BFH 10-K & 10-Q changes, risk factors and insider trading

•Our unsecured loans make us reliant on the future credit performance of our customers, and if customers are unable to repay our loans, our level of future delinquency and write-offcharge-off rates will increase.

•Our industry is subject to rapid and significant technological changes, and we may be unable to successfully develop and commercialize new or enhanced products and services. Moreover, technology transformation projects are complex undertakings, which may result in unanticipated adverse consequences.

Weakness and instability in the macroeconomic environmentenvironment, as well as global political, public health and social events or conditions, could have a material adverse effect on our business, results of operations and financial condition.

While we closely monitor economic conditions and indicators, including inflation, interest rates, changes in monetary policy, housing values, the state of the commercial real estate industry, energy prices, external credit bureau risk scores, consumer wages, consumer saving rates and debt levels, including student loan debt, consumer and business spending, unemployment, financial markets, government policy and concerns about the level of U.S. government debt, as well as economic and political conditions in the U.S. and global markets, the outcome of any of these conditions and indicators remains difficult to predict. During 2024,2025, the economic scenario weightings in our credit reserve modeling continued to reflect an increasedelevated probabilitypossibility of a recession, high interest rates, persistent inflation, and the increased cost of overall consumer debt. A recession or prolonged period of economic weakness would likely, among other things, adversely affect consumer discretionary spending levels and the ability and willingness of customers to pay amounts owed to us and could have a material adverse effect on our business, key credit trends, results of operations and financial condition. Moreover, the current macroeconomic environment may have a disproportionately adverse impact on us, as compared to our peers, due to our relatively higher proportion of private label credit card accounts and our deeper underwriting. In the current macroeconomic landscape, the wage growth of many moderate and lower-income households has been challenged by the compounding effect of persistent inflation, even while unemployment rates remain low. Given the higher proportion of moderate and lower-income households within our partners’ customer bases relative to many of our peers, a continuation of this trend could impact us more negatively than others in our industry. Moreover, the current Presidential Administration’s policies on trade, immigration and taxes could create inflationary pressures, which in turn could disproportionately impact our customer base.

For context, during the Great Recession, our Delinquency and Net principal loss rates peaked in 2009 at 6.2% and 10.0%, respectively. As of December 31, 2024,2025, our Delinquency rate was 5.9%5.8% and our 20242025 full-year Net principal loss rate was 8.2%.7.7%. While these 20242025 rates were lower than those experienced in 2009 during the Great Recession,2009, the current and near-term anticipated Delinquency and Net principal loss rates areremain high,elevated, relative to our historical experience, and a prolonged continuation or worsening of these rates could have a material adverse impact on us.

In addition, outbreakspolitical ofevents illnesses, pandemics, endemic diseases, or other local or global health issues, politicaland uncertainties (including those arising from significant shifts in policy that impact consumers, such as tariffs and other trade-related measures, taxes and immigration, among othersothers, and the potential or threat of retaliatory international and domestic policies), international tensions or hostilities, armed conflict, war (such as the ongoing warswar between Ukraine and Russia,Russia and betweeninstability Israelin andthe HamasMiddle East), civil unrest, outbreaks of illnesses, pandemics, endemic diseases, or other local or global health issues, climate-related events, impacts to the power grid, and natural disasters have, to varying degrees, negatively impacted our operations, brand partners, service providers and consumer spending, and such events and conditions may negatively impact the economy and us going forward. Moreover, political disputes over the debt ceiling, budget deficits, healthcare or immigration policy or other matters may result in prolonged government shutdowns and increase the possibility of the U.S. government defaulting on its debt and/or having its credit ratings further downgraded, any of which could weaken the U.S. dollar, cause market volatility, negatively impact the economy and banking system and adversely affect our financial condition, including our liquidity and ability to access capital.

We may not be able to successfully identify and evaluate the creditworthiness of borrowers to minimize delinquencies and losses. As part of our efforts to manage our credit risk, we use our automated proprietary scoring technology and verification procedures to make risk-based originationunderwriting decisions when approving new account holders, establishing or adjusting their credit limits and applying our risk-based pricing. These models may not accurately predict future write-offscharge-offs for various reasons discussed elsewhere in these Risk Factors, including in “Our risk management policies and procedures may not be effective, and the models we rely on may not be accurate or may be misinterpreted.” below. While we monitor credit quality on a regular and consistent basis, utilizing internal algorithms and external credit bureau risk scores and other data, these algorithms and data sources may be inaccurate or incomplete, including as a result of certain customers’ credit profiles not fully reflecting their credit risk due to any number of factors, including, for example, the less-regulated reporting requirements for many fintechs offering buy now, pay later products or other lending options and existing or future limitations on the reporting of medical debt. Mandated changes to credit bureau reporting, or the information that may be included in a credit bureau report, can change the accuracy of scoring models that leverage tradelines and performance in determining credit risk. As a result, the data and models upon which we rely may not fully reflect the extent of our customers’ actual financial obligations.

General economic conditions, including a recession or prolonged economic slowdown, persistent inflation, interest rates, high unemployment or volatility in energy prices, may result in greater delinquencies that lead to greater credit losses. In addition to being affected by general economic conditions and the success of our collection and recovery efforts, the stability of our Delinquency and Net principal loss rates are affected by the credit risk inherent in our Credit card and other loan portfolios, as well as the vintage of the accounts in our various credit card portfolios. We are also closely monitoring the effects on our business of the lifting of the moratorium on federal student loan payments in October 2023, which moratorium had been originally implemented as part of the federal government’s COVID-19 response under the CARES Act in March 2020. Under the applicable rules, there was a grace period for federal student loan borrowers until late 2024 before any adverse credit bureau reporting was to be made in the event they fail to resume payments on their loans. This grace period has ended, and we are closely monitoringmonitor the segment of our portfolio with student loans to observe payment rate trends. In addition,December targeted2025, the Department of Education announced that, beginning in early 2026, the federal government effortswould tobegin forgivegarnishing or discharge portionswages of student loan debtborrowers orthat provideare additionalin reliefdefault mayon furtherfederal influencestudent theseloans; trends.provided that the Department of Education subsequently announced that it was indefinitely postponing any such garnishments. The impact of this policy change, to the extent it becomes effective, on our customers’ ability to repay us remains uncertain.

Further, our pricing strategy may not offset the negative impact on profitability caused by increases in delinquencies and credit losses, thus any material increases in delinquencies and credit losses beyond our current estimates could have a material adverse impact on us. Our Delinquency rates were 5.9%5.8% of Credit card and other loans as of December 31, 2024,2025, compared with 6.5%5.9% and 5.5%6.5% as of December 31, 20232024 and 2022,2023, respectively. For 2024,2025, our Net principal loss rate was 8.2%,7.7%, compared with 7.5%8.2% and 5.4%7.5% for 20232024 and 2022,2023, respectively. As referenced above, the current and near-term anticipated Delinquency and Net principal loss rates remain high, relative to our historical experience, and a prolonged continuation or worsening of these rates could have a material adverse impact on our business and results of operations.

We depend on a limited number of large partner relationships for a significant portion of our revenue. As of and for the year ended December 31, 2024,2025, our five largest credit card programs (based on Total net interest and non-interest income) accounted for approximately 48%49% of our Total net interest and non-interest income excluding the gain on sale and 38%44% of our End-of-period credit card and other loans. In particular, our programs with (alphabetically) Signet Jewelers, Ulta Beauty and Victoria’s Secret & Co. and its retail affiliates, each accounted for 10% or more of our Total net interest and non-interest income for the year ended December 31, 2024. A decrease in business from, or the loss of, any of our significant partners for any reason, could have a material adverse effect on our business. We previously announced the non-renewal of our contract with BJ’s Wholesale Club (BJ’s) and the sale of the BJ’s portfolio, which closed in late February 2023. For the year ended December 31, 2022, BJ’s branded co-brand accounts generated approximately 10% of our Total net interest and non-interest income, and BJ’s branded co-brand accounts were responsible for approximately 11% of our Total credit card and other loans as of December 31, 2022.2025. Our business is intensely competitive, and we cannot provide assurance that we will retain the business of all of our significant brand partners going forward.

