ALLIANCE DATA SYSTEMS CORPORATION

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INDEX

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This report includes trademarks, such as Bread^®, which are protected under applicable intellectual property laws and are the property of Alliance Data or its subsidiaries. This report also contains trademarks, service marks, copyrights and trade names of other companies, which are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.

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Throughout this report, unless stated or the context implies otherwise, the terms “Alliance Data,” the “Company,” “we,” “our” or “us” refer to Alliance Data Systems Corporation and its subsidiaries on a consolidated basis, after giving effect to the spinoff of the LoyaltyOne segment into a separate, publicly-traded entity, Loyalty Ventures Inc. (NASDAQ: LYLT). References to “ADSC” refer to Alliance Data Systems Corporation on a parent-only standalone basis. In this report, we refer to the retailers and other companies with whom we do business as our “partners” or “clients”; provided that the use of the term “partner” or “partnering” does not mean or imply a formal legal partnership, and is not meant in any way to alter the terms of Alliance Data’s relationship with any third parties.

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Caution Regarding Forward-Looking Statements

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This Form 10-K and the documents incorporated by reference herein contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give our expectations or forecasts of future events and can generally be identified by the use of words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “plan,” “likely,” “may,” “should” or other words or phrases of similar import. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding initiation or completion of strategic initiatives including our ability to realize the intended benefits of the spinoff of our LoyaltyOne^® segment, our expected operating results, future financial performance and outlook, future economic conditions, future dividend declarations and the guidance we give with respect to our anticipated financial performance. We believe that our expectations are based on reasonable assumptions. Forward-looking statements, however, are subject to a number of risks and uncertainties that could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this report, and no assurances can be given that our expectations will prove to have been correct. These risks and uncertainties include, but are not limited to, the following:

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

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

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PART I

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Item 1.Business.

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We are a leading provider of tech-forward payment and lending solutions, serving customers and consumer-based industries in North America. Through omnichannel touch points and a comprehensive product suite that includes credit card products and Bread^® digital payment solutions, we help our partners drive revenue growth and customer loyalty, while giving customers greater payment choices. We also offer credit and savings products directly to consumers through our proprietary products, including our Comenity-branded financial services.

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Our partner base of more than 600 companies and online merchants consists of large consumer-based businesses, including well-known brands such as Victoria’s Secret, Signet, Ulta, Toyota, Petco and Big Lots, as well as small- and medium-sized businesses (SMBs). Our partner base is diversified across a broad range of verticals, including sports, beauty, jewelry, home goods and hospitality. We believe our comprehensive suite of payment, lending and saving solutions, along with our related marketing and data & analytics, offers us a significant competitive advantage with products relevant across customer segments (Gen Z, Millennial, Gen X). The breadth and quality of our service offerings have enabled us to establish and maintain long-standing partner relationships.

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On November 5, 2021, we completed the spinoff of our LoyaltyOne^® segment, consisting of the Canadian AIR MILES^® Reward Program and Netherlands-based BrandLoyalty businesses, into an independent, publicly traded company. The entity we created to hold these businesses, Loyalty Ventures Inc., is now listed on Nasdaq under the symbol “LYLT.” The spinoff was completed through the pro rata distribution of 81% of the outstanding shares of Loyalty Ventures Inc. common stock to holders of our common stock at the close of business on the record date of October 27, 2021, with Alliance Data retaining the remaining 19% of the outstanding shares of Loyalty Ventures Inc. common stock. Our stockholders of record received one share of Loyalty Ventures Inc. common stock for every two and one-half shares of Alliance Data common stock held on the record date.

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Unless otherwise noted, all discussion below, including amounts and percentages for all periods, reflect the results of operations and financial condition of Alliance Data’s continuing operations. As such, the LoyaltyOne segment, which was classified as discontinued operations as of November 5, 2021, has been excluded. Prior to the spinoff of the LoyaltyOne segment, we had two reportable operating segments (Card Services and LoyaltyOne). We now operate as a single segment that includes all of our continuing operations.

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Business Strategy

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Beginning in 2018, our Board of Directors undertook a series of strategic initiatives based on an evaluation of the portfolio of businesses that constituted our company. Subsequently, we completed the sale of Epsilon in July 2019, the sale of our Precima^® business (which was part of the LoyaltyOne segment) in January 2020, and the spinoff of our LoyaltyOne segment in November 2021. Through these transactions and other initiatives, we have simplified our business model as a leading provider of tech-forward payment and lending solutions, while also reducing debt and improving leverage and capital ratios. As we have transformed the business, we have made strategic investments in assets with the highest growth potential, focused on expanding our product suite, diversifying our customer base, developing key strategic relationships, enhancing our core technology, and modernizing and advancing our digital capabilities.

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We continue to make strategic investments in technology, people, data management tools and digital capabilities to further improve our competitive position and drive future growth. These investments further our objective to grow sales through the origination of credit card and other loans, making it easier for consumers to finance purchases and make payments wherever they occur— online, in store and in-app. By offering consumer choice, we provide relevant products across consumer segments, including Gen Z and Millennials who are attracted to cash flow management products such as split-pay and installment lending, while Gen X and Baby Boomers gravitate towards rewards and the convenience of a private label or co-brand card. With our broad suite of products, including private label and co-brand credit cards, buy now, pay later (BNPL) options (installment loans and split-pay), together with digital, analytical and servicing capabilities to support those products, we drive incremental sales for our partners’ businesses. We also intend to continue rebalancing our portfolio, prioritizing and investing in profitable, strong performing partners, targeting core and new verticals, improving our cost base and becoming a more cost-efficient provider of financial products and services. In addition, we continue to expand our direct-to-consumer lending and payment products for new and existing customers,

including debt consolidation products and proprietary credit cards for growth and value retention. Through our digital payments business, which operates under the trademark Bread, we offer an omnichannel solution for retailers and merchants and platform capabilities to bank partners. Bread’s offerings and on-boarding capabilities enhance the growth prospects of our verticals and increase the addressable market of SMB. Bread also offers our existing co-brand and private label credit card partners a broader digital product suite and additional white-label product solutions.

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Products and Services

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We assist some of the best-known brands and retailers in driving sales and loyalty through an expanding suite of lending and payment solutions, including private label and co-brand credit card programs, and BNPL options (installment lending and split-pay). Our partners benefit from customer insights and analytics, with each of our credit card branded programs tailored to our partner’s brand and their unique customers. In addition, we continue to expand our direct-to-consumer lending and payment products and our digital payments platform. These products are supported and maximized by our digital, analytical and servicing capabilities. Our products and services are discussed in more detail below under the headings (i) credit card and other loans financing, (ii) loan processing and servicing, (iii) marketing and data & analytics and (iv) digital offerings.

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Credit Card and Other Loans Financing. We provide risk management solutions, account origination and funding services for approximately 130 private label and co-brand credit card programs, as well as through Bread partnerships, with over 500 SMB merchants. In 2020, we launched our Comenity-branded general purpose cash-back credit card, an important new product for us to serve and retain our cardholders and capture incremental spend. As of December 31, 2021, we had $16.6 billion in principal loans from approximately 36 million active accounts, with an average balance for the year ended December 31, 2021 of approximately $828 for accounts with outstanding balances.

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We process millions of credit card applications each year using automated proprietary scoring technology and verification procedures to make responsible risk-based origination decisions when approving new accounts and establishing credit limits. Credit quality is monitored on a regular and consistent basis, utilizing internal algorithms and external credit bureau risk scores. This information helps us segment prospects into narrower risk ranges, allowing us to better evaluate individual credit risk.

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Loan Processing and Servicing. We manage and service the loans we originate for private label, co-brand and general purpose credit card programs and Bread BNPL (installment loans, split-pay) products. In 2022, we expect to complete the transition of our credit card processing services to Fiserv, a leading global provider of payments and financial services technology solutions. With the migration of our core processing to Fiserv, we expect to improve our speed to market, including the ability to quickly and seamlessly add new products and capabilities that benefit our partners and cardholders. The platform enables efficient integration of digital technology, while supporting our data and analytics capabilities and improving operational efficiencies.

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Our customer care operations are influenced by our retail heritage and we view every customer touch point as an opportunity to provide an exceptional experience. Our customer care operations offer omnichannel servicing, including phone, mail, fax, email, text and web. We provide focused training programs in all areas to achieve the highest possible customer service standards and monitor our performance by conducting surveys with our partners and our customers. In 2021, for the sixteenth time since 2003, we were certified as a Center of Excellence for the quality of our operations, the most prestigious ranking attainable, by BenchmarkPortal. Founded by Purdue University in 1995, BenchmarkPortal is a global leader of best practices for customer care centers.

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Marketing and Data & Analytics. Through our integrated marketing services, we design and implement strategies that assist our partners in acquiring, retaining and expanding customer engagement to drive a more loyal, frequent shopper that increases customer lifetime value. Our programs capture transaction data that we analyze to better understand consumer behavior and use to increase the effectiveness of our partners’ marketing activities. Through our data and analytics capabilities, including machine learning and artificial intelligence, we focus on data insights that drive actionable strategies and enhance revenue growth and customer retention. We use multi-channel marketing communication tools, including in-store, web, permission-based email, permission-based mobile messaging and direct mail to engage customers in the channel of their choice.

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Digital Offerings. Through our Enhanced Digital Suite, a group of marketing and credit application features, we help our brand partners capitalize on online trends, by bringing through more qualified applicants, a higher average purchase value, and a higher credit sales conversion rate. Enhanced Digital Suite includes a unified software development kit (SDK) that provides access to our broad suite of products, and promotes relevant credit payment options earlier in the shopping experience. The application is simple and easy, offers prefilled fields and pre-screens customers in real-time, allowing for immediate credit approval without leaving the brand partner’s site.

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Through Bread, our digital payments business acquired in 2020, we offer a flexible platform and robust suite of application programming interfaces (APIs) that allow merchants and partners to seamlessly integrate online point-of-sale financing and other digital payment products, including installment and split-pay solutions. These digital payment offerings and on-boarding capabilities enhance the growth prospects of our verticals and increase the addressable market of SMB. At the same time, we can now offer our existing partners a broader digital product suite and additional white-label product solutions. As our Bread business has grown, it has expanded our ability to leverage our digital offerings to build both strategic technology platform partnerships and more traditional brand partnership sales and loans.

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For additional information relating to our business, business strategy and products and services, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Year in Review – Business Environment.”

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Disaster and Contingency Planning

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We operate, either internally or through third-party service providers, multiple data processing centers to process and store our customer transaction data. Given the significant amount of data that we or our third-party service providers manage, much of which is real-time data to support our partners’ commerce initiatives, we have established redundant capabilities for our data centers. We have a number of safeguards in place that are designed to protect us from data-related risks and in the event of a disaster, to restore our data centers’ systems. For additional information, see “Item 1A. Risk Factors – Risk Management – Operational Risk.”

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Protection of Intellectual Property and Other Proprietary Rights

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We rely on a combination of patents, copyright, trade secret and trademark laws, confidentiality procedures, contractual provisions and other similar measures to protect our proprietary information and technology used in our business. We generally enter into confidentiality or license agreements with our employees, consultants and corporate partners, and generally control access to and distribution of our technology, documentation and other proprietary information. Despite the efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain the use of our products or technology that we consider proprietary and third parties may attempt to develop similar technology independently. We have a number of domestic and foreign patents and pending patent applications. We pursue registration and protection of our trademarks primarily in the United States, although we also have either registered trademarks or applications pending for certain marks in other countries. No individual patent or license is material to us or our business.

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Competition

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The markets for our products and services are highly competitive, continuously changing, highly innovative, and subject to regulatory scrutiny and oversight. We compete with a wide range of businesses, including financial institutions, fintechs and payment networks. Some of our current and potential competitors may be larger than we are, have larger customer bases, greater brand recognition, longer operating histories, a dominant or more secure position, broader geographic scope, volume, scale, resources, and market share than we do, or offer products and services that we do not offer. Other competitors are smaller or younger companies that may be more agile in responding quickly to regulatory and technological changes. Many of the areas in which we compete evolve rapidly with innovative and disruptive technologies, emerging competitors, business alliances, shifting consumer habits and user needs, price sensitivity on the part of merchants and consumers, and frequent introductions of new products and services.

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In competing to acquire and retain the business of brand partners, our primary competition is with other financial institutions whose marketing focus has been on developing credit card programs with large revolving balances. These competitors further drive their businesses by cross-selling their other financial products to their cardholders. We also compete for partners on the basis of a number of factors, including program financial and other terms, underwriting

standards, marketing expertise, service levels, the breadth of our product and service offerings, digital, technological and integration capabilities, brand recognition and reputation. Our focus is on retailers and other brand partners that understand the competitive advantage of developing loyal customers. As a result, we focus on analyzing transaction data we obtain through partner loyalty programs and managing our lending programs, including customer specific transaction data and overall consumer spending patterns, to develop and implement successful marketing strategies for our partners. The consumer credit and payments industry is highly competitive and we face an increasingly dynamic industry as emerging technologies enter the marketplace. As a form of payment, our products compete with cash, checks, electronic bank transfers, debit cards, general purpose credit cards (including Visa and MasterCard, American Express and Discover Card), various forms of consumer installment loans and split-pay products, other private label card brands, prepaid cards, digital wallets and mobile payment solutions, and other tools that simplify and personalize shopping experiences for consumers and merchants. As the payments industry continues to evolve, in the future we expect increasing competition with emerging payment technologies from financial technology firms and payment networks. Moreover, some of our competitors, including new and emerging competitors in the digital and mobile payments space, are not subject to the same regulatory requirements or legislative scrutiny to which we are subject, which could place us at a competitive disadvantage.

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Supervision and Regulation

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We operate primarily through our insured depository institution subsidiaries, Comenity Bank and Comenity Capital Bank, which together are referred to herein as the “Banks.” Federal and state laws and regulations extensively regulate the operations of the Banks. This regulatory framework is intended to protect individual consumers, depositors, the Deposit Insurance Fund (DIF) of the Federal Deposit Insurance Corporation (FDIC) and the U.S. banking system as a whole rather than for the protection of shareholders and creditors. Set forth below is a summary of the significant laws and regulations applicable to each of Comenity Bank and Comenity Capital Bank. The description that follows is qualified in its entirety by reference to the full text of the statutes, regulations, and policies that are described. Such statutes, regulations, and policies are subject to ongoing review by Congress, state legislatures, and federal and state regulatory agencies. A change in any of the statutes, regulations, or regulatory policies applicable to Comenity Bank and Comenity Capital Bank, or in the leadership or direction of our regulators, could have a material effect on the results of Alliance Data. Further, the scope of regulation and the intensity of supervision will likely remain higher under the Biden Administration.

