Annual report
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Bread Financial | 2025 Annual Report 2025 Annual Report
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Newsweek’s Most Responsible Companies Newsweek’s Most Trustworthy Companies in America Great Place to Work Certified (both U.S. and India) Great Place to Work Best Workplaces in Fintech (India) Benchmark Portal Center of Excellence FORBES Best Large Employer 2025 Highlights Increased Net Income to: $521M (87% increase) Increased Diluted EPS to: $10.96 (98% increase) Increased Tangible Book Value Per Common Share* to: $57.57 (23% increase) 10 of 10 Largest Programs Secured into at Least: 2028 Increased Share Repurchases to: $310M (5.6x increase) Increased Common Stock Dividend by: 10% ($0.23 per share) Grew Consumer Deposits to: $8.5B Consumer Deposits Account for: 48% of 4Q25 total funding * Tangible book value per common share is a non-GAAP financial measure; see the reconciliation included in this Annual Report. The figures above are as of, or for the year ended, December 31, 2025 from continuing operations, and comparative figures are measured against December 31, 2024. MAY 2025-MAY 2026 USA JUN 2025-JUN 2026 INDIA
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Dear Bread Financial Stakeholders Our 2025 financial results reflect disciplined execution, financial resilience, and meaningful progress across our strategic priorities to support significant long-term growth opportunities. Throughout the year, we focused on growing responsibly, improving our credit performance metrics, optimizing our capital structure, expanding direct-to-consumer deposits, and further enhancing our enterprise risk management framework. These actions, combined with consistent operating performance, contributed to credit rating upgrades and positive outlooks from leading rating agencies. Just as importantly, we advanced operational excellence and maintained disciplined expense management through efficiency initiatives, technology modernization, automation, and increased enterprise- wide implementation of AI, driving operating leverage. Additionally, we returned capital to shareholders through share repurchases and an increased dividend, while strengthening our balance sheet. Entering 2026, we believe the foundation we have built positions us well to navigate an evolving economic environment and create sustainable, long-term value for our shareholders, partners, and customers. “Our core business is strong, our team is executing well, and we enter 2026 with momentum supported by solid financial performance, strong cash flow, and a healthy balance sheet.” Ralph Andretta President and CEO 2025 Business Drivers In 2025, consumer financial health remained resilient, driving a 3.0% year-over-year increase in credit sales through higher transaction sizes and increased transaction frequency. We strengthened our portfolio of brand partners by signing and renewing programs across a diversified range of industry verticals, including travel and entertainment, technology, and home. Notable additions include Bed Bath & Beyond, Raymour & Flanagan, Vivint, and crypto.com. The multi- year extension of our long-standing relationship with Caesars Entertainment marked an important milestone, as all our top 10 programs are now renewed into at least 2028. Our differentiated platform, which combines a full product suite, advanced technology, and loyalty-driven customer engagement, helps us attract and retain high quality partners. In parallel, execution and discipline remained central to our strategy in 2025. We delivered positive operating leverage while advancing our ongoing technology transformation, including investments in cloud migration, automation, and artificial intelligence. These efforts enhanced scalability, improved the customer experience, and strengthened our risk management. Adjusted expenses declined year-over-year as our operational excellence efforts -- embedded in our culture -- drove measurable improvement in efficiency.
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Our Financial Performance We delivered meaningful improvement in profitability and credit performance in 2025. Revenue increased modestly, supported by pricing actions and lower funding costs, partially offset by lower late fees as delinquency trends improved. Net interest margin expanded to 18.9%. Average loans declined 1% as higher payment rates and disciplined credit management pressured balances. Credit performance improved throughout the year, resulting in a lower provision for credit losses and a 70-basis point improvement in our reserve rate to 11.2%, while our full-year net loss rate improved to 7.7%, exceeding our outlook. Operational excellence initiatives contributed to positive operating leverage and along with lower provision, a significant increase in income from continuing operations. Additional 2025 Highlights Community Investments: $14M Number of Sustainable Plastic Credit Cards Issued: 1.9M Increase in Paperless Billing Rate by: 7% pts Number of Awards for Positive Workplace and Business Practices: 20 Strong Balance Sheet and Disciplined Capital Allocation We further strengthened our balance sheet in 2025. Tangible book value per common share increased $11, or 23%, reflecting durable earnings and disciplined capital management. We optimized our capital structure, reduced funding costs, and diversified our funding base. Our customer-first, digitally-enabled approach enhanced our Bread Savings direct-to- consumer deposit offerings, which increased 11% year over year to $8.5 billion and represented 48% of average total funding for the fourth quarter of 2025, up from 43% a year earlier. We continued to proactively optimize our capital structure through targeted debt and preferred equity actions. We opportunistically repurchased our outstanding convertible notes and 9.75% senior notes, completed offerings of 8.375% subordinated notes and 6.75% senior notes, and issued $75 million of 8.625% preferred stock, lowering our overall funding costs. While maintaining strong capital levels, we returned $350 million to shareholders through the repurchase of $310 million in shares and payment of $40 million in dividends. These actions reinforce the momentum of our business and our commitment to return capital to shareholders. We consider a strong balance sheet to be foundational to our strategy and are pleased with the progress we made throughout the year. We will continue to be disciplined and strategic with our deployment of capital as we prioritize investing in the business to drive long-term growth and while returning shareholder value through buybacks and dividend payments. Creating Value Through Sustainable Business Practices As a purpose‑driven company, responsible growth is central to how we create long‑term value for our stakeholders. We embed responsible business practices into our operations, decision‑making, and strategy—ensuring our actions align with our values and support sustainable outcomes. Over the past year, we further strengthened this approach by integrating environmental, social, and governance priorities across the business, supported by disciplined execution, sound governance, and a clear commitment to ethical decision‑making. Our sustainability strategy reflects this focus and our promise to empower customers by building financial wellbeing and confidence. It guides how we elevate the customer experience, invest in our people, and serve as a trusted partner in the communities we depend on. By strengthening our environmental commitments and embedding responsible practices throughout the organization, we build resilience, manage risk, and position the company to deliver enduring value. A key source of pride for both myself and our associates is the commitment to community-oriented
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Stakeholder Letter 2 Bread Financial | 2025 Annual Report values that are deeply ingrained in our culture. Our community strategy focuses on collective impact to drive positive societal outcomes. We bring together people from across the organization to create change through partnership-driven philanthropy, community investments, and associate-led volunteerism. We align our community initiatives with our business strategy to drive change across three purpose-driven priorities: Financial Wellness, Thriving Communities and Protecting Our Planet. Our commitment is reflected in the actions we take and the partnerships we maintain through support of organizations like the Bob Woodruff Foundation, Kids Mental Health Foundation, ROX, and Nationwide Children’s Hospital. We amplify our impact through other significant contributions to organizations such as The Nature Conservancy, Canine Companions, and Girls Inc. We are encouraged that our progress continues to be recognized externally, including being named among the World’s Best Companies for Sustainable Growth and America’sMost Sustainable Companies, as well as one of America’s Greatest Workplaces for Culture, Belonging & Community. These recognitions reflect the strength of our strategy and our associates. We will build on this momentum as we advance our ambitions and continue taking deliberate actions that create value for our stakeholders and the communities we serve. Our Associates: Key to our Success Our success begins with the people across our organization who show up every day to serve customers and represent our brand. Their dedication, adaptability, and pride in their work are essential in a fast-paced and constantly evolving operating environment. I am proud of how our associates continue to lead through change, adapt to new challenges, and deliver for our customers and partners. As we execute our strategy and prepare for continued industry and technology evolution, we are investing in our people, ensuring they have the tools, development opportunities, and support needed to grow. To do that, we activated a new operating model for enhanced collaboration and faster delivery of high-quality products and trained over 1,000 associates to better understand their roles and new processes. Additionally, we provide our associates with various learning opportunities to help ensure we develop and maintain a pipeline of talent available to promote associates to leadership positions, commensurate with business needs. During 2025 we provided advancement and new career opportunities for over 700 associates in the U.S. and India. We believe that when associates feel supported and empowered, it leads to stronger execution, better customer experiences, and improved business performance. These efforts help foster a culture of accountability, collaboration, and continuous improvement, enabling high-performing teams and strengthening our ability to attract and retain top talent. We are also supported by a strong leadership team that is key to our ability to deliver results and navigate change. The leadership team is focused on setting clear strategic priorities, allocating resources thoughtfully, and maintaining a culture rooted in accountability and performance. We place a strong emphasis on developing talent and building leadership capabilities at every level of the organization, recognizing that long-term success depends on a deep bench. At the same time, we remain closely connected to our frontline teams and customers, allowing us to respond quickly as operating conditions and consumer expectations evolve. This leadership approach supports consistent execution today while positioning the company for success tomorrow. The Year Ahead Looking ahead to 2026, our 30th year since the company's inception, we are building on the strong foundation established in 2025 as we continue to execute on our strategic priorities and invest in long- term value creation. Our core business is strong, our team is executing well, and we enter the year with momentum supported by solid financial performance, strong cash flow, and a healthy balance sheet. We remain committed to responsible growth, leveraging our expanded product suite to drive sustainable revenue opportunities for our brand partners and customers. At the same time, we will continue to advance our disciplined credit management framework, which has
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Stakeholder Letter Bread Financial | 2025 Annual Report 3 been central to the gradual improvement in our credit performance, proactively adapting our models to balance risk and reward across a range of economic conditions. Operational excellence is integrated into our culture, and in 2026 we will accelerate initiatives focused on technology and AI capabilities, enhanced customer experiences, reduced risk exposure, and enterprise-wide efficiency. While uncertainty and volatility are likely to persist, we believe the progress we made in 2025 positions us well to advance toward our longer-term financial targets, including achieving a mid-20% return on tangible common equity. Supported by strong capital levels, we are well positioned to execute on our capital and growth priorities while maintaining disciplined capital allocation and delivering attractive long-term returns for shareholders. On behalf of the executive team, I want to recognize and thank all our associates for their dedication and commitment to our customers and partners. I also want to thank our brand partners for their collaboration and trust as we work together in an evolving financial environment. Finally, I am grateful to our shareholders for their continued confidence and support as we remain focused on delivering sustainable, long-term value. Ralph Andretta President and CEO Signature Community Partners Ensuring veterans, service members, and their families have stable and successful futures. Nationally ranked, comprehensive pediatric acute care teaching hospital. Providing resources and programs to help girls succeed in acedemics, career, and relationships. Inspiring and preparing young people to succeed in a global economy by developing the skills and mindset for meaningful and successful lives. Our Sustainability Report Details Progress Against Our Strategic Priorities
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UNITED STATES SECURITIES AND EXCHANGEC OMMISSION Washington, D.C. 20549 FORM 10-K (MarkO ne) x ANNUAL REPORT PURSUANT TO SECTION1 3O R1 5(d) OF THES ECURITIES EXCHANGEA CT OF 1934 Fort he fiscal year endedD ecember3 1, 2025 or o TRANSITIONR EPORTP URSUANT TO SECTION1 3O R1 5(d) OF THES ECURITIES EXCHANGEA CT OF 1934 Fort he transition period from to Commission file number0 01-15749 __________________________________________________ BREADF INANCIAL HOLDINGS, INC. (Exactn ameo fr egistranta ss pecified in itsc harter) Delaware 31-1429215 (State or otherj urisdictiono f incorporationo ro rganization) (I.R.S.E mployer Identification No.) 3095 Loyalty Circle4 3219 Columbus,O hio( ZipC ode) (Addresso fp rincipal executive offices) (614) 729-4000 (Registrant’s telephone number, including area code) __________________________________________________ Securities registered pursuant to Section1 2(b) of theA ct: Title of each classT rading symbol Name of each exchange on whichr egistered Common stock, parv alue $0.01 pers hare BFHN YSE Depository Shares,E ach Representinga 1/40thI nteresti na Shareo f8 .625% Non-CumulativeP erpetual PreferredS tock, Series A BFHP rA NYSE Securities registered pursuant to Section1 2(g) of theA ct: None (Title of class) __________________________________________________ Indicateb yc heck mark if ther egistranti sa well-knowns easonedi ssuer,a sd efined in Rule 405 of theS ecuritiesA ct.Y es x No o Indicateb yc heck mark if ther egistranti sn ot requiredt of ile reports pursuantt oS ection1 3o rS ection1 5(d) of theA ct.Y es o No x Indicateb yc heck mark whethert he registrant (1)h as fileda ll reports requiredt ob ef iledb yS ection1 3o r1 5(d) of theS ecuritiesE xchange Acto f1 934 duringt he preceding1 2m onths (orf or such shorterp eriodt hatt he registrant wasr equiredt of ile such reports), and( 2) hasb een subject to such filingr equirementsf or thep ast9 0 days.Y es x No o Indicateb yc heck mark whethert he registrant hass ubmittede lectronically everyI nteractiveD ataF ile requiredt ob es ubmittedp ursuantt oR ule4 05 of RegulationS -T (§232.405 of this chapter) duringt he preceding1 2m onths (orf or such shorterp eriodt hatt he registrant wasr equiredt os ubmit such files).Y es x No o Indicateb yc heck mark whethert he registrant is al arge accelerated filer, an accelerated filer, an on-accelerated filer, as mallerr eportingc ompany, or an emerging growth company. Seet he definitions of “large accelerated filer,”“ accelerated filer,”“ smallerr eportingc ompany,” and“ emerging growth company” in Rule 12b-2o f theE xchange Act. Largea ccelerated filer x Accelerated filer o Non-accelerated filer o Smallerr eportingc ompany o Emerging growth company o If an emerging growth company, indicateb yc heck mark if ther egistranth as elected not to uset he extendedt ransitionp eriodf or complyingw ith anyn ew or revised financiala ccountings tandardsp rovidedp ursuantt oS ection1 3(a) of theE xchange Act. o Indicateb yc heck mark whethert he registrant hasf ileda reporto na nd attestationt oi ts management’s assessmento ft he effectivenesso fi ts internal controlo ver financialr eportingu nderS ection4 04(b) of theS arbanes-OxleyA ct (15U .S.C.7 262(b))b yt he registered public accountingf irmt hatp reparedo ri ssued its auditr eport. x If securitiesa re registered pursuantt oS ection1 2(b) of theA ct,i ndicateb yc heck mark whethert he financials tatementso ft he registrant includedi nt he filingr eflect the correctiono fa ne rrort op reviously issued financials tatements. o Indicateb yc heck mark whethera ny of thosee rrorc orrections arer estatementst hatr equireda recovery analysis of incentive-basedc ompensationr eceivedb ya ny of the registrant’s executiveo fficers duringt he relevant recovery period pursuantt o§ 240.10D-1(b). o Indicateb yc heck mark whethert he registrant is as hell company( as definedi nR ule1 2b-2o ft he Act).Y es o No x As of June 30, 2025, thea ggregate market valueo ft he commons tock held by non-affiliateso ft he registrant wasa pproximately $2.7 billion, basedu pon thec losing sale price$ 57.12 as reportedo nt he NewY orkS tock Exchange. As of February 6, 2026,4 3,115,116 shares of commons tock of ther egistrantw ereo utstanding. DocumentsI ncorporatedB yR eference Certaini nformationc alledf or by Part III is incorporated by referencet oc ertain sections of theP roxy Statementf or the2 026 AnnualM eetingo fo ur stockholders,w hich will be filedw ith theS ecuritiesa nd Exchange Commission not latert han1 20 days afterD ecember3 1, 2025.
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BREADF INANCIAL HOLDINGS,I NC. TABLE OF CONTENTS Item No. Form 10-K Report Page Cautionary Note RegardingF orward-Looking Statements 1 PART I 1. Business 3 1A.R iskF actors 21 1B.U nresolvedS taff Comments5 1 1C.C ybersecurity 51 2. Properties5 2 3. LegalP roceedings 53 4. Mine Safety Disclosures5 3 PART II 5. Market forR egistrant’sC ommonE quity,R elated StockholderM atters andI ssuer Purchaseso f Equity Securities5 4 6. [RESERVED] 55 7. Management’s Discussion andA nalysiso fF inancial Conditiona nd Results of Operations 56 7A. Quantitativea nd QualitativeD isclosures About Market Risk 81 8. FinancialS tatementsa nd Supplementary Data 81 9. Changesi na nd Disagreementsw ith Accountants on Accountinga nd FinancialD isclosure8 1 9A. Controls andP rocedures 81 9B. OtherI nformation8 2 9C. Disclosure RegardingF oreign Jurisdictions that PreventI nspections 82 PART III 10. Directors, ExecutiveO fficersa nd CorporateG overnance 83 11. ExecutiveC ompensation8 3 12. Security Ownership of CertainB eneficialO wnersa nd Management andR elated Stockholder Matters 83 13. CertainR elationships andR elated Transactions,a nd Director Independence8 3 14. PrincipalA ccountingF eesa nd Services 83 PART IV 15. Exhibits andF inancial StatementS chedules 84 16. Form 10-KS ummary 94
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This reporti ncludest rademarks, such as Bread®, BreadF inancial®,B read Cashback®,B read Rewards™,B read Pay® and Bread Savings®, whicha re protectedu ndera pplicable intellectualp ropertyl awsa nd aret he propertyo fB read Financial Holdings,I nc.o ro ur subsidiaries.T hisr eporta lsoc ontains trademarks,s ervice marks, copyrightsa nd traden ames of other companies, whicha re thep ropertyo ft heir respectiveo wners. Solely forc onvenience, our trademarks andt rade names referredt oi nt hisr eportm ay appear without the ® or ™s ymbols, but such references aren ot intendedt oi ndicate,i na ny way, that we will not assert,t ot he fullest extent undera pplicable law, our rightso rt he right of thea pplicable licensort o theset rademarksa nd traden ames. Throughout this report, unlesss tatedo rt he contexti mplies otherwise, thet erms “Bread Financial,”“ BFH,”t he “Company,” “we,” “our”o r“ us”r efer to Bread FinancialH oldings,I nc.a nd its subsidiaries on ac onsolidated basis. References to “ParentC ompany” refert oB read FinancialH oldings,I nc.o na parent-onlys tandalone basis. In addition, in this reportw em ay refert ot he retailers ando ther companiesw ithw hom we do businessa so ur “partners,”“ brand partners,” or “clients,”p rovidedt hatt he useo ft he term “partner,” “partnering” or anys imilart ermd oesn ot mean or imply af ormall egal partnership, andi sn ot meanti na ny wayt oa lter thet erms of Bread Financial’sr elationshipw ith anyt hird parties. We offero ur credit products through our insuredd epositoryi nstitutions ubsidiaries,C omenity Bank andC omenity CapitalB ank, whicht ogether are referredt oh ereina st he “Banks.”
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Cautionary Note Regarding Forward-LookingS tatements This Form 10-Ka nd thed ocuments incorporated by referenceh ereinc ontainf orward-looking statements within the meaningo fS ection2 7A of theS ecuritiesA ct of 1933, as amended, andS ection2 1E of theS ecuritiesE xchange Acto f 1934, as amended. Forward-looking statements give our expectations or forecasts of future events andc an generally be identifiedb yt he useo fw ords such as “believe,” “expect,” “anticipate,”“ estimate,” “intend,” “project,” “plan,” “likely,” “may,” “should” or otherw ords or phrases of similar import. Similarly, statements that describe our businesss trategy, outlook, objectives,p lans,i ntentions or goals also aref orward-looking statements.E xampleso ff orward-looking statements include,b ut aren ot limited to,s tatementsw em aker egarding, andt he guidancew eg ivew ith respect to,o ur anticipated operatingo rf inancial results, future financialp erformance ando utlook, future dividend declarations or stockr epurchases andf uturee conomic conditions. We believe that our expectations areb ased on reasonablea ssumptions.F orward-looking statements,h owever,a re subject to an umbero fr isks andu ncertaintiest hata re difficult to predicta nd, in many cases,b eyond our control. Accordingly, our actualr esults couldd ifferm aterially fromt he projections,a nticipated results or othere xpectations expressedi nt hisr eport, andn oa ssurances canb eg iven that our expectations will prove to have been correct.F actorst hatc ouldc ause theo utcomes to differm ateriallyi nclude,b ut aren ot limitedt o, thef ollowing: •m acroeconomic conditions,i ncluding market conditions,i nflation, interest rates, labor market conditions, recessionary pressureso rc oncerns overa prolongede conomic slowdown, andt he relatedi mpact on consumer spending behavior,p ayments, debt levels,s avings ratesa nd otherb ehaviors; •g lobalp olitical and public health events andc onditions,i ncluding significants hiftsi nt rade policy, such as changest o, or thei mpositiono f, tariffs and/or tradeb arriersa nd consequently anye conomic impacts, volatility, uncertainty andg eopolitical instability resultingt herefrom, as well as ongoing wars andm ilitary conflicts,a nd naturald isasters; •f uturec reditp erformance of our customers, including thel evel of future delinquencya nd charge-off rates; •l osso f, or reductioni nd emandf or services and/or products from, significantb rand partners or customersi nt he highlyc ompetitive marketsi nw hich we operate,i ncluding competitionf romn ew andn on-traditionalc ompetitors, such as financialt echnology companies, andw ithr espect to newp roducts,s ervices andt echnologies,s ucha st he emergenceo ri ncreasei np opularity of agenticc ommerce, digitalp ayment platformsa nd currenciesa nd other alternativep ayment andd eposit solutions; •t he concentrationo fo ur businessi nU .S.c onsumer credit; •i ncreases or volatilityi nt he Allowancef or credit lossest hatm ay result fromt he applicationo ft he current expectedc reditl oss( CECL)m odel; •i naccuraciesi nt he models ande stimateso nw hich we rely,i ncluding our credit risk management models andt he amount of our Allowancef or credit losses; •i ncreases in fraudulenta ctivity; •f ailure to identify, complete or successfully integrateo rd isaggregateb usinessa cquisitions,d ivestituresa nd other strategici nitiatives,i ncluding, with respect to divested businesses, anya ssociated guarantees,i ndemnitieso ro ther liabilities; •t he extent to whicho ur results ared ependent upon our brandp artners, including our brandp artners’ financial performance andr eputation, as well as thee ffectivep romotion ands upporto fo ur products by brandp artners; •i ncreases in thec osto fd oing business, including market interest rates; •o ur levelo fi ndebtedness andi nability to accessf inancial or capitalm arkets,i ncluding asset-backed securitization funding or depositsm arkets; •r estrictions that limit our Banks’a bility to payd ividends to us; •p ending andf uturel itigation; •p ending andf uturef ederal,s tate,l ocal andf oreign legislation, executivea ction, regulation, supervisoryg uidance andr egulatorya nd legala ctions including, but not limitedt o, thoser elated to financialr egulatoryr eforma nd consumer financials ervices practices,a sw ella sa ny such actions that wouldp lace limits on credit cardi nterest rateso rl atef ees, interchange fees or otherc harges; •i ncreases in regulatoryc apitalr equirementso ro ther supportf or our Banks; •f ailures, or breaches in our operationalo rs ecuritys ystems,i ncluding as ar esulto fc yberattacks, unanticipated impactsf romt echnology modernizationp rojects, failureo fo ur informations ecurity controls or otherwise; •l osso fc onsumer informationo ro ther data due to compromised physical or cybers ecurity,i ncluding disruptive attacksf romf inancially motivatedb ad actorsa nd third-partys upplyc hain issues; 1
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•a ny liability or othera dversei mpactsa rising out of or relatedt ot he spinoffo fo ur former LoyaltyOnes egment or theb ankruptcy filings of LoyaltyV enturesI nc.( LVI) andc ertain of its subsidiaries,i ncluding thep ending litigationa gainst us in connectionw ith thes pinoff; and •t hosef actors discussedi nI tem1 Ao ft hisF orm1 0-K, elsewherei nt hisF orm1 0-Ka nd in thed ocuments incorporated by referencei nt hisF orm1 0-K. If one or more of theseo ro ther riskso ru ncertainties materialize, or if our underlying assumptions prove to be incorrect, actualr esults mayv arym aterially fromw hatw ep rojected. Anyf orward-lookings tatementsc ontainedi nt hisF orm1 0-Ks peak onlya so ft he date made,a nd we undertaken o obligation, othert hana sr equiredb ya pplicable law, to update or revise anyf orward-looking statements,w hether as ar esult of newi nformation, subsequent events,a nticipated or unanticipated circumstances or otherwise. 2
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PART I Item 1. Business. We areat ech-forwardf inancial services companyt hatp rovidess imple,p ersonalized payment, lending, ands aving solutions to millions of U.S. consumers. Ourp ayment solutions,i ncluding Bread Financialg eneral purposec reditc ards and savings products,e mpower our customersa nd theirp assions fora betterl ife. Additionally,w ed eliver growth fors omeo f them ostr ecognizedb rands in travel ande ntertainment,h ealth andb eauty,j ewelry ands pecialty apparelt hrough our privatel abel andc o-brandc reditc ards andp ay-over-timep roducts providing choice andv alue to our shared customers. We have continuedt od iversify ourp roductm ix with our brandp artnerst hrough growth of our co-brand credit card programs, which, relativet oo ur privatel abel credit card programs, have higherc redits ales pera ccount anda ni mproved credit risk mix that generally results in highert ransactor balances,l ower delinquenciesa nd late fees,a sw ella sl ower losses. We also offero ur proprietary credit cards along with thee xpansiono fo ur Bread Payp roducts,w hich areo ur installment loansa nd “split-pay” offerings. Ourp artner base consists of largec onsumer-based businesses, including well-knownb rands such as (alphabetically)A AA, AcademyS ports +O utdoors, Caesars, Dell Technologies,H ardR ockI nternational, theN FL,R aymour &F lanigan, Saks FifthA venue,S ignet, Ulta andV ictoria’sS ecret, as well as small- andm edium-sized businesses( SMBs). Ourp artner base is well diversifieda crossa broadr ange of industriesa nd retail verticals, including travel ande ntertainment,s pecialty apparel, health andb eauty, jewelry, sportingg oods,t echnology ande lectronics,a sw ella sh omea nd furniture.W eb elieve our comprehensives uite of payment, lending ands avings olutions,a long with our relatedm arketinga nd data anda nalytics, offers us as ignificantc ompetitivea dvantagew ithp roducts relevant acrossa ll customer segments (Gen Z, Millennial,G en Xa nd Baby Boomers).T he breadtha nd quality of our producta nd serviceo fferings,c oupled with our customer-centric approach,h avee nabled us to establisha nd maintain long-standing partnerr elationships.W eo perate our businesst hrough a singler eportables egment,w itho ur primary source of revenue beingf romI nteresta nd fees on loansf romo ur various credit carda nd otherl oanp roducts,a nd to al essere xtentf romc ontractualr elationships with our brandp artners. With our range of offerings,w ep rovide relevant products acrossc onsumer segments,i ncluding GenZ andM illennialsw ho arem orel ikelyt ob ed rawn to cash flow management products such as our pay-over-time installment loansa nd “split-pay” offerings as compared to GenX andB abyB oomers, whileG en Xa nd Baby Boomersg enerally gravitate more toward rewards andt he convenience of ac o-brando rp rivate labelc reditc ard. In addition, we continue to scalea nd optimize our direct-to-consumer lending, paymenta nd saving products forn ew ande xistingc ustomers,i ncluding through our proprietary credit cardsa nd BreadS avings products.W ea lsoc ontinue to diversifya nd optimizeo ur loan portfolio, prioritizingo ur investment in strong andp rofitablep artners, industriesa nd affinity brands,w hile continuing to developo ur Bread Payp roducts,w hich areo ur installment loansa nd “split-pay” offerings,a nd exploringv arious strategicb usiness opportunitiesa djacent to our core co-brand andp rivate labelc reditc ardb usiness( businessa djacencies)i na ne volving payments,m acroeconomic andr egulatorye nvironment. As of December3 1, 2025, we had$ 18.8 billioni nC reditc arda nd otherl oans froma pproximately 34 milliono pena nd outstanding accounts, with an averageb alance fort he year ended December3 1, 2025 of $1,047 fora ccountsw ith outstanding balances. OurP rimary ProductO fferings Ourp rimary producto fferings consisto fo ur:( i) co-brand andp rivate labelc reditc ardp rogramsw ith retailers ando ther brandp artners; (ii) direct-to-consumer (DTC), proprietary generalp urposec reditc ards;( iii) Bread Payp roducts;a nd (iv) Bread Savings products.T hese producto fferings aren ot exclusive, and, wherea ppropriate,w es eek to introducep artners andc ustomers to our otherp roducto fferings. Co-Brand and PrivateL abel Credit Card Lending Ourc oreb usinessi sw orking with many of thec ountry’s best-knownb rands andr etailers (who we callo ur partners or brandp artners) to drives ales andl oyalty through theirc o-branda nd privatel abel credit cardp rograms. In thesep rograms, we (through our Banks)a re thec reditc ardi ssuer andl endert oo ur partners’c ustomers,a nd we also servicet he loansa nd provide av ariety of otherr elated services,w hich ared escribed in more detail below. Ourc o-branda nd privatel abel partner base,w ith nearly 100 brands andn umerous onlinem erchants,c onsists of many largec onsumer-based businesses, including well-knownb rands such as (alphabetically)A AA, AcademyS ports +O utdoors, Caesars, Dell Technologies,H ardR ock International, theN FL,R aymour &F lanigan, Saks FifthA venue,S ignet, Ulta andV ictoria’sS ecret.O ur partners benefit from our customer insightsa nd analytics, with each of our brandedc reditc ardp rogramst ailoredt oo ur partner’s branda nd 3
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theiru nique customers. Ourc o-branda nd privatel abel program agreements with our brandp artnersa re generallyl ong- term,e xclusive contracts, with termst ypically ranging from 5t o1 0y ears. Ourc o-brandc reditc ards areg eneral purposec reditc ards that can be used to purchaseg oods ands ervices fromt he applicable partner, as well as anyo ther retailers wherever cards from then amed cardn etwork (American Express, MasterCard or Visa)a re accepted.C redite xtendedu ndero ur co-brand credit cards is typically on standard termso nly. Chargesm adeu sing ac o-brandc reditc ard, particularly chargesm adeo utside of thec o-brandp artner,g eneratei nterchange revenue foru s. Relativet oo ur privatel abel loan portfolio,o ur co-brand loan portfolio generally hasl ower revenue yields. In addition, our co-brand customersg enerally have higherc redits coresa nd thereforeh igherc reditl ines,w ith them ajority of our co-brand customersh avinga Vantages core in excesso f6 60. Oura verage outstanding co-brand credit carda ccount balancef or they eare ndedD ecember3 1, 2025 was$ 1,821. Fort he year endedD ecember3 1, 2025, customer spending on our co-brand credit cards compriseda pproximately 52% of our credit sales, whichw eb elieve enablesu st oc apture incrementala nd non-discretionary purchases as consumer spending patternss hift in responset oe volving economic conditions. Privatel abel credit cardsa re partner-brandedc reditc ards used by consumerse xclusively fort he purchaseo fg oods and services fromt hatp articularp artner.C reditu ndera privatel abel credit cardt ypically is extendede ither on standard terms, whichm eansa ccountsa re assessedp eriodici nterestc harges usinga na greed non-promotionalf ixed and/or variable interest rate,o rp ursuantt oa promotionalf inancing offer, involving deferredi nterest, reduced interest or no interest duringa set promotionalp eriod( typicallyb etween sixa nd 60 months). We typically do not charge interchange or otherf ees to our partners when customersu se our privatel abel credit cardst op urchaseo ur partners’g oods ands ervices.F or they eare nded December3 1, 2025, customer spending on our privatel abel credit cards compriseda pproximately 43% of our credit sales. Privatel abel credit card loan balances aret ypically smaller, with an averageo utstanding account balancef or they ear ended December3 1, 2025 of $775; although, we do offer“ bigt icket” purchasef inancing andf inancing form edical andd ental procedures with certainp rivate labelb rand partners,w hich ofteni nvolve larger amounts. Relativet oo ur co-brand loan portfolio,o ur privatel abel loan portfolio generallyh as higherr evenue yields.I na ddition, our privatel abel customers generally have lowerc redits coresa nd thereforel ower credit lines,a nd areg enerally more likelyt ob ed elinquent in their payments,h avea ccountsw ithh ighera nnualp ercentage rates( APRs)a nd have more late fees assessed. We offerd eferredi nterestr ate, as well as lowo rn oi nterestr atep romotionalf inancing to customersi nc ertain of our brand partnerp rograms; in some of thesep rograms, we charge an initial feet oc ustomers entering into promotionalp lan financinga rrangements. In botho ur co-brand andp rivate labelp artner relationships,w er eceive am erchantd iscount fee fromo ur partners to compensate us fora ll or part of thef orgone interest income associated with promotionalf inancing. Thet erms of thesep romotions vary by partner, but generally thel ongert he deferredi nterest, reduced interest or interest- freep eriod, theg reater thep artner’s merchant discount fee. Some offers permit customerst op ay fora purchasei ne qual monthlyp aymentsw ithn oi nteresto ra ta reduced interest rate overa specified period of time,r athert hand eferring or delaying interest charges. Ourc reditc ardp rogram agreements maya lsop rovide forr oyalty payments,o rr etailers hare arrangements, to our brandp artnersb ased on purchasev olumeo ri fc ertain contractuali ncentives arem et,s ucha si ft he economic performance of thep rogram exceedsa contractually definedt hreshold, or forn ew accountsa cquired. These amountsa re recorded asa reductiono fr evenue in thep eriodi ncurred. In additiont ot he retailer sharea rrangements, our program agreements typically provide that thep artiesw ill developa marketingp lant os upportt he program,a long with thet erms by whicha jointm arketingb udgeti sf unded. Marketingc osts forw hich we arer esponsible undert he plan aree xpensed as incurred. Ourp rogram agreements also typically provide that thep artiesw ill developt he termso ft he rewardsp rogram linkedt ot he useo fo ur product, such as opportunitiest or eceive doubler ewards pointsf or purchases made on ap roduct, along with thea llocationo fc osts between thep artiesr elated to the rewardsp rogram.T he credit cardp rogramsw eo perate typicallyp rovide rewardsp oints, whicha re redeemable fora varietyo fp roducts or awards,o rm erchandise discountse arnedb yt he customer having achieveda preset spending level. Otherp rogramsm ay include cash back rewardso rs tatement credits.T he rewardsc an be mailedt ot he cardholder, accessed digitally,o rm ay be immediately redeemable at thep artner’s retail location. Costso fc ardholderr ewards arrangementsa re recognized when ther ewards aree arnedb yt he cardholders anda re generally recorded as ar eductiono fr evenue. As ag eneral matter,t he financialt erms andc onditions governingo ur co-brand andp rivate labelc reditc ardp roducts vary by program andp roductt ype andm ay change overt ime;a lthough, we seek to standardizet he non-financialp rovisions consistently acrossa ll products to thee xtentp ossible. Thet erms andc onditions of allo fo ur credit cardp roducts are governed by ac ardholdera greement anda pplicable laws andr egulations.W ea ssign each credit carda ccount ac reditl imit when thea ccount is initially openedb yt he customer.T hereafter, we mayi ncreaseo rd ecreasei ndividualc reditl imitsf rom time to time,a to ur sole discretion, basedp rimarily on our evaluationo ft he customer’s creditworthinessa nd ability to pay. 4
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Fort he vast majority of accounts, periodici nterestc harges arec alculatedu sing thed aily balancem ethod, whichr esults in daily compounding of periodici nterestc harges.C asha dvances aren ot subject to an interest grace period, andf or some credit card programsw ed on ot provide an interest grace period forp romotionalp urchases.I na dditiont op eriodici nterest charges, we mayi mposeo ther chargesa nd fees on credit card accounts, including, as applicable andp rovidedi nt he cardholdera greement, late fees whereac ustomerh as not paid at leastt he minimump ayment due by ther equiredd ue date, as well as papers tatement fees,w hich we charge on certain credit carda ccountsr eceiving monthlyp aper statements for certain of our brandp artner programs. Typically,e achc ustomerw ith an outstanding amount due on hiso rh er credit card account must make am inimump ayment each month; ac ustomerm ay payt he totala mount due at anyt ime without penalty.W ea lsom ay enteri ntoa rrangementsw ith delinquent customerst om odify theirp aymentsa nd/or waiveo rr educe interest chargesa nd/or fees;w ed on ot offerp rogramsi nvolving thef orgiveness of principal. We make it easierf or customerst om akep aymentsb yo ffering recurring automaticp ayment functionality,a sw ella so ther electronicp ayment methods on allc ardholdera ccounts. Ourp rogram agreements generally permit terminationi nv arious circumstances,i ncluding ab reach of thea greemento ri n thee vent theb rand partnerb ecomes insolvent, filesb ankruptcy,u ndergoesa change in ownershipo rh as am ateriala dverse change in financialc ondition. Certaino fo ur program agreements also provide that upon termination, theb rand partnerh as either theo ptiono rt he obligationt op urchaset he loansg enerated with respect to its program.C orrespondingly, in certain cases when we acquirea newb rand partner, we purchasei ts existingc reditc ardl oanp ortfolio,i fa ny, frome ither theb rand partnero rt he operatoro fi ts priorc ardp rogram. Direct-to-Consumer Credit Cards OurD TC,p roprietary generalp urposec reditc ards consisto fo ur Bread Cashback American ExpressC reditC arda nd our Bread RewardsA mericanE xpressC reditC ard. OurD TC credit cards area ni mportant component of our overall product offerings anda llowu st oc apture incremental, oftenn on-discretionary spenda nd build andr etainc ustomerr elationships. As aD TC product, our proprietary credit cards aren ot dependent upon thep erformance of our brandp artnerso ri mpacted by anyp artner revenue-sharing obligations.W eb elieve that our DTCc reditc ards will continue to increaseo ur total addressablem arket, including within theM illennial andG en Zc ustomers egments. OurB read Cashback American Express Credit Card offers unlimited 2% cashback,n oa nnualf ee,n of oreign transactionf ees,p remiump rotectionb enefits, American Expressl ifestyle benefits,a nd instantm obile acquisition andw eb-to-walletp rovisioning foru se anywhere ApplePay is accepted.O ur BreadR ewards American ExpressC reditC ardo ffers 3% rewardsp ointso ng as station, grocery store, dining andu tility purchases,a mong otherb enefits, as well as instantm obile acquisitiona nd web-to-wallet provisioning foru se anywhere ApplePay is accepted. We currently issueo ur DTCc reditc ards on theA merican Express network. Oura verage outstanding DTCc reditc arda ccount balancef or they ear endedD ecember3 1, 2025 was$ 2,295. BreadP ay Bread Payi so ur paymentt echnology solutionf or our pay-over-time products,w hich includesb otho ur installment loan and“ split-pay” offerings,a sd escribed in more detail below. Through Bread Pay, we offera no mnichannels olutionf or more than 1,400 SMBr etailers andm erchants,a nd we continue to explorea nd pursueg rowtho pportunitiesi nv arious businessa djacencies,i ncluding through thei ntegrationo fo ur suiteo fB read Payp roducts into third-partyp latforms to gain efficientd istributiono fo ur lending solutions. OurB read Payo fferings ando n-boardingc apabilities enhanceo ur growth prospectsa crosst he industriesi nw hich we lend andi ncreaset he addressablem arketo fo ur BreadP ay partners.B read Paya lsoo fferso ur existing co-brand andp rivate labelc reditc ardp artnersa broaderd igitalp roducts uite anda dditionalw hite-label products olutions fort hosec ustomers preferring an on-revolving loan with fixedr epayment termss ucha so ur installment loan and“ split-pay” offerings.W e offera flexible platform andr obusts uite of applicationp rogrammingi nterfaces (APIs) that allowm erchants andp artnerst o seamlesslyi ntegrate onlinep oint-of-salef inancing ando ther digitalp ayment products. OurB read Payi nstallment loansa re fixede xtensions of credit wheret he customer pays downt he outstanding balancei n monthlyi nstallments, primarily overa 3t o8 4m onthp eriod. Thet erms andc onditions of allo fo ur installment loan products areg overned by ac ustomera greementa nd applicable laws andr egulations.I nstallment loansa re generally assessedi nterestc harges overt he term of thel oanu sing fixedi nterestr ates.I na dditiont op eriodici nterestc harges,f or certain of our installment loans, we mayi mposeo ther chargesa nd fees,i ncluding late fees,a ss et forthi nt he applicable customer agreement. Most of our installment loansa re offeredt hrough contractuala greements with our Bread Payp artners andm ay include additionalf eesp aidb yt he partner, particularly wheret he installment loan carries ab elow-marketi nterest rate. 5
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OurB read Pay“ split-pay” loansa re short-term,i nterest-freef inancing, to be repaid by thec ustomeri nf our equal installments, with thef irst paymentd ue at thet ime of purchasea nd ther emaining threep aymentsd ue in subsequent two- week intervals. Thet erms andc onditions of allo fo ur split-pay loan products areg overned by ac ustomera greement and applicable laws andr egulations.F or certain of our “split pay” loans, we mayi mposeo ther chargesa nd fees,i ncluding late fees,a ss et forthi nt he applicable customer agreement. BreadS avings Bread Savings refers to our DTC, or retail, depositp roducts,p rimarily in thef ormo fc ertificates of deposit andh igh-yield savings accounts, including traditionala nd Roth IndividualR etirementA ccounts. OurB read Savings products supportl oan growth andi mprove our funding mix diversification. In recent years, retail deposits have become an increasinglyi mportant source of funds foru s, growing1 1% from$ 7.7 billion as of December3 1, 2024 to $8.5 billiona so fD ecember3 1, 2025. As of December3 1, 2025, averager etaild eposits represented4 8% of our totalf unding sources,w hich is comprisedo f retail andw holesaled eposits, ands ecureda nd unsecuredb orrowings.A so ft hats amed ate, retail deposits that exceeded applicable FederalD eposit InsuranceC orporation( FDIC)i nsurance limits,w hich areg enerally $250,000 perd epositor,p er insuredb ank, pero wnership category, were estimatedt ob e$ 638 million, or 5% of Totald eposits.T he measuremento f estimatedu ninsured depositsa ligns with regulatoryg uidelines. Ouro nlineB read Savings platform is scalable,a llowing us to expand without having to rely on at raditional“ bricka nd mortar”b ranchn etwork.W ec ontinue to focuso ng rowing our Bread Savings operations andb elieve we arew ell- positionedt oc ontinue to benefitf romt he consumer-drivens hift fromb ranchb anking to direct banking. We seek to differentiate our deposit producto fferings fromo ur competitorso nt he basiso fr ates we payo nd eposits,t he qualityo fo ur customer servicea nd thec ompetitivenesso fo ur digitalb anking capabilities. Services Supportingo ur PrimaryP roductO fferings Ourp rimary producto fferings,a sd escribed above,a re supporteda nd enhanced by numerous services andc apabilities that we provide,i ncluding: (i)r iskm anagement, underwriting andf unding services;( ii) credit carda nd otherl oanp rocessing ands ervicing; (iii)f raud prevention; (iv) marketing, andd ataa nd analytics; and( v) our digitala nd mobile capabilities. Risk Management,U nderwritinga nd Funding Services. We provide risk management solutions,u nderwriting andf unding services foro ur co-brand, privatel abel,a nd DTCc reditc ardp rograms,a sw ella so ur Bread Payp artnerships. We processm illions of credit card applications each year usingi nternala lgorithms,e xternalc reditb ureau data and automatedp roprietary scoringt echnology to make responsible risk-based underwritingd ecisions when approving new accountsa nd establishing credit limits.C reditq ualityi sm onitoredo na regular andc onsistent basis. This informationh elps us adjust our strategies when requiredt ob ettere valuatei ndividualc reditr isk. We continue to enhanceo ur credit risk management by evaluating andi nvestingi nn ew technology anda dvancingo ur data andm odelingc apabilities, including through thep otential useo fd eepl earning andA It ools. Doings oa llows us to navigate changing macroeconomic conditions ands tayw ithin our well-establishedr iska ppetite. Credit Card and OtherL oanP rocessing and Servicing.W em anagea nd servicet he accountsw eo riginate foro ur co-brand andp rivate labelc reditc ardp rograms, as well as our DTCc reditc ards andB read Payp roducts.S ince 2022, Fiserv,a leadingg lobalp rovidero fo utsourced payments andf inancial services technology solutions,h as providedo ur core credit cardp rocessing services,w hich hash elpedu se nablei mproveds peed to market,i ncluding thea bility to quickly and seamlesslya dd newp roducts andc apabilitiest hatb enefit our partners andc ardholders.I th as also strengthenedo ur ability to ensure we areo perating on ac ompliant core platform,a nd enablese fficienti ntegrationo fd igitalt echnology, while supportingo ur data anda nalytics capabilitiesa nd improvingo perationale fficiencies.S ee also “—Technology/Systems” belowf or additionali nformationr egarding our approach toward thes ystems andt echnologies we usei nt he operation of our business. Ourc ustomerc areo perations arei nfluenced by our retail heritage,a nd we view everyc ustomert ouchp oint as an opportunity to provide an exceptionale xperience. Ourc ustomerc areo perations offero mnichannels ervicing, including through phone,m ail, email, text,s martphone applicationa nd thew eb.W eb lend domestic ando ff-shorel ocations as an important part of our servicings trategy, to maintain servicea vailability beyond typical work hoursi nt he UnitedS tatesa nd to optimize our cost structure. We provide focusedt rainingp rogramsi na ll areas,a nd have developeda nA Ip owered knowledge management solution foro ur customer carea ssociates,i no rder to achieve theh ighest possiblec ustomers ervice standardsa nd customer experience. We monitoro ur performance by conductings urveys with our partners ando ur 6
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customersa nd in our 2025 survey,c onductedb yM edallia,I nc., we have receiveda NetP romoterS core of 54.5; survey results above 50 arec onsidered excellent or superior by industrys tandards. In addition, in 2025 fort he twentieth consecutivet ime, we were certified by BenchmarkPortala sa Center of Excellencef or theq uality of our operations,t he most prestigious customer care industryr anking attainable.F oundedb yP urdue University in 1995, BenchmarkPortali sa globall eader of best practicesf or customer carec enters. Oure fforts to collecto nd elinquent accountsa re made firstb yo ur collectiond epartment.A fter an account becomes3 0 days past due,a proprietary collections coring algorithm automatically scores ther isko ft he account becomingf urther delinquent;b ased upon thel evel of risk indicated,a collection strategy is deployed, whichm ay include tech-enabled, targeted collections strategies to engage with cardholders in them oste fficientc ommunicationc hannel. If aftere xhausting alli n-housec ollectione ffortsw ea re unablet oc ollect on thea ccount,w em ay engage collectiona gencieso ro utside attorneyst oc ontinue thosee fforts, or sell thec harged-off balances. Fraud Prevention. We monitoro ur customers’ accountst oh elpp revent,d etect,i nvestigatea nd resolvef raud acrosst he various products we offer. We employ av ariety of fraudm itigation controls duringt he lifecycleo fa ccounts, including capabilitiesr elated to account acquisition, transactionp rocessinga nd account management.W eu se proprietary custom fraud models developedb yo ur data scientists,t ogether with externally-sourced scores ands olutions used acrosst he industry, to seek to identifyf raud andp rotect our stakeholders,i ncluding our customersa nd brandp artners. We leverage device intelligence technology to risk-assess digitala pplications ando nlines ervicing channels,a nd we subject monetary transactions to authorizationa nd approvals crutinyt hrough av ariety of techniquesd esignedt oh elpi dentifya nd halt fraudulentt ransactions,i ncluding machine-learning models,r ules-based decision-making logic, reporta nalysis, data integrity checksa nd manuala ccount reviews. We have ac ross-functionalt eam of risk,f raud ands ecurity professionals that regularly evaluate ande nhanceo ur fraud-prevention capabilities andm onitore mergingi ndustryt rends ands olutions. Marketing, and Data and Analytics.T hrough our integrated marketingp rogramsa nd campaigns,w ed esigna nd implement strategies that assist our partners in acquiring, retaininga nd expanding customer engagement to driveam orel oyal, frequent shoppert hati ncreases customer lifetime value. Ourp rogramsc apture transactiond atat hatw ea nalyze to better understand consumer behavior,w hich we uset oi ncreaset he effectivenesso fb otho ur ando ur partners’m arketing activities. Through our marketingt echnology, data anda nalytics capabilities, including theu se of machinel earning andA I technology, we focuso nd atai nsightst hatd rive actionables trategiesa nd enhancer evenue growth andc ustomerr etention. We usem ulti-channel marketingp latforms andc apabilities,i ncluding in-store,w eb,p ermission-basede mail, permission- basedm obile messaging andd irect mail to engage customersi nt he channels of theirc hoice. Digitala nd Mobile Capabilities.W ea re constantly seekingt oi mprove our digitala nd mobile capabilities, in ordert o supporta nd enhanceo ur producto fferings,d rive growth foro ur brand partners andi mprove thec ustomere xperience.W e seek to provide as eamless, personalized digitala nd mobile experience that is responsivet oo ur customers’ evolving expectations.R ecenti mprovementst oo ur digitala nd mobile capabilitiesi nclude APIe nhancements,e nricheds oftware developmentk its, virtualc ardc ommercialization, ando ur enhanced,f ully integrated Bread Financialm obile app. We are continually seekingt oe nhancec ustomers’s elf-service capabilities in our digitalc hannels,w hich allowc ustomers to addresst heir needsw hena nd how they want,w hile also generatinge fficiencies by reducingt he cost to serveo ur customers. In addition, through our Enhanced DigitalS uite,a group of marketinga nd credit applicationf eatures,w eh elpo ur brand partners capitalizeo no nlinet rends by bringing through more qualifieda pplicants,a higherc redits ales conversionr atea nd ah ighera verage purchasev alue.E nhanced DigitalS uite includesa unified software developmentk it that providesa ccess to our broads uite of products;i ta lsop romotesc reditp ayment options,r elevantt ot he customer,e arlieri nt he shopping experience. Thec redita pplicationi ss imple ande asy, offers prefilledf ieldsa nd prescreensc ustomers in real-time,a llowing fori mmediatec redita pprovalw ithout leavingt he brandp artner’s site,t hereby improving thec ustomer’s shopping experience ando ur brandp artner’s checkout conversionr ate. Across allp roducto fferings,w er emainf ocused on creating an exceptionald igitala nd mobile experience foro ur customers, whichw eb elieve improveso ur competitivep ositiona nd drives future growth. Fora dditionali nformation relatingt oo ur business, businesss trategya nd products ands ervices,s ee “Item7 .M anagement’s Discussion andA nalysiso fF inancial Conditiona nd Results of Operations –B usinessE nvironment.” 7
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Technology/Systems We leverage informationa nd technology to help achieve our businesso bjectives andt od evelop andd eliver products and services that satisfyo ur brandp artners’ andc ustomers’n eeds, allw hile seekingt oe nhanceo ur governance andc ontrol overt he availability, qualitya nd security of our data. Ak ey part of our strategicf ocus is thed evelopmenta nd useo fr esilient,e fficienta nd flexible computer ando perational systemst od eliver growth foro ur brandp artners, supports ophisticated marketinga nd account management strategies, serviceo ur customers, andd evelop ands calen ew andd iversified products.W eb elieve thec ontinuedd evelopmenta nd integrationo ft hese systemsi sa ni mportant part of our effortst or educec osts,i mprove quality ands ecurity,a nd provide faster,m oref lexiblet echnology services.C onsequently,w ec ontinuously review capabilitiesa nd developo ra cquire systems, processesa nd competencies to meet our unique businessr equirements, including strategici nvestmentsi nc loud capabilities, machinel earninga nd AI,e mergingt echnologies anda utomation, andd ataa nalytics. As part of our continuous effortst or eviewa nd improveo ur technologies,w em ay either develops uchc apabilities internally or uset hird-party servicep roviders whoh avet he ability to deliver technology that is of higherq uality,l ower cost,o rb oth. Specifically,w er elyo nt hird partiest oh elpu sd eliver systemsa nd operationali nfrastructure, these relationships include (but aren ot limitedt o): Amazon Web Services andM icrosoft foro ur cloud infrastructure,a nd Fiserv foro ur credit cardp rocessing services,a sp reviously reported. We arec ommitted to safeguardingo ur customers’ ando ur owni nformationa nd technology, implementingb ackup and recovery systems, andg enerally require thes ameo fo ur third-partys ervice providers.W et akem easures that ared esigned to mitigatea gainst knowna ttacks andu se internal ande xternalr esources to scan forv ulnerabilitiesi nt he platforms, systems, anda pplications necessary ford eliveringo ur products ands ervices.W ec annot guarantee, however,t hato ur cybersecurity risk management program andp rocesses, or thoseo fo ur third-partys ervice providers,i ncluding our policies, controls or procedures,w illb ef ully implemented,a dheredt o, or effectivei np rotectingb otho ur customers’ ando ur own informationa nd technology fromc yberattacks. Fora discussion of ther isks associated with our useo ft echnology systems, see“ Part I—Item 1A.R iskF actors”u ndert he heading“ Cybersecurity,T echnology andV endor Risks.” Disaster andC ontingency Planning We operate,e itheri nternally or through third-partys ervice providers,m ultiple data processing centers to storea nd otherwisep rocesso ur customer transactiond ata. Givent he significanta mount of data that we or our third-partys ervice providers manage,m ucho fw hich is real-time data to supporto ur partners’c ommercei nitiatives,w eh avee stablished redundant capabilitiesf or our data centers.W eh avean umbero fs afeguardsi np lace that ared esignedt op rotect us from data-relatedr isks andi nt he evento fa disaster,t or estore our data centers’s ystems.F or additionali nformation, see“ Item 1A.R iskF actors– Risk Management –O perationalR isk.” Protectiono fI ntellectualP ropertya nd OtherP roprietary Rights We rely on ac ombinationo fp atents,c opyrights, trademarks,a nd trades ecrets( andc orresponding laws relatingt os uch intellectualp roperty),c onfidentiality procedures,c ontractualp rovisions,a nd others imilarm easures to protect our technology andp roprietary informationu sedi no ur business. We generally enteri ntoc onfidentiality agreements with our employees,c onsultantsa nd third-partyb usinessp artnerst op rotect our proprietary information. We controla ccesst oa nd distributiono fo ur technology andi ts relatedd ocumentation ando ther proprietary informationt hrough licensesa nd contractualr estrictions.D espite our effortst op rotect our technology andp roprietary rights, unauthorized partiesm ay attemptt oc opy or otherwiseo btaint he useo fo ur technology that we consider proprietary,a nd thirdp artiesm ay attemptt o develops imilar technology independently.W eh avean umbero fd omestic andf oreign patentsa nd pending patent applications.W ep ursuep rotectiono fo ur trademarks through registration, primarily in theU nitedS tates, although we also have either registered trademarks or applications pending forc ertain marksi no ther countries.W em aintaina trades ecret program forc ertain proprietary intellectualp ropertyf or whichw ec hoosen ot to seek patent or copyright protection. No individualp atent, copyright,o rt rademark is material to us or our business. Competition Them arkets foro ur products ands ervices areh ighlyc ompetitive,c ontinuously changing, highlyi nnovative, ands ubject to regulatorys crutinya nd oversight.W ec ompete with aw ider ange of businesses, including majorf inancial institutions and financialt echnology firms, or fintechs. Some of our currenta nd potentialc ompetitors mayb el argert hanw ea re,h ave 8
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larger customer bases, greaterb rand recognition, longero peratingh istories,a dominanto rm ores ecure position, broader geographics cope,v olume, scale, resources,a nd market sharet hanw ed o, or offerp roducts ands ervices that we do not offer. Otherc ompetitorsm ay be smallero ry oungerc ompanies that arem orea gile in responding quickly to regulatorya nd technologicalc hanges. Many of thea reas in whichw ec ompete evolve rapidlyw ith innovativea nd disruptivet echnologies, emerging competitors,b usinessa lliances,s hiftingc onsumer habits andu sern eeds, prices ensitivity on thep arto f merchantsa nd consumers, andf requent introductions of newp roducts ands ervices.T he consumer credit andp ayments industryi sh ighlyc ompetitive andw ef ace an increasinglyd ynamic industrya se mergingt echnologies entert he marketplace. In competingt oa cquire andr etaint he businesso fb rand partners andc ustomers,o ur primary competitioni sw ith other financiali nstitutions whosem arketingf ocus hasb eeno nd evelopingc reditc ardp rogramsw ith attractivev alue propositions,h ighs pend andc onsequentially larger evolving balances.T hese competitors furtherd rive theirb usinessesb y cross-sellingt heir otherf inancial products to theirc ardholders.W ea lsoc ompete forb rand partners,i ncluding on program financiala nd othert erms,u nderwritings tandardsa nd capabilities, marketinge xpertise, servicel evels, theb readth of our producta nd serviceo fferings,d igital, technologicala nd integrationc apabilities, brandr ecognitiona nd reputation. We focuso nr etailers andb rand partners that understand thec ompetitivea dvantageo fb uildinga loyalc ustomerb ase. We have al ong historyo fe ffectivelya nalyzing transactiond ataw eo btaint hrough partnerl oyalty programsa nd managing our lending programs, including customer specifict ransactiond ataa nd overall consumer spending patterns, to developa nd implement successful marketings trategiesf or our partners. As af ormo fp ayment,o ur customersh aven umerous consumer credit ando ther paymento ptions availablet ot hem, ando ur products competew ithc ash, checks,e lectronicb ankt ransfers,d ebit cards,g eneral purposec reditc ards (including thoseo n theV isa, MasterCard,A merican Expressa nd DiscoverC ardn etworks),v arious formso fc onsumer installment loansa nd split-payp roducts,o ther privatel abel credit cardb rands,p repaid cards, digitalw allets andm obile payments olutions,a nd othert oolst hats implifya nd personalizes hopping experiencesf or consumersa nd merchants. Among otherf actors, our products competew itht hese otherf orms of paymento nt he basiso fi nterestr ates andf ees,c reditl imits,r ewardp rograms ando ther productf eatures. As thep aymentsi ndustryc ontinuest oe volve,i nt he future we expect increasingc ompetition fromn ew andn on-traditionalc ompetitors,s ucha sf intechs, andw ith respect to newp roducts,s ervices andt echnologies, such as thee mergence or increase in popularity of agenticc ommerce( in whicha utonomous AI agents initiate ande xecute transactions on behalf of users),d igitalp ayment platformsa nd currencies, including stablecoins, ando ther alternative paymenta nd deposit solutions.F or example, in July 2025, PresidentT rump signedt he Guidinga nd Establishing National Innovationf or U.S. StablecoinsA ct,o rt he “GENIUSA ct,” into law, establishing af ederal licensing ands upervisory framework forp ayment stablecoinsa nd theiri ssuers. TheG ENIUSA ct maya cceleratea nd increaset he competitiont hat non-traditionalf inancial institutions poset ob anks’p ayment services,a sw ella sa dversei mpactst oo ur deposit business andt he valuep roposition of our customer loyalty andr ewards programs. To thee xtentt he useo fs tablecoinsm atures, stablecoinsc ould achieveb road adoptiont hrough regulated issuance by traditionalb anks,f intechsa nd otherm arket entrants,a sw ella sb eing integrated in closed loop systemso peratedb yl arge digitale cosystemsa nd platforms. Moreover, some of our competitors, including newa nd emerging competitors in thed igitala nd mobile payments space, aren ot subject to thes amer egulatoryr equirementso rl egislatives crutinyt ow hich we are, whichc ouldp lace us at ac ompetitive disadvantage. In our retail depositsb usiness, we have acquisitiona nd servicingc apabilitiess imilart oo ther direct-banking competitors. We competef or depositsw itht raditionalb anks,a nd in seekingt og rowo ur Bread Savings platform,w ec ompete with other banks that have direct-banking models similart oo urs. Competitiona mong direct banks is intenseb ecause onlineb anking providesc ustomers thea bilityt oq uickly ande asily deposit andw ithdraw funds,a nd opena nd closea ccountsi nf avor of products ands ervices offeredb yc ompetitors.A sn oted above,t ot he extent theu se of stablecoinsm atures,s tablecoinsm ay also servea sa na lternativet ot raditionald eposits. Supervisiona nd Regulation We operate primarily through ouri nsured depository institutions ubsidiaries,C omenity Bank (CB) andC omenity Capital Bank (CCB),w hich,a sn oted above,t ogether arer eferredt oh ereina st he “Banks.” Federala nd statel awsa nd regulations extensivelyr egulatet he operations of theB anks.T hisr egulatoryf ramework is intendedt op rotect individualc onsumers, depositors,t he Deposit InsuranceF und( DIF) of theF DICa nd theU .S.b anking system as aw hole, rather than for the protectiono fs tockholders andc reditors.S et forthb elow is as ummary of thes ignificantl awsa nd regulations applicable to each of CB andC CB. Thed escriptiont hatf ollows is qualifiedi ni ts entiretyb yr eference to thef ullt exto ft he statutes, regulations,a nd supervisoryp oliciest hata re described. Such statutes,r egulations,a nd supervisoryp oliciesa re subject to ongoing review by Congress, statel egislatures, andf ederal ands tate regulatorya gencies. Ac hange in anyo ft he statutes, 9
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regulations,o rs upervisoryp oliciesa pplicable to CB and/or CCB, or in thel eadership or directiono fo ur regulators, could have am ateriale ffect on our operations or financialc ondition. Further, while thec urrent PresidentialA dministrationa nd thec ongressionalm ajoritiesi nt he U.S. Senate andH ouseo fR epresentatives supporta reduced regulatoryb urden, the scope of regulationa nd thei ntensity of supervisionw illl ikelyr emainu ncertain even in thec urrent regulatorya nd political environments. CB is aD elaware-chartered bank operatinga sa credit cardb anku ndera CompetitiveE quality Banking Act( CEBA) exemptionf romt he definition of “bank” undert he Bank HoldingC ompany Act( BHCA ct). To maintain its status as a CEBA credit cardb ank, CB must continue to comply with thef ollowing requirements: •e ngage onlyi nc reditc ardo perations; •d on ot accept demand depositso rd eposits that thed epositorm ay withdraw by check or similarm eansf or payment to thirdp arties; •d on ot accept anys avings or time depositso fl esst han$ 100,000, exceptf or deposits pledgeda sc ollateralf or its extensions of credit; •m aintaino nlyo ne office that accepts deposits;a nd •d on ot engage in theb usinesso fm akingc ommerciall oans (exceptc reditc ardl oans to certain smallb usinesses). CB is subject to prudentialr egulation, supervisiona nd examinationb yt he Delaware Office of theS tate Bank Commissioner, as itsc harteringa uthority,a nd theF DICa si ts primary federalr egulator.C B’sd eposits arei nsured by the FDIC up to thea pplicable deposit insurancel imits in accordancew ith applicable lawa nd FDIC regulations.C Bi sn ot a member of theF ederal ReserveS ystem. CCB is aU tah-charteredi ndustrialb ank. As an industrialb ank, CCBi se xemptf romt he definitiono f“ bank” undert he BHC Act. CCB is subjectt op rudentialr egulation, supervisiona nd examinationb yt he Utah Department of Financial Institutions (UDFI), as itsc harteringa uthority,a nd theF DICa si ts primary federalr egulator.C CB’sd eposits arei nsured by theF DICu pt ot he applicable deposit insurancel imitsi na ccordance with applicable lawa nd FDIC regulations.C CB is not am embero ft he FederalR eserve System. PlannedM ergero fC Bw ith and into CCB On December1 7, 2025, we fileda pplications with thef ederal andr espectives tate banking regulatorsf or permission to mergeC Bw itha nd into CCB, with CCB beingt he survivinge ntity.P ending regulatorya pprovala nd thee xpiration of any applicable waiting periods,t he merger of CB andC CB is expected to occuri nt he second half of 2026. Thep roposed merger is designedt os treamlinea nd reducet he regulatoryc omplexity of our banking operations andi se xpected to result in an umbero fo perationala nd financialb enefits,i ncluding as implifiedr egulatoryf ramework,i mproveda ccesst ot he retail deposit funding market,g reater flexibility in managing our securitizationa ctivities, ando ther liquidity andc apital risk management benefits.T he merger is not expected to have as ignificanti mpact on our consolidated financialp osition, results of operations,o rl iquidity.A ssumingt he merger is consummated, ther esultingb ank, CCB, wouldr emain headquartered in Draper,U tah, andw ouldh avet otal assets of approximately $21.4 billion, totald eposits of approximately $14.1 billion, andT ierIc apital of $2.8 billion, in eachc asea so fD ecember3 1, 2025, on ap ro formab asis.T he resulting bank wouldb ea Utah-chartered industrialb ankt hati sn ot am embero ft he FederalR eserve System.W ec annot provide anya ssurancet hatt he merger will be approved, or that we will be successful in realizingt he expected operationala nd financialb enefitso ft he merger. Consumer FinancialP rotectionB ureauS upervision TheC onsumer FinancialP rotectionB ureau (CFPB)p romulgates regulations fort he federalc onsumer financialp rotection laws ands upervises ande xamines largeb anks (thosew ithm oret han$ 10 billiono ft otal assets)w ith respect to thosel aws. Banks in am ulti-bank organization, such as CB andC CB,a re subject to supervisiona nd examinationb yt he CFPB with respect to thef ederal consumer financialp rotectionl awsi fa tl east one bank reports totala ssets over$ 10 billionf or four consecutiveq uarters, whichC CB has, andt hus bothB anks ares ubject to supervisiona nd examinationb yt he CFPB with respect to federalc onsumer protectionl aws. Regulationo fB read FinancialH oldings,I nc. Becausen either CB nor CCBi sc onsidered a“ bank” within them eaningo ft he BHCA ct,t he Parent Companyi sn ot a bank holding company( BHC) subject to regulationt hereunder. If anyo fo ur entitiesb ecames ubject to regulationa sa 10
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BHC, among othert hings,B FH ando ur non-bank subsidiaries wouldb es ubject to regulation, supervisiona nd examination by theB oard of Governorso ft he FederalR eserve System (Federal ReserveB oard or FRB) ando ur operations wouldb e limitedt oa ctivitiest hata re closelyr elated to banking. If theP arentC ompany were to qualifya sa financialh olding company( FHC),o perations couldi nclude thosea ctivitiest hata re financiali nn ature. However, underS ection6 16 of the Dodd-FrankA ct,a ny companyt hatd irectly or indirectly controls an insuredd epository institutioni sr equiredt os erve as a source of financials trengtht oi ts subsidiary institutiona nd mayn ot conducti ts operations in an unsafeo ru nsound manner. This doctrinei sc ommonlyk nowna st he “Source of Strength” doctrine. As such ac ompany, this meanst hatB FH must standr eadyt ou se availabler esources to provide adequate capitalf unds to theB anks duringp eriods of financials tresso r adversity ands houldm aintaint he financialf lexibilitya nd capital-raisingc apacity to obtaina dditionalf unding resourcest o supportt he Banks.T hiss upportm ay be requireda tt imesw henB FH might otherwiseh aved etermined not to provide it or when doing so is not otherwisei nt he interestso fB FH or itss tockholders or creditors.B FH’s failure to meet its obligation to servea sa source of strengtht ot he Banks mayb ec onsidered an unsafea nd unsound banking practice. In that regard, although theP arentC ompany is not aB HC,w es eek to maintain capitall evelsa nd ratiosi ne xcesso ft he minimums requiredf or aB HC. Separately,u nderU tahs tate lawt he Parent Companyi ss ubject to examinationb yt he UDFI. Undert hats tatutory authority, theU DFIs ubjectst he Parent Companyt op eriodici nspections to determinet he degree to whichi ts ervesa ss ource of financiala nd managerial strengtht oC CB, andt ou nderstand theb usinessa ctivitiesc onductedo utside CCB. Regulationo ft he Banks Federala nd stateb anking laws andr egulations govern,a mong othert hings,t he scope of ab ank’sb usiness, thei nvestments ab ankm ay make,t he reserves againstd eposits ab ankm ustm aintain, thel oans ab ankm akes andc ollaterali tt akes,t he activitieso fa bank with respectt om ergers anda cquisitions,m anagementp ractices,a nd numerous othera spectso fo ur operations. Examinations by regulatorsc onsider not onlyc ompliancew itha pplicable laws,r egulations,a nd supervisoryp olicieso ft he agency,b ut also capitall evels, assetq uality,r iskm anagemente ffectiveness, thea bility andp erformance of management andt he board of directors, thee ffectivenesso fi nternalc ontrols,e arnings,l iquidity,a nd various otherf actors. Following examinations by itsb ankr egulators, theB anks receives upervisoryf indings andu ltimately area ssigneds upervisory ratings.E xaminationr eports,s upervisoryr atings,a nd othera ctions undert hiss upervisoryf ramework,w hich are considered confidentials upervisoryi nformation, can impact thec onduct, growth,a nd profitability of our operations, possiblyt oa significantd egree. RegulatoryC apitalR equirements TheB anks ares ubjectt oc ertain risk-based capitala nd leverage ratio requirementsu ndert he BaselC ommitteeo nB anking Supervisions tandardized approach forU .S.b anking organizations adopted by theF DIC. Theser ules implement theB asel III internationalr egulatoryc apital standardsi nt he United States,a sw ella sc ertain provisions of theD odd-FrankA ct. Theseq uantitativec alculations arem inimums,a nd theF DICm ay determinet hata bank, basedo ns ize, complexity,o rr isk profile,m ustm aintaina higherl evel of capitalt oo perate in as afea nd sound manner. Undert he BaselI II capitalr ules,t he Banks’a ssets,e xposures,a nd certain off-balance sheet items ares ubject to risk weightsu sedt od etermine CB’s andC CB’sr isk-weighted assets,w hich then areu sedt od eterminet he minimumc apital that CB andC CB shouldk eepa sr eservest or educet he risk of insolvency.T hese risk-weighted assets areu sedt oc alculate thef ollowing minimumc apital ratiosf or theB anks: •C ommonE quity Tier 1( CET1)R isk-BasedC apital Ratio –t he ratio of CET1 capitalt or isk-weighted assets.I n thec alculation of CET1 capital, we follow theB asel IIIS tandardized Approach.C ET1 capitalp rimarily includes commons tockholders’e quity subject to certain regulatorya djustmentsa nd deductions,i ncluding forg oodwill and intangiblea ssets,n et,c ertain deferredt ax assets,a nd accumulated otherc omprehensive income or loss. •T ier1 Risk-Based CapitalR atio –t he ratio of Tier 1c apitalt or isk-weighted assets.I nt he calculationo fT ier1 capital, we follow theB asel III Standardized Approach.T ier1 capitali sp rimarily comprisedo fC ET1 capital, perpetualp referreds tock,a nd certainq ualifyingc apital instruments. Foru s, until thef ourth quarter of 2025 when we completedo ur firsti ssuance of perpetualp referreds tock,t hisr atio wast he same as theC ET1 Risk-Based CapitalR atio becausew ed id not have anyp erpetual preferreds tock or otherq ualifying capitali nstruments that woulda djustt he ratio. 11
