In assessing whether our Credit card and other loans continue to be held for investment, we also consider 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 our direct-to-consumer (DTC or retail) 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.

and historic payment activity on Credit card and other loans.

Due to the homogenous nature of our 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 portfolio basis.

We carry held for sale assets at the lower of aggregate cost or fair value and continue 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.

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:

The following table presents Credit card and other loans, as of December 31:

Credit card loans $ 18,999 $ 21,065

Installment or other loans 300 182

BNPL and other loans 334 300

Total credit card and other loans (1)(2)

3 unchanged sentences

__________________________________

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.

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.

(1) Includes $ 12.8 billion and $ 15.4 billion of Credit card and other loans available to settle obligations of consolidated VIEs as of December 31, 2023 and December 31, 2022, respectively.

(2) Includes $ 371 million and $ 307 million, of accrued interest and fees that have not yet been billed to cardholders as of December 31, 2023 and December 31, 2022, respectively.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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:

The following table presents the delinquency trends of our Credit card and other loans portfolio based on the amortized cost:

Aging Analysis of Delinquent Amortized Cost

7 unchanged sentences

______________________________

(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.

(1) BNPL and other 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 primary difference between the amortized cost basis included in the table above and the carrying value of our Credit card and other loans relates to the exclusion of unbilled finance charges and fees from the amortized cost basis.

As of December 31, 2023 and 2022, accrued interest and fees that have not yet been billed to cardholders were $ 371 million and $ 307 million, respectively, included in Credit card and other loans on the Consolidated Balance Sheets.

From time to time we may re-age cardholders’ accounts, with the intent of assisting 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.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Our re-aged accounts as a percentage of Total credit card and other loans represented 2.6 %, 1.4 % and 1.7 %, for the years ended December 31, 2023, 2022, and 2021 respectively.

Our re-aging practices comply with regulatory guidelines.

Credit Quality Indicators for Our Credit Card and Other Loans

Given the nature of our business, the credit quality of our assets, in particular our Credit card and other loans, is a key determinant underlying our ongoing financial performance and overall financial condition.

When it comes to our Credit card and other loans portfolio, we closely monitor Delinquency rates and Net principal loss rates, which reflect, among other factors, our underwriting, the inherent credit risk in our portfolio and the success of our collection and recovery efforts.

These rates also reflect, more broadly, the general macroeconomic conditions, including the effects of persistent inflation and high interest rates.

Our Delinquency and Net principal loss rates are also impacted by the magnitude of our Credit card and other loans portfolio, which serves as the denominator in the calculation of these rates.

Accordingly, changes in the magnitude of our portfolio (whether due to credit tightening, acquisitions or dispositions of portfolios or otherwise) may cause movements in our Delinquency and Net principal loss rates that are not necessarily indicative of the underlying credit quality of the overall portfolio.

Delinquencies:

An account is contractually delinquent if we do not receive the minimum payment due by the specified due date.

Our policy is to continue to accrue interest and fee income on all accounts, except in limited circumstances, until the balance and all related interest and fees are paid or charged-off.

After an account becomes 30 days past due, a proprietary collection scoring algorithm automatically scores the risk of the account becoming further delinquent;

based upon the level of risk indicated, a collection strategy is deployed.

If after exhausting all in-house collection efforts we are unable to collect on the account, we may engage collection agencies or outside attorneys to continue those efforts, or sell the charged-off balances.

The Delinquency rate is calculated by dividing outstanding principal balances that are contractually delinquent (i.e., balances greater than 30 days past due) as of the end of the period, by the outstanding principal amount of Credit cards and other loans as of the same period-end.

As of December 31, 2023 and December 31, 2022, our Delinquency rates were 6.5 % and 5.5 %, respectively.

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.

Our 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).

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

interest and fees reduce Interest and fees on loans, while third-party fraud losses 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.

BNPL loans such as our installment loans and our “split-pay” offerings, including unpaid interest, are generally charged-off when a loan becomes 120 days past due.

However, in the case of a customer bankruptcy or death, Credit card and other loans, including unpaid interest and fees, as applicable, are charged-off 60 days after receipt of the notification of the bankruptcy or death, but in any case no later than 180 days past due for Credit card loans and 120 days past due for BNPL loans.

We record the actual losses for unpaid interest and fees as a reduction to Interest and fees on loans, which were $ 954 million, $ 651 million and $ 456 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The net principal loss rate is calculated by dividing net principal losses for the period by the Average credit card and other loans for the same period.

Average credit card and other loans represent the average balance of the loans at the beginning and end of each month, averaged over the periods indicated.

For the years ended December 31, 2023 and 2022, our Net principal loss rates were 7.5 % and 5.4 %, respectively.

Overall Credit Quality:

As part of our credit risk management activities for our credit card loans portfolio, we assess overall credit quality by reviewing information from credit bureaus and other sources relating to our cardholders’ broader credit performance.

We utilize VantageScore (Vantage) credit scores to assist in our 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.

We categorize 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 we use alternative sources to assess credit risk and predict behavior.

The table below excludes less than 0.1 % and approximately 0.6 % of the total credit card loans balance as of December 31, 2023 and 2022, respectively, representing those customer accounts for which a Vantage credit score is not available.

The following table reflects the distribution of credit card loans by Vantage score as of December 31:

Higher 601 to

Credit card loans 57 % 27 % 16 % 62 % 26 % 12 %

As part of our credit risk management activities for our BNPL loans portfolio, we also assess overall credit quality by reviewing information from credit bureaus.

In this case we utilize Fair Isaac Corporation (FICO) credit scores to assist in our assessment of credit quality.

The amortized cost basis of BNPL loans totaled $ 317 million and $ 299 million as of December 31, 2023 and 2022, respectively.

As of December 31, 2023, approximately 82 % of these loans were originated with customers with FICO scores of 661 or above, and correspondingly approximately 18 % of these loans were originated with customers with FICO scores below 661.

Similarly, as of December 31, 2022, approximately 86 % and 14 % of these loans were originated with customers with FICO scores of 661 or above, and below 661, 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.

As part of our collections strategy, we may offer temporary, short term (six-months or less) forbearance programs in order to improve the likelihood of collections and meet the needs of our customers.

Our 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.

We do not offer programs involving the forgiveness of principal.

These temporary loan modifications may assist in cases where we believe the customer will recover from the short-term hardship and resume scheduled payments.

Under these forbearance programs, those accounts receiving relief may not advance to the next delinquency cycle, including charge-off, in the same time frame that would have occurred had the relief not been granted.

We evaluate our forbearance programs to determine if they represent a more than insignificant delay in payment granted to borrowers experiencing financial difficulty, in which case they would then be considered a Loan Modification.

Loans in these short term programs that are determined to be Loan Modifications, will be included as such in the disclosure below.

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:

Restructurings Pre-

Balance Post-

Balance Number of

Restructurings Pre-

Balance Post-

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Credit Card Loans - Modifications for Borrowers Experiencing Financial Difficulty (Loan Modifications)

In instances where cardholders are experiencing financial difficulty, we may modify our 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 Loan Modifications, exclusive of the temporary, short-term forbearance programs described above.

Loan Modifications include concessions consisting primarily of a reduced minimum payment, late fee waiver, and/or an interest rate reduction.

The majority of concessions remain in place for a period no longer than twelve months ;

however, for certain modifications the concessions remain in place through the payoff of the credit card loans if the cardholder complies with the terms of the program.

Loan Modification 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 our 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.

Loan Modifications are collectively evaluated for impairment on a pooled basis in measuring the appropriate Allowance for credit losses.

The following table provides information relating to credit card loans to borrowers experiencing financial difficulty that were granted a concession under a Loan Modification program during the year ended December 31:

Account Balances (1)

% of Total Credit Card Loans

Weighted Average Interest Rate Reduction (% points)

(Millions, except percentages)

Credit card loans $ 269 1.4 % 19.2 %

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(1) Represents the outstanding balance as of December 31, 2023 of all Loan Modifications undertaken in the past twelve months, for credit card loans that remain in modification programs on December 31, 2023.

