BREAD FINANCIAL HOLDINGS INC

Previous wording

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with the unaudited Consolidated Financial Statements and related notes thereto presented in this quarterly report and the audited Consolidated Financial Statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the SEC) on February 20, 2024 (the 2023 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 2023 Form 10-K and this Quarterly Report on Form 10-Q.

Current wording

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with the unaudited Consolidated Financial Statements and related notes thereto presented in this quarterly report and the audited Consolidated Financial Statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the SEC) on February 20, 2024 (the 2023 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 2023 Form 10-K and this and our other Quarterly Reports on Form 10-Q.

Previous wording

We prepare our audited Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP). However, certain information included herein constitutes non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies. In particular, Pretax pre-provision earnings (PPNR) is calculated by increasing/decreasing Income from continuing operations before income taxes by the net provision/release in Provision for credit losses. PPNR less gain on portfolio sales then decreases PPNR by the gain on any portfolio sales in the period. We use PPNR and PPNR less gain on portfolio sales as metrics to evaluate our results of operations before income taxes, excluding the volatility that can occur within Provision for credit losses and the one-time nature of a gain on the sale of a portfolio. Tangible common equity over Tangible assets (TCE/TA) represents Total stockholders’ equity reduced by Goodwill and intangible assets, net, (TCE) divided by Tangible assets (TA), which is Total assets reduced by Goodwill and intangible assets, net. We use TCE/TA as a metric to evaluate the Company’s capital adequacy and estimate its ability to cover potential losses. Tangible book value per common share represents TCE divided by shares outstanding. We use Tangible book value per common share as a metric to estimate the Company’s potential value. 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.

Current wording

We prepare our audited Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP). However, certain information included herein constitutes non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies. In particular:

Previous wording

This Business Environment section provides an overview of our results of operations and financial position for the first quarter of 2024, as well as our related outlook for the remainder of 2024 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 2023 Form 10-K, 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 March 31, 2024, compared with the same period in the prior year.

Current wording

This Business Environment section provides an overview of our results of operations and financial position for the second quarter of 2024, as well as our related outlook for the remainder of 2024 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 2023 Form 10-K as well as our Quarterly Report on Form 10-Q for the quarter-ended March 31, 2024, 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 June 30, 2024, compared with the same period in the prior year.

Previous wording

Credit sales of $6.0 billion were down 18% year-over-year and Average credit card and other loans of $18.5 billion decreased 4%, both driven primarily by the sale of the BJ’s Wholesale Club (BJ’s) portfolio in late February 2023, as well as proactive and responsible tightening of our underwriting and credit line management given ongoing consumer payment pressures and moderating consumer spending, partially offset by new brand partner growth. End-of-period credit card and other loans of $18.2 billion was essentially flat when compared with March 31, 2023. Total interest income was down 3% from the first quarter of 2023, as a result of a decrease in late fee revenue driven by lower early-stage delinquency volumes as well as higher reversals of interest and fees resulting from higher gross credit losses. Net interest margin for the first quarter of 2024 was 18.7%, relative to 19.0% for the first quarter of 2023. Non-interest income decreased $233 million, primarily driven by the $230 million gain on the sale of the BJ's portfolio, and a decrease in the current year in merchant discount fees as a result of moderating promotional plan sales. Overall, Total net interest and non-interest income for the quarter was $1.0 billion, down 23% versus the first quarter of 2023.

Current wording

Credit sales of $6.6 billion were down 7% year-over-year reflecting moderating consumer spending and strategic credit tightening, partially offset by new brand partner growth. Average credit card and other loans of $17.9 billion increased 1%, driven primarily by growth in our co-brand products. End-of-period credit card and other loans of $17.7 billion decreased 1% driven by the decline in Credit sales and the factors noted above. Total interest income was up 3% from the second quarter of 2023, primarily as a result of an increase in finance charge yields driven by an increase in the prime interest rate; partially offset by lower late fees driven by lower early-stage delinquency volumes and higher reversals of interest and fees resulting from higher gross credit losses. Net interest margin for the second quarter of 2024 was 18.0%, relative to 18.7% for the second quarter of 2023, driven by higher funding costs, particularly with direct-to-consumer (DTC) deposits. Non-interest income decreased $8 million, primarily driven by a decrease in the current year in merchant discount fees resulting from lower “big ticket” credit sales. Overall, Total net interest and non-interest income for the quarter was $0.9 billion, down 1% versus the second quarter of 2023.

Previous wording

Provision for credit losses increased for the quarter ended March 31, 2024, relative to the first quarter of 2023, driven by a $73 million reserve release in the current period compared with a $235 million reserve release in the prior year period, with the release in the prior year period primarily related to the sale of the BJ's portfolio. The reserve releases in both years were offset by net principal losses of $394 million and $342 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Provision for credit losses decreased for the quarter ended June 30, 2024, relative to the second quarter of 2023, driven by a $92 million reserve release in the current period compared with a $15 million reserve release in the prior year period. The reserve releases in both years were offset by net principal losses of $382 million and $351 million for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Our Allowance for credit losses decreased as of March 31, 2024, relative to December 31, 2023, due primarily to lower Credit card and other loans balances, because seasonally higher transactor balances from the fourth quarter were paid down in the first quarter; lower delinquencies also contributed. We do continue to maintain an elevated reserve rate, 12.4% as of March 31, 2024, due to changes in the portfolio mix, the compounding effect of persistent inflation relative to wage growth, the increased cost of consumer debt, the possibility of higher unemployment levels and the potential impacts from the resumption of student loan repayments. We intend to maintain a conservative weighting of economic scenarios in our credit reserve modeling until we see sustained improvement in delinquencies and an improved macroeconomic outlook. From an overall credit quality perspective, our percentage of Vantage 660+ cardholders remains above pre-pandemic levels due to prudent credit tightening and a more diversified product mix, with co-brand and proprietary cards representing a larger portion of our portfolio. However, despite the credit tightening actions we have taken, certain of our cardholders who were previously higher risk but still high credit quality have migrated down to lower Vantage score categories under current macroeconomic conditions.

Current wording

Our Allowance for credit losses decreased as of June 30, 2024, relative to December 31, 2023, due primarily to lower Credit card and other loans balances, because seasonally higher transactor balances from the fourth quarter were paid down in the first quarter, lower delinquencies and improved credit quality in the Credit card and other loans portfolio. We continue to maintain an elevated reserve rate of 12.2% as of June 30, 2024, due to the compounding effect of persistent inflation relative to wage growth, the increased cost of consumer debt, the possibility of higher unemployment levels and the potential impacts from the resumption of student loan repayments. We intend to maintain a conservative weighting of economic scenarios in our credit reserve modeling until we see sustained improvement in delinquencies and an improved macroeconomic outlook. From an overall credit quality perspective, our percentage of Vantage 660+ cardholders remains above pre-pandemic levels due to prudent credit tightening and a more diversified product mix, with co-brand and proprietary cards representing a larger portion of our portfolio.

Previous wording

Total non-interest expenses of $482 million decreased 12% from the first quarter of 2023. The year-over-year decrease was primarily driven by a decrease in Card and processing expenses, including fraud. Marketing expenses were also lower, driven by decreased spending associated with brand partner and BFH joint marketing campaigns, and Depreciation and amortization decreased due to lower amortization of developed technology. We also had lower Employee compensation and benefits expenses due to a reduction in demand-based outsourced and contract labor, and decreased headcount.

Current wording

Total non-interest expenses of $469 million decreased 12% from the second quarter of 2023. The year-over-year decrease was primarily driven by a decrease in Card and processing expenses, including fraud. Depreciation and amortization decreased due to lower amortization of developed technology. Marketing expenses were also lower, driven by decreased spending associated with brand partner and BFH joint marketing campaigns, partially offset by higher spending associated with DTC product offerings. We also had lower Employee compensation and benefits expenses due to decreased headcount and a reduction in demand-based outsourced and contract labor.

Previous wording

Our 2024 financial outlook now factors in the potential impacts of the Consumer Financial Protection Bureau's (CFPB) late fee rule based on a May 14, 2024 effective date, acknowledging uncertainty surrounding the timing and outcome of the ongoing litigation relating to the rule, which is described below in the "Risk Factors" section. Our outlook reflects slower Credit sales growth as a result of ongoing strategic credit tightening and continued moderation in consumer spending, both of which consequently will impact growth in Credit card and other loans and Net interest and non-interest income, as well as the Net loss rate. In addition, our 2024 outlook assumes multiple interest rate decreases by the Federal Reserve Board in the second half of the year, which will impact Total net interest income.

Current wording

Our 2024 financial outlook reflects slower Credit sales growth as a result of continued moderation in consumer spending and strategic credit tightening, both of which consequently will impact growth in Credit card and other loans and Net interest and non-interest income, as well as the Net loss rate. In addition, our 2024 outlook assumes multiple interest rate decreases by the Federal Reserve Board in the second half of the year, which will slightly decrease Total net interest income.

Previous wording

Based on our current economic outlook, the CFPB late fee rule impacts, ongoing strategic credit tightening actions, higher gross credit losses, and visibility into our new business pipeline, we expect 2024 Average credit card and other loans to be down low-single digits on a percentage point basis relative to 2023. Total net interest and non-interest income, excluding the gains on portfolio sales during the years of comparison, is anticipated to be down in the mid- to high-teen range on a percentage point basis from 2023, as a result of the CFPB late fee rule impacts, net of mitigation actions, as well as lower Average credit card and other loans and Net interest margin. Our full year Net interest margin is expected to be lower than 2023 reflecting higher reversals of interest and fees due to expected higher gross credit losses, declining interest rates, and a continued shift in product mix to co-brand and proprietary products. (Absent the CFPB late fee rule - i.e., assuming the rule were to not go into effect this year due to it being vacated, enjoined or otherwise - we expect full year Total net interest and non-interest income, excluding the gains on portfolio sales, to be down around mid-single digits on a percentage point basis relative to 2023, driven by many of the same factors described above.) Assuming a May 14, 2024 effective date, the late fee rule, when considered in isolation, is also expected to reduce fourth quarter 2024 Total net interest and non-interest income in the mid-teen range on a percentage point basis relative to the fourth quarter of 2023, net of mitigation actions.

Current wording

Based on our current economic outlook, strategic credit tightening actions, higher gross credit losses, and visibility into our new business pipeline, we expect 2024 Average credit card and other loans to be down low-single digits on a percentage point basis relative to 2023. Total net interest and non-interest income, excluding the gains on portfolio sales during the years of comparison, is anticipated to be down in the low- to mid-single digits on a percentage point basis from 2023, with full year Net interest margin expected to be lower than 2023 reflecting higher reversals of interest and fees due to expected higher gross credit losses, declining interest rates, and a continued shift in product mix to co-brand and proprietary products.

Previous wording

As a result of efficiencies gained from our ongoing investments in technology modernization and digital advancement, along with disciplined expense management, we expect Total non-interest expense to be down low- to mid-single digits on a percentage point basis relative to 2023, inclusive of additional CFPB late fee rule-related expenses.

Current wording

As a result of efficiencies gained from our ongoing investments in technology modernization and digital advancement, along with disciplined expense management, we expect Total non-interest expense to be down mid-single digits on a percentage point basis relative to 2023. Expenses are expected to be higher in the second half of 2024 compared with the first half of the year.

Previous wording

Our 2024 financial outlook assumes a full year Net loss rate in the low 8% range, remaining unchanged from our previous guidance. We expect the Net loss rate to peak in the second quarter at around 9% as inflation continues to pressure consumers' ability to pay and moderates their spend. Our outlook is inclusive of our ongoing credit tightening actions and expected slower Credit card and other loan growth impacting the Net loss rate. We are projecting a lower Net loss rate in the second half of 2024 versus the first half as a result of the strategic credit tightening actions we have taken and an assumed gradual modest improvement in the economic conditions throughout the year.

Current wording

Our 2024 financial outlook assumes a full year Net loss rate in the low 8% range. We are projecting a lower Net loss rate in the second half of 2024 versus the first half as a result of the strategic credit tightening actions we have taken and an assumed gradual modest improvement in economic conditions throughout the year.

Previous wording

In our 2024 financial outlook we also expect our full year normalized effective tax rate to be in the range of 27% to 30%, assuming the CFPB late fee rule becomes effective May 14, 2024, with quarter-over-quarter variability due to the timing of certain discrete items.

Current wording

In our 2024 financial outlook we also expect our full year normalized effective tax rate to be in the range of 25% to 26%, with quarter-over-quarter variability due to the timing of certain discrete items.

Previous wording

The following discussion provides commentary on the variances in our results of operations for the three months ended March 31, 2024, compared with the same period in the prior year, as presented in the accompanying tables. This discussion should be read in conjunction with the discussion under “Business Environment” above.

Current wording

The following discussion provides commentary on the variances in our results of operations for the three and six months ended June 30, 2024, compared with the same periods in the prior year, as presented in the accompanying tables. This discussion should be read in conjunction with the discussion under “Business Environment” above.

Previous wording

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

Current wording

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

Previous wording

Interest income: Total interest income decreased for the three months ended March 31, 2024, primarily resulting from Interest and fees on loans. The decrease, relative to the prior year, was due to a decrease in late fees driven by lower early-stage delinquency volumes and higher reversals of interest and fees resulting from higher gross credit losses, partially offset by an increase in finance charge yields of approximately 48 basis points, driven by an increase in the prime rate.

Current wording

•Interest and fees on loans: increased during the three months ended June 30, 2024, due primarily to an increase in finance charge yields of approximately 31 basis points, driven by an increase in the prime interest rate; partially offset by lower late fees driven by lower early-stage delinquency volumes and higher reversals of interest and fees resulting from higher gross credit losses. Interest and fees on loans decreased during the six months ended June 30, 2024, due as well to lower late fees driven by lower early-stage delinquency volumes and higher reversals of interest and fees resulting from higher gross credit losses, as well as lower Average credit card and other loans; partially offset by an increase in finance charge yields of approximately 39 basis points, driven by an increase in the prime interest rate.

Previous wording

•Interest on deposits increased due to higher average interest rates which increased interest expense by $37 million, as well as higher average balances which increased interest expense by $1 million.

Current wording

•Interest on cash and investment securities: increased for the three and six months ended June 30, 2024, due to higher average interest rates which increased interest income by $4 million and $11 million, respectively, as well as higher average balances which increased interest income by $6 million and $5 million, respectively.

Previous wording

Interest expense: Total interest expense increased for the three months ended March 31, 2024, due to the following:

Current wording

Interest expense: Total interest expense increased for the three and six months ended June 30, 2024, due to the following:

Previous wording

•Interest on borrowings decreased due to lower average borrowings which decreased funding costs by $25 million, partially offset by higher average interest rates which increased funding costs $17 million.

Current wording

•Interest on borrowings increased due to higher average interest rates which increased funding costs by $11 million and $25 million over the respective periods of comparison, and for the six month period, partially offset by lower average borrowings which decreased funding costs by $22 million.

Previous wording

Non-interest income: Total non-interest income decreased for the three months ended March 31, 2024, due to the following:

Current wording

Non-interest income: Total non-interest income decreased for the three and six months ended June 30, 2024, due to the following:

Previous wording

•Interchange revenue, net of retailer share arrangements, typically a contra-revenue item for us, increased for the three month period driven by a decrease in merchant discount fees and interchange revenue earned, partially offset by a reduction in costs associated with brand partner retailer share arrangements.

Current wording

•Interchange revenue, net of retailer share arrangements, typically a contra-revenue item for us, increased for the three and six month periods driven by 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.

Previous wording

•Gain on portfolio sale reflects the gain we recognized from the sale of the BJ’s portfolio in late February 2023.

Current wording

•Gain on portfolio sale reflects the gain we recognized from the sale of a credit card portfolio in April 2024, and the gain we recognized from the sale of the BJ's Wholesale Club (BJ’s) portfolio in late February 2023.

Previous wording

Provision for credit losses increased for the three months ended March 31, 2024, driven by a $73 million reserve release in the current period compared with a $235 million reserve release in the prior year period, with the release in the prior year period primarily related to the sale of the BJ's portfolio. The reserve releases in both years were offset by net principal losses of $394 million and $342 million for the three months ended March 31, 2024 and 2023, respectively. We continue to maintain an elevated reserve rate, 12.4% as of March 31, 2024, due to changes in the portfolio mix, the compounding effect of persistent inflation relative to wage growth, the increased cost of consumer debt, the possibility of higher unemployment levels and the potential impacts from the resumption of student loan repayments.

Current wording

Provision for credit losses decreased during the three months ended June 30, 2024, driven by a $92 million reserve release in the current period compared with a $15 million reserve release in the prior year period, with the reserve releases in both periods offset by net principal losses of $382 million and $351 million during those same respective periods. Provision for credit losses increased during the six months ended June 30, 2024, driven by a $164 million reserve release in the current period compared with a $252 million reserve release in the prior year period, with the release in the prior year period primarily related to the sale of the BJ's portfolio. The reserve releases in both years were offset by net principal losses of $775 million and $694 million during those same respective periods. We continue to maintain an elevated reserve rate, 12.2% as of June 30, 2024, due to the compounding effect of persistent inflation relative to wage growth, the increased cost of consumer debt, the possibility of higher unemployment levels and the potential impacts from the resumption of student loan repayments.

Previous wording

Non-interest expenses: Total non-interest expenses decreased for the three months ended March 31, 2024, due to the following:

Current wording

Non-interest expenses: Total non-interest expenses decreased for the three and six months ended June 30, 2024, due to the following:

Previous wording

•Employee compensation and benefits decreased due to a reduction in demand-based outsourced and contract labor, and decreased headcount, which was driven by a decrease in collections and customer care staffing; partially offset by higher long-term incentive compensation.

Current wording

•Employee compensation and benefits decreased due to a reduction in customer care and collections staffing as well as a reduction in demand-based outsourced and contract labor; partially offset by higher short- and long-term incentive compensation.

Previous wording

•Marketing expenses decreased due primarily to decreased spending associated with brand partner and BFH joint marketing campaigns, and reduced spending associated with DTC offerings.

Current wording

•Marketing expenses decreased due primarily to decreased spending associated with brand partner and BFH joint marketing campaigns, partially offset by higher spending associated with DTC product offerings.

Previous wording

The Provision for income taxes decreased for the three months ended March 31, 2024, compared with the three months ended March 31, 2023, primarily driven by a decrease in Income from continuing operations before income taxes in the current year relative to the prior year period, which was higher due to the gain on the sale of the BJ's portfolio. The effective tax rate was 28.1% and 28.7% for the same three-month periods, respectively. The decrease in the effective tax rate primarily related to discrete benefits in the current year period.

Current wording

The Provision for income taxes increased for the three months ended June 30, 2024 primarily driven by an increase in Income from continuing operations before income taxes. The effective tax rate was 26.0% for both the three month periods ended June 30, 2024 and 2023. The Provision for income taxes decreased for the six months ended June 30, 2024 primarily driven by the decrease in Income from continuing operations before income taxes in the current year relative to the prior year period, which itself was higher due to the gain on the sale of the BJ's portfolio. The effective tax rate was 27.1% and 28.3% for the six month periods ended June 30, 2024 and 2023, respectively; the decrease in the effective tax rate was driven primarily by a discrete benefit in the current year period.

Previous wording

The (Loss) income from discontinued operations, net of income taxes includes amounts that relate to the previously disclosed discontinued operations associated with the spinoff of our former LoyaltyOne segment in 2021 and the sale of our former Epsilon segment in 2019, and primarily relate to contractual indemnification and tax-related matters. For additional information refer to Note 22, “Discontinued Operations and Bank Holding Company Financial Presentation” to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Current wording

The Income (loss) from discontinued operations, net of income taxes includes amounts that relate to the previously disclosed discontinued operations associated with the spinoff of our former LoyaltyOne segment in 2021 and the sale of our former Epsilon segment in 2019, and primarily relate to contractual indemnification and tax-related matters. For additional information refer to Note 22, “Discontinued Operations and Bank Holding Company Financial Presentation” to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Previous wording

(1)PPNR is calculated by increasing/decreasing Income from continuing operations before income taxes by the net provision/release in Provision for credit losses. PPNR is a non-GAAP financial measure. See “Non-GAAP Financial Measures” and Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures.

Current wording

(1)PPNR represents Income from continuing operations before income taxes and the Provision for credit losses. PPNR is a non-GAAP financial measure. See “Non-GAAP Financial Measures” and Table 6: Reconciliation of GAAP to Non-GAAP Financial Measures.

Previous wording

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

Current wording

(10)Total risk-based capital ratio represents total capital divided by total risk-weighted assets. In the calculation of total capital, we follow the Basel III Standardized Approach and therefore tier 1 capital has been increased by tier 2 capital, which for us is the allowable portion of the Allowance for credit losses.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

(14)Delinquency rate represents outstanding balances that are contractually delinquent (i.e., balances greater than 30 days past due) as of the end of the period, divided by the outstanding principal amount of Credit cards and other loans as of the same period-end. Net loss rate, an annualized rate, represents net principal losses for the period divided by the Average credit card and other loans for the same period. Delinquency rate and Net loss rate as of or for the three months ended March 31, 2023 were impacted by the transition of our credit card processing services in June 2022.

Current wording

(16)Net loss rate, an annualized rate, represents net principal losses for the period divided by Average credit card and other loans for the same period. Net loss rate for the three and six months ended June 30, 2023 was impacted by the transition of our credit card processing services in June 2022.

Previous wording

(15)Reserve rate represents the Allowance for credit losses divided by End-of-period credit card and other loans.

Current wording

(17)Reserve rate represents the Allowance for credit losses divided by End-of-period credit card and other loans.

Previous wording

Given the nature of our business, the credit quality of our assets, in particular our Credit card and other loans, is a key determinant underlying our ongoing financial performance and overall financial condition. When it comes to our Credit card and other loans portfolio, we closely monitor Delinquency rates and Net principal loss rates, which reflect, among other factors, our underwriting, the inherent credit risk in our portfolio and the success of our collection and recovery efforts. These rates also reflect, more broadly, the general macroeconomic conditions, including the effects of persistent inflation and high interest rates. Our Delinquency and Net principal loss rates are also impacted by the size of our Credit card and other loans portfolio, which serves as the denominator in the calculation of these rates. Accordingly, changes in the size of our portfolio (whether due to credit tightening, acquisitions or dispositions of portfolios or otherwise) may cause movements in our Delinquency and Net principal loss rates that are not necessarily indicative of the underlying credit quality of the overall portfolio.

Current wording

Given the nature of our business, the credit quality of our assets, in particular our Credit card and other loans, is a key determinant underlying our ongoing financial performance and overall financial condition. When it comes to our Credit card and other loans portfolio, we closely monitor Delinquency rates and Net principal loss rates, which reflect, among other factors, our underwriting, the inherent credit risk in our portfolio and the success of our collection and recovery efforts. These rates also reflect, more broadly, the general macroeconomic conditions, including the effects of persistent inflation and higher interest rates. Our Delinquency and Net principal loss rates are also impacted by the size of our Credit card and other loans portfolio, which serves as the denominator in the calculation of these rates. Accordingly, changes in the size of our portfolio (whether due to credit tightening, acquisitions or dispositions of portfolios or otherwise) may cause movements in our Delinquency and Net principal loss rates that are not necessarily indicative of the underlying credit quality of the overall portfolio.

Previous wording

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

Current wording

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

Previous wording

The following table presents the delinquency trends on our Credit card and other loans portfolio based on the principal balances outstanding as of the dates presented:

Current wording

The following table provides the delinquency trends on our Credit card and other loans portfolio based on the principal balances outstanding as of the dates presented:

Previous wording

As part of our collections strategy, we may offer temporary, short term (six-months or less) forbearance programs in order to improve the likelihood of collections and meet the needs of our customers. Our modifications for customers who have requested assistance and meet certain qualifying requirements, come in the form of reduced or deferred payment requirements, interest rate reductions and late fee waivers. We do not offer programs involving the forgiveness of principal. These temporary loan modifications may assist in cases where we believe the customer will recover from the short-term hardship and resume scheduled payments. Under these forbearance programs, those accounts receiving relief may not advance to the next delinquency cycle, including charge-off, in the same time frame that would have occurred had the relief not been granted. We evaluate our forbearance programs to determine if they represent a more than insignificant delay in payment granted to borrowers experiencing financial difficulty, in which case they would then be considered a Loan Modification. For additional information, see Note 2 “Credit Card and Other Loans – Modified Credit Card Loans” to our unaudited Consolidated Financial Statements.

Current wording

As part of our collections strategy, we may offer temporary and short term programs in order to improve the likelihood of collections and meet the needs of our customers. Our modifications, for customers who have requested assistance and meet certain qualifying requirements, come in the form of reduced payment requirements, interest rate reductions and late fee waivers. We do not offer programs involving the forgiveness of principal. These temporary loan modifications may assist in cases where we believe the customer will recover from the short-term hardship and resume scheduled payments. Under these consumer relief programs, those accounts receiving relief may not advance to the next delinquency cycle, including charge-off, in the same time frame that would have occurred had the relief not been granted. We evaluate our consumer relief programs to determine if they represent a more than insignificant delay in payment granted to borrowers experiencing financial difficulty, in which case they would then be considered a Loan Modification. For additional information, see Note 2 “Credit Card and Other Loans – Modified Credit Card Loans” to our unaudited Consolidated Financial Statements.

Previous wording

The net principal loss rate is calculated by dividing net principal losses for the period by the Average credit card and other loans for the same period. Beginning in January 2024, we revised the calculation of Average credit card and other loans to more closely align with industry practice by incorporating an average daily balance. Prior to 2024, Average credit card and other loans represent the average balance of the loans at the beginning and end of each month, averaged over the periods indicated. The following table presents our net principal losses for the periods presented:

Current wording

The net principal loss rate is calculated by dividing net principal losses for the period by the Average credit card and other loans for the same period. Beginning in January 2024, we revised the calculation of Average credit card and other loans to more closely align with industry practice by incorporating an average daily balance. Prior to 2024, Average credit card and other loans represent the average balance of the loans at the beginning and end of each month, averaged over the periods indicated. The following table provides our net principal losses for the periods presented: