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 43
Recent Developments and Outlook 45
Results of Operations 48
Segment Results 53
Credit Quality 55
Liquidity and Capital Resources 60
Off-Balance Sheet Arrangements 65
Critical Accounting Policies and Estimates 65
Recent Accounting Pronouncements 65
Seasonality 66
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Table of Contents Overview We are a leading provider of responsible personal loan products, primarily to non-prime customers. Our network of approximately 1,500 branch offices in 44 states is staffed with expert personnel and is complemented by our centralized operations and our digital platform, which provides current and prospective customers the option of applying for a personal loan via our website, www.omf.com. The information on our website is not incorporated by reference into this report. In connection with our personal loan business, our insurance subsidiaries offer our customers optional credit and non-credit insurance, and other products.
In addition to our loan originations, and insurance and other product sales activities, we service loans owned by us and service loans owned by third parties; pursue strategic acquisitions and dispositions of assets and businesses, including loan portfolios or other financial assets; and may establish joint ventures or enter into other strategic alliances.
OUR PRODUCTS
Our product offerings include:
•Personal Loans - We offer personal loans through our branch network, centralized operations, and our website, www.omf.com, to customers who generally need timely access to cash. Our personal loans are non-revolving, with a fixed-rate, fixed terms generally between three and six years, and are secured by automobiles, other titled collateral, or are unsecured. AtDecember 31, 2020 , we had approximately 2.30 million personal loans, of which 53% were secured by titled property, totaling$18.1 billion of net finance receivables, compared to approximately 2.44 million personal loans, of which 52% were secured by titled property, totaling$18.4 billion atDecember 31, 2019 . •Insurance Products - We offer our customers optional credit insurance products (life insurance, disability insurance, and involuntary unemployment insurance) and optional non-credit insurance products through both our branch network and our centralized operations. Credit insurance and non-credit insurance products are provided by our affiliated insurance companies. We offer GAP coverage as a waiver product or insurance. We also offer optional membership plans from an unaffiliated company.
Our non-originating legacy products include:
•Other Receivables - We ceased originating real estate loans in 2012 and we continue to service or sub-service liquidating real estate loans. EffectiveSeptember 30, 2018 , our real estate loans previously classified as other receivables were transferred from held for investment to held for sale due to management's intent to no longer hold these finance receivables for the foreseeable future.
OUR SEGMENT
AtDecember 31, 2020 , C&I is our only reportable segment. The remaining components (which we refer to as "Other") consist of our liquidating SpringCastle Portfolio servicing activity and our non-originating legacy operations, which primarily include our liquidating real estate loans. See Note 18 of the Notes to the Consolidated Financial Statements included in this report for more information about our segment. 43
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HOW WE ASSESS OUR BUSINESS PERFORMANCE
We closely monitor the primary drivers of pretax operating income, which consist of the following:
Interest Income We track interest income, including certain fees earned on our finance receivables, and continually monitor the components that impact our yield. We include any late charges on loans that we have collected from customer payments in interest income. Interest Expense We track the interest expense incurred on our debt, along with amortization or accretion of premiums or discounts, and issuance costs, to monitor the components of our cost of funds. We expect interest expense to fluctuate based on changes in the secured versus unsecured mix of our debt, time to maturity, the cost of funds rate, and access to 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
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 origination
volume and annual percentage rate.
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Table of Contents
Recent Developments and Outlook
RECENT DEVELOPMENTS
Management's Response to the COVID-19 Pandemic
COVID-19 has evolved into a global pandemic and has resulted in widespread volatility and deterioration in economic conditions acrossthe United States . Governmental authorities continue to take steps to combat or slow the spread of COVID-19, including shutdowns of non-essential businesses, implementing stay-at-home orders, promoting social distancing measures, and other actions which have disrupted economic activity. Recently, authorities have begun to distribute newly developed COVID-19 vaccines to health care workers and other priority groups, which over time are designed to create "herd immunity" and diminish, if not eliminate, the crisis. The success of the vaccination program will depend to a large extent on the willingness of Americans to receive vaccinations and the effectiveness of the distribution effort, both of which are uncertain at this time. In the meantime, we will continue to be focused on assisting and supporting our customers and employees. We are generally classified as an "essential business" by government authorities because we play a vital role in providing personal loans to hardworking Americans in hundreds of local communities. Our long track record of a strong balance sheet and liquidity profile, disciplined underwriting, and focus on our customers, allows us to remain well positioned to address the economic uncertainties, as well as take advantage of opportunities for growth as the economy recovers. Although we cannot predict how quickly and/or broadly the economy will recover, we will continue to: •Maintain strong capital and liquidity: We have maintained a strong balance sheet and liquidity profile as a result of numerous actions taken over the last several years, such as deleveraging, increasing the available borrowing capacity under our revolving conduit facilities, diversifying our funding mix, and extending our unsecured debt maturities. Our cash and cash equivalents, together with our potential borrowings under our revolving conduit facilities, provide a liquidity runway in excess of 24 months under numerous stress scenarios, assuming no access to the capital markets. This liquidity runway calculation contemplates all the cash needs of the Company. •Continue to enhance our underwriting: In lateMarch 2020 , we quickly took steps to tighten our underwriting standards and reduce originations to higher risk applicants in response to the COVID-19 pandemic. We continued to monitor and evaluate our underwriting standards as we further understood the evolving impacts the COVID-19 pandemic was having on local-level economies. Through the remainder of the year we refined our underwriting as we introduced more granular state and industry segmentation. This allowed us to open up credit to certain segments, while maintaining more conservative underwriting in other segments. We will continue with this approach as we learn the effects of the additional stimulus on our customer base and as the economy reacts to the vaccine rollout. •Focus on serving our customers: Our top priority is to service and care for our current customers. We actively engaged with other lenders to put forward solutions to help our customers through this difficult time. We took steps to enhance our servicing capacity by shifting branch team members toward a greater focus on servicing existing loans. Beginning in late March, we increased proactive outreach to customers, offering to support them through our borrower assistance programs, which included reduced and deferred payment options, waiving of late fees, and temporary suspension in credit bureau reporting. •Deploy business continuity plans: We deployed our existing business continuity plans which are designed to ensure operational flexibility, including the ability of our employees to work remotely. Our hybrid operating model, with fully scaled branch and central operations teams, can dynamically reroute application and servicing capabilities to service centers and branches acrossthe United States . Although a small number of branches were temporarily closed, primarily for deep cleanings or due to government mandates, and subsequently reopened, all of our teams, both branch and central operations, remain operational today. We continue to serve our customers while maintaining social distancing and other safety protocols. Additionally, we have accelerated our digital origination strategy and digitally originated more than 30% of our personal loans during 2020. For further information regarding the impact of COVID-19 on our business, results of operations, and liquidity and capital resources, see "Outlook" and "Results of Operations" under Management's Discussion and Analysis of Financial Condition and Results of Operations in this report. 45 -------------------------------------------------------------------------------- Table of Contents Cash Dividends to OMH's Common Stockholders OnFebruary 8, 2021 , OMH declared a dividend of$3.95 per share payable onFebruary 25, 2021 to record holders of OMH's common stock as of the close of business onFebruary 18, 2021 . For information regarding the quarterly dividends declared by OMH, see "Liquidity and Capital Resources" under Management's Discussion and Analysis of Financial Condition and Results of Operations in this report.
Issuances of 8.875% Senior Notes Due 2025 and 4.00% Senior Notes Due 2030, and Redemptions of 8.25% Senior Notes due 2020 and 7.75% Senior Notes due 2021
On
OnJuly 29, 2020 , OMFC paid an aggregate amount of$1.0 billion , inclusive of accrued interest and premiums, to complete the redemption of its 8.25% Senior Notes due 2020.
On
OnJanuary 8, 2021 , OMFC paid a net aggregate amount of$681 million , inclusive of accrued interest and premiums, to complete the redemption of its 7.75% Senior Notes due 2021. For further information regarding the issuances and redemptions of our unsecured debt, see Note 9 of the Notes to the Consolidated Financial Statements included in this report.
Securitization Transactions Completed: OMFIT 2020-1 and OMFIT 2020-2
On
On
For further information regarding the issuances of our secured debt, see "Liquidity and Capital Resources-Securitized Borrowings" under Management's Discussion and Analysis of Financial Condition and Results of Operations in this report.
Stock Repurchase Program For information regarding our stock repurchase program, see Note 12 of the Notes to the Consolidated Financial Statements and "Liquidity and Capital Resources-Sources and Uses of Funds" under Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report.
Appointment of Member of the OMFC Board of Directors and Executive Vice President of OMFC
On
Appointment of Chairman of the OMH Board of Directors
OnAugust 28, 2020 ,Jay N. Levine resigned as Director and Chairman of the OMH Board of Directors, effectiveDecember 31, 2020 .Mr. Levine's resignation was not the result of any dispute or disagreement with the Company or the Company's board on any matter relating to the operations, policies or practices of the Company. The OMH Board of Directors electedDouglas H. Shulman as Chairman of the Board, replacingMr. Levine , effectiveDecember 31, 2020 . 46 -------------------------------------------------------------------------------- Table of Contents OUTLOOK We are actively managing the impacts of the COVID-19 pandemic and are prepared to face any additional challenges that may impact our industry. We expect near-term impacts to continue to affect our originations. The ultimate impact on our financial condition and results of operations depends on the speed of the economic recovery, driven by unemployment rates, government stimulus measures, states reopening or closing, and the distribution of the newly developed COVID-19 vaccines. There is also uncertainty regarding the effects of additional outbreaks of COVID-19 and the related potential for additional shutdowns over the near-term. To the extent economies are suppressed or slow to recover, we could see lower consumer demand, higher delinquency trends, and related losses in 2021. We may incorporate additional updates to the macroeconomic assumptions which could lead to further adjustments in our allowance for finance receivable losses, allowance ratio, and provision for finance receivable losses. The full extent to which the COVID-19 pandemic will impact our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the mitigation efforts by government entities, as well as our own continuing COVID-19 operational response. We have taken and will continue to take active and decisive steps in this time of uncertainty and remain committed to the safety of our employees, while also continuing to serve our customers by keeping our branch locations open with appropriate protective protocols in place. We have served hardworking Americans for many decades, through changing economic conditions and natural disasters. Our prudent historical underwriting, combined with the actions we've taken to innovate and strategically evolve our business over the last year, especially the transition to our digital closing model, has led to our strong operating performance through the pandemic and enabled us to serve and support our customers effectively during these unprecedented times. While we anticipate that the economic recovery could be unstable, we believe the actions we have taken in 2020 and the underlying strength of our balance sheet positions us to take advantage of growth opportunities as the economy recovers. Our digital platform and our operating model, combined with our decades of experience, proprietary data, and advanced analytics, enable us to expand our customer base through various channels and products. With these tools, we are able to underwrite and manage our portfolio in a precise and effective manner, thus better serving our customers to meet their preferences, as well as optimizing returns. Our experienced management team continues to remain focused on our strategic priorities of maintaining a solid balance sheet that enables business continuity, providing a flexible liquidity runway and capital coverage through the changing economic conditions, upholding a conservative and disciplined underwriting model, and building strong relationships with our customers. As a result, we will support and serve our customers, invest in our business, and drive growth while creating value for our shareholders and effectively navigating the evolving economic, social, political, and regulatory environments in which we operate. 47
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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 2 of the Notes to the Consolidated Financial Statements
included in this report for the reconciliation of results of OMFC to OMH.
COVID-19 PANDEMIC IMPACTS ON RESULTS
The adverse effects caused by the COVID-19 pandemic, along with mitigation efforts from government stimulus measures, and our own operational response has impacted our business, results of operations, and liquidity and capital resources. The following is a summary of the most significant impacts: •Net finance receivables were$18.1 billion as ofDecember 31, 2020 compared to$18.4 billion as ofDecember 31, 2019 . Initial operational disruptions, combined with actions taken by management to tighten underwriting standards, which reduced originations to higher risk applicants, and a reduction in the demand for personal loans, resulted in an overall decline in net finance receivables. Originations began to be impacted in the last two weeks ofMarch 2020 , with our lowest production levels occurring in April. Originations increased in May and continued to increase through the end of the fourth quarter, driven by adjustments to our underwriting, enhancements to our digital origination capabilities, increased proactive outreach to our customers, and improved customer demand and unemployment trends. Originations in 2020 remained below 2019 levels. •The government stimulus measures, our borrower assistance programs, and our collection efforts contributed to strong customer payment trends, which resulted in a decrease in our 30-89 and 90+ day delinquency ratios to 2.3% and 1.7%, respectively, as ofDecember 31, 2020 when compared to 2.5% and 2.1%, respectively, as ofDecember 31, 2019 . •Under our borrower assistance programs, we waived late fees for payments dueMarch 15, 2020 throughApril 30, 2020 , suspended credit bureau reporting for newly delinquent accounts in March and April of 2020, and offered reduced and deferred payment options to our customers. Borrower assistance enrollment peaked in April at 8.0% of loans in the portfolio, and returned to a more historical normal average of 2.3% during the fourth quarter of 2020. •Our loan loss reserve methodology includes forecasted economic trends and unemployment levels, which significantly increased our provision for finance receivable losses as a result of the impacts of COVID-19 during the year endedDecember 31, 2020 compared to the same period from prior year. The rise in unemployment claims around the country also resulted in an increase in involuntary unemployment insurance claims expense during the year endedDecember 31, 2020 . For further information regarding the impact of COVID-19 on net income for the periods, see "Results of Operations - OMH's Consolidated Results" under Management's Discussion and Analysis of Financial Condition and Results of Operations in this report. •InMarch 2020 , out of an abundance of caution, we elected to draw on our revolving conduit facilities to preserve financial flexibility during the capital market disruption resulting from the COVID-19 pandemic. During the second quarter of 2020, we subsequently repaid all of our revolving conduit facilities. During the year endedDecember 31, 2020 , we also issued debt securities in both the unsecured and ABS markets. As ofDecember 31, 2020 , we had$2.3 billion of cash and cash equivalents,$9.2 billion of unencumbered gross finance receivables, and$7.2 billion in potential borrowing capacity from our 13 revolving conduit facilities. •During the year, the Company incurred direct costs associated with COVID-19 relating to (i) information technology costs to transition employees to work remotely, (ii) branch, central operations, and corporate locations sanitization services and supplies, (iii) installation of protective barriers and other appropriate safety measures, and (iv) other costs and fees directly related to COVID-19. The Company also incurred restructuring costs associated with a reduction in workforce. For further information regarding direct costs associated with COVID-19 and restructuring charges, see "Results of Operations - Non-GAAP Financial Measures" under Management's Discussion and Analysis of Financial Condition and Results of Operations in this report. •We did not have any impairments with respect to goodwill, intangible assets, long-lived assets, and right of use assets during the year endedDecember 31, 2020 . We currently do not anticipate any impairments as it relates to these assets at this time, but we will continue to monitor and test as appropriate. 48 -------------------------------------------------------------------------------- Table of Contents OMH'S CONSOLIDATED RESULTS
See the table below for OMH's consolidated operating results and selected financial statistics. A further discussion of OMH's operating results for our operating segment is provided under "Segment Results" below.
(dollars in millions, except per share amounts)
At or for the Years Ended December 31, 2020 2019 2018 Interest income$ 4,368 $ 4,127 $ 3,658 Interest expense 1,027 970 875 Provision for finance receivable losses 1,319 1,129 1,048 Net interest income after provision for finance receivable losses 2,022 2,028 1,735 Other revenues 526 622 574 Other expenses 1,571 1,552 1,685 Income before income taxes 977 1,098 624 Income taxes 247 243 177 Net income$ 730 $ 855 $ 447 Share Data: Earnings per share: Diluted$ 5.41 $ 6.27 $ 3.29 Selected Financial Statistics * Finance receivables held for investment: Net finance receivables
2,304,951 2,435,172 2,373,330
Average net receivables $ 17,997 $ 17,055 $ 15,471
Yield 24.24 % 24.13 % 23.56 %
Gross charge-off ratio 6.46 % 6.79 % 7.13 %
Recovery ratio (0.92) % (0.74) % (0.73) %
Net charge-off ratio 5.54 % 6.05 % 6.40 %
30-89 Delinquency ratio 2.28 % 2.46 % 2.42 %
Origination volume
1,099,767 1,481,166 1,436,029
Debt balances:
Long-term debt balance
18,080 16,336 15,444
* See "Glossary" at the beginning of this report for formulas and definitions of our key performance ratios.
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Comparison of Consolidated Results for 2020 and 2019
Interest income increased $241 million or 5.8% in 2020 when compared to 2019
primarily due to growth in our average net finance receivables of $942 million
along with higher yields driven by the impacts of lower delinquencies.
Interest expense increased $57 million or 5.9% in 2020 when compared to 2019
primarily due to an increase in average outstanding debt of $1.7 billion , offset
by a lower average cost of funds.
See Notes 9 and 10 of the Notes to the Consolidated Financial Statements included in this report for further information on our long-term debt, securitization transactions, and our revolving conduit facilities.
Provision for finance receivable losses increased$190 million or 16.8% in 2020 when compared to 2019 primarily due to higher expected credit losses in our allowance as a result of the current year adoption of the accounting standard Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, issued in June of 2016 ("ASU 2016-13"), which were primarily driven by our forecast of elevated unemployment as a result of COVID-19. Other revenues decreased$96 million or 15.4% in 2020 when compared to 2019 primarily due to a$34 million decrease from lower insurance products and membership plans sold as a result of reduced loan origination volume, a$28 million decrease in investment revenue and interest income primarily driven by lower interest rates on cash, restricted cash, and invested assets, and other decreases from the prior period due to lower servicing fee income, and the gain on sale of a cost method investment in 2019. Other expenses increased$19 million or 1.2% in 2020 when compared to 2019 primarily due to an increase in insurance policy benefits and claims expense primarily due to the impact of COVID-19 on our involuntary unemployment insurance products. The increase was partially offset by a decrease in general operating expenses, reflecting our efforts to tightly manage costs as well as variable expenses associated with lower loan origination volume. Income taxes totaled$247 million for 2020 compared to$243 million for 2019. The effective tax rate for 2020 was 25.3% compared to 22.2% for 2019. The effective tax rate for 2020 differed from the federal statutory rate of 21% primarily due to the effect of state income taxes and discrete tax expense during 2020. The effective tax rate for 2019 differed from the federal statutory rate of 21% primarily due to the effect of state income taxes, offset by the release of the valuation allowance against certain state deferred taxes.
See Note 14 of the Notes to the Consolidated Financial Statements included in this report for further information on effective tax rates.
Comparison of Consolidated Results for 2019 and 2018
For a comparison of OMH's results of operation for the years ended 2019 and 2018, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Consolidated Results" in Part II Item 7 of OMH's Annual Report on Form 10-K for the year endedDecember 31, 2019 filed with theSEC onFebruary 14, 2020 . 50 -------------------------------------------------------------------------------- Table of Contents NON-GAAP FINANCIAL MEASURES Management uses adjusted pretax income (loss), a non-GAAP financial measure, as a key performance measure of our segment. Adjusted pretax income (loss) represents income (loss) before income taxes on a Segment Accounting Basis and excludes direct costs associated with COVID-19, acquisition-related transaction and integration expenses, net loss resulting from repurchases and repayments of debt, net gain on sale of cost method investment, restructuring charges, additional net gain on sale of SpringCastle interests, lower of cost or fair value adjustment on loans held for sale, non-cash incentive compensation expense related to the Fortress Transaction, and net loss on sale of real estate loans. Management believes adjusted pretax income (loss) is useful in assessing the profitability of our segment. Management also uses pretax capital generation, a non-GAAP financial measure, as a key performance measure of our segment. This measure represents adjusted pretax income as discussed above and excludes the change in our allowance for finance receivable losses in the period while still considering the net charge-offs incurred during the period. Management believes that pretax capital generation is useful in assessing the capital created in the period impacting the overall capital adequacy of the Company. Management believes that the Company's reserves, combined with its equity, represent the Company's loss absorption capacity. Management utilizes both adjusted pretax net income (loss) and pretax capital generation in evaluating our performance. Additionally, both of these non-GAAP measures are consistent with the performance goals established in OMH's executive compensation program. Adjusted pretax income (loss) and pretax capital generation are non-GAAP financial measures and should be considered supplemental to, but not as a substitute for or superior to, income (loss) before income taxes, net income, or other measures of financial performance prepared in accordance with GAAP. 51 -------------------------------------------------------------------------------- Table of Contents OMH's reconciliations of income (loss) before income tax expense (benefit) on a Segment Accounting Basis to adjusted pretax income (loss) (non-GAAP) by segment and Consumer and Insurance pretax capital generation (non-GAAP) were as follows: (dollars in millions) Years Ended December 31, 2020 2019 2018 Consumer and Insurance Income before income taxes - Segment Accounting Basis$ 1,021 $ 1,168 $ 787 Adjustments: Direct costs associated with COVID-19 17 - - Acquisition-related transaction and integration expenses 11 14 47 Net loss on repurchases and repayments of debt 36 30 63 Net gain on sale of cost method investment - (11) - Restructuring charges 7 5 8 Adjusted pretax income (non-GAAP) $
1,092
Provision for finance receivable losses$ 1,313 $ 1,105 $ 1,047 Net charge-offs (998) (1,028) (998) Pretax capital generation (non-GAAP) $
1,407
Other
Loss before income taxes - Segment Accounting Basis$ (9) $ (3) $ (131) Adjustments: Additional net gain on sale of SpringCastle interests (4) (7) - Lower of cost or fair value adjustment (a) 7 - - Non-cash incentive compensation expense - - 106 Net loss on sale of real estate loans (b) - 1 6 Adjusted pretax loss (non-GAAP) $
(6)
(a) The carrying value of our remaining real estate loans classified in finance receivables held for sale exceeded their fair value, and accordingly, we have marked the loans to fair value and recorded an impairment in other revenue during the year endedDecember 31, 2020 . (b) In 2019 and 2018, the resulting impairments on finance receivables held for sale that remained after theFebruary 2019 and theDecember 2018 Real Estate Loan Sales were combined with the respective gains on sales. 52
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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 2 of the Notes to the Consolidated Financial Statements included
in this report for the reconciliation of results of OMFC to OMH.
See Note 18 of the Notes to the Consolidated Financial Statements included in
this report for a description of our segment and methodologies used to allocate
revenues and expenses to our C&I segment and Other.
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, 2020 2019 2018 Interest income$ 4,353 $ 4,114 $ 3,677 Interest expense 1,007 947 844 Provision for finance receivable losses 1,313 1,105 1,047 Net interest income after provision for finance receivable losses 2,033 2,062 1,786 Other revenues 551 619 558 Other expenses 1,492 1,475 1,439 Adjusted pretax income (non-GAAP)
Selected Financial Statistics * Finance receivables held for investment: Net finance receivables
2,304,951 2,435,172 2,373,330
Average net receivables $ 18,009 $ 17,089 $ 15,401
Yield 24.17 % 24.07 % 23.88 %
Gross charge-off ratio 6.46 % 6.86 % 7.32 %
Recovery ratio (0.92) % (0.84) % (0.84) %
Net charge-off ratio 5.54 % 6.02 % 6.48 %
30-89 Delinquency ratio 2.28 % 2.47 % 2.43 %
Origination volume
1,099,767 1,481,166 1,436,029
* See "Glossary" at the beginning of this report for formulas and definitions of our key performance ratios.
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Comparison of Adjusted Pretax Income for 2020 and 2019
Interest income increased $239 million or 5.8% in 2020 when compared to 2019
primarily due to growth in our average net finance receivables of $920 million
along with higher yields driven by the impacts of lower delinquencies.
Interest expense increased $60 million or 6.3% in 2020 when compared to 2019
primarily due to an increase in average outstanding debt of $1.7 billion , offset
by a lower average cost of funds.
See Notes 9 and 10 of the Notes to the Consolidated Financial Statements included in this report for further information on our long-term debt, securitization transactions, and our revolving conduit facilities.
Provision for finance receivable losses increased$208 million or 18.8% in 2020 when compared to 2019 primarily due to higher expected credit losses in our allowance as a result of the current year adoption of ASU 2016-13, which were primarily driven by our forecast of elevated unemployment as a result of COVID-19. Other revenues decreased$68 million or 11.0% in 2020 when compared to 2019 primarily due to a$34 million decrease from lower insurance products and membership plans sold as a result of reduced loan origination volume and a$29 million decrease in investment revenue and interest income primarily driven by lower interest rates on cash, restricted cash, and invested assets in the current period. Other expenses increased$17 million or 1.2% in 2020 when compared to 2019 primarily due to an increase in insurance policy benefits and claims expense primarily due to the impact of COVID-19 on our involuntary unemployment insurance products. The increase was partially offset by a decrease in general operating expenses, reflecting our efforts to tightly manage costs as well as variable expenses associated with lower loan origination volume.
Comparison of Adjusted Pretax Income for 2019 and 2018
For a comparison of OMH's adjusted pretax income for C&I for the years ended 2019 and 2018, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Consolidated Results" in Part II Item 7 of OMH's Annual Report on Form 10-K for the year endedDecember 31, 2019 filed with theSEC onFebruary 14, 2020 . 54 -------------------------------------------------------------------------------- Table of Contents OTHER
"Other" consists of our liquidating SpringCastle Portfolio servicing activity and our non-originating legacy operations, which primarily include our liquidating real estate loans.
OMH's adjusted pretax loss of the Other components on an adjusted Segment Accounting Basis was as follows:
(dollars in millions) Years Ended December 31, 2020 2019 2018 Interest income$ 6 $ 9 $ 17 Interest expense 4 5 17 Provision for finance receivable losses - - (5)
Net interest income after provision for finance receivable losses
2 4 5
Other revenues 16 26 33
Other expenses 24 39 57
Adjusted pretax loss (non-GAAP) Net finance receivables of the Other components, reported in "Other assets," on a Segment Accounting Basis were as follows:
(dollars in millions)
December 31, 2020 2019 2018 Net finance receivables held for sale: Other receivables$ 49 $ 66 $ 103 Credit Quality The results of OMFC are consolidated into the results of OMH. Due to the nominal differences between OMFC and OMH, content throughout this section relate only to OMH. See Note 2 of the Notes to the Consolidated Financial Statements included in this report for the reconciliation of results of OMFC to OMH.
FINANCE RECEIVABLES
Our net finance receivables, consisting of personal loans, were$18.1 billion atDecember 31, 2020 and$18.4 billion atDecember 31, 2019 . Our personal loans are non-revolving, with a fixed-rate, fixed terms generally between three and six years, and are secured by automobiles, other titled collateral, or are unsecured. We consider the delinquency status of our finance receivables as our key credit quality indicator. We monitor the delinquency of our finance receivable portfolio, including the migration between the delinquency buckets and changes in the delinquency trends to manage our exposure to credit risk in the portfolio. Our branch team members work with customers as necessary and offer a variety of borrower assistance programs to help customers continue to make payments. See "Results of Operations" under Management's Discussion and Analysis of Financial Condition and Results of Operations in this report for further details on our borrower assistance programs.
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. See "Results of Operations" under Management's Discussion and Analysis
of Financial Condition and Results of Operations in this report for further
details on the COVID-19 impact on delinquency.
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When finance receivables are contractually 60 days past due, we consider these
accounts to be at an increased risk for loss and we transfer collection of these
accounts to our centralized operations. Use of our centralized operations teams
for managing late stage delinquency allows us to apply more advanced collection
technologies and tools, and drives operating efficiencies in servicing. At 90
days contractually past due, we consider our finance receivables to be
nonperforming.
The delinquency information for net finance receivables is as follows:
Consumer Segment to
and GAAP GAAP
(dollars in millions) Insurance Adjustment (a) Basis
December 31, 2020 Current$ 17,362 $ (7)$ 17,355 30-59 days past due 251 - 251 Delinquent (60-89 days past due) 162 - 162 Performing 17,775 (7) 17,768 Nonperforming (90+ days past due) 316 - 316 Total net finance receivables$ 18,091 $ (7)$ 18,084 Delinquency ratio 30-89 days past due 2.28 % (b) 2.28 % 30+ days past due 4.03 % (b) 4.03 % 60+ days past due 2.64 % (b) 2.64 % 90+ days past due 1.75 % (b) 1.75 %December 31, 2019 Current$ 17,578 $ (28)$ 17,550 30-59 days past due 273 (1) 272 Delinquent (60-89 days past due) 182 (1) 181 Performing 18,033 (30) 18,003 Nonperforming (90+ days past due) 388 (2) 386 Total net finance receivables$ 18,421 $ (32)$ 18,389 Delinquency ratio 30-89 days past due 2.47 % (b) 2.46 % 30+ days past due 4.58 % (b) 4.56 % 60+ days past due 3.09 % (b) 3.08 % 90+ days past due 2.11 % (b) 2.10 % (a) As a result of the adoption of ASU 2016-13, we converted all purchased credit impaired finance receivables to purchased credit deteriorated finance receivables in accordance with ASC Topic 326, which resulted in the gross-up of net finance receivables and allowance for finance receivable losses of$15 million onJanuary 1, 2020 . See Notes 4, 5, and 6 of the Notes to the Consolidated Financial Statements for additional information on the adoption of ASU 2016-13 included in this report.
(b) Not applicable
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ALLOWANCE FOR FINANCE RECEIVABLE LOSSES
We estimate and record an allowance for finance receivable losses to cover the
estimated lifetime expected credit losses on our finance receivables, pursuant
to the adoption of ASU 2016-13 on January 1, 2020 . Prior to the adoption of ASU
2016-13, we estimated and recorded an allowance for finance receivable losses to
cover estimated incurred losses on our finance receivables. Our allowance for
finance receivable losses may fluctuate based upon changes in portfolio growth,
credit quality, and economic conditions. See Note 3 of the Notes to the
Consolidated Financial Statements included in this report for further
information on our policy for allowance for finance receivable losses.
Our current methodology to estimate expected credit losses used the most recent
macroeconomic forecasts, which incorporated the projected impacts of COVID-19 on
the U.S. economy. We also considered known government stimulus measures, the
involuntary unemployment insurance coverage of our portfolio, and our borrower
assistance efforts. Our forecast leveraged economic projections from an industry
leading forecast provider. At December 31, 2020 , our economic forecast used a
reasonable and supportable period of 12 months. The increase in our allowance
for finance receivable losses for the year ended December 31, 2020 was largely
due to the adoption of ASU 2016-13 along with the economic considerations
relating to COVID-19. In the near-term, we may experience further changes to the
macroeconomic assumptions within our forecast, as well as changes to our loan
loss performance outlook, both of which could lead to further changes in our
allowance for finance receivable losses, allowance ratio, and provision for
finance receivable losses. For further information regarding the impact of
COVID-19 on our allowance for finance receivable losses see "Recent Development
and Outlook" and "Results of Operations" under Management's Discussion and
Analysis of Financial Condition and Results of Operations in this report.
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Changes in the allowance for finance receivable losses were as follows:
Consumer Segment to
and GAAP Consolidated
(dollars in millions) Insurance Other Adjustment Total
Year Ended December 31, 2020
Balance at beginning of period $ 849 $ - $ (20) $ 829
Impact of adoption of ASU 2016-13 (a) 1,119 - (1) 1,118
Provision for finance receivable losses 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 % (b) (b) 12.55 %
Year Ended December 31, 2019
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 % (b) (b) 4.51 %
Year Ended December 31, 2018
Balance at beginning of period $ 724 $ 35 $ (62) $ 697
Provision for finance receivable losses 1,047 (5) 6 1,048
Charge-offs (1,127) (3) 26 (1,104)
Recoveries 129 3 (19) 113
Other (c) - (30) 7 (23)
Balance at end of period $ 773 $ - $ (42) $ 731
Allowance ratio 4.77 % (b) (b) 4.52 %
(a) As a result of the adoption of ASU 2016-13, we recorded a one-time
adjustment to the allowance for finance receivable losses. Additionally, we
converted all purchased credit impaired finance receivables to purchased credit
deteriorated finance receivables in accordance with ASC Topic 326, which
resulted in the gross-up of net finance receivables and allowance for finance
receivable losses of $15 million on January 1, 2020 . See Notes 4, 5, and 6 of
the Notes to the Consolidated Financial Statements for additional information on
the adoption of ASU 2016-13 included in this report.
(b) Not applicable.
(c) Other consists primarily of the reclassification