ONEMAIN HOLDINGS, INC. 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 42
Segment Results 45
Credit Quality 47
Liquidity and Capital Resources 52
Critical Accounting Policies and Estimates 58
Recent Accounting Pronouncements 59
Seasonality 59
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Table of Contents Overview We are a leading provider of responsible personal loan products, primarily to nonprime customers. In 2021, we also began offering credit cards. Our branch network of approximately 1,400 locations in 44 states is staffed with expert personnel and is complemented by our centralized operations and our digital platform, which provides current and prospective customers the option of applying for a personal loan or credit card via our website, www.omf.com. The information on our website is not incorporated by reference into this report. In connection with our personal loan business, our insurance subsidiaries offer our customers optional credit and non-credit insurance, and other products.
In addition to our loan originations, and insurance and other product sales activities, we service loans owned by us and service loans owned by third parties; pursue strategic acquisitions and dispositions of assets and businesses, including loan portfolios or other financial assets; and may establish joint ventures or enter into other strategic alliances.
OUR PRODUCTS
Our product offerings include:
•Personal Loans - We offer personal loans through our branch network, centralized operations, and our website, www.omf.com, to customers who generally need timely access to cash. Our personal loans are non-revolving, with a fixed rate, fixed terms generally between three and six years, and are secured by automobiles, other titled collateral, or are unsecured. AtDecember 31, 2021 , we had approximately 2.34 million personal loans totaling$19.2 billion of net finance receivables, of which 52% were secured by titled property, compared to approximately 2.30 million personal loans totaling$18.1 billion of net finance receivables, of which 53% were secured by titled property atDecember 31, 2020 . We also service personal loans for our whole loan sale partners, which we commenced during the first quarter of 2021. •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. AtDecember 31, 2021 , we had approximately 66 thousand open credit card customer accounts, totaling$25 million of net finance receivables. •Insurance Products - We offer our customers optional credit insurance products (life insurance, disability insurance, and involuntary unemployment insurance) and optional non-credit insurance products through both our branch network and our centralized operations. Credit insurance and non-credit insurance products are provided by our affiliated insurance companies. We offer GAP coverage as a waiver product or insurance. We also offer optional membership plans from an unaffiliated company.
Our non-originating legacy products include:
•Other Receivables - We ceased originating real estate loans in 2012 and we continue to service or sub-service liquidating real estate loans. Our real estate loans held for sale are reported in "Other assets" of our consolidated balance sheets. OUR SEGMENT AtDecember 31, 2021 , Consumer and Insurance ("C&I") is our only reportable segment, which includes personal loans, credit cards, and insurance products. AtDecember 31, 2021 , we managed a combined total of 2.45 million customer accounts and$19.6 billion of managed receivables. 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 17 of the Notes to the Consolidated Financial Statements included in this report for more information about our segment. 37 -------------------------------------------------------------------------------- Table of Contents 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
and purchase volume and annual percentage rate.
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Recent Developments and Outlook
RECENT DEVELOPMENTS
Credit Cards - BrightWay and BrightWay+
As part of our mission to improve the financial well-being of hardworking Americans, we continue to invest in new products and services that help our customers solve for their present needs while helping them build a stronger financial tomorrow. In the third quarter of 2021, we began offering our two credit cards, BrightWay and BrightWay+, giving our customers access to more credit, while also enabling a better financial future. Credit cards will help customers take concrete steps to improve their financial well-being by offering tangible rewards for credit building behaviors. This is an important milestone for our company as we continue to deepen our existing customer relationships, attract new customers, and become the lender of choice for nonprime customers. We continue to expand credit card offerings across our branch network and through direct-to-consumer and affiliate card marketing.
Issuance and Redemption of Unsecured Debt
Redemption of 7.75% Senior Notes Due 2021
OnJanuary 8, 2021 , OMFC paid a net aggregate amount of$681 million , inclusive of accrued interest and premiums, to complete the redemption of its 7.75% Senior Notes due 2021.
Social Bond Offering - Issuance of 3.50% Senior Notes Due 2027
As part of our commitment to improve the financial well-being of hardworking Americans, OMFC issued its inaugural Social Bond offering onJune 22, 2021 for a total of$750 million aggregate principal amount of 3.50% Senior Notes due 2027. We intend to allocate an amount equivalent to the net proceeds of the offering to finance or re-finance, in part or in full, a portfolio of new or existing loans that meet the eligibility criteria of the OneMain Social Bond Framework. This offering advances our goal of enabling access to responsible financial products and services for vulnerable and/or historically underserved populations. At least 75% of the loans funded by the Social Bond will be allocated to women and/or minority borrowers as outlined in OneMain's Social Bond Framework, which is available on OneMain's Investor Relations website.
