Table 4: Summary Financial Highlights – Continuing Operations

As of or for the Three Months Ended June 30,

As of or for the Six Months Ended June 30,


2022

2021

% Change


2022

2021

% Change
(Millions, except per share amounts and percentages)

Credit sales

$
8,140

$
7,401

10

$
15,028

$
13,445

12
PPNR⁽¹⁾

420

340

24

917

740

24
Average credit card and other loans

17,003

15,282

11

16,827

15,533

8
End-of-period credit card and other loans

17,769

15,724

13

17,769

15,724

13
End-of-period direct-to-consumer deposits

4,191

2,398

75

4,191

2,398

75

Return on average assets⁽²⁾

0.2
%

4.8
%
(4.6)

2.1
%

4.9
%
(2.8)
Return on average equity⁽³⁾

2.2
%

56.4
%
(54.2)

19.9
%

61.0
%
(41.1)

Net interest margin⁽⁴⁾

18.6
%

17.3
%
1.3

19.0
%

17.5
%
1.5
Loan yield⁽⁵⁾

25.0
%

23.9
%
1.1

25.3
%

23.9
%
1.4

Efficiency ratio⁽⁶⁾

52.9
%

55.5
%
(2.6)

49.5
%

52.7
%
(3.2)

Tangible common equity / tangible assets ratio (TCE/TA)⁽⁷⁾

7.5
%

6.4
%
1.1

7.5
%

6.4
%
1.1
Tangible book value per common share⁽⁸⁾

$
31.75

$
27.12

17

$
31.75

$
27.12

17
Cash dividend per common share

$
0.21

$
0.21

—

$
0.42

$
0.42

—

Delinquency rate

4.4
%

3.3
%
1.1

4.4
%

3.3
%
1.1
Net loss rate ⁽⁹⁾

5.6
%

5.1
%
0.5

5.2
%

5.0
%
0.2
Reserve rate

11.2
%

10.4
%
0.8

11.2
%

10.4
%
0.8

~~(1)~~

~~PPNR represents increasing/decreasing Income from continuing operations before income taxes by the net provision/release in Provision for credit losses. See also~~ ~~Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures~~.

~~(2)~~

~~Return on average assets represents annualized Income from continuing operations divided by average Total assets.~~

~~(3)~~

~~Return on average equity represents annualized Income from continuing operations divided by average Total stockholders’ equity.~~

~~(4)~~

~~Net interest margin represents annualized Net interest income divided by average Total interest-earning assets. See also~~ ~~Table 5: Net Interest Margin~~.

~~(5)~~

~~Loan yield represents annualized Interest and fees on loans divided by Average credit card and other loans.~~

~~(6)~~

~~Efficiency ratio represents Total non-interest expenses divided by Total net interest and non-interest income.~~

~~(7)~~

Tangible common equity (TCE) represents Total stockholders’ equity reduced by Goodwill and intangible assets, net. Tangible assets (TA) represents Total assets reduced by Goodwill and intangible assets, net. TCE/TA is a non-GAAP financial measure. See also ~~Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures~~.

~~(8)~~

~~Tangible book value per common share represents TCE divided by shares outstanding, and is a non-GAAP financial measure. See also~~ ~~Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures~~.

~~(9)~~

The three and six months ended June 30, 2022 Net loss rates include 30 basis point and 15 basis point increases, respectively, from the effects of the purchase of previously written-off accounts that were sold to a third-party debt collection agency; this matter remains subject to an ongoing legal dispute with the debt collection agency.


	As of or for the three months ended June 30,							As of or for the six months ended June 30,
	2023			2022			% Change	2023			2022			% Change
(Millions, except per share amounts and percentages)
Credit sales	$	7,057		$	8,140		(13)	$	14,430		$	15,028		(4)
PPNR (1)	422			420			—	1,166			917			27
Average credit card and other loans	17,652			17,003			4	18,528			16,827			10
End-of-period credit card and other loans	17,962			17,769			1	17,962			17,769			1
End-of-period direct-to-consumer (retail) deposits	5,993			4,191			43	5,993			4,191			43

Return on average assets (2)	1.2		%	0.2		%	1.0	4.6		%	2.1		%	2.5
Return on average equity (3)	9.4		%	2.2		%	7.2	39.7		%	19.9		%	19.8

Net interest margin (4)	18.7		%	18.6		%	0.1	18.8		%	19.0		%	(0.2)
Loan yield (5)	26.1		%	25.0		%	1.1	26.4		%	25.3		%	1.1

Efficiency ratio (6)	55.7		%	52.9		%	2.8	47.9		%	49.5		%	(1.6)

Tangible common equity / tangible assets ratio (TCE/TA) (7)	9.4		%	7.5		%	1.9	9.4		%	7.5		%	1.9
Tangible book value per common share (8)	$	38.99		$	31.75		23	$	38.99		$	31.75		23
Cash dividend per common share	$	0.21		$	0.21		—	$	0.42		$	0.42		—

Payment rate (9)	15.0		%	15.3		%	(0.3)	15.0		%	15.3		%	(0.3)

Delinquency rate (10)	5.5		%	4.4		%	1.1	5.5		%	4.4		%	1.1
Net loss rate (10)	8.0		%	5.6		%	2.4	7.5		%	5.2		%	2.3
Reserve rate	12.3		%	11.2		%	1.1	12.3		%	11.2		%	1.1

(1)

~~Table of Contents~~PPNR is calculated by increasing/decreasing Income from continuing operations before income taxes by the net provision/release in Provision for credit losses. PPNR is a non-GAAP financial measure. See “Non-GAAP Financial Measures” and

~~Table 5: Net Interest Margin~~

Three Months Ended June 30, 2022

Three Months Ended June 30, 2021


Average Balance

Interest Income / Expense

Average Yield / Rate


Average Balance

Interest Income / Expense

Average Yield / Rate

(Millions, except percentages)

Cash and investment securities

$
3,975

$
9

0.84
%

$
3,498

$
2

0.19
%
Credit card and other loans

17,003

1,064

25.04
%

15,282

913

23.90
%
Total interest-earning assets

20,978

1,073

20.45
%

18,780

915

19.48
%

Direct-to-consumer (retail) deposits

3,865

10

1.07
%

2,255

5

0.98
%
Wholesale deposits

6,994

31

1.78
%

7,580

38

2.00
%
Interest-bearing deposits

10,859

41

1.53
%

9,835

43

1.76
%

Secured borrowings

5,331

28

2.11
%

4,478

31

2.72
%
Unsecured borrowings

1,978

26

5.15
%

2,805

26

3.74
%
Interest-bearing borrowings

7,309

54

2.93
%

7,283

57

3.11
%
Total interest-bearing liabilities

18,168

95

2.09
%

17,118

100

2.34
%

Net interest income

$
978

$
815

Net interest margin ⁽¹⁾

18.6
%

17.3
%

Six Months Ended June 30, 2022

Six Months Ended June 30, 2021


Average Balance

Interest Income / Expense

Average Yield / Rate


Average Balance

Interest Income / Expense

Average Yield / Rate

(Millions, except percentages)

Cash and investment securities

$
3,884

$
11

0.56
%

$
3,302

$
3

0.20
%
Credit card and other loans

16,827

2,130

25.32
%

15,533

1,854

23.87
%
Total interest-earning assets

20,711

2,141

20.67
%

18,835

1,857

19.72
%

Direct-to-consumer (retail) deposits

3,572

17

0.94
%

2,070

11

1.08
%
Wholesale deposits

7,258

59

1.62
%

7,811

79

2.03
%
Interest-bearing deposits

10,830

76

1.39
%

9,881

90

1.83
%

Secured borrowings

5,162

48

1.86
%

4,550

64

2.82
%
Unsecured borrowings

1,991

50

5.06
%

2,817

53

3.73
%
Interest-bearing borrowings

7,153

98

2.75
%

7,367

117

3.17
%
Total interest-bearing liabilities

17,983

174

1.93
%

17,248

207

2.40
%

Net interest income

$
1,967

$
1,650

Net interest margin ⁽¹⁾

19.0
%

17.5
%

~~(1)~~

~~Net interest margin represents annualized Net interest income divided by average Total interest-earning assets.~~

~~Table of Contents~~

Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures

As of or for the Three Months Ended June 30,

As of or for the Six Months Ended June 30,


2022

2021

% Change


2022

2021

% Change
(Millions, except percentages)

Pretax pre-provision earnings (PPNR)

Income from continuing operations before income taxes

$
16

$
354

(95)

$
319

$
721

(56)
Provision for credit losses

404

(14)

*

598

19

*
Pretax pre-provision earnings (PPNR)

$
420

$
340

24

$
917

$
740

24

Tangible common equity (TCE)

Total stockholders' equity

2,275

2,048

11

2,275

2,048

11
Less: Goodwill and intangible assets, net

(694)

(699)

(1)

(694)

(699)

(1)
Tangible common equity (TCE)

$
1,581

$
1,349

17

$
1,581

$
1,349

17

Tangible assets (TA)

Total assets

21,811

21,812

—

21,811

21,812

—
Less: Goodwill and intangible assets, net

(694)

(699)

(1)

(694)

(699)

(1)
Tangible assets (TA)

$
21,117

$
21,113

—

$
21,117

$
21,113

—

(2)Return on average assets represents annualized Income from continuing operations divided by average Total assets.

(3)Return on average equity represents annualized Income from continuing operations divided by average Total stockholders’ equity.

(4)Net interest margin represents annualized Net interest income divided by average Total interest-earning assets. See also Table 5: Net Interest Margin.

Table of Contents

(5)Loan yield represents annualized Interest and fees on loans divided by Average credit card and other loans.

(6)Efficiency ratio represents Total non-interest expenses divided by Total net interest and non-interest income.

(7)Tangible common equity (TCE) represents Total stockholders’ equity reduced by Goodwill and intangible assets, net. Tangible assets (TA) represents Total assets reduced by Goodwill and intangible assets, net. TCE/TA is a non-GAAP financial measure. See “Non-GAAP Financial Measures” and Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures.

(8)Tangible book value per common share represents TCE divided by shares outstanding and is a non-GAAP financial measure. See “Non-GAAP Financial Measures” and Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures.

(9)Payment rate represents consumer payments during the last month of the period, divided by the beginning-of-month Credit card and other loans, including held for sale in applicable periods.

(10)Delinquency rate represents outstanding balances that are contractually delinquent (i.e., balances greater than 30 days past due) as of the end of the period, divided by the outstanding principal amount of Credit cards and other loans as of the same period-end.Net loss rate, an annualized rate, represents net principal losses for the period divided by the Average credit card and other loans for the same period, with that Average being the average balance of the loans at the beginning and end of each month, averaged over the period. Net loss rate for the three and six months ended June 30, 2023 were impacted by the transition of our credit card processing services.

Table 5: Net Interest Margin


	Three Months Ended June 30, 2023							Three Months Ended June 30, 2022
	Average Balance		Interest Income / Expense			Average Yield / Rate		Average Balance		Interest Income / Expense			Average Yield / Rate
(Millions, except percentages)
Cash and investment securities	$	3,613	$	44		4.88	%	$	3,975	$	9		0.84	%
Credit card and other loans	17,652		1,153			26.12	%	17,003		1,064			25.04	%
Total interest-earning assets	21,265		1,197			22.51	%	20,978		1,073			20.45	%

Direct-to-consumer (retail) deposits	5,824		58			4.00	%	3,865		10			1.07	%
Wholesale deposits	7,250		69			3.81	%	6,994		31			1.78	%
Interest-bearing deposits	13,074		127			3.90	%	10,859		41			1.53	%

Secured borrowings	2,887		49			6.65	%	5,331		29			2.11	%
Unsecured borrowings	1,801		29			6.49	%	1,978		25			5.15	%
Interest-bearing borrowings	4,688		78			6.59	%	7,309		54			2.93	%
Total interest-bearing liabilities	17,762		205			4.61	%	18,168		95			2.09	%

Net interest income			$	992						$	978

Net interest margin (1)			18.7		%					18.6		%

Table of Contents


	Six Months Ended June 30, 2023							Six Months Ended June 30, 2022
	Average Balance		Interest Income / Expense			Average Yield / Rate		Average Balance		Interest Income / Expense			Average Yield / Rate
(Millions, except percentages)
Cash and investment securities	$	3,851	$	90		4.68	%	$	3,884	$	11		0.56	%
Credit card and other loans	18,528		2,441			26.35	%	16,827		2,130			25.32	%
Total interest-earning assets	22,379		2,531			22.62	%	20,711		2,141			20.67	%

Direct-to-consumer (retail) deposits	5,691		106			3.74	%	3,572		17			0.94	%
Wholesale deposits	7,558		138			3.64	%	7,258		59			1.62	%
Interest-bearing deposits	13,249		244			3.68	%	10,830		76			1.39	%

Secured borrowings	3,727		118			6.37	%	5,162		48			1.86	%
Unsecured borrowings	1,857		60			6.44	%	1,991		50			5.06	%
Interest-bearing borrowings	5,584		178			6.39	%	7,153		98			2.75	%
Total interest-bearing liabilities	18,833		422			4.49	%	17,983		174			1.93	%

Net interest income			$	2,109						$	1,967

Net interest margin (1)			18.8		%					19.0		%

*(1)Net interest margin represents annualized Net interest income divided by average Total interest-earning assets.

Table of Contents

Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures


	As of or for the three months ended June 30,					As of or for the six months ended June 30,
	2023		2022		% Change	2023		2022		% Change
(Millions, except percentages)
Pretax pre-provision earnings (PPNR)
Income from continuing operations before income taxes	$	86	$	16	nm	$	724	$	319	nm
Provision for credit losses	336		404		(17)	442		598		(26)
Pretax pre-provision earnings (PPNR)	$	422	$	420	—	$	1,166	$	917	27
Less: Gain on portfolio sale	$	—	$	—	—	$	(230)	$	—	nm
Pretax pre-provision earnings less gain on portfolio sale	$	422	$	420	—	$	936	$	917	2

Tangible common equity (TCE)
Total stockholders' equity	2,736		2,275		20	2,736		2,275		20
Less: Goodwill and intangible assets, net	(780)		(694)		12	(780)		(694)		12
Tangible common equity (TCE)	$	1,956	$	1,581	24	$	1,956	$	1,581	24

Tangible assets (TA)
Total assets	21,609		21,811		(1)	21,609		21,811		(1)
Less: Goodwill and intangible assets, net	(780)		(694)		12	(780)		(694)		12
Tangible assets (TA)	$	20,829	$	21,117	(1)	$	20,829	$	21,117	(1)

(nm) Not meaningful, denoting a variance of 100 percent or more.

ASSET QUALITY

Given the nature of our business, the credit quality of our assets, in particular our ~~credit~~Credit card and other loans, ~~(primarily installment 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 ~~two metrics – delinquency~~Delinquency rates and ~~net~~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.

~~Delinquencies~~:

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.

Table of Contents

The following table presents the delinquency trends on our ~~credit~~Credit card and other loans portfolio based on the principal balances outstanding as of June 30, ~~2022~~2023 and December 31, ~~2021:~~

2022:

Table 7: Delinquency Trends on Credit Card and Other Loans

June 30,

% of

December 31,

% of


2022

Total

2021

Total

(Millions, except percentages)

Credit card and other loans outstanding ─ principal

$
16,825

100.0
%
$
16,590

100.0
%
Outstanding balances contractually delinquent

31 to 60 days

$
262

1.6
%
$
219

1.3
%
61 to 90 days

169

1.0

147

0.9

91 or more days

306

1.8

281

1.7

Total

$
737

4.4
%
$
647

3.9
%


	June 30, 2023		% of Total		December 31, 2022		% of Total
(Millions, except percentages)
Credit card and other loans outstanding ─ principal	$	16,728	100.0	%	$	20,107	100.0	%
Outstanding balances contractually delinquent
31 to 60 days	$	284	1.7	%	$	366	1.8	%
61 to 90 days	219		1.3		231		1.2
91 or more days	423		2.5		515		2.6
Total	$	926	5.5	%	$	1,112	5.5	%

As of December 31, 2022 the Outstanding balances contractually delinquent, and the related % of Total (i.e., the Delinquency rate), were impacted by the transition of our credit card processing services.

~~Table of Contents~~

As part of our collections strategy, we may offer temporary, short term (six-months or less) ~~loan modifications~~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 ~~modification~~ 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 ~~loan modification~~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 ~~troubled debt restructuring.~~Loan Modification. For additional information, see Note 2 “Credit Card and Other Loans – Modified Credit Card ~~Loans,”~~Loans” to our unaudited ~~Condensed~~ Consolidated Financial Statements.

Net Principal ~~Losses~~: Losses: 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). Charged-off 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. ~~Installment~~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~~Credit card and other loans, including unpaid interest and fees, as applicable, are charged-off in each month subsequent to 60 days after receipt of the notification of the bankruptcy or death, but in any case no ~~case longer~~later than 180 days past due for ~~credit~~Credit card loans and 120 days past due for ~~installment~~BNPL loans.

Table of Contents

The net principal loss rate is calculated by dividing net principal losses for the period by the ~~average~~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:

Table 8: Net Principal Losses on Credit Card and Other Loans


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
(Millions, except percentages)
Average credit card and other loans	$	17,652		$	17,003		$	18,528		$	16,827
Net principal losses	351			238			694			438
Net principal losses as a percentage of average credit card and other loans (1)	8.0		%	5.6		%	7.5		%	5.2		%

(1)

Three Months Ended June 30,

Six Months Ended June 30,


2022

2021

2022

2021

(Millions, except percentages)

Average credit card and other loans

$
17,003

$
15,282

$
16,827

$
15,533

Net principal losses

238

194

438

392

Net principal losses as a percentage of average credit card and other loans

5.6
%

5.1
%

5.2
%

5.0
%

Net principal losses as a percentage of Average credit card and other loans for the three and six months ended June 30, 2023 were impacted by the transition of our credit card processing services.

CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES

Overview

We maintain a strong focus on liquidity and capital. Our funding, liquidity and capital policies are designed to ensure that our business has ~~the~~sufficient 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~~including capital and leverage ratio requirements applicable to Comenity Bank (CB) and Comenity Capital Bank ~~(collectively referred to herein as the Banks)~~(CCB) under Federal Deposit Insurance Corporation (FDIC) ~~regulations)~~regulations, in a cost effective and prudent manner through both expected and unexpected market environments.

Our primary sources of liquidity include cash generated from operating activities, our ~~Credit Agreement and~~bank credit facility, issuances of debt securities, including through our securitization programs, and deposits ~~issued by~~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 ~~ongoing~~underwriting 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, and dividends.

We may from time to time 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.

We will also need additional financing in the future to repay or refinance our existing debt at or prior to maturity, and to fund our growth, which may include issuance of additional debt, equity or convertible securities or engaging in other capital markets or financing transactions. Given the maturities of certain of our outstanding debt instruments and the macroeconomic outlook, it is possible that we will be required to repay, extend or refinance some or all of our maturing debt in volatile and/or unfavorable markets.

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

~~Table of Contents~~

various factors, including macroeconomic conditions and volatility in the financial and capital markets, limiting our access to or increasing

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our cost of capital, which could make capital unavailable, or ~~unavailable~~available but on terms ~~acceptable~~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 Directors, at both the Bread Financial and Bank-levels, and regulators. The financial sector volatility experienced in March 2023 has since subsided; nevertheless, we continue enhanced monitoring of our liquidity and funding positions. We maintain a significant majority of our liquidity portfolio on deposit within the Federal Reserve banking system, and we also have a small investment securities portfolio, classified as available-for-sale, which we hold in relation to the Community Reinvestment Act. We do not have any investment securities classified as held-to-maturity. Our DTC deposit balances have continued to grow through the second quarter of 2023, relative to both the fourth quarter of 2022 and the first quarter of 2023.

Funding Sources

~~Credit Agreement~~

~~As of~~

During the quarter ended June 30, ~~2022,~~2023 we ~~had $607 million~~engaged in ~~aggregate principal amount~~a number of financing transactions, including entering into a new credit agreement, repaying in full and terminating our prior credit agreement and consummating certain debt capital markets transactions, including an offering of convertible senior notes, a tender offer to repurchase certain outstanding senior notes and an offering of asset-backed term ~~loans~~notes through one of our securitization trusts. Each of these transactions, as well as other matters relating to our liquidity and capital resources during the quarter ended June 30, 2023, are described in more detail below.

For additional information regarding our outstanding ~~under~~debt and sources of liquidity, see Note 7, “Borrowings of Long-Term and Other Debt” to our ~~Credit Agreement, as amended, and a $750 million revolving line~~unaudited Consolidated Financial Statements.

Certain of ~~credit under which we had no amounts drawn.~~

~~The Credit Agreement includes~~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 ~~under the Credit Agreement~~ may be accelerated and become payable, and, with respect to our credit agreement, the associated commitments may be terminated. As of June 30, ~~2022,~~2023, we were in compliance with all such covenants.

Credit Agreement

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 ~~covenants~~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 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 June 30, 2023 under the 2023 Credit ~~Agreement.~~Agreement, we had $300 million aggregate principal amount of term loans outstanding and therefore $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.

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4.25% Convertible Senior Notes Due 2028

On June 13, 2023, we issued $316 million aggregate principal amount of 4.25% Convertible Senior Notes due 2028 (the Convertible Notes). The Convertible Notes were issued pursuant to an indenture dated as of June 13, 2023, among Parent Company, as issuer, certain of our domestic subsidiaries, as guarantors, and U.S. Bank Trust Company, National Association, as trustee. 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.

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 51st 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. 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.

Tender Offer for 4.750% Senior Notes Due 2024

Concurrently with the launch of the Convertible Notes offering, we commenced a cash tender offer (the Tender Offer) for any and all of the $850 million in aggregate principal amount of our outstanding 4.750% Senior Notes due 2024 (the 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. The Tender Offer expired on June 14, 2023, with the holders of $565 million in aggregate principal amount of the Senior Notes due 2024 validly tendering pursuant to the Tender Offer. The remaining $285 million of Senior Notes due 2024 will mature on December 15, 2024, subject to earlier repurchase or redemption. Following the expiration of the Tender Offer, $285 million in the aggregate principal amount of the Senior Notes due 2024 remained outstanding as of June 30, 2023.

In summary, and to provide context for our use of proceeds from the above financing transactions, in connection with entry into the 2023 Credit Agreement and the completion of our Convertible Notes offering, we used approximately $616 million in funds from those transactions, together with $500 million in dividends from the Banks and other available cash on hand, to (i) fully repay the $531 million in term loans outstanding under the 2017 Credit Agreement, (ii) repurchase $565 million aggregate principal amount of Senior Notes due 2024 through the Tender Offer, (iii) enter into the Capped Call transactions in connection with the Convertible Notes offering, and (iv) pay $38 million in associated debt issuance costs and other fees and expenses.

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Deposits

We utilize a variety of deposit products to finance our operating activities, including as funding for our non-securitized credit card and other loans, and to fund the securitization enhancement requirements of the Banks. We offer both ~~direct-to-consumer~~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~~date. The Banks also issue certificates of deposit with scheduled maturity dates ranging between July ~~2022~~2023 and June ~~2027,~~2028, in denominations of at least $1,000, on which interest is paid either monthly or at maturity.

The following table summarizes our retail and wholesale deposit products as of June 30, 2023 and December 31, 2022, by type and associated ~~attributes, as~~attributes:

Table 9: Deposits


	June 30, 2023			December 31, 2022
(Millions, except percentages)
Deposits
Direct-to-consumer (retail)	$	5,993		$	5,466
Wholesale	7,027			8,321
Total deposits	$	13,020		$	13,787

Non-maturity deposit products
Non-maturity deposits	$	6,570		$	6,736
Interest rate range	0.70% - 5.38%			0.70% - 4.70%
Weighted-average interest rate	4.43		%	3.57		%

Certificates of deposit
Certificates of deposit	$	6,450		$	7,051
Interest rate range	0.50% - 5.45%			0.40% - 4.95%
Weighted-average interest rate	3.83		%	3.11		%

As of June 30, ~~2022~~2023 and December 31, ~~2021, respectively:~~

2022, deposits that exceeded applicable FDIC insurance limits, which are generally $250,000 per depositor, per insured bank, were estimated to be $490 million (4% of Total deposits) and $719 million (5% of Total deposits), respectively. The measurement of estimated uninsured deposits aligns with regulatory guidelines.

~~Table 9: Deposits~~

June 30,

December 31,

2022

2021
(Millions, except percentages)

Deposits

Direct-to-consumer (retail)

$
4,191

$
3,180
Wholesale

6,808

7,847

Non-maturity deposit products

Non-maturity deposits

$
6,360

$
5,586
Interest rate range

0.70% – 3.50%

0.05% – 3.50%
Weighted-average interest rate

1.66%

0.68%

Certificates of deposit

Certificates of deposit

$
4,639

$
5,441
Interest rate range

0.25% – 3.75%

0.20% – 3.75%
Weighted-average interest rate

2.27%

1.91%

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 credit card and other loan balance pay downs in the first quarter of 2023, combined with the sale of the BJ'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 $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.

Conduit Facilities and Securitization Programs ~~and Conduit Facilities~~

We sell the majority of the credit card loans originated by the Banks to certain of our master trusts (the Trusts). These securitization programs are a principal vehicle through which we finance the Banks’ credit card loans. WeFor this purpose, we use a combination of public term asset-backed notes, and private conduit facilities ~~for this purpose. During the six months ended June 30, 2022, $962 million~~(the Conduit Facilities) with a consortium of ~~asset-backed term notes matured~~lenders, including domestic money center, regional and ~~were repaid,~~international banks.

Table of ~~which $43 million were previously retained by us and therefore eliminated from the Consolidated Balance Sheets.~~

Contents

As of ~~June 30,~~December 31, 2022, total capacity under our Conduit Facilities was ~~$5.5~~$6.5 billion, of which ~~$4.8~~$6.1 billion had been drawn down and was included in Debt issued by consolidated variable interest entities (VIEs) in the Consolidated Balance Sheet.

~~Table~~ 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 ~~Contents~~

~~April 2022,~~the applicable Trust did not change, including the Trust assets, providing for the option to pledge those assets in the future. In June 2023, 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 a portion of 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~~October 2023, and ~~extending~~another portion of the maturity to ~~July 2023.~~

October 2024.

As of June 30, ~~2022,~~2023, total capacity under our Conduit Facilities was $5.2 billion, of which $3.0 billion had been drawn and included in Debt issued by consolidated VIEs in the Consolidated Balance Sheet. The following table shows the maturities of our borrowing capacity for the Trusts, as of June 30, 2023:

Table 10: Conduit Borrowing Capacity


	2023	2024	Thereafter	Total
(Millions)
Conduit facilities (1)	100	2,825	2,250	5,175

(1)Total amounts do not include $1.1 billion of debt issued by the Trusts, which was retained by us as a credit enhancement and therefore has been eliminated from the Total.

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.

As of June 30, 2023, we had approximately ~~$12.4~~$12.1 billion of securitized credit card loans. Securitizations require credit enhancements in the form of cash, spread deposits, additional loans and subordinated classes. The credit enhancement is principally based on the outstanding balances of the series issued by the Trusts and by the performance of the credit card loans in the Trusts.

~~The following table shows the maturities of borrowing commitments as of June 30, 2022, for the Trusts by year:~~

~~Table 10: Borrowing Commitment Maturities~~

2022

2023

Thereafter

Total
(Millions)

Fixed rate asset-backed term note securities

$
653

$
—

$
—

$
653
Conduit facilities ⁽¹⁾

—

5,525

—

5,525
Total ⁽²⁾

$
653

$
5,525

$
—

$
6,178

~~(1)~~

~~Amount represents borrowing capacity, not outstanding borrowings.~~

~~(2)~~

~~Total amounts do not include $1.8 billion of debt issued by the Trusts, which was retained by us as a credit enhancement and therefore has been eliminated from the Total.~~

Early amortization events as defined within each asset-backed securitization transaction are generally driven by asset performance. We do not believe it is reasonably likely that an early amortization event will occur due to asset performance. However, if an early amortization event were declared for a Trust, the trustee of ~~that~~the particular ~~trust~~Trust would retain the interest in the loans along with the excess spread that would otherwise be paid to our Bank subsidiary until the investors were fully repaid. The occurrence of an early amortization event would significantly limit or negate our ability to securitize additional credit card loans.

We have secured and continue to secure the necessary commitments to fund our credit card and other loans. However, certain of these commitments are short-term in nature and subject to renewal. There is no guarantee that these funding sources, when they mature, will be renewed on similar terms, or at all, as they are dependent on the availability of the asset-backed securitization and deposit markets at the time.

Regulation RR (Credit Risk Retention) adopted by the FDIC, the SEC, the Federal Reserve Board and certain other federal regulators mandates a minimum five percent risk retention requirement for securitizations. Such risk retention requirements

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may limit our liquidity by restricting the amount of asset-backed securities we are able to issue or affecting the timing of future issuances of asset-backed securities. We satisfy such risk retention requirements by maintaining a seller’s interest calculated in accordance with Regulation RR.

Stock Repurchase Programs

~~On February 28, 2022,~~

During the ~~Company’s~~six months ended June 30, 2023, our Board of Directors did not approve any new stock repurchase programs, and, except as disclosed in Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of this report, we did not repurchase any shares of outstanding common stock during the period.

Subsequent to the end of the second quarter of 2023, on July 27, 2023, our Board of Directors approved a stock repurchase program to acquire up to ~~200,000~~$35 million in shares of ~~the Company’s~~our outstanding common stock in the open market during the ~~one-year~~ period ending on ~~February 28,~~December 31, 2023. AsThe rationale for this repurchase program, and the amount thereof, is to offset the impact of ~~June 30, 2022,~~dilution associated with issuances of employee restricted stock units, with the ~~Company had repurchased all 200,000~~objective of reducing the Company's weighted average diluted share count to approximately 50 million shares for the second half of ~~its common stock available under this program for an aggregate of $12 million. Following their repurchase, these 200,000 shares ceased~~2023, subject to ~~be outstanding shares of common stock~~current estimates and ~~are now treated as authorized but unissued shares of common stock.~~

assumptions.

Dividends

~~Dividends~~

During the three and six months ended June 30, ~~2022,~~2023, we paid $11 million and ~~$22~~$21 million, respectively, in dividends to holders of our ~~shareholders of~~ common stock. On July ~~28, 2022,~~27, 2023, our Board of Directors declared a quarterly cash dividend of $0.21 per share on our common stock, payable on September ~~16, 2022,~~15, 2023, to stockholders of record at the close of business on August ~~12, 2022.~~11, 2023.

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Contractual Obligations

In the normal course of business, we enter into various contractual obligations that may require future cash payments, the vast majority of which relate to deposits, debt issued by consolidated VIEs, long-term and other debt and operating leases.

We believe that we will have access to sufficient resources to meet these commitments.

Cash Flows

The table below summarizes our cash flow activity for the periods indicated, followed by a discussion of the variance drivers impacting our Operating, Investing and Financing ~~activities, for the six months ended June 30, 2022 compared with the same period in the prior year.~~

activities.

Table 11: Cash Flows


	Six Months Ended June 30,
	2023		2022
(Millions)
Total cash provided by (used in)
Operating activities	$	741	$	743
Investing activities	2,860		(897)
Financing activities	(4,177)		(72)

Net (decrease) increase in cash, cash equivalents and restricted cash	$	(576)	$	(226)

Six Months Ended June 30,


2022

2021

(Millions)

Total cash provided by (used in)

Operating activities

$
743

$
733

Investing activities

(897)

535

Financing activities

(72)

(1,365)

Effect of foreign currency exchange rates

—

1

Net decrease in cash, cash equivalents and restricted cash

$
(226)

$
(96)

Cash Flows from Operating Activities primarily include net income adjusted for (i) non-cash items included in net income, such as provision for credit losses, depreciation and amortization, deferred taxes and other non-cash items, and (ii) changes in the balances of operating assets and liabilities, which can fluctuate in the normal course of business due to the amount and timing of payments. We generated cash flows from operating activities of ~~$743~~$741 million and ~~$733~~$743 million for the six months ended June 30, 2023 and 2022, ~~and 2021, respectively. In~~respectively. For the ~~first half of 2022,~~six months ended June 30, 2023, the net cash provided by operating activities was primarily driven by cash generated from net income for the period after adjusting for the ~~provision~~Provision for credit losses and the Gain on portfolio sale. For the six months ended June 30, 2022, the net cash provided by operating

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activities was primarily driven by cash generated from net income for the period after adjusting for the Provision for credit losses, partially offset by a decrease in accounts payable and other liabilities. ~~In the first half of 2021, the net cash provided by operating activities was primarily driven by cash generated from net income.~~

Cash Flows from Investing Activities primarily include changes in ~~credit~~Credit card and other loans. Cash provided by investing activities was $2,860 million for the six months ended June 30, 2023 and cash used in investing activities was $897 million for the six months ended June 30, ~~2022, and~~2022. For the six months ended June 30, 2023, the net cash provided by investing activities was ~~$535 million for~~primarily due to the sale of the BJ's portfolio and the paydown of Credit card and other loans. For the six months ended June 30, ~~2021. In the first half of~~ 2022, the net cash used in investing activities was primarily due to growth in credit sales and the consequential growth in Credit card and other loans, as well as the acquisition of a credit card loan portfolio. ~~In the first half of 2021, the net cash provided by investing activities was due to an increase in payment rates that benefitted from government economic stimulus programs~~

Cash Flows from Financing Activities primarily include changes in deposits and long-term debt. Cash used in financing activities was ~~$72~~$4,177 million and ~~$1,365~~$72 million for the six months ended June 30, 2023 and 2022, respectively. For the six months ended June 30, 2023, the net cash used in financing activities was primarily driven by net repayments of debt issued by consolidated variable interest entities (securitizations) and ~~2021, respectively.~~ Inunsecured borrowings, as well as and lower deposits. For the ~~first half of~~six months ended June 30, 2022, the net cash used in financing activities was primarily driven by net repayments of unsecured borrowings. ~~In the first half of 2021, the net cash used in financing activities was driven by net repayments of asset-backed term notes (securitizations), partially offset by net increases in deposits.~~

INFLATION AND SEASONALITY

Although we cannot precisely determine the impact of inflation on our operations, we ~~do not believe, at this time, that we~~ have ~~been significantly affected by inflation. For the most part we have relied~~generally sought to rely on operating efficiencies from scale, technology modernization and digital advancement, and expansion in lower cost jurisdictions in(in select ~~circumstances, as well as decreases in technology and communication costs,~~circumstances) to offset increased costs of employee compensation and other operating ~~expenses.~~expenses impacted by inflation. We also recognize that a customer’s ability and willingness to repay us ~~can be~~has been negatively impacted by factors such as inflation, which ~~may result~~results in ~~greater~~higher delinquencies that could lead to ~~greater~~increased credit losses, as reflected in our increased Allowance for credit losses. If the efforts to control inflation in the U.S. and globally are not successful and inflationary pressures continue to persist, they could magnify the slowdown in the domestic and global economies and increase the risk of a recession, which may adversely impact our business, results of operations

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and financial condition. ~~See Item 1A “Risk Factors” in our 2021 Form 10-K and other filings with the SEC for further information on the risks of inflation on our Company.~~

With respect to seasonality, our revenues, earnings and cash flows are affected by increased consumer spending patterns leading up to and including the holiday shopping period in the fourth quarter and, to a lesser extent, during the first quarter as ~~credit~~Credit card and other loans are paid down.

LEGISLATIVE AND REGULATORY MATTERS

~~Comenity Bank~~

CB is subject to various regulatory capital requirements administered by the State of Delaware and the FDIC. ~~Comenity Capital Bank~~CCB is also subject to various regulatory capital requirements administered by the FDIC, as well as the State of Utah. Failure to meet minimum capital requirements can trigger certain mandatory and possibly additional discretionary actions by our regulators. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, both Banks must meet specific capital guidelines that involve quantitative measures of their assets and liabilities as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by these regulators about components, risk weightings and other factors. In addition, both Banks are limited in the amounts they can pay as dividends to the Parent Company. For additional information about legislative and regulatory matters impacting us, see “Business–Supervision and Regulation” under Part I of our ~~2021~~2022 Form 10-K.

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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~~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 ~~Comenity Bank’s~~CB’s and/or ~~Comenity Capital Bank’s~~CCB’s operating activities, as well as our operating activities. Based on these regulations, as of June 30, ~~2022~~2023 and ~~2021,~~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 June 30, ~~2022, are as follows:~~

2023:

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Table 12: Capital Ratios

Minimum Ratio to be



Minimum Ratio for

Well Capitalized under


Actual

Capital Adequacy

Prompt Corrective


Ratio

Purposes

Action Provisions
Comenity Bank

Tier 1 Leverage capital ratio ⁽¹⁾

19.1
%

4.0
%

5.0
%
Common Equity Tier 1 capital ratio ⁽²⁾

22.7

4.5

6.5

Tier 1 capital ratio ⁽³⁾

22.7

6.0

8.0

Total Risk-based capital ratio ⁽⁴⁾

24.0

8.0

10.0

Comenity Capital Bank

Tier 1 Leverage capital ratio ⁽¹⁾

16.4
%

4.0
%

5.0
%
Common Equity Tier 1 capital ratio ⁽²⁾

18.0

4.5

6.5

Tier 1 capital ratio ⁽³⁾

18.0

6.0

8.0

Total Risk-based capital ratio ⁽⁴⁾

19.4

8.0

10.0

Combined Banks

Tier 1 Leverage capital ratio ⁽¹⁾

17.7
%

4.0
%

5.0
%
Common Equity Tier 1 capital ratio ⁽²⁾

20.1

4.5

6.5

Tier 1 capital ratio ⁽³⁾

20.1

6.0

8.0

Total Risk-based capital ratio ⁽⁴⁾

21.5

8.0

10.0

~~(1)~~

~~The Tier 1 Leverage capital ratio represents tier 1 capital divided by total average assets, after certain adjustments.~~

~~(2)~~

~~The Common Equity Tier 1 capital ratio represents common equity tier 1 capital divided by total risk-weighted assets.~~

~~(3)~~

~~The Tier 1 capital ratio represents tier 1 capital divided by total risk-weighted assets.~~

~~(4)~~

~~The Total Risk-based capital ratio represents total capital divided by total risk-weighted assets.~~


	Actual Ratio		Minimum Ratio for Capital Adequacy Purposes		Minimum Ratio to be Well Capitalized under Prompt Corrective Action Provisions
Comenity Bank
Common Equity Tier 1 capital ratio (1)	18.8	%	4.5	%	6.5	%
Tier 1 capital ratio (2)	18.8		6.0		8.0
Total Risk-based capital ratio (3)	20.1		8.0		10.0
Tier 1 Leverage capital ratio (4)	16.2		4.0		5.0

Comenity Capital Bank
Common Equity Tier 1 capital ratio (1)	18.2	%	4.5	%	6.5	%
Tier 1 capital ratio (2)	18.2		6.0		8.0
Total Risk-based capital ratio (3)	19.6		8.0		10.0
Tier 1 Leverage capital ratio (4)	16.1		4.0		5.0

Combined Banks (5)
Common Equity Tier 1 capital ratio (1)	18.4	%	4.5	%	6.5	%
Tier 1 capital ratio (2)	18.4		6.0		8.0
Total Risk-based capital ratio (3)	19.8		8.0		10.0
Tier 1 Leverage capital ratio (4)	16.1		4.0		5.0

(1)

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

(2)The Tier 1 capital ratio represents tier 1 capital divided by total risk-weighted assets.

(3)The Total Risk-based capital ratio represents total capital divided by total risk-weighted assets.

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

(5)Combined bank level figures are derived from combining the financials of CB and CCB.

The Banks adopted the option provided by the interim final rule issued by joint federal bank regulatory agencies, which largely delayed the effects of CECL on their regulatory capital for two years, until January 1, 2022, after which the effects are phased-in over a three-year period through December 31, 2024. Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period includes both the initial impact of our adoption of CECL as of January 1, 2020, and 25% of subsequent changes in our ~~allowance~~Allowance for credit losses during each quarter of the two-year period ended December 31, 2021. WeIn accordance with the interim final rule, we began to ratably phase-in these effects on January 1, 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A),” included in our ~~2021~~2022 Form 10-K.

RECENTLY ISSUED ACCOUNTING STANDARDS

See the “Recently Issued Accounting Standards” under Note 1, “Description of Business and Basis of ~~Presentation,”~~Presentation” to the unaudited ~~Condensed~~ Consolidated Financial Statements.

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Cautionary Note Regarding Forward-Looking Statements

This Form 10-Q and the documents incorporated by reference herein contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give our expectations or forecasts of future events and can generally be identified by the use of words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “plan,” “likely,” “may,” “should” or other words or phrases of similar import. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding, and the guidance we give with respect to, our anticipated operating or financial results, future financial performance and outlook, ~~initiation or completion of strategic initiatives,~~ future dividend declarations and future economic ~~conditions, including, but not limited to, market conditions, inflation and developments in the geopolitical environment.~~ conditions.

We believe that our expectations are based on reasonable assumptions. Forward-looking statements, however, are subject to a number of risks and uncertainties that ~~could cause~~are difficult to predict and, in many cases, beyond our control. Accordingly, our actual results tocould differ materially from the projections, anticipated results or other expectations expressed in this report, and no assurances can be given that our expectations will prove to have been correct. ~~These risks and uncertainties~~Factors that could cause the outcomes to differ materially include, but are not limited to, the following:

•

●

~~the ongoing effects of the global COVID-19 pandemic, which remain difficult to predict;~~

●

macroeconomic and geopolitical conditions, including, but not limited to, market conditions, inflation, rising interest rates and the increased probability of a recession, and any impact of the war in Ukraine;

●

~~loss of, or reduction in demand for services from, significant customers or partners;~~

●

increases in fraudulent activity, net principal losses in credit card and other loans or increases or volatility in the allowance for credit losses that may result from the application of the current expected credit loss model;

●

failure to identify, complete or successfully integrate or disaggregate business acquisitions or divestitures, including our ability to realize the intended benefits of the spinoff of our LoyaltyOne segment;

●

~~continued financial responsibility with respect to a divested business, including required equity ownership, guarantees, indemnities or other financial obligations;~~

●

~~the expected tax-free treatment of the distribution effected in the LoyaltyOne spinoff for U.S. federal income tax purposes;~~

●

~~increases in the cost of doing business, including market interest rates;~~

●

~~inability to access financial or capital markets, including asset-backed securitization funding or deposits markets;~~

●

~~restrictions that limit our banks’ ability to pay dividends to us;~~

●

limitations on consumer credit, loyalty or marketing services from new legislative or regulatory actions related to consumer protection and consumer privacy, including any such actions that may be taken with respect to late fees or other charges;

●

~~increases in regulatory capital requirements or other support for our Banks;~~

●

~~loss or disruption, due to cyberattack or other service failures, of data center operations or capacity;~~

●

~~loss of consumer information due to compromised physical or cyber security; and~~

●

those factors set forth in the Risk Factors section in our 2021 Form 10-K and our subsequent filings with the SEC as well as those factors discussed in the documents incorporated by reference in this Form 10-Q.

macroeconomic conditions, including market conditions, inflation, rising interest rates, unemployment levels and the increased probability of a recession or prolonged economic slowdown, and the related impact on consumer spending behavior, payments, debt levels, savings rates and other behavior;

•global political, market, public health and social events or conditions, including the ongoing war in Ukraine and any continuing effects of the COVID-19 pandemic;

•future credit performance of our customers, including the level of future delinquency and write-off rates;

•loss of, or reduction in demand for services from, significant brand partners or customers in the highly competitive markets in which we compete;

•the concentration of our business in U.S. consumer credit;

•increases or volatility in the Allowance for credit losses that may result from the application of the current expected credit loss (CECL) model;

•inaccuracies in the models and estimates on which we rely, including the amount of our Allowance for credit losses and our credit risk management models;

•increases in fraudulent activity;

•failure to identify, complete or successfully integrate or disaggregate business acquisitions, divestitures and other strategic initiatives;

•the extent to which our results are dependent upon our brand partners, including our brand partners’ financial performance and reputation, as well as the effective promotion and support of our products by brand partners;

•continued financial responsibility with respect to a divested business, including required equity ownership, guarantees, indemnities or other financial obligations;

•increases in the cost of doing business, including market interest rates;

•our level of indebtedness and inability to access financial or capital markets, including asset-backed securitization funding or deposits markets;

•restrictions that limit our Banks’ ability to pay dividends to us;

•pending and future litigation;

•pending and future legislation, regulation, supervisory guidance and regulatory and legal actions including, but not limited to, those related to financial regulatory reform and consumer financial services practices, as well as any such actions with respect to late fees, interchange fees or other charges;

•increases in regulatory capital requirements or other support for our Banks;

•impacts arising from or relating to the transition of our credit card processing services to third party service providers that we completed in 2022;

•failures or breaches in our operational or security systems, including as a result of cyberattacks, unanticipated impacts from technology modernization projects or otherwise;

•loss of consumer information due to compromised physical or cyber security;

•any tax liability, disputes or other adverse impacts arising out of or related to the spinoff of our former LoyaltyOne segment or the recent bankruptcy filings of Loyalty Ventures Inc. and certain of its subsidiaries; and

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•those factors identified in our filings with the SEC, including in the “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” sections of our 2022 Form 10-K, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 and this quarterly report.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Further risks and uncertainties include, but are not limited to, the impact of strategic initiatives on us or our business if any transactions are undertaken, and whether the anticipated benefits of such transactions can be realized.

Any forward-looking statements contained in this Form 10-Q speak only as of the date made, and we undertake no obligation, other than as required by applicable law, to update or revise any forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise.

Table of ~~Contents~~Conte nt s

Item 1. Financial Statements.

BREAD FINANCIAL HOLDINGS, INC.

UNAUDITED ~~CONDENSED~~ CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
(Millions, except per share amounts)
Interest income
Interest and fees on loans $ 1,153 $ 1,064 $ 2,441 $ 2,130
Interest on cash and investment securities 44 9 90 11
Total interest income 1,197 1,073 2,531 2,141
Interest expense
Interest on deposits 127 41 244 76
Interest on borrowings 78 54 178 98
Total interest expense 205 95 422 174
Net interest income 992 978 2,109 1,967
Non-interest income
Interchange revenue, net of retailer share arrangements (74) (102) (161) (198)
Gain on portfolio sale — — 230 —
Other 34 17 63 45
Total non-interest income (40) (85) 132 (153)
Total net interest and non-interest income 952 893 2,241 1,814
Provision for credit losses 336 404 442 598
Total net interest and non-interest income, after provision for credit losses 616 489 1,799 1,216
Non-interest expenses
Employee compensation and benefits 217 191 437 370
Card and processing expenses 116 84 235 166
Information processing and communication 75 61 150 117
Marketing expenses 40 50 79 80
Depreciation and amortization 35 30 69 51
Other 47 57 105 113
Total non-interest expenses 530 473 1,075 897
Income from continuing operations before income taxes 86 16 724 319
Provision for income taxes 22 4 205 95
Income from continuing operations 64 12 519 224
(Loss) income from discontinued operations, net of income taxes (1)
(16) — (16) (1)
Net income $ 48 $ 12 $ 503 $ 223
Basic income per share (Note 14)
Income from continuing operations $ 1.28 $ 0.25 $ 10.37 $ 4.48
(Loss) income from discontinued operations $ (0.33) $ — $ (0.33) $ (0.01)
Net income per share $ 0.95 $ 0.25 $ 10.04 $ 4.47
Diluted income per share (Note 14)
Income from continuing operations $ 1.27 $ 0.25 $ 10.34 $ 4.47
(Loss) income from discontinued operations $ (0.32) $ — $ (0.32) $ (0.01)
Net income per share $ 0.95 $ 0.25 $ 10.02 $ 4.46
Weighted average common shares outstanding (Note 14)
Basic 50.1 49.8 50.1 49.8
Diluted 50.3 49.9 50.2 50.0
__________________________________

Three Months Ended

Six Months Ended

June 30,

June 30,


2022

2021

2022

2021
(Millions, except per share amounts)

Interest income

Interest and fees on loans

$
1,064

$
913

$
2,130

$
1,854
Interest on cash and investment securities

9

2

11

3
Total interest income

1,073

915

2,141

1,857
Interest expense

Interest on deposits

41

43

76

90
Interest on borrowings

54

57

98

117
Total interest expense

95

100

174

207
Net interest income

978

815

1,967

1,650
Non-interest income

Interchange revenue, net of retailer share arrangements

(102)

(85)

(198)

(153)
Other

17

34

45

69
Total non-interest income

(85)

(51)

(153)

(84)
Total net interest and non-interest income

893

764

1,814

1,566
Provision for credit losses

404

(14)

598

19
Total net interest and non-interest income, after provision for credit losses

489

778

1,216

1,547
Non-interest expenses

Employee compensation and benefits

191

162

370

320
Card and processing expenses

84

83

166

161
Information processing and communication

61

55

117

106
Marketing expenses

50

35

80

77
Depreciation and amortization

30

22

51

47
Other

57

67

113

115
Total non-interest expenses

473

424

897

826
Income from continuing operations before income taxes

16

354

319

721
Provision for income taxes

4

91

95

190
Income from continuing operations

12

263

224

531
Income (loss) from discontinued operations, net of income taxes

—

11

(1)

29
Net income

$
12

$
274

$
223

$
560

Basic income per share (Note 13)

Income from continuing operations

$
0.25

$
5.29

$
4.48

$
10.68
Income (loss) from discontinued operations

$
—

$
0.21

$
(0.01)

$
0.58
Net income per share

$
0.25

$
5.50

$
4.47

$
11.26

Diluted income per share (Note 13)

Income from continuing operations

$
0.25

$
5.25

$
4.47

$
10.63
Income (loss) from discontinued operations

$
—

$
0.22

$
(0.01)

$
0.58
Net income per share

$
0.25

$
5.47

$
4.46

$
11.21

Weighted average common shares outstanding (Note 13)

Basic

49.8

49.7

49.8

49.7
Diluted

49.9

50.0

50.0

49.9

(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 and Basis of Presentation” to the unaudited Consolidated Financial Statements

See Notes to unaudited ~~Condensed~~ Consolidated Financial ~~Statements~~

Statements.

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BREAD FINANCIAL HOLDINGS, ~~INC~~

INC.

UNAUDITED ~~CONDENSED~~ CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
(Millions)
Net income	$	48	$	12	$	503	$	223

Other comprehensive (loss) income
Unrealized (loss) gain on available-for-sale debt securities	(2)		(7)		1		(16)
Tax benefits	1		2		—		4
Unrealized (loss) gain on available-for-sale debt securities, net of tax	(1)		(5)		1		(12)







Other comprehensive (loss) income, net of tax	(1)		(5)		1		(12)

Total comprehensive income, net of tax	$	47	$	7	$	504	$	211

Three Months Ended

Six Months Ended

June 30,

June 30,


2022

2021

2022

2021
(Millions)

Net income

$
12

$
274

$
223

$
560

Other comprehensive loss

Unrealized loss on available-for-sale debt securities

(7)

(2)

(16)

(11)
Tax benefit

2

1

4

1
Unrealized loss on available-for-sale debt securities, net of tax

(5)

(1)

(12)

(10)

Unrealized gain on cash flow hedges

—

—

—

1
Tax benefit

—

—

—

—
Unrealized gain on cash flow hedges, net of tax

—

—

—

1

Foreign currency translation adjustments

—

10

—

(19)

Other comprehensive (loss) income, net of tax

(5)

9

(12)

(28)

Total comprehensive income, net of tax

$
7

$
283

$
211

$
532

See Notes to unaudited ~~Condensed~~ Consolidated Financial Statements.

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BREAD FINANCIAL HOLDINGS, INC.

UNAUDITED ~~CONDENSED~~ CONSOLIDATED BALANCE SHEETS


	June 30, 2023		December 31, 2022
(Millions, except per share amounts)
ASSETS
Cash and cash equivalents	$	3,325	$	3,891
Credit card and other loans
Total credit card and other loans (includes loans available to settle obligations of consolidated variable interest entities June 30, 2023, $10,750; December 31, 2022, $15,383, respectively)	17,962		21,365
Allowance for credit losses	(2,208)		(2,464)
Credit card and other loans, net	15,754		18,901
Investment securities	239		221
Property and equipment, net	162		195
Goodwill and intangible assets, net	780		799
Other assets	1,349		1,400
Total assets	$	21,609	$	25,407
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits	13,048		13,826
Debt issued by consolidated variable interest entities	3,323		6,115
Long-term and other debt	1,375		1,892
Other liabilities	1,127		1,309
Total liabilities	18,873		23,142
Commitments and contingencies (Note 10)
Stockholders’ equity
Common stock, $0.01 par value; authorized, 200.0 million shares; issued, 50.1 million shares as of June 30, 2023 and 49.9 million shares as of December 31, 2022, respectively.	1		1
Additional paid-in capital	2,181		2,192
Retained earnings	574		93
Accumulated other comprehensive loss	(20)		(21)
Total stockholders’ equity	2,736		2,265
Total liabilities and stockholders’ equity	$	21,609	$	25,407

June 30,

December 31,

2022

2021
(Millions, except per share amounts)

ASSETS

Cash and cash equivalents

$
3,111

$
3,046
Credit card and other loans

Total credit card and other loans (includes loans available to settle obligations of consolidated variable interest entities: 2022, $12,369; 2021, $11,215)

17,769

17,399
Allowance for credit losses

(1,992)

(1,832)
Credit card and other loans, net

15,777

15,567
Investment securities

224

239
Property and equipment, net

219

215
Goodwill and intangible assets, net

694

687
Other assets

1,786

1,992
Total assets

$
21,811

$
21,746
LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits

11,028

11,027
Debt issued by consolidated variable interest entities

5,498

5,453
Long-term and other debt

1,939

1,986
Other liabilities

1,071

1,194
Total liabilities

19,536

19,660
Commitments and contingencies (Note 9)

Stockholders’ equity

Common stock, $0.01 par value; authorized, 200.0 million shares; issued, 49.8 million shares as of both June 30, 2022 and December 31, 2021

1

1
Additional paid-in capital

2,174

2,174
Retained earnings (accumulated deficit)

114

(87)
Accumulated other comprehensive loss

(14)

(2)
Total stockholders’ equity

2,275

2,086
Total liabilities and stockholders’ equity

$
21,811

$
21,746

See Notes to unaudited ~~Condensed~~ Consolidated Financial Statements.

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BREAD FINANCIAL HOLDINGS, INC.

UNAUDITED ~~CONDENSED~~ CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


Three Months Ended June 30, 2023	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
(Millions)
Balance as of March 31, 2023	50.1	$	1	$	2,197	$	537	$	(19)	$	2,716
Net income	—	—		—		48		—		48
Other comprehensive loss	—	—		—		—		(1)		(1)
Stock-based compensation	—	—		12		—		—		12
Capped call transactions for convertible senior notes due 2028	—	—		(30)		—		—		(30)

Dividends and dividend equivalent rights declared ($0.21 per common share)	—	—		—		(11)		—		(11)
Issuance of shares to employees, net of shares withheld for employee taxes	—	—		2		—		—		2
Balance as of June 30, 2023	50.1	$	1	$	2,181	$	574	$	(20)	$	2,736

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Treasury

Retained

Comprehensive

Stockholders’
Three Months Ended June 30, 2022

Shares

Amount

Capital

Stock

Earnings

Loss

Equity
(Millions)

Balance as of March 31, 2022

49.8

$
1

$
2,163

$
—

$
113

$
(9)

$
2,268
Net income

—

—

—

—

12

—

12
Other comprehensive loss

—

—

—

—

—

(5)

(5)
Stock-based compensation

—

—

9

—

—

—

9
Dividends and dividend equivalent rights declared ($0.21 per common share)

—

—

—

—

(11)

—

(11)
Other

—

—

2

—

—

—

2
Balance as of June 30, 2022

49.8

$
1

$
2,174

$
—

$
114

$
(14)

$
2,275


Three Months Ended June 30, 2022	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
(Millions)
Balance as of March 31, 2022	49.8	$	1	$	2,163	$	113	$	(9)	$	2,268
Net income	—	—		—		12		—		12
Other comprehensive loss	—	—		—		—		(5)		(5)
Stock-based compensation	—	—		9		—		—		9

Dividends and dividend equivalent rights declared ($0.21 per common share)	—	—		—		(11)		—		(11)

Issuance of shares to employees, net of shares withheld for employee taxes	—	—		2		—		—		2
Balance as of June 30, 2022	49.8	$	1	$	2,174	$	114	$	(14)	$	2,275

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Treasury

Retained

Comprehensive

Stockholders’
Three Months Ended June 30, 2021

Shares

Amount

Capital

Stock

Earnings

Loss

Equity
(Millions)

Balance as of March 31, 2021

117.1

$
1

$
3,431

$
(6,734)

$
5,108

$
(42)

$
1,764
Net income

—

—

—

—

274

—

274
Other comprehensive income

—

—

—

—

—

9

9
Stock-based compensation

—

—

9

—

—

—

9
Dividends and dividend equivalent rights declared ($0.21 per common share)

—

—

—

—

(11)

—

(11)
Other

—

—

3

—

—

—

3
Balance as of June 30, 2021

117.1

$
1

$
3,443

$
(6,734)

$
5,371

$
(33)

$
2,048

~~See Notes to unaudited Condensed Consolidated Financial Statements.~~

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BREAD FINANCIAL HOLDINGS, INC.

UNAUDITED ~~CONDENSED~~ CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ~~(CONTINUED)~~


Six Months Ended June 30, 2023	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
(Millions)
Balance as of December 31, 2022	49.9	$	1	$	2,192	$	93	$	(21)	$	2,265
Net income	—	—		—		503		—		503
Other comprehensive income	—	—		—		—		1		1
Stock-based compensation	—	—		21		—		—		21
Capped call transactions for convertible senior notes due 2028	—	—		(30)		—		—		(30)

Dividends and dividend equivalent rights declared ($0.42 per common share)	—	—		—		(22)		—		(22)
Issuance of shares to employees, net of shares withheld for employee taxes	0.2	—		(2)		—		—		(2)
Balance as of June 30, 2023	50.1	$	1	$	2,181	$	574	$	(20)	$	2,736

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Treasury

Retained

Comprehensive

Stockholders’
Six Months Ended June 30, 2022

Shares

Amount

Capital

Stock

Earnings

Loss

Equity
(Millions)

Balance as of December 31, 2021

49.9

$
1

$
2,174

$
—

$
(87)

$
(2)

$
2,086
Net income

—

—

—

—

223

—

223
Other comprehensive loss

—

—

—

—

—

(12)

(12)
Stock-based compensation

—

15

—

—

—

15
Repurchases of common stock

(0.2)

—

(12)

(12)
Dividends and dividend equivalent rights declared ($0.42 per common share)

—

—

—

—

(22)

—

(22)
Other

0.1

—

(3)

—

—

—

(3)
Balance as of June 30, 2022

49.8

$
1

$
2,174

$
—

$
114

$
(14)

$
2,275


Six Months Ended June 30, 2022	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
(Millions)
Balance as of December 31, 2021	49.9	$	1	$	2,174	$	(87)	$	(2)	$	2,086
Net income	—	—		—		223		—		223
Other comprehensive loss	—	—		—		—		(12)		(12)
Stock-based compensation	—	—		15		—		—		15
Repurchase of common stock	(0.2)			(12)						(12)
Dividends and dividend equivalent rights declared ($0.42 per common share)	—	—		—		(22)		—		(22)
Issuance of shares to employees, net of shares withheld for employee taxes	0.1	—		(3)		—		—		(3)
Balance as of June 30, 2022	49.8	$	1	$	2,174	$	114	$	(14)	$	2,275

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Treasury

Retained

Comprehensive

Stockholders’
Six Months Ended June 30, 2021

Shares

Amount

Capital

Stock

Earnings

Loss

Equity
(Millions)

Balance as of December 31, 2020

117.1

$
1

$
3,427

$
(6,734)

$
4,832

$
(5)

$
1,521
Net income

—

—

—

—

560

—

560
Other comprehensive loss

—

—

—

—

—

(28)

(28)
Stock-based compensation

—

—

16

—

—

—

16
Dividends and dividend equivalent rights declared ($0.42 per common share)

—

—

—

—

(21)

—

(21)
Balance as of June 30, 2021

117.1

$
1

$
3,443

$
(6,734)

$
5,371

$
(33)

$
2,048

See Notes to unaudited ~~Condensed~~ Consolidated Financial Statements.

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BREAD FINANCIAL HOLDINGS, INC.

UNAUDITED ~~CONDENSED~~ CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

June 30,

2022

2021
(Millions)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$
223

$
560
Adjustments to reconcile net income to net cash provided by operating activities

Provision for credit losses

598

19
Depreciation and amortization

51

66
Deferred income taxes

(102)

22
Non-cash stock compensation

16

16
Amortization of deferred financing costs

12

16
Amortization of deferred origination costs

43

34
Change in other operating assets and liabilities

Change in other assets

(32)

(59)
Change in other liabilities

(106)

54
Other

40

5
Net cash provided by operating activities

743

733

CASH FLOWS FROM INVESTING ACTIVITIES

Change in credit card and other loans

(596)

666
Change in redemption settlement assets

—

(41)
Purchase of credit card loan portfolios

(249)

(32)
Capital expenditures

(43)

(35)
Purchases of investment securities

(23)

(60)
Maturities of investment securities

18

35
Other

(4)

2
Net cash (used in) provided by investing activities

(897)

535

CASH FLOWS FROM FINANCING ACTIVITIES

Unsecured borrowings under debt agreements

218

31
Repayments/maturities of unsecured borrowings under debt agreements

(269)

(82)
Debt issued by consolidated variable interest entities

1,588

2,065
Repayments/maturities of debt issued by consolidated variable interest entities

(1,543)

(3,173)
Net decrease in deposits

(22)

(176)
Payment of deferred financing costs

(7)

(8)
Dividends paid

(22)

(21)
Repurchases of common stock

(12)

—
Other

(3)

(1)
Net cash used in financing activities

(72)

(1,365)

Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash

—

1

Change in cash, cash equivalents and restricted cash

(226)

(96)
Cash, cash equivalents and restricted cash at beginning of period

3,923

3,463
Cash, cash equivalents and restricted cash at end of period

$
3,697

$
3,367

SUPPLEMENTAL CASH FLOW INFORMATION

Cash and cash equivalents reconciliation

Cash and cash equivalents

$
3,111

$
2,788
Restricted cash included within Other assets

586

304
Cash, cash equivalents and restricted cash included within Assets of discontinued operations

—

275
Total cash, cash equivalents and restricted cash

$
3,697

$
3,367


	Six Months Ended June 30,
	2023		2022
(Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	503	$	223
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses	442		598
Depreciation and amortization	69		51
Deferred income taxes	(30)		(102)
Non-cash stock compensation	22		16
Amortization of deferred financing costs	13		12
Amortization of deferred origination costs	44		43
Gain on portfolio sale	(230)		—
Change in other operating assets and liabilities
Change in other assets	88		(32)
Change in other liabilities	(183)		(106)
Other	3		40
Net cash provided by operating activities	741		743

CASH FLOWS FROM INVESTING ACTIVITIES
Change in credit card and other loans	477		(596)
Proceeds from sale of credit card loan portfolio	2,499		—
Purchase of credit card loan portfolio	(81)		(249)
Net purchase of investment securities	(18)		(5)
Other, including capital expenditures	(17)		(47)
Net cash provided by (used in) investing activities	2,860		(897)

CASH FLOWS FROM FINANCING ACTIVITIES
Unsecured borrowings under debt agreements	801		218
Repayments/maturities of unsecured borrowings under debt agreements	(1,297)		(269)
Debt issued by consolidated variable interest entities	1,392		1,588
Repayments/maturities of debt issued by consolidated variable interest entities	(4,182)		(1,543)
Net decrease in deposits	(779)		(22)
Payment of deferred financing costs	(49)		(7)
Payment for capped call transactions	(39)		—
Dividends paid	(21)		(22)
Other	(3)		(15)
Net cash used in financing activities	(4,177)		(72)



Change in cash, cash equivalents and restricted cash	(576)		(226)
Cash, cash equivalents and restricted cash at beginning of period	3,927		3,923
Cash, cash equivalents and restricted cash at end of period	$	3,351	$	3,697

SUPPLEMENTAL CASH FLOW INFORMATION

Cash and cash equivalents reconciliation
Cash and cash equivalents	$	3,325	$	3,111
Restricted cash included within Other assets	26		586
Total cash, cash equivalents and restricted cash	$	3,351	$	3,697

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

See Notes to unaudited ~~Condensed~~ Consolidated Financial ~~Statements~~.

Statements.

Table of Contents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

DESCRIPTION OF THE BUSINESS

Effective March 23, 2022, Alliance Data Systems Corporation was renamed Bread Financial Holdings, Inc., and on April 4, 2022, its New York Stock Exchange ticker changed 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 the Company’s financial statements.

~~Bread Financial Holdings, Inc. (BFH or, including its consolidated subsidiaries and variable interest entities (VIEs), the Company) is~~We are a tech-forward financial services company ~~providing~~that provides simple, personalized payment, lending and saving solutions. ~~The Company creates~~We create opportunities for ~~its~~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, ~~the Company delivers~~we deliver growth for ~~its~~our partners through a comprehensive product suite, including private label and co-brand credit cards ~~installment lending,~~ and buy now, pay later ~~(split-pay). The Company~~(BNPL) products such as installment loans and our “split-pay” offerings. We also ~~offers~~offer direct-to-consumer solutions that give customers more access, choice and freedom through ~~its~~our branded Bread Cashback^TMAmerican Express® Credit Card and Bread SavingsTM products.

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 health and beauty, travel and entertainment, jewelry, home goods, sporting goods and 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 these unaudited Consolidated Financial Statements, unless stated otherwise, the terms “Bread Financial”, the “Company”, “we”, “our” or “us” refer to Bread Financial Holdings, Inc. and our subsidiaries and variable interest entities (VIEs) on a consolidated basis. References to “Parent Company” refer to Bread Financial Holdings, Inc. on a parent-only stand-alone basis. 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.

BASIS OF PRESENTATION

~~The accompanying~~

These unaudited ~~Condensed~~ 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 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 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.” While neither the Company nor any of its subsidiaries is considered a “bank” within the meaning of the Bank Holding Company Act, the changes from the historical presentation, to the bank holding company 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.

~~The unaudited Condensed Consolidated Financial Statement~~ should be read in conjunction with the Consolidated Financial Statements and notes thereto included in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the Securities and Exchange Commission on February ~~25, 2022; if~~28, 2023. If not significantly different, certain note disclosures included therein have been omitted from these unaudited ~~Condensed~~ Consolidated Financial Statements.

The unaudited ~~Condensed~~ Consolidated Financial Statements included herein reflect all adjustments, which consist of normal, recurring adjustments that are, in the opinion of management, necessary to state fairly the results for the interim periods presented. The unaudited 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 matters (which in the second quarter of 2023 primarily related to our obligations with respect to a ten year operating lease commitment for a former LoyaltyOne property in Toronto, Canada) and tax-related matters. For additional information refer to Note 22, "Discontinued Operations and Bank Holding Company Financial Presentation" to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosures of contingent assets and liabilities. These accounting estimates and assumptions reflect the best judgement of management, but actual results could differ. The most significant of those estimates and assumptions relate to the ~~Company’s~~ Allowance for credit losses.

The accompanying unaudited ~~Condensed~~ Consolidated Financial Statements include the accounts of the Company and all subsidiaries in which ~~the Company has~~we have a controlling financial interest. All intercompany transactions have been eliminated.

Table of ~~Contents~~Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

RECENTLY ~~ISSUED~~ADOPTED ACCOUNTING STANDARDS

In March 2022, the Financial Accounting Standards Board (FASB) 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. The Company is evaluating~~and write-offs. Effective January 1, 2023 we adopted the ~~new~~ guidance, ~~and any impacts~~with no significant impact on ~~its financial position,~~our results of operations, ~~and~~financial position, regulatory risk-based capital, ~~none of which are expected to be material, along with any anticipated impacts~~or on ~~its~~our operational processes, controls and ~~governance.~~

governance in support of the new guidance.

RECENTLY ISSUED ACCOUNTING STANDARDS

The recently issued accounting standards from our standard setters e.g., the FASB, relate to topics that are outside our industry or are otherwise not impactful on our results of operations, financial position, cash flows, or disclosures related thereto.

2. CREDIT CARD AND OTHER LOANS

~~The Company’s~~

Our payment and lending solutions result in the generation of ~~credit~~Credit card and other loans, which are recorded at the time a ~~cardholder~~borrower enters into a point-of-sale transaction with a merchant. Credit card loans represent revolving ~~amounts due~~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 ~~are primarily~~consist of BNPL products such as installment loans ~~offered to customers,~~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, and include principal and any related accrued interest and fees. The Company continues~~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; an Allowance for credit losses is established for uncollectable interest and fees.~~

charged-off.

~~Primarily, the Company classifies its credit~~

We generally classify our Credit card and other loans as held for investment. ~~The Company sells~~We sell a majority of ~~its credit~~our Credit card loans originated by Comenity Bank (CB) and by Comenity Capital Bank (CCB), which together are referred to herein as the ~~“Banks,”~~“Banks”, to ~~securitization~~certain of our master trusts (the Trusts), which are ~~themselves~~ consolidated VIEs, and therefore these loans are restricted for securitization investors. All new originations of ~~credit~~Credit card and other loans are determined to be held for investment at origination because ~~the Company has~~we have the intent and ability to hold them for the foreseeable future. In determining what constitutes the foreseeable future, ~~the Company considers~~we consider the average life and homogenous nature of ~~its credit~~our Credit card and other loans. In assessing whether ~~its credit~~our Credit card and other loans continue to be held for investment, ~~the Company~~we also ~~considers~~consider capital levels and scheduled maturities of funding instruments used. The assertion regarding the intent and ability to hold ~~credit~~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~~our direct-to-consumer (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~~Credit card and other loans. Due to the homogenous nature of ~~the Company’s credit~~our Credit card loans, amounts are classified as held for investment on a brand partner portfolio basis. From time to time certain ~~credit~~Credit card loans are classified as held for sale, as determined on a brand partner portfolio basis. ~~The Company carries~~We carry these assets at the lower of aggregate cost or fair value and ~~continues~~continue to recognize finance charges on an accrual basis. Cash flows associated with ~~credit~~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.

Table of ~~Contents~~Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The following table presents ~~the Company’s credit~~Credit card and other loans, as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively:

June 30,

December 31,


2022

2021
(Millions)

Credit card loans

$
17,536

$
17,217
Installment (other) loans

233

182
Total credit card and other loans ⁽¹⁾⁽²⁾

17,769

17,399
Less: Allowance for credit losses

(1,992)

(1,832)
Credit card and other loans, net

$
15,777

$
15,567

~~(1)~~

~~Includes $12.4 billion and $11.2 billion of credit card and other loans available to settle obligations of consolidated VIEs as of June 30, 2022 and December 31, 2021, respectively.~~

~~(2)~~

~~Includes $243 million and $224 million, of accrued interest and fees that have not yet been billed to cardholders as of June 30, 2022 and December 31, 2021, respectively.~~


	June 30, 2023		December 31, 2022
(Millions)
Credit card loans	$	17,654	$	21,065
BNPL (other) loans	308		300
Total credit card and other loans (1)(2)	17,962		21,365
Less: Allowance for credit losses	(2,208)		(2,464)
Credit card and other loans, net	$	15,754	$	18,901

(1)

Includes $10.7 billion and $15.4 billion of Credit card and other loans available to settle obligations of consolidated VIEs as of June 30, 2023 and December 31, 2022, respectively.

(2)Includes $313 million and $307 million, of accrued interest and fees that have not yet been billed to cardholders as of June 30, 2023 and December 31, 2022, respectively.

Credit Card and Other Loans Aging

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 Credit Card and Other Loans (1)
	31 to 60 Days Past Due		61 to 90 Days Past Due		91 or more Days Past Due		Total		Total Current		Total
(Millions)
As of June 30, 2023	$	348	$	285	$	601	$	1,234	$	16,392	$	17,626

As of December 31, 2022	$	444	$	296	$	732	$	1,472	$	19,559	$	21,031

(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, we exclude unbilled finance charges and fees from our amortized cost basis of Credit card and other loans. As of June 30, 2023 and December 31, 2022, accrued interest and fees that have not yet been billed to cardholders were $313 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. Our re-aged accounts as a percentage of Total credit card and other loans represented 3.2% and 1.6% for the three months ended June 30, 2023 and 2022, respectively, and 2.7% and 1.6% for the six months ended June 30, 2023 and 2022, 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, the success of our collection and recovery efforts, and more broadly, the general macroeconomic conditions.

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Delinquencies:An account is contractually delinquent if ~~the Company does~~we do not receive the minimum payment due by the specified due date. ~~The Company’s~~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 ~~the Company is~~we are unable to collect on the account, itwe may engage collection agencies or outside attorneys to continue those efforts, or sell the charged-off balances.

The ~~following table presents~~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 ~~delinquency trends on~~end of the ~~Company’s credit card~~period, by the outstanding principal amount of Credit cards and other loans ~~portfolio based on~~as of the ~~amortized cost:~~

Aging Analysis of Delinquent Amortized Cost
Credit Card and Other Loans ⁽¹⁾


31 to 60 days
delinquent

61 to 90 days
delinquent

91 or more days delinquent

Total
delinquent

Current

Total
(Millions)

As of June 30, 2022
$
314

$
217

$
435

$
966

$
16,529

$
17,495

As of December 31, 2021
$
262

$
186

$
401

$
849

$
16,284

$
17,133

~~(1)~~

Installment 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 from its amortized cost basis of credit card and other loans.same period-end. As of June 30, 2022 and December 31, 2021, accrued interest and fees that have not yet been billed to cardholders were $243 million and $224 million, respectively, included in Credit card and other loans on the Consolidated Balance Sheets.

From time to time the Company may re-age cardholders’ accounts, which is intended to assist delinquent cardholders who have experienced financial difficulties but who demonstrate both an ability and willingness to repay the amounts due; this practice affects credit card loan delinquencies and principal losses. Accounts meeting specific defined criteria are re-aged when the cardholder makes one or more consecutive payments aggregating to a certain pre-defined amount of their account balance. Upon re-aging, the outstanding balance of a delinquent account is returned to current status. The Company’s re-aged accounts as a percentage of total credit card and other loans represented 1.6% and 2.1%, for the three months ended June 30, 2023 and December 31, 2022, our Delinquency rates were 5.5% and ~~2021, respectively, and 1.6% and 2.3% for the six months ended June 30, 2022 and 2021,~~5.5%, respectively. ~~The Company’s re-aging practices comply with regulatory guidelines.~~

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

Net Principal ~~Losses~~Losses:

~~The Company’s~~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). Charged-off 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. ~~Installment~~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~~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 the notification of the bankruptcy or death, but in any case ~~not~~no later than 180 days past due for ~~credit~~Credit card loans and 120 days past due for ~~installment~~BNPL loans. ~~The Company records~~We record the actual losses for unpaid interest and fees as a reduction to Interest and fees on loans, which were ~~$148~~$243 million and ~~$114~~$148 million for the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$284~~$485 million and ~~$245~~$284 million for the six months ended June 30, 2023 and 2022, respectively.

The net principal loss rate is calculated by dividing net principal losses for the period by the Average credit card and ~~2021, respectively.~~

~~Modified Credit Card Loans~~

~~Forbearance Programs~~

~~As part~~other loans for the same period. Average credit card and other loans represent the average balance of the ~~Company’s collections strategy,~~loans at the ~~Company may offer temporary, short term (six-months or less) forbearance programs in order to improve~~beginning and end of each month, averaged over 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 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, these modified credit card loans are included in the general pool of credit card loans, with the allowance determined under a contingent loss model. The Company’s impaired credit card loans represented less than 2% of total credit card loans as of both June 30, 2022 and December 31, 2021. As of those same dates, the Company’s recorded investment in impaired credit card loans was $252 million and $281 million, respectively, with an associated allowance

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

~~for credit losses of $66 million and $81 million, respectively. The average recorded investment in impaired credit card loans was $258 million and $415 million for~~periods indicated. For the three months ended June 30, 2023 and 2022, our Net principal loss rates were 8.0% and ~~2021,~~5.6%, respectively, ~~and $265 million and $449 million~~ for the six months ended June 30, 2023 and 2022, our Net principal loss rates were 7.5% and ~~2021,~~5.2%, respectively.

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 $3 million and $7 million for the three months ended June 30, 2022 and 2021, respectively, and $7 million and $16 million for the six months ended June 30, 2022 and 2021, 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 during the specified periods:~~

Three Months Ended June 30, 2022

Six Months Ended June 30, 2022

Pre-modification

Post-modification

Pre-modification

Post-modification

Number of

Outstanding

Outstanding

Number of

Outstanding

Outstanding


Restructurings

Balance

Balance

Restructurings

Balance

Balance
(Millions, except for Number of restructurings)

Troubled debt restructurings – credit card loans

32,216

$
46

$
46

70,214

$
102

$
102

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Pre-modification

Post-modification

Pre-modification

Post-modification

Number of

Outstanding

Outstanding

Number of

Outstanding

Outstanding


Restructurings

Balance

Balance

Restructurings

Balance

Balance
(Millions, except for Number of restructurings)

Troubled debt restructurings – credit card loans

33,061

$
52

$
52

96,689

$
145

$
145

The following table provides additional information regarding credit card loans modified as TDRs that have subsequently defaulted within 12 months of their modification dates during the specified periods; the probability of default is factored into the allowance for credit losses:

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2022

Number of

Outstanding

Number of

Outstanding


Restructurings

Balance

Restructurings

Balance
(Millions, except for Number of restructurings)

Troubled debt restructurings that subsequently defaulted

18,037

$
25

39,960

$
54

Three Months Ended

Six Months Ended

June 30, 2021

June 30, 2021

Number of

Outstanding

Number of

Outstanding


Restructurings

Balance

Restructurings

Balance
(Millions, except for Number of restructurings)

Troubled debt restructurings that subsequently defaulted

31,727

$
42

82,736

$
109

Overall Credit ~~Quality~~Quality:

~~Credit Card Loans~~

As part of ~~the Company’s~~our credit risk management activities ~~the Company assesses~~for our credit card loans portfolio, we assess overall credit quality by reviewing information ~~related to the performance of a credit cardholder’s account, as well as information~~ from credit bureaus and other sources relating to ~~the cardholder’s~~our cardholders' broader credit performance. ~~The Company utilizes~~We utilize VantageScore (Vantage) credit scores to assist in ~~its~~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. ~~The Company categorizes~~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

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

customer accounts for which a Vantage score is not available and ~~the Company uses~~we use alternative sources to assess credit risk and predict behavior. The table below excludes ~~0.3%~~0.1% and ~~0.1%~~0.6% of the total credit card loans balance as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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~~our Credit card loans by Vantage score ~~during the specified periods:~~

as of June 30, 2023 and December 31, 2022:

June 30,

December 31,

2022

2021


661 or


601 to


600 or


661 or


601 to


600 or


Higher

660

Less

Higher

660

Less

Credit card loans

61
%

27
%

12
%

62
%

26
%

12
%


	June 30, 2023						December 31, 2022
	661 or Higher		601 to 660		600 or Lower		661 or Higher		601 to 660		600 or Lower
Credit card loans	59	%	27	%	14	%	62	%	26	%	12	%

~~Installment Loans~~

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 ~~the Company’s installment~~BNPL loans totaled ~~$233~~$307 million and ~~$182~~$299 million as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. As of June 30, ~~2022,~~2023, approximately ~~86%~~84% of these loans were ~~originated with customers with Fair Isaac Corporation (FICO) scores~~

Table of 660 or above, and correspondingly approximately 14% of these loans were originated with customers with FICO scores below 660. Similarly, as of December 31, 2021, approximately 84% and 16% of these loans were Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

originated with customers with FICO scores of ~~660~~661 or above, and correspondingly approximately 16% of these loans were originated by customers with FICO scores below 661. Similarly, as of December 31, 2022, approximately 86% and 14% of these loans were originated by customers with FICO scores of 661 or above, and below ~~660,~~661, respectively.

Modified Credit Card Loans

Forbearance Programs

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 disclosures below.

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. Our impaired credit card loans represented less than 2% of total credit card loans as of both June 30, 2023 and December 31, 2022. As of those same dates, our recorded investment in impaired credit card loans was $308 million and $257 million, respectively. The average recorded investment in impaired credit card loans was $295 million and $258 million for the three months ended June 30, 2023 and 2022, respectively, and $282 million and $265 million for the six months ended June 30, 2023 and 2022, respectively.

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. We recognized $5 million and $3 million in interest income associated with credit card loans in modification programs for the three months ended June 30, 2023 and 2022, respectively, and $9 million and $7 million for the six months ended June 30, 2023 and 2022, respectively.

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table presents the delinquency trends of our credit card loans classified as Loan Modifications:


	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
(Millions)
As of June 30, 2023	18	16	24	58	250	308

As of December 31, 2022	19	15	19	53	217	270

The following table provides additional information regarding credit card Loan Modifications for the periods specified:


	Three Months Ended June 30, 2023					Six Months Ended June 30, 2023
	Number of Modifications	Pre-modification Outstanding Balance		Post-modification Outstanding Balance		Number of Modifications	Pre-modification Outstanding Balance		Post-modification Outstanding Balance
(Millions, except for Number of modifications)
Loan modifications – credit card loans	49,311	$	82	$	82	95,795	$	159	$	158

The following table provides additional information regarding credit card Loan Modifications that have subsequently defaulted within 12 months of their modification dates, for the periods specified; the probability of default is factored into the Allowance for credit losses:


	Three Months Ended June 30, 2023			Six Months Ended June 30, 2023
	Number of Modifications	Outstanding Balance		Number of Modifications	Outstanding Balance
(Millions, except for Number of modifications)
Loan modifications that subsequently defaulted	18,747	$	29	37,410	$	57

Troubled Debt Restructurings

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.


	Three Months Ended June 30, 2022					Six Months Ended June 30, 2022
	Number of Restructurings	Pre-modification Outstanding Balance		Post-modification Outstanding Balance		Number of Restructurings	Pre-modification Outstanding Balance		Post-modification Outstanding Balance
(Millions, except for Number of restructurings)
Troubled debt restructurings – credit card loans	32,216	$	46	$	46	70,214	$	102	$	102

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


	Three Months Ended June 30, 2022			Six Months Ended June 30, 2022
	Number of Restructurings	Outstanding Balance		Number of Restructurings	Outstanding Balance
(Millions, except for Number of restructurings)
Troubled debt restructurings that subsequently defaulted	18,037	$	25	39,960	$	54

Unfunded Loan Commitments

~~The Company is~~

We are active in originating private label and co-brand credit cards in the ~~United States. The Company manages~~U. S. We manage 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 ~~United States~~U.S. and are not significantly concentrated in any one geographic area.

~~The Company manages its~~

We manage our 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~~our portfolios and applying consistent underwriting standards. ~~The Company has~~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 ~~$99.5~~$113 billion and ~~$112.1~~$128 billion as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. While this amount represented the total available unused credit card lines, ~~the Company has~~we have not experienced and ~~does~~do not anticipate that all cardholders will access their entire available line at any given point in time.

Portfolio Sales

As of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, there were 0no credit card loans held for sale.

We previously announced the non-renewal of our contract with BJ’s Wholesale Club (BJ's) and the sale ~~and 0~~of the BJ’s portfolio, ~~sales were made during the six months ended June 30, 2022 or 2021.~~

~~Portfolio Acquisitions~~

~~In April 2022, the Company acquired~~which closed in late February 2023, for 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, and is subject to customarytotal purchase price ~~adjustments.~~

of $2.5 billion on a loan portfolio of $2.3 billion, resulting in a $230 million Gain on portfolio sale.

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

3. ALLOWANCE FOR CREDIT LOSSES

The ~~allowance~~Allowance for credit losses is an estimate of expected credit losses, measured over the estimated life of ~~its credit~~our 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~~our portfolio of ~~credit~~Credit card and other loans, as well as the prevailing economic conditions and forecasts utilized. The estimate of the ~~allowance~~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.~~Allowance. Principal losses for unpaid interest and fees as well as any adjustments to the ~~allowance~~Allowance associated with unpaid interest and fees are recorded as a reduction to Interest and fees on loans. The ~~allowance~~Allowance is maintained through an adjustment to the Provision for credit losses and is evaluated for appropriateness.

In estimating ~~its allowance~~our 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, ~~with~~to determine expected credit performance. ~~The Company’s~~Our quantitative estimate of expected credit losses under CECL is impacted by certain forecasted economic factors. ~~The Company considers~~We consider the forecast used to be reasonable and supportable over the estimated life of the ~~credit~~Credit card and other loans, with no reversion period. In addition to the quantitative estimate of expected credit losses, ~~the Company~~we also ~~incorporates~~incorporate 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~~our best estimate of current expected credit losses.

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Credit Card Loans

~~The Company uses~~

We use a “pooled” approach to estimate expected credit losses for financial assets with similar risk characteristics. ~~The Company has~~We have evaluated multiple risk characteristics across ~~its~~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 ~~its~~our Allowance for credit losses, ~~the Company segments its~~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~~our Credit card loans, payments were applied to the measurement date balance with 0no payments allocated to future purchase activity. ~~The Company uses~~We use a combination of First In First Out ~~(FIFO)~~ and the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act) ~~methodology~~methodologies to model balance paydown.

~~Installment~~

BNPL Loans

~~The Company measures its allowance~~

We measure our Allowance for credit losses on ~~installment~~BNPL loans using a statistical model to estimate projected losses over the remaining terms of the loans, inclusive of an assumption for prepayments. The model is based on the historical statistical relationship between loan loss performance and certain macroeconomic data pooled based on credit quality risk score, term of the underlying loans, vintage and geographic location. As of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Allowance for credit losses on ~~installment~~BNPL loans was ~~$17~~$24 million and ~~$14~~$21 million, respectively.

Allowance for Credit Losses Rollforward

The following table presents ~~the Company’s~~our Allowance for credit losses for ~~its credit~~our Credit card and other loans. ~~With the acquisition of Lon, Inc. in December 2020, the Company acquired certain installment loans which represented a separate~~

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

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

Three Months Ended

Six Months Ended

June 30,

June 30,


2022

2021

2022

2021

(Millions)

Beginning balance

$
1,826

$
1,843

$
1,832

$
2,008

Provision for credit losses ⁽¹⁾

404

(14)

598

19

Net principal losses ⁽²⁾

(238)

(194)

(438)

(392)

Ending balance

$
1,992

$
1,635

$
1,992

$
1,635

below:

~~(1)~~

~~Provision for credit losses includes a build/release for the allowance, as well as replenishment of Net principal losses.~~

~~(2)~~

Principal losses are presented net of recoveries of $36 million and $41 million for the three months ended June 30, 2022 and 2021, respectively, and $79 million and $92 million for the six months ended June 30, 2022 and 2021, respectively.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
(Millions)
Beginning balance	$	2,223	$	1,826	$	2,464	$	1,832

Provision for credit losses (1)	336		404		442		598
Change in the estimate for uncollectible unpaid interest and fees	—		—		5		—
Net principal losses (2)	(351)		(238)		(703)		(438)
Ending balance	$	2,208	$	1,992	$	2,208	$	1,992

(1)

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

(2)Net principal losses are presented net of recoveries of $80 million and $36 million for the three months ended June 30, 2023 and 2022, respectively, and $173 million and $79 million for the six months ended June 30, 2023 and 2022, respectively. Net principal losses for the six months ended June 30, 2023 include a $10 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 period.

For the three and six months ended June 30, ~~2022,~~2023, the factors that influenced the increase in the Allowance for credit losses are ~~the current year periods~~higher net principal losses and a higher reserve rate due to softening economic ~~scenario weightings in the Company’s credit reserve modeling reflecting the increasing probability of a recession and other macroeconomic factors,~~indicators including the ~~increasing interest rate environment~~increased cost of consumer debt, persistent inflation and ~~persistent inflation.~~

the possibility of higher unemployment levels.

4. SECURITIZATIONS

~~The Company accounts~~

We account for transfers of financial assets as either sales or financings. Transfers of financial assets that are accounted for as sales are removed from the Consolidated Balance Sheets with any realized gain or loss reflected in the Consolidated Statements of Income during the period in which the sale occurs. Transfers of financial assets that are not accounted for as a sale are treated as a financing.

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~The Company~~

We regularly ~~securitizes~~securitize the majority of ~~its~~our credit card loans through the transfer of those loans to one of ~~its master trusts (the Trusts). The Company performs~~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 ~~its~~our capacity as a servicer, ~~the Company administers~~we administer the loans, ~~collects~~collect payments and ~~charges-off~~charge-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~~we perform 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~~we hold all of the variable interests in the Trusts, with the exception of the liabilities held by third-parties. These variable interests provide ~~the Company~~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, ~~the Company is~~we are 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.~~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~~our securitized credit card loans, during the initial phase of a securitization reinvestment period, ~~the Company~~we generally ~~retains~~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.

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

~~The Company is~~We are required to maintain minimum interests in ~~its~~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. Cash collateral, restricted deposits are generally released proportionately as investors are repaid. Under the terms of the Trusts, the occurrence of certain triggering events associated with the performance of the securitized credit card loans in each Trust could result in certain required actions, including payment of Trust expenses, the establishment of reserve funds, or early amortization of the debt securities and/or notes, in a worst-case scenario. During the three and six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, no such triggering events occurred.

The following tables provide the total securitized credit card loans and related delinquencies, and net principal losses of securitized credit card loans for the periods specified:

June 30,

December 31,

2022

2021
(Millions)

Total credit card loans – available to settle obligations of consolidated VIEs

$
12,369

$
11,215
Of which: principal amount of credit card loans 91 days or more past due

$
172

$
159


	June 30, 2023		December 31, 2022
(Millions)
Total credit card loans – available to settle obligations of consolidated VIEs	$	10,750	$	15,383
Of which: principal amount of credit card loans 91 days or more past due	$	234	$	307

Three Months Ended June 30,

Six Months Ended June 30,


2022

2021

2022

2021
(Millions)

Net principal losses of securitized credit card loans

$
125

$
125

$
240

$
256


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
(Millions)
Net principal losses of securitized credit card loans	$	197	$	125	$	413	$	240

5. INVESTMENT SECURITIES

~~The Company’s investment~~

Investment securities consist of available-for-sale (AFS) ~~securities, which are~~ debt securities, ~~U.S. Treasury bonds~~including both mortgage-backed securities and mutual funds. ~~The Company~~We also ~~holds~~hold equity securities within ~~its~~our 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~~We did not have any such credit losses for the periods presented.

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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~~We typically ~~invests~~invest 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 June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively:

June 30, 2022

December 31, 2021


Amortized

Unrealized

Unrealized



Amortized

Unrealized

Unrealized



Cost

Gains

Losses

Fair Value

Cost

Gains

Losses

Fair Value
(Millions)

Available-for-sale securities

$
171

$
—

$
(15)

$
156

$
173

$
4

$
(2)

$
175
Equity securities

68

—

—

68

64

—

—

64
Total

$
239

$
—

$
(15)

$
224

$
237

$
4

$
(2)

$
239


	June 30, 2023								December 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
(Millions)
Available-for-sale securities	$	185	$	—	$	(23)	$	162	$	175	$	—	$	(23)	$	152
Equity securities	77		—		—		77		69		—		—		69
Total	$	262	$	—	$	(23)	$	239	$	244	$	—	$	(23)	$	221

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

The following ~~table provides~~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 June 30, ~~2022~~2023 and December 31, ~~2021, respectively.~~

2022, respectively:

June 30, 2022

Less than 12 months

12 Months or Greater

Total




Unrealized



Unrealized



Unrealized


Fair Value

Losses

Fair Value

Losses

Fair Value

Losses
(Millions)

Available-for-sale securities

$
131

$
(10)

$
25

$
(5)

$
156

$
(15)
Total

$
131

$
(10)

$
25

$
(5)

$
156

$
(15)


	June 30, 2023
	Less than 12 months				12 Months or Greater				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(Millions)
Available-for-sale securities	$	39	$	(2)	$	123	$	(21)	$	162	$	(23)
Total	$	39	$	(2)	$	123	$	(21)	$	162	$	(23)

December 31, 2021

Less than 12 months

12 Months or Greater

Total




Unrealized



Unrealized



Unrealized


Fair Value

Losses

Fair Value

Losses

Fair Value

Losses
(Millions)

Available-for-sale securities

$
57

$
(1)

$
15

$
(1)

$
72

$
(2)
Total

$
57

$
(1)

$
15

$
(1)

$
72

$
(2)


	December 31, 2022
	Less than 12 months				12 Months or Greater				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(Millions)
Available-for-sale securities	$	95	$	(9)	$	57	$	(14)	$	152	$	(23)
Total	$	95	$	(9)	$	57	$	(14)	$	152	$	(23)

As of June 30, ~~2022,~~2023, the amortized cost and estimated fair value of ~~the Company’s~~ AFS debt securities, which are mortgage-backed securities with no stated maturities, was ~~$171~~$185 million and ~~$156~~$162 million, respectively.

There were 0no realized gains or losses from the sale of any investment securities for the three and six months ended June 30, ~~2022~~2023 and ~~2021.~~

2022.

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEPOSITS

~~As of June 30, 2022 and December 31, 2021, deposits~~

Deposits were categorized as interest-bearing or non-interest-bearing as ~~follows:~~

follows, as of June 30, 2023 and December 31, 2022:

June 30,

December 31,


2022

2021
(Millions)

Interest-bearing

$
10,999

$
11,027
Non-interest-bearing (including cardholder credit balances)

29

—
Total deposits

$
11,028

$
11,027


	June 30, 2023		December 31, 2022
(Millions)
Interest-bearing	$	13,020	$	13,787
Non-interest-bearing (including cardholder credit balances)	28		39
Total deposits	$	13,048	$	13,826

Deposits by deposit type as of June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows:

June 30,

December 31,


2022

2021
(Millions)

Savings accounts

Direct-to-consumer (retail)

$
2,684

$
1,713
Wholesale

3,676

3,873
Certificates of deposit

Direct-to-consumer (retail)

1,507

1,467
Wholesale

3,132

3,974
Cardholder credit balances

29

—
Total deposits

$
11,028

$
11,027


	June 30, 2023		December 31, 2022
(Millions)
Savings accounts
Direct-to-consumer (retail)	$	2,716	$	2,782
Wholesale	3,854		3,954
Certificates of deposit
Direct-to-consumer (retail)	3,277		2,684
Wholesale	3,173		4,367
Cardholder credit balances	28		39
Total deposits	$	13,048	$	13,826

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

The scheduled maturities of certificates of deposit were as follows as of June 30, ~~2022 were as follows:~~2023:


(Millions)
2023 (1)	$	1,845
2024	2,583
2025	929
2026	372
2027	606
Thereafter	115
Total certificates of deposit	$	6,450

(Millions)

2022⁽¹⁾

$
1,334
2023

2,009
2024

854
2025

233
2026

111
Thereafter

98
Total certificates of deposit

4,639

(1)The 2023 balance includes $7 million in unamortized debt issuance costs, which are associated with the entire portfolio of certificates of deposit.

~~(1)~~

~~The 2022 balance includes $7~~ ~~million in unamortized debt issuance costs, which are associated with the entire portfolio of certificates of deposit.~~

As of June 30, ~~2022~~2023 and December 31, ~~2021, certificates of deposit~~2022, deposits that exceeded applicable FDIC insurance limits, which are generally $250,000 per depositor, per insured bank, were estimated to be $490 million (4% of Total deposits) and $719 million (5% of Total deposits), respectively. The measurement of estimated uninsured deposits aligns with regulatory guidelines.

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. BORROWINGS OF LONG-TERM AND OTHER DEBT

Long-term and other debt consisted of the following as of June 30, 2023 and December 31, 2022:


Description	June 30, 2023		December 31, 2022		Contractual Maturities	Interest Rates
(Millions, except percentages)
Long-term and other debt:
2023 revolving line of credit	$	—	$	—	June 2026	(1)
2023 term loans	300		—		June 2026	7.15%
2017 revolving line of credit	—		—		—	—
2017 term loans	—		556		—	—
Convertible senior notes due 2028	316		—		June 2028	4.25%
Senior notes due 2024	285		850		December 2024	4.750%
Senior notes due 2026	500		500		January 2026	7.000%
Subtotal	1,401		1,906
Less: Unamortized debt issuance costs	26		14
Total long-term and other debt	$	1,375	$	1,892

Debt issued by consolidated VIEs:
Fixed rate asset-backed term note securities	$	350	$	—	May 2026	5.020%
Conduit asset-backed securities	2,975		6,115		Various – Oct. 2023 to Feb. 2025	(2)
Subtotal	3,325		6,115
Less: Unamortized debt issuance costs	2		—
Total debt issued by consolidated VIEs	$	3,323	$	6,115

Total borrowings of long-term and other debt	$	4,698	$	8,007

(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 ~~more,~~the asset-backed commercial paper costs of each individual conduit provider plus an applicable margin. As of June 30, 2023, the interest rates ranged from 6.06% to 6.26% with a weighted average rate of 6.12%. 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 June 30, 2023, we were in compliance with all such covenants.

Long-term and Other Debt

Credit Agreement

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 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 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 June 30, 2023 under the 2023 Credit Agreement, we had $300 million aggregate principal amount of term loans outstanding and therefore $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

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

Senior Notes Due 2024 and 2026

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, we 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. 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 outstanding 4.750% Senior Notes due 2024 (the 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. The Tender Offer expired on June 14, 2023, with the holders of $565 million in aggregate principal amount of the Senior Notes due 2024 validly tendering pursuant to the Tender Offer. The remaining $285 million of Senior Notes due 2024 will mature on December 15, 2024, subject to earlier repurchase or redemption. Following the expiration of the Tender Offer, $285 million in the aggregate ~~were $538 million~~principal amount of the Senior Notes due 2024 remained outstanding as of June 30, 2023.

Due January 15, 2026: In September 2020, we issued and sold $500 million ~~respectively.~~

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.

4.25% Convertible Senior Notes Due 2028

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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 our case, our credit card loans. The sale of the pool of underlying assets to general investors is accomplished through a securitization process. 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.

Fixed Rate Asset-Backed Term Notes

Conduit Facilities

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.

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 six months ended June 30, 2023, we renewed lender commitments under our Conduit Facilities of $5.2 billion and extended the various maturities to October 2023, October 2024 and February 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'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 pledge those assets in the future. In June 2023, the World Financial Network Credit Card Master

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

As of June 30, 2023, total capacity under our Conduit Facilities was $5.2 billion, of which $3.0 billion had been drawn and included in Debt issued by consolidated VIEs in the Consolidated Balance Sheet.

8. OTHER NON-INTEREST INCOME AND OTHER NON-INTEREST EXPENSES

The following table provides the components of Other non-interest ~~income:~~

income for the three and six months ended June 30, 2023 and 2022:

Three Months Ended

Six Months Ended

June 30,

June 30,


2022

2021

2022

2021
(Millions)

Payment protection products

$
38

$
33

$
77

$
68
Loss from equity method investment

(21)

—

(33)

—
Other

—

1

1

1
Total other non-interest income

$
17

$
34

$
45

$
69


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
(Millions)
Payment protection products	$	33	$	38	$	67	$	77
Loss from equity method investment	—		(21)		(6)		(33)
Other	1		—		2		1
Total other non-interest income	$	34	$	17	$	63	$	45

The following table provides the components of Other non-interest ~~expenses:~~

expenses for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
(Millions)
Professional services and regulatory fees	$	34	$	38	$	72	$	69
Occupancy expense	5		6		10		12
Other (1)	8		13		23		32
Total other non-interest expenses	$	47	$	57	$	105	$	113

Three Months Ended

Six Months Ended

June 30,

June 30,


2022

2021

2022

2021
(Millions)

Professional services and regulatory fees

$
38

$
35

$
69

$
66
Occupancy expense

6

7

12

15
Other⁽¹⁾

13

25

32

34
Total other non-interest expenses

$
57

$
67

$
113

$
115

(1)Primarily related to costs associated with various other individually insignificant operating activities; also includes the net gain on debt extinguishment for the three and six months ended June 30, 2023.

~~(1)~~

~~Primarily related to costs associated with various other individually insignificant operating activities.~~

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

8.9. FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair value is defined under GAAP as the price that would be required to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; with such transaction based on the principal market, or in the absence of a principal market the most advantageous market for the specific instrument. GAAP provides for a three-level fair value hierarchy that classifies the inputs to valuation techniques used to measure fair value, defined as follows:

Level 1: Inputs that are unadjusted quoted prices for identical assets or liabilities in active markets that the entity can access.

Level 2: Inputs, other than those included within Level 1, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, or inputs other than quoted prices that are observable for the asset or liability.

Table of Con tents
BREAD FINANCIAL HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Level 3: Inputs that are unobservable (e.g., internally derived assumptions) and reflect an entity’s own estimates about estimates market participants would use in pricing the asset or liability based on the best information available under the circumstances. In particular, Level 3 inputs and valuation techniques involve judgment and as a result are not necessarily indicative of amounts ~~the Company~~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~~

We monitor the market conditions and ~~evaluates~~evaluate the fair value hierarchy levels quarterly. For the three and six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, there were 0no transfers into or out of Level 3, and 0no transfers between Levels 1 and 2.

The following table summarizes the carrying values and fair values of ~~the Company’s~~our financial assets and financial liabilities:

June 30, 2022

December 31, 2021

Carrying

Fair

Carrying

Fair


Amount

Value

Amount

Value
(Millions)

Financial assets

Credit card and other loans, net

$
15,777

$
18,156

$
15,567

$
17,989
Investment securities

224

224

239

239
Financial liabilities

Deposits

11,028

11,005

11,027

11,135
Debt issued by consolidated VIEs

5,498

5,498

5,453

5,467
Long-term and other debt

1,939

1,870

1,986

2,053


	June 30, 2023				December 31, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
(Millions)
Financial assets
Credit card and other loans, net	$	15,754	$	18,006	$	18,901	$	21,328
Investment securities	239		239		221		221
Financial liabilities
Deposits	13,048		12,942		13,826		13,731
Debt issued by consolidated VIEs	3,323		3,321		6,115		6,115
Long-term and other debt	1,375		1,377		1,892		1,759

Valuation Techniques Used in the Fair Value Measurement of Financial Assets and Financial Liabilities

Credit card and other loans, net: ~~The Company’s~~Our Credit card and other loans are recorded at historical cost, less ~~an allowance~~the Allowance for credit losses, on the Consolidated Balance Sheets. In estimating the fair values, ~~the Company uses~~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. ~~The Company uses~~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, ~~U.S. Treasury bonds~~including both mortgage-backed securities and mutual funds, as well as equity securities, and are recorded at fair value on the Consolidated Balance Sheets. Quoted prices of identical or similar investment securities in active markets are used to estimate the fair values (i.e., Level 1 or Level 2 inputs).

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

Deposits: Money market and other non-maturity deposits carrying values approximate their fair values because they are short-term in duration and have no defined maturity. Certificates of deposit are recorded at their historical issuance cost on the Consolidated Balance Sheets, adjusted for unamortized fees, with fair value being estimated based on the currently observable market rates available to ~~the Company~~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~~We record debt issued by ~~its~~ consolidated VIEs at ~~historical~~amortized cost (including unamortized fees, issuance ~~cost~~costs, premiums and discounts, where applicable) on the Consolidated Balance ~~Sheets, adjusted for unamortized fees, as well as premiums or discounts, as applicable.~~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~~us for similar debt instruments with similar remaining maturities or quoted market prices for the same transaction (i.e., Level 2 inputs).

Long-term and other debt: ~~The Company records its~~We record long-term and other debt at ~~historical~~amortized cost (including unamortized fees, issuance ~~cost~~costs, premiums and discounts, where applicable) on the Consolidated Balance ~~Sheets, adjusted for unamortized fees, as well as premiums or discounts, as applicable.~~Sheets. Interest payable is included within Other liabilities on the Consolidated Balance Sheets. The fair value is estimated based on the currently observable market

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

rates available to ~~the Company~~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 ~~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:

June 30, 2022


Total

Level 1

Level 2

Level 3
(Millions)

Investment securities

$
224

$
45

$
179

$
—
Total assets measured at fair value

$
224

$
45

$
179

$
—

December 31, 2021


Total

Level 1

Level 2

Level 3
(Millions)

Investment securities

$
239

$
48

$
191

$
—
Total assets measured at fair value

$
239

$
48

$
191

$
—

~~Financial Instruments Disclosed but Not Carried at Fair Value~~

The following tables summarize the Company’s financial assets and financial liabilities that are measured at amortized cost, and not required to be carried at fair value on a recurring basis, as of June 30, 2022 and December 31, 2021 respectively. The fair values of these financial instruments are estimates as of June 30, 2022 and December 31, 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.

June 30, 2022


Fair Value

Level 1

Level 2

Level 3
(Millions)

Financial assets

Credit card and other loans, net

$
18,156

$
—

$
—

$
18,156
Total

$
18,156

$
—

$
—

$
18,156

Financial liabilities

Deposits

$
11,005

$
—

$
11,005

$
—
Debt issued by consolidated VIEs

5,498

—

5,498

—
Long-term and other debt

1,870

—

1,870

—
Total

$
18,373

$
—

$
18,373

$
—


	June 30, 2023
	Total		Level 1		Level 2		Level 3
(Millions)
Investment securities	$	239	$	44	$	195	$	—
Total assets measured at fair value	$	239	$	44	$	195	$	—

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

December 31, 2021


Fair Value

Level 1

Level 2

Level 3
(Millions)

Financial assets

Credit card and other loans, net

$
17,989

$
—

$
—

$
17,989
Total

$
17,989

$
—

$
—

$
17,989

Financial liabilities

Deposits

$
11,135

$
—

$
11,135

$
—
Debt issued by consolidated VIEs

5,467

—

5,467

—
Long-term and other debt

2,053

—

2,053

—
Total

$
18,655

$
—

$
18,655

$
—

December 31, 2022
Total Level 1 Level 2 Level 3
(Millions)
Investment securities $ 221 $ 44 $ 177 $ —
Total assets measured at fair value $ 221 $ 44 $ 177 $ —

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. ~~The Company recognized a write-down~~In the six months ending June 30, 2023 we wrote-off the remaining $6 million of ~~its~~our equity method investment in Loyalty Ventures Inc. ~~of $21 million during the three and six months ended June 30, 2022. The fair value and carrying amount of its investment was $17 million as of~~ ~~June 30, 2022~~(LVI). ~~The Company~~We did 0tnot have any impairments for the three and six months ended June 30, ~~2021.~~

2022.

Financial Instruments Disclosed but Not Carried at Fair Value

The following tables summarize 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 June 30, 2023 and December 31, 2022, respectively. The fair values of these financial instruments are estimates as of those dates, 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.


	June 30, 2023
	Fair Value		Level 1		Level 2		Level 3
(Millions)
Financial assets
Credit card and other loans, net	$	18,006	$	—	$	—	$	18,006
Total	$	18,006	$	—	$	—	$	18,006

Financial liabilities
Deposits	$	12,942	$	—	$	12,942	$	—
Debt issued by consolidated VIEs	3,321		—		3,321		—
Long-term and other debt	1,377		—		1,377		—
Total	$	17,640	$	—	$	17,640	$	—

Table of Con

9.tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2022
Fair Value Level 1 Level 2 Level 3
(Millions)
Financial assets
Credit card and other loans, net $ 21,328 $ — $ — $ 21,328
Total $ 21,328 $ — $ — $ 21,328
Financial liabilities
Deposits $ 13,731 $ — $ 13,731 $ —
Debt issued by consolidated VIEs 6,115 — 6,115 —
Long-term and other debt 1,759 — 1,759 —
Total $ 21,605 $ — $ 21,605 $ —

10. COMMITMENTS AND CONTINGENCIES

Regulatory Matters

~~Comenity Bank~~

CB is regulated, supervised and examined by the State of Delaware and the Federal Deposit Insurance Corporation (FDIC). ~~The Company’s~~Our industrial bank, ~~Comenity Capital Bank,~~CCB, is regulated, supervised and examined by the State of Utah and the FDIC. ~~While neither of the Banks is currently subject to regular examinations by the~~

The Consumer Financial Protection Bureau (CFPB) ~~due~~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 ~~each Bank’s~~those laws. Banks in a multi-bank organization, such as CB and CCB, are subject to supervision and examination by the CFPB with respect to the federal consumer financial protection laws if at least one bank reports total assets ~~not having~~over $10 billion for four consecutive quarters. While the Banks were subject to supervision and examination by the CFPB with respect to the federal consumer financial protection laws between 2016 and 2021, this reverted to the FDIC in 2022. Beginning September 30, 2022, CCB’s total assets exceeded ~~$10.0~~$10 billion for four consecutive quarters ~~the Company has in the past been,~~ and ~~expects in the future to become,~~both Banks are now again subject to supervision and examination by the CFPB with respect to federal consumer protection laws.

Quantitative measures established by regulations to ensure capital adequacy require ~~Comenity Bank~~CB and ~~Comenity Capital Bank~~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 ~~Comenity Bank’s~~CB’s and/or ~~Comenity Capital Bank’s~~CCB’s operating activities, as well as those of ~~the Company.~~Bread Financial. Based on these regulations, as of June 30, ~~2022,~~2023, 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.

~~Table~~ The Banks are considered well capitalized and seek to maintain capital levels and ratios in excess of ~~Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

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, as of June 30, ~~2022,~~2023, are as follows:

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~(1)~~

~~The Tier 1 Leverage capital ratio represents tier 1 capital divided by total average assets, after certain adjustments.~~

~~(2)~~

~~The Common Equity Tier 1 capital ratio represents common equity tier 1 capital divided by total risk-weighted assets.~~

~~(3)~~

~~The Tier 1 capital ratio represents tier 1 capital divided by total risk-weighted assets.~~

~~(4)~~

~~The Total Risk-based capital ratio represents total capital divided by total risk-weighted assets.~~


	Actual Ratio		Minimum Ratio for Capital Adequacy Purposes		Minimum Ratio to be Well Capitalized under Prompt Corrective Action Provisions
Comenity Bank
Common Equity Tier 1 capital ratio (1)	18.8	%	4.5	%	6.5	%
Tier 1 capital ratio (2)	18.8		6.0		8.0
Total Risk-based capital ratio (3)	20.1		8.0		10.0
Tier 1 Leverage capital ratio (4)	16.2		4.0		5.0

Comenity Capital Bank
Common Equity Tier 1 capital ratio (1)	18.2	%	4.5	%	6.5	%
Tier 1 capital ratio (2)	18.2		6.0		8.0
Total Risk-based capital ratio (3)	19.6		8.0		10.0
Tier 1 Leverage capital ratio (4)	16.1		4.0		5.0

Combined Banks (5)
Common Equity Tier 1 capital ratio (1)	18.4	%	4.5	%	6.5	%
Tier 1 capital ratio (2)	18.4		6.0		8.0
Total Risk-based capital ratio (3)	19.8		8.0		10.0
Tier 1 Leverage capital ratio (4)	16.1		4.0		5.0

(1)

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

(2)The Tier 1 capital ratio represents tier 1 capital divided by total risk-weighted assets.

(3)The Total Risk-based capital ratio represents total capital divided by total risk-weighted assets.

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

(5)Combined bank level figures are derived from combining the financials of CB and CCB.

Indemnification

On July 1, 2019, ~~the Company~~we completed the sale of ~~its~~ Epsilon segment to Publicis Groupe S.A. (Publicis). Under the terms of the agreement governing that transaction, ~~the Company~~we agreed to indemnify Publicis and ~~its~~our affiliates from and against any losses arising out of or related to a ~~United States~~U.S. Department of Justice (DOJ) investigation. The DOJ investigation related to third-party marketers who sent, or allegedly sent, deceptive mailings and the provision of data and services to those marketers by Epsilon’s data practice. Epsilon actively cooperated with the DOJ in connection with the investigation. On January 19, 2021, Epsilon entered into a deferred prosecution agreement (DPA) with the DOJ to resolve the matters that were the subject of the investigation. Pursuant to the DPA, Epsilon agreed, among other things, to pay penalties and consumer compensation in the aggregate amount of $150 million, to be paid in 2two equal installments, the first in January 2021 and the second in January 2022. A $150 million loss contingency was recorded as of December 31, 2020. ~~The Company~~Pursuant to our contractual indemnification obligation, in January 2021 we paid $75 million to Publicis, ~~pursuant to its contractual indemnification obligation~~and in January ~~2021. In January~~ 2022, ~~the Company~~we paid the ~~second~~ remaining $75 million installment to ~~Publicis pursuant~~Publicis. Our indemnification obligation also covers certain ongoing legal, consulting and claims administration fees and expenses incurred in connection with this matter, which we expect to ~~its contractual indemnification obligation.~~

diminish through the remainder of 2023.

Legal Proceedings

From time to time ~~the Company is involved in~~we are subject to various lawsuits, claims, ~~and lawsuits~~disputes, or potential claims or disputes, and other proceedings, arising in the ordinary course of business that ~~it believes~~we believe, based on our current knowledge, will not have a material adverse effect on ~~its~~our business, consolidated financial condition or liquidity, including claims and lawsuits alleging breaches of ~~the Company’s~~our contractual obligations, arbitrations, class actions and other litigation, arising in connection with ~~its~~our business activities. ~~The Company is~~We are also involved, from time to time, in reviews, investigations, subpoenas, supervisory actions and

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

other proceedings (both formal and informal) by governmental agencies regarding ~~its~~our business, ~~(collectively, “regulatory matters”),~~ which could subject ~~the Company~~us to significant fines,

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

penalties, obligations to change ~~its~~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 ~~the Company’s~~our reputation.

~~10.~~

11. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS

The changes in each component of accumulated other comprehensive loss, net of tax effects, are as follows:

Net

Net Unrealized

Net Unrealized

Foreign

Accumulated

Unrealized

Gains (Losses)

Gains (Losses)

Currency

Other

Gains (Losses)

on Cash

on Net

Translation

Comprehensive
Three Months Ended June 30, 2022

on AFS Securities

Flow Hedges

Investment Hedge

Adjustments

Loss
(Millions)

Balance as of March 31, 2022

$
(6)

$
—

$
—

$
(3)

$
(9)
Changes in other comprehensive loss

(5)

—

—

—

(5)
Balance as of June 30, 2022

$
(11)

$
—

$
—

$
(3)

$
(14)


Three Months Ended June 30, 2023	Net Unrealized Gains (Losses) on AFS Securities		Foreign Currency Translation Adjustments		Accumulated Other Comprehensive Loss
(Millions)
Balance as of March 31, 2023	$	(16)	$	(3)	$	(19)
Changes in other comprehensive (loss) income	(1)		—		(1)
Balance as of June 30, 2023	$	(17)	$	(3)	$	(20)

Net

Net Unrealized

Net Unrealized

Foreign

Accumulated

Unrealized

Gains (Losses)

Gains (Losses)

Currency

Other

Gains (Losses)

on Cash

on Net

Translation

Comprehensive
Three Months Ended June 30, 2021

on Securities

Flow Hedges

Investment Hedge

Adjustments ⁽¹⁾

Loss
(Millions)

Balance as of March 31, 2021

$
15

$
—

$
(7)

$
(50)

$
(42)
Changes in other comprehensive (loss) income

(1)

—

—

10

9
Balance as of June 30, 2021

$
14

$
—

$
(7)

$
(40)

$
(33)


Three Months Ended June 30, 2022	Net Unrealized Gains (Losses) on AFS Securities		Foreign Currency Translation Adjustments		Accumulated Other Comprehensive Loss
(Millions)
Balance as of March 31, 2022	$	(6)	$	(3)	$	(9)
Changes in other comprehensive (loss) income	(5)		—		(5)
Balance as of June 30, 2022	$	(11)	$	(3)	$	(14)

Net

Net Unrealized

Net Unrealized

Foreign

Accumulated

Unrealized

Gains (Losses)

Gains (Losses)

Currency

Other

Gains (Losses)

on Cash

on Net

Translation

Comprehensive
Six Months Ended June 30, 2022

on Securities

Flow Hedges

Investment Hedge

Adjustments

Loss
(Millions)

Balance as of December 31, 2021

$
1

$
—

$
—

$
(3)

$
(2)
Changes in other comprehensive loss

(12)

—

—

—

(12)
Balance as of June 30, 2022

$
(11)

$
—

$
—

$
(3)

$
(14)


Six Months Ended June 30, 2023	Net Unrealized Gains (Losses) on AFS Securities		Foreign Currency Translation Adjustments		Accumulated Other Comprehensive Loss
(Millions)
Balance as of December 31, 2022	$	(18)	$	(3)	$	(21)
Changes in other comprehensive income	1		—		1
Balance as of June 30, 2023	$	(17)	$	(3)	$	(20)

Net

Net Unrealized

Net Unrealized

Foreign

Accumulated

Unrealized

Gains (Losses)

Gains (Losses)

Currency

Other

Gains (Losses)

on Cash

on Net

Translation

Comprehensive
Six Months Ended June 30, 2021

on Securities

Flow Hedges

Investment Hedge

Adjustments ⁽¹⁾

Loss
(Millions)

Balance as of December 31, 2020

$
23

$
(1)

$
(7)

$
(20)

$
(5)
Changes in other comprehensive (loss) income

(9)

1

—

(20)

(28)
Balance as of June 30, 2021

$
14

$
—

$
(7)

$
(40)

$
(33)


Six Months Ended June 30, 2022	Net Unrealized Gains (Losses) on AFS Securities		Foreign Currency Translation Adjustments		Accumulated Other Comprehensive Loss
(Millions)
Balance as of December 31, 2021	$	1	$	(3)	$	(2)
Changes in other comprehensive (loss) income	(12)		—		(12)
Balance as of June 30, 2022	$	(11)	$	(3)	$	(14)

Table of Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~(1)~~

~~Primarily related to the impact of changes in the Canadian dollar and Euro foreign currency exchange rates from the Company’s LoyaltyOne segment, which was spun off in November 2021.~~

~~11.~~12. STOCKHOLDERS’ EQUITY

Stock Repurchase Programs

~~On February 28, 2022,~~

2023, subject to current estimates and assumptions.

Stock Compensation Expense

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

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.

During the six months ended June 30, ~~2021, the Company did 0t repurchase any shares of its common stock.~~

~~Stock Compensation Expense~~

~~During the six months ended June 30, 2022, the Company~~2023, we awarded ~~616,505~~1,125,479 service-based restricted stock units (RSUs) with a weighted average grant date fair value per share of ~~$68.79~~$39.95 as determined on the date of grant. Service-based restricted stock units typically vest ratably over three years provided that the participant is employed by ~~the Company~~us on each such vesting date.

During the six months ended June 30, ~~2022, the Company~~2023, we awarded ~~82,513~~175,587 performance-based restricted stock units with ~~pre-defined~~a fair market value of $27.76 to our Named Executive Officers. Performance-based RSUs cliff vest at the end of three years, if specific performance measures tied to our financial performance are met, which are measured annually over the three-year period. For the performance-based RSUs awarded in 2023, the predefined vesting criteria ~~that~~typically permit a range from 0% to 150% to be earned. ~~The fair market value~~Accruals of ~~these awards is $72.42.~~compensation cost for an award with a performance condition are based on the probable outcome of that performance condition. If the performance targets are met, the ~~restrictions will lapse (i.e., the~~ awards will ~~vest)~~vest with respect to the entire award on February ~~17, 2025,~~16, 2026, provided that the participant is employed by ~~the Company~~us on the vesting date.

For the three months ended June 30, 2023 and 2022, ~~and 2021, the Company~~we recognized $9$12 million and $7$9 million in stock-based compensation expense, respectively. For the six months ended June 30, 2023 and 2022, ~~and 2021, the Company~~we recognized ~~$16~~$22 million and ~~$13~~$16 million in stock-based compensation expense, respectively.

Dividends

~~Dividends~~

During the three and six months ended June 30, ~~2022, the Company~~2023, we paid $11 million and ~~$22~~$21 million, respectively, in dividends to ~~its shareholders~~holders of our common stock. On July ~~28, 2022, the Company’s~~27, 2023, our Board of Directors declared a quarterly cash dividend of $0.21 per share on ~~its~~our common stock, payable on September ~~16, 2022,~~15, 2023, to stockholders of record at the close of business on August ~~12, 2022.~~

11, 2023.

~~12.~~

13. INCOME TAXES

The Provision for income taxes increased for the three and six months ended June 30, 2023, primarily driven by the increase in Income from continuing operations before income taxes. The effective tax rate was ~~22.7%~~26.0% and ~~25.7%~~22.7% for the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~29.9%~~28.3% and ~~26.3%~~29.9% for the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~decrease~~increase in the effective tax rate for the three month period primarily related to a discrete benefit in the ~~current period, partially offset by increases in nondeductible items over those in the~~ prior ~~year~~ period. The ~~increase~~decrease in the effective tax rate for the six month period was ~~primarily~~ driven by ~~the decrease in Income from continuing operations before income taxes and increases~~decreases in nondeductible items over those in the prior ~~year period.~~period, as well as the overall increase in Income from continuing operations before income taxes.

~~The Company is~~

We are under examination by the Internal Revenue Service as well as tax authorities in various states. The tax years under examination and open for examination vary by ~~jurisdiction, but~~jurisdiction; with some exceptions, the tax returns filed by ~~the Company~~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.

Table of ~~Contents~~Con tents

BREAD FINANCIAL HOLDINGS, INC.

NOTES TO UNAUDITED ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

~~13.~~14. 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, invested restricted stock awards and other dilutive securities outstanding during the year) pursuant to the Treasury Stock method.

The following table sets forth the computation of basic and diluted EPS attributable to common stockholders for the three and six months ended June 30, ~~2022~~2023 and ~~2021:~~2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
(Millions, except per share amounts)
Numerator
Income from continuing operations	$	64	$	12	$	519	$	224
(Loss) income from discontinued operations, net of income taxes	(16)		—		(16)		(1)
Net income	$	48	$	12	$	503	$	223

Denominator
Basic: Weighted average common stock	50.1		49.8		50.1		49.8
Weighted average effect of dilutive securities
Add: net effect of dilutive unvested restricted stock awards (1)	0.2		0.1		0.1		0.2
Diluted	50.3		49.9		50.2		50.0

Basic EPS
Income from continuing operations	$	1.28	$	0.25	$	10.37	$	4.48
(Loss) income from discontinued operations	$	(0.33)	$	—	$	(0.33)	$	(0.01)
Net income per share	$	0.95	$	0.25	$	10.04	$	4.47

Diluted EPS
Income from continuing operations	$	1.27	$	0.25	$	10.34	$	4.47
(Loss) income from discontinued operations	$	(0.32)	$	—	$	(0.32)	$	(0.01)
Net income per share	$	0.95	$	0.25	$	10.02	$	4.46

(1)

Three Months Ended June 30,

Six Months Ended June 30,


2022

2021

2022

2021
(Millions, except per share amounts)

Numerator

Income from continuing operations

$
12

$
263

$
224

$
531
Income (loss) from discontinued operations, net of income taxes

—

11

(1)

29
Net income

$
12

$
274

$
223

$
560

Denominator

Basic: Weighted average common stock

49.8

49.7

49.8

49.7
Weighted average effect of dilutive securities

Add: net effect of dilutive unvested restricted stock awards ⁽¹⁾

0.1

0.3

0.2

0.2
Diluted

49.9

50.0

50.0

49.9

Basic EPS

Income from continuing operations

$
0.25

$
5.29

$
4.48

$
10.68
Income (loss) from discontinued operations

$
—

$
0.21

$
(0.01)

$
0.58
Net income per share

$
0.25

$
5.50

$
4.47

$
11.26

Diluted EPS

Income from continuing operations

$
0.25

$
5.25

$
4.47

$
10.63
Income (loss) from discontinued operations

$
—

$
0.22

$
(0.01)

$
0.58
Net income per share

$
0.25

$
5.47

$
4.46

$
11.21

~~(1)~~

For the three and six months ended June 30, 2022 and 2021, 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.

~~14. DISCONTINUED OPERATIONS~~

~~LoyaltyOne~~

On November 5, 2021, the separation of Loyalty Ventures Inc. (Loyalty Ventures) 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 Loyalty Ventures 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 Loyalty Ventures common stock for every ~~two~~ and a half shares of the Company’s common stock. Following this distribution, Loyalty Ventures 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 Loyalty Ventures following the equity method of accounting. As of June 30, 2022, the carrying amount of the Company’s ownership interest in Loyalty Ventures, which investment totaled was $17 million, and is included in Other assets in the Consolidated Balance Sheet.

~~Table of Contents~~

~~BREAD FINANCIAL HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)~~

The following table summarizes the results of operations of the Company’s former LoyaltyOne segment, direct costs identifiable to the LoyaltyOne segment, and the allocation of interest expense on corporate debt, for the three and six months ended June 30, ~~2021:~~

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

(Millions)

Total interest income

$
—

$
—

Total interest expense ⁽¹⁾

3

7

Net interest income

(3)

(7)

Total non-interest income

151

327

Total non-interest expenses

130

275

Income before provision from income taxes

18

45

Provision for income taxes

7

16

Income from discontinued operations, net of income taxes

$
11

$
29

~~(1)~~

~~The Company’s Credit Agreement,~~2023 and 2022, an insignificant amount of restricted stock awards were excluded from each calculation of weighted average dilutive common shares 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 three and six months ended June 30, 2021:~~

effect would have been anti-dilutive.

(Millions)

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Depreciation and amortization

$
9

$
18

Capital expenditures

$
4

$
9

Table of Contents

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

Market risk is the risk to earnings or asset and liability values resulting from movements in market prices. Our principal market risk exposure arises from volatility in interest rates and their impact on economic value, capitalization levels, cost of capital and earnings.

There has been no material change from our ~~2021~~2022 Form 10-K (as supplemented by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023) related to our exposure to interest rate risk or other market risks.

~~Item 4.~~

~~Controls and Procedures.~~

Item 4. Controls and Procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II: OTHER INFORMATION

Item 1. Legal Proceedings.

For a description of legal proceedings applicable to our business, see Indemnification and Legal Proceedings in Note 9, “Commitments and Contingencies”, of the Notes to unaudited ~~Condensed~~ Consolidated Financial Statements.

Item 1A.Risk Factors.

~~There have been no material changes to~~

This section supplements and updates certain of the information found under Part I, Item 1A, “Risk Factors ~~previously disclosed in~~”, of our ~~Annual Report on~~2022 Form 10-K, ~~for the year-ended December 31, 2021 or~~as previously supplemented in our Quarterly Report on Form 10-Q for the ~~quarter-ended~~quarter ended March 31, ~~2022.~~2023. The matters discussed below should be read in conjunction with the risk factors set forth in the 2022 Form 10-K, as so supplemented to date. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.

For a discussion of the recent trends and uncertainties impacting our business, see also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Environment”.

There are certain risks associated with our recently-issued Convertible Notes, including that the conversion of the Convertible Notes may dilute the ownership interest of our existing stockholders and affect our per share results and the trading price of our common stock. In addition, the fundamental change provisions associated with the Convertible Notes may delay or prevent an otherwise beneficial takeover attempt of us.

The Convertible Notes that we issued in June 2023 are convertible and, 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. The issuance of shares of our common stock, if any, upon conversion of the Convertible Notes may dilute the ownership interests of existing stockholders, to the extent such dilution is not offset by the Capped Call transactions. Issuances of stock, if any, upon conversion of the Convertible Notes may also affect our per share results of operations. Any sales in the public market of our common stock issuable upon such conversions could adversely affect prevailing market prices of our common stock.

In addition, the indenture governing the Convertible Notes contains certain provisions that allow holders of Convertible Notes to require us to purchase all or a portion of their notes upon the occurrence of certain fundamental changes described in the indenture. These provisions and the provisions in the indenture requiring an increase to the conversion rate of the Convertible Notes for conversions in connection with a make-whole fundamental change may, in certain circumstances, delay or prevent a takeover of us and the removal of incumbent management that might otherwise be beneficial to investors.

Table of Contents

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds.~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table presents information with respect to purchases of our common stock made by or on behalf of us during the three months ended June 30, ~~2022:~~2023:


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
					(Millions)
April 1-30	5,177	$	27.95	—	$	—
May 1-31	6,461	26.99		—	—
June 1-30	6,805	30.68		—	—
Total	18,443	$	28.62	—	$	—

(1)

Total Number of

Approximate Dollar

Shares Purchased as

Value of Shares that

Part of Publicly

May Yet Be

Total Number of

Average Price Paid

Announced Plans or

Purchased Under the
Period

Shares Purchased ⁽¹⁾

per Share

Programs

Plans or Programs

(Millions)
April 1-30

2,950

$
55.74

—

$
—
May 1-31

2,356

52.28

—

—
June 1-30

3,407

47.34

—

—
Total

8,713

$
51.52

—

$
—
During the periods presented, 18,443 shares of our common stock were purchased by the administrator of our Bread Financial 401(k) Plan for the benefit of the employees who participated in that portion of the 401(k) Plan.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

(a)None

(b)None

(c)During the three months ended June 30, 2023, no Section 16 officer or director of the Parent Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

~~(1)~~

During the periods presented, 8,713 shares of our common stock were purchased by the administrator of our Bread Financial 401(k) Plan for the benefit of the employees who participated in that portion of the Plan.

Table of Contents

~~Item 3.~~

~~Defaults Upon Senior Securities.~~

~~None.~~

Item 4.6. Exhibits.

~~Mine Safety Disclosures~~.

~~Not applicable.~~

Exhibits:

EXHIBIT INDEX

Incorporated by Reference

Exhibit No.

Filer

Description

Form

Exhibit

Filing Date

3.1

(a)

Third Amended and Restated Certificate of Incorporation of the Registrant.

8-K

3.2

6/10/16

3.2

(a)

Certificate of Amendment to Third Amended and Restated Certificate of Incorporation of the Registrant.

8-K

3.1

3/24/22

3.3

(a)

Certificate of Designations of Series A Preferred Non-Voting Convertible Preferred Stock of the Registrant.

8-K

3.1

4/29/19

3.4

(a)

Sixth Amended and Restated Bylaws of the Registrant.

8-K

3.2

3/24/22

(a)

Specimen Certificate for shares of Common Stock of the Registrant.

10-Q

8/8/03

10.1

(b)
(c)
(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.

8-K

99.1

4/5/23

10.2

(b)
(c)
(d)

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.

8-K

4.1

5/19/23

10.3

(a)

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.

8-K

4.1

6/13/23

10.4

(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

10.5

(b)
(c)
(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.

8-K

99.2

7/7/23

10.6

(b)
(c)
(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.

8-K

99.1

7/7/23

*31.1

(a)

Certification of Chief Executive Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

Table of Contents

~~Item 5.~~

~~Other Information.~~

~~(a)~~

~~None~~

~~(b)~~

~~None~~Incorporated by Reference

~~Table~~Exhibit No.FilerDescriptionFormExhibitFiling Date*31.2(a)

Certification of Chief Financial Officer of ~~Contents~~

~~Item 6.~~~~Exhibits.~~

~~Exhibits:~~

~~EXHIBIT INDEX~~

HIDDEN_ROW

Incorporated by Reference
Exhibit No.

Filer

Description

Form

Exhibit

Filing Date

3.1

(a)

Third Amended and Restated Certificate of Incorporation of the Registrant.

8-K

3.2

6/10/16

3.2

(a)

Certificate of Amendment to Third Amended and Restated Certificate of Incorporation of the Registrant.

8-K

3.1

3/24/22

3.3

(a)

Certificate of Designations of Series A Preferred Non-Voting Convertible Preferred Stock of the Registrant.

8-K

3.1

4/29/19

3.4

(a)

Sixth Amended and Restated Bylaws of the Registrant.

8-K

3.2

3/24/22

4

(a)

Specimen Certificate for shares of Common Stock of the Registrant.

10-Q

4

8/8/03

10.1

(b)
(c)
(d)

Fourth Amended and Restated Service Agreement, dated as of June 1, 2022, by and between Comenity Bank and Comenity Servicing LLC.

10-D

99.2

6/15/22

*31.1

(a)

Certification of Chief Executive Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

*31.2

(a)

Certification of Chief Financial Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

**32.1

(a)

Certification of Chief Executive Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.

**32.2

(a)

Certification of Chief Financial Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.

*101

(a)

The following financial information from Bread Financial Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income (Loss), (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements.

*104

(a)

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

* ~~Filed herewith~~

~~Table of Contents~~

** ~~Furnished herewith~~

~~(a)~~

Bread Financial Holdings, Inc. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

~~(b)~~

**32.1

~~WFN Credit Company, LLC~~(a)

Certification of Chief Executive Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.

~~(c)~~

**32.2

~~World~~(a)

Certification of Chief Financial ~~Network Credit Card Master Trust~~Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.

~~(d)~~

*101

~~World~~(a)

The following financial information from Bread Financial ~~Network Credit Card Master Note Trust~~Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL: (i) Consolidated Statements of Income (Loss), (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.

*104

(a)

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

Filed herewith

Furnished herewith

(a)Bread Financial Holdings, Inc.

(b)WFN Credit Company, LLC

(c)World Financial Network Credit Card Master Trust

(d)World Financial Network Credit Card Master Note Trust

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Bread Financial Holdings, Inc. has duly caused this quarterly report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.


	BREAD FINANCIAL HOLDINGS, INC.

DATE: August ~~4, 2022~~ 3, 2023

	By:	/s/ RALPH J. ANDRETTA
		Ralph J. Andretta
		President and Chief Executive Officer

DATE: August ~~4, 2022~~ 3, 2023

	By:	/s/ PERRY S. BEBERMAN
		Perry S. Beberman
		Executive Vice President and Chief Financial Officer


Delaware	31-1429215		~~31-1429215~~
(State or other jurisdiction of		~~(I.R.S. Employer~~
incorporation or organization)		(I.R.S. Employer Identification No.)

3095 Loyalty Circle			~~43219~~
Columbus,, Ohio	43219		~~(Zip Code)~~
(Address of principal executive offices)	(Zip Code)


					Page Number
			Part I: FINANCIAL INFORMATION
Item 1.			Financial Statements (unaudited)
			~~Condensed~~ Consolidated Statements of Income for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022	22		16
			~~Condensed~~ Consolidated Statements of Comprehensive Income for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022	23		17
			~~Condensed~~ Consolidated Balance Sheets as of June 30, ~~2022~~2023 and December 31, ~~2021~~2022	24		18
			~~Condensed~~ Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022	25		19
			~~Condensed~~ Consolidated Statements of Cash Flows for the ~~six~~three months ended June 30, ~~2022~~2023 and ~~2021~~2022	27		21
			Notes to ~~Condensed~~ Consolidated Financial Statements	28		22
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)	1		1
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	50		41
Item 4.			Controls and Procedures	50		41

			Part II: OTHER INFORMATION
Item 1.			Legal Proceedings	51		42
Item 1A.			Risk Factors	51		42
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	51		42
Item 3.			Defaults Upon Senior Securities	52		42
Item 4.			Mine Safety Disclosures	52		42
~~Item 5.~~		~~Other Information~~			42
~~Item 6.~~		~~Exhibits~~			43
~~SIGNATURES~~					45
Item 5.	Other Information		52
Item 6.	Exhibits		53
SIGNATURES			55


	Three Months Ended June 30,								Six Months Ended June 30,
	2022			2021			$ Change	% Change	2022			2021			$ Change	% Change
(Millions, except per share amounts and percentages)
Total net interest and non-interest income	$	893		$	764		129	17	$	1,814		$	1,566		248	16
Provision for credit losses		404			(14)		418	*		598			19		579	*
Total non-interest expenses		473			424		49	12		897			826		71	9
Income from continuing operations before income taxes		16			354		(338)	(95)		319			721		(402)	(56)
Provision for income taxes		4			91		(87)	(96)		95			190		(95)	(50)
Income from continuing operations		12			263		(251)	(95)		224			531		(307)	(58)
(Loss) income from discontinued operations, net of taxes		—			11		(11)	*		(1)			29		(30)	*
Net income		12			274		(262)	(95)		223			560		(337)	(60)

Net income per diluted share	$	0.25		$	5.47		(5.22)	(95)	$	4.46		$	11.21		(6.75)	(60)
Income from continuing operations per diluted share	$	0.25		$	5.25		(5.00)	(95)	$	4.47		$	10.63		(6.16)	(58)
Net interest margin ⁽¹⁾		18.6	%		17.3	%		1.3		19.0	%		17.5	%		1.5
Return on average equity ⁽²⁾		2.2	%		56.4	%		(54.2)		19.9	%		61.0	%		(41.1)
Effective income tax rate - continuing operations		22.7	%		25.7	%		(3.0)		29.9	%		26.3	%		3.6



	As of or for the Three Months Ended June 30,							As of or for the Six Months Ended June 30,

	2022			2021			% Change	2022			2021			% Change
(Millions, except per share amounts and percentages)
Credit sales	$	8,140		$	7,401		10	$	15,028		$	13,445		12
PPNR⁽¹⁾		420			340		24		917			740		24
Average credit card and other loans		17,003			15,282		11		16,827			15,533		8
End-of-period credit card and other loans		17,769			15,724		13		17,769			15,724		13
End-of-period direct-to-consumer deposits		4,191			2,398		75		4,191			2,398		75

Return on average assets⁽²⁾		0.2	%		4.8	%	(4.6)		2.1	%		4.9	%	(2.8)
Return on average equity⁽³⁾		2.2	%		56.4	%	(54.2)		19.9	%		61.0	%	(41.1)

Net interest margin⁽⁴⁾		18.6	%		17.3	%	1.3		19.0	%		17.5	%	1.5
Loan yield⁽⁵⁾		25.0	%		23.9	%	1.1		25.3	%		23.9	%	1.4

Efficiency ratio⁽⁶⁾		52.9	%		55.5	%	(2.6)		49.5	%		52.7	%	(3.2)

Tangible common equity / tangible assets ratio (TCE/TA)⁽⁷⁾		7.5	%		6.4	%	1.1		7.5	%		6.4	%	1.1
Tangible book value per common share⁽⁸⁾	$	31.75		$	27.12		17	$	31.75		$	27.12		17
Cash dividend per common share	$	0.21		$	0.21		—	$	0.42		$	0.42		—

Delinquency rate		4.4	%		3.3	%	1.1		4.4	%		3.3	%	1.1
Net loss rate ⁽⁹⁾		5.6	%		5.1	%	0.5		5.2	%		5.0	%	0.2
Reserve rate		11.2	%		10.4	%	0.8		11.2	%		10.4	%	0.8



	Three Months Ended June 30, 2022								Three Months Ended June 30, 2021
	Average Balance		Interest Income / Expense			Average Yield / Rate			Average Balance		Interest Income / Expense			Average Yield / Rate
(Millions, except percentages)
Cash and investment securities	$	3,975	$	9			0.84	%	$	3,498	$	2			0.19	%
Credit card and other loans		17,003		1,064			25.04	%		15,282		913			23.90	%
Total interest-earning assets		20,978		1,073			20.45	%		18,780		915			19.48	%

Direct-to-consumer (retail) deposits		3,865		10			1.07	%		2,255		5			0.98	%
Wholesale deposits		6,994		31			1.78	%		7,580		38			2.00	%
Interest-bearing deposits		10,859		41			1.53	%		9,835		43			1.76	%

Secured borrowings		5,331		28			2.11	%		4,478		31			2.72	%
Unsecured borrowings		1,978		26			5.15	%		2,805		26			3.74	%
Interest-bearing borrowings		7,309		54			2.93	%		7,283		57			3.11	%
Total interest-bearing liabilities		18,168		95			2.09	%		17,118		100			2.34	%

Net interest income			$	978							$	815

Net interest margin ⁽¹⁾				18.6	%							17.3	%



	Six Months Ended June 30, 2022								Six Months Ended June 30, 2021
	Average Balance		Interest Income / Expense			Average Yield / Rate			Average Balance		Interest Income / Expense			Average Yield / Rate
(Millions, except percentages)
Cash and investment securities	$	3,884	$	11			0.56	%	$	3,302	$	3			0.20	%
Credit card and other loans		16,827		2,130			25.32	%		15,533		1,854			23.87	%
Total interest-earning assets		20,711		2,141			20.67	%		18,835		1,857			19.72	%

Direct-to-consumer (retail) deposits		3,572		17			0.94	%		2,070		11			1.08	%
Wholesale deposits		7,258		59			1.62	%		7,811		79			2.03	%
Interest-bearing deposits		10,830		76			1.39	%		9,881		90			1.83	%

Secured borrowings		5,162		48			1.86	%		4,550		64			2.82	%
Unsecured borrowings		1,991		50			5.06	%		2,817		53			3.73	%
Interest-bearing borrowings		7,153		98			2.75	%		7,367		117			3.17	%
Total interest-bearing liabilities		17,983		174			1.93	%		17,248		207			2.40	%

Net interest income			$	1,967							$	1,650

Net interest margin ⁽¹⁾				19.0	%							17.5	%


	June 30,		% of		December 31,		% of
	2022		Total		2021		Total
(Millions, except percentages)
Credit card and other loans outstanding ─ principal	$	16,825	100.0	%	$	16,590	100.0	%
Outstanding balances contractually delinquent
31 to 60 days	$	262	1.6	%	$	219	1.3	%
61 to 90 days		169	1.0			147	0.9
91 or more days		306	1.8			281	1.7
Total	$	737	4.4	%	$	647	3.9	%


	2022		2023		Thereafter		Total
(Millions)
Fixed rate asset-backed term note securities	$	653	$	—	$	—	$	653
Conduit facilities ⁽¹⁾		—		5,525		—		5,525
Total ⁽²⁾	$	653	$	5,525	$	—	$	6,178


					Minimum Ratio to be
			Minimum Ratio for		Well Capitalized under
	Actual		Capital Adequacy		Prompt Corrective
	Ratio		Purposes		Action Provisions
Comenity Bank
Tier 1 Leverage capital ratio ⁽¹⁾	19.1	%	4.0	%	5.0	%
Common Equity Tier 1 capital ratio ⁽²⁾	22.7		4.5		6.5
Tier 1 capital ratio ⁽³⁾	22.7		6.0		8.0
Total Risk-based capital ratio ⁽⁴⁾	24.0		8.0		10.0

Comenity Capital Bank
Tier 1 Leverage capital ratio ⁽¹⁾	16.4	%	4.0	%	5.0	%
Common Equity Tier 1 capital ratio ⁽²⁾	18.0		4.5		6.5
Tier 1 capital ratio ⁽³⁾	18.0		6.0		8.0
Total Risk-based capital ratio ⁽⁴⁾	19.4		8.0		10.0

Combined Banks
Tier 1 Leverage capital ratio ⁽¹⁾	17.7	%	4.0	%	5.0	%
Common Equity Tier 1 capital ratio ⁽²⁾	20.1		4.5		6.5
Tier 1 capital ratio ⁽³⁾	20.1		6.0		8.0
Total Risk-based capital ratio ⁽⁴⁾	21.5		8.0		10.0


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
(Millions, except per share amounts)
Interest income
Interest and fees on loans	$	1,064	$	913	$	2,130	$	1,854
Interest on cash and investment securities		9		2		11		3
Total interest income		1,073		915		2,141		1,857
Interest expense
Interest on deposits		41		43		76		90
Interest on borrowings		54		57		98		117
Total interest expense		95		100		174		207
Net interest income		978		815		1,967		1,650
Non-interest income
Interchange revenue, net of retailer share arrangements		(102)		(85)		(198)		(153)
Other		17		34		45		69
Total non-interest income		(85)		(51)		(153)		(84)
Total net interest and non-interest income		893		764		1,814		1,566
Provision for credit losses		404		(14)		598		19
Total net interest and non-interest income, after provision for credit losses		489		778		1,216		1,547
Non-interest expenses
Employee compensation and benefits		191		162		370		320
Card and processing expenses		84		83		166		161
Information processing and communication		61		55		117		106
Marketing expenses		50		35		80		77
Depreciation and amortization		30		22		51		47
Other		57		67		113		115
Total non-interest expenses		473		424		897		826
Income from continuing operations before income taxes		16		354		319		721
Provision for income taxes		4		91		95		190
Income from continuing operations		12		263		224		531
Income (loss) from discontinued operations, net of income taxes		—		11		(1)		29
Net income	$	12	$	274	$	223	$	560

Basic income per share (Note 13)
Income from continuing operations	$	0.25	$	5.29	$	4.48	$	10.68
Income (loss) from discontinued operations	$	—	$	0.21	$	(0.01)	$	0.58
Net income per share	$	0.25	$	5.50	$	4.47	$	11.26

Diluted income per share (Note 13)
Income from continuing operations	$	0.25	$	5.25	$	4.47	$	10.63
Income (loss) from discontinued operations	$	—	$	0.22	$	(0.01)	$	0.58
Net income per share	$	0.25	$	5.47	$	4.46	$	11.21

Weighted average common shares outstanding (Note 13)
Basic		49.8		49.7		49.8		49.7
Diluted		49.9		50.0		50.0		49.9


										Accumulated
				Additional						Other		Total
	Common Stock			Paid-In		Treasury		Retained		Comprehensive		Stockholders’
Three Months Ended June 30, 2022	Shares	Amount		Capital		Stock		Earnings		Loss		Equity
(Millions)
Balance as of March 31, 2022	49.8	$	1	$	2,163	$	—	$	113	$	(9)	$	2,268
Net income	—		—		—		—		12		—		12
Other comprehensive loss	—		—		—		—		—		(5)		(5)
Stock-based compensation	—		—		9		—		—		—		9
Dividends and dividend equivalent rights declared ($0.21 per common share)	—		—		—		—		(11)		—		(11)
Other	—		—		2		—		—		—		2
Balance as of June 30, 2022	49.8	$	1	$	2,174	$	—	$	114	$	(14)	$	2,275


	Aging Analysis of Delinquent Amortized Cost Credit Card and Other Loans ⁽¹⁾
	31 to 60 days delinquent		61 to 90 days delinquent		91 or more days delinquent		Total delinquent		Current		Total
(Millions)
As of June 30, 2022	$	314	$	217	$	435	$	966	$	16,529	$	17,495

As of December 31, 2021	$	262	$	186	$	401	$	849	$	16,284	$	17,133



	Three Months Ended			Six Months Ended
	June 30, 2022			June 30, 2022
	Number of	Outstanding		Number of	Outstanding
	Restructurings	Balance		Restructurings	Balance
(Millions, except for Number of restructurings)
Troubled debt restructurings that subsequently defaulted	18,037	$	25	39,960	$	54


	Three Months Ended			Six Months Ended
	June 30, 2021			June 30, 2021
	Number of	Outstanding		Number of	Outstanding
	Restructurings	Balance		Restructurings	Balance
(Millions, except for Number of restructurings)
Troubled debt restructurings that subsequently defaulted	31,727	$	42	82,736	$	109


	June 30, 2022								December 31, 2021
	Amortized		Unrealized		Unrealized				Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value		Cost		Gains		Losses		Fair Value
(Millions)
Available-for-sale securities	$	171	$	—	$	(15)	$	156	$	173	$	4	$	(2)	$	175
Equity securities		68		—		—		68		64		—		—		64
Total	$	239	$	—	$	(15)	$	224	$	237	$	4	$	(2)	$	239


	June 30, 2022
	Less than 12 months				12 Months or Greater				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
(Millions)
Available-for-sale securities	$	131	$	(10)	$	25	$	(5)	$	156	$	(15)
Total	$	131	$	(10)	$	25	$	(5)	$	156	$	(15)



(Millions)
2022⁽¹⁾	$	1,334
2023		2,009
2024		854
2025		233
2026		111
Thereafter		98
Total certificates of deposit		4,639


	June 30, 2022				December 31, 2021
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
(Millions)
Financial assets
Credit card and other loans, net	$	15,777	$	18,156	$	15,567	$	17,989
Investment securities		224		224		239		239
Financial liabilities
Deposits		11,028		11,005		11,027		11,135
Debt issued by consolidated VIEs		5,498		5,498		5,453		5,467
Long-term and other debt		1,939		1,870		1,986		2,053


	June 30, 2022
	Total		Level 1		Level 2		Level 3
(Millions)
Investment securities	$	224	$	45	$	179	$	—
Total assets measured at fair value	$	224	$	45	$	179	$	—


	Net		Net Unrealized		Net Unrealized		Foreign		Accumulated
	Unrealized		Gains (Losses)		Gains (Losses)		Currency		Other
	Gains (Losses)		on Cash		on Net		Translation		Comprehensive
Three Months Ended June 30, 2022	on AFS Securities		Flow Hedges		Investment Hedge		Adjustments		Loss
(Millions)
Balance as of March 31, 2022	$	(6)	$	—	$	—	$	(3)	$	(9)
Changes in other comprehensive loss		(5)		—		—		—		(5)
Balance as of June 30, 2022	$	(11)	$	—	$	—	$	(3)	$	(14)


				Total Number of	Approximate Dollar
				Shares Purchased as	Value of Shares that
				Part of Publicly	May Yet Be
	Total Number of	Average Price Paid		Announced Plans or	Purchased Under the
Period	Shares Purchased ⁽¹⁾	per Share		Programs	Plans or Programs
					(Millions)
April 1-30	2,950	$	55.74	—	$	—
May 1-31	2,356		52.28	—		—
June 1-30	3,407		47.34	—		—
Total	8,713	$	51.52	—	$	—

HIDDEN_ROW
			Incorporated by Reference
Exhibit No.	Filer	Description	Form	Exhibit	Filing Date

3.1	(a)	Third Amended and Restated Certificate of Incorporation of the Registrant.	8-K	3.2	6/10/16

3.2	(a)	Certificate of Amendment to Third Amended and Restated Certificate of Incorporation of the Registrant.	8-K	3.1	3/24/22

3.3	(a)	Certificate of Designations of Series A Preferred Non-Voting Convertible Preferred Stock of the Registrant.	8-K	3.1	4/29/19

3.4	(a)	Sixth Amended and Restated Bylaws of the Registrant.	8-K	3.2	3/24/22

4	(a)	Specimen Certificate for shares of Common Stock of the Registrant.	10-Q	4	8/8/03

10.1	(b) (c) (d)	Fourth Amended and Restated Service Agreement, dated as of June 1, 2022, by and between Comenity Bank and Comenity Servicing LLC.	10-D	99.2	6/15/22

*31.1	(a)	Certification of Chief Executive Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

*31.2	(a)	Certification of Chief Financial Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

**32.1	(a)	Certification of Chief Executive Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.

**32.2	(a)	Certification of Chief Financial Officer of Bread Financial Holdings, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.

*101	(a)	The following financial information from Bread Financial Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income (Loss), (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements.

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