The outstanding balance includes principal, accrued interest and fees.

The following table presents the performance of our credit card loans that were modified on or after January 1, 2023 and remain in a Loan Modification program:

Aging Analysis of Delinquent Amortized Cost

Loan Modifications - Credit Card Loans

31 to 60 Days Past Due 61 to 90 Days Past Due 91 or more Days Past Due Total Total

Current Total

As of December 31, 2023 $ 17 $ 16 $ 22 $ 55 $ 214 $ 269

The following table provides additional information regarding credit card Loan Modifications that have subsequently defaulted within 12 months of their modification dates, for the year ended December 31, 2023;

the probability of default is factored into the Allowance for credit losses:

Modifications Outstanding

(Millions, except for Number of modifications)

Loan Modifications that subsequently defaulted 14,196 $ 23

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Troubled Debt Restructurings (TDRs)

The following table provides information on credit card loans modified as troubled debt restructurings (TDRs) in accordance with the applicable accounting guidance in effect during the periods presented, which was effective prior to our adoption of the new guidance that eliminated TDRs effective January 1, 2023.

Restructurings Pre-modification

Balance Post-modification

(Millions, except for Number of restructurings)

Troubled debt restructurings 149,815 $ 227 $ 227

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;

TDRs are collectively evaluated for impairment on a pooled basis in measuring the appropriate Allowance for credit losses.

Our impaired credit card loans represented 1 % of total credit card loans as of December 31, 2022.

As of the same date, our recorded investment in impaired credit card loans was $ 257 million, with an associated Allowance for credit losses of $ 70 million.

The average recorded investment in impaired credit card loans was $ 257 million for the year ended December 31, 2022.

We recognized $ 15 million in interest income associated with credit card loans accounted for as TDRs for the year ended December 31, 2022.

the probability of default is factored into the Allowance for credit losses:

Restructurings Outstanding

Balance Number of

Restructurings Outstanding

(Millions, except for Number of restructurings)

Troubled debt restructurings that subsequently defaulted 63,726 $ 88

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:

Higher 601 to

Credit card loans 62 % 26 % 12 % 62 % 26 % 12 %

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

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.

Unfunded Lending Commitments

We manage potential credit risk in 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, and our 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.

We manage our potential risk in credit commitments by limiting the total amount of credit, both by individual customer and across our credit card loan portfolio, by monitoring the size and maturity of our loan portfolio, and applying consistent risk-based underwriting standards reflective of current and anticipated macroeconomic conditions.

We have the unilateral ability to cancel or reduce unused credit card lines at any time.

Unused credit card lines available to cardholders totaled approximately $ 113 billion and $ 128 billion as of December 31, 2023 and 2022, 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.

While this amount represented the total available unused credit card lines, we have not experienced and do 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.

As of December 31, 2023 and 2022, there were no credit card loans held for sale and no portfolio sales were made during the year end December 31, 2022.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

We previously announced the non-renewal of our contract with BJ’s Wholesale Club (BJ’s) and the sale of the BJ’s portfolio, which closed in late February 2023, for a total purchase price of $ 2.5 billion on a loan portfolio of $ 2.3 billion, resulting in a $ 230 million Gain on portfolio sale.

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.

In October 2023, we acquired a credit card portfolio for cash consideration of $ 388 million.

In October 2022, we acquired the AAA credit card portfolio for cash consideration of $ 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.

In April 2022, we acquired a credit card portfolio for cash consideration of $ 249 million, which primarily consisted of credit card loans, and also included intangible assets (primarily purchased credit card relationships) and rewards liabilities.

For audited Consolidated Financial Statement disclosure purposes, allocation of the purchase price to the credit card loans and intangible assets acquired is not significant.

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 Allowance for credit losses represents our estimate of expected credit losses over the estimated life of our Credit card and other loans, incorporating future macroeconomic forecasts in addition to information about past events and current conditions.

Our estimate under the Current Expected Credit Loss (CECL) approach is significantly influenced by the composition, characteristics and quality of our 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.

These models utilize historical data and applicable macroeconomic variables with statistical analysis and

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.

Principal losses, net of recoveries are deducted from the Allowance for credit losses.

Losses of unpaid interest and fees as well as any adjustments to the Allowance for credit losses associated with unpaid interest and fees are recorded as a reduction to Interest and fees on loans.

The Allowance for credit losses is maintained through an adjustment to the Provision for credit losses and is evaluated for appropriateness on a quarterly basis.

In estimating our Allowance for credit losses, for each identified segment of loans sharing similar risk characteristics, management uses modeling and estimation techniques based on historical loss experience, current conditions, reasonable and supportable forecasts and other relevant factors.

This modeling uses historical data and applicable macroeconomic variables with statistical analysis and behavioral relationships, to determine expected credit performance.

Our quantitative estimate of expected credit losses under CECL is impacted by certain forecasted macroeconomic variables.

We consider the macroeconomic forecast used to be reasonable and supportable over the estimated life of the Credit card and other loans portfolio, with no reversion period.

In addition to the quantitative estimate of expected credit losses, we also incorporate qualitative adjustments for certain factors such as Company-specific risks, changes in current macroeconomic conditions that may not be captured in the quantitatively derived results, or other relevant factors to ensure the Allowance for credit losses reflects our 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.

We use a “pooled” approach to estimate expected credit losses for financial assets with similar risk characteristics.

We have evaluated multiple risk characteristics across our credit card loans portfolio, and determined delinquency status and overall credit quality to be the most significant characteristics for estimating expected credit losses.

To estimate our Allowance for credit losses, we segment our 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.

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.

In determining the estimated life of our credit card loans, payments were applied to the measurement date balance with no payments allocated to future purchase activity.

We use 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.

We measure our 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

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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, 2023 and 2022, the Allowance for credit losses on BNPL loans was $ 32 million and $ 21 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 following table presents our Allowance for credit losses for our Credit card and other loans.

The amount of the related Allowance for credit losses on BNPL and other loans is insignificant and therefore has been included in the table below.

The amounts presented are for the years ended December 31:

1 unchanged sentence

Beginning balance $ 2,464 $ 1,832 $ 2,008

$ 1,832 $ 2,008 $ 1,815

Provision for credit losses (1)

5 unchanged sentences

______________________________

(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.

(1) Provision for credit losses includes a build/release for the Allowance for credit losses, as well as replenishment of Net principal losses.

(2) Net principal losses are presented net of recoveries of $ 332 million, $ 187 million and $ 163 million for the years ended December 31, 2023, 2022 and 2021, 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

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 .

Net principal losses for the years ended December 31, 2023 and 2022 include an adjustment of $ 10 million and $ 5 million, respectively, 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 for the year ended December 31, 2021.

For the year ended December 31, 2023, the factors that influenced the decrease in the Allowance for credit losses are lower Credit Card and other loans, primarily driven by the sale of the BJ’s portfolio;

partially offset by higher principal losses and a higher reserve rate due to the compounding effect of persistent inflation relative to wage growth, the increased cost of consumer debt, the possibility of higher unemployment levels and the potential impacts from the resumption of federal student loan payments.

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.

We account for transfers of financial assets as either sales or financings.

Transfers of financial assets that are accounted for as a sale 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.

We regularly securitize the majority of our credit card loans through the transfer of those loans to one of our Trusts.

We perform the decision making for the Trusts, as well as servicing the cardholder accounts that generate the credit card loans held by the Trusts.

In our capacity as a servicer, we administer the loans, collect payments and charge-off uncollectible balances.

Servicing fees are earned by a subsidiary, which are eliminated in consolidation.

The Trusts are consolidated VIEs because they have insufficient equity at risk to finance their activities – the issuance of debt securities and notes, collateralized by the underlying credit card loans.

Because we perform the decision making and servicing for the Trusts, we have the power to direct the activities that most significantly impact the Trusts’ economic performance (the collection of the underlying credit card loans).