Issuance of 3.875% Senior Notes Due 2028
On
Redemption of 6.125% Senior Notes Due 2022
On
Unsecured Corporate Revolver
On
For further information regarding the issuances and redemption of our unsecured debt and our corporate revolver, see Note 8 of the Notes to the Consolidated Financial Statements included in this report.
Securitization Transactions Completed: OMFIT 2021-1 and ODART 2021-1
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.
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Apollo-Värde Group Share Sales
We entered into two underwriting agreements, in February and April of 2021, with
certain entities managed by affiliates of Apollo-Värde Group, in their
capacities as selling stockholders (the "Selling Stockholders"), and several
underwriters, for sale by the Selling Stockholders of up to 9,200,000 shares per
agreement of OMH's common stock. The two secondary public offerings closed
during the first half of 2021 and resulted in the sale by the Selling
Stockholders of 18,400,000 shares of OMH common stock. We did not receive any
proceeds from the sales of the shares by the Selling Stockholders in these
transactions.
We entered into three underwriting agreements, in July, August, and October of
2021, with an entity managed by affiliates of Apollo, in its capacity as selling
stockholder (the "Selling Stockholder"), and an underwriter for sales by the
Selling Stockholder of 10,925,000, 8,050,000, and 10,010,208 shares,
respectively, of OMH's common stock. The three secondary public offerings closed
during the second half of 2021 and resulted in the sale by the Selling
Stockholder of a total of 28,985,208 shares of OMH common stock. The shares sold
represented all of the shares that were held by the Selling Stockholder. We did
not receive any proceeds from the sale of the shares by the Selling Stockholder
in these transactions.
Prior to the secondary public offerings described above, the Apollo-Värde Group
was entitled to designate six of OMH's nine directors, as provided for in the
Amended and Restated Stockholders Agreement ("Stockholders Agreement"). As a
result of the share sales, Apollo is no longer a stockholder. Värde retained a
portion of their shares, and as of December 31, 2021 , Värde and funds managed by
Värde beneficially owned approximately 5.9% of OMH common stock. Värde currently
has the right to designate one director of the OMH Board of Directors, pursuant
to the Stockholders Agreement, as a result of beneficially owning less than 10%
but greater than 5% of the voting power of OMH common stock.
August and October Concurrent Share Buybacks
OnAugust 3, 2021 , pursuant to theJuly 2021 underwriting agreement, we concurrently purchased 1,700,000 of the shares of OMH common stock at a purchase price of$58.36 per share, which is equal to the price at which the underwriter purchased the shares from the Selling Stockholder, resulting in an aggregate purchase price of$99 million (the "August Concurrent Share Buyback"). OnOctober 28, 2021 , pursuant to theOctober 2021 underwriting agreement, we concurrently purchased 1,870,000 of the shares of OMH common stock at a purchase price of$53.45 per share, which is equal to the price at which the underwriter purchased the shares from the Selling Stockholder, resulting in an aggregate purchase price of$100 million (the "October Concurrent Share Buyback"). The terms and conditions of the August and October Concurrent Share Buybacks were reviewed and approved by a special committee of the Board, comprised of independent and disinterested directors of OMH. The August and October Concurrent Share Buybacks were made pursuant to separate Board authorizations and did not reduce our availability of repurchases under our stock repurchase program commenced during the second quarter of 2021. The August and October Concurrent Share Buybacks were funded from our existing cash on hand. The underwriter did not receive any compensation for the shares of OMH common stock repurchased by OMH. Stock Repurchase Program During the second quarter of 2021 we commenced our stock repurchase program. InDecember 2021 , the Board increased the share repurchase authorization to$300 million from the previously announced$200 million . As ofDecember 31, 2021 , we had$86 million of authorized share repurchase capacity, excluding fees and commissions, remaining under the program. OnFebruary 2, 2022 , the Board authorized a new stock repurchase program, which allows us to repurchase up to$1.0 billion of the 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 the previous share repurchase 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 ofEquity Securities in Part II of this report for further information on our shares repurchased.
