ONEMAIN HOLDINGS, INC. An index to our management's discussion and analysis follows:
Topic Page
Forward-Looking Statements 35
Overview 37
Recent Developments and Outlook 38
Results of Operations 40
Segment Results 43
Credit Quality 45
Liquidity and Capital Resources 49
Off-Balance Sheet Arrangements 53
Critical Accounting Policies and Estimates 53
Recent Accounting Pronouncements 53
Seasonality 53
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Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
not statements of historical fact but instead represent only management's
current beliefs regarding future events. By their nature, forward-looking
statements are subject to risks, uncertainties, assumptions, and other important
factors that may cause actual results, performance or achievements to differ
materially from those expressed in or implied by such forward-looking
statements. We caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date they were made. We do not undertake
any obligation to update or revise these forward-looking statements to reflect
events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events or the non-occurrence of anticipated events,
whether as a result of new information, future developments, or otherwise,
except as required by law. Forward-looking statements include, without
limitation, statements concerning future plans, objectives, goals, projections,
strategies, events, or performance, and underlying assumptions and other
statements related thereto. Statements preceded by, followed by or that
otherwise include the words "anticipates," "appears," "are likely," "believes,"
"estimates," "expects," "foresees," "intends," "plans," "projects," and similar
expressions or future or conditional verbs such as "would," "should," "could,"
"may," or "will" are intended to identify forward-looking statements. Important
factors that could cause actual results, performance, or achievements to differ
materially from those expressed in or implied by forward-looking statements
include, without limitation, the following:
•adverse changes in general economic conditions, including the interest rate
environment and the financial markets;
•risks associated with the global outbreak of a novel strain of coronavirus
("COVID-19") or any additional strains of COVID-19 and the mitigation efforts by
governments and related effects on us, our customers, and employees;
•our estimates of the allowance for finance receivable losses may not be
adequate to absorb actual losses, causing our provision for finance receivable
losses to increase, which would adversely affect our results of operations;
•increased levels of unemployment and personal bankruptcies;
•adverse changes in the rate at which we can collect or potentially sell our
finance receivables portfolio;
•natural or accidental events such as earthquakes, hurricanes, tornadoes, fires,
or floods affecting our customers, collateral, or our branches or other
operating facilities;
•war, acts of terrorism, riots, civil disruption, pandemics, disruptions in the
operation of our information systems, or other events disrupting business or
commerce;
•risks related to the acquisition or sale of assets or businesses or the
formation, termination, or operation of joint ventures or other strategic
alliances, including increased loan delinquencies or net charge-offs,
integration or migration issues, increased costs of servicing, incomplete
records, and retention of customers;
•a failure in or breach of our operational or security systems or infrastructure
or those of third parties, including as a result of cyber-attacks, or other
cyber-related incidents involving the loss, theft or unauthorized disclosure of
personally identifiable information ("PII") of our present or former customers;
•our credit risk scoring models may be inadequate to properly assess the risk of
customer unwillingness or lack of capacity to repay;
•adverse changes in our ability to attract and retain employees or key
executives to support our businesses;
•increased competition, or changes in customer responsiveness to our
distribution channels, an inability to make technological improvements, and the
ability of our competitors to offer a more attractive range of personal loan
products than we offer;
•changes in federal, state, or local laws, regulations, or regulatory policies
and practices that adversely affect our ability to conduct business or the
manner in which we currently are permitted to conduct business, such as
licensing requirements, pricing limitations or restrictions on the method of
offering products, as well as changes that may result from increased regulatory
scrutiny of the sub-prime lending industry, our use of third-party vendors and
real estate loan servicing, or changes in corporate or individual income tax
laws or regulations, including effects of the Tax Act, the Coronavirus Aid,
Relief, and Economic Security Act (the "CARES Act"), the Consolidated
Appropriations Act of 2021 (the "CAA"), and the American Rescue Plan Act of 2021
(the "ARPA");
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•risks associated with our insurance operations, including insurance claims that
exceed our expectations or insurance losses that exceed our reserves;
•our inability to successfully implement our growth strategy for our consumer
lending business or successfully acquire portfolios of finance receivables;
•a change in the proportion of secured loans may affect our finance receivables
and portfolio yield;
•declines in collateral values or increases in actual or projected delinquencies
or net charge-offs;
•potential liability relating to finance receivables which we have sold or
securitized or may sell or securitize in the future if it is determined that
there was a non-curable breach of a representation or warranty made in
connection with such transactions;
•the costs and effects of any actual or alleged violations of any federal,
state, or local laws, rules or regulations, including any associated litigation
and damage to our reputation;
•the costs and effects of any fines, penalties, judgments, decrees, orders,
inquiries, investigations, subpoenas, or enforcement or other proceedings of any
governmental or quasi-governmental agency or authority and any associated
litigation and damage to our reputation;
•our continued ability to access the capital markets and maintain adequate
current sources of funds to satisfy our cash flow requirements;
•our ability to comply with our debt covenants;
•our ability to generate sufficient cash to service all of our indebtedness;
•any material impairment or write-down of the value of our assets;
•the ownership of OMH's common stock continues to be highly concentrated, which
may prevent other minority stockholders from influencing significant corporate
decisions and may result in conflicts of interest;
•the effects of any downgrade of our debt ratings by credit rating agencies,
which could have a negative impact on our cost of and/or access to capital;
•our substantial indebtedness, which could prevent us from meeting our
obligations under our debt instruments and limit our ability to react to changes
in the economy or our industry or our ability to incur additional borrowings;
•our ability to maintain sufficient capital levels in our regulated and
unregulated subsidiaries;
•changes in accounting standards or tax policies and practices and the
application of such new standards, policies and practices; and
•management estimates and assumptions, including estimates and assumptions about
future events, may prove to be incorrect.