In addition, we hold all of the variable interests in the Trusts, with the exception of the liabilities held by third-parties.

These variable interests provide us 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, we are deemed to be the primary beneficiary of the Trusts and therefore consolidate the Trusts.

The Trusts issue debt securities and notes, which are non-recourse to us.

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.

For our securitized credit card loans, during the initial phase of a securitization reinvestment

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

period, we generally retain 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.

We are required to maintain minimum interests in our 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.

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Net principal losses of securitized credit card loans $ 801 $ 554 $ 453

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Investments include investment securities and various other investments primarily held by the Banks for Community Reinvestment Act (CRA) purposes.

Investment securities consist of available-for-sale (AFS) debt securities, which are mortgage-backed securities and municipal bonds, and equity securities, which are mutual funds.

Investment securities are carried at fair value on the Consolidated Balance Sheets.

We also have other investments, which primarily include a portfolio of investments in certain limited partnerships and limited liability companies accounted for under the equity method, and therefore are recorded at cost and adjusted each period for our share of the investee’s earnings or losses, less any impairment.

The following table provides a summary of our Investments as of December 31:

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:

Available-for-sale debt securities $ 171 $ 152

Equity securities (1)

Total investment securities 217 196

Equity method and other investments (1)

Total Investments (1)

______________________________

(1) As of December 31, 2023, to increase transparency certain types of investments, including our equity method investments, are now separately disclosed within this table;

there was no impact on our audited Consolidated Financial Statements as a result of this separate disclosure.

Prior period amounts above conform with current period presentation.

For AFS debt securities in an unrealized loss position, any estimated credit losses are recognized in the Consolidated Statements of Income by establishing or adjusting an existing Allowance for credit losses for such losses.

We typically invest in highly-rated securities with low probabilities of default and therefore did not have any credit losses for the periods

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Any unrealized gains, or any portion of an AFS debt security’s non-credit-related unrealized losses are recorded in the Consolidated Statements of Comprehensive Income, net of tax.

Realized gains and losses are recorded in Other non-interest expenses in the Consolidated Statements of Income upon disposition of the AFS debt security, using the specific identification method.

Gains and losses on investments in equity securities and CRA-related equity method investments are recorded in Other non-interest expenses in the Consolidated Statements of Income.

The table below reflects unrealized gains and losses on AFS debt securities as of December 31, 2023 and December 31, 2022:

Cost Unrealized

4 unchanged sentences

Losses Fair Value

Available-for-sale securities $ 175 $ — $ ( 23 ) $ 152 $ 173 $ 4 $ ( 2 ) $ 175

Equity securities $ 69 $ — $ — $ 69 $ 64 $ — $ — $ 64

Available-for-sale debt securities $ 192 $ — $ ( 21 ) $ 171 $ 175 $ — $ ( 23 ) $ 152

Total $ 192 $ — $ ( 21 ) $ 171 $ 175 $ — $ ( 23 ) $ 152

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:

The following tables provide information about AFS debt securities in a gross unrealized loss position and the length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 2023 and December 31, 2022:

December 31, 2023

3 unchanged sentences

Losses Fair Value Unrealized

Available-for-sale securities $ 95 $ ( 9 ) $ 57 $ ( 14 ) $ 152 $ ( 23 )

Available-for-sale debt securities $ 23 $ — $ 141 $ ( 21 ) $ 164 $ ( 21 )

Total $ 23 $ — $ 141 $ ( 21 ) $ 164 $ ( 21 )

4 unchanged sentences

Losses Fair Value Unrealized

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.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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:

Internal-use computer software and development $ 305 $ 263

Furniture and equipment 96 107

Land and leasehold improvements 72 76

Construction in progress 9 25

Available-for-sale debt securities $ 95 $ ( 9 ) $ 57 $ ( 14 ) $ 152 $ ( 23 )

Total $ 95 $ ( 9 ) $ 57 $ ( 14 ) $ 152 $ ( 23 )

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.

As of December 31, 2023, our AFS debt securities included mortgage-backed securities, which do not have a single maturity date, with an amortized cost and estimated fair value of $ 167 million and $ 148 million, respectively, and municipal bonds, all of which have a maturity date greater than ten years, with an amortized cost and estimated fair value of $ 25 million and $ 23 million, respectively.

There were no realized gains or losses from the sale of any investments for the years ended December 31, 2023, 2022 and 2021.

GOODWILL AND INTANGIBLE ASSETS, NET

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.

Goodwill is recognized for business acquisitions when the purchase price is higher than the fair value of acquired net assets.

Goodwill is not amortized but is tested for impairment at least annually.

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:

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.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

We evaluate goodwill for impairment annually as of July 1, or more frequently if events or circumstances arise that would more likely than not reduce the fair value of our single reporting unit below its carrying value.

We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying value.

Alternatively, we can perform a more detailed quantitative assessment of goodwill impairment.

Qualitative factors considered in evaluating goodwill impairment include macroeconomic conditions, industry and market considerations, our overall financial performance and other relevant entity-specific factors, and/or a sustained decrease in our share price.

If, after assessing these qualitative factors we conclude that it is not more likely than not that the fair value of our reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is not necessary.

However, if the qualitative factors indicate it is more likely than not that the fair value of our reporting unit is less than its carrying amount, or we elect to skip the qualitative assessment, we would perform a quantitative impairment test.

The quantitative test compares the fair value of our reporting unit with its current carrying amount, including goodwill.

When measuring the fair value we use widely accepted valuation techniques, leveraging a combination of the income approach based on discounted cash flows and the market approach based on valuation multiples.

The key assumptions used to determine the fair value are primarily unobservable inputs (i.e., Level 3 inputs) including internally developed forecasts to estimate future cash flows, growth rates and discount rates, as well as market valuation multiples (for the market approach).

Estimated cash flows are based on internal forecasts grounded in historical performance and future expectations.

To discount the estimated cash flows, we use the expected cost of equity taking into account a combination of industry and Company-specific factors we believe a third party market participant would incorporate.

We believe the discount rate applied appropriately reflects the risks and uncertainties in the financial markets generally and specifically in our internally developed forecasts.

When using valuation multiples under the market approach, we apply comparable publicly traded companies’ multiples (e.g., price to tangible book value or return on tangible equity) to our reporting unit’s operating results.

For the year ended December 31, 2023, we performed a quantitative assessment in connection with our annual goodwill impairment evaluation and concluded that the fair value of our reporting unit was in excess of its carrying value.

For the year ended December 31, 2022, we performed a qualitative assessment and determined that it was more likely than not that the fair value of our reporting unit exceeded its carrying value.

Goodwill was $ 634 million as of December 31, 2023, 2022 and 2021.

No goodwill impairment was recognized during any of those years, and there were no accumulated goodwill impairment losses as of December 31, 2023.

Intangible Assets, net

The Company’s identifiable intangible assets consist of both amortizable and non-amortizable intangible assets.

Our 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;

We review 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:

Intangible assets consisted of the following as of December 31:

Assets Accumulated Amortization Net Useful Life

Definite-Lived Assets

Customer contracts and lists $ 9 $ ( 6 ) $ 3 3 years

Premium on purchased credit card loan portfolios $ 231 $ ( 108 ) $ 123 5 - 13 years

4 unchanged sentences

Total intangible assets $ 237 $ ( 109 ) $ 128

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Assets Accumulated Amortization Net Useful Life

7 unchanged sentences

Total intangible assets $ 245 $ ( 80 ) $ 165

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Amortization expense related to intangible assets was approximately $ 37 million, $ 26 million and $ 29 million for the years ended December 31, 2023, 2022 and 2021, respectively.

7 unchanged sentences

Restricted cash (3)

Investment in Loyalty Ventures Inc.

Investment in LVI — 6

Total other assets $ 1,364 $ 1,400

______________________________

(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.