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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Acquisition of Trim
On May 14, 2021 , we completed our previously announced acquisition of Ask
Benjamin, Inc. ("Trim"), a customer-focused financial wellness fintech company.
The acquisition of Trim will enhance our mission to help our customers progress
to a better financial future and further expand the ways in which we help our
customers improve their financial well-being.
Resignations and Election of Member(s) of the OMH and OMFC Board of Directors
On
On
OnNovember 1, 2021 ,Matthew R. Michelini andLisa Green Hall resigned from andPhilip L. Bronner was elected to the OMH Board of Directors, effectiveNovember 8, 2021 .
On
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 acrossthe United States . Governmental authorities continue to take steps to combat the spread of COVID-19, including the ongoing distribution of COVID-19 vaccines. During the pandemic, we continue to focus on assisting and supporting our customers and employees, while remaining committed to the safety of our employees. We continue to serve our customers by keeping our branch locations open with appropriate protective protocols in place and through our digital closing solutions. This combination has enhanced our operating performance through the pandemic and enabled us to serve and support our customers effectively during these unprecedented times. We believe the actions we have taken and the underlying strength of our balance sheet has positioned us to take advantage of growth opportunities as the economy continues to recover.
OUTLOOK
We are actively managing the continuing impacts of the COVID-19 pandemic and
remain prepared for any additional opportunities or challenges that may impact
our industry or business. The impact on our financial condition and results of
operations depends on the continued progress of the economic recovery, which is
dependent on unemployment rates, inflationary pressures, supply chain concerns,
and businesses' ability to remain open. There is also uncertainty regarding the
effects of additional variants of COVID-19 and the impact of vaccination rates.
Current credit performance trends continue to be favorable, yet are trending
back 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 experienced management team continues to remain focused on our strategic
priorities of 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. We are
well positioned to continue supporting and serving our customers, investing in
our business, and driving growth while creating value for our stockholders as we
effectively navigate the evolving economic, social, political, and regulatory
environments in which we operate.
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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, 2021 2020 2019 Interest income$ 4,364 $ 4,368 $ 4,127 Interest expense 937 1,027 970 Provision for finance receivable losses 593 1,319 1,129 Net interest income after provision for finance receivable losses 2,834 2,022 2,028 Other revenues 531 526 622 Other expenses 1,624 1,571 1,552 Income before income taxes 1,741 977 1,098 Income taxes 427 247 243 Net income$ 1,314 $ 730 $ 855 Share Data: Earnings per share: Diluted$ 9.87 $ 5.41 $ 6.27 Selected Financial Statistics (a) Total finance receivables: Net finance receivables $
19,212
$
18,281
23.84 % 24.24 % 24.13 %
Gross charge-off ratio 5.41 % 6.46 % 6.79 %
Recovery ratio (1.21) % (0.92) % (0.74) %
Net charge-off ratio 4.20 % 5.54 % 6.05 %
30-89 Delinquency ratio 2.43 % 2.28 % 2.46 %
Personal loans:
Net finance receivables$ 19,187 $ 18,084 $ 18,389 Origination volume$ 13,825 $ 10,729 $ 13,803 Number of accounts 2,336,845 2,304,951 2,435,172 Number of accounts originated 1,388,123 1,099,767 1,481,166 Credit cards (b): Net finance receivables$ 25 $ - $ - Purchase volume$ 26 $ - $ - Number of open accounts 65,513 - - Debt balances: Long-term debt balance $
17,750
$
17,441
(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 years endedDecember 31, 2020 and 2019 as the product offering began in 2021. 42
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Comparison of Consolidated Results for 2021 and 2020
Interest income remained relatively consistent in 2021 when compared to 2020 primarily due to growth in our average net finance receivables, offset by lower yield. Interest expense decreased$90 million or 8.8% in 2021 when compared to 2020 primarily due to a lower average cost of funds along with a decrease in average outstanding 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, and our revolving conduit facilities. Provision for finance receivable losses decreased$726 million or 55.0% in 2021 when compared to 2020 primarily due to an improved outlook for unemployment and macroeconomic conditions resulting in a release in our allowance reserve in 2021 as compared to a build in 2020 at the onset of the COVID-19 pandemic, as well as a decrease in our net charge-offs due to improved credit performance aligning with government stimulus measures. Other revenues increased$5 million or 1.0% in 2021 when compared to 2020 primarily due to the gains on the sales of finance receivables associated with the whole loan sale program that commenced in 2021 and an increase in membership plans fee revenue due to loan origination growth. The increase was partially offset by higher net losses on the repurchases and repayments of debt and a decrease in investment revenue driven by lower interest rates on cash. Other expenses increased$53 million or 3.4% in 2021 when compared to 2020 primarily due to the expense associated with the cash-settled stock-based awards in the current year and an increase in general operating expenses due to growth in our receivables and our strategic investments in the business, compared to COVID-19 cost cutting measures in 2020. The increase was partially offset by a decrease in insurance policy and benefits claims expense resulting from lower than expected involuntary unemployment insurance claims. Income taxes totaled$427 million for 2021 compared to$247 million for 2020. The effective tax rate for 2021 was 24.6% compared to 25.3% for 2020. The effective tax rate for 2021 and 2020 differed from the federal statutory rate of 21% primarily due to the effect of state income taxes and discrete tax expense.
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 2020 and 2019
For a comparison of OMH's results of operation for the years ended 2020 and 2019, 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 endedDecember 31, 2020 , filed with theSEC onFebruary 9, 2021 . 43 -------------------------------------------------------------------------------- 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 cash-settled stock-based awards, direct costs associated with COVID-19, acquisition-related transaction and integration expenses, net loss resulting from repurchases and repayments of debt, and restructuring charges. 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, 2021 2020 2019 Consumer and Insurance Income before income taxes - Segment Accounting Basis$ 1,788 $ 1,021 $ 1,168 Adjustments: Net loss on repurchases and repayments of debt 70 36 30 Cash-settled stock-based awards 54 - - Direct costs associated with COVID-19 6 17 - Acquisition-related transaction and integration expenses - 11 14 Net gain on sale of cost method investment - - (11) Restructuring charges - 7 5 Adjusted pretax income (non-GAAP) $
1,918
Provision for finance receivable losses$ 587 $ 1,313 $ 1,105 Net charge-offs (768) (998) (1,028) Pretax capital generation (non-GAAP) $
1,737
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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 included in
this report for a description of our segment and methodologies used to allocate
revenues and expenses to our C&I segment.
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, 2021 2020 2019 Interest income$ 4,355 $ 4,353 $ 4,114 Interest expense 930 1,007 947 Provision for finance receivable losses 587 1,313 1,105 Net interest income after provision for finance receivable losses 2,838 2,033 2,062 Other revenues 597 551 619 Other expenses 1,517 1,492 1,475 Adjusted pretax income (non-GAAP) $
1,918
Selected Financial Statistics (a) Total finance receivables: Net finance receivables $
19,215
Average net receivables $
18,286
23.82 % 24.17 % 24.07 %
Gross charge-off ratio 5.42 % 6.46 % 6.86 %
Recovery ratio (1.21) % (0.92) % (0.84) %
Net charge-off ratio 4.20 % 5.54 % 6.02 %
30-89 Delinquency ratio 2.43 % 2.28 % 2.47 %
Personal loans:
Net finance receivables $ 19,190 $ 18,091 $ 18,421
Origination volume $ 13,825 $ 10,729 $ 13,803
Number of accounts 2,336,845 2,304,951 2,435,172
Number of accounts originated 1,388,123 1,099,767 1,481,166
Credit cards (b):
Net finance receivables $ 25 $ - $ -
Purchase volume $ 26 $ - $ -
Number of open accounts 65,513 - -
(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 years ended December 31, 2020 and 2019
as the product offering began in 2021.
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Comparison of Adjusted Pretax Income for 2021 and 2020
Interest income remained relatively consistent in 2021 when compared to 2020
primarily due to growth in our average net finance receivables, offset by lower
yield.
Interest expense decreased $77 million or 7.6% in 2021 when compared to 2020
primarily due to a lower average cost of funds along with a decrease in average
outstanding 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, and our revolving conduit facilities.
Provision for finance receivable losses decreased $726 million or 55.3% in 2021
when compared to 2020 primarily due to an improved outlook for unemployment and
macroeconomic conditions resulting in a release in our allowance reserve in 2021
as compared to a build in 2020 at the onset of the COVID-19 pandemic, as well as
a decrease in our net charge-offs due to improved credit performance aligning
with government stimulus measures.
Other revenues increased $46 million or 8.3% in 2021 when compared to 2020
primarily due to the gains on the sales of finance receivables associated with
the whole loan sale program that commenced in 2021 and an increase in membership
plans fee revenue due to loan origination growth. The increase was partially
offset by a decrease in investment revenue driven by lower interest rates on
cash.
Other expenses increased $25 million or 1.7% in 2021 when compared to 2020
primarily due an increase in general operating expenses due to growth in our
receivables and our strategic investments in the business, compared to COVID-19
cost cutting measures in 2020. The increase was partially offset by a decrease
in insurance policy and benefits claims expense resulting from lower than
expected involuntary unemployment insurance claims.
Comparison of Adjusted Pretax Income for 2020 and 2019
For a comparison of OMH's adjusted pretax income for C&I for the years ended 2020 and 2019, 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 endedDecember 31, 2020 , filed with theSEC onFebruary 9, 2021 . 46
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Credit Quality
FINANCE RECEIVABLES
Our net finance receivables, consisting of personal loans and credit cards, were
$19.2 billion at December 31, 2021 and $18.1 billion at December 31, 2020 . Our
personal loans are non-revolving, with a fixed-rate, fixed terms generally
between three and six years, and are secured by automobiles, other titled
collateral, or are unsecured. 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 handled 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. At 90 days contractually past due, we consider our personal loans to be nonperforming and stop accruing finance charges. We reverse finance charges previously accrued.
We accrue finance charges and fees on credit cards until charge-off at approximately 180 days past due and reverse finance charges and fees previously accrued.
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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
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 %
December 31, 2020
Current $ 17,362 * $ (7) $ 17,355
30-59 days past due 251 * - 251
60-89 days past due 162 * - 162
90+ days past due 316 * - 316
Total net finance receivables $ 18,091 * $ (7) $ 18,084
Delinquency ratio
30-89 days past due 2.28 % * * 2.28 %
30+ days past due 4.03 % * * 4.03 %
60+ days past due 2.64 % * * 2.64 %
90+ days past due 1.75 % * * 1.75 %
* Not applicable
48-------------------------------------------------------------------------------- Table of Contents 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 ongoing impacts of COVID-19 on theU.S. economy and the overall unemployment rate. We also considered inflationary pressures, supply chain concerns, and businesses' ability to remain open. Our forecast leveraged economic projections from industry leading forecast providers. AtDecember 31, 2021 , 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:
Consumer and Insurance Segment to
GAAP Consolidated
(dollars in millions) Personal Loans Credit Cards Adjustment Total
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 %
Year Ended December 31, 2019 (b)
Balance at beginning of period $ 773 $ - $ (42) $ 731
Provision for finance receivable losses 1,105 - 24 1,129
Charge-offs (1,172) - 15 (1,157)
Recoveries 143 - (17) 126
Balance at end of period $ 849 $ - $ (20) $ 829
Allowance ratio 4.61 % - % (a) 4.51 %
(a) Not applicable.
(b) There were no credit cards for the years ended December 31, 2020 and 2019 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
decreased from prior period primarily due to an improved outlook for
unemployment and macroeconomic conditions, partially offset by growth in our
loan portfolio, as compared to a build in our allowance reserve at the onset of
the COVID-19 pandemic. 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 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
December 31, 2021
TDR net finance receivables $ 671 $ (21) $ 650
Allowance for TDR finance receivable losses 279 (9) 270
December 31, 2020
TDR net finance receivables $ 728 $ (37) $ 691
Allowance for TDR finance receivable losses 332 (18) 314
There were no credit cards classified as TDR finance receivables for the years
ended
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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 have presented the following on how we group FICO scores into said
categories for comparability purposes across our industry:
•Prime: FICO score of 660 or higher
•Near-prime: FICO score of 620-659
•Sub-prime: FICO score of 619 or below
Our customers' demographics are, in many respects, near the national median but
may vary from national norms in terms of credit and repayment histories. Many of
our customers have experienced some level of prior financial difficulty or have
limited credit experience and require higher levels of servicing and support
from our branch network and central servicing operations.
The following table reflects our 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, 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
December 31, 2020
FICO scores *
660 or higher $ 4,653 $ - $ 4,653
620-659 4,877 - 4,877
619 or below 8,554 - 8,554
Total $ 18,084 $ - $ 18,084 * Due to the impact of COVID-19, FICO scores as of
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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 2021, OMH generated net income of$1.3 billion . OMH's net cash inflow from operating and investing activities totaled$104 million for the year endedDecember 31, 2021 . AtDecember 31, 2021 , our scheduled interest payments for 2022 totaled$594 million and there are no scheduled principal payments for 2022 on our existing debt (excluding securitizations). As ofDecember 31, 2021 , we had$10.2 billion of unencumbered gross finance receivables. 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 Issuance and Notice of Redemption of Unsecured Debt
For information regarding the issuance and notice of redemption of OMFC's unsecured debt, see Note 8 of the Notes to the Consolidated Financial Statements included in this report.
OMFC's Unsecured Corporate Revolver
On
Securitizations and Borrowings from Revolving Conduit Facilities
During the year endedDecember 31, 2021 , we completed two personal loan securitizations (OMFIT 2021-1 and ODART 2021-1, see "Securitized Borrowings" below), and redeemed three personal loan securitizations (OMFIT 2017-1, SLFT 2015-B, and SLFT 2017-A). AtDecember 31, 2021 , we had$8.7 billion of gross finance receivables pledged as collateral for our securitization transactions. During the year endedDecember 31, 2021 , we entered into two new revolving conduit facilities and terminated one revolving conduit facility. AtDecember 31, 2021 , an aggregate of$600 million was drawn under our conduit facilities, and the remaining borrowing capacity is$5.4 billion . Amounts drawn on these facilities are collateralized by our personal loans. 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, and revolving conduit facilities. 52 -------------------------------------------------------------------------------- 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 December 31, 2021 Rating Outlook S&P BB- Positive 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 endedDecember 31, 2021 , OMH repurchased and held in treasury 3,142,923 shares of its common stock through its stock repurchase program for an aggregate total of$169 million , including commissions and fees. To provide funding for the OMH stock repurchase, the OMFC Board of Directors authorized dividend payments in the amount of$200 million . Additionally, onAugust 3, 2021 andOctober 28, 2021 , OMH participated in two concurrent share buybacks, in which we purchased 1,700,000 shares and 1,870,000 shares, respectively, of OMH common stock for an aggregate total of$99 million and$100 million , respectively. The terms and conditions of the August and October Concurrent Share Buybacks were reviewed and approved by a special committee of the Board, comprised of independent and disinterested directors of OMH. The August and October Concurrent Share Buybacks were made pursuant to separate Board authorizations and did not reduce our availability under the stock repurchase program. To provide funding for the Concurrent Share Buybacks, the OMFC Board of Directors authorized dividend payments in the amount of$199 million . As ofDecember 31, 2021 , OMH held a total of 6,712,923 shares of treasury stock. For additional information regarding the shares repurchased, see Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities of Part II included in this report.
Cash Dividend to OMH's Common Stockholders
As of
Declaration Date Record Date Payment Date Dividend Per Share Amount Paid
(in millions)
February 8, 2021 February 18, 2021 February 25, 2021 $ 3.95 * $ 531
April 26, 2021 May 6, 2021 May 13, 2021 0.70 94
July 21, 2021 August 6, 2021 August 13, 2021 4.20 * 555
October 20, 2021 November 2, 2021 November 9, 2021 0.70 91
Total $ 9.55 $ 1,271 * Our
To provide funding for the dividend, OMFC paid dividends of
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On February 2, 2022 , OMH declared a dividend of $0.95 per share payable on
February 18, 2022 to record holders of OMH's common stock as of the close of
business on February 14, 2022 . To provide funding for the OMH dividend, the OMFC
Board of Directors authorized a dividend in the amount of up to $122 million
payable on or after February 14, 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 of this report for further information.
Whole Loan Sale Transactions
As ofDecember 31, 2021 , we have whole loan sale flow agreements with third parties, with remaining terms ranging between one to 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 year endedDecember 31, 2021 , we sold$505 million of gross finance receivables. For further information on the whole loan sale transactions, see Note 4 of the Notes to the Consolidated Financial Statements included in this report.
LIQUIDITY
OMH's Operating Activities
Net cash provided by operations of$2.2 billion for 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 2020 reflected net income of$730 million , the impact of non-cash items, and an unfavorable change in working capital of$118 million . Net cash provided by operations of$2.4 billion for 2019 reflected net income of$855 million , the impact of non-cash items, and a favorable change in working capital of$67 million .
OMH's Investing Activities
Net cash used for investing activities of$2.1 billion ,$751 million , and$3.4 billion for 2021, 2020, and 2019 respectively, 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 and proceeds from sales of finance receivables. OMH's Financing Activities Net cash used for financing activities of$1.8 billion for 2021 was primarily due to debt repayments, cash dividends paid, and the cash paid to repurchase common stock during the period, partially offset by the issuances of the OMFIT 2021-1 and ODART 2021-1 securitizations, the Social Bond, and the 3.875% Senior Notes due 2028. Net cash used for financing activities of$370 million for 2020 was primarily due to debt repayments, cash dividends paid, and the cash paid on the common stock repurchased, partially offset by the issuances of the 8.875% Senior Notes due 2025, and the OMFIT 2020-1 and OMFIT 2020-2 securitizations during the period. Net cash provided by financing activities of$1.5 billion for 2019 was primarily due to net issuances of long-term debt offset primarily by the cash dividends paid in 2019.
OMH's Cash and Investments
AtDecember 31, 2021 , we had$541 million of cash and cash equivalents, which included$158 million of cash and cash equivalents held at our regulated insurance subsidiaries or for other operating activities that is unavailable for general corporate purposes. AtDecember 31, 2021 , we had$2.0 billion of investment securities, which are all held as part of our insurance operations and are unavailable for general corporate purposes. 54 -------------------------------------------------------------------------------- Table of Contents 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, 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 securitizations and new 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 included in this report for further information on these state restrictions and the dividends paid by our insurance subsidiaries from 2019 through 2021.
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
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, 2021 , our structured financings consisted
of the following:
Current
Initial Current Collateral Current Original
Issue Amount Collateral Note Amounts Balance Weighted Average Revolving
(dollars in millions) (a) Balance Outstanding (a) (b) Interest Rate Period
OMFIT 2015-3 $ 293 $ 329 $ 80 $ 104 5.75 % 5 years
OMFIT 2016-3 350 397 153 234 4.86 % 5 years
OMFIT 2018-1 632 650 298 339 3.91 % 3 years
OMFIT 2018-2 368 381 350 400 3.87 % 5 years
OMFIT 2019-1 632 654 277 322 4.15 % 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 (c) 850 904 850 904 1.57 % 5 years
ODART 2018-1 947 964 253 277 3.90 % 2 years
ODART 2019-1 737 750 700 750 3.79 % 5 years
ODART 2021-1 (d) 1,000 1,053 1,000 1,053 0.98 % 2 years
Total securitizations $ 9,319 $ 9,932 $ 7,432 $ 8,281
(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, 2021 .
(c) On May 26, 2021, we issued $850 million of notes backed by personal loans.
The notes mature in June of 2036.
(d) On October 15, 2021 , we issued $1 billion of notes backed by personal loans.
The notes mature in November of 2030.
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Revolving Conduit Facilities
In addition to the structured financings, we had access to 14 revolving conduit
facilities with a total borrowing capacity of $6.0 billion as of December 31,
2021 :
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 250 200 St. Lawrence River Funding, LLC 250 250 Total $ 6,000$ 600 Contractual Obligations
At
Revolving
Conduit
(dollars in millions) 2022 2023-2024 2025-2026 2027+ Securitizations Facilities Total
Principal maturities on
long-term debt:
Securitization debt (a) $ - $ - $ - $ - $ 7,432 $ - $ 7,432
Revolving conduit
facilities (a) - - - - - 600 600
Medium-term notes - 2,475 3,435 3,750 - - 9,660
Junior subordinated debt - - - 350 - - 350
Total principal maturities - 2,475 3,435 4,100 7,432 600 18,042
Interest payments on debt
(b) 594 1,043 608 672 683 16 3,616
Total $ 594 $ 3,518 $ 4,043 $ 4,772 $ 8,115 $ 616 $ 21,658 (a) On-balance sheet securitizations 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
floating rates in effect at
OFF-BALANCE SHEET ARRANGEMENTS
We have no material off-balance sheet arrangements as defined by
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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 ofDecember 31, 2021 , the impact of a ten percentage point increase in weighting towards a downside scenario increased the estimate by approximately$40 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.
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.
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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. The
seasonality impact on our delinquency trend continues to be affected by the
COVID-19 pandemic and mitigating efforts from government stimulus measures.
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