Our business is heavily concentrated in U.S. consumer credit. As a result, we are more susceptible to fluctuations and risks particular to U.S. consumer credit than a more diversified company. For example, our business is particularly sensitive to macroeconomic conditions that affect the U.S. economy, consumer spending and consumer credit. We are also more susceptible to the risks of increased regulations and legal and other regulatory actions that are targeted at consumer credit or the specific consumer credit products that we offer, such as legislation and regulations relating to credit card late fees, financecredit chargescard interest rates and promotional financing. Our business concentration could have an adverse effect on our results of operations.

We expect an important source of our growth to come from new and acquired credit card and other loan programs. We cannot be assured that the loss experience on new and acquired programs will be consistent with our more established programs, or that the cost to provide service to these new and acquired programs will not be higher than anticipated. The failure to successfully underwrite these new and acquired programs may result in defaults greater than our expectations and could have a material adverse impact on us and our profitability. See “Our risk management policies and procedures may not be effective, and the models we rely on may not be accurate or may be misinterpreted.”. Moreover, under the CECL accounting rules, the acquisition of an existing credit card or other loan portfolio typically has a negative impact on certain key financial metrics in the near-term, including Net income and Earnings per share, because we are required to include a reserve build in our Provision for credit losses for the estimated credit losses to be experienced over the life of the acquired portfolio. The amount of this reserve build (included in the reporting period in which the portfolio is obtained) is often large relative to the amount of revenue generated through such date by the newly-acquiredrelated credit card portfolio. See also “–The amount of our Allowance for credit losses could adversely affect our business and may prove to be insufficient to cover actual losses on our loans.” below.

We rely extensively on models in managing many aspects of our business, including liquidity and capital planning (including stress testing), customer selection, underwriting and line management, credit and other risk management, pricing, reserving and collections management. The models may prove in practice to be less accurate, predictive or useful than we expect for a variety of reasons, including as a result of (i) errors in constructing, interpreting or using the modelsmodels, or(ii) the use of inaccurate assumptions (including models being calibrated on historical cycles and correlations which may not be predictive of the future, or failures to update assumptions appropriately or in a timely manner)., or (iii) the model producing results that are not compliant with fair lending or other laws and regulations. Our assumptions may be inaccurate for many reasons including that they often involve matters that are inherently difficult to predict and beyond our control (e.g., macroeconomic conditions, including continued elevated inflation, low unemployment, increasing consumer debt levels and weakening in macroeconomic indicators, and their impact on partner and customer behaviors) and they often involve complex interactions between a number of dependent and independent variables, factors and other assumptions. In particular, in recent years, we have observed rates and correlations among several key macroeconomic variables, such as unemployment and interest rates, perform outside of observed historical norms, which could impact the reliability of certain models in the current economic environment. In addition, as we seek to update and enhance our models, these updates and enhancements may produce unexpected or unreliable results. The errors or inaccuracies in our models may be material, and could lead us to make poor or sub-optimal decisions in managing our business, and this could have a material adverse effect on our business, results of operations and financial condition.

Our fraud-related operational losses were $65 million, $127 million and $73 million for both the years ended December 31, 2024, 20232025 and 2022,2024, respectively.and $127 million for the year ended December 31, 2023. During 2023, we believe the financial services industry generally experienced an uptick in both the volume and sophistication of fraud attacks, and we also experienced that trend in our business, with fraud-related operational losses increasing significantly from 2022 levels.significantly. While we were successful in decreasing fraud-related losses in 2024,2024 and 2025, the perpetrators of fraud attacks remain persistent and we cannot provide assurance that fraud-related losses will remain at or below these lower levels going forward. In addition to direct financial impacts, high profile fraudulent activity could also negatively affect our brand and reputation, which could negatively impact the use of our services, leading to a material adverse effect on our results of operations. In addition, significant increases in fraudulent activity could lead to regulatory intervention, including, but not limited to, additional consumer notification requirements, increasing our costs and negatively impacting our operating results, net income and profitability. Regulators and consumer activists have also sought to expand financial institutions’ responsibility to hold customers harmless for fraudulent transactions on their accounts, which increases our exposure to fraud-related losses.

The Financial Accounting Standards Board’s CECL accounting standard became effective for us on January 1, 2020 and requires us to determine periodic estimates of the lifetime expected credit losses on our Credit card and other loans, and reserve for those expected credit losses through an allowance for credit losses against the loans. In addition, as referenced above, for credit card loan portfolios we acquire, we are required to establish at the time of acquisition such an allowance for credit losses. Any subsequent deterioration in the performance of a purchased portfolio after acquisition results in incremental credit loss reserves. Growth in our loan portfolio generally would also lead to an increase in our Allowance for credit losses.

The process for establishing anour allowanceAllowance for credit losses is critical to our results of operations and financial condition, and requires complex modeling and judgments, including forecasts of economic conditions. The ongoing impact of CECL will be significantly influenced by the composition, characteristics and quality of our Credit card and other loans, as well as the prevailing economic conditions and forecasts utilized. For additional information regarding our Allowance for credit losses, see Note 3, “Allowance for Credit Losses” to our audited Consolidated Financial Statements included as part of this Annual Report on Form 10-K.

Similarly, we may evaluate the potential disposition of, or elect to divest, assets or portfolios that no longer complement our long-term strategic objectives, as we did in November 2021, when we completed the spinoff of our LoyaltyOne segment. See also “Risks Related to the LoyaltyOne Spinoff.” below.

The markets for our products and services are highly competitive, and we expect this competition to intensify. Our growth and continued profitability depend on continued acceptance or adoption of the products and services we offer. We compete with a wide range of businesses, and some of our current competitors have longer operating histories, stronger brand names and greater financial, technical, marketing and other resources than we do. Moreover, the consumer credit and payments industry is highly competitive and we face an increasingly dynamic industry as emerging technologiesproducts, services and technologies, as well as new and non-traditional competitors, enter the marketplace. For a more detailed discussion regarding how we compete with respect to each of our product categories, as well as detail on emerging competitive trends, see “Item 1. Business—Competition” of this Form 10-K above. Additionally, downturns in the economy or the performance of our retail or other partners, including as a result of macroeconomic conditions, geopolitical events or global health events or other pandemic or endemic diseases, may result in a decrease in the demand for our products and services. Our ability to generate significant revenue from partners and customers will depend on our ability to differentiate ourselves through the products and services we provide and the attractiveness of our programs to consumers. If we are not able to differentiate our products and services from those of our competitors, drive value for our partners and their customers, or effectively and efficiently align our resources with our goals and objectives, we may not be able to compete effectively in the market. Any decrease in the demand for our products and services for the reasons discussed above or any other reasons could have a material adverse effect on our growth, revenue and operating results.

The majority of our revenue is generated from the credit products we provide to customers of our partners pursuant to program agreements that we enter into with our partners. As a result, our results of operations and growth depend on our ability to retain existing partners and attract new partners. Historically, there has been turnover in our partners, and we expect this will continue in the future. See also, “A significant percentage of our Total net interest and non-interest income, or revenue, is generated through our relationships with a limited number of partners, and a decrease in business from, or the loss of, any of these partners could cause a significant drop in our revenue.”.

There is significant competition for our existing partners, and our failure to retain our existing larger partner relationships upon the expiration of a contractualprogram arrangementagreement or our earlier loss of a relationship upon the exercise of a partner’s early termination rights, or the expiration or termination of a substantial number of smaller partner contracts or relationships, could have a material adverse effect on our results of operations (including growth rates) and financial condition to the extent we do not acquire new partners of similar size and profitability or otherwise grow our business. In addition, existing relationships may be renewed withon less favorable terms to us in response to increased competition for such relationships. The competition for new partners is also significant, and our failure to attract new partners could adversely affect our ability to grow.