(1) See Note 1, “Description of Business, Basis of Presentation and Summary of Significant Accounting Policies” for discussion of impairment of certain deferred contract costs.

(2) Primarily related to federal, state and foreign income tax receivables (including a tax-related receivable in the amount of approximately $ 50 million, net, which we are entitled to receive through LVI), and amounts receivable from various brand partners.

(3) The balance as of December 31, 2022 represents principal accumulation for the repayment of debt issued by consolidated VIEs that matured in 2023.

(4) Primarily comprised of prepaid expenses and non-income-based tax receivables.

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.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

We have various operating leases for facilities and equipment which are recorded as lease-related assets (i.e., right-of-use assets) and liabilities for those leases with terms greater than 12 months.

We do not have any finance leases.

We determine if an arrangement is a lease or contains a lease at inception, and we do 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.

Our 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 our 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

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

as of December 31, 2022 and 2021, respectively.

As of December 31, 2023 and 2022, the weighted average discount rate applied was 6.9 % and 5.8 %, respectively.

As of December 31, 2023, our leases have remaining lease terms ranging from less than one year , to up to 15 years, some of which may include renewal options;

the weighted average remaining lease term was 8.4 years and 8.8 years as of December 31, 2023 and 2022, respectively.

Leases with an initial term of 12 months or less are not recognized on the Consolidated Balance Sheets;

1 unchanged sentence

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

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

Total lease expense for the years ended December 31, 2023, 2022 and 2021 was $ 25 million, $ 13 million, and $ 20 million, respectively, including variable lease costs and sublease income, which were insignificant.

Supplemental lease-related cash flow information was as follows for the years ended December 31:

2023 2022 2021

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:

Cash paid for amounts included in the measurement of lease liabilities – operating cash flows $ 27 $ 23 $ 25

Right-of-use assets obtained in exchange for operating leases – non-cash $ 37 $ — $ 5

Future maturities of our operating lease liabilities, by year, were as follows as of December 31, 2023:

Thereafter 84

3 unchanged sentences

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Deposits were categorized as interest-bearing or non-interest-bearing as follows, as of December 31:

15 unchanged sentences

(1) The 2023 balance includes $ 6 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.

As of December 31, 2023 and December 31, 2022, deposits that exceeded applicable FDIC insurance limits, which are generally $250,000 per depositor, per insured bank, per ownership category, were estimated to be $ 509 million ( 4 % of Total deposits) and $ 719 million ( 5 % of Total deposits), respectively.

The measurement of estimated uninsured deposits aligns with regulatory guidelines.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

BORROWINGS OF LONG-TERM AND OTHER DEBT

3 unchanged sentences

Long-term and other debt:

Revolving line of credit $ — $ — July 2024 (1)

Revolving line of credit $ — $ — June 2026 (1)

2017 term loans — 556 July 2024 (1)

Convertible senior notes due 2028 316 — June 2028 4.25 %

Senior notes due 2024 — 850 December 2024 4.75 %

Senior notes due 2026 500 500 January 2026 7.00 %

Senior notes due 2029 600 — March 2029 9.75 %

Subtotal 1,416 1,906

2 unchanged sentences

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)

Fixed rate asset-backed term note securities $ 350 $ — May 2026 5.02 %

Conduit asset-backed securities 3,550 6,115 Various – Oct.

Subtotal 3,900 6,115

3 unchanged sentences

______________________________

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.

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.

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.

(1) The interest rate is based upon the Secured Overnight Financing Rate (SOFR) plus an applicable margin.

(2) The interest rate is based upon SOFR, or the asset-backed commercial paper costs of each individual conduit provider plus an applicable margin.

As of December 31, 2023, the interest rates ranged from 6.36 % to 6.59 % with a weighted average rate of 6.48 % .

As of December 31, 2022, the interest rates ranged from 5.08 % to 5.93 % with a weighted average rate of 5.38 %.

Certain of our long-term debt agreements include various restrictive financial and non-financial covenants.

If we do not comply with certain of these covenants and an event of default occurs and remains uncured, the maturity of amounts outstanding may be accelerated and become payable, and, with respect to our credit agreement, the associated commitments may be terminated.

As of December 31, 2023, we were in compliance with all such covenants.

Long-term and Other Debt

Throughout 2023, we engaged in a number of financing transactions, including entering into a new credit agreement, repaying in full and terminating our prior credit agreement, repaying in full and cancelling an existing series of senior notes, repaying in full a term loan, and consummating certain debt capital markets transactions, including an offering of convertible senior notes, a tender offer to repurchase certain outstanding senior notes, an offering of senior notes and an offering of asset-backed term notes through one of our securitization trusts.

In connection with these transactions, during 2023, we reduced our outstanding Parent Company debt by approximately $ 500 million and refinanced our nearer-term debt maturities.

Each of these transactions are described in more detail below.

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

In June 2023, we entered into a new credit agreement (the 2023 Credit Agreement) with Parent Company, as borrower, certain of our domestic subsidiaries, as guarantors, JPMorgan Chase Bank, N.A., as administrative agent and lender, and various other financial institutions, as lenders, which provides for a $ 700 million senior unsecured revolving credit facility (the Revolving Credit Facility) and a $ 575 million senior unsecured delayed draw term loan facility (the Term Loan Facility), all on terms and subject to the conditions set forth in the 2023 Credit Agreement.

The 2023 Credit Agreement replaced, in its entirety, our prior credit agreement dated June 14, 2017, as amended (the 2017 Credit Agreement), which

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.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

was repaid in full and terminated in June 2023 in connection with the closing of our offering of convertible notes, described below.

The 2023 Credit Agreement matures on June 13, 2026.

As of December 31, 2023 under the 2023 Credit Agreement, all $ 700 million remained available for future borrowings under the Revolving Credit Facility, and we did not have any term loans outstanding or available for future borrowings under the Term Loan Facility as discussed in further detail below.

The proceeds from the Term Loan Facility were to be used for refinancing existing debt and paying fees, expenses and premiums in connection therewith, while the proceeds from the Revolving Credit Facility may be used for general corporate purposes and working capital needs, including refinancing existing debt, investments, payment of dividends and repurchases of capital stock.

Borrowings under the 2023 Credit Agreement bear interest at an annual rate equal to, at our option, either (a) Term Secured Overnight Financing Rate (SOFR) plus a credit adjustment spread and the applicable margin, (b) Daily Simple SOFR plus a credit adjustment spread and the applicable margin or (c) a base rate set forth in the 2023 Credit Agreement plus the applicable margin, with the applicable margin in each case dependent upon our ratio of (i) consolidated tangible net worth to (ii) consolidated total assets, minus the sum of goodwill and intangible assets, net.

In June 2023, we borrowed $ 300 million under the Term Loan Facility and used those borrowings, together with cash on hand, to repurchase the Senior Notes due 2024 that were tendered in the Tender Offer (as defined below).

In December 2023, we repaid all such borrowings outstanding under the Term Loan Facility with a portion of the net proceeds from our December 2023 offering of 9.750% Senior Notes due 2029 (Senior Notes due 2029) and permanently terminated all commitments under the Term Loan Facility.

See “—9.750% Senior Notes due 2029” below.

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.

The Senior Notes set forth below are each governed by their respective indentures that include 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 our existing and future domestic restricted subsidiaries that incur or in any other manner become liable for any debt under our domestic credit facilities, including the 2023 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.

In December 2019, we issued and sold $ 850 million aggregate principal amount of 4.750 % Senior Notes due December 15, 2024 (the Senior Notes due 2024).

Concurrently with the launch of the convertible notes offering (see further discussion below), we commenced a cash tender offer (the Tender Offer) for any and all of the $ 850 million in aggregate principal amount of our 4.750 % Senior Notes due 2024.

The consideration offered for each $1,000 principal amount of the Senior Notes due 2024 was $ 980 , plus accrued and unpaid interest, for any and all notes validly tendered.

In June 2023, we repurchased and cancelled $ 565 million in aggregate principal amount of Senior Notes due 2024 that were validly tendered in the Tender Offer.

In December 2023, we redeemed the remaining $ 285 million of these notes with a portion of the net proceeds from our December 2023 offering of Senior Notes due 2029, and there were no Senior Notes due 2024 outstanding as of December 31, 2023.

See “—9.750% Senior Notes due 2029” below.

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).

In September 2020, we 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.

In January 2024, we redeemed $ 400 million in aggregate principal among of the Senior Notes due 2026 with the net proceeds from the January 2024 offering of Senior Notes due 2029, together with $ 100 million of cash on hand.

See “—9.750% Senior Notes due 2029” below.

4.25% Convertible Senior Notes Due 2028

In June 2023, we issued and sold $ 316 million aggregate principal amount of 4.25 % Convertible Senior Notes due 2028 (the Convertible Notes).

The Convertible Notes bear interest at an annual rate of 4.25 %, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2023.

The Convertible Notes mature on June 15, 2028, unless earlier repurchased, redeemed or converted.

We used the net proceeds from the offering of the Convertible Notes to repay in full and terminate the 2017 Credit Agreement.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The Convertible Notes are convertible, under certain conditions, until March 15, 2028, and on or after such date without condition, at an initial conversion rate of 26.0247 shares of our common stock per $1,000 principal amount of Convertible Notes, subject to adjustment, which represents a 25 % conversion premium based on the last reported sale price of our common stock of $ 30.74 on June 8, 2023 prior to issuing the Convertible Notes.

Upon any such conversion, we will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock (at our election), in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted.

At our option, we may redeem for cash, all or a portion of the Convertible Notes on or after June 21, 2026, and before the 51 st scheduled trading day before the maturity date, but only if the closing price of our common stock reaches specified targets as defined in the indenture governing the Convertible Notes.

The redemption price will equal 100 % of the principal amount of the redeemed Convertible Notes plus accrued interest, if any.

If we experience a fundamental change, as defined in the indenture governing the Convertible Notes, the note holders may require us to purchase for cash all or a portion of their notes, subject to specified exceptions, at a price equal to 100 % of the principal amount of the Convertible Notes plus any accrued and unpaid interest.

In connection with the issuance of the Convertible Notes, we entered into privately negotiated capped call transactions (the Capped Call) with certain financial institution counterparties.

These transactions are expected generally to reduce potential dilution to our common stock upon any conversion of Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of the Convertible Notes, with such reduction and/or offset subject to a cap, based on the cap price.

The base price of the Capped Call transactions is $ 38.43 , representing a premium of 25 % over the last reported sale price of our common stock of $ 30.74 on June 8, 2023, while the cap price is initially $ 61.48 , which represents a premium of 100 % over that same sale price on June 8, 2023.

Within the share price range of $ 38.43 to $ 61.48 the Capped Call transactions provide economic value to us from the counterparties, upon maturity or earlier conversion.

The Capped Call transactions met the conditions under the related accounting guidance for equity classification and are not measured at fair value on a recurring basis;

the price paid of $ 39 million was recorded in Additional paid-in capital, net of tax, in the Consolidated Balance Sheet.

9.750% Senior Notes Due 2029

In December 2023, we issued and sold $ 600 million aggregate principal amount of 9.750 % Senior Notes due 2029 (the Senior Notes due 2029).

The Senior Notes due 2029 accrue interest on the outstanding principal amount at the rate of 9.750 % per annum from December 22, 2023, payable semi-annually in arrears, on March 15 and September 15 of each year, beginning on March 15, 2024.

The Senior Notes due 2029 will mature on March 15, 2029, subject to earlier repurchase or redemption.

We used the proceeds of the December 2023 offering of Senior Notes due 2029 to redeem in full the outstanding Senior Notes due 2024 and repay in full the outstanding term loans under the Term Loan Facility of our Credit Agreement.

Subsequent to December 31, 2023, in January 2024 we issued and sold an additional $ 300 million aggregate principal amount of Senior Notes due 2029.

The Senior Notes due 2029 issued in January 2024 were issued as additional notes under the same indenture pursuant to which the initial $ 600 million of Senior Notes due 2029 were issued in December 2023.

The Senior Notes due 2029 that were issued in both December 2023 and January 2024 constitute a single series of notes and have the same terms, other than the issue date and issue price.

We sold the additional $ 300 million of Senior Notes due 2029 at an issue price of 101.00 % of principal plus accrued interest from December 22, 2023.

We used the proceeds of the January 2024 offering of Senior Notes due 2029, together with $ 100 million of cash on hand, to fund the redemption of $ 400 million in aggregate principal amount of our outstanding 7.000 % Senior Notes due 2026.

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.

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 our case, our 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.

We regularly sell our credit card loans to our Trusts, which are consolidated.

The liabilities of these consolidated VIEs include asset-backed securities for which creditors, or beneficial interest holders, do not have recourse to our general credit.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Fixed Rate Asset-Backed Term Notes

In May 2023, World Financial Network Credit Card Master Note Trust issued $ 399 million of Series 2023-A public term asset-backed notes, which mature in May 2026.

The offering consisted of $ 350 million of Class A notes with a fixed interest rate of 5.02 % per year, $ 31 million of Class M notes with a fixed interest rate of 5.27 % per year, and $ 18 million of zero coupon Class B notes.

The Class M and B notes were retained by us and eliminated from the Consolidated Balance Sheet.

Conduit Facilities

The Company maintained committed syndicated bank Conduit Facilities to support the funding of its credit card loans for its Trusts.

We maintained committed syndicated bank Conduit Facilities to support the funding of our credit card loans for our 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.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The future principal payments for the Company’s long-term and other debt are as follows, as of December 31, 2022:

As of December 31, 2022, total capacity under our Conduit Facilities was $ 6.5 billion, of which $ 6.1 billion had been drawn down and was included in Debt issued by consolidated variable interest entities (VIEs) in the Consolidated Balance Sheet.

During the twelve months ended December 31, 2023, we renewed lender commitments under our Conduit Facilities, bringing our capacity to $ 5.4 billion, and extended the various maturities to October 2024, February 2025, September 2025 and October 2025.

Specifically, in February 2023, the World Financial Network Credit Card Master Note Trust amended its 2009-VFN Conduit Facility, decreasing the capacity from $ 2.8 billion to $ 2.7 billion and extending the maturity to October 2024.

In December 2023, this facility was again amended extending the maturity to October 2025.

In February 2023, in connection with the sale of the BJ’s portfolio, the World Financial Capital Master Note Trust amended its 2009-VFN Conduit Facility removing the assets related to the BJ’s portfolio.

In April 2023, this facility was again amended decreasing the capacity from $ 2.5 billion to $ 2.3 billion and extending the maturity to February 2025.

In March 2023, CCB repaid the Comenity Capital Asset Securitization Trust’s 2022-VFN Conduit Facility and terminated the related lending commitment, decreasing capacity by $ 1.0 billion.

However, the structure of the applicable Trust did not change, including the Trust assets, providing for the option to pledge those assets in the future, and in September 2023, the Comenity Capital Asset Securitization Trust was amended to include a new credit commitment of $ 250 million with a maturity of September 2025.

In June 2023, the World Financial Network Credit Card Master Trust III amended its 2009-VFC conduit facility, extending a portion of the maturity to October 2023, and another portion of the maturity to October 2024.

In August 2023, this same facility was amended to replace the maturing commitment with a new $ 100 million commitment with a maturity of October 2024.

As of December 31, 2023, total capacity under our Conduit Facilities was $ 5.4 billion, of which $ 3.6 billion had been drawn and included in Debt issued by consolidated VIEs in the Consolidated Balance Sheet.

The future principal payments for our Long-term and other debt are as follows, as of December 31, 2023:

Year Long-Term and Other Debt Debt Issued by Consolidated VIEs Total

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2026 500 350 850

2028 316 — 316

Thereafter 600 — 600

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$ 1,394 $ 3,898 $ 5,292

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NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

OTHER LIABILITIES

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Payment protection products $ 132 $ 154 $ 141

Loss from equity method investment ( 44 ) 2 —

Other 4 13 21

(Loss) income from equity method investment in LVI ( 6 ) ( 44 ) 2

Total other non-interest income $ 128 $ 114 $ 146

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:

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Professional services and regulatory fees $ 128 $ 142 $ 136

Asset impairment charges — — 64

Occupancy expense 22 23 26

Total other non-interest expense $ 219 $ 227 $ 222

______________________________

Primarily related to occupancy expense and non-income based taxes.

(1) Primarily related to costs associated with various other individually insignificant operating activities.

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.

with such a 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:

Inputs that are unadjusted quoted prices for identical assets or liabilities in active markets that the entity can access.

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.

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NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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.

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.

In particular, Level 3 inputs and valuation techniques involve judgment and as a result are not necessarily indicative of amounts we 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.

We monitor the market conditions and evaluate the fair value hierarchy levels at least quarterly.

For the years ended December 31, 2023 and 2022, 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:

The following table summarizes the carrying values and fair values of our financial assets and financial liabilities as of December 31:

Value Carrying

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Long-term and other debt 1,394 1,457 1,892 1,759

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;

Our Credit card and other loans are recorded at amortized cost, less the Allowance for credit losses, on the Consolidated Balance Sheets.

In estimating the fair values, we use 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.

We use 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.

Investment securities consist of AFS debt securities, including both mortgage-backed securities and municipal bonds, as well as equity securities, which are mutual funds, 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).

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).

GAAP requires that the fair values of deposit liabilities with no stated maturities equal their carrying values, and does not permit recognition of the inherent funding value of these instruments.

Certificates of deposit are recorded at their historical issuance cost on the Consolidated Balance Sheets, adjusted for unamortized fees, with the fair value being estimated based on the currently observable market rates available to us 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.

We record debt issued by our consolidated VIEs at amortized cost (including unamortized fees, issuance costs, premiums and discounts, where applicable) on the Consolidated Balance Sheets.

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).

Fair value is estimated based on the currently observable market rates available to us for similar debt instruments with similar remaining maturities or quoted market prices for the same transaction (i.e., Level 2 inputs).

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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.

We record long-term and other debt at amortized cost (including unamortized fees, issuance costs, premiums and discounts, where applicable) on the Consolidated Balance Sheets.

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:

The fair value is estimated based on the currently observable market rates available to us for similar debt instruments with similar remaining maturities, or quoted market prices for the same transaction (i.e., Level 2 inputs).

Financial Instruments Measured at Fair Value on a Recurring Basis

The following tables summarize our financial instruments measured at fair value on a recurring basis, categorized by the fair value hierarchy described in the preceding paragraphs, as of December 31:

Total Level 1 Level 2 Level 3

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Total assets measured at fair value $ 221 $ 44 $ 177 $ —

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 equity method investments, property and equipment, right-of-use assets, deferred contract costs, 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.

In particular, for the year ended December 31, 2022, we recognized a $ 44 million write-down of our equity method investment in LVI;

as of December 31, 2022, the carrying amount of our investment was $ 6 million and the fair value was $ 11 million.

For the year ended December 31, 2023 we wrote-off the remaining $ 6 million of our equity method investment in LVI.

As well, see Note 1, “Description of Business, Basis of Presentation and Summary of Significant Accounting Policies” for a discussion of the impairment of certain deferred contract costs.

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.

The following tables summarize our 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, 2023 and 2022, respectively.

The fair values of these financial instruments are estimates, and require management’s judgment;

therefore, these fair value estimates may not be indicative of future fair values, nor can our fair value be estimated by aggregating all of the amounts presented.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Fair Value Level 1 Level 2 Level 3

16 unchanged sentences

Total $ 21,605 $ — $ 21,605 $ —

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.

COMMITMENTS AND CONTINGENCIES

Regulatory Matters

REGULATORY MATTERS AND CAPITAL ADEQUACY

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.

Our 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.

2 unchanged sentences

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.

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.

Quantitative measures, established by regulations to ensure capital adequacy, require the Banks to maintain minimum amounts and ratios of Tier 1 capital to average assets, and Common equity tier 1, Tier 1 capital and Total capital, all to risk weighted assets.

Based on these regulations, as of December 31, 2023 and 2022, 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:

Ratio Minimum Ratio for

The Banks seek to maintain capital levels and ratios in excess of the minimum regulatory requirements inclusive of the 2.5% Capital Conservation Buffer.

Although Bread Financial is not a bank holding company as defined, we seek to maintain capital levels and ratios in excess of the minimums required for bank holding companies.

As of December 31, 2023 the actual capital ratios and minimum ratios for each Bank, as well as Bread Financial, are as follows as of December 31, 2023:

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Actual Ratio Minimum Ratio for

Capital Adequacy

3 unchanged sentences

Action Provisions

Comenity Bank

Total Company

Common equity tier 1 capital ratio (1)

4 unchanged sentences

Tier 1 leverage capital ratio (4)

Comenity Capital Bank

Total risk-weighted assets (5)

Comenity Bank

Common equity tier 1 capital ratio (1)

4 unchanged sentences

Tier 1 leverage capital ratio (4)

Combined Banks

Comenity Capital Bank

Common equity tier 1 capital ratio (1)

4 unchanged sentences

Tier 1 leverage capital ratio (4)

__________________________________

(1) The Common equity tier 1 capital ratio represents common equity tier 1 capital divided by total risk-weighted assets.

2 unchanged sentences

(4) The Tier 1 leverage capital ratio represents tier 1 capital divided by total average assets, after certain adjustments.

(5) Total risk-weighted assets are generally measured by allocating assets, and specified off-balance sheet exposures, to various risk categories as defined by the Basel III standardized approach.

We are also involved, from time to time, in reviews, investigations, subpoenas, supervisory actions and other proceedings (both formal and informal) by governmental agencies regarding our business, which could subject us to significant fines, penalties, obligations to change our business practices, significant restrictions on our existing business or ability to develop new business, cease-and-desist orders, safety-and-soundness directives or other requirements resulting in increased expenses, diminished income and damage to our reputation.

On November 20, 2023, following the consent of the Board of Managers of Comenity Servicing LLC (the Servicer), the FDIC issued a consent order to the Servicer.

The Servicer is not one of our Bank subsidiaries, but is our wholly-owned subsidiary that services substantially all of our loans.

The consent order arose out of the June 2022 transition of our credit card processing services to strategic outsourcing partners and addresses certain shortcomings in the Servicer’s information technology (IT) systems development, project management, business continuity management, cloud operations, and third-party oversight.

The Servicer entered into the consent order for the purpose of resolving these matters without admitting or denying any violations of law or regulation set forth in the order.

The Servicer has taken significant steps to strengthen the organization’s IT governance and address the other issues identified in the consent order, and we are committed to ensuring that all of the requirements of the consent order are met.

The consent order does not contain any monetary penalties or fines.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

COMMITMENTS AND CONTINGENCIES

Indemnification

On July 1, 2019, the Company completed the sale of its Epsilon segment to Publicis Groupe S.A.

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.

On July 1, 2019, we completed the sale of our Epsilon segment to Publicis Groupe S.A.

Under the terms of the agreement governing that transaction, we 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.

4 unchanged sentences

A $ 150 million loss contingency was recorded as of December 31, 2020.

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.

Pursuant to our contractual indemnification obligation, in January 2021 we paid $ 75 million to Publicis, and in January 2022 we paid the remaining $ 75 million installment to Publicis.

Our indemnification obligation also covers certain ongoing legal, consulting and claims administration fees and expenses incurred in connection with this matter.

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.

From time to time we are subject to various lawsuits, claims, disputes, or potential claims or disputes, and other proceedings, arising in the ordinary course of business that we believe, based on our current knowledge, will not have a material adverse effect on our business, consolidated financial condition or liquidity, including claims and lawsuits alleging breaches of our contractual obligations, arbitrations, class actions and other litigation, arising in connection with our business activities.

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.

In March 2015, our Board of Directors adopted the 2015 Employee Stock Purchase Plan (the 2015 ESPP), which was subsequently approved by our 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.

however, our Board of Directors may at any time and for any reason terminate or amend the 2015 ESPP.

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.

1 unchanged sentence

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.

The 2015 ESPP also provides for the issuance of any remaining shares available for issuance under our 2005 Employee Stock Purchase Plan, which were 441,327 shares at June 30, 2015.

The 2015 ESPP reserved an additional 1,000,000 shares of our 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, 2023, we issued 140,633 shares of common stock under the 2015 ESPP at a weighted-average issue price of $ 27.43 .

Since the 2015 ESPP became effective on July 1, 2015, 813,409 shares of common stock have been issued, with 627,918 shares therefore available for issuance.

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.

The Bread Financial 401(k) Plan (the Plan), as amended, is a defined contribution plan that is qualified under Section 401(k) of the Internal Revenue Code of 1986.

The Plan is an IRS-approved safe harbor plan design that eliminates the need for most discrimination testing.

Eligible employees can participate in the Plan immediately upon joining the Company and begin receiving Company matching contributions and safe-harbor non-elective contributions.

The Plan 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;

who are at least 18 years old, employees of one of our wholly-owned subsidiaries and any other subsidiary or affiliated organization that adopts the Plan;

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.

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.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The Plan 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 our contributions to the Plan, and income earned on these contributions, are not taxable until withdrawn from the Plan.

In 2023, we expanded our contributions to the Plan with an automatic annual deposit for eligible employees.

We now automatically deposit three percent of an employee’s eligible annual pay in their 401(k) account on an annual basis, regardless of their contributions.

In addition, we match an employee’s contribution fifty cents-per-dollar, up to six percent of the employee’s eligible annual compensation.

For the years ended December 31, 2023, 2022 and 2021, Company matching contributions were $ 30 million, $ 17 million and $ 15 million, respectively.

Participants in the Plan can direct their contributions and our matching contribution to numerous investment options, including the Company’s common stock.

On July 20, 2001, we registered 1,500,000 shares of our common stock for issuance in accordance with the RSP pursuant to a Registration Statement on Form S-8, File No.

As of December 31, 2023, 182,927 of such shares remain available for issuance.

Executive Deferred Compensation Plan

The Company also maintains an Executive Deferred Compensation Plan (EDCP).

We also maintain 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.

Deferrals under the EDCP are unfunded and subject to the claims of our creditors.

As of December 31, 2023 and 2022, the Company’s outstanding liability related to the EDCP, which was included in Other liabilities on the Consolidated Balance Sheets, was $ 24 million and $ 20 million, respectively.

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Comprehensive

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 )

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Balance as of December 31, 2021 $ 1 $ — $ — $ ( 3 ) $ ( 2 )

Changes in other comprehensive (loss) income ( 19 ) — — — ( 19 )

Changes in other comprehensive (loss) ( 19 ) — — — ( 19 )

Balance as of December 31, 2022 $ ( 18 ) $ — $ — $ ( 3 ) $ ( 21 )

Changes in other comprehensive income 2 — — — 2

Balance as of December 31, 2023 $ ( 16 ) $ — $ — $ ( 3 ) $ ( 19 )

______________________________

(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.

(1) Primarily related to the impact of changes in the Canadian dollar and Euro foreign currency exchange rates from our former LoyaltyOne segment, which was spun off in November 2021.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

With the spinoff of our former LoyaltyOne segment on November 5, 2021, the $ 7 million net unrealized loss on our net investment hedge related to our net investment in BrandLoyalty was reclassified into net income.

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.

On July 27, 2023, our Board of Directors approved a stock repurchase program to acquire up to $ 35 million in shares of our outstanding common stock in the open market during the period ended December 31, 2023.

The rationale for this repurchase program, and the amount thereof, was to offset the impact of dilution associated with issuances of employee restricted stock units, with the objective of reducing the Company’s weighted average diluted share count to approximately 50 million shares for the second half of 2023, subject to then current estimates and assumptions applicable as of the date of approval.

During the quarter ended September 30, 2023, under the authorized stock repurchase program, we acquired a total of 0.9 million shares of our common stock for $ 35 million.

Following their repurchase, these 0.9 million 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.

We have 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 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, 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 performing services for us or our 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.

provided that, pursuant to the terms of the 2022 Omnibus Incentive Plan (as defined below), no new grants shall be made under the 2020 Plan.

In March 2022, our Board of Directors adopted the 2022 Omnibus Incentive Plan (the 2022 Plan), which was subsequently approved by our 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.

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 us or our affiliates, with only employees being eligible to receive incentive stock options.

The maximum amount that may be awarded to any independent member of our Board of Directors in any one calendar year may not exceed $ 1 million.

On June 22, 2022, we registered 3,075,000 shares of our common stock for issuance in accordance with the 2022 Plan pursuant to a Registration Statement on Form S-8, File No.

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.

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Stock-based compensation expense recognized in Employee compensation and benefits expense in the Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021 was $ 44 million, $ 33 million and $ 25 million, respectively, with corresponding income tax benefits of $ 8 million, $ 5 million and $ 4 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;

As the amount of stock-based compensation expense recognized is based on awards ultimately expected to vest, the amount recognized in the Consolidated Statements of Income has been reduced for estimated forfeitures.

We estimate 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, 2023, 2022 and 2021.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

As of December 31, 2023, there was approximately $ 51 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 2.1 years.

Restricted Stock Unit Awards

The following table summarizes RSUs activity under the Company’s equity compensation plans:

The following table summarizes RSUs activity for our equity compensation plans:

Based Total Weighted

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Shares granted (2)

2,641 111,542 774,062 888,245 88.18

Shares vested — ( 24,677 ) ( 167,723 ) ( 192,400 ) 118.78

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Shares granted — 82,513 766,178 848,691 63.22

2,641 111,542 774,062 888,245 88.18

Shares vested — ( 8,983 ) ( 218,077 ) ( 227,060 ) 78.23

8 unchanged sentences

(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.

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.

Shares forfeited include those RSUs 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 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.

For Service-based and Performance-based awards, the fair value of the RSUs was estimated using our 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.

Performance-based RSUs typically cliff vest at the end of three years , if specified performance measures tied to our financial performance are met, which are measured annually over the three year period.

The predefined 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.

For RSUs vested during the years ended December 31, 2023, 2022 and 2021, the total fair value, based upon our stock price at the date the RSUs vested, was $ 30 million, $ 18 million and $ 23 million, respectively.

As of December 31, 2023, the aggregate intrinsic value of RSUs outstanding and expected to vest was $ 65 million.

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.

For the years ended December 31, 2023, 2022 and 2021, we paid $ 42 million, $ 43 million and $ 42 million, respectively, in dividends to holders of our common stock.

On January 25, 2024, our Board of Directors declared a quarterly cash dividend of $ 0.21 per share on our common stock, payable on March 15, 2024, to stockholders of record at the close of business on February 9, 2024.

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.

The Company files income tax returns in federal, state, local and foreign jurisdictions, as applicable.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

We file 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.

Differences between the audited 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 audited Consolidated Financial Statements.

Changes in deferred income tax assets and liabilities associated with components of Other comprehensive income (loss) are charged or credited directly to Other comprehensive income (loss).

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.

The effect on deferred income tax assets and liabilities attributable to changes in enacted tax rates is 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.

In evaluating our deferred tax assets on a quarterly basis as new facts and circumstances emerge, we analyze and estimate 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.

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 audited 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 we believe is more likely than not to be realized upon ultimate settlement.

We evaluate our 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:

The components of our Provision for income taxes included in the Consolidated Statements of Income were as follows for the years ended December 31:

2023 2022 2021

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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:

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

A reconciliation of our 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:

2023 2022 2021

Expected expense at statutory rate $ 203 $ 63 $ 219

(Decrease) increase in income taxes resulting from:

Increase (decrease) in income taxes resulting from:

State and local income taxes, net of federal benefit 27 ( 2 ) 33

6 unchanged sentences

Total $ 231 $ 76 $ 247

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.

For the year ended December 31, 2023, we utilized a portion of our capital loss, and therefore released the associated portion of the valuation allowance against it.

For the year ended December 31, 2022, we increased our reserve for Internal Revenue Code (IRC) Section 199 deductions by approximately $ 4 million as a result of an unfavorable court ruling.

In addition, we 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 we recorded a $ 16 million valuation allowance as of December 31, 2022.

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.

For the year ended December 31, 2021, we recorded an income tax benefit of approximately $ 8 million related to the 2017 Tax Reform rate differential that was released from Other comprehensive income (loss) due to the divestiture of our former LoyaltyOne segment.

On August 16, 2022, the Inflation Reduction Act (the Act) was signed into law in the U.S., which includes a new 15% corporate minimum tax on certain large corporations and a one percent excise tax on stock repurchases made after

December 31, 2022.

Effective January 1, 2023 we adopted the applicable provisions under the Act, which did not have a significant impact on our financial position, results of operations or cash flows, nor did it result in significant changes to the supporting operational processes, controls or governance.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The following table reflects the significant components of Deferred tax assets and liabilities as of December 31:

4 unchanged sentences

Operating lease liabilities 34 30

Depreciation 24 —

Accrued expenses and other 79 88

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Other assets $ 629 $ 552

As of December 31, 2022, included in the Company’s U.S.

As of December 31, 2023, included in our U.S.

tax returns are approximately $ 118 million of U.S.

federal net operating loss carryovers (NOLs) and approximately $ 34 million of foreign tax credits.

federal net operating loss carryovers (NOLs), approximately $ 34 million of foreign tax credits, and federal capital losses of approximately $ 51 million to offset capital gains.

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.

As of December 31, 2023, we have state NOLs of approximately $ 238 million and state credits of approximately $ 1 million, both available to offset future state taxable income, as well as state capital losses of approximately $ 26 million to offset capital gains.

With the exception of some state NOLs generated after December 31, 2017, these NOLs, credits and capital losses will expire at various times through the year 2042.

We use the portfolio approach relating to the release of stranded tax effects recorded in Accumulated other comprehensive loss.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The following table presents changes in unrecognized tax benefits:

Balance as of January 1, 2020 $ 215

Balance as of December 31, 2020 $ 255

Increases related to prior years’ tax positions 1

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Settlements during the period ( 8 )

Lapses of applicable statutes of limitation ( 2 )

Balance as of December 31, 2021 $ 247

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Settlements during the period ( 10 )

Lapses of applicable statutes of limitations ( 20 )

Balance as of December 31, 2023 $ 215

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.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in Provision for income taxes.

We have potential cumulative interest and penalties with respect to unrecognized tax benefits of approximately $ 84 million, $ 74 million and $ 76 million as of December 31, 2023, 2022 and 2021, respectively;

for those same years we recorded approximately a $ 9 million expense, $ 1 million benefit and $ 8 million expense, respectively, in Provision for income taxes for potential interest and penalties for unrecognized tax benefits.

As of December 31, 2023, 2022 and 2021, we had unrecognized tax benefits of approximately $ 226 million, $ 238 million and $ 241 million, respectively, that, if recognized, would impact the effective tax rate.

We do not anticipate a significant change to the total amount of unrecognized tax benefits over the next twelve months.

We file 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.

With some exceptions, the tax returns filed by us 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.

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 .

Basic earnings (losses) per share (EPS) is based only on the weighted average number of common shares outstanding, excluding any dilutive effects of unvested restricted stock awards or other dilutive securities.

Diluted EPS is based on the weighted average number of common and potentially dilutive common shares (unvested restricted stock awards and other dilutive securities outstanding during the year) pursuant to the Treasury Stock method .

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

NOTES TO AUDITED 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:

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(Loss) income from discontinued operations, net of income taxes (1)

( 19 ) ( 1 ) 4

Net income $ 718 $ 223 $ 801

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Income from continuing operations $ 14.79 $ 4.48 $ 16.02

(Loss) income from discontinued operations, net of income taxes $ ( 0.01 ) $ 0.07 $ 0.11

Net income $ 4.47 $ 16.09 $ 4.47

(Loss) income from discontinued operations $ ( 0.40 ) $ ( 0.01 ) $ 0.07

Net income per share $ 14.39 $ 4.47 $ 16.09

Income from continuing operations $ 14.74 $ 4.47 $ 15.95

(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.

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:

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.

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

DISCONTINUED OPERATIONS

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

Total interest income $ — $ 1 $ 1

Total interest expense (1)

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

______________________________

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:

(Loss) income from discontinued operations $ ( 0.40 ) $ ( 0.01 ) $ 0.07

Net income per share $ 14.34 $ 4.46 $ 16.02

______________________________

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.

For additional information refer to Note 1, “Description of Business, Basis of Presentation and Summary of Significant Accounting Policies” to the audited Consolidated Financial Statements.

(2) For the years ended December 31, 2023, 2022 and 2021, approximately 1.2 million, 0.9 million, and 0.1 million restricted stock awards were excluded from each calculation of weighted average dilutive common shares as the effect would have been anti-dilutive.

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.

The following Parent Company 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.

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.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Certain of our subsidiaries may be restricted in distributing cash or other assets to the Parent Company, which could be utilized to service our indebtedness.

The stand-alone parent-only financial statements are presented below.

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Investment in subsidiaries 3,615 4,159

Intercompany receivables, net 612 —

Investment in LVI — 6

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Net income $ 718 $ 223 $ 801

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Parent Company – Condensed Statements of Comprehensive Income

2 unchanged sentences

Net income $ 718 $ 223 $ 801

Other comprehensive (loss) income, net of tax ( 3 ) 7 —

Other comprehensive income (loss), net of tax — ( 3 ) 7

Total comprehensive income, net of tax $ 718 $ 220 $ 808

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Parent Company – Condensed Statements of Cash Flows

2 unchanged sentences

Net cash used in operating activities $ ( 422 ) $ ( 219 ) $ ( 398 )

Investing activities:

Investment in subsidiaries — — ( 3 )

Cash flows from investing activities:

Dividends received 1,063 383 533

1 unchanged sentence

Net cash provided by investing activities 1,063 383 523

Financing activities:

Cash flows from financing activities:

Debt proceeds from spinoff of LVI — — 750

Borrowings under debt agreements 1,401 218 38

Repayments of borrowings ( 319 ) ( 864 ) ( 1,320 )

Repayments of borrowings under debt agreements ( 1,882 ) ( 319 ) ( 864 )

Payment of deferred financing costs ( 45 ) — ( 4 )

Payment of capped call transactions ( 39 ) — —

Dividends paid ( 42 ) ( 43 ) ( 42 )

Repurchase of common stock ( 35 ) ( 12 ) — —

Other ( 2 ) ( 3 ) ( 3 )

3 unchanged sentences

Cash, cash equivalents and restricted cash at end of year $ 2 $ 5 $ —

Non-cash investing activities related to the Parent Company – Condensed Statements of Cash Flows for the year ended December 31, 2023 include a $ 318 million non-cash dividend in the form of an intercompany return of capital from Bread Financial Payments, Inc.

to the Parent Company.

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 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.

Non-cash investing and financing activities related to the Parent Company – Condensed Statements of Cash Flows for the year ended December 31, 2021 included our equity method investment in LVI upon spinoff, on November 5, 2021, which totaled $ 48 million.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Bread Financial Holdings, Inc.

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Gerspach, Jr.

KIMBROUGH Director February 28, 2023

/S/ JOYCE ST.

Director February 20, 2024

/S/ RAJESH NATARAJAN Director February 20, 2024

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures