Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of OMH's financial condition and results of operations should be read together with the audited consolidated financial statements and related notes included in this report. This discussion and analysis contains forward-looking statements that involve risk, uncertainties, and assumptions. See “Forward-Looking Statements” included in this report for more information. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including those discussed in “Risk Factors” included in this report.
An index to our management’s discussion and analysis follows:
Topic Page
Overview
37
Recent Developments and Outlook
39
Results of Operations
41
Segment Results
44
Credit Quality
46
Liquidity and Capital Resources
51
Critical Accounting Policies and Estimates
57
Recent Accounting Pronouncements
58
Seasonality
58
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Overview
We operate in the United States and market our personal loans in 44 states. We also offer two credit cards, BrightWay and BrightWay+, which are designed to reward customers for responsible credit activity such as consistent on-time payments. We continue to expand BrightWay and BrightWay+ credit cards across our branch network, through direct mail, and through our digital affiliates. In connection with our offerings, our insurance subsidiaries offer our personal loan customers optional credit and non-credit insurance, and other insurance-related products. We strive to meet our customers at their preferred channel and to deliver a seamless customer experience through our digital platforms or working with our expert team members at our approximately 1,400 locations. Our personal loans, credit cards, and other products help customers meet everyday needs and take steps to improve their financial well-being.
In addition to our loan originations, insurance, and other product sales activities, we also service the loans that we originate and retain on our balance sheet, as well as loans owned by third parties on their behalf in connection with our whole loan sale program and legacy businesses. We also 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 need timely access to cash. Our personal loans are non-revolving, with a fixed rate, have fixed terms generally between three and six years, and are secured by automobiles, other titled collateral, or are unsecured. At December 31, 2022, we had approximately 2.33 million personal loans totaling $19.9 billion of net finance receivables, of which 52% were secured by titled property, compared to approximately 2.34 million personal loans totaling $19.2 billion of net finance receivables, of which 52% were secured by titled property at December 31, 2021. We also service personal loans for our whole loan sale partners.
• Credit Cards — We offer credit cards through a third-party bank partner from which we purchase the receivable balances. The credit cards are offered through our branch network, direct mail marketing, and direct-to-consumer via our affiliates. Credit cards are open-ended, revolving, with a fixed rate, and are unsecured. At December 31, 2022, we had approximately 135 thousand open credit card customer accounts, totaling $107 million of net finance receivables, compared to approximately 66 thousand open credit card customer accounts, totaling $25 million of net finance receivables at December 31, 2021.
• Insurance Products — We offer our custom ers optional credit insurance products (life, disability, 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 SEGMENT
At December 31, 2022, Consumer and Insurance (“C&I”) is our only reportable segment, which includes personal loans, credit cards, and insurance products. At December 31, 2022, we managed a combined total of 2.56 million customer accounts and $20.8 billion of managed receivables, compared to 2.45 million customer accounts and $19.6 billion of managed receivables at December 31, 2021.
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 held for sale and reported in Other assets in our consolidated balance sheets. See Note 17 of the Notes to the Consolidated Financial Statements included in this report for more information about our segment.
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HOW WE ASSESS OUR BUSINESS PERFORMANCE
We closely monitor the primary drivers of pretax operating income, which consist of the following:
Interest Income
We track interest income, including certain fees earned on our finance receivables, and continually monitor the components that impact our yield. 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, 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 utilization of revolving conduit facilities.
Net Credit Losses
The credit quality of our loans is driven by our underwriting philosophy, which considers the prospective customer’s household budget, his or her willingness and capacity to repay, and the underlying collateral on the loan. We closely analyze credit performance because the profitability of our loan portfolio is directly connected to net credit losses. We define net credit losses as gross charge-offs minus recoveries in the portfolio. Additionally, because delinquencies are an early indicator of future net credit losses, we analyze delinquency trends, adjusting for seasonality, to determine whether our loans are performing in line with our original estimates. We also monitor recovery rates because of their contribution to the reduction in the severity of our charge-offs.
Operating Expenses
We assess our operational efficiency using various metrics and conduct extensive analysis to determine whether fluctuations in cost and expense levels indicate operational trends that need to be addressed. Our operating expense analysis also includes a review of origination and servicing costs to assist us in managing overall profitability.
Finance Receivables Originations and Purchase Volume
Because loan volume and portfolio size determine the magnitude of the impact of each of the above factors on our earnings, we also closely monitor originations, purchase volume, and annual percentage rate.
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Recent Developments and Outlook
RECENT DEVELOPMENTS
Stock Repurchase Program
On February 2, 2022, the Board authorized a stock repurchase program, which allows us to repurchase up to $1.0 billion of OMH’s outstanding common stock, excluding fees, commissions, and other expenses related to the repurchases. The authorization expires on December 31, 2024. As of December 31, 2022, we had $726 million of authorized share repurchase capacity, excluding fees and commissions, remaining under the program.
See “Liquidity and Capital Resources” under Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in Part II of this report for further information on our shares repurchased.
Private Secured Term Funding
On April 25, 2022, OMFC entered into a $350 million private secured term funding collateralized by our personal loans. No principal payments are required to be made during the first three years, followed by a subsequent one-year amortization period at the expiration of which the outstanding principal amount is due and payable.
Social Securitization Transaction - OMFIT 2022-S1
As part of our continued commitment to improve the financial well-being of hardworking Americans, on April 27, 2022, OMFC completed its first social securitization under Rule 144A. We issued $600 million principal amount of notes backed by personal loans (“OMFIT 2022-S1”) made to the target population identified in the OneMain 2022 ABS Social Bond Framework. OMFIT 2022-S1 has a revolving period of three years, during which no principal payments are required. Generally, the target population is comprised of borrowers residing in rural communities (by zip code), 75% of whom are lower income borrowers in these communities. Through the OneMain 2022 ABS Social Bond Framework we aim to promote financial inclusion to the target population by providing equitable access to fair and transparent credit. The OneMain 2022 ABS Social Bond Framework, which is available on OneMain’s Investor Relations website, aligns to the Social Bond Principles 2021, as administered by the International Capital Market Association.
Securitization Transactions Completed - ODART 2022-1, OMFIT 2022-2, and OMFIT 2022-3
For information regarding the issuances of our secured debt, see “Liquidity and Capital Resources” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.
Redemption of 8.875% Senior Notes Due 2025
On June 1, 2022, OMFC paid a net aggregate amount of $637 million, inclusive of accrued interest and premiums, to complete the redemption of its 8.875% Senior Notes due 2025.
Unsecured Corporate Revolver
On June 15, 2022, OMFC increased the total maximum borrowing capacity of its unsecured corporate revolver to $1.25 billion. At December 31, 2022, no amounts were drawn under this facility.
For further information regarding the redemption of our unsecured debt and our corporate revolver, see Note 8 of the Notes to the Consolidated Financial Statements included in this report.
Cash Dividends to OMH's Common Stockholders
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.
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Election and Resignation of Members of the Board
On January 27, 2022, Toos N. Daruvala was elected to the Board, effective February 14, 2022.
On February 24, 2022, Peter B. Sinensky resigned from the Board.
Appointments of OMFC’s President and Chief Executive Officer (“CEO”), and Vice President, Chief Financial Officer (“CFO”) and a new member of OMFC’s Board of Directors
On December 12, 2022, OMFC’s Board of Directors appointed Micah R. Conrad as OMFC’s President and CEO and elected Matthew Vaughan as Vice President, CFO of OMFC and to OMFC’s Board of Directors. Mr. Conrad succeeds Richard N. Tambor and Mr. Vaughan succeeds Mr. Conrad’s former position as CFO of OMFC.
Management’s Response to the COVID-19 Pandemic
In early 2020, COVID-19 evolved into a global pandemic, resulting in widespread volatility and deterioration in economic conditions across the states and regions that we serve. Throughout the pandemic, we maintained our focus on assisting and supporting our customers, 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 platform. This hybrid capability has sustained our operating performance through the pandemic and enabled us to serve and support our customers effectively.
OUTLOOK
We are actively monitoring the current macroeconomic developments, including geopolitical actions outside of the U.S., and remain prepared for any opportunities or challenges that may impact our business. Our financial condition and results of operations could be affected by macroeconomic conditions, including changes in unemployment, inflation, interest rates, and consumer confidence. We will continue to incorporate updates to our macroeconomic assumptions, as necessary, which could lead to further adjustments in our allowance for finance receivable losses, allowance ratio, and provision for finance receivable losses.
Our experienced management team remains focused on maintaining a solid balance sheet with a strong liquidity runway and capital coverage, upholding a conservative and disciplined underwriting model, and building strong relationships with our customers to ensure that we are serving them well. We believe we are well positioned to serve our customers, invest in our business, and drive long-term growth to create value for our stockholders as we navigate an ever-evolving economic, social, political, and regulatory environment.
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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 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.
(dollars in millions, except per share amounts)
At or for the Years Ended December 31, 2022 2021 2020
Interest income $ 4,435 $ 4,364 $ 4,368
Interest expense 892 937 1,027
Provision for finance receivable losses 1,402 593 1,319
Net interest income after provision for finance receivable losses
2,141 2,834 2,022
Other revenues 629 531 526
Other expenses 1,607 1,624 1,571
Income before income taxes
1,163 1,741 977
Income taxes 285 427 247
Net income $ 878 $ 1,314 $ 730
Share Data:
Earnings per share:
Diluted $ 7.06 $ 9.87 $ 5.41
Selected Financial Statistics (a)
Total finance receivables:
Net finance receivables $ 19,986 $ 19,212 $ 18,084
Average net receivables $ 19,440 $ 18,281 $ 17,997
Yield 22.79 % 23.84 % 24.24 %
Gross charge-off ratio 7.40 % 5.41 % 6.46 %
Recovery ratio (1.29) % (1.21) % (0.92) %
Net charge-off ratio 6.10 % 4.20 % 5.54 %
Personal loans:
Net finance receivables $ 19,879 $ 19,187 $ 18,084
Origination volume $ 13,879 $ 13,825 $ 10,729
Number of accounts 2,334,097 2,336,845 2,304,951
Number of accounts originated 1,365,989 1,388,123 1,099,767
30-89 Delinquency ratio 3.07 % 2.43 % 2.28 %
Credit cards (b):
Net finance receivables $ 107 $ 25 $ —
Purchase volume $ 172 $ 26 $ —
Number of open accounts 135,335 65,513 —
30-89 Delinquency ratio 5.90 % 0.08 % — %
Debt balances:
Long-term debt balance $ 18,281 $ 17,750 $ 17,800
Average daily debt balance $ 17,854 $ 17,441 $ 18,080
(a) See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.
(b) There were no credit cards for the year ended December 31, 2020, as the product offering began in 2021.
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Comparison of Consolidated Results for 2022 and 2021
Interest income increased $71 million or 2% in 2022 when compared to 2021 primarily due to growth in our loan portfolio, partially offset by lower yield.
Interest expense decreased $45 million or 5% in 2022 when compared to 2021 primarily due to a lower average cost of funds, partially offset by an increase in average debt.
See Notes 8 and 9 of the Notes to the Consolidated Financial Statements included in this report for further information on our long-term debt, securitization transactions, private secured term funding, and our revolving conduit facilities.
Provision for finance receivable losses increased $809 million or 136% in 2022 when compared to 2021 primarily driven by higher net charge-offs and an increase in the allowance for finance receivable losses due to the weakened macroeconomic environment and growth in the portfolio.
Other revenues increased $98 million or 18% in 2022 when compared to 2021 primarily due to an increase in gains on the sales of finance receivables and an increase in servicing revenue associated with the whole loan sale program as a result of more loans sold in the current period and lower net losses on the repurchases and repayments of debt in the current period compared to the prior year period.
Other expenses decreased $17 million or 1% in 2022 when compared to 2021 primarily due to a decrease in insurance policy and benefits claims expense due to favorable experiences in credit life and term life products, the prior year expense associated with the cash-settled stock-based awards not present in the current year, and a decrease in amortization expense of other intangibles primarily due to the customer relationships intangible asset being fully amortized in the prior year. The decrease was partially offset by an increase in salaries and benefits expense and an increase in software and technology expense driven by the continued investment in our business.
Income taxes totaled $285 million for 2022 compared to $427 million for 2021. The effective tax rate for 2022 was 24.5% compared to 24.6% for 2021. The effective tax rate for 2022 and 2021 differed from the federal statutory rate of 21% primarily due to the effect of state income taxes.
See Note 13 of the Notes to the Consolidated Financial Statements included in this report for further information on effective tax rates.
Comparison of Consolidated Results for 2021 and 2020
For a comparison of OMH's results of operation for the years ended 2021 and 2020, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—OMH’s Consolidated Results” in Part II - Item 7 of OMH's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 11, 2022.
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NON-GAAP FINANCIAL MEASURES
Management uses C&I adjusted pretax income (loss), a non-GAAP financial measure, as a key performance measure of our segment. C&I adjusted pretax income (loss) represents income (loss) before income taxes on a Segment Accounting Basis and excludes the expense associated with the net loss resulting from repurchases and repayments of debt, restructuring charges, direct costs associated with COVID-19, the expense associated with the cash-settled stock-based awards, and acquisition-related transaction and integration expenses. Management believes C&I adjusted pretax income (loss) is useful in assessing the profitability of our segment.
Management also uses C&I pretax capital generation, a non-GAAP financial measure, as a key performance measure of our segment. This measure represents C&I adjusted pretax income as discussed above and excludes the change in our C&I allowance for finance receivable losses in the period while still considering the C&I net charge-offs incurred during the period. Management believes that C&I 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 C&I adjusted pretax income (loss) and C&I 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. C&I adjusted pretax income (loss) and C&I 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 before income tax expense on a Segment Accounting Basis to C&I adjusted pretax income (non-GAAP) and C&I pretax capital generation (non-GAAP) were as follows:
(dollars in millions)
Years Ended December 31, 2022 2021 2020
Consumer and Insurance
Income before income taxes - Segment Accounting Basis
$ 1,177 $ 1,788 $ 1,021
Adjustments:
Net loss on repurchases and repayments of debt
26 70 36
Restructuring charges 7 — 7
Direct costs associated with COVID-19
4 6 17
Cash-settled stock-based awards — 54 —
Acquisition-related transaction and integration expenses — — 11
Adjusted pretax income (non-GAAP)
1,214 1,918 1,092
Provision for finance receivable losses 1,399 587 1,313
Net charge-offs (1,186) (768) (998)
Pretax capital generation (non-GAAP) $ 1,427 $ 1,737 $ 1,407
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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 Consolidated Financial Statements included in this report for further information.
See Note 17 of the Notes to the Consolidated Financial Statements in this report for a description of our segment, methodologies used to allocate revenues and expenses to our C&I segment, and reconciliations of segment total to consolidated financial statement amounts.
CONSUMER AND INSURANCE
OMH's adjusted pretax income and selected financial statistics for C&I on an adjusted Segment Accounting Basis were as follows:
(dollars in millions)
At or for the Years Ended December 31, 2022 2021 2020
Interest income $ 4,429 $ 4,355 $ 4,353
Interest expense 886 930 1,007
Provision for finance receivable losses 1,399 587 1,313
Net interest income after provision for finance receivable losses
2,144 2,838 2,033
Other revenues 644 597 551
Other expenses 1,574 1,517 1,492
Adjusted pretax income (non-GAAP) $ 1,214 $ 1,918 $ 1,092
Selected Financial Statistics (a)
Total finance receivables:
Net finance receivables $ 19,987 $ 19,215 $ 18,091
Average net receivables $ 19,442 $ 18,286 $ 18,009
Yield 22.78 % 23.82 % 24.17 %
Gross charge-off ratio 7.40 % 5.42 % 6.46 %
Recovery ratio (1.29) % (1.21) % (0.92) %
Net charge-off ratio 6.10 % 4.20 % 5.54 %
Personal loans:
Net finance receivables $ 19,880 $ 19,190 $ 18,091
Origination volume $ 13,879 $ 13,825 $ 10,729
Number of accounts 2,334,097 2,336,845 2,304,951
Number of accounts originated 1,365,989 1,388,123 1,099,767
30-89 Delinquency ratio 3.07 % 2.43 % 2.28 %
Credit cards (b):
Net finance receivables $ 107 $ 25 $ —
Purchase volume $ 172 $ 26 $ —
Number of open accounts 135,335 65,513 —
30-89 Delinquency ratio 5.90 % 0.08 % — %
(a) See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.
(b) There were no credit cards for the year ended December 31, 2020, as the product offering began in 2021.
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Comparison of Adjusted Pretax Income for 2022 and 2021
Interest income increased $74 million or 2% in 2022 when compared to 2021 primarily due to growth in our loan portfolio, partially offset by lower yield.
Interest expense decreased $44 million or 5% in 2022 when compared to 2021 primarily due to a lower average cost of funds, partially offset by an increase in average debt.
See Notes 8 and 9 of the Notes to the Consolidated Financial Statements included in this report for further information on our long-term debt, securitization transactions, private secured term funding, and our revolving conduit facilities.
Provision for finance receivable losses increased $812 million or 138% in 2022 when compared to 2021 primarily driven by higher net charge-offs and an increase in the allowance for finance receivable losses due to the weakened macroeconomic environment and growth in the portfolio.
Other revenues increased $47 million or 8% in 2022 when compared to 2021 primarily due to an increase in gains on the sales of finance receivables and an increase in servicing revenue associated with the whole loan sale program as a result of more loans sold in the current period.
Other expenses increased $57 million or 4% in 2022 when compared to 2021 primarily due to an increase in salaries and benefits expense and an increase in software and technology expense driven by the continued investment in our business. The increase was partially offset by a decrease in insurance policy and benefits claims expense primarily due to favorable experiences in credit life and term life products.
Comparison of Adjusted Pretax Income for 2021 and 2020
For a comparison of OMH's adjusted pretax income for C&I for the years ended 2021 and 2020, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—OMH’s Consolidated Results” in Part II -Item 7 of OMH's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 11, 2022.
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Credit Quality
FINANCE RECEIVABLES
Our net finance receivables, consisting of personal loans and credit cards, were $20.0 billion at December 31, 2022 and $19.2 billion at December 31, 2021. 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 and central operation 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 personal loans are contractually 60 days past due, we consider these accounts to be at an increased risk for loss and collection of these accounts is managed by 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. We consider our personal loans to be nonperforming at 90 days contractually past due, at which point we stop accruing finance charges and reverse finance charges previously accrue d .
We accrue finance charges and fees on credit cards until charge-off at approximately 180 days past due, at which point we reverse finance charges and fees previously accrued.
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The delinquency information for net finance receivables on a Segment Accounting Basis was as follows:
Consumer and Insurance
(dollars in millions) Personal Loans Credit Cards
December 31, 2022
Current
$ 18,726 $ 93
30-59 days past due
357 3
60-89 days past due
253 3
90+ days past due
544 8
Total net finance receivables
$ 19,880 $ 107
Delinquency ratio
30-89 days past due
3.07 % 5.90 %
30+ days past due 5.80 % 13.08 %
60+ days past due 4.01 % 9.69 %
90+ days past due 2.74 % 7.18 %
December 31, 2021
Current
$ 18,340 $ 25
30-59 days past due
282 —
60-89 days past due
185 —
90+ days past due
383 —
Total net finance receivables
$ 19,190 $ 25
Delinquency ratio
30-89 days past due
2.43 % 0.08 %
30+ days past due 4.43 % 0.08 %
60+ days past due 2.96 % — %
90+ days past due 2.00 % — %
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ALLOWANCE FOR FINANCE RECEIVABLE LOSSES
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 overall unemployment rate. Our unemployment outlook leveraged projections from various industry leading forecast providers. We also considered inflationary pressures, consumer confidence levels, and continued interest rate increases negatively impacting the economic outlook. At December 31, 2022, our economic forecast used a reasonable and supportable period of 12 months. 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 our allowance for finance receivable losses were as follows:
(dollars in millions) Consumer and Insurance Segment to
GAAP
Adjustment Consolidated
Total
Personal Loans Credit Cards
Year Ended December 31, 2022
Balance at beginning of period
$ 2,097 $ 5 $ (7) $ 2,095
Provision for finance receivable losses
1,376 23 3 1,402
Charge-offs
(1,431) (7) — (1,438)
Recoveries
252 — — 252
Balance at end of period
$ 2,294 $ 21 $ (4) $ 2,311
Allowance ratio
11.54 % 19.12 % (a) 11.56 %
Year Ended December 31, 2021
Balance at beginning of period
$ 2,283 $ — $ (14) $ 2,269
Provision for finance receivable losses
582 5 6 $ 593
Charge-offs
(990) — 1 $ (989)
Recoveries
222 — — $ 222
Balance at end of period
$ 2,097 $ 5 $ (7) $ 2,095
Allowance ratio
10.93 % 19.91 % (a) 10.90 %
Year Ended December 31, 2020 (b)
Balance at beginning of period
$ 849 $ — $ (20) $ 829
Impact of adoption of ASU 2016-13 (c)
1,119 — (1) 1,118
Provision for finance receivable losses
1,313 — 6 1,319
Charge-offs
(1,163) — 1 (1,162)
Recoveries
165 — — 165
Balance at end of period
$ 2,283 $ — $ (14) $ 2,269
Allowance ratio
12.62 % — % (a) 12.55 %
(a) Not applicable.
(b) There were no credit cards for the year ended December 31, 2020 as the product offering began in 2021.
(c) As a result of the adoption of ASU 2016-13, we recorded a one-time adjustment to the allowance for finance receivable losses.
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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 ratio 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 for personal loans increased from the prior year period primarily due to the weakened macroeconomic environment. See Note 5 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.
TDR FINANCE RECEIVABLES
We may modify the terms of 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 for personal loans are as follows:
(dollars in millions) Personal
Loans Segment to
GAAP
Adjustment GAAP
Basis
December 31, 2022
TDR net finance receivables $ 915 $ (11) $ 904
Allowance for TDR finance receivable losses 373 (4) 369
December 31, 2021
TDR net finance receivables $ 671 $ (21) $ 650
Allowance for TDR finance receivable losses 279 (9) 270
There were no credit cards classified as TDR finance receivables at December 31, 2022 or December 31, 2021.
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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 group FICO scores into the following 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 net finance receivables 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) Personal Loans Credit Cards Total
December 31, 2022
FICO scores
660 or higher
$ 4,255 $ 15 $ 4,270
620-659
4,986 37 5,023
619 or below
10,638 55 10,693
Total $ 19,879 $ 107 $ 19,986
December 31, 2021
FICO scores *
660 or higher
$ 4,897 $ 14 $ 4,911
620-659
5,321 7 5,328
619 or below
8,969 4 8,973
Total $ 19,187 $ 25 $ 19,212
* Due to the impact of COVID-19, FICO scores as of December 31, 2021 may have been positively impacted by 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, whole loan sales, 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 year ended December 31, 2022, OMH generated net income of $878 million. OMH’s net cash inflow from operating and investing activities totaled $268 million for the year ended December 31, 2022. At December 31, 2022, our scheduled principal and interest payments for 2023 on our existing debt (excluding securitizations) totaled $1.5 billion. As of December 31, 2022, we had $9.3 billion of unencumbered loans.
Based on our estimates and considering 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.
OMFC’s Unsecured Corporate Revolver
At December 31, 2022, the borrowing capacity of our corporate revolver was $1.25 billion, and no amounts were drawn.
OMFC’s Redemption and Repurchases of Unsecured Debt
For information regarding the redemption and open market repurchases of OMFC’s unsecured debt, see Note 8 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, 2022, we completed four personal loan securitizations (OMFIT 2022-S1, ODART 2022-1, OMFIT 2022-2, and OMFIT 2022-3, see “Securitized Borrowings” below) and redeemed five personal loan securitizations (ODART 2018-1, OMFIT 2019-1, OMFIT 2015-3, OMFIT 2018-1, and OMFIT 2016-3). During the year ended December 31, 2022, we entered into one new revolving conduit facility. At December 31, 2022, $50 million was drawn under our revolving conduit facilities, and the remaining borrowing capacity was $6.1 billion. At December 31, 2022, we had $10.3 billion of gross finance receivables pledged as collateral for our securitizations, revolving conduit facilities, and private secured term funding.
Private Secured Term Funding
On April 25, 2022, OMFC entered into a $350 million private secured term funding collateralized by our personal loans. No principal payments are required to be made during the first three years, followed by a subsequent one-year amortization period at the expiration of which the outstanding principal amount is due and payable.
See Notes 8 and 9 of the Notes to the Consolidated Financial Statements included in this report for further information on our long-term debt, securitization transactions, private secured term funding, and revolving conduit facilities.
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Credit Ratings
Our credit ratings impact our ability to access capital markets and our borrowing costs. Rating agencies base their ratings on numerous factors, including liquidity, capital adequacy, asset quality, quality of earnings, and the probability of systemic support. Significant changes in these factors could result in different ratings.
The table below outlines OMFC’s long-term corporate debt ratings and outlook by rating agencies:
As of December 31, 2022
Rating Outlook
S&P BB Stable
Moody’s Ba2 Stable
KBRA BB+ Positive
Currently, no other entity has a corporate debt rating, though they may be rated in the future.
Stock Repurchased
During the year ended December 31, 2022, OMH repurchased 7,181,023 shares of its common stock through its stock repurchase program for an aggregate total of $303 million, including commissions and fees. As of December 31, 2022, OMH held a total of 13,813,476 shares of treasury stock. To provide funding for the OMH stock repurchases, the OMFC Board of Directors authorized dividend payments in the amount of $280 million.
For additional information regarding the shares repurchased, see Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities of Part II included in this report.
Cash Dividend to OMH's Common Stockholders
As of December 31, 2022, the dividend declarations for the current year by the Board were as follows:
Declaration Date Record Date Payment Date Dividend Per Share Amount Paid
(in millions)
February 2, 2022 February 14, 2022 February 18, 2022 $ 0.95 $ 121
April 28, 2022 May 9, 2022 May 13, 2022 0.95 118
July 27, 2022 August 8, 2022 August 12, 2022 0.95 117
October 26, 2022 November 7, 2022 November 14, 2022 0.95 116
Total $ 3.80 $ 472
To provide funding for the dividend, OMFC paid dividends of $471 million to OMH during the year ended December 31, 2022.
On February 7, 2023, OMH declared a dividend of $1.00 per share payable on February 24, 2023 to record holders of OMH's common stock as of the close of business on February 17, 2023. To provide funding for the OMH dividend, the OMFC Board of Directors authorized a dividend in the amount of up to $121 million payable on or after February 17, 2023.
While OMH intends to pay its minimum quarterly dividend, currently $1.00 per share, for the foreseeable future, all subsequent dividends will be reviewed and declared at the discretion of the Board 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 deems relevant. OMH’s dividend payments may change from time to time, and the Board 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.
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Whole Loan Sale Transactions
As of December 31, 2022, we have whole loan sale flow agreements with third parties, with remaining terms of up to one year, in which we agreed to sell a combined total of $180 million gross receivables per quarter of newly originated unsecured personal loans along with any associated accrued interest. During the year ended December 31, 2022, we sold $720 million of gross finance receivables, compared to $505 million during the year ended December 31, 2021. See Note 4 of the Notes to the Consolidated Financial Statements included in this report for further information on the whole loan sale transactions.
LIQUIDITY
OMH's Operating Activities
Net cash provided by operations of $2.4 billion for the year ended December 31, 2022 reflected net income of $878 million, the impact of non-cash items, and an unfavorable change in working capital of $90 million. Net cash provided by operations of $2.2 billion for the year ended December 31, 2021 reflected net income of $1.3 billion, the impact of non-cash items, and an unfavorable change in working capital of $48 million. Net cash provided by operations of $2.2 billion for the year ended December 31, 2020 reflected net income of $730 million, the impact of non-cash items, and an unfavorable change in working capital of $118 million.
OMH's Investing Activities
Net cash used for investing activities of $2.1 billion for both the years ended December 31, 2022 and 2021 was primarily due to net principal originations and purchases of finance receivables and purchases of available-for-sale and other securities, partially offset by the proceeds from sales of finance receivables and calls, sales, and maturities of available-for-sale and other securities. Net cash used for investing activities of $751 million for the year ended December 31, 2020 was primarily due to net principal originations of finance receivables 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 $326 million for the year ended December 31, 2022 was primarily due to repayments and repurchases of long-term debt, cash dividends paid, and the cash paid to repurchase common stock, partially offset by the issuance and borrowings of long-term debt. Net cash used for financing activities of $1.8 billion and $370 million for the years ended December 31, 2021 and 2020, respectively, were primarily due to debt repayments, cash dividends paid, and the cash paid to repurchase common stock, partially offset by the issuance and borrowings of long-term debt.
OMH's Cash and Investments
At December 31, 2022, we had $498 million of cash and cash equivalents, which included $147 million of cash and cash equivalents held at our regulated insurance subsidiaries or for other operating activities that is unavailable for general corporate purposes.
At December 31, 2022, we had $1.8 billion of investment securities, which are all held as part of our insurance operations and are unavailable for general corporate purposes.
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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 include, but are not limited to, the following:
• our inability to grow or maintain our personal loan portfolio with adequate profitability;
• the effect of federal, state and local laws, regulations, or regulatory policies and practices;
• effects of ratings downgrades on our secured or unsecured debt;
• potential liability relating to real estate and personal loans which we have sold or may sell in the future, or relating to securitized loans; and
• the potential for disruptions in the debt and equity markets.
The principal factors that could decrease our liquidity are customer delinquencies and defaults, a decline in customer prepayments, rising interest rates, and a prolonged inability to adequately access capital market funding. We intend to support our liquidity position by utilizing some or all of the following strategies:
• maintaining disciplined underwriting standards and pricing for loans we originate or purchase and managing purchases of finance receivables;
• pursuing additional debt financings (including new secured and unsecured debt issuances, debt refinancing transactions, unsecured corporate revolvers, and revolving conduit facilities), or a combination of the foregoing;
• purchasing portions of our outstanding indebtedness through open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration, as we may determine; and
• obtaining new and extending existing secured revolving facilities to provide committed liquidity in case of prolonged market fluctuations.
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. See Note 10 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in this report for further information on these state restrictions and the dividends paid by our insurance subsidiaries from 2020 through 2022.
OUR DEBT AGREEMENTS
The debt agreements which OMFC and its subsidiaries are a party to include customary terms and conditions, including covenants and representations and warranties. See Note 8 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in this report for more information on the restrictive covenants under OMFC’s debt agreements, as well as the guarantees of OMFC’s long-term debt.
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Securitized Borrowings
We execute private securitizations under Rule 144A of the Securities Act of 1933, as amended. As of December 31, 2022, our structured financings consisted of the following:
(dollars in millions) Issue Amount (a) Initial Collateral Balance Current
Note Amounts
Outstanding (a) Current Collateral Balance
(b) Current
Weighted Average
Interest Rate Original
Revolving
Period
OMFIT 2018-2 368 381 350 400 3.87 % 5 years
OMFIT 2019-2 900 947 900 995 3.30 % 7 years
OMFIT 2019-A 789 892 750 892 3.78 % 7 years
OMFIT 2020-1 821 958 457 556 4.34 % 2 years
OMFIT 2020-2 1,000 1,053 1,000 1,053 2.03 % 5 years
OMFIT 2021-1 850 904 850 904 2.46 % 5 years
OMFIT 2022-S1 600 652 600 652 4.31 % 3 years
OMFIT 2022-2 1,000 1,099 1,000 1,099 5.17 % 2 years
OMFIT 2022-3 (c) 979 1,090 796 1,090 6.00 % 2 years
ODART 2019-1 737 750 700 750 3.79 % 5 years
ODART 2021-1 1,000 1,053 1,000 1,053 0.98 % 2 years
ODART 2022-1 600 632 600 632 4.92 % 2 years
Total securitizations $ 9,644 $ 10,411 $ 9,003 $ 10,076
(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 of December 31, 2022.
(c) On December 14, 2022, we issued $979 million of notes backed by personal loans and retained the Class C and Class D notes in the amount of $183 million. The notes mature in May of 2034.
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Revolving Conduit Facilities
In addition to the structured financings, we had access to 15 revolving conduit facilities with a total borrowing capacity of $6.2 billion as of December 31, 2022:
(dollars in millions) Advance Maximum Balance Amount
Drawn
OneMain Financial Funding VII, LLC $ 600 $ —
OneMain Financial Funding IX, LLC 600 —
OneMain Financial Auto Funding I, LLC 550 —
Seine River Funding, LLC 550 —
Hudson River Funding, LLC 500 —
OneMain Financial Funding VIII, LLC 400 —
River Thames Funding, LLC 400 —
OneMain Financial Funding X, LLC 400 50
Chicago River Funding, LLC 375 —
Mystic River Funding, LLC 350 —
Thayer Brook Funding, LLC 350 —
Columbia River Funding, LLC 350 —
Hubbard River Funding, LLC 250 —
New River Funding Trust 250 —
St. Lawrence River Funding, LLC 250 —
Total $ 6,175 $ 50
Contractual Obligations
At December 31, 2022, our material contractual obligations were as follows:
(dollars in millions) 2023 2024-2025 2026-2027 2028+ Securitizations Private Secured Term Funding Revolving
Conduit
Facilities Total
Principal maturities on long-term debt:
Securitization debt (a) $ — $ — $ — $ — $ 9,003 $ — $ — $ 9,003
Medium-term notes 1,004 2,519 2,350 2,933 — — — 8,806
Junior subordinated debt — — — 350 — — — 350
Private secured term funding (a) — — — — — 350 — 350
Revolving conduit facilities (a) — — — — — — 50 50
Total principal maturities 1,004 2,519 2,350 3,283 9,003 350 50 18,559
Interest payments on debt (b) 513 787 435 1,124 899 64 9 3,831
Total $ 1,517 $ 3,306 $ 2,785 $ 4,407 $ 9,902 $ 414 $ 59 $ 22,390
(a) On-balance sheet securitizations, private secured term funding, and borrowings under revolving conduit facilities are not included in maturities by period due to their variable monthly payments.
(b) Future interest payments on floating-rate debt are estimated based upon rates in effect at December 31, 2022.
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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 material off-balance sheet exposure to losses associated with unconsolidated VIEs at December 31, 2022 or December 31, 2021.
Critical Accounting Policies and Estimates
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
We estimate the expected credit losses on our finance receivables over their expected lives based on historical experience, current conditions, and reasonable and supportable forecasts of collectability. No new volume is assumed. Personal loan renewals are a significant piece of our new volume and are considered a terminal event of the previous loan. For our personal loans, we have elected not to measure an allowance on accrued finance charges as it is our policy to reverse finance charges previously accrued after four contractual payments become past due.
Our estimate of the allowance for finance receivable losses is primarily based on historical loss experience using a cumulative loss model applied to our personal loan portfolios. Our gross credit loss expectation is offset by the estimate of future recoveries using historical recovery curves. Our personal loans 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.
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 may 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.
Forecasting macroeconomic conditions requires significant judgment and estimation uncertainty. We consider key economic factors, most notably unemployment rates, to incorporate into our estimate of the allowance for finance receivable losses. Our macroeconomic forecast considers various scenarios of economic projections from industry leading forecast providers, and extends over our reasonable and supportable forecast period, after which we revert to a historical average.
Due to the judgment and uncertainty in estimating the expected credit losses, we may experience 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.
Macroeconomic Sensitivity
To demonstrate the sensitivity of forecasting macroeconomic conditions, we compared the output of our model using a baseline scenario to that of a downside scenario. As of December 31, 2022, the impact of a ten percentage point increase in weighting towards a downside scenario increased the estimate by approximately $25 million.
The macroeconomic scenarios are highly influenced by the timing, severity, and duration of changes in the underlying economic factors. This makes it difficult to estimate how potential changes in economic factors affect the estimated credit losses. Therefore, this hypothetical analysis is not intended to represent our expectation of changes in our estimate of expected credit losses due to a change in the macroeconomic environment, nor does it consider management’s judgment of other quantitative and qualitative information which could increase or decrease the estimate.
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TDR FINANCE RECEIVABLES
When we modify a personal 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. Loan modifications primarily involve a combination of the following to reduce the borrower’s monthly payment: reduce interest rate, extend the term, defer or forgive past due interest or forgive principal. Account modifications that are deemed to be a TDR finance receivable are measured for impairment in accordance with the authoritative guidance for the accounting for impaired loans.
The allowance for finance receivable losses related to our personal loan TDR finance receivables represent loan-specific reserves based on an analysis of the present value of expected future cash flows. We establish our allowance for finance receivable losses related to our TDR finance receivables by calculating the present value (discounted at the loan’s effective interest rate prior to modification) of all expected cash flows less the recorded investment in the aggregated pool. We use historical cash flow performance by TDR segments to estimate expected cash flows from our current portfolio of TDR finance receivables.
Recent Accounting Pronouncements
See Note 3 of the Notes to the 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.
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