Our ability to originate new credit card accounts, generate new loans, and earn interest and fees and other income is dependent, in part, upon sales of merchandise and services by our partners.partners and the use of our products by customers. The retail and other industries in which our partners operate are intensely competitive. Our partners’ sales may decrease or may not increase as we anticipate for various reasons, some of which are in the partners’ control and some of which are not. For example, partner sales have been, and in the future may bebe, adversely affected by pandemic or endemic diseases or other macroeconomic conditions having a national, regional or more local effect on consumer spending, business conditions affecting the general retail environment, such as supply chain distributions or the ability to maintain sufficient staffing levels or a particular partner or industry, or natural disasters or other catastrophes affecting broad or more discrete geographic areas. If our partners’ sales decline for any reason, it generally results in lower credit sales, and therefore lower loan volumes and associated interest and fees and other income for us from our customers. In addition, if a partner closes some or all of its stores or becomes subject to a voluntary or involuntary bankruptcy proceeding (or if there is a perception that such an event may occur), itswe may be adversely impacted in a number of different ways. In such circumstances, we may lose future credit sales and existing customers who have used our financing products may have less incentive to pay their outstanding balances to us, which could result in higher charge-off rates than anticipated and our costs for servicing its customers’ accounts may increase. This risk is particularly acute with respect to our largest partners that account for a significant amount of our Total net interest and non-interest income. See “A significant percentage of our Total net interest and non-interest income, or revenue, is generated through our relationships with a limited number of partners, and a decrease in business from, or the loss of, any of these partners could cause a significant drop in our revenue.”. Moreover, if the financial condition of a partner deteriorates significantly or a partner becomes subject to a bankruptcy proceeding, we may not be able to recover customer returns, customer payments made in partner stores or other amounts due to us from the partner. The impact of the bankruptcy of any particular brand partner on our business is difficult to predict; most recently, for example, our brand partner Saks Fifth Avenue filed for Chapter 11 bankruptcy protection in January 2026. A decrease in sales by our partners for any reason, or a bankruptcy proceeding involving any of them could have a material adverse impact on our business and results of operations.

Certain merchants, in an effort to decrease their operating expenses, have with some success sought to lower interchange fees, including through litigation against the payment networks, promoting alternative payment platforms with lower processing costs and lobbying for legislative or regulatory changes. Several recent events and actions indicate a continuing focus on interchange by legislators, regulators and merchants. In 2023, for example, legislation was reintroduced in the U.S. House of Representatives and Senate, which, among other things, would require large issuing banks (over $100 billion) to offer a choice of at least two unaffiliated networks over which electronic transactions may be processed. At the state level, the Illinois legislature passed a bill that would, beginning in July 2025,would prohibit the charging of interchange fees on sales tax and gratuities and restrict use of electronic payment transaction data except to facilitate or process the transaction or as required by law. This Illinois legislation is being challenged in federal court.court, Similarand legislationon hasFebruary been10, introduced2026, inthe othercourt states and, absentissued a successfulruling legaldenying challenge,a thesepermanent billsinjunction sought by the plaintiffs that would have aenjoined numberthe interchange fee provisions of adversethe impactslegislation, onalthough us,the includingcourt negativelydid impactinggrant oura interchangepermanent revenueinjunction andwith creatingrespect operationalto challenges.the data use restrictions in the legislation.

We may not be able to retain and/or attract and hire a highly qualified and diverse workforce or maintain our corporate culture, and having a large segment of our workforce periodically working from home may exacerbate these risks and cause new risks.

Our performance largely depends on the talents and efforts of our employees, particularly our key personnel and senior management. We may be unable to retain or to attract highly qualified employees. The market for key personnel is highly competitive, particularly in technology and other skill areas significant to our business. Failure to attract, hire, develop, motivate and retain highly qualified and diverse employee talent, or to maintain a corporate culture that fosters innovation, creativity and teamwork could harm our overall business and results of operations. We rely on key personnel to lead with integrity and decency. To the extent our leaders behave in a manner that is not consistent with our values,values and leadership behaviors, we could experience significant impacts to our brand and reputation, as well as to our corporate culture.

Severe weather events and natural disasters could have a material adverse effect on our financial position and results of operations, and the timing and effects of any such eventevents cannot accurately be predicted. The frequency and severity of some types of weather events and natural disasters, including wildfires, tornadoes, severe storms and hurricanes, have increased in recent years, which further reduces our ability to predict their effects accurately. These such events could affect us directly (for example, by interrupting our systems, impacting the power grid, damaging our facilities or otherwise preventing us from conducting our business in the ordinary course) or indirectly (for example, by damaging or destroying brand partner businesses or customers’ homes, impacting our service providers or otherwise impairing customers’ ability to repay their loans). Many of our customers were affected by the particularly intense 2024 hurricane season in the U.S. As a result of these hurricanes, we froze delinquency progression for cardholders in Federal Emergency Management Agency (FEMA) identified impact zones for one billing cycle, which resulted in modestly lower Net principal losses and Net principal loss rate in the fourth quarter of 2024, and consequently these actions will negatively impactimpacted Net principal losses and the Net principal loss rate in the second quarter of 2025.

In addition, many governments, investors and other stakeholders have sought to accelerate actions to address climate change and other environmental, social and governance topics. This has led to new regulations and expectations, which may be conveyed to us in the form of stockholder proposals, public campaigns, proxy solicitations or otherwise, that may cause significant shifts in disclosure, commerce and consumption behaviors. Any of these developments may impact our operating costs and our business. For example, in March 2024, the SEC issued final rules relating to the disclosure of a range of climate-related risks and other information. Multiple lawsuits were filed against the SEC, and the SEC issued a voluntary stay of the rules, pending review by the U.S. Court of Appeals for the Eighth Circuit, where the litigation had been consolidated.consolidated Toand is currently being held in abeyance until the extentSEC reconsiders the final rule or renews its defense. While it currently appears unlikely these rules will become effective as issued, to the extent such rules do become effective, we and/or our partners could incur increased costs related to the assessment and disclosure of climate-related information. Our failure to comply with these requirements, if adopted, or any future regulatory requirements or disclosure standards, may expose us to government enforcement actions or private litigation and otherwise damage our reputation, any of which could adversely impact our business.

Conversely, other stakeholders hold differing views on sustainability-related goals and initiatives. Certain state governments and activist groups, andas mostwell recentlyas the newcurrent Presidential Administration through a series of executive orders and other actions, have pursued measures that appear designed to discourage companies from engaging in ESG practices or adhering to certain ESG principles. The complex regulatory and legal frameworks applicable to such actions or measures continue to evolve. We cannot be certain of the impact of such regulatory, legal and other developments on our business.

These circumstances,dynamic, amongand others,sometimes conflicting, circumstances may result in pressure from investors, unfavorable reputational impacts, including inaccurate perceptions or misrepresentation of our actual business practices, diversion of management’s attention and resources, and potential proxy fights, and litigation or investigations initiated by government authorities or private actors alleging that our activities are anti-competitive, discriminatory or otherwise unlawful, among other adverse impacts. Any failure, or perceived failure, by us to adhere to our public statements, comply fully with developing interpretations of sustainability-related laws and regulations, or meet evolving and varied stakeholder expectations and standards could negatively impact our business, reputation, financialoperating conditionresults and operatingfinancial results.condition.

Our Board-approved sustainability strategy, which focuses on opportunities to create value for all our stakeholders, while advancing our long-term financial and reputational goals, is intended to drive additional progress on initiatives that promote sustainability, responsible business practices and increased transparency in our disclosures. We continue to advance the integration of sustainability into our overall governance and risk management practices. Statements in this and other filings we make with the SEC and other public statements, including in our annual sustainability reports,reporting, related to these initiatives reflect our current plans and expectations and are not a guarantee that these initiatives will be achieved or achieved on the currently anticipated timeline. Our ability to execute on our sustainability strategy or achieve sustainability initiatives is subject to numerous factors and conditions, somemany of which are outside of our control.

In recent years, financial services companies have experienced increased reputational risk as consumers protest and regulators scrutinize business and compliance practices of such companies. Maintaining a positive reputation is critical to attracting and retaining partners, customers, investors and employees. Damage to our reputation can therefore cause significant harm to our business and prospects. Harm to our reputation can arise from numerous sources, including, among others, employee misconduct; a breach of our or our service providers’ cybersecurity defenses; service outages, such as those many of our customers experienced in 2022 in connection with the transition of our credit card processing services to strategic outsourcing providers; litigation or regulatory outcomes; stockholder activism; failing to deliver minimum standards of service and quality; compliance failures; the use of our, or our partners’ products to facilitate legal, but controversial, products and services, including adult content, cryptocurrencies, firearms and gambling activity; and the activities of customers, business partners and counterparties. Social media also can cause harm to our reputation. By its very nature, social media can reach a wide audience in a very short amount of time, which presents unique challenges for corporate communications. Negative or otherwise undesirable publicity generated through unexpected social media coverage can damage our reputation and brand. Negative publicity regarding us, whether or not true, may result in customer attrition and other harm to our business prospects. There has also been increased focus on topics related to environmental, social and governance policies, and criticism of our policies in these areas could also harm our reputation and/or potentially limit our access to some forms of capital or liquidity.

We need to effectively manage our funding and liquidity in order to meet our cash requirements such as day-to-day operating expenses, extensions of credit to our customers, investments to grow our business, payments of principal and interest on our borrowings and payments on our other obligations. Our primary sources of funding and liquidity areinclude collectionscash generated from ouroperating customers, deposits, funds from securitized financings and proceeds from unsecured borrowings, includingactivities, our credit facilityfacility, issuances of senior unsecured, subordinated or convertible debt securities and outstandingpreferred seniorstock, notes.financings through our securitization programs, and deposits with the Banks. If we do not have sufficient liquidity, we may not be able to meet our debt service requirements and other obligations, particularly during a liquidity stress event. If we maintain or are required to maintain too much liquidity, it could be costly and reduce our financial flexibility.

We will need additional financing in the future to repay or refinance our existing debt at maturity, or otherwise, and to fund our growth. As of the date of this Annual Report on Form 10-K, we had outstanding $10$500 million of 4.25% convertible6.750% senior notes due in June 20282035 and $900$400 million of 9.750%8.375% seniorsubordinated notes due in March 2029.2035. The availability of additional financing will depend on a variety of factors such as financial market conditions generally, including the availability of credit to the financial services industry and our lender counterparties’ willingness to lend to us, consumers’ willingness to place money on deposit with us, our performance and credit ratings and the performance of our securitized portfolios. As an example of circumstances impacting our lenders’ willingness to lend, U.S. federal banking regulators proposed new rules in July 2023, commonly referred to as the Basel III “Endgame” or B3E, which would significantly revise the capital requirements applicable for large banking organizations with total assets of $100 billion or more. Following initial consultation, federal banking regulators are in the process of reproposing rules implementing B3E, targeting a new proposal in 2026 and phase-in several years later. The future of B3E implementation remains uncertain. While the proposed B3E rules would not directly apply to us because we are under the $100 billion asset threshold, most of our institutional lenders would be subject to the enhanced capital requirements under B3E, which could limit their lending capacity available to lend to us and other borrowers. Disruptions, uncertainty or volatility in the capital, credit or deposit markets, such as the uncertainty and volatility experienced in the capital and credit markets during recessions and periods of financial stress, may limit our ability to obtain additional financing or refinance maturing liabilities on desired terms (including funding costs) in a timely manner, or at all. As a result, we may be forced to delay obtaining funding or be forced to issue or raise funding on undesirable terms, which could significantly reduce our financial flexibility and cause us to contract or not grow our business, all of which could have a material adverse effect on our results of operations and financial condition.

Given potential changes in the interest rate environment and other recessionary pressures, theThe debt markets may be volatile,volatile for a number of reasons, including due to the interest rate environment, macroeconomic conditions and political events and uncertainties, and there can be no assurance that significant disruptions, uncertainties and volatility will not occur in the future. Specifically, availability of capital from the non-investment grade debt markets may be subject to significant volatility, and there can be no assurance that we will be able to access those markets at attractive rates, or at all. It is possible that we will be required to repay or refinance some or all of our maturing debt in volatile and/or unfavorable markets. If we are unable to continue to fund our business operations, access capital markets for debt refinancings and otherwise, and attract deposits on favorable terms and in a timely manner, or if we experience an increase in our borrowing costs or otherwise fail to manage our liquidity effectively, our results of operations and financial condition may be materially adversely affected.

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our audited Consolidated Financial Statements and related Notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly under “Risk Factors” and “Cautionary Note Regarding Forward-Looking StatementsStatements.”. Unless otherwise specified, references to Notes to our audited Consolidated Financial Statements are to the Notes to our audited Consolidated Financial Statements as of December 31, 20242025 and 20232024 and for years ended December 31, 2024,2025, 20232024 and 2022.2023.

We are a tech-forward financial services company that provides simple, personalized payment, lending, and saving solutions to millions of U.S. consumers. Our payment solutions, including Bread Financial general purpose credit cards and savings products, empower our customers and their passions for a better life. Additionally, we deliver growth for some of the most recognized brands in travel &and entertainment, health &and beauty, jewelry and specialty apparel through our private label and co-brand credit cards and pay-over-time products providing choice and value to our shared customers.

Our partner base consists of large consumer-based businesses, including well-known brands such as (alphabetically) AAA, Academy Sports + Outdoors, Caesars, Dell Technologies, Hard Rock International, the NFL, Raymour & Flanigan, Saks Fifth Avenue, Signet, Ulta and Victoria’s Secret, as well as small- and medium-sized businesses (SMBs). Our partner base is well diversified across a broad range of industries and retail verticals, including travel and entertainment, specialty apparel, health and beauty, jewelry, sporting goods, technology and electronics, as well as home goods and the industry in which we first began, specialty apparel.furniture. We believe our comprehensive suite of payment, lending and saving solutions, along with our related marketing and data and analytics, offers us a significant competitive advantage with products relevant across all customer segments (Gen Z, Millennial, Gen X and Baby Boomers). The breadth and quality of our product and service offerings, coupled with our customer-centric approach, have enabled us to establish and maintain long-standing partner relationships. We operate our business through a single reportable segment, with our primary source of revenue being from Interest and fees on loans from our various credit card and other loan products, and to a lesser extent from contractual relationships with our brand partners.

Throughout this report, unless stated or the context implies otherwise, the terms “Bread FinancialFinancial,”, “BFHBFH,”, the “CompanyCompany,”, “wewe,”, “our” or “us” refer to Bread Financial Holdings, Inc. and its subsidiaries on a consolidated basis. References to “Parent Company” refer to Bread Financial Holdings, Inc. on a parent-only standalone basis. In addition, in this report we may refer to the retailers and other companies with whom we do business as our “partnerspartners,”, “brand partnerspartners,”, or “clientsclients,”, provided that the use of the term “partnerpartner,”, “partnering” or any similar term does not mean or imply a formal legal partnership, and is not meant in any way to alter the terms of Bread Financial’s relationship with any third parties. We offer our credit products through our insured depository institution subsidiaries, Comenity Bank and Comenity Capital Bank, which together are referred to herein as the “BanksBanks.”. Bread Financial or other of the terms listed above are also used in this report to include references to transactions and arrangements occurring prior to our name change from Alliance Data Systems Corporation to Bread Financial Holdings, Inc. in March 2022.

•InWe Augusthave 2024previously werepurchased enteredand intomay, separate,from privately-negotiatedtime repurchaseto agreementstime, within athe limitedfuture number of Convertible Note holderscontinue to repurchase adebt, portionincluding of ourany outstanding $316senior millionunsecured aggregatenotes, principalsubordinated amountnotes ofor 4.25%convertible Convertiblenotes. SeniorIn Notessuch due 2028 (the Convertible Notes). Subsequently, in September and November of 2024, certain holders of Convertible Notes separately approached us to repurchase Convertible Notes, andtransactions, we enteredmay into additional separate, privately-negotiated repurchase agreements with such holders of Convertible Notes. From a GAAP perspective, we paidpay a premium to induce these repurchasesrepurchases, whichor resultedin certain cases repurchase at a discount, which, from a GAAP perspective, would result in an impact to Total non-interest expenses, with a corresponding favorable tax impact,impact also reflected in Net income and consequently our Earnings per diluted share. WeFor haveour shownprior debt repurchases, we show adjustments to these three financial statement line items, for total Company as well as for continuing operations, to exclude the impactimpacts from our repurchaseddebt Convertible Notes.repurchases. We use Adjusted total non-interest expenses, Adjusted net income, and Adjusted earnings per diluted share to evaluate the ongoing operations of the Company excluding the volatility that can occur from the impactimpacts of our repurchaseddebt Convertible Notes.repurchases.

•Pretax pre-provision earnings (PPNR) represents Income from continuing operations before income taxes and the Provision for credit losses. PPNR excluding any gain on portfolio sale and impactimpacts from repurchaseddebt Convertible Notesrepurchases then excludes from PPNR the gain on any portfolio sale in the period, as well as the inducementloss expenseor fromgain ouron repurchasedany Convertibledebt Notesrepurchases in the period. We use PPNR and PPNR excluding any gain on portfolio sale and impactimpacts from repurchaseddebt Convertible Notesrepurchases as metrics to evaluate our results of operations before income taxes, excluding the volatilitymovements that can occur within Provision for credit losses and the one-time nature of a gain on the sale of a portfolio and/or the impactimpacts from repurchaseddebt Convertible Notes.repurchases.

•Return on average tangible common equity (ROTCE) represents annualized Income from continuing operations less Dividends to preferred stockholders, divided by average Tangible common equity. Tangible common equity (TCE) represents Total stockholders'stockholders’ equity reduced by Preferred stock and Goodwill and intangible assets, net. We use ROTCE as a metric to evaluate the Company'sCompany’s performance.

•Tangible book value per common share represents TCE divided by common shares outstanding. We use Tangible book value per common share, a metric used across the industry, to estimateassess liquidationcapital value.and performance, in conjunction with ROTCE.

We believe the use of these Non-GAAP financial measures provide additional clarity in understanding our results of operations and trends. For a reconciliation of these Non-GAAP financial measures to the most directly comparable GAAP measures, please see “Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures” that follows.

This Business Environment section provides an overview of our results of operations and financial position for the year ended December 31, 2024,2025, as well as our related outlook for 20252026 and certain of the uncertainties associated with achieving that outlook. This section should be read in conjunction with the other information appearing in this Annual Report on Form 10-K, including “Consolidated Results of OperationsOperations,”, “Risk FactorsFactors,”, and “Cautionary Note Regarding Forward-Looking StatementsStatements,”, which provide further discussion of variances in our results of operations over the periods of comparison, along with other factors that could impact future results and the Company achieving its outlook.

Credit sales of $27.0$27.8 billion were downup 7%3% when compared with 2023,2024, reflecting self-moderatednew consumerpartner spendinggrowth and strategichigher creditgeneral tightening,purpose partiallycardholder offset by new brand partner growth.spending. Average credit card and other loans of $18.1$17.9 billion decreased 1% while End-of-period credit card and other loans of $18.9$18.8 billion were down 2%flat; both declinesbeing were drivenaffected by thean sameincreasing factorspayment affectingrate Creditand sales,our asdisciplined wellcredit as elevated net principal losses.management. Total interest income decreased 2% primarily as a result of lower Interestbilled late fees and feesa onlower Average credit card and other loans whichbalance, waspartially drivenoffset by lower reversals of finance charges and late feesfees, resulting from lower early-stategross credit losses, and the ongoing implementation of pricing actions. Our lower delinquency volumes,volumes ourand the gradual shift in product mix to a lower proportion of private label accountsaccounts, which tend to have higher billed late fees, ashave wellresulted asin higherlower reversalsoverall ofbilled interestlate and fees resulting from higher gross credit losses.fees. Net interest margin was 18.4% in 2025 compared with 18.3% in 2024 compared to 19.5% in 2023,2024, primarily due to decreased latefunding feescosts which is reflective of our opportunistic debt actions and highergrowth fundingin costs, particularly withour DTC deposits. Non-interestOur incomenet decreasedinterest $249margin million, primarily relatedcontinues to thebe $230negatively millionimpacted gainby onlower thebilled BJ’slate portfoliofees salefrom inlower 2023,delinquencies, as well as decreasedan elevated cash position and our gradual shift in product mix toward co-brand cards, offset by lower funding costs and the ongoing implementation of pricing actions. Non-interest income increased $13 million, due to the implementation of pricing actions, primarily paper statement fees, partially offset by an increase in costs associated with brand partner retailer share arrangements, along with a decrease in merchant discount fees from lower “big ticket” credit sales, and interchange revenue earned, partially offset by a reduction in costs associated with brand partner retailer share arrangements.sales. Overall, Total net interest and non-interest income wasof $3.8 billion,billion downwas 11%flat versus 2023.2024.

Our Allowance for credit losses decreased as of December 31, 20242025 relative to December 31, 2023,2024, due primarily to lower Credit card and other loans, as well as a modest decrease in the reserve rate over the period. Overall, ourOur reserve rate iswas nominally11.2% lower,as of December 31, 2025 compared with 11.9% as of December 31, 2024 compared with 12.0% as of December 31, 2023,2024, reflecting conservativeour improving credit metrics and higher-quality new account acquisitions. We continue to maintain appropriately prudent weightings on the economic scenarios in our credit reserve modeling to ensure the adequacy of our Allowance for credit losses given the wide range of potential 2025 macroeconomic outcomes, whichincluding weongoing intenduncertainty toaround maintain until we see sustained improvement in delinquenciesinflation and an improved macroeconomic outlook.unemployment. From an overall credit quality perspective, our percentage of cardholders with Vantage scores greater than 660+ cardholders remains above pre-pandemic levels due to prudent credit tighteningmanagement and a more diversified product mix, with co-brand and proprietary cards representing a larger proportion of our portfolio.

In our 20252026 financial outlook we also expect our full year normalized effective tax rate to be in the range of 25% to 26%,27%, with quarter-over-quarter variability due to the timing of certain discrete items, We expect our resilient business model, prudent capital allocation, and operational excellence initiatives to deliver responsible growth and achieve strong financial results in 2025.items.

The following discussion provides commentary on the variances in our results of operations for the year ended December 31, 2024,2025, compared with the year ended December 31, 2023,2024, as presented in the accompanying tables. This discussion should be read in conjunction with the discussion under “Business EnvironmentEnvironment,”, above. For a discussion of the financial condition and results of operations for 20232024 compared with 2022,2023, please refer to Part II, Item 7. “Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)” in our Annual Report on Form 10-K for the year ended December 31, 2023,2024, filed with the SEC on February 20,14, 2024,2025, which discussion is incorporated herein by reference from such prior report on Form 10-K.

(4)Return on average tangible common equity (ROTCE) represents annualized Income from continuing operationsoperations, less Dividends to preferred stockholders, divided by average Tangible common equity. Tangible common equity (TCE) represents Total stockholders'stockholders’ equity reduced by Preferred stock and Goodwill and intangible assets, net. ROTCE is a Non-GAAP financial measure. See “Non-GAAP Financial Measures” and Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures.

•Interest on borrowingscash increasedand investment securities decreased due to higherlower average interest rates which increaseddecreased fundinginterest costsincome $39by $37 million, partially offset by lowerhigher average borrowingsbalances, which decreasedincreased fundinginterest costsincome by approximately $25$6 million.

Non-interestInterest incomeexpense: Total non-interestinterest incomeexpense decreased for the year ended December 31, 2024,2025, due to the following:

•Interchange revenue, net of retailer share arrangements, typically a contra-revenue item for us, increased duringdue theto period,an drivenincrease byin costs associated with brand partner retailer share arrangements, along with a decrease in merchant discount fees from lower “big ticket” credit sales, and interchange revenue earned, partially offset by a reduction in costs associated with brand partner retailer share arrangements.sales.

Provision for credit losses increaseddecreased for the year ended December 31, 2024,2025, driven by a $135 million reserve release and net principal losses of $1.4 billion, compared with a $92 million reserve release in the current year compared with a $136 million reserve release in the prior year, with the release in the prior year primarily related to the sale of the BJ’s portfolio. The reserve releases in both years were offset byand net principal losses of $1.5 billion andin $1.4the billionprior duringyear. those same respective periods. Overall, ourOur reserve rate iswas nominally lower, 11.9%11.2% as of December 31, 2024 compared with 12.0% as of December 31, 2023,2025, reflecting conservativeour improving credit metrics and higher-quality new account acquisitions. We continue to maintain appropriately prudent weightings on the economic scenarios in our credit reserve modeling to ensure the adequacy of our Allowance for credit losses given the wide range of potential 2025 macroeconomic outcomes, whichincluding weongoing intenduncertainty toaround maintain until we see sustained improvement in delinquenciesinflation and an improved macroeconomic outlook.unemployment.

(1)Adjusts Total non-interest expenses for the $107 million impactimpacts from our repurchaseddebt Convertiblerepurchases, Notes,representing included$74 inmillion Other,and $117 million and $1 million for the years ended December 31, 2025, 2024 and 2023, respectively, and therefore represents arepresent Non-GAAP financial measure.measures. See “Non-GAAP Financial Measures” and Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures.

Non-interest expenses: Total non-interest expenses decreased for the year ended December 31, 2024.2025. Adjusted total non-interest expenses, which represents a Non-GAAP financial measure and has been adjusted for the $107 million impactimpacts from our repurchaseddebt Convertiblerepurchases, Notes,also decreased forover the currentperiods year.of comparison.

•Employee compensation and benefits increaseddecreased due primarily to higher short-term and long-term incentive compensation, partially offset by ongoing strategic adjustments in customer care staffing, as well as a reductionstaffing in demand-basedthe outsourcedprior andyear, contractpartially labor.offset by higher incentive compensation in the current year.

•Depreciation and amortization decreased due to lower amortization forrelated developedto technologyboth associatedcapitalized withsoftware anand acquisitionpremiums completedon inhistorical latecredit 2020.card loan portfolio acquisitions.

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our unaudited Consolidated Financial Statements and related Notes included elsewhere in this quarterly report, and our audited Consolidated Financial Statements and related Notes included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission (the SEC) on February 13, 2026 (the 2025 Form 10-K). Some of the information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this report. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and those identified in our other filings with the SEC, including in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our 2025 Form 10-K and this and our other Quarterly ReportReports on Form 10-Q.

•Pretax pre-provision earnings (PPNR) represents Income from continuing operations before income taxes and the Provision for credit losses. PPNR excluding impacts from debt repurchases then excludes from PPNR the loss or gain on any debt repurchases in the period. We use PPNR and PPNR excluding impacts from debt repurchases as a metricmetrics to evaluate our results of operations before income taxes, excluding the movements that can occur within Provision for credit losses.losses and the one-time nature of the impacts from debt repurchases.

This Business Environment section provides an overview of our results of operations and financial position for the firstsecond quarter of 2026, as well as our related outlook for the remainder of 2026 and certain of the uncertainties associated with achieving that outlook. This section should be read in conjunction with the other information included or incorporated by reference in this Form 10-Q, including “Consolidated Results of Operations,” “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” herein, and in our 2025 Form 10-K,10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, which provide further discussion of variances in our results of operations over the periods of comparison, along with other factors that could impact future results and the Company achieving its outlook. Unless otherwise specified, the discussion included herein is for the three months ended MarchJune 31,30, 2026, compared with the same period in the prior year.

Credit sales of $6.5$7.5 billion were up 7%11% year-over-year driven by the addition of new partnerbrand growthpartners and increased general-purpose spending. Average and end-of-period credit card and other loans increased 1%3% to $18.3$18.2 billion and 2%5% to $18.1$18.5 billion, respectively, driven by new brand partners and increased credit sales and lower gross credit losses.sales. Total interest income was up 2%3% from the firstsecond quarter of 2025,2025. primarilyHigher asAverage acredit resultcard ofand other loans balances, the ongoing effects of pricing actions (such as increases to our annual percentage rates), higher Average credit card and other loans balances and lower reversals of finance charges and late fees, resulting from lower gross credit losses,losses were partially offset by both a lower average Prime interest rate, which affects variable rate Credit card and other loans, and lower billed late fees. Our improved delinquency trends across our loan portfolio, as well as the gradual shift in product mix to a declining proportion of private label accounts, which tend to have higher billed late fees, have resulted in lower overall billed late fees. Net interest margin increased year-over-year to 19.25%,18.49%, from 18.06%, and improved sequentially from 18.94%,17.71%, as both, loan yields continued to benefit from the effects of pricing actions, and funding costs continued to improve. We anticipate the year-over-year benefits associated with our pricing actions to slow throughout the year as the majority of our credit card loan portfolio will have repriced. Net interest margin willis also expected to be affected by the ongoing gradual improvement in our payment and delinquency rate trends, and the continued shift in our product and risk mix. Non-interest income decreased $13$1 million from the firstsecond quarter of 2025, driven by increased costs associated with brand partner retailer share arrangements, partially offset by both an increase in interchange and merchant discount feesfees, due to the addition of new brand partners, and an increase in revenue from our payment protection products as a result of new enrollment channels. We expect Non-interest income will continue to decrease throughout the year as a result of both,both higher credit sales-related payments to brand partners, and higher brand partner profit sharing as a result of improving loan yields and gross credit losses. Overall, Total net interest and non-interest income for the quarter was $1.0 billion, up 5%7% versus the firstsecond quarter of 2025.

Provision for credit losses increased during the three months ended MarchJune 31,30, 2026 driven by a $28$3 million reserve release and net principal losses of $331$316 million, compared with a $69$74 million reserve release and net principal losses of $365$348 million in the prior year period.

Our Allowance for credit losses decreased as of MarchJune 31,30, 2026, relative to December 31, 2025, due primarily to a lower Credit card and other loans balance, as seasonally higher transactor balances from the fourth quarter of 2025 were paid down in the first quarter of 2026.2026, as well as the improving credit quality in our credit card and other loans portfolio. Our reserve rate was 11.46%11.23% and 12.19%11.89% as of MarchJune 31,30, 2026 and 2025, respectively, reflecting our improving credit metrics and higher-quality new account acquisitions. We continue to maintain appropriately prudent weightings on the economic scenarios in our credit reserve modeling to ensure the adequacy of our Allowance for credit losses given the wide range of potential macroeconomic dynamics,outcomes, including ongoing uncertainty regarding trade policy and global conflicts, and downstream impacts on inflation and unemployment. From an overall credit quality perspective, our percentage of customers with Vantage scores greater than 650 remains above pre-pandemic levels due to prudent credit management and a more diversified product mix, in particular with co-brand cards representing a larger proportion of our portfolio.

Total non-interest expenses of $472$483 million decreasedwere 1%relatively flat year-over year.year, Thedriven by a $15 million decrease reflectsin ongoingOther expenseexpenses discipline,due asprimarily well as a credit received into the currentnet quarterimpacts whichfrom loweredour outsourceddebt data processing costs;repurchases, partially offset by increaseda $13 million increase in Employee compensation and benefits from increased wages.wages, as well as increased medical claims.

Provision for income taxes increased $7$16 million year-over-year primarilyyear-over-year, driven by an increase in Income from continuing operations before income taxes.taxes, as well as a discrete tax benefit in the prior year period.

Our efforts to strengthen and optimize our Consolidated Balance Sheet continued in the first quarter of 2026. During the quarterquarter, we retiredfurther 1.5optimized our capital structure by issuing $135 million sharesof 8.875% preferred stock. With this issuance and continued strong earnings we were able to return value to stockholders through share repurchases, buying back 2.8 million shares, or $241 million, of common stock fromduring the full termination and unwind of our capped call transactions, as well as repurchased $150 million, or 2.0 million shares of common stock. In February, we announced a $600 million increase to our Board-approved common stock repurchase authorization,quarter, resulting in $690$449 million of outstanding share repurchase authorization as of MarchJune 31, 2026. Additionally, we repurchased $50 million of our 8.375% Fixed-Rate Reset Subordinated Notes Due 2035 utilizing cash on hand, and have $350 million in remaining principal outstanding as of March 31,30, 2026. Our Common equity tier one capital ratio (CET1) of 13.3%12.9% increaseddecreased from 12.0%13.0% in the firstsecond quarter of 2025, driven byas net earnings over the period,period partiallywere more than offset by the effects from our actions mentioned above related to our common stock andrepurchases, debt securities.repurchases Sequentially,and ourdividend CET1 ratio improved to 13.3% from 13.0%.payments. Additionally, relative to the firstsecond quarter of 2025 direct-to-consumer (DTC) deposits increased 10%16% to $8.7$9.4 billion as of MarchJune 31,30, 2026, with average DTC deposits representing 48%50% of our total funding, up from 43%45% a year ago.

Our revised 2026 financial outlook is unchangedbased andon reflectsstrong year-to-date results, reflecting continued consumer resilience, inflation remaining above the Federal Reserve Board’s (FRB) target rate of 2%, and a generally stable labor market.

Based on our current economic outlook and visibility into our new business pipeline and partner growth, as well as both the expected continued improvement in our Net principal loss rate and our ongoing expectations for strong cardholder payment rates, we now expect growth in 2026 Average credit card and other loans to be up low-singlelow- to mid-single digits on a percentage point basis from full year 2025. Growth in Total net interest and non-interest income is now also anticipated to be up inlow- theto low-singlemid-single digits on a percentage point basis from 2025, inprimarily linedriven withby the growth in Average credit card and other loans. We anticipate our full year Net interest margin to be flat to slightly higher than 2025 as a result of continued, albeit slowing benefits from implemented pricing actions and an improving cost of funds, partially offset by lower billed late fees from improving delinquency trends, and continued shifts in risk and product mix which are driving improvement in our payment rate trends. We continually focus on expanding and diversifying our product offerings, including ways to leverage our loan origination and servicingservicing-related capabilities.

ExpenseWe manage our expense growth is managed based on revenue generation and ongoing investment opportunities.in Weour business. Accordingly, we expect to deliver positive operating leverage in 2026, excluding the pretax impacts from our debt repurchases, a Non-GAAP financial measure. We continue to invest in AI capabilities, technology modernization, marketing, and product innovation to drive growth and efficiencies.

Our 2026 financial outlook now assumes a full year Net principal loss rate ranging from 7.2%7.0% to 7.4%7.1% given a resilient consumer, our disciplined credit management, and continued risk and product mix shifts.

OurOverall, firstour second quarter results demonstrate the strength of our successearnings in driving responsible growth,power and ourthe ongoingbenefits focus on strategic capital allocation andof disciplined credit riskcapital management. We remain confident in our ability to generateexecute strongon our strategy and deliver attractive returns andwhile increasedcreating long-term value for our stockholders in 2026.stockholders.

The following discussion provides commentary on the variances in our results of operations for the three and six months ended MarchJune 31,30, 2026, compared with the same periodperiods in the prior year, as presented in the accompanying tables. This discussion should be read in conjunction with the discussion under “Business Environment” above.

Interest income: Total interest income increased for the three and six months ended MarchJune 31,30, 2026, due to the following:

•Interest and fees on loans increased due to the ongoing effects of pricing actions, higher Average credit card and other loans balancesbalances, the ongoing effects of pricing actions and lower reversals of finance charges and late fees, resulting from lower gross credit losses, partially offset by both lower average Prime interest rates which affects variable rate Credit card and other loans, and lower billed late fees; collectively increasing the yield from finance charges and late fees by approximately 6832 basis points.points and 49 basis points, over the respective periods of comparison. Our lower delinquency volumes and the gradual shift in product mix to a lower proportion of private label accounts, which tend to have higher billed late fees, have resulted in lower overall billed late fees.

•Interest on cash and investment securities decreased due to lower average interest rates, which decreased interest income by $6$7 million and $14 million, over the respective periods of comparison, as well as lower average balances,balances in the six month period, which decreased interest income by $4$2 million.

Interest expense: Total interest expense decreased for the three and six months ended MarchJune 31,30, 2026, due to the following:

•Interest on deposits decreasedwas flat for the three month period due to lower average interest rates, which decreased interest expense by $15$12 million, offset by higher average DTC deposit balances, which increased funding costs by $12 million. Interest on deposits decreased for the six month period due to lower average interest rates, which decreased interest expense by $27 million, partially offset by higher average DTC deposit balances, which increased funding costs by $10$22 million.

•Interest on borrowings decreased due to lower average borrowings, which decreased funding costs by $20$17 million and $36 million, over the respective periods of comparison, and lower average interest rates, which decreased funding costs by $7$8 million.million and $15 million, over those same respective periods.

Non-interest income: Total non-interest income decreased for the three and six months ended MarchJune 31,30, 2026, due to the following:

•Interchange revenue, net of retailer share arrangements, typically a contra-revenue item for us, increased due to an increase in costs associated with brand partner retailer share arrangements, partially offset by an increase in interchange and merchant discount fees due to the addition of new brand partners over the periods of comparison.

Provision for credit losses increased duringfor the three and six months ended MarchJune 31,30, 20262026. For the three month period, the increase was driven by a $28$3 million reserve release and net principal losses of $331$316 million, compared with a $69$74 million reserve release and net principal losses of $365$348 million in the prior year period. For the six month period, the increase was driven by a $31 million reserve release and net principal losses of $647 million, compared with a $143 million reserve release and net principal losses of $713 million in the prior year period. Our reserve rate was 11.46%11.23% and 12.19%11.89% as of MarchJune 31,30, 2026 and 2025, respectively, reflecting our improving credit metrics and higher-quality new account acquisitions. We continue to maintain appropriately prudent weightings on the economic scenarios in our credit reserve modeling to ensure the adequacy of our Allowance for credit losses given the wide range of potential macroeconomic dynamics,outcomes, including ongoing uncertainty regarding trade policy and global conflicts, and downstream impacts on inflation and unemployment.

•Employee compensation and benefits increased primarily due to higher wages related to annual merit increases and incentive compensation, as well as increased medical claims, partially offset by operational excellence initiatives.

The Provision for income taxes increased for the three and six months ended MarchJune 31,30, 2026, primarily driven by an increase in Income from continuing operations before income taxes.2026. The effective tax rate was 25.3%25.7% and 28.1%20.5% for the three-monththree periodsmonths ended MarchJune 31,30, 2026 and 2025, respectively, and 25.4% and 24.5% for the six months ended June 30, 2026 and 2025, respectively. TheBoth decreasethe increases in the Provision for income taxes and in the effective tax raterates wasover duethe toperiods of comparison were primarily driven by a discrete tax benefit in the currentprior year period.period related to a California law change.

(1)PPNR represents Income from continuing operations before income taxes and the Provision for credit losses. PPNR excluding impacts from debt repurchases excludes from PPNR impacts from our debt repurchases in the period.

(7)Efficiency ratio represents Total non-interest expenses divided by Total net interest and non-interest income. Adjusted efficiency ratio excludes impacts from debt repurchases in the period.

(8)Common equity tier 1 capital ratio represents tier 1 capital reduced by Preferred stockstock, divided by total risk-weighted assets. In the calculation of tier 1 capital, we follow the Basel III Standardized Approach and therefore Total stockholders’ equity has been reduced by Goodwill and intangible assets, net. For additional information, see “Legislative, Regulatory Matters and Capital Adequacy” included elsewhere in this report.

Our primary sources of liquidity include cash generated from operating activities, our bank credit facility, issuances of senior and/or subordinated unsecured notes and preferred stock by our Parent Company, as well as financings through our securitization programs, and deposits with the Banks. In particular, our DTC deposits increased 10%16% year-over-year to $8.7$9.4 billion as of MarchJune 31,30, 2026, with our average direct-to-consumer deposits representing 48%50% of total funding, up from 43%45% a year ago. More broadly, we continuously evaluate opportunities to renew and expand our various sources of liquidity. We aim to satisfy our financing needs with a diverse set of funding sources, and we seek to maintain diversity of funding sources by type of instrument, by tenor and by investor base, among other factors, which we believe will mitigate the impact of disruptions in any one type of instrument, tenor or investor.

We will also need additional financing in the future to repay or refinance our existing debt at or prior to maturity, and to fund our growth, which may include the issuance of additional debt or equity securities or engaging in other capital markets or financing transactions. In 2025, asAs part of our financing strategy and capital structure optimization, we have issued our inaugural series of subordinated notes and publicly-traded preferred stock, and in the future we may continue to seek to further optimize our capital structure. Given the maturities of certain of our outstanding debt instruments and depending on the prevailing macroeconomic conditions, it is possible that we may be required to repay, extend or refinance some or all of our future debt maturities in volatile and/or unfavorable markets.

The table below provides a summary of the credit ratings for the outstanding senior unsecured debt, subordinated debt and preferred stock of Bread Financial Holdings, Inc. In October 2025 all three credit rating agencies issued their updated credit ratings and related outlooks, which remain unchanged as of MarchJune 31,30, 2026, and were as follows:

We also seek to maintain appropriate and stable credit ratings for our credit card securitizationssecuritizations. The table below provides a summary of the structured finance credit ratings for certain of the asset-backed securities issued through World Financial Network Credit Card Master Note Trust (WFNMNT) from the rating agencies (DBRS, S&P and Fitch). The table below provides a summary of the structured finance credit ratings for certain of the asset-backed securities,, specifically the outstanding Class A notes of WFNMNT as of MarchJune 31,30, 2026:

Certain of our long-term debt agreements include various restrictive financial and non-financial covenants. If we do not comply with certain of these covenants and an event of default occurs and remains uncured, the maturity of amounts outstanding may be accelerated and become payable, and, with respect to our credit agreement, the associated commitments may be terminated. As of MarchJune 31,30, 2026, we were in compliance with all such covenants.

