What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-02-09 compared with 2020-02-14 · 288 added, 236 removed, 335 unchanged (61% of the section changed)

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We are a leading provider of responsible personal loan products, primarily to non-prime customers.

Our network of over 1,500 branch offices in 44 states is staffed with expert personnel and is complemented by our centralized operations and digital presence through online lending.

Our digital platform provides current and prospective customers the option of applying for a personal loan via our website, www.omf.com.

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.

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• 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, a fixed term of three to six years, and are secured by automobiles, other titled collateral, or are unsecured.

At December 31, 2019, we had approximately 2.44 million personal loans, representing $18.4 billion of net finance receivables, compared to approximately 2.37 million personal loans totaling $16.2 billion at December 31, 2018.

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.

At December 31, 2020, we had approximately 2.30 million personal loans, of which 53% were secured by titled property, totaling $18.1 billion of net finance receivables, compared to approximately 2.44 million personal loans, of which 52% were secured by titled property, totaling $18.4 billion at December 31, 2019.

• Insurance Products — We offer our custom ers 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.

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We offer GAP coverage as a waiver product or insurance.

We also offer optional home and auto membership plans of an unaffiliated company.

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 purchasing retail sales finance contracts and revolving retail accounts in 2013.

We continue to service or sub-service liquidating real estate loans and retail sales finance contracts.

• Other Receivables — We ceased originating real estate loans in 2012 and we continue to service or sub-service liquidating real estate loans.

Effective September 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.

See Notes 5, 6 and 7 of the Notes to the Consolidated Financial Statements included in this report for more information.

At December 31, 2020, C&I is our only reportable segment.

Beginning in the fourth quarter of 2019, we included our A&S, which was previously presented as a distinct reporting segment, in Other.

See Note 19 of the Notes to the Consolidated Financial Statements included in this report for more information on this change in our segment alignment and for more information about our segment.

We have revised our prior period segment disclosures to conform to this new alignment.

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 18 of the Notes to the Consolidated Financial Statements included in this report for more information about our segment.

HOW WE ASSESS OUR BUSINESS PERFORMANCE

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We track interest income, including certain fees earned on our finance receivables, and continually monitor the components that impact our yield.

Generally, we include any past due fees on loans that we have collected from customer payments in interest income.

We include any late charges on loans that we have collected from customer payments in interest income.

Interest Expense

We track the interest expense incurred on our debt, and continually monitor the components of our cost of funds.

We track the interest expense incurred on our debt, along with amortization or accretion of premiums or discounts, and issuance costs, to monitor the components of our cost of funds.

We expect interest expense to fluctuate based on changes in the secured versus unsecured mix of our debt, time to maturity, the cost of funds rate, and access to revolving conduit facilities.

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RECENT DEVELOPMENTS

Management’s Response to the COVID-19 Pandemic

COVID-19 has evolved into a global pandemic and has resulted in widespread volatility and deterioration in economic conditions across the United States.

Governmental authorities continue to take steps to combat or slow the spread of COVID-19, including shutdowns of non-essential businesses, implementing stay-at-home orders, promoting social distancing measures, and other actions which have disrupted economic activity.

Recently, authorities have begun to distribute newly developed COVID-19 vaccines to health care workers and other priority groups, which over time are designed to create “herd immunity” and diminish, if not eliminate, the crisis.

The success of the vaccination program will depend to a large extent on the willingness of Americans to receive vaccinations and the effectiveness of the distribution effort, both of which are uncertain at this time.

In the meantime, we will continue to be focused on assisting and supporting our customers and employees.

We are generally classified as an “essential business” by government authorities because we play a vital role in providing personal loans to hardworking Americans in hundreds of local communities.

Our long track record of a strong balance sheet and liquidity profile, disciplined underwriting, and focus on our customers, allows us to remain well positioned to address the economic uncertainties, as well as take advantage of opportunities for growth as the economy recovers.

Although we cannot predict how quickly and/or broadly the economy will recover, we will continue to:

• Maintain strong capital and liquidity:

We have maintained a strong balance sheet and liquidity profile as a result of numerous actions taken over the last several years, such as deleveraging, increasing the available borrowing capacity under our revolving conduit facilities, diversifying our funding mix, and extending our unsecured debt maturities.

Our cash and cash equivalents, together with our potential borrowings under our revolving conduit facilities, provide a liquidity runway in excess of 24 months under numerous stress scenarios, assuming no access to the capital markets.

This liquidity runway calculation contemplates all the cash needs of the Company.

• Continue to enhance our underwriting:

In late March 2020, we quickly took steps to tighten our underwriting standards and reduce originations to higher risk applicants in response to the COVID-19 pandemic.

We continued to monitor and evaluate our underwriting standards as we further understood the evolving impacts the COVID-19 pandemic was having on local-level economies.

Through the remainder of the year we refined our underwriting as we introduced more granular state and industry segmentation.

This allowed us to open up credit to certain segments, while maintaining more conservative underwriting in other segments.

We will continue with this approach as we learn the effects of the additional stimulus on our customer base and as the economy reacts to the vaccine rollout.

• Focus on serving our customers:

Our top priority is to service and care for our current customers.

We actively engaged with other lenders to put forward solutions to help our customers through this difficult time.

We took steps to enhance our servicing capacity by shifting branch team members toward a greater focus on servicing existing loans.

Beginning in late March, we increased proactive outreach to customers, offering to support them through our borrower assistance programs, which included reduced and deferred payment options, waiving of late fees, and temporary suspension in credit bureau reporting.

• Deploy business continuity plans:

We deployed our existing business continuity plans which are designed to ensure operational flexibility, including the ability of our employees to work remotely.

Our hybrid operating model, with fully scaled branch and central operations teams, can dynamically reroute application and servicing capabilities to service centers and branches across the United States.

Although a small number of branches were temporarily closed, primarily for deep cleanings or due to government mandates, and subsequently reopened, all of our teams, both branch and central operations, remain operational today.

We continue to serve our customers while maintaining social distancing and other safety protocols.

Additionally, we have accelerated our digital origination strategy and digitally originated more than 30% of our personal loans during 2020.

For further information regarding the impact of COVID-19 on our business, results of operations, and liquidity and capital resources, see “Outlook” and “Results of Operations” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Cash Dividends to OMH's Common Stockholders

For information regarding the quarterly dividends declared by OMH, see “Liquidity and Capital Resources” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

SFC's Issuances of 6.125% Senior Notes Due 2024, 6.625% Senior Notes Due 2028, 5.375% Senior Notes Due 2029 and Redemptions of 5.25% Senior Notes Due 2019 and 6.00% Senior Notes Due 2020

On February 8, 2021, OMH declared a dividend of $3.95 per share payable on February 25, 2021 to record holders of OMH's common stock as of the close of business on February 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.

Issuances of 8.875% Senior Notes Due 2025 and 4.00% Senior Notes Due 2030, and Redemptions of 8.25% Senior Notes due 2020 and 7.75% Senior Notes due 2021

On May 14, 2020, OMFC issued a total of $600 million of aggregate principal amount of 8.875% Senior Notes due 2025.

On July 29, 2020, OMFC paid an aggregate amount of $1.0 billion, inclusive of accrued interest and premiums, to complete the redemption of its 8.25% Senior Notes due 2020.

On December 17, 2020, OMFC issued a total of $850 million of aggregate principal amount of 4.00% Senior Notes due 2030.

On January 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 issuances and redemptions of our unsecured debt, see Note 9 of the Notes to the Consolidated Financial Statements included in this report.

SFC's Securitization Transactions Completed:

OMFIT 2019-1, OMFIT 2019-A, OMFIT 2019-2 and ODART 2019-1

For further information regarding the issuances of our secured debt, see “Liquidity and Capital Resources” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Merger of SFI into SFC

As part of our efforts to streamline operations and financial reporting and improve the efficiencies in our businesses, we have taken various steps to simplify our legal entity structure.

In culmination of these efforts, on September 20, 2019, SFC entered into a merger agreement with its direct parent SFI, to merge SFI with and into SFC, with SFC as the surviving entity.

The merger was effective in SFC's consolidated financial statements as of July 1, 2019.

As a result of SFI's merger with and into SFC, SFC became a wholly-owned direct subsidiary of OMH.

In conjunction with the merger, the net deficiency of SFI, after elimination of its investment in SFC, was absorbed by SFC resulting in an equity reduction of $408 million to SFC.

The net deficiency of SFI included an intercompany note payable plus accrued interest of $166 million from SFI to OMH which SFC assumed through the merger.

On September 23, 2019, SFC repaid SFI’s note to OMH.

Concurrently, OMH paid $22 million in other payables due to SFC and made an equity contribution of $144 million to SFC.

Additionally, as a result of the merger, the intercompany notes between SFI and SFC were eliminated.

The transactions noted above resulted in a net $264 million reduction to SFC's equity.

There was no impact to OMH's equity as a result of the merger.

Appointment of Member of the SFC Board of Directors and Executive Vice President of SFC

Securitization Transactions Completed:

OMFIT 2020-1 and OMFIT 2020-2

On May 1, 2020, we completed a private securitization in which OMFIT 2020-1 issued $821 million principal amount of notes backed by personal loans.

On August 21, 2020, we completed a private securitization in which OMFIT 2020-2 issued $1.0 billion principal amount of notes backed by personal loans.

For further information regarding the issuances of our secured debt, see “Liquidity and Capital Resources—Securitized Borrowings” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Stock Repurchase Program

For information regarding our stock repurchase program, see Note 12 of the Notes to the Consolidated Financial Statements and “Liquidity and Capital Resources—Sources and Uses of Funds” under Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report.

Appointment of Member of the OMFC Board of Directors and Executive Vice President of OMFC

On January 2, 2020, Adam L.

Rosman was appointed to the SFC Board of Directors and as Executive Vice President.

Rosman was appointed to the OMFC Board of Directors and as Executive Vice President.

Rosman replaced John C.

Anderson, who resigned as a member of SFC's board of directors and as Executive Vice President on January 2, 2020.

Appointment of Executive Vice President and Chief Operating Officer (“COO”) of OMH

On June 24, 2019, the OMH Board of Directors appointed Rajive Chadha as Executive Vice President and COO, effective on his first day of employment, July 15, 2019.

Chadha replaced Robert A.

Hurzeler, who resigned as Executive Vice President and COO on May 1, 2019 and departed the Company on May 31, 2019.

Appointment of Chief Financial Officer (“CFO”) of OMH

On April 25, 2019, the OMH Board of Directors appointed Micah R.

Conrad as CFO.

Conrad replaced Scott T.

Parker, who resigned as Executive Vice President and CFO on March 26, 2019 and departed the Company on April 4, 2019.

Parker’s departure was not due to any disagreement between Mr.

Parker and the Company relating to the Company’s financial reporting or condition, policies or practices.

Conrad served as the Company’s acting CFO from March 26, 2019 until his appointment as CFO of OMH.

Appointment of Member of the SFC Board of Directors, President, and Chief Executive Officer (“CEO”) of SFC

On April 4, 2019, Richard N.

Tambor was appointed to the SFC Board of Directors and as President and CEO of SFC.

Tambor replaces Scott T.

Parker, who resigned as a member of SFC's board of directors and as President and CEO of SFC.

Sale of Merit Life Insurance Co.

As part of our continuing integration efforts from the OneMain Acquisition, on March 7, 2019 we entered into a share purchase agreement to sell all of the issued and outstanding shares of our former insurance subsidiary, Merit.

The transaction closed on December 31, 2019.

We recorded a net gain of $9 million in the fourth quarter of 2019, which is included in other operating expenses.

For further information regarding the sale, see Note 12 of the Notes to the Consolidated Financial Statements included in this report.

With our experienced management team, long track record of successfully accessing the capital markets, and strong demand for consumer credit, we believe we are well positioned to execute on our strategic priorities to strengthen our capital base through the following key initiatives:

• Continuing growth in receivables through enhanced marketing strategies and customer product options;

• Maintaining and enhancing credit performance;

• Leveraging our scale and cost discipline across the Company to deliver improved operating leverage;

• Increasing tangible equity and reducing financial leverage;

• Maintaining a strong liquidity level with diversified funding sources.

Assuming the U.S.

economy continues to experience moderate growth, we expect to continue our long history of strong credit performance.

We believe the strong credit quality of our loan portfolio will continue as the result of our disciplined underwriting practices and ongoing collection efforts.

We have continued to see some migration of customer activity away from traditional channels, such as direct mail, to online channels (primarily serviced through our branch network), where we believe we are well suited to capture volume due to our scale, technology, and deployment of advanced analytics.

Anderson, who resigned as a member of OMFC's board of directors and as Executive Vice President on January 2, 2020.

Appointment of Chairman of the OMH Board of Directors

On August 28, 2020, Jay N.

Levine resigned as Director and Chairman of the OMH Board of Directors, effective December 31, 2020.

Levine’s resignation was not the result of any dispute or disagreement with the Company or the Company’s board on any matter relating to the operations, policies or practices of the Company.

The OMH Board of Directors elected Douglas H.

Shulman as Chairman of the Board, replacing Mr.

Levine, effective December 31, 2020.

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 unemployment rates, government stimulus measures, states reopening or closing, and the distribution of the newly developed COVID-19 vaccines.

There is also uncertainty regarding the effects of additional outbreaks of COVID-19 and the related potential for additional shutdowns over the near-term.

To the extent economies are suppressed or slow to recover, we could see lower consumer demand, higher delinquency trends, and related losses in 2021.

We may incorporate additional updates to the macroeconomic assumptions which could lead to further adjustments in our allowance for finance receivable losses, allowance ratio, and provision for finance receivable losses.

The full extent to which the COVID-19 pandemic will impact our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the mitigation efforts by government entities, as well as our own continuing COVID-19 operational response.

We have taken and will continue to take active and decisive steps in this time of uncertainty and remain committed to the safety of our employees, while also continuing to serve our customers by keeping our branch locations open with appropriate protective protocols in place.

We have served hardworking Americans for many decades, through changing economic conditions and natural disasters.