We also direct readers to the other risks and uncertainties discussed in other
documents we file with the
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. You should specifically consider the factors identified in this report and in the documents we file with theSEC , including our Annual Report, that could cause actual results to differ before making an investment decision to purchase our securities and should not place undue reliance on any of our forward-looking statements. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. 36
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Table of Contents Overview We are a leading provider of responsible personal loan products, primarily to non-prime customers. Our network of approximately 1,500 branch offices in 44 states is staffed with expert personnel and is complemented by our centralized operations and our digital platform, which provides current and prospective customers the option of applying for a personal loan via our website, www.omf.com. The information on our website is not incorporated by reference into this report. In connection with our personal loan business, our insurance subsidiaries offer our customers optional credit and non-credit insurance, and other products.
In addition to our loan originations, and insurance and other product sales activities, we service loans owned by us and service loans owned by third parties; pursue strategic acquisitions and dispositions of assets and businesses, including loan portfolios or other financial assets; and may establish joint ventures or enter into other strategic alliances.
OUR PRODUCTS
Our product offerings include:
•Personal Loans - We offer personal loans through our branch network, centralized operations, and our website, www.omf.com, to customers who generally need timely access to cash. Our personal loans are non-revolving, with a fixed-rate, fixed terms generally between three and six years, and are secured by automobiles, other titled collateral, or are unsecured. AtMarch 31, 2021 , we had approximately 2.23 million personal loans, of which 52% were secured by titled property, totaling$17.6 billion of net finance receivables, compared to approximately 2.30 million personal loans, of which 53% were secured by titled property, totaling$18.1 billion atDecember 31, 2020 . •Insurance Products - We offer our customers optional credit insurance products (life insurance, disability insurance, and involuntary unemployment insurance) and optional non-credit insurance products through both our branch network and our centralized operations. Credit insurance and non-credit insurance products are provided by our affiliated insurance companies. We offer GAP coverage as a waiver product or insurance. We also offer optional membership plans from an unaffiliated company.
Our non-originating legacy products include:
•Other Receivables - We ceased originating real estate loans in 2012 and we continue to service or sub-service liquidating real estate loans. EffectiveSeptember 30, 2018 , our real estate loans previously classified as other receivables were transferred from held for investment to held for sale due to management's intent to no longer hold these finance receivables for the foreseeable future. EffectiveMarch 31, 2020 , our real estate loans held for sale are reported in "Other assets" of our consolidated balance sheets.
OUR SEGMENT
AtMarch 31, 2021 , C&I is our only reportable segment. The remaining components (which we refer to as "Other") consist of our liquidating SpringCastle Portfolio servicing activity and our non-originating legacy operations, which primarily include our liquidating real estate loans. See Note 13 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information about our segment. 37
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Recent Developments and Outlook
RECENT DEVELOPMENTS
Management's Response to the COVID-19 Pandemic
COVID-19 evolved into a global pandemic, resulting in widespread volatility and deterioration in economic conditions acrossthe United States . Governmental authorities continue to take steps to combat the spread of COVID-19, including the distribution of COVID-19 vaccines, which over time are designed to create "herd immunity" and diminish, if not eliminate, the crisis. At this time, the vaccination program has accelerated in many states to allow all adults to receive the vaccines. In the meantime, we have continued to focus on assisting and supporting our customers and employees, while remaining committed to the safety of our employees. We continue to serve our customers by keeping our branch locations open with appropriate protective protocols in place and through our digital closing solutions. This combination has enhanced our operating performance through the pandemic and enabled us to serve and support our customers effectively during these unprecedented times. We believe the actions we have taken and the underlying strength of our balance sheet positions us to take advantage of growth opportunities as the economy continues to recover.
Redemption of 7.75% Senior Notes due 2021
OnJanuary 8, 2021 , OMFC paid a net aggregate amount of$681 million , inclusive of accrued interest and premiums, to complete the redemption of its 7.75% Senior Notes due 2021. For further information regarding the redemption of our unsecured debt, see Note 6 of the Notes to the Condensed Consolidated Financial Statements included in this report.
Cash Dividends to OMH's Common Stockholders
OnFebruary 8, 2021 , OMH declared a dividend of$3.95 per share payable onFebruary 25, 2021 to record holders of OMH's common stock as of the close of business onFebruary 18, 2021 . For information regarding the quarterly dividends declared by OMH, see "Liquidity and Capital Resources" under Management's Discussion and Analysis of Financial Condition and Results of Operations in this report.
