Our partner base consists of large consumer-based businesses, including well-known brands such as (alphabetically) AAA, Academy Sports + Outdoors, Caesars, Michaels, 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 specialty apparel, sporting goods, health and beauty, travel and entertainment, jewelry, home goods, sporting goods and travel and entertainment.specialty apparel. We believe our comprehensive suite of payment, lending and saving solutions, along with our related marketing and data and analytics, offers us a significant competitive advantage with products relevant across 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. 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.

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

This Business Environment section provides an overview of our results of operations and financial position for the firstthird quarter of 2023, as well as our related outlook for the remainder of 2023 and certain of the uncertainties associated with achieving that outlook. This section should be read in conjunction with the other information included or incorporated by reference in this Form 10-Q, including “Consolidated Results of Operations”, “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” included herein, and in our 2022 Form 10-K and “Cautionary Note Regarding Forward-Looking Statements”,subsequent Quarterly Reports on Form 10-Q, which providesprovide further discussion of variances in our results of operations over the periods of comparison, along with other factors that could impact future results and the Company achieving its outlook. Unless otherwise specified, the discussion included herein is for the three months ended March 31,September 30, 2023, compared with the same period in the prior year.

For the quarter ended March 31,September 30, 2023, Credit sales were up 7%down 13% year-over-year to $7.4 billion.$6.7 billion, driven primarily by the sale of the BJ’s Wholesale Club (BJ’s) portfolio in the first quarter of this year, proactive and responsible tightening of our underwriting and credit line management and moderating consumer spending, partially offset by new brand partner growth. Average and End-of-period credit card and other loans increased 17% and 7%, respectively,remained flat year-over-year, driven by credit sales growth,the addition of new brand partner launches,partners as well as further moderation in the consumer payment rate;rate, offset by the decline in credit sales and the sale of the BJ's Wholesale Club (BJ's) portfolio in late-February 2023 also impacted these figures.BJ’s portfolio. Total interest income was up 25%7% from the firstthird quarter of 2022, resulting from higher average loan balances coupled withas a result of improved loan yields from rising prime interest rates.rates, partially offset by increased reversals of interest and fees resulting from higher gross losses. Net interest margin for the firstthird quarter of 2023 was 19.0%20.6%, relative to 19.4%19.9% for the firstthird quarter of 2022. Non-interest income increased $172$55 million, primarily related to higher cardholder and brand partner engagement initiatives in the $230 million Gain on portfolio sale, as well asprior year, increased merchant discount fees and interchange revenue offset by impacts fromearned in the current year, as well as lower payments under our retailer share arrangements due to lower credit sales and customer rewards.higher losses. Overall, Net interest and non-interest income for the quarter was $1.3$1.0 billion, up 40%5% versus the firstthird quarter of 2022 resulting from the Gain on portfolio sale, higher average loan balances, and improved loan yields.2022.

Provision for credit losses decreasedwas flat for the quarter ended March 31,September 30, 2023, relative to the firstthird quarter of 2022, due to a reserve release of $235 million in the current period related primarily to the sale of the BJ's portfolio, offset by higherincreased net principal losses of $342 million.$86 million, fully offset by a lower reserve build in the current year due to lower Credit card and other loan growth and a lower increase in the reserve rate. Our Allowance for credit losses decreased as of March 31,September 30, 2023, relative to December 31, 2022, due primarily to the reserve release from the sale of the BJ'sBJ’s portfolio. However, our reserve rate was higher, 12.3% versus 11.5% as of those same respective dates, as a result of the sale of the BJ’s portfolio with(with its higher than average credit quality, seasonality,quality) and softening economic indicators includingthe compounding effect of persistent inflation relative to wage growth, the increased cost of consumer debt, persistent inflation and the possibility of higher unemployment levels.levels and the potential impacts from the resumption of student loan repayments. The reserve rate remained flat from the second quarter of 2023 as we continue to maintain conservative economic scenario weightings in our credit reserve modeling. Consistent with the reserve rate impacts, relative to the fourth quarter of 2022, our Vantage credit risk score distribution mix adjusted downward from the fourth quarterprimarily as a result of the exit of the BJ’s portfolio and seasonality. Ourportfolio. Relative to the second quarter of 2023, our distribution mix reflects modest deterioration, driven by downward Vantage credit risk score migration from existing customers; although, the risk score distribution on new accounts was above the average for the portfolio. Overall, our percentage of Vantage 660+ cardholders remains above pre-pandemic levels given the strategic decisions we have made to diversify our prudent credit tightening actions and our more diversified product mix, and improve our credit mix, with our co-brand and proprietary card portfolioscards representing a larger proportionportion of our overall portfolio.

Total non-interest expenses increased 28%3% from the firstthird quarter of 2022. Employee compensation and benefit costs were drivenThe year-over-year increase was partially the result of higher by increased hiring, inclusive of accelerated digital and technology modernization-related hiring and customer care and collections staffing. Card and processing expenses, including fraud. We also had higher Employee compensation and benefits expenses due to increased hiring to support our investment in both technology and digital capabilities. These increases were higher,partially offset by a reduction in Marketing expenses related to decreased spending associated with direct-to-consumer (DTC) offerings, as well as decreased Depreciation and amortization due to lower amortization of developed technology. Relative to the second quarter of 2023, expenses declined 5%, driven by increasedlower fraud lossesexpenses and higher direct maildepreciation and statement volumes. Information processing and communications expenses were higher as a result of the transition of our credit card processing services and other software licensing expenses.amortization.

Our 2023 financial outlook remains unchangedhas been updated from what we provided in our 2022 Form 10-K, reflecting slowing sales growth as a result of our strategic and targeted credit tightening as well as moderating consumer spending, which we expect will put pressure on Credit card and other loan growth and the Net loss rate. We continue to closely monitor the macroeconomic pressures facing consumers, including persistent inflation pressures, high interest rates, the resumption of student loan repayments, and gas price volatility. We expect these economic pressures to remain throughout the rest of 2023. Our outlook also continues to assume a more challenging macroeconomic landscape. We are closely monitoring the impacts of persistent inflation on consumers and partners, which remain difficult to predict and therefore could have an impact on our 2023 outlook. We have observed a moderate shift toward non-discretionary spending with payment rates approaching pre-pandemic levels, and are expecting the unemployment rate to gradually move to the mid-to-upper 4% range by year-end 2023. Our outlook

Our outlook for growth in Average credit card and other loans in 2023 based onreflects our new and renewed brand partner announcements, visibility into our pipeline, ongoing strategic and targeted credit tightening actions, moderating consumer spending, and the current economic outlook, isoutlook. We expect full year 2023 Average credit card and other loans to grow in the mid-single digit ratelow-to-mid-single digits relative to 2022. We expect Total net interest and non-interest income growth for 2023, excluding the BJ’s Gain on portfolio sale, to be aligned withslightly above our growth in Average credit card and other loans;loans, with a full year 2023 Net interest margin expectedsimilar to be consistent with the 2022 full year rate of 19.2%.rate.

In 2023, as a resultwe expect an increase of ongoing investments in technology modernization, digital advancement, marketing, and product

Our 2023 updated financial outlook assumes a full year Net loss rate of approximatelyin the mid 7%, range, inclusive of impacts from the 2022 transition of our credit card processing services, our ongoing strategic and targeted credit tightening actions, moderating consumer spending, as well as continued pressure on consumers’the consumers ability to pay due to persistent inflationinflationary pressures. While we anticipate that our tighter underwriting and other macroeconomic factors, and consequentiallycredit line management should benefit future loss performance, these actions raise the Net loss rate in the near-term by lowering our 2023 outlook reflectsprojected loan balance which forms the denominator in the equation. We expect the fourth quarter Net loss rate to be approximately 8%. As noted above, our reserve rate increasingremained flat to 12.5%. Wethe second quarter of 2023 at 12.3% as we continue to closely monitor macroeconomic indicators and the Federal Reserve Board’s efforts to curb inflation. Specifically with regard to Net loss rate impacts within 2023, our financial outlook assumes elevated loss rates during the first half of 2023 due to the impacts from the 2022 transition ofmaintain conservative economic scenario weightings in our credit card processing services, then with lower Netreserve modeling. With our conservative model assumptions, we believe our loan loss rates in the second half of 2023, resulting in the full year Net loss rate of approximately 7%. Our Net interest margin is also impacted by gross credit losses, in this case by elevated levels of interest and fee reversals in the first half of 2023; in the second half of 2023 we anticipate lower levels of interest and fee reversals, resulting in our outlook for full year Net interestreserve provides a margin of 19.2%.protection in a more challenging macroeconomic environment.

In our 2023 financial outlook we also expect our full year normalized effective tax rate to remain in the range of 25% to 26%, with quarter-over-quarter variability due to timing of certain discrete items.

We look forwardIn addition, although we do not expect it to building uponhave an impact on our strong results2023 financial outlook, we continue to await a final rule from the Consumer Financial Protection Bureau (CFPB) regarding credit card late fees, which we anticipate will be published in the first quartercoming months. In anticipation of 2023 and will continuethe final rule being published, we are evaluating a number of strategies designed to executelimit the impact of the final rule on our strategic prioritiesbusiness, which may include increased annual percentage rates (APRs) and other fee-based pricing actions, certain underwriting adjustments, various changes in brand partner program economics, and continued product diversification strategies. While we cannot speculate on the exact timing or terms of the final rule, we expect that, absent a successful legal challenge, the rule will significantly reduce the safe harbor amount for late fees that we and other credit card issuers are authorized to build long-term valuecharge, which would have a significant impact on our business and results of operations for our stakeholders.

The following discussion provides commentary on the variances in our results of operations for the three and nine months ended March 31,September 30, 2023, compared with the same periodperiods in the prior year, as presented in the accompanying tables. This discussion should be read in conjunction with the discussion under “Business Environment”, above.

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, the success of our collection and recovery efforts, and more broadly, the general macroeconomic conditions.

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.

The following table presents the delinquency trends on our Credit card and other loans portfolio based on the principal balances outstanding as of March 31,September 30, 2023 and December 31, 2022:

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 modification of loans to borrowers experiencing financial difficulty (Loan Modifications).Loan Modification. For additional information, see Note 2 “Credit Card and Other Loans – Modified Credit Card Loans”, to theour unaudited Consolidated Financial Statements.

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. The following table presents our net principal losses for the periods specified:

We maintain a strong focus on liquidity and capital. Our funding, liquidity and capital policies are designed to ensure that our business has thesufficient liquidity and capital resources necessary to support our daily operations, our business growth, our credit ratings related to our secured financings, and meet our regulatory and policy requirements, including capital and leverage ratio requirements applicable to Comenity Bank (CB) and Comenity Capital bankBank (CCB) under Federal Deposit Insurance Corporation (FDIC) regulations, in a cost effective and prudent manner through both expected and unexpected market environments. We also monitor our Double Leverage Ratio, which reflects our Parent Company’s investment in its subsidiaries relative to its consolidated equity, and is often used by regulators and other stakeholders as a measure of the use of debt by a parent entity to fund its subsidiaries.

Our primary sources of liquidity include cash generated from operating activities, our Credit Agreement,bank credit facility, issuances of debt securities, including through our securitization programs, and deposits with the Banks, in addition to our ongoing efforts to renew and expand our various sources of liquidity. We aim to satisfy our financing needs with a diverse set of funding sources, and we seek to maintain diversity of funding sources by type of instrument, by tenor and by investor base, among other factors, which we believe will mitigate the impact of disruptions in any one type of instrument, tenor or investor.

Our primary uses of liquidity are for ongoingunderwriting Credit card and varied lending operations,other loans, scheduled payments of principal and interest on our debt, operational expenses, capital expenditures, including digital and product innovation and technology enhancements, stock repurchases and dividends.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges would depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors, and may be funded through the issuance of debt securities. The amounts involved may be material.

Because of the alternatives available to us, as discussed above, we believe our short-term and long-term sources of liquidity are adequate to fund not only our current operations, but also our near-term and long-term funding requirements including dividend payments, debt service obligations and repayment of debt maturities and other amounts that may ultimately be

paid in connection with contingencies. However, the adequacy of our liquidity could be impacted by various factors, including macroeconomic conditions and volatility in the financial and capital markets, limiting our access to or increasing our cost of capital, which could make capital unavailable, or available but on terms that are unfavorable to us. These factors could significantly reduce our financial flexibility and cause us to contract or not grow our business, which could have a material adverse effect on our results of operations and financial condition.

In early March 2023, in response to banking industry developments and increased financial sector volatility, we undertook enhanced daily monitoring of our liquidity and funding positions, and provided multiple daily updates to our Boards of

Our Credit Agreement is dated June 14, 2017, as amended,For additional information regarding our outstanding debt and matures July 1, 2024. Our Parent Company, as borrower,sources of liquidity, see Note 7, “Borrowings of Long-Term and certain of our non-Bank wholly-owned subsidiaries, as guarantors, are partyOther Debt” to our Credit Agreement, along with various agents and lenders, including domestic money center, regional and international banks. As of March 31, 2023, we had $531 million aggregate principal amount of term loans outstanding and a $750 million revolving line of credit under the Credit Agreement. As of March 31, 2023, all $750 million remained available for future borrowings under our revolving line of credit, as we had no borrowings outstanding thereunder.unaudited Consolidated Financial Statements.

On June 7, 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 covenantsinstitutions, 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 was repaid in full and terminated on June 13, 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 September 30, 2023 under the 2023 Credit Agreement.Agreement, we had $298 million aggregate principal amount of term loans outstanding and $275 million available for future borrowings under the Term Loan Facility, and all $700 million remained available for future borrowings under the Revolving Credit Facility. The proceeds from the Term Loan Facility may only 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.

We utilize a variety of deposit products to finance our operating activities, including funding for our non-securitized credit card and other loans, and to fund the securitization enhancement requirements of the Banks. We offer both DTC retail deposit products as well as deposits sourced through contractual arrangements with various financial counterparties (often referred to as wholesale, including brokered deposits). Across both our retail and wholesale deposits, the Banks offer various non-maturity deposit products that are generally redeemable on demand by the customer, and as such have no scheduled maturity date. The Banks also issue certificates of deposit with scheduled maturity dates ranging between April,October 2023 and March,September 2028, in denominations of at least $1,000, on which interest is paid either monthly or at maturity.

Overall, we continue to improve our funding mix through actions taken to grow our DTC deposits and reduce our Parent Company unsecured borrowings, while maintaining the flexibility of secured, unsecured, and wholesale funding. Typical seasonality of Creditcredit card and other loan balance paydownspay downs in the first quarter of 2023, combined with the sale of the BJ'sBJ’s portfolio in late February 2023, and efforts undertaken in the second quarter of 2023 to reduce our long-term unsecured debt, reduced our funding requirements by over $3$4 billion from year-end 2022. As a result, we opportunistically reduced our wholesale and brokered deposits and paid down a large portion of our secured conduit line balances, discussed further below.

We sell the majority of the credit card loans originated by the Banks to certain of our master trusts (the Trusts). These securitization programs are a principal vehicle through which we finance the Banks’ credit card loans. For this purpose, we

use a combination of public term asset-backed notes, and private conduit facilities (the Conduit Facilities) with a consortium of lenders, including domestic money center, regional and international banks.

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 first quarter ofnine months ended September 30, 2023, we made a number of amendments torenewed lender commitments under our Conduit Facilities inof $5.4 billion and extended the ordinary course of business. Invarious maturities to October 2024, February 2025 and September 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. Also in February 2023, in connection with the sale of the BJ'sBJ’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 same 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 easily pledge those assets in the future.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 March 31,September 30, 2023, total capacity under our Conduit Facilities was $5.4 billion, of which $3.0$2.5 billion had been drawn and included in Debt issued by consolidated variable interest entitiesVIEs in the Consolidated Balance Sheet. The following table shows the maturities of our borrowing capacity for the Trusts, as of September 30, 2023: