BREAD FINANCIAL HOLDINGS, INC. Revenue Disclosure

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The deferred redemption obligation associated with the AIR MILES Reward Program is effectively due on demand from the collector base, thus the timing of revenue recognition is based on the redemption by the collector. Service revenue is amortized over the expected life of a mile, with the deferred revenue balance expected to be recognized into revenue in the amount of $141.7 million in 2021, $75.1 million in 2022, $29.5 million in 2023, and $0.9 million in 2024.

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Additionally, contract liabilities for the Company’s short-term loyalty programs are recognized in other current liabilities in the Company’s consolidated balance sheets. In 2020, the beginning balance as of January 1, 2020 was $122.8 million and the closing balance as of December 31, 2020 was $66.9 million, with the change due to revenue recognized of approximately $375.9 million, offset in part by cash payments received in advance of program performance revenue during the year ended December 31, 2020. In 2019, the beginning balance as of January 1, 2019 was $110.2 million and the closing balance as of December 31, 2019 was $122.8 million, with the change due to cash payments received in advance of program performance, offset in part by revenue recognized of approximately $526.6 million during the year ended December 31, 2019.

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Card Services

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Card Services is a comprehensive provider of market-leading private label, co-brand, general purpose and business credit card programs, digital payments, including Bread, and Comenity-branded financial services. Card Services provides risk management solutions, account origination, funding, transaction processing, customer care, collections and marketing services.

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Finance charges, net. Finance charges, net represents revenue earned on customer accounts owned by the Company, and is recognized in the period in which it is earned. The Company recognizes earned finance charges, interest income and fees on credit card and loan receivables in accordance with the contractual provisions of the credit arrangements, which are within the scope of ASC 310, “Receivables.” Interest and fees continue to accrue on all accounts, except in limited circumstances, until the account balance and all related interest and other fees are paid or charged-off, in the month during which an account becomes 180 days delinquent for credit card receivables or 120 days for installment loan receivables. Charge-offs for unpaid interest and fees as well as any adjustments to the allowance associated with unpaid interest and fees are recorded as a reduction to finance charges, net. Pursuant to ASC 310-20, “Receivables - Nonrefundable Fees and Other Costs,” direct loan origination costs on credit card receivables are deferred and amortized on a straight-line basis over a one-year period or over the life of the loan for loan receivables and recorded as a reduction to finance charges, net. As of December 31, 2020 and 2019, the remaining unamortized deferred costs related to loan origination were $38.0 million and $47.1 million, respectively.

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Servicing fees, net. Servicing fees, net represents revenue earned from retailers and cardholders from processing and servicing accounts, and is recognized as such services are performed. Our credit card program agreements may also provide for payments to the retailer based on purchased volume or if certain contractual incentives are met, such as if the economic performance of the program exceeds a contractually defined threshold. These amounts are recorded as a reduction of revenue.

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Revenue earned from retailers primarily consists of merchant and interchange fees, which are transaction fees charged to the merchant for the processing of credit card transactions. Merchant and interchange fees are recognized at a point in time upon the cardholder purchase.

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Revenue earned from cardholders primarily consists of monthly fees from the purchase of certain payment protection products purchased by our cardholders. The fees are based on the average cardholder account balance, and these products can be cancelled at any time by the cardholder. Revenue is recognized over time using a time-elapsed output method.

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Contract Costs. The Company recognizes an asset for the incremental costs of obtaining or fulfilling a contract with the retailer to the extent it expects to recover those costs, in accordance with ASC 340-40. Contract costs are deferred and amortized on a straight-line basis that is consistent with the transfer of services, which is generally the term of the contract. Depending on the nature of the contract costs, the amortization is recorded as a reduction to revenue, or costs of operations, in the Company’s consolidated statements of income. As of December 31, 2020 and 2019, the remaining unamortized contract costs were $311.1 million and $406.8 million, respectively, and are included in other current assets and other non-current assets in the Company’s consolidated balance sheets.

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Amortization of contract costs recorded as a reduction to revenue totaled $65.3 million, $71.8 million and $68.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. Amortization of contract costs recorded to

cost of operations expense totaled $11.9 million, $11.9 million and $9.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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The Company performs an impairment assessment when events or changes in circumstances indicate that the carrying amount of contract costs may not be recoverable. Due to deteriorated economic conditions from COVID-19 resulting in retail store closures and a significant decline in credit sales, the Company’s impairment assessments for certain of its Card Services deferred contract costs resulted in asset impairment charges of $38.1 million that are included in cost of operations in its consolidated statement of income for the year ended December 31, 2020. No impairment related to deferred contract costs was incurred during the years ended December 31, 2019 and 2018.

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Practical Expedients

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The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which the Company has the right to invoice for services performed.

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The Company has elected the practical expedient from ASC 340-40 with respect to contract costs, and expenses the incremental costs as incurred for those costs that would otherwise be recognized with an amortization period of one year or less. These costs are recorded to cost of operations expense in the Company’s consolidated statements of income.