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Comenity Bank is a Delaware-chartered bank operating as a credit card bank under Competitive Equality Banking Act (CEBA) exemptions in the Bank Holding Company Act (BHC Act). To maintain its status as a CEBA credit card bank, Comenity Bank must continue to comply with the following requirements:

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Comenity Bank is subject to prudential regulation, supervision and examination by the Delaware Office of the State Bank Commissioner, as its chartering authority, and the FDIC as its primary federal regulator. Comenity Bank’s deposits are insured by the DIF of the FDIC up to the applicable deposit insurance limits in accordance with applicable law and FDIC regulations. Comenity Bank is not a member of the Federal Reserve System.

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Comenity Capital Bank is a Utah-chartered industrial bank. As an industrial bank, Comenity Capital Bank is exempt from the definition of “bank” under the BHC Act. Comenity Capital Bank is subject to prudential regulation, supervision and examination by the Utah Department of Financial Institutions, as its chartering authority, and the FDIC as its primary federal regulator. Comenity Capital Bank’s deposits are insured by the DIF of the FDIC up to the applicable deposit insurance limits in accordance with applicable law and FDIC regulations. Comenity Capital Bank is not a member of the Federal Reserve System.

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The Consumer Financial Protection Bureau (CFPB) promulgates regulations for the federal consumer financial protection laws. Banks in a multi-bank organization, such Comenity Bank and Comenity Capital Bank, are subject to

supervision and examination by the CFPB with respect to the federal consumer financial protection laws if at least one bank reports total assets over $10 billion for four consecutive quarters. While Comenity Bank and Comenity Capital Bank were previously subject to such supervision and examination by the CFPB, neither have reported total assets over $10 billion for the last consecutive four quarters and both are now subject to supervision and examination with respect to the federal consumer financial protection laws by the FDIC. If and when either Comenity Bank or Comenity Capital Bank report total assets over $10 billion for four consecutive quarters, such supervision and examination will revert back to the CFPB.

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Regulation of Alliance Data

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Because neither Comenity Bank nor Comenity Capital Bank is considered a “bank” within the meaning of the BHC Act, Alliance Data is not a bank holding company subject to regulation thereunder. If any of our entities became subject to regulation as a bank holding company, among other things, Alliance Data and its nonbank subsidiaries would be subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System (Federal Reserve Board) and our operations would be limited to certain activities that are closely related to banking or financial services in nature.

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Regulation of the Banks

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Federal and state banking laws and regulations govern, among other things, the scope of a bank’s business, the investments a bank may make, the reserves against deposits a bank must maintain, the loans a bank makes and collateral it takes, the activities of a bank with respect to mergers and acquisitions, management practices, and numerous other aspects of banking operations.

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Source of Strength Doctrine

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Under Section 616 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), any company that directly or indirectly controls an insured depository institution is required to serve as a source of financial strength to its subsidiary institution and may not conduct its operations in an unsafe or unsound manner. This doctrine is commonly known as the "source of strength" doctrine. As such a company, this means that Alliance Data must stand ready to use available resources to provide adequate capital funds to the Banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting the Banks. This support may be required at times when Alliance Data might otherwise determine not to provide it or when doing so is not otherwise in the interests of Alliance Data or its stockholders or creditors. Alliance Data’s failure to meet its obligation to serve as a source of strength to the Banks would generally be considered to be an unsafe and unsound banking practice.

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Regulatory Capital Requirements

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The Banks are subject to certain risk-based capital and leverage ratio requirements under the U.S. Basel III capital rules adopted by the FDIC. These rules implement the Basel III international regulatory capital standards in the United States, as well as certain provisions of the Dodd-Frank Act. These quantitative calculations are minimums, and the FDIC may determine that a bank, based on its size, complexity, or risk profile, must maintain a higher level of capital in order to operate in a safe and sound manner.

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Under the U.S. Basel III capital rules, the Banks’ assets, exposures, and certain off-balance sheet items are subject to risk weights used to determine the institutions’ risk-weighted assets, which then are used to determine the minimum capital that the Banks should keep as a reserve to reduce the risk of insolvency. These risk-weighted assets are used to calculate the following minimum capital ratios for the Banks:

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Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a material adverse effect on our operations or financial condition. Failure to be well-capitalized or to meet minimum capital requirements could also result in restrictions on the Banks’ ability to pay dividends or otherwise distribute capital or to receive regulatory approval of applications.

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The U.S. Basel III capital rules require a minimum CET1 Risk-Based Capital Ratio of 4.5%, a minimum Tier 1 Risk-Based Capital Ratio of 6.0%, and a minimum Total Risk-Based Capital Ratio of 8.0%. In addition to meeting the minimum capital requirements, under the U.S. Basel III capital rules, the Banks must also maintain the required 2.5% Capital Conservation Buffer to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management. The Capital Conservation Buffer is calculated as a ratio of CET1 capital to risk-weighted assets, and it effectively increases the required minimum risk-based capital ratios. As a result, the Banks must maintain a CET1 Risk-Based Capital Ratio of at least 7%, a Tier 1 Risk-Based Capital Ratio of at least 8.5% and a Total Risk-Based Capital Ratio of at least 10.5% to avoid being subject to restrictions on capital distributions and discretionary bonus payments to its executive management. The Tier 1 Leverage Ratio is not impacted by the Capital Conservation Buffer, and a bank may be considered well-capitalized while remaining out of compliance with the Capital Conservation Buffer. The required minimum Tier 1 Leverage Ratio for all banks and bank holding companies is 4%.

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To be well-capitalized, the Banks must maintain the following capital ratios:

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At December 31, 2021, the Banks’ regulatory capital ratios were above the well-capitalized standards and met the Capital Conservation Buffer. The Banks seek to maintain capital levels and ratios in excess of the minimum regulatory requirements inclusive of the 2.5% Capital Conservation Buffer.

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Dividends

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Alliance Data is a legal entity separate and distinct from the Banks. Declaration and payment of cash dividends depends upon cash dividend payments to Alliance Data by the Banks, which are our primary source of revenue and cash flow. As state-chartered banks, the Banks are subject to regulatory restrictions on the payment and amounts of dividends under Delaware or Utah law, as applicable. Further, the ability of the Banks to pay dividends to Alliance Data is also subject to their profitability, financial condition, capital expenditures and other cash flow requirements, and any such dividends are also subject to the approval of the Board of Directors of the applicable Bank.

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The payment of dividends by the Banks and Alliance Data may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory requirements. The federal banking agencies have indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice. A bank may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal banking agencies have issued policy statements that provide that banks should generally only pay dividends out of current operating earnings. The federal banking agencies have the authority to prohibit banks from paying a dividend if it is deemed such payment would be an unsafe or unsound practice.

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Prompt Corrective Action and Safety and Soundness

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Under applicable "prompt corrective action" ("PCA") statutes and regulations, insured depository institutions, such as the Banks, are placed into one of five capital categories, ranging from "well capitalized" to "critically

undercapitalized." The PCA statute and regulations provide for progressively more stringent supervisory measures as an institution’s capital category declines. An institution that is not well capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market. An undercapitalized institution must submit an acceptable restoration plan to the appropriate federal banking agency. One requisite element of such a plan is that the institution’s parent holding company guarantee the institution’s compliance with the plan, subject to certain limitations. At December 31, 2021, the Banks qualified as "well capitalized" under applicable regulatory capital standards.

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Insured depository institutions may also be subject to potential enforcement actions of varying levels of severity by the federal banking agencies for unsafe or unsound practices in conducting their business, or for violation of any law, rule, regulation, condition imposed in writing by the agency, or term of a written agreement with the agency. In more serious cases, enforcement actions may include the issuance of directives to increase capital; the issuance of formal and informal agreements; the imposition of civil monetary penalties; the issuance of a cease and desist order that can be judicially enforced; the issuance of removal and prohibition orders against officers, directors, and other institution affiliated parties; the termination of the institution’s deposit insurance; the appointment of a conservator or receiver for the institution; and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the FDIC, as receiver, would be harmed if such equitable relief was not granted.

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Reserve Requirements

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Federal Reserve Board regulations require insured depository institutions to maintain cash reserves against their transaction accounts, primarily interest-bearing and regular checking accounts. The required cash reserves can be in the form of vault cash and, if vault cash does not fully satisfy the required cash reserves, in the form of a balance maintained with Federal Reserve Banks. The regulations require that the Banks maintain cash reserves against aggregate transaction accounts in excess of the exempt amount. The Federal Reserve Board generally makes annual adjustments to the tiered cash reserve requirements; however, effective March 26, 2020, the reserve requirement was reset to zero to address liquidity concerns due to the global COVID-19 pandemic and maintained at zero effective March 2021 and March 2022. The reserve requirement remains subject to annual adjustment as conditions warrant.

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Restrictions on Transactions with Affiliates and Insiders

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Sections 23A and 23B of the Federal Reserve Act limit the extent to which we can borrow or otherwise obtain credit from or engage in other covered transactions with either of the Banks, which may have the effect of limiting the extent to which either Bank can finance or otherwise supply funds to us. “Covered transactions” include loans or extensions of credit, purchases of or investments in securities, purchases of assets, including assets subject to an agreement to repurchase, acceptance of securities as collateral for a loan or extension of credit, or the issuance of a guarantee, acceptance, or letter of credit. Although the applicable rules do not serve as an outright bar on engaging in covered transactions, they do require that we engage in “covered transactions” with either Bank only on terms and under circumstances that are substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with nonaffiliated companies. Furthermore, with certain exceptions, each loan or extension of credit by either Bank to us or our other affiliates must be secured by collateral with a market value ranging from 100% to 130% of the amount of the loan or extension of credit, depending on the type of collateral.

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The Banks are also subject to Sections 22(g) and 22(h) of the Federal Reserve Act, and the implementing Regulation O as applied to the Banks. These provisions impose limitations on loans and extensions of credit by the Banks to their executive officers, directors and principal shareholders and their related interests, as well as those of the Banks’ affiliates. The limitations restrict the terms and aggregate amount of such transactions. Regulation O also imposes certain recordkeeping and reporting requirements. Restrictions on transactions with affiliates and insiders under Federal Reserve Act Sections 23A, 23B, 22(g) and 22(h), as well as the requirements of Regulation O, are monitored for compliance by our internal audit department.

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Federal Deposit Insurance

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The deposits of the Banks are insured up to applicable limits by the DIF of the FDIC. The standard maximum deposit insurance amount is $250,000 per depositor, per insured depository institution, per ownership category, in accordance with applicable FDIC regulations.

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The FDIC uses a risk-based assessment system that imposes insurance premiums based on a risk matrix that takes into account an institution’s capital level and supervisory rating. The base for insurance assessments is the average consolidated total assets less tangible equity capital of an institution. Assessment rates are calculated using formulas that take into account the risk of the institution being assessed.

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Under the Federal Deposit Insurance Act (the FDIA), the FDIC may terminate an institution’s deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe and unsound condition or has violated any applicable law, regulation, order or condition imposed by the FDIC.

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Depositor Preference

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The FDIA provides that, in the event of the liquidation or other resolution of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including the parent company or otherwise bank holding company, with respect to any extensions of credit they have made to such insured depository institution.

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Volcker Rule

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Section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule, restricts the ability of banking entities, such as Alliance Data and the Banks, from: (i) engaging in proprietary trading and (ii) investing in or sponsoring certain covered funds, subject to certain limited exceptions. Under the Volcker Rule, the term covered funds is defined as any issuer that would be an investment company under the Investment Company Act but for the exemption in section 3(c)(1) or 3(c)(7) of that Act, which includes collateralized loan obligation securities (CLO) and collateralized debt obligation securities. There are also several exemptions from the definition of covered funds, including, among other things, loan securitization, joint ventures, certain types of foreign funds, entities issuing asset-backed commercial paper, and registered investment companies. We do not engage in these restricted activities, including in proprietary trading.

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Incentive Compensation

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The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, including the Banks, that encourage inappropriate risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity. The federal banking agencies and the SEC most recently proposed such regulations in 2016, but the regulations have not yet been finalized. If the regulations are adopted in the form initially proposed, the manner in which executive compensation is structured will be restricted.

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The Dodd-Frank Act also requires publicly traded companies to give stockholders a non-binding vote on executive compensation at their first annual meeting taking place six months after the date of enactment and at least every three years thereafter and on so-called "golden parachute" payments in connection with approvals of mergers and acquisitions.

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USA PATRIOT Act

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Under Title III of the USA PATRIOT Act, all financial institutions are required to take certain measures to identify their customers, prevent money laundering, monitor customer transactions, and report suspicious activity to U.S. law enforcement agencies. Financial institutions also are required to respond to requests for information from federal banking agencies and law enforcement agencies. Information sharing among financial institutions for the above purposes is encouraged by an exemption granted to complying financial institutions from the privacy provisions of the Gramm-Leach-Bliley Act and other privacy laws. Financial institutions that hold correspondent accounts for foreign banks or provide private banking services to foreign individuals are required to take measures to avoid dealing with certain foreign individuals or entities, including foreign banks with profiles that raise money laundering concerns, and are prohibited from dealing with foreign "shell banks" and persons from jurisdictions of particular concern. The primary federal banking agencies and the Secretary of the Treasury have adopted regulations to implement several of these provisions. All financial institutions also are required to establish internal anti-money laundering programs. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any

application submitted by the financial institution under the Bank Merger Act. The Banks have in place a Bank Secrecy Act and USA PATRIOT Act compliance program and engage in very few transactions of any kind with foreign financial institutions or foreign persons.

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Office of Foreign Assets Control Regulations

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The United States government has imposed economic sanctions that affect transactions with designated foreign countries, nationals, and others. These are typically known as the "OFAC" rules based on their administration by the U.S. Treasury Department Office of Foreign Assets Control. The Office of Foreign Assets Control-administered sanctions targeting countries take many different forms. Generally, OFAC sanctions contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from the Office of Foreign Assets Control. Failure to comply with these sanctions could have serious legal and reputational consequences.

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Identity Theft

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The SEC and the Commodity Futures Trading Commission (CFTC) jointly issued final rules and guidelines implementing the provisions of the Dodd-Frank Act which require certain regulated entities to establish programs to address risks of identity theft. The rules require financial institutions and creditors to develop and implement a written identity theft prevention program that is designed to detect, prevent, and mitigate identity theft in connection with certain existing accounts or the opening of new accounts. The rules include guidelines to assist entities in the formulation and maintenance of programs that would satisfy these requirements. In addition, the rules establish special requirements for any credit and debit card issuers that are subject to the jurisdiction of the SEC or the CFTC to assess the validity of notifications of changes of address under certain circumstances. The Banks implemented an ID Theft Prevention Program, approved by their Boards of Directors, in compliance with these requirements.

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Community Reinvestment Act

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The Community Reinvestment Act of 1977 (CRA) is intended to encourage banks to help meet the credit needs of their service areas, including low- and moderate-income neighborhoods, consistent with safe and sound business practices. The relevant federal banking agency, the FDIC in the Banks’ case, examines each bank and assigns it a public CRA rating. A bank’s record of fair lending compliance is part of the resulting CRA examination report. CRA performance evaluations are based on a four-tiered rating system: Outstanding, Satisfactory, Needs to Improve and Substantial Noncompliance. CRA performance evaluations are considered in evaluating applications for such things as mergers, acquisitions and applications to open branches. The Banks each received a CRA rating of "Outstanding" at their most recent CRA examinations.

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Consumer Protection Regulation and Supervision

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We currently are subject to regulation by the FDIC with respect to the federal consumer protection laws. We are also subject to certain state consumer protection laws and state attorneys general and other state officials are empowered to enforce certain federal consumer protection laws and regulations. State authorities have increased their focus on and enforcement of consumer protection rules. These federal and state consumer protection laws apply to a broad range of our activities and to various aspects of our business and include laws relating to interest rates, fair lending, disclosures of credit terms and estimated transaction costs to consumer borrowers, debt collection practices, the use and provision of information to consumer reporting agencies, and the prohibition of unfair, deceptive, or abusive acts or practices in connection with the offer, sale, or provision of consumer financial products and services.

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Privacy and Data Protection Regulation

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Data protection and consumer privacy laws and regulations continue to evolve, increasing restrictions on our ability to collect and disseminate customer information. In addition, the enactment of new or amended legislation or industry regulations pertaining to consumer, public or private sector privacy issues may impact our marketing services, including placing restrictions upon the collection, sharing and use of information that is currently legally available. There are also a number of specific laws and regulations governing the collection, sharing and use of certain types of consumer data primarily in connection with financial services transactions that are relevant to our various businesses and services. In the United States, federal laws such as the Gramm-Leach-Bliley Act, or GLBA, and the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003, as well as similar and applicable state laws, make it more difficult to collect, share and use information that has previously been legally available and may increase our costs of collecting some data. These laws give bank customers, including cardholders and depositors, the ability to “opt out” of having certain information generated by their applicable financial services transactions shared with other affiliated and unaffiliated parties or the public. Our ability to gather, share and utilize this data will be adversely affected if a significant percentage of the consumers whose purchasing behavior we track elect to “opt out,” thereby precluding us and our affiliates from using their data.

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The federal Do-Not-Call Implementation Act makes it more difficult to telephonically communicate with prospective and existing customers. The regulations give consumers the ability to “opt out,” through a national do-not-call registry and state do-not-call registries, of having telephone solicitations placed to them by companies that do not have an existing business relationship with the consumer. In addition, regulations require companies to maintain an internal do-not-call list for those who do not want the companies to solicit them through telemarketing. These regulations could limit our ability to provide services and information to our partners. Failure to comply with these regulations could have a negative impact on our reputation and subject us to significant penalties. Further, the Federal Communications Commission has approved interpretations of rules related to the Telephone Consumer Protection Act defining robo-calls broadly, which may affect our ability to contact customers and may increase our litigation exposure.

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The federal Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 restricts our ability to send commercial electronic mail messages, the primary purpose of which is advertising or promoting a commercial product or service, to our customers and prospective customers. The act requires that a commercial electronic mail message provide the customers with an opportunity to opt-out from receiving future commercial electronic mail messages from the sender.

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At the state level, California enacted the California Consumer Privacy Act, or CCPA, which went into effect on January 1, 2020. The CCPA provides individual privacy rights for California consumers and places increased privacy and security obligations on entities handling certain personal data of consumers and households. The CCPA requires disclosures to consumers about companies’ data collection, use and sharing practices; provides consumers ways to opt-out of certain sales or transfers of personal information; and provides consumers with additional causes of action. The CCPA prohibits companies from discriminating against consumers who have opted out of the sale of their personal information, subject to a narrow exception. The CCPA provides for certain monetary penalties and for enforcement of the statute by the California Attorney General or by consumers whose rights under the law are not observed. It also provides for damages, as well as injunctive or declaratory relief, if there has been unauthorized access, theft or disclosure of personal information due to failure to implement reasonable security procedures. The CCPA contains several exemptions, including a provision to the effect that the CCPA does not apply where the information is collected, processed, sold or disclosed pursuant to the GLBA if the GLBA is in conflict with the CCPA.

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In November 2020, California voters passed Proposition 24, known as the California Privacy Rights Act or CPRA. CPRA, which will amend existing CCPA requirements effective January 2023 with a one-year lookback period, includes limitations on the sharing of personal information for cross-context behavioral advertising and the use of “sensitive” personal information; the creation of a new correction right; and the establishment of a new agency to enforce California privacy law.

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Additionally, legislative and regulatory measures, such as mandatory breach notification provisions, often impose, among other elements, strict requirements on reporting time frames and providing notice to individuals. For example, at the federal level, the FDIC announced in November 2021 the implementation of a new Rule (12 CFR Part 304) which requires notification of our primary regulator within 36 hours in the event of a “Computer-security incident” that rises to the level of a “notification incident.” All 50 U.S. states and the District of Columbia also have enacted data breach

notification laws. Further, there continues to be an increased interest in privacy, data protection and information security laws and regulations at the federal and state levels where legislators are reviewing or proposing the need for greater regulation of the collection, sharing, use and other processing of consumer information for marketing purposes or otherwise.

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There has also been rapid development of new privacy laws and regulations elsewhere around the globe, including amendments of existing data protection laws, to the scope of such laws and penalties for noncompliance. Failure to comply with these international data protection laws and regulations could have a negative impact on our reputation and subject us to significant penalties.

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Compliance with current or future privacy, data protection and information security laws and regulations (including those regarding data breach notification and consumer privacy) affecting customer, employee or other data to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services (such as products or services that involve us sharing information with third parties or storing sensitive credit card information), which could materially and adversely affect our profitability. Our failure to comply with privacy, data protection and information security laws and regulations could result in potentially significant regulatory investigations and government actions, litigation, fines or sanctions, consumer or partner actions, decreases in the use of our cards and damage to our reputation and our brand, all of which could have a material adverse effect on our business, results of operations and financial condition.

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Human Capital

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As of December 31, 2021, we employed approximately 6,000 associates worldwide, with the majority concentrated in the United States. As a core component of our broader Environmental, Social and Corporate Governance (ESG) and sustainability efforts, our key human capital management objectives are to attract, develop and retain top talent. To support these objectives, we take a holistic approach to our associates’ experiences as employees, recognizing that an engaged workforce drives our long-term growth and sustainability. Our Board of Directors and designated Board committees provide the important oversight of our human capital management strategy, including diversity, equity and inclusion, or DE&I, efforts, which are led by our head of diversity and inclusion and our Chief Diversity Officer, both appointed in 2021. In May 2021, our Board of Directors expanded the compensation committee’s responsibilities and duties to more specifically include oversight of our management of human capital and, in connection with these changes, the committee’s name was formally changed to the “Compensation & Human Capital Committee.” Our Compensation & Human Capital Committee, along with our Board of Directors, receive regular updates from senior management and third-party consultants on human capital trends and developments and other key human capital matters that drive our ongoing success and performance.

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Associate Wellbeing

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With the ongoing impact of the global COVID-19 pandemic, approximately 95% of our total workforce continues to successfully work from home, and with minimal business disruption. We have continued initiatives designed to connect, recognize and engage our workforce in a virtual work environment, including providing the necessary technology, support and lines of communication for our associates to be successful in their roles in this unique environment. Associate wellbeing remained a top priority in 2021, and we continued to provide timely reminders and access to numerous existing and new resources and support, including a particular focus on mental health awareness and counselling support. Other associate wellbeing resources include financial education and wellness courses, a variety of online fitness and meditation classes, a fitness cost reimbursement program and other benefits to promote mental and physical health and overall wellbeing. We surveyed our associates on our return-to-office plans and their work environment preferences, and we anticipate the majority of our workforce will continue to work remotely or on a hybrid basis for the foreseeable future. For those associates who worked in the office during the year, or plan to return, our COVID taskforce has been focused on taking appropriate health and safety measures in our office space. We implemented a COVID testing solution beginning in 2022 to ensure those associates who are not vaccinated have the option to work in the office, while protecting the safety of all associates.

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Additionally during 2021, we further improved the competitiveness of our associate benefit offerings, including implementing new paid time off and flex time off policies to provide additional flexibility for our associates, adding a new paid holiday (bringing the total to nine) and offering new virtual benefit fairs, among other initiatives.

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Associate Engagement

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Despite various challenges associated with the pandemic, we maintained high levels of associate engagement and retention and were successful with talent acquisition, hiring several top industry leaders in key positions that further supported our transformation initiatives and business priorities. For 2021, we recorded a new associate acquisition rate of approximately 21%, calculated as total external hires divided by average associate headcount, with voluntary turnover at approximately 17%, calculated as total voluntary terminations divided by average associate headcount, across both professional and Care Center operations, as compared to 10% and 13%, respectively, in 2020. As discussed below, in 2021 we focused on developing our internal talent to increase lateral movement across the organization, with nearly a third of the 1,200 new jobs posted in 2021 being ultimately filled by internal candidates. We continue to listen to and act on feedback from our associates, including through our annual Associate Survey and other more frequent surveys and communications. Our core associate experience scores improved in 2021 compared to the previous year, reflective of favorable associate feedback received from conducting our annual Associate Survey.

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Workforce Readiness, Development and Advancement

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As part of our broader multi-year business transformation, our “future workforce” steering committee, comprising senior human resources, technology and operations management, continued to develop and execute human capital-intensive strategies to ensure our workforce readiness, development and advancement. During the year we launched our inaugural six-month apprenticeship program, which created a feeder pipeline from roles in our Care Centers to other non-Care Center opportunities across the organization, with 21 associates transitioning to new roles at the conclusion of their apprenticeships. Robust training and development remains central to our human capital strategy, and in 2021 we expanded our training programs to include more content focused on developing effective leadership competencies and behaviors. In addition to career-oriented training and development, we require annual associate training to ensure ongoing adherence to responsible business practices and ethical conduct, and all associates must certify annually that they have read and will adhere to our Code of Ethics. We believe that these efforts resonated with our associates, as we saw a 7% improvement in associates’ perceptions of the professional growth and development initiatives taken by us, reflected in our 2021 annual Associate Survey.

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Given the significant amount of change and transformation in our business, in 2021 we created a “change network” comprising more than 200 associates from across the Company. This network provides a formal forum for developing and activating change management strategies, which enables us to respond, as necessary, in real-time with enhanced communication or other support. We also cascaded change management training throughout all leaders of our organization, including our executive management team.

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Diversity, Equity and Inclusion

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In 2020, we undertook significant steps to improve our commitment to DE&I, starting with a formal process initiated by our President and Chief Executive Officer. Specific actions taken have included executive leadership involvement and accountability; and formation of a DE&I steering committee with clear objectives, including identifying and engaging a third-party, minority-owned DE&I consulting firm to guide our development of a comprehensive, integrated DE&I strategy and measurement framework. Significant progress made over the second half of 2020 included associate surveys, focus groups and numerous associate “listening sessions” to provide important input on our approach to improving our long-term DE&I commitments in 2021. Our entire executive leadership team underwent unconscious bias awareness training, and new tools were introduced in our recruiting and hiring practices to further improve our processes in this area. As of December 31, 2020, approximately 62% of our total work force and 44% of our senior leaders were female, while approximately 43% of our total work force and 16% of our senior leaders were minorities.

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In 2021, we continued the evolution and advancement of our DE&I strategy and objectives, an ongoing business imperative. We continued expanding our DE&I team and leadership, through the hiring of a new head of diversity and inclusion, the creation of the office of Chief Diversity Officer (reporting to our President and Chief Executive Officer), and the creation of a company-wide council on DE&I matters. We more formally identified our DE&I strategy and priorities, re-chartered our existing business resource groups (BRGs) as well as identified new BRGs based on associate feedback and interests. We expanded our foundational training around conscious inclusion for all associates and leaders, and evaluated metrics of success to ensure we hold ourselves accountable to our progress on DE&I matters. As of

December 31, 2021, approximately 60% of our total work force and 43% of our senior leaders were female, while approximately 41% of our total work force and 17% of our senior leaders were minorities.

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Other Information

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Our corporate headquarters are located at 3095 Loyalty Circle, Columbus, Ohio 43219, where our telephone number is 614-729-4000.

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We file or furnish annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public at the SEC’s website at www.sec.gov. You may also obtain copies of our annual, quarterly and current reports, proxy statements and certain other information filed or furnished with the SEC, as well as amendments thereto, free of charge from our website, www.AllianceData.com. No information from this website is incorporated by reference herein. These documents are posted to our website as soon as reasonably practicable after we have filed or furnished these documents with the SEC. We post our Audit Committee, Risk Committee, Compensation & Human Capital Committee and Nominating and Corporate Governance Committee charters, our corporate governance guidelines, and our code of ethics, code of ethics for senior financial officers, and code of ethics for Board members on our website. These documents are available free of charge to any stockholder upon request.

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RISK FACTORS

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This section should be carefully reviewed, in addition to the other information appearing in this Form 10-K, including the sections entitled “Risk Management” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, for important information regarding risks and uncertainties that affect us. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations, and future prospects could be materially and adversely affected.

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Summary

This risk factor summary is qualified in its entirety by reference to the complete description of our risk factors set forth immediately below.

Risks related to our strategic, business and competitive environment include:

Risks related to our liquidity, market and credit risk include:

Risks related to our legal, regulatory and compliance environment include:

Risks related to cybersecurity, technology and third-party vendors include:

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Strategic, Business and Competitive Risks

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Impacts related to the global COVID-19 pandemic are expected to continue to pose risks to our business for the foreseeable future, heighten many of our known risks and may have a material adverse impact on our results of operations, financial condition and liquidity.

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The ongoing effects of the global COVID-19 pandemic remain difficult to predict due to numerous uncertainties, including the transmissibility, severity, duration and resurgence of the virus; the emergence of new variants of the virus; the uptake and effectiveness of health and safety measures or actions that are voluntarily adopted by the public or required by governments or public health authorities; the effectiveness of vaccines and treatments; the speed and strength of an economic recovery, including the reopening of borders and the resumption of international travel; increased logistics costs; an increasingly competitive labor market; and the impact of the global COVID-19 pandemic on our employees, our operations, and the business of our partners and suppliers. Specific impacts on our operations and financial results include, but are not limited to, the following:

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Despite the availability of vaccines and treatments, surges in COVID-19 cases, including variants of the strain, such as the delta and omicron variants, may cause people to self-quarantine or governments to shut down nonessential businesses again. Given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our future results of operations or cash flows at this time. To the extent the global COVID-19 pandemic continues to

adversely affect our business, results of operations, financial condition and liquidity, many of the other risks described in the “Risk Factors” section of this Annual Report may also be heightened.

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Changes and instability in the macroeconomic environment, consumer confidence and customer behavior may adversely affect our business.

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We offer an array of financial products and services to consumers, and a prolonged period of economic volatility, slow growth, or a significant deterioration in economic conditions could have a material adverse effect on our financial condition and results of operations as customers default on their loans, maintain lower deposit levels or, in the case of credit card accounts, carry lower balances and reduce credit card purchase activity.

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Some of the risks we face in connection with adverse changes and instability in the macroeconomic environment, including changes in consumer confidence levels and behavior, include the following:

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Business generated through our relationships with our 10 largest partners represented 59% and 65%, respectively, of our Total net interest and non-interest income, or revenue, for the years ended December 31, 2021 and 2020, and a decrease in business from, or the loss of, any of these partners could cause a significant drop in our revenue.

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We depend on a limited number of large partner relationships for a significant portion of our revenue. The business generated through our 10 largest partners represented approximately 59% and 65%, respectively, of our Total net interest and non-interest income during the years ended December 31, 2021 and 2020. Business generated through our relationship with Victoria’s Secret & Co. and its retail affiliates represented approximately 13% and 14% of our Total net interest and non-interest income during these same respective periods. A decrease in business from, or the loss of, any of our significant partners for any reason, including a decrease in pricing or activity, or a decision either to utilize another service provider or to no longer outsource some or all of the services we provide, 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). For the year ended December 31, 2021, BJ’s branded co-brand accounts generated approximately 8% of our Total net interest and non-interest income. As of December 31, 2021, BJ’s branded co-brand accounts were responsible for approximately 11% of our Total credit card and other loans.

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Our business is heavily concentrated in U.S. consumer credit, and therefore our results are more susceptible to fluctuations in that market than a more diversified company.

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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 (including promotional financing). Our business concentration could have an adverse effect on our results of operations.

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We expect growth to result, in part, from new and acquired credit card and other installment lending or BNPL programs whose credit card and other loans performance could result in increased portfolio losses and negatively impact our profitability.

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We expect an important source of our growth to come from the acquisition of existing credit card programs and initiating credit card and other installment lending or BNPL programs with retailers and other merchants who either do

not currently offer a private label or co-brand credit card or are initiating or transitioning from another installment lending or BNPL platform. Although we believe our pricing and models for determining credit risk are designed to evaluate the credit risk of existing programs and the credit risk we are willing to assume for acquired and start-up programs, we cannot be assured that the loss experience on acquired and start-up programs will be consistent with our more established programs. The failure to successfully underwrite these new or acquired credit card or installment lending 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.”

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Increases in net charge-offs could have a negative impact on our net income and profitability.

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The primary risk associated with unsecured consumer lending is the risk of default or bankruptcy of the borrower, resulting in the borrower’s balance being charged-off as uncollectible. We rely principally on the borrower’s creditworthiness for repayment of the loan and therefore have no other recourse for collection. We may not be able to successfully identify and evaluate the creditworthiness of borrowers to minimize delinquencies and losses. The models and approaches we use to manage our credit risk, including our automated proprietary scoring technology and verification procedures for new accountholders, establishing or adjusting their credit limits and applying our risk-based pricing, may not accurately predict future charge-offs for various reasons discussed elsewhere in these Risk Factors, including 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” below. An increase in defaults or net charge-offs could result in a reduction in Net income. General economic factors, such as the rate of inflation, unemployment levels and interest rates, 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 charge-off rates are affected by the credit risk of our Credit card and other loans and the average age of our various credit card account portfolios. Further, our pricing strategy may not offset the negative impact on profitability caused by increases in delinquencies and losses, thus any material increases in delinquencies and losses beyond our current estimates could have a material adverse impact on us. For 2021, our net charge-off rate was 4.6%, compared to 6.6% and 6.1% for 2020 and 2019, respectively. Delinquency rates were 3.9% of principal Credit card and other loans at December 31, 2021, compared to 4.4% and 5.8% at December 31, 2020 and 2019, respectively.

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Our risk management policies and procedures may not be effective, and the models we rely on may not be accurate or may be misinterpreted.

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Our risk management framework that seeks to identify and mitigate current or future risks and appropriately balance risk and return may not be comprehensive or fully effective. As regulations and competition continue to evolve, our risk management framework may not always keep sufficient pace with those changes. If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected losses and could be materially adversely affected.

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We rely extensively on models in managing many aspects of our business, including liquidity and capital planning (including stress testing), customer selection, credit and other risk management, pricing, reserving and collections management. The models may prove in practice to be less predictive than we expect for a variety of reasons, including as a result of errors in constructing, interpreting or using the models or the use of inaccurate assumptions (including failures to update assumptions appropriately or in a timely manner). 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 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. 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.

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Fraudulent activity associated with our products and services could negatively impact our operating results, brand and reputation and cause the use of our products and services to decrease and our fraud losses to increase.

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We are subject to the risk of fraudulent activity associated with retailers, partners, other merchant parties or third-party service providers handling consumer information. Our fraud-related operational losses were $71 million, $141 million and $195 million for the years ended December 31, 2021, 2020 and 2019, respectively. Our products are susceptible to application fraud, because among other things, we provide immediate access to credit at the time of

approval. In addition, digital sales on the internet and through mobile channels are becoming a larger part of our business and fraudulent activity is higher as a percentage of sales in those channels than in stores. The different financial products that we offer, including deposit products, are susceptible to different types of fraud, and, depending on our product mix and channel mix, we may continue to experience variations in, or levels of, fraud-related expense that are different from or higher than that experienced by some of our competitors or the industry generally. The risk of fraud continues to increase for the financial services industry, and credit card and deposit fraud, identity theft and related crimes are likely to continue to be prevalent, with perpetrators increasingly sophisticated. Our resources, technologies and fraud prevention tools may be insufficient to accurately detect and prevent fraud. High profile fraudulent activity could also negatively impact 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.

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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.

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The Financial Accounting Standards Board’s accounting standard relating to Current Expected Credit Loss, or CECL, became effective for us on January 1, 2020 and requires us to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for credit losses. In addition, for portfolios we may acquire when we enter into new partner program agreements, we are required to establish at acquisition an allowance for expected credit losses for the life of the acquired loan portfolio. Any subsequent deterioration in the performance of the purchased portfolios 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.

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The process for establishing an allowance for credit losses is critical to our results of operations and financial condition, and requires complex models 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 the adoption of CECL and its impact, see Note 4, “Allowance for Credit Losses,” to our Consolidated Financial Statements included as part of this Annual Report.  

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The CECL model may create more volatility in the level of our Allowance for credit losses. If we are required (as a result of any review, update, regulatory guidance or otherwise) to materially increase our level of Allowance for credit losses, such increase could adversely affect our business, financial condition, results of operations and opportunity to pursue new business. Moreover, we may underestimate our expected losses, and we cannot assure you that our credit loss reserves will be sufficient to cover actual losses.

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We may not be successful in realizing the benefits associated with our acquisitions, dispositions and strategic investments, and our business and reputation could be materially adversely affected.

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We have acquired a number of businesses, including Bread, and have made a number of strategic investments, and continue to evaluate potential transactions. There is no assurance that we will be able to successfully identify suitable candidates, value potential investment or acquisition opportunities accurately, negotiate acceptable terms for those opportunities, or complete proposed acquisitions and investments. If we are unable to identify attractive acquisition candidates or accretive new business opportunities, our growth could be limited.

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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. When a determination is made to divest assets or portfolios, we may encounter difficulty attaining buyers or effecting desired exit strategies in a timely manner or on acceptable terms and may be subject to market forces leading to a divestiture on less than optimal price or other terms.

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In addition, there are numerous risks associated with acquisitions, dispositions and the implementation of new business opportunities, including, but not limited to:

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For example, upon the disposition of Epsilon in July 2019, we agreed to indemnify Publicis Groupe S.A. for the matter included in Note 15, “Commitments and Contingencies,” to the Consolidated Financial Statements, which has resulted in a $150.0 million charge associated with Epsilon’s deferred prosecution agreement with the United States Department of Justice requiring two $75.0 million payments in January 2021 and January 2022, respectively.

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Furthermore, if the operations of an acquired or new business do not meet expectations, our profitability may decline and we may seek to restructure the acquired business or to impair the value of some or all of the assets of the acquired or new business.

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The markets for the services that we offer may contract or fail to expand and competition in our industries is intense, each of which could negatively impact our growth and profitability.

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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 that 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. In seeking to acquire and retain business with brand partners, we compete with these competitors on the basis of a number of factors, including program financial and other terms, underwriting standards, marketing expertise, service levels, product and service offerings, technological capabilities and integration, brand and reputation. See “Our results of operations and growth depend on our ability to retain existing partners and attract new partners” below. Our partners may not continue to use the financial products and services, or loyalty programs, that we offer. Moreover, the consumer credit and payments industry is highly competitive and we face an increasingly dynamic industry as emerging technologies enter the marketplace. As a form of payment, our products compete with cash, checks, debit cards, general purpose credit cards (including Visa and MasterCard, American Express and Discover Card), various forms of consumer installment loans and BNPL products, other private label card brands, prepaid cards, digital wallets and mobile payment solutions, and other tools that simplify and personalize shopping experiences for consumers and merchants. Changes in technology may enable merchants and retail companies to directly process transactions in a cost-efficient manner without the use of our services. In addition, some of our competitors, including new and existing competitors in the digital and mobile payments space, are not subject to the same regulatory requirements or legislative scrutiny to which we are subject. Non-bank providers of pay-over-time solutions, such as Affirm, Afterpay and others, extend consumer credit-like offerings but do not face the same restrictions as banks, such as capital requirements and other regulatory requirements, which also could place us at a competitive disadvantage. See “Item 1. Business—Competition” of this Form 10-K for further discussion of the competitive environment in the markets where we operate. Additionally, downturns in the economy or the performance of our retail or other partners, including the impact of the global COVID-19 pandemic, may result in a decrease in the demand for our products and services. Our ability to generate significant revenue from partners and consumers 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.

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Our results of operations and growth depend on our ability to retain existing partners and attract new partners.

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Following the disposition of our Epsilon business and the spinoff of our LoyaltyOne segment, 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, “Business generated through our relationships with our 10 largest partners represented 59% and 65%, respectively, of our total net interest and non-interest income, or revenue, for the years ended December 31, 2021 and 2020, and a decrease in business from, or the loss of, any of these partners could cause a significant drop in our revenue.”

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Program agreements with our retail and other brand partners typically are for multi-year terms. These program agreements generally permit our partner to terminate the agreement prior to its scheduled termination date for various reasons, including, in some cases, if we fail to meet certain service levels or change certain key cardholder terms or our credit criteria, we fail to achieve certain targets with respect to approvals of new customers as a result of the credit criteria we use, we elect not to increase the program size when the outstanding loans under the program reach certain thresholds or we are not adequately capitalized, or certain force majeure events or changes in our ownership occur or a material adverse change in our financial condition occurs.

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There is significant competition for our existing partners, and our failure to retain our existing larger partner relationships upon the expiration of a contractual arrangement 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 with 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.

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Our results depend, to a significant extent, on the active and effective promotion and support of our products by our brand partners.

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Our partners generally accept most major credit cards and various other forms of payment; therefore our success depends on their active and effective promotion of our products to their customers. We depend on our partners to integrate the use of our credit products into their operations, including into their in-store and online shopping experiences and loyalty programs. We rely on our partners to train their sales and call center associates about our products and to have their associates encourage customers to apply for, and use, our products and otherwise effectively marketing our products. If our partners do not effectively promote and support our products, or if they make changes in their business models that negatively impact card usage, these actions could have a material adverse effect on our business and results of operations. Partners may also implement or fail to implement changes in their systems and technologies that may disrupt the integration between their systems and technologies and ours, which could disrupt the use of our products. In addition, if our partners engage in improper business practices, do not adhere to the terms of our program agreements or other contractual arrangements or standards, or otherwise diminish the value of our brand, we may suffer reputational damage and customers may be less likely to use our products, which could have a material adverse effect on our business and results of operations.

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Our results are impacted, to a significant extent, by the financial performance of our partners.

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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. 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 may be adversely affected by the global COVID-19 pandemic or other macroeconomic conditions having a national, regional or

more local effect on consumer spending, business conditions affecting the general retail environment 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 volume and associated interest and fees and other income for us from their 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 it may become subject to a bankruptcy proceeding), its 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 interest and fees on loans. See “Business generated through our relationships with our 10 largest partners represented 59% and 65%, respectively, of our Total net interest and non-interest income, or revenue, for the years ended December 31, 2021 and 2020, 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 for customer returns, customer payments made in partner stores or other amounts due to us from the partner. 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.

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We may not be successful in our efforts to promote usage of our proprietary cards, or to effectively control the costs associated with such promotion, both of which may materially impact our profitability.

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We have been investing in promoting the usage of our proprietary cards, but there can be no assurance that our investments to acquire cardholders, provide differentiated features and services and increase usage of our proprietary cards will be effective, particularly with increasing competition from other card issuers and fintechs as well as changing consumer and business behaviors as a result of the global COVID-19 pandemic. In addition, if we develop new products or offers that attract customers looking for short-term incentives rather than incentivize long-term loyalty, cardholder attrition and costs could increase. Moreover, we may not be able to cost-effectively manage and expand cardholder benefits, including containing the growth of marketing, promotion, rewards and cardholder services expenses in the future.

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Reductions in interchange fees may reduce the competitive advantages our private label credit card products currently have by virtue of not charging interchange fees and would reduce our income from those fees.

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Interchange is a fee merchants pay to the interchange network in exchange for the use of the network’s infrastructure and payment facilitation, and which are paid to credit card issuers to compensate them for the risk they bear in lending money to customers. We earn interchange fees on co-brand and general purpose credit card transactions but we typically do not charge or earn interchange fees from our partners or customers on our private label credit card products.

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Merchants, trying to decrease their operating expenses, have sought to, and have had some success at, lowering interchange rates. Several recent events and actions indicate a continuing increase in focus on interchange by both regulators and merchants. Beyond pursuing litigation, legislation and regulation, merchants are also pursuing alternate payment platforms as a means to lower payment processing costs. To the extent interchange fees are reduced, one of our current competitive advantages with our partners—that we typically do not charge interchange fees when our private label credit card products are used to purchase our partners’ goods and services—may be reduced. Moreover, to the extent interchange fees are reduced, our income from those fees will be lower. As a result, a reduction in interchange fees could have a material adverse effect on our business and results of operations. In addition, for our co-brand and general purpose credit cards, we are subject to the operating regulations and procedures set forth by the interchange network, and our failure to comply with these operating regulations, which may change from time to time, could subject us to various penalties or fees, or the termination of our license to use the interchange network, all of which could have a material adverse effect on our business and results of operations.

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We may not be able to retain and/or attract and hire a highly qualified and diverse workforce, or maintain our corporate culture, which could impact our ability to grow effectively.

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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. Moreover, as a result of

the global COVID-19 pandemic, a significant portion of our workforce is working in a mostly remote environment. This remote environment may continue after the pandemic due to potential resulting trends, and could impact the quality of our corporate culture. 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, we could experience significant impact to our brand and reputation, as well as to our corporate culture.

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Damage to our reputation could damage our business.

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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; litigation or regulatory outcomes; failing to deliver minimum standards of service and quality; compliance failures; 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 corporate 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.

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Liquidity, Market and Credit Risks

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Adverse financial market conditions or our inability to effectively manage our funding and liquidity risk could have a material adverse effect on our business, liquidity and ability to meet our debt service requirements and other obligations.

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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 are collections from our customers, deposits, funds from securitized financings and proceeds from unsecured borrowings, including our credit facility and outstanding notes. 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.

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We will need additional financing in the future to refinance any existing debt and finance growth of our business. 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, consumers’ willingness to place money on deposit with us, our performance and credit ratings and the performance of our securitized portfolios. 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 periods of financial stress and other economic and political conditions in the global markets and concerning the level of U.S. government debt and fiscal measures that may be taken over the longer term to address these matters, 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 conditions.

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While financial market conditions are generally stable at the present time, there can be no assurance that significant disruptions, uncertainties and volatility will not occur in the future. If we are unable to continue to finance our business, access capital markets 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.

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If we are unable to securitize our credit card loans due to changes in the market or other circumstances or events, we may not be able to fund new credit card loans, which would have a material adverse effect on our operations and profitability.

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We use the securitization of credit card loans, which involves the transfer of credit card loans to a trust, and the issuance by the trust of notes to third-party investors collateralized by the beneficial interest in the transferred credit card loans, as a significant source of funding. A number of factors affect our ability to fund our credit card and other loans in the securitization market, some of which are beyond our control, including:

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Moreover, as a result of Basel III, which refers generally to a set of regulatory reforms adopted in the U.S. and internationally that are meant to address issues that arose in the banking sector during the 2008-2010 financial crisis, banks have become subject to more stringent capital, liquidity and leverage requirements. In response to Basel III, certain lenders of private placement commitments within our securitization trusts have sought and obtained amendments to their respective transaction documents permitting them to delay disbursement of funding increases by up to 35 days. Although funding may be requested from other lenders who have not delayed their funding, access to financing could be disrupted if all of the lenders implement such delays or if the lending capacities of those who did not do so were insufficient to make up the shortfall. In addition, excess spread may be affected if the issuing entity’s borrowing costs increase as a result of Basel III. Such cost increases may result, for example, because the investors are entitled to indemnification for increased costs resulting from such regulatory changes.

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The inability to securitize credit card loans due to changes in the market, regulatory proposals, the unavailability of credit enhancements, or any other circumstance or event would have a material adverse effect on our operations, cost of funds and overall financial condition.

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The occurrence of events that result in the early amortization of our existing credit card securitization transactions or an inability to delay the accumulation of principal collections for our existing credit card securitization transactions would materially adversely affect our liquidity.

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Our liquidity and cost of funds would be materially adversely affected by the occurrence of events that could result in the early amortization of our existing credit card securitization transactions. Early amortization events may occur as a result of certain adverse events specified for each asset-backed securitization transaction, including, among others, deteriorating asset performance or material servicing defaults. In addition, certain series of funding securities issued by our securitization trusts are subject to early amortization based on triggers relating to the bankruptcy of one or more retailers or other partners. Deteriorating economic conditions and increased competition in the retail industry, among other factors, may lead to an increase in bankruptcies among retailers who have entered into credit card programs with us. The bankruptcy of one or more retailers or other partners could lead to a decline in the amount of new loans and could lead to increased delinquencies and defaults on the associated loans. Any of these effects of a partner bankruptcy could result in the commencement of an early amortization for one or more series of such funding securities, particularly if such an event were to occur with respect to a retailer or other partner relating to a large percentage of such securitization trust’s assets. The occurrence of an early amortization event may significantly limit our ability to securitize additional loans and materially adversely affect our liquidity.

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Lower payment rates on our securitized credit card loans could materially adversely affect our liquidity and financial condition.

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Certain collections from our securitized credit card loans come back to us through our subsidiaries, and we use these collections to fund our purchase of newly originated loans to collateralize our securitized financings. If payment rates on our securitized credit card loans are lower than they have historically been, fewer collections will be remitted to us on an ongoing basis. Further, certain series of our asset-backed securities include a requirement that we accumulate principal collections in a restricted account for a specified number of months prior to the applicable security’s maturity date. We are required under the program documents to lengthen this accumulation period to the extent we expect the payment rates to be low enough that the current length of the accumulation period is inadequate to fully fund the restricted account by the applicable security’s maturity date. Lower payment rates, and in particular, payment rates that are low enough that we are required to lengthen our accumulation periods, could materially adversely affect our liquidity and financial condition.

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Inability to grow our deposits in the future could have a material adverse effect on our liquidity, ability to grow our business and profitability.

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A significant source of our funds is customer deposits, primarily in the form of certificates of deposit and other savings products. We obtain deposits directly from retail and commercial customers or through brokerage firms that offer our deposit products to their customers. Our funding strategy includes continued growth of our liquidity through deposits. The deposit business continues to experience intense competition in attracting and retaining deposits. We compete on the basis of the rates we pay on deposits, the quality of our customer service and the competitiveness of our digital banking capabilities. Our ability to attract and maintain retail deposits remains highly dependent on the strength of our Banks, the reputability of our business practices and our financial health. Adverse perceptions regarding our lending practices, regulatory compliance, protection of customer information or sales and marketing practices, or actions taken by regulators or others with respect to our Banks, could impede our competitive position in the deposits market.

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The demand for the deposit products we offer may also be reduced due to a variety of factors, including changes in consumers’ preferences, demographics or discretionary income, regulatory actions that decrease consumer access to particular products or the development or availability of competing products. Competition from other financial services firms and others that use deposit funding products may affect deposit renewal rates, costs or availability. Adjustments we make to the rates offered on our deposit products to remain competitive may adversely affect conversely our liquidity or our profitability.

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The FDIA prohibits an insured bank from offering interest rates on any deposits that significantly exceed rates in its prevailing market, unless it is “well capitalized.” A bank that is less than “well capitalized” may not pay an interest rate on any deposit in excess of 75 basis points over certain prevailing market rates. There are no such restrictions under the FDIA on a bank that is “well capitalized” and at December 31, 2021, each of our Banks met or exceeded all applicable requirements to be deemed “well capitalized” for purposes of the FDIA. However, there can be no assurance that our Banks will continue to meet those requirements. Any limitation on the interest rates our Banks can pay on deposits may competitively disadvantage us in attracting and retaining deposits, resulting in a material adverse effect on our business.

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The FDIA also prohibits an insured bank from accepting brokered deposits, unless it is “well capitalized,” or it is “adequately capitalized” and receives a waiver from the FDIC. Limitations on our Banks’ ability to accept brokered deposits for any reason (including regulatory limitations on the amount of brokered deposits in total or as a percentage of total assets) in the future could materially adversely impact our liquidity, funding costs and profitability. In December 2020, the FDIC updated its regulations that implement Section 29 of the FDIA to establish a new framework for analyzing whether certain deposit arrangements qualify as brokered deposits. The new brokered deposit rule establishes bright-line standards for determining whether an entity meets the statutory definition of “deposit broker,” and a consistent process for application of the primary purpose exception. At December 31, 2021, each of our Banks met or exceeded all applicable requirements to be deemed “well capitalized” for purposes of the FDIA. Also, all deposits on the Consolidated Balance Sheets of our Banks categorized as non-brokered under the updated regulations mentioned above comply with all application requirements of said regulations. Any limitation on the ability of our Banks to participate in the gathering of brokered deposits may competitively disadvantage us in meeting our funding goals and result in a material adverse effect on our business.

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At December 31, 2021, we had $11.0 billion in deposits, with approximately $5.6 billion in non-maturity savings deposits and approximately $5.4 billion in certificates of deposit.

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Our level of indebtedness could materially adversely affect our ability to generate sufficient cash to repay our outstanding debt, our ability to react to changes in our business and our incurrence of additional indebtedness to fund future needs could exacerbate these risks.

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Our level of indebtedness requires a high level of interest and principal payments. Subject to the limits contained in our credit agreement, the indentures governing our senior notes and our other debt instruments, we may be able to incur substantial additional indebtedness from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our level of indebtedness could intensify. Our level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. Our level of indebtedness, combined with our other financial obligations and contractual commitments, could:

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Restrictions imposed by the indentures governing our senior notes, our credit agreement and our other outstanding or future indebtedness may limit our ability to operate our business and to finance our future operations or capital needs or to engage in other business activities.

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The terms of the indentures governing our senior notes, our credit agreement and agreements governing our other debt instruments limit us and our subsidiaries from engaging in specified types of transactions. These covenants limit our and our subsidiaries’ ability, among other things, to:

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As a result of these covenants and restrictions, we may be limited in how we conduct our business and we may be unable to raise additional indebtedness to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future. If we fail to comply with such covenants, we may not be able to obtain waivers of non-compliance from the lenders and/or amend the covenants so that we are in compliance therewith.

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Changes in market interest rates could negatively affect our profitability.

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Changes in market interest rates cause our finance charges, net and our interest expense, net to increase or decrease, as certain of our assets and liabilities carry interest rates that fluctuate with market benchmarks. We fund credit card and other loans with a combination of fixed rate and floating rate funding sources that include deposits and asset-backed securities. We also have unsecured term debt that is subject to variable interest rates.

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The interest rate benchmark for most of our floating rate assets is the prime rate, and the interest rate benchmark for our floating rate liabilities is generally either the London interbank offered rate (LIBOR) or the federal funds rate. See “The discontinuance of LIBOR may negatively impact our access to funding and the value of our financial instruments and commercial agreements” below. The prime rate and LIBOR or the federal funds rate could reset at different times or could diverge, leading to mismatches in the interest rates on our floating rate assets and floating rate liabilities. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, the competitive environment within our markets, consumer preferences for specific loan and deposit products, and policies of various governmental and regulatory agencies, in particular, the U.S. Federal Reserve. Changes in monetary policy, including changes in interest rate controls being applied by the U.S. Federal Reserve, which has already indicated plans for multiple interest rate increases in 2022, could influence the amount of interest we receive on our credit card and other loans and the amount of interest we pay on deposits and borrowings.

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If the interest we pay on deposits and other borrowings increases at a faster rate than the interest we receive on our credit card and other loans, our profitability would be adversely affected. Conversely, our profitability could also be adversely affected if the interest we receive on our credit card and other loans falls more quickly than the interest we pay on deposits and other borrowings.

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The discontinuance of LIBOR may negatively impact our access to funding and the value of our financial instruments and commercial agreements.

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Central banks and global regulators have called for financial market participants to prepare for the discontinuance of LIBOR and the establishment of alternative reference rates. Certain of our financial instruments and commercial agreements reference LIBOR, which will need to be amended or otherwise modified to replace LIBOR with an alternative reference rate. Most of those instruments and agreements contain provisions to replace LIBOR as the benchmark following the occurrence of specified transition events. To facilitate an orderly transition away from LIBOR, we have established an enterprise-wide initiative to assess and implement necessary changes to our contracts, systems, processes, documentation, and models. These changes may introduce operational challenges and have a negative impact on our interest expense and profitability

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Alternative reference rates are calculated using components different from those used in the calculation of LIBOR and may fluctuate differently than, and not be representative of, LIBOR. In order to compensate for these differences, certain of our financial instruments and commercial agreements allow for a benchmark replacement adjustment. However, there is no assurance that any benchmark replacement adjustment will be sufficient to produce the economic equivalent of LIBOR, either at the benchmark replacement date or over the life of such instruments and agreements.

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Uncertainty as to the nature and timing of the potential discontinuance or modification of LIBOR, the replacement of LIBOR with one or more alternative reference rates or other reforms may negatively impact market liquidity, our access to funding and the trading market for our financial instruments. Furthermore, the timing of implementation and use of alternative reference rates and corresponding adjustments or other reforms could be subject to disputes, could cause the financial obligations related to our outstanding financial instruments and commercial agreements to be materially different than expected and may impact the value of such instruments and agreements.

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Future sales of our common stock, or the perception that future sales could occur, may adversely affect our common stock price.

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As of February 18, 2022, we had an aggregate of 146,873,346 shares of our common stock authorized but unissued and not reserved for specific purposes. In general, we may issue all of these shares without any action or approval by our stockholders. We have reserved 3,934,553 shares of our common stock for issuance under our employee stock purchase plan and our long-term incentive plans, of which 749,265 shares have been issued and 1,166,516 shares are issuable upon vesting of restricted stock awards and restricted stock units. We have reserved for issuance 1,500,000 shares of our common stock, 290,897 of which remain issuable, under our 401(k) and Retirement Savings Plan as of December 31, 2021. In addition, we may issue shares of our common stock in connection with acquisitions. For example, on December 3, 2020, we issued 1,903,868 shares of our common stock in a private placement completed with our acquisition of Lon Inc. Sales or issuances of a substantial number of shares of common stock, or the perception that such sales could occur, could adversely affect prevailing market prices of our common stock, and any sale or issuance of our common stock will dilute the ownership interests of existing stockholders.

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The market price and trading volume of our common stock may be volatile and our stock price could decline.

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The trading price of shares of our common stock has from time to time fluctuated widely and in the future may be subject to similar fluctuations. The trading price of our common stock may be affected by a number of factors, including our operating results, changes in our earnings estimates, additions or departures of key personnel, our financial condition, legislative and regulatory changes, general conditions in the industries in which we operate, general economic conditions, and general conditions in the securities markets. In addition, until the market has fully evaluated our business without Loyalty Ventures, the price at which our common stock trades may fluctuate significantly. Other risks described in this Annual Report could also materially and adversely affect our share price.

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There is no guarantee that we will pay future dividends or repurchase shares at a level anticipated by stockholders, which could reduce returns to our stockholders. Decisions to declare future dividends on, or repurchase, our common stock will be at the discretion of our Board of Directors based upon a review of relevant considerations.

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Since October 2016, our Board of Directors has declared quarterly cash dividend payments on our outstanding common stock. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to approval by our Board of Directors. In the approximately 20 years since our initial public offering, our Board of Directors has approved various share repurchase programs resulting in the repurchase of approximately 67.4 million shares of our common stock, although there is no active share repurchase program at this time. The Board’s determination to declare dividends on, or repurchase shares of, our common stock will depend upon our profitability and financial condition, contractual restrictions, restrictions imposed by applicable law and other factors that the Board of Directors deems relevant. For example, beginning with the second quarter of 2020, our Board of Directors reduced our quarterly dividend payment by 67% from $0.63 to $0.21 per quarter. Based on an evaluation of these factors, the Board of Directors may determine not to declare future dividends at all, to declare future dividends at a reduced amount, not to repurchase shares or to repurchase shares at reduced levels compared to historical levels, any or all of which could reduce returns to our stockholders.

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We are a holding company and depend on payments from our subsidiaries.

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Alliance Data Systems Corporation, our parent holding company, depends on dividends, distributions and other payments from subsidiaries, particularly our Banks, to fund dividend payments, any potential share repurchases, payment obligations, including debt obligations, and to provide funding and capital as needed to our other operating subsidiaries. Banking laws and regulations and our banking regulators may limit or prohibit our transfer of funds freely, either to or from our subsidiaries, at any time. These laws, regulations and rules may hinder our ability to access funds that we may need to make payments on our obligations or otherwise achieve strategic objectives. For more information, see “Business — Supervision and Regulation.”

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Legal, Regulatory and Compliance Risks

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Our business is subject to comprehensive government regulation and supervision, which could materially adversely affect our results of operations and financial condition.

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We, primarily through our Banks and certain non-bank subsidiaries, are subject to extensive federal and state regulation and supervision. Banking regulations are intended to protect consumers, depositors’ funds, the DIF, and the safety and soundness of the banking system as a whole, not shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes. Changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies (including as a result of leadership changes at the federal banking agencies resulting from the 2020 election), could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer, and/or limit what we may charge for certain banking services, among other things.

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We expect that the current presidential administration will continue to implement a regulatory reform agenda that is significantly different than that of the previous administration. This reform agenda could include a heightened focus on consumer protection, fair lending, heightened scrutiny on Bank Secrecy Act and AML requirements, topics related to social equity, executive compensation, and increased capital and liquidity, as well as limits on share buybacks and dividends. It is uncertain whether and to what extent the current administration will increase the regulatory burden on banks, and changes in existing regulations and their enforcement may require modification to the Banks’ existing regulatory compliance and risk management infrastructure.

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Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and/or reputation damage, which could have a material adverse effect on our business, financial condition, and results of operations. While we have policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.

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See “Business — Supervision and Regulation” for more information about certain laws and regulations to which we are subject and their impact on us.

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Litigation and regulatory actions could subject us to significant fines, penalties, judgments and/or requirements resulting in significantly increased expenses, damage to our reputation and/or a material adverse effect on our business.

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Businesses in the financial services and payments industries have historically been, and continue to be, subject to significant legal actions, including class action lawsuits. Many of these actions have included claims for substantial compensatory or punitive damages. While we have historically relied on our arbitration clause in agreements with customers to limit our exposure to class action litigation, there can be no assurance that we will continue to be successful in enforcing our arbitration clause in the future, including as a result of regulation that would require that our consumer arbitration clause not apply to cases filed in court as class actions, and claims of the type we previously arbitrated could be subject to the complexities, risks and costs associated with class action cases. The continued focus of merchants on issues relating to the acceptance of various forms of payment may lead to additional litigation and other legal actions. Given the inherent uncertainties involved in litigation, and the very large or indeterminate damages sought in some matters asserted against us, there is significant uncertainty as to the ultimate liability we may incur from litigation.

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We have been subject to regulatory actions and may continue to be subject to such actions, including governmental inquiries, investigations and enforcement proceedings, in the event of noncompliance or alleged noncompliance with laws or regulations. External publicity concerning investigations, including those that are narrow in scope, can increase their scope and scale and lead to further regulatory inquiries.

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We expect that regulators will continue taking formal enforcement actions against financial institutions in addition to addressing supervisory concerns through non-public supervisory actions or findings, which could involve restrictions on our activities, among other limitations that could adversely affect our business. In addition, a violation of law or regulation by another financial institution could give rise to an investigation by regulators and other governmental agencies of the same or similar practices by us. Further, a single event may give rise to numerous and overlapping

investigations and proceedings. Regulatory action could subject us to significant fines, penalties or other requirements resulting in cardholder reimbursements, increased expenses, limitations or conditions on our business activities, and damage to our reputation and our brand, all of which could adversely affect our results of operations and financial condition.

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Governmental authorities have adopted or proposed measures to provide economic assistance to individual households and businesses, stabilize markets and support economic growth in response to the COVID-19 pandemic. The future success of these measures is unknown and they may not be sufficient to mitigate the negative impact of the pandemic. Additionally, some measures, such as a suspension of loan payments and encouragement of forbearances, has had, and may continue to have, a negative impact on our business, results of operations and financial condition. We also face an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the pandemic on market and economic conditions, such as a renewed focus on fair lending laws, and actions governmental authorities take in response to those conditions.

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In addition to litigation and regulatory matters, from time to time, through our operational and compliance controls, we identify compliance issues that require us to make operational changes and, depending on the nature of the issue, result in financial remediation to impacted cardholders. These self-identified issues and voluntary remediation payments could be significant depending on the issue and the number of cardholders impacted. They also could generate litigation or regulatory investigations that subject us to additional adverse effects on our business, results of operations and financial condition.

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Our Banks are subject to extensive federal and state regulation that may restrict their ability to make cash available to us and may require us to make capital contributions to them.

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Federal and state laws and regulations extensively regulate the operations of our Banks, including to limit the ability of the Banks to pay dividends to us. Many of these laws and regulations are intended to maintain the safety and soundness of our Banks, and they impose significant restraints on them to which other non-regulated entities are not subject.

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Our Banks must maintain minimum amounts of regulatory capital. If the Banks do not meet these capital requirements, their respective regulators have broad discretion to institute a number of corrective actions that could have a direct material effect on our financial statements. To pay any dividend, the Banks must each maintain adequate capital above regulatory guidelines. Accordingly, neither Comenity Bank nor Comenity Capital Bank may be able to make any of its cash or other assets available to us, including to service our indebtedness. If either of our Banks were to fail to meet any of the capital requirements to which it is subject, we may be required to provide them with additional capital, which could also impair our ability to service our indebtedness.

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In addition, under the “source of strength” requirement, we are required to serve as a source of financial strength to our Banks and may not conduct our operations in an unsafe or unsound manner. Under these requirements, in the future, we could be required to provide financial assistance to our Banks if the Banks experience financial distress. This support may be required at times when we might otherwise determine not to provide it or when doing so is not otherwise in tour interests or the interests of our shareholders or creditors.

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If legislative attempts to amend the Bank Holding Company Act to eliminate the exclusion of credit card banks or industrial loan companies from the definition of “bank” are successful, we may become a bank holding company.

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The Dodd-Frank Act mandates multiple studies, which could result in future legislative or regulatory action. In particular, the Government Accountability Office issued its study on whether it is necessary, in order to strengthen the safety and soundness of institutions or the stability of the financial system of the United States, to eliminate the exemptions to the definition of “bank” under the Bank Holding Company Act for certain institutions including limited purpose credit card banks and industrial loan companies. The study did not recommend the elimination of these exemptions. However, legislation is periodically introduced that would eliminate this exception for industrial loan companies and other “nonbank banks”. If such legislation were enacted without any grandfathering of or accommodations for existing institutions, we could be required to become a bank holding company.

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As a bank holding company, we and our nonbank subsidiaries would be subject to supervision, regulation and examination by the Federal Reserve Board. We would be required to provide annual reports and such additional

information as the Federal Reserve Board may require pursuant to the BHC Act, and applicable regulations. In addition, we would be subject to consolidated regulatory capital requirements.

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Pursuant to provisions of the BHC Act and regulations promulgated by the Federal Reserve Board thereunder, a bank holding company may only engage in, or own companies that engage in, activities deemed by the Federal Reserve Board to be permissible for bank holding companies or financial holding companies. Activities permissible for bank holding companies are those that are so closely related to the business of banking or managing or controlling banks as to be a proper incident thereto. Permissible activities for financial holding companies include those "so closely related to banking as to be a proper incident thereto" as well as certain additional activities deemed "financial in nature or incidental to such financial activity" or complementary to a financial activity and that does not pose a substantial risk to the safety and soundness of the depository institution or the financial system. If we were required to become a bank holding company, we may be required to modify or discontinue certain of our business activities, which may materially adversely affect our results of operations.

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Increases in FDIC insurance premiums may have a material adverse effect on our results of operations.

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We are generally unable to control the amount of premiums that are required to be paid for FDIC insurance. If there are bank or financial institution failures, we may be required to pay significantly higher premiums than the levels currently imposed or additional special assessments or taxes that could adversely affect earnings. Any future increases or required prepayments in FDIC insurance premiums may materially adversely affect our results of operations.

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Noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations could cause us material financial loss.

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The Bank Secrecy Act and the PATRIOT Act contain anti-money laundering and financial transparency provisions intended to detect and prevent the use of the U.S. financial system for money laundering and terrorist financing activities. The Bank Secrecy Act, as amended by the PATRIOT Act, requires depository institutions and their holding companies to undertake activities including maintaining an anti-money laundering program, verifying the identity of partners, monitoring for and reporting suspicious transactions, reporting on cash transactions exceeding specified thresholds, and responding to requests for information by regulatory authorities and law enforcement agencies. FinCEN, a unit of the Treasury Department that administers the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the federal bank regulatory agencies, as well as the U.S. Department of Justice, Drug Enforcement Administration, and IRS.

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Regulation in the areas of privacy, data protection, data governance, account access and information and cyber security could increase our costs and affect or limit our business opportunities and how we collect and/or use personal information.

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Legislators and regulators in the United States and other countries are increasingly adopting or revising privacy, data protection, data governance, account access and information and cyber security laws, including data localization, authentication and notification laws. As such laws are interpreted and applied (in some cases, with significant differences or conflicting requirements across jurisdictions), compliance and technology costs will continue to increase, particularly in the context of ensuring that adequate data governance, data protection, data transfer and account access mechanisms are in place.

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Compliance with current or future privacy, data protection, data governance, account access and information and cyber security laws could significantly impact our collection, use, sharing, retention and safeguarding of consumer and/or colleague information and could restrict our ability to provide certain products and services, which could materially and adversely affect our profitability. Our failure to comply with such laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, ongoing regulatory monitoring, customer attrition, decreases in the use or acceptance of our cards and damage to our reputation and our brand. In recent years, there has been increasing regulatory enforcement and litigation activity in the areas of privacy, data protection and information and cyber security in the United States, the EU and various other countries.

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For more information on regulatory and legislative activity in this area, see “Privacy and Data Protection Regulation” above.

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We may not be able to effectively manage the operational and compliance risks to which we are exposed.

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Operational risk is the risk arising from inadequate or failed internal processes or systems, human errors or misconduct, or adverse external events. Operational losses result from internal fraud; external fraud; inadequate or inappropriate employment practices and workplace safety; failure to meet professional obligations involving partners, products, and business practices; damage to physical assets; business disruption and systems failures; and/or failures in execution, delivery, and process management. As processes or organizations are changed, or new products and services are introduced, we may not fully appreciate or identify new operational risks that may arise from such changes. Through human error, fraud or malfeasance, conduct risk can result in harm to customers, broader markets and the company and its employees.

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Compliance risk arises from the failure to adhere to applicable laws, rules, regulations and internal policies and procedures. We need to continually update and enhance our control environment to address operational and compliance risks. Operational and compliance failures or deficiencies in our control environment can expose us to reputational and legal risks as well as fines, civil money penalties or payment of damages and can lead to diminished business opportunities and diminished ability to expand key operations.

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Our failure to protect our intellectual property rights and use of open source software may harm our competitive position, and litigation to protect our intellectual property rights or defend against third party allegations of infringement may be costly, any of which could negatively impact our business, results of operations and profitability.

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Third parties may infringe or misappropriate our trademarks or other intellectual property rights, which could have a material adverse effect on our business, financial condition or operating results. The actions we take to protect our trademarks and other proprietary rights may not be adequate. Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. Any infringement or misappropriation could harm any competitive advantage we currently derive or may derive from our proprietary rights. Third parties may also assert infringement claims against us. Any claims and an adverse determination in any resulting litigation could subject us to significant liability for damages and require us to either design around a third party’s patent or license alternative technology from another party. In addition, litigation is time consuming and expensive to defend and could result in the diversion of our time and resources. Further, our competitors or other third parties may independently design around or develop similar technology, or otherwise duplicate our services or products in a way that would preclude us from asserting our intellectual property rights against them. In addition, our contractual arrangements may not effectively prevent disclosure of our intellectual property or confidential and proprietary information or provide an adequate remedy in the event of an unauthorized disclosure.

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Aspects of our platform include software covered by open source licenses. United States courts have not interpreted the terms of various open source licenses, but could interpret them in a manner that imposes unanticipated conditions or restrictions on our platform. If portions of our proprietary software are determined to be subject to an open source license, we could also be required to, under certain circumstances, publicly release or license, at no cost, our products that incorporate the open source software or the affected portions of our source code. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software because open source licensors generally do not provide warranties or other contractual protections regarding infringement, misappropriation, security vulnerabilities, defects or errors in the code or other violations, any of which could result in liability to us and negatively impact our business, results of operations, financial condition and profitability.

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We have international operations that subject us to various international risks as well as increased compliance and regulatory risks and costs.

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We have international operations, primarily in India, and some of our third-party service providers provide services to us from other countries, all of which subject us to a number of international risks, including, among other things, sovereign volatility and socio-political instability. Any future political or social instability in the countries in which we operate could have a material adverse effect on our business operations. U.S. regulations also govern various aspects of the international activities of domestic corporations and increase our compliance and regulatory risks and costs. Any failure on our part or the part of our service providers to comply with applicable U.S. regulations, as well as the regulations in the countries and markets in which we or they operate, could result in fines, penalties, injunctions or other

similar restrictions, any of which could have a material adverse effect on our business, results of operations and financial condition.

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Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent or delay change of control transactions or attempts by our stockholders to replace or remove our current management.

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Delaware law, as well as provisions of our certificate of incorporation, including those relating to our Board’s authority to issue series of preferred stock without further stockholder approval, our bylaws and our existing and future debt instruments, could discourage unsolicited proposals to acquire us, even though such proposals may be beneficial to our stockholders.

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In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our Board of Directors or initiate actions that are opposed by our then-current Board of Directors, including a merger, tender offer or proxy contest involving us. Any delay or prevention of a change of control transaction or changes in our Board of Directors could cause the market price of our common stock to decline or delay or prevent our stockholders from receiving a premium over the market price of our common stock that they might otherwise receive.

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Cybersecurity, Technology and Vendor Risks

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We rely on third party vendors to provide products and services and are transitioning additional services to strategic outsourcing partners. Our business operations, reputation and profitability could be adversely impacted if our vendors fail to fulfill their obligations.

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The failure of our suppliers to deliver products and services at contracted service levels or standards or in sufficient quantities and in a timely manner could adversely affect our business. These impacts arise from and include, but are not limited to, closures or restricted operating conditions and supply chain disruptions resulting from the current impacts of the global COVID-19 pandemic. If our significant vendors were unable or unwilling to fulfill or renew our existing contracts on current terms, we might not be able to replace the related product or service at the same cost, in a timely fashion, or at all, any of which could negatively impact our profitability. In addition, if a third party vendor fails to meet contractual requirements, such as compliance with applicable laws and regulations, our business operations could suffer economic or reputational harm that could have a material adverse impact on our business and results of operations.

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Further, we are in the process of transitioning our credit card processing to strategic outsourcing partners with targeted completion in 2022, and we have also recently completed outsourcing certain print and mail and remittance processing functions. Transitioning these services from our legacy platforms to strategic partners with established systems and functionality presents significant risks, including, but not limited to, potential losses or corruption of data, changes in security processes, implementation delays and cost overruns, resistance from current partners and account holders, disruption to operations, loss of customization or functionality, reliability issues with legacy systems prior to cutover and incurrence of outsized consulting costs to complete the transition. In addition, the pursuit of multiple new product integrations and outsourcing transitions simultaneously could increase the complexity and risk, as well as magnify the unintended consequences, including an inability to retain or replace key personnel during the transition as well as the incurrence of unexpected expenses as we adopt new processes for managing these service providers and establish controls and procedures to ensure regulatory compliance. Any transition or implementation delays, errors or difficulties may result in operational challenges, security failures, increased costs or reputational harm, any of which could materially adversely impact our profitability.

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Failure to safeguard our data and consumer privacy could affect our reputation among our partners and their customers, and may expose us to legal claims.

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Although we have extensive physical and cyber security controls and associated procedures, our data has in the past been and in the future may be subject to unauthorized access. In such instances of unauthorized access, we may have data loss that could harm our loan holders. This in turn could lead to reputational risk as concerns with security and

privacy of data may result in consumers not wanting to participate in our product offerings. Information security risks for large financial institutions have increased with the adoption of new technologies, including those used on mobile devices, to conduct financial and other business transactions, and the increased sophistication and activity level of threat actors. The use of our products and services could decline if any compromise of physical or cyber security occurred. In addition, any unauthorized release of customer information or any public perception that we released consumer information without authorization, could subject us to legal claims from our partners or their customers, consumers or regulatory enforcement actions, which may adversely affect our partner relationships. We cannot be certain that our cybersecurity insurance coverage will be adequate for cybersecurity liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that our insurer will not deny coverage as to any future claim.

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Business interruptions, including loss of data center capacity, interruption due to cyber-attacks, loss of network connectivity or inability to utilize proprietary software of third party vendors, could affect our ability to timely meet the needs of our partners and customers and harm our business.

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Our ability, and that of our third-party service providers, to protect our data centers and other facilities and systems against damage, loss or performance degradation from power loss, network failure, cyber-attacks, including ransomware or denial of service attacks, insider threats, hardware and software defects or malfunctions, human error, computer viruses or other malware, public health crises, disruptions in telecommunications services, fraud, fires and other disasters and other events is critical. In order to provide many of our services, we must be able to store, retrieve, process and manage large amounts of data as well as periodically expand and upgrade our technology capabilities. Any damage to our data centers or other facilities and systems, or those of our third-party service providers, any failure of our network links that interrupts our operations or any impairment of our ability to use our software or the proprietary software of third party vendors, including impairments due to cyber-attacks, could adversely affect our ability to meet our partners’ needs and their confidence in utilizing us for future services. In addition, any failure to successfully implement new information systems and technologies, or improvements or upgrades to existing information systems and technologies in a timely manner could have an adverse impact on our business if we are not able to be competitive with other financial services companies, and could also adversely impact our internal controls (including internal controls over financial reporting), results of operations, and financial condition.

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If we are not able to invest successfully in, and compete at the leading edge of, technological developments across all our businesses, our revenue and profitability could be materially adversely affected.

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Our industry is subject to rapid and significant technological changes. In order to compete in our industry, we need to continue to invest in technology across all areas of our business, including in access management, vulnerability management, transaction processing, data management and analytics, machine learning and artificial intelligence, customer interactions and communications, alternative payment and financing mechanisms, authentication technologies and digital identification, tokenization, real-time settlement, and risk management and compliance systems. Incorporating new technologies into our products and services, including developing the appropriate governance and controls consistent with regulatory expectations, requires substantial expenditures and takes considerable time, and ultimately may not be successful. We expect that new technologies in the payments industry will continue to emerge, and these new technologies may be superior to, or render obsolete, our existing technology.

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The process of developing new products and services, enhancing existing products and services and adapting to technological changes and evolving industry standards is complex, costly and uncertain, and any failure by us to anticipate customers’ changing needs and emerging technological trends accurately could significantly impede our ability to compete effectively. Consumer and merchant adoption is a key competitive factor and our competitors may develop products, platforms or technologies that become more widely adopted than ours. In addition, we may underestimate the time and expense we must invest in new products and services before they generate significant revenues, if at all. Our use of artificial intelligence and machine learning is subject to risks related to flaws in our algorithms and datasets that may be insufficient or contain biased information. These deficiencies could undermine the decisions based on impact to data quality, predictions or analysis such technologies produce, subjecting us to competitive harm, legal liability, and brand or reputational harm.

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Our ability to develop, acquire or access competitive technologies or business processes on acceptable terms may also be limited by intellectual property rights that third parties, including those that current and potential competitors, may assert. In addition, our ability to adopt new technologies may be inhibited by the emergence of industry-wide

standards, a changing legislative and regulatory environment, an inability to develop appropriate governance and controls, a lack of internal product and engineering expertise, resistance to change from partners or consumers, lack of appropriate change management processes or the complexity of our systems.

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Risks Related to the LoyaltyOne Spinoff

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We may be unable to achieve some or all of the benefits we expect to achieve from the spinoff.

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In November 2021, we completed the spinoff of our LoyaltyOne segment, consisting of its Canadian AIR MILES® Reward Program and Netherlands-based BrandLoyalty businesses, into an independent, publicly traded company, Loyalty Ventures Inc. Although we believe that the spinoff will enhance our long-term value, we may not be able to achieve some or all of the anticipated benefits from the separation of our businesses, and the spinoff may adversely affect our business. Separating the businesses resulted in two independent, publicly traded companies, each of which is now a smaller, less diversified and more narrowly focused business than before the spinoff, which makes us more vulnerable to changing market and economic conditions. Additionally, a potential loss of synergies from separating the businesses could negatively impact the balance sheet, profit margins or earnings of both businesses and the combined value of the common stock of the two publicly traded companies may not be equal to or greater than the value of Alliance Data’s common stock had the spinoff not occurred. We currently hold 19% of the outstanding shares of common stock of Loyalty Ventures Inc., and the value of these shares is dependent upon the current and future performance of Loyalty Ventures Inc. We cannot guarantee that Loyalty Ventures Inc. will be successful as a standalone company, and Loyalty Ventures Inc.’s performance remains subject to various risks and uncertainties, including those related to the ongoing COVID-19 pandemic and the other risks described in Loyalty Ventures Inc.’s filings with the SEC, including its registration statement on Form 10 filed with the SEC in connection with the spinoff. Most recently, for example, Loyalty Ventures Inc. noted in its quarterly earnings release for the quarter ended December 31, 2021 that, based on its preliminary results, it was recognizing a non-cash, goodwill impairment charge of $50 million in connection with the ongoing impact of COVID-19. Any such current or future impairment charges or other results or circumstances that adversely impact Loyalty Ventures Inc. will in turn adversely impact the value of our ownership position in Loyalty Ventures Inc. While we intend to divest this position in a tax-efficient manner (i.e., in a debt-for-equity exchange within one year of the completion of the spinoff), there is no assurance that we will be able to do so in a tax-efficient manner or at a price that is attractive to us. If we fail to achieve some or all of the benefits that we expect to achieve as a result of the spinoff, or do not achieve them in the time we expect, our results of operations and financial condition could be materially adversely affected.

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The LoyaltyOne spinoff could result in substantial tax liability to us and our stockholders.

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We received an opinion from our tax advisor confirming that the spinoff of our LoyaltyOne segment qualifies as tax-free for U.S. federal income tax purposes for us and our stockholders (except for cash received in lieu of fractional shares), and we also received a private letter ruling, or PLR, from the Internal Revenue Service to this effect.  However, if the factual assumptions or representations made by us in connection with the delivery of the opinion or the PLR are inaccurate or incomplete in any material respect, including those relating to the past and future conduct of our business, we may not be able to rely on the same. Furthermore, the opinion from our tax advisor is not binding on the IRS or the courts. If, notwithstanding receipt of the opinion from our tax advisor and the PLR, the spinoff transaction and certain related transactions are determined to be taxable, we would be subject to a substantial tax liability. In addition, if the spinoff transaction is taxable, each holder of our common stock who received shares of Loyalty Ventures Inc. in connection with the spinoff would generally be treated as receiving a taxable distribution of property in an amount equal to the fair market value of the shares received.

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Even if the spinoff otherwise qualifies as a tax-free transaction, the distribution would be taxable to us (but not to our stockholders) in certain circumstances if future significant acquisitions of our stock or the stock of Loyalty Ventures Inc. are deemed to be part of a plan or series of related transactions that included the spinoff. In this event, the resulting tax liability could be substantial. In connection with the spinoff, we entered into a tax matters agreement with Loyalty Ventures Inc., pursuant to which Loyalty Ventures Inc. agreed to not enter into any transaction that could cause any portion of the spinoff to be taxable to us without our consent and to indemnify us for any tax liability resulting from any such transaction. In addition, these potential tax liabilities may discourage, delay or prevent a change of control of us.

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A director who serves on our Board of Directors also serves as a director of Loyalty Ventures Inc., and ownership of shares of common stock of Loyalty Ventures Inc. by our directors and executive officers may create, or appear to create, conflicts of interest.

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A director who serves on our Board of Directors also currently serves on the Board of Directors of Loyalty Ventures Inc. This may create, or appear to create, conflicts of interest when our or Loyalty Ventures Inc.’s management and directors face decisions that could have different implications for us and Loyalty Ventures Inc., including the resolution of any dispute regarding the terms of the agreements governing the spinoff and our relationship with Loyalty Ventures Inc. or any other commercial agreements entered into in the future between us and Loyalty Ventures Inc.

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Some of our executive officers and non-employee directors currently own shares of the common stock of Loyalty Ventures Inc. The continued ownership of such common stock by our directors and executive officers may create, or may appear to create, a conflict of interest when these directors and executive officers are faced with decisions that could have different implications for us and Loyalty Ventures Inc.

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RISK MANAGEMENT

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Our Enterprise Risk Management (ERM) program is designed to ensure that all significant risks are identified, measured, monitored and addressed. Our ERM program defines our risk appetite, governance, culture and reporting. We manage enterprise risk using our Board-approved Enterprise Risk Management Framework, which includes board-level oversight, several risk management committees, and a dedicated risk management team led by our Chief Risk Officer (CRO). Our Board and management manage the level of risk the organization is willing to accept in pursuit of its objectives through well-defined risk appetite statements. We utilize the "three lines of defense" risk management model to assign roles, responsibilities and accountabilities in the organization for taking and managing risk.

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Governance and Accountability

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Board and Board Committees

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Our Board of Directors, as a whole and through its committees, maintains responsibilities for the oversight of risk management, including monitoring the “tone at the top,” and our risk culture and overseeing emerging and strategic risks. While our Board’s Risk Committee has primary responsibility for oversight of enterprise risk management, the Audit, Compensation & Human Capital and Nominating & Corporate Governance Committees also oversee risks within their respective areas of responsibilities. Each of these Board committees consists entirely of independent directors and provides regular reports to the full Board regarding matters reviewed at their Committee meetings.

Risk Management Roles and Responsibilities

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In addition to our Board and Board Committees, responsibility for risk management also flows to other individuals and entities throughout the Company, including various management committees and senior management. As defined in our ERM Framework, we utilize the “three lines of defense” risk management model.

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The “first line of defense” is comprised of the business areas that engage in activities that generate revenue or provide operational support or services that introduce risk to the Company. As the business owner, the first line of defense is responsible for, among other things, identifying, owning, managing and controlling key risks associated with their activities, addressing issues and remediation, and implementing processes and procedures to strengthen the risk and control environment. The first line of defense identifies and manages key performance indicators and risks and controls consistent with the Company’s risk appetite statements. The senior executive officers who serve as leaders in the "first line of defense," are responsible for ensuring that their respective functions operate within established risk limits, in accordance with our risk appetite statements. These leaders are also responsible for identifying risks, considering risk when developing strategic plans, budgets and new products and implementing appropriate risk controls when pursuing business strategies and objectives. In addition, these leaders are responsible for deploying sufficient financial resources and qualified personnel to manage the risks inherent in our business activities.

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The “second line of defense” consists of an independent risk management team charged with oversight and monitoring of risk within the business. The second line of defense is responsible for, among other things, implementing our ERM Framework and related policies and procedures, challenging the first line of defense and identifying, monitoring and reporting on aggregate risks of the business and support functions.

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Our risk management team, including compliance, which is led by our CRO, provides oversight of our risk profile and is responsible for maintaining a compliance program that includes compliance risk assessment, policy development, testing and reporting activities.

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The CRO manages our risk management team and is responsible for establishing and implementing standards for the identification, management, measurement, monitoring and reporting of risk on an enterprise-wide basis. The CRO has responsibility for developing an appropriate risk appetite with corresponding limits that aligns with supervisory expectations, and presenting our risk appetite statements to the Board of Directors. The CRO regularly reports to the Risk Committee as well as the Bank Risk and Compliance Committees on risk management matters.

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The “third line of defense” is comprised of the Global Audit organization. The third line of defense provides an independent review and objective assessment of the design and operating effectiveness of the first and second lines of defense governance, policies, procedures, processes and internal controls and reports its findings to senior management

and the Board through the Audit Committee. Global Audit is responsible for performing periodic, independent reviews and testing compliance with the Company’s and the Banks’ risk management policies and standards, as well as with regulatory guidance and industry best practices. Global Audit also assesses the design of the Company's and the Banks’ policies and standards and validates the effectiveness of risk management controls, and reports the results of such reviews to the Audit Committee.

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Management Committees

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The Company operates several internal management committees, including a Bank Risk Management Committee (BRMC) at each of our Banks. The BRMCs are the highest-level management committees to oversee risks and are responsible for risk governance, risk oversight and making recommendations on the Banks’ and its affiliates’ risk appetite. The BRMCs monitor compliance with limits and related escalation requirements and oversee implementation of risk policies.

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In addition to the BRMCs, we maintain the following management risk committees at each of our Banks to oversee the risks listed below: the Credit Risk Management Committee; Compliance Risk Management Committee; Operational Risk Management Committee; Model Risk Management Committee; and the Asset & Liability Management Committee. Each of these committees is responsible for one or more of the Banks’ eight risk categories. For its risk category(ies) of responsibility, each committee provides risk governance, risk oversight and monitoring. Each committee reviews key risk exposures, trends and significant compliance matters, and provides guidance on steps to monitor, control and escalate significant risks. We include the risk information provided by the BRMCs and these management committees, along with additional risk information that is identified at the ADSC parent company level in our determination and assessment of the risks that are presented to and discussed with our Board and the relevant Board Committees.

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Risk Categories

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We have divided risk into the following eight categories: credit, market, liquidity, operational, compliance, model, strategic and reputational risk. We evaluate the potential impact of a risk event on us (including our subsidiaries) by assessing the partner and customer, financial, reputational, and legal and regulatory impacts.

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Credit Risk

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Credit Risk is the risk arising from an obligor’s failure to meet the terms of any contract or otherwise perform as agreed. Credit Risk is found in all activities in which settlement or repayment depends on counterparty, issuer, or borrower performance.

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We are exposed to credit risk relating to the credit card, installment or other loans we make to our partners’ or Bank customers. Our credit risk relates to the risk that consumers using the private label, co-brand, general purpose or business credit cards or installment or other loans that we issue will not repay their revolving credit card, installment or other loan balances. To minimize our risk of credit card, installment or other loan charge-offs, we have developed automated proprietary scoring technology and verification procedures to make risk-based origination decisions when approving new accountholders, establishing or adjusting their credit limits and applying our risk-based pricing. The credit risk on our credit card, installment or other loans is quantified through our Allowance for credit losses which is recorded net with Credit card and other loans on our Consolidated Balance Sheets.

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Market Risk

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Market Risk includes interest rate risk which is the risk arising from movements in interest rates. Interest rate risk results from differences between the timing of rate changes and the timing of cash flows (repricing risk); from changing rate relationships among different yield curves affecting an organization’s activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest-related options embedded in certain products (options risk). Our principal market risk exposures arise from volatility in interest rates and their impact on economic value, capitalization levels and earnings. We use various market risk measurement techniques and analyses to measure, assess and manage the impact of changes in interest rates on our Net interest income. The approach we use to quantify interest rate risk is a sensitivity analysis, which we believe best reflects the risk inherent in our business. This approach calculates the impact on Net interest income from an instantaneous and sustained 100 basis point increase or decrease in interest rates. Due to the mix of fixed and floating rate assets and liabilities on our Consolidated Balance

Sheet as of December 31, 2021, this hypothetical instantaneous 100 basis point increase in interest rates would have an insignificant impact on our annual Net interest income. Actual changes in our Net interest income will depend on many factors, and therefore may differ from our estimated risk to changes in interest rates. Market risk is managed by the Asset & Liability Management Committee.

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Liquidity Risk

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Liquidity Risk is the risk arising from an inability to meet obligations when they come due. Liquidity Risk includes the inability to access funding sources or manage fluctuations in funding levels. Liquidity Risk also results from an organization’s failure to recognize or address changes in market conditions. The primary liquidity objective is to maintain a liquidity profile that will enable us, even in times of stress or market disruption, to fund our existing assets and meet liabilities in a timely manner and at an acceptable cost. Policy and risk appetite limits require the Company and the Banks to ensure that sufficient liquid assets are available to survive liquidity stresses over a specified time period. The Asset & Liability Management Committee reviews liquidity exposures in the context of approved policy and risk appetite limits and reports results quarterly.

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Operational Risk

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Operational Risk is the risk arising from inadequate or failed internal processes or systems, human errors or misconduct, or adverse external events. Operational losses result from internal fraud; external fraud; inadequate or inappropriate employment practices and workplace safety; failure to meet professional obligations involving partners, products, and business practices; damage to physical assets; business disruption and systems failures; and/or failures in execution, delivery, and process management.

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Operational risk is inherent in all business activities and can impact an organization through direct or indirect financial loss, brand damage, customer dissatisfaction, or legal and regulatory penalties. The Company has implemented a comprehensive operational risk framework that is defined in the Operational Risk Management Policy. The Operational Risk Management Committee, chaired by our Chief Operational Risk Officer, coordinates with all control groups on effective risk assessments and controls.

As part of our Operational Risk program, we maintain an information and cyber security program, which is led by our Chief Information Security Officer and is designed to protect the confidentiality, integrity, and availability of information and information systems from unauthorized access, use, disclosure, disruption, modification, or destruction. The program is built upon a foundation of advanced security technology, a well-staffed and highly trained team of experts, and robust operations based on the National Institute of Standards and Technology Cybersecurity Framework. This consists of controls designed to identify, protect, detect, respond and recover from information and cyber security incidents. We continue to invest in enhancements to cyber security capabilities and engage in industry and government forums to promote advancements to the broader financial services cyber security ecosystem.

Compliance Risk

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Compliance Risk is the risk arising from violations of laws or regulations, or from nonconformance with prescribed practices, internal policies and procedures, or ethical standards. This risk exposes organizations to fines, payment of damages, and the voiding of contracts. Our Compliance organization is responsible for establishing and maintaining our Compliance Risk Management Program. Pursuant to this program, we seek to manage and mitigate compliance risk by assessing, controlling, monitoring, measuring and reporting the legal and regulatory risks to which we are exposed. The Compliance Risk Management Committee, chaired by the Chief Compliance Officer, is responsible for identifying, evaluating, managing, and escalating compliance risks.

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Model Risk

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Model Risk is the risk arising from decisions based on incorrect or misused model outputs and reports. Model risk occurs primarily for three reasons: (1) a model may have fundamental errors and produce inaccurate outputs when viewed against its design objective and intended business uses; (2) a model may be used incorrectly or inappropriately or there may be a misunderstanding about its limitations and assumptions; or (3) the model produces results that are not compliant with fair lending or other regulations.

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Item 4.Mine Safety Disclosures.

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Not applicable.

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The following discussion and analysis of our financial condition and results of operations 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 Statements.” Unless otherwise specified, references to Notes to our Consolidated Financial Statements are to the Notes to our audited Consolidated Financial Statements as of December 31, 2021 and 2020 and for years ended December 31, 2021, 2020 and 2019.

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OVERVIEW

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We are a leading provider of tech-forward payment and lending solutions, serving customers and consumer-based industries in North America. Through omnichannel touch points and a comprehensive product suite that includes credit products and Bread digital payment solutions, we help our partners drive loyalty and growth, while giving customers greater payment choices. We also offer credit and savings products directly to consumers through our proprietary products, including our Comenity-branded financial services. On November 5, 2021, our LoyaltyOne segment was spun off and therefore is reflected herein as Discontinued Operations.

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YEAR IN REVIEW

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Spinoff of our LoyaltyOne Segment

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On November 5, 2021 (the Distribution Date), the separation of Loyalty Ventures Inc. (Loyalty Ventures) from ADS was completed (the Closing) after market close (the Separation). The Separation of Loyalty Ventures, which comprised our former LoyaltyOne segment and has been classified as Discontinued Operations, was achieved through ADS’ distribution (the Distribution) of 81% of the shares of Loyalty Ventures common stock to holders of ADS common stock as of the close of business on the record date of October 27, 2021. ADS stockholders of record received one share of Loyalty Ventures common stock for every two and one-half shares of ADS common stock. Following the Distribution, Loyalty Ventures became an independent, publicly-traded company, in which we have retained a 19% ownership interest. As part of the plan regarding the Separation, we received distributions from Loyalty Ventures prior to the effectiveness of the Separation in the aggregate amount of $750 million, of which $725 million was used by us to repay certain term loans as required under our credit agreement and $25 million was used by us to make scheduled amortization payments for the fourth quarter of 2021 with respect to such term loans.

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Financial Statement Presentation

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As a result of the Separation and consequential classification of LoyaltyOne as Discontinued Operations, we have adjusted the presentation of our Consolidated Financial Statements from our historical approach under SEC Regulation S-X Article 5, which is broadly applicable to all “commercial and industrial companies,” to Article 9, which is applicable to “bank holding companies.” While neither we nor our any of our subsidiaries are considered a “bank” within the meaning of the Bank Holding Company Act, the changes from our historical presentation to the bank holding company presentation are intended to reflect our operations going forward and better align us with our peers for comparability purposes, which we believe will improve investor understanding of our Company. Prior to the Separation and associated reporting changes applied herein, we had two reportable operating segments (Card Services and LoyaltyOne); we now operate as a single segment that includes all of our continuing operations.

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Business Environment

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This Business Environment section provides high-level commentary regarding our results of operations and financial position for 2021, as well as our related outlook for 2022 and the uncertainties associated with achieving that outlook. This section should be read in conjunction with the other information appearing in this Form 10-K, including “Consolidated Results of Operations” below, which provides further commentary around variances in our results of operations over the years of comparison.

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The ongoing effects of the global COVID-19 pandemic remain difficult to predict due to numerous uncertainties, including the transmissibility, severity, duration and resurgence of the virus; the emergence of new variants of the virus; the uptake and effectiveness of health and safety measures or actions that are voluntarily adopted by the public or required by governments or public health authorities; the effectiveness of vaccines and treatments; the speed and strength of an economic recovery, including the reopening of borders and the resumption of international travel; increased logistics costs; an increasingly competitive labor market; and the impact of the global COVID-19 pandemic on our employees, our operations, and the business of our partners and suppliers. As the global COVID-19 pandemic has continued to evolve, our priority has been and continues to be, the health and safety of our employees, with the vast majority of our employees continuing to work from home. As a result of the pandemic and its impacts on the operations of our brand partners, and consumer behavior and spending patterns, our financial performance as described in “Consolidated Results of Operations” below varies significantly over the periods of comparison. As the global COVID-19 pandemic continues to evolve and new variants emerge, our results of operations, financial condition and liquidity could be impacted. We will continue to evaluate the nature and extent of the impact on our business.

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However, our performance in 2021 reflected the strength and resilience of our business model, as we had stronger than expected credit card loan growth, disciplined expense management, and positive credit performance. In addition, the Separation allowed us to strengthen our balance sheet by improving our Bank capital ratios and reducing our leverage ratio, sequentially.

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For the year ended December 31, 2021, Credit sales were up year-over-year as consumers resumed in-store shopping as impacts from COVID-19 moderated while consumer financial health remained strong. Net interest income was flat for the periods of comparison, while Interchange revenue, net of retailer share arrangements increased in correlation with Credit sales, and Other non-interest income decreased due to a decline in ancillary revenues and portfolio sale gains. We expect a continued return to more normalized economic activity and consumer behavior in our outlook for 2022, which we also expect will positively affect Credit sales and our revenues; however, we remain vigilant in monitoring COVID-19 conditions and the impact on consumers and our brand partners. Our outlook assumes Total net interest and non-interest income growth for 2022 will be closely aligned with growth in average Total credit card and other loans, with net interest margin expected to remain relatively steady on a full year basis as compared to 2021. We have also included four Federal Reserve Bank interest rate increases in our 2022 outlook; our expectation is the rate increases will result in a nominal benefit to Total net interest income for the year.

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Provision for credit losses decreased year-over-year due to lower net charge-offs and a lower overall reserve rate reflective of improving macroeconomic variables and shifting product mix. Credit metrics remained strong in 2021 with a delinquency rate of 3.9% and a net loss rate of 4.6% for the year. These low rates continue to be the result of our disciplined risk management, as well as elevated consumer payment rates. Our outlook assumes a moderation in the consumer payment rate throughout 2022, and we expect a net loss rate in the low-to-mid 5% range for 2022 as credit metrics begin to normalize from historically low rates due in part to federal stimulus and assistance programs largely expiring.

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Related to our Provision for credit losses, full year 2021 average Total credit card and other loans of $15.7 billion were down 4% year-over-year, with the end-of-period balance being up 4%. Our Allowance for credit losses decreased year-over-year, with a reserve rate of 10.5% in 2021, relative to 12.0% in 2020; and our outlook for 2022 assumes the reserve rate will stay in the range of 10.5% until greater economic certainty emerges. Our outlook for growth in average Total credit card and other loans in 2022, based on our new business expectations, visibility into our pipeline, and the current economic outlook, is in the high-single- to low-double-digit range relative to 2021. This outlook contemplates both the non-renewal of certain brand partners, including the previously announced non-renewal of our contract with BJ’s Wholesale Club (BJ’s), as well as the addition of certain new brand partners, with the forecasted high-single- to low-double-digit ends of the range reflecting payment rate variability as a key determinant. Specifically related to BJ’s, for the year ended December 31, 2021, BJ’s branded co-brand accounts generated approximately 8% of Total net interest and non-interest income. As of December 31, 2021, BJ’s branded co-brand accounts were responsible for approximately 11% of Total credit card and other loans. BJ’s filed a lawsuit against us in January 2022 in connection with the non-renewal of its contract and related transition to another service provider. We have subsequently settled the lawsuit on satisfactory terms with neither party admitting fault.

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With regard to our expenses, Total non-interest expenses for 2021 were down moderately year-over-year. In 2022, as a result of continued investment, including the planned incremental strategic investment of more than $125 million in digital and product innovation, marketing, and technology enhancements during the year, along with strong growth in

Total credit card and other loans, our outlook anticipates Total non-interest expenses will increase in 2022, while also reflecting modest positive operating leverage for the full year.

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Overall, we remain optimistic that the strength of our business model will continue, and we are committed to ensuring our strategic investments deliver long-term stockholder value.

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See “Risk Factors” and “Cautionary Note Regarding Forward Looking Statements” for information on additional risks and uncertainties impacting our business, including potential impacts of the global COVID-19 pandemic and other strategic, business and competitive conditions that could affect our business, and see “Business–Supervision and Regulation” for information on legislative and regulatory matters that could have a material adverse effect on our results of operations and financial condition.

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NON-GAAP FINANCIAL MEASURES

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We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP). However, certain information included within this Form 10-K 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, Pre-tax pre-provision earnings is calculated by increasing Income from continuing operations before income taxes by Provision for credit losses. We believe the use of this non-GAAP financial measure provides additional clarity in understanding our results of operations and trends. For a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure, please see the financial tables and information that follows.

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CONSOLIDATED RESULTS OF OPERATIONS

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The following provides commentary on the variances in our financial performance when comparing the results of operations for the year ended December 31, 2021, with those of the year ended December 31, 2020, as well as the variances between the years ended December 31, 2020 and December 31, 2019, as presented in the accompanying Tables. This variance commentary should be read in conjunction with the discussion in “Business Environment” above, which highlights the impacts of the global COVID-19 pandemic on us and our results of operations.

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Effective January 1, 2020, we adopted the new credit reserving methodology referred to as Current Expected Credit Loss (CECL). Under the CECL methodology, the Company utilizes a financial instrument impairment model to establish an allowance based on expected losses over the estimated life of the exposure, not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. This approach differs from the Company’s historic model prior to January 1, 2020, which was based on an incurred loss approach. As a result of the adoption, there is a lack of comparability in both our Allowance for credit losses and the Provision for credit losses for the periods presented. Results for the years ended December 31, 2021 and 2020, are reported following the CECL methodology, while results for the year ended December 31, 2019, are reported under the previously prescribed incurred loss methodology. Refer to Note 4, “Allowance for Credit Losses,” to the Consolidated Financial Statements for further information.

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