In October 2024, we entered into our amended credit agreement with the Parent Company, as borrower, certain of our domestic subsidiaries, as guarantors, JPMorgan Chase Bank, N.A., as administrative agent and lender, and various other financial institutions, as lenders, which provides for a $700 million senior unsecured revolving credit facility (the Revolving Credit Facility), which matures in October 2028. As of MarchJune 31,30, 2026, our Revolving Credit Facility was undrawn and all $700 million remained available for future borrowings.

The following table provides a summary of our outstanding Long-term and other debt, consisting of senior and subordinated unsecured notes, as of MarchJune 31,30, 2026:

During the first quarterhalf of 2026, we repurchased $50 million in aggregate principal amount of the 8.375% Fixed-Rate Reset Subordinated Notes Due 2035 in the open market with cash on hand.

The Banks use a variety of deposit products to finance their operating activities, including funding for non-securitized credit card and other loans, and to fund their securitization enhancement requirements. The Banks offer DTC retail deposit products, including Individual Retirement Accounts, as well as deposits sourced through contractual arrangements with various financial counterparties (often referred to as wholesale deposits, and includes brokered deposits) and various non-maturity deposit products that are generally redeemable on demand by the customer, and as such have no scheduled maturity date. The Banks have also issued certificates of deposit with scheduled maturity dates ranging between AprilJuly 2026 and MarchJune 2031, in denominations of at least $1,000, on which interest is paid either monthly or at maturity. The following table summarizes these retail and wholesale deposit products by type and associated attributes as of the dates presented:

As of MarchJune 31,30, 2026 and December 31, 2025, retail deposits that exceeded applicable Federal Deposit Insurance Corporation (FDIC) insurance limits, which are generally $250,000 per depositor, per insured bank, per ownership category, were estimated to be $658$736 million (5% of Total deposits) and $638 million (5% of Total deposits), respectively. The measurement of estimated uninsured deposits aligns with regulatory guidelines.

We sell the majority of the credit card loans originated by the Banks to certain of our master trusts (the Trusts). These securitization programs are a principal vehicle through which we finance the Banks’ credit card loans. For this purpose, we use a combination of public term asset-backed notes and private conduit facilities (the Conduit Facilities) with a consortium of lenders, including domestic money center, regional and international banks. Both our public term asset-backed notes and borrowings under the Conduit Facilities are included in Debt issued by consolidated Variable Interest Entities (VIEs) in the Consolidated Balance Sheets. During the three months ended June 30, 2026, $399 million of public term asset-backed notes matured and were repaid, of which $49 million were previously retained by us and therefore eliminated from the Consolidated Balance Sheets.

As of MarchJune 31,30, 2026, we had approximately $10.1$10.0 billion of securitized credit card loans. Securitizations require credit enhancementsenhancements, which may be provided in the form of cash, spread deposits, excess collateral, additional loans and/or subordinated classes. The credit enhancement is principally based on the outstanding balances of the series issued by the Trusts and by the performance of the credit card loans in the Trusts.

InAs Novemberreflected 2025,in the table below, in May 2026 we authorized and issued 75,000135,000 shares of preferred stock as depositary shares (the Depositary Shares) for gross proceeds of $75$135 million, with each Depositary Share representing a 1/40th interest in our Series AB 8.625%8.875% Fixed Rate Reset Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share (the Series AB Preferred Stock). The Series AB Preferred Stock has a liquidation preference of $25 per Depositary Share (equivalent to $1,000 per share of Series AB Preferred Stock) and as of bothJune March30, 31, 2026 and December 31, 2025,2026, the aggregate liquidation value was $75$135 million. We used the net proceeds of the offering to enter into a preferred stock transaction with one of our subsidiary banks, CCB, pursuant to which CCB issued preferred stock to Parent Company on terms substantially the same as those of the Series B Preferred Stock. The CCB preferred stock is eliminated in consolidation.

In February 2026 we entered into a separate, privately negotiated termination agreement (each, a Capped Call Unwind Agreement) with each financial institution counterparty to the Capped Call transactions, thereby terminating all of the outstanding Capped Call transactions, and resulting in the receipt of an aggregate of 1.5 million shares of our common stock, with a value of $111 million, from the Capped Call counterparties pursuant to the Capped Call Unwind Agreements. Following their receipt, these shares were retired and ceased to be outstanding shares of common stock, and are now treated as authorized but unissued shares of common stock.

On AprilJuly 23, 2026, our Board of Directors declared a quarterly cash dividend of $21.56 per share on our Series A preferred stockstock, $30.32 per share on our Series B preferred stock, and $0.23 per share on our common stock, each payable on JuneSeptember 15, 2026, to the applicable stockholders of record at the close of business on MayAugust 29,31, 2026. The declaration and payment of future dividends on our preferred and common stock are subject to approval by our Board of Directors, based upon a review of relevant considerations and regulatory and other restrictions on our ability to pay dividends, including restrictions imposed by the terms of each series of our outstanding preferred stock.

Cash Flows from Operating Activities primarily include Net income adjusted for (i) non-cash items included in Net income, such as Provision for credit losses, Depreciation and amortization, deferred taxes and other non-cash items, and (ii) changes in the balances of operating assets and liabilities, which can fluctuate in the normal course of business due to the amount and timing of payments. We generated Cash flows from operating activities of $487$1,020 million and $393$919 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. The Net cash provided by operating activities during these periods was primarily driven by cash generated from Net income after adjusting for the Provision for credit losses.

Cash Flows from Investing Activities primarily include changes in Credit card and other loans. CashNet cash used in investing activities was $355 million for the six months ended June 30, 2026 and Net cash provided by investing activities was $317 million and $691$470 million for the threesix months ended MarchJune 31,30, 2025. The Net cash used in investing activities for the six months ended June 30, 2026 was primarily driven by Net principal losses and 2025,an respectively.increase in installment loans, partially offset by the seasonal paydown of credit card loans. The Net cash provided by investing activities duringfor thesethe periodssix months ended June 30, 2025 was primarily due to the seasonal paydown of Credit card and other loans.

Cash Flows from Financing Activities primarily include changes in deposits and long-term debt. Cash used in financing activities was $475$534 million and $562$1,285 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. The Net cash used in financing activities during the threesix months ended MarchJune 31,30, 2026 was primarily driven by net repayments of debt issued by consolidated variable interest entities (i.e., securitizations) and the repurchases of common stock and subordinated debt, partially offset by a net increase in deposits.deposits and net proceeds from the issuance of preferred stock. For the threesix months ended MarchJune 31,30, 2025 the net cash used in financing activities was primarily driven by repayments of debt issued by consolidated variable interest entities and the repurchases of common stock, partially offset by the net issuanceincrease ofin unsecured borrowings under debt agreements.deposits.

Although we cannot precisely determine the impact of inflation on our operations, we have generally sought to rely on operating efficiencies from scale, technology modernization and digital advancement along with other operational excellence initiatives, as well as expansion in lower cost jurisdictions to offset increased costs of employee compensation and other operating expenses impacted by inflation. We also recognize that a customer’s ability and willingness to repay us has been negatively impacted by factors such as recent inflation and higherelevated interest rates, and any persistent effects therefrom, which may result in higher delinquencies and increased credit losses, as reflected in our elevated Reserve rate. If the efforts to control inflation in the U.S. and globally are not successful and inflationary pressures continue to persist, including due to changes to, or the imposition of, tariffs and/or trade barriersbarriers, and recentconsequently increasesany ineconomic energyimpacts prices,resulting therefrom, as well as ongoing wars and international tensions and uncertainties, they could further increase repayment pressure on consumers as well as the risk of a recessionary environment or stagflation which may adversely impact our business, results of operations and financial condition.

Our business is subject to extensive federal and state laws and regulations, as well as related regulation and supervision, including by the FDIC, Consumer Financial Protection Bureau (CFPB) and other federal and state authorities. Pending and future laws and regulations (federal and state) may adversely impact our business. Without limiting the foregoing, CB is subject to various regulatory capital requirements administered by the Delaware Office of the State Bank Commissioner and the FDIC. CCB is also subject to various regulatory capital requirements administered by the Utah Department of Financial Institutions and the FDIC. Failure to meet minimum capital requirements can trigger certain mandatory and possibly additional discretionary actions by our regulators. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, both Banks must meet specific capital guidelines that involve quantitative measures of their assets and liabilities as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by these regulators about components, risk weightings and other factors. In addition, both Banks are limited in the amounts they can pay as dividends to the Parent Company.