Our prudent historical underwriting, combined with the actions we've taken to innovate and strategically evolve our business over the last year, especially the transition to our digital closing model, has led to our strong operating performance through the pandemic and enabled us to serve and support our customers effectively during these unprecedented times.

While we anticipate that the economic recovery could be unstable, we believe the actions we have taken in 2020 and the underlying strength of our balance sheet positions us to take advantage of growth opportunities as the economy recovers.

Our digital platform and our operating model, combined with our decades of experience, proprietary data, and advanced analytics, enable us to expand our customer base through various channels and products.

With these tools, we are able to underwrite and manage our portfolio in a precise and effective manner, thus better serving our customers to meet their preferences, as well as optimizing returns.

Our experienced management team continues to remain focused on our strategic priorities of maintaining a solid balance sheet that enables business continuity, providing a flexible liquidity runway and capital coverage through the changing economic conditions, upholding a conservative and disciplined underwriting model, and building strong relationships with our customers.

As a result, we will support and serve our customers, invest in our business, and drive growth while creating value for our shareholders and effectively navigating the evolving economic, social, political, and regulatory environments in which we operate.

Results of Operations

The results of SFC are consolidated into the results of OMH.

Due to the nominal differences between SFC and OMH, content throughout this section relate only to OMH.

See Note 2 of the Notes to the Consolidated Financial Statements included in this report for the reconciliation of results of SFC to OMH.

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 2 of the Notes to the Consolidated Financial Statements included in this report for the reconciliation of results of OMFC to OMH.

COVID-19 PANDEMIC IMPACTS ON RESULTS

The adverse effects caused by the COVID-19 pandemic, along with mitigation efforts from government stimulus measures, and our own operational response has impacted our business, results of operations, and liquidity and capital resources.

The following is a summary of the most significant impacts:

• Net finance receivables were $18.1 billion as of December 31, 2020 compared to $18.4 billion as of December 31, 2019.

Initial operational disruptions, combined with actions taken by management to tighten underwriting standards, which reduced originations to higher risk applicants, and a reduction in the demand for personal loans, resulted in an overall decline in net finance receivables.

Originations began to be impacted in the last two weeks of March 2020, with our lowest production levels occurring in April.

Originations increased in May and continued to increase through the end of the fourth quarter, driven by adjustments to our underwriting, enhancements to our digital origination capabilities, increased proactive outreach to our customers, and improved customer demand and unemployment trends.

Originations in 2020 remained below 2019 levels.

• The government stimulus measures, our borrower assistance programs, and our collection efforts contributed to strong customer payment trends, which resulted in a decrease in our 30-89 and 90+ day delinquency ratios to 2.3% and 1.7%, respectively, as of December 31, 2020 when compared to 2.5% and 2.1%, respectively, as of December 31, 2019.

• Under our borrower assistance programs, we waived late fees for payments due March 15, 2020 through April 30, 2020, suspended credit bureau reporting for newly delinquent accounts in March and April of 2020, and offered reduced and deferred payment options to our customers.

Borrower assistance enrollment peaked in April at 8.0% of loans in the portfolio, and returned to a more historical normal average of 2.3% during the fourth quarter of 2020.

• Our loan loss reserve methodology includes forecasted economic trends and unemployment levels, which significantly increased our provision for finance receivable losses as a result of the impacts of COVID-19 during the year ended December 31, 2020 compared to the same period from prior year.

The rise in unemployment claims around the country also resulted in an increase in involuntary unemployment insurance claims expense during the year ended December 31, 2020.

For further information regarding the impact of COVID-19 on net income for the periods, see “Results of Operations - OMH’s Consolidated Results” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

• In March 2020, out of an abundance of caution, we elected to draw on our revolving conduit facilities to preserve financial flexibility during the capital market disruption resulting from the COVID-19 pandemic.

During the second quarter of 2020, we subsequently repaid all of our revolving conduit facilities.

During the year ended December 31, 2020, we also issued debt securities in both the unsecured and ABS markets.

As of December 31, 2020, we had $2.3 billion of cash and cash equivalents, $9.2 billion of unencumbered gross finance receivables, and $7.2 billion in potential borrowing capacity from our 13 revolving conduit facilities.

• During the year, the Company incurred direct costs associated with COVID-19 relating to (i) information technology costs to transition employees to work remotely, (ii) branch, central operations, and corporate locations sanitization services and supplies, (iii) installation of protective barriers and other appropriate safety measures, and (iv) other costs and fees directly related to COVID-19.

The Company also incurred restructuring costs associated with a reduction in workforce.

For further information regarding direct costs associated with COVID-19 and restructuring charges, see “Results of Operations - Non-GAAP Financial Measures” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

• We did not have any impairments with respect to goodwill, intangible assets, long-lived assets, and right of use assets during the year ended December 31, 2020.

We currently do not anticipate any impairments as it relates to these assets at this time, but we will continue to monitor and test as appropriate.

OMH'S CONSOLIDATED RESULTS

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(dollars in millions, except per share amounts)

Years Ended December 31, 2019 2018 2017

At or for the Years Ended December 31, 2020 2019 2018

Interest income $ 4,368 $ 4,127 $ 3,658

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Number of accounts 2,304,951 2,435,172 2,373,330

Finance receivables held for sale:

Net finance receivables $ 64 $ 103 $ 132

Number of accounts 2,019 2,827 2,460

Finance receivables held for investment and held for sale:

Average net receivables $ 17,997 $ 17,055 $ 15,471

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Comparison of Consolidated Results for 2020 and 2019

Interest income increased $469 million or 13% in 2019 when compared to 2018 primarily due to growth in our loan portfolio.

The increase was also due to higher yield, which was primarily driven by lower amortization of purchase premium on non-credit impaired finance receivables, the continued stability in origination of annual percentage rates, and the improvement in late stage delinquency.

Interest expense increased $95 million or 11% in 2019 when compared to 2018 primarily due to an increase in average debt, consistent with the growth in our loan portfolio, and our strategic actions to increase unsecured debt, which tends to have higher interest rates than secured debt, in order to achieve a more proportional mix of secured and unsecured funding.

Interest income increased $241 million or 5.8% in 2020 when compared to 2019 primarily due to growth in our average net finance receivables of $942 million along with higher yields driven by the impacts of lower delinquencies.

Interest expense increased $57 million or 5.9% in 2020 when compared to 2019 primarily due to an increase in average outstanding debt of $1.7 billion, offset by a lower average cost of funds.

See Notes 9 and 10 of the Notes to the 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 increased $81 million or 8% in 2019 when compared to 2018 primarily driven by the growth in our loan portfolio.

The allowance for finance receivable losses as a percentage of net finance receivables was flat from prior period reflecting lower allowance requirements due to the continued shift in portfolio mix to more secured personal loans and improvements in the effectiveness of our collections, offset by the impacts of continued liquidation of purchased credit impaired finance receivables resulting from the OneMain Acquisition.

Other revenues increased $48 million or 8% in 2019 when compared to 2018 primarily due to (i) a $31 million increase in insurance products sold due to higher loan volume and larger average loan size, (ii) a $29 million increase in investment revenue primarily driven by an increase in unrealized gains on equity investment securities due to improved market conditions and an increase in interest income due to higher yield and higher average cash and investment balances, (iii) a $13 million decrease in impairment loss recorded on the loans in finance receivables held for sale compared to the prior year, and (iv) an $11 million net gain on sale of a cost method investment.

The increase was partially offset by $26 million of higher net losses on repurchases and repayments of debt and $15 million decrease in gain on sale of real estate loans sold in the prior year as compared to the current year.

Other expenses decreased $133 million or 8% in 2019 when compared to 2018 primarily due to $110 million of non-cash incentive compensation expense in 2018 related to the 2018 Apollo-Värde and AIG Share Sale Transactions, $14 million of impairment loss on the transfer of Yosemite to held for sale in 2018, and a $9 million net gain on the sale of Merit in 2019.

Provision for finance receivable losses increased $190 million or 16.8% in 2020 when compared to 2019 primarily due to higher expected credit losses in our allowance as a result of the current year adoption of the accounting standard Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments , issued in June of 2016 (“ASU 2016-13”), which were primarily driven by our forecast of elevated unemployment as a result of COVID-19.

Other revenues decreased $96 million or 15.4% in 2020 when compared to 2019 primarily due to a $34 million decrease from lower insurance products and membership plans sold as a result of reduced loan origination volume, a $28 million decrease in investment revenue and interest income primarily driven by lower interest rates on cash, restricted cash, and invested assets, and other decreases from the prior period due to lower servicing fee income, and the gain on sale of a cost method investment in 2019.

Other expenses increased $19 million or 1.2% in 2020 when compared to 2019 primarily due to an increase in insurance policy benefits and claims expense primarily due to the impact of COVID-19 on our involuntary unemployment insurance products.

The increase was partially offset by a decrease in general operating expenses, reflecting our efforts to tightly manage costs as well as variable expenses associated with lower loan origination volume.

Income taxes totaled $247 million for 2020 compared to $243 million for 2019.

The effective tax rate for 2020 was 25.3% compared to 22.2% for 2019.

The effective tax rate for 2020 differed from the federal statutory rate of 21% primarily due to the effect of state income taxes and discrete tax expense during 2020.

The effective tax rate for 2019 differed from the federal statutory rate of 21% primarily due to the effect of state income taxes, offset by the release of the valuation allowance against certain state deferred taxes.

The effective tax rate for 2018 differed from the federal statutory rate of 21% primarily due to the effect of discrete tax expense for non-deductible compensation expense and state income taxes.

See Note 14 of the Notes to the Consolidated Financial Statements included in this report for further information on effective tax rates.

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NON-GAAP FINANCIAL MEASURES

Adjusted Pretax Income (Loss)

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 net losses resulting from repurchases and repayments of debt, acquisition-related transaction and integration expenses, net gain on sale of cost method investment, restructuring charges, additional net gain on Sale of SpringCastle interests, net loss on sale of real estate loans, and non-cash incentive compensation expense related to the Fortress Transaction.

Management believes adjusted pretax income (loss) is useful in assessing the profitability of our segment and uses adjusted pretax income (loss) in evaluating our operating performance and as a performance goal under OMH's executive compensation programs.

Adjusted pretax income (loss) is a non-GAAP financial measure 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 were as follows:

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, net gain on sale of cost method investment, restructuring charges, additional net gain on sale of SpringCastle interests, lower of cost or fair value adjustment on loans held for sale, non-cash incentive compensation expense related to the Fortress Transaction, and net loss on sale of real estate loans.

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:

(dollars in millions)

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$ 1,021 $ 1,168 $ 787

Net loss on repurchases and repayments of debt

Direct costs associated with COVID-19

Acquisition-related transaction and integration expenses 11 14 47

Net loss on repurchases and repayments of debt

Net gain on sale of cost method investment — (11) —

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$ 1,092 $ 1,206 $ 905

Provision for finance receivable losses $ 1,313 $ 1,105 $ 1,047

Net charge-offs (998) (1,028) (998)

Pretax capital generation (non-GAAP) $ 1,407 $ 1,283 $ 954

Loss before income taxes - Segment Accounting Basis $ (9) $ (3) $ (131)

Additional net gain on sale of SpringCastle interests

Net loss on sale of real estate loans * 1 6 —

Lower of cost or fair value adjustment (a)

Non-cash incentive compensation expense — — 106

Acquisition-related transaction and integration expenses

Net loss on sale of real estate loans (b)

Adjusted pretax loss (non-GAAP)

$ (6) $ (9) $ (19)

* In 2019 and 2018, the resulting impairments on finance receivables held for sale that remained after the February 2019 and the December 2018 Real Estate Loan Sales were combined with the respective gains on sales.

See Note 7 of the Notes to the Consolidated Financial Statements included in this report for more information regarding the real estate loan sales.

Acquisition-related transaction and integration expenses incurred as a result of the OneMain Acquisition includes (i) compensation and employee benefit costs, such as retention awards and severance costs, (ii) accelerated amortization of acquired software assets, (iii) rebranding to the OneMain brand, (iv) branch infrastructure and other fixed asset integration costs, (v) information technology costs, such as internal platform development, software upgrades and licenses, and technology termination costs, (vi) legal fees and project management costs, (vii) system conversions, including human capital management, marketing, risk, and finance functions, and (viii) other costs and fees directly related to the OneMain Acquisition and integration.

(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 year ended December 31, 2020.

(b) In 2019 and 2018, the resulting impairments on finance receivables held for sale that remained after the February 2019 and the December 2018 Real Estate Loan Sales were combined with the respective gains on sales.

Segment Results

The results of SFC are consolidated into the results of OMH.

Due to the nominal differences between SFC and OMH, content throughout this section relate only to OMH.

See Note 2 of the Notes to the Consolidated Financial Statements included in this report for the reconciliation of results of SFC to OMH.

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 2 of the Notes to the Consolidated Financial Statements included in this report for the reconciliation of results of OMFC to OMH.

See Note 18 of the Notes to the 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.

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Number of accounts 2,304,951 2,435,172 2,373,330

Finance receivables held for investment and held for sale:

Average net receivables $ 18,009 $ 17,089 $ 15,401

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Comparison of Adjusted Pretax Income for 2020 and 2019

Interest income increased $437 million or 12% in 2019 when compared to 2018 primarily due to continued growth in our loan portfolio along with higher yield.

The higher yield reflects the continued stability in origination of annual percentage rates and the improvement in late stage delinquency.

Interest expense increased $103 million or 12% in 2019 when compared to 2018 primarily due to an increase in average debt, consistent with the growth in our loan portfolio, and our strategic actions to increase unsecured debt, which tends to have higher interest rates than secured debt, in order to achieve a more proportional mix of secured and unsecured funding.

Interest income increased $239 million or 5.8% in 2020 when compared to 2019 primarily due to growth in our average net finance receivables of $920 million along with higher yields driven by the impacts of lower delinquencies.

Interest expense increased $60 million or 6.3% in 2020 when compared to 2019 primarily due to an increase in average outstanding debt of $1.7 billion, offset by a lower average cost of funds.

Provision for finance receivable losses increased $58 million or 6% in 2019 when compared to 2018 primarily driven by the growth in our loan portfolio.

The allowance for finance receivable losses as a percentage of net finance receivables decreased from prior periods due to the shift in portfolio mix to more secured personal loans and improvements in the effectiveness of collections.

Other revenues increased $61 million or 11% in 2019 when compared to 2018 primarily due to a $31 million increase in insurance products sold due to higher loan volume and larger average loan size, and a $25 million increase in investment revenue primarily driven by an increase in unrealized gains on equity investment securities due to improved market conditions and an increase in interest income due to higher yield and higher average cash and investment balances.

Other expenses increased $36 million or 3% in 2019 when compared to 2018 primarily due to our continued reinvestment in our business operations while achieving operating leverage.

Provision for finance receivable losses increased $208 million or 18.8% in 2020 when compared to 2019 primarily due to higher expected credit losses in our allowance as a result of the current year adoption of ASU 2016-13, which were primarily driven by our forecast of elevated unemployment as a result of COVID-19.

Other revenues decreased $68 million or 11.0% in 2020 when compared to 2019 primarily due to a $34 million decrease from lower insurance products and membership plans sold as a result of reduced loan origination volume and a $29 million decrease in investment revenue and interest income primarily driven by lower interest rates on cash, restricted cash, and invested assets in the current period.

Other expenses increased $17 million or 1.2% in 2020 when compared to 2019 primarily due to an increase in insurance policy benefits and claims expense primarily due to the impact of COVID-19 on our involuntary unemployment insurance products.

Comparison of Adjusted Pretax Income for 2019 and 2018

For a comparison of OMH's adjusted pretax income for C&I for the years ended 2018 and 2017, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment Results” in Part II Item 7 of OMH's Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 15, 2019.

“Other” consists of our liquidating SpringCastle Portfolio servicing activity and our non-originating legacy operations, which include our liquidating real estate loans and liquidating retail sales finance receivables.

Beginning in the fourth quarter 2019, we included A&S, which was previously presented as a distinct reporting segment, in Other.

See Note 19 of the Notes to the Consolidated Financial Statements included in this report for further information on this change in our segment alignment.

We have revised our prior period segment disclosures to conform to this new alignment.

For a comparison of OMH's adjusted pretax income for C&I for the years ended 2019 and 2018, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Consolidated Results” in Part II Item 7 of OMH's Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 14, 2020.

“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:

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Interest expense 4 5 17

Provision for finance receivable losses (a) — (5) 7

Provision for finance receivable losses — — (5)

Net interest income after provision for finance receivable losses

Other revenues 16 26 33

Other expenses (b) 39 57 74

Other expenses 24 39 57

Adjusted pretax loss (non-GAAP) $ (6) $ (9) $ (19)

(a) Provision for finance receivable losses for 2017 includes a $5 million increase due to estimated net charge-offs attributable to the impact of hurricanes Harvey and Maria.

(b) Other expenses for 2018 includes $4 million of non-cash incentive compensation expense related to the rights of certain executives to a portion of the cash proceeds from the sale of OMH’s common stock by SFH.

Net finance receivables of the Other components on a Segment Accounting Basis were as follows:

Net finance receivables of the Other components, reported in “Other assets,” on a Segment Accounting Basis were as follows:

(dollars in millions)

December 31, 2020 2019 2018

Net finance receivables held for investment:

Other receivables $ — $ — $ 142

Net finance receivables held for sale:

Other receivables $ 49 $ 66 $ 103

* On September 30, 2018, we transferred our real estate loans previously classified as other receivables from held for investment to held for sale.

See Notes 5 and 7 of the Notes to the Consolidated Financial Statements included in this report for further information.

Credit Quality

The results of SFC are consolidated into the results of OMH.

Due to the nominal differences between SFC and OMH, content throughout this section relate only to OMH.

See Note 2 of the Notes to the Consolidated Financial Statements included in this report for the reconciliation of results of SFC to OMH.

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 2 of the Notes to the Consolidated Financial Statements included in this report for the reconciliation of results of OMFC to OMH.

FINANCE RECEIVABLES

Our net finance receivables, consisting of personal loans, were $18.1 billion at December 31, 2020 and $18.4 billion at December 31, 2019.

Our personal loans are non-revolving, with a fixed-rate, a fixed term of three to six years, and are secured by automobiles, other titled collateral, or are unsecured.

We consider the concentration of secured loans, the underlying value of the collateral of the secured loans, and the delinquency status of our finance receivables as the primary indicators of credit quality.

At December 31, 2019 and December 31, 2018, 52% and 48%, respectively, of our personal loans, on a consolidated basis, were secured by titled collateral.

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.

We group FICO scores into the following credit strength categories:

FICO score of 660 or higher

• Near prime:

FICO score of 620-659

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)

December 31, 2019 2018

660 or higher $ 3,951 $ 3,906

620-659 4,683 4,251

619 or below 9,755 8,007

Total $ 18,389 $ 16,164

The increase in the sub-prime category from prior year reflects the growth in secured loans, which accommodates customers with lower FICO scores.

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.

See “Results of Operations” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report for further details on our borrower assistance programs.

We monitor delinquency trends to evaluate the risk of future credit losses and employ advanced analytical tools to manage our exposure.

Our branch team members work with customers through occasional periods of financial difficulty and offer a variety of borrower assistance programs to help customers continue to make payments.

Team members also actively engage in collection activities throughout the early stages of delinquency.

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.

See “Results of Operations” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report for further details on the COVID-19 impact on delinquency.

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.

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Insurance Segment to

Adjustment GAAP

Adjustment (a) GAAP

December 31, 2020

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30-89 days past due

2.47 % * 2.46 %

30+ days past due 4.58 % * 4.56 %

60+ days past due 3.09 % * 3.08 %

90+ days past due 2.11 % * 2.10 %

2.28 % (b) 2.28 %

30+ days past due 4.03 % (b) 4.03 %

60+ days past due 2.64 % (b) 2.64 %

90+ days past due 1.75 % (b) 1.75 %

December 31, 2019

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30-89 days past due

2.43 % * 2.42 %

30+ days past due 4.68 % * 4.66 %

60+ days past due 3.26 % * 3.25 %

90+ days past due 2.25 % * 2.25 %

* Not applicable.

2.47 % (b) 2.46 %

30+ days past due 4.58 % (b) 4.56 %

60+ days past due 3.09 % (b) 3.08 %

90+ days past due 2.11 % (b) 2.10 %

(a) As a result of the adoption of ASU 2016-13, we converted all purchased credit impaired finance receivables to purchased credit deteriorated finance receivables in accordance with ASC Topic 326, which resulted in the gross-up of net finance receivables and allowance for finance receivable losses of $15 million on January 1, 2020.

See Notes 4, 5, and 6 of the Notes to the Consolidated Financial Statements for additional information on the adoption of ASU 2016-13 included in this report.

(b) Not applicable

ALLOWANCE FOR FINANCE RECEIVABLE LOSSES

We record an allowance for finance receivable losses to cover estimated incurred losses on our finance receivables.

Our allowance for finance receivable losses may fluctuate based upon our continual review of the growth and credit quality of the finance receivable portfolio and changes in economic conditions.

We estimate and record an allowance for finance receivable losses to cover the estimated lifetime expected credit losses on our finance receivables, pursuant to the adoption of ASU 2016-13 on January 1, 2020.

Prior to the adoption of ASU 2016-13, we estimated and recorded an allowance for finance receivable losses to cover estimated incurred losses on our finance receivables.

Our allowance for finance receivable losses may fluctuate based upon changes in portfolio growth, credit quality, and economic conditions.

See Note 3 of the Notes to the Consolidated Financial Statements included in this report for further information on our policy for allowance for finance receivable losses.

Our current methodology to estimate expected credit losses used the most recent macroeconomic forecasts, which incorporated the projected impacts of COVID-19 on the U.S.

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.

At December 31, 2020, our economic forecast used a reasonable and supportable period of 12 months.

The increase in our allowance for finance receivable losses for the year ended December 31, 2020 was largely due to the adoption of ASU 2016-13 along with the economic considerations relating to COVID-19.

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.

For further information regarding the impact of COVID-19 on our allowance for finance receivable losses see “Recent Development and Outlook” and “Results of Operations” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Changes in the allowance for finance receivable losses were as follows:

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$ 849 $ — $ (20) $ 829

Impact of adoption of ASU 2016-13 (a) 1,119 — (1) 1,118

Provision for finance receivable losses

1 unchanged sentence

(1,163) — 1 (1,162)

143 — (17) 126

Balance at end of period

1 unchanged sentence

Allowance ratio

4.61 % (a) (a) 4.51 %

12.62 % (b) (b) 12.55 %

Year Ended December 31, 2019

5 unchanged sentences

143 — (17) 126

— (30) 7 (23)

Balance at end of period

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Allowance ratio

4.77 % (a) (a) 4.52 %

4.61 % (b) (b) 4.51 %

Year Ended December 31, 2018

5 unchanged sentences

129 3 (19) 113

— (30) 7 (23)

Balance at end of period

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Allowance ratio

4.88 % 24.28 % (a) 4.66 %

(a) Not applicable.

(b) Other consists primarily of the reclassification of allowance for finance receivable losses due to the transfer of the real estate loans in other receivables from held for investment to finance receivables held for sale on September 30, 2018.

See Note 5 and 7 of the Notes to the Consolidated Financial Statements included in this report for further information.

The current delinquency status of our finance receivable portfolio, inclusive of recent borrower performance, volume of our TDR activity, and the level and recoverability of collateral securing our finance receivable portfolio 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 to cover estimated incurred losses in our finance receivable portfolio.

The allowance for finance receivable losses as a percentage of net finance receivables has decreased from prior periods reflecting lower allowance requirements due to the shift in portfolio mix to more secured personal loans and improvements in the effectiveness of our collections, offset by the impacts of continued liquidation of purchased credit impaired finance receivables resulting from the OneMain Acquisition.

4.77 % (b) (b) 4.52 %

(a) As a result of the adoption of ASU 2016-13, we recorded a one-time adjustment to the allowance for finance receivable losses.

Additionally, we converted all purchased credit impaired finance receivables to purchased credit deteriorated finance receivables in accordance with ASC Topic 326, which resulted in the gross-up of net finance receivables and allowance for finance receivable losses of $15 million on January 1, 2020.

See Notes 4, 5, and 6 of the Notes to the Consolidated Financial Statements for additional information on the adoption of ASU 2016-13 included in this report.

(b) Not applicable.

(c) Other consists primarily of the reclassification of allowance for finance receivable losses due to the transfer of the real estate loans in other receivables from held for investment to finance receivables held for sale on September 30, 2018.

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 (after the adoption of ASU 2016-13) 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 increased from prior periods due to the adoption of ASU 2016-13 and the impacts of the current economic environment.

See Note 6 of the Notes to the Consolidated Financial Statements included in this report for more information about the changes in the allowance for finance receivable losses.

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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.

The increase to the TDR portfolio in 2019 was primarily driven by the increase in modifications on late stage delinquent accounts and the growth in our loan portfolio.

Information regarding TDR net finance receivables is as follows:

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Allowance for TDR finance receivable losses 292 (20) 272

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:

FICO score of 660 or higher

• Near prime:

FICO score of 620-659

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.

(dollars in millions)

December 31, 2020* 2019

660 or higher $ 4,653 $ 3,951

620-659 4,877 4,683

619 or below 8,554 9,755

Total $ 18,084 $ 18,389

* Due to the impact of COVID-19, FICO scores as of December 31, 2020 may have been impacted due to government stimulus measures, borrower assistance programs, and potentially inconsistent reporting to credit bureaus.

Liquidity and Capital Resources

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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 in the future.

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 2020, OMH generated net income of $730 million.

OMH net cash outflow from operating and investing activities totaled $1.1 billion for the year ended December 31, 2019.

OMH net cash inflow from operating and investing activities totaled $1.5 billion for the year ended December 31, 2020.

At December 31, 2020, our scheduled principal and interest payments for 2021 on our existing debt (excluding securitizations) totaled $1.2 billion.

As of December 31, 2019, we had $9.9 billion UPB of unencumbered personal loans and $120 million UPB of unencumbered real estate loans.

These real estate loans are included in held for sale.

As of December 31, 2020, we had $9.2 billion of unencumbered gross finance receivables and $107 million of unencumbered real estate loans.

These real estate loans are classified as held for sale and reported in “Other assets.”

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.

SFC’s Issuances and Redemptions

For information regarding the issuances and redemptions of SFC's unsecured debt, see Note 10 of the Notes to the Consolidated Financial Statements included in this report.

OMFC’s Issuance and Redemption of Unsecured Debt

For information regarding the issuance and redemption of OMFC's unsecured debt, see Note 9 of the Notes to the Consolidated Financial Statements included in this report.

Securitizations and Borrowings from Revolving Conduit Facilities

During the year ended December 31, 2019, we completed four personal loan securitizations (OMFIT 2019-1, ODART 2019-1, OMFIT 2019-A, and OMFIT 2019-2, see “Securitized Borrowings” below), and redeemed five securitizations (SLFT 2015-A, OMFIT 2015-1, OMFIT 2015-2, OMFIT 2016-2, and ODART 2017-1).

At December 31, 2019, we had $8.3 billion in UPB of finance receivables pledged as collateral for our securitization transactions.

During the year ended December 31, 2019, we entered into four new revolving conduit facilities and terminated one revolving conduit facility.

Subsequent to December 31, 2019, we extended the revolving period for OneMain Financial Funding VII, LLC on January 24, 2020 from June 2021 to January 2023.

See Notes 10 and 11 of the Notes to the Consolidated Financial Statements included in this report for further information on our long-term debt, loan securitization transactions and conduit facilities.

During the year ended December 31, 2020, we completed two personal loan securitizations (OMFIT 2020-1 and OMFIT 2020-2, see “Securitized Borrowings” below), and redeemed three personal loan securitizations (SLFT 2016-A, OMFIT 2016-1 and ODART 2017-2).

At December 31, 2020, we had $8.7 billion of gross finance receivables pledged as collateral for our securitization transactions.

At December 31, 2020, 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 9 and 10 of the Notes to the Consolidated Financial Statements included in this report for further information on our long-term debt and revolving conduit facilities.

Shares Repurchased and Retired

During the first quarter of 2020, OMH repurchased and retired 2,031,698 shares of its common stock at an average price per share of $22.30, for an aggregate total of approximately $45 million, including commissions and fees.

To provide funding for the OMH stock repurchase and retirement program, the OMFC Board of Directors authorized multiple dividend payments in the aggregate amount of $45 million.

On March 20, 2020, OMH temporarily suspended its stock repurchase program.

OMH retains the right to reinstate the stock repurchase program as circumstances change.

For additional information regarding the shares repurchased see Note 12 of the Notes to the Consolidated Financial Statements included in this report.

Cash Dividends to OMH's Common Stockholders

During 2019, dividend declarations by OMH's board of directors were as follows:

Dividend declarations by OMH's board of directors for the year ended December 31, 2020 were as follows:

Declaration Date Record Date Payment Date Dividend Per Share Amount Paid

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April 27, 2020 May 29, 2020 June 12, 2020 0.33 44

July 29, 2019 August 27, 2019 September 13, 2019 2.25 * 306

October 28, 2019 November 26, 2019 December 13, 2019 0.25 34

July 27, 2020 August 10, 2020 August 18, 2020 2.33 * 313

October 26, 2020 November 9, 2020 November 17, 2020 0.45 60

Total $ 5.94 $ 803

* On July 29, 2019 the dividend declaration consisted of a regular quarterly dividend of $0.25 per share and a special dividend of $2.00 per share.

To provide funding for the dividends, SFC paid dividends to OMH of $34 million on March 13, 2019 and on June 13, 2019, $306 million on September 12, 2019, and $34 million on December 12, 2019.

On February 10, 2020, OMH declared a regular quarterly dividend of $0.33 per share and a special dividend of $2.50 per share payable on March 13, 2020 to record holders of OMH's common stock as of the close of business on February 26, 2020.

To provide funding for the OMH dividend, the SFC Board of Directors authorized a dividend in the amount of up to $388 million payable on or after March 10, 2020.

While OMH intends to pay regular quarterly dividends for the foreseeable future, and has announced its intention to pay semi-annual special dividends, all subsequent dividends will be reviewed quarterly 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 not continue to declare dividends in the future.

* Our February 10, 2020 and July 27, 2020 dividend declarations of $2.83 and $2.33, respectively, each included a quarterly dividend of $0.33 per share.

To provide the primary funding for the dividends, OMFC paid dividends of $799 million to OMH for the year ended December 31, 2020.

On February 8, 2021, OMH declared a dividend of $3.95 per share payable on February 25, 2021 to record holders of OMH's common stock as of the close of business on February 18, 2021.

To provide funding for the OMH dividend, the OMFC Board of Directors authorized a dividend in the amount of up to $531 million payable on or after February 23, 2021.

While OMH intends to pay its minimum quarterly dividend, currently $0.45 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 of this report for further information.

Whole Loan Sale Transaction

In December 2020, we entered into a whole loan sale transaction with a third-party buyer pursuant to a committed forward flow sale agreement under which we agree to sell $15 million in gross finance receivables each month, consisting of newly originated unsecured personal loans during the two-year commitment period.

The third-party buyer has an option within the first 90 days from the closing date of the agreement to increase the monthly commitment to $25 million in gross finance receivables.

The unsecured personal loans are sold to an unconsolidated VIE and derecognized from our balance sheet at the time of sale.

We will continue to service the personal loans sold and will be entitled a servicing fee and other fees commensurate with the services performed as part of the agreement.

Our first sale was executed on January 8, 2021 and the option to increase the monthly commitment to $25 million in gross finance receivables has not been exercised to date.

OMH's Operating Activities

Net cash provided by operations of $2.2 billion for 2020 reflected net income of $730 million, the impact of non-cash items, and an unfavorable change in working capital of $118 million.

Net cash provided by operations of $2.4 billion for 2019 reflected net income of $855 million, the impact of non-cash items, and a favorable change in working capital of $67 million.

Net cash provided by operations of $2.0 billion for 2018 reflected net income of $447 million, the impact of non-cash items, and a favorable change in working capital of $86 million.

Net cash provided by operations of $1.6 billion for 2017 reflected a net income of $183 million, the impact of non-cash items, and a favorable change in working capital of $17 million.

OMH's Investing Activities

Net cash used for investing activities of $3.4 billion, $2.4 billion, and $2.2 billion for 2019, 2018, and 2017, respectively, were primarily due to net principal originations of finance receivables held for investment and held for sale and purchases of available-for-sale securities, partially offset by net sales, calls, and maturities of available-for-sale securities.

Net cash used for investing activities of $751 million, $3.4 billion, and $2.4 billion for 2020, 2019, and 2018, respectively, was primarily due to net principal originations of finance receivables held for investment and held for sale and purchases of available-for-sale and other securities, partially offset by calls, sales, and maturities of available-for-sale and other securities.

OMH's Financing Activities

Net cash used for financing activities of $370 million for 2020 was primarily due to debt repayments, cash dividends paid, and the cash paid on the common stock repurchased, offset by the issuances of long-term debt.

Net cash provided by financing activities of $1.5 billion for 2019 was primarily due to net issuances of long-term debt offset primarily by the cash dividends paid in 2019.

Net cash provided by financing activities of $44 million for 2018 was primarily due to net issuances of long-term debt.

Net cash provided by financing activities of $975 million for 2017 was primarily due to net issuances of long-term debt, offset primarily by the repayment at maturity of existing 6.90% Medium-Term Notes and the repurchase of existing 6.90% Medium-Term Notes.

OMH's Cash and Investments

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Liquidity Risks and Strategies

SFC’s credit ratings are non-investment grade, which has a significant impact on our cost and access to capital.

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.

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Our insurance subsidiaries are subject to state regulations that limit their ability to pay dividends.

See Note 12 of the Notes to the Consolidated Financial Statements included in this report for further information on these restrictions and the dividends paid by our insurance subsidiaries from 2017 through 2019.

See Note 11 of the Notes to the Consolidated Financial Statements included in this report for further information on these state restrictions and the dividends paid by our insurance subsidiaries from 2018 through 2020.

OUR DEBT AGREEMENTS

The debt agreements to which SFC and its subsidiaries are a party include customary terms and conditions, including covenants and representations and warranties.

See Note 10 of the Notes to the Consolidated Financial Statements included in this report for further information on the restrictive covenants under SFC’s debt agreements, as well as the guarantees of SFC’s long-term debt.

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 included in this report for further information on the restrictive covenants under OMFC’s debt agreements, as well as the guarantees of OMFC’s long-term debt.

Securitized Borrowings

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SLFT 2017-A 652 685 428 484 3.12 % 3 years

SLFT 2017-A 652 685 619 685 2.98 % 3 years

OMFIT 2015-3 293 329 225 240 4.39 % 5 years

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OMFIT 2019-2 900 947 900 995 3.30 % 7 years

OMFIT 2019-2 900 947 900 947 3.30 % 7 years

OMFIT 2019-A 789 892 750 892 3.78 % 7 years

ODART 2017-2 605 624 240 276 3.07 % 1 year

OMFIT 2020-1 (c) 821 958 821 958 4.12 % 2 years

OMFIT 2020-2 (d) 1,000 1,053 1,000 1,053 2.03 % 5 years

ODART 2018-1 947 964 630 674 3.62 % 2 years

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(b) Inclusive of in-process replenishments of collateral for securitized borrowings in a revolving status as of December 31, 2020.