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•T otal Risk-Based CapitalR atio –t he ratio of totalc apital,i ncluding CET1 capital, Tier 1c apital, andT ier2 capital, to risk-weighted assets.I nt he calculationo ft otal capital, we followt he BaselI II Standardized Approach. Tier 2c apital primarilyi ncludesq ualifying subordinatedd ebta nd qualifying allowancef or credit losses. TheB anks area lsos ubjectt ot he requirementso fa fourth ratio, theL everager atio,w hich itselfd oesn ot incorporater isk- weighted assets: •T ier1 Leverage Ratio –t he ratio of Tier 1c apitalt oq uarterly averagea ssets (net of goodwill, certain other intangiblea ssets,a nd certaino ther deductions). TheB asel III capitalr ules require am inimumC ET1R isk-BasedC apitalR atio of 4.5%,a minimumT ier1 Risk-Based CapitalR atio of 6.0%,a nd am inimumT otal Risk-Based CapitalR atio of 8.0%.I na dditiont om eetingt he minimum capitalr equirements, undert he BaselI II capitalr ules,t he Banks must also maintain ther equired2 .5% Capital ConservationB uffert oa voidb ecomings ubject to restrictions on capitald istributions andc ertain discretionary bonus payments to executivem anagement. TheC apitalC onservation Bufferi sc alculateda sa ratio of CET1 capitalt or isk- weighted assets,a nd it essentially increases ther equiredm inimum risk-based capitalr atios. As ar esult, theB anks must maintain aC ET1 Risk-Based CapitalR atio of at least7 %, aT ier1 Risk-Based CapitalR atio of at least8 .5% anda Total Risk-Based CapitalR atio of at least1 0.5% to avoidb eing subjectt ot he noted restrictions.T he Tier 1L everageR atio is not impacted by theC apital ConservationB uffer; ther equiredm inimum Tier 1L everageR atio fora ll banks andB HCsi s4 %. Ab ank, however,m ay be considered well-capitalizedw hile remainingo ut of compliancew ith theC apitalC onservation Buffer. To be considered well-capitalized,t he Banks must maintain thef ollowing capitalr atiosw hich arei ne xcesso ft he minimums describeda bove: •C ET1 Risk-Based CapitalR atio of 6.5% or greater; •T ier1 Risk-Based CapitalR atio of 8.0% or greater; •T otal Risk-Based CapitalR atio of 10.0% or greater;a nd •T ier1 Leverage Ratio of 5.0%o rg reater. Failure to be well-capitalized or to meet minimumc apital requirementsc ouldr esulti nc ertain mandatory andp ossible additionald iscretionary actions by regulatorst hat, if undertaken,c ouldh aveam ateriala dversee ffect on our operations or financialc ondition. Failure to be well-capitalized or to meet minimumc apitalr equirementsc oulda lsor esulti nr estrictions on theB anks’a bilityt op ay dividends or otherwised istributec apitalo rt or eceive regulatorya pprovalo fa pplications.T he Banks seek to maintain capitall evelsa nd ratiosi ne xcesso ft he minimumr egulatoryr equirementsi nclusive of the2 .5% CapitalC onservationB uffer. As of December3 1, 2025, theB anks’r egulatoryc apitalr atiosw erea bove thew ell- capitalized standards, inclusiveo ft he CapitalC onservation Buffer. Dividends Bread FinancialH oldings,I nc.i sa legale ntity separate andd istinctf romt he Banks.D eclarationa nd paymento fc ash dividends on, or repurchases of,o ur equity securities depends upon cashd ividendp aymentst oB read FinancialH oldings, Inc. by theB anks,w hich areo ur primary source of revenue andc ashf low. As state-charteredb anks,u nderD elawareo r Utah law, as applicable,t he Banks ares ubject to regulatoryr estrictions on thep ayment anda mountso fd ividends.F urther, thea bility of theB anks to payd ividends to Bread FinancialH oldings,I nc.i sa lsos ubject to theirp rofitability,f inancial condition, capitale xpendituresa nd otherc ashf lowr equirements, anda ny such dividends area lsos ubject to thea pprovalo f theB oard of Directorso ft he applicable Bank. No assurances can be givent hatt he Banks will, in anyc ircumstances,p ay dividends to BreadF inancial Holdings,I nc. Thep ayment of dividends by theB anks andB read FinancialH oldings,I nc.a nd anyr epurchases of our equity securities maya lsob ea ffected by otherf actors,s ucha st he requirement to maintain adequate capitala bove regulatoryr equirements. TheF ederal Banking Agencies,b eing theO ffice of theC omptrollero ft he Currency( OCC),t he FRBa nd theF DIC, have indicated that paying dividends that depleteab ank’sc apitalb aset oa ni nadequate levelw ouldb ea nu nsafea nd unsound banking practice; ab ankm ay not paya ny dividend if paymentw ouldc ause it to become undercapitalized or if it alreadyi s undercapitalized.M oreover, theF ederal Banking Agencies have issued policys tatementst hatp rovide that banks should generally onlyp ay dividends out of current operating earnings.T he FederalB anking Agencies have thea uthorityt o prohibitb anks from paying ad ividendi fi ti sd eemed that such paymentw ouldb ea nu nsafeo ru nsound practice. The FDIC also mayr equire its priorc onsentb eforea bank pays ad ividendt hate xceedsr etainede arnings or comesf rom the surplusa ccount of commono rp referreds tock. 12
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Prompt CorrectiveA ctiona nd Safetya nd Soundness Undera pplicable “promptc orrectivea ction” (PCA)s tatutesa nd regulations,i nsured depository institutions,s ucha st he Banks,a re placed into one of five capitalc ategories, ranging from “wellc apitalized”t o“ critically undercapitalized.” The PCAs tatute andr egulations provide forp rogressively more stringent supervisorym easures as an institution’sc apital categoryd eclines.A ni nstitution that is not well capitalized is generally prohibitedf roma cceptingb rokeredd epositsa nd offering interest rateso nd epositsh ighert hant he prevailing rate in its market.A nu ndercapitalized institutionm usts ubmit an acceptabler estorationp lant ot he appropriate FederalB anking Agency.O ne requisite elemento fs ucha plan is that the institution’sp arenth olding companyg uarantee thei nstitution’sc ompliancew ith thep lan, subject to certain limitations.A s of December3 1, 2025, theB anks qualifieda s“ well capitalized” undera pplicable regulatoryc apitals tandards. Insuredd epository institutions maya lsob es ubjectt op otential enforcementa ctions of varyingl evelso fs everity by the FederalB anking Agencies foru nsafeo ru nsound practices in conductingt heir businesses, or forv iolationo fa ny law, rule, regulation, condition imposed in writingb yt he agency,o rt ermo fa writtena greementw ith thea gency. In more serious cases,e nforcementa ctions mayi nclude: •t he issuance of directives to increasec apital; •t he issuance of formal andi nformala greements; •t he impositiono fc ivil monetary penalties; •t he issuance of ac easea nd desist ordert hatc an be judicially enforced; •t he issuance of removala nd prohibitiono rdersa gainst officers, directors, ando ther institution-affiliated parties; •t he terminationo ft he institution’sd eposit insurance; •t he appointment of ac onservatoro rr eceiverf or thei nstitution; and •t he enforcemento fs ucha ctions through injunctions or restrainingo rdersb ased upon aj udicial determinationt hat theF DIC, as receiver,w ouldb eh armedi fs uche quitabler eliefw as not granted. ReserveR equirements FRBr egulations require insuredd epository institutions to maintain cashr eservesa gainst theirt ransactiona ccounts, primarily interest-bearing andr egular checkinga ccounts, as well as cardholderc reditb alances.T he requiredc ashr eserves can be in thef ormo fv ault casha nd, if vaultc ashd oesn ot fully satisfy ther equiredc ashr eserves, in thef ormo fa balance maintained with theF ederal ReserveB anks;w em aintaina significantm ajority of our liquidity portfolio on deposit within theF ederal Reserveb anking system. Ther egulations authorized ifferent rangeso fr eserve requirement ratiosd epending on thea mount of transactiona ccount balances held.A zero percentr eserve requirement ratioi sa ppliedt ot ransactionb alances belowt he reserver equirement exemptiona mount.I na ddition, transactiona ccount balances maintained overt he reserver equirement exemptiona mount andu pt oa certain amount,k nowna st he lowr eserve tranche, mayb es ubject to ar eserve requirement ratio of not more than 3p ercent( andw hich mayb ez ero),a nd transactiona ccount balances overt he lowr eserve tranchem ay be subjectt oa reserver equirement ratio of not more than 14 percent( andw hich mayb ez ero).T he reserver equirement exemptiona nd the lowr eserve tranchea re boths ubject to adjustment on an annualb asis,a sa pplicable,b yt he FRB. EffectiveM arch 26, 2020, in responset ot he COVID-19 pandemic,t he reserver equirement ratioso na ll nett ransactiona ccountsw erer educed to zero percent, therebye liminatingr eserve requirementsf or alld epository institutions.T he annuali ndexationo ft he reserve requirement exemptiona mount andt he lowr eserve tranchef or they ears2 021-2026 wasr equiredb ys tatute,b ut didn ot affect depository institutions’r eserve requirements, whichr emaina tz ero. FederalD eposit Insurance Thed eposits of theB anks arei nsured up to applicable limitsb yt he DIFo ft he FDIC.T he current standard maximum deposit insurancea mount is $250,000 perd epositor,p er insuredd epository institution, pero wnership category, in accordance with applicable FDIC regulations. TheF DICu sesa risk-based assessments ystemt hati mposes insurancep remiums basedo na risk matrix that takesi nto account ther isks attributable to different categoriesa nd concentrations of an insuredd epository institution’sa ssets and liabilities,a nd supervisoryr ating. Theb asef or insurancea ssessments is thea verage consolidated totala ssets less the averaget angiblee quity capitalo fa ni nstitution. Assessmentr ates arec alculatedu sing formulas that take into account the risk of thei nstitutionb eing assessed. 13
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Undert he FederalD eposit InsuranceA ct (the FDIA), theF DICm ay terminatea ni nstitution’sd eposit insuranceu pon a finding that thei nstitutionh as engagedi nu nsafea nd unsound practices,i si na nu nsafea nd unsound conditiono rh as violated anya pplicable law, regulation, ordero rc ondition imposed by theF DIC. CrossG uarantyP rovisions Thec ross guarantyp rovisions of theF DIAr equire eachi nsured depository institutionc ontrolledb yt he same parent companyt ob ef inancially responsiblef or thef ailure or resolutionc osts of anya ffiliatedi nsured depository institution. Generally,t he amount of thec ross guarantyl iability is equalt ot he estimatedl osst ot he DIFf or ther esolutiono ft he affiliatedi nstitution(s) in default. TheF DIC’sc laim undert he crossg uarantyp rovision is superior to claims of stockholders of thei nsured depository institutiono ri ts parent companya nd to most claims arisingo ut of obligations or liabilities owed to affiliateso ft he institution, but is subordinate to claims of depositors,s ecuredc reditors andh olders of subordinatedd ebt( othert hana ffiliates) of thec ommonlyc ontrolled insuredd epository institution. TheF DICm ay decline to enforcet he crossg uarantyp rovision if it determines that aw aiveri si nt he best interest of theD IF. DepositorP reference TheF DIAp rovidest hat, in thee vent of thel iquidationo ro ther resolutiono fa ni nsured depository institution, thec laimso f depositors of thei nstitution, including thec laims of theF DICa ss ubrogeeo fi nsured depositors,a nd certain claims for administrativee xpenses of theF DICa sa receiver, will have priority overo ther generalu nsecuredc laims againstt he institution. If an insuredd epositoryi nstitutionf ails,i nsured andu ninsured depositors,a long with theF DIC, will have priority in paymenta head of unsecured,n on-deposit creditors,i ncluding thep arentc ompany, with respect to any extensions of credit they have made to such insuredd epository institution. Restrictions on Transactions with Affiliatesa nd Insiders Sections 23A and2 3B of theF ederal ReserveA ct andt he FRB’sR egulationW limit thee xtentt ow hich theP arent Companya nd its non-bank affiliates( including non-bank subsidiaries)c an borrowo ro therwise obtainc reditf rom, or engage in otherc overedt ransactions with either of theB anks,w hich mayh avet he effect of limitingt he extent to which either Bank can financeo ro therwise supplyf unds to theP arentC ompany or its non-bank affiliates. “Coveredt ransactions” ares ubject to quantitativea nd qualitativel imits andi nclude: •l oans or extensions of credit; •p urchases of or investmentsi ns ecurities; •p urchases of assets,i ncluding assets subject to an agreementt or epurchase; •a cceptanceo fs ecuritiesa sc ollateralf or al oano re xtension of credit; •a derivativet ransaction to thee xtentt hatt he transactionc ausest he bank to have ac redite xposuret ot he affiliate; or • thei ssuance of ag uarantee, acceptance, or letter of credit. In addition, with certaine xceptions,e ach loan or extensiono fc reditb ye ither Bank to theP arentC ompany or its non-bank affiliatesm ustb es ecured by collateral with am arketv alue ranging from1 00% to 130% of thea mount of thel oano r extensiono fc redit, depending on thet ype of collateral.F urther,a ll transactions between theB anks andt he Parent Companyo ra ny non-bank affiliatesm ustb eo na rm’s lengtht erms andc onsistent with safe ands ound banking practices. TheB anks area lsop rohibitedf romp urchasingl ow-qualitya ssets fromt he Parent Companyo ra ny non-bank affiliates. TheB anks area lsos ubjectt oS ections 22(g) and2 2(h) of theF ederal ReserveA ct,a nd theF RB’si mplementing RegulationO as made applicable to theB anks by ther egulations of theF DIC. Thesep rovisions imposel imitations on loansa nd extensions of credit by theB anks to theire xecutiveo fficers, directorsa nd principals tockholders andt heir related interests, as well as thoseo ft he Banks’a ffiliates. Thel imitations restrict thet erms anda ggregatea mount of such transactions.R egulationO also imposes certain recordkeepinga nd reportingr equirements. Volcker Rule Section6 19 of theD odd-FrankA ct,c ommonlyk nowna st he VolckerR ule, restrictst he ability of banking entities, such as Bread FinancialH oldings,I nc.a nd theB anks,f rom( i) engaging in proprietary tradinga nd (ii) investingi no rs ponsoring coveredf unds,s ubjectt oc ertain limitede xceptions.U ndert he VolckerR ule, thet ermc overedf unds is defineda sa ny issuer that wouldb ea ni nvestment companyu ndert he Investment CompanyA ct but fort he exemptioni ns ection3 (c)(1) or 3(c)(7)o ft hatA ct,w hich includes collateralized loan obligations ecurities, collateralized debt obligations ecurities, and 14
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certain foreignf unds.T here area lsos everal exemptions from thed efinitiono fc overedf unds,i ncluding, among other things,l oans ecuritizations,j oint ventures,c ertain typeso ff oreign funds,e ntitiesi ssuinga sset-backed commercialp aper, andr egisteredi nvestment companies. We do not engage in proprietary tradingo ri nvest in or sponsor coveredf unds. IncentiveC ompensation TheF ederal Banking Agencies have issued comprehensiveg uidancei ntendedt oe nsuret hatt he incentivec ompensation policieso fb anking organizations do not underminet he safety ands oundness of thoseo rganizations by encouraging excessive risk-taking. Thei ncentivec ompensationg uidances etse xpectations forb anking organizations concerning their incentivec ompensationa rrangementsa nd relatedr iskm anagement, controla nd governance processes. Thei ncentive compensationg uidance, whichc overs alle mployees that have thea bility to materially affect ther iskp rofile of an organization, either individuallyo ra sp arto fa group, is basedu pon threep rimary principles:( i) balanced risk-taking incentives;( ii) compatibilityw ith effectivec ontrols andr iskm anagement; and( iii) strong corporateg overnance. Any deficiencies in compensation practices that arei dentifiedm ay be incorporated into theo rganization’ss upervisoryr atings, whichc an affect itsa bility to make acquisitions or take othera ctions.I na ddition, undert he incentivec ompensation guidance, ab anking organization’sf ederal supervisor mayi nitiatee nforcementa ctioni ft he organization’si ncentive compensationa rrangementsp osear iskt ot he safety ands oundness of theo rganization. Further, theB asel III capitalr ules limitd iscretionary bonus payments to bank executives if thei nstitution’sr egulatoryc apitalr atiosf ailt oe xceed certain thresholds. TheD odd-FrankA ct requirest he FederalB anking Agencies andt he Securitiesa nd Exchange Commission (SEC)t o establishj oint regulations or guidelines prohibiting incentive-basedp ayment arrangementsa ts pecified regulated entities, including theB anks,t hate ncouragei nappropriate risks, (i)b yp roviding an executiveo fficer,e mployee, director or principals tockholderw ithe xcessive compensation, fees,o rb enefits,o r( ii) that couldl ead to material financiall osst ot he entity.W henevert hese jointr egulations or guidelines aref inalized,w hich doesn ot appear imminent, them annera nd form mayi mpact our executivec ompensation. TheD odd-FrankA ct also requiresp ublicly traded companiest og ives tockholders an on-binding “say-on-pay” voteo n executivec ompensationa tl east everyt hree yearsa nd on so-called“ goldenp arachute” payments in connectionw ith approvals of mergersa nd acquisitions.W eh aveh eldo ur “say-on-pay” votea nnually. USAP ATRIOT Act UnderT itle III of theU SA PATRIOTA ct,a ll financiali nstitutions arer equiredt ot akec ertain measures to identifyt heir customers, preventm oneyl aundering, monitorc ustomert ransactions,a nd reports uspicious activity to U.S. law enforcementa gencies. Financiali nstitutions area lsor equiredt or espond to requestsf or informationf romF ederal Banking Agencies andl aw enforcementa gencies. Informations haring among financiali nstitutions fort he above purposes is encouraged by an exemptiong ranted to complyingf inancial institutions fromt he privacy provisions of theG ramm-Leach- BlileyA ct (GLBA) ando ther privacy laws.F inancial institutions that holdc orrespondent accountsf or foreignb anks or provide privateb anking services to foreigni ndividuals arer equiredt ot akem easures to avoidd ealingw ith certain foreign individuals or entities,i ncluding foreignb anks with profiles that raisem oneyl aundering concerns,a nd arep rohibitedf rom dealingw ith foreign“ shellb anks”a nd persons from jurisdictions of particular concern. TheF ederal Banking Agencies and theS ecretary of theT reasuryh avea dopted regulations to implements everal of thesep rovisions. Furthermore, financiali nstitutions arer equiredt oe stablish internal anti-moneyl aundering programs. Thesep rogramsm ust include policies, procedures,p rocessesa nd otheri nternalc ontrols designedt om onitor, identify, manage andm itigate the risk of moneyl aundering or terrorist financingp osed by af inancial institution’sp roducts,s ervices,c ustomers and geographicl ocale. Thesec ontrols include procedures andp rocessest od etect andr eports uspicious transactions,p erform customer due diligence, respond to requestsf roml aw enforcement, identifya nd verify al egal entity customer’s beneficial owner(s)a tt he timea newa ccount is openeda nd to understand then aturea nd purposeo ft he customer relationship, and meet allr ecordkeepinga nd reportingr equirementsr elated to particular transactions involving currencyo rm onetary instruments. Thesep rogramsm ustb ec oordinatedb ya compliance officer,u ndergoa nnuali ndependent audits to assess effectiveness, andr equire training of employees.T he effectivenesso fa financiali nstitutioni nc ombatingm oney laundering activitiesi sa factor to be considered in anya pplications ubmittedb ya financiali nstitutiont oe ngage in a merger transactionu ndert he Bank Merger Act. Failuret oc omplyw ith theser egulations mayr esulti nf ines,p enalties, lawsuits,r egulatorys anctions,r eputationald amage, or restrictions on business. OurB anks have in place aB ankS ecrecy Acta nd USAP ATRIOT Actc ompliancep rogram ande ngage in very fewt ransactions of anyk indw ith foreignf inancial institutions or foreign persons. 15
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Officeo fF oreign Assets ControlR egulations TheU nitedS tatesg overnment hasi mposed economic sanctions that affect transactions with designatedf oreign countries, nationals,a nd others.T hese aret ypically knowna st he “OFACr ules”b ased on theira dministrationb yt he U.S. Treasury Department Office of ForeignA ssets Control( OFAC). TheO FACa dministereds anctions targetingc ountries take many different forms. Generally,O FACs anctions containo ne or more of thef ollowing elements:( i) restrictions on tradew ith or investment in as anctionedc ountry,i ncluding prohibitions againstd irect or indirect imports froma nd exports to a sanctionedc ountry andp rohibitions on U.S. persons engaging in financialt ransactions relatingt om akingi nvestmentsi n, or providing investment-relateda dvice or assistance to,a sanctionedc ountry;a nd (ii) ab lockingo fa ssets in whicht he government or specially designatedn ationals of thes anctionedc ountry have an interest,b yp rohibitingt ransfers of propertys ubject to U.S. jurisdiction( including propertyi nt he possession or controlo fU .S.p ersons). Blockeda ssets (e.g., propertya nd bank deposits) cannot be paid out,w ithdrawn, seto ff, or transferredi na ny mannerw ithout al icense from the OFAC.F ailure to comply with theses anctions couldh aves erious legala nd reputationalc onsequences. Third-PartyR iskM anagement TheF DIC, along with theo ther FederalB anking Agencies,i ssued finalg uidanceo nm anagingr isks associated with third- partyr elationships in June 2023. Theg uidances tatest hats ound third-partyr iskm anagementt akes into account thel evel of risk,c omplexity,a nd size of theb anka nd then atureo ft he third-partyr elationship. In July 2024, theF ederal Banking Agencies released aj oint statemento nb anks’a rrangementsw ith thirdp artiest od eliver bank deposit products ands ervices. Thej oint statement cautions that operationala nd compliancer isks arisew henb anks hand overs ubstantialc ontrolo fk ey functions to at hird-party.B anks can manage risk through policiesa nd procedures governingo rganizationals tructures, lines of reporting, expertisea nd staffing, internal controls anda uditf unctions.B anks can also conductr iska ssessments to assess controls form itigatingr iskr elatingt os pecifict hird-party arrangements, engage in due diligence of third-party relationships,s et appropriate contractualr elationships,a nd establishm onitoring routines to identifyr isks. Identity Theft TheF aira nd Accurate Credit Transactions Acto f2 003 (FACTA ct)a mendedt he Fair Credit ReportingA ct (FCRA) to combat identity theft, along with its implementingr egulation, RegulationV ,r equire insureds tate nonmemberb anks,s uch as theB anks,t oe stablishp rogramst oa ddressr isks of identityt heft.T he rulesr equire financiali nstitutions andc reditors to developa nd implement aw ritteni dentity theftp reventionp rogram that is designedt od etect,p revent,a nd mitigatei dentity thefti nc onnectionw ith certain existinga ccountso rt he opening of newa ccounts. Ther ules include guidelines to assist entities in thef ormulationa nd maintenanceo fp rogramst hatw oulds atisfy theser equirements. In addition, ther ules establishs pecial requirementsf or anyc redita nd debitc ardi ssuerst hata re subject to thej urisdictiono ft he FDIC to assess thev alidityo fn otifications of changeso fa ddressu nderc ertain circumstances.T he Banks implemented an ID Theft PreventionP rogram (Program), approvedb yt heir Boards of Directors, in compliancew ith theser equirements. TheB anks review andm akee nhancements to theP rogram on an ongoing basis. Open Banking In October2 024, theC FPB finalized ar ulei mplementinga sectiono ft he Dodd-FrankA ct,w hich requiresc ertain entities, including theB anks,t o, among othert hings,m akea vailablet oa consumer,u pon request,i nformationi ni ts control or possession concerning thec onsumer financialp roducto rs ervice that thec onsumer obtainedf romt hate ntity.T he finalr ule also requiresd atap roviders holding ac onsumer account,s ucha st he Banks,t oe stablisha developeri nterface satisfying certain data security specifications ando ther standards, through whicht he data providerc an receive requestsf or,a nd provide specifict ypeso fd atac overedb yt he rule in electronic, usable form to authorized thirdp arties, including data aggregators. Undert he finalr ule, data providers arep rohibitedf romc hargingc onsumerso rt hird partiesf ees forp rocessing thesec onsumer data requests. Thef inal rule also places certaind atas ecurity,a uthorization, ando ther obligations on third partiesa ccessing coveredd ataf romd atap roviders,w hich couldi nclude theB anks when actingi nc ertain capacities.T he finalr ulea lsor equirest hird partiest ol imit theirc ollection, use, andr etentiono ft he data receivedt oo nlyw hati s reasonablyn ecessary to provide thec onsumers’ requested producto rs ervice. In October2 024, industryt rade associations fileda lawsuita gainst theC FPBa lleging thea gencye xceeded itss tatutory authority anda skingt he courtt ov acatet he rule. In July 2025, theD istrictC ourtf or theE astern District of Kentucky grantedt he motionb yt he CFPB to stay the proceedings while theC FPB conducts ar ulemakingt or eviset he finalr ule. In August2 025, theC FPB publisheda n advancen oticeo fp roposed rulemaking requestingi nput on certain aspectso ft he rule it wasr econsidering, andi nO ctober 2025 theD istrictC ourte ntered ap reliminaryi njunction barring enforcemento ft he rule while it is beingr econsidered by theC FPB. 16
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Community Reinvestment Act TheC ommunity Reinvestment Acto f1 977 (CRA)i si ntendedt oe ncourageb anks to help meet thec reditn eedso ft heir servicea reas,i ncluding low- andm oderate-incomen eighborhoods,c onsistent with safe ands ound businessp ractices.T he relevant FederalB anking Agency,t he FDIC in theB anks’c ase, examines each bank anda ssigns it ap ublic CRA rating. A bank’sr ecord of fair lending compliancei sp arto ft he resultingC RA examinationr eport. CRA performance evaluations areb ased on af our-tieredr atings ystem: Outstanding, Satisfactory,N eedst oI mprove andS ubstantialN oncompliance. CRA performance evaluations arec onsidered in evaluatinga pplications for, e.g., mergers, acquisitions anda pplications to openb ranches. TheB anks each receiveda CRA ratingo f“ Outstanding” at theirm ostr ecentC RA examinations. In October2 023, theF ederal Banking Agencies issued af inal rule overhaulingt he processa nd substantivet ests used by the agencies to assess ab ank’sr ecordo fm eetingt he credit needso fi ts community.I nF ebruary2 024, industryt rade associations fileda lawsuita gainst theF ederal Banking Agencies alleging thea genciese xceeded theirs tatutory authority anda skingt he courtt ov acate thef inal rule.I nM arch 2024, theD istrictC ourtf or theN orthernD istricto fT exas enjoined theF ederal Banking Agencies from enforcingt he finalr ule. In July 2025, theF ederal Banking Agencies jointly issued a proposal to rescindt he 2023 finalr ule. Thea genciesa nnounced that because the2 023 finalr ulew as subject to legala ction andh ad not takene ffect,t he agencies continue to applyt he regulatory framework in effect priort ot he 2023 finalr ule. Consumer ProtectionR egulationa nd Supervision We ares ubject to thef ederal consumer financialp rotectionl awsi mplemented by theC FPB,a sw ella sb yo ther federal agencies including theF DICa nd FederalT rade Commission. TheC FPB hasb road rulemaking authority that hasi mpacted, andm ay continue to impact,t he Banks’o perations,i ncluding with respect to credit cardl atef ees ando ther amountst hat we mayc harge. Fore xample,t he CFPB’s rulemaking authoritym ay allowi tt oc hange regulations adopted in thep astb y otherr egulators, including regulations issued undert he Truthi nL ending Actb yt he FRB. We area lsos ubject to certain statec onsumer protectionl aws, ands tate attorneysg eneral ando ther stateo fficialsa re empowered to enforcec ertain federalc onsumer protection laws andr egulations.S tate authoritiesh avei ncreased theirf ocus on ande nforcemento f consumer protection rules. Thesef ederal ands tate consumer protectionl awsa pplyt oa broadr ange of our activitiesa nd to various aspectso fo ur business, andi nclude laws relatingt oi nterestr ates,f airl ending, disclosureso fc reditt erms and estimatedt ransactionc osts to consumer borrowers,d ebtc ollectionp ractices,t he usea nd provision of informationt o consumer reporting agencies,a nd thep rohibitiono fu nfair, deceptive, or abusivea ctso rp ractices in connectionw itht he offer, sale,o rp rovision of consumer financialp roducts ands ervices.E ach Bank hasi np lace an effectivec ompliance management system to comply with thesel awsa nd regulations. In March2 024 theC FPB publisheda finalr ulet hatw ouldh aves ignificantly reduced thes afeh arbor amount forl atef ees that credit card issuersa re authorized to charge.I nA pril 2025 theU nitedS tatesD istrictC ourtf or theN orthernD istricto f Texase ntered an ordera nd finalj udgment, pursuantt ow hich theC FPB’s credit cardl atef ee rule wasv acated.A sa result of ther uleb eing vacated, it will have no forceo re ffect,a nd thel atef ee safe harbor amountsw ill continue to be seta st hey were priort ot he CFPB’s late feer ulemaking. More generally,t he CFPB’s ability to rescind, modify or interpretp astr egulatoryg uidancec ouldr educef ee income,a nd increaseo ur compliancec osts andl itigatione xposure. Further, theC FPB hasb road authority to enforcet he prohibitions of “unfair, deceptiveo ra busive” actso rp ractices regardless of whicha gencys upervises theB anks.T he CFPB hast aken enforcementa ctiona gainst otherc reditc ardi ssuersa nd financials ervices companies. Evolutiono ft hese standards could result in changest op ricing, practices,p rocedures ando ther activitiesr elatingt oo ur credit carda ccountsi nw ayst hatc ould reducet he associated return fromt hosea ccountsa nd potentially impact businessg rowthp lans.W hile theC FPB hast aken public positions on certainm atters,i ti su nclear what additionalc hangesm ay be promulgatedb yt he CFPB in thef uture andw hate ffect,i fa ny, such changesc ouldh aveo no ur credit accountsa nd our consolidated financialc ondition. During 2025 undert he current PresidentialA dministration, theo perations of theC FPB evolveds ignificantly,w ith reductions in staffa nd more limitede xaminations ande nforcementa ctivities. Certaino ft hese developments at theC FPB ares ubject to pending litigation, andt he scope andi ntensity of theC FPB’s ongoing regulationo fo ur businessr emains uncertain. 17
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Brokered Deposits TheF DIAp rohibits an insuredb ankf roma ccepting brokeredd eposits,u nlessi ti s“ well capitalized”o ri ti s“ adequately capitalized”a nd then also receives aw aiverf romt he FDIC.I nD ecember2 020 theF DICu pdatedi ts regulations that implement Section2 9o ft he FDIA to establisha newf ramework fora nalyzing whetherc ertain deposit arrangements qualifya sb rokeredd eposits. In thet hird quarter of 2024, theF DICp ublishedi nt he FederalR egistera proposed rule that, if finalized as proposed,w ouldh avee xpandedt he scope of deposits that constitute “brokeredd eposits”a nd therefore could potentially have causedc ertain of our presento rp rospective deposits to be treated as brokered. TheF DICw ithdrew this proposed rule in March2 025. Guidinga nd Establishing National Innovationf or U.S. StablecoinsA ct In July 2025, PresidentT rump signedt he GENIUS Acti ntol aw,e stablishing af ederal licensing ands upervisory framework forp ayment stablecoinsa nd theiri ssuers. TheG ENIUSA ct maya cceleratea nd increaset he competitiont hat non-traditionalf inancial institutions poset ob anks’p ayment services,b ut maya lsoc reateo pportunitiesf or banks to hold stablecoin reservea ssets,c ustody stablecoins, or issues tablecoins. Severalk ey provisions of theG ENIUSA ct require federal regulatorya genciest oa dopt implementingr egulations,a nd theG ENIUSA ct will take effect thee arliero f1 8 months afteri ts enactmento r1 20 days aftert he agencies issuef inal implementingr egulations. Privacy, InformationS ecuritya nd Data Protection We ares ubject to various privacy, informations ecurity andd atap rotectionl aws, including requirementsc oncerning security breach notification. Fore xample,w ea re subject to theG LBAa nd implementingr egulations andg uidancei nt he UnitedS tates. Among othert hings,t he GLBA:( i) imposes certain limitations on thea bility of financiali nstitutions to share consumers’ nonpublic personali nformationw ith nonaffiliated thirdp arties; (ii) requirest hatf inancial institutions provide certain disclosurest oc onsumersa bout theiri nformation collection, sharinga nd security practices anda ffordsc onsumers ther ight to opt out of thei nstitution’sd isclosureo ft heir personalf inancial informationt on onaffiliatedt hird parties( with certain exceptions); and( iii) requiresf inancial institutions to develop, implement andm aintaina writtenc omprehensive informations ecurityp rogram containing safeguardst hata re appropriate to thef inancial institution’ss izea nd complexity, then aturea nd scope of thef inancial institution’sa ctivities,t he sensitivity of consumer informationp rocessedb yt he financiali nstitutiona sw ella sp lans forr esponding to data security breaches. TheS tate of California enacted theC aliforniaC onsumer PrivacyA ct (CCPA) in 2018, whichw as modified in 2020 through av oter referendum adoptingt he CaliforniaP rivacy RightsA ct.A mong otherr equirements, theC CPAr equires coveredb usinessest op rovide Californiar esidents with ther ight to know what informationi sb eing collected fromt hem andw hether such informationi ss oldo rd isclosed to thirdp arties.T he statutea lsoa llows Californiar esidents to access, delete,c orrect,a nd opt out of thes alea nd sharingo fp ersonali nformationt hath as been collected by coveredb usinessesi n certain circumstances.T he CCPAd oesn ot applyt op ersonali nformationp rocessedp ursuantt ot he GLBA or theC alifornia FinancialI nformation Privacy Act. We areac overedb usinessu ndert he CCPA, whichb ecamee ffectiveo nJ anuary 1, 2020. Thee nactment of theC CPAh as prompted aw aveo fl egislatived evelopments in others tates, whichh as created a patchworko fo verlapping but different statel aws, certaino fw hich include exemptions forG LBA-regulated entities and/or personali nformation. Federala nd statel awsa lsor equire us to respond appropriately to data security breaches.A finalr ulei ssued by theF RB, OCC, andF DIC, whichb ecame effectivei nM ay 2022, requiresb anking organizations to notifyt heir primary federal regulator of significantc omputer security incidentsw ithin 36 hourso fd eterminingt hats ucha ni ncidenth as occurred. The SECh as also adopted ruleso nC ybersecurity Risk Management,S trategy, Governance andI ncidentD isclosure, which, among othert hings, require thef ilingo fa Current Reporto nF orm8 -K following certain cybersecurity incidents. We continue to monitor, andh aveap rogram in placed esignedt oc omplyw ith,a pplicable privacy,i nformations ecurity andd atap rotectionr equirementsi mposed by federala nd statel aws. However, if we experience as ignificantc ybersecurity incident or our regulatorsd eemo ur informations ecurity controls to be inadequate,w ec ouldb es ubject to supervisory criticismo rp enalties,a nd/or suffer reputationalh arm. Forf urther discussion of privacy,d atap rotectiona nd cybersecurity, andr elated risksf or our business, see“ Part I—Item 1A.R iskF actors” undert he headings “Regulationi nt he areaso f privacy, datap rotection, datag overnance, and cyber security couldi ncreaseo ur costsa nd affect or limit our business opportunitiesa nd how we collect and/or useP ersonal Information, and any actual or perceived failure to comply with any of thesen ew or existing laws coulda dversely affect our business, results of operations,o rf inancialc ondition,” “Ifw e, our third-party providers, or brand partnersf ailt os afeguardo ur confidentiali nformationa nd/or experiencea datas ecurity 18
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incident,t here mayb ed amage to our brand and reputation, material financialp enaltiesa nd legal claims,w hich could materially adversely affect our business, results of operations,a nd financialc ondition,” and “Businessi nterruptions, including loss of datac enterc apacity,i nterruptiond ue to cyber-attacks,l osso fn etwork connectivity or inability to utilize proprietary softwareo ft hird-party vendors, coulda ffect our ability to timelym eet then eedso fo ur partnersa nd customers and harmo ur business” and“ Part I—Item 1C.C ybersecurity.” HumanC apital Providing am eaningful valuep ropositionf or our associates is one of our topp riorities. We seek to enhanceo ur associate valuep ropositionc ontinuously to ensure that we offerc ompetitiver ewards,c areer opportunitiesa nd flexible work experience, whichw eb elieve enablesu st oa ttracta nd retain ah ighlyq ualifieda nd motivated workforce. As of December3 1, 2025, we employeda pproximately 6,000 associates worldwide, with them ajority concentrated in the UnitedS tates. Attracting, developing andr etaining topt alenti sc ritical to our business. In making thesee mployment- relatedd ecisions,w ec omplyw itha ll applicable laws.W ep romote an inclusive, engagedc ulture that empowersa ssociates through opportunitiest og row, developa nd lead.O ur associates have been,a nd will remain,t he backbone of our business, andw et akea holistica pproach to our associates’e xperiences, recognizing that an engagedw orkforce drives our long-term growth ands ustainability. OurB oard of Directorsa nd Compensation& HumanC apitalC ommitteep rovide important oversight of our human capitalm anagements trategya nd receiver egular updatesf roms eniorm anagementa nd third-party consultantso nh uman capitalt rends andd evelopments ando ther keyh uman capitalm atters that driveo ur ongoing success andp erformance. AssociateB enefitsa nd Well-Being Associatew ell-beingr emains at op human capitalp riority, andw ea re committedt op roviding our associates with competitive totalc ompensation, benefits andw ellnessr esources. Oura ssociates continue to valueaf lexiblew ork experience that allows them to balanceo ffice work andr emotew orkt ime.O ver9 0% of our associates view our flexible work arrangementsa sa competitivea dvantager elativet oo ther potentiale mploymento pportunities, andw ec ontinue to take advantageo ft he engagement andp roductivity benefits associated with increased flexibility,a sw ella so pportunities forc onnectedness ands ociali nteraction. Othera ssociatew ell-beingr esources include mental health awarenessa nd counselings upport, wellnessc ourses andf inancial education, av ariety of fitnessa nd meditationc lasses, ar eimbursement program fore ligible items,m emberships,a nd experiences that enhancew ell-beinga nd otherb enefits to promotem ental andp hysical health. While we continue to improve thec ompetitivenesso fo ur associateb enefit offerings,i ti sa lsoi mportant fora ssociates to make informedd ecisions about theirh ealth andm oney. When surveyed,8 9% of our associates arec onfidentt heyh avet he knowledge ands killst om akei nformedd ecisions about theirh ealth andm oney. AssociateE xperiencea nd Engagement Deliveringa ne xceptionalc ustomere xperience relies on our ability to cultivatea ne ngaging andr ewarding experience for our associates.W em aintainedh ighl evelso fa ssociatee ngagement andr etentioni n2 025. We continue to listent oa nd act on feedback fromo ur associates,i ncluding through our annualA ssociate Experience Survey ando ther more frequent surveysa nd communications.E ach year aftert he results of thea nnualA ssociateE xperience Survey have been tabulated, our senior management presents thoser esults to our Compensation &H uman CapitalC ommitteea nd our Boardo f Directors, including discussion regardingt rends observeda nd actions to be takeni nr esponset ot he results.I nput from our Boardo fD irectorsh elps inform our human capital strategies ando bjectives going forward. WorkforceR eadiness, Growth and Advancement At Bread Financial, we know associates have different needst om eet theirc areer goals,i ncluding by accessing neww ork opportunitiest hrough our suiteo fm obility programs. During they ear we expandedo ur existingm obility programs, which include internship opportunities,r otationalp rograms, ando ur “Flexa nd Stretch” programs, that allowa ssociates to work on projectso utside of theirc orew orkr esponsibilities.A dditionally,o ur six-monthA pprenticeP rogram continuest ob e successful.T hese mobility programss upporto ur associates in theirc areer goals,w hile allowing us to move talent across theo rganizationt om eeto ur businessn eeds. 19
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Robustt raininga nd developmentr emainc entral to our human capitals trategy. This year an ew partnershipw ith Pluralsight wasl aunchedt oa dvancet echnical skills acrosst he associatep opulation. This enabledt he creationo fs pecialized skill paths in technology, an immersive cohortp rogram forA Ii nD ataS cience, anda nO perationalE xcellencea cademyo fferingS ix Sigma, Design Thinking andA It raining. In addition to career-orientedt raininga nd development, we require annual associatet rainingt oe nsureo ngoing adherencet or esponsible businessp ractices ande thical conduct, anda ll associates must certifya nnuallyt hatt heyh aver ead andw illa dhere to our Code of Ethics.O ur AssociateR elations team also conductede thicsr oadshowsi n2 025, whichw erer equiredf or alll eaderso fp eople. InclusiveC ulture We arec ommitted to creatinga ni nclusive culture that attractsa nd values diversity of thought,e xperience, background, skills andi deas,d riving our associates’s ense of belonging. Over thep astf ew years, we have advanced our actions and activitiesi ns upporto fc reatinga more inclusivew orke nvironment, including them aturationo fo ur associatep rogramsa nd expansiono fo ur nine AssociateR esource Groups,w hich areo pent oa ll associates acrosso ur locations andt hatn early 1,600 unique associates have voluntarily joined.B ased on our annualA ssociateE xperience Survey,8 6% of our associates feel as ense of belonging and9 0% believe Bread Financiali sc ommittedt of ostering aw orke nvironmento fi nclusion and belonging. SustainabilityS trategy We areaf inancial services companyd edicated to empoweringo ur customersa nd optimizingo pportunitiest oc reatev alue fora ll our stakeholders,w hile advancingl ong-term financiala nd reputationalg oals.W ep rioritizei nitiatives that strengthen our communities, reduceo ur environmentali mpact, promotei nclusion andb uild financialc onfidence. We continue to advancet he integrationo fe nvironmentala nd social factorsi ntoo ur overall governance, risk management andr eporting practices in ways that increase transparency ande nhancet he quality of our disclosures. Additionali nformationr egarding our sustainability strategy andr esponsible businessp ractices can be found in our annuals ustainability reportp ublishedo n our website at:h ttps://investor.breadfinancial.com/sustainability/.N oi nformationf romt hisw ebsite is incorporated by referenceh erein. Pleasea lsos ee “Human Capital” above. OtherI nformation Ourc orporate headquartersa re located at 3095 LoyaltyC ircle, Columbus,O hio4 3219, whereo ur telephone numberi s 614-729-4000. We file or furnisha nnual, quarterly andc urrent reports,p roxy statements ando ther informationw ith theS EC.O ur SEC filings area vailablet ot he public at theS EC’s website at www.sec.gov.Y ou maya lsoo btainc opies of our annual, quarterly andc urrent reports,p roxy statements andc ertain otheri nformation filedo rf urnished with theS EC,a sw ella sa mendments thereto, freeo fc hargef romo ur website, www.BreadFinancial.com.N oi nformation from this websitei si ncorporated by referenceh erein. Thesed ocuments arep ostedt oo ur websitea ss oon as reasonablyp racticable afterw eh avef iledo r furnishedt hese documents with theS EC.W ep osto ur AuditC ommittee, Risk &T echnology Committee, Compensation& HumanC apitalC ommitteea nd Nominating& CorporateG overnance Committeec harters, our corporateg overnance guidelines,a nd our code of ethics,c ode of ethics fors eniorf inancial officers, andc ode of ethics forB oard memberso no ur website. 20
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Item 1A.R iskF actors. RISK FACTORS This sections houldb ec arefully reviewed,i na ddition to theo ther informationa ppearingi nt hisF orm1 0-K, including the sections entitled“ Risk Management” and “Management’s Discussion and Analysis of FinancialC onditiona nd Resultso f Operations” and our auditedC onsolidated FinancialS tatementsa nd relatedN otes,f or important informationr egarding risksa nd uncertaintiest hat affect us.T he risksa nd uncertainties describedb elow aren ot theo nlyo nesw ef ace. Additional risksa nd uncertaintiest hat we areu nawareo f, or that we currently believe aren ot material,m ay also become important factorst hat adversely affect our business. If any of thef ollowing risksa ctually occur, our business, financialc ondition, results of operations,a nd future prospectsc ouldb em aterially and adversely affected. Summary This risk factor summaryi sq ualifiedi ni ts entiretyb yr eference to thec ompleted escriptiono fo ur risk factorss et forth immediatelyb elow. Risksr elated to ourm acroeconomic, global,s trategic,b usinessa nd competitivee nvironment include: •M arketc onditions,i nflation, interest rates, labor market conditions,r ecessionary pressureso rc oncerns overa prolongede conomic slowdown, andt he relatedi mpact on consumer spending behavior,p ayments, debt levels, savings ratesa nd otherb ehavior, couldh avea material adversee ffect on our business. •G lobalp olitical,p ublic health ands ociale ventso rc onditions,i ncluding ongoing wars andm ilitary conflicts,m ay harm our business. •O ur unsecured loansm akeu sr eliant on thef uturec reditp erformance of our customers, andi fc ustomers are unablet or epay our loans, our levelo ff utured elinquencya nd charge-off ratesw ill increase. •A significant percentage of our revenue is generatedt hrough relationships with al imitedn umbero fp artners, anda decreasei nb usinessf rom, or thel osso f, anyo ft hese partners,c ouldh avea na dversee ffect on our business. •O ur businessi sh eavily concentrated in U.S. consumer credit,a nd thereforeo ur results arem ores usceptible to fluctuations in theU .S.c onsumer creditm arkett hana more diversifiedc ompany. •T he amount of our Allowancef or credit lossesc oulda dverselya ffect our businessa nd mayb ei nsufficientt o covera ctuall osseso no ur loans. •W em ay be unablet os uccessfully identify, complete or successfully integrateo rd isaggregateb usiness acquisitions,d ivestituresa nd others trategic initiatives. •C ompetitioni no ur industryi si ntense,i ncluding competition fromn ew andn on-traditionalc ompetitors,s ucha s financialt echnology companies, andw ith respectt on ew products,s ervices andt echnologies,s ucha st he emergenceo ri ncreasei np opularity of agenticc ommerce, digitalp ayment platformsa nd currenciesa nd other alternativep ayment andd eposit solutions. •O ur results of operations andg rowthd ependo no ur abilityt or etaine xistingp artnersa nd attract newp artners, and our results arei mpacted, to as ignificante xtent, on thea ctivea nd effectivep romotiona nd supporto fo ur products by our partners ando nt he financialp erformance of our partners. •U nderwritingp erformance of acquiredo rn ew lending programsm ay not be consistent with existinge xperience. •W er elye xtensively on models in managing many aspectso fo ur business, andi ft heya re not accurate or are misinterpreted, such factorsc ouldh aveam ateriala dversee ffecto no ur businessa nd results of operations. •F raudulenta ctivity associated with our products ands ervicesc ouldn egativelyi mpact our operatingr esults,b rand andr eputation, decreasing theu se of our products ands ervicesa nd increasingo ur fraud losses. Risksr elated to ourl iquidity,m arketa nd credit risk include: •A dversef inancial market conditions or our inability to effectivelym anageo ur funding andl iquidity risk could have am ateriala dversee ffect on our business, liquidity anda bility to meet our debt servicer equirementsa nd othero bligations. •O ur inability to effectivelya ccesst he securitization or otherc apitalm arkets couldl imit our funding opportunities forl oans ando ther businesso pportunities. •C ompetitionf or depositsa nd regulatoryr estrictions on deposit products can impact availability andc osto ff unds. •O ur levelo fi ndebtedness mayr estricto ur ability to competea nd grow our business. •O ur market valuationh as been,a nd mayc ontinue to be,v olatile,a nd returnst os tockholders mayb el imited. 21
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Risksr elated to ourl egal,r egulatorya nd compliancee nvironment include: •W ef ace various risksr elated to thee xtensive government regulationa nd supervisiono fo ur business, including by theF DIC, CFPB ando ther federala nd statea uthorities. Theser isks include pending andf uturel aws, regulations or executivea ctions that maya dverselyi mpacto ur business, including with respect to limits on credit card interest rateso rl atef ees, interchange fees or otherc harges,a sw ella ss upervisorya nd othera ctions that mayb et aken againstu sb yo ur regulators. •P ending andf uturel itigation coulds ubject us to significant fines, penalties,j udgments and/or requirements. •W ea re ah olding companya nd depend on dividends ando ther payments fromo ur Banks,w hich ares ubject to various legala nd regulatoryr estrictions. •R egulations relatingt op rivacy,i nformation security andd atap rotectionc ouldi ncreaseo ur costs, affect or limit how we collect andu se personali nformationa nd adverselya ffect our businesso pportunities. •F inancial institutionc apitalr equirementsm ay limit cash availablef or businesso perations,g rowtha nd returnst o stockholders. Risksr elated to cybersecurity, technology andt hird-party vendors include: •W er elyo nt hird-party vendors, andc ouldb ea dverselyi mpacted if such vendorsf ailt of ulfill theiro bligations. •F ailuresi nd atap rotection, cybersecurity andi nformations ecurity,a sw ella sb usinessi nterruptions to our data centers ando ther systems, couldc ritically impairo ur products,s ervices anda bility to conductb usiness. •O ur industryi ss ubject to rapida nd significantt echnological changes, andw em ay be unablet os uccessfully developa nd commercializen ew or enhanced products ands ervices.M oreover, technology transformationp rojects arec omplex undertakings,w hich mayr esulti nu nanticipated adversec onsequences. •T he developmenta nd useo fA Ip resentsr isks andc hallengest oo ur business, including compliancew ith newA I laws andr egulations,r isks associated with AI models,a nd them alicious useo fA It echnology by bada ctors. Risksr elated to thes pinoff of ourf ormerL oyaltyOnes egment include potentialt ax ando ther liabilities, existing or future litigationo ro ther disputes,o ro ther adversei mpacts. Macroeconomic, Global, Strategic, Business andC ompetitive Risks Weaknessa nd instability in them acroeconomice nvironment,a sw ella sg lobal political,p ublic health ands ociale vents or conditions,c ould have am ateriala dverse effect on ourb usiness, results of operations andf inancial condition. Macroeconomic conditions historically have affected our business, results of operations andf inancial conditiona nd will continue to affect them in thef uture. We offera na rrayo fp ayment,l ending ands avings olutions to consumers, anda prolongedp eriodo fe conomic weakness, including ar ecession or economic slowdown, economic andm arketv olatility, ando ther adversee conomic conditions,i ncluding persistent inflation, high interest ratesa nd high levels of unemployment, couldh aveam ateriala dversee ffect on our business, results of operations andf inancial condition, as thesem acroeconomic conditions mayr educec onsumer confidence andn egativelyi mpact customers’ paymenta nd spending behavior.S omeo f thes pecificr isks we face asa result of thesec onditions include: •A dversei mpactso no ur customers’ ability andw illingness to paya mountso wedt ou s, increasingd elinquencies, defaults,c harge-offs,b ankruptcies andc onsequentially our Allowancef or credit losses, andd ecreasingr ecoveries; •D ecreased consumer spending, changesi np ayment patterns, lowerd emandf or credit ands hiftsi nc onsumer paymentb ehaviort owards avoiding late fees,f inance chargesa nd otherf ees; •D ecreased reliability of thep rocessesa nd modeling we uset oe stimate our Allowancef or credit losses, particularly if unexpected variations in keyi nputsa nd assumptions cause actuall ossest od iverge fromt he projections of our modeling ando ur estimatesb ecome increasingly subject to management’s judgment; and •L imitations on our ability to replace maturing liabilitiesa nd to accesst he capitala nd deposit marketst om eet liquidity needs. While we closelym onitore conomic conditions andi ndicators, including inflation, interest rates, changesi nm onetary policy, housingv alues, thes tate of thec ommercialr eale statei ndustry, energy prices,e xternalc reditb ureau risk scores, consumer wages, consumer saving ratesa nd debt levels,i ncluding student loan debt,c onsumer andb usinesss pending, unemployment, financialm arkets,g overnment policya nd concerns about thel evel of U.S. government debt,a sw ella s economic andp olitical conditions in theU .S.a nd globalm arkets,t he outcome of anyo ft hese conditions andi ndicators remains difficult to predict. During 2025, thee conomic scenario weightings in our credit reservem odelingc ontinuedt o 22
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reflect an elevated possibilityo fa recession, high interest rates, persistent inflation, andt he increased cost of overall consumer debt.A recession or prolongedp eriodo fe conomic weakness wouldl ikely, among othert hings,a dverselya ffect consumer discretionary spending levels andt he ability andw illingness of customerst op ay amountso wedt ou sa nd could have am ateriala dversee ffect on our business, keyc reditt rends,r esults of operations andf inancial condition. Moreover, thec urrent macroeconomic environmentm ay have ad isproportionately adversei mpact on us,a sc omparedt oo ur peers, due to our relatively higherp roportiono fp rivate labelc reditc arda ccountsa nd our deeper underwriting. In thec urrent macroeconomic landscape,t he wage growth of many moderate andl ower-incomeh ouseholds hasb een challengedb yt he compounding effect of persistent inflation, even whileu nemploymentr ates remain low. Givent he higherp roportion of moderate andl ower-incomeh ouseholds within our partners’c ustomerb ases relativet om anyo fo ur peers, ac ontinuation of this trendc ouldi mpact us more negativelyt hano thersi no ur industry. Moreover, thec urrent Presidential Administration’sp olicieso nt rade,i mmigrationa nd taxesc ouldc reatei nflationary pressures, whichi nt urnc ould disproportionately impact our customer base. Forc ontext, duringt he GreatR ecession, our Delinquencya nd Netp rincipal loss ratesp eaked in 2009 at 6.2% and1 0.0%, respectively. As of December 31, 2025, our Delinquencyr atew as 5.8% ando ur 2025 full-year Netp rincipal loss rate was 7.7%.W hile these2 025 ratesw erel ower than thosee xperienced in 2009, thec urrent andn ear-terma nticipated Delinquencya nd Netp rincipal loss ratesr emaine levated, relativet oo ur historical experience, anda prolonged continuationo rw orsening of theser ates couldh avea material adversei mpact on us. In addition, politicale ventsa nd uncertainties( including thosea rising froms ignificants hiftsi np olicyt hati mpact consumers, such as tariffs ando ther trade-relatedm easures,t axes andi mmigration, among others,a nd thep otentialo r threat of retaliatory internationala nd domestic policies),i nternationalt ensions or hostilities, armedc onflict, war( such as theo ngoing warb etween Ukrainea nd Russiaa nd instability in theM iddleE ast),c ivil unrest, outbreakso fi llnesses, pandemics, endemicd iseases, or otherl ocal or globalh ealth issues,c limate-relatede vents, impactst ot he power grid,a nd naturald isasters have,t ov arying degrees,n egativelyi mpacted our operations,b rand partners,s ervice providers and consumer spending, ands uche ventsa nd conditions mayn egativelyi mpact thee conomya nd us going forward. Moreover, political disputes overt he debt ceiling, budgetd eficits,h ealthcareo ri mmigrationp olicyo ro ther matters mayr esulti n prolongedg overnment shutdowns andi ncreaset he possibilityo ft he U.S. government defaultingo ni ts debt and/or having its credit ratings furtherd owngraded,a ny of whichc ouldw eakent he U.S. dollar, cause market volatility,n egativelyi mpact thee conomya nd banking system anda dverselya ffect our financialc ondition, including our liquidity anda bility to access capital. Thel oansw em ake areu nsecured,a nd we mayn ot be ablet ou ltimately collect from customerst hatd efault on their loans. Thep rimary risk associated with unsecuredc onsumer lending is ther isko fd efault or bankruptcy of theb orrower, resulting in theb orrower’s balanceb eing written-offa su ncollectible.W er elyp rincipally on theb orrower’s creditworthinessf or repaymento ft he loan and, therefore, have no otherr ecourse forc ollection. An increasei nd efaults or netp rincipal losses couldr esulti na reductioni nN et income. We mayn ot be able to successfully identifya nd evaluate thec reditworthinesso fb orrowers to minimized elinquenciesa nd losses. As part of our effortst om anageo ur credit risk,w eu se our automatedp roprietary scoringt echnology and verificationp rocedures to make risk-based underwritingd ecisions when approving newa ccount holders,e stablishing or adjustingt heir credit limitsa nd applying our risk-based pricing. Thesem odels mayn ot accurately predictf uturec harge- offs forv arious reasons discussede lsewhere in theseR iskF actors, including in “Ourr iskm anagement policiesa nd procedures mayn ot be effective, and them odels we rely on mayn ot be accurate or mayb em isinterpreted.”W hile we monitorc reditq uality on ar egular andc onsistent basis, utilizing internal algorithms ande xternalc reditb ureau risk scores ando ther data,t hese algorithmsa nd data sources mayb ei naccurateo ri ncomplete, including as ar esulto fc ertain customers’ credit profilesn ot fully reflectingt heir credit risk due to anyn umbero ff actors, including, fore xample,t he less- regulated reportingr equirementsf or many fintechso fferingb uy now,p ay laterp roducts or otherl ending options and existing or future limitations on ther eportingo fm edical debt.M andatedc hangest oc reditb ureau reporting, or the informationt hatm ay be includedi na credit bureau report, can change thea ccuracy of scoringm odels that leverage tradelines andp erformance in determiningc reditr isk. As ar esult, thed ataa nd models upon whichw er elym ay not fully reflect thee xtento fo ur customers’ actualf inancial obligations. Generale conomic conditions,i ncluding ar ecession or prolongede conomic slowdown, persistent inflation, interest rates, high unemploymento rv olatilityi ne nergyp rices,m ay result in greater delinquenciest hatl ead to greater credit losses. In additiont ob eing affected by generale conomic conditions andt he successo fo ur collectiona nd recovery efforts, the 23
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stabilityo fo ur Delinquencya nd Netp rincipal loss ratesa re affected by thec reditr iski nherent in our Credit carda nd other loan portfolios, as well as thev intage of thea ccountsi no ur various credit cardp ortfolios. We also closelym onitort he segmento fo ur portfolio with student loanst oo bserve paymentr atet rends.I nD ecember2 025, theD epartment of Educationa nnounced that,b eginning in early 2026, thef ederal government wouldb egin garnishing wageso fs tudent loan borrowers that arei nd efault on federals tudent loans; providedt hatt he Department of Educations ubsequently announced that it wasi ndefinitely postponing anys uchg arnishments. Thei mpact of this policyc hange,t ot he extent it becomes effective, on our customers’ ability to repayu sr emains uncertain. Further, our pricings trategym ay not offset then egativei mpact on profitability causedb yi ncreases in delinquenciesa nd credit losses, thus anym ateriali ncreases in delinquenciesa nd credit lossesb eyond our current estimatesc ouldh avea material adversei mpact on us.O ur Delinquencyr ates were 5.8% of Credit carda nd otherl oans as of December3 1, 2025, compared with 5.9% and6 .5% as of December3 1, 2024 and2 023, respectively. For2 025, our Netp rincipal loss rate was 7.7%,c omparedw ith8 .2% and7 .5% for2 024 and2 023, respectively. As referenced above,t he current andn ear-term anticipated Delinquencya nd Netp rincipal loss ratesr emainh igh, relativet oo ur historical experience, anda prolonged continuationo rw orsening of theser ates couldh avea material adversei mpact on our businessa nd results of operations. As ignificant percentage of ourT otal neti nteresta nd non-interest income,o rr evenue,i sg enerated througho ur relationshipsw itha limitedn umbero fp artners, andad ecreasei nb usinessf rom, or thel osso f, anyo ft hese partners couldc ause as ignificant drop in ourr evenue. We depend on al imited numbero fl arge partnerr elationships fora significantp ortiono fo ur revenue.A so fa nd fort he year endedD ecember3 1, 2025, our five largestc reditc ardp rograms( basedo nT otal neti nteresta nd non-interest income) accounted fora pproximately 49% of our Totaln et interest andn on-interest income excluding theg aino ns alea nd 44% of our End-of-periodc reditc arda nd otherl oans.I np articular, our programsw ith (alphabetically)S ignetJ ewelers, Ulta Beauty andV ictoria’sS ecret &C o. andi ts retail affiliates,e ach accounted for1 0% or more of our Totaln et interest and non-interest income fort he year endedD ecember3 1, 2025. Ourb usinessi si ntensely competitive, andw ec annot provide assurancet hatw ew ill retain theb usinesso fa ll of our significantb rand partners going forward. Ourb usinessi sh eavily concentrated in U.S. consumer credit, andt herefore ourr esults arem ores usceptible to fluctuations in that market than am ored iversified company. Ourb usinessi s heavilyc oncentrated in U.S. consumer credit.A sa result, we arem ores usceptible to fluctuations andr isks particular to U.S. consumer credit than am ored iversified company. Fore xample,o ur businessi sp articularly sensitivet o macroeconomic conditions that affect theU .S.e conomy, consumer spending andc onsumer credit. We area lsom ore susceptible to ther isks of increasedr egulations andl egal ando ther regulatorya ctions that aret argeteda tc onsumer credit or thes pecificc onsumerc reditp roducts that we offer, such as legislationa nd regulations relatingt oc reditc ardl atef ees, credit card interest ratesa nd promotionalf inancing. Ourb usinessc oncentrationc ouldh avea na dversee ffect on our results of operations. We expect growth to result, in part, from newa nd acquired credit card ando ther loan programsw hose performance couldr esulti ni ncreased portfolio lossesa nd negativelyi mpacto ur profitability. We expect an important source of our growth to come fromn ew anda cquiredc reditc arda nd otherl oanp rograms. We cannot be assuredt hatt he loss experience on newa nd acquiredp rogramsw ill be consistent with our more established programs, or that thec ostt op rovide servicet ot hese newa nd acquiredp rogramsw ill not be highert hana nticipated.T he failure to successfully underwrite thesen ew anda cquiredp rogramsm ay result in defaults greater than our expectations and couldh aveam ateriala dversei mpact on us ando ur profitability. See“ Ourr iskm anagement policiesa nd procedures may not be effective, and them odels we rely on mayn ot be accurate or mayb em isinterpreted.”M oreover, undert he CECL accountingr ules,t he acquisitiono fa ne xistingc reditc ardp ortfolio typically hasa negativei mpact on certain keyf inancial metricsi nt he near-term, including Neti ncomea nd Earnings pers hare,b ecause we arer equiredt oi nclude ar eserve build in our Provision forc reditl ossesf or thee stimatedc reditl ossest ob ee xperienced overt he lifeo ft he acquiredp ortfolio. Thea mount of this reserveb uild is oftenl arge relativet ot he amount of revenue generatedt hrough such date by ther elated credit card portfolio.S ee also “–The amount of our Allowancef or credit lossesc oulda dversely affect our businessa nd may provet ob ei nsufficient to cover actual losseso no ur loans.” 24
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Ourr isk management policiesa nd procedures mayn ot be effective, andt he models we rely on mayn ot be accurate or mayb em isinterpreted. Ourr iskm anagement framework,w hich seekst oi dentifya nd mitigatec urrent or future risksa nd appropriately balancer isk andr eturn, mayn ot be comprehensiveo rf ully effective. As regulations andc ompetitionc ontinue to evolve,o ur risk management framework mayn ot always keep sufficientp ace with thosec hanges. If our risk management framework does not effectivelyi dentifyo rm itigate our risks, we coulds ufferu nexpected lossesa nd couldb em aterially adverselya ffected. We rely extensivelyo nm odels in managing many aspectso fo ur business, including liquidity andc apitalp lanning (including stress testing),c ustomers election, underwriting andl inem anagement, credit ando ther risk management, pricing, reservinga nd collections management.T he models mayp rove in practicet ob el essa ccurate,p redictiveo ru seful than we expect fora varietyo fr easons,i ncluding as ar esulto f( i) errors in constructing, interpretingo ru sing them odels, (ii) theu se of inaccuratea ssumptions (including models beingc alibratedo nh istorical cycles andc orrelations whichm ay not be predictiveo ft he future,o rf ailurest ou pdate assumptions appropriately or in at imely manner), or (iii) them odel producingr esults that aren ot compliant with fair lending or otherl awsa nd regulations.O ur assumptions mayb ei naccurate form anyr easons including that they ofteni nvolve matterst hata re inherently difficult to predicta nd beyond our control (e.g., macroeconomic conditions,i ncluding continuede levatedi nflation, lowu nemployment, increasingc onsumer debt levels andw eakeningi nm acroeconomic indicators, andt heir impact on partnera nd customer behaviors) andt heyo ften involve complexi nteractions between an umbero fd ependent andi ndependent variables, factorsa nd othera ssumptions. In particular, in recent years, we have observedr ates andc orrelations among severalk ey macroeconomic variables, such as unemploymenta nd interest rates, perform outside of observedh istorical norms,w hich couldi mpact ther eliability of certain models in thec urrent economic environment. In addition, as we seek to update ande nhanceo ur models,t hese updatesa nd enhancements mayp roduceu nexpected or unreliabler esults.T he errors or inaccuracies in our models mayb e material,a nd couldl eadu st om akep oor or sub-optimald ecisions in managing our business, andt hisc ouldh aveam aterial adversee ffect on our business, results of operations andf inancial condition. Fraudulent activity associated with ourp roductsa nd services couldn egativelyi mpacto ur operatingr esults,b rand and reputationa nd causet he useo fo ur productsa nd services to decrease ando ur fraudl ossest oi ncrease. We ares ubject to ther isko ff raudulenta ctivity associated with our products ands ervices,a sw ella sr etailers,p artners, otherm erchantp arties or third-partys ervice providers handlingc onsumer information. Ourp roducts ares usceptible to applicationf raud because,a mong othert hings,w ep rovide immediate accesst oc redita tt he time of approval. In addition, digitals ales on thei nterneta nd through mobile channels continue to be al argerp arto fo ur business, andf raudulenta ctivity is highera sa percentage of salesi nt hosec hannels than in brick-and-mortar storet ransactions.T he different financial products we offer, including deposit products,a re susceptiblet od ifferent typeso ff raud, and, depending on our product mix andc hannelm ix,w em ay continue to experience variations in,o rl evelso f, fraud-relatede xpenses that ared ifferent fromo rh ighert hant hosee xperienced by some of our competitorso rt he industryg enerally.T he risk of fraud continuest o increasef or thef inancial services industry, andc reditc arda nd deposit fraud, identity thefta nd relatedc rimesa re likely to continue to be prevalent, with increasinglys ophisticated perpetrators.M orer ecently,e mergingg enerativeA Ic apabilities, such as synthetic voice andc onversationg eneration, introduced newf raud risks, especially in thef ormo fi dentity fraud. Ourr esources,t echnologies andf raud preventiont oolsm ay be insufficientt oa ccurately detect andp revent fraud. Ourf raud-relatedo perationall ossesw ere$ 65 millionf or botht he yearse ndedD ecember3 1, 2025 and2 024, and $127 millionf or they ear endedD ecember3 1, 2023. During 2023, we believe thef inancial services industryg enerally experienced an upticki nb otht he volumea nd sophisticationo ff raud attacks, andw ea lsoe xperienced that trendi no ur business, with fraud-relatedo perationall ossesi ncreasings ignificantly.W hile we were successful in decreasingf raud- relatedl ossesi n2 024 and2 025, the perpetrators of frauda ttacks remain persistent andw ec annot provide assurancet hat fraud-relatedl ossesw illr emaina to rb elow thesel ower levels going forward. In additiont od irect financiali mpacts,h igh profile fraudulenta ctivity coulda lson egativelya ffect our branda nd reputation, whichc ouldn egativelyi mpact theu se of our services,l eadingt oa material adversee ffect on our results of operations.I na ddition, significanti ncreases in fraudulent activity couldl ead to regulatoryi ntervention, including, but not limitedt o, additionalc onsumer notificationr equirements, increasingo ur costsa nd negatively impactingo ur operatingr esults,n et income andp rofitability.R egulatorsa nd consumer activists have also sought to expand financiali nstitutions’r esponsibility to holdc ustomers harmless forf raudulent transactions on theira ccounts, whichi ncreases our exposuret of raud-relatedl osses. 25
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Thea mount of ourA llowancef or credit lossesc ould adversely affect ourb usinessa nd mayp rove to be insufficientt o cover actual losses on ourl oans. TheF inancial AccountingS tandardsB oard’s CECL accountings tandard requiresu st od eterminep eriodice stimateso ft he lifetime expected creditl osseso no ur Credit carda nd otherl oans,a nd reservef or thosee xpected credit lossest hrough an allowancef or credit lossesa gainst thel oans.I na ddition, as referenced above,f or credit cardl oanp ortfoliosw ea cquire,w e arer equiredt oe stablishs ucha na llowancef or credit losses. Anys ubsequent deteriorationi nt he performance of a purchased portfolio resultsi ni ncremental credit loss reserves.G rowthi no ur loan portfolio generally woulda lsol ead to an increasei no ur Allowancef or credit losses. Thep rocessf or establishing our Allowancef or credit lossesi sc ritical to our results of operations andf inancial condition, andr equiresc omplex modeling andj udgments,i ncluding forecastso fe conomic conditions.T he ongoing impact of CECL will be significantly influenced by thec omposition, characteristics andq uality of our Credit carda nd otherl oans,a sw ella s thep revailinge conomic conditions andf orecasts utilized. Fora dditionali nformationr egarding our Allowancef or credit losses, seeN ote3 ,“ Allowancef or Credit Losses” to our auditedC onsolidated FinancialS tatementsi ncludeda sp arto ft his AnnualR eporto nF orm1 0-K. TheC ECLm odelm ay create more volatility in thel evel of our Allowancef or credit losses. If we arer equired( as ar esult of anyr eview, update,r egulatoryg uidanceo ro therwise)t om aterially increaseo ur levelo ft he Allowancef or credit losses, such increasec oulda dverselya ffect our business, financialc ondition, results of operations ando pportunity to pursue new business. Moreover,w em ay underestimate our expected credit losses, andw ec annot assure that our Allowancef or credit lossesw illb es ufficientt oc overa ctuall osses. We mayn ot be successful in realizingt he benefits associated with oura cquisitions,d ispositions ands trategic investments, ando ur business andr eputationc ould be materially adversely affected. Historically,w eh avea cquireda numbero fb usinesses, as well as made strategici nvestmentsi nb usinesses, products, technologies,p latforms or otherv entures, andw ee xpect to continue to evaluate potentiala cquisitions,i nvestmentsa nd othert ransactions in thef uture. Therei sn oa ssurancet hatw ew ill be able to successfully identifys uitablec andidatesf or anys ucho pportunities, valuea ny such opportunities accurately,n egotiate favorable termsf or anys ucho pportunities, or successfully complete anys uchp roposed transactions.I fw ea re unablet oi dentifya ttractivea cquisitionc andidateso r accretiven ew businesso pportunities, our growth couldb el imited. Similarly, we maye valuatet he potentiald ispositiono f, or elect to divest,a ssets or portfoliost hatn ol ongerc omplement our long-term strategico bjectives, as we didi nN ovember 2021, when we completedt he spinoffo fo ur LoyaltyOne segment. Seea lso“ RisksR elated to theL oyaltyOneS pinoff.” In addition, therea re numerous risksa ssociated with acquisitions,d ispositions andt he implementationo fn ew business opportunities, including, but not limitedt o: •t he diversiono fm anagement’sa ttentionf romo ther businessc oncerns; •c ontinuedf inancial responsibility with respect to ad ivestedb usiness, including guarantees,i ndemnitieso ro ther financialo bligations; •t he assumptiono fu nknownl iabilitieso ft he acquiredc ompany; •t he uncertainty of achievinge xpected benefits of an acquisition or disposition, including revenue,h uman resources, technologicalo ro ther cost savings,o perating efficiencies or synergies; •t he inability to integrates ystems,p ersonnelo rt echnologies from our acquisitions ands trategic investments; •u nforeseenl egal,r egulatoryo ro ther challengest hatw em ay not be able to manage effectively; and •t he reduction of cash availablef or operations,p ayment of dividends,s tock repurchasep rogramso ro ther uses and potentially dilutivei ssuanceso fe quity securities or incurrence of additionald ebt. Furthermore, if theo perations of an acquiredo rn ew businessd on ot meet expectations,o ur profitability mayd eclinea nd we mays eek to restructuret he acquiredb usinesso rt oi mpairt he valueo fs omeo ra ll of thea ssets of thea cquiredo rn ew business. 26
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Competitioni no ur industry is intense, andt he marketsf or thes ervices that we offerm ay contract or fail to expand, each of whichc ould negativelyi mpacto ur growth andp rofitability. Them arkets foro ur products ands ervices areh ighlyc ompetitive,a nd we expect this competitiont oi ntensify.O ur growth andc ontinuedp rofitability depend on continueda cceptance or adoptiono ft he products ands ervices we offer. We compete with aw ider ange of businesses, ands omeo fo ur currentc ompetitors have longero peratingh istories,s trongerb rand names andg reater financial, technical, marketinga nd otherr esources than we do. Moreover, thec onsumer credit andp ayments industryi sh ighlyc ompetitive andw ef ace an increasinglyd ynamic industrya se mergingp roducts,s ervices and technologies,a sw ella sn ew andn on-traditionalc ompetitors,e nter them arketplace. Fora more detailedd iscussion regardingh ow we competew ith respect to each of our productc ategories, as well as detail on emerging competitive trends, see“ Item 1. Business—Competition” of this Form 10-Ka bove.A dditionally,d ownturns in thee conomyo rt he performance of our retail or otherp artners, including as ar esulto fm acroeconomic conditions,g eopolitical events or global health events or otherp andemico re ndemic diseases,m ay result in ad ecreasei nt he demand foro ur products ands ervices. Oura bilityt og enerates ignificant revenue fromp artnersa nd customersw ill depend on our ability to differentiate ourselves through thep roducts ands ervicesw ep rovide andt he attractiveness of our programst oc onsumers. If we aren ot able to differentiate our products ands ervices fromt hoseo fo ur competitors,d rive valuef or our partners andt heir customers, or effectivelya nd efficientlya ligno ur resources with our goals ando bjectives,w em ay not be able to competee ffectivelyi n them arket. Anyd ecreasei nt he demand foro ur products ands ervices fort he reasons discusseda bove or anyo ther reasons couldh aveam ateriala dversee ffect on our growth,r evenue ando peratingr esults. Ourr esults of operationsa nd growth depend on oura bility to retain existingp artnersa nd attractn ew partners. Them ajorityo fo ur revenue is generatedf romt he credit products we provide to customerso fo ur partners pursuantt o program agreements that we enteri ntow ith our partners.A sa result, our results of operations andg rowthd ependo no ur abilityt or etaine xistingp artnersa nd attract newp artners. Historically,t here hasb een turnoveri no ur partners,a nd we expect this will continue in thef uture. Seea lso, “As ignificant percentage of our Totaln et interest and non-interest income, or revenue,i sg enerated through our relationships with al imited numbero fp artners, and ad ecrease in businessf rom, or thel osso f, any of thesep artnersc ouldc ausea significant drop in our revenue.” Therei ss ignificant competition foro ur existingp artners, ando ur failure to retain our existingl argerp artner relationships upon thee xpiration of ap rogram agreemento ro ur earlier loss of ar elationshipu pon thee xerciseo fa partner’s early terminationr ights, or thee xpirationo rt erminationo fa substantialn umbero fs mallerp artner contractso rr elationships, couldh aveam ateriala dversee ffect on our resultso fo perations (including growth rates) andf inancial conditiont ot he extent we do not acquire newp artnerso fs imilars izea nd profitability or otherwiseg rowo ur business. In addition, existing relationships mayb er enewed on less favorable termst ou si nr esponset oi ncreased competitionf or such relationships.T he competition forn ew partners is also significant, ando ur failuret oa ttract newp artnersc oulda dverselya ffect our ability to grow. Ourr esults depend,t oas ignificant extent,o nt he active ande ffectivep romotiona nd supporto fo ur productsb yo ur brandp artners. Ourp artnersg enerally accept most majorc reditc ards andv arious otherf orms of payment; thereforeo ur successd epends, in part,o nt heir active ande ffectivep romotiono fo ur products to theirc ustomers.W ed ependo no ur partners to integrate theu se of our credit products into theiro perations,i ncluding into theiri n-storea nd onlines hopping experiences andl oyalty programs. We rely on our partners to traint heir salesa nd call center associates about our products andt oh avet heir associates encouragec ustomers to applyf or,a nd use, our products ando therwise effectivelym arketo ur products.I fo ur partners do not effectivelyp romote ands upporto ur products,o ri ft heym akec hangesi nt heir businessm odels that negativelyi mpactc ardu sage,t hese actions couldh avea material adversee ffect on our businessa nd results of operations. Partners maya lsoi mplement or fail to implement changesi nt heir systemsa nd technologies that mayd isrupt the integrationb etween theirs ystems andt echnologies ando urs, anyo fw hich couldd isrupt theu se of our products.I n addition, if our partners engage in improperb usinessp ractices,d on ot adhere to thet erms of our program agreements or otherc ontractuala rrangementso rs tandards, or otherwised iminisht he valueo fo ur brand, we mays ufferr eputational damage andc ustomers mayb el essl ikelyt ou se our products,w hich couldh aveam ateriala dversee ffect on our business andr esults of operations. 27
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Ourr esults arei mpacted, to as ignificant extent,b yt he financialp erformance of ourp artners. Oura bilityt oo riginate newc reditc arda ccounts, generate newl oans,a nd earni nteresta nd fees ando ther income is dependent,i np art, upon saleso fm erchandise ands ervicesb yo ur partners andt he useo fo ur products by customers. The retail ando ther industriesi nw hich our partners operate arei ntensely competitive. Ourp artners’ salesm ay decreaseo rm ay not increasea sw ea nticipatef or various reasons,s omeo fw hich arei nt he partners’c ontrola nd some of whicha re not.F or example, partners ales have been,a nd in thef uturem ay be,a dverselya ffected by pandemic or endemic diseases or other macroeconomic conditions having an ational, regionalo rm orel ocal effect on consumer spending, businessc onditions affectingt he generalr etaile nvironment, such as supplyc hain distributions or thea bility to maintain sufficients taffing levels or ap articular partnero ri ndustry, or naturald isasters or otherc atastrophesa ffectingb road or more discrete geographica reas.I fo ur partners’s ales declinef or anyr eason, it generally results in lowerc redits ales,a nd therefore lower loan volumes anda ssociated interest andf ees ando ther income foru sf romo ur customers. In addition, if ap artner closes some or allo fi ts stores or becomess ubject to av oluntaryo ri nvoluntaryb ankruptcy proceeding( or if therei sa perception that such an eventm ay occur), we mayb ea dverselyi mpacted in an umbero fd ifferent ways.I ns uchc ircumstances,w e mayl osef uturec redits ales ande xistingc ustomers mayh avel essi ncentivet op ay theiro utstanding balances to us,w hich couldr esulti nh igherc harge-offr ates than anticipated ando ur costsf or servicingi ts customers’ accountsm ay increase. This risk is particularly acute with respect to our largestp artnerst hata ccount fora significanta mount of our Totaln et interest andn on-interest income.S ee “As ignificant percentage of our Totaln et interest and non-interest income,o r revenue,i sg enerated through our relationships with al imited numbero fp artners, and ad ecrease in businessf rom, or the loss of,a ny of thesep artnersc ouldc ausea significant drop in our revenue.”M oreover, if thef inancial conditiono fa partnerd eterioratess ignificantly or ap artner becomess ubjectt oa bankruptcy proceeding, we mayn ot be able to recover customer returns, customer payments made in partners toreso ro ther amountsd ue to us fromt he partner. Thei mpacto ft he bankruptcy of anyp articularb rand partnero no ur businessi sd ifficult to predict; most recently,f or example, our brand partnerS aksF ifth Avenue filedf or Chapter1 1b ankruptcy protectioni nJ anuary 2026. Ad ecreasei ns ales by our partners fora ny reason, or ab ankruptcy proceedingi nvolving anyo ft hemc ouldh aveam ateriala dversei mpact on our business andr esults of operations. We mayn ot be successful in oure ffortst op romote usage of ourD TC credit cards, or to effectivelyc ontrol thec osts associated with such promotion, botho fw hich maym aterially impacto ur profitability. We have been investingi np romotingt he useo fo ur DTCc reditc ards,i ncluding our Bread Cashback American Express Credit Card ando ur BreadR ewards American Express Credit Card, but therec an be no assurancet hato ur investmentst o acquire cardholders,p rovide differentiatedf eatures ands ervices andi ncreaset he useo fo ur DTCc reditc ards will be effective, particularly with increasingc ompetitionf romo ther card issuersa nd fintechs, as well as changing consumer and businessb ehaviors.I na ddition, if we developn ew products or offers that attract customersl ooking fors hort-term incentives rather than incentivizingl ong-term loyalty, cardholdera ttritiona nd costsc ouldi ncrease. Moreover, we mayn ot be able to cost-effectivelym anagea nd expand cardholderb enefits, including controllingt he growth of marketing, promotion, rewardsa nd cardholders ervices expenses in thef uture. Reductions in interchangef ees, or changesi nt he laws andr egulations governing such fees,c ould have variousa dverse impacts on ourb usinessa nd resultso fo perations. Interchange is af ee merchantsp ay to thep ayment networks in exchange foru sing then etwork’s infrastructurea nd paymentf acilitation, some of whichi sp aidt oc reditc ardi ssuers. We earni nterchange fees on co-brand andg eneral purposec reditc ardt ransactions,b ut we typically do not charge or earni nterchange fees fromo ur partners or customerso n our privatel abel credit cardp roducts. Certainm erchants,i na ne ffort to decreaset heir operating expenses,h avew ith some successs ought to loweri nterchange fees,i ncluding through litigationa gainst thep ayment networks,p romotinga lternativep ayment platformsw ith lower processing costsa nd lobbying forl egislativeo rr egulatoryc hanges. Severalr ecente ventsa nd actions indicateac ontinuing focuso ni nterchange by legislators, regulatorsa nd merchants. In 2023, fore xample,l egislationw as reintroduced in the U.S. Houseo fR epresentatives and Senate,w hich,a mong othert hings,w ouldr equire largei ssuingb anks (over$ 100 billion) to offera choice of at leastt wo unaffiliatedn etworkso verw hich electronict ransactions mayb ep rocessed. At the statel evel,t he Illinoisl egislature passeda bill that wouldp rohibitt he charging of interchange fees on salest ax and gratuitiesa nd restrict useo fe lectronicp ayment transactiond atae xceptt of acilitate or processt he transactiono ra sr equired by law. This Illinoisl egislation is beingc hallengedi nf ederal court, ando nF ebruary1 0, 2026, thec ourti ssued ar uling denying ap ermanent injunctions ought by thep laintiffs that wouldh avee njoinedt he interchange feep rovisions of the legislation, although thec ourtd id granta permanenti njunctionw ithr espect to thed atau se restrictions in thel egislation. 28
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Thec ourt’sr ulinga gainst thep laintiffs will be appealed.U nlesst he plaintiffs obtaina stay or injunctiond uringt he appeal processo rt he legislatureo therwise intervenes,t he prohibitiono nc hargingi nterchange fees on salest ax andg ratuitiesi n Illinoisw ill become effectiveJ uly1 ,2 026. Similar legislationh as been introduced in others tatesa nd, absent as uccessful legalc hallenge,t hese billsw ouldh avean umbero fa dversei mpactso nu s, including negativelyi mpactingo ur interchange revenue andc reatingo perationalc hallenges. In addition, in November 2025, ap roposed settlement wasa nnounced in the long-standing Visa/Mastercardl itigation, whichb egan in 2005 when ac lass of merchant plaintiffs allegedt hatV isaa nd Mastercard, along with theirm emberb anks,e ngagedi na nti-competitivep ractices by collectivelys ettinge xcessive interchange fees and imposingo ther restrictiver ules on merchants. Thep roposed settlement would, among otheri tems, reducei nterchange fees andg ivem erchants greater choice in acceptingc reditc ards in various categories, whichc ouldh ave various adversei mpactso no ur business, including reduced interchange revenue andd ecreased acceptanceo fc ertain of our cards by retailers.T he proposed settlement remainss ubject to courta pproval, andw ec an provide no assurancew ithr espect to thet imingo ro utcome of thec ourta pprovalp rocesso rt he effectso nu so ft he settlement if approved. Furthermore, to thee xtenti nterchange fees arer educed,o ne of our current competitivea dvantages with our partners—that we typically do not charge interchange fees when our privatel abel credit cardp roducts areu sedt op urchaseo ur partners’ goods ands ervices—mayb er educed.I na ddition, foro ur co-brand andg eneral purposec reditc ards,w ea re subjectt ot he operatingr egulations andp rocedures setf orth by thep ayment networks.O ur failure to comply with theseo perating regulations,w hich mayc hange from time to time,c oulds ubjectu st ov arious penaltieso rf ees,o rt he terminationo fo ur license to uset he applicable paymentn etwork,a ll of whichc ouldh aveam ateriala dversee ffect on our businessa nd results of operations. We mayn ot be ablet or etaina nd/ora ttracta nd hire ah ighlyq ualifiedw orkforce or maintain ourc orporatec ulture, andh avinga larges egment of ourw orkforce periodically workingf romh omem ay exacerbatet hese risksa nd cause newr isks. Ourp erformance largelyd epends on thet alents ande ffortso fo ur employees,p articularly our keyp ersonnela nd senior management.W em ay be unablet or etaino rt oa ttracth ighlyq ualifiede mployees.T he market fork ey personneli sh ighly competitive,p articularlyi nt echnology ando ther skilla reas significantt oo ur business. Failure to attract,h ire, develop, motivatea nd retain highlyq ualified employeet alent, or to maintain ac orporatec ulture that fostersi nnovation, creativity andt eamworkc ouldh armo ur overall businessa nd resultso fo perations.W er elyo nk ey personnelt ol ead with integrity andd ecency.T ot he extent our leadersb ehavei na mannert hati sn ot consistent with our values andl eadership behaviors, we coulde xperience significant impactst oo ur branda nd reputation, as well as to our corporatec ulture. Moreover, in connectionw itht he COVID-19 pandemic,w et ransitionedn early allo fo ur workforcet ow orkr emotely, and nearly allo fo ur workforcec ontinuest ow orko na hybrid office/remote schedule. Remote work by am ajority of our employeep opulationm ay impact our culture ande mployeee ngagement with our company, whichc oulda ffect productivity ando ur ability to retain employees whoa re critical to our operations andm ay increaseo ur costsa nd impact our results of operations.M oreover, work fromh omep oliciesb yo ther companiesm ay createm orej ob opportunitiesf or employees and make it more difficult foru st oa ttract andr etaink ey talent,e specially in light of changing worker expectations andt alent marketplace variabilityr egarding flexible work models.I na ddition, employees whow orkf romh omer elyo nr esidential communicationn etworksa nd internet providers that mayn ot be as resilient as commercialn etworksa nd providers,a nd thereforem ay be more susceptible to servicei nterruptions andc yberattackst hanc ommercials ystems.O ur business continuity andd isasterr ecovery plans, whichh aveb een historically developeda nd tested with af ocus on centralized deliveryl ocations,m ay not work as effectivelyi na distributed work fromh omem odel, wherew eatheri mpacts, network andp ower grid downtime mayb ed ifficult to manage.I fw ea re unablet om anaget he work fromh omee nvironment effectivelyt oa ddresst hese ando ther risks, our reputationa nd results of operations mayb ei mpacted. Ouro perations andf inancial performancec ould be adversely affected by severew eather andn atural disasters, as well as by climate change andE SG-related regulations anda ctions. Severe weathere ventsa nd naturald isasters couldh aveam ateriala dversee ffect on our financialp ositiona nd results of operations,a nd thet iming ande ffectso fa ny such events cannot accurately be predicted. Thef requencya nd severity of some typeso fw eathere ventsa nd naturald isasters,i ncluding wildfires, tornadoes, severe storms andh urricanes,h ave increased in recenty ears,w hich furtherr educes our abilityt op redict theire ffectsa ccurately.T hese such events could affect us directly (fore xample,b yi nterruptingo ur systems, impactingt he power grid,d amagingo ur facilitieso ro therwise preventingu sf romc onducting our businessi nt he ordinary course)o ri ndirectly (fore xample,b yd amagingo rd estroying brandp artner businesseso rc ustomers’h omes,i mpacting our servicep roviders or otherwisei mpairing customers’ ability to repayt heir loans).M anyo fo ur customersw erea ffectedb yt he particularly intense2 024 hurricanes eason in theU .S.A sa 29
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result of theseh urricanes, we froze delinquencyp rogression forc ardholders in FederalE mergency Management Agency (FEMA) identifiedi mpactz onesf or one billingc ycle,w hich resulted in modestly lowerN et principall ossesa nd Net principall ossr atei nt he fourth quarter of 2024, andc onsequently negativelyi mpacted Netp rincipal lossesa nd theN et principall ossr atei nt he second quarter of 2025. In addition, many governments, investorsa nd others takeholders have sought to acceleratea ctions to addressc limate change ando ther environmental, social andg overnance topics.T hish as ledt on ew regulations ande xpectations,w hich mayb ec onveyedt ou si nt he form of stockholderp roposals, public campaigns,p roxy solicitations or otherwise, that may cause significants hiftsi nd isclosure, commercea nd consumptionb ehaviors.A ny of thesed evelopments mayi mpact our operatingc osts ando ur business. Fore xample,i nM arch 2024, theS EC issued finalr ules relatingt ot he disclosure of a range of climate-relatedr isks ando ther information. Multiplel awsuits were fileda gainst theS EC,a nd theS EC issued a voluntarys tayo ft he rules, pending review by theU .S.C ourto fA ppealsf or theE ighthC ircuit, wheret he litigationh ad been consolidated andi sc urrently beingh eldi na beyanceu ntil theS EC reconsiderst he finalr uleo rr enewsi ts defense. While it currently appearsu nlikelyt hese rulesw ill become effectivea si ssued,t ot he extent such rulesd ob ecome effective, we and/or our partners couldi ncur increased costsr elated to thea ssessmenta nd disclosure of climate-relatedi nformation. Ourf ailure to comply with theser equirements, if adopted,o ra ny future regulatoryr equirementso rd isclosures tandards, maye xposeu st og overnment enforcementa ctions or privatel itigationa nd otherwised amageo ur reputation, anyo fw hich coulda dverselyi mpacto ur business. Conversely, others takeholders holdd iffering viewso ns ustainability-relatedg oals andi nitiatives.C ertain state governmentsa nd activist groups,a sw ella st he currentP residentialA dministrationt hrough as erieso fe xecutiveo rdersa nd othera ctions,h avep ursued measures that appear designedt od iscouragec ompanies frome ngaging in ESGp ractices or adhering to certain ESGp rinciples. Thec omplex regulatorya nd legalf rameworksa pplicable to such actions or measures continue to evolve.W ec annot be certain of thei mpacto fs uchr egulatory, legala nd otherd evelopments on our business. Thesed ynamic,a nd sometimes conflicting, circumstancesm ay result in pressure fromi nvestors, unfavorable reputational impacts, including inaccuratep erceptions or misrepresentationo fo ur actualb usinessp ractices,d iversion of management’s attentiona nd resources, potential proxy fights, andl itigationo ri nvestigations initiatedb yg overnment authoritieso rp rivate actorsa lleging that our activities area nti-competitive, discriminatoryo ro therwise unlawful, among othera dversei mpacts. Anyf ailure,o rp erceived failure,b yu st oa dhere to our public statements,c omplyf ully with developing interpretations of sustainability-relatedl awsa nd regulations,o rm eet evolving andv arieds takeholdere xpectations ands tandardsc ould negativelyi mpacto ur business, reputation, operatingr esults andf inancial condition. OurB oard-approveds ustainability strategy, whichf ocuses on opportunitiest oc reatev alue fora ll our stakeholders,w hile advancingo ur long-term financiala nd reputationalg oals,i si ntendedt od rive additionalp rogresso ni nitiatives that promotes ustainability,r esponsible businessp ractices andi ncreased transparency in our disclosures. We continue to advancet he integrationo fs ustainability into our overall governance andr iskm anagementp ractices.S tatementsi nt hisa nd otherf ilings we make with theS EC ando ther public statements,i ncluding in our annuals ustainability reporting, relatedt o thesei nitiatives reflecto ur current plansa nd expectations anda re not ag uarantee that thesei nitiatives will be achievedo r achievedo nt he currently anticipated timeline. Oura bilityt oe xecute on our sustainability strategy or achieve sustainability initiatives is subject to numerous factorsa nd conditions,m anyo fw hich areo utside of our control. Damage to ourr eputationc ould damage ourb usiness. Maintaininga positiver eputationi sc ritical to attractinga nd retainingp artners, customers, investorsa nd employees. Damage to our reputationc an thereforec ause significant harm to our businessa nd prospects. Harm to our reputationc an arisef romn umerous sources,i ncluding, among others: •e mployeem isconduct; •a breach of our or our servicep roviders’c ybersecurity defenses; •s ervice outages; •l itigationo rr egulatoryo utcomes; •s tockholdera ctivism; •f ailingt od eliver minimums tandardso fs ervice andq uality; •c ompliancef ailures; •t he useo fo ur,o ro ur partners’p roducts to facilitatel egal,b ut controversial, products ands ervices;a nd •t he activitieso fc ustomers,b usinessp artnersa nd counterparties. 30
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Social mediaa lsoc an cause harm to our reputation. By itsv eryn ature, social mediac an reach aw idea udience in av ery shorta mount of time, whichp resentsu nique challengesf or corporatec ommunications.N egativeo ro therwise undesirable publicity generatedt hrough unexpected social mediac overage can damage our reputationa nd brand. Negativep ublicity regardingu s, whethero rn ot true,m ay result in customer attrition ando ther harm to our businessp rospects. Thereh as also been increased focuso nt opics relatedt oe nvironmental, social andg overnance policies, andc riticismo fo ur policiesi n thesea reas coulda lsoh armo ur reputationa nd/or potentiallyl imit our accesst os omef orms of capitalo rl iquidity. Liquidity,M arketa nd Credit Risks Adverse financialm arketc onditions or ouri nability to effectivelym anage ourf undinga nd liquidity risk couldh avea material adverse effect on ourb usiness, liquidity anda bilityt om eet ourd ebts ervice requirements ando ther obligations. We need to effectivelym anageo ur funding andl iquidity in ordert om eet our cashr equirementss ucha sd ay-to-day operatinge xpenses,e xtensions of credit to our customers, investmentst og rowo ur business, payments of principala nd interest on our borrowings andp aymentso no ur othero bligations.O ur primary sources of liquidity include cashg enerated fromo peratinga ctivities, our credit facility,i ssuances of senior unsecured, subordinatedo rc onvertible debt securities and preferreds tock,f inancings througho ur securitizationp rograms, andd eposits with theB anks.I fw ed on ot have sufficient liquidity,w em ay not be able to meet our debt servicer equirementsa nd othero bligations,p articularly duringa liquidity stress event. If we maintain or arer equiredt om aintaint oo much liquidity,i tc ouldb ec ostly andr educeo ur financial flexibility. We will need additionalf inancing in thef uturet or epay or refinanceo ur existingd ebta tm aturity,o ro therwise,a nd to fund our growth.A so ft he date of this AnnualR eporto nF orm1 0-K, we hado utstanding $500 milliono f6 .750% senior notes due in 2035 and$ 400 milliono f8 .375% subordinatedn otes due in 2035. Thea vailability of additionalf inancing will depend on av ariety of factorss ucha sf inancial market conditions generally,i ncluding thea vailability of credit to the financials ervicesi ndustrya nd our lenderc ounterparties’ willingness to lend to us,c onsumers’ willingness to placem oney on deposit with us,o ur performance andc reditr atings andt he performance of our securitized portfolios. As an exampleo f circumstances impacting our lenders’w illingness to lend, U.S. federalb anking regulatorsp roposed newr ules in July 2023, commonlyr eferredt oa st he BaselI II “Endgame”o rB 3E,w hich woulds ignificantly revise thec apitalr equirements applicable forl arge banking organizations with totala ssets of $100 billiono rm ore. Following initialc onsultation, federal banking regulatorsa re in thep rocesso fr eproposingr ules implementingB 3E,t argetinga newp roposal in 2026 andp hase- in severaly earsl ater.T he future of B3Ei mplementationr emains uncertain.W hile thep roposed B3Er ules wouldn ot directly applyt ou sb ecause we areu ndert he $100 billiona ssett hreshold, most of our institutionall enders wouldb e subject to thee nhanced capitalr equirementsu nderB 3E,w hich couldl imit theirl ending capacity availablet ol endt ou sa nd otherb orrowers.D isruptions,u ncertainty or volatilityi nt he capital,c redito rd eposit markets, such as theu ncertainty and volatilitye xperiencedi nt he capitala nd credit marketsd uringr ecessions andp eriods of financials tress, mayl imit our abilityt oo btaina dditionalf inancing or refinancem aturingl iabilitieso nd esired terms( including funding costs) in at imely manner, or at all. As ar esult, we mayb ef orced to delayo btaining funding or be forced to issueo rr aise funding on undesirablet erms,w hich coulds ignificantly reduceo ur financialf lexibility andc ause us to contract or not grow our business, allo fw hich couldh aveam ateriala dversee ffecto no ur results of operations andf inancial condition. Thed ebtm arkets mayb ev olatile fora numbero fr easons,i ncluding due to thei nterestr atee nvironment, macroeconomic conditions andp oliticale ventsa nd uncertainties, andt here canb en oa ssurancet hats ignificantd isruptions,u ncertainties andv olatility will not occuri nt he future.S pecifically, availability of capitalf romt he non-investment graded ebtm arkets mayb es ubject to significantv olatility,a nd therec an be no assurancet hatw ew ill be able to accesst hosem arkets at attractiver ates,o ra ta ll. It is possiblet hatw ew ill be requiredt or epay or refinances omeo ra ll of our maturing debt in volatile and/or unfavorable markets. If we areu nablet oc ontinue to fund our businesso perations,a ccessc apitalm arkets for debt refinancings ando therwise,a nd attract depositso nf avorable termsa nd in at imely manner, or if we experience an increasei no ur borrowing costso ro therwise fail to manage our liquidity effectively, our results of operations andf inancial conditionm ay be materially adverselya ffected. If we areu nablet os ecuritizeo ur credit card loansd ue to changesi nt he market or otherc ircumstances or events,w e mayn ot be ablet of und newc reditc ardl oans, whichw ould have am ateriala dverse effect on ouro perations and profitability. As ignificant source of funding is our securitizationo fc reditc ardl oans,w hich involvest he transfer of credit cardl oans to at rust,a nd thei ssuance by thet rust of notes to third-partyi nvestorsc ollateralized by theb eneficiali nteresti nt he 31
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transferredc reditc ardl oans.A number of factorsa ffecto ur ability to fund our credit cardl oans in thes ecuritization market,s omeo fw hich areb eyond our control, including: •c onditions in thes ecuritiesm arkets in generala nd thea sset-backed securitizationm arketi np articular; •a vailability of loansf or securitization; •c onformity in theq uality of our credit cardl oans to rating agency requirementsa nd changesi nt hatq uality or thoser equirements; •c osts of securitizingo ur credit cardl oans; •a bility to fund requiredo ver-collateralizationo rc redite nhancements,w hich arer outinelyu sedt oa chieve better credit ratings to lowerb orrowing cost;a nd •t he legal, regulatory, accountingo rt ax rulesa ffectings ecuritizationt ransactions anda sset-backed securities, generally. Moreover, as ar esulto fB asel III, whichr efersg enerally to as et of regulatoryr eforms adopted in theU .S.a nd internationally that arem eant to addressi ssues that arosei nt he banking sector duringt he 2008-2010 financialc risis, banks have become subject to more stringent capital, liquidity andl everager equirements. In responset oB asel III, certain lenders of privatep lacementc ommitments within our securitizationt rustsh aves ought ando btaineda mendments to theirr espective transactiond ocuments permittingt hemt od elay disbursement of funding increases by up to 35 days.A lthough funding may be requested fromo ther lenders whoh aven ot delayedt heir funding, accesst of inancing couldb ed isrupted if allo ft he lenders implement such delays or if thel ending capacitieso ft hosew ho didn ot do so were insufficientt om akeu pt he shortfall. Furthermore, if adopted in its current form,t he B3Er ules wouldg enerally require largeU .S.b anking organizations to maintain higherl evelso fc apitalt hanu ndert he current BaselI II requirements. Theseh igherc apital requirementsc ouldc ause our institutionall enders to reducet heir lending activitiesa nd increaseo ur securitizationt rusts’ borrowing costs. Fore xample,e xcesss pread mayb ea ffected if as ecuritizationt rust’s borrowing costsi ncreasea sa result of thep roposed B3Ec hangest oe xistingc apitalr equirements. Such cost increases mayr esult, fore xample,b ecause the investorsa re entitledt oi ndemnificationf or increasedc osts resultingf roms uchr egulatoryc hanges, such as increased capitalr equirements. Thef utureo fB 3E implementationr emains uncertain. Thei nability to securitizec reditc ardl oans due to changesi nt he market,r egulatoryp roposals, theu navailability of credit enhancements,o ra ny otherc ircumstanceo re vent wouldh avea material adversee ffect on our operations,c osto ff unds ando verall financialc ondition. Theo ccurrenceo fe vents that result in thee arly amortizationo fo ur existingc reditc ards ecuritizationt ransactionso r an inability to delayt he accumulationo fp rincipal collections foro ur existingc reditc ards ecuritizationt ransactions wouldm aterially adversely affect ourl iquidity. Ourl iquidity andc osto ff unds wouldb em aterially adverselya ffected by theo ccurrenceo fe ventst hatc ouldr esulti nt he early amortizationo fo ur existing credit cards ecuritizationt ransactions.E arly amortizatione ventsm ay occura sa result of certain adversee ventss pecified fore ach asset-backed securitizationt ransaction, including, among others,d eteriorating assetp erformance or material servicingd efaults.I na ddition, certain series of funding securitiesi ssued by our securitization trusts ares ubject to earlya mortizationb ased on triggers relatingt ot he bankruptcy of one or more retailers or other partners.D eterioratinge conomic conditions andi ncreased competitioni nt he retail industry, among otherf actors, mayl ead to an increasei nb ankruptcies among retailers whoh avee ntered into credit cardp rogramsw ith us.T he bankruptcy of one or more retailers or otherp artnersc ouldl ead to ad ecline in thea mount of newl oans andc ouldl ead to increased delinquenciesa nd defaults on thea ssociated loans. Anyo ft hese effectso fa partnerb ankruptcy couldr esulti nt he commencemento fa ne arly amortizationf or one or more series of such funding securities, particularly if such an event were to occurw ith respectt oa retailero ro ther partnerr elatingt oa largep ercentage of such securitizationt rust’s assets. Theo ccurrenceo fa ne arly amortizatione vent mays ignificantly limit our ability to securitizea dditionall oans and materially adverselya ffect our liquidity. Lowerp ayment rateso no ur securitized credit card loansc ould materially adversely affect ourl iquidity andf inancial condition. Certainc ollections fromo ur securitized credit card loansc omeb ackt ou st hrough our subsidiaries,a nd we uset hese collections to fund thep urchaseo fn ewly originated loanst oc ollateralizeo ur securitized financings.I fp ayment rateso n our securitized creditc ardl oans arel ower than they have historically been,f ewer collections will be remittedt ou so na n ongoing basis. Further, certains erieso fo ur asset-backed securitiesi nclude ar equirement that we accumulate principal collections in ar estricteda ccount fora specified numbero fm onths priort ot he applicable security’s maturity date.W ea re 32
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requiredu ndert he program documents to lengthent hisa ccumulationp eriodt ot he extent we expect thep ayment ratest ob e lowe nough that thec urrent length of thea ccumulation period is inadequate to fully fund ther estricteda ccount by the applicable security’s maturity date.L ower paymentr ates,a nd in particular paymentr ates that arel ow enough that we are requiredt ol engtheno ur accumulationp eriods,c ouldm aterially adverselya ffect our liquidity andf inancial condition. Inability to grow or maintain ourd eposit levelsi nt he future couldh avea material adverse effect on ourl iquidity,a bility to grow ourb usinessa nd profitability. As ignificant source of our funding is through customer deposits,p rimarily in thef ormo fc ertificates of deposit ando ther savings products.W eo btaind eposits directly fromr etailc ustomers or through brokerage firmst hato ffero ur deposit products to theirc ustomers.I nr ecenty ears, depositsh aveb ecome an increasinglyi mportant source of funds foru s, with, fore xample,o ur DTCd epositsg rowing 11% from$ 7.7 billion as of December3 1, 2024 to $8.5 billiona so fD ecember3 1, 2025, anda verage DTCd epositsr epresenting4 8% of our totalf unding sources,w hich is comprisedo fr etaila nd wholesale deposits,a nd secureda nd unsecured borrowings.O ur funding strategy includesc ontinuedg rowtho fo ur liquidity through deposits.T he deposit businessc ontinuest oe xperience intensec ompetitioni na ttractinga nd retainingd eposits.W ec ompete on theb asis of ther ates we payo nd eposits,t he qualityo fo ur customer servicea nd thec ompetitivenesso fo ur digital banking capabilities.O ur abilityt oa ttract andm aintainr etaild eposits remainsh ighlyd ependent on thep roducts we offer, thes trengtho fo ur Banks,t he reputability of our businessp ractices ando ur financialh ealth.A dversep erceptions regarding our lending practices,r egulatoryc ompliance, protectiono fc ustomeri nformationo rs ales andm arketingp ractices,o r actions takenb yr egulatorso ro thersw ith respectt oo ur Banks,c ouldi mpedeo ur competitivep ositioni nt he deposits market.F urthermore,t he failures of otherf inancial institutions (sucha st hoseo fS ilicon ValleyB anka nd Signature Bank in early 2023) or broaderc oncerns about thef inancial services industrym ay cause deposit outflowsa sc ustomers spread deposits among severald ifferent banks so as to maximize theira mount of FDIC insurance, move deposits to banks deemed “too bigt of ail” or remove deposits fromt he banking system entirely. Thed emandf or thed eposit products we offerm ay also be reduced due to av ariety of factors, including macroeconomic events,c hanges in interest rates, changesi nc onsumers’ preferences,d emographics or discretionary income,r egulatory actions that decrease consumer accesst op articular products or thed evelopmento ra vailability of competingp roducts. Competitionf romo ther financials ervices firmsa nd others that used eposit funding products maya ffect deposit renewal rates, costso ra vailability. Conversely, anya djustmentsw em aket ot he rateso fferedo no ur deposit products to remain competitive maya dverselya ffect our liquidity or our profitability. TheF DIAp rohibits an insuredb ankf romo ffering interest rateso na ny deposits that significantly exceed ratesi ni ts prevailingm arket, unlessi ti s“ well capitalized.” Ab ankt hati sl esst han“ well capitalized”m ay not paya ni nterestr ateo n anyd eposit in excess of 75 basisp ointso verc ertain prevailingm arketr ates.T here aren os uchr estrictions undert he FDIA on ab ankt hati s“ well capitalized”a nd as of December3 1, 2025, each of our Banks meto re xceeded alla pplicable requirementst ob ed eemed “wellc apitalized”f or purposes of theF DIA. However, therec an be no assurancet hato ur Banks will continue to meet thoser equirements. Anyl imitation on thei nterestr ates our Banks can payo nd epositsm ay competitively disadvantageu si na ttractinga nd retainingd eposits,r esultingi na material adversee ffect on our business. TheF DIAa lsop rohibits an insuredb ankf roma cceptingb rokeredd eposits,u nlessi ti s“ well capitalized”o ri ti s “adequately capitalized”a nd receivesa waiver fromt he FDIC.L imitations on our Banks’a bility to acceptb rokered deposits fora ny reason (including regulatoryl imitations on thev olumeo fb rokeredd eposits in totalo ra sa percentage of totala ssets)i nt he future couldm aterially adverselyi mpacto ur liquidity,f unding costsa nd profitability.I nD ecember 2020, theF DICu pdatedi ts regulations that implement Section2 9o ft he FDIA to establisha newf ramework fora nalyzing whetherc ertain deposit arrangementsq ualifya sb rokeredd eposits.T hisb rokeredd eposit rule establishesb right-line standardsf or determiningw hether an entity meetst he statutoryd efinitiono f“ deposit broker” anda consistent processf or applicationo ft he primaryp urposee xception. Alld epositso nt he Consolidated BalanceS heetso fo ur Banks categorized as non-brokeredi na ccordance with thec urrent regulations mentioneda bove comply with alla pplicationr equirementso f thoser egulations.I nt he thirdq uarter of 2024, theF DICp ublishedi nt he FederalR egistera proposed rule that,i ff inalized as proposed,w ouldh avee xpandedt he scope of deposits that constitute “brokeredd eposits”a nd thereforec ouldp otentially have causedc ertain of our presento rp rospectived eposits to be treated as brokered. TheF DICw ithdrew this proposed rule in March2 025. As of December3 1, 2025, we had$ 13.9 billioni nd eposits, with approximately $7.7 billioni nn on-maturity savings deposits anda pproximately $6.2 billioni nc ertificates of deposit. If, forw hateverr eason, we areu nablet og rowo r maintain our deposit levels,o ur liquidity,a bility to grow our businessa nd profitability couldb em aterially adversely affected. 33
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Ourl evel of indebtedness couldm aterially adversely affect oura bility to generate sufficientc asht or epay our outstandingd ebt, ando ur ability to reactt oc hanges in ourb usinessa nd ouri ncurrenceo fa dditionali ndebtednesst o fund future needsc ould exacerbatet hese risks. Ourl evel of indebtedness requiresa high levelo fi nteresta nd principalp ayments. Subject to thel imits containedi no ur credit agreement, thei ndentureg overningo ur senior notes ando ur otherd ebti nstruments,w em ay be able to incur substantiala dditionali ndebtedness fromt ime to time to financew orking capital, capitale xpenditures, investmentso r acquisitions,o rf or otherp urposes.I fw ed os o, ther isks relatedt oo ur levelo fi ndebtedness couldi ntensify.O ur levelo f indebtedness increasest he possibility that we mayb eu nablet og eneratec ashs ufficientt op ay,w hend ue,t he principalo f, interest on or othera mountsd ue in respect of our indebtedness. Ourl evel of indebtedness, combined with our other financialo bligations andc ontractualc ommitments, could: •m akei tm ored ifficult foru st os atisfy our obligations with respect to our indebtedness, anda ny failure to comply with theo bligations undera ny of our debt instruments, including restrictivec ovenants, couldr esulti na ne vent of defaultu ndero ur credit agreement, thei ndentureg overningo ur senior notes andt he agreements governingo ur otheri ndebtedness; •r equire us to dedicate as ubstantialp ortion of our cashf lowf romo perations to payments on our indebtedness, therebyr educingf unds availablef or workingc apital, capitale xpenditures, acquisitions or othern ew businessa nd otherc orporatep urposes; •i ncreaseo ur vulnerabilityt oa dversee conomic andi ndustryc onditions,w hich couldp lace us at ac ompetitive disadvantageo rr equire us to disposeo fa ssets to raisef unds if needed forw orking capitalo rt op ay,w hend ue,t he principalo f, interest on or othera mountsd ue in respecto fo ur indebtedness; •l imit our flexibilityi np lanningf or,o rr eacting to,c hangesi no ur businessa nd thei ndustriesi nw hich we ando ur brandp artnerso perate; •l imit our abilityt ob orrowa dditionalf unds,o rt od ispose of assets to raisef unds,i fn eeded,f or workingc apital, capitale xpenditures, acquisitions or othern ew businessa nd otherc orporatep urposes; •d elay or abandon investmentsa nd capital expenditures; •c ause anyr efinancing of ouri ndebtedness to be at higheri nterestr ates andr equire us to comply with more onerous covenants, whichc ouldf urther restrict our businesso perations;a nd •p revent us fromr aising thef unds necessary to repurchasea ll senior notes tenderedt ou su pon theo ccurrenceo f certain changeso fc ontrol. Restrictions imposed by thei ndenture governing ours eniorn otes,o ur credit agreementa nd ouro ther outstandingo r future indebtedness mayl imit oura bility to operate ourb usinessa nd to financeo ur future operations or capitaln eeds or to engage in otherb usinessa ctivities. Thet erms of thei ndentureg overningo ur senior notes,o ur credit agreementa nd agreements governingo ur otherd ebt instrumentsl imit us ando ur subsidiaries frome ngaging in specified typeso ft ransactions.T hese covenantsl imit our and our subsidiaries’a bility,a mong othert hings,t o: •i ncur additionald ebt; •d eclareo rp ay dividends,r edeem stocko rm akeo ther distributions to stockholders; •m akei nvestments; •c reatel iens or usea ssets as security in othert ransactions; •m erge or consolidate, or sell, transfer,l ease or disposeo fs ubstantially allo fo ur assets; •e nter into transactions with affiliates; •s ello rt ransferc ertain assets;a nd •e nter into anyc onsensual encumbranceo rr estrictiono nt he ability of certain of our subsidiaries to payd ividends or make loanso rs ella ssets to us. As ar esulto ft hese covenantsa nd restrictions,w em ay be limitedi nh ow we conducto ur business, andw em ay be unable to raisea dditionali ndebtedness to competee ffectivelyo rt ot akea dvantageo fn ew businesso pportunities. Thet erms of anyf uturei ndebtedness we mayi ncur couldi nclude more restrictivec ovenants. We cannot assure that we will be able to maintain compliance with thesec ovenantsi nt he future.I fw ef ailt oc omplyw ith such covenants, we mayn ot be able to obtainw aivers of non-compliancef romt he lenders and/or amendt he covenantss ot hatw ea re in compliancet herewith. 34
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Anyr eductioni no ur credit ratingsc ould increase thec osto fo ur fundingf rom, andr estricto ur accesst o, thec apital marketsa nd have am ateriala dverse effect on ourr esults of operations andf inancial condition. Ratings of our debt areb ased on an umbero ff actors,i ncluding financials trength, as well as factorsn ot within our control, including conditions affectingt he financials ervices industry, andt he macroeconomic environment. Ourr atings or outlook couldb ed owngraded at anyt imea nd without anyn oticeb ya ny of ther atinga gencies, whichc ould, among othert hings, adverselyl imit our access to thec apitalm arkets anda dverselya ffect thec osta nd othert erms upon whichw ea re able to obtainf unding. Oura bilityt or aise funding through thes ecuritizationm arketa lsod epends,i np art, on thec reditr atings of thes ecuritiesw ei ssuef romo ur securitizationt rusts. If we aren ot able to satisfy ratinga gencyr equirementst oc onfirmt he ratings of our asset-backed securities, it couldl imit our abilityt oa ccesst he securitizationm arkets.I na ddition, ratings issued by ar atings agency mayd iffera sa mong different securities, andr atings issued fort he same security mayd iffera s among thed ifferent issuingr atings agencies. Changes in market interest ratesc ould negativelya ffect ourp rofitability. Changesi nm arketi nterestr ates cause our financec harges ando ur interest expenset oi ncreaseo rd ecrease, as certaino f our assets andl iabilitiesc arry interest ratest hatf luctuate with market rates. We fund Credit carda nd otherl oans with a combinationo ff ixed rate andf loatingr atef unding sourcest hati nclude deposits ands ecuritized financings.W ea lsoh ave unsecuredd ebtt hati ss ubject to variable interest rates, andw em ay in thef uturei ncur additionald ebta nd/or issue preferrede quity that mayr elyo nv ariablei nterestr ates. Thei nterestr ateb enchmark form osto fo ur floating rate assets is theP rime rate,a nd thei nterestr ateb enchmark foro ur floatingr atel iabilitiesi sg enerally either the SecuredO vernight FinancingR ate( SOFR)o rt he Federalf unds rate.T he Prime rate andS OFRo rt he Federalf unds rate couldr eset at different timeso rc ouldd iverge,l eadingt om ismatchesi nt he interest rateso no ur floating rate assets andf loatingr atel iabilities.I nterestr ates areh ighlys ensitivet om anyf actors that areb eyond our control, including generale conomic conditions,t he competitivee nvironmentw ithin our markets, consumer preferences fors pecificl oana nd deposit products,a nd policieso fv arious governmental andr egulatorya gencies, in particular theF ederal Reserve. Changesi nm onetary policy, including changesi ni nterestr ates beinga ppliedb yt he Federal Reserve, couldi nfluence thea mount of interest we receive on our Credit carda nd otherl oans andt he amount of interest we payo nd eposits andb orrowings.A sa result, thea mount of interest we payo no ur credit facilitiesm ay be difficult to predict. If thei nterestw ep ay on depositsa nd otherb orrowings increases at af asterr atet hant he interest we receive on our Credit carda nd otherl oans,o ur profitability wouldb ea dverselya ffected.C onversely, our profitability coulda lsob ea dversely affected if thei nterestw er eceive on our Credit card ando ther loansf alls more quickly than thei nterestw ep ay on deposits ando ther borrowings. Future saleso fo ur common stock, or thep erceptiont hatf utures ales couldo ccur, maya dversely affect ourc ommon stockp rice. As of February 6, 2026, we hada na ggregateo f1 49,509,403 shares of our commons tock authorized but unissued andn ot reserved fors pecificp urposes.I ng eneral,w em ay issuea ll of theses haresw ithout anya ctiono ra pprovalb yo ur stockholders.W eh aver eserved8 ,320,451 shares of our common stockf or issuance undero ur employees tock purchase plan ando ur long-term incentivep lans,o fw hich 1,052,261 shares have been issued and2 ,696,814 shares arei ssuable upon vestingo fr estricteds tock awards andr estricteds tock units.W eh aver eservedf or issuance 1,500,000 shares of our commons tock,1 07,291 of whichr emaini ssuable,u ndero ur 401(k) Plan as of December3 1, 2025. In addition, we may issues hareso fo ur commons tock in connectionw itha cquisitions.S ales or issuances of as ubstantialn umbero fs hareso f commons tock,o rt he perceptiont hats ucht ransactions couldo ccur, coulda dverselya ffect prevailingm arketp rices of our commons tock,a nd anys aleo ri ssuance of our common stockw ill dilute theo wnership interestso fe xistings tockholders. Them arketp rice andt rading volume of ourc ommons tock mayb ev olatile ando ur stockp rice couldd ecline. Thet rading priceo fs hareso fo ur commons tock hasf romt ime to time fluctuated widely and, in thef uture, mayb es ubject to similar fluctuations.T he tradingp rice of our common stockm ay be affected by an umbero ff actors, including our operatingr esults,c hangesi no ur earnings estimates, additions or departures of keyp ersonnel, our financialc ondition, legislative, executivea nd regulatoryc hanges, monetary andf iscal policy, generalc onditions in thei ndustriesi nw hich we ando ur brandp artnerso perate,g eneral economic conditions,a nd generalc onditions in thes ecuritiesm arkets.O ther risks describedi nt hisA nnualR eporto nF orm1 0-Kc oulda lsom aterially adverselya ffect our sharep rice. 35
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Therei sn og uarantee that we will pay future dividendso rr epurchases hareso fo ur stocka ta level anticipated by stockholders, whichc ould reduce returnst oo ur stockholders. Decisionst od eclaref utured ividends on or repurchase ours tock will be at thed iscretiono fo ur Boardo fD irectorsb ased upon ar eview of relevant considerations and restrictions imposed by thet erms of ouro utstanding preferreds tock. SinceO ctober2 016, our Boardo fD irectorsh as declared quarterly cashd ividendp aymentso no ur outstanding common stock. We issued our inaugural series of publicly-tradedp referred stocki nN ovember 2025, andw ee xpect to payo ur first quarterly dividend paymento no ur preferreds tock in March2 026. Future declarations of quarterly dividends andt he establishmento ff uturer ecorda nd paymentd ates on our common andp referreds tock ares ubject to approvalb yo ur Board of Directors. TheB oard’s determinationt od eclared ividends on, or repurchases hareso f, our stockw ill depend upon our profitabilitya nd financialc ondition, contractualr estrictions,r estrictions imposed by applicable laws andr egulations, including thoseg overningo ur Banks’a bility to payd ividends andm aked istributions or otherp aymentst ou s, ando ther factorst hatt he Boardo fD irectors deemsr elevant. Basedo na ne valuationo ft hese factors, theB oard of Directorsm ay determinei nt he future not to declared ividends at all, to declared ividends at ar educed amount,n ot to repurchases hareso r to repurchases haresa tr educed levels compared to historical levels,a ny or allo fw hich couldr educer eturns to our stockholders.F urther,u ndert he termso fo ur outstanding preferreds tock,o ur ability to declare, payo rs et asidea ny paymentf or dividend or distributiono no ur common stock, or repurchase, redeem or otherwisea cquire forc onsideration, directly or indirectly,a ny shares of our commons tock,i ss ubject to restrictions in thee vent that we do not declarea nd either payo rs et asideas um sufficientf or paymento fd ividends on our preferreds tock fort he immediatelyp receding dividend period. In preparingo ur financials tatementsw em ake certain assumptions,j udgments ande stimatest hata ffect amounts reportedi no ur auditedC onsolidated FinancialS tatements, which, if nota ccurate,m ay significantly impacto ur financialr esults. We make assumptions,j udgments ande stimatesi nd etermining theA llowancef or credit losses, accruals fore mployee- relatedl iabilities, accruals foru ncertain taxp ositions,v aluation allowances on deferredt ax assets andl egal contingencies. We also make assumptions,j udgments ande stimatesf or itemss ucha st he fair valueo ff inancial instruments, any impairmento fg oodwill,l ong-liveda ssets ando ther prepaido ri ntangiblea ssets,t he fair valueo fs tock awards,a sw ella s ther ecognitiono fr evenue.T hese assumptions,j udgments ande stimatesa re drawnf romh istorical experience andv arious otherf actorst hatw eb elieve arer easonableu ndert he circumstances as of thed ateo ft he auditedC onsolidated Financial Statements.A ctualr esults couldd ifferm ateriallyf romo ur estimatesa sa result of adversei mpactsf romv arious factors, including regulatoryo rl egislative changes, unexpected developments in legalc ontingencies, or if future macroeconomic conditions or future operatingr esults differs ignificantly from our current assumptions,a nd such differences could significantly impacto ur financialr esults. Legal,R egulatorya nd Compliance Risks Ourb usinessi ss ubject to extensivea nd evolvingg overnmentr egulationa nd supervision, whichc ould materially adversely affect ourr esults of operations andf inancial condition. We, primarily through our Banks andc ertain non-bank subsidiaries,a re subject to extensivef ederal ands tate regulation, supervisiona nd examinationb yr egulators, including theF DIC, theD elawareO ffice of theS tate Bank Commissioner, the Utah Department of FinancialI nstitutions,a nd theC FPB.B anking andc onsumer financialp rotectionl awsa nd regulations arei ntendedt op rotect consumers, depositors’f unds,t he DIF, andt he safety ands oundness of theb anking system as a whole, not stockholders andn on-deposit creditors.T hese laws andr egulations affect our lending practices,c apital structure, investment practices, dividend policya nd growth,a mong othert hings.F ederal ands tate legislativeb odies and regulatorya genciesc ontinuallyr eviewb anking laws,r egulations andp oliciesf or possiblec hanges. Compliancew ith laws andr egulations can be difficult andc ostly,a nd changest ol awsa nd regulations,a sw ella si ncreased intensity in supervision, ofteni mposea dditionalc ompliancec osts.T he scope of thel awsa nd regulations andt he intensity of the supervisiont ow hich we ares ubject have increasedi nr ecent years, initially in responset ot he 2008-2010 financialc risis, andm orer ecentlyi nl ight of otherf actorss ucha st echnological andm arketc hangesa nd theh igh-profile bank failures in thef irst half of 2023. We believet hatr egulatorye nforcementa nd finesh avea lsoi ncreased acrosst he banking and financials ervicess ector. Further, while thec urrent PresidentialA dministrationa nd thec ongressionalm ajoritiesi nt he U.S. Senate andH ouseo f Representatives have supportedr educingt he regulatoryb urden, thes cope of legislation, executivea ctiona nd regulation andt he intensity of supervisionw illl ikelyr emainu ncertain in thec urrent regulatorya nd political environments at botht he 36
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federala nd statel evels, including with respect to late fees andc reditc ardi nterestr ates.M oreover, in certain cases, uncertainty at thef ederal levelh as prompted ar isei ns tate lawmakers, regulatorsa nd attorneysg eneral taking more active rolesi nc onsumer financer egulationa nd enforcement, potentially creatinga complexr egulatoryp atchwork in areass ucha s interchange fees,c reditc ardr ewardp rogramsa nd otherm atters.S uchc hangesc oulds ubject us to additionalc osts,l imit thet ypeso ff inancial services andp roducts we mayo ffer,a nd/or limit what we mayc hargef or certain banking services, among othert hings. Examples of federala nd statel egislationt hatw et rack include legislationi ntendedt op lace capso nt he interest ratest hat we ando ther financiali nstitutions arep ermittedt oc harge. Fori nstance, in 2023, Colorado passeda law( initially scheduled to be effectiveJ uly2 024) to “opt out”o ft he nationals tandard interest rate fori nterstatel oans by state-charteredb anks as providedb yf ederal lawi nt he Depository Institutions Deregulationa nd Monetary ControlA ct (DIDMCA).B yo ptingo ut of DIDMCA,C oloradow ouldh avet he ability to regulatea nd limit interest rateso nl oans “madei n” Colorado, andt he Colorado laww ouldg enerally cap interest ratesa t2 1% andl atef ees at $15 with a1 0-dayg race period. In June 2024, the U.S. District Courtf or theD istricto fC oloradop reliminarily enjoined Colorado frome nforcing thei nterestr ates in the Colorado UniformC onsumer Credit Code with respect to anyl oanm adeb yt he plaintiffs’m embers to thee xtentt he loan is not made by a lender in Colorado andt he applicable interest rate in 12 U.S.C. 1831d(a) exceedst he rate that would otherwiseb ep ermitted.I nN ovember 2025, theU .S.C ourto fA ppealsf or theT enth Circuitr eversedt he District Court’s preliminaryi njunction, concluding that “madei n” encompassesl oans in whiche ither the lender or the borrower is located in Colorado, meaningt hatC oloradoc ouldi mposei nterest-rate capso nl oans made by out-of-state banks to Colorado borrowers.T he plaintiffs in thel itigation( whoa re opposingt he Colorado law) arec hallenging this ruling. Legislatures in others tatesh avep roposed similarl awsi nt he past andm ay againi nt he future.W ec annot provide any assurancea st ot he finalo utcome of this or others imilar proposed or future legislationi no ther states,a ny of whichw ould have an adversee ffect on our businessa nd results of operations.W hile still subject to potentialr eversal, ther ecentT enth Circuit decision coulda lsoe ncourageo ther states to adopt similarl egislation. In addition, PresidentT rump andv arious federall egislators have also made public statements regardingp otentiale ffortst op lace capso nc reditc ardi nterestr ates, anda bill wasi ntroduced in theU .S.S enatei nF ebruary2 025 proposingt oc ap credit cardi nterestr ates at 10% fora period of five years. Most recently,i nJ anuary 2026, PresidentT rump made public statements on social mediaa nd elsewherei n supporto fp lacing ac ap of 10% on credit cardi nterestr ates fora one-year period. Thel ikelihood of anys uchc ap being effectuatedi na ny newe xecutive action, legislationo rr egulationr emains uncertain,b ut anys uchc ap on interest rates woulds ignificantlyl imito ur ability to extend credit to certain of our customersa nd wouldh aveam ateriala dversee ffect on our business, resultso fo perations andf inancial condition. In connectionw itht heir continuous supervisiona nd examinations of us,t he FDIC,C FPB and/or otherr egulatorya gencies mayr equire changesi no ur businesso ro perations.A ny such changesm ay be judicially enforceable andi ns omec ases, regardless of fault, it mayb el esst ime-consumingo rc ostly to settle thesem atters,w hich mayr equire us to implement certain changest oo ur businessp ractices,p rovide remediationt oc ertain individuals or make as ettlement paymentt oa givenp arty or regulatoryb ody. We maya lsob ecome subject to formal or informal enforcementa nd others upervisory actions,i ncluding memoranda of understanding, writtena greements, cease-and-desist orders,a nd prompt-corrective-action or safety-and-soundness directives.F or example, in late November 2023, theF DICi ssued ac onsento rder to one of our subsidiaries,C omenity ServicingL LC,a rising out of theJ une 2022 transitiono fo ur credit cardp rocessing services to strategico utsourcing partners,a nd in August2 024 eacho fo ur Banks enteredi ntoa na greementw ith theF DICt op ay civil moneyp enalties( CMPs)o f$ 1m illionp er Bank, also relatedt ot he June 2022 transition. Fora dditionali nformation regardingt hisc onsento rder,s ee “Management’sD iscussion andA nalysiso fF inancial Conditiona nd Results of Operations (MD&A) —L egislative, RegulatoryM atters andC apitalA dequacy.” Regulatorya uthoritiesh avee xtensive discretioni nt heir supervisorya nd enforcementa ctions.S upervisorya ctions coulde ntails ignificantr estrictions on our existing business, our ability to developn ew business, our flexibility in conductingo perations,a nd our ability to pay dividends or utilizec apital. Enforcementa nd others upervisorya ctions also can result in thei mpositiono fc ivil monetary penaltieso ri njunctions,r elated litigationb yp rivate plaintiffs,d amaget oo ur reputation, anda loss of customer or investor confidence. We couldb er equired, as well, to disposeo fs pecified assets andl iabilitiesw ithin ap rescribedt ime-frame.A sa result, anye nforcement or others upervisorya ctionc ouldh avea na dversee ffect on our business, results of operations, financialc ondition andp rospects. In addition, changesi nt he regulatorya nd supervisorye nvironments coulda dverselya ffect us in substantiala nd unpredictablew ays, including by limitingt he typeso ff inancial services andp roducts we mayo ffer, enhancingt he ability of others to offerm orec ompetitivef inancial services andp roducts,r estrictingo ur ability to make acquisitions or pursue otherp rofitableo pportunities,a nd negativelyi mpacting our resultso fo perations andf inancial condition. Changesi nt he 37
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prevailingi nterpretations of federalo rs tate laws andr elated regulations coulda lsoi nvalidateo rc alli ntoq uestiont he legality of certain of our services andb usinessp ractices. Ourf ailure to comply with thel aws, executivea ctions,r egulations,a nd supervisorya ctions to whichw ea re subject,e veni f thef ailure is inadvertento rr eflectsa differencei ni nterpretation, coulds ubject us to fines, otherp enalties, andr estrictions on our businessa ctivities, anyo fw hich coulda dverselya ffect our business, results of operations,f inancial condition, cash flows, capitalb ase, andt he priceo fo ur securities. See“ Item 1. Business —S upervision andR egulation” form orei nformationa bout certain laws andr egulations to which we ares ubject andt heir impactso nu s. Litigation ando ther actions andd isputesc ould subjectu st os ignificant fines, penalties, judgments and/or requirements resultingi ns ignificantly increasede xpenses,d amage to ourr eputationa nd/ora material adverse effect on ourb usiness. Businessesi nt he financials ervices andp aymentsi ndustryh aveh istorically been,a nd continue to be,s ubject to significant legala ctions,i ncluding classa ctionl awsuits.M anyo ft hese actions have includedc laims fors ubstantialc ompensatoryo r punitived amages;f or example, in November 2025, aj uryf ound that we shouldb er equiredt op ay punitived amages in an actiona gainst us undert he Fair Credit ReportingA ct (FCRA),w itht he punitived amages amount fare xceedingt he actual damagesa warded thep laintiff; providedt hatt he amount of anyp unitived amages in this caser emains subject to determinationb yt he trialc ourtj udge.. While we have historically reliedo no ur arbitrationc lause( whichi ncludesa class actionw aiver) in agreements with customerst ol imito ur exposuret oc lass actionl itigation, therec an be no assurancet hat we will always be successful in enforcingo ur arbitrationc lausei nt he future.F or instance, ap laintiffm ight prove that she/ he didn ot accepto ur account termsa nd conditions (e.g., in an identity theftc laim undert he FCRA or in ac laim undert he Military Lending Act, whichp rohibits an arbitrationr equirement). Therem ay also be legislative, regulatoryo ro ther efforts to limit or eliminatet he useo fa rbitrationc lauses or classa ctionw aivers,a nd if our arbitrationp rovisions aref ound to be unenforceable or areo therwise limitedo re liminated,o ur exposuret oc lass actionl itigationc ouldi ncreases ignificantly. Further, even if our arbitrationc lauser emains enforceable, we mayb es ubject to mass arbitrations in whichl arge groups of consumersb ring arbitrations againstu ss imultaneously. Givent he inherent uncertaintiesi nvolvedi nl itigation, andt he very largeo ri ndeterminated amages sought in some mattersa sserted againstu s, therei ss ignificantu ncertainty as to theu ltimate liability we mayi ncur froml itigation. Claims andl egal actions couldi nvolve significantd efense costsa nd reputational damage,a nd thet ime-consumingn atureo fl egal proceedings can divert senior management attentionf romt he business. Fora dditionald etailr egarding thel itigationm atters fileda gainst us in connectionw ith our spinoffo fL VI in 2021, see “RiskF actors—Risks Relatedt ot he LoyaltyOneS pinoff” andN ote2 0, “Commitmentsa nd Contingencies” to our audited Consolidated FinancialS tatements. In additiont ol itigationa nd regulatory matters,f romt ime to time, through our operationala nd compliancec ontrols,w e identifyc ompliancei ssues that require us to make operationalc hangesa nd, depending on then atureo ft he issue, result in financialr emediationt oi mpactedc ardholders.T hese self-identifiedi ssues andv oluntaryr emediationp aymentsc ouldb e significantd epending on thei ssuea nd then umbero fc ardholders impacted.T heya lsoc ouldg eneratel itigationo r regulatoryi nvestigations that subject us to additionala dversee ffects on our business, results of operations andf inancial condition. OurB anks ares ubject to extensivef ederal ands tate regulationt hatm ay restrict theira bility to make cash availablet o us andm ay requireu st om ake capitalc ontributions to them. Although not ab ankh olding companya sd efined undert he BHCA ct,B read FinancialH oldings,I nc.i so ur parent holding companya nd, as such,d epends on dividends,d istributions ando ther payments froms ubsidiaries,p articularly our Banks,t o fund dividend payments,a ny potentials hare repurchases,p ayment obligations,i ncluding debt obligations,a nd to provide funding andc apital,a sn eeded, to our othero perating subsidiaries.F ederal ands tate laws andr egulations extensively regulatet he operations of our Banks,i ncluding to limit thea bility of theB anks to payd ividends or make otherd istributions to us.M anyo ft hese laws andr egulations arei ntendedt om aintaint he safety ands oundness of our Banks,a nd they impose significantr estraintso nt hemt ow hich othern on-regulated entitiesa re not subject. OurB anks must maintain minimuma mountso fr egulatoryc apital.I ft he Banks do not meet thesec apitalr equirements, theirr espectiver egulatorsh aveb road discretiont oi nstitute an umbero fc orrectivea ctions that couldh avead irectm aterial effect on our liquidity,a bility to grow our businessa nd financialc ondition. To paya ny dividend, theB anks must each maintain adequate capitala bove regulatoryg uidelines. Accordingly, neither CB nor CCB mayb ea blet om akea ny of their casho ro ther assets availablet ou s, including to serviceo ur indebtedness. If either of our Banks were to fail to meet anyo f 38
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thec apitalr equirementst ow hich it is subject,w em ay be requiredt op rovide them with additionalc apital, whichc ould also impairo ur abilityt of und dividend payments,a ny potential sharer epurchases ando ur paymento bligations,i ncluding servicingo ur indebtedness. In addition, undert he “Source of Strength” doctrine, we arer equiredt os erve as as ource of financials trengtht oo ur Banks andm ay not conducto ur operations in an unsafeo ru nsound manner. Undert hese requirements, in thef uture, we couldb e requiredt op rovide financiala ssistance to our Banks if theB anks experience financiald istress. This supportm ay be requireda tt imesw henw em ight otherwiseh aved eterminedn ot to provide it or when doing so is not otherwisei no ur interestso rt he interestso fo ur stockholders or creditors. If legislativea ttempts to amendt he BHCA ct to eliminatet he exclusiono fc reditc ardb anks or industrial loan companiesf romt he definitiono f“ bank” ares uccessful,o ri fw ev oluntarily take such actiont hatr esults in theP arent Companyb ecoming af ederally-regulated BHC, we wouldb ecomes ubject to additionalr egulationa pplicablet oB HCs, whichc ould increase ourc ompliancea nd regulatory costsa nd have othere ffectst hatc ould be materially adverse to our business. Legislationi sp eriodically introduced that woulde liminatet he exceptionf or industriall oanc ompanies ando ther “non-bank banks”f romt he definitiono f“ bank” in theB HC Act. If such legislationw eree nacted without anyg randfathering of or accommodations fore xistingi nstitutions,w ec ouldb er equiredt ob ecome aB HC. If we were requiredt ob ecomea BHC, or if we voluntarily take such actiont hatr esults in theP arentC ompany becoming a federally-regulated BHC, we ando ur non-bank subsidiaries wouldb es ubject to supervision, regulationa nd examinationb y theF RB. We wouldb er equiredt op rovide annualr eports ands ucha dditionali nformationa st he FRBm ay require pursuant to theB HC Act, anda pplicable regulations.I na ddition, we wouldb es ubject to consolidated regulatoryc apital requirements. Pursuant to provisions of theB HC Acta nd regulations promulgatedb yt he FRBt hereunder, aB HC mayo nlye ngage in,o r ownc ompanies that engage in,a ctivitiesd eemed by theF RB to be permissiblef or BHCs.A ctivitiesp ermissiblef or BHCs aret hoset hata re so closelyr elated to theb usinesso fb anking or managing or controllingb anks as to be ap roperi ncident thereto. If aB HC andi ts subsidiary insuredd epository institutions arew ellc apitalized,w ellm anaged,a nd have satisfactoryC RA ratings,i tm ay submit an electiont ot he FRBt ob ecome an FHC. Permissiblea ctivitiesf or FHCs include those“ so closelyr elated to banking as to be ap roperi ncidentt hereto”a sw ella sc ertain additionala ctivitiesd eemed “financial in nature or incidental to such financiala ctivity” or complementaryt oa financiala ctivity andt hatd on ot posea substantialr iskt ot he safety ands oundness of thed epository institutiono rt he financials ystem. If we were requiredt o become aB HC,w em ay be required to modify or discontinue certain of our businessa ctivities, whichm ay materially adverselya ffect our resultso fo perations andf inancial condition. We mayn ot realizet he expected benefits of thep ending merger of ours ubsidiaryB anks. Realizationo ft he potentialb enefits contemplated by thep lannedi nternalm ergero fC CB andC B, with CCB as the survivinge ntity,d ependo na numbero ff actors, including regulatorya pprovalo fs tate andf ederal banking agencies,a s well as our abilityt ot imelya nd successfully integratet he operations of them erging subsidiaries into as ingleb ank operation. As ar esult, we mayn ot be successful in realizingt he expected operationala nd financialb enefits of thep ending merger of our subsidiary Banks,a nd we maye xperience othera dversec onsequences,i ncluding thed iversion of management’s attentionf romo ther businessc oncerns andu nforeseen legal, regulatoryo ro ther challengest hatw em ay not be able to manage effectively. Increasesi nF DICi nsurance premiums mayh avea material adverse effect on ourr esults of operations. We areg enerally unablet oc ontrolt he amount of premiums that arer equiredt ob ep aidf or FDIC insurance. If therea re bank or financiali nstitution failures, or changesi nt he method forc alculatingp remiums,w em ay be requiredt op ay significantly higherp remiums than thel evelsc urrently imposed or additionals pecial assessments or taxest hatc ould adverselya ffect our earnings.A ny future increases or requiredp repayments in FDIC insurancep remiums maym aterially adverselya ffect our resultso fo perations. 39
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Noncompliancew ith theB ankS ecrecy Acta nd othera nti-moneyl aunderings tatutesa nd regulations couldc ause us material financiall oss. TheB ankS ecrecy Acta nd theU SA PATRIOTA ct containa nti-moneyl aundering andf inancial transparency provisions intendedt od etect andp revent theu se of theU .S.f inancial system form oneyl aundering andt errorist financinga ctivities. TheB ankS ecrecy Act, as amendedb yt he USAP ATRIOT Act, requiresd epository institutions andt heir holding companiest ou ndertakea ctivitiesi ncluding maintaininga na nti-moneyl aundering program,v erifying thei dentity of partners andc ustomers,m onitoring fora nd reportings uspicious transactions,r eportingo nc asht ransactions exceeding specified thresholds,a nd responding to requestsf or informationb yr egulatorya uthoritiesa nd lawe nforcementa gencies. TheF inancial Crimes EnforcementN etwork (FinCEN),a unito ft he TreasuryD epartment that administers theB ank Secrecy Act, is authorized to imposes ignificantc ivil moneyp enaltiesf or violations of thoser equirementsa nd hasr ecently engagedi nc oordinatede nforcement effortsw ith theF ederal Banking Agencies,a sw ella st he U.S. Department of Justice, Drug EnforcementA dministration, andI nternalR evenue Service( IRS).W ea re also subject to scrutinyo fc ompliancew ith the rules enforced by theO FAC, whichm ay require sanctions ford ealing with certain persons or countries.W ec annot provide assurancet hato ur programsa nd controls will be effectivet oe nsureo ur compliancew ith alla pplicable anti-money laundering anda nti-terrorism financingl awsa nd regulations,a nd our failure to comply coulds ubject us to significant sanctions,f ines,p enaltiesa nd reputationalh arm, allo fw hich couldh aveam ateriala dversee ffect on our business, results of operations andf inancial condition. Regulationi nt he areaso fp rivacy, datap rotection, datag overnance, andc yber security couldi ncreaseo ur costsa nd affect or limit ourb usinesso pportunitiesa nd howw ec ollect and/or useP ersonalI nformation, anda ny actual or perceived failure to comply with anyo ft hese newo re xistingl awsc ould adversely affect ourb usiness, results of operations,o rf inancial condition. In connectionw ithr unning our business, we receive, store, usea nd otherwisep rocessi nformationt hatr elates to individuals and/or constitutes“ personald ata,”“ personali nformation,” “personally identifiablei nformation,” “nonpublic personali nformation” or similar termsu ndera pplicable data privacy laws (collectively, PersonalI nformation),i ncluding froma nd about actual andp rospectivec ustomers,a sw ella so ur employees andb usinessc ontacts. We aret herefore subject to av ariety of federala nd statel aws, regulations ando ther requirementsr elatingt ot he privacy,s ecurity andh andlingo f PersonalI nformation. Fore xample,t he CCPAa nd relatedl awsi no ther jurisdictions require us,a mong otherr equirements, to adhere to certain disclosure restrictions andd eletiono bligations with respect to theP ersonalI nformationo ft heir residents, anda llowf or penalties forv iolations and, in some cases,a privater ight of action. TheG LBAi ncludesb otha “Privacy Rule,” whichi mposes obligations on financiali nstitutions relatingt ot he useo rd isclosureo fn onpublic personal information, anda “SafeguardsR ule,”w hich imposes obligations on financiali nstitutions to implement andm aintain physical,a dministrativea nd technological measures to protect thes ecurity of non-public personalf inancial information. Failure to comply with theG LBAc ouldr esulti ne nforcementa ctions.T hese laws also imposet ransparencya nd other obligations with respectt oP ersonalI nformationa nd provide individuals with rightsw ith respect to theirP ersonal Information. Legislatorsa nd regulatorsi nt he UnitedS tatesa re increasinglya doptingo rr evisingp rivacy,d atap rotection, data governance, account access, andi nformationa nd cybers ecurity laws.A ss uchl awsa re interpreteda nd applied( in some cases,w ith significant differences or conflictingr equirementsa crossj urisdictions), compliancea nd technology costsw ill continue to increase,p articularlyi nt he contexto fe nsuringt hata dequate data governance, data protection, data transfer and account accessm echanisms arei np lace. Compliancew ith current or future privacy,d atap rotection, data governance, account access, andi nformationa nd cyber security laws coulds ignificantly impact our collection, use, sharing, retentiona nd safeguardingo fP ersonalI nformation andc ouldr estricto ur ability to provide certain products ands ervices,w hich couldm aterially anda dverselya ffect our profitability. In addition, anyf ailure or perceivedf ailure to comply with such laws,r egulations ando ther requirements relatingt ot he privacy,s ecuritya nd handlingo fi nformation couldr esulti np otentially significantr egulatorya nd/or governmental investigations and/or claims,a ctions or litigation( including classa ctions). We couldi ncur significantc osts in investigatinga nd defending such claims and, if found liable, pays ignificantd amages or fines, be requiredt oc hange our business, or face sanctions or ongoing regulatorym onitoring. Thesep roceedings anda ny subsequent adverseo utcomes coulds ubject us to significant customer attrition, decreases in theu se or acceptanceo fo ur cards andd amaget oo ur reputationa nd our brand. If anyo ft hese events were to occur, our business, results of operations,a nd financialc ondition couldb em ateriallya dverselya ffected. 40
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Form orei nformationo nr egulatorya nd legislativea ctivityi nt hisa rea, see“ Item 1. Business — Privacy,I nformation Security andD ataP rotection.” Ourf ailure to protect ouri ntellectualp ropertyr ightsa nd useo fo pens ources oftwarem ay harm ourc ompetitive position, andl itigationt op rotect ouri ntellectualp ropertyr ightso rd efenda gainstt hird-party allegations of infringement mayb ec ostly, anyo fw hich couldn egativelyi mpacto ur business, results of operations andp rofitability. Thirdp artiesm ay infringe or misappropriate our trademarks or otheri ntellectualp ropertyr ights, whichc oulda dversely impact our business, operatingr esults or financialc ondition. Thea ctions we take to protect our patents, copyrights, trademarks ando ther proprietary rightsm ay not be adequate.L itigationm ay be necessary to enforceo ur intellectual propertyr ights, protecto ur patents, copyrights, trademarks or trades ecretso rd eterminet he validity ands cope of the proprietary rightso fo thers. Anyi nfringement or misappropriationc ouldh arma ny competitivea dvantagew ec urrently derive or mayd erivef romo ur intellectualp ropertyo ro ther proprietary rights. Thirdp artiesm ay also assert infringement claims againstu s. Anyc laimsa nd an adversed eterminationi na ny resultingl itigationc oulds ubject us to significant liability ford amagesa nd require us to either design around at hird-party’s intellectualp ropertyo rl icense alternative technology froma notherp arty.M oreover, it hasb ecome common in recenty earsf or individuals andg roups to purchase intellectualp ropertya ssets fort he sole purposeo fm akingc laimso fi nfringement anda ttemptingt oe xtract settlements fromc ompanies like ours. Even in instances wherew eb elieve that claims anda llegations of intellectualp roperty infringement againstu sa re without merit, litigationi st imec onsuminga nd expensivet od efenda nd couldr esulti nt he diversiono fo ur timea nd resources. Further, our competitors or othert hird partiesm ay independently design around or develops imilar technology, or otherwised uplicateo ur services or products in aw ay that wouldp reclude us froma sserting our intellectualp ropertyr ightsa gainst them.I na ddition, our contractuala rrangementsm ay not effectivelyp revent disclosure of our intellectual property or confidential andp roprietary informationo rp rovide an adequate remedy in the evento fa nu nauthorized disclosure. Ourp latformu tilizes software coveredb yo pens ource licenses.T he useo fo pens ource software involvesa numbero f risks, many of whichc annot be eliminated andc ouldn egativelya ffect our business. Fore xample,U nitedS tatesc ourts have not interpretedt he termso fv arious opens ource licenses andt here is ar iskt hats omeo pens ource licensest ow hich we are subject couldb ei nterpreted in am annert hatc ouldi mposeu nanticipated conditions or restrictions on our ability to useo r to commercializeo ur platform.B yt he termso fc ertain opens ource licenses, if we combineo ur proprietary software with opens ource software in ac ertain manner, we couldb er equiredt o, underc ertain circumstances,r eleaset he source code of our proprietary software andt om akeo ur proprietary software availableu ndero pens ource licenses. We mayf ace claims alleging noncompliancew itho pens ource licenseso rm isappropriation, infringement,o ro ther violationo ft hird-party rightsr esultingf romo ur useo fo pens ource software.T hese claims couldr esulti nl itigation, damage our reputationi nt he open-source community,o rr equire us to purchasec ostly software licenses, devotea dditional research or developmentr esources to reengineer our platform,d iscontinue useo fo ur platform if reengineeringc ouldn ot be accomplished on at imelyo rc ost-effectiveb asis,a nd/or make thes ource code of our proprietary software generally available, anyo fw hich couldr esulti nl iability to us andn egativelyi mpact our business, results of operations,p rofitability andf inancial condition. In addition to risksr elated to license requirements, usageo fo pens ource software can lead to greater riskst hanu se of third-partyc ommercials oftwareb ecause opens ource software licensors generally do not provide anyw arrantieso ro ther contractualp rotections fort he opens ource software,i ncluding contractualp rotections regarding infringement,m isappropriation, security vulnerabilities, or defectso re rrors in thec ode,a ny of whichc ouldr esulti n liability to us andn egativelyi mpact our business, results of operations,p rofitability andf inancial condition. We have internationalo perationst hats ubject us to variousi nternationalr isks as well as increasedc ompliancea nd regulatory risksa nd costs. We have internationalo perations,p rimarily in India, ands omeo fo ur third-partys ervice providers provide services to us fromo ther countries,a ll of whichs ubject us to an umbero fi nternationalr isks,i ncluding, among othert hings,s overeign volatilitya nd sociopolitical instability.I nr ecenty ears,w eh avet aken initiatives to move ag reater percentage of our call centera nd servicingp ersonnelo ffshore, whichm ay increase our relianceo nt hese internationalo perations andt he risk associated therewith. Anyf utures ocialo rp olitical instability in thec ountries in whichw eo perate couldh aveam aterial adversee ffect on our business. U.S. regulations also govern various aspectso ft he internationala ctivitieso fd omestic corporations andi ncreaseo ur compliancea nd regulatoryr isks andc osts.A ny failure on our part or thep arto fo ur service providers to comply with applicable U.S. regulations,a sw ella st he regulations in thec ountries andm arkets in whichw eo r they operate,c ouldr esulti nf ines,p enalties, injunctions or others imilarr estrictions,a ny of whichc ouldh avea material adversee ffect on our business, results of operations andf inancial condition. 41
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Taxl egislationi nitiatives or challenges to ourt ax positionsc ould adversely affect ourr esults of operations and financialc ondition. We ares ubject to taxl awsa nd regulations in U.S. federal, state, local andf oreign jurisdictions.F romt ime to time legislativei nitiatives mayb ep roposed,w hich,i fe nacted,m ay impact our effectivet ax rate andc oulda dverselya ffect our deferredt ax assets,t ax positions and/or our taxl iabilities.I na ddition, U.S. federal, state, local,a nd foreignt ax laws and regulations aree xtremely complexa nd subject to varyingi nterpretations.T here can be no assurancet hato ur historical tax positions will not be challengedb yt he relevant taxing authorities, or that we wouldb es uccessful in defending our positions in connectionw ith anys uchc hallenge. Anti-takeover provisions in ouro rganizationald ocuments andD elawarel aw mayd iscourage or preventa change of control, even if an acquisitionw ould be beneficial to ours tockholders, whichc ould affect ours tock pricea dversely and prevento rd elay change of controlt ransactions or attempts by ours tockholderst or eplace or remove ourc urrent management. Delaware law, as well as provisions of our certificateo fi ncorporation, including thoser elatingt oo ur Board’sa uthorityt o issues erieso fp referreds tock without furthers tockholdera pproval, our bylawsa nd our existinga nd future debt instruments, couldd iscourageu nsolicitedp roposalst oa cquire us,e vent hough such proposalsm ay be beneficial to our stockholders. In addition, we ares ubject to thep rovisions of Section2 03 of theD elawareG eneral CorporationL aw,w hich mayp rohibit certain businessc ombinations with stockholders owning 15% or more of our outstanding votings tock.T hese ando ther provisions in our certificateo fi ncorporation, bylawsa nd Delaware lawc ouldm akei tm ored ifficult fors tockholders or potentiala cquirers to obtainc ontrolo fo ur Boardo fD irectorso ri nitiate actions that areo pposed by our then-current Board of Directors, including am erger, tendero ffero rp roxy contesti nvolving us.A ny delayo rp reventiono fa change of control transactiono rc hangesi no ur Boardo fD irectorsc ouldc ause them arketp rice of our commons tock to declineo rd elay or prevento ur stockholders fromr eceiving ap remium overt he market priceo fo ur commons tock that they might otherwise receive. Cybersecurity,T echnology andV endorR isks We rely on third-party vendorst op rovide variousp roductsa nd services that arei mportant to ouro perations,a nd our business couldb ea dversely impactedi fo ur vendorsf ailt of ulfill theiro bligations. Some services important to our businessa re outsourced to third-partyv endors, andw ec ontract with numerous othert hird- partyv endorsf or ar ange of products ands ervices.T he inability or failure of thesev endorst od eliver products ands ervices at contracted servicel evelso rs tandardsa nd in at imely mannerc oulda dverselya ffect our business. In addition, if at hird- partyv endor failst om eet otherc ontractualr equirements, such as compliancew ith applicable laws andr egulations,o r suffers ac yberattacko ro ther security breach,o ur businesso perations coulds uffere conomic or reputationalh armt hat couldh aveam ateriala dversei mpact on our businessa nd resultso fo perations.F urther,i fo ur significantv endorsa re unableo ru nwilling to fulfillo rr enew our existingc ontractso nc urrent terms, we might not be able to replace ther elated producto rs ervice at thes amec ost, in at imely fashion, or at all, anyo fw hich couldn egativelyi mpact our profitability, businessa nd operations,i ns omec ases materially. If we,o ur third-party providers, or brandp artnersf ailt os afeguard ourc onfidentiali nformationa nd/ore xperience a datas ecurity incident,t here mayb ed amage to ourb rand andr eputation, material financialp enaltiesa nd legal claims, whichc ould materially adversely affect ourb usiness, results of operations,a nd financialc ondition. We rely on computer systems, hardware,s oftware, technology infrastructurea nd onlines itesa nd networks forb othi nternal ande xternalo perations that arec ritical to our business( collectively,I TS ystems). We owna nd manage some of theseI T Systemsb ut also rely on thirdp artiesf or ar ange of IT Systemsa nd relatedp roducts ands ervices,i ncluding but not limited to cloud computings ervices.W ea nd certain of our third-partyp roviders collect,m aintaina nd processd ataa bout customers, employees,b usinessp artners, brandp artners, ando thers, including PersonalI nformation, as well as proprietary informationb elonging to our business such as trades ecrets (collectively, ConfidentialI nformation). Informations ecurity risksf or largef inancial institutions have increased with thea doptiono fn ew technologies to conduct financiala nd otherb usinesst ransactions,i ncluding thoseu sedo nm obile devices,a nd thei ncreased sophisticationa nd 42
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activity levelo ft hreata ctors. Theset hreat actorse mploya dvanced techniquesa nd tools, including AI,t oc ircumvent security controls,e vade detectiona nd remove forensic evidence. Consequently,w em ay face challengesi nd etecting, investigating, remediatingo rr ecovering fromf uturea ttacks or incidents, whichc ouldl ead to am ateriala dversei mpacto n our IT Systems, Confidential Informationo rb usiness. Therec an also be no assurancet hato ur cybersecurity risk management program and processes, including our policies, controls or procedures,w ill be fully implemented,c omplied with or effectivei np rotectingo ur IT Systemsa nd ConfidentialI nformation. Furthermore, givent he nature of complex systems, software ands ervicesl ikeo urs, andt he scanning toolst hatw ed eploya crosso ur networks andp roducts,w e regularly identifya nd tracks ecurity vulnerabilities. We areu nablet oc omprehensively applyp atches or confirmt hat measures arei np lace to mitigatea ll such vulnerabilities,o rt hatp atches will be appliedb eforev ulnerabilitiesa re exploited by at hreat actor. We andc ertain of our third-partyp roviders have in thep astb een,a nd in thef uturem ay be,s ubject to cyberattacksa nd we expect such attacksa nd incidentst oc ontinue in varyingd egrees.F or example, we have sufferedc yberattacksr elatingt o unauthorized access to customer accounts, andi ns uchi nstances,w eh aven otifiedi mpacted customersa nd regulatorsa s requiredb yl aw.W hile to date no incidentsh aveh ad am ateriali mpact on our operations or financialr esults,w ec annot guarantee that material incidentsw ill not occuri nt he future. In such instances of an adversei mpact on our IT Systemso rC onfidentialI nformation, we mayh aved atal osst hatc ould harm our customersa nd brandp artners. This in turn couldl eadt or eputationalr iska sc oncerns with security andp rivacy of data mayr esulti nc onsumersa nd future ande xistingb rand partners not wantingt ou se our producto fferings.W ea lsoh ave arrangementsi np lace with our partners ando ther thirdp arties through whichw es hare andr eceive Confidential Informationa bout theirc ustomers whoa re or mayb ecomeo ur customers, whichm agnifies certain informations ecurity issues.T he useo fo ur products ands ervices couldd eclinei fa ny compromiseo fp hysical or cybers ecurity occurred. In addition, anyu nauthorized releaseo fC onfidential Informationo ra ny public perceptiont hatw er eleased Confidential Informationw ithout authorization, coulds ubject us to legalc laims( including classa ctions)f romo ur partners or their customers, consumerso rr egulatorye nforcementa ctions (including finesa nd penalties),w hich maya dverselya ffect our partnerr elationships andr esulti nd amaget oo ur reputationa nd our brand, and/or cause us to incurs ignificanti ncident response, system restorationo rr emediationa nd future compliancec osts.A ny or allo ft he foregoing couldm aterially adverselya ffect our business, results of operations,a nd financialc ondition. We cannot be certain that our cybersecurity insurancec overage will be adequate forc ybersecurity liabilities actually incurred, that insurancew ill continue to be availablet ou so ne conomically reasonablet erms,o ra ta ll,o rt hato ur insurerw ill not deny coverage as to anyf uturec laim. Business interruptions,i ncluding loss of datac enterc apacity,i nterruptiond ue to cyber-attacks, loss of network connectivity or inability to utilizep roprietary software of third-partyv endors, coulda ffect oura bility to timely meet the needso fo ur partnersa nd customersa nd harm ourb usiness. We face numerous ande volving cybersecurity riskst hatt hreaten thec onfidentiality,i ntegrity anda vailability of our IT Systemsa nd Confidential Information. Oura bility, andt hato fo ur third-partys ervice providers andb rand partners,t o protect our IT Systemsa nd ConfidentialI nformationa gainst damage,l osso rp erformance degradationf romp ower loss, networkf ailure,c yber-attacks,i ncluding ransomware or denial of servicea ttacks, social engineering/phishing, useo fA I technologies by bada ctors, deepfakes, insidert hreats, state-sponsored threats, hardware ands oftwared efectso r malfunctions,h uman error, computer viruseso ro ther malware, misconfigurations,b ugs or otherv ulnerabilities, malicious code embeddedi no pen-source software,d isruptions in telecommunications services,f raud, firesa nd otherd isasters and othere vents, is critical.B ecauset he tactics, techniquesa nd procedures used to obtainu nauthorized access, or to disableo r degrades ystems,c hange frequently,h aveb ecome increasinglym orec omplex ands ophisticated,a nd mayb ed ifficult to detect forp eriods of time,w em ay not anticipatet hese acts or respond adequately or timely.F or example, cybercriminals have increasinglyd emonstrated advanced capabilities,s ucha su se of zero-dayv ulnerabilities, andr apid integrationo fn ew technology such as GenAIa re beingu sedb yt hreat actors to create sophisticated attackst hata re increasinglya utomated, targeted andm ored ifficult to defend against. To provide many of our services,w em ustb ea blet os tore,r etrieve, processa nd manage largea mountso fd ata, as well as periodically expand andu pgradeo ur IT Systems. Anyd amaget oo ur IT Systems, including thoseo fo ur third-partys ervice providers or brandp artners, anyf ailure of our networkl inks that interruptso ur operations or anyi mpairmento fo ur ability to useo ur software or thep roprietary software of third-partyv endors, including impairments due to cyber-attacks, or our inabilityt oe xecute effectived isasterr ecovery plansc oulda dverselya ffect our ability to meet our partners’a nd customers’ needsa nd theirc onfidence in utilizingu sf or future services,a sw ella so ther adversei mpactst oo ur business, results of operations,a nd financialc ondition. Moreover, due to thei nterconnectivity andc omplexity of informations ystems andt heir relianceo nc ommons ystems,s oftwarea nd vendors, disruptions or degradations have had, andw ill likelyc ontinue to have, 43
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wide-reachingc onsequences,i ncluding thep otentialt od isrupt theo verall financials ystema nd otherk ey systemsi nt he globale conomy. If we aren ot ablet oi nvests uccessfully in,a nd competea tt he leading edge of,t echnologicald evelopments in our industry,o ur revenue andp rofitability couldb em ateriallya dversely affected.M oreover,t echnology transformation projectsa re complexu ndertakings, whichm ay result in unanticipated consequences that maya dversely impacto ur business, results of operations, reputationa nd brand. Ouri ndustryi ss ubject to rapida nd significantt echnological changes. In ordert oc ompete in our industry, we need to continue to invest in advanced digitala nd othert echnology acrossa ll areas of our business, including in access management,v ulnerability management,t ransaction processing, data management anda nalytics, AI technology, customer interactions andc ommunications,a lternativep ayment andf inancing mechanisms,a uthenticationt echnologies andd igital identification, tokenization, real-time settlement,a nd risk management andc ompliances ystems.I ncorporatingn ew technologies into our products ands ervices,i ncluding developing thea ppropriate governance andc ontrols consistent with statutorya nd regulatory expectations,r equiress ubstantiale xpendituresa nd takesc onsiderable time,a nd ultimately mayn ot be successful.W ee xpect that newt echnologies in thep aymentsi ndustryw ill continue to emerge,a nd thesen ew technologies mayb es uperior to,o rr endero bsolete, our existingt echnology. Thep rocesso fd eveloping newp roducts ands ervices,e nhancinge xistingp roducts ands ervices anda daptingt o technologicalc hangesa nd evolving industrys tandardsi sc omplex,c ostly andu ncertain,a nd anyf ailure by us to anticipate partners’a nd customers’ changing needsa nd emerging technological trends accurately coulds ignificantly impedeo ur abilityt oc ompete effectively. Partnera nd customer adoptioni sa keyc ompetitivef actor,a nd our competitors mayd evelop products,p latforms or technologies that become more widely adopted than ours. In addition, we mayu nderestimatet he time ande xpensew em usti nvest in newp roducts ands ervicesb eforet heyg enerates ignificantr evenues, if at all. Moreover, technology transformationp rojectsa re complexu ndertakings that mayr esulti nu nanticipated anda dverse impacts. Fore xample,a sp reviously reported, in 2022 we completedt he transitiono fo ur credit cardp rocessing services to strategico utsourcing partners. In connectionw ith thet ransition, we experiencedu nanticipated issues with platform stability, whichr esultedi no utages andi nterruptions in our callc entero perations ando nlinec ustomers ervice platforms. Theseo utages and interruptions resultedi na numbero fa dversei mpacts, including thei ssuance of ac onsento rder by the FDIC to one of our subsidiaries andt he requirement that each of our Banks payc ivil moneyp enaltieso f$ 1m illiont ot he FDIC.M oreg enerally,t echnology transformationp rojectsm ay presents ignificantr isks andu nanticipated impacts, including, but not limited to,o perationale xecutione rrors,p latforms tability issues,s ecurity vulnerabilities, potentiall osses or corruptiono fd ata, changesi ns ecurity processes, implementationd elaysa nd cost overruns,r esistancef romc urrent partners anda ccount holders,d isruptiont oo perations andl osso fc ustomizationo rf unctionality. Thesea nd otherp otential challengesm ay adverselyi mpacto ur business, resultso fo perations,f inancial condition, andr esulti nr egulatorya ctions andd amaget oo ur reputationa nd our brand. Oura bilityt od evelop, acquire or accessc ompetitive technologies or businessp rocesseso na cceptablet erms maya lsob e limitedb yi ntellectualp ropertyr ightst hatt hird parties, including thoset hatc urrent andp otentialc ompetitors,m ay assert. Ina ddition, our abilityt oa dopt newt echnologies mayb ei nhibitedb yt he emergenceo fi ndustry-wide standards, a changing legislativea nd regulatorye nvironment, an inability to developa ppropriate governance andc ontrols,a lack of internal producta nd engineeringe xpertise, resistance to change fromp artnerso rc onsumers, lack of appropriate change management processeso rt he complexity of our systems. Thed evelopmenta nd useo f AI presentr isks andc hallengest hatm ay adversely impacto ur business or customers. We or our third-partyv endors, clientso rc ounterpartiesh aved evelopedo ri ncorporated,o rm ay in thef utured evelop or incorporate, AI technology in certainb usinessp rocesses, services or products.F or example, we have developeda nA I powered knowledge management solutionf or our customer care associates designedt oa chieve theh ighest possible customer services tandardsa nd customer experience.T he developmenta nd useo fA I, however,p resentsa numbero fr isks andc hallengest oo ur business. Thel egal andr egulatorye nvironmentr elatingt oA Ii su ncertain andr apidly evolving, both in theU nitedS tatesa nd internationally,a nd includesr egulatorys chemes targeted specifically at AI as well as provisions in intellectualp roperty, privacy, consumer andd atap rotection, employmenta nd otherl awsa pplicable to theu se of AI. Several states have alreadya dopted AI-specificf rameworkso ra re consideringa pplying existingc onsumer andd ata protectionl awst or egulateA I. Thesee volving laws andr egulations couldr equire changesi no ur implementation of AI technology andi ncreaseo ur compliancec osts andt he risk of non-compliance. AI models,p articularly generativeA I models,m ay produceo utput or take actions that arei ncorrect,t hatr esulti nt he releaseo fp rivate,c onfidentialo r 44
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proprietary information, that reflect biases includedi nt he data on whicht heya re trained, infringe on thei ntellectual propertyr ightso fo therso rt hata re otherwiseh armful.I na ddition, certain uses of AI technology mayb es ubject to regulation, such as requirementst oe xplainh ow theA Im odelw orks andw hy it generatesa particular output,e liminate biases built into theA Im odel, reducee rroneous outputs, andc omplyw ith regulations requiring watermarking AI- generatedc ontenta nd disclosuresw henc onsumersa re interactingw ith AI or when decisions arem adeb yA I, as well as requiring documentationo re xplanationo ft he basiso nw hich decisions arem ade. Thesea dditionalr equirementsm ay imposei ncreasedc osts on our technology andc ompliancef unctions,w hich couldp ut us at ac ompetitived isadvantagea nd have an adversee ffect on our resultso fo perations andf inancial condition. Further, we mayr elyo nA Im odels developed by thirdp arties,a nd wouldb ed ependent in part on them anneri nw hich thoset hird partiesd evelop, traina nd deploy their models,i ncluding risksa rising fromt he inclusiono fa ny unauthorized material in thet rainingd ataf or theirm odels,t he effectivenesso ft he stepst hese thirdp artiesh avet aken to limitt he risksa ssociated with theo utput of theirm odels and otherm atters overw hich we mayh avel imitedv isibility. Anyo ft hese risksc oulde xposeu st ol iability or adversel egal or regulatoryc onsequences and harm our reputationa nd thep ublic perceptiono fo ur businesso rt he effectivenesso fo ur security measures.F urther,i fw ei ncreaseo ur relianceo nA I, our relationships with our associates or theirr etention mayb e adverselyi mpacted. In addition, thea doptiono fa gentic commerce, in whicha utonomous AI agents initiate ande xecute transactions on behalf of users, presents novela nd complex regulatory,p rivacy andc ybersecurityr isks,a sw ella sr isks relating to potential integrations with othera gentic commercea pplications.L egal frameworks governings ucha utonomous agents remain nascent, with limitedd irectg uidances pecifict op ayments. Thei nterplay between payments regulations,d atap rivacy laws ande volving AI regulations mayc reateu ncertainty around compliancea nd disclosure obligations andp otential liability exposurea sm orep articipants( including retailers,f intechsa nd AI developers)e nter thea gentic commercee cosystem.T he market is still assessing how regulatorsm ay applye xistingc onsumer protectiona nd otherl awsi nt he contexto fA I. As agentic commerces olutions scale, we maya lsos ee increased instances of erroneous or disputed payments ando ther adversei mpacts. We area lsoe xposed to risksa rising fromt he useo fA It echnology by bada ctorst oc ommit fraud andm isappropriate funds andt of acilitatec yberattacks( including sophisticated social engineeringa ttacksa nd AI-powered hacking).M alicious actors couldu se AI to create deepfakeso fo ur leadership or otherp ersonnel, contributingt ol osso fc ustomert rust ands ignificant reputationald amagei na ddition to financialh arm. RisksR elated to theL oyaltyOneS pinoff We mayb ea dversely affected by LVI’so ngoing bankruptcyp roceedings or pendingo rf uturel itigationo ro ther disputes involvingo rr elatingt oL VI. In November 2021, we completedt he spinoffo fo ur former LoyaltyOnes egment,c onsistingo ft he Canadian AIR MILES®R ewardP rogram andt he Netherlands-based BrandLoyalty businesses, into an independent,p ublicly traded company, LVI. As part of thes pinoff, we retained 19% of theo utstanding shares of commons tock of LVI. On March1 0, 2023, LVIa nd certaino fi ts subsidiaries filedv oluntaryp etitions forr eliefu nderC hapter 11 of theU nitedS tates Bankruptcy Code andi nC anadau ndert he Companies’ Creditors Arrangement Act( collectively, theL VI Bankruptcy Proceedings). Pursuant to LVI’s Chapter1 1P lan, LVIa nd al iquidatingt rustee also establisheda liquidatingt rust to pursue claims,i ncluding againstu sa nd individuals ande ntities affiliated with us,i nr espect of thes pinofft ransaction. Similarly,i n theC anadianL VI Bankruptcy Proceeding, theC anadians ubsidiary and/or theC ourt-appointed monitorh avet he authority to pursuec laims againstu sa nd our affiliates. Though we believe that our processa nd decision-making with respect to thes pinofft ransactionw eree ntirelya ppropriate, we andc ertain memberso fo ur Boardo fD irectorsa nd executivem anagementt eam have been nameda sd efendantsi n various litigationm atters relating to thes pinoff, as follows. In Canada,L oyaltyOne, Co.( theL VI subsidiary that operated its Canadian AIRM ILES business) fileds uita gainst us ando ur generalc ounsel in theO ntario Superior Courto fJ usticei n Canada in October2 023. Thel awsuit assertst hato ur generalc ounsel,i nh is capacity as ap re-spinoffd irector of LoyaltyOne, Co., breached various fiduciary dutieso wedt oL oyaltyOne, Co.i nc onnectionw ith theL VI spinoffa nd certain othert ransactions,a nd that Bread Financiala ssisted in andb enefitedf romt hoseb reaches.T he lawsuits eeks damagesi nt he amount of $775 million. In theU .S., thel iquidating trusteec ommenced certain actions againstu si n February 2024. Specifically:( i) in LVI’s U.S. Chapter1 1c asei nt he Bankruptcy Courtf or theS outhern District of Texas, thel iquidatingt rustee fileda na dversaryp roceedinga gainst us ando ur generalc ounsel alleging actuala nd constructive fraudulentt ransfers,a mong otherc laims,i nc onnectionw itht he spinoff; and( ii) in Delaware ChanceryC ourt, the liquidatingt rustee fileda na ctiona gainst us,e ach of them embers of our Boardo fD irectorsa tt he time of thes pinoff, and 45
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certain memberso fo ur executivem anagementt eam alleging breaches of fiduciary duties( anda idinga nd abettingb reaches of fiduciary duties) in connectionw ith thes pinoff. Among othert hings,i ne ach of thesea ctions thel iquidatingt rustee seeksd amages in thea mount of approximately $750 millionp lusi nterest, fees ande xpenses.I nt he Texasa ction, certaino f thec laims proceededp asta motion to dismiss, andi nJ anuary 2026 our motionf or partials ummary judgmentw as denied. In connectionw itht he spinoff, we enteredi ntoa taxm atters agreement, andL oyaltyOne, Co.i sc ontestingo ur entitlement to certain potential taxr efunds undert he taxm atters agreement, andw em ay also become involvedi no ther disputes with respect to thes pinoffa greementsw ith LVIo ri ncur otherl iabilitieso ro bligations underc ontractuala rrangementsw ith LVI. Finally,a putativef ederal securitiesc lass actionc omplaint wasf iledi nA pril 2023 againstu sa nd current andf ormer memberso fo ur management team concerning disclosuresm adea bout LVI’s business; although, this lawsuith as been dismissed, andt he UnitedS tatesC ourto fA ppealsf or theS ixth Circuita ffirmed thed ismissali nJ anuary 2026. For additionald etailr egarding thesep ending litigationm atters,s ee Note 20 “Commitmentsa nd Contingencies” to our audited Consolidated FinancialS tatements. While we believe that eacho ft hese suits anda ny otherc laims in connectionw ith thes pinoffa re without merita nd we will defend ourselves vigorously,t he damagesb eing sought ares ignificant, andl itigationi sc omplex with inherently uncertain outcomes. In thee vent we aref ound liableo rr each as ettlementi no ne or more of thesea ctions,w em ay be requiredt op ay significanta wardso rj udgments,s ettlements, costso rf ines,a nd/or we mayl osee ntitlement to certain taxr efunds that are currently recorded as othera ssets on our auditedC onsolidated BalanceS heets. Moreover, anyl itigationo rd isputea rising out of or relatingt ot he spinoffc ouldd istract management,r esulti ns ignificantl egal ando ther costs, result in downgrades to our credit ratings ando therwise adverselyi mpact our liquidity,c apitalr esources,a ccesst of inancing, results of operations andf inancial condition. We cannot provide anya ssurancet hatt he insurancec overage that we maintain would be adequate to covera ny settlementso rl iabilitiesa ctually incurred in thesem atters or that our insurers wouldn ot seek to deny coverage as to anyo ra ll of anys ucha mounts. RISK MANAGEMENT OurE nterpriseR iskM anagement( ERM) program is designedt oe nsuret hata ll significantr isks arei dentified, measured, monitoreda nd addressed. Beginning in 2024, we expandedo ur ERMF ramework to implement BHC-equivalent practices fort he Companyt os upplementt he risk management framework that wasa lreadyi np lace at our Banks.O ur ERMp rogram reflectso ur risk appetite,g overnance, culture andr eporting. We manage enterprise risk usingo ur Board-approvedR isk AppetiteS tatementsa nd ERMF ramework,w hich includesB oard-level oversight,r iskm anagementc ommittees,a nd a dedicatedr iskm anagementt eam ledb yo ur ChiefR iskO fficer( CRO).O ur Boarda nd executivem anagementd etermine thel evel of risk we arew illingt oa ccepti np ursuit of our objectives,t hrough theE RM program andt he well-definedr isk appetite statements developedt hereunder. We utilizet he “three lines of defense” risk management modelt oa ssign roles, responsibilitiesa nd accountabilitiesf or taking andm anagingr isk. Governance andA ccountability Boarda nd BoardC ommittees OurB oard of Directors, as aw holea nd through its committees, maintainsr esponsibilitiesf or theo versight of risk management,i ncluding monitoring the“ tone at thet op” ando ur risk culture,a nd overseeing emerging ands trategic risks. While our Board’sR isk& Technology Committeeh as primaryr esponsibility forE RM oversight,t he Audit, Compensation &H uman Capitala nd Nominating& CorporateG overnance Committees also oversee risksw ithin theirr espectivea reas of responsibilities. Each of theseB oard Committees consists entirelyo fi ndependent directorsa nd providesr egular reports to thef ullB oard regardingm atters reviewed at theirC ommitteem eetings.E ach of our Banks also hasa comprehensiveE RM Framework, approvedb yt he board of directorso fe achB ank, whichi ncludesg overnance, compliance, reportinga nd other requirements. Risk Management Rolesa nd Responsibilities In additiont oo ur Boarda nd BoardC ommittees,r esponsibility forr iskm anagementa lsor ests with otheri ndividuals and committees throughout theC ompany, including, theB oard of Directorso fe ach of our Banks andc ommittees thereof, various management committeesa nd executivem anagement. Our“ threel ines of defense” risk management modeli s definedw ithin our ERMF ramework andi ncludest he following: •T he “first line of defense” is comprisedo ft he businessa reas that engage in activitiest hatg enerater evenue or provide operationals upporto rs ervices that introducer iskt ot he Company. As theb usinesso wner,t he firstl ineo f 46
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defensei sr esponsible for, among othert hings,i dentifying, owning, managing andc ontrollingk ey risksa ssociated with theira ctivities,t imely addressing issues andr emediation, andi mplementingp rocessesa nd procedures to strengthent he risk andc ontrole nvironment. Thef irst lineo fd efense identifiesa nd managesk ey risk indicators, andr isks andc ontrols consistent with our risk appetite. Thee xecutiveo fficersw ho servea sl eadersi nt he “first lineo fd efense,” arer esponsible fore nsuringt hatt heir respective functions operate within establishedr iskl imits, in accordance with our risk appetite.T hese leadersa re also responsible fori dentifying risks, consideringr iskw hen developing strategicp lans,b udgetsa nd newp roducts,a nd implementinga ppropriate risk controls when pursuing businesss trategiesa nd objectives. In addition, thesel eaders arer esponsible ford eploying sufficientf inancial resourcesa nd qualifiedp ersonnelt om anaget he risksi nherent in our businessa ctivities. •T he “second line of defense” consists of an independent ERMt eam chargedw ith oversight andm onitoring of risk within theb usiness. Thes econd lineo fd efense is responsible for, among othert hings,f ormulatinga nd overseeing our ERMF ramework andr elated policiesa nd procedures,e ffectivelyc hallenging thef irst lineo fd efense and identifying, monitoring andr eportingo na ggregater isks of theb usinessa nd supportf unctions. Ourr iskm anagementt eam,w hich is ledb yo ur CRO andi ncludesc ompliance, provideso versight of our risk profile andi sr esponsible form aintaining ac ompliancep rogram that includesc ompliancer iska ssessment, policy development, testinga nd reporting activities. TheC RO manageso ur risk management team andi sr esponsible fore stablishing andi mplementings tandards for thei dentification, management,m easurement, monitoring andr eportingo fr isko na nE nterprise-wide basis. In collaborationw itht he firstl ineo fd efense,t he CROi sr esponsible ford eveloping an appropriate risk appetite with corresponding limits that aligns with supervisorye xpectations,a long with proposingo ur risk appetite to theB oard of Directors. TheC RO regularly reports to theR isk& Technology Committeeo nr iskm anagementm atters. •T he “third line of defense” is comprisedo fo ur GlobalA udito rganization. Thet hird lineo fd efense providesa n independent review ando bjectivea ssessmento ft he design ando peratinge ffectivenesso ft he firsta nd second lines of defense, governance,p olicies, procedures,p rocessesa nd internal controls,a nd reports its findings to executivem anagementa nd theB oard,t hrough theA uditC ommittee. GlobalA uditi sr esponsible forp erforming periodic, independent reviewsa nd testingc ompliancew itho ur risk management policiesa nd standards, as well as with regulatoryg uidancea nd industryb estp ractices.G lobalA udit also assessest he design of our policiesa nd standardsa nd validates thee ffectivenesso fr iskm anagementc ontrols,r eportingt he results of such reviewst ot he AuditC ommittee. Management Committees We operate severali nternalm anagementc ommittees to oversee risk governance andm anagementa crosst he enterprise. TheE nterpriseR iskM anagementC ommittee( ERMC), establishedi n2 025 as part of our initiatives to enhanceo ur enterprise-level risk oversight,i st he highest-level risk management committeea tt he enterprise level. TheE RMCi s chairedb yo ur CROa nd is responsible foro verseeing thed esigna nd implementationo ft he ERMF ramework,a sw ella s reviewinga nd monitoring our enterprise risk profilea gainst thed efined risk appetite,i ncluding making recommendations on such risk appetitea nd reviewingo re scalatingm atters from,o rr eferredt ob y, otherm anagement-levelr iskc ommittees. At each of our Banks,w ea lsoo perate an equivalent risk management committee, along with otherm anagement committees foro versight of specific risk categories. At thee nterprisel evel,w ea lsom aintaina nO perating Committee( OC), Asset&L iability Management Committee (ALCO) andC apitalM anagementC ommittee( CMC). TheO Ci sa management committeec omposed of senior officersa nd is chairedb yt he Senior Vice Presidento fB usiness Strategy. TheO Ci sr esponsible fora ssistingo ur executivel eadership team in overseeing thes trategic direction, operationalp erformance andr iskm anagemento ft he Company. With respect to risk management,t he OC’s responsibilities include monitoring ande valuatingt he Company’so perationalp erformance, keyf inancial metricsa nd risk profile, setting an appropriate risk culture,s eeking to resolver isks impactingt he achievement of organizationalg oals andi mproving risk management discipline. TheA LCOi sa management committeec omprised of senior officersa nd is chairedb yt he Treasurer.T he ALCO is responsible fora ssistingo ur Boardo fD irectorsa nd our executivel eadership team in overseeing, reviewinga nd monitoring consolidated funding andl iquidity,c apital, market andi nvestment risks. TheA LCO’sr esponsibilitiesa lsoi nclude assisting 47
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our executivel eadershipt eam in its management of our capital, funding andl iquidity resources,i nterestr ates ensitivity and our balances heet more broadly. TheC MC is am anagementc ommitteec omprised of senior officersa nd is chairedb yt he Head of Corporate& Capital Planning. TheC MC is responsible fora ssistingo ur Boardo fD irectorsa nd our executivel eadership team with capital planning ando versight by monitoring our capitala nd providing guidancea nd recommendations on theu se andd istribution of capital. TheC MC’s responsibilitiesa lsoi nclude review of thec apitalp lan, annualb udgeta nd long-range plan,s tress testinga nd making recommendations forc apitalt hresholdsa nd tolerances,c apitalb uffers,c apitalt argets ands ignificant capitald ecisions. Risk Categories During 2025 we made various enhancements to our risk management practices,c ompletingt he establishmento fe ight enterprise-level risk pillarse quivalent to ther iskp illars that historically have alreadyb een in place at our Banks.E ach risk pillari ncludesB oard of Directorsa pprovedr iska ppetites, regular management monitoring ando versight,a nd at a minimumq uarterly,a nd more frequently as appropriate,r eporting to theR isk& Technology Committee. We evaluate thep otentiali mpacto fa risk evento nt he Companyb ya ssessing thec ustomer, partner, financial, reputational andl egal andr egulatoryi mpacts, andh aved ivided risk into thef ollowing eight pillars:C reditR isk, Market Risk,C apital Risk,L iquidity Risk,O perationalR isk, ComplianceR isk, StrategicR isk, andR eputationalR isk. Credit Risk Credit risk is ther iska rising froma no bligor’s failure to meet thet erms of anyc ontract or otherwisep erform as agreed. Credit risk is found in alla ctivitiesi nw hich settlement or repaymentd epends on counterparty, issuer or borrower performance. We aree xposed to credit risk primarily relatingt ot he credit card ando ther loansw em aket oo ur customers. Ourc reditr isk relatest ot he risk that consumersw ho uset he co-brand, privatel abel,D TC credit cards,o ro ther loan products that we issue will not repayt heir loan balances.A sp arto fo ur effortst om inimizeo ur risk of credit cardo ro ther loan charge-offs, we have developeda utomated proprietary scoringt echnology andv erificationp rocedures to make risk-based underwriting decisions when approving newa ccount holders,e stablishing or adjustinga ccount holderc reditl imits anda pplying our risk- basedp ricing. Thec reditr isko no ur Credit carda nd otherl oans balances is quantifiedt hrough our Allowancef or credit lossesw hich is recorded netw ith Credit carda nd otherl oans on our Consolidated BalanceS heets. Market Risk Market risk is ther iskt oc urrent or anticipated earnings,c apitalo re conomic valuea rising fromc hangesi nt he market valueo fp ortfolios, securities or otherf inancial instruments. Market risk includesi nterestr ater isk, whichi st he risk arising fromm ovementsi ni nterestr ates.I nterestr ater iskr esults from: •R epricing risk –d ifferences between thet iming of rate changesa nd thet imingo fc ashf lows; •B asis risk –c hanging rate relationships among different yieldc urvesa ffectinga no rganization’sa ctivities; •Y ield curver isk–c hanging rate relationships acrosst he spectrumo fm aturities; and •O ptions risk –i nterest-relatedo ptions embeddedi nc ertain products. Ourp rincipal market risk exposures arisef romv olatilityi ni nterestr ates andt heir impact on economic value, capitalization levels ande arnings.T ot he extent we areu nablet oe ffectivelym atch thei nterestr ates ensitivity of our assets andl iabilities, our nete arnings couldb em aterially adverselya ffected. Beginning in 2024, as part of theo ngoing enhancemento fo ur interest rate risk mitigationt ools, we establishedi nterestr ate risk hedging capabilities,e mploying interest rate swapso no ur credit cardl oans portfolio to reducei nterestr ater isk sensitivity.W ea lsou se various industrys tandard market risk measurementt echniquesa nd sensitivity analyses to estimate, assess andm anaget he impact of increases or decreasesi ni nterestr ates on our Neti nteresti ncomea nd economic valueo f equity underv arious interest rate scenarios. We believet hese approaches provide useful insightsi ntot he interest rate risk inherent in our business, andh ow to effectivelym anages uchr isk. As of December3 1, 2025, basedo nt he compositiono f 48
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our fixedr atea nd floating rate assets andl iabilities on our Consolidated BalanceS heets, our Neti nteresti ncomea nd economic valueo fe quity aree xpected to increasei nh igherr ates cenariosa nd decreasei nl ower rate scenarios. Ones tandard sensitivitym easurew eu se calculatest he impact on Neti nteresti ncomef roma hypothetical instantaneous ands ustained 100 basisp oint increaseo rd ecreasei ni nterestr ates.D ue to them ix of fixeda nd floatingr atea ssets and liabilities on our Consolidated BalanceS heet as of December3 1, 2025, this hypothetical instantaneous 100 basisp oint increaseo rd ecreasei ni nterestr ates wouldh avea ni nsignificant impact on our annualN et interest income.A ctualc hanges in our neti nteresti ncomew illd ependo nm anyf actors,a nd thereforem ay differf romo ur estimatedr iskt oc hangesi n interest rates. In additiont ot hisi ndustrys tandard measure, we also consider thep otentiali mpact of alternativei nterestr ate scenariosi no ur internal interest rate risk management decisions,s ucha sl argerr ates hocks (highert hanp lus-or-minus 100 basisp oints),o rs teepeninga nd flattening yieldc urve scenarios. We also regularly review thes ensitivity of our interest rate risk metricst oc hangesi no ur keym odelinga ssumptions. In recenty ears, we have implemented an ew andi mproveda ssetl iability management modelt hati sc apable of assessing a broadera rray of interest rate risk scenarios, including aw ider range of interest rate andb alance sheet assumptions.T he interest rate risk modelt hatw eu se in deriving thesem easuresi ncorporates contractuali nformation, behavioral assumptions andm odeling methodologies,w hich projectb orrowera nd deposit behavior patterns. Otherm arketi nputs, such as interest rates, market prices andi nterestr atev olatility,a re also critical componentso fo ur interest rate risk measures.W e regularly update ande nhancet hese assumptions,s cenarios andm odela sw eb elieve appropriate to reflect our best assessmento ft he market environmenta nd thee xpected behavior patternso fo ur existinga ssets andl iabilities. Therea re inherent limitations,h owever,i na ny methodology used to estimate thee xposuret oc hangesi nm arketi nterestr ates.F or example, this sensitivity analysis contemplates onlyc ertain movementsi ni nterestr ates andi sp erformed at ap articular point in time basedo no ur existing Consolidated BalanceS heet.A ccordingly, changesi nc ustomerb ehaviora nd strategic actions that management mayt akei nt he future mayc ause thec ompositiono fo ur assets andl iabilitiest oc hange from the assumptions andp rojections previously used in scenariosc onsidered,a nd couldc ause our actualN et interest income and economic valueo fe quity to differf romp revious sensitivity analysis outcomes. CapitalR isk Capitalr iskr eferst ot he potential threat to an institution’sf inancial stability or safety ands oundness due to inadequate capitalr esources to supportb usinesso perations ands afeguard againstu nexpected losses. Theser isks can arisef rom various stressedo peratingc onditions,i ncluding macroeconomic,c redit, liquidity,m arket, andr egulatoryf actors. We manage capital in alignmentw ith ther iskc haracteristicso fo ur business, thee conomic environment, andt he expectations of regulatorsa nd stockholders.T hisi ncludesc onsideringt he impact of capitals tresst estingi no ur assessment of capitala dequacy.C apitalr iski sm anaged by balancings takeholderi nterests,s ucha ss afetya nd soundness, profit, growth,v alue,a nd operationala nd non-financialf actors, whiler easonablyc onsideringb othn ear-terma nd long-term impacts. Ourp olicies, risk appetite limits,a nd capitalr atio operatingt argets ensure that we andt he Banks maintain sufficientc apitalt ow ithstand capitals tresse ventso vera specified period. TheC PC andA LCOa ssist theB oard of Directorsa nd management in overseeing, reviewing, andm onitoring capitalr isk. Liquidity Risk Liquidity risk is ther iska rising froma ni nability to meet obligations when they come due.L iquidity risk includest he inabilityt oa ccessf unding sources or manage fluctuations in funding levels.L iquidity risk also results froma n organization’sf ailure to recognize or addressc hangesi nm arketc onditions,o rf ailure to preparef or anticipated growth with appropriate levels of liquidity. Ourp rimary liquidity objective is to maintain al iquidity profilet hatw ill enable us,e veni nt imeso fs tresso rm arket disruption, to fund our existing assets andp ay liabilitiesw hend ue at an acceptablec ost. Policya nd risk appetite limits require us andt he Banks to ensure that sufficientl iquida ssets area vailablet os urvive liquidity stresseso vera specified time period. In accordancew ith our contingencyf unding plan,w ea lsom aintaina ccesst of unding marketst op rovide liquidity to satisfy additionalc ontingencyn eeds. TheA LCOa ssistst he Boardo fD irectorsa nd management in overseeing, reviewing, andm onitoring liquidity risk. 49
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Operational Risk Operationalr iski st he risk arisingf romi nadequate or failed internal processeso rs ystems,h uman errors or misconduct, or adversee xternale vents. Operationall ossesr esultf romi nternalo re xternalf raud, inadequate or inappropriate employment practices andw orkplace safety,f ailure to meet obligations involving customers, partners,p roducts andb usinessp ractices, damage to physical assets,b usinessd isruptiona nd systemsf ailures, and/or failuresi ne xecution, deliverya nd process management. Operationalr iski si nherent in allb usinessa ctivitiesa nd cani mpact us through direct or indirect financiall oss, damage to our brand, customer dissatisfactiona nd legala nd regulatoryp enalties. We have implemented an operationalr isk framework that is definedi no ur OperationalR iskM anagementP olicy. As part of our OperationalR iskP rogram,w em aintaina ni nformationa nd cybersecurity risk management program,w hich is ledb yo ur ChiefI nformation Security Officer (CISO) andi sd esignedt op rotect thec onfidentiality,i ntegrity,a nd availability of critical informationa nd informations ystems from unauthorized access, use, disclosure,d isruption, modification, or destruction. TheP rogram leveragess ecurity technology, at eam of internal ande xternale xperts, and operations basedo nt he NationalI nstitute of Standardsa nd Technology Cybersecurity Framework( NIST CSF) 2.0 consisting of controls designedt og overn,p rotect,d etect, identify, respond andr ecoverf romc ybersecurity incidents. We continue to invest in enhancements to cybersecurity capabilities ande ngage in industrya nd government forums to promote advancements to theb roader financials ervices cybersecurity ecosystem.F or furtherd iscussion of our cybersecurity risk management program,s ee “ItemI C.—Cybersecurity.” ComplianceR isk Compliancer iski st he risk arisingf romv iolations of laws or regulations,o rf romn onconformancew ith prescribed practices,i nternalp oliciesa nd procedures,o re thical standards. This risk exposes an organizationt oa varietyo fa dverse impacts, including enforcemento ro ther supervisorya ctions,f ines,p enalties, paymento fd amages,r estrictions on business activitiesa nd thev oiding of contracts. OurC omplianceo rganizationi sr esponsible fore stablishing andm aintaining our ComplianceR iskM anagementP rogram, pursuantt ow hich we seek to manage andm itigatec ompliancer iskb ya ssessing, controlling, monitoring, measuringa nd reportingt he legala nd regulatoryr isks to whichw ea re exposed. StrategicR isk Strategicr iski st he risk arisingf roma dverseb usinessd ecisions,p oor implementationo fb usinessd ecisions or lack of responsivenesst oc hangesi nt he industrya nd operating environment. This risk is af unctiono fa no rganization’ss trategic goals,b usinesss trategies, resources andq uality of implementation. We seek to manage strategica nd businessr isks through risk controls embeddedi nt hese processes, as well as risk management oversight overb usinessg oals.E xistingp roductp erformance is reviewed periodically by various of our Committees ande xecutivem anagement. Reputational Risk Reputationalr iski st he risk arisingf romn egativep ublic opinion. This risk mayi mpairc ompetitivenessb ya ffectingt he abilityt oe stablishn ew relationships or services,o rc ontinue servicinge xistingr elationships. Reputationalr iski si nherent in alla ctivitiesa nd requiresu st oe xercisec autioni nd ealingw ith stakeholders,s ucha s customers, brandp artners, otherc ontractualc ounterparties, investors, regulators, employees andt he community.E xecutive management is responsible forc onsideringt he reputationalr iski mplications of businessa ctivitiesa nd strategies and ensuring ther elevant subjectm attere xpertsa re engaged. 50
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ModelR isk Beginning in 2025 we removedm odelr iska sa unique,s tand-alone risk pillara nd have instead allocated modelr iska cross thee ight otherr iskp illars.M odelR iski st he risk arisingf romd ecisions basedo ni ncorrect or misused modelo utputsa nd reports.M odelr isko ccursp rimarily fort hree reasons: •a modelm ay have fundamental errors,i ncluding with respectt ot he model’sc onstruction, or interpretation, and producei naccurateo utputsw henv ieweda gainst its design objectivea nd intendedb usinessu ses; •a modelm ay be used incorrectly or inappropriately,o rt here mayb eam isunderstanding about its limitations and assumptions, including models beingc alibratedo nh istoricalc yclesa nd correlations whichm ay not be predictive of thef uture, or failurest ou pdate assumptions appropriately or in at imely manner; or •t he modelp roduces resultst hata re not compliantw ithf airl ending or otherl awsa nd regulations. We manage modelr iskt hrough ac omprehensive modelg overnance framework,i ncluding policiesa nd procedures for modeld evelopment, maintenancea nd performance monitoring activities, independent modelt estinga nd validation, and change management capabilities. We assess modelp erformance on an ongoing basisa nd modelr iski sa ssesseda cross businessp rocesses, weighted by risk pillars andm anaged through our ModelL ifecycleM anagementP rocess. Item 1B.U nresolvedS taff Comments. None. Item 1C.C ybersecurity. Cybersecurity Risk Management andS trategy As noted above under“ Risk Management,” we maintain an informationa nd cybersecurity risk management program, whichi sl ed by our CISO andi sd esignedt op rotect thec onfidentiality,i ntegrity anda vailability of critical informationa nd informations ystems. Thep rogram is designedb ased on theN ISTC SF 2.0; providedt hatt hisd oesn ot implyt hatw em eet anyp articular technicals tandards, specifications or requirements, onlyt hatw eu se theN ISTC SF 2.0 as ag uide to help us identify, assess andm anagec ybersecurity risksr elevantt oo ur business. Ourc ybersecurity risk management program is integrated into our overall ERMp rogram,a nd shares common methodologies,r eporting channels andg overnance processest hata pplya crosst he ERMp rogram to otherl egal, compliance, strategic, operational, andf inancial risk areas. Ourc ybersecurity risk management program includes: •r iska ssessmentsd esignedt oh elpi dentifym aterialc ybersecurity riskst oo ur critical systems, information, products,s ervices, ando ur broadere nterpriseI Te nvironment; •a security team principallyr esponsible form anaging( 1) our cybersecurity risk assessmentp rocesses, (2)o ur security controls,a nd (3)o ur responset oc ybersecurity incidents; •t he useo fe xternals ervice providers,w here appropriate,t oa ssess, test,t rain or otherwisea ssist with aspectso fo ur security controls; •s ecurity toolsd eployedi nt he IT environmentf or protectiona gainst andm onitoring fors uspicious activity; •c ybersecuritya wareness training of our employees,i ncluding incident responsep ersonnel, ands enior management; •a cybersecurity incident responsep lant hati ncludesp roceduresf or responding to cybersecurity incidents; and •a third-partyr iskm anagementp rocessf or servicep roviders,s uppliers,a nd vendors. We have not identified risksf romk nownc ybersecurity threats, including as ar esulto fa ny priorc ybersecurity incidents, that have materially affected or arer easonablyl ikelyt om aterially affect us,i ncluding our operations,b usinesss trategy, results of operations or financialc ondition. We face certaino ngoing risksf romc ybersecurity threatss ucha sl osso rt heft of data,r ansomwareo ro ther disruptivea ttacksf romf inancially motivatedb ad actors, andt hird-party supplyc hain issues that, if realized,a re reasonablyl ikelyt om aterially affect us,i ncluding our operations,b usinesss trategy, results of operations, andf inancial condition. Forf urther discussion, see“ Item 1A.R iskF actors– Risk Management”a nd “Item1 A. Risk Factors– Cybersecurity, Technology andV endor Risks.” 51
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Cybersecurity Governance OurB oard of Directorsc onsidersc ybersecurity risk to be ac ritical part of its risk oversight functiona nd hasd elegated to theR isk& Technology Committeep rimary oversight of cybersecurity ando ther informationt echnology risks. TheA udit Committeea lsor eviews cybersecurity matters as part of its oversight of majorf inancial risk exposures.T he Risk & Technology Committee oversees management’s implementationo fo ur cybersecurity risk management program,a nd receivesr egular reports fromm anagemento no ur cybersecurity risks. In addition, management updatest he Risk & Technology Committee,a sn ecessary,r egarding anym aterialc ybersecurity incidents, as well as anyi ncidents with lesser impact potential. TheR isk& Technology Committeep eriodically reports to theB oard of Directorsr egarding its activities, including those relatedt oc ybersecurity. As part of its oversight of majorf inancial risk exposures,t he AuditC ommitteea lsor eviews with management ando ur internal andi ndependent auditors our risk assessments andr iskm anagementp rogram,i ncluding with respect to cybersecurity. Boardm embers receive presentations on cybersecurity topics fromo ur CISO or external experts as part of theB oard’s continuing educationo nt opics that impact public companies. Ourm anagementt eam, including our CISO,C RO andC ORO, is responsible fora ssessing andm anagingo ur material risks fromc ybersecurity threats. Ourm anagementt eamh as primaryr esponsibility foro ur overall cybersecurity risk management program ands upervises botho ur internal cybersecurity personnela nd our retained external cybersecurity consultants. OurC ISOw orks closelyw ith our CRO andC ORO, whoa re responsible forp roviding effectiveo versight and challenge to thea ctivities of our CISO. OurC ISO, whor eports to our ExecutiveV iceP resident andC hief Technology Officer,h as 25 yearso fc ybersecurity and informations ecuritye xperience acrossa numbero fr egulated industries, including financials ervices,h ealthcarea nd defensea nd nationals ecurity. OurC ISOh as been aC ertified InformationS ystemS ecurity Professional( CISSP) foro ver 20 yearsa nd serves on theg overningb ody of various organizations focusedo nt echnology andc ybersecurity,i ncluding as an Advisory Council Member to theH arvard Business Review anda GoverningB oard Member of Evanta,a no rganization of peer-CISOs.E acho fo ur CRO( whor eports to our ChiefE xecutiveO fficer)a nd CORO (who reports to our CRO)h as over2 0y earso ff inancial services experience in operations andr iskm anagement. Ourm anagementt eams upervises effortst op revent,d etect,m itigate,a nd remediatec ybersecurity risksa nd incidents through various means, and, as appropriate,p rovidesb riefings from internal security personnel, threat intelligence and otheri nformationo btainedf romg overnmental,p ublic or privates ources,i ncluding external consultantse ngagedb yu s, and alerts andr eports produced by security toolsd eployedi nt he IT environment. Item 2. Properties. As of December3 1, 2025, we leased 12 generalo fficep roperties, comprisedo fa pproximately 1.1 millions quare feet,o f whicha pproximately 0.4 millions quare feet ares ubleased or on thes ubleasem arket. Ourp rincipal facilitiesu sedt oc arry out our operational, salesa nd administrativef unctions area sf ollows (ina lphabetical order, by city): Location Approximate Square Footage LeaseE xpirationD ate Bangalore,K arnataka,I ndia8 7,400 January 31, 2029 Chadds Ford,P ennsylvania 9,900 April3 0, 2027 CoeurD ’Alene,I daho 23,500 (1) July 31, 2038 Columbus,O hio3 26,400 (1) September 12, 2032 Draper,U tah2 2,900 (1) August3 1, 2031 NewY ork, NewY ork1 8,500 February 29, 2028 Plano, Texas2 8,000 (1) June 30, 2026 Wilmington, Delaware 5,200 July 31, 2027 ______________________________ (1) Excludess quare footageo fs ubleased portion. We believe our current facilities ares uitablet oo ur businessesa nd that we will be able to lease, purchaseo rn ewly constructa dditionalf acilitiesa s needed. 52
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Item 3. Legal Proceedings. Refert oP artI ,I tem1 A, “RiskF actors—Legal,R egulatorya nd ComplianceR isks,” “RiskF actors—RisksR elated to the LoyaltyOneS pinoff” andN ote2 0, “Commitmentsa nd Contingencies” to our auditedC onsolidated FinancialS tatements, whicha re incorporated herein by reference. Item 4. Mine SafetyD isclosures. Nota pplicable. 53
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PART II Item 5. Market forR egistrant’sC ommonE quity,R elated Stockholder Matters andI ssuer Purchases of Equity Securities. Market Information Ourc ommons tock is listed on theN YSEa nd trades undert he symbol “BFH.” Holders As of February 6, 2026, thec losing priceo fo ur common stockw as $79.53 pers hare,t here were 43,115,116 shares of our commons tock outstanding, andt here were 86 holders of record of our commons tock. Dividends Paymento ff utured ividends is subject to declarationb yo ur Boardo fD irectors. Factorsc onsidered in determining dividends include,b ut aren ot limitedt o, our profitability,e xpected capitaln eedsa nd legal, regulatorya nd contractual restrictions.U nder thet erms of theS eriesA PreferredS tock,o ur ability to declare, payo rs et asidea ny paymentf or dividend or distributiono no ur commons tock,o rr epurchase, redeem or otherwisea cquire forc onsideration, directly or indirectly,a ny shares of our commons tock,i ss ubject to restrictions in thee vent that we do not declarea nd either payo r seta side as um sufficientf or paymento fd ividends on theS eriesA PreferredS tock fort he immediatelyp recedingd ividend period. Seea lso“ Risk Factors—Therei sn og uarantee that we will pay future dividends or repurchases hares of our stock at al evel anticipated by stockholders, whichc ouldr educer eturns to our stockholders.”S ubject to theseq ualifications,w e presently expect to continue to payd ividends on aq uarterly basis. On January 29, 2026, our Boardo fD irectorsd eclared aq uarterly cashd ividendo f$ 0.23 pers hare on our commons tock, payableo nM arch 16, 2026, to stockholders of record at thec lose of businesso nF ebruary2 7, 2026. Issuer Purchaseso fE quity Securities Thef ollowing tablep resentsi nformationw ith respectt op urchases of our commons tock made by or on behalf of us during thet hree months endedD ecember 31, 2025: Period TotalN umbero f Shares Purchased (1) Average PriceP aid perS hare TotalN umbero f Shares Purchased as Part of Publicly Announced Planso r Programs Approximate Dollar Valueo fS hares that MayY et Be Purchased Undert he Planso rP rograms (M illions) October1 -315 66,245 $5 8.77 564,889 $3 27 November 1-30 1,375,040 63.23 1,372,651 240 December1 -311 ,482 72.51 —$ 240 Total1 ,942,767 $6 1.94 1,937,540 ______________________________ (1) During thep eriods presented, (i)5 ,227 shares of our commons tock were purchased by thea dministrator of our Bread Financial 401(k) Plan fort he benefito ft he employees whop articipatedi nt hatp ortiono ft he Plan and( ii) 1,937,540 shares of our common stockw erer epurchased by theC ompany, pursuantt oa Rule 10b5-1t rading plan previously adopted by theC ompany, duringa n opent rading window. StockP erformanceG raph Thef ollowing StockP erformance Graphs howst he cumulativet otal stockholderr eturno no ur commons tock compared to an overall stockm arketi ndex, theS &P Composite5 00 StockI ndex( S&P5 00 Index),a nd ap ublishedi ndustryi ndex, the S&PF inancial CompositeI ndex( S&PF inancialsI ndex),o vert he five-year period commencingD ecember3 1, 2020 and endedD ecember3 1, 2025. 54
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TheS tock PerformanceG raph assumest hat$ 100 wasi nvested in our commons tock ande ach index, andt hata ll dividends were reinvested.F or thep urposeo ft hisS tock PerformanceG raph, historical stockp rices have been adjusted to reflectt he impact of thes pinoffo fL VI on November 5, 2021. Thes tock pricep erformance on theg raph belowi sn ot necessarily indicativeo ff uturep erformance. DOLLARS COMPARISONO FC UMULATIVET OTAL RETURN* AMONGB READ FINANCIAL HOLDINGS,I NC., S&P5 00 INDEXA ND THES &P FINANCIALSI NDEX Bread FinancialH oldings,I nc. S&P5 00 Index S&PF inancialsI ndex 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 12/31/25 0 50 100 150 200 250 300 *$100 invested on December3 1, 2020 in stocko ri ndex, including reinvestment of dividends. Fiscal year endD ecember3 1. Copyright©2 025 Standard &P oor’s,a division of S&PG lobal. Allr ightsr eserved. BreadF inancial Holdings,I nc.S &P 500 Index S&PF inancials Index December3 1, 2020 $1 00.00 $1 00.00 $1 00.00 December3 1, 2021 113.87 128.71 135.04 December3 1, 2022 65.53 105.40 120.81 December3 1, 2023 58.82 133.10 135.49 December3 1, 2024 111.09 166.40 176.89 December3 1, 2025 136.69 196.16 203.47 Ourf uturef ilings with theS EC may“ incorporatei nformation by reference,”i ncluding this AnnualR eporto nF orm1 0-K. Unless we specifically stateo therwise,t hisS tock Performance Graphs hall not be deemed to be incorporated by reference ands hall not constitute solicitingm aterialo ro therwise be considered filedu ndert he SecuritiesA ct of 1933, as amended, or theS ecuritiesE xchange Acto f1 934, as amended. Item 6. [Reserved] 55
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Item 7. Management’s Discussion andA nalysiso fF inancial Condition andR esults of Operations( MD&A). Thef ollowing discussion and analysis of our resultso fo perations and financialc onditions houldb er eadi nc onjunction with our auditedC onsolidated FinancialS tatementsa nd relatedN otes includede lsewhere in this Annual Reporto nF orm 10-K. Someo ft he informationc ontainedi nt hisd iscussion and analysis constitutesf orward-lookings tatementst hat involve risksa nd uncertainties. Actual results couldd iffer materially from thosed iscussedi nt hese forward-lookings tatements. Factorst hat couldc auseo rc ontributet ot hese differences include,b ut aren ot limitedt o, thosed iscussedb elow and elsewherei nt hisA nnual Reporto nF orm1 0-K, particularly under“ Risk Factors” and “CautionaryN oteR egarding Forward-LookingS tatements.”U nlesso therwise specified, references to Notest oo ur auditedC onsolidated Financial Statements aret ot he Notest oo ur auditedC onsolidated FinancialS tatementsa so fD ecember3 1, 2025 and 2024 and for years endedD ecember3 1, 2025, 2024 and 2023. OVERVIEW We areat ech-forwardf inancial services companyt hatp rovidess imple,p ersonalized payment, lending, ands aving solutions to millions of U.S. consumers. Ourp ayment solutions,i ncluding Bread Financialg eneral purposec reditc ards and savings products,e mpower our customersa nd theirp assions fora betterl ife. Additionally,w ed eliver growth fors omeo f them ostr ecognizedb rands in travel ande ntertainment,h ealth andb eauty,j ewelry ands pecialty apparelt hrough our privatel abel andc o-brandc reditc ards andp ay-over-timep roducts providing choice andv alue to our shared customers. We have continuedt od iversify ourp roductm ix with our brandp artnerst hrough growth of our co-brand credit card programs, which, relativet oo ur privatel abel credit card programs, have higherc redits ales pera ccount anda ni mproved credit risk mix that generally results in highert ransactor balances,l ower delinquenciesa nd late fees,a sw ella sl ower losses. We also offero ur proprietary credit cards along with thee xpansiono fo ur Bread Payp roducts,w hich areo ur installment loansa nd “split-pay” offerings. Ourp artner base consists of largec onsumer-based businesses, including well-knownb rands such as (alphabetically)A AA, AcademyS ports +O utdoors, Caesars, Dell Technologies,H ardR ockI nternational, theN FL,R aymour &F lanigan, Saks FifthA venue,S ignet, Ulta andV ictoria’sS ecret, as well as small- andm edium-sized businesses( SMBs). Ourp artner base is well diversifieda crossa broadr ange of industriesa nd retail verticals, including travel ande ntertainment,s pecialty apparel, health andb eauty, jewelry, sportingg oods,t echnology ande lectronics,a sw ella sh omea nd furniture.W eb elieve our comprehensives uite of payment, lending ands avings olutions,a long with our relatedm arketinga nd data anda nalytics, offers us as ignificantc ompetitivea dvantagew ithp roducts relevant acrossa ll customer segments (Gen Z, Millennial,G en Xa nd Baby Boomers).T he breadtha nd quality of our producta nd serviceo fferings,c oupled with our customer-centric approach,h avee nabled us to establisha nd maintain long-standing partnerr elationships.W eo perate our businesst hrough a singler eportables egment,w itho ur primary source of revenue beingf romI nteresta nd fees on loansf romo ur various credit carda nd otherl oanp roducts,a nd to al essere xtentf romc ontractualr elationships with our brandp artners. Throughout this report, unlesss tatedo rt he contexti mplies otherwise, thet erms “Bread Financial,”“ BFH,”t he “Company,” “we,” “our”o r“ us”r efer to Bread FinancialH oldings,I nc.a nd its subsidiaries on ac onsolidated basis. References to “ParentC ompany” refert oB read FinancialH oldings,I nc.o na parent-onlys tandalone basis. In addition, in this reportw em ay refert ot he retailers ando ther companiesw ithw hom we do businessa so ur “partners,”“ brand partners,” or “clients,”p rovidedt hatt he useo ft he term “partner,” “partnering” or anys imilart ermd oesn ot mean or imply af ormall egal partnership, andi sn ot meanti na ny wayt oa lter thet erms of Bread Financial’sr elationshipw ith anyt hird parties. We offero ur credit products through our insuredd epositoryi nstitutions ubsidiaries,C omenity Bank andC omenity CapitalB ank, whicht ogether are referredt oh ereina st he “Banks.” NON-GAAP FINANCIAL MEASURES We prepareo ur auditedC onsolidated FinancialS tatementsi na ccordance with accountingp rinciplesg enerally acceptedi n theU nitedS tateso fA merica (GAAP). However, certaini nformationi ncludedh ereinc onstitutesN on-GAAP Financial Measures.O ur calculations of Non-GAAP FinancialM easures mayd ifferf romt he calculations of similarlyt itledm easures by otherc ompanies.I np articular: •W eh avep reviously repurchased andm ay,f romt imet ot ime,i nt he future continue to repurchased ebt, including anyo utstanding senior unsecured notes,s ubordinatedn otes or convertible notes.I ns ucht ransactions,w em ay pay ap remium to inducet hese repurchases,o ri nc ertain cases repurchasea ta discount,w hich,f roma GAAP perspective, wouldr esulti na ni mpact to Totaln on-interest expenses,w ith ac orresponding impact also reflected 56
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in Neti ncomea nd consequently our Earnings perd iluteds hare.F or our priord ebtr epurchases,w es how adjustmentst ot hese threef inancial statementl inei tems,f or totalC ompany as well as forc ontinuing operations, to exclude thei mpactsf romo ur debt repurchases.W eu se Adjusted totaln on-interest expenses, Adjusted net income,a nd Adjusted earnings perd iluted share to evaluate theo ngoing operations of theC ompany excluding the volatility that cano ccur fromt he impacts of our debt repurchases. • Pretax pre-provisione arnings (PPNR) represents Income from continuing operations before income taxesa nd the Provision forc reditl osses. PPNR excluding any gaino np ortfolio sale and impacts from debt repurchases then excludesf romP PNRt he gain on anyp ortfolio sale in thep eriod, as well as thel osso rg aino na ny debt repurchasesi nt he period. We use PPNR and PPNRe xcluding any gaino np ortfolio sale and impacts from debt repurchases as metricst oe valuateo ur resultso fo perations before income taxes, excluding them ovementst hat can occurw ithinP rovision forc reditl ossesa nd theo ne-timen atureo fa gain on thes aleo fa portfolio and/or the impactsf romd ebtr epurchases. • Return on average tangiblec ommone quity (ROTCE)r epresentsa nnualized Income fromc ontinuing operations less Dividends to preferreds tockholders,d ivided by averageT angiblec ommone quity.T angiblec ommone quity (TCE)r epresentsT otal stockholders’e quity reduced by Preferreds tock andG oodwill andi ntangiblea ssets,n et. We useR OTCE as am etrict oe valuatet he Company’sp erformance. • Tangibleb ook valuep er commons hare represents TCEd ivided by commons hareso utstanding. We use Tangible book valuep er commons hare,a metric used acrosst he industry, to assess capitala nd performance, in conjunction with ROTCE. We believe theu se of theseN on-GAAP financialm easures provide additionalc larity in understanding our results of operations andt rends.F or ar econciliationo ft hese Non-GAAP financialm easures to them ostd irectly comparable GAAP measures,p leases ee Table6 :R econciliationo fG AAP to Non-GAAP FinancialM easures that follows. BUSINESS ENVIRONMENT This Business Environments ectionp rovidesa no verviewo fo ur results of operations andf inancial positionf or they ear endedD ecember3 1, 2025, as well as our relatedo utlook for2 026 andc ertain of theu ncertaintiesa ssociated with achieving that outlook. This sections houldb er ead in conjunctionw itht he otheri nformationa ppearingi nt hisA nnualR eporto n Form 10-K, including “Consolidated Results of Operations,” “RiskF actors,”a nd “Cautionary Note RegardingF orward- Looking Statements,” whichp rovide furtherd iscussion of variances in our results of operations overt he periods of comparison, along with otherf actors that couldi mpact future results andt he Companya chieving its outlook. Credit saleso f$ 27.8 billionw ereu p3 %w henc omparedw ith2 024, reflectingn ew partnerg rowtha nd higherg eneral purposec ardholders pending. Averagec reditc arda nd otherl oans of $17.9 billiond ecreased 1% while End-of-periodc redit carda nd otherl oans of $18.8 billionw eref lat; bothb eing affected by an increasingp ayment rate ando ur disciplined credit management.T otal interest income decreased 2% primarilya sa result of lowerb illedl atef ees anda lowerA verage credit carda nd otherl oans balance, partially offset by lowerr eversals of financec harges andl atef ees,r esultingf roml ower gross credit losses, andt he ongoing implementationo fp ricing actions.O ur lowerd elinquencyv olumes andt he graduals hift in productm ix to al ower proportion of privatel abel accounts, whicht endt oh aveh igherb illedl atef ees,h aver esultedi n lowero verall billedl atef ees. Neti nterestm arginw as 18.4% in 2025 compared with 18.3% in 2024, primarily due to decreased funding costsw hich is reflectiveo fo ur opportunistic debt actions andg rowthi no ur DTCd eposits.O ur net interest margin continuest ob en egativelyi mpactedb yl ower billedl atef ees froml ower delinquencies, as well as an elevated cashp ositiona nd our graduals hift in productm ix toward co-brand cards,o ffset by lowerf unding costsa nd the ongoing implementationo fp ricing actions.N on-interest income increased $13 million, due to thei mplementationo f pricinga ctions,p rimarily papers tatement fees,p artially offset by an increasei nc osts associated with brandp artner retailer sharea rrangements, along with ad ecreasei nm erchantd iscount fees froml ower “big ticket” credit sales. Overall, Totaln et interest andn on-interest income of $3.8 billionw as flat versus 2024. Provision forc reditl ossesd ecreased relativet o2 024 driven by a$ 135 millionr eserve releasea nd netp rincipal losseso f $1.4 billion, compared with a$ 92 millionr eserve releasea nd netp rincipal losseso f$ 1.5 billioni nt he priory ear. OurA llowancef or credit lossesd ecreased as of December3 1, 2025 relativet oD ecember3 1, 2024, due primarily to lower Credit carda nd otherl oans,a sw ella sa decreasei nt he reserver ateo vert he period. Ourr eserve rate was1 1.2% as of December3 1, 2025 compared with 11.9% as of December3 1, 2024, reflectingo ur improving credit metricsa nd higher- qualityn ew account acquisitions.W ec ontinue to maintain appropriately prudent weightings on thee conomic scenariosi n our credit reservem odelingt oe nsuret he adequacy of our Allowancef or credit lossesg iven thew ider ange of potential macroeconomic outcomes, including ongoing uncertainty around inflationa nd unemployment. From an overall credit 57
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qualityp erspective, our percentage of cardholders with Vantages coresg reater than 660 remainsa bove pre-pandemicl evels due to prudent credit management anda more diversifiedp roductm ix,w ith co-brand andp roprietary cards representing a larger proportiono fo ur portfolio. Totaln on-interest expenses decreased 3% when compared with 2024, primarily as ar esulto ft he impactsf romo ur debt repurchases of $74 million and$ 117 millionf or they earse ndedD ecember3 1, 2025 and2 024, respectively, as well as a decreasei nE mployeec ompensationa nd benefits due to priory ear strategica djustmentsi nc ustomerc ares taffing, partially offset by higheri ncentivec ompensationc osts in thec urrent year,a long with ad ecreasei nd epreciationa nd amortization relatedt ol ower amortizationf romb othc apitalized software andp remiums on historical credit cardl oanp ortfolios. Thee ffortst os trengthena nd optimizeo ur balances heet continuedi n2 025. Throughout 2025 we engagedi na numbero f financing-relatedt ransactions,i ncluding thei ssuances of senior ands ubordinatedn otes,t he completiono ft endero fferst o repurchasec ertain outstanding senior ands ubordinatedn otes,t he redemptiono fc ertain senior notes andt he completiono f ther epurchases of 100% of our outstanding convertible senior notes.D uringt he year we announced at otal of $550 million in board-authorized commons tock repurchasep rograms, repurchasing5 .7 millions hareso fc ommons tock fora totalo f $310 million, andw ei ssued 75,000 shares of preferreds tock forg ross proceedso f$ 75 million. OurC ommone quity tier1 capitalr atio (CET1)i ncreased to 13.0%,f rom1 2.4% as of December3 1, 2024, driven by nete arnings throughout they ear, partially offset by thee ffectsf romb otho ur repurchased shares andd ebts ecurities. Additionally,D TC deposits increased to $8.5 billiona so fD ecember3 1, 2025, with averageD TC deposits now representing4 8% of our totalf unding sources, whichi sc omprised of retail andw holesaled eposits, ands ecureda nd unsecuredb orrowings,u pf rom4 3% ay ear ago. Our2 026 financialo utlook is basedo nc ontinuedc onsumer resilience, inflationr emaining above theF RB’st argetr ateo f 2%,a nd ag enerally stable labor market.O ur outlook also anticipatesi nterestr ated ecreases by theF RB, whichw ew ould expect to result in slight Neti nterestm arginc ompression. Basedo no ur current economic outlook andv isibilityi ntoo ur newb usinessp ipelinea nd partnerg rowth, as well as both expected continuedi mprovement in our Netp rincipal loss rate ando ur ongoing expectations fors trong cardholderp ayment rates, we expect growth in 2026 Averagec reditc arda nd otherl oans to be up low-singled igits on ap ercentage point basis fromf ully ear 2025. Growth in Totaln et interest andn on-interest income is also anticipated to be up in thel ow-single digits on ap ercentage point basisf rom2 025, in line with growth in Averagec reditc arda nd otherl oans.O ur outlook for full year Neti nterestm arginh as aw ider ange of potentialo utcomesg iven it is impacted by many variables; however,o ur baselinee xpectationi st hati tw ill be flat to modestly highert han2 025 as ar esulto fc ontinuedb enefits fromi mplemented pricinga ctions anda ni mproving cost of funds,p artially offset by interest rate decreases by theF RB, lowerb illedl atef ees fromi mproving delinquencyt rends andc ontinueds hiftsi nr iska nd productm ix. We manage expenseg rowthb ased on revenue generation andi nvestment opportunities, ande xpect to deliver positive operatingl everagei n2 026, excluding thep retaxi mpactsf romo ur debt repurchases,a Non-GAAP financialm easure.W e continue to invest in AI capabilities, technology modernization, marketing, andp roducti nnovationt od rive growth and efficiencies.H owever,t he degree of positiveo peratingl everagew ill be dependent upon macroeconomic factors, and relatedt oi mprovement in thec redite nvironment, growth in Averagec reditc arda nd otherl oans,a nd thep ace andt iming of furtheri nterestr ated ecreasesb yt he FRB. Our2 026 financialo utlook also assumesa Netp rincipal loss rate ranging from7 .2% to 7.4% givena resilient consumer, our disciplined creditm anagement, andc ontinueds hiftsi nr iska nd productm ix. In our 2026 financialo utlook we also expect our full year normalized effectivet ax rate to be in ther ange of 25% to 27%, with quarter-over-quarter variability due to thet iming of certain discrete items. Our2 025 results reflect our prudent capitala llocation, ad isciplined credit management framework,a nd our focuso n responsible growth.S upportedb ys trong capitall evelsa nd cash flow generation, we arew ellp ositionedt oe xecute on our capitala nd growth prioritiesw hile deliverings ustainable,l ong-term valuef or our stockholders. Note:W ea re unablet op rovide aq uantitativer econciliation of thef orward-looking 2026 financialo utlook fort he Non- GAAP financialm easure above,t oi ts most directly comparable forward-looking GAAP measure, as we cannot reliably predicta ll of then ecessary componentso fs ucha forward-looking GAAP measurew ithout unreasonablee ffort. 58
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CONSOLIDATED RESULTSO FO PERATIONS Thef ollowing discussion providesc ommentaryo nt he variancesi no ur results of operations fort he year ended December3 1, 2025, compared with they ear endedD ecember3 1, 2024, as presentedi nt he accompanying tables.T his discussion shouldb er eadi nc onjunctionw ith thed iscussion under“ Business Environment,”a bove.F or ad iscussion of the financialc ondition andr esults of operations for2 024 compared with 2023, pleaser efer to Part II, Item 7. “Management’s Discussion andA nalysiso fF inancial Conditiona nd Results of Operations (MD&A)”i no ur AnnualR eporto nF orm1 0-K fort he year endedD ecember3 1, 2024, filedw itht he SECo nF ebruary1 4, 2025, whichd iscussion is incorporated herein by referencef roms uchp rior reporto nF orm1 0-K. Table1 :S ummary of OurF inancial Performance YearsE ndedD ecember3 1, $C hange% Change 2025 2024 2023 2025 to 2024 2024 to 2023 2025 to 2024 2024 to 2023 (Millions,e xceptp er sharea mounts andp ercentages) Totaln et interest andn on-interest income $3,845 $3,838 $4,289 $7 $( 451) —( 11) Provision forc reditl osses1 ,242 1,397 1,229 (155) 168 (11) 14 Totaln on-interest expenses 1,988 2,060 2,092 (72) (32) (3)( 2) Income fromc ontinuing operations before income taxes6 15 381 968 234 (587) 61 (61) Provision fori ncomet axes 94 102 231 (8)( 129) (9)( 56) Income fromc ontinuing operations 521 279 737 242 (458) 87 (62) Loss fromd iscontinuedo perations,n et of income taxes (1) (3)( 2) (19) (1)1 74 0( 87) Neti ncomea vailablet oc ommon stockholders 518 277 718 241 (441) 87 (61) Adjusted neti ncome* (2) $5 75 $3 88 $7 19 $1 87 $( 331) 48 (46) Neti ncomep er diluteds hare $10.89 $5 .49 $14.34 $5 .40 $( 8.85) 98 (62) Adjusted neti ncomep er diluteds hare *(2) $12.09 $7 .69 $14.36 $4 .40 $( 6.67) 57 (46) Income fromc ontinuing operations per diluteds hare $10.96 $5 .54 $14.74 $5 .42 $( 9.20) 98 (62) Adjusted income fromc ontinuing operations perd iluted share* (2) $12.16 $7 .74 $14.76 $4 .42 $( 7.02) 57 (48) Neti nterestm argin (3) 18.4% 18.3% 19.5% 0.1 (1.2) Return on averaget angiblec ommon equity *(4) 20.4% 11.4% 38.0% 9.0 (26.6) Effectivei ncomet ax rate —c ontinuing operations 15.2% 26.7% 23.8% (11.5) 2.9 ______________________________ *R epresentsa Non-GAAP financialm easure. See“ Non-GAAP FinancialM easures”a nd Table6 :R econciliation of GAAP to Non- GAAP FinancialM easures. (1) Includesa mountst hatr elated to thep reviously disclosedd iscontinuedo perations associated with thes pinoffo fo ur former LoyaltyOnes egment in 2021 andt he sale of our former Epsilons egment in 2019. Fora dditionali nformationr efer to Note 1, “Descriptiono fB usiness, Basiso fP resentationa nd SignificantA ccountingP olicies” to thea uditedC onsolidated Financial Statements. (2) AdjustsN et income,N et income perd iluteds hare,a nd Income fromc ontinuing operations perd iluteds hare fort he impactsf rom our debt repurchases. (3) Neti nterestm arginr epresentsa nnualized Neti nteresti ncomed ivided by averageT otal interest-earning assets.S ee also Table5 : NetI nterestM argin. (4) Return on averaget angiblec ommone quity (ROTCE)r epresentsa nnualized Income fromc ontinuing operations,l essD ividends to preferreds tockholders,d ivided by averageT angiblec ommone quity.T angiblec ommone quity (TCE)r epresentsT otal stockholders’ equity reduced by Preferreds tock andG oodwill andi ntangiblea ssets,n et. 59
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Table2 :S ummary of TotalN et Interesta nd Non-interest Income,A fterP rovision forC redit Losses YearsE ndedD ecember3 1, $C hange% Change 2025 2024 2023 2025 to 2024 2024 to 2023 2025 to 2024 2024 to 2023 (Millions,e xceptp ercentages) Interesti ncome Interest andf eeso nl oans $4 ,739 $4 ,820 $4 ,961 $ (81) $ (141) (2) (3) Interest on cash andi nvestment securities 173 204 184 (31) 20 (16) 11 Totali nteresti ncome4 ,912 5,024 5,145 (112) (121) (2) (2) Interest expense Interest on deposits5 54 608 541 (54) 67 (9) 12 Interest on borrowings3 00 352 338 (52) 14 (15) 4 Totali ntereste xpense 854 960 879 (106) 81 (11) 9 Neti nteresti ncome 4,058 4,064 4,266 (6) (202) — (5) Non-interest income Interchange revenue,n et of retailer share arrangements( 416) (381) (335) (35) (46) 91 4 Gain on portfolio sale 31 12 30 (8)( 219) (71) (95) Other2 00 144 128 56 16 38 12 Totaln on-interest income (213) (226) 23 13 (249) (6) nm Totaln et interesta nd non-interesti ncome 3,845 3,838 4,289 7 (451) — (11) Provision forc redit losses 1,242 1,397 1,229 (155) 168 (11) 14 Totaln et interesta nd non-interesti ncome, afterp rovision forc reditl osses $2 ,603 $2 ,441 $3 ,060 $1 62 $( 619) 7( 20) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) , , , ( ) ( ) ______________________________ (nm) Notm eaningful,d enotinga variance of 1,000 percento rm ore. TotalN et Interest andN on-interestI ncome, AfterP rovision forC reditL osses Interest income: Totali nteresti ncomed ecreased fort he year endedD ecember3 1, 2025, due to thef ollowing: • Interest and fees on loans decreasedd ue primarily to lowerb illedl atef ees andl ower Averagec reditc arda nd otherl oans balances,p artially offset by lowerr eversals of financec harges andl atef ees,r esultingf roml ower grossc reditl osses, andt he ongoing implementationo fp ricing actions;c ollectivelyd ecreasingt he yieldo nf inance chargesa nd late fees by approximately 10 basisp oints. Ourl ower delinquencyv olumes andt he graduals hift in productm ix to al ower proportion of privatel abel accounts, whicht endt oh aveh igherb illedl atef ees,h ave resultedi nl ower overall billed late fees. • Interest on cash and investments ecurities decreasedd ue to lowera verage interest ratesw hich decreased interest income by $37 million, partiallyo ffset by highera verage balances,w hich increased interest income by $6 million. Interest expense:T otal interest expensed ecreasedf or they eare ndedD ecember3 1, 2025, due to thef ollowing: •I nteresto nd eposits decreasedp rimarily due to lowera verage interest ratesw hich decreasedi ntereste xpenseb y $65 million, partially offset by highera verage DTCd eposit balances whichi ncreased funding costsb y $11 million. • Interest on borrowings decreasedd ue to lowera verage borrowings whichd ecreased funding costsb y$ 30 million, andl ower averagei nterestr ates whichd ecreased funding costsb y$ 22 million. 60
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Non-interest income: Totaln on-interest income increased fort he year endedD ecember3 1, 2025, due to thef ollowing: •I nterchange revenue,n et of retailers harea rrangements, typically ac ontra-revenue item foru s, increased due to an increase in costsa ssociated with brandp artner retailers hare arrangements, along with ad ecreasei nm erchant discount fees froml ower “big ticket” credit sales. • Other increasedd ue to our implementedp ricing actions,p rimarily papers tatement fees,w hich we begana ssessing in thes econd quarter of 2024. Provisionf or credit losses decreasedf or they ear endedD ecember3 1, 2025, driven by a$ 135 millionr eserve releasea nd netp rincipal losseso f$ 1.4 billion, compared with a$ 92 million reserver eleasea nd netp rincipal losseso f$ 1.5 billion in thep rior year.O ur reserver atew as 11.2% as of December 31, 2025, reflectingo ur improving credit metricsa nd higher- qualityn ew account acquisitions.W ec ontinue to maintain appropriately prudent weightings on thee conomic scenariosi n our credit reservem odelingt oe nsuret he adequacy of our Allowancef or credit lossesg iven thew ider ange of potential macroeconomic outcomes, including ongoing uncertainty around inflationa nd unemployment. Table3 :S ummary of TotalN on-interestE xpenses YearsE ndedD ecember3 1, $C hange% Change 2025 2024 2023 2025 to 2024 2024 to 2023 2025 to 2024 2024 to 2023 (Millions,e xceptp ercentages) Non-interest expenses Employeec ompensationa nd benefits $8 80 $8 97 $8 67 $( 17) $3 0( 2) 3 Card andp rocessing expenses 322 326 428 (4)( 102) (1)( 24) Informationp rocessing andc ommunication 308 300 301 8( 1) 3— Marketinge xpenses1 50 147 161 3( 14) 2( 9) Depreciationa nd amortization 80 90 116 (10) (26) (11) (22) Other2 48 300 219 (52) 81 (17) 36 Totaln on-intereste xpenses $1 ,988 $2 ,060 $2 ,092 $( 72) $( 32) (3)( 2) Adjusted totaln on-interest expenses (1) $1 ,914 $1 ,943 $2 ,091 $( 29) $( 148) (1)( 7) __________________________________ (1) AdjustsT otal non-interest expenses fort he impactsf romo ur debt repurchases,r epresenting$ 74 milliona nd $117 milliona nd $1 millionf or they earse ndedD ecember 31, 2025,2 024 and2 023, respectively, andt herefore representN on-GAAP financial measures.S ee “Non-GAAP FinancialM easures”a nd Table6 :R econciliation of GAAP to Non-GAAP FinancialM easures. TotalN on-interestE xpenses Non-interest expenses: Totaln on-interest expenses decreasedf or they eare ndedD ecember3 1, 2025. Adjusted totaln on- interest expenses,w hich represents aN on-GAAP financialm easure andh as been adjusted fort he impactsf romo ur debt repurchases,a lsod ecreased overt he periods of comparison. • Employee compensation and benefits decreasedd ue primarily to strategica djustmentsi nc ustomerc ares taffing in thep rior year,p artially offset by higheri ncentive compensation in thec urrent year. • Depreciationa nd amortization decreasedd ue to lowera mortizationr elated to bothc apitalizeds oftwarea nd premiums on historical credit card loan portfolio acquisitions. • Other decreasedd ue primarilyt oh ighery ear-over-yearn et impact from our debt repurchases. Income Taxes TheP rovision fori ncomet axes decreased fort he year endedD ecember3 1, 2025. Thee ffectivet ax rate was1 5.2% and 26.7% fort he yearse ndedD ecember 31, 2025 and2 024, respectively. Both thed ecreases in theP rovision for income taxesa nd in thee ffectivet ax rateso vert he periods of comparison were primarily driven by ad iscretet ax benefiti n thec urrent year andl argern on-deductible items in thep rior year,p artially offset by a$ 234 millioni ncreasei nI ncome fromc ontinuing operations before income taxesi n2 025. 61
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On July 4, 2025, PresidentT rump signedi ntol aw “The OneB ig Beautiful Bill Act” (the Bill).T he Bill reinstates several provisions of the2 017 TaxC utsa nd Jobs Actf or businesses. TheB ill didn ot have as ignificanti mpact on our financial position, results of operations or cashf lows,n or do we expect it to have as ignificanti mpact in future periods.W ea lsod o not anticipatea ny significantc hangest oo perationalp rocesses, controls or governance as ar esulto ft he Bill, either currently or in future periods. DiscontinuedO perations TheL ossf romd iscontinuedo perations,n et of income taxesi ncludesa mountst hatr elatet ot he previously disclosed discontinuedo perations associated with thes pinoffo fo ur former LoyaltyOnes egment in 2021 andt he sale of our former Epsilons egment in 2019, andp rimarily relatest oc ontractuali ndemnificationa nd tax-relatedm atters.F or additional informationr efer to Note 22, “DiscontinuedO perations andB ankH olding CompanyF inancial Presentation” to thea udited Consolidated FinancialS tatementsi ncludedi no ur AnnualR eporto nF orm1 0-Kf or they ear endedD ecember3 1, 2021. Table4 :S ummary FinancialH ighlights– Continuing Operations As of or fort he YearsE nded December3 1, %C hange 2025 2024 2023 2025 to 2024 2024 to 2023 (Millions,e xceptp er sharea mounts andp ercentages) Credit sales$ 27,777 $2 6,962 $2 8,900 3( 7) PPNR* (1) 1,857 1,778 2,197 4( 19) PPNRe xcluding gain on portfolio sale and impactsf romd ebtr epurchases *(1) 1,928 1,884 1,968 2( 4) Averagec reditc arda nd otherl oans 17,850 18,084 18,216 (1)( 1) End-of-periodc reditc arda nd otherl oans 18,805 18,896 19,333 —( 2) End-of-periodd irect-to-consumer (retail) deposits 8,523 7,687 6,454 11 19 Return on averagea ssets (2) 2.4 %1 .3 %3 .3 %1 .1 (2.0) Return on averagee quity (3) 15.8 %8 .7 %2 7.1 %7 .1 (18.4) Return on averaget angiblec ommone quity *(4) 20.4 %1 1.4 %3 8.0 %9 .0 (26.6) Neti nterestm argin (5) 18.4 %1 8.3 %1 9.5 %0 .1 (1.2) Loan yield (6) 26.6 %2 6.7 %2 7.2 %( 0.1) (0.5) Efficiency ratio (7) 51.7 %5 3.7 %4 8.8 %( 2.0) 4.9 Adjusted efficiency ratio (7) 49.8 %5 0.8 %5 1.5 %( 1.0) (0.7) Commone quity tier 1c apitalr atio (8) 13.0 %1 2.4 %1 2.2 %0 .6 0.2 Tangibleb ook valuep er commons hare *(9) $5 7.57 $4 6.97 $4 3.70 23 7 Cash dividend perc ommons hare $0 .86 $0 .84 $0 .84 2— Paymentr ate (10) 14.9 %1 4.5 %1 4.9 %0 .4 (0.4) Delinquencyr ate (11) 5.8 %5 .9 %6 .5 %( 0.1) (0.6) Netp rincipal loss rate (12) 7.7 %8 .2 %7 .5 %( 0.5) 0.7 Reserver ate (13) 11.2 %1 1.9 %1 2.0 %( 0.7) (0.1) ______________________________ Note:B eginning in 2024, we revisedt he calculationo fa verage balances to more closelya lignw ith industryp racticeb y incorporatinga na verage daily balance. Priort o2 024, averageb alances representt he averageb alance at theb eginning ande nd of each month, averaged overt he periods indicated. *R epresentsa Non-GAAP financialm easure. See“ Non-GAAP FinancialM easures”a nd Table6 :R econciliation of GAAP to Non- GAAP FinancialM easures. (1) PPNRr epresentsI ncomef romc ontinuing operations before income taxesa nd theP rovision forc reditl osses. PPNRe xcluding gain on portfolio sale andi mpactsf romd ebtr epurchases excludes fromP PNRa ny gain on portfolio sale in thep eriod, as well as the impactsf romo ur debt repurchases in thep eriod. (2) Return on averagea ssets represents annualized Income fromc ontinuing operations dividedb ya verage Totala ssets. 62
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(3) Return on averagee quity represents annualized Income fromc ontinuing operations dividedb ya verage Totals tockholders’e quity. (4) Return on averaget angiblec ommone quity (ROTCE)r epresentsa nnualized Income fromc ontinuing operations,l essD ividends to preferreds tockholders,d ivided by averageT angiblec ommone quity.T angiblec ommone quity (TCE)r epresentsT otal stockholders’ equity reduced by Preferreds tock andG oodwill andi ntangiblea ssets,n et. (5) Neti nterestm arginr epresentsa nnualized Neti nteresti ncomed ivided by averageT otal interest-earning assets.S ee also Table5 : NetI nterestM argin. (6) Loan yieldr epresentsa nnualized Interest andf ees on loansd ivided by Averagec reditc arda nd otherl oans. (7) Efficiency ratio represents Totaln on-interest expenses dividedb yT otal neti nteresta nd non-interest income.A djustede fficiency ratio excludesa ny gain on portfolio sale andi mpactsf romd ebtr epurchases. (8) Commone quity tier1 capitalr atio represents tier1 capitalr educed by Preferreds tock dividedb yt otal risk-weighted assets.I nt he calculationo ft ier1 capital, we followt he BaselI II Standardized Approach andt herefore Totals tockholders’ equity hasb een reduced by Goodwill andi ntangiblea ssets,n et.F or additionali nformation, see“ Legislative, RegulatoryM atters andC apital Adequacy”i ncludede lsewhere in this report. (9) Tangibleb ook valuep er commons hare represents TCEd ivided by commons hareso utstanding. (10) Paymentr ater epresentsc onsumer payments duringt he period, dividedb yt he aggregateo ft he opening monthlyC reditc arda nd otherl oans balances duringt he period, including held fors alei na pplicable periods. (11) Delinquencyr ater epresentso utstanding balances that arec ontractually delinquent (i.e., principalb alances greater than 30 days past due)a so ft he endo ft he period, dividedb yt he outstanding principala mount of Credit carda nd otherl oans as of thes amep eriod- end. (12) Netp rincipal loss rate,a na nnualized rate,r epresentsn et principall ossesf or thep eriodd ivided by Averagec reditc arda nd other loansf or thes amep eriod, usinga na verage daily balancec alculationm ethodology. Netp rincipal loss rate fort he year ended December3 1, 2023 wasi mpacted by thet ransitiono fo ur credit cardp rocessing services in June 2022. (13) Reserver ater epresentst he Allowancef or credit lossesd ivided by End-of-periodc reditc arda nd otherl oans. 63
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Table5 :N et Interest Margin Year EndedD ecember3 1, 2025 Average Balance InterestI ncome/ Expense Average Yield/ Rate (Millions,e xceptp ercentages) Cash andi nvestment securities $4 ,232 $1 73 4.08 % Credit carda nd otherl oans 17,850 4,739 26.55 % Totali nterest-earning assets 22,082 4,912 22.24 % Direct-to-consumer (retail) deposits 8,087 349 4.31 % Wholesaled eposits5 ,252 205 3.91 % Interest-bearing deposits 13,339 554 4.15 % Securedb orrowings3 ,306 192 5.79 % Unsecuredb orrowings1 ,115 108 9.72 % Interest-bearing borrowings 4,421 300 6.78 % Totali nterest-bearing liabilities 17,760 854 4.81 % Neti nteresti ncome $4 ,058 Neti nterestm argin (1) 18.4 % , , , , Year EndedD ecember3 1, 2024 Average Balance InterestI ncome/ Expense Average Yield/ Rate (Millions,e xceptp ercentages) Cash andi nvestment securities $4 ,116 $2 04 4.96 % Credit carda nd otherl oans 18,084 4,820 26.65 % Totali nterest-earning assets 22,200 5,024 22.63 % Direct-to-consumer (retail)d eposits 7,174 349 4.86 % Wholesaled eposits5 ,919 259 4.38 % Interest-bearingd eposits 13,093 608 4.64 % Securedb orrowings 3,576 236 6.58 % Unsecuredb orrowings 1,247 116 9.33 % Interest-bearingb orrowings 4,823 352 7.29 % Totali nterest-bearing liabilities 17,916 960 5.36 % Neti nteresti ncome $4 ,064 Neti nterestm argin (1) 18.3 % ______________________________ (1) Neti nterestm arginr epresentsa nnualized Neti nteresti ncomed ivided by averageT otal interest-earning assets. 64
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Table6 :R econciliationo fG AAP to Non-GAAP FinancialM easures (Millions,e xceptp er sharea mounts andp ercentages) Adjusted neti ncomea vailablet oc ommons tockholders Neti ncomea vailable to commons tockholders $5 18 $2 77 $7 18 87 (61) Impactsf romd ebtr epurchases 57 111 1( 49) nm Adjusted neti ncomea vailable to common stockholders $5 75 $3 88 $7 19 48 (46) Adjusted neti ncomea vailablet oc ommons tockholders per diluteds hare Neti ncomea vailable to commons tockholders perd iluted share $1 0.89 $5 .49 $1 4.34 98 (62) Impactsf romd ebtr epurchases $1 .20 $2 .20 $0 .02 (46) nm Adjusted neti ncomea vailable to common stockholders per diluteds hare $1 2.09 $7 .69 $1 4.36 57 (46) Adjusted income fromc ontinuing operationsp er diluted share Income fromc ontinuing operations perd iluted share$ 10.96 $5 .54 $1 4.74 98 (62) Impactsf romd ebtr epurchases $1 .20 $2 .20 $0 .02 (46) nm Adjusted income fromc ontinuing operations perd iluted share $1 2.16 $7 .74 $1 4.76 57 (48) Adjusted totaln on-intereste xpenses Totaln on-interest expenses $1 ,988 $2 ,060 $2 ,092 (3)( 2) Impactsf romd ebtr epurchases 74 117 1( 36) nm Adjusted totaln on-interest expenses 1,914 1,943 2,091 (1)( 7) Pretax pre-provision earnings (PPNR) Income fromc ontinuing operations before income taxes6 15 381 968 61 (61) Provision forc reditl osses1 ,242 1,397 1,229 (11) 14 Pretax pre-provision earnings (PPNR) 1,857 1,778 2,197 4( 19) Less: Gain on portfolio sale (3)( 11) (230) (71) (95) Add: Impactsf romd ebtr epurchases 74 117 1( 36) nm PPNRe xcluding gain on portfolio sale andi mpacts from debt repurchases 1,928 1,884 1,968 2( 4) Average tangible commone quity Averaget otal stockholders’e quity 3,293 3,214 2,722 21 8 Less: Averagep referreds tock (7)— —n m— Less: Averageg oodwill andi ntangiblea ssets,n et (733) (753) (780) (3)( 4) Averaget angiblec ommone quity 2,553 2,461 1,942 42 7 Tangible commone quity (TCE) Totals tockholders’ equity 3,327 3,051 2,918 95 Less: Preferreds tock (71) — — nm — Less: Goodwill andi ntangiblea ssets,n et (716) (746) (762) (4)( 2) Tangiblec ommone quity (TCE)$ 2,540 $2 ,305 $2 ,156 10 7 YearsE ndedD ecember3 1, %C hange 2025 2024 2023 2025 to 2024 2024 to 2023 ______________________________ (nm) Notm eaningful,d enotinga variance of 1,000 percento rm ore. 65
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ASSETQ UALITY Givent he nature of our business, thec reditq ualityo fo ur assets,i np articular our Credit carda nd otherl oans,i sa key determinantu nderlyingo ur ongoingf inancial performance ando verall financialc ondition. When it comest oo ur Credit carda nd otherl oans portfolio,w ec losely monitorD elinquencyr ates andN et principall ossr ates,w hich reflect,a mong otherf actors, our underwriting, thei nherent credit risk in our portfolio andt he successo fo ur collectiona nd recovery efforts. Theser ates also reflect, more broadly, theg eneral macroeconomic conditions,i ncluding thec ompounding effect of persistent inflationr elativet ow ageg rowth, andh igheri nterestr ates.O ur Delinquencya nd Netp rincipal loss ratesa re also impacted by thes izeo fo ur Credit carda nd otherl oans portfolio,w hich serves as thed enominator in thec alculation of theser ates.A ccordingly, changesi nt he size of our portfolio (whether due to credit tightening, acquisitions or dispositions of portfolios, or otherwise) mayc ause movementsi no ur Delinquencya nd Netp rincipal loss ratest hata re not necessarily indicativeo ft he underlying credit quality of theo verall portfolio. Delinquencies: An account is contractuallyd elinquent if we do not receive them inimump ayment due by thes pecified due date.O ur policyi st oc ontinue to accrue interest andf ee income on alla ccounts, excepti nl imitedc ircumstances,u ntil the balancea nd allr elated interest andf ees arep aido rc harged-off. Aftera na ccount becomes3 0d aysp astd ue,a proprietary collections coring algorithm automatically scores ther isko ft he account becomingf urther delinquent;b ased upon thel evel of risk indicated,a collection strategy is deployed, whichm ay include tech-enabled,t argetedc ollections strategies to engage with cardholders in them oste fficientc ommunicationc hannel. If aftere xhaustinga ll in-housec ollectione ffortsw e areu nablet oc ollect on thea ccount,w em ay engage collection agencies or outside attorneyst oc ontinue thosee fforts, or sell thec harged-offb alances. TheD elinquencyr atei sc alculatedb yd ividingo utstanding principalb alances that arec ontractually delinquent (i.e., principalb alances greater than 30 days past due)a so ft he endo ft he period, by theo utstanding principala mount of Credit carda nd otherl oans as of thes amep eriod-end. Thef ollowing tablep rovidest he delinquencyt rends on our Credit carda nd otherl oans portfolio basedo nt he principal balances outstanding as of December3 1: Table7 :D elinquency Trends on Credit Card andO ther Loans 2025 %o f Total2 024 %o f Total (Millions,e xceptp ercentages) Credit carda nd otherl oans outstanding ─ principal$ 16,886 100.0% $1 7,418 100.0% Outstanding balances contractually delinquent: 31 to 60 days 283 1.7% 299 1.7% 61 to 90 days 215 1.3% 223 1.3% 91 or more days 473 2.8% 512 2.9% Total$ 971 5.8% $1 ,034 5.9% As part of our collections strategy, we mayo ffert emporarya nd shortt ermp rogramsi no rder to improve thel ikelihood of collections andm eet then eeds of our customers. Fore xample,a sa result of hurricanes Helene andM iltoni nS eptember andO ctobero f2 024, respectively, we froze delinquencyp rogression forc ardholders in FEMA identifiedi mpact zonesf or one billingc ycle.O ur modifications,f or customersw ho have requested assistance andm eet certain qualifying requirements, come in thef ormo fr educed paymentr equirements, interest rate reductions andl atef ee waivers. We do not offerp rogramsi nvolving thef orgiveness of principal. Theset emporaryl oanm odifications maya ssist in cases wherew e believe thec ustomerw illr ecoverf romt he short-term hardship andr esumes cheduled payments.U ndert hese consumer reliefp rograms, thosea ccountsr eceiving reliefm ay not advancet ot he next delinquencyc ycle,i ncluding charge-off,i nt he same time frame that wouldh aveo ccurredh ad ther eliefn ot been granted. We evaluate our consumer reliefp rogramst o determinei ft heyr epresent am oret hani nsignificantd elay in paymentg ranted to borrowers experiencing financial difficulty,i nw hich case they wouldt henb ec onsidered aL oanM odification. Fora dditionali nformation, seeN ote2 “CreditC arda nd OtherL oans –M odified Credit Card Loans” to our auditedC onsolidated FinancialS tatements. NetP rincipal Losses: Ourn et principall ossesi nclude thep rincipal amount of Credit carda nd otherl oans that ared eemed uncollectible,l essr ecoveries,a nd exclude charged-offi nterest, fees andt hird-party fraud losses( including syntheticf raud). 66
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Charged-offi nteresta nd fees reduceI nteresta nd fees on loans, while third-partyf raud lossesa re recorded in Card and processing expenses.O ur credit cardl oans,i ncluding unpaid interest andf ees,a re generally charged-offi nt he month duringw hich an account becomes1 80 days past due.O ur pay-over-time products,w hich include installment loansa nd “split-pay” offerings,i ncluding unpaid interest,a re generallyc harged-off when al oanb ecomes1 20 days past due. However, in thec aseo fa customer bankruptcy or death, Credit card ando ther loans, including unpaid interest andf ees,a s applicable,a re charged-off6 0d aysa fter receipt of then otificationo ft he bankruptcy or death, but in anyc asen ol ater than 180 days past due forc reditc ardl oans and1 20 days past due fori nstallment loansa nd “split-pay” offerings. TheN et principall ossr atei sc alculatedb yd ividingn et principall ossesf or thep eriodb yt he Averagec reditc arda nd other loansf or thes amep eriod. Beginning in January 2024, we revisedt he calculationo fA verage credit carda nd otherl oans to more closelya lignw ith industryp racticeb yi ncorporatinga na verage daily balance. Priort o2 024, Averagec reditc arda nd otherl oans representt he averageb alance of thel oans at theb eginning ande nd of each month, averaged overt he periods indicated.T he followingt able provideso ur netp rincipal lossesf or thep eriods presented: Table8 :N et PrincipalL osseso nC redit Card andO ther Loans 2025 2024 2023 (Millions,e xceptp ercentages) Averagec reditc arda nd otherl oans $1 7,850 $1 8,084 $1 8,216 Netp rincipal losses (1)(2) 1,377 1,489 1,365 Netp rincipal lossesa sa percentage of averagec reditc arda nd otherl oans (1)(2) 7.7 %8 .2 %7 .5 % ______________________________ (1) As ar esulto fh urricanes Helene andM iltonw ef roze delinquencyp rogression forc ardholders in FEMA identifiedi mpact zonesf or one billingc ycle,w hich resultedi nm odestly lowerN et principall ossesa nd Netp rincipal lossesa sa percentage of averagec redit carda nd otherl oans in thef ourth quartero f2 024, andc onsequently thesea ctions negativelyi mpacted Netp rincipal lossesa nd Net principall ossesa sa percentage of averagec reditc arda nd otherl oans in thes econd quarter of 2025. (2) Netp rincipal lossesa nd Netp rincipal lossesa sa percentage of averagec reditc arda nd otherl oans forD ecember3 1, 2023 were impacted by thet ransitiono fo ur credit cardp rocessing services in June 2022. CONSOLIDATED LIQUIDITYA ND CAPITAL RESOURCES Overview We maintain as trong focuso nl iquidity andc apital.O ur funding, liquidity andc apitalp oliciesa re designedt oe nsuret hat our businessh as sufficientl iquidity andc apitalr esourcesn ecessary to supporto ur daily operations,o ur businessg rowth, ando ur credit ratings relatedt oo ur Parent Company’ss enioru nsecuredn otes,s ubordinatedn otes,p referreds tock ando ur public securedf inancings,a nd meet our regulatorya nd policyr equirements, including capitala nd leverage ratio requirementsa pplicable to Comenity Bank (CB) andC omenity CapitalB ank( CCB) underF DICr egulations,i na cost effectivea nd prudent mannert hrough bothe xpected andu nexpected market environments. Ourp rimary sourceso fl iquidity include cashg enerated from operatinga ctivities, our bank credit facility,i ssuanceso f senior unsecured, subordinatedo rc onvertible debt securitiesa nd preferreds tock by our Parent Company, financings through our securitization programs, andd eposits with theB anks.M oreb roadly,w ec ontinuously evaluate opportunities to renewa nd expand our various sources of liquidity.W ea im to satisfy our financingn eedsw ith ad iverse seto ff unding sources,a nd we seek to maintain diversity of funding sourcesb yt ype of instrument,b yt enor andb yi nvestor base,a mong otherf actors, whichw eb elieve will mitigatet he impact of disruptions in anyo ne type of instrument,t enor or investor. Ourp rimary uses of liquidity aref or underwritingC reditc arda nd otherl oans,s cheduled payments of principala nd interest on our debt,o perationale xpenses,c apitale xpenditures, including digitala nd producti nnovationa nd technology enhancements,r epurchases of equity andd ebts ecurities,a nd payments of dividends. We have in thep ast, andm ay fromt ime to time in thef uture, retireo rr epurchaseo ur outstanding debt,i ncluding our senior unsecuredn otes or subordinatedn otes,t hrough redemptions,c ashp urchases or exchangesf or others ecurities, in open market purchases,t endero ffers,p rivately negotiatedt ransactions or otherwise. Such repurchases or exchangesw ould depend on prevailingm arketc onditions,o ur liquidity requirements, contractualr estrictions ando ther factors, andm ay be fundedt hrough cash on hand, borrowings undero ur revolving credit facility,t he issuance of newd ebts ecuritieso ro ther sources of liquidity.T he amountsi nvolvedm ay be material. 67
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We will also need additionalf inancing in thef uturet or epay or refinanceo ur existingd ebta to rp rior to maturity,a nd to fund our growth,w hich mayi nclude thei ssuance of additionald ebto re quity securitieso re ngaging in otherc apital marketso rf inancingt ransactions.I n2 025, as part of our financings trategya nd capitals tructure optimization, we issued our inaugural series of subordinatedn otes andp ublicly-tradedp referreds tock,a nd in thef uturew em ay continue to seek to furthero ptimizeo ur capitals tructure.G iven them aturitieso fc ertain of our outstanding debt instrumentsa nd depending on thep revailingm acroeconomic conditions,i ti sp ossiblet hatw em ay be requiredt or epay,e xtendo rr efinance some or allo f our future debt maturitiesi nv olatile and/or unfavorable markets. Becauseo ft he alternatives availablet ou s, as discusseda bove,w eb elieve our short-term andl ong-term sources of liquidity area dequatet of und not onlyo ur current operations,b ut also our near-terma nd long-term funding requirementsi ncluding dividend payments,d ebts ervice obligations andr epayment of debt maturitiesa nd othera mountst hatm ay ultimately be paid in connectionw ithc ontingencies. However, thea dequacy of our liquidity couldb ei mpacted by various factors, including pending or future legislation, regulationo rl itigation, macroeconomic conditions andv olatility in thef inancial andc apitalm arkets,l imitingo ur accesst oo ri ncreasingo ur cost of capital, whichc ouldm akec apitalu navailable, or availableb ut on termst hata re unfavorable to us.T hese factorsc oulds ignificantly reduceo ur financialf lexibilitya nd cause us to contract or not grow our business, whichc ouldh aveam ateriala dversee ffect on our results of operations and financialc ondition. We have ar obustl iquidity risk management framework in place whichi ncludeso ngoing monitoring of our liquidity and funding positions againsto ur risk appetite metricsa nd keyr iski ndicators. During timesw here therem ay be potentialr isks froma dversed evelopments in theb anking industrya nd/or increasedf inancial sector volatility,w em ay invoke our contingencyf unding planst oe nhanced aily monitoring of our liquidity andf unding positions,d eterminep otential mitigatinga ctions,i fn ecessary,a nd provide enhanced reportingt oo ur Boards of Directors, at botht he Bread Financiala nd Bank-levels,a nd regulators. We maintain as ignificant majority of our liquidity portfolio on deposit within theF ederal Reserveb anking system,a nd we also have as mall investment securitiesp ortfolio,c lassified as available-for-sale, whichw eh oldi nr elationt ot he Community Reinvestment Act. We do not have anyi nvestment securitiesc lassified as held-to-maturity. Credit Ratings We obtainc reditr atings foro ur Parent Companyf romt he majorc reditr atinga gencies, Moody’sI nvestor Services (Moody’s),S tandard& Poor’s (S&P)a nd FitchR atings (Fitch), in ordert of acilitate debt financings andb roaden the investor base foro ur Parent Companyd ebts ecurities. Ourm anagementa pproach is designed, among othert hings,t om aintaina ppropriate ands tablec reditr atings fromt he credit ratinga genciesw hich help supporto ur access to cost-effectiveu nsecuredf unding as ac omponent of our overall liquidity andc apital resources. In October2 025 allt hree credit ratinga genciesi ssued theiru pdatedc reditr atings andr elated outlooks.T he tableb elow providesa summary of thec reditr atings fort he outstanding senior unsecuredd ebt, subordinatedd ebta nd preferreds tock of Bread FinancialH oldings,I nc.a so fD ecember3 1, 2025: BreadF inancial Holdings,I nc. Moody’sS &P Fitch Senior unsecuredd ebtB a2 BB- BB Subordinatedd ebtB a2 BB + Preferreds tock B1 —B - Outlook Positive Positive Stable We also seek to maintain appropriatea nd stable credit ratings foro ur credit cards ecuritizations issued through World FinancialN etwork Credit Card Master Note Trust( WFNMNT)f romt he ratinga gencies( DBRS,S &P andF itch).T he table 68
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belowp rovidesa summaryo ft he structured financec reditr atings forc ertain of thea sset-backed securities, specifically the outstanding ClassA notes of WFNMNT as of December 31, 2025: WFNMNT DBRS (1) S&PF itch ClassA notes AAA AAA AAA ______________________________ (1) Does not include our Series 2024-Bp ublic asset-backed-notes. Credit ratings aren ot ar ecommendationt ob uy or holda ny securitiesa nd they mayb er evised or revokeda ta ny timea tt he sole discretiono ft he rating agency.D owngrades in ther atings of our unsecured or securedd ebtc ouldr esulti nh igher funding costs, as well as reductions in our borrowing capacity in theu nsecuredo rs ecuredd ebtm arkets.W eb elieve our mix of funding, including thep roportiono fo ur DTCa nd wholesaled eposits,t ot otal funding, reduces thei mpactt hata credit ratingd owngradec ouldh aveo no ur funding costsa nd capacity. FundingS ources As referenced above,o ur primarys ourceso fl iquidity include cashg enerated fromo peratinga ctivities, our bank credit facility, issuances of senior unsecured, subordinatedo rc onvertible debt securitiesa nd preferreds tock by our Parent Company, financings through ours ecuritizationp rograms, andd eposits with theB anks. Throughout 2025 we engagedi na numbero ff inancing-relatedt ransactions,i ncluding thei ssuances of senior and subordinatedn otes,t he completiono ft endero fferst or epurchasec ertain outstanding senior ands ubordinatedn otes,t he redemptiono fc ertain senior notes andt he completion of ther epurchases of 100% of our outstanding convertible senior notes,a sw ella st he issuance of preferreds tock.E acho ft hese transactions,a sw ella so ther matters relatingt oo ur liquidity andc apitalr esourcesd uringt he year,a re describedi nm ored etailb elow. Certaino fo ur long-term debt agreements include various restrictivef inancial andn on-financialc ovenants. If we do not comply with certain of thesec ovenantsa nd an evento fd efault occurs andr emains uncured,t he maturity of amounts outstanding mayb ea ccelerated andb ecome payable, and, with respect to our credit agreement, thea ssociated commitmentsm ay be terminated.A so fD ecember3 1, 2025, we were in compliancew ith alls uchc ovenants. Credit Agreement In October2 024, we enteredi ntoo ur amendedc redita greement with theP arentC ompany, as borrower, certain of our domestic subsidiaries,a sg uarantors, JPMorganC hase Bank, N.A.,a sa dministrativea gent andl ender, andv arious other financiali nstitutions,a sl enders,w hich providesf or a$ 700 million senior unsecuredr evolving credit facility (the Revolving Credit Facility),w hich maturesi nO ctober2 028. As of December3 1, 2025, our Revolving Credit Facilityw as undrawna nd all$ 700 million remained availablef or future borrowings. 7.000% Senior NotesD ue 2026 -R edemption In January 2025, with cash on hand, we redeemed ther emaining $100 millioni na ggregatep rincipal amount of our 7.000% Senior Notesd ue 2026. 4.25% Convertible Senior NotesD ue 2028 -R epurchases In June 2023, we issued ands old$ 316 milliona ggregatep rincipal amount of 4.25% Convertible Senior Notesd ue 2028 (the Convertible Notes).B eforew er epurchased 100% of our outstanding Convertible Notes, theC onvertible Notesb ore interest at an annualr ateo f4 .25%, payables emi-annuallyi na rrearso nJ une 15 andD ecember1 5o fe ach year.T he Convertible Notesw eres cheduled to mature on June 15, 2028, unlesse arlierr epurchased,r edeemed or converted. During 2025, through discrete,p rivately-negotiatedr epurchaset ransactions,w er epurchased ther emaining $10 millioni n aggregatep rincipal amount of outstanding Convertible Notes. Thea ggregatep urchasep rice, or settlement value, fort he repurchases during2 025 was$ 16 million, whichw as fundedw ith casho nh and. In connectionw ith ther epurchases,w e recognized a$ 3m illioni nducemente xpensei nO ther non-interest expenses representingt he totals ettlement value, inclusiveo ft ransaction fees,i ne xcesso ft he totalc onversionv alue (calculatedi na ccordance with thei ndentureg overning theC onvertible Notes),a sw ella sa $4 millionr eduction in Additionalp aid-in capital( APIC)r elated to thet otal conversion 69
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valuep aidi ne xcesso ft he carryingv alue of theC onvertible Notesr epurchased anda deferredt ax impact.A so fD ecember 31, 2025, allo ft he Convertible Notesh ad been extinguished andn oC onvertible Notesr emainedo utstanding. Priort ot he repurchaseso ft he Convertible Notes, thee mbeddedc onversionf eaturew ithin theC onvertible Notesw as both considered indexedt ot he Company’so wn equity andm et thee quity classificationc onditions;t herefore,i td id not require derivativea ccounting. Upon entering into ther epurchasea greementst hatt hemselvesr equiredc ashs ettlement of our conversiono bligationi ne xcesso ft he aggregatep rincipal amount of theC onvertible Notes, thee mbeddedc onversion featuren ol ongerm et thee quity classificationc onditions;t herefore,r equiring bifurcationa nd derivativea ccounting. In connectionw itht he issuance of theC onvertible Notes, we enteredi ntop rivately negotiatedc appedc all( CappedC all) transactions with certainf inancial institutionc ounterparties. At that time,t hese transactions were expected generallyt o reducep otentiald ilutiont oo ur commons tock upon anyc onversiono fC onvertible Notesa nd/or offset anyc ashp ayments we were requiredt om akei ne xcesso ft he principala mount of theC onvertible Notes, with such reductiona nd/or offset subject to ac ap,b ased on thec ap price. Allo ft he CappedC allt ransactions continue to remain outstanding, notwithstanding that no Convertible Notesr emain outstanding. Although we do not tradeo rs peculate in derivatives, we mays eek to opportunistically terminatet he Capped Call transactions (inf ullo ri np artf romt ime to time)o rl eavet he CappedC allt ransactions outstanding, possiblyu ntil maturity,i na ny such casew itht he objectiveo fo ptimizingt he stockholderv alue we receive undert hese transactions.T he valuet hatw eu ltimately realizef romt he CappedC allt ransactions (either in thef ormo fc asho rs hareso fo ur common stock, at our election) is subject to an umbero fv ariables,m osts ignificantly our stockp rice at thet ime theC appedC all transactions aret erminated, andi ss ubject to otherp otentiala djustmentsb ased on thea mount of our quarterly dividend, the volumeo fo ur sharer epurchases ando ther factors. Fora dditionali nformation on theJ une 2023 issuance of our Convertible Notesa nd thes ubsequent repurchases in 2024, as well as informationo no ur Capped Call transactions,r efer to Note 10, “Borrowings of Long-Term andO ther Debt”t ot he auditedC onsolidated FinancialS tatementsi ncludedi no ur AnnualR eporto nF orm1 0-Kf or they ear endedD ecember 31, 2024. 9.750% Senior NotesD ue 2029 -T enderO ffers, Repurchasea nd Redemption In June 2025, we completeda cash tendero ffer( theT enderO ffer) pursuantt ow hich we repurchased $150 million aggregatep rincipal amount of our 9.750% Senior Notesd ue 2029 (SeniorN otes due 2029).T he considerationp aidi nt he TenderO fferf or each $1,000 principala mount of theS eniorN otes due 2029 was$ 1,071, plus accrueda nd unpaid interest. In connectionw itht he repurchase, we recognized a$ 13 millionl osso ne xtinguishment in Othern on-interest expenses representingt he totals ettlementv alue,i nclusive of transactionf ees,i ne xcesso ft he carryingv alue of theS eniorN otes due 2029. In August2 025, we completeda notherc asht endero ffer (the ThirdQ uarter TenderO ffer) pursuantt ow hich we repurchased $31 millioni na ggregatep rincipal amount of our Senior Notesd ue 2029, as well as $0.1 milliona ggregate principala mount of 8.375% SubordinatedN otes due 2035. Thec onsiderationp aidi nt he ThirdQ uarter TenderO ffer for each $1,000 principala mount of theS eniorN otes due 2029 was$ 1,070, plus accrueda nd unpaid interest.I nc onnection with ther epurchase, we recognized a$ 3m illionl osso ne xtinguishment in Othern on-interest expenses representing the totals ettlement value, inclusiveo ft ransactionf ees, in excesso ft he carryingv alue of theS eniorN otes due 2029. See furtherd iscussion of our 8.375% SubordinatedN otes due 2035, below. In November 2025, we redeemed ther emaining $719 millioni na ggregatep rincipal amount of our Senior Notesd ue 2029 with then et proceeds fromt he issuance of the6 .750% Senior Notesd ue 2031 (asd iscussedb elow), together with casho n hand. Thec onsiderationp aidi nt he redemptionf or each $1,000 principala mount of theS eniorN otes due 2029 was$ 1,068, plus accrueda nd unpaid interest.I nc onnectionw itht he redemption, we recognized a$ 55 millionl osso ne xtinguishment in Othern on-interest expenses representingt he totals ettlement value, inclusiveo ft ransactionf ees,i ne xcesso ft he carryingv alue of theS eniorN otes due 2029. Therew eren oS eniorN otes due 2029 outstanding as of December3 1, 2025. Fora dditionali nformation on thei ssuance of our Senior Notesd ue 2029, refert oN ote1 0, “Borrowings of Long-Terma nd OtherD ebt” to thea uditedC onsolidated FinancialS tatementsi ncludedi no ur AnnualR eporto nF orm1 0-Kf or they ear endedD ecember3 1, 2024. 70
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6.750% Senior NotesD ue 2031 -I ssuance In November 2025, we issued $500 milliona ggregatep rincipal amount of 6.750% Senior Notesd ue 2031 (SeniorN otes due 2031).T he Senior Notesd ue 2031 accrue interest on theo utstanding principala mount at ar ateo f6 .750% pera nnum fromN ovember 6, 2025, payables emi-annually in arrears, on May1 5a nd November 15 of each year,b eginning on May 15, 2026. TheS eniorN otes due 2031 will mature on May1 5, 2031, unlesss ubject to earlierr epurchaseo rr edemption. We used then et proceedsf romt he offering of theS eniorN otes due 2031, together with casho nh and, to fund ther edemption in full of our outstanding Senior Notesd ue 2029. 8.375% Subordinated NotesD ue 2035 -I ssuance, TenderO ffer and Repurchase In March2 025, we issued ands old$ 400 millioni na ggregatep rincipal amount of 8.375% Fixed-Rate ResetS ubordinated Notesd ue 2035 (the SubordinatedN otes). TheS ubordinatedN otes accrue interest on theo utstanding principala mount (i) at ar atep er annum equalt o8 .375% from, andi ncluding, March1 0, 2025, to,b ut excluding, June 15, 2030 (the Reset Date), and( ii) from,a nd including, theR eset Date to,b ut excluding, them aturity date at ar atep er annum equalt ot he Five-Year U.S. Treasury Rate as of thed atet hati st wo businessd aysp rior to theR eset Date,p lus4 30 basisp oints. Interest on theS ubordinated Notesi sp ayable semiannually in arrearso nJ une 15 andD ecember1 5o fe ach year.T he Subordinated Notesw illm atureo nJ une 15, 2035, unlesss ubject to earlier repurchaseo rr edemption. As noted above,a sp arto ft he Third QuarterT enderO ffer, we repurchased $0.1 million aggregatep rincipal amount of SubordinatedN otes. We used $250 million of then et proceedsf romt he SubordinatedN otes offering to enteri ntoa subordinatedp romissory noteb etween Parent Company, as lender, andC CB,a sb orrower, on termss ubstantially thes amea st hoseo ft he SubordinatedN otes.T he subordinatedp romissory notei se liminated in consolidation. Deposits TheB anks usea varietyo fd eposit products to financet heir operatinga ctivities, including funding forn on-securitized credit card ando ther loans, andt of und theirs ecuritizatione nhancementr equirements. TheB anks offerD TC retail deposit products,i ncluding IndividualR etirementA ccounts, as well as deposits sourced through contractuala rrangementsw ith various financialc ounterparties( oftenr eferredt oa sw holesaled eposits,a nd includesb rokeredd eposits)a nd various non- maturity deposit products that areg enerally redeemable on demand by thec ustomer, anda ss uchh aven os cheduled maturity date.T he Banks also issuec ertificates of deposit with scheduled maturity datesr anging between January 2026 and December2 030, in denominations of at least$ 1,000, on whichi nteresti sp aide ither monthlyo ra tm aturity. 71
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Thef ollowing tables ummarizes theser etaila nd wholesaled eposit products by type anda ssociated attributes as of December3 1: Table9 :I nterest-bearing Deposits 2025 2024 (Millions,e xceptp ercentages) Deposits Direct-to-consumer (retail) $8 ,522 $7 ,687 Wholesale5 ,369 5,368 Totali nterest-bearing deposits $1 3,891 $1 3,055 Non-maturity depositp roducts Non-maturity deposits$ 7,700 $6 ,827 Interest rate range 0.70% -4 .05% 0.70% -4 .75% Weighted-average interest rate 3.74 %4 .16 % Certificates of deposit Certificates of deposit $6 ,191 $6 ,228 Interest rate range 0.85% -5 .31% 0.80% -5 .7% Weighted-average interest rate 4.12 %4 .64 % As of December3 1, 2025 and2 024, retail depositst hate xceededa pplicable FDIC insurancel imits,w hich areg enerally $250,000 perd epositor,p er insuredb ank, pero wnership category, were estimatedt ob e$ 638 million( 5% of Total deposits)a nd $531 million (4%o fT otal deposits),r espectively. Them easuremento fe stimatedu ninsured deposits aligns with regulatory guidelines. SecuritizationP rogramsI ncluding ConduitF acilities We sell them ajorityo ft he credit cardl oans originated by theB anks to certain of our master trusts (the Trusts). These securitizationp rogramsa re ap rincipal vehiclet hrough whichw ef inance theB anks’c reditc ardl oans.F or this purpose, we useac ombinationo fp ublic term asset-backed notes andp rivate conduitf acilities( theC onduitF acilities) with a consortiumo fl enders,i ncluding domestic moneyc enter, regionala nd internationalb anks.B otho ur public term asset- backed notes andb orrowings undert he ConduitF acilitiesa re includedi nD ebti ssued by consolidated variable interest entities (VIEs) in theC onsolidated BalanceS heets. 72
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Thet able belows ummarizeso ur conduitc apacities, borrowings andm aturitiesf or thep eriods presented: Table1 0: ConduitB orrowing Capacity Rollforward andM aturities (Millions)D ecember3 1, 2024 Commitment December3 1, 2025 Conduit FacilitiesC apacityD rawn (6) Change Capacity DrawnM aturityD ate (7) Comenity Bank WFNMNT 2009-VFN (1) $2 ,650 $1 ,955 $( 900) $1 ,750 $1 ,363 October2 026 WFNMT2 009-VFC1 (2) —1 41 ——— — Comenity CapitalB ank WFCMNT 2009-VFN (3) 2,250 867 (250) 2,000 712 February 2027 CCAST 2023-VFN1 (4) 250 250 (250) —— — CCAST 2024-VFN1 (5) 200 —( 200) —— — Total$ 5,350 $3 ,213 $( 1,600) $3 ,750 $2 ,075 __________________________________ (1) 2009-VFNC onduiti ssuedu nderW orld FinancialN etwork Credit Card Master Note Trust( WFNMNT). In October2 025, the2 009- VFNC onduitc ommitment wasr educed by $900 milliont o$ 1.75 billion, andt he Maturity Date wase xtendedt oO ctober2 026. (2) 2009-VFC1 Conduiti ssuedu nderW orld FinancialN etwork Credit Card Master TrustI II (WFNMT)w as retired following controlleda mortization, meaningt he period in whichp rincipal collections area ccumulatedt op ay downt he outstanding principal amount of then otes issued undert he ConduitF acility,i nJ une 2025 pursuantt ot he termination, consenta nd waiver agreement. (3) 2009-VFNC onduiti ssuedu nderW orld FinancialC apitalM asterN oteT rust (WFCMNT).I nF ebruary2 025, the2 009-VFN Conduitc ommitment wasr educed by $250 million to $2 billion, andt he Maturity Date wase xtendedt oF ebruary2 026. Then in December2 025, theM aturity Date of the2 009-VFNC onduitw as furthere xtendedt oF ebruary2 027. (4) 2023-VFN1 Conduiti ssuedu nderC omenity CapitalA sset SecuritizationT rust (CCAST). Thep urchasec ommitment expiredo n September2 9, 2025 andt he 2023-VFN1 Conduitw as retired on October1 ,2 025 pursuantt ot he termination, consenta nd waiver agreement. (5) 2024-VFN1 Conduiti ssuedu nderC CAST wasr etired in February 2025 pursuantt ot he termination, consenta nd waiver agreement. (6) Amountsd rawn do not include $1.1 billiono fd ebti nt he form of subordinatedn otes issued by WFNMNT andW FCMNTa so f December3 1, 2024,w hich were not sold,b ut were retained by us as credit enhancements andt herefore have been eliminated from theT otal.T he credit enhancements representedb ys ubordinatedn otes issued by WFCMNT andW FNMNTw erer eplaced with excessc ollaterala mountsi nF ebruary2 025 andO ctober2 025, respectively, as definedi nt he relevant indentures upplements. (7) Maturity Date with respect to conduitb orrowings meanst he date on whicht he revolving period fort he applicable ConduitF acility expires. Ther evolving period mayb ee xtendedo rr enewed (unlessa ne arly amortizatione vent occurs priort ot he Maturity Date). Absent thee xtension or renewalo ft he revolving period, theC onduitF acility shalle nter controlleda mortizationo nt he Maturity Date andm ay no longerb ed rawn upon. As of December3 1, 2025, we hada pproximately $10.7 billiono fs ecuritized credit card loans. Securitizations require credit enhancements in thef ormo fc ash, spread deposits,a dditionall oans and/or subordinatedc lasses. Thec redit enhancementi sp rincipally basedo nt he outstanding balances of thes eriesi ssued by theT rustsa nd by thep erformance of thec reditc ardl oans in theT rusts. Earlya mortizatione ventsa sd efined within each asset-backed securitizationt ransactiona re generally driven by asset performance. We do not believe it is reasonablyl ikelyt hata ne arly amortizatione vent will occurd ue to assetp erformance. However, if an earlya mortizatione vent were declared fora Trust, thet rustee of thep articular Trustw ouldr etaint he interest in thel oans along with thee xcesss preadt hatw ouldo therwise be paid to our Bank subsidiary until thei nvestors were fully repaid.T he occurrenceo fa ne arly amortizatione vent woulds ignificantly limit or negate our ability to securitize additionalc reditc ardl oans. We have secureda nd continue to secure then ecessary commitments to fund our credit carda nd otherl oans.H owever, certain of thesec ommitments ares hort-term in nature ands ubjectt or enewal.T here is no guarantee that thesef unding sources,w hent heym ature, will be renewedo ns imilar terms, or at all, as they ared ependent on thea vailability of thea sset- backed securitizationa nd deposit marketsa tt he time. RegulationR R( Credit Risk Retention) adopted by theF DIC, theS EC,t he FRBa nd certain otherf ederal regulators mandatesa minimumf ivep ercent risk retentionr equirement fors ecuritizations.S uchr iskr etentionr equirementsm ay limit our liquidity by restrictingt he amount of asset-backed securities we area blet oi ssueo ra ffectingt he timingo ff uture 73
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issuances of asset-backed securities. We satisfy such risk retentionr equirementsb ym aintaining as eller’s interest calculatedi na ccordance with RegulationR R. Equity PreferredS tock In November 2025, we authorized andi ssued 75,000 shares of preferreds tock as depositary shares (the DepositaryS hares) forg ross proceedso f$ 75 million, with each Depositary Sharer epresentinga 1/40thi nteresti no ur Series A8 .625% Non- CumulativeP erpetual PreferredS tock,p ar value$ 0.01 pers hare (the Series AP referredS tock). TheS eriesA Preferred Stockh as al iquidation preference of $25 perD epositaryS hare (equivalent to $1,000 pers hare of Series AP referredS tock) anda so fD ecember3 1, 2025, thea ggregatel iquidation valuew as $75 million. We used then et proceedso ft he offering to enteri ntoa preferreds tock transactionw ith one of our subsidiary banks,C CB, pursuantt ow hich CCB issued preferred stockt oP arentC ompany on termss ubstantially thes amea st hoseo ft he Series AP referredS tock.T he CCB preferred stocki se liminated in consolidation. We will payd ividends on theS eriesA PreferredS tock quarterly in arrears, when,a s, andi fd eclared by our Boardo f Directors, andt ot he extent that we have lawfully availablef unds to pays uchd ividends,o nM arch 15, June 15, September 15, andD ecember1 5o fe achy ear.W ee xpect to payd ividends on our Series AP referredS tock beginning on March1 5, 2026, subject to thea bove referenced conditions.W em ay redeem theS eriesA PreferredS tock at our option, subjectt oa ny regulatorya pprovalr equirementsa sa re in effect at such time,( i) in wholeo ri np art, on anyd ividendp ayment date on or afterD ecember1 5, 2030 or (ii) in wholeb ut not in part,a ta ny time within 90 days following ar egulatoryc apitalt reatment event, in either case at ar edemptionp rice equalt o$ 1,000 pers hare (equivalent to $25 perD epositary Share),p lusa ny declared andu npaid dividends.I nt he eventw el iquidate,d issolveo rw ind-up our businessa nd affairs, either voluntarilyo r involuntarily,a sn oted above holders of theS eriesA PreferredS tock aree ntitledt oa liquidationp referenceo f$ 25 per Depositary Share, plus anyd eclared andu npaid dividends,b eforew em akea ny distributiono fa ssets to theh olders of our commons tock.H olders of theD epositary Shares aree ntitledt oa ll proportionalr ightsa nd preferences of theS eriesA PreferredS tock (including dividend, voting, redemption andl iquidationr ights). StockR epurchaseP rograms Periodically,w ee nter into stockr epurchasep rograms, as approvedb yo ur Boardo fD irectors. Ther ationale foro ur repurchasep rograms, andt he amountst hereof,i st oe xecute againsto ur previously disclosedc apitalp rioritiest og row responsibly,m aintainb alance sheet strength, andr eturnv alue to stockholders. Thef ollowing tablep rovidesi nformationa bout our commons tock repurchases undero ur various Boardo fD irectors approveds hare repurchasea uthorizations,f or thep eriods presented: Table1 1: Authorized Share Repurchases (Millions) Amount Authorized forR epurchase Number of Shares Repurchased (1) Approximate Dollar Valueo fS hares Repurchased (2) Amount Remaining forF uture Repurchases Fort he threem onths ended: March3 1, 2025 $1 50 2.1 $1 02 $4 8 June 30, 2025 —1 .1 48 — September3 0, 2025 200 0.6 40 160 December3 1, 2025 200 1.9 120 $2 40 Total$ 550 5.7 $3 10 ______________________________ (1) Following theirr epurchase, theses haresc eased to be outstanding shares of commons tock anda re now treated as authorized but unissued shares of commons tock. (2) Excludese xciset axes on stockr epurchases. 74
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Dividends Thet able belows ummarizest he cashd ividenda ctivity we hado no ur commons tock fort he datesp resented: Table1 2: Dividends (Millions,e xceptp er sharea mounts) Dividend DeclarationD ateD ividendP aymentD ateA mount PerC ommonS hare Amount (1) January 30, 2025 March2 1, 2025 $0 .21 $1 0 April2 4, 2025 June 13, 2025 $0 .21 10 July 24, 2025 September1 2, 2025 $0 .21 10 October2 3, 2025 December 12, 2025 $0 .23 10 $4 0 ______________________________ (1) Excludesd ividende quivalent rightsp aidd uringt he period. No cashd ividends were declared or paid on our preferreds tock during2 025. On January 29, 2026, our Boardo fD irectorsd eclareda quarterly cashd ividendo f$ 26.35 pers hare on our preferreds tock and$ 0.23 pers hare on our commons tock,p ayable on March1 6, 2026, to stockholders of record at thec lose of businesso n February 27, 2026. ContractualO bligations In then ormalc ourse of business, we enteri ntov arious contractualo bligations that mayr equire future cashp ayments, the vast majority of whichr elatet od eposits,d ebti ssued by consolidated VIEs,l ong-term ando ther debt ando perating contractsa nd leases. We believe that we will have accesst os ufficientr esourcest om eet thesec ommitments. Cash Flows Thet able belows ummarizeso ur cashf lowa ctivityf or thep eriods indicated,f ollowedb ya discussion of thev ariance driversi mpactingo ur Operating, Investinga nd Financinga ctivities: Table1 3: Cash Flows 2025 2024 2023 (Millions) Totalc ashp rovidedb y( used in): Operatinga ctivities$ 2,092 $1 ,859 $1 ,987 Investinga ctivities( 1,371) (1,169) 788 Financinga ctivities (807) (592) (3,086) Net( decrease) increase in cash, cashe quivalentsa nd restricted cash$ (86) $9 8$ (311) Cash Flowsf romO perating Activities primarilyi nclude Neti ncomea djustedf or (i)n on-cashi tems includedi nN et income,s ucha sP rovision forc reditl osses, Depreciationa nd amortization, deferredt axes ando ther non-cashi tems,a nd (ii) changesi nt he balances of operatinga ssets andl iabilities,w hich can fluctuatei nt he normalc ourse of businessd ue to the amount andt imingo fp ayments. We generatedC ashf lows from operatinga ctivitieso f$ 2.1 billiona nd $1.9 billionf or the yearse ndedD ecember3 1, 2025 and2 024, respectively.T he netc ashp rovidedb yo peratinga ctivitiesd uringt hese periods wasp rimarily driven by cashg enerated fromN et income,a fter adjustingf or theP rovision forc reditl ossesa nd Loss on debt extinguishment. Cash Flowsf romI nvesting Activities primarilyi nclude changesi nC reditc arda nd otherl oans.C ashu sedi ni nvesting activitiesw as $1.4 billiona nd $1.2 billionf or they ears endedD ecember3 1, 2025 and2 024, respectively. Fort he years 75
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endedD ecember3 1, 2025 and2 024, then et cashu sedi ni nvestinga ctivitiesw as primarily due to Netp rincipal losses, and fort he year endedD ecember3 1, 2024, thep urchaseo fa credit cardl oanp ortfolio,p artially offset by thep aydowno f Credit carda nd otherl oans andt he sale of ac reditc ardl oanp ortfolio. Cash Flowsf romF inancingA ctivities primarilyi nclude changesi nd eposits andl ong-term debt.C ashu sedi nf inancing activitiesw as $807 million and$ 592 millionf or they earse ndedD ecember3 1, 2025 and2 024, respectively. Fort he year endedD ecember3 1, 2025, then et cashu sedi nf inancing activities wasp rimarily driven by netr epaymentso fb othd ebt issued by consolidated variable interest entities( i.e.,s ecuritizations)a nd of unsecuredb orrowings,a sw ella sr epurchases of commons tock,p artially offset by an et increase in deposits.F or they ear endedD ecember3 1, 2024, then et cashu sedi n financinga ctivities wasp rimarily driven by netr epaymentso fu nsecuredb orrowings,i ncluding our repurchased Convertible Notes, anda netd ecreasei nw holesaled eposits,p artially offset by then et borrowings of debt issued by consolidated variable interest entities. INFLATIONA ND SEASONALITY Although we cannot preciselyd eterminet he impact of inflationo no ur operations,w eh aveg enerally sought to rely on operatinge fficiencies froms cale,t echnology modernizationa nd digitala dvancementa long with othero perational excellencei nitiatives,a sw ella se xpansioni nl ower cost jurisdictions to offset increased costso fe mployeec ompensation ando ther operatinge xpenses impacted by inflation. We also recognize that ac ustomer’s ability andw illingness to repayu s hasb een negativelyi mpactedb yf actorss ucha sr ecenti nflation andh igheri nterestr ates,a nd anyp ersistente ffects therefrom, whichm ay result in higherd elinquenciesa nd increased credit losses, as reflected in our elevated Reserver ate. If thee ffortst oc ontrol inflationi nt he U.S. andg loballya re not successful andi nflationary pressuresc ontinue to persist, including due to changest o, or thei mpositiono f, tariffsa nd/or tradeb arriers, they couldf urther increaser epayment pressure on consumersa sw ella st he risk of ar ecessionary environmento rs tagflationw hich maya dverselyi mpact our business, results of operations andf inancial condition. With respect to seasonality, our revenues, earnings andc ashf lows area ffected by increased consumer spending patterns leadingu pt oa nd including theh oliday shopping season in thef ourth quarter of each year and, to al essere xtent, duringt he firstq uarter of each year as Credit carda nd otherl oans arep aidd own. Netp rincipal loss ratesf or our Credit carda nd other loansp ortfolio also have historically exhibiteds easonalp atternsa nd generally tend to be theh ighest in thef irst quarter of they ear andl owesti nt he thirdq uarter.W hile thee ffectso ft he seasonalt rends discusseda bove remain evident, macroeconomic trends,s ucha st hosed iscussedw ithint he Business Environments ections of our quarterly anda nnual reports on Forms1 0-Qa nd Form 10-Kg enerally have am ores ignificanti mpact on our keyf inancial metricsa nd can outweigha ny seasonali mpactst hatw em ay experience. LEGISLATIVE,R EGULATORYM ATTERSA ND CAPITAL ADEQUACY Ourb usinessi s subject to extensivef ederal ands tate laws andr egulations,a sw ella sr elated regulationa nd supervision, including by theF DIC, CFPB ando ther federala nd statea uthorities. Pending andf uturel awsa nd regulations (federala nd state) maya dverselyi mpact our business. Without limiting thef oregoing, CB is subject to various regulatoryc apital requirementsa dministeredb yt he Delaware Office of theS tate Bank Commissionera nd theF DIC. CCB is also subjectt o various regulatoryc apitalr equirementsa dministeredb yt he Utah Department of FinancialI nstitutions andt he FDIC. Failure to meet minimumc apitalr equirementsc an triggerc ertain mandatory andp ossiblya dditionald iscretionary actions by our regulators. Underc apitala dequacy guidelinesa nd ther egulatoryf ramework forp romptc orrectivea ction, both Banks must meet specific capitalg uidelines that involve quantitativem easures of theira ssets andl iabilitiesa sc alculated underr egulatorya ccountingp ractices.T he capital amountsa nd classificationa re also subject to qualitativej udgments by theser egulatorsa bout components, risk weightings ando ther factors. In addition, bothB anks arel imitedi nt he amounts they can paya sd ividends to theP arentC ompany. Fora dditionali nformationa bout legislativea nd regulatorym atters impactingu s, see“ Business–Supervisiona nd Regulation” underP artI of this AnnualR eporto nF orm1 0-K, as well as “Management’sD iscussion andA nalysiso fF inancial Conditiona nd Results of Operations (MD&A) —B usiness Environment” and“ Risk Factors— Legal, Regulatory andC omplianceR isks.” Quantitative measures,e stablished by regulations to ensure capitala dequacy,r equire theB anks to maintain minimum amountsa nd ratios of Tier 1c apitalt oa verage assets,a nd Common equity tier1 ,T ier1 capitala nd Totalc apital, each to risk weighted assets.F ailure to meet thesem inimumc apital requirementsc an result in certain mandatory,a nd possibly additionald iscretionary actions by theB anks’r egulatorst hati fu ndertaken,c ouldh avead irect material effect on CB’s and/or CCB’so peratinga ctivities,a sw ella so ur operatinga ctivities. Basedo nt hese regulations,a so fD ecember3 1, 2025 and2 024, each Bank meta ll capitalr equirementst ow hich it wass ubject,a nd maintained capitalr atiosi ne xcesso ft he 76
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minimums required to qualify as well capitalized.T he Banks seek to maintain capitall evelsa nd ratiosi ne xcesso ft he minimumr egulatoryr equirementsi nclusive of the2 .5% CapitalC onservationB uffer. Although Bread Financiali sn ot a bank holding companya sd efined undert he Bank HoldingC ompany Act, we seek to maintain capitall evelsa nd ratios in excesso ft he minimums requiredf or bank holding companies. TheB anks adopted theo ptionp rovidedb yt he interimf inal rule issued by jointf ederal bank regulatorya gencies, which largelyd elayed thee ffectso ft he CECL modelo nt heir regulatoryc apitalf or twoy ears, until January 1, 2022, afterw hich thee ffectsw erep hased-in overa three-year period through December3 1, 2024. Undert he interimf inal rule,t he amount of adjustmentst or egulatoryc apitald eferredu ntil thep hase-inp eriodi ncludedb otht he initiali mpact of our adoptiono f CECL as of January 1, 2020, and2 5% of subsequent changesi no ur Allowancef or credit lossesd uringe ach quarter of the two-year period endedD ecember3 1, 2021. In accordance with thei nterim finalr ule, we begant or atably phase-int hese effectso nJ anuary 1, 2022, anda so fJ anuary 1, 2025 hadf ully phased-in alls uche ffects. On December1 7, 2025, we fileda pplications with thef ederal andr espectives tate banking regulatorsf or permission to mergeC Bw itha nd into CCB, with CCB beingt he survivinge ntity.P ending regulatorya pprovala nd thee xpiration of any applicable waiting periods,t he merger of CB andC CB is expected to occuri nt he second half of 2026. Them ergeri sn ot expected to have as ignificanti mpact on our consolidated financialp osition, results of operations,o rl iquidity.F or additionald iscussion, refert o“ Part I, Item 1. Business —S upervisiona nd Regulation—P lannedM ergero fC Bw ith and into CCB.” Thef ollowing tablep rovidest he actualc apitalr atiosa nd minimumr atiosf or theC ompany, as well as each Bank, as of December3 1: Table1 4: CapitalR atios Ratio/DollarV alue MinimumR atio for CapitalA dequacy Purposes * MinimumR atio to be Well Capitalized under Prompt Corrective Action Provisions (Millions,e xceptp ercentages) 2025 2024 TotalC ompany Commone quity tier 1c apitalr atio (1) 13.0 %1 2.4 %4 .5 %N /A Tier 1c apitalr atio (2) 13.4 12.4 6.0 N/A Totalr isk-basedc apital ratio (3) 16.8 13.8 8.0 N/A Tier 1l everagec apitalr atio (4) 12.4 11.5 4.0 N/A Totalr isk-weighted assets (5) $1 9,755 $1 9,928 Comenity Bank Commone quity tier 1c apitalr atio (1) 15.1 %1 6.5 %4 .5 %6 .5 % Tier 1c apitalr atio (2) 15.1 16.5 6.0 8.0 Totalr isk-basedc apital ratio (3) 16.5 17.9 8.0 10.0 Tier 1l everagec apitalr atio (4) 14.1 15.3 4.0 5.0 Comenity CapitalB ank Commone quity tier 1c apitalr atio (1) 13.5 %1 5.4 %4 .5 %6 .5 % Tier 1c apitalr atio (2) 14.1 15.4 6.0 8.0 Totalr isk-basedc apital ratio (3) 17.5 16.7 8.0 10.0 Tier 1l everagec apitalr atio (4) 13.2 14.3 4.0 5.0 ______________________________ * Thel istedc apitala dequacy ratiose xclude theC apitalC onservationB uffer. (1) Commone quity tier 1c apitalr atio represents tier 1c apital reduced by Preferreds tock dividedb yt otal risk-weighted assets.I nt he calculationo ft ier1 capital, we follow theB asel III Standardized Approach andt herefore Total 77
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stockholders’e quity hasb eenr educed by Goodwilla nd intangiblea ssets,n et.S ee belowf or ar econciliationo fo ur Totals tockholders’e quity underG AAP to tier 1a nd tier2 capitalu ndert he BaselI II Standardized Approach. (2) Tier 1c apital ratior epresentst ier1 capitald ivided by totalr isk-weighted assets.I nt he calculationo ft ier1 capital,w e followt he BaselI II Standardized Approach andt herefore Totals tockholders’e quity hasb een reduced,p rimarily by Goodwill andi ntangiblea ssets,n et.F or us,t ier1 capitali sp rimarily comprisedo fC ET1 capitala nd Preferreds tock. Seeb elow fora reconciliationo fo ur Totals tockholders’e quity underG AAP to tier1 andt ier2 capitalu ndert he Basel III Standardized Approach. (3) Totalr isk-basedc apital ratio represents totalc apital dividedb yt otal risk-weighted assets.I nt he calculationo ft otal capital, we follow theB asel III Standardized Approach andt herefore tier1 capitalh as been increased by tier2 capital, whichf or us is comprisedo fs ubordinatedn otes,a sw ella st he allowablep ortiono ft he Allowancef or credit losses. Seeb elow fora reconciliationo fo ur Totals tockholders’e quity underG AAP to tier1 andt ier2 capitalu ndert he Basel III Standardized Approach. (4) Tier 1l everagec apitalr atio represents tier1 capitald ivided by totala verage assets,a fter certain adjustments. (5) Totalr isk-weighted assets areg enerally measured by allocating assets,a nd specified off-balance sheet exposures,t o various risk categoriesa sd efined by theB asel IIIS tandardized Approach. Thef ollowing tablep rovidesa reconciliationo fo ur Totals tockholders’e quity underG AAP to BaselI II Standardized Approach Common equity tier1 capital, Tier 1c apital,T ier2 capitala nd Totalc apital, as of December3 1: Table1 5: CapitalR econciliations 2025 (Millions) Totals tockholders’ equity $3 ,327 Less: Preferreds tock 71 Totalc ommons tockholders’e quity3 ,256 Less: Goodwill (1) 593 Otheri ntangiblea ssets 82 Other1 2 Common equity tier 1c apital 2,569 Add: Preferreds tock 71 Tier 1c apital 2,640 Subordinatedn otes 400 Qualifying allowancef or credit losses (2) 270 Tier 2c apital 670 Totalc apital $3 ,310 __________________________________ (1) Goodwill, neto ft he related$ 41 milliond eferredt ax liability. (2) Represents thea llowablep ortiono ft he Allowancef or credit losses, whichi sa maximumo f1 .25% of RWA. 78
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Thef ollowing tablep rovidest he changesi no ur BaselI II Standardized Approach Commone quity tier1 capital, Tier 1 capitala nd Tier 2c apital as of December 31: Table1 6: CapitalR ollforwards 2025 (Millions) Commone quity tier 1c apitalb eginning balance$ 2,474 Neti ncomea vailablet oc ommons tockholders 518 Dividends declared on common stock( 42) Repurchases of common stock( 313) CECL phase-ina djustment( 139) Changesi na dditionalp aid-in capital3 6 Changesi ni ntangiblea ssets 30 Other5 Commone quity tier 1c apital 2,569 AdditionalT ier1 capitalb eginning balance— Change in preferreds tock 71 Tier 1c apital 2,640 Tier 2c apitalb eginning balance2 71 Change in subordinatedn otes 400 Change in qualifying allowancef or credit losses( 1) Tier 2c apital 670 Totalc apital $3 ,310 Furtheri nformation about eachB ank’sc apitalc omponentsa nd calculations can be found in each Bank’sC onsolidated Reports of Conditiona nd Income Form FFIEC0 41 (CallR eports)a sf iledw ith theF DIC. We area lsoi nvolved, fromt imet ot ime,i nr eviews,i nvestigations,s ubpoenas, supervisorya ctions ando ther proceedings (bothf ormala nd informal)b yg overnmental agencies regardingo ur business, whichc oulds ubject us to significantf ines, penalties, obligations to change our businessp ractices,s ignificantr estrictions on our existingb usinesso ra bility to develop newb usiness, cease-and-desist orders,s afety-and-soundness directives or otherr equirementsr esultingi ni ncreased expenses,d iminishedi ncomea nd damage to our reputation. In November 2023 followingt he consento ft he Boardo fM anagerso fC omenity ServicingL LC (the Servicer), theF DIC issued ac onsent ordert ot he Servicer.T he Servicer is not one of our Bank subsidiaries,b ut is our wholly-owned subsidiary that services substantially allo fo ur loans. Thec onsento rder aroseo ut of theJ une 2022 transitiono fo ur credit card processing services to strategico utsourcing partners anda ddressesc ertain shortcomings in theS ervicer’s information technology (IT)s ystems development, project management,b usinessc ontinuity management,c loud operations,a nd third- partyo versight.T he Servicer enteredi ntot he consento rder fort he purposeo fr esolving thesem atters without admittingo r denying anyv iolations of lawo rr egulations et forthi nt he order. Thec onsento rder doesn ot containa ny monetary penaltieso rf ines. TheS ervicer continuest ot akes ignificants teps to strengthent he organization’sI Tg overnance anda ddresst he otheri ssues identifiedi nt he consento rder,w orking diligentlyt oe nsuret hata ll requirementso ft he consento rder ares atisfied.W ithout limitingt he generality of thef oregoing, theS ervicerh as takens teps to addresse ach provision within thec onsento rder and continuest oc omplyw ithe ach ongoing requirement.T he Servicer is committedt oc omplying with thel onger-term requirementso ft he consento rder,i ncluding thee nhancemento fi ts compliancem anagementp rocessesa nd related corporateg overnance,c ompliancew ith thea pplicable system conversionr equirements, ande nhanced risk management and reporting. TheS ervicerh as submitteda ll requiredd eliverablesu ndert he consento rder to theF DICf or its review and consideration. TheB oard of Managers of theS ervicer continuest oo versee its compliancew ith ther equirementso ft he 79
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consento rder andp rovide effectivec hallenge to theS ervicer’s management toward that end. TheB oard of Directorso f each of theB anks also receives reporting about theS ervicera nd monitors theS ervicer’s compliancew itht he provisions of thec onsento rder. CRITICAL ACCOUNTINGP OLICIESA ND ESTIMATES Ourd iscussion anda nalysiso fo ur results of operations ando verall financialc onditioni sb ased upon our audited Consolidated Fnancial Statements,w hich have been prepared in accordance with thea ccountingp oliciesd escribed in Note 1, “Description of Business, Basiso fP resentationa nd Significant AccountingP olicies” to our auditedC onsolidated FinancialS tatementsi ncludeda sp arto ft hisA nnualR eporto nF orm1 0-K. Thep reparation of thea uditedC onsolidated FinancialS tatementsr equiresm anagementt om akee stimatesa nd judgments that affect ther eporteda mountso fa ssets, liabilities,r evenuesa nd expenses,a nd relatedd isclosureo fc ontingent assets andl iabilities.W ec ontinuallye valuateo ur estimatesa nd judgments in determinationo fo ur financialp ositiona nd operatingr esults.E stimates areb ased on informationa vailable as of thed ateo ft he auditedC onsolidated FinancialS tatementsa nd, accordingly, actual resultsc ould differf romt hese estimates, sometimes materially.C riticala ccountinge stimatesa re defineda st hoset hata re bothm ost important to thep ortrayal of our financialp ositiona nd operating results, andr equire management’s most subjective judgments,w hich foru si so ur Allowancef or credit lossesa nd Goodwilli mpairment. Allowancef or Credit Losses TheA llowance forc reditl ossesr epresentso ur estimate of expected credit losseso vert he estimated life of our Credit card ando ther loans, incorporatingf uturem acroeconomic forecastsi na ddition to informationa bout past events andc urrent conditions.O ur estimate undert he CECL approach involvess ignificant judgments froma modeling andf orecasting perspective, andi ss ignificantly influenced by thec omposition, characteristicsa nd quality of our Credit card ando ther loansp ortfolio,a sw ella st he prevailinge conomic conditions andf orecasts utilized. In estimatingo ur Allowancef or credit losses, fore achi dentifieds egment of loanss haring similarr iskc haracteristics, management uses modeling ande stimationt echniquest hatl everageh istoricald ataa nd behavioral relationships,t ogether with third-partyp rojections of certainm acroeconomic variables, to estimate expected credit lossesb ased on historical correlation of realized lossest om acroeconomic conditions.W ec onsider them acroeconomic forecast used to be reasonable ands upportableo vert he estimated life of theC reditc arda nd otherl oans portfolio,w ithn or eversion period. Sinceo ur implementation of theC ECLg uidance, we have maintained ac onsistent approach to modeling thel ifeo fl oanl ossesi n establishing our Allowancef or credit losses. In addition to theq uantitativee stimateo fe xpected credit losses, we also incorporateq ualitativea djustments to them odeled output in ordert oa ddressr isks not inherently captured by that modeledo utput,s ucha sC ompany-specific risks, changesi n current macroeconomic conditions,o ro ther relevant factorst oe nsuret he Allowancef or credit lossesr eflectso ur best estimate of current expected credit losses. If we used different assumptions in estimating our currente xpected credit losses, thei mpacto nt he Allowancef or credit lossesc ouldh avea material effect on our consolidated financialp ositiona nd resultso fo perations.F or example, a1 00 basisp oint increase in theA llowance forc reditl ossesa sa percentage of thea mortized cost of our Credit card ando ther loansc ouldh aver esultedi na change of approximately $184 millioni nt he Allowancef or credit lossesa so fD ecember3 1, 2025, with ac orresponding change in theP rovision forc reditl osses. Goodwill Impairment Goodwilli sr ecognizedf or businessa cquisitions when thep urchasep rice is highert hant he fair valueo fa cquiredn et assets.A sr equiredb yG AAP,g oodwilli sn ot amortizedb ut is tested fori mpairmenta tl east annually or when events or circumstancesa rise that wouldm orel ikelyt hann ot reducet he fair valueo fo ur singler eporting unitb elow itsc arrying value. We have theo ptiont of irst assess qualitative factorst od etermine whetheri ti sm orel ikelyt hann ot that thef airv alue of our reportingu niti sl esst hani ts carryingv alue.A lternatively,w ec an perform am ored etailedq uantitativea ssessmento f goodwilli mpairment. Qualitativef actors considered in evaluatingg oodwilli mpairmenti nclude macroeconomic conditions, industrya nd market considerations,o ur overall financialp erformance ando ther relevant entity-specific factors, and/or a sustainedd ecreasei no ur sharep rice.I f, aftera ssessing theseq ualitative factorsw ec onclude that it is not more likely than not that thef airv alue of our reporting uniti sl esst hani ts carrying amount,t hent he quantitativeg oodwilli mpairmentt esti s 80
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not necessary.H owever,i ft he qualitativef actorsi ndicate it is more likelyt hann ot that thef airv alue of our reportingu nit is less than its carryinga mount,o rw ee lect to skip theq ualitativea ssessment, we wouldp erform aq uantitativei mpairment test. We applys ignificant judgmentw hent estingg oodwillf or impairment,e specially when performingt he quantitative test wherew ep erform av aluation of our reportingu nitl everaginga combinationo ft he income approach basedo nd iscounted cashf lows andt he market approach basedo nv aluation multiples.T he keya ssumptions used to determinet he fair valuea re primarily unobservablei nputs( i.e.,L evel 3i nputsa sd efined underG AAP)i ncluding internally developedf orecasts to estimate future cash flows, growth ratesa nd discount rates, as well as market valuationm ultiples( fort he market approach). Estimatedc ashf lows areb ased on internal forecastsg roundedi nh istorical performance andf uturee xpectations.T o discount thee stimatedc ashf lows,w eu se thee xpected cost of equity taking into account ac ombinationo fi ndustrya nd Company-specificf actors we believe at hird-party market participantw ouldi ncorporate. We believe thed iscount rate applieda ppropriately reflectst he risksa nd uncertaintiesi nt he financialm arkets generally ands pecifically in our internally developedf orecasts.W henu sing valuationm ultiplesu ndert he market approach,w ea pplyc omparablep ublicly traded companies’ multiples( e.g., pricet ot angibleb ook valueo rr eturno nt angiblee quity)t oo ur reportingu nit’so perating results. Givent he inherent uncertainty in thej udgments involved, we couldb ee xposed to goodwill impairmenta sa result of adversei mpactsf romv arious factorsi ncluding regulatoryo rl egislativec hanges, or if future macroeconomic conditions or future operatingr esults differs ignificantly fromo ur currenta ssumptions. In connectionw itho ur annualg oodwill impairmente valuationf or they ear endedD ecember3 1, 2025, we performed a qualitativea ssessmenta nd determined that it wasn ot more likelyt hann ot that thef airv alue of our reportingu nitw as less than its carryinga mount.S ee Note 6, “Goodwill andI ntangibleA ssets, Net” to our auditedC onsolidated Financial Statements fora dditionali nformation. RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTINGS TANDARDS See“ Recently Adopted andR ecently Issued AccountingS tandards” in Note 1, “Descriptiono fB usiness, Basiso f Presentationa nd SignificantA ccountingP olicies” to thea uditedC onsolidated FinancialS tatements. Item 7A.Q uantitativea nd QualitativeD isclosures AboutM arketR isk. See“ Risk Management”w ithin Item 1A. Item 8. FinancialS tatementsa nd SupplementaryD ata. Oura uditedC onsolidated FinancialS tatementsb egin on page F-1o ft hisA nnualR eporto nF orm1 0-K. Item 9. Changesi na nd Disagreements with Accountants on Accountinga nd FinancialD isclosure. None. Item 9A.C ontrolsa nd Procedures. Conclusion Regarding theE ffectivenesso fD isclosureC ontrolsa nd Procedures Ourm anagement, with thep articipationo fo ur ChiefE xecutiveO fficer andC hief FinancialO fficer,h as evaluatedt he effectivenesso ft he design ando perationo fo ur disclosure controls andp rocedures (asd efined in Rules1 3a-15(e) and 15d-15(e) undert he Securities Exchange Acto f1 934, as amended( theE xchange Act))a so ft he endo ft he period covered by this Report. Basedu pon that evaluation, our ChiefE xecutive Officer andC hief FinancialO fficer have concludedt hat, as of thee nd of such period, our disclosure controls andp rocedures aree ffectivea nd designedt oe nsuret hatt he informationr equiredt ob ed isclosed in our reports filedo rs ubmittedu ndert he Exchange Acti sr ecorded,p rocessed, summarized andr eportedw ithin ther equisite time periods specified in thea pplicable rulesa nd forms, andt hati ti s accumulateda nd communicatedt oo ur management,i ncluding our ChiefE xecutiveO fficer andC hief FinancialO fficer, as appropriate,t oa llow timely decisions regardingr equiredd isclosure. 81
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Thereh aven ot been anyc hangesi no ur internal controlo verf inancial reporting( as such term is definedi nR ules 13a-15(f) and1 5d-15(f) undert he Exchange Act) duringt he fourth quarter of 2025 that have materially affected,o ra re reasonably likelyt om ateriallya ffect,o ur internal controlo verf inancial reporting. Management’s Report on Internal ControlO verF inancial Reporting Ourm anagementi sr esponsible fore stablishing andm aintaining adequate internal controlo verf inancial reporting. Our internal controlo verf inancial reportingi sa processd esignedt op rovide reasonablea ssurancer egarding ther eliability of financialr eporting andt he preparationo ff inancial statements fore xternalp urposes in accordance with accounting principles generally acceptedi nt he UnitedS tateso fA merica (GAAP), andi ncludest hosep oliciesa nd procedures that: •P ertain to them aintenance of recordst hat, in reasonabled etail, accurately andf airlyr eflect our transactions and dispositions of assets; •P rovide reasonablea ssurancet hatt ransactions arer ecordeda sn ecessary to permit preparationo ff inancial statements in accordance with GAAP,a nd that our receiptsa nd expendituresa re beingm adeo nlyi na ccordance with authorizations of our management andd irectors;a nd •P rovide reasonablea ssurancer egarding prevention or timelyd etectiono fu nauthorized acquisition, useo r dispositiono fo ur assets that couldh avea material effect on thef inancial statements. Becauseo fi ts inherent limitations,i nternalc ontrolo verf inancial reportingm ay not prevento rd etect misstatements.A lso, projections of anye valuationo fe ffectivenesst of uturep eriods ares ubject to ther iskt hatc ontrols mayb ecome inadequate because of changesi nc onditions,o rt hatt he degree of compliancew ith thep olicieso rp rocedures mayd eteriorate. Ourm anagement, with thep articipationo fo ur ChiefE xecutiveO fficer andC hief FinancialO fficer,a ssessedt he effectivenesso fo ur internal controlo verf inancial reportinga so fD ecember3 1, 2025. In making this assessment, our management used thec riterias et forthb yt he Committee of SponsoringO rganizations of theT readwayC ommission (COSO) in Internal Control—Integrated Framework( 2013).B ased on thosec riteriaa nd management’s assessment, with thep articipationo fo ur ChiefE xecutiveO fficer andC hief FinancialO fficer,w ec onclude that,a so fD ecember3 1, 2025, our internal controlo verf inancial reportingw as effective. Thee ffectivenesso fo ur internal controlo verf inancial reporting as of December3 1, 2025, hasb een auditedb yD eloitte& Touche LLP, our independent registered public accountingf irmw ho also auditedo ur Consolidated FinancialS tatements; theira ttestationr eporto nt he effectivenesso fo ur internal controlo verf inancial reportinga ppearso np ageF -4. Item 9B.O ther Information. None. Item 9C.D isclosureR egarding Foreign Jurisdictionst hatP reventI nspections. Nota pplicable. 82
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PART III Item 10. Directors, ExecutiveO fficers andC orporate Governance. Incorporated by referencet ot he Proxy Statementf or the2 026 AnnualM eetingo fo ur stockholders,w hich will be filed with theS EC not latert han1 20 days afterD ecember3 1, 2025. Item 11. ExecutiveC ompensation. Incorporated by referencet ot he Proxy Statementf or the2 026 AnnualM eetingo fo ur stockholders,w hich will be filed with theS EC not latert han1 20 days afterD ecember3 1, 2025. Item 12. Security Ownershipo fC ertainB eneficialO wners andM anagement andR elated Stockholder Matters. Incorporated by referencet ot he Proxy Statementf or the2 026 AnnualM eetingo fo ur stockholders,w hich will be filed with theS EC not latert han1 20 days afterD ecember3 1, 2025. Item 13. CertainR elationships andR elated Transactions,a nd Director Independence. Incorporated by referencet ot he Proxy Statementf or the2 026 AnnualM eetingo fo ur stockholders,w hich will be filed with theS EC not latert han1 20 days afterD ecember3 1, 2025. Item 14. PrincipalA ccountingF ees andS ervices. Incorporated by referencet ot he Proxy Statementf or the2 026 AnnualM eetingo fo ur stockholders,w hich will be filed with theS EC not latert han1 20 days afterD ecember3 1, 2025. 83
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PART IV Item 15. Exhibits andF inancial StatementS chedules. a) Thef ollowing documents aref ileda sp arto ft hisA nnualR eporto nF orm1 0-K: (1)F inancial Statements (2)F inancial StatementS chedules. Separate financials tatement schedules have been omitted either because they aren ot applicable or because ther equiredi nformation is includedi nt he auditedC onsolidated FinancialS tatements. (3)E xhibits. Thef ollowing exhibits aref iled as part of this AnnualR eporto nF orm1 0-Ko r, wherei ndicated,w ere previously fileda nd areh erebyi ncorporated by reference. Incorporated by Reference Exhibit No.F iler DescriptionF ormE xhibit FilingD ate 3.1 (a) ThirdA mendeda nd Restated Certificateo fI ncorporationo ft he Registrant. 8-K3 .2 6/10/16 3.2 (a) Certificateo fA mendmentt oT hird Amendeda nd Restated Certificateo f Incorporationo ft he Registrant. 8-K3 .1 3/24/22 3.3 (a) Certificateo fD esignations of 8.625% Non-CumulativeP erpetual PreferredS tock,S eriesA of theR egistrant 8-K3 .1 11/25/25 3.4 (a) SixthA mendeda nd Restated Bylaws of theR egistrant. 8-K3 .2 3/24/22 4.1 (a) SpecimenC ertificatef or shares of Common Stocko ft he Registrant. 10-Q4 .0 8/8/03 *4.2 (a) Descriptiono fR egistrant’s CapitalS tock +10.1 (a) Bread FinancialH oldings,I nc.E xecutiveD eferredC ompensationP lan, amendeda nd restated effectiveJ anuary 1, 2018. 8-K1 0.1 11/24/17 +10.2 (a) Amendmente ffectiveJ anuary 1, 2024 to theB read FinancialH oldings, Inc. ExecutiveD eferredC ompensationP lan. 10-K1 0.2 2/20/24 +10.3 (a) Bread FinancialH oldings,I nc.2 010 OmnibusI ncentiveP lan. DEF1 4A A4 /20/10 +10.4 (a) Bread FinancialH oldings,I nc.2 015 OmnibusI ncentiveP lan. DEF1 4A B4 /20/15 +10.5 (a) Bread FinancialH oldings,I nc.2 020 OmnibusI ncentiveP lan. DEF1 4A A4 /23/20 +10.6 (a) Bread FinancialH oldings,I nc.2 022 OmnibusI ncentiveP lan. DEF1 4A A4 /13/22 +10.7 (a) Bread FinancialH oldings,I nc.2 024 OmnibusI ncentiveP lan. DEF1 4A B4 /3/24 +10.8 (a) Form of Time-Based Restricted StockU nitA ward Agreementu ndert he Bread FinancialH oldings,I nc.2 020 OmnibusI ncentiveP lan. 8-K1 0.1 2/18/21 84
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^+10.9 (a) Form of Performance-BasedR estrictedS tock Unit Award Agreement undert he Bread FinancialH oldings,I nc.2 020 OmnibusI ncentiveP lan. 8-K1 0.2 2/18/21 +10.10 (a) Form of Time-Based Restricted StockU nitA ward Agreementu ndert he Bread FinancialH oldings,I nc.2 022 OmnibusI ncentiveP lan. 10-K1 0.9 2/20/24 ^+10.11 (a) Form of Performance-BasedR estrictedS tock Unit Award Agreement undert he Bread FinancialH oldings,I nc.2 022 OmnibusI ncentiveP lan. 10-K1 0.10 2/20/24 +10.12 (a) Form of Time-Based Restricted StockU nitA ward Agreementu ndert he Bread FinancialH oldings,I nc.2 024 OmnibusI ncentiveP lan. 10-Q1 0.11 8/1/24 +10.13 (a) Form of Performance-BasedR estrictedS tock Unit Award Agreement undert he Bread FinancialH oldings,I nc.2 024 OmnibusI ncentiveP lan. 10-Q1 0.12 8/1/24 +10.14 (a) Form of Non-employeeD irector Restricted StockU nitA ward Agreement undert he Bread FinancialH oldings,I nc.2 010 OmnibusI ncentiveP lan. 10-K1 0.52 2/28/13 +10.15 (a) Form of Non-employeeD irector Restricted StockU nitA ward Agreement undert he Bread FinancialH oldings,I nc.2 015 OmnibusI ncentiveP lan. 10-Q1 0.6 8/7/17 +10.16 (a) Form of Non-employeeD irector Restricted StockU nitA ward Agreement undert he Bread FinancialH oldings,I nc.2 020 OmnibusI ncentiveP lan. 8-K1 0.1 6/15/21 +10.17 (a) Form of Non-employeeD irector Restricted StockU nitA ward Agreement undert he Bread FinancialH oldings,I nc.2 022 OmnibusI ncentiveP lan. 10-K1 0.14 2/20/24 +10.18 (a) Form of Non-employeeD irector Restricted StockU nitA ward Agreement undert he Bread FinancialH oldings,I nc.2 024 OmnibusI ncentiveP lan. 10-Q1 0.13 8/1/24 +10.19 (a) Bread FinancialH oldings,I nc.N on-EmployeeD irectorD eferred CompensationP lan. 8-K1 0.1 6/9/06 +10.20 (a) Form of Bread FinancialA ssociateC onfidentiality Agreement. 10-K1 0.18 2/27/17 +10.21 (a) Form of Bread FinancialH oldings,I nc.I ndemnificationA greementf or Officersa nd Directors. 8-K1 0.1 6/5/15 +10.22 (a) Bread FinancialH oldings,I nc.A mendeda nd Restated 2015 Employee StockP urchaseP lan, effectiveM arch 23, 2022. DEF1 4A C4 /20/15 10.23 (b) (c) Second Amendeda nd Restated Poolinga nd ServicingA greement, dated as of January 17, 1996 as amendeda nd restated as of September1 7, 1999 andA ugust1 ,2 001, by anda mong WFNC reditC ompany, LLC,W orld FinancialN etwork NationalB ank, andB NY MidwestT rust Company. 8-K4 .6 8/31/01 10.24 (b) (c) (d) Second Amendmentt ot he Second Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fM ay 19, 2004, amongW orld Financial NetworkN ationalB ank, WFNC reditC ompany, LLC andB NY Midwest TrustC ompany. 8-K4 .1 8/4/04 85
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10.25 (b) (c) (d) ThirdA mendmentt ot he Second Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fM arch 30, 2005, amongW orld FinancialN etwork NationalB ank, WFNC reditC ompany, LLC andB NY MidwestT rust Company. 8-K4 .1 4/5/05 10.26 (b) (d) Fourth Amendmentt ot he Second Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fJ une 13, 2007, amongW orld Financial NetworkN ationalB ank, WFNC reditC ompany, LLC andB NY Midwest TrustC ompany. 8-K4 .1 6/15/07 10.27 (b) (c) (d) FifthA mendmentt ot he Second Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fO ctober2 6, 2007, among World FinancialN etwork NationalB ank, WFNC reditC ompany, LLC andB NY MidwestT rust Company. 8-K4 .1 10/31/07 10.28 (b) (d) SixthA mendmentt ot he Second Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fM ay 27, 2008, amongW orld Financial NetworkN ationalB ank, WFNC reditC ompany, LLC,a nd TheB anko f NewY orkT rust Company, N.A. 8-K4 .1 5/29/08 10.29 (b) (d) SeventhA mendmentt ot he Second Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fJ une 28, 2010, amongW orld Financial NetworkN ationalB ank, WFNC reditC ompany, LLC,a nd TheB anko f NewY orkM ellonT rust Company, N.A. 8-K4 .2 6/30/10 10.30 (b) (d) SupplementalA greement to Second Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fA ugust9 ,2 010, among WorldF inancial NetworkN ationalB ank, WFNC reditC ompany, LLC,a nd TheB anko f NewY orkM ellonT rust Company, N.A. 8-K4 .1 8/12/10 10.31 (b) (c) (d) EighthA mendmentt ot he Second Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fN ovember 9, 2011, among World FinancialN etwork Bank, WFNC reditC ompany, LLC,a nd TheB anko f NewY orkM ellonT rust Company, N.A. 8-K4 .1 11/14/11 10.32 (b) (c) (d) NinthA mendmentt oS econd Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fD ecember1 ,2 016, among Comenity Bank, WFNC reditC ompany, LLC,a nd MUFG UnionB ank, N.A. 8-K4 .1 12/2/16 10.33 (b) (c) (d) TenthA mendmentt oS econd Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fA ugust1 6, 2018, among Comenity Bank, WFNC reditC ompany, LLC,a nd MUFG UnionB ank, N.A. 8-K4 .1 8/20/18 10.34 (b) (c) (d) Eleventh Amendmentt oS econd Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fJ une 11, 2020, amongC omenity Bank, WFNC reditC ompany, LLC, andM UFGU nion Bank, N.A. 8-K4 .2 6/16/20 10.35 (b) (c) TwelfthA mendmentt oS econd Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fO ctober2 7, 2020, among WFNC redit Company, LLC,a st ransferor, Comenity Bank, as servicer,a nd MUFG UnionB ank, N.A. 8-K4 .1 10/30/20 10.36 (b) (c) (d) Thirteenth Amendmentt oS econd Amendeda nd Restated Poolinga nd ServicingA greement, dateda so fA pril 26, 2024, among WFNC redit Company, LLC,a st ransferor, Comenity Bank, as servicer,a nd U.S. Bank NationalA ssociation. 8-K4 .3 4/30/24 86
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10.37 (b) (c) CollateralS eriesS upplementt oS econd Amendeda nd Restated Pooling andS ervicing Agreement, dateda so fA ugust2 1, 2001, among WFN Credit Company, LLC,W orld FinancialN etwork NationalB anka nd BNYM idwest TrustC ompany. 8-K4 .7 8/31/01 10.38 (b) (c) FirstA mendmentt oC ollateralS eriesS upplement, dateda so fN ovember 7, 2002, among WFNC reditC ompany, LLC,W orld FinancialN etwork NationalB anka nd BNYM idwest TrustC ompany. 8-K4 .3 11/20/02 10.39 (b) (c) (d) Second Amendmentt oC ollateralS eriesS upplement, dateda so fJ uly6 , 2016, among WFNC reditC ompany, LLC,C omenity Bank andM UFG UnionB ank, N.A. 8-K4 .1 7/8/16 10.40 (b) (c) (d) CollateralC ertificateN o. 4d ated June 18, 2021, amongW FN Credit Company, LLC,W orld FinancialN etwork Credit Card Master Note Trust, andW orld FinancialN etwork Credit Card Master Trust. 8-K4 .3 6/24/21 10.41 (b) (c) Transfer andS ervicing Agreement, dateda so fA ugust1 ,2 001, between WFNC reditC ompany, LLC, WorldF inancial NetworkN ationalB ank, andW orld FinancialN etwork Credit Card Master Note Trust. 8-K4 .3 8/31/01 10.42 (b) (c) FirstA mendmentt ot he Transfer andS ervicing Agreement, dateda so f November 7, 2002, among WFNC reditC ompany, LLC,W orld Financial NetworkN ationalB anka nd WorldF inancial NetworkC reditC ardM aster Note Trust. 8-K4 .2 11/20/02 10.43 (b) (c) (d) ThirdA mendmentt ot he Transfer andS ervicing Agreement, dateda so f May1 9, 2004, among WFNC reditC ompany, LLC,W orld Financial NetworkN ationalB anka nd WorldF inancial NetworkC reditC ardM aster Note Trust. 8-K4 .2 8/4/04 10.44 (b) (c) (d) Fourth Amendmentt ot he Transfer andS ervicing Agreement, dateda so f March3 0, 2005, among WFNC reditC ompany, LLC,W orld Financial NetworkN ationalB anka nd WorldF inancial NetworkC reditC ardM aster Note Trust. 8-K4 .2 4/5/05 10.45 (b) (d) FifthA mendmentt ot he Transfer andS ervicing Agreement, dateda so f June 13, 2007, among WFNC reditC ompany, LLC,W orld Financial NetworkN ationalB anka nd WorldF inancial NetworkC reditC ardM aster Note Trust. 8-K4 .2 6/15/07 10.46 (b) (c) (d) SixthA mendmentt ot he Transfer andS ervicing Agreement, dateda so f October2 6, 2007, among WFNC reditC ompany, LLC,W orld Financial NetworkN ationalB anka nd WorldF inancial NetworkC reditC ardM aster Note Trust. 8-K4 .2 10/31/07 10.47 (b) (d) SeventhA mendmentt oT ransfera nd ServicingA greement, dateda so f June 28, 2010, among WorldF inancial NetworkN ationalB ank, WFN Credit Company, LLC,a nd WorldF inancial NetworkC reditC ardM aster Note Trust. 8-K4 .4 6/30/10 87
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10.48 (b) (d) SupplementalA greement to Transfer andS ervicing Agreement, dateda s of August9 ,2 010, among WorldF inancial NetworkN ationalB ank, WFN Credit Company, LLC,a nd WorldF inancial NetworkC reditC ardM aster Note Trust. 8-K4 .3 8/12/10 10.49 (b) (c) (d) EighthA mendmentt oT ransfera nd ServicingA greement, dateda so f June 15, 2011, among WorldF inancial NetworkN ationalB ank, WFN Credit Company, LLC,a nd WorldF inancial NetworkC reditC ardM aster Note Trust. 8-K4 .1 6/15/11 10.50 (b) (c) (d) NinthA mendmentt oT ransfera nd ServicingA greement, dateda so f November 9, 2011, among WorldF inancial NetworkB ank, WFNC redit Company, LLC,a nd WorldF inancial NetworkC reditC ardM asterN ote Trust. 8-K4 .3 11/14/11 10.51 (b) (c) (d) TenthA mendmentt ot he Transfer andS ervicing Agreement, dateda so f July 6, 2016, among Comenity Bank, WFNC reditC ompany, LLC and WorldF inancial NetworkC reditC ardM asterN oteT rust. 8-K4 .4 7/8/16 10.52 (b) (c) (d) Eleventh Amendmentt ot he Transfer andS ervicing Agreement, dateda s of April2 6, 2024, among Comenity Bank, WFNC reditC ompany, LLC andW orld FinancialN etwork Credit Card Master Note Trust. 8-K4 .5 4/30/24 10.53 (b) (d) Receivables Purchase Agreement, dateda so fA ugust1 ,2 001, between WorldF inancial NetworkN ationalB anka nd WFNC reditC ompany, LLC. 8-K4 .8 8/31/01 10.54 (b) (d) FirstA mendmentt oR eceivables Purchase Agreement, dateda so fJ une 28, 2010, between WorldF inancial NetworkN ationalB anka nd WFN Credit Company, LLC. 8-K4 .3 6/30/10 10.55 (b) (d) SupplementalA greement to Receivables Purchase Agreement, dateda so f August9 ,2 010, between WorldF inancial NetworkN ationalB anka nd WFNC reditC ompany, LLC. 8-K4 .2 8/12/10 10.56 (b) (c) (d) Second Amendmentt oR eceivables Purchase Agreement, dateda so f November 9, 2011, between WorldF inancial NetworkB anka nd WFN Credit Company, LLC. 8-K4 .2 11/14/11 10.57 (b) (c) (d) ThirdA mendmentt oR eceivables Purchase Agreement, dateda so fJ uly6 , 2016, between Comenity Bank andW FN Credit Company, LLC. 8-K4 .2 7/8/16 10.58 (b) (c) (d) Fourth Amendmentt oR eceivables Purchase Agreement, dateda so fJ une 11, 2020, between Comenity Bank andW FN Credit Company, LLC. 8-K4 .3 6/16/20 10.59 (b) (c) (d) FifthA mendmentt oR eceivables Purchase Agreement, dateda so fA pril 26, 2024, between Comenity Bank andW FN Credit Company, LLC. 8-K4 .4 4/30/24 10.60 (b) (c) MasterI ndenture, dateda so fA ugust1 ,2 001, between WorldF inancial NetworkC reditC ardM asterN oteT rust andB NY MidwestT rust Company. 8-K4 .1 8/31/01 88
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10.61 (b) (c) Omnibus Amendment, dateda so fM arch 31, 2003, amongW FN Credit Company, LLC,W orld FinancialN etwork Credit Card Master Trust, WorldF inancial NetworkN ationalB anka nd BNYM idwest Trust Company. 8-K4 4/22/03 10.62 (b) (d) SupplementalI ndentureN o. 1, dateda so fA ugust1 3, 2003, between WorldF inancial NetworkC reditC ardM asterN oteT rust andB NY MidwestT rust Company. 8-K4 .2 8/28/03 10.63 (b) (d) SupplementalI ndentureN o. 2, dateda so fJ une 13, 2007, between World FinancialN etwork Credit Card Master Note Trusta nd BNYM idwest TrustC ompany. 8-K4 .3 6/15/07 10.64 (b) (d) SupplementalI ndentureN o. 3, dateda so fM ay 27, 2008, between World FinancialN etwork Credit Card Master Note Trusta nd TheB anko fN ew York TrustC ompany, N.A. 8-K4 .2 5/29/08 10.65 (b) (d) SupplementalI ndentureN o. 4, dateda so fJ une 28, 2010, between World FinancialN etwork Credit Card Master Note Trusta nd TheB anko fN ew York MellonT rust Company, N.A. 8-K4 .1 6/30/10 10.66 (b) (c) (d) SupplementalI ndentureN o. 5, dateda so fF ebruary2 0, 2013, between WorldF inancial NetworkC reditC ardM asterN oteT rust andU nion Bank, N.A. 8-K4 .2 2/22/13 10.67 (b) (c) (d) SupplementalI ndentureN o. 6t oM asterI ndenture,d ated as of July 6, 2016, between WorldF inancial NetworkC reditC ardM asterN oteT rust andM UFGU nion Bank, N.A. 8-K4 .3 7/8/16 10.68 (b) (c) (d) SupplementalI ndentureN o. 7t oM asterI ndenture,d ated as of June 11, 2020, between WorldF inancial NetworkC reditC ardM asterN oteT rust andM UFGU nion Bank, N.A. 8-K4 .1 6/16/20 10.69 (b) (c) (d) SupplementalI ndentureN o. 8t oM asterI ndenture,d ated as of April2 6, 2024, between WorldF inancial NetworkC reditC ardM asterN oteT rust andU .S.B ankN ationalA ssociation. 8-K4 .1 4/30/24 10.70 (b) (c) (d) Agreemento fR esignation, Appointment andA cceptance, dateda so f May2 5, 2021, by anda mong WFNC reditC ompany, LLC,U .S.B ank TrustN ationalA ssociationa nd CiticorpT rust Delaware,N ational Association. 8-K4 .1 5/28/21 10.71 (b) (c) (d) Succession Agreement, dateda so fJ une 18, 2021, by anda mong Comenity Bank, WorldF inancial NetworkC reditC ardM asterN ote Trust, MUFG UnionB ank, N.A. andU .S.B ankN ationalA ssociation. 8-K4 .1 6/24/21 10.72 (b) (c) (d) Succession Agreement, dateda so fJ une 18, 2021, among WFNC redit Company, LLC,M UFGU nion Bank, N.A. andU .S.B ankN ational Association. 8-K4 .2 6/24/21 10.73 (b) (c) (d) Series 2023-AI ndenture Supplement, dateda so fM ay 16, 2023, between WorldF inancial NetworkC reditC ardM asterN oteT rust andU .S.B ank NationalA ssociation. 8-K4 .1 5/19/23 89
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10.74 (b) (c) (d) FirstA mendmentt oS eries2 023-AI ndenture Supplement, dateda so f December2 2, 2023, between WorldF inancial NetworkC reditC ard Master Note Trusta nd U.S. Bank NationalA ssociation. 8-K4 .1 12/26/23 10.75 (b) (c) (d) Second Amendmentt oS eries2 023-AI ndenture Supplement, dateda so f April2 6, 2024, between WorldF inancial NetworkC reditC ardM aster Note Trusta nd U.S. Bank National Association. 8-K4 .2 4/30/24 10.76 (b) (c) (d) Series 2024-AI ndenture Supplement, dateda so fM ay 15, 2024, between WorldF inancial NetworkC reditC ardM asterN oteT rust andU .S.B ank NationalA ssociation. 8-K4 .1 5/21/24 10.77 (b) (c) (d) Series 2024-BI ndentureS upplement, dateda so fA ugust1 3, 2024, between WorldF inancial NetworkC reditC ardM asterN oteT rust and U.S. Bank NationalA ssociation. 8-K4 .1 8/14/24 10.78 (b) (d) Amendeda nd Restated TrustA greement, dateda so fA ugust1 ,2 001, between WFNC reditC ompany, LLC andC hase ManhattanB ankU SA, NationalA ssociation. 8-K4 .4 8/31/01 10.79 (b) (c) (d) FirstA mendmentt oA mendeda nd Restated TrustA greement, dateda so f May2 5, 2021, between WFNC reditC ompany, LLC andC iticorpT rust Delaware,N ationalA ssociation. 8-K4 .2 5/28/21 10.80 (b) (d) AdministrationA greement, dateda so fA ugust1 ,2 001, between World FinancialN etwork Credit Card Master Note Trusta nd WorldF inancial NetworkN ationalB ank. 8-K4 .5 8/31/01 10.81 (b) (d) FirstA mendmentt oA dministrationA greement, dateda so fJ uly3 1, 2009, between WorldF inancial NetworkC reditC ardM asterN oteT rust and WorldF inancial NetworkN ationalB ank. 8-K4 .1 7/31/09 10.82 (b) (c) (d) SixthA mendeda nd Restated ServiceA greement,d ated as of January 1, 2025, by andb etween Comenity Bank andC omenity ServicingL LC. 8-K9 9.1 1/2/25 10.83 (b) (c) (d) AssetR epresentations Review Agreement, dateda so fJ uly6 ,2 016, among Comenity Bank, WFNC reditC ompany, LLC,W orld Financial NetworkC reditC ardM asterN oteT rust andF TI Consulting, Inc. 8-K1 0.1 7/8/16 10.84 (b) (c) (d) FirstA ddendum to SixthA mendeda nd Restated ServiceA greement, dateda so fA pril 1, 2025, by andb etween Comenity Bank andC omenity ServicingL LC. 8-K9 9.1 4/3/25 10.85 (b) (c) (d) Second Addendum to SixthA mendeda nd Restated ServiceA greement, dateda so fA pril 1, 2025, by andb etween Comenity Bank andC omenity ServicingL LC. 8-K9 9.2 4/3/25 90
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10.86 (b) (c) (d) ServiceA greement,d ated as of April1 ,2 025, by andb etween Comenity Bank andC omenity ServicingL LC. 8-K9 9.3 4/3/25 10.87 (b) (c) (d) ThirdA ddendum to SixthA mendeda nd Restated ServiceA greement, dateda so fJ une 1, 2025, by andb etween Comenity Bank andC omenity ServicingL LC. 8-K9 9.1 8/1/25 10.88 (b) (c) (d) Fourth Addendum to SixthA mendeda nd Restated ServiceA greement, dateda so fO ctober1 ,2 025, by andb etween Comenity Bank and Comenity ServicingL LC. 8-K9 9.1 10/1/25 10.89 (a) Receivables Purchase Agreement, dateda so fS eptember 29, 2008, between WorldF inancial CapitalB anka nd WorldF inancial Capital Credit Company, LLC. 10-Q1 0.3 11/7/08 10.90 (a) AmendmentN o. 1t oR eceivables Purchase Agreement, dateda so fJ une 4, 2010, between WorldF inancial CapitalB anka nd WorldF inancial CapitalC reditC ompany, LLC. 10-Q1 0.11 8/9/10 10.91 (a) AmendmentN o. 2t oR eceivables Purchase Agreement, dateda so f December1 2, 2024, between Comenity CapitalB anka nd World FinancialC apitalC reditC ompany, LLC. 10-K1 0.100 2/14/25 10.92 (a) Transfer andS ervicing Agreement, dateda so fS eptember 29, 2008, among WorldF inancial CapitalC reditC ompany, LLC,W orld Financial CapitalB anka nd WorldF inancial CapitalM asterN oteT rust. 10-Q1 0.4 11/7/08 10.93 (a) AmendmentN o. 1t oT ransfera nd ServicingA greement, dateda so fJ une 4, 2010, among WorldF inancial CapitalC reditC ompany, LLC,W orld FinancialC apitalB anka nd WorldF inancial CapitalM asterN oteT rust. 10-Q1 0.12 8/9/10 10.94 (a) AmendmentN o. 2t oT ransfera nd ServicingA greement, dateda so f December1 2, 2024, among WorldF inancial CapitalC reditC ompany, LLC,C omenity CapitalB anka nd WorldF inancial CapitalM asterN ote Trust. 10-K1 0.103 2/14/25 10.95 (a) Master Indenture, dateda so fS eptember 29, 2008, between World FinancialC apitalM asterN oteT rust andU .S.B ankN ationalA ssociation, together with SupplementalI ndentureN os.1- 3. 10-K1 0.104 2/27/18 10.96 (a) SupplementalI ndentureN o. 4t oM asterI ndenture,d ated as of December 12, 2024, between WorldF inancial CapitalM asterN oteT rust andU .S. Bank NationalA ssociation. 10-K1 0.105 2/14/25 10.97 (a) Receivables Purchase Agreement, dateda so fJ une 17, 2022, between Comenity CapitalB anka nd Comenity CapitalC reditC ompany, LLC. 10-K1 0.98 2/28/23 10.98 (a) AmendmentN o. 1t oR eceivables Purchase Agreement, dateda so f December2 0, 2024, between Comenity CapitalB anka nd Comenity CapitalC reditC ompany, LLC. 10-K1 0.107 2/14/25 10.99 (a) Transfer Agreement, dateda so fJ une 17, 2022, between Comenity CapitalC reditC ompany, LLCa nd Comenity CapitalA sset Securitization Trust. 10-K1 0.99 2/28/23 91
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10.100 (a) AmendmentN o. 1t oT ransferA greement, dateda so fD ecember2 0, 2024, between Comenity CapitalC reditC ompany, LLC andC omenity CapitalA sset SecuritizationT rust. 8-K1 0.109 2/14/25 10.101 (a) ServicingA greement, dateda so fJ une 17, 2022, between Comenity CapitalC reditC ompany, LLC, Comenity CapitalB anka nd Comenity CapitalA sset SecuritizationT rust. 10-K1 0.100 2/28/23 10.102 (a) Master Indenture, dateda so fJ une 17, 2022, between Comenity Capital AssetS ecuritizationT rust andU .S.B ankT rust Company, National Association. 10-K1 0.101 2/28/23 10.103 (a) SupplementalI ndentureN o. 1t oM asterI ndenture,d ated as of December 20, 2024, between Comenity CapitalA sset SecuritizationT rust andU .S. Bank TrustC ompany, NationalA ssociation. 10-K1 0.112 2/14/25 10.104 (a) Fourth Amendeda nd Restated Series 2009-VFNI ndenture Supplement, dateda so fF ebruary2 8, 2014, between WorldF inancial NetworkC redit Card Master Note Trusta nd UnionB ank, N.A. 10-K1 0.129 2/27/15 10.105 (a) FirstA mendmentt oF ourth Amendeda nd Restated Series 2009-VFN IndentureS upplement, dateda so fJ uly1 0, 2017, between World FinancialN etwork Credit Card Master Note Trusta nd MUFG Union Bank, N.A.,f ormerlyk nowna sU nion Bank, N.A. 10-Q1 0.8 8/7/17 10.106 (a) Second Amendmentt oF ourth Amendeda nd Restated Series 2009-VFN IndentureS upplement, dateda so fD ecember1 ,2 017, between World FinancialN etwork Credit Card Master Note Trusta nd MUFG Union Bank, N.A. 10-K1 0.109 2/27/18 10.107 (a) ThirdA mendmentt oF ourth Amendeda nd Restated Series 2009-VFN IndentureS upplement, dateda so fM ay 3, 2018, between WorldF inancial NetworkC reditC ardM asterN oteT rust andM UFGU nion Bank, N.A. 10-K1 0.110 2/26/19 10.108 (a) Fourth Amendmentt oF ourth Amendeda nd Restated Series 2009-VFN IndentureS upplement, dateda so fA ugust3 1, 2018, between World FinancialN etwork Credit Card Master Note Trusta nd MUFG Union Bank, N.A. 10-K1 0.111 2/26/19 10.109 (a) FifthA mendmentt oF ourth Amendeda nd Restated Series 2009-VFN IndentureS upplement, dateda so fF ebruary1 ,2 019, between World FinancialN etwork Credit Card Master Note Trusta nd MUFG Union Bank, N.A. 10-K1 0.112 2/26/19 10.110 (a) SixthA mendmentt oF ourth Amendeda nd Restated Series 2009-VFN IndentureS upplement, dateda so fJ une 11, 2020, between World FinancialN etwork Credit Card Master Note Trusta nd MUFG Union Bank, N.A. 10-K1 0.118 2/26/21 10.111 (a) SeventhA mendmentt oF ourth Amendeda nd Restated Series 2009-VFN IndentureS upplement, dateda so fS eptember 10, 2020, between World FinancialN etwork Credit Card Master Note Trusta nd MUFG Union Bank, N.A. 10-K1 0.119 2/26/21 92
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10.112 (a) EighthA mendmentt oF ourth Amendeda nd Restated Series 2009-VFN IndentureS upplement, dateda so fA ugust1 ,2 022, between World FinancialN etwork Credit Card Master Note Trusta nd U.S. Bank National Association, as successort oM UFGU nion Bank, N.A. 10-K1 0.110 2/28/23 10.113 (a) NinthA mendmentt oF ourth Amendeda nd Restated Series 2009-VFN IndentureS upplement, dateda so fF ebruary1 ,2 023, between World FinancialN etwork Credit Card Master Note Trusta nd U.S. Bank National Association. 10-K1 0.127 2/20/24 10.114 (a) TenthA mendmentt oF ourth Amendeda nd Restated Series 2009-VFN IndentureS upplement, dateda so fD ecember2 2, 2023, between World FinancialN etwork Credit Card Master Note Trusta nd U.S. Bank National Association. 10-K1 0.128 2/20/24 10.115 (a) Eleventh Amendmentt oF ourth Amendeda nd Restated Series 2009-VFN IndentureS upplement, dateda so fA pril 26, 2024, between World FinancialN etwork Credit Card Master Note Trusta nd U.S. Bank National Association. 10-K1 0.124 2/14/25 *10.116 (a) TwelfthA mendmentt oF ourth Amendeda nd Restated Series 2009-VFN IndentureS upplement, dateda so fS eptember 19, 2025, between World FinancialN etwork Credit Card Master Note Trusta nd U.S. Bank National Association. 10.117 (a) Credit Agreement, dateda so fJ une 7, 2023, by anda mong Bread FinancialH oldings,I nc., thes ubsidiary guarantorsp arties thereto, JPMorgan ChaseB ank, N.A.,a sa dministrativea gent,a nd otherf inancial institutions as lenders. 8-K1 0.2 6/13/23 ^10.118 (a) AmendmentN o. 1t oC reditA greement, dateda so fO ctober1 8, 2024, by anda mong Bread FinancialH oldings,I nc., as borrower, andc ertain of its subsidiaries as guarantors, JPMorgan ChaseB ank, N.A.,a s AdministrativeA gent andv arious otherl enders. 8-K1 0.1 10/21/24 10.119 (a) Indenture, dateda so fM arch 10, 2025, amongB read FinancialH oldings, Inc. andU .S.B ankT rust Company, NationalA ssociation,(including the form of theC ompany’s8 .375% Fixed-Rate ResetS ubordinatedN otes due June 15, 2035). 8-K4 .1 3/10/25 *10.120 (a) Indenture, dateda so fN ovember 6, 2025, among BreadF inancial Holdings,I nc., thes ubsidiary guarantorsp arty theretoa nd U.S. Bank TrustC ompany, NationalA ssociation( including thef ormo ft he Company’s6 .750%F ixed-RateR eset SubordinatedN otes due May1 5, 2031).# *19 (a) Bread FinancialH oldings,I nc.I nsider TradingP olicy. *21 (a) Subsidiaries of theR egistrant *23.1 (a) Consento fD eloitte &T ouche LLP *31.1 (a) Certificationo fC hief ExecutiveO fficer of BreadF inancial Holdings,I nc. pursuantt oR ule1 3a-14(a) promulgatedu ndert he SecuritiesE xchange Acto f1 934, as amended. 93
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*31.2 (a) Certificationo fC hief FinancialO fficer of BreadF inancial Holdings,I nc. pursuantt oR ule1 3a-14(a) promulgatedu ndert he SecuritiesE xchange Acto f1 934, as amended. **32.1 (a) Certificationo fC hief ExecutiveO fficer of BreadF inancial Holdings,I nc. pursuantt oR ule1 3a-14(b) promulgatedu ndert he SecuritiesE xchange Acto f1 934, as amended, andS ection1 350 of Chapter6 3o fT itle 18 of theU nitedS tatesC ode. **32.2 (a) Certificationo fC hief FinancialO fficer of BreadF inancial Holdings,I nc. pursuantt oR ule1 3a-14(b) promulgatedu ndert he SecuritiesE xchange Acto f1 934, as amended, andS ection1 350 of Chapter6 3o fT itle 18 of theU nitedS tatesC ode. *97 (a) Bread FinancialH oldings,I nc.C ompensationR ecoupmentP olicy. *101 (a)T he following financiali nformationf romB read FinancialH oldings, Inc.’s AnnualR eporto nF orm1 0-Kf or thef iscal year endedD ecember 31, 2025, formattedi nI nlineX BRL: (i)C onsolidated Statements of Income,( ii) Consolidated Statements of ComprehensiveI ncome, (iii) Consolidated BalanceS heets, (iv) Consolidated Statements of Stockholders’E quity,( v) Consolidated Statements of Cash Flowsa nd (vi) Notest ot he AuditedC onsolidated FinancialS tatements. *104 (a)C overP ageI nteractiveD ataF ile (formatteda sI nlineX BRLa nd containedi nE xhibit1 01) ______________________________ *F iledh erewith ** Furnishedh erewith +M anagementc ontract,c ompensatoryp lano ra rrangement ∧ Certaine xhibits have been omittedp ursuantt oI tem6 01(a)(5)o fR egulationS -K.B read FinancialH oldings,I nc.h erebyu ndertakes to furnishs upplementally copies of anyo ft he omittede xhibits upon requestb yt he U.S. Securitiesa nd Exchange Commission. # This exhibith as been re-filedw ith theS ecuritiesa nd Exchange Commission to correct an inadvertente rroro nt he coverp ageo f Exhibit4 .1, filedw ith theC ompany’sC urrent Reporto nF orm8 -K (File 001-15749) on November 6, 2025, andh erebys upersedes andr eplaces such Exhibit4 .1 in its entirety. (a)B read FinancialH oldings,I nc. (b)W FN Credit Company, LLC (c)W orld FinancialN etwork Credit Card Master Trust (d)W orld FinancialN etwork Credit Card Master Note Trust Item 16. Form 10-KS ummary. None. 94
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INDEXT OT HE AUDITED CONSOLIDATED FINANCIAL STATEMENTS BREADF INANCIAL HOLDINGS,I NC. Page BreadF inancial Holdings,I nc.a nd Subsidiaries Reports of Independent Registered Public AccountingF irm (PCAOB ID:3 4) F-2 Consolidated Statements of Income fort he yearse ndedD ecember3 1, 2025, 2024 and2 023 F-5 Consolidated Statements of ComprehensiveI ncomef or they earse ndedD ecember3 1, 2025, 2024 and2 023 F-6 Consolidated BalanceS heetsa so fD ecember3 1, 2025 and2 024 F-7 Consolidated Statements of Stockholders’E quity fort he yearse ndedD ecember3 1, 2025, 2024 and2 023 F-8 Consolidated Statements of Cash Flowsf or they earse ndedD ecember3 1, 2025, 2024 and2 023 F-9 Notest ot he auditedC onsolidated FinancialS tatements F-10 F-1
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REPORT OF INDEPENDENT REGISTERED PUBLICA CCOUNTINGF IRM To theS tockholdersa nd theB oard of Directorso fB read FinancialH oldings,I nc. Opiniono nt he FinancialS tatements We have auditedt he accompanying Consolidated BalanceS heetso fB read FinancialH oldings,I nc.a nd subsidiaries (the “Company”)a so fD ecember3 1, 2025 and2 024, ther elated Consolidated Statements of Income,C omprehensive Income, Stockholders’E quity,a nd Cash Flowsf or each of thet hree yearsi nt he period endedD ecember3 1, 2025, andt he related notes (collectivelyr eferredt oa st he “financial statements”).I no ur opinion, thef inancial statements presentf airly, in all material respects, thef inancial positiono ft he Companya so fD ecember3 1, 2025 and2 024, andt he results of its operations andi ts cash flowsf or each of thet hree yearsi nt he period endedD ecember3 1, 2025, in conformity with accountingp rinciplesg enerally acceptedi nt he United States of America. We have also audited, in accordance with thes tandardso ft he Public CompanyA ccountingO versight Board( United States)( PCAOB), theC ompany’si nternalc ontrolo verf inancial reportinga so fD ecember3 1, 2025, basedo nc riteria establishedi n Internal Control— Integrated Framework( 2013) issued by theC ommitteeo fS ponsoringO rganizations of theT readwayC ommission ando ur reportd ated February 13, 2026, expresseda nu nqualifiedo pinion on theC ompany’s internal controlo verf inancial reporting. Basisf or Opinion Thesef inancial statements aret he responsibility of theC ompany’sm anagement. Ourr esponsibility is to expressa no pinion on theC ompany’sf inancial statements basedo no ur audits.W ea re ap ublic accountingf irmr egisteredw ith theP CAOB anda re requiredt ob ei ndependent with respect to theC ompany in accordance with theU .S.f ederal securitiesl awsa nd the applicable rulesa nd regulations of theS ecuritiesa nd Exchange Commission andt he PCAOB. We conductedo ur audits in accordance with thes tandardso ft he PCAOB.T hoses tandardsr equire that we plan and perform thea uditt oo btainr easonablea ssurancea bout whethert he financials tatementsa re freeo fm aterialm isstatement, whetherd ue to erroro rf raud. Oura udits includedp erformingp rocedures to assess ther isks of material misstatement of the financials tatements, whetherd ue to erroro rf raud, andp erformingp rocedures that respond to thoser isks.S uchp rocedures includede xamining, on at estb asis,e videncer egarding thea mountsa nd disclosuresi nt he financials tatements. Oura udits also includede valuatingt he accountingp rinciplesu seda nd significante stimatesm adeb ym anagement, as well as evaluatingt he overall presentation of thef inancial statements.W eb elieve that our audits provide ar easonableb asis foro ur opinion. Critical AuditM atter Thec ritical auditm atterc ommunicated belowi sa matter arisingf romt he current-perioda udito ft he financials tatements that wasc ommunicated or requiredt ob ec ommunicated to thea uditc ommitteea nd that (1)r elates to accountso r disclosurest hata re material to thef inancial statements and( 2) involvedo ur especially challenging, subjective, or complex judgments.T he communication of critical auditm atters doesn ot alteri na ny wayo ur opinion on thef inancial statements, takena sa whole, andw ea re not,b yc ommunicatingt he criticala uditm atterb elow,p roviding as eparateo pinion on the critical auditm attero ro nt he accountso rd isclosures to whichi tr elates. Allowancef or Credit Lossesf or credit card loans— Refert oN otes 1a nd 3t ot he financials tatements Critical AuditM atterD escription TheA llowance forc reditl ossesi sa ne stimate of expected credit losses, measured overt he estimatedl ifeo fi ts credit card loans, that considersf orecasts of future economic conditions in additiont oi nformationa bout past events andc urrent conditions.T he estimate undert he credit reservingm ethodology referredt oa st he Current Expected Credit Loss (CECL) modeli ss ignificantly influenced by thec omposition, characteristicsa nd quality of theC ompany’sc reditc ardp ortfolio,a s well as thep revailing economic conditions andf orecasts utilized. Thee stimate of theA llowancef or credit lossesf or credit cardl oans includesa ne stimatef or uncollectible principala sw ella su npaid interest andf ees.P rincipal losses, neto f recoveries ared eductedf romt he Allowancef or credit losses. Lossesf or unpaid interest andf ees,a sw ella sa ny adjustmentst ot he Allowancef or credit lossesa ssociatedw ithu npaid interest andf ees arer ecorded as ar eductiont o F-2
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Interest andf ees on loans. TheA llowancef or credit lossesi sm aintainedt hrough an adjustment to theP rovision forc redit lossesa nd is evaluatedf or appropriateness. In estimatingi ts Allowancef or credit lossesf or credit cardl oans,m anagementu sesm odelinga nd estimationt echniques basedo nh istoricall osse xperience, current conditions,r easonablea nd supportablef orecasts ando ther relevant factors. Thesem odels utilize historical data anda pplicable macroeconomic variablesw ith statistical analysis andb ehavioral relationships,t od etermine expected credit performance.T he Company’sq uantitativee stimate of expected credit losses underC ECLi si mpacted by certain forecastede conomic factors. TheC ompany considerst he forecastu sedt ob er easonable ands upportableo vert he estimatedl ifeo ft he credit cardl oans,w ith no reversionp eriod. In additiont ot he quantitative estimate of expected credit losses, theC ompany also incorporates qualitativea djustmentsf or certain factorss ucha s Company-specificr isks,c hangesi nc urrent economic conditions that mayn ot be capturedi nt he quantitativelyd erived results,o ro ther relevant factorst oe nsuret he Allowancef or credit lossesr eflectst he Company’sb este stimate of current expected credit lossesw ithint he credit cardl oans balance. Givent he significantj udgments made by management in estimatingi ts Allowancef or credit lossesr elated to credit card loans, performinga uditp rocedurest oe valuatet he reasonablenesso ft he estimatedA llowancef or credit losses, including procedures to evaluate theq ualitativea djustments, requireda high degree of auditorj udgmenta nd an increased extent of effort,i ncluding then eed to involve our credit modeling specialists. Howt he Critical AuditM atterW as Addressedi nt he Audit •W et estedt he design ando peratinge ffectivenesso fm anagement’sc ontrols overt he determinationa nd review of modelm ethodology, significant assumptions andq ualitativea djustments. •W ee valuated whethert he method (including them odel),d ata, ands ignificanta ssumptions area ppropriate in the contexto ft he applicable financialr eportingf ramework. •W et estedt he completeness anda ccuracy of theh istoricald atau sedi nm anagement’sm odels. •W ith assistance fromc reditm odelings pecialists,w ee valuated whethert he modeli ss uitablef or determiningt he estimate,w hich includedu nderstanding them odelm ethodology andl ogic, whethert he selected method for estimatingc reditl ossesi sa ppropriatea nd whethert he significanta ssumptions were reasonable. •W ee valuated ther easonablenesso ft he selectiono ff orecastedm acroeconomic variables, considered alternative forecasted scenariosa nd evaluateda ny contradictorye vidence. •W ee valuated whetherj udgments have been appliedc onsistently to them odela nd that anyq ualitativea djustments to theo utput of them odela re consistent with them easuremento bjectiveo ft he applicable financialr eporting framework anda re appropriate in thec ircumstances. •W ec onsidered any contradictorye videncet hata rose whilep erformingo ur procedures,a nd whethero rn ot this evidence wasi ndicativeo fm anagementb ias. /s/D eloitte& Touche LLP Columbus,O hio February 13, 2026 We have served as theC ompany’sa uditors ince 1998. F-3
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REPORT OF INDEPENDENT REGISTERED PUBLICA CCOUNTINGF IRM To theS tockholdersa nd theB oard of Directorso fB read FinancialH oldings,I nc. Opiniono nI nternalC ontrol overF inancial Reporting We have auditedt he internal controlo verf inancial reportingo fB read FinancialH oldings,I nc.a nd subsidiaries (the “Company”)a so fD ecember3 1, 2025, basedo nc riteriae stablished in Internal Control— Integrated Framework( 2013) issued by theC ommitteeo fS ponsoringO rganizations of theT readwayC ommission (COSO).I no ur opinion, theC ompany maintained,i na ll material respects, effectivei nternalc ontrolo verf inancial reportinga so fD ecember3 1, 2025, basedo n criteriae stablishedi n Internal Control— Integrated Framework( 2013) issued by COSO. We have also audited, in accordance with thes tandardso ft he Public CompanyA ccountingO versight Board( United States)( PCAOB), theC onsolidated FinancialS tatementsa so fa nd fort he year endedD ecember3 1, 2025, of theC ompany ando ur reportd ated February 13,2 026, expresseda nu nqualified opinion on thosef inancial statements. Basisf or Opinion TheC ompany’sm anagementi sr esponsible form aintaining effectivei nternalc ontrolo verf inancial reportinga nd fori ts assessmento ft he effectivenesso fi nternalc ontrolo verf inancial reporting, includedi nt he accompanying Management’s Reporto nI nternalC ontrolo verF inancial Reporting. Ourr esponsibility is to expressa no pinion on theC ompany’si nternal controlo verf inancial reporting basedo no ur audit. We areap ublic accountingf irmr egisteredw ith theP CAOB anda re requiredt ob ei ndependent with respect to theC ompany in accordance with theU .S.f ederal securitiesl awsa nd the applicable rulesa nd regulations of theS ecuritiesa nd Exchange Commission andt he PCAOB. We conductedo ur auditi na ccordance with thes tandardso ft he PCAOB.T hoses tandardsr equire that we plan andp erform thea uditt oo btainr easonablea ssurance about whethere ffectivei nternalc ontrolo verf inancial reportingw as maintained in allm aterialr espects. Oura uditi ncludedo btaining an understanding of internal controlo verf inancial reporting, assessing ther iskt hata material weakness exists,t estinga nd evaluating thed esigna nd operatinge ffectivenesso fi nternalc ontrol basedo nt he assessedr isk, andp erformings ucho ther procedures as we considered necessary in thec ircumstances.W e believe that our auditp rovidesa reasonableb asis foro ur opinion. Definition andL imitations of Internal Controlo verF inancial Reporting Ac ompany’si nternalc ontrolo verf inancial reporting is ap rocessd esignedt op rovide reasonablea ssurancer egarding the reliability of financialr eporting andt he preparationo ff inancial statements fore xternalp urposes in accordance with generally accepteda ccountingp rinciples. Ac ompany’si nternalc ontrolo verf inancial reportingi ncludest hosep oliciesa nd procedures that (1)p ertain to them aintenance of recordst hat, in reasonabled etail, accurately andf airlyr eflect the transactions andd ispositions of thea ssets of thec ompany; (2)p rovide reasonablea ssurancet hatt ransactions arer ecorded as necessary to permit preparationo ff inancial statements in accordance with generally accepteda ccountingp rinciples, and that receiptsa nd expenditureso ft he companya re beingm adeo nlyi na ccordance with authorizations of management and directorso ft he company; and( 3) provide reasonablea ssurance regardingp reventiono rt imely detectiono fu nauthorized acquisition, use, or dispositiono ft he company’sa ssets that couldh aveam ateriale ffect on thef inancial statements. Becauseo fi ts inherent limitations,i nternalc ontrolo verf inancial reportingm ay not prevento rd etect misstatements.A lso, projections of anye valuationo fe ffectivenesst of uturep eriods ares ubject to ther iskt hatc ontrols mayb ecome inadequate because of changesi nc onditions,o rt hatt he degree of compliancew ith thep olicieso rp rocedures mayd eteriorate. /s/D eloitte& Touche LLP Columbus,O hio February 13, 2026 F-4
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YearsE ndedD ecember3 1, 2025 2024 2023 (Millions,e xceptp er sharea mounts) Interesti ncome Interest andf eeso nl oans $4 ,739 $4 ,820 $4 ,961 Interest on casha nd investment securities 173 204 184 Totali nteresti ncome4 ,912 5,024 5,145 Interest expense Interest on deposits5 54 608 541 Interest on borrowings 3003 52 338 Totali ntereste xpense8 54 960 879 Neti nteresti ncome4 ,058 4,064 4,266 Non-interest income Interchange revenue,n et of retailer sharea rrangements( 416) (381) (335) Gain on portfolio sale 31 12 30 Other2 00 144 128 Totaln on-interest income (213) (226) 23 Totaln et interesta nd non-interesti ncome3 ,845 3,838 4,289 Provision forc redit losses1 ,242 1,397 1,229 Totaln et interest andn on-interest income,a fter provision forc reditl osses2 ,603 2,441 3,060 Non-interest expenses Employeec ompensationa nd benefits 880 897 867 Card andp rocessing expenses 322 326 428 Informationp rocessing andc ommunication 308 300 301 Marketinge xpenses1 50 147 161 Depreciationa nd amortization 80 90 116 Other2 48 300 219 Totaln on-intereste xpenses1 ,988 2,060 2,092 Income fromc ontinuing operations before income taxes6 15 381 968 Provision fori ncomet axes 94 102 231 Income fromc ontinuing operations 521 279 737 Loss fromd iscontinuedo perations,n et of income taxes (1) (3)( 2) (19) Neti ncomea vailablet oc ommons tockholders $5 18 $2 77 $7 18 Basici ncomep er share( Note 18) Income fromc ontinuing operations $1 1.15 $5 .63 $1 4.79 Loss fromd iscontinuedo perations $( 0.08) $( 0.05) $( 0.40) Neti ncomep er share$ 11.07 $5 .58 $1 4.39 Dilutedi ncomep er share( Note 18) Income fromc ontinuing operations $1 0.96 $5 .54 $1 4.74 Loss fromd iscontinuedo perations $( 0.07) $( 0.05) $( 0.40) Neti ncomep er share$ 10.89 $5 .49 $1 4.34 Weighted average commons hares outstanding (Note1 8) Basic4 6.8 49.6 49.8 Diluted4 7.6 50.4 50.0 ___________________________________________________________ (1) Includesa mountst hatr elated to thep reviously disclosedd iscontinuedo perations associated with thes pinoffo fo ur former LoyaltyOne segmenti n2 021 andt he sale of our former Epsilons egment in 2019. Fora dditionali nformationr efer to Note 1, “Descriptiono f Business, Basiso fP resentationa nd SignificantA ccountingP olicies” to thea uditedC onsolidated FinancialS tatements. SeeN otes to thea uditedC onsolidated FinancialS tatements. BREADF INANCIAL HOLDINGS,I NC. CONSOLIDATED STATEMENTS OF INCOME F-5
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BREADF INANCIAL HOLDINGS,I NC. CONSOLIDATED STATEMENTS OF COMPREHENSIVEI NCOME YearsE ndedD ecember3 1, 2025 2024 2023 (Millions) Neti ncome$ 518$ 277 $7 18 Otherc omprehensive income (loss) Unrealized gain (loss) on available-for-saled ebts ecurities 7( 4) 2 Tax( expense) benefit( 2) 1— Unrealized gain (loss) on available-for-saled ebts ecurities,n et of tax5 (3)2 Unrealized gain on cash flow hedges1 —— Taxe xpense— —— Unrealized gain on cash flow hedges, neto ft ax 1—— Otherc omprehensive income (loss),n et of tax6 (3)2 Totalc omprehensive income,n et of tax$ 524 $2 74 $7 20 SeeN otes to thea uditedC onsolidated FinancialS tatements. F-6
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BREADF INANCIAL HOLDINGS,I NC. CONSOLIDATED BALANCE SHEETS December3 1, 2025 2024 (Millions,e xceptp referred shares andp ercentages) ASSETS Cash andc ashe quivalents$ 3,604 $3 ,679 Credit carda nd otherl oans Totalc reditc arda nd otherl oans (includesl oans availablet os ettle obligations of consolidated variable interest entities:2 025, $10,708; 2024, $12,408) 18,805 18,896 Allowancef or credit losses( 2,106) (2,241) Credit carda nd otherl oans,n et 16,699 16,655 Investments( includesi nvestment securitiesc arried at fair value: 2025, $221; 2024, $217) 284 266 Propertya nd equipment, net1 17 142 Goodwill andi ntangiblea ssets,n et 7167 46 Othera ssets 1,243 1,403 Totala ssets $2 2,663 $2 2,891 LIABILITIESA ND STOCKHOLDERS’E QUITY Deposits $1 3,916 $1 3,082 Debt issued by consolidated variable interest entities 3,422 4,558 Long-term ando ther debt 886 999 Otherl iabilities 1,112 1,201 Totall iabilities 19,336 19,840 Commitmentsa nd contingencies( Note 20) Stockholders’e quity Preferreds tock,$ 0.01 parv alue;a uthorized,7 5.0 thousands hares; issued and outstanding: 2025, 75.0 thousands hares; 2024, no shares —— Commons tock,$ 0.01 parv alue;a uthorized,2 00.0 million shares;i ssued and outstanding: 2025, 44.1 million shares;2 024, 49.1 million shares —1 Additionalp aid-in capital1 ,868 2,073 Retained earnings 1,475 999 Accumulatedo ther comprehensivel oss( 16) (22) Totals tockholders’e quity3 ,327 3,051 Totall iabilities ands tockholders’ equity $2 2,663 $2 2,891 SeeN otes to thea uditedC onsolidated FinancialS tatements. F-7
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BREADF INANCIAL HOLDINGS,I NC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’E QUITY Preferred StockC ommonS tock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders’ EquityShares Amount Shares Amount (Millions,e xceptp referred shares in thousands andp er shares amounts) Balancea so fD ecember 31, 2022 —$ —4 9.9 $1 $2 ,192 $9 3$ (21) $2 ,265 Neti ncome— —— —— 718 —7 18 Otherc omprehensive income —— —— —— 22 Stock-basedc ompensation— —— —4 4— —4 4 Cappedc allt ransactions forc onvertible senior notes due 2028, neto ft ax —— —— (30) —— (30) Repurchases of commons tock —— (0.9) —( 35) —— (35) Dividends andd ividende quivalent rightsd eclared ($0.84 perc ommons hare)— —— —— (44) —( 44) Issuances of shares to employees,n et of shares withheld fore mployeet axes —— 0.3 —( 2) —— (2) Balancea so fD ecember 31, 2023 —$ —4 9.3 $1 $2 ,169 $7 67 $( 19) $2 ,918 Cumulativee ffect of change in accountingp rinciple (1) —— —— —( 1) —( 1) Neti ncome— —— —— 277 —2 77 Otherc omprehensive loss —— —— —— (3)( 3) Stock-basedc ompensation— —— —5 4— —5 4 Repurchases of commons tock —— (1.0) —( 55) —— (55) Repurchases of Convertible Notes— —— —( 88) —— (88) Dividends andd ividende quivalent rightsd eclared ($0.84 perc ommons hare)— —— —— (44) —( 44) Issuances of shares to employees,n et of shares withheld fore mployeet axes —— 0.8 —( 7) —— (7) Balancea so fD ecember 31, 2024 —$ —4 9.1 $1 $2 ,073 $9 99 $( 22) $3 ,051 Neti ncome— —— —— 518 —5 18 Otherc omprehensive income —— —— —— 66 Stock-basedc ompensation— —— —5 6— —5 6 Issuance of preferreds tock 75.0 —— —7 1— —7 1 Repurchases of commons tock —— (5.7) (1)( 312) —— (313) Repurchases of Convertible Notes— —— —( 4) —— (4) Dividends andd ividende quivalent rightsd eclared ($0.86 perc ommons hare)— —— —— (42) —( 42) Issuances of shares to employees,n et of shares withheld fore mployeet axes —— 0.7 —( 16) —— (16) Balancea so fD ecember 31, 2025 75.0 $— 44.1 $— $1 ,868 $1 ,475 $( 16) $3 ,327 __________________________________ (1) Represents thec umulativee ffect,n et of tax, of adoptingt he proportionala mortizationm ethod of accountingf or our taxc rediti nvestment.F or additionali nformationr efer to Note 1, “Descriptiono fB usiness, Basiso fP resentationa nd SignificantA ccountingP olicies” to thea uditedC onsolidated FinancialS tatements. SeeN otes to thea uditedC onsolidated FinancialS tatements F-8
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Yearse ndedD ecember3 1, 2025 2024 2023 (Millions) CASHF LOWS FROM OPERATINGA CTIVITIES Neti ncome$ 518 $2 77 $7 18 Adjustmentst or econcile neti ncomet on et cashp rovidedb yo peratinga ctivities Provision forc reditl osses1 ,242 1,397 1,229 Depreciationa nd amortization8 09 01 16 Deferredi ncomet axes 90 (85) (68) Non-cashs tock-based compensation5 65 44 4 Amortizationo fd eferredf inancing costs1 62 12 6 Amortizationo fd eferredo riginationc osts 75 92 92 Gain on portfolio sale (3)( 11) (230) Loss on debt extinguishment 74 117 7 Change in othero peratinga ssets andl iabilities Change in othera ssets 57 42 28 Change in otherl iabilities( 96) (109) — Other( 17) (26) 25 Netc ashp rovidedb yo perating activities 2,092 1,859 1,987 CASHF LOWS FROM INVESTINGA CTIVITIES Change in credit carda nd otherl oans (1,345) (840) (1,154) Proceedsf roms aleo fc reditc ardl oanp ortfolios— 101 2,499 Purchaseso fc reditc ardl oanp ortfolios— (377) (473) Purchaseso fi nvestments( 22)( 31) (50) Maturitieso fi nvestments2 01 41 4 Other, including capitale xpenditures( 24) (36) (48) Netc ash( used in)p rovidedb yi nvesting activities (1,371) (1,169) 788 CASHF LOWS FROM FINANCING ACTIVITIES Unsecuredb orrowings underd ebta greements 900 300 1,401 Repayments/maturitieso fu nsecuredb orrowings underd ebta greements (1,079) (894) (1,882) Debt issued by consolidated variable interest entities9 25 2,390 2,592 Repayments/maturitieso fd ebti ssued by consolidated variable interest entities( 2,063) (1,727) (4,807) Neti ncrease( decrease) in deposits 835 (541) (209) Paymento fd eferredf inancing costs( 24) (15) (63) Netp roceedsf romt he issuance of preferreds tock 71 —— Repurchases of commons tock (313) (55) (35) Dividends andd ividende quivalent rightsp aid( 42) (43) (42) Paymento fC appedC allt ransactions —— (39) Other( 17) (7)( 2) Netc ashu sedi nf inancing activities (807) (592) (3,086) Change in cash, cash equivalentsa nd restricted cash( 86) 98 (311) Cash,c ashe quivalents andr estrictedc asha tb eginning of period 3,714 3,616 3,927 Cash,c ashe quivalents andr estrictedc asha te nd of period $3 ,628 $3 ,714 $3 ,616 SUPPLEMENTALC ASHF LOWI NFORMATION Cash paid duringt he year fori nterest $8 68 $9 22 $8 61 Cash paid duringt he year fori ncomet axes,n et $5 3$ 227 $2 92 Cash andc ashe quivalentsr econciliation Cash andc ashe quivalents $3 ,604 $3 ,679 $3 ,590 Restricted cash includedw ithin OtherA ssets 24 35 26 Totalc ash, cash equivalents andr estrictedc ash $3 ,628 $3 ,714 $3 ,616 TheC onsolidated Statements of Cash Flowsa re presentedw ith thec ombinedc ashf lows fromc ontinuing andd iscontinuedo perations. SeeN otes to thea uditedC onsolidated FinancialS tatements. BREADF INANCIAL HOLDINGS,I NC. CONSOLIDATED STATEMENTS OF CASHF LOWS F-9
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1. DESCRIPTIONO FB USINESS, BASISO FP RESENTATIONA ND SIGNIFICANT ACCOUNTINGP OLICIES DESCRIPTIONO FB USINESS We areat ech-forwardf inancial services companyt hatp rovidess imple,p ersonalized payment, lending, ands aving solutions to millions of U.S. consumers. Ourp ayment solutions,i ncluding Bread Financialg eneral purposec reditc ards and savings products,e mpower our customersa nd theirp assions fora betterl ife. Additionally,w ed eliver growth fors omeo f them ostr ecognizedb rands in travel ande ntertainment,h ealth andb eauty,j ewelry ands pecialty apparelt hrough our privatel abel andc o-brandc reditc ards andp ay-over-timep roducts providing choice andv alue to our shared customers. We have continuedt od iversify ourp roductm ix with our brandp artnerst hrough growth of our co-brand credit card programs, which, relativet oo ur privatel abel credit card programs, have higherc redits ales pera ccount anda ni mproved credit risk mix that generally results in highert ransactor balances,l ower delinquenciesa nd late fees,a sw ella sl ower losses. We also offero ur proprietary credit cards along with thee xpansiono fo ur Bread Payp roducts,w hich areo ur installment loansa nd “split-pay” offerings. Ourp artner base consists of largec onsumer-based businesses, including well-knownb rands such as (alphabetically)A AA, AcademyS ports +O utdoors, Caesars, Dell Technologies,H ardR ockI nternational, theN FL,R aymour &F lanigan, Saks FifthA venue,S ignet, Ulta andV ictoria’sS ecret, as well as small- andm edium-sized businesses( SMBs). Ourp artner base is well diversifieda crossa broadr ange of industriesa nd retail verticals, including travel ande ntertainment,s pecialty apparel, health andb eauty, jewelry, sportingg oods,t echnology ande lectronics,a sw ella sh omea nd furniture.W eb elieve our comprehensives uite of payment, lending ands avings olutions,a long with our relatedm arketinga nd data anda nalytics, allows us to offerp roducts relevant acrossa ll customer segments (Gen Z, Millennial,G en Xa nd Baby Boomers).T he breadth andq ualityo fo ur producta nd serviceo fferings,c oupled with our customer-centric approach,h avee nabled us to establisha nd maintain long-standing partnerr elationships.W eo perate our businesst hrough as ingler eportables egment, with our primary source of revenue beingf romI nteresta nd fees on loansf romo ur various credit carda nd otherl oan products,a nd to al essere xtentf romc ontractualr elationships with our brandp artners. Throughout this report, unlesss tatedo rt he contexti mplies otherwise, thet erms “Bread Financial”,“ BFH”,t he “Company”,“ we”, “our”o r“ us”r efer to Bread FinancialH oldings,I nc.a nd its subsidiaries on ac onsolidated basis. References to “ParentC ompany” refert oB read FinancialH oldings,I nc.o na parent-onlys tandalone basis. In addition, in this reportw em ay refert ot he retailers ando ther companiesw ithw hom we do businessa so ur “partners”,“ brand partners”, or “clients”,p rovidedt hatt he useo ft he term “partner”, “partnering” or anys imilart ermd oesn ot mean or imply af ormall egal partnership, andi sn ot meanti na ny wayt oa lter thet erms of Bread Financial’sr elationshipw ith anyt hird parties. We offero ur credit products through our insuredd epositoryi nstitutions ubsidiaries,C omenity Bank andC omenity CapitalB ank, whicht ogether are referredt oh ereina st he “Banks.” BASISO FP RESENTATION Thesea uditedC onsolidated FinancialS tatementsh aveb eenp reparedi na ccordance with accountingp rinciplesg enerally acceptedi nt he United States of America( GAAP). Thea uditedC onsolidated FinancialS tatementsa lsoi nclude amounts that relate to thep reviously disclosedd iscontinuedo perations associated with thes pinoffo fo ur former LoyaltyOne segmenti n2 021 andt he sale of our former Epsilons egment in 2019. Such amountsh aveb een classified within Discontinuedo perations andp rimarily relate to thea fter-tax impact of contractuali ndemnificationa nd tax-relatedm atters. Fora dditionali nformation about our previously disclosedd iscontinuedo perations pleaser efer to Note 22, “Discontinued Operations andB ankH olding CompanyF inancial Presentation” to thea uditedC onsolidated FinancialS tatementsi ncluded in our AnnualR eporto nF orm1 0-Kf or they ear endedD ecember3 1, 2021. BREADF INANCIAL HOLDINGS,I NC. NOTEST OT HE AUDITED CONSOLIDATED FINANCIAL STATEMENTS F-10
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SIGNIFICANT ACCOUNTINGP OLICIES We presento ur accountingp oliciesw ithin theN otes to thea uditedC onsolidated FinancialS tatementst ow hich they relate; thet able belowl ists such accountingp oliciesa nd ther elated Notes. Ther emaining significanta ccountingp oliciesa pplied arei ncludedf ollowing thet able. SignificantA ccounting PolicyN oteN umberN oteT itle Credit Card andO ther LoansN ote2 Credit Card andO ther Loans Allowancef or Credit LossesN ote3 Allowancef or Credit Losses Transferso fF inancial Assets Note 4S ecuritizations InvestmentsN ote5 Investments Goodwill Note 6G oodwilla nd IntangibleA ssets, Net IntangibleA ssets,N et Note 6G oodwilla nd IntangibleA ssets, Net Stock-BasedC ompensationE xpenseN ote1 4S tock-Based Compensation Income TaxesN ote1 7I ncomeT axes Earnings PerS hare Note 18 Earnings PerS hare Principles of Consolidation Thea ccompanying auditedC onsolidated FinancialS tatementsi nclude thea ccountso fB FH anda ll subsidiaries in which we have ac ontrollingf inancial interest.F or votingi ntereste ntities,a controllingf inancial interest is determined when we area blet oe xercisec ontrolo vert he operatinga nd financiald ecisions of thei nvestee. Forv ariablei ntereste ntities( VIEs), whicha re themselves determined basedo nt he amount andc haracteristicso ft he equity in thee ntity,w eh aveac ontrolling financiali nterestw henw ea re determined to be thep rimary beneficiary. Thep rimary beneficiaryi st he partyh avingb oth (i)t he power to exercise controlo vert he activitiest hatm osts ignificantly impact theV IE’s financialp erformance,a sw ell as (ii) theo bligationt oa bsorbt he losseso f, or ther ight to receivet he benefits from, theV IE that couldp otentiallyb e significantt ot hatV IE.W ea re thep rimary beneficiaryo fo ur master securitizationt rustsa nd thereforec onsolidatet hese securitizationt rustsw ithino ur auditedC onsolidated FinancialS tatements. In cases wherew ed on ot have ac ontrollingf inancial interest,b ut we area blet oe xert significanti nfluence overt he operatinga nd financiald ecisions of thei nvestee, we account fors uchi nvestmentsu ndert he equity method. Alli ntercompanyt ransactions have been eliminated. SegmentR eporting We operate as as ingler eportables egment,w here we manage our businessa nd assess financialp erformance on a consolidated basis. Ours ingler eportables egment’s primarys ource of revenue is fromI nteresta nd fees on loansf rom our various credit carda nd otherl oanp roducts,a nd to al essere xtentf romc ontractualr elationships with our brandp artners. Ourp rimary expensei sP rovision forc reditl ossesd rivenb yN et principall ossesf romo ur various credit carda nd other loan products.O ur keyf inancial metricsi nclude theg rowthi na nd yieldo no ur Credit carda nd otherl oans,N et interest margin,o peratingl everagea nd Efficiency ratio,o ur various capitalr atios, Return on averaget angiblec ommone quity,a nd credit-relatedr atioss ucha so ur Delinquencyr ate, Netp rincipal loss rate andR eserve rate.O ur ChiefO peratingD ecision Maker( CODM)r egularly receives andr eviews consolidated operatingr esults andu seso ur keyf inancial metricst o evaluate thep erformance of theC ompany, focusing primarily on Income fromc ontinuing operations before income taxes fromt he Consolidated Statements of Income,t om aked ecisions regardingt he allocationo fr esources anda ssessmento f performance. Thef unction of CODM is performed by our Presidenta nd ChiefE xecutiveO fficer. AmountsB ased on Estimatesa nd Judgments Thep reparationo ff inancial statements in conformity with GAAPr equiresm anagementt om akee stimatesa nd judgments about future events that affect ther eporteda mountso fa ssets andl iabilities, andd isclosureo fc ontingent assets and liabilities as of thed ateo ft he auditedC onsolidated FinancialS tatements, as well as ther eporteda mountso fi ncomea nd BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-11
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expenses duringt he reporting periods.T he most significant of thosee stimatesa nd judgments relate to our Allowancef or credit lossesa nd Goodwill; actual results couldd iffer. Consolidated Statements of Income We recognize revenue when obligations undert he termso fa contract with ac ustomera re satisfied.P aymentsm ade pursuantt oc ontractuala rrangementsw ith our brandp artnerso ro ther customersa re classified as contra-revenue,e xcept wherew er eceive goods,s erviceso ro ther benefits forw hich thef airv alue is determinable andm easurable,i nw hich case they arer ecorded ase xpense. Ourp rimary source of revenue is from Interest andf ees on loansf romo ur various credit card ando ther loan products,a nd to al essere xtentf romc ontractualr elationships with our brandp artners. Thef ollowing describeso ur recognitionp oliciesa crosst he various sources of revenue we earn. Interest and fees on loans:R epresentsr evenue earned on customer accountso wned by us,a nd is recognized in thep eriod earnedi na ccordance with thec ontractualp rovisions of thec redita greements.I nteresta nd fees continue to accrue on all accounts, excepti nl imitedc ircumstances,u ntil thea ccount balancea nd allr elated interest andf ees arep aido rc harged-off, whichh appens in them onthd uringw hich an account becomes1 80 days past due forc reditc ardl oans or 120 days past due foro ther loans, whichc onsistp rimarily of our pay-over-time products,w hich include installment loansa nd “split-pay” offerings.C harge-offs of unpaid interest andf ees arer ecordeda sa reductiono fI nteresta nd fees on loans. Direct loan originationc osts on Credit carda nd otherl oans ared eferreda nd amortized on as traight-lineb asis overa one-year period forc reditc ardl oans,o rf or otherl oans,o vert he lifeo ft he loan,a nd arer ecorded as ar eductiono fI nteresta nd fees on loans. As of December3 1, 2025 and2 024, ther emaining unamortized deferredd irect loan originationc osts were $42 milliona nd $45 million, respectively,a nd includedi nT otal credit carda nd otherl oans. Interest on cash and investments ecurities: Represents revenue earned on casha nd cashe quivalentsa sw ella si nvestments in debt securities, andi sr ecognized in thep eriode arned. Interchange revenue,n et of retailer sharea rrangements: Represents revenue earnedf romm erchants,i ncluding our brand partners,a nd cardholders fromp rocessing ands ervicing accounts, andi sr ecognized as such services arep erformed.S uch revenue primarily consists of merchant andi nterchange fees,w hich aret ransactionf ees chargedt ot he merchant for the processing of credit cardt ransactions anda re recognizeda tt he time thec ardholdert ransactiono ccurs.O ur credit card program agreements maya lsop rovide forr oyaltyp ayments, or retailers hare arrangements, to our brandp artnersb ased on purchasev olumeo ri fc ertain contractuali ncentivesa re met( such as if thee conomic performance of thep rogram exceedsa contractually definedt hreshold),o rf or newa ccountsa cquired. Thesea mountsa re recorded as contra-revenue,i .e., as a reductiono fr evenue,i nt he period incurred. Also recorded as ac ontra-revenue,c osts of cardholderr ewarda rrangements arer ecognized when ther ewards aree arnedb yt he cardholders anda re generally classified as ar eductiono fr evenue. Wherew ea re responsible forr ewardr edemptionu ndert he cardholderr ewarda rrangements, we maintain al iability includedi nO ther liabilitieso nt he Consolidated BalanceS heets. Ourl iability is impacted by thet erms andc onditions of thes pecificr ewarda rrangements, thec osts of fulfillment, anda nticipated redemptionr ates.W here our brandp artnersa re responsible forr ewardr edemptionu ndert he cardholderr ewarda rrangements, our obligationt oc overc ertain costso f rewardse arnedb yt he cardholders is satisfied as we make payments to theb rand partners and, typically,n ol iabilityi s recognized. Othern on-interest income: Represents ancillaryr evenuese arnedf romc ardholders,c onsistingp rimarily of monthlyf ees fromt he purchaseo fc ertain paymentp rotectionp roducts,w hich arer ecognized basedo nt he averagec ardholdera ccount balanceo vert ime andc an be cancelleda ta ny point by thec ardholder, as well as papers tatement fees andl ossesf rom our equity method investment in Loyalty Ventures Inc. (LVI). Contract costs: We recognize contract costs,s ucha su p-front payments made pursuant to contractuala greementsw ith brandp artners, as assets.S uchc osts ared eferreda nd recognizedo na straight-lineb asis overt he term of ther elated agreement. Dependingo nt he nature of thec ontract costs, thea mortizationi sr ecorded as either ac ontra-revenue through a reductiont oN on-interest income,o ra sa charge to Non-interest expenses,i nt he Consolidated Statements of Income. Amortizationo fc ontract costsr ecorded as ar eduction of Interchange revenue,n et of retailers hare arrangements, was$ 42 million, $51 milliona nd $59 millionf or they earse ndedD ecember3 1, 2025, 2024 and2 023, respectively; amortizationo f contract costsr ecordeda crossv arious Non-interest expensec ategoriest otaled $10 millionf or they ear endedD ecember3 1, 2025 and$ 12 million in both2 024 and2 023. As of December 31, 2025 and2 024, ther emaining unamortized contract costsw ere$ 205 milliona nd $228 million, respectively,a nd arei ncludedi nO ther assets on theC onsolidated Balance Sheets. BREADF INANCIAL HOLDINGS,I NC. NOTEST OT HE AUDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-12
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We perform an impairment assessmentw hene ventso rc hangesi nc ircumstances indicatet hatt he carryinga mount of our contract costsm ay not be recoverable. No impairmentc harges were recognized duringe ither of they earse nded December3 1, 2025 or 2024. However, fort he year endedD ecember3 1, 2023 we recognized a$ 7m illioni mpairment charge in Othern on-interest expenses in our Consolidated Statements of Income forc ertain of our deferredc ontract costs. Interest expense: Represents interest incurredp rimarily to fund Credit carda nd otherl oans,g eneral corporatep urposes and liquidity needs, andi sr ecognizeda si ncurred. Interest expensei sd ivided between Interest on deposits,w hich relatest o interest expenseo nD epositst aken fromc ustomers,a nd Interest on borrowings,w hich relatest oi ntereste xpenseo no ur Long-term ando ther debt. Card and processing expenses: Primarilyr epresentsc osts incurredi nr elationt oc ustomers ervice activities, including embossing, andp ostage andm ailing, as well as frauda nd credit bureau inquiries.T hese costsa re expensed as incurred. Informationp rocessing and communicatione xpenses: Represents costsi ncurredi nr elationt od atap rocessing, and software license andm aintenance charges. Thesec osts aree xpensed as incurred. Marketinge xpenses: Represents costsi ncurredi nc ampaignd evelopmenta nd initial placemento fa dvertising, whicha re expensed in thep eriodi nw hich thea dvertisingf irst takesp lace.O ther marketinge xpenses aree xpensed as incurred. Consolidated BalanceS heets Cash and cash equivalents: Includesc asha nd due fromb anks,i nterest-bearingc ashb alancess ucha st hosei nvested in moneym arketf unds,a sw ella so ther highlyl iquids hort-term investmentsw ith an original maturity of threem onthso r less. As of December3 1, 2025 and2 024, respectively, cash andd ue fromb anks was$ 386 milliona nd $330 million, interest-bearingc ashb alances were $3.2 billiona nd $3.1 billion, ands hort-term investmentsw ere$ 26 milliona nd $272 million. Restricted cash primarilyi ncludesc ashr estrictedf or principala nd interest repayments of debt issued by our consolidated VIEs,a sw ella so ther restricted amountsi ncluding cashp ledgedt oc ollateralizeo ur derivativec ontracts. Restricted cashi sr ecordedi nO ther assets on theC onsolidated BalanceS heetsa nd totaled$ 24 milliona nd $35 million as of December3 1, 2025 and2 024, respectively. Propertya nd equipment:F urniture,e quipmenta nd leaseholdi mprovementsa re carried at cost less accumulated depreciation, andd epreciationi sr ecognized on as traight-lineb asis.C osts incurredd uringc onstructiona re capitalized; depreciationb eginso ncet he asseti sp laced in servicea nd is also recognized on as traight-lineb asis.O ur furniture and equipmenti sd epreciated overt he estimatedu sefull ives of thea ssets,w hich range froml esst hano ne year to 10 years, while leaseholdi mprovementsa re depreciated overt he lessero ft he remainingt erms of ther espectivel eases,o rt he useful lives of thei mprovements, andr ange fromo ne year to 16 years. Depreciatione xpense, including purchased software, totaled$ 20 million, $20 million and$ 19 millionf or they earse ndedD ecember3 1, 2025, 2024 and2 023, respectively. Costs associated with thea cquisitiono rd evelopmento fi nternal-uses oftwarea re also capitalized andr ecorded in Property ande quipment. Once thei nternal-uses oftwarei sr eady fori ts intendedu se,t he cost is amortized on as traight-lineb asis overt he software’s estimatedu sefull ife. As of December3 1, 2025, our internal-use software hase stimatedu sefull ives ranging fromo ne year to 10 years. As of December3 1, 2025 and2 024, then et amount of unamortized capitalized internal- uses oftwarec osts includedi nP ropertya nd equipmento nt he Consolidated BalanceS heetsw as $54 milliona nd $71 million, respectively. Amortizatione xpenseo nc apitalizedi nternal-uses oftwarec osts totaled$ 30 million, $35 milliona nd $60 million fort he yearse ndedD ecember3 1, 2025, 2024 and2 023, respectively. We review long-liveda ssets anda ssetg roups fori mpairmentw henevere ventso rc ircumstances indicatet heir carrying amountsm ay not be recoverable. An impairmenti sr ecognizedi ft he carryinga mount is not recoverablea nd exceedst he asseto ra ssetg roup’sf airv alue.N oi mpairmento fa long-liveda sseto ra ssetg roup wasr ecognized duringt he yearse nded December3 1, 2025, 2024 and2 023. Leases:W eh avev arious operating leases forf acilitiesa nd equipmentw hich arer ecordeda sl ease-relateda ssets (i.e., right- of-use assets)a nd liabilitiesf or thosel eases with termsg reater than 12 months.W ed on ot have anyf inance leases.W e determinei fa na rrangement is al easeo rc ontains al easea ti nception, andw ed on ot separate leasea nd non-lease components. Right-of-use assets arer ecognized as of thel easec ommencementd atea ta mountse qualt ot he respectivel ease liabilities,a djustedf or anyp repaid leasep ayments, initial direct costsa nd leasei ncentives,a nd arer ecorded in Othera ssets on theC onsolidated BalanceS heets. Ourl easel iabilitiesa re recognized as of thel easec ommencementd ate, or upon BREADF INANCIAL HOLDINGS,I NC. NOTEST OT HE AUDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-13
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modificationo ft he lease, at thep resent valueo ft he contractualf ixed leasep ayments, discounted usingo ur incremental borrowing rate (ast he rate implicit in thel easei st ypically not readily determinable)a nd arer ecorded within Other liabilities on theC onsolidated BalanceS heets. Operatingl easee xpensei sr ecognized on as traight-lineb asis overt he lease term,w hile variable leasep aymentsa re expensed as incurred. Leases with an initialt ermo f1 2m onths or less aren ot recognized on theC onsolidated BalanceS heets; leasee xpensef or thesel eases is recognized on as traight-lineb asis over thel easet erms.T otal leasee xpensef or they earse ndedD ecember3 1, 2025, 2024 and2 023 was$ 15 million, $14 million, and$ 25 million, respectively, including variable leasec osts ands ubleasei ncome, whichw erei nsignificant. As with otherl ong-liveda ssets,r ight-of-use assets arer eviewedf or impairmentw henevere ventsa nd circumstances indicatet heir carryinga mountsm ay not be recoverable. No impairment of ar ight-of-use assetw as recognized duringt he yearse ndedD ecember3 1, 2025,2 024 and2 023. Derivatives:F romt ime to timew em ay enteri ntod erivativet ransactions to supporto ur overall risk management activities. Ourp rimary financialr isks stem fromt he impacto no ur earnings ande conomic valueo fe quity due to changesi ni nterest rates, andt oa lessere xtent, changesi nf oreign exchange rates, andt herefore we mayu se derivativef inancial instruments to manage our exposuret ot hese financialr isks.W ed on ot tradeo rs peculate in derivatives.S ubject to thec riterias et forthi n GAAP,w ew ill either designate our derivatives in qualifying hedging relationships,o ra se conomic hedgess houldt he criteriai nG AAP not be met. Alld erivatives that we enteri ntoa re recognized at fair valuei no ur Consolidated Balance Sheets, whereo ur derivative receivables arei ncludedi nO ther assets ando ur derivativep ayablesa re includedi nO ther liabilities.A sp ermittedb yG AAP,w hena legally enforceable master nettinga greemente xistsb etween us andt he derivativec ounterparty, we presentd erivativer eceivables andd erivativep ayablesw ith thes amec ounterpartyo na net basisi nt he Consolidated BalanceS heets, including anyr elated cashc ollateralr eceivables andp ayables. We have managed our interest rate sensitivityi np artb yc hanging thed urationa nd re-pricing characteristicso fa portiono fo ur variable rate credit card loan portfolio by usingi nterestr ates waps.W ea lsou se foreignc urrencyf orwardst ol imit our earnings and capitale xposures to foreigne xchange risk by hedging our limitede xposures denominated in foreignc urrencies, in particular,C anadiand ollars. We have enteredi ntor eceive-fixed, pay-floatingi nterestr ates waps to modify thei nterestr atec haracteristicso fd esignated credit card loansf roma floatingr atet oa fixedr atei no rder to reducet he impact of changesi nf orecastedf uturec ashf lows due to fluctuations in market interest rates. We designate our interest rate swapsa sq ualifying accountingc ashf lowh edges. As of December3 1, 2025 and2 024, we hado utstanding interest rate swapsw ith at otal notionala mount of $500 million and$ 1.5 billion. Thei mpactso fo ur cashf lowh edgesw erei nsignificantt ot he Consolidated FinancialS tatementsf or the periods presentedo nb otha grossb asis and, wherea pplicable,a netb asis. We have also enteredi ntof oreign currencyf orwardst ol imit our Canadian dollare xposure, whichw ea ccount fora s economic hedges( as thec riteriau nderG AAP ford esignation have not been met).A so fD ecember3 1, 2025 and2 024, we hado utstanding foreignc urrencyf orwardsw ith at otal notionala mount of $45 milliona nd $73 million, respectively. The impactso fo ur economic hedgesw erei nsignificant to theC onsolidated FinancialS tatementsf or thep eriods presented. Then otionala mountsd isclosed above aren ot exchangedo no ur derivatives.W hile thesen otionala mountsp rovide an indicationo ft he volumeo fo ur derivativea ctivity,t heys ignificantly exceed,i no ur view,t he possiblel ossest hatc ould arisef romt he associated transactions. CONCENTRATIONS We depend on al imited numbero fl arge partnerr elationships fora significantp ortiono fo ur revenue.A so fa nd fort he year endedD ecember3 1, 2025, our five largestc reditc ardp rograms( basedo nT otal neti nteresta nd non-interest income) accounted fora pproximately 49% of our Totaln et interest andn on-interest income excluding theg aino ns alea nd 44% of our End-of-periodc reditc arda nd otherl oans.I np articular, our programsw ith (alphabetically)S ignetJ ewelers, Ulta Beauty andV ictoria’sS ecret &C o. andi ts retail affiliates,e ach accounted for1 0% or more of our Totaln et interest and non-interest income fort he year endedD ecember3 1, 2025. Ad ecreasei nb usinessf rom, or thel osso f, anyo fo ur significantp artnersf or anyr eason, couldh aveam ateriala dversee ffect on our business. BREADF INANCIAL HOLDINGS,I NC. NOTEST OT HE AUDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-14
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RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTINGS TANDARDS AccountingS tandardsR ecentlyA dopted during2 025 Standard Guidance Timing andF inancial StatementI mpact Income Taxes: Improvements to Income TaxD isclosures Issued December, 2023 Requiresg reater disaggregationo fr ate reconciliationa nd income taxesp aidi nformation, as well as otherc hanges intendedt oe nhancet he transparency andd ecision- usefulness of income tax disclosures. Adopted effectivew itht hisr eporto na prospectiveb asis. Adoptionr equirede nhancements to our income tax disclosuresb ut didn ot have as ignificant impact on our financialr eporting, or on our operationalp rocesses, controls andg overnance in supporto ft he newg uidance. AccountingS tandardsR ecentlyI ssued butN ot YetA dopted as of December3 1, 2025 Standard Guidance Timing andF inancial StatementI mpact Debt –D ebtw ith Conversion andO ther Options:I nduced Conversions of Convertible Debt Instruments Issued November, 2024 Improvest he relevancea nd consistencyi na pplicationo f thei nduced conversion guidancef or (a)c onvertible debt instrumentsw ith cash conversionf eaturesa nd (b) debt instrumentst hata re not currently convertible. Adopted January 1, 2026. Adoptionh ad no impacto no ur financialr eportinga nd will not have anyi mpact in then eart erma sa ll of our Convertible Notesh ad been extinguished andn o Convertible Notesr emainedo utstanding as of December 31, 2025. Additionally, adoptiond id not have as ignificant impact on our operationalp rocesses, controls and governance in supporto ft he newg uidance. Income Statement– ReportingC omprehensive Income –E xpense DisaggregationD isclosures: Disaggregationo fI ncome StatementE xpenses Issued November, 2024 Requiresd isaggregated disclosure of certain income statemente xpenses on the face of theC onsolidated Statements of Income,a nd furtherd isaggregationo f certaine xpensec aptions into specifiedc ategoriesi n disclosuresw ithint he notes to theC onsolidated Financial Statements. Effectiveb eginning with our AnnualR eporto nF orm1 0-K fort he year ending December 31, 2027, ande ffectivef or interimr eporting periods beginning in 2028. Earlya doption is permitted, although we do not plan to earlya dopt. Adoptioni sn ot expected to have as ignificant impact on our financialr eporting, or on our operationalp rocesses, controls andg overnance in supporto ft he newg uidance. Intangibles –G oodwilla nd Other– Internal-Use Software:T argeted Improvementst ot he Accountingf or Internal-Use Software Issued September, 2025 Amends certaina spects of the accountingf or andd isclosure of internal-use software costs, including removing all references to prescriptivea nd sequentials oftware developments tagest oa lign betterw ith current software developmentm ethods,e .g., agile. EffectiveJ anuary 1, 2028. Earlya doptioni sp ermitted, although we do not plan to earlya dopt. Adoptioni sn ot expected to have as ignificant impact on our financialr eporting, or on our operationalp rocesses, controls andg overnance in supporto ft he newg uidance. FinancialI nstruments – Credit Losses: Purchased Loans Issued November, 2025 Amends thea ccountingf or acquiredl oans (excluding credit cards) that meet certain criteriaa ta cquisition (referredt oa sp urchased seasonedl oans)b y recognizing them at their purchasep rice plus an allowancef or expected credit losses( i.e.,t he gross-up approach). EffectiveJ anuary 1, 2027. Earlya doptioni sp ermitted, although we do not plan to earlya dopt. Adoptioni sn ot expected to have as ignificant impact on our financialr eporting, or on our operationalp rocesses, controls andg overnance in supporto ft he newg uidance. 2. CREDITC ARDA ND OTHERL OANS Ourp ayment andl ending solutions result in theo riginationo fC reditc arda nd otherl oans,w hich arer ecorded at thet ime a borrowere ntersi ntoa point-of-salet ransactionw itha merchant.C reditc ardl oans representr evolving lines of credit and have ar ange of termst hati nclude credit limits,i nterestr ates andf ees,w hich can be revisedo vert ime basedo nn ew BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-15
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informationa bout thec ardholder, in accordance with applicable regulations andt he governingt erms andc onditions. Cardholders choosingt om akea paymento fl esst hant he full balanced ue,i nstead of paying in full, ares ubject to finance chargesa nd arer equiredt om akem onthlyp aymentsb ased on pre-establisheda mounts. Otherl oans,w hich consist primarily of our pay-over-time products,w hich include installmentl oans and“ split-pay” offerings,h avear ange of fixed termss ucha si nterestr ates,f eesa nd repaymentp eriods,a nd borrowers arer equiredt om akep re-establishedm onthly payments overt he term of thel oani na ccordance with thea pplicable termsa nd conditions.C reditc arda nd otherl oans include principala nd anyr elated accruedi nteresta nd fees anda re presentedo nt he Consolidated BalanceS heetsn et of the Allowancef or credit losses. We continue to accrue interest andf ee income on alla ccounts, excepti nl imited circumstances,u ntil ther elated balancea nd allr elated interest andf ees arep aido rc harged-off. We generally classify our Credit carda nd otherl oans as held fori nvestment.W es ella majority of our credit cardl oans originated by Comenity Bank (CB) andb yC omenity CapitalB ank( CCB),t oc ertain of our master securitizationt rusts( the Trusts), whicha re consolidated VIEs,a nd thereforet hese loansa re restricted fors ecuritizationi nvestors. Alln ew originations of Credit card ando ther loansa re determined to be held fori nvestment at originationb ecause we have the intent anda bilityt oh oldt hemf or thef oreseeable future.I nd eterminingw hatc onstitutest he foreseeable future,w e consider thea verage lifea nd homogenous nature of our Credit carda nd otherl oans.I na ssessing whethero ur Credit card ando ther loansc ontinue to be held fori nvestment,w ea lsoc onsider capitall evelsa nd scheduled maturitieso ff unding instrumentsu sed. Thea ssertionr egarding thei ntenta nd abilityt oh oldC reditc arda nd otherl oans fort he foreseeable future can be made with ah ighd egreeo fc ertainty givent he maturity distributiono fo ur direct-to-consumer (DTC or retail) deposits ando ther funding instruments; thed emonstrated ability to replace maturing time-based deposits ando ther borrowings with newd epositso rb orrowings;a nd historic paymenta ctivity on Credit carda nd otherl oans.D ue to the homogenous nature of our credit cardl oans,a mountsa re classified as held fori nvestment on ab rand partnerp ortfolio basis. From time to time certainc reditc ardl oans arec lassified as held fors ale, as determined on ab rand partnerp ortfolio basis. We carry held fors alel oans at thel ower of aggregatec osto rf airv alue andc ontinue to recognize financec harges on an accrualb asis.C ashf lows associated with Credit carda nd otherl oans originated or purchased fori nvestment are classified as Cash flowsf romi nvestinga ctivities, regardless of anys ubsequent change in intent anda bility. Thef ollowing tablep rovidesC reditc arda nd otherl oans,a so fD ecember3 1: 2025 2024 (Millions) Credit cardl oans $1 8,417 $1 8,586 Otherl oans 388 310 Totalc reditc arda nd otherl oans (1)(2) 18,805 18,896 Less: Allowancef or credit losses( 2,106) (2,241) Credit carda nd otherl oans,n et $1 6,699 $1 6,655 __________________________________ (1) Includes$ 10.7 billiona nd $12.4 billiono fC reditc arda nd otherl oans availablet os ettle obligations of consolidated VIEs as of December3 1, 2025 and2 024, respectively. (2) Includes$ 378 milliono fa ccruedi nteresta nd fees that have not yetb een billedt oc ardholders as of bothD ecember3 1, 2025 and 2024. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-16
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Credit Card andO ther LoansA ging Thef ollowing tablep rovidest he delinquencyt rends of our Credit carda nd otherl oans portfolio,b ased on thea mortized cost,a so ft he datesp resented: AgingA nalysiso fD elinquentA mortized Cost Credit Card andO ther Loans (1) 31 to 60 Days Past Due 61 to 90 Days Past Due 91 or more Days Past DueT otal Total CurrentT otal (Millions) December3 1, 2025 $3 59 $2 82 $6 76 $1 ,317 $1 7,076 $1 8,393 December3 1, 2024 $3 69 $2 88 $7 30 $1 ,387 $1 7,105 $1 8,492 ______________________________ (1) Otherl oans delinquenciesh aveb een includedw ith credit cardl oand elinquenciesi nt he tablea bove,a sa mountsw erei nsignificant as of each period presented. As permittedb yG AAP,t he primary differenceb etween thea mortized cost basisi ncludedi nt he table above andt he carryingv alue of our Credit carda nd otherl oans relatest ot he exclusiono fu nbilledf inance chargesa nd fees from thea mortized cost basis. Forb othD ecember3 1, 2025 and2 024, accruedi nteresta nd fees that have not yetb een billedt o cardholders were $378 million, andi ncludedi nC reditc arda nd otherl oans on theC onsolidated BalanceS heets. From time to time we mayr e-agec ardholders’a ccounts, with thei ntento fa ssistingd elinquent cardholders whoh ave experienced financiald ifficulties but whod emonstrateb otha na bility andw illingness to repayt he amountsd ue.T his practicea ffectsc reditc ardl oand elinquenciesa nd principall osses. Accountsm eetings pecificd efined criteriaa re re-aged when thec ardholderm akes one or more consecutive payments aggregatingt oa certain pre-defineda mount of theira ccount balance. Upon re-aging, theo utstanding balanceo fa delinquent account is returned to current status.O ur re-ageda ccounts as ap ercentage of Totalc reditc arda nd otherl oans represented3 .0%,4 .1% and2 .6%,f or they earse ndedD ecember3 1, 2025, 2024, and2 023 respectively.O ur re-aging practicesc omplyw ith regulatoryg uidelines. Credit Quality Indicators forO ur Credit Card andO ther Loans Givent he nature of our business, thec reditq ualityo fo ur assets,i np articular our Credit carda nd otherl oans,i sa key determinantu nderlyingo ur ongoingf inancial performance ando verall financialc ondition. When it comest oo ur Credit carda nd otherl oans portfolio,w ec losely monitorD elinquencyr ates andN et principall ossr ates,w hich reflect,a mong otherf actors, our underwriting, thei nherent credit risk in our portfolio andt he successo fo ur collectiona nd recovery efforts. Theser ates also reflect, more broadly, theg eneral macroeconomic conditions,i ncluding thec ompounding effect of persistent inflationr elativet ow ageg rowth, andh igheri nterestr ates.O ur Delinquencya nd Netp rincipal loss ratesa re also impacted by thes izeo fo ur Credit carda nd otherl oans portfolio,w hich serves as thed enominator in thec alculation of theser ates.A ccordingly, changesi nt he size of our portfolio (whether due to credit tightening, acquisitions or dispositions of portfolios, or otherwise) mayc ause movementsi no ur Delinquencya nd Netp rincipal loss ratest hata re not necessarily indicativeo ft he underlying credit quality of theo verall portfolio. Delinquencies: An account is contractuallyd elinquent if we do not receive them inimump ayment due by thes pecified due date.O ur policyi st oc ontinue to accrue interest andf ee income on alla ccounts, excepti nl imitedc ircumstances,u ntil the balancea nd allr elated interest andf ees arep aido rc harged-off. Aftera na ccount becomes3 0d aysp astd ue,a proprietary collections coring algorithm automatically scores ther isko ft he account becomingf urther delinquent;b ased upon thel evel of risk indicated,a collection strategy is deployed, whichm ay include tech-enabled,t argetedc ollections strategies to engage with cardholders in them oste fficientc ommunicationc hannel. If aftere xhaustinga ll in-housec ollectione ffortsw e areu nablet oc ollect on thea ccount,w em ay engage collection agencies or outside attorneyst oc ontinue thosee fforts, or sell thec harged-offb alances. TheD elinquencyr atei sc alculatedb yd ividingo utstanding principalb alances that arec ontractually delinquent (i.e., principalb alances greater than 30 days past due)a so ft he endo ft he period, by theo utstanding principala mount of Credit carda nd otherl oans as of thes amep eriod-end. As of December 31, 2025 and2 024, our Delinquencyr ates were 5.8% and 5.9%,r espectively. NetP rincipal Losses: Ourn et principall ossesi nclude thep rincipal amount of Credit carda nd otherl oans that ared eemed uncollectible,l essr ecoveries,a nd exclude charged-offi nterest, fees andt hird-party fraud losses( including syntheticf raud). BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-17
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Charged-offi nteresta nd fees reduceI nteresta nd fees on loans, while third-partyf raud lossesa re recorded in Card and processing expenses.O ur credit cardl oans,i ncluding unpaid interest andf ees,a re generally charged-offi nt he month duringw hich an account becomes1 80 days past due.O ur pay-over-time products,w hich include installment loansa nd “split-pay” offerings,i ncluding unpaid interest,a re generallyc harged-off when al oanb ecomes1 20 days past due. However, in thec aseo fa customer bankruptcy or death, Credit card ando ther loans, including unpaid interest andf ees,a s applicable,a re charged-off6 0d aysa fter receipt of then otificationo ft he bankruptcy or death, but in anyc asen ol ater than 180 days past due forc reditc ardl oans and1 20 days past due fori nstallment loansa nd “split-pay” offerings.W er ecord the actuall ossesf or unpaid interest andf ees as ar eductiont oI nteresta nd fees on loans, whichw ere$ 924 million, $1,027 milliona nd $954 millionf or they earse ndedD ecember3 1, 2025, 2024 and2 023, respectively. TheN et principall ossr atei sc alculatedb yd ividingn et principall ossesf or thep eriodb yt he Averagec reditc arda nd other loansf or thes amep eriod. Beginning in January 2024, we revisedt he calculationo fA verage credit carda nd otherl oans to more closelya lignw ith industryp racticeb yi ncorporatinga na verage daily balance. Priort o2 024, Averagec reditc arda nd otherl oans representt he averageb alance of thel oans at theb eginning ande nd of each month, averaged overt he periods indicated.F or they earse ndedD ecember3 1, 2025, 2024 and2 023, our Netp rincipal loss ratesw ere7 .7%,8 .2%,a nd 7.5%, respectively. OverallC reditQ uality: As part of our credit risk management activitiesf or our credit cardl oans portfolio,w ea ssess overall credit qualityb yr eviewing informationf romc reditb ureaus ando ther sources relatingt oo ur cardholders’b roader credit performance.W eu tilize VantageScore (Vantage)c redits corest oa ssist in our assessmento fc reditq uality.V antage credit scores areo btaineda to riginationo ft he account anda re refreshed monthlyt hereaftert oa ssist in predictingc ustomer behavior.W ec ategorizet hese Vantagec redits coresi ntot he following threec redits core categories: (i)6 61 or higher, whicha re considered thes trongest credits andt herefore have thel owestc reditr isk; (ii) 601 to 660, considered to have moderate credit risk;a nd (iii) 600o rl ess, whicha re considered weaker credits andt herefore have theh ighest credit risk.I n certain limitedc ircumstances therea re customer accountsf or whicha Vantages core is not availablea nd we usea lternative sources to assess credit risk andp redict behavior. Thet able belowe xcludesl esst han0 .1% of thet otal credit cardl oans balancea so fb othD ecember 31, 2025 and2 024, representing thosec ustomera ccountsf or whicha Vantagec redits core is not available. Thef ollowing tabler eflectst he distributiono fc reditc ardl oans by Vantages core as of December3 1: Vantage 2025 2024 661 or Higher 601 to 660 600 or Less 661 or Higher 601 to 660 600 or Less Credit cardl oans 59 %2 7% 14 %5 8% 27 %1 5% As part of our credit risk management activitiesf or our Otherl oans portfolio,w ea lsoa ssess overall credit qualityb y reviewingi nformation fromc reditb ureaus. We have historically utilized Fair Isaac Corporation( FICO)c redits corest o assist in our assessment of thec reditq uality foro ur Otherl oans portfolio,b ut in early 2024 we completeda transitiont o Vantages coring. Thes coring scalep roduced by bothF ICOa nd Vantagei ss imilari nt hats coreso f6 00 or less are considered weaker scores anda sp er our categorizationm ethod wouldh avet he highest credit risk.T he amortized cost basis of Otherl oans totaled$ 365 milliona nd $298 milliona so fD ecember3 1, 2025 and2 024, respectively. As of December3 1, 2025, approximately 88% of thesel oans were originated with customersw ith scores of 661 or above,a nd correspondingly approximately 12% of thesel oans were originated with customersw ith scores below6 61. Similarly, as of December3 1, 2024, approximately 84% and1 6% of thesel oans were originated with customersw ith Vantages coreso f6 61 or above, andb elow 661, respectively. Modified Credit Card Loans Consumer ReliefP rograms As part of our collections strategy, we mayo ffert emporarya nd shortt ermp rogramsi no rder to improve thel ikelihood of collections andm eet then eeds of our customers. Fore xample,a sa result of hurricanes Helene andM iltoni nS eptember andO ctobero f2 024, respectively, we froze delinquencyp rogression forc ardholders in FederalE mergency Management Agency identifiedi mpact zonesf or one billingc ycle.O ur modifications,f or customersw ho have requested assistance and meet certain qualifying requirements, come in thef ormo fr educed paymentr equirements, interest rate reductions andl ate feew aivers.W ed on ot offerp rogramsi nvolving thef orgiveness of principal. Theset emporaryl oanm odifications may assist in cases wherew eb elieve thec ustomerw illr ecoverf romt he short-term hardship andr esumes cheduled payments. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-18
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Undert hese consumer relief programs, thosea ccountsr eceiving reliefm ay not advancet ot he next delinquencyc ycle, including charge-off, in thes amet ime frame that wouldh aveo ccurredh ad ther eliefn ot been granted. We evaluate our consumer reliefp rogramst od eterminei ft heyr epresent am oret hani nsignificantd elay in paymentg ranted to borrowers experiencing financiald ifficulty, in whichc aset heyw ouldt henb ec onsidered aL oanM odification. Loansi nt hese short term programst hata re determined to be Loan Modifications,w illb ei ncludeda ss uchi nt he disclosure below. Credit Card Loans – Modifications forB orrowers Experiencing FinancialD ifficulty (Loan Modifications) In instances wherec ardholders aree xperiencing financiald ifficulty,w em ay modify our credit cardl oans with thei ntention of minimizingl ossesa nd improving collectability,w hile providing cardholders with financialr elief; such credit card loans arec lassified as Loan Modifications,e xclusive of thet emporary, short-term consumer reliefp rogramsd escribed above. Loan Modifications include concessions consistingp rimarily of ar educed minimump ayment,l atef ee waiver,a nd/or an interest rate reduction. Them ajority of concessions remain in place fora period no longert han1 2m onths;h owever,f or certain modifications thec oncessions remain in place through thep ayoffo ft he credit cardl oans if thec ardholderc omplies with thet erms of thep rogram. Loan Modificationc oncessions do not include thef orgiveness of unpaid principal, but mayi nvolve ther eversalo fc ertain unpaid interest or feea ssessments,a nd thec ardholder’s ability to make future purchases is either limited, or suspended until thec ardholders uccessfully exits fromt he modificationp rogram.I na ccordance with thet erms of our workout programs, thec redita greement revertsb ack to its original contractualt erms (including thec ontractuali nterestr ate) when thec ustomere xits thep rogram,w hich is either when allp aymentsh aveb een made in accordance with thep rogram,o r when thec ustomerd efaultso ut of thep rogram. Loan Modifications arec ollectivelye valuated fori mpairmento na pooled basisi nm easuringt he appropriate Allowancef or credit losses. Thef ollowing tablep rovidesi nformation relating to credit cardl oans to borrowers experiencing financial difficulty that were granteda concession undera Loan Modificationp rogram duringt he yearse ndedD ecember3 1: 2025 2024 2023 (Millions,e xceptp ercentages) Account balance (1) $3 25 $3 03 $2 69 %o f Totalc reditc ardl oans 1.8 %1 .7 %1 .4 % Weighted averagei nterestr ater eduction( %p oints) 23.5 %2 2.0 %1 9.2 % __________________________________ (1) Represents theo utstanding balances as of December3 1, 2025,2 024 and2 023 of allL oanM odifications undertaken in thep ast twelve months,f or credit cardl oans that remain in modificationp rogramso nD ecember3 1, 2025,2 024 and2 023, respectively. The outstanding balances include principal, accruedi nteresta nd fees. Interest income on thesei mpairedc reditc ardl oans is accounted fori nt he same mannera sn on-impairedc reditc ardl oans, andc ashc ollections area llocated accordingt ot he same paymenth ierarchy methodology appliedf or credit cardl oans not in Loan Modification programs. Thef ollowing tablep rovidest he performance of our credit cardl oans that were modified within the1 2m onths priort ot he datesp resented andr emaini na Loan Modificationp rogram as of thed ates presented: AgingA nalysiso fD elinquentA mortized Cost Loan Modifications– Credit Card Loans 31 to 60 Days Past Due 61 to 90 Days Past Due 91 or more Days Past DueT otal Total CurrentT otal (Millions) December3 1, 2025 $2 4$ 22 $2 6$ 72 $2 53 $3 25 December3 1, 2024 $2 1$ 18 $2 2$ 61 $2 42 $3 03 BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-19
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Thef ollowing tablep rovidesa dditionali nformationr egarding credit cardL oanM odifications that have subsequently defaultedw ithin 12 months of theirm odificationd ates fort he yearse ndedD ecember3 1; thep robability of defaulti s factored into theA llowancef or credit losses: 2025 2024 2023 (Millions,e xceptf or Number of modifications) Number of modifications 14,196 15,663 14,196 Outstanding balance $2 9$ 29 $2 3 Unfunded LendingC ommitments We manage potential credit risk in unfundedl ending commitments by reviewinge ach potentialc ustomer’s credit applicationa nd evaluating thea pplicant’sf inancial historya nd ability andp erceivedw illingness to repay. Credit cardl oans arem adep rimarily on an unsecured basis, ando ur Cardholders reside throughout theU .S.a nd aren ot significantly concentrated in anyo ne geographica rea. We manage our potential risk in credit commitmentsb yl imiting thet otal amount of credit, bothb yi ndividualc ustomera nd acrosso ur credit card loan portfolio,b ym onitoring thes izea nd maturity of our loan portfolio anda pplying consistent risk- basedu nderwriting standardsr eflectiveo fc urrent anda nticipated macroeconomic conditions.W eh avet he unilateral abilityt oc ancel or reduceu nused credit cardl ines at anyt ime. Unused credit cardl ines availablet oc ardholders totaled approximately $98 billiona nd $103 billiona so fD ecember3 1, 2025 and2 024, respectively. While this amount represented thet otal availableu nused credit cardl ines,w eh aven ot experienced andd on ot anticipatet hata ll cardholders will access theire ntirea vailable line at anyg iven point in time. Portfolio Sales As of December3 1, 2025 and2 024, therew eren oc reditc ardl oans held fors ale. During they ear endedD ecember 31, 2025, we didn ot sell anyc reditc ardl oanp ortfolios. In late April2 024 we sold ac reditc ardl oanp ortfolio forc ashc onsiderationo f$ 102 million. We recognized ag aino ns ale in April2 024 that wass ubsequently adjusted duringt he second half of 2024, anda gain one finalt ime duringt he firsth alf of 2025, to recognize an incrementala mount due undert he purchasea nd sale agreement. We previously announced then on-renewalo fo ur contract with BJ’s WholesaleC lub( BJ’s)a nd thes aleo ft he BJ’s portfolio,w hich closedi nl ateF ebruary2 023, fora totalp urchasep rice of $2.5 billiono na loan portfolio of $2.3 billion, resultingi na $230 millionG aino np ortfolio sale. Portfolio Acquisitions During they ear endedD ecember 31, 2025, we didn ot acquire anyc reditc ardl oanp ortfolios. In August2 024,w ea cquireda credit cardl oanp ortfolio forc ashc onsiderationo fa pproximately $378 million. 3. ALLOWANCEF OR CREDITL OSSES TheA llowance forc reditl ossesr epresentso ur estimate of expected credit losseso vert he estimatedl ifeo fo ur Credit card ando ther loans, incorporatingf uturem acroeconomic forecasts in additiont oi nformationa bout past events andc urrent conditions.O ur estimate undert he Current Expected Credit Loss (CECL) approach is significantly influenced by the composition, characteristics andq uality of our portfolio of Credit carda nd otherl oans,a sw ella st he prevailinge conomic conditions andf orecasts utilized. TheA llowancef or credit lossesi ncludesa ne stimate foru ncollectible principala sw ella s billed, unpaid interest andf ees. Principall osses, neto fr ecoveries ared eductedf romt he Allowancef or credit losses. Losses of unpaid interest andf eesa re recorded as ar eductiont oI nteresta nd fees on loansu pon charge-off. TheA llowancef or credit lossesi s maintained througha na djustment to theP rovision for credit lossesa nd is evaluatedf or appropriateness on a quarterly basis. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-20
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In estimatingo ur Allowancef or credit losses, fore ach identifieds egment of loanss haring similarr iskc haracteristics, management uses modelinga nd estimationt echniquesb ased on historical loss experience, current conditions,r easonable ands upportablef orecasts ando ther relevant factors. This modelingu sesh istorical data anda pplicable macroeconomic variablesw ith statistical analysis andb ehavioralr elationships,t od eterminee xpected credit performance. Ourq uantitative estimate of expected credit lossesu nderC ECLi si mpactedb yc ertain forecastedm acroeconomic variables. We consider them acroeconomic forecast used to be reasonablea nd supportableo vert he estimatedl ifeo ft he Credit carda nd otherl oans portfolio,w ith no reversionp eriod. In additiont ot he quantitativee stimate of expected credit losses, we also incorporate qualitativea djustments forc ertain factorss ucha sC ompany-specificr isks,c hangesi nc urrent macroeconomic conditions that mayn ot be captured in theq uantitativelyd erived results, or otherr elevantf actorst oe nsuret he Allowancef or credit lossesr eflectso ur best estimate of current expected credit losses. Credit Card Loans We usea“ pooled”a pproach to estimate expected credit lossesf or financiala ssets with similarr iskc haracteristics. We have evaluatedm ultiple risk characteristicsa crosso ur credit card loansp ortfolio,a nd determined delinquencys tatusa nd overall credit qualityt ob et he most significantc haracteristics fore stimatinge xpected credit losses. To estimate our Allowancef or credit losses, we segmento ur credit cardl oans on theb asis of delinquencys tatus, credit quality risk score andp roduct. Theser iskc haracteristicsa re evaluatedo na tl east an annualb asis,o rm oref requently as factsa nd circumstances warrant.I nd eterminingt he estimatedl ifeo fo ur credit cardl oans,p aymentsw erea ppliedt ot he measurementd ateb alance with no payments allocated to future purchasea ctivity.W eu se ac ombinationo fF irst In First Outa nd theC reditC ardA ccountability,R esponsibility, andD isclosureA ct of 2009 (CARDA ct)m ethodologies to model balancep aydown. OtherL oans We measureo ur Allowancef or credit losseso nO ther loans, consistingp rimarily of our installment loansa nd “split-pay” offerings,u sing as tatistical modelt oe stimate projected losses overt he remainingt erms of thel oans,i nclusive of an assumption forp repayments.T he modeli sb ased on theh istorical statistical relationshipb etween loan loss performance andc ertain macroeconomic data pooled basedo nc reditq uality risk score, term of theu nderlying loans, vintagea nd geographicl ocation. As of December3 1, 2025 and2 024, theA llowancef or credit losseso nO ther loansw as $26 million and$ 30 million,r espectively. Allowancef or Credit LossesR ollforward Thef ollowing tablep rovideso ur Allowancef or credit lossesf or our Credit carda nd otherl oans.T he amount of ther elated Allowancef or credit losseso no ther loansi si nsignificant andt herefore hasb een includedi nt he tableb elow as of December3 1: 2025 2024 2023 (Millions) Beginning balance$ 2,241 $2 ,328 $2 ,464 Provision forc reditl osses (1) 1,242 1,397 1,229 Change in thee stimatef or uncollectible unpaid interest andf ees —5 10 Netp rincipal losses (2) (1,377) (1,489) (1,375) Ending balance$ 2,106 $2 ,241 $2 ,328 ______________________________ (1) Provision forc reditl ossesi ncludesa build/releasef or theA llowance forc reditl osses, as well as replenishmento fN et principal losses. (2) Netp rincipal lossesa re presentedn et of recoveries of $347 million, $367 milliona nd $332 millionf or they earse nded December3 1, 2025,2 024 and2 023, respectively. Netp rincipal lossesf or they ear endedD ecember3 1, 2023 include an adjustment of $10 millionr elated to thee ffectso ft he purchaseo fp reviously written-offa ccountst hatw eres oldt oa third-partyd ebtc ollection agency;n os ucha djustment wasm adef or they earse ndedD ecember3 1, 2025 and2 024. Fort he year endedD ecember3 1, 2025, thef actorst hati nfluenced thed ecreasei nt he Allowancef or credit lossesa re lower Credit carda nd otherl oans,a sw ella sa decreasei nt he reserver ateo vert he period. Ourr eserve rate was1 1.2% as of BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-21
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December3 1, 2025, reflectingo ur improving credit metricsa nd higher-quality newa ccount acquisitions.W ec ontinue to maintain appropriately prudent weightings on thee conomic scenariosi no ur credit reservem odelingt oe nsuret he adequacy of our Allowancef or credit lossesg iven thew ider ange of potentialm acroeconomic outcomes, including ongoing uncertainty around inflationa nd unemployment. 4. SECURITIZATIONS We account fort ransfers of financiala ssets as either saleso rf inancings.T ransfers of financiala ssets that area ccounted for as as alea re removed fromt he Consolidated BalanceS heetsw ith anyr ealized gain or loss reflected in theC onsolidated Statements of Income duringt he period in whicht he sale occurs.T ransfers of financiala ssets that aren ot accounted fora s as alea re treated as af inancing. We regularly securitizet he majority of our credit cardl oans through thet ransfero ft hosel oans to one of our Trusts.W e perform thed ecision making fort he Trusts,a sw ella ss ervicing thec ardholdera ccountst hatg eneratet he credit card loans held by theT rusts. In our capacity as as ervicer,w ea dministert he loans, collect payments andc harge-offu ncollectible balances.S ervicing fees aree arnedb ya subsidiary,w hich aree liminated in consolidation. TheT rustsa re consolidated VIEs because they have insufficient equity at risk to financet heir activities– thei ssuance of debt securitiesa nd notes,c ollateralized by theu nderlying credit cardl oans.B ecause we perform thed ecision making and servicingf or theT rusts, we have thep ower to direct thea ctivitiest hatm osts ignificantly impact theT rusts’ economic performance (the collection of theu nderlying credit card loans).I na ddition, we holda ll of thev ariablei nterests in the Trusts,w ith thee xceptiono ft he liabilitiesh eldb yt hird-parties. Thesev ariablei nterests provide us with ther ight to receive benefits andt he obligationt oa bsorbl osses, whichc ouldb es ignificantt ot he Trusts.A sa result of thesec onsiderations,w e ared eemed to be thep rimary beneficiaryo ft he Trusts andt herefore consolidatet he Trusts. TheT rustsi ssued ebts ecuritiesa nd notes,w hich aren on-recourse to us.T he collections on thes ecuritized credit cardl oans held by theT rustsa re availableo nlyf or paymento ft hosed ebts ecuritiesa nd notes,o ro ther obligations arisingi nt he securitizationt ransactions.F or our securitized credit card loans, duringt he initialp hase of as ecuritizationr einvestment period, we generallyr etainp rincipal collections in exchange fort he transfer of additionalc reditc ardl oans into the securitized pool of assets.D uringt he amortizationo ra ccumulation period of as ecuritization, thei nvestors’ shareo f principalc ollections (inc ertain cases,u pt oa maximums pecified amount each month) is either distributed to thei nvestors or held in an account until it accumulatest ot he totala mount due,a tw hich time it is paid to thei nvestorsi na lump sum. Undert he Indentures of each Trusta nd theirI ndentureS upplements,w ea re requiredt om aintainm inimumi nterests in our Trusts ranging from4 %t o1 0% of thes ecuritized credit cardl oans.T hisr equirement is mett hrough at ransferor’s interest andi ss upplementedt hrough excessf unding depositsw hich representc asha mountsd epositedw ith thet rustee of the securitizations.C ashc ollateral, restricted depositsa re generallyr eleased proportionately as investorsa re repaid.U ndert he termso ft he Trusts,t he occurrenceo fc ertain triggering events associated with thep erformance of thes ecuritized credit cardl oans in each Trustc ouldr esulti nc ertain requireda ctions,i ncluding paymento fT rust expenses,t he establishmento f reservef unds,o re arly amortizationo ft he debt securities and/or notes,i na worst-cases cenario.D uringt he yearse nded December3 1, 2025, 2024 and2 023, no such triggering events occurred. Thef ollowing tables provide thet otal securitized credit card loans, andr elated delinquencies, andn et principall osseso f securitized credit card loansf or thep eriods presented: December3 1, 2025 December3 1, 2024 (Millions) Totalc reditc ardl oans –a vailable to settle obligations of consolidated VIEs $1 0,708 $1 2,408 Of which: principala mount of credit cardl oans 91 days or more past due $2 57 $3 05 Year Ended December3 1, 2025 Year Ended December3 1, 2024 Year Ended December3 1, 2023 (Millions) Netp rincipal losseso fs ecuritized credit cardl oans $7 86 $8 52 $8 01 BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-22
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5. INVESTMENTS Investmentsi nclude investment securitiesa nd various otheri nvestmentsp rimarily held by theB anks forC ommunity Reinvestment Act( CRA) purposes.I nvestment securitiesc onsisto fa vailable-for-sale( AFS) debt securities, whicha re mortgage-backed securities andm unicipalb onds,a nd equity securities, whicha re mutual funds.I nvestment securitiesa re carried at fair valueo nt he Consolidated BalanceS heets. We also have otheri nvestments, whichp rimarily include a portfolio of investmentsi nc ertain limitedp artnershipsa nd limitedl iability companiesa ccounted foru ndert he equity method, andt herefore arer ecordeda tc osta nd adjusted each period foro ur shareo ft he investee’se arnings or losses, less anyi mpairment. Otheri nvestmentsa lsoi nclude an insignificant taxc rediti nvestment wherew ee lected to applyt he proportionala mortizationm ethod of accounting, forw hich thei mpactso fb otht he amortizationo ft he investment and income taxb enefitsa re fullyr ecognized in theP rovision fori ncomet axes.R efer to Note 12, “FairV alueso fF inancial Instruments” fora descriptiono fo ur methodology ford etermining thef airv alueso fo ur investment securities. Thef ollowing tablep rovidesa summary of our Investmentsa so fD ecember3 1: 2025 2024 (Millions) Investment securities Available-for-saled ebts ecurities$ 171$ 170 Equity securities5 04 7 Totali nvestment securities 221 217 Equity method ando ther investments6 34 9 TotalI nvestments$ 284$ 266 ForA FS debt securities in an unrealized loss position, anye stimated credit lossesa re recognized in theC onsolidated Statements of Income by establishing or adjustinga ne xistingA llowance forc reditl ossesf or such losses. We typically invest in highly-rateds ecuritiesw ith lowp robabilities of default; therefore, we didn ot have an Allowancef or credit losses as of either December3 1, 2025 or 2024, andd id not recognize anyc reditl ossesf or thep eriods presented. Anyu nrealized gains, or anyp ortion of an AFSd ebts ecurity’s non-credit-relatedu nrealized lossesa re recorded in theC onsolidated Statements of ComprehensiveI ncome, neto ft ax.T he grossu nrealized losseso no ur AFSd ebts ecuritiesa re primarily attributable to an increase in thec urrent benchmarki nterestr ate. Anyr ealized gainsa nd lossesa re recorded in Othern on- interest expenses in theC onsolidated Statements of Income upon dispositiono ft he AFSd ebts ecurity,u sing thes pecific identificationm ethod. Gainsa nd losseso ni nvestmentsi ne quity securitiesa nd CRA-relatede quity method investmentsa re recorded in Othern on-interest expenses in theC onsolidated Statements of Income. Thet able belowp rovidesu nrealized gainsa nd losses on AFSd ebts ecuritiesa so fD ecember3 1: 2025 2024 Amortized Cost Unrealized Gains Unrealized LossesF airV alue Amortized Cost Unrealized Gains Unrealized LossesF airV alue (Millions) Available-for-sales ecurities$ 189 $— $( 18)$ 171 $1 95 $— $( 25) $1 70 Total$ 189 $— $( 18) $1 71 $1 95 $— $( 25) $1 70 BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-23
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Thef ollowing tables provide informationa bout AFSd ebts ecuritiesi na grossu nrealized loss positiona nd thel engtho f time that individuals ecuritiesh aveb een in ac ontinuous unrealized loss position, as of December3 1: 2025 Less than 12 months 12 Months or GreaterT otal Fair Value Unrealized LossesF airV alue Unrealized LossesF airV alue Unrealized Losses (Millions) Available-for-sales ecurities$ —$ —$ 135 $( 18) $1 35 $( 18) Total$ —$ —$ 135 $( 18) $1 35 $( 18) 2024 Less than 12 months 12 Months or GreaterT otal Fair Value Unrealized LossesF airV alue Unrealized LossesF airV alue Unrealized Losses (Millions) Available-for-sales ecurities$ 27 $— $1 40 $( 25) $1 67 $( 25) Total$ 27 $— $1 40 $( 25) $1 67 $( 25) As of December3 1, 2025, our AFSd ebts ecuritiesi ncludedm ortgage-backed securitiesa nd municipalb onds.T he mortgage-backed securities,w hich do not have as inglem aturityd ate, have an amortized cost ande stimatedf airv alue of $158 milliona nd $143 million, respectively, with aw eighted averagey ield of 3.21%.T he municipalb onds whicha ll have am aturity date greatert hant en years, have an amortizedc osta nd estimatedf airv alue of $31 milliona nd $28 million, respectively, with aw eighted averagey ield of 3.86%.W eighted averagey ield is computed usingt he effectivey ield of each security owneda tt he endo ft he period, weighted basedo nt he amortized cost of each security.T he effectivey ield considerst he contractualc oupon, amortizationo fp remiumsa nd accretiono fd iscounts. Accruedi nteresto no ur AFSd ebt securitiesi si ncludedi nO ther assets on theC onsolidated BalanceS heetsa nd wasi nsignificanta so fb othD ecember3 1, 2025 and2 024. Therew eren or ealized gainso rl ossesf romt he sale of anyi nvestment securitiesf or they earse ndedD ecember3 1, 2025, 2024 and2 023. 6. GOODWILL AND INTANGIBLE ASSETS,N ET Goodwill Goodwill is recognized forb usinessa cquisitions when thep urchasep rice is highert hant he fair valueo fa cquiredn et assets.G oodwilli sn ot amortizedb ut is tested fori mpairmenta tl easta nnually. We evaluate goodwill fori mpairmenta nnually as of July 1, or more frequently if events or circumstances ariset hatw ould more likelyt hann ot reducet he fair valueo fo ur singler eporting unitb elow its carryingv alue.W eh avet he optiont of irst assess qualitativef actors to determinew hether it is more likely than not that thef airv alue of our reportingu niti sl esst han its carryingv alue.A lternatively, we can perform am ored etailedq uantitativea ssessmento fg oodwill impairment. Qualitativef actorsc onsidered in evaluatingg oodwilli mpairmenti nclude macroeconomic conditions,i ndustrya nd market considerations,o ur overall financialp erformance ando ther relevant entity-specificf actors, and/or as ustained decrease in our sharep rice. If, aftera ssessing theseq ualitative factorsw ec onclude that it is not more likelyt hann ot that thef airv alue of our reportingu niti sl esst hani ts carryinga mount,t hent he quantitativeg oodwill impairmentt esti sn ot necessary. However, if theq ualitativef actors indicatei ti sm orel ikelyt hann ot that thef airv alue of our reportingu niti sl esst hani ts carryinga mount, or we electt os kipt he qualitativea ssessment, we wouldp erform aq uantitativei mpairmentt est. Theq uantitativet estc omparest he fair valueo fo ur reportingu nitw ith its current carryinga mount,i ncluding goodwill. When measuringt he fair valuew eu se widely accepted valuationt echniques, leveraging ac ombinationo ft he income approach basedo nd iscounted cash flowsa nd them arketa pproach basedo nv aluationm ultiples. Thek ey assumptions used to determinet he fair valuea re primarily unobservablei nputs( i.e.,L evel 3i nputsa sd efined underG AAP)i ncluding internally developedf orecasts to estimate future cash flows, growth ratesa nd discount rates, as well as market valuation BREADF INANCIAL HOLDINGS,I NC. NOTEST OT HE AUDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-24
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multiples (fort he market approach). Estimatedc ashf lows areb ased on internal forecasts groundedi nh istorical performance andf uturee xpectations.T od iscount thee stimated cash flows, we uset he expected cost of equity taking into account ac ombination of industrya nd Company-specific factorsw eb elieve at hird-party market participantw ould incorporate. We believet he discount rate applieda ppropriately reflectst he risksa nd uncertaintiesi nt he financialm arkets generally ands pecifically in our internally developedf orecasts. When usingv aluationm ultiplesu ndert he market approach,w ea pplyc omparablep ublicly traded companies’ multiples( e.g., pricet ot angibleb ook valueo rr eturno n tangiblee quity)t oo ur reporting unit’so peratingr esults. In connectionw itho ur annualg oodwill impairmente valuations,f or they ear endedD ecember3 1, 2025, we performed a qualitativea ssessmenta nd determined that it wasn ot more likelyt hann ot that thef airv alue of our reportingu nitw as less than its carryinga mount.F or they earse ndedD ecember 31, 2024 and2 023, we elected to perform quantitativei mpairment assessments andc oncludedt hatt he fair valueo fo ur reporting unitw as in excesso fi ts carryinga mount. Goodwill was$ 634 milliona so fD ecember3 1, 2025, 2024 and2 023. No goodwill impairmentw as recognized duringa ny of thosey ears, andt here were no accumulatedg oodwilli mpairmentl ossesa so fD ecember3 1, 2025. Intangible Assets,n et Ouri dentifiablei ntangiblea ssets consisto fb otha mortizable andn on-amortizable intangiblea ssets.D efinite-lived intangiblea ssets ares ubjectt oa mortizationa nd area mortized on as traight-lineb asis overt heir estimatedu sefull ives; indefinite-lived intangiblea ssets aren ot amortized.W er eviewl ong-lived assets anda ssetg roups,i ncluding intangible assets,f or impairmentw henevere ventsa nd circumstances indicatet heir carryinga mountsm ay not be recoverable; recognizing an impairmenti ft he carryinga mount is not recoverablea nd exceedst he fair valueo ft he asseto ra ssetg roup. Intangiblea ssets consistedo ft he following as of December3 1: 2025 Gross Assets Accumulated Amortization NetU sefulL ife (Millions) Definite-Lived Assets Premiumo np urchased credit cardl oanp ortfolios$ 172 $( 94) $7 83 -13y ears Non-competea greements2 (2)— 5y ears 174 (96) 78 Indefinite-Lived Assets Tradename4 —4 Indefinite life Totali ntangiblea ssets $1 78 $( 96) $8 2 2024 Gross Assets Accumulated Amortization NetU sefulL ife (Millions) Definite-Lived Assets Premiumo np urchased credit cardl oanp ortfolios$ 221 $( 113) $1 08 3-13 years Non-competea greements2 (2)— 5y ears $2 23 $( 115) $1 08 Indefinite-Lived Assets Tradename4 —4 Indefinite life Totali ntangiblea ssets $2 27 $( 115) $1 12 Amortizatione xpenser elated to intangiblea ssets wasa pproximately $30 million, $35 milliona nd $37 millionf or they ears endedD ecember3 1, 2025, 2024 and2 023, respectively. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-25
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Thee stimateda mortizatione xpenser elated to intangiblea ssetsf or then extf ivey earsa nd thereafteri sa sf ollows fort he yearse nding December3 1: (Millions) 2026 $2 9 2027 24 2028 7 2029 7 2030 6 Thereafter5 $7 8 7. OTHERA SSETS Thef ollowing providesa summaryo fO ther assets as of December 31: 2025 2024 (Millions) Deferredt ax asset, net$ 616$ 708 Deferredc ontract costs (1) 205 228 Accountsr eceivable, net (2) 1481 45 Right-of-use assets –o perating leases 63 87 Restricted cash (3) 24 35 Other (4) 187 200 Totalo ther assets $1 ,243 $1 ,403 ______________________________ (1) SeeN ote1 ,“ Descriptiono fB usiness, Basiso fP resentationa nd SignificantA ccountingP olicies” fora discussion of impairmento f certain deferredc ontract costs. (2) Primarily relatedt of ederal,s tate andf oreign income taxr eceivables (including at ax-relatedr eceivablei nt he amount of approximately $50 million, net, whichw ea re entitledt or eceive through LVI),a nd amountsr eceivablef romv arious brand partners. (3) Restricted cashp rimarily includesc ashr estrictedf or principala nd interest repayments of debt issued by our consolidated VIEs,a s well as otherr estricteda mountsi ncluding cashp ledgedt oc ollateralizeo ur derivativec ontracts. (4) Primarily comprisedo fp repaid expenses andn on-income-based taxr eceivables. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-26
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8. DEPOSITS Deposits were categorized as interest-bearingo rn on-interest-bearinga sf ollows,a so fD ecember3 1: 2025 2024 (Millions) Interest-bearing$ 13,891 $1 3,055 Non-interest-bearing (including cardholderc reditb alances) 25 27 Totald eposits $1 3,916 $1 3,082 Deposits by deposit type were as follows as of December3 1: 2025 2024 (Millions) Savings accounts Direct-to-consumer (retail) $4 ,329 $3 ,226 Wholesale3 ,371 3,601 Certificates of deposit Direct-to-consumer (retail) 4,193 4,461 Wholesale1 ,998 1,767 Cardholderc reditb alances2 52 7 Totald eposits $1 3,916 $1 3,082 Thes cheduled maturitieso fc ertificates of deposit were as followsa so fD ecember3 1, 2025: (Millions) 2026 (1) $4 ,420 2027 1,295 2028 366 2029 59 2030 51 Thereafter— Totalc ertificates of deposit $6 ,191 ______________________________ (1) The2 026 balancei ncludes$ 4m illioni nu namortized debt issuance costs, whicha re associated with thee ntirep ortfolio of certificates of deposit. As of December3 1, 2025 and2 024, retail depositst hate xceededa pplicable FederalD eposit InsuranceC orporation( FDIC) insurancel imits,w hich areg enerally $250,000 perd epositor, peri nsured bank, pero wnership category, were estimated to be $638 million (5%o fT otal deposits)a nd $531 million (4%o fT otal deposits), respectively. Them easuremento f estimatedu ninsured depositsa ligns with regulatoryg uidelines. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-27
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9. BORROWINGSO FL ONG-TERMA ND OTHERD EBT Long-term ando ther debt consistedo ft he following as of December3 1: Description2 025 2024 ContractualM aturitiesI nterestR ates (Millions,e xceptp ercentages) Long-term and otherd ebt: Revolving lineo fc redit$ —$ —O ctober2 028 (1) Senior notes due 2026 —1 00 January 2026 7.00% Convertible senior notes due 2028 —1 0J une 2028 4.25% Senior notes due 2029 —9 00 March2 029 9.75% Senior notes due 2031 500 —M ay 2031 6.75% Subordinatedn otes due 2035 400 —J une 2035 8.38% Subtotal 900 1,010 Less: Unamortized debt issuance costs1 41 1 Totall ong-term ando ther debt $8 86 $9 99 Debt issued by consolidated VIEs: Fixedr atea sset-backed term notes ecurities$ 1,350 $1 ,350 Various –M ay 2026 to Jul. 2027 4.62% to 5.47% Conduita sset-backed securities2 ,075 3,213 Various –O ct.2 026 to Feb. 2027 (2) Subtotal 3,425 4,563 Less: Unamortized debt issuance costs3 5 Totald ebti ssued by consolidated VIEs $3 ,422 $4 ,558 Totalb orrowings of long-term ando ther debt $4 ,308 $5 ,557 ______________________________ (1) Thei nterestr atei sb ased upon theS ecuredO vernight FinancingR ate( SOFR)p lusa na pplicable margin. (2) Thei nterestr atei sb ased upon SOFR,o rt he asset-backed commercial paperc osts of each individualc onduitp roviderp lusa n applicable margin.A so fD ecember3 1, 2025,t he interest ratesr angedf rom4 .77% to 4.81% with aw eighted averager ateo f4 .78%. As of December3 1, 2024,t he interest ratesr angedf rom5 .48% to 5.60% with aw eighted averager ateo f5 .54%. Certaino fo ur long-term debt agreements include various restrictivef inancial andn on-financialc ovenants. If we do not comply with certain of thesec ovenantsa nd an evento fd efault occurs andr emains uncured,t he maturity of amounts outstanding mayb ea ccelerated andb ecome payable, and, with respect to our credit agreement, thea ssociated commitmentsm ay be terminated.A so fD ecember3 1, 2025, we were in compliancew ith alls uchc ovenants. Long-terma nd OtherD ebt Throughout 2025 we engagedi na numbero ff inancing-relatedt ransactions,i ncluding thei ssuances of senior and subordinatedn otes,t he completiono ft endero fferst or epurchasec ertain outstanding senior ands ubordinatedn otes,t he redemptiono fc ertain senior notes andt he completion of ther epurchases of 100% of our outstanding convertible senior notes.E ach of theset ransactions,a sw ella so ther mattersr elatingt oo ur liquidity andc apitalr esources duringt he year,a re describedi nm ored etailb elow. Credit Agreement In October2 024, we enteredi ntoo ur amendedc redita greement with theP arentC ompany, as borrower, certain of our domestic subsidiaries,a sg uarantors, JPMorganC hase Bank, N.A.,a sa dministrativea gent andl ender, andv arious other financiali nstitutions,a sl enders,w hich providesf or a$ 700 million senior unsecuredr evolving credit facility (the Revolving Credit Facility),w hich maturesi nO ctober2 028. As of December3 1, 2025, our Revolving Credit Facilityw as undrawna nd all$ 700 million remained availablef or future borrowings. Senior NotesD ue 2026, 2028, 2029 and 2031 TheS eniorN otes setf orth belowa re each governed by theirr espectivei ndenturet hati ncludesu sual andc ustomary negativec ovenantsa nd events of default. TheseS eniorN otes areu nsecureda nd areg uaranteed on as enioru nsecured basis BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-28
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by certain of our existing andf utured omestic restricted subsidiaries that incuro ri na ny otherm annerb ecome liablef or any debt undero ur domesticc reditf acilities, including theR evolving Credit Facility. 7.000% Senior NotesD ue 2026 In September2 020, we issued and sold $500 million aggregatep rincipal amount of 7.000% Senior Notesd ue January1 5, 2026 (SeniorN otes due 2026).I nJ anuary 2024, we redeemed $400 millioni na ggregatep rincipal amount of theS enior Notesd ue 2026, andi nJ anuary 2025, with casho nh and, we redeemed ther emaining $100 millioni na ggregatep rincipal amount of our Senior Notesd ue 2026. 4.25% ConvertibleS eniorN otes Due2 028 In June 2023, we issued ands old$ 316 milliona ggregatep rincipal amount of 4.25% Convertible Senior Notesd ue 2028 (the Convertible Notes).B eforew er epurchased 100% of our outstanding Convertible Notes, theC onvertible Notesb ore interest at an annualr ateo f4 .25%, payables emi-annuallyi na rrearso nJ une 15 andD ecember1 5o fe ach year.T he Convertible Notesw eres cheduled to mature on June 15, 2028, unlesse arlierr epurchased,r edeemed or converted. During 2025, through discrete,p rivately-negotiatedr epurchaset ransactions,w er epurchased ther emaining $10 millioni n aggregatep rincipal amount of outstanding Convertible Notes. Thea ggregatep urchasep rice, or settlement value, fort he repurchases during2 025 was$ 16 million, whichw as fundedw ith casho nh and. In connectionw ith ther epurchases,w e recognized a$ 3m illioni nducemente xpensei nO ther non-interest expenses representingt he totals ettlement value, inclusiveo ft ransaction fees,i ne xcesso ft he totalc onversionv alue (calculatedi na ccordance with thei ndentureg overning theC onvertible Notes),a sw ella sa $4 millionr eduction in Additionalp aid-in capital( APIC)r elated to thet otal conversion valuep aidi ne xcesso ft he carryingv alue of theC onvertible Notesr epurchased anda deferredt ax impact.A so f December3 1, 2025, allo ft he Convertible Notesh ad been extinguished andn oC onvertible Notesr emainedo utstanding. Priort ot he repurchaseso ft he Convertible Notes, thee mbeddedc onversionf eaturew ithin theC onvertible Notesw as both considered indexedt ot he Company’so wn equity andm et thee quity classificationc onditions;t herefore,i td id not require derivativea ccounting. Upon entering into ther epurchasea greementst hatt hemselvesr equiredc ashs ettlement of our conversiono bligationi ne xcesso ft he aggregatep rincipal amount of theC onvertible Notes, thee mbeddedc onversion featuren ol ongerm et thee quity classificationc onditions;t herefore,r equiring bifurcationa nd derivativea ccounting. In connectionw itht he issuance of theC onvertible Notes, we enteredi ntop rivately negotiatedc appedc all( CappedC all) transactions with certainf inancial institutionc ounterparties. At that time,t hese transactions were expected generallyt o reducep otentiald ilutiont oo ur commons tock upon anyc onversiono fC onvertible Notesa nd/or offset anyc ashp ayments we were requiredt om akei ne xcesso ft he principala mount of theC onvertible Notes, with such reductiona nd/or offset subject to ac ap,b ased on thec ap price. Allo ft he CappedC allt ransactions continue to remain outstanding, notwithstanding that no Convertible Notesr emain outstanding. Although we do not tradeo rs peculate in derivatives, we mays eek to opportunistically terminatet he Capped Call transactions (inf ullo ri np artf romt ime to time)o rl eavet he CappedC allt ransactions outstanding, possiblyu ntil maturity,i na ny such casew itht he objectiveo fo ptimizingt he stockholderv alue we receive undert hese transactions.T he valuet hatw eu ltimately realizef romt he CappedC allt ransactions (either in thef ormo fc asho rs hareso fo ur common stock, at our election) is subject to an umbero fv ariables,m osts ignificantly our stockp rice at thet ime theC appedC all transactions aret erminated, andi ss ubject to otherp otentiala djustmentsb ased on thea mount of our quarterly dividend, the volumeo fo ur sharer epurchases ando ther factors. Fora dditionali nformation on theJ une 2023 issuance of our Convertible Notesa nd thes ubsequent repurchases in 2024, as well as informationo no ur Capped Call transactions,r efer to Note 10, “Borrowings of Long-Term andO ther Debt”t ot he auditedC onsolidated FinancialS tatementsi ncludedi no ur AnnualR eporto nF orm1 0-Kf or they ear endedD ecember 31, 2024. BREADF INANCIAL HOLDINGS,I NC. NOTEST OT HE AUDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-29
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9.750% Senior NotesD ue 2029 In June 2025, we completeda cash tendero ffer( theT enderO ffer) pursuantt ow hich we repurchased $150 million aggregatep rincipal amount of our 9.750% Senior Notesd ue 2029 (SeniorN otes due 2029).T he considerationp aidi nt he TenderO fferf or each $1,000 principala mount of theS eniorN otes due 2029 was$ 1,071, plus accrueda nd unpaid interest. In connectionw itht he repurchase, we recognized a$ 13 millionl osso ne xtinguishment in Othern on-interest expenses representingt he totals ettlementv alue,i nclusive of transactionf ees,i ne xcesso ft he carryingv alue of theS eniorN otes due 2029. In August2 025, we completeda notherc asht endero ffer (the ThirdQ uarter TenderO ffer) pursuantt ow hich we repurchased $31 millioni na ggregatep rincipal amount of our Senior Notesd ue 2029, as well as $0.1 milliona ggregate principala mount of 8.375% SubordinatedN otes due 2035. Thec onsiderationp aidi nt he ThirdQ uarter TenderO ffer for each $1,000 principala mount of theS eniorN otes due 2029 was$ 1,070, plus accrueda nd unpaid interest.I nc onnection with ther epurchase, we recognized a$ 3m illionl osso ne xtinguishment in Othern on-interest expenses representing the totals ettlement value, inclusiveo ft ransactionf ees, in excesso ft he carryingv alue of theS eniorN otes due 2029. See furtherd iscussion of our 8.375% SubordinatedN otes due 2035, below. In November 2025, we redeemed ther emaining $719 millioni na ggregatep rincipal amount of our Senior Notesd ue 2029 with then et proceeds fromt he issuance of the6 .750% Senior Notesd ue 2031 (asd iscussedb elow), together with casho n hand. Thec onsiderationp aidi nt he redemptionf or each $1,000 principala mount of theS eniorN otes due 2029 was$ 1,068, plus accrueda nd unpaid interest.I nc onnectionw itht he redemption, we recognized a$ 55 millionl osso ne xtinguishment in Othern on-interest expenses representingt he totals ettlement value, inclusiveo ft ransactionf ees,i ne xcesso ft he carryingv alue of theS eniorN otes due 2029. Therew eren oS eniorN otes due 2029 outstanding as of December3 1, 2025. Fora dditionali nformation on thei ssuance of our Senior Notesd ue 2029, refert oN ote1 0, “Borrowings of Long-Terma nd OtherD ebt” to thea uditedC onsolidated FinancialS tatementsi ncludedi no ur AnnualR eporto nF orm1 0-Kf or they ear endedD ecember3 1, 2024. 6.750% Senior NotesD ue 2031 In November 2025, we issued $500 milliona ggregatep rincipal amount of 6.750% Senior Notesd ue 2031 (SeniorN otes due 2031).T he Senior Notesd ue 2031 accrue interest on theo utstanding principala mount at ar ateo f6 .750% pera nnum fromN ovember 6, 2025, payables emi-annually in arrears, on May1 5a nd November 15 of each year,b eginning on May1 5, 2026. TheS eniorN otes due 2031 will mature on May1 5, 2031, unlesss ubject to earlierr epurchaseo r redemption. We used then et proceedsf romt he offering of theS eniorN otes due 2031, together with casho nh and, to fund ther edemptioni nf ullo fo ur outstanding Senior Notesd ue 2029. 8.375% Subordinated NotesD ue 2035 In March2 025, we issued ands old$ 400 millioni na ggregatep rincipal amount of 8.375% Fixed-Rate ResetS ubordinated Notesd ue 2035 (the SubordinatedN otes). TheS ubordinatedN otes accrue interest on theo utstanding principala mount (i) at ar atep er annum equalt o8 .375% from, andi ncluding, March1 0, 2025, to,b ut excluding, June 15, 2030 (the Reset Date), and( ii) from,a nd including, theR eset Date to,b ut excluding, them aturity date at ar atep er annum equalt ot he Five-Year U.S. Treasury Rate as of thed atet hati st wo businessd aysp rior to theR eset Date,p lus4 30 basisp oints. Interest on theS ubordinated Notesi sp ayable semiannually in arrearso nJ une 15 andD ecember1 5o fe ach year.T he Subordinated Notesw illm atureo nJ une 15, 2035, unlesss ubject to earlier repurchaseo rr edemption. As noted above,a sp arto ft he Third QuarterT enderO ffer, we repurchased $0.1 million aggregatep rincipal amount of SubordinatedN otes. We used $250 million of then et proceedsf romt he SubordinatedN otes offering to enteri ntoa subordinatedp romissory noteb etween Parent Company, as lender, andC CB,a sb orrower, on termss ubstantially thes amea st hoseo ft he SubordinatedN otes.T he subordinatedp romissory notei se liminated in consolidation. Debt Issued by Consolidated VIEs An asset-backed security is as ecurity whosev alue andi ncomep aymentsa re derivedf roma nd collateralized by as pecified pool of underlying assets –i no ur case, our credit cardl oans.T he sale of thep ool of underlying assets to investorsi s accomplished through as ecuritizationp rocess. We regularly sell our credit cardl oans to our Trusts,w hich are BREADF INANCIAL HOLDINGS,I NC. NOTEST OT HE AUDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-30
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consolidated.T he liabilities of thesec onsolidated VIEs include asset-backed securitiesf or whichc reditors,o rb eneficial interest holders,d on ot have recourse to our generalc redit. ConduitF acilities We maintained committeds yndicated bank ConduitF acilitiest os upportt he funding of our credit cardl oans foro ur Trusts. Borrowings outstanding undere ach privateC onduitF acilityb eari nteresta ta margin above SOFR,o rt he asset-backed commercialp aper costso fe achi ndividualc onduitp rovider. Thet able belows ummarizeso ur conduitc apacities, borrowings andm aturitiesf or thep eriods presented: (Millions) December 31, 2024 Commitment December 31, 2025 ConduitF acilitiesC apacityD rawn (6) Change Capacity DrawnM aturityD ate (7) Comenity Bank WFNMNT 2009-VFN (1) $2 ,650 $1 ,955 $( 900) $1 ,750 $1 ,363 October2 026 WFNMT2 009-VFC1 (2) —1 41 ——— — Comenity CapitalB ank WFCMNT 2009-VFN (3) 2,250 867 (250) 2,000 712 February 2027 CCAST 2023-VFN1 (4) 250 250 (250) —— — CCAST 2024-VFN1 (5) 200 —( 200) —— — Total$ 5,350 $3 ,213 $( 1,600) $3 ,750 $2 ,075 ______________________________ (1) 2009-VFNC onduiti ssuedu nderW orld FinancialN etwork Credit Card Master Note Trust( WFNMNT). In October2 025, the2 009- VFNC onduitc ommitment wasr educed by $900 milliont o$ 1.75 billion, andt he Maturity Date wase xtendedt oO ctober2 026. (2) 2009-VFC1 Conduiti ssuedu nderW orld FinancialN etwork Credit Card Master TrustI II (WFNMT)w as retired following controlleda mortization, meaningt he period in whichp rincipal collections area ccumulatedt op ay downt he outstanding principal amount of then otes issued undert he ConduitF acility,i nJ une 2025 pursuantt ot he termination, consenta nd waiver agreement. (3) 2009-VFNC onduiti ssuedu nderW orld FinancialC apitalM asterN oteT rust (WFCMNT).I nF ebruary2 025, the2 009-VFN Conduitc ommitment wasr educed by $250 million to $2 billion, andt he Maturity Date wase xtendedt oF ebruary2 026. Then in December2 025, theM aturity Date of the2 009-VFNC onduitw as furthere xtendedt oF ebruary2 027. (4) 2023-VFN1 Conduiti ssuedu nderC omenity CapitalA sset SecuritizationT rust (CCAST). Thep urchasec ommitment expiredo n September2 9, 2025 andt he 2023-VFN1 Conduitw as retired on October1 ,2 025 pursuantt ot he termination, consenta nd waiver agreement. (5) 2024-VFN1 Conduiti ssuedu nderC CAST wasr etired in February 2025 pursuantt ot he termination, consenta nd waiver agreement. (6) Amountsd rawn do not include $1.1 billiono fd ebti nt he form of subordinatedn otes issued by WFNMNT andW FCMNTa so f December3 1, 2024,w hich were not sold,b ut were retained by us as credit enhancements andt herefore have been eliminated from theT otal.T he credit enhancements representedb ys ubordinatedn otes issued by WFCMNT andW FNMNTw erer eplaced with excessc ollaterala mountsi nF ebruary2 025 andO ctober2 025, respectively, as definedi nt he relevant indentures upplements. (7) Maturity Date with respect to conduitb orrowings meanst he date on whicht he revolving period fort he applicable ConduitF acility expires. Ther evolving period mayb ee xtendedo rr enewed (unlessa ne arly amortizatione vent occurs priort ot he Maturity Date). Absent thee xtension or renewalo ft he revolving period, theC onduitF acility shalle nter controlleda mortizationo nt he Maturity Date andm ay no longerb ed rawn upon. Fixed Rate Asset-BackedT ermN otes In May2 024, WFNMNT issued $570 milliono fS eries2 024-Ap ublic term asset-backed notes,w hich mature in April 2027. Theo fferingc onsistedo f$ 500 milliono fC lass An otes with af ixed interest rate of 5.47% pery ear,$ 44 million of zeroc oupon ClassMn otes,a nd $26 milliono fz eroc oupon ClassB notes.T he ClassMa nd Bn otes were retained by us anda re eliminated in consolidation. In addition, in August2 024 WFNMNT issued $500 milliono fS eries2 024-Bp ublic term asset-backedn otes,w hich mature in July 2027. Theo fferingc onsistedo f$ 500 milliono fC lass An otes with af ixed interest rate of 4.62% pery ear. Therew eren oa sset-backed notes issued in 2025. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-31
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Maturities Thef uturep rincipal payments foro ur Long-term ando ther debt area sf ollows,a so fD ecember3 1, 2025: Year Long-Term and OtherD ebt Debt Issued by Consolidated VIEs Total (Millions) 2026 $— $1 ,713 $1 ,713 2027 —1 ,712 1,712 2028 —— — 2029 —— — 2030 —— — Thereafter9 00 —9 00 Totalm aturities9 00 3,425 4,325 Unamortized debt issuance costs( 14) (3)( 17) $8 86 $3 ,422 $4 ,308 10. OTHERL IABILITIES Thef ollowing providesa summaryo fO ther liabilities as of December3 1: 2025 2024 (Millions) Accountsp ayable ando ther brandp artner liabilities $2 89 $3 26 Accruedl iabilities (1) 290 295 Long-term taxr eserves1 89 250 Operatingl easel iabilities8 51 28 Other (2) 259 202 Totalo ther liabilities$ 1,112 $1 ,201 ______________________________ (1) Primarily relatedt oa ccruedp ayroll andb enefits,p rofessionals ervicesa nd regulatoryf ees,m arketinga nd various othero perating activities. (2) Primarily comprisedo fc ardholderr ewards liabilitiesa nd long-term unearnedr evenue. 11. OTHERN ON-INTERESTI NCOME AND OTHERN ON-INTERESTE XPENSES Thef ollowing tablep rovidest he componentso fO ther non-interest income fort he yearse ndedD ecember3 1: 2025 2024 2023 (Millions) Paymentp rotectionp roducts $1 16 $1 20 $1 32 Papers tatement fees 82 22 — Loss frome quity method investment —— (6) Other2 22 Totalo ther non-interest income $2 00 $1 44 $1 28 BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-32
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Thef ollowing tablep rovidest he componentso fO ther non-interest expenses fort he yearse ndedD ecember3 1: 2025 2024 2023 (Millions) Professionals ervices andr egulatoryf ees $1 12 $1 12 $1 28 Debt repurchases 74 117 1 Occupancye xpense2 32 22 2 Other (1) 39 49 68 Totalo ther non-interest expenses $2 48 $3 00 $2 19 ______________________________ (1) Primarily relatedt oc osts associated with various otheri ndividually insignificanto peratinga ctivities. 12. FAIR VALUESO FF INANCIAL INSTRUMENTS Fair valuei sd efined underG AAPa st he pricet hatw ouldb er equiredt os ella na sseto rp aidt ot ransfera liability in an orderlyt ransactionb etween market participants at them easurement date;w ith such at ransactionb ased on thep rincipal market,o ri nt he absenceo fa principalm arkett he most advantageous market fort he specifici nstrument. GAAP provides fora three-levelf airv alue hierarchyt hatc lassifies thei nputst ov aluationt echniquesu sedt om easuref airv alue,d efined as follows: Level 1: Inputst hata re unadjustedq uoted prices fori dentical assets or liabilities in activem arkets that thee ntityc an access. Level 2: Inputs, othert hant hosei ncludedw ithin Level1 ,t hata re observablef or thea sseto rl iability,e itherd irectly or indirectly,f or substantiallyt he full term of thea sseto rl iability, including quoted prices fors imilara ssets or liabilitiesi n activem arkets,q uoted prices fori dentical or similar assets or liabilitiesi ni nactivem arkets,o ri nputso ther than quoted prices that areo bservablef or thea sseto rl iability. Level 3: Inputst hata re unobservable( e.g., internally deriveda ssumptions)a nd reflect an entity’s assumptions about estimatesm arketp articipantsw ouldu se in pricingt he asseto rl iability basedo nt he best informationa vailableu ndert he circumstances.I np articular, Level3 inputsa nd valuationt echniquesi nvolve judgmenta nd as ar esulta re not necessarily indicativeo fa mountsw ew ouldr ealizei na current market exchange.T he useo fd ifferent assumptions or estimation techniquesm ay have am ateriale ffect on thee stimated fair valuea mounts. We monitort he market conditions ande valuatet he fair valueh ierarchy levels at leastq uarterly.F or they earse nded December3 1, 2025 and2 024, therew eren ot ransfers into or out of Level3 ,a nd no transfersb etween Levels 1a nd 2. Thef ollowing tables ummarizes thec arryingv aluesa nd fair values of our financiala ssets andf inancial liabilitiesa so f December3 1: 2025 2024 Carrying Amount Fair Value Carrying Amount Fair Value (Millions) Financiala ssets Credit carda nd otherl oans,n et $1 6,699 $1 8,747 $1 6,655 $1 9,011 Investment securities 221 221 217 217 Financiall iabilities Deposits 13,916 13,928 13,082 13,087 Debt issued by consolidated VIEs 3,422 3,442 4,558 4,572 Long-term ando ther debt 886 931 999 1,085 BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-33
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ValuationT echniques Used in theF airV alue Measuremento fF inancial Assets andF inancial Liabilities Credit card and otherl oans,n et: OurC reditc arda nd otherl oans arer ecorded at amortized cost,l esst he Allowancef or credit losses, on theC onsolidated BalanceS heets. In estimating thef airv alues, we usead iscounted cashf lowm odel( i.e., Level3 inputs),p rimarily because ac omparablew holel oans ales market fors imilarl oans doesn ot exist, andt herefore therei sa lack of observablep ricing inputs. We usev arious internally derivedi nputs, including projected income,d iscount ratesa nd forecastedc harge-offs.E conomic valuea ttributable to future loansg enerated by thec ardholdera ccountsi sn ot includedi nt he fair values. Investments ecurities: Investment securitiesc onsisto fA FS debt securities,i ncluding bothm ortgage-backed securitiesa nd municipalb onds,a sw ella se quity securities, whicha re mutual funds,a nd arer ecorded at fair valueo nt he Consolidated BalanceS heets. Quoted prices of identical or similar investment securitiesi na ctivem arkets areu sedt oe stimate thef air values (i.e., Level1 or Level2 inputs). Derivativea ssets and liabilities:W eu se derivatives to manage our interest rate andf oreign currency risk exposures.W hen quoted market prices area vailablea nd used to valueo ur derivatives, we classify them as Level1 .H owever,t he majority of our derivatives do not have readily availableq uoted market prices.T herefore,w ev alue most of our derivatives using vendor-based models.W ep rimarily rely on market observablei nputsf or thesem odels,i ncluding, fore xample,i nterestr ate yieldc urvesa nd currencyr ates.T hese inputsc an vary depending on thet ype of derivatives andn atureo ft he underlying rate,p rice or indexu pon whicht he valueo ft he derivativei sb ased.W et ypically classify derivatives as Level2 as significanti nputsc an be observedi na liquidm arketa nd theu nderlying modeli tselfd oesn ot require significantj udgment. At leasta nnually,w er eaffirm our understanding of thev aluation techniquesa ppliedi no ur vendor-based models and validatet he valuationo utput on aq uarterly basis. Ourd erivatives arei ncludedi nO ther assets or Otherl iabilitieso nt he Consolidated BalanceS heets. Thef airv alue impacts of our derivativea ssets andl iabilitiesw erei nsignificantt ot he Consolidated FinancialS tatementsf or thep eriods presentedo nb otha grossb asis and, wherea pplicable,a netb asis. Deposits: Moneym arketa nd othern on-maturity depositsc arryingv aluesa pproximate theirf airv aluesb ecause they are short-term in durationa nd have no definedm aturity.G AAP requires that thef airv alueso fd eposit liabilitiesw ithn os tated maturitiese qualt heir carryingv aluesa nd doesn ot permit recognitiono ft he inherent funding valueo ft he instruments. Certificates of deposit arer ecordeda tt heir historical issuance cost on theC onsolidated BalanceS heets, adjusted for unamortized fees,w itht he fair valueb eing estimatedb ased on thec urrently observablem arketr ates availablet ou sf or similard eposits with similar remainingm aturities( i.e.,L evel 2i nputs).I nterestp ayable is includedw ithin Otherl iabilities on theC onsolidated BalanceS heets. Debt issued by consolidated VIEs: We record Debt issued by our consolidated VIEs at amortizedc ost( including unamortized fees,i ssuance costs, premiums andd iscounts, wherea pplicable)o nt he Consolidated BalanceS heets. Fair valuei se stimatedb ased on thec urrently observablem arketr ates availablet ou sf or similard ebti nstruments with similar remainingm aturitieso rq uoted market prices fort he same transaction( i.e.,L evel 2i nputs).I nterestp ayable is included within Otherl iabilitieso nt he Consolidated BalanceS heets. Long-term and otherd ebt: We record Long-term ando ther debt at amortized cost (including unamortized fees,i ssuance costs, premiums andd iscounts, wherea pplicable)o nt he Consolidated BalanceS heets. Fair valuei se stimatedb ased on the currently observablem arketr ates availablet ou sf or similard ebti nstruments with similarr emaining maturities, or quoted market prices fort he same transaction( i.e.,L evel 2i nputs).I nterestp ayable is includedw ithin Otherl iabilitieso nt he Consolidated BalanceS heets. FinancialI nstruments Measured at Fair Valueo naR ecurring Basis Thef ollowing tables summarize our financiali nstruments measured at fair valueo na recurring basis, categorized by the fair valueh ierarchy describedi nt he precedingp aragraphs,a so fD ecember3 1: 2025 TotalL evel 1L evel 2L evel 3 (Millions) Investment securities$ 221 $5 0$ 171 $— Totala ssets measured at fair value$ 221 $5 0$ 171 $— BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-34
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2024 TotalL evel 1L evel 2L evel 3 (Millions) Investment securities$ 217 $4 7$ 170 $— Totala ssets measured at fair value$ 217 $4 7$ 170 $— Assets and LiabilitiesM easureda tF airV alue on aN onrecurring Basis Certaina ssets andl iabilitiesa re recognized or discloseda tf airv alue on an onrecurring basis, including equity method investments, propertya nd equipment, right-of-use assets,d eferredc ontract costs, goodwill andi ntangiblea ssets.T hese assets aren ot measured at fair valueo na recurring basisb ut ares ubject to fair valuea djustmentsi nc ertain circumstances, such as upon impairment. We didn ot have anyi mpairments fort he yearse ndedD ecember3 1, 2025 and2 024. Fort he year endedD ecember3 1, 2023, we wroteo ff ther emaining $6 milliono fo ur equity method investment in LVI. FinancialI nstruments Disclosedb ut NotC arried at Fair Value Thef airv alueso ff inancial instrumentst hata re measured at amortized cost aree stimates, andr equire management’s judgment; therefore, thesef airv alue estimatesm ay not be indicativeo ff uturef airv alues, nor can our fair valueb e estimatedb ya ggregatinga ll of thea mountsp resented.T he followingt abless ummarize our financiala ssets andf inancial liabilities that arem easured at amortized cost,a nd not requiredt ob ec arried at fair valueo na recurring basis, as of December3 1: 2025 Fair ValueL evel 1L evel 2L evel 3 (Millions) Financiala ssets Credit carda nd otherl oans,n et $1 8,747 $— $— $1 8,747 Total$ 18,747 $— $— $1 8,747 Financiall iabilities Deposits $1 3,928 $— $1 3,928 $— Debt issued by consolidated VIEs 3,442 —3 ,442 — Long-term ando ther debt 931 —9 31 — Total$ 18,301 $— $1 8,301 $— 2024 Fair ValueL evel 1L evel 2L evel 3 (Millions) Financiala ssets Credit carda nd otherl oans,n et $1 9,011 $— $— $1 9,011 Total$ 19,011 $— $— $1 9,011 Financiall iabilities Deposits $1 3,087 $— $1 3,087 $— Debt issued by consolidated VIEs 4,572 —4 ,572 — Long-term ando ther debt 1,085 —1 ,085 — Total$ 18,744 $— $1 8,744 $— BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-35
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13. EMPLOYEE BENEFIT PLANS Employee StockP urchaseP lan In March2 015, our Boardo fD irectorsa dopted the2 015 EmployeeS tock Purchase Plan (the 2015 ESPP),w hich was subsequently approvedb yo ur stockholders on June 3, 2015. The2 015 ESPP becamee ffectiveJ uly1 ,2 015 with no definitivee xpirationd ate; however,o ur Boardo fD irectorsm ay at anyt ime andf or anyr eason terminateo ra mend the 2015 ESPP. No employeem ay purchasem oret han$ 25,000 wortho fs tock undert he 2015 ESPP in anyc alendary ear, and no employeem ay purchases tock undert he 2015 ESPP if such purchasew ouldc ause thee mployeet oo wn more than 5% of thev otingr ightso rv alue of our commons tock.T he 2015 ESPP providesf or six-montho ffering periods,c ommencing on thef irst tradingd ay of thef irst andt hird calendarq uarter of each year ande nding on thel astt rading dayo fe ach subsequent calendar quarter.T he purchasep rice of thec ommons tock upon exercise is 85% of thef airm arketv alue of shares on thea pplicable purchased atea sd eterminedb ya veraging theh igha nd lowt rading prices of thel astt rading dayo f each six-monthp erioda sd efined above.A ne mployeee lectst op articipatea nd have contributions deductedt hrough payroll deductions.T he 2015 ESPP also providesf or thei ssuance of anyr emaining shares availablef or issuance undero ur 2005 EmployeeS tock Purchase Plan,w hich were 441,327 shares as of June 30, 2015. The2 015 ESPP reserved an additional 1,000,000 shares of our commons tock fori ssuance undert he 2015 Plan,b ringing them aximumn umbero fs haresr eserved fori ssuance undert he 2015 ESPP to 1,441,327 shares,s ubjectt oa djustment as providedi nt he 2015 ESPP. During they ear endedD ecember 31, 2025, we issued 94,497 shares of commons tock undert he 2015 ESPP at aw eighted- averagei ssuep rice of $54.69. Sincet he 2015 ESPP became effectiveo nJ uly1 ,2 015, 1,015,496 shares of commons tock have been issued,w ith4 25,831 shares thereforea vailable fori ssuance. 401(k) RetirementS avings Plan TheB read Financial4 01(k) Plan (the Plan), as amended, is ad efined contributionp lant hati sq ualifiedu nderS ection 401(k) of theI nternalR evenue Code of 1986. TheP lani sa nI RS-approveds afeh arbor plan design that eliminates then eed form ostd iscriminationt esting. Eligible employees can participatei nt he Plan immediatelyu pon joiningB FH andb egin receiving Companym atchingc ontributions ands afe-harbor non-electivec ontributions.T he Plan covers U.S. employees of BFHw ho area tl east1 8y ears old, employees of one of our wholly-owned subsidiaries anda ny others ubsidiary or affiliatedo rganizationt hata doptst he Plan;e mployees of BFHa nd allo fi ts U.S. subsidiaries arec urrently covered. TheP lanp ermits eligible employees to make Roth elective deferrals,w hich arei ncludedi nt he employee’st axable income at thet ime of contribution, but not when distributed.R egular,o rN on-Roth electived eferrals made by employees,t ogether with our contributions to theP lan, andi ncomee arnedo nt hese contributions,a re not taxableu ntil withdrawnf romt he Plan. In 2023, we expandedo ur contributions to theP lanw itha na utomatic annuald eposit fore ligible employees.W en ow automatically deposit threep ercent of an employee’s eligible annualp ay in their4 01(k) account on an annualb asis, regardless of theirc ontributions.I na ddition, we matcha ne mployee’sc ontributionf ifty cents-per-dollar, up to sixp ercent of thee mployee’se ligible annualc ompensation. Fort he yearse ndedD ecember3 1, 2025, 2024 and2 023, our employer contributions were $30 million, $29 milliona nd $30 million, respectively. Participants in theP lanc an direct theirc ontributions ando ur matching contributiont on umerous investment options, including our common stock. On July 20, 2001, we registered 1,500,000 shares of our commons tock fori ssuance in accordance with theP lanp ursuantt oa RegistrationS tatement on Form S-8, File No.3 33-65556. As of December3 1, 2025, 107,291 of such shares remain availablef or issuance. ExecutiveD eferredC ompensationP lan We also maintain an ExecutiveD eferredC ompensationP lan( EDCP). TheE DCPp ermits ad efined group of management andh ighlyc ompensated employeest od efer,o na pre-taxb asis,a portiono ft heir base salary andi ncentivec ompensation (asd efined in theE DCP) payablef or services rendered. Deferralsu ndert he EDCP areu nfundeda nd subject to thec laims of our creditors.E ach participanti nt he EDCP is 100% vested in theira ccount,a nd account balances accrue interest at a rate establisheda nd adjusted periodically by theC ompensation& HumanC apitalc ommitteeo fo ur Boardo fD irectors.A s of December3 1, 2025 and2 024, our outstanding liabilityr elated to theE DCP, whichw as includedi nO ther liabilities on theC onsolidated BalanceS heets, was$ 29 milliona nd $25 million, respectively. BREADF INANCIAL HOLDINGS,I NC. NOTEST OT HE AUDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-36
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14. STOCK-BASEDC OMPENSATION We have adopted equity compensationp lans to advancet he interestso fB FH by rewardingc ertain employees fort heir contributions to thef inancial successo fB FH andt hereby motivatingt hemt oc ontinue to make such contributions in the future.U ndert he Omnibus IncentiveP lans describedf urther below, certain shares of commons tock arer eservedf or grants of nonqualifieds tock options,i ncentives tock options,s tock appreciationr ights, restricted stock, restricted stocku nit awards (RSUs),p erformance sharea wards, cashi ncentivea wards, deferreds tock units,a nd others tock-based andc ash- baseda wardst os electedo fficers, employees,n on-employeed irectors andc onsultantsp erformings ervices foru so ro ur affiliates, with onlye mployees beinge ligible to receivei ncentives tock options.A sw ell, them aximuma mount that mayb e awardedu ndera ny of our equity compensationp lans to anyi ndependent member of our Boardo fD irectorsi na ny one calendary ear mayn ot exceed$ 1m illion. 2020 Omnibus IncentiveP lan The2 020 Omnibus IncentiveP lan( the2 020 Plan)b ecame effectiveJ uly1 ,2 020 andr eserved2 ,400,000 shares of common stockf or future grants.T he 2020 Plan expireso nJ une 30, 2030; providedt hat, pursuantt ot he termso ft he 2022 Omnibus IncentiveP lan( as definedb elow), no newg rantsa re permitted to be made undert he 2020 Plan. 2022 Omnibus IncentiveP lan The2 022 Omnibus IncentiveP lan( the2 022 Plan)b ecame effectiveJ uly1 ,2 022 andr eserved3 ,075,000 shares of common stockf or future grants.T he 2022 Plan expireso nJ une 30, 2032, providedt hatp ursuantt ot he termso ft he 2024 Omnibus IncentiveP lan( the2 024 Plan), no newg rantsa re permitted to be made undert he 2022 Plan,a nd allo ft he shares that remained availablef or grantu ndert he 2022 Plan (203,687 shares)w erer olledo veri ntot he 2024 Plan undert he terms thereof, together with anys harest hatm ay be forfeitedu ndert he outstanding equity awards undert he 2022 Plan,a s discussedi nm ored etailb elow. 2024 Omnibus IncentiveP lan In April2 024, our Boardo fD irectorsa dopted the2 024 Plan,w hich wass ubsequently approvedb yo ur stockholders on May1 4, 2024. The2 024 Plan becamee ffectiveM ay 14, 2024 ande xpireso nM ay 13, 2034. The2 024 Plan reserves 5,000,000 news hareso fc ommons tock forf utureg rants. In addition, the2 024 Plan (i)p ermittedu st or ollo vert he shares that remained availablef or grantu ndert he 2022 Plan at thet ime the2 024 Plan wasa pproved( 203,687 shares as of May 14, 2024) and( ii) permitsu st or ollo vera nd re-issue shares that aref orfeitedu ndero utstanding equity awards undert he 2022 Plan.A so fD ecember3 1, 2025 61,300 shares hadb een forfeiteda nd rolledo verf romt he 2022 Plan to the2 024 Plan, and1 ,574,387 shares remained subject to outstanding equity awards undert he 2022 Plan. On May1 4, 2024 we registered up to an aggregateo f7 ,667,594 shares of our commons tock authorized fori ssuance in accordance with the2 024 Plan pursuantt oa RegistrationS tatement on Form S-8, File No.3 33-279495. Termso fa ll awards undert he 2024 Plan ared etermined by theB oard of Directorso rt he Compensation& HumanC apitalC ommittee of theB oard of Directorso ri ts designeea tt he time of award. Stock-based Compensation Expense Stock-basedc ompensatione xpensei sm easured at theg rant date of thea ward,b ased on thef airv alue of thea ward, andi s recognized ratablyo vert he requisite servicep eriod. Stock-basedc ompensatione xpenser ecognized in Employee compensationa nd benefits expensei nt he Consolidated Statements of Income fort he yearse ndedD ecember3 1, 2025, 2024 and2 023 was $56 million, $54 milliona nd $44 million, respectively, with corresponding income taxb enefitso f $10 million, $9 milliona nd $8 million, respectively. As thea mount of stock-basedc ompensatione xpense recognizedi sb ased on awards ultimately expected to vest,t he amount recognized in theC onsolidated Statements of Income hasb eenr educed fore stimatedf orfeitures. We estimate forfeituresa t each grantd ateb ased on historical experience, with forfeiture estimatest ob er evised,i fn ecessary,i ns ubsequent periods shoulda ctualf orfeitures differf romt hosee stimates. Forfeituresw eree stimateda t4 %f or they ear endedD ecember3 1, 2025, andw eree stimateda t5 %f or they earse ndedD ecember3 1, 2024 and2 023. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-37
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As of December3 1, 2025, therew as approximately $63 milliono fu nrecognized expense, adjusted fore stimated forfeitures, relatedt on on-vested,s tock-based equity awards grantedt oe mployees,w hich is expected to be recognized over aw eighted averager emaining period of approximately 1.6 years. Restricted StockU nitA wards Thef ollowing tables ummarizes RSUs activity foro ur stock-basedc ompensationp lans: Performance- Based(1) Service- BasedT otal Weighted Average Fair Value Balancea so fD ecember 31, 2022 164,946 1,107,663 1,272,609 $6 8.86 Shares granted1 75,587 1,172,465 1,348,052 38.02 Shares vested (9,254) (434,049) (443,303) 67.49 Shares forfeited— (87,527) (87,527) 53.82 Balancea so fD ecember 31, 2023 331,279 1,758,552 2,089,831 $4 9.89 Shares granted2 43,312 1,307,833 1,551,145 37.78 Shares vested (95,133) (730,635) (825,768) 56.58 Shares forfeited— (68,012) (68,012) 43.39 Balancea so fD ecember 31, 2024 479,458 2,267,738 2,747,196 $4 1.54 Shares granted 157,788 867,302 1,025,090 61.93 Shares vested (99,184) (962,815) (1,061,999) 47.05 Shares forfeited— (59,233) (59,233) 45.17 Balancea so fD ecember 31, 2025 538,062 2,112,992 2,651,054 $4 7.20 Outstanding andE xpected to Vest 2,621,537 $4 6.85 ______________________________ (1) Shares grantedr eflect a1 00% target attainment of ther espectivep erformance-basedm etric. Shares forfeitedi nclude thoseR SUs forfeiteda sa result of BFHn ot meetingt he respectivep erformance-basedm etricc onditions. ForS ervice-baseda nd Performance-baseda wards, thef airv alue of theR SUsw as estimatedu sing our closings hare price on thed ateo fg rant.S ervice-based RSUs typically vest ratablyo vera three-year period. Performance-basedR SUst ypically cliffv esta tt he endo ft hree years, if specified performance measures tiedt oo ur financialp erformance arem et,w hich are measured annuallyo vert he three-year period. Performance-basedR SUsg ranted in 2025 include am arket-basedr elative totals tockholderr eturnm odifier whichi sm easured overt he three-year vestingp eriod. ForP erformance-baseda wards grantedi n2 023 and2 024, thep redefinedv estingc riteriap ermita range from0 %t o1 50% to be earned. ForP erformance- baseda wardsg ranted in 2025, thep redefinedv esting criteria permit ar ange from0 %t o1 60% to be earned, including the +/-1 0% relativet otal stockholderr eturnm odifier,w hich is measured againsta definedp eer group. Accruals of compensationc ostf or an awardw ith ap erformance condition areb ased on thep robableo utcome of that performance condition. ForR SUsv estedd uringt he yearse ndedD ecember3 1, 2025, 2024 and2 023, thet otal fair value, basedu pon our stock pricea tt he date theR SUsv ested, was $50 million, $47 milliona nd $30 million, respectively.A so fD ecember3 1, 2025, thea ggregatei ntrinsic valueo fR SUso utstanding ande xpected to vest was $194 million. 15. PREFERREDS TOCK AND COMMONS TOCK PreferredS tock In November 2025, we authorized andi ssued 75,000 shares of preferreds tock as depositary shares (the Depositary Shares) forg ross proceedso f$ 75 million, with each Depositary Sharer epresentinga 1/40thi nteresti no ur Series A8 .625% Non- CumulativeP erpetual PreferredS tock,p ar value$ 0.01 pers hare (the Series AP referredS tock). TheS eriesA Preferred Stockh as al iquidation preference of $25 perD epositaryS hare (equivalent to $1,000 pers hare of Series AP referredS tock) anda so fD ecember3 1, 2025, thea ggregatel iquidation valuew as $75 million. We used then et proceedso ft he offering to enteri ntoa preferreds tock transactionw ith one of our subsidiary banks,C CB, pursuantt ow hich CCB issued preferred BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-38
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stockt oP arentC ompany on termss ubstantially thes amea st hoseo ft he Series AP referredS tock.T he CCB preferred stocki se liminated in consolidation. We will payd ividends on theS eriesA PreferredS tock quarterly in arrears, when,a s, andi fd eclared by our Boardo f Directors, andt ot he extent that we have lawfully availablef unds to pays uchd ividends,o nM arch 15, June 15, September 15, andD ecember1 5o fe achy ear.W ee xpect to payd ividends on our Series AP referredS tock beginning on March1 5, 2026, subject to thea bove referenced conditions.W em ay redeem theS eriesA PreferredS tock at our option, subjectt oa ny regulatorya pprovalr equirementsa sa re in effect at such time,( i) in wholeo ri np art, on anyd ividendp ayment date on or afterD ecember1 5, 2030 or (ii) in wholeb ut not in part,a ta ny time within 90 days following ar egulatoryc apitalt reatment event, in either case at ar edemptionp rice equalt o$ 1,000 pers hare (equivalent to $25 perD epositary Share),p lusa ny declared andu npaid dividends.I nt he eventw el iquidate,d issolveo rw ind-up our businessa nd affairs, either voluntarilyo r involuntarily,a sn oted above holders of theS eriesA PreferredS tock aree ntitledt oa liquidationp referenceo f$ 25 per Depositary Share, plus anyd eclared andu npaid dividends,b eforew em akea ny distributiono fa ssets to theh olders of our commons tock.H olders of theD epositary Shares aree ntitledt oa ll proportionalr ightsa nd preferences of theS eriesA PreferredS tock (including dividend, voting, redemption andl iquidationr ights). StockR epurchaseP rograms Periodically,w ee nter into stockr epurchasep rograms, as approvedb yo ur Boardo fD irectors. Ther ationale foro ur repurchasep rograms, andt he amountst hereof,i st oe xecute againsto ur previously disclosedc apitalp rioritiest og row responsibly,m aintainb alance sheet strength, andr eturnv alue to stockholders. Thef ollowing tablep rovidesi nformationa bout our commons tock repurchases undero ur various Boardo fD irectors approveds hare repurchasea uthorizations,f or thep eriods presented: (Millions) Amount Authorized forR epurchase Number of Shares Repurchased (1) Approximate Dollar Valueo fS hares Repurchased (2) Amount Remaining forF uture Repurchases Fort he threem onths ended: March3 1, 2025 $1 50 2.1 $1 02 $4 8 June 30, 2025 —1 .1 48 — September3 0, 2025 200 0.6 40 160 December3 1, 2025 200 1.9 120 $2 40 Total$ 550 5.7 $3 10 ______________________________ (1) Following theirr epurchase, theses haresc eased to be outstanding shares of commons tock anda re now treated as authorized but unissued shares of commons tock. (2) Excludese xciset axes on stockr epurchases. Dividends Thet able belows ummarizest he cashd ividenda ctivity we hado no ur commons tock fort he datesp resented: (Millions,e xceptp er sharea mounts) Dividend DeclarationD ateD ividendP aymentD ateA mount PerC ommonS hare Amount (1) January 30, 2025 March2 1, 2025 $0 .21 $1 0 April2 4, 2025 June 13, 2025 $0 .21 10 July 24, 2025 September1 2, 2025 $0 .21 10 October2 3, 2025 December 12, 2025 $0 .23 10 $4 0 ______________________________ (1) Excludesd ividende quivalent rightsp aidd uringt he period. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-39
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No cashd ividends were declared or paid on our preferreds tock during2 025. On January 29, 2026, our Boardo fD irectorsd eclareda quarterly cashd ividendo f$ 26.35 pers hare on our preferreds tock and$ 0.23 pers hare on our commons tock,p ayable on March1 6, 2026, to stockholders of record at thec lose of businesso n February 27, 2026. 16. CHANGES IN ACCUMULATED OTHERC OMPREHENSIVE LOSS Thec hangesi ne ach component of Accumulatedo ther comprehensivel oss, neto ft ax effects, area sf ollows fort he periods presented: NetU nrealized Losseso nA FS Securities NetU nrealized Gainso nC ash Flow Hedges Foreign Currency TranslationL osses Accumulated Other Comprehensive Loss (Millions) Balancea so fD ecember 31, 2022 $( 18) $— $( 3) $( 21) Changesi no ther comprehensivei ncome2 —— 2 Balancea so fD ecember 31, 2023 $( 16) $— $( 3) $( 19) Changesi no ther comprehensivel oss( 3) —— (3) Balancea so fD ecember 31, 2024 $( 19) $— $( 3) $( 22) Changesi no ther comprehensivei ncome5 1— 6 Balancea so fD ecember 31, 2025 $( 14) $1 $( 3) $( 16) 17. INCOME TAXES We file income taxr eturns in U.S. federal, state, locala nd foreignj urisdictions,a sa pplicable.P rovisions forc urrent income taxl iabilitiesa re calculated anda ccruedo ni ncomea nd expensea mountse xpected to be includedi nt he income tax returnsf or thec urrent year.I ncomet axes reportedi ne arnings also include deferredi ncomet ax provisions andp rovisions foru ncertain taxp ositions. Differences between thea uditedC onsolidated FinancialS tatementsa nd taxb ases of assets andl iabilitiesg iver iset o deferredt ax assets andl iabilities,w hich measuret he future taxe ffectso fi tems recognized in thea uditedC onsolidated FinancialS tatements. Changesi nd eferredi ncomet ax assets andl iabilitiesa ssociated with componentso fS tockholders’ equity arec harged or creditedd irectly to Stockholders’e quity.O therwise,c hangesi nd eferredi ncomet ax assets and liabilities arei ncludeda sa component of Provision fori ncomet axes.T he effect on deferredi ncomet ax assets and liabilities attributable to changesi ne nacted taxr ates is chargedo rc reditedt oP rovision fori ncomet axes in thep eriodo f enactment. Deferredt ax assets require certain estimatesa nd judgments in ordert od eterminew hether it is more likelyt hann ot that all or ap ortiono ft he benefito fa deferredt ax assetw illn ot be realized.I ne valuatingo ur deferredt ax assets on aq uarterly basisa sn ew factsa nd circumstances emerge,w ea nalyze ande stimate thei mpact of future taxablei ncome, reversing temporaryd ifferences anda vailable taxp lanning strategies.U ncertaintiesc an lead to changesi nt he ultimate realizationo f deferredt ax assets.A liabilityf or unrecognized taxb enefits, representingt he differenceb etween at ax positiont aken or expected to be takeni na taxr eturna nd theb enefit recognized in thea uditedC onsolidated FinancialS tatements, inherently requirese stimatesa nd judgments.A taxp ositioni sr ecognized onlyw heni ti sm orel ikelyt hann ot to be sustained, based purelyo ni ts technical merits aftere xaminationb yt he relevant taxing authority,a nd thea mount recognized is theb enefit we believe is more likelyt hann ot to be realized upon ultimates ettlement.W ee valuateo ur taxp ositions as newf actsa nd circumstances become available, making adjustmentst ou nrecognized taxb enefits as appropriate.U ncertaintiesc an mean thet ax benefits ultimatelyr ealized differf roma mountsp reviously recognized,w ith anyd ifferences recorded in Provision fori ncomet axes,a long with amountsf or estimatedi nteresta nd penalties. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-40
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Thec omponentso fo ur Income from continuing operations before income taxesa nd Provision fori ncomet axes includedi n theC onsolidated Statements of Income were as followsf or they ears endedD ecember3 1: 2025 2024 2023 (Millions) Components of Income from continuing operations before income taxes Domestic $6 08 $3 75 $9 64 Foreign7 64 TotalI ncomef romc ontinuing operations before income taxes$ 615 $3 81 $9 68 Components of Provision fori ncomet axes Current Federal$ 36 $1 56 $2 61 Statea nd local( 34) 29 37 Foreign2 21 Totalc urrent income taxe xpense4 187 299 Deferred Federal9 8( 73) (65) Statea nd local( 7) (10) (2) Foreign( 1) (2)( 1) Totald eferredi ncomet ax expense( benefit) 90 (85) (68) TotalP rovision fori ncomet axes $9 4$ 102 $2 31 Thef ollowing tablep resentsI ncomet axes paid,n et of refunds fort he year endedD ecember3 1: 2025 (Millions) Federal$ 33 Statea nd local 18 Foreign2 Totali ncomet axes paid duringt he year,n et of refunds (1) $5 3 ______________________________ (1) During they eare ndedD ecember3 1, 2025 Income taxesp aid, neto fr efunds,f or theS tate of Californiaw ere$ 4m illion, which exceeded 5% of our Totali ncomet axes paid,n et of refunds. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-41
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In accordance with thea pplicable accountingg uidancei ne ffect fort he year endedD ecember3 1, 2025, thef ollowing table reconcilest he U.S. Federals tatutory taxa mount andr atet oo ur actual effectivei ncomet ax amount andr atef or they ear endedD ecember3 1: 2025 Amount Percent (Millions) Income fromc ontinuing operations,b eforei ncomet axes $6 15 U.S. Federals tatutory tax1 29 21.0 % Statea nd local income taxes, neto ff ederal income taxe ffect (1) 50 .8 % Taxc redits (3)( 0.5)% Non-deductible expenses 50 .9 % Changesi nu nrecognizedt ax benefits (39) (6.5)% Othera djustments( 3) (0.5)% Effectivei ncomet ax $9 41 5.2 % ______________________________ (1) In 2025, statet axes in NewY orka nd Utah made up them ajority (greater than 50 percent) of thet ax effect in this category. In accordance with thea pplicable accountingg uidancei ne ffect fort he yearse ndedD ecember3 1, 2024 and2 023, the following tabler econciles theU .S.F ederal statutoryt ax amount to our recorded Provision fori ncomet axes fort he years endedD ecember3 1: 2024 2023 (Millions) Expected expensea ts tatutory rate $8 0$ 203 Increase( decrease) in income taxesr esultingf rom: Statea nd locali ncomet axes,n et of federali ncomet ax effect 15 27 Non-deductible expenses 29 8 Valuationa llowance( 1) (5) Auditr esolutions (20) — Other( 1) (2) Total$ 102 $2 31 Fort he taxy ear endedD ecember 31, 2025, thed ecreasei nt he Statea nd local income taxes, neto ff ederal income tax effect is primarily relatedt oa taxl aw change in theS tate of California. Fort he year endedD ecember3 1, 2024, thei ncreasei nt he non-deductible expenses fromp rior periods is primarily related to then on-deductiblep ortion of our repurchased Convertible Notest ransactions.W ea lsou tilized ap ortiono fo ur capital loss, andt herefore released thea ssociated portiono fv aluationa llowancea gainst it. In addition, our taxe xpensed ecreased by approximately $20 million as ar esulto ff avorable auditr esolutions. Fort he year endedD ecember3 1, 2023, we utilized ap ortiono fo ur capitall oss, andt herefore released thea ssociated portiono ft he valuationa llowancea gainst it. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-42
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Thef ollowing tablep rovidest he significantc omponentso fD eferredt ax assets andl iabilitiesa so fD ecember3 1: 2025 2024 (Millions) Deferredt ax assets Deferredr evenue $1 4$ 12 Allowancef or credit losses5 13 534 Neto peratingl ossc arryforwards ando ther carryforwards 47 48 Operatingl easel iabilities 19 29 Research &d evelopmente xpenses 23 53 Accruede xpensesa nd other8 08 7 Totald eferredt ax assets 696 763 Valuationa llowance (20) (19) Deferredt ax assets,n et of valuationa llowance 676 744 Deferredt ax liabilities Deferredi ncome$ 2$ 2 Depreciation3 0— Right of usea ssets 13 19 Intangiblea ssets 15 15 Totald eferredt ax liabilities6 03 6 Netd eferredt ax assets $6 16 $7 08 Amountsr ecognized on theC onsolidated BalanceS heets: Othera ssets $6 16 $7 08 As of December3 1, 2025, includedi no ur U.S. taxr eturns area pproximately $107 milliono fU .S.f ederal neto perating loss carryovers (NOLs) andf ederal capitall osseso fa pproximately $48 milliont oo ffset capitalg ains.W ith thee xception of NOLsg enerateda fter December 31, 2017, thesea ttributes expire at various timest hrough they ear 2034. As of December3 1, 2025, we have stateN OLso fa pproximately $237 milliona vailablet oo ffset future statet axable income,a s well as statec apital losseso fa pproximately $15 million to offset capitalg ains.W ith thee xceptiono fs omes tate NOLs generateda fter December3 1, 2017, theseN OLsa nd capitall ossesw ill expire at various timest hrough they ear 2043. As of December3 1, 2025, we have taxc redits in foreignj urisdictions of approximately $4 milliona vailablet oo ffset future tax liabilities.T hese creditse xpire at various timest hrough they ear2 041. In 2024 we recorded at ax expenseo fa pproximately $7 million in Additionalp aid-in capitalr elated to thet ax impacto ft he repurchased Convertible Notes, specifically,t he write-offo ft he associated deferredt ax asset. We uset he portfolio approach relatingt ot he releaseo fs trandedt ax effectsr ecorded in Accumulatedo ther comprehensive loss. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-43
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Thef ollowing tablep resentsc hangesi nu nrecognizedt ax benefits: (Millions) Balancea so fD ecember 31, 2022 $2 42 Increases relatedt op rior years’ taxp ositions 1 Decreases relatedt op rior years’ taxp ositions (11) Increases relatedt oc urrent year taxp ositions 13 Settlementsd uringt he period (10) Lapses of applicable statutes of limitations (20) Balancea so fD ecember 31, 2023 $2 15 Increases relatedt op rior years’ taxp ositions 1 Decreases relatedt op rior years’ taxp ositions (40) Increases relatedt oc urrent year taxp ositions 9 Settlementsd uringt he period (21) Lapses of applicable statutes of limitations (10) Balancea so fD ecember 31, 2024 $1 54 Increases relatedt op rior years’ taxp ositions 1 Decreases relatedt op rior years’ taxp ositions (27) Increases relatedt oc urrent year taxp ositions 4 Lapses of applicable statutes of limitations (10) Balancea so fD ecember 31, 2025 $1 22 We recognize potential accruedi nteresta nd penalties relatedt ou nrecognized taxb enefits in Provision fori ncomet axes. We have potentialc umulativei nteresta nd penalties with respect to unrecognized taxb enefits of approximately $62 million, $86 milliona nd $84 milliona so fD ecember 31, 2025, 2024 and2 023, respectively. Fort hoses amey ears we recorded ab enefit of approximately $19 milliona nd expenses of $2 milliona nd $9 million, respectively, in Provision for income taxesf or potential interest andp enaltiesf or unrecognized taxb enefits. As of December3 1, 2025, 2024 and2 023, we hadu nrecognized taxb enefits of approximately $155 million, $200 million and$ 226 million,r espectively, that,i fr ecognized,w ouldi mpactt he effectivet ax rate. With fewe xceptions,U .S.f ederal income taxr eturns aren ol ongers ubject to examinationf or yearsb efore2 022, ands tate andl ocal income taxa nd foreigni ncomet ax returnsa re no longers ubject to examinationf or yearsb efore2 021. 18. EARNINGSP ER SHARE Basice arnings (losses) pers hare (EPS) is basedo nlyo nt he weighted averagen umbero fc ommons hareso utstanding, excluding anyd ilutivee ffectso fu nvested restricted stocka wardso ro ther dilutives ecurities. DilutedE PS is basedo n( i) thew eighted averagen umbero fc ommona nd potentiallyd ilutivec ommons hares( unvested restricted stocka wards outstanding duringt he year), pursuantt ot he TreasuryS tock method, and( ii) thep otentialc onversiono ft he Convertible Notes, pursuantt ot he If-converted method. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-44
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Thef ollowing tables etsf orth thec omputationo fb asic andd ilutedE PS attributable to commons tockholders fort he years endedD ecember3 1: 2025 2024 2023 (Millions,e xceptp er sharea mounts) Numerator Income fromc ontinuing operations $5 21 $2 79 $7 37 Loss fromd iscontinuedo perations,n et of income taxes (1) (3)( 2) (19) Neti ncomea vailablet oc ommons tockholders $5 18 $2 77 $7 18 Denominator Weighted average common stocko utstanding –b asic 46.8 49.6 49.8 Weighted average effect of dilutive securities Add: nete ffecto fd ilutiveu nvested restricted stocka wards (2) 0.8 0.7 0.2 Add: dilutivee ffect of Convertible Notes (3)(4) —0 .1 — Weighted average common stocko utstanding –d iluted 47.6 50.4 50.0 BasicE PS Income fromc ontinuing operations $1 1.15 $5 .63 $1 4.79 Loss fromd iscontinuedo perations $( 0.08) $( 0.05) $( 0.40) Neti ncomep er share$ 11.07 $5 .58 $1 4.39 DilutedE PS Income fromc ontinuing operations $1 0.96 $5 .54 $1 4.74 Loss fromd iscontinuedo perations $( 0.07) $( 0.05) $( 0.40) Neti ncomep er share$ 10.89 $5 .49 $1 4.34 ______________________________ (1) Includesa mountst hatr elated to thep reviously disclosedd iscontinuedo perations associated with thes pinoffo fo ur former LoyaltyOnes egment in 2021 andt he sale of our former Epsilons egment in 2019. Fora dditionali nformationr efer to Note 1, “Descriptiono fB usiness, Basiso fP resentationa nd SignificantA ccountingP olicies” to thea uditedC onsolidated Financial Statements. (2) As thee ffect wouldh aveb een anti-dilutive, fort he yearse ndedD ecember3 1, 2025,2 024 and2 023, approximately 0.4 million, 0.6 million, and1 .2 million, respectively, restricted stocka wardsw eree xcludedf rome ach calculationo fw eighted averaged ilutive commons hares. (3) Thec onversionf eatureo ft he Convertible Notesh ad ad ilutivei mpact on EPSw hent he averagem arketp rice of our commons tock fort he period exceeded thec onversionp rice of $38.43 pers hare,a nd hasb een reflected in thet able above.A so fD ecember3 1, 2025, allo ft he Convertible Notesh aveb een extinguished andn oC onvertible Notesr emaino utstanding. (4) In connectionw ith thei ssuance of theC onvertible Notes, we enteredi ntop rivately negotiatedC appedC alls with certain financial institutionc ounterparties. Dilutedw eighted averagec ommons tock doesn ot include thei mpact of theC appedC alls we enteredi nto concurrently with thei ssuance of theC onvertible Notes, as thee ffectw ouldh aveb een anti-dilutive. 19. REGULATORY MATTERSA ND CAPITAL ADEQUACY Regulatory Matters Ourb usinessi ss ubject to extensivef ederal ands tate laws andr egulations,a sw ella sr elated regulationa nd supervision, including by theF DIC, CFPB ando ther federala nd statea uthorities. Pending andf uturel awsa nd regulations (federala nd state) maya dverselyi mpact our business. Without limiting thef oregoing, CB is subject to various regulatoryc apital requirementsa dministeredb yt he Delaware Office of theS tate Bank Commissionera nd theF DIC. CCB is also subjectt o various regulatoryc apitalr equirementsa dministeredb yt he Utah Department of FinancialI nstitutions andt he FDIC. Failure to meet minimumc apitalr equirementsc an triggerc ertain mandatory andp ossiblya dditionald iscretionary actions by our regulators.U nderc apitala dequacy guidelinesa nd ther egulatoryf ramework forp romptc orrectivea ction, both Banks must meet specific capitalg uidelines that involve quantitativem easures of theira ssets andl iabilitiesa sc alculated BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-45
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underr egulatorya ccountingp ractices.T he capitala mountsa nd classificationa re also subject to qualitativej udgments by theser egulatorsa bout components, risk weightings ando ther factors. In addition, bothB anks arel imitedi nt he amounts they can paya sd ividends to theP arentC ompany. Quantitative measures,e stablished by regulations to ensure capitala dequacy,r equire theB anks to maintain minimum amountsa nd ratios of Tier 1c apitalt oa verage assets,a nd Common equity tier1 ,T ier1 capitala nd Totalc apital, each to risk weighted assets.F ailure to meet thesem inimumc apital requirementsc an result in certain mandatory,a nd possibly additionald iscretionary actions by theB anks’r egulatorst hati fu ndertaken,c ouldh avead irect material effect on CB’s and/or CCB’so peratinga ctivities,a sw ella so ur operatinga ctivities. Basedo nt hese regulations,a so fD ecember3 1, 2025 and2 024, each Bank meta ll capitalr equirementst ow hich it wass ubject,a nd maintained capitalr atiosi ne xcesso ft he minimums required to qualify as well capitalized.T he Banks seek to maintain capitall evelsa nd ratiosi ne xcesso ft he minimumr egulatoryr equirementsi nclusive of the2 .5% CapitalC onservationB uffer. Although Bread Financiali sn ot a bank holding companya sd efined undert he Bank HoldingC ompany Act, we seek to maintain capitall evelsa nd ratios in excesso ft he minimums requiredf or bank holding companies. Thef ollowing tablep rovidest he actualc apitalr atiosa nd minimumr atiosf or theC ompany, as well as each Bank, as of December3 1: Ratio/DollarV alue MinimumR atio for CapitalA dequacy Purposes * MinimumR atio to be Well Capitalized under Prompt Corrective Action Provisions (Millions,e xceptp ercentages) 2025 2024 TotalC ompany Commone quity tier 1c apitalr atio (1) 13.0 %1 2.4 %4 .5 %N /A Tier 1c apitalr atio (2) 13.4 12.4 6.0 N/A Totalr isk-basedc apital ratio (3) 16.8 13.8 8.0 N/A Tier 1l everagec apitalr atio (4) 12.4 11.5 4.0 N/A Totalr isk-weighted assets (5) $1 9,755 $1 9,928 Comenity Bank Commone quity tier 1c apitalr atio (1) 15.1 %1 6.5 %4 .5 %6 .5 % Tier 1c apitalr atio (2) 15.1 16.5 6.0 8.0 Totalr isk-basedc apital ratio (3) 16.5 17.9 8.0 10.0 Tier 1l everagec apitalr atio (4) 14.1 15.3 4.0 5.0 Comenity CapitalB ank Commone quity tier 1c apitalr atio (1) 13.5 %1 5.4 %4 .5 %6 .5 % Tier 1c apitalr atio (2) 14.1 15.4 6.0 8.0 Totalr isk-basedc apital ratio (3) 17.5 16.7 8.0 10.0 Tier 1l everagec apitalr atio (4) 13.2 14.3 4.0 5.0 __________________________________ * Thel istedc apitala dequacy ratiose xclude theC apitalC onservationB uffer. (1) Commone quity tier1 capitalr atio represents tier1 capitalr educed by Preferreds tock dividedb yt otal risk-weighted assets.I nt he calculationo ft ier1 capital, we followt he BaselI II Standardized Approach andt herefore Totals tockholders’ equity hasb een reduced by Goodwill andi ntangiblea ssets,n et. (2) Tier 1c apitalr atio represents tier1 capitald ivided by totalr isk-weighted assets.I nt he calculationo ft ier1 capital, we followt he BaselI II Standardized Approach andt herefore Totals tockholders’ equity hasb een reduced,p rimarily by Goodwill andi ntangible assets,n et.F or us,t ier1 capitali sp rimarily comprisedo fC ET1 capitala nd Preferreds tock. (3) Totalr isk-basedc apitalr atio represents totalc apitald ivided by totalr isk-weighted assets.I nt he calculationo ft otal capital, we followt he BaselI II Standardized Approach andt herefore tier1 capitalh as been increased by tier2 capital, whichf or us is BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-46
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comprisedo fs ubordinatedn otes,a sw ella st he allowablep ortiono ft he Allowancef or credit losses. (4) Tier 1l everagec apitalr atio represents tier1 capitald ivided by totala verage assets,a fter certain adjustments. (5) Totalr isk-weighted assets areg enerally measured by allocatinga ssets,a nd specified off-balance sheet exposures,t ov arious risk categoriesa sd efined by theB asel IIIS tandardized Approach. We area lsoi nvolved, fromt imet ot ime,i nr eviews,i nvestigations,s ubpoenas, supervisorya ctions ando ther proceedings (bothf ormala nd informal)b yg overnmental agencies regardingo ur business, whichc oulds ubject us to significantf ines, penalties, obligations to change our businessp ractices,s ignificantr estrictions on our existingb usinesso ra bility to develop newb usiness, cease-and-desist orders,s afety-and-soundness directives or otherr equirementsr esultingi ni ncreased expenses,d iminishedi ncomea nd damage to our reputation. In November 2023 followingt he consento ft he Boardo fM anagerso fC omenity ServicingL LC (the Servicer), theF DIC issued ac onsento rder to theS ervicer.T he Servicer is not one of our Bank subsidiaries,b ut is our wholly-owned subsidiary that services substantially allo fo ur loans. Thec onsento rder aroseo ut of theJ une 2022 transitiono fo ur credit card processing services to strategico utsourcing partners anda ddressesc ertain shortcomings in theS ervicer’s information technology (IT)s ystems development, project management,b usinessc ontinuity management,c loud operations,a nd third- partyo versight.T he Servicer enteredi ntot he consento rder fort he purposeo fr esolving thesem atters without admittingo r denying anyv iolations of lawo rr egulations et forthi nt he order. Thec onsento rder doesn ot containa ny monetary penaltieso rf ines. TheS ervicer continuest ot akes ignificants teps to strengthent he organization’sI Tg overnance anda ddresst he otheri ssues identifiedi nt he consento rder,w orking diligentlyt oe nsuret hata ll requirementso ft he consento rder ares atisfied.W ithout limitingt he generality of thef oregoing, theS ervicerh as takens teps to addresse ach provision within thec onsento rder and continuest oc omplyw ithe ach ongoing requirement.T he Servicer is committedt oc omplying with thel onger-term requirementso ft he consento rder,i ncluding thee nhancemento fi ts compliancem anagementp rocessesa nd related corporateg overnance,c ompliancew ith thea pplicable system conversionr equirements, ande nhanced risk management and reporting. TheS ervicerh as submitteda ll requiredd eliverablesu ndert he consento rder to theF DICf or its review and consideration. TheB oard of Managers of theS ervicer continuest oo versee its compliancew ith ther equirementso ft he consento rder andp rovide effectivec hallenge to theS ervicer’s management toward that end. TheB oard of Directorso f each of theB anks also receivesr eportinga bout theS ervicer andm onitors theS ervicer’s compliancew ith thep rovisions of thec onsento rder. On December1 7, 2025, we fileda pplications with thef ederal andr espectives tate banking regulatorsf or permission to mergeC Bw itha nd into CCB, with CCB beingt he survivinge ntity.P ending regulatorya pprovala nd thee xpiration of any applicable waiting periods,t he merger of CB andC CB is expected to occuri nt he second half of 2026. Them ergeri sn ot expected to have as ignificanti mpact on our consolidated financialp osition, results of operations,o rl iquidity. 20. COMMITMENTS AND CONTINGENCIES Legal Proceedings From time to time we ares ubjectt ov arious lawsuits,c laims, disputes,o rp otentialc laims or disputes,a nd other proceedings,a rising in theo rdinaryc ourse of businesst hatw eb elieve,b ased on our current knowledge,w ill not have a material adversee ffect on our business, consolidated financialc onditiono rl iquidity,i ncluding claims andl awsuits alleging breaches of our contractualo bligations,a rbitrations,c lass actions ando ther litigation, arisingi nc onnectionw ith our businessa ctivities. However, in light of theu ncertaintiesi nvolvedi ns uchm atters,i ncluding thef act that some pending legalp roceedings area tp reliminary stages or seek an indeterminatea mount of damages, penaltieso rf ines,i ti sp ossible that theo utcome of legalp roceedings couldh avea material impact on our results of operations.C ertain legalp roceedings involving us or our subsidiaries are describedf urther below. On February 20, 2024, we ando ur generalc ounsel were nameda sd efendantsi na na dversaryp roceedingf iledb yt he liquidatingt rustee in LVI’s Chapter1 1b ankruptcy casei nt he UnitedS tatesB ankruptcy Courtf or theS outhern District of Texas, captioned PirinateC onsulting Group, LLC v. BreadF inancialH oldings,I nc.,C aseN o. 24-03027 (Bankr.S .D. Tex.),a lleging actual andc onstructivef raudulentt ransfers,a mong otherc laims,i nc onnectionw ith our spinoffo fL VI. Also on February 20, 2024, thel iquidatingt rustee fileda na ctioni nt he UnitedS tatesD istrictC ourtf or theD istricto f Delaware againstu s, each of them embers of our Boardo fD irectors at thet ime of thes pinoff, andc ertain memberso fo ur management team,c aptioned PirinateC onsulting Group, LLC v. BreadF inancialH oldings,I nc.,C aseN o. 24-cv-00226- RGA( D. Del.), alleging certainb reaches of fiduciary duties( anda idinga nd abettingb reaches of fiduciary duties) in BREADF INANCIAL HOLDINGS,I NC. NOTEST OT HE AUDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-47
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connectionw ith thes pinoff. Subsequently,t he liquidating trusteev oluntarily dismissedw ithout prejudice thec omplaint in theD istricto fD elawarea nd commenced on March2 0, 2024 as ubstantially similara ctioni nD elawareC hanceryC ourt, captioned PirinateC onsulting Group, LLCv .B read FinancialH oldings,I nc.,C aseN o. 2024-0277-MTZ( Del. Ch.), againstt he same partiesa nd assertingt he same claims.A mong othert hings,i ne ach of theT exas andD elawarea ctions,t he liquidatingt rustee seeksd amages in thea mount of approximately $750 millionp lusi nterest, fees ande xpenses.I nt he Texasa ction, theU nitedS tatesB ankruptcy Courtp ermitted certain of thec laims to move past am otiont od ismiss, ando n January 22, 2026, theC ourtd eniedo ur motionf or partials ummary judgmento no ther claims;o nF ebruary5 ,2 026, we fileda motionf or leavet oa ppeal that decision to theU nitedS tatesD istrictC ourt. We andc ertain current andf ormerm embers of our management team have also been nameda sd efendantsi no ther litigationm atters relatingt ot he LVIs pinoff. LoyaltyOne, Co.( theL VI subsidiary that operatedi ts Canadian AIRM ILES business) fileds uita gainst us ando ur generalc ounsel in theO ntario Superior Courto fJ usticei nC anadao nO ctober1 8, 2023, in an actionc aptioned LoyaltyOne,C o. v. BreadF inancialH oldings,I nc.e ta l.T he lawsuita ssertst hato ur general counsel,i nh is capacity as ap re-spinoffd irector of LoyaltyOne,C o., breached various fiduciary dutieso wedt o LoyaltyOne, Co.i nc onnectionw ith theL VI spinoffa nd certain othert ransactions,a nd that Bread Financiala ssisted in and benefitedf romt hoseb reaches.T he lawsuits eeksd amages in thea mount of $775 million. LoyaltyOne, Co.i sa lso contestingo ur entitlement to certainp otentialt ax refunds undert he taxm atters agreement, in proceedings pursuantt ot he Canadian Companies’ CreditorsA rrangement Acti nt he Commercial List of theO ntario Superior Courto fJ ustice, captioned In re Matter of aP lano fC ompromiseo rA rrangement of LoyaltyOne,C o., Case No.C V-23-00696017-00CL (the TaxM atters Dispute).I nJ uly2 024, thej udge presidingo vert he TaxM atters Disputei ssued an orderi no ur favor,a nd LoyaltyOne, Co.f iled am otionf or leavet oa ppeal that order, whichm otionw as dismissedb yt he Courto fA ppeal for Ontarioi nM arch 2025. LoyaltyOne, Co.h as indicatedt hati tw illc ontinue to seek to contesto ur entitlement to these potentialt ax refunds.A hearingi ss cheduled before theO ntario Superior Courto fJ usticei nM arch 2026 at which LoyaltyOne, Co.a nd certain creditors of LVIa re seekinga temporary stay of theseC anadianp roceedings pending final resolutiono ft he U.S. litigationf iledb yt he liquidating trusteeo r, alternatively, an ordert hatL oyaltyOne, Co.i se ntitledt o breach thet ax mattersa greement andr etaint he taxr efunds at issue. Finally,o nA pril 27, 2023, we andc ertain currenta nd former memberso fo ur management team were nameda sd efendantsi na putativef ederal securitiesc lass actionf iledi nt he UnitedS tatesD istrictC ourtf or theS outhernD istricto fO hio, captioned Newtyn Partners, LP v. AllianceD ataS ystems n/k/ aB read FinancialH oldings,I nc.,C aseN o. 23-cv-1451-EAS( S.D. Ohio), concerning disclosuresm adea bout LVI’s businessp rior to thes pinoff. Thel ead plaintiffi nt hism atterf iled an amendedc omplaint on March2 1, 2024. In March 2025, theU nitedS tatesD istrictC ourtf or theS outhernD istricto fO hiog ranted our andt he otherd efendants’ motions to dismissi nf ulla nd with prejudice; thec ourte ntered judgmenti nf avor of alld efendantsa nd terminated thec ase. The plaintiffs appealed theD istrictC ourt’sr ulingi nt he Newtyn Partnersm atter, andt he United States Courto fA ppealsf or the SixthC ircuit affirmed thed ismissal of thes uiti nJ anuary 2026. In allt hese actions relatedt ot he spinoff, we believet he allegations containedi nt he complaints arew ithout merita nd intend to defend thec ases.W ec annot predicta tt hisp oint thel engtho ft ime that thesea ctions will be ongoing or the liability,i fa ny, whichm ay ariset herefrom. Some matters pending againstu ss pecify thed amages sought,o therss eek an unspecified amount of damageso ra re at very early stages of thel egal process. In matters wheret he amount of damagesc laimeda gainst us ares tated, thec laimeda mount mayb ee xaggerateda nd/or unsupported. While some mattersh aven ot yetp rogresseds ufficiently through discovery or have hadd evelopmento fi mportant factuali nformation andl egal issues to enable us to estimate an amount of loss or a range of possiblel oss, otherm atters mayh avep rogresseds ufficiently to enable an estimate of an amount of loss, or ar ange of possiblel oss. We accrue fora loss contingencyw heni ti sb othp robablet hata loss haso ccurred, andt he amount of loss can be reasonablye stimated; however,t here mayb ei nstances in whicha ne xposuret oa loss contingencye xceedso ur accrual. On aq uarterly basisw ee valuated evelopments in thel egal proceedings againstu st hatc ouldc ause an increase or decreasei nt he amount of thea ccrualt hath as been previously recorded. 21. PARENT COMPANY FINANCIAL STATEMENTS Thef ollowing Parent Companyf inancial statements arep rovidedi na ccordance with ther ules of theS EC,w hich require such disclosure when ther estrictedn et assets of consolidated subsidiaries exceed 25 percento fc onsolidated neta ssets. Certaino fo ur subsidiaries mayb er estrictedi nd istributingc asho ro ther assets to theP arentC ompany, whichc ouldb e utilized to serviceo ur indebtedness. Thes tand-alone parent-onlyf inancial statements arep resented below. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-48
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ParentC ompany –C ondensed Statements of Income andC omprehensive Income YearsE ndedD ecember3 1, 2025 2024 2023 (Millions) Totali nteresti ncome$ 62 $1 1$ 12 Totali ntereste xpense1 08 116 111 Neti ntereste xpense (46) (105) (99) Dividends froms ubsidiaries 834 910 1,063 Loss frome quity method investment —— (6) Totaln et interest andn on-interesti ncome7 88 805 958 Totaln on-interest expenses 76 121 12 Income before income taxesa nd equity in undistributed neti ncomeo f subsidiaries 712 684 946 Benefitf or income taxes3 13 83 1 Income before equity in undistributed neti ncomeo fs ubsidiaries 743 722 977 Equity in undistributed netl osso fs ubsidiaries (225) (445) (259) Neti ncome$ 518 $2 77 $7 18 Totalc omprehensive income,n et of tax$ 518 $2 77 $7 18 ParentC ompany –C ondensed BalanceS heets December3 1, 2025 2024 (Millions) Assets Cash andc ashe quivalents (1) $3 12 $2 1 Investment in subsidiaries 3,080 3,195 Intercompany receivables,n et 733 773 Othera ssets 93 123 Totala ssets $4 ,218 $4 ,112 Liabilities Long-term ando ther debt $8 86 $9 99 Otherl iabilities5 62 Totall iabilities 891 1,061 Stockholders’e quity 3,327 3,051 Totall iabilitiesa nd stockholders’e quity$ 4,218 $4 ,112 ______________________________ (1) Includes $210 millioni nd eposits with CCB as of December3 1, 2025.T here were no deposits with either of our Banks as of December3 1, 2024. BREADF INANCIAL HOLDINGS,I NC. NOTEST OT HE AUDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-49
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ParentC ompany –C ondensed Statements of Cash Flows YearsE ndedD ecember3 1, 2025 2024 2023 (Millions) Netc ashp rovidedb y( used in)o perating activities $4 82 $( 182) $( 422) Cash flowsf romi nvestinga ctivities: Investment in subsidiaries (75) —— Neti ncreasei na mountsd ue froms ubsidiaries (450) —— Dividends received8 34 910 1,063 Netc ashp rovidedb yi nvesting activities 309 910 1,063 Cash flowsf romf inancing activities: Borrowings underd ebta greements9 00 300 1,401 Repayments of borrowings underd ebta greements (1,079) (894) (1,882) Paymento fd eferredf inancing costs( 20) (10) (45) Paymento fc appedc allt ransactions —— (39) Dividends paid (42) (43) (42) Repurchases of commons tock (313) (55) (35) Netp roceedsf romt he issuance of preferreds tock 71 —— Other( 17) (7)( 2) Netc ashu sedi nf inancing activities (500) (709) (644) Change in cash, cashe quivalentsa nd restricted cash 291 19 (3) Cash,c ashe quivalentsa nd restricted casha tb eginning of year 21 25 Cash,c ashe quivalents andr estrictedc asha te nd of year $3 12 $2 1$ 2 Non-cashf inancinga ctivitiesr elated to theP arentC ompany –C ondensed Statements of Cash Flowsf or they earse nded December3 1, 2025 and2 024 include thei mpact to Additionalp aid-in capitalr elated to thed ebti ssuance costsf romt he repurchased Convertible Notes. Non-cashi nvestinga ctivities relatedt ot he Parent Company–C ondensed Statements of Cash Flowsf or they ear ended December3 1, 2023 include a$ 318 millionn on-cashd ividendi nt he form of an intercompany return of capitalf romB read FinancialP ayments, Inc. to theP arentC ompany. BREADF INANCIAL HOLDINGS,I NC. NOTES TO THEA UDITEDC ONSOLIDATED FINANCIAL STATEMENTS –( CONTINUED) F-50
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SIGNATURES Pursuant to ther equirementso fS ection1 3o r1 5(d) of theS ecuritiesE xchange Acto f1 934, theC ompany hasd ulyc aused this AnnualR eporto nF orm1 0-Kt ob es ignedo ni ts behalf by theu ndersigned, thereuntod ulya uthorized. BreadF inancial Holdings,I nc. By:/ S/ RALPHJ .A NDRETTA RalphJ .A ndretta Presidenta nd ChiefE xecutive Officer
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DATE: February 13, 2026 Pursuant to ther equirementso ft he SecuritiesE xchange Acto f1 934, this reporth as been signedb elow by thef ollowing persons on behalf of theC ompany andi nt he capacitiesa nd on thed ates indicated. Name TitleD ate /S/R ALPH J. ANDRETTA President, ChiefE xecutive Officer and Director February 13, 2026 RalphJ .A ndretta /S/P ERRY S. BEBERMAN Executive Vice Presidenta nd Chief FinancialO fficer February 13, 2026 Perry S. Beberman /S/J .B RYAN CAMPBELL Senior Vice Presidenta nd Chief AccountingO fficer February 13, 2026 J. Bryan Campbell /S/R OGERH .B ALLOUC hairmano ft he Board, Director February 13, 2026 RogerH .B allou /S/J OHN J. FAWCETTD irectorF ebruary1 3, 2026 John J. Fawcett /S/J OHN C. GERSPACH,J R. Director February 13, 2026 John C. Gerspach,J r. /S/P RANITI LAKHWARAD irectorF ebruary1 3, 2026 PranitiL akhwara /S/R AJESHN ATARAJAN Director February 13, 2026 Rajesh Natarajan /S/J OYCES T. CLAIRD irectorF ebruary1 3, 2026 JoyceS t. Clair /S/T IMOTHY J. THERIAULTD irectorF ebruary1 3, 2026 TimothyJ .T heriault /S/L AURIEA .T UCKERD irectorF ebruary1 3, 2026 Laurie A. Tucker /S/S HAREN J. TURNEY Director February 13, 2026 SharenJ .T urney
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About Bread Financial® Bread Financial® (NYSE: BFH) is a tech-forward financial services company that provides simple, personalized payment, lending and saving solutions to millions of U.S. consumers. Our payment solutions deliver growth for some of the most recognized brands in travel & entertainment, specialty apparel, health & beauty, jewelry, sporting goods, technology and electronics, as well as home & furniture through our co-brand and private label credit cards and pay-over-time products providing choice and value to our shared customers. Additionally, we offer Bread Financial general purpose credit cards and saving products that empower our customers and their passions for a better life. Forward-looking Statements This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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, future dividend declarations, and future economic 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 are difficult to predict and, in many cases, beyond our control. Accordingly, our actual results could 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. Factors that could cause the outcomes to differ materially include, but are not limited to, the following: macroeconomic conditions, including market conditions, inflation, interest rates, labor market conditions, recessionary pressures or concerns over a prolonged economic slowdown, and the related impact on consumer spending behavior, payments, debt levels, savings rates and other behaviors; global political and public health events and conditions, including significant shifts in trade policy, such as changes to, or the imposition of, tariffs and/or trade barriers and consequently any economic impacts, volatility, uncertainty and geopolitical instability resulting therefrom, as well as ongoing wars and military conflicts and natural disasters; future credit performance, including the level of future delinquency and charge-off rates; loss of, or reduction in demand for services and/or products from, significant brand partners or customers in the highly competitive markets in which we operate, including competition from new and non-traditional competitors, such as financial technology companies, and with respect to new products, services and technologies, such as the emergence or increase in popularity of agentic commerce, digital payment platforms and currencies and other alternative payment and deposit solutions; the concentration of our business in U.S. consumer credit; inaccuracies in the models and estimates on which we rely, including our credit risk management models and the amount of our Allowance for credit losses; the inability to realize the intended benefits of acquisitions, dispositions and other strategic initiatives; our level of indebtedness and ability to access financial or capital markets; pending and future federal and state legislation, executive action, 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 that would place limits on credit card interest rates or late fees, interchange fees or other charges; failures or breaches in our operational or security systems, including as a result of cyberattacks, unanticipated impacts from technology modernization projects or otherwise; and any liability or other adverse impacts arising out of or related to the spinoff of our former LoyaltyOne segment or the bankruptcy filings of Loyalty Ventures Inc. (LVI) and certain of its subsidiaries, including the pending litigation against us in connection with the spinoff. The foregoing factors, along with other risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward-looking statements, are described in greater detail under the headings “Risk Factors” and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the most recently ended fiscal year, which may be updated in Item 1A of, or elsewhere in, our Quarterly Reports on Form 10-Q filed for periods subsequent to such Form 10-K. Our forward-looking statements 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.
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Contact Information CORPORATE HEADQUARTERS Bread Financial 3095 Loyalty Circle Columbus, Ohio 43219 614-729-4000 COMMON STOCK The company’scommon stock is listed on the New York Stock Exchange under the ticker symbol “BFH.” FORM 10-K For more information about Bread Financial, visit us online at https://investor.breadfinancial.com. The company’sAnnual Report on Form 10-K for the year ended December 31, 2025, as filed with the Securities and Exchange Commission, is available on Bread Financial’swebsite. ELECTRONIC ACCESS Stakeholders may visit the following website for electronic access to Annual Reports and Proxy materials: www.proxydocs.com/BFH LEGAL COUNSEL Akin Gump Strauss Hauer & Feld LLP 2300 N. Field Street Suite 1800 Dallas, Texas 75201 214-969-2800 INDEPENDENT AUDITORS Deloitte & Touche LLP 330 Rush Alley Suite 800 Columbus, Ohio 43215 614-221-1000 TRANSFER AGENT AND REGISTRAR Computershare Investor Services Mailing Address Stockholder correspondence should be mailed to: Computershare P.O. Box 43006 Providence, Rhode Island 02940-3006 Overnight correspondence should be sent to: 150 Royall Street Suite 101 Canton, Massachusetts 02021 Stockholder Inquiries Toll: +1 781-575-2879 Toll Free: 877-373-6374 Stockholder Website www.computershare.com/investor Stockholder Online Inquiries https://www-us.computershare.com/investor/contact Board of Directors (as of December 31, 2025) ROGER H. BALLOU Chair of Board RALPH J. ANDRETTA Director, President and CEO JOHN J. FAWCETT Director JOHN C. GERSPACH, JR. Director PRANITI LAKHWARA Director RAJESH NATARAJAN Director JOYCE ST. CLAIR Director TIMOTHY J. THERIAULT Director LAURIE A. TUCKER Director SHAREN J. TURNEY Director
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