Apollo-Värde Group Share Sale
OnFebruary 11, 2021 , we entered into an underwriting agreement with certain entities managed by affiliates of Apollo-Värde Group, in their capacities as selling stockholders (together, the "Selling Stockholders"), andBarclays Capital Inc. andCitigroup Global Markets Inc. , as representatives of the several underwriters (the "Underwriters"), for the sale by the Selling Stockholders of up to 9,200,000 shares of the OMH's common stock, which included an option for the Underwriters to purchase up to 1,200,000 shares of the common stock. The shares sold by the Selling Stockholders were beneficially owned by the Apollo-Värde Group. OnFebruary 12, 2021 , the Underwriters exercised in full their option to purchase additional shares of common stock, and onFebruary 16, 2021 , the offering and sale of 9,200,000 shares by the Selling Stockholders to the Underwriters was completed. We did not receive any proceeds from the sale of the shares by the Selling Stockholders.
Share Repurchase Program
In the second quarter of 2021, the Company announced plans to commence a$150 million share repurchase program. For information regarding the share repurchase program, see "Liquidity and Capital Resources" under Management's Discussion and Analysis of Financial Condition and Results of Operations in this report. 38 -------------------------------------------------------------------------------- Table of Contents OUTLOOK While we are actively managing the impacts of the COVID-19 pandemic and are prepared to face any additional challenges that may impact our industry, we expect near-term impacts to continue to affect our originations. The ultimate impact on our financial condition and results of operations depends on the speed of the economic recovery, driven by distribution and effectiveness of the COVID-19 vaccines, government stimulus measures, states reopening, and ultimately unemployment rates. There is also uncertainty regarding the effects of additional strains of COVID-19 and the impact of any related government actions, including the recently enacted American Rescue Plan Act of 2021. To the extent economies are suppressed or slow to recover, we could see lower consumer demand, higher delinquency trends, and related losses. We will continue to incorporate updates, as necessary, to our macroeconomic assumptions which could lead to further adjustments in our allowance for finance receivable losses, allowance ratio, and provision for finance receivable losses.
To further expand the ways in which we help our customers improve their
financial well-being, on
Our experienced management team continues to remain focused on our strategic
priorities of maintaining a solid balance sheet, providing a flexible liquidity
runway and capital coverage, upholding a conservative and disciplined
underwriting model, and building strong relationships with our customers. We are
well positioned to continue to support and serve our customers, invest in our
business and drive growth while creating value for our stockholders and
effectively navigating the evolving economic, social, political, and regulatory
environments in which we operate. We further describe our key initiatives and
strategies under "Recent Developments and Outlook" of the Management's
Discussion and Analysis of Financial Condition and Results of Operations in Part
II - Item 7 included in our Annual Report.
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Results of Operations
The results of OMFC are consolidated into the results of OMH. Due to the nominal
differences between OMFC and OMH, content throughout this section relates only
to OMH. See Note 1 of the Notes to the Condensed Consolidated Financial
Statements included in this report for further information.
OMH'S CONSOLIDATED RESULTS
See the table below for OMH's consolidated operating results and selected financial statistics. A further discussion of OMH's operating results for our operating segment is provided under "Segment Results" below.
At or for the
Three Months Ended March 31,
(dollars in millions, except per share amounts) 2021 2020
Interest income $ 1,060 $ 1,106
Interest expense 235 255
Provision for finance receivable losses (2) 531
Net interest income after provision for finance receivable
losses 827 320
Other revenues 91 141
Other expenses 372 418
Income before income taxes 546 43
Income taxes 133 11
Net income $ 413 $ 32
Share Data:
Earnings per share:
Diluted $ 3.06 $ 0.24
Selected Financial Statistics *
Finance receivables held for investment:
Net finance receivables $ 17,564 $ 18,269
Number of accounts 2,229,609 2,400,536
Average net receivables $ 17,824 $ 18,380
Yield 24.08 % 24.17 %
Gross charge-off ratio 5.81 % 7.35 %
Recovery ratio (1.14) % (0.90) %
Net charge-off ratio 4.67 % 6.45 %
30-89 Delinquency ratio 1.57 % 2.25 %
Origination volume $ 2,284 $ 2,589
Number of accounts originated 225,102 276,773
Debt balances:
Long-term debt balance $ 16,789 $ 20,443
Average daily debt balance 17,035 17,675
* See "Glossary" at the beginning of this report for formulas and definitions of our key performance ratios.
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Comparison of Consolidated Results for the Three Months Ended March 31, 2021 and
2020
Interest income decreased $46 million or 4.2% for the three months ended March
31, 2021 when compared to the same period in 2020 primarily due to a decrease in
our average net finance receivables.
Interest expense decreased $20 million or 7.8% for the three months ended March
31, 2021 when compared to the same period in 2020 primarily due to a decrease in
average debt along with a lower average cost of funds. See Notes 6 and 7 of the
Notes to the Condensed Consolidated Financial Statements included in this report
for further information on our long-term debt, securitization transactions, and
our revolving conduit facilities.
Provision for finance receivable losses decreased $533 million for the three
months ended March 31, 2021 when compared to the same period in 2020 primarily
due to the decrease in our charge-offs and the expectation of improved
unemployment and anticipated economic recovery from the COVID-19 pandemic as
compared to a build in our allowance reserve in the same period in 2020
primarily due to the uncertainty of expected credit losses at the onset of the
COVID-19 pandemic.
Other revenues decreased $50 million or 35.5% for the three months ended March
31, 2021 when compared to the same period in 2020 primarily due to a $47 million
net loss on the repayment of debt in the current period and a decrease in
insurance products sold due to reduced loan origination volume, partially offset
by an increase in investment revenue primarily driven by higher mark-to-market
net gains on other securities.
Other expenses decreased $46 million or 11.0% for the three months ended March
31, 2021 when compared to the same period in 2020 primarily due to a $35 million
decrease in insurance policy and benefits claims expense due to lower than
expected involuntary unemployment insurance claims along with a decrease in
general operating expenses, reflecting our efforts to manage costs through the
pandemic, offset by our strategic investments in the business.
Income taxes totaled $133 million for the three months ended March 31, 2021
compared to $11 million for the three months ended March 31, 2020 due to higher
pre-tax income in the first quarter of 2021. For the three months ended March
31, 2021 and 2020, the effective tax rates were 24.4% and 24.3%, respectively.
The effective tax rates differed from the federal statutory rate of 21%
primarily due to the effect of state income taxes. See Note 11 of the Notes to
the Condensed Consolidated Financial Statements included in this report for
further information on effective tax rates.
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NON-GAAP FINANCIAL MEASURES
Management uses adjusted pretax income (loss), a non-GAAP financial measure, as
a key performance measure of our segment. Adjusted pretax income (loss)
represents income (loss) before income taxes on a Segment Accounting Basis and
excludes direct costs associated with COVID-19, acquisition-related transaction
and integration expenses, net loss resulting from repurchases and repayments of
debt, and lower of cost or fair value adjustment on loans held for sale.
Management believes adjusted pretax income (loss) is useful in assessing the
profitability of our segment.
Management also uses pretax capital generation, a non-GAAP financial measure, as
a key performance measure of our segment. This measure represents adjusted
pretax income as discussed above and excludes the change in our allowance for
finance receivable losses in the period while still considering the net
charge-offs incurred during the period. Management believes that pretax capital
generation is useful in assessing the capital created in the period impacting
the overall capital adequacy of the Company. Management believes that the
Company's reserves, combined with its equity, represent the Company's loss
absorption capacity.
Management utilizes both adjusted pretax net income (loss) and pretax capital
generation in evaluating our performance. Additionally, both of these non-GAAP
measures are consistent with the performance goals established in OMH's
executive compensation program. Adjusted pretax income (loss) and pretax capital
generation are non-GAAP financial measures and should be considered supplemental
to, but not as a substitute for or superior to, income (loss) before income
taxes, net income, or other measures of financial performance prepared in
accordance with GAAP.
OMH's reconciliations of income (loss) before income tax expense (benefit) on a
Segment Accounting Basis to adjusted pretax income (loss) (non-GAAP) by segment
and Consumer and Insurance pretax capital generation (non-GAAP) were as follows:
Three Months Ended
March 31,
(dollars in millions) 2021 2020
Consumer and Insurance
Income before income taxes - Segment Accounting Basis $ 567 $ 51
Adjustments:
Direct costs associated with COVID-19 2 3
Acquisition-related transaction and integration expenses - 6
Net loss on repurchases and repayments of debt 38 -
Adjusted pretax income (non-GAAP) $ 607 Provision for finance receivable losses$ (3) $ 530 Net charge-offs (205) (296) Pretax capital generation (non-GAAP)$ 399
Other
Loss before income taxes - Segment Accounting Basis$ (3) $ (1) Adjustments: Lower of cost or fair value adjustment (a) 1 - Adjusted pretax loss (non-GAAP)$ (2)
(a) The carrying value of our remaining real estate loans classified in finance receivables held for sale exceeded their fair value, and accordingly, we have marked the loans to fair value and recorded an impairment in other revenue during the three months endedMarch 31, 2021 . 42
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Segment Results
The results of OMFC are consolidated into the results of OMH. Due to the nominal
differences between OMFC and OMH, content throughout this section relate only to
OMH. See Note 1 of the Notes to the Condensed Consolidated Financial Statements
included in this report for further information.
See Note 13 of the Notes to the Condensed Consolidated Financial Statements included in this report for a description of our segment and methodologies used to allocate revenues and expenses to our C&I segment and Other.
CONSUMER AND INSURANCE
OMH's adjusted pretax income and selected financial statistics for C&I on an adjusted Segment Accounting Basis were as follows:
At or for the
Three Months Ended March 31,
(dollars in millions) 2021 2020
Interest income $ 1,057 $ 1,101
Interest expense 233 249
Provision for finance receivable losses (3) 530
Net interest income after provision for finance receivable
losses 827 322
Other revenues 136 136
Other expenses 356 398
Adjusted pretax income (non-GAAP) $ 607 $ 60
Selected Financial Statistics *
Finance receivables held for investment:
Net finance receivables $ 17,569 $ 18,283
Number of accounts 2,229,609 2,400,536
Average net receivables $ 17,830 $ 18,397
Yield 24.04 % 24.07 %
Gross charge-off ratio 5.81 % 7.36 %
Recovery ratio (1.14) % (0.90) %
Net charge-off ratio 4.67 % 6.46 %
30-89 Delinquency ratio 1.57 % 2.26 %
Origination volume $ 2,284 $ 2,589
Number of accounts originated 225,102 276,773
* See "Glossary" at the beginning of this report for formulas and definitions of our key performance ratios.
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Comparison of Adjusted Pretax Income for the Three Months Ended March 31, 2021
and 2020
Interest income decreased $44 million or 4.0% for the three months ended March
31, 2021 when compared to the same period in 2020 primarily due to a decrease in
our average net finance receivables.
Interest expense decreased $16 million or 6.4% for the three months ended March
31, 2021 when compared to the same period in 2020 primarily due to a decrease in
average debt along with a lower average cost of funds. See Notes 6 and 7 of the
Notes to the Condensed Consolidated Financial Statements included in this report
for further information on our long-term debt, securitization transactions, and
our revolving conduit facilities.
Provision for finance receivable losses decreased $533 million for the three
months ended March 31, 2021 when compared to the same period in 2020 primarily
due to the decrease in our charge-offs and the expectation of improved
unemployment and anticipated economic recovery from the COVID-19 pandemic as
compared to a build in our allowance reserve in the same period in 2020
primarily due to the uncertainty of expected credit losses at the onset of the
COVID-19 pandemic.
Other revenues for the three months ended March 31, 2021 remained consistent
with the same period in 2020 primarily due to a decrease in insurance products
sold due to reduced loan origination volume, offset by an increase in investment
revenue primarily driven by higher mark-to-market net gains on other securities.
Other expenses decreased $42 million or 10.6% for the three months ended March
31, 2021 when compared to the same period in 2020 primarily due to a $35 million
decrease in insurance policy and benefits claims expense due to lower than
expected involuntary unemployment insurance claims along with a decrease in
general operating expenses, reflecting our efforts to manage costs through the
pandemic, offset by our strategic investments in the business.
OTHER
"Other" consists of our liquidating SpringCastle Portfolio servicing activity and our non-originating legacy operations, which primarily include our liquidating real estate loans.
OMH's adjusted pretax loss of the Other components on an adjusted Segment Accounting Basis was as follows:
Three Months Ended
March 31,
(dollars in millions) 2021 2020
Interest income $ 1 $ 2
Interest expense 1 1
Net interest income after provision for finance receivable
losses - 1
Other revenues 4 4
Other expenses 6 6
Adjusted pretax loss (non-GAAP) $
(2)
Net finance receivables of the Other components, reported in "Other assets," on a Segment Accounting Basis were as follows:
March 31,
(dollars in millions) 2021 2020
Net finance receivables held for sale:
Other receivables $ 46 $ 63
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Credit Quality
FINANCE RECEIVABLES
Our net finance receivables, consisting of personal loans, were $17.6 billion at
March 31, 2021 and $18.1 billion at December 31, 2020 . Our personal loans are
non-revolving, with a fixed-rate, fixed terms generally between three and six
years, and are secured by automobiles, other titled collateral, or are
unsecured. We consider the delinquency status of our finance receivables as our
key credit quality indicator. We monitor the delinquency of our finance
receivable portfolio, including the migration between the delinquency buckets
and changes in the delinquency trends to manage our exposure to credit risk in
the portfolio. Our branch team members work with customers as necessary and
offer a variety of borrower assistance programs to help customers continue to
make payments.
DELINQUENCY
We monitor delinquency trends to evaluate the risk of future credit losses and
employ advanced analytical tools to manage our exposure. Team members are
actively engaged in collection activities throughout the early stages of
delinquency. We closely track and report the percentage of receivables that are
contractually 30-89 days past due as a benchmark of portfolio quality,
collections effectiveness, and as a strong indicator of losses in coming
quarters.
When finance receivables are contractually 60 days past due, we consider these
accounts to be at an increased risk for loss and we transfer collection of these
accounts to our centralized operations. Use of our centralized operations teams
for managing late stage delinquency allows us to apply more advanced collection
technologies and tools, and drives operating efficiencies in servicing. At 90
days contractually past due, we consider our finance receivables to be
nonperforming. We stop accruing finance charges and reverse finance charges
previously accrued on nonperforming loans.
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The delinquency information for net finance receivables is as follows:
Consumer Segment to
and GAAP GAAP
(dollars in millions) Insurance Adjustment Basis
March 31, 2021
Current $ 16,973 $ (5) $ 16,968
30-59 days past due 157 - 157
Delinquent (60-89 days past due) 119 - 119
Performing 17,249 (5) 17,244
Nonperforming (90+ days past due) 320 - 320
Total net finance receivables $ 17,569 $ (5) $ 17,564
Delinquency ratio
30-89 days past due 1.57 % * 1.57 %
30+ days past due 3.39 % * 3.39 %
60+ days past due 2.50 % * 2.50 %
90+ days past due 1.82 % * 1.82 %
December 31, 2020
Current $ 17,362 $ (7) $ 17,355
30-59 days past due 251 - 251
Delinquent (60-89 days past due) 162 - 162
Performing 17,775 (7) 17,768
Nonperforming (90+ days past due) 316 - 316
Total net finance receivables $ 18,091 $ (7) $ 18,084
Delinquency ratio
30-89 days past due 2.28 % * 2.28 %
30+ days past due 4.03 % * 4.03 %
60+ days past due 2.64 % * 2.64 %
90+ days past due 1.75 % * 1.75 %
* Not applicable
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We estimate and record an allowance for finance receivable losses to cover the estimated lifetime expected credit losses on our finance receivables. Our allowance for finance receivable losses may fluctuate based upon changes in portfolio growth, credit quality, and economic conditions.
Our current methodology to estimate expected credit losses used the most recent macroeconomic forecasts, which incorporated the projected impacts and expected recovery of COVID-19 on theU.S. economy. We also considered known government stimulus measures, the involuntary unemployment insurance coverage of our portfolio, and our borrower assistance efforts. Our forecast leveraged economic projections from an industry leading forecast provider. AtMarch 31, 2021 , our economic forecast used a reasonable and supportable period of 12 months. In the near-term, we may experience further changes to the macroeconomic assumptions within our forecast, as well as changes to our loan loss performance outlook, both of which could lead to further changes in our allowance for finance receivable losses, allowance ratio, and provision for finance receivable losses.
Changes in the allowance for finance receivable losses were as follows:
Consumer Segment to
and GAAP Consolidated
(dollars in millions) Insurance Adjustment Total
Three Months Ended March 31, 2021
Balance at beginning of period $ 2,283 $ (14) $ 2,269
Provision for finance receivable losses (3) 1 (2)
Charge-offs (255) - (255)
Recoveries 50 - 50
Balance at end of period $ 2,075 $ (13) $ 2,062
Allowance ratio 11.81 % (b) 11.74 %
Three Months Ended March 31, 2020
Balance at beginning of period $ 849 $ (20) $ 829
Impact of adoption of ASU 2016-13 (a) 1,119 (1) 1,118
Provision for finance receivable losses 530 1 531
Charge-offs (337) - (337)
Recoveries 41 - 41
Balance at end of period $ 2,202 $ (20) $ 2,182
Allowance ratio 12.05 % (b) 11.95 %
(a) As a result of the adoption of ASU 2016-13, we recorded a one-time adjustment to the allowance for finance receivable losses. (b) Not applicable.
The current delinquency status of our finance receivable portfolio, inclusive of
recent borrower performance, volume of our TDR activity, level and
recoverability of collateral securing our finance receivable portfolio, and the
reasonable and supportable forecast of economic conditions are the primary
drivers that can cause fluctuations in our allowance for finance receivable
losses from period to period. We monitor the allowance ratio to ensure we have a
sufficient level of allowance for finance receivable losses based on the
estimated lifetime expected credit losses in our finance receivable portfolio.
The allowance for finance receivable losses as a percentage of net finance
receivables decreased from prior period primarily due to the expectation of
improved unemployment and anticipated economic recovery from the COVID-19
pandemic as compared to a build in our allowance reserve in the same period in
2020 primarily due to the uncertainty of expected credit losses at the onset of
the COVID-19 pandemic. See Note 4 of the Notes to the Condensed Consolidated
Financial Statements included in this report for more information about the
changes in the allowance for finance receivable losses.
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TDR FINANCE RECEIVABLES
We make modifications to our finance receivables to assist borrowers
experiencing financial difficulties. When we modify a loan's contractual terms
for economic or other reasons related to the borrower's financial difficulties
and grant a concession that we would not otherwise consider, we classify that
loan as a TDR finance receivable.
Information regarding TDR net finance receivables is as follows:
Consumer Segment to
and GAAP GAAP
(dollars in millions) Insurance Adjustment Basis
March 31, 2021
TDR net finance receivables $ 723 $ (33) $ 690
Allowance for TDR finance receivable losses 327 (16) 311
December 31, 2020
TDR net finance receivables $ 728 $ (37) $ 691
Allowance for TDR finance receivable losses 332 (18) 314
DISTRIBUTION OF FINANCE RECEIVABLES BY FICO SCORE
There are many different categorizations used in the consumer lending industry to describe the creditworthiness of a borrower, including prime, near prime, and sub-prime. While management does not utilize FICO scores to manage credit quality, we have presented the following on how we group FICO scores into said categories for comparability purposes across our industry: •Prime: FICO score of 660 or higher •Near prime: FICO score of 620-659 •Sub-prime: FICO score of 619 or below Our customers' demographics are, in many respects, near the national median but may vary from national norms in terms of credit and repayment histories. Many of our customers have experienced some level of prior financial difficulty or have limited credit experience and require higher levels of servicing and support from our branch network and central servicing operations.
The following table reflects our personal loans grouped into the categories described above based on borrower FICO credit scores as of the most recently refreshed date or as of the loan origination or purchase date:
(dollars in millions) March 31, 2021* December 31, 2020*
FICO scores
660 or higher $ 4,646 $ 4,653
620-659 4,742 4,877
619 or below 8,176 8,554
Total $ 17,564 $ 18,084
* Due to the impact of COVID-19, FICO scores as of March 31, 2021 and December
31, 2020 may have been impacted due to government stimulus measures, borrower
assistance programs, and potentially inconsistent reporting to credit bureaus.
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Liquidity and Capital Resources
SOURCES AND USES OF FUNDS
We finance the majority of our operating liquidity and capital needs through a combination of cash flows from operations, secured debt, unsecured debt, borrowings from revolving conduit facilities and equity. We may also utilize other sources in the future. As a holding company, all of the funds generated from our operations are earned by our operating subsidiaries. Our operating subsidiaries' primary cash needs relate to funding our lending activities, our debt service obligations, our operating expenses, payment of insurance claims, and expenditures relating to upgrading and monitoring our technology platform, risk systems, and branch locations. We have previously purchased portions of our unsecured indebtedness, and we may elect to purchase additional portions of our unsecured indebtedness or securitized borrowings in the future. Future purchases may be made through the open market, privately negotiated transactions with third parties, or pursuant to one or more tender or exchange offers, all of which are subject to terms, prices, and consideration we may determine at our discretion. During the three months endedMarch 31, 2021 , OMH generated net income of$413 million . OMH's net cash inflow from operating and investing activities totaled$754 million for the three months endedMarch 31, 2021 . AtMarch 31, 2021 , our scheduled principal and interest payments for the remainder of 2021 on our existing debt (excluding securitizations) totaled$393 million . As ofMarch 31, 2021 , we had$9.2 billion of unencumbered gross finance receivables. Based on our estimates and taking into account the risks and uncertainties of our plans, we believe that we will have adequate liquidity to finance and operate our businesses and repay our obligations as they become due for at least the next 24 months.
Securitizations and Borrowings from Revolving Conduit Facilities
During the three months endedMarch 31, 2021 , we did not terminate, cancel, or enter into any new securitizations or conduit facilities. AtMarch 31, 2021 , we had$8.1 billion of gross finance receivables pledged as collateral for our securitization transactions. AtMarch 31, 2021 , the borrowing capacity of our revolving conduit facilities was$7.2 billion , and no amounts were drawn nor were any personal loans pledged as collateral under these facilities.
See Notes 6 and 7 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on our long-term debt and revolving conduit facilities.
Cash Dividend to OMH's Common Stockholders
As of
Declaration Date Record Date Payment Date Dividend Per Share Amount Paid
(in millions)
February 8, 2021 February 18, 2021 February 25, 2021 $ 3.95 * $ 531
Total $ 3.95 $ 531
* Includes the minimum quarterly dividend of
To provide funding for the dividend, OMFC paid dividends of
OnApril 26, 2021 , OMH declared a dividend of$0.70 per share payable onMay 13, 2021 to record holders of OMH's common stock as of the close of business onMay 6, 2021 . To provide funding for the OMH dividend, the OMFC Board of Directors authorized a dividend in the amount of up to$95 million payable on or afterMay 11, 2021 . 49
-------------------------------------------------------------------------------- Table of Contents While OMH intends to pay its minimum quarterly dividend, currently$0.70 per share, for the foreseeable future, and announced its intention to evaluate dividends above the minimum every first and third quarters, all subsequent dividends will be reviewed and declared at the discretion of the board of directors and will depend on many factors, including our financial condition, earnings, cash flows, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends, and other considerations that the board of directors deems relevant. OMH's dividend payments may change from time to time, and the board of directors may choose not to continue to declare dividends in the future. See our "Dividend Policy" in Part II - Item 5 included in our Annual Report for further information. The Company plans to commence a$150 million programmatic share repurchase plan. The timing and amount of any shares repurchased will be determined by the company based on its evaluation of market conditions and other factors and will be made in accordance with applicable securities laws in either the open market or in privately negotiated transactions. The company is not obligated to purchase any shares under the program, and the program may be suspended or discontinued at any time. The actual timing, number and share price of shares repurchased will depend on a number of factors, including the market price of the company's stock, general market and economic conditions, and applicable legal requirements. The share repurchase program is expected to be funded by cash on hand and future cash generated from on-going operations.
Whole Loan Sale Transactions
As ofMarch 31, 2021 , we have entered into whole loan sale flow agreements with two third-party buyers in which we agreed to sell a combined total of$120 million per quarter of newly originated unsecured personal loans over a two-year commitment period. These unsecured personal loans are sold to unconsolidated VIEs and are derecognized from our balance sheet at the time of sale. We service the personal loans sold and are entitled to a servicing fee and other fees commensurate with the services performed as part of the agreements. The amount sold under the agreements during the three months endedMarch 31, 2021 was immaterial. LIQUIDITY OMH's Operating Activities Net cash provided by operations of$556 million for the three months endedMarch 31, 2021 reflected net income of$413 million , the impact of non-cash items, and an unfavorable change in working capital of$23 million . Net cash provided by operations of$565 million for the three months endedMarch 31, 2020 reflected net income of$32 million , the impact of non-cash items, and an unfavorable change in working capital of$45 million .
OMH's Investing Activities
Net cash provided by investing activities of$198 million for the three months endedMarch 31, 2021 was primarily due to net principal collections of finance receivables, calls, sales, and maturities of available-for-sale and other securities, partially offset by purchases of available-for-sale and other securities. Net cash used for investing activities of$196 million for the three months endedMarch 31, 2020 was primarily due to net principal originations of finance receivables and purchases of available-for-sale securities, partially offset by calls, sales, and maturities of available-for-sale securities.
OMH's Financing Activities
Net cash used for financing activities of$1.6 billion for the three months endedMarch 31, 2021 was primarily due to debt repayments and cash dividends paid. Net cash provided by financing activities of$2.8 billion for the three months endedMarch 31, 2020 was primarily due to net issuances of long-term debt offset by the cash dividends paid, and the cash paid on the common stock repurchased in the quarter.
OMH's Cash and Investments
At
At
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Liquidity Risks and Strategies
OMFC's credit ratings are non-investment grade, which has a significant impact
on our cost and access to capital. This, in turn, can negatively affect our
ability to manage our liquidity and our ability or cost to refinance our
indebtedness. There are numerous risks to our financial results, liquidity,
capital raising, and debt refinancing plans, some of which may not be quantified
in our current liquidity forecasts. These risks are further described in our
"Liquidity and Capital Resources" of Management's Discussion and Analysis of
Financial Condition and Results of Operations in Part II - Item 7 included in
our Annual Report.
The principal factors that could decrease our liquidity are customer
delinquencies and defaults, a decline in customer prepayments, and a prolonged
inability to adequately access capital market funding. We intend to support our
liquidity position by utilizing strategies that are further described in our
"Liquidity and Capital Resources" of Management's Discussion and Analysis of
Financial Condition and Results of Operations in Part II - Item 7 included in
our Annual Report.
However, it is possible that the actual outcome of one or more of our plans could be materially different than expected or that one or more of our significant judgments or estimates could prove to be materially incorrect.
OUR INSURANCE SUBSIDIARIES
Our insurance subsidiaries are subject to state regulations that limit their ability to pay dividends. AHL and Triton did not pay any dividends during the three months endedMarch 31, 2021 and 2020. See Note 11 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our Annual Report for further information on these state restrictions and the dividends paid by our insurance subsidiaries in 2020.
OUR DEBT AGREEMENTS
The debt agreements to which OMFC and its subsidiaries are a party include
customary terms and conditions, including covenants and representations and
warranties. See Note 9 of the Notes to the Consolidated Financial Statements in
Part II - Item 8 included in our Annual Report for more information on the
restrictive covenants under OMFC's debt agreements, as well as the guarantees of
OMFC's long-term debt.
51
-------------------------------------------------------------------------------- Table of Contents Securitized Borrowings We execute private securitizations under Rule 144A of the Securities Act of 1933. As ofMarch 31, 2021 , our structured financings consisted of the following: Current Initial Current Collateral Current Original Issue Amount Collateral Note Amounts Balance Weighted Average Revolving (dollars in millions) (a) Balance Outstanding (a) (b) Interest Rate Period SLFT 2015-B$ 314 $ 336 $ 132 $ 157 4.19 % 5 years SLFT 2017-A 652 685 346 400 3.23 % 3 years OMFIT 2015-3 293 329 182 197 4.57 % 5 years OMFIT 2016-3 350 397 317 414 4.33 % 5 years OMFIT 2017-1 947 988 264 325 3.33 % 2 years OMFIT 2018-1 632 650 585 628 3.61 % 3 years OMFIT 2018-2 368 381 350 400 3.87 % 5 years OMFIT 2019-1 632 654 554 598 3.82 % 2 years OMFIT 2019-2 900 947 900 995 3.30 % 7 years OMFIT 2019-A 789 892 750 892 3.78 % 7 years OMFIT 2020-1 821 958 821 958 4.12 % 2 years OMFIT 2020-2 1,000 1,053 1,000 1,053 2.03 % 5 years ODART 2018-1 947 964 523 558 3.66 % 2 years ODART 2019-1 737 750 700 750 3.79 % 5 years Total securitizations$ 9,382 $ 9,984
$ 7,424
(a) Issue Amount includes the retained interest amounts as applicable and the Current Note Amounts Outstanding balances reflect pay-downs subsequent to note issuance and exclude retained interest amounts. (b) Inclusive of in-process replenishments of collateral for securitized borrowings in a revolving status as ofMarch 31, 2021 . Revolving Conduit Facilities In addition to the structured financings, we have access to 13 revolving conduit facilities with a total borrowing capacity of$7.2 billion as ofMarch 31, 2021 : Amount (dollars in millions) Advance Maximum Balance Drawn Rocky River Funding, LLC $ 400 $ - OneMain Financial Funding IX, LLC 850 - Mystic River Funding, LLC 850 - OneMain Financial Funding VIII, LLC 500 - Thayer Brook Funding, LLC 500 - Hubbard River Funding, LLC 250 - Seine River Funding, LLC 650 - New River Funding Trust 250 - Hudson River Funding, LLC 500 - Columbia River Funding, LLC 500 - St. Lawrence River Funding, LLC 250 - OneMain Financial Funding VII, LLC 850 - OneMain Financial Auto Funding I, LLC 850 - Total $ 7,200 $ - 52
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Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements as defined by
Critical Accounting Policies and Estimates
We describe our significant accounting policies used in the preparation of our
consolidated financial statements in Note 3 of the Notes to the Consolidated
Financial Statements in Part II - Item 8 included in our Annual Report. We
consider the following policies to be our most critical accounting policies
because they involve critical accounting estimates and a significant degree of
management judgment:
•allowance for finance receivable losses; and
•TDR finance receivables.
There have been no material changes to our critical accounting policies or to
our methodologies for deriving critical accounting estimates during the three
months ended March 31, 2021 .
Recent Accounting Pronouncements
See Note 2 of the Notes to the Condensed Consolidated Financial Statements included in this report for discussion of recently issued accounting pronouncements.
Seasonality
Our personal loan volume is generally highest during the second and fourth
quarters of the year, primarily due to marketing efforts and seasonality of
demand. Demand for our personal loans is usually lower in January and February
after the holiday season and as a result of tax refunds. Delinquencies on our
personal loans are generally lower in the first and second quarters and tend to
rise throughout the remainder of the year. These seasonal trends contribute to
fluctuations in our operating results and cash needs throughout the year. Our
normal seasonality trends continue to be affected by the COVID-19 pandemic and
mitigating efforts from government stimulus measures.
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