ONEMAIN HOLDINGS, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)
An index of our MD&A follows: Topic
Page
Forward-Looking Statements 37
Overview 38
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 55
Recent Accounting Pronouncements 55
Seasonality 56
36
————————————————– ——————————
Table of Contents
Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
not statements of historical fact but instead represent only management's
current beliefs regarding future events. By their nature, forward-looking
statements are subject to risks, uncertainties, assumptions, and other important
factors that may cause actual results, performance, or achievements to differ
materially from those expressed in or implied by such forward-looking
statements. We caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date they were made. We do not undertake
any obligation to update or revise these forward-looking statements to reflect
events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events or the non-occurrence of anticipated events,
whether as a result of new information, future developments, or otherwise,
except as required by law. Forward-looking statements include, without
limitation, statements concerning future plans, objectives, goals, projections,
strategies, events, or performance, and underlying assumptions and other
statements related thereto. Statements preceded by, followed by or that
otherwise include the words "anticipates," "appears," "assumes," "believes,"
"can," "continues," "could," "estimates," "expects," "forecasts," "foresees,"
"goals," "intends," "likely," "objective," "plans," "projects," "target,"
"trend," "remains," and similar expressions or future or conditional verbs such
as "could," "may," "might," "should," "will," or "would" are intended to
identify forward-looking statements. Important factors that could cause actual
results, performance, or achievements to differ materially from those expressed
in or implied by forward-looking statements include, without limitation, the
following:
•adverse changes in general economic conditions, including the interest rate and financial market environment;
•the risks associated with the global epidemic of a new strain of coronavirus (“COVID-19”) and the measures taken to respond to it;
•the adequacy of our provision for financial credit losses;
•increased levels of unemployment and personal bankruptcies;
• natural or accidental events such as earthquakes, hurricanes, pandemics, floods or forest fires affecting our customers, our warranties or our facilities;
• a failure or breach of our information, operational or security systems, or the infrastructure or those of third parties, including as a result of cyberattacks, war or other disruptions;
•the relevance of our credit risk scoring models;
•adverse changes in our ability to attract and retain key employees or executives;
•increased competition or adverse changes in customer responsiveness to our distribution channels or products;
• changes in federal, state or local laws, regulations or regulatory policies and practices or increased regulatory oversight of our industry;
•risks related to our insurance operations;
• the costs and effects of any actual or alleged violation of any federal, state or local law, rule or regulation;
•the costs and effects of any fines, penalties, judgments, decrees, orders, inquiries, investigations, subpoenas, or enforcement or other proceedings of any governmental or quasi-governmental agency or authority; •our substantial indebtedness and our continued ability to access the capital markets and maintain adequate current sources of funds to satisfy our cash flow requirements;
•our ability to meet all of our commitments; and
•the effects of a possible downgrading of the rating of our debts by the rating agencies.
We also direct readers to other risks and uncertainties discussed in other documents we file with the
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. You should specifically consider the factors identified in this report and in the documents we file with theSEC that could cause actual results to differ before making an investment decision to purchase our securities and should not place undue reliance on any of our forward-looking statements. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. 37 --------------------------------------------------------------------------------
Table of Contents Overview We are the leader in offering nonprime customers responsible access to credit. Our customers are hardworking Americans who have been largely underserved by traditional lenders such as banks and credit unions. We believe our customers deserve fair and responsible access to credit, and we empower them to solve today's problems and reach a better financial future through our personalized solutions. We operate inthe United States and market our personal loans in 44 states. In the third quarter of 2021, we began offering 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 origination, insurance and other product sales activities, we also manage loans that we originate and retain on our balance sheet, as well as loans held by third parties on their behalf in the part of our entire loan sales program and legacy businesses. We also seek 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, fixed terms generally between three and six years, and are secured by automobiles, other titled collateral, or are unsecured. AtMarch 31, 2022 , we had approximately 2.29 million personal loans totaling$18.9 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 atDecember 31, 2021 . Commencing in the first quarter of 2021, we also service personal loans for our whole loan sale partners. •Credit Cards - In the third quarter of 2021, we began offering 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. AtMarch 31, 2022 , we had approximately 74 thousand open credit card customer accounts, totaling$50 million of net finance receivables, compared to approximately 66 thousand open credit card customer accounts, totaling$25 million of net finance receivables atDecember 31, 2021 . •Insurance Products - We offer our customers 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 former non-originating products include:
•Other Receivables - We ceased originating real estate loans in 2012 and we
continue to service or sub-service liquidating real estate loans. Our real
estate loans held for sale are reported in "Other assets" of our consolidated
balance sheets.
38
-------------------------------------------------------------------------------- Table of Contents OUR SEGMENT AtMarch 31, 2022 , Consumer and Insurance ("C&I") is our only reportable segment, which includes personal loans, credit cards, and insurance products. AtMarch 31, 2022 , we managed a combined total of 2.42 million customer accounts and$19.5 billion of managed receivables, compared to 2.45 million customer accounts and$19.6 billion of managed receivables atDecember 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. See Note 13 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information about our segment.
Recent developments and prospects
RECENT DEVELOPMENTS Stock Repurchase Program OnFebruary 2, 2022 , the Board authorized a new 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 onDecember 31, 2024 . The new program replaces our previous share repurchase program. As ofMarch 31, 2022 , we had$918 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 2. Unregistered Sales ofEquity Securities and Use of Proceeds in Part II of this report for further information on our shares repurchased.
Social Securitization Operation – OMFIT 2022-S1
As part of our continued commitment to improve the financial well-being of hardworking Americans, onApril 27, 2022 , OMFC completed its first social securitization under Rule 144A. We issued$600 million principal amount of notes backed by personal loans made to the target population identified in the OneMain 2022 ABS Social Framework ("OMFIT 2022-S1"). 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 theInternational Capital Market Association . Private Secured Term Funding OnApril 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.
Redemption notice for 8.875% senior bonds due 2025
OnApril 26, 2022 , OMFC issued a notice to fully redeem its 8.875% Senior Notes due 2025 onJune 1, 2022 . In connection with the redemption, OMFC expects to pay a net aggregate amount of$637 million , inclusive of accrued interest and premiums and recognize$26 million net loss on repurchases and repayments of debt in the second quarter of 2022.
Cash dividends to common shareholders of OMH
For more information regarding quarterly dividends declared by OMH, see “Liquidity and Capital Resources” under the MD&A and the discussion of financial condition and results of operations in this report.
39 -------------------------------------------------------------------------------- Table of Contents Election and Resignation of Members of the OMH Board of Directors
On
On
Management 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. Governmental authorities continue to take steps to combat the spread of COVID-19, including the ongoing distribution of vaccines. Throughout the pandemic, we have 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 during these unprecedented times. We believe the actions we have taken, combined with the underlying strength of our balance sheet, has positioned us to take advantage of growth opportunities even as the economy continues to recover.
OUTLOOK
We are actively monitoring the current macroeconomic developments, including recent geopolitical actions outside of theU.S. , and remain prepared for any additional opportunities or challenges that may impact our business and industry. Our financial condition and results of operations could be affected by the macroeconomic environment including unemployment rates and other macroeconomic conditions. There remains uncertainty regarding the effects of additional variants of COVID-19, recent geopolitical events, and their impacts on economic markets. In our view, current credit performance trends remain favorable, but delinquency rates have normalized to pre-pandemic levels. We will continue to incorporate updates, as necessary, to our macroeconomic assumptions which could lead to further adjustments in our allowance for finance receivable losses, allowance ratio, and provision for finance receivable losses. Our cumulative investments in our digital capabilities, combined with our proprietary data and advanced analytics, have allowed us to serve our customers through the branch, over the phone, and remotely throughout the pandemic and into the future. Our experienced management team continues to remain focused on maintaining a solid balance sheet with an adequate 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 growth to create value for our stockholders as we navigate the evolving economic, social, political, and regulatory environment. 40
————————————————– ——————————
Contents
Results of Operations
The results of OMFC are consolidated into the results of OMH. Due to the nominal
differences between OMFC and OMH, content throughout this section relates only
to OMH. See Note 1 of the Notes to the Condensed Consolidated Financial
Statements included in this report for further information.
OMH'S CONSOLIDATED RESULTS
See the table below for OMH's consolidated operating results and selected
financial statistics. A further discussion of OMH's operating results for our
operating segment is provided under "Segment Results" below.
To or for
Three Months Ended March 31, (dollars in millions, except per share amounts) 2022 2021 Interest income$ 1,089 $ 1,060 Interest expense 219 235 Provision for finance receivable losses 238 (2) Net interest income after provision for finance receivable losses 632 827 Other revenues 162 91 Other expenses 398 372 Income before income taxes 396 546 Income taxes 95 133 Net income $ 301$ 413 Share Data: Earnings per share: Diluted$ 2.36 $ 3.06 Selected Financial Statistics (a) Total finance receivables: Net finance receivables$ 18,979 $ 17,564 Average net receivables$ 19,083 $ 17,824 Yield 23.12 % 24.08 % Gross charge-off ratio 6.98 % 5.81 % Recovery ratio (1.42) % (1.14) % Net charge-off ratio 5.57 % 4.67 % 30-89 Delinquency ratio 2.26 % 1.57 %
Personal loans:
Net finance receivables$ 18,929 $ 17,564 Origination volume$ 2,959 $ 2,284 Number of accounts 2,288,999 2,229,609
Number of accounts originated 286,391 225,102 Credit cards (b): Net finance receivables $ 50 $ - Purchase volume $ 45 $ - Number of open accounts 73,958 - Debt balances: Long-term debt balance$ 17,560 $ 16,789 Average daily debt balance$ 17,553 $ 17,035
(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 three months ended
41
————————————————– ——————————
Contents
Comparison of consolidated results for the three months ended
Interest income increased$29 million or 3% for the three months endedMarch 31, 2022 when compared to the same period in 2021 primarily due to growth in our loan portfolio, partially offset by lower yield.
Interest charges decreased
See notes 6 and 7 of the notes to the summary consolidated financial statements included in this report for further information on our long-term debt, our securitization transactions and our revolving conduit facilities.
Provision for finance receivable losses increased$240 million for the three months endedMarch 31, 2022 when compared to the same period in 2021 primarily driven by a significant release in our allowance reserve in the prior year period and an increase in our current period charge-offs related to normalization of delinquency rates to pre-pandemic levels. Other revenues increased$71 million or 77% for the three months endedMarch 31, 2022 when compared to the same period in 2021 primarily due to a net loss on the repurchase and repayment of debt in the prior year period and 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$26 million or 7% for the three months endedMarch 31, 2022 when compared to the same period in 2021 primarily due to an increase in salaries and benefits due to an increase in headcount as we continue to invest in our business, and an increase in insurance policy and benefits claims expense resulting from lower than expected involuntary unemployment insurance claims in the prior year period. Income taxes totaled$95 million for the three months endedMarch 31, 2022 compared to$133 million in the same period in 2021 due to higher pre-tax income in the prior year period. For the three months endedMarch 31, 2022 and 2021, the effective tax rates were 24.1% and 24.4%, respectively. The effective tax rates differed from the federal statutory rate of 21% primarily due to the effect of state income taxes. See Note 11 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on effective tax rates. 42 -------------------------------------------------------------------------------- Table of Contents 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, the cash-settled stock-based awards, and direct costs associated with COVID-19. 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 earnings before income tax expense on a segment accounting basis to C&I Adjusted Pretax Earnings (non-GAAP) and C&I Pretax Capital Generation (non-GAAP) were the following:
Three Months Ended
March 31,
(dollars in millions) 2022 2021
Consumer and Insurance
Income before income taxes - Segment Accounting Basis $ 396 $ 567
Adjustments:
Net loss on repurchases and repayments of debt - 38
Cash-settled stock-based awards 1 -
Direct costs associated with COVID-19 1 2
Adjusted pretax income (non-GAAP) $ 398
Provision for finance receivable losses$ 237 $ (3) Net charge-offs (262)
(205)
Pretax capital generation (non-GAAP)$ 373 $ 399 43
————————————————– ——————————
Table of Contents
Segment Results
The results of OMFC are consolidated into the results of OMH. Due to the nominal
differences between OMFC and OMH, content throughout this section relate only to
OMH. See Note 1 of the Notes to the Condensed Consolidated Financial Statements
included in this report for further information.
See Note 17 of the Notes to the Consolidated Financial Statements in Part II -
Item 8 included in our Annual Report for a
description of our segment and methodologies used to allocate revenues and
expenses to our C&I segment. See Note 13 of the Notes to the Condensed
Consolidated Financial Statements included in this report for reconciliations of
segment total to
condensed 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:
At or for the
Three Months Ended March 31,
(dollars in millions) 2022 2021
Interest income $ 1,087 $ 1,057
Interest expense 217 233
Provision for finance receivable losses 237 (3)
Net interest income after provision for finance receivable
losses 633 827
Other revenues 158 136
Other expenses 393 356
Adjusted pretax income (non-GAAP) $ 398 $ 607
Selected Financial Statistics (a)
Total finance receivables:
Net finance receivables $ 18,981 $ 17,569
Average net receivables $ 19,086 $ 17,830
Yield 23.11 % 24.04 %
Gross charge-off ratio 6.98 % 5.81 %
Recovery ratio (1.42) % (1.14) %
Net charge-off ratio 5.57 % 4.67 %
30-89 Delinquency ratio 2.26 % 1.57 %
Personal loans:
Net finance receivables $ 18,931 $ 17,569
Origination volume $ 2,959 $ 2,284
Number of accounts 2,288,999 2,229,609
Number of accounts originated 286,391 225,102 Credit cards (b): Net finance receivables $ 50 $ - Purchase volume $ 45 $ - Number of open accounts 73,958 -
(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 three months ended
44 -------------------------------------------------------------------------------- Table of Contents Comparison of Adjusted Pretax Income for the Three Months EndedMarch 31, 2022 and 2021 Interest income increased$30 million or 3% for the three months endedMarch 31, 2022 when compared to the same period in 2021 primarily due to growth in our loan portfolio, partially offset by lower yield.
Interest charges decreased
See notes 6 and 7 of the notes to the summary consolidated financial statements included in this report for further information on our long-term debt, our securitization transactions and our revolving conduit facilities.
Provision for finance receivable losses increased$240 million for the three months endedMarch 31, 2022 when compared to the same period in 2021 primarily driven by a significant release in our allowance reserve in the prior year period and an increase in our current period charge-offs related to normalization of delinquency rates to pre-pandemic levels. Other revenues increased$22 million or 17% for the three months endedMarch 31, 2022 when compared to the same period in 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$37 million or 10% for the three months endedMarch 31, 2022 when compared to the same period in 2021 primarily due to an increase in salaries and benefits due to an increase in headcount as we continue to invest in our business, and an increase in insurance policy and benefits claims expense resulting from lower than expected involuntary unemployment insurance claims in the prior year period. 45
————————————————– ——————————
Table of Contents
Credit Quality
FINANCE RECEIVABLES
Our net finance receivables, consisting of personal loans and credit cards, were
$19.0 billion at March 31, 2022 and $19.2 billion at December 31, 2021 . 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. During the third quarter of 2021, we began
offering credit cards. Credit cards are open-ended, revolving, with a fixed
rate, and 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 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 accrued.
We accrue finance charges and credit card charges until they are charged approximately 180 days past due, after which we reverse previously accrued finance charges and charges.
46
--------------------------------------------------------------------------------
Table of Contents
The delinquency information for net finance receivables was as follows:
Consumer and Insurance Segment to
GAAP GAAP
(dollars in millions) Personal Loans Credit Cards Adjustment Basis
March 31, 2022
Current $ 18,086 $ 47 $ (2) $ 18,131
30-59 days past due 246 2 - 248
60-89 days past due 181 1 - 182
90+ days past due 418 - - 418
Total net finance receivables $ 18,931 $ 50 $ (2) $ 18,979
Delinquency ratio
30-89 days past due 2.25 % 5.32 % * 2.26 %
30+ days past due 4.46 % 5.97 % * 4.47 %
60+ days past due 3.17 % 2.47 % * 3.17 %
90+ days past due 2.21 % 0.66 % * 2.21 %
December 31, 2021
Current $ 18,340 $ 25 $ (3) $ 18,362
30-59 days past due 282 - - 282
60-89 days past due 185 - - 185
90+ days past due 383 - - 383
Total net finance receivables $ 19,190 $ 25 $ (3) $ 19,212
Delinquency ratio
30-89 days past due 2.43 % 0.08 % * 2.43 %
30+ days past due 4.43 % 0.08 % * 4.42 %
60+ days past due 2.96 % - % * 2.96 %
90+ days past due 2.00 % - % * 1.99 %
* Not applicable
47
-------------------------------------------------------------------------------- Table of Contents ALLOWANCE FOR FINANCE RECEIVABLE LOSSES
We estimate and record an allowance for financial credit losses to cover expected credit losses over the estimated life of our financial receivables. Our allowance for financial credit losses may fluctuate with 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. We also considered inflationary pressures, supply chain concerns, geopolitical risks, along with persistent labor supply shortages. Our forecast leveraged economic projections from industry leading forecast providers. AtMarch 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 provision for financial credit losses are as follows:
Consumer and Insurance Segment to
GAAP Consolidated
(dollars in millions) Personal Loans Credit Cards Adjustment Total
Three Months Ended March 31, 2022
Balance at beginning of period $ 2,097 $ 5 $ (7) $ 2,095
Provision for finance receivable losses 232 5 1 238
Charge-offs (329) - - (329)
Recoveries 67 - - 67
Balance at end of period $ 2,067 $ 10 $ (6) $ 2,071
Allowance ratio 10.92 % 19.99 % (a) 10.91 %
Three Months Ended March 31, 2021 (b)
Balance at beginning of period $ 2,283 $ - $ (14) $ 2,269
Provision for finance receivable losses (3) - 1 (2)
Charge-offs (255) - - (255)
Recoveries 50 - - 50
Balance at end of period $ 2,075 $ - $ (13) $ 2,062
Allowance ratio 11.81 % - % (a) 11.74 %
(a) Not applicable.
(b) There were no credit cards for the three months ended March 31, 2021 as the
product offering began in the third quarter of 2021.
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
decreased from the prior year period primarily due to improved unemployment
outlook. See Note 4 of the Notes to the Condensed Consolidated Financial
Statements included in this report for more information about the changes in the
allowance for finance receivable losses.
48
--------------------------------------------------------------------------------
Table of Contents
TDR FINANCE RECEIVABLES
We make modifications to our finance receivables to assist borrowers
experiencing financial difficulties. When we modify a loan's contractual terms
for economic or other reasons related to the borrower's financial difficulties
and grant a concession that we would not otherwise consider, we classify that
loan as a TDR finance receivable.
Information regarding TDR net finance receivables for personal loans are as
follows:
Segment to
Personal GAAP GAAP
(dollars in millions) Loans Adjustment Basis
March 31, 2022
TDR net finance receivables $ 674 $ (18) $ 656
Allowance for TDR finance receivable losses 271 (8) 263
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 financial receivables at
49 -------------------------------------------------------------------------------- Table of Contents 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 credit 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 borrower 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 March 31, 2022 FICO scores 660 or higher $ 4,440 $ 9$ 4,449 620-659 5,029 15 5,044 619 or below 9,460 26 9,486 Total$ 18,929 $ 50$ 18,979 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 ofDecember 31, 2021 may have been positively impacted by government stimulus measures, borrower assistance programs, and potentially inconsistent reporting to credit bureaus. 50
————————————————– ——————————
Table of Contents
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 three months endedMarch 31, 2022 , OMH generated net income of$301 million . OMH's net cash inflow from operating and investing activities totaled$602 million for the three months endedMarch 31, 2022 . AtMarch 31, 2022 , our scheduled interest payments for the remainder of 2022 totaled$357 million , and there are no scheduled principal payments for the remainder of 2022 on our existing debt (excluding securitizations). As ofMarch 31, 2022 , we had$10.2 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 Unsecured Business Revolver
To
SMOFM Unsecured Debt Repayment Notice
OnApril 26, 2022 , OMFC issued a notice to fully redeem its 8.875% Senior Notes due 2025 onJune 1, 2022 . In connection with the redemption, OMFC expects to pay a net aggregate amount of$637 million , inclusive of accrued interest and premiums and recognize$26 million net loss on repurchases and repayments of debt in the second quarter of 2022.
Securitizations and borrowings on revolving lines of credit
During the three months endedMarch 31, 2022 , we did not terminate, cancel, or enter into any new securitizations or conduit facilities. AtMarch 31, 2022 , an aggregate of$650 million was drawn under our conduit facilities, and the remaining borrowing capacity was$5.4 billion . AtMarch 31, 2022 , we had$8.5 billion of gross finance receivables pledged as collateral for our securitizations and conduit facilities.
Social Securitization Operation – OMFIT 2022-S1
As part of our continued commitment to improve the financial well-being of hardworking Americans, onApril 27, 2022 , OMFC completed its first social securitization under Rule 144A. We issued$600 million principal amount of notes backed by personal loans made to the target population identified in the OneMain 2022 ABS Social Framework, OMFIT 2022-S1. OMFIT 2022-S1 has a revolving period of three years, during which no principal payments are required. See "Recent Developments and Outlook" included in this report for further information on OMFIT 2022-S1. Private Secured Term Funding OnApril 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 6 and 7 of the notes to the summary consolidated financial statements included in this report for further information on our long-term debt, our securitization transactions and our revolving conduit facilities.
51 -------------------------------------------------------------------------------- Table of Contents 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 March 31, 2022 Rating Outlook S&P BB Stable Moody's Ba2 Stable KBRA BB+ Positive
Currently, no other entity has a corporate debt rating, although it may be rated in the future.
Stock Repurchased During the three months endedMarch 31, 2022 , OMH repurchased 2,282,552 shares of its common stock through its stock repurchase program for an aggregate total of$110 million , including commissions and fees. As ofMarch 31, 2022 , OMH held a total of 8,981,004 shares of treasury stock. To provide funding for the OMH stock repurchase, the OMFC Board of Directors authorized dividend payments in the amount of$100 million .
For more information on repurchased shares, see Item 2. Unrecorded Sales of
Cash dividend to common shareholders of OMH
As ofMarch 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 Total $ 0.95 $ 121
To fund the dividend, SMOFM paid dividends of
OnApril 28, 2022 , OMH declared a dividend of$0.95 per share payable onMay 13, 2022 to record holders of OMH's common stock as of the close of business onMay 9, 2022 . To provide funding for the OMH dividend, the OMFC Board of Directors authorized a dividend in the amount of up to$120 million payable on or afterMay 10, 2022 . While OMH intends to pay its minimum quarterly dividend, currently$0.95 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 included in our Annual Report for further information.
Full loan sales transactions
As ofMarch 31, 2022 , we have whole loan sale flow agreements with third parties, with remaining terms of less than two years, 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. Our first sale was executed in the first quarter of 2021. During the three months endedMarch 31, 2022 and 2021, we sold$180 million and$45 million of gross finance receivables, respectively. For further information on the whole loan sale transactions, see Note 3 of the Notes to the Condensed Consolidated Financial Statements included in this report. 52 --------------------------------------------------------------------------------
Table of Contents LIQUIDITY OMH's Operating Activities Net cash provided by operations of$552 million for the three months endedMarch 31, 2022 reflected net income of$301 million , the impact of non-cash items, and an unfavorable change in working capital of$62 million . Net cash provided by operations of$556 million for the three months endedMarch 31, 2021 reflected net income of$413 million , the impact of non-cash items, and an unfavorable change in working capital of$23 million .
OMH investment activities
Net cash provided by investing activities of$50 million for the three months endedMarch 31, 2022 was primarily due to proceeds from sales of finance receivables and calls, sales, and maturities of available-for-sale securities, partially offset by net principal originations and purchases of finance receivables and purchases of available-for-sale securities. Net cash provided by investing activities of$198 million for the three months endedMarch 31, 2021 was primarily due to net principal collections of finance receivables, calls, sales, and maturities of available-for-sale and other securities, partially offset by purchases of available-for-sale and other securities.
OMH fundraising activities
Net cash used for financing activities of$448 million for the three months endedMarch 31, 2022 was primarily due to debt repayments, cash dividends paid, and the cash paid to repurchase common stock during the period, partially offset by proceeds from borrowings of long-term debt. Net cash used for financing activities of$1.6 billion for the three months endedMarch 31, 2021 was primarily due to debt repayments and cash dividends paid.
OMH Cash and Investments
To
To
Liquidity risks and strategies
OMFC's credit ratings are non-investment grade, which has a significant impact on our cost and access to capital. This, in turn, can negatively affect our ability to manage our liquidity and our ability or cost to refinance our indebtedness. There are numerous risks to our financial results, liquidity, capital raising, and debt refinancing plans, some of which may not be quantified in our current liquidity forecasts. These risks are further described in our "Liquidity and Capital Resources" of Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our Annual Report. The principal factors that could decrease our liquidity are customer delinquencies and defaults, a decline in customer prepayments, and a prolonged inability to adequately access capital market funding. We intend to support our liquidity position by utilizing strategies that are further described in our "Liquidity and Capital Resources" of Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our Annual Report.
However, it is possible that the actual outcome of one or more of our plans may differ materially from that anticipated or that one or more of our material judgments or estimates may prove to be materially incorrect.
OUR INSURANCE SUBSIDIARIES
Our insurance subsidiaries are subject to state regulations that limit their ability to pay dividends. AHL and Triton did not pay any dividends during the three months endedMarch 31, 2022 and 2021. See Note 10 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our Annual Report for further information on these state restrictions and the dividends paid by our insurance subsidiaries in 2021. 53 -------------------------------------------------------------------------------- Table of Contents 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 our Annual Report for more information on the restrictive covenants under OMFC's debt agreements, as well as the guarantees of OMFC's long-term debt. Securitized Borrowings We execute private securitizations under Rule 144A of the Securities Act of 1933, as amended. As ofMarch 31, 2022 , our structured financings consisted of the following: Current Initial Current Collateral Current Original Issue Amount Collateral Note Amounts Balance Weighted Average Revolving (dollars in millions) (a) Balance Outstanding (a) (b) Interest Rate Period OMFIT 2015-3$ 293 $ 329 $ 59 $ 84 6.30 % 5 years OMFIT 2016-3 350 397 110 193 5.27 % 5 years OMFIT 2018-1 632 650 233 274 4.08 % 3 years OMFIT 2018-2 368 381 350 400 3.87 % 5 years OMFIT 2019-1 632 654 215 260 4.35 % 2 years OMFIT 2019-2 900 947 900 995 3.30 % 7 years OMFIT 2019-A 789 892 750 892 3.78 % 7 years OMFIT 2020-1 821 958 821 958 4.12 % 2 years OMFIT 2020-2 1,000 1,053 1,000 1,053 2.03 % 5 years OMFIT 2021-1 850 904 850 904 1.57 % 5 years ODART 2018-1 947 964 196 217 3.98 % 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 Total securitizations$ 9,319 $ 9,932 $ 7,184$ 8,033 (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) Including ongoing reconstitutions of collateral for securitized loans with renewable status at
54
————————————————– ——————————
Contents
Rotating duct installations
In addition to the structured financings, we had access to 14 revolving conduit facilities with a total borrowing capacity of$6.0 billion as ofMarch 31, 2022 : Amount (dollars in millions) Advance Maximum Balance Drawn OneMain Financial Funding VII, LLC $ 600 $
–
OneMain Financial Funding IX, LLC 600
–
Mystic River Funding, LLC 600
–
OneMain Financial Auto Funding I, LLC 550 - Seine River Funding, LLC 550 150 Chicago River Funding, LLC 500 - Hudson River Funding, LLC 500 - OneMain Financial Funding VIII, LLC 400 - Thayer Brook Funding, LLC 350 - Columbia River Funding, LLC 350 - Hubbard River Funding, LLC 250 - New River Funding Trust 250 - River Thames Funding, LLC 250 250 St. Lawrence River Funding, LLC 250 250 Total $ 6,000$ 650
OFF-BALANCE SHEET ARRANGEMENTS
We have no material off-balance sheet arrangements as defined by
Critical Accounting Policies and Estimates We describe our significant accounting policies used in the preparation of our consolidated financial statements in Note 2 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our Annual Report. We consider the following policies to be our most critical accounting policies because they involve critical accounting estimates and a significant degree of management judgment: •allowance for finance receivable losses; and •TDR finance receivables. There have been no material changes to our critical accounting policies or to our methodologies for deriving critical accounting estimates during the three months endedMarch 31, 2022 . Recent Accounting Pronouncements
See Note 2 of the Notes to the Condensed Consolidated Financial Statements included in this report for a discussion of recently issued accounting pronouncements.
55
————————————————– ——————————
Table of Contents
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.
© Edgar Online, source