The notes mature in May of 2032.

We initially retained $71 million of the Class C notes and subsequently sold the Class C notes on May 29, 2020.

(d) On August 21, 2020, we issued $1.0 billion of notes backed by personal loans.

The notes mature in September of 2035.

Revolving Conduit Facilities

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(dollars in millions) Advance Maximum Balance Amount

Drawn Revolving

Period End Due and Payable

Rocky River Funding, LLC $ 400 $ — April 2022 May 2023

OneMain Financial Funding IX, LLC 650 — June 2022 July 2023

Mystic River Funding, LLC 850 — September 2022 October 2025

Fourth Avenue Auto Funding, LLC 200 — June 2022 July 2023

OneMain Financial Funding VIII, LLC 650 — August 2021 September 2023

OneMain Financial Auto Funding I, LLC 850 — June 2021 July 2028

OneMain Financial Funding VII, LLC 850 — June 2021 July 2023

Thayer Brook Funding, LLC 250 — July 2021 August 2022

Hubbard River Funding, LLC 250 — September 2021 October 2023

Seine River Funding, LLC 650 — October 2021 November 2024

New River Funding, LLC 250 — March 2022 April 2027

Hudson River Funding, LLC 500 — June 2022 July 2025

Columbia River Funding, LLC 500 — September 2022 October 2025

Lawrence River Funding, LLC 250 — October 2022 November 2024

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 —

Lawrence River Funding, LLC 250 —

OneMain Financial Funding VII, LLC 850 —

OneMain Financial Auto Funding I, LLC 850 —

Total $ 7,200 $ —

See “Liquidity and Capital Resources - Sources and Uses of Funds - Securitizations and Borrowings from Revolving Conduit Facilities” above for information on the transaction completed subsequent to December 31, 2019.

* On September 30, 2020, we terminated the conduit facility with New River Funding, LLC and simultaneously entered into a new conduit facility with New River Funding Trust.

See Note 9 of the Notes to the Consolidated Financial Statements included in this report for information on the transaction completed subsequent to December 31, 2020.

Contractual Obligations

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Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements as defined by SEC rules and we had no off-balance sheet exposure to losses associated with unconsolidated VIEs at December 31, 2019 or December 31, 2018.

We have no material off-balance sheet arrangements as defined by SEC rules, and we had no material off-balance sheet exposure to losses associated with unconsolidated VIEs at December 31, 2020 or December 31, 2019.

Critical Accounting Policies and Estimates

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ALLOWANCE FOR FINANCE RECEIVABLE LOSSES

We estimate the allowance for finance receivable losses primarily on historical loss experience using a roll rate-based model applied to our finance receivable portfolio.

In our roll rate-based model, our finance receivable types are stratified by collateral mix and contractual delinquency stages, and are projected forward in one-month increments using historical roll rates.

In each month of the simulation, losses on our finance receivable types are captured, and the ending delinquency stratification serves as the beginning point of the next iteration.

We estimate the allowance for finance receivable losses primarily on historical loss experience using a cumulative loss model applied to our finance receivable portfolios.

Our gross credit loss expectation is offset by the estimate of future recoveries using historical recovery curves.

Our finance receivables are primarily segmented in the loss model by contractual delinquency status.

Other attributes in the model include collateral mix and recent credit score.

To estimate the gross credit losses, the model utilizes a roll rate matrix to project the first 12 months of losses and historical cohort performance to project the expected losses over the remaining term.

Our methodology relies on historical loss experience to forecast the corresponding future outcomes.

These patterns are then applied to the current portfolio to obtain an estimate of future losses.

We also consider key economic trends including unemployment rates and bankruptcy filings.

Forecasted macroeconomic conditions extend to our reasonable and supportable forecast period and revert to a historical average.

No new volume is assumed.

This process is repeated until the number of iterations equals the loss emergence period (the interval of time between the event which causes a borrower to default on a finance receivable and our recording of the charge-off) for our finance receivable types.

As delinquency is a primary input into our roll rate-based model, we inherently consider nonaccrual loans in our estimate of the allowance for finance receivable losses.

Management exercises its judgment, based on quantitative analyses, qualitative factors, such as recent delinquency and other credit trends, and experience in the consumer finance industry, when determining the amount of the allowance for finance receivable losses.

We adjust the amounts determined by the roll rate-based model for management’s estimate of the effects of model imprecision which include but are not limited to, any changes to underwriting criteria, portfolio seasoning, and current economic conditions, including levels of unemployment and personal bankruptcies.

Renewals are a significant piece of our new volume and are considered a terminal event of the previous loan.

We have elected not to measure an allowance on accrued finance charges as it is our policy to reverse finance charge amounts previously accrued after four contractual payments become past due.

Management exercises its judgment when determining the amount of allowance for finance receivable losses.

Our judgment is based on quantitative analyses, qualitative factors, such as recent portfolio, industry, and other economic trends, and experience in the consumer finance industry.

We adjust the amounts determined by our model for management’s estimate of the effects of model imprecision which include but are not limited to, any changes to underwriting criteria and portfolio seasoning.

TDR FINANCE RECEIVABLES

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We use certain assumptions to estimate the expected cash flows from our TDR finance receivables.

The primary assumptions for our model are prepayment speeds, default rates, and severity rates.

FAIR VALUE MEASUREMENTS

Management is responsible for the determination of the fair value of our financial assets and financial liabilities and the supporting methodologies and assumptions.

We employ widely used financial techniques or utilize third-party valuation service providers to gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments or pools of finance receivables.

When our valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, we determine fair value either by requesting brokers who are knowledgeable about these securities to provide a quote, which is generally non-binding, or by employing widely used financial techniques.

GOODWILL AND OTHER INTANGIBLE ASSETS

We test goodwill for potential impairment annually as of October 1 of each year and whenever events occur or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount.

If the qualitative assessment indicates that it is more likely than not that the reporting unit’s fair value is less than its carrying amount, we proceed with the quantitative impairment test.

When necessary, the fair value of the reporting unit is calculated utilizing the income approach, which uses prospective financial information of the reporting unit discounted at a rate that we estimate a market participant would use.

For indefinite-lived intangible assets, we review for impairment at least annually and whenever events occur or circumstances change that would indicate the assets are more likely than not to be impaired.

We first complete an annual qualitative assessment to determine whether it is necessary to perform a quantitative impairment test.

If the qualitative assessment indicates that the assets are more likely than not to have been impaired, we proceed with the fair value calculation of the assets.

The fair value is determined in accordance with our fair value measurement policy.

For those net intangible assets with a finite useful life, we review such intangibles for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

The primary assumptions for our model are prepayment speeds, default rates, and loss severity rates.

Recent Accounting Pronouncements

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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, whereby it decreased demand for personal loans during 2020 and reduced delinquency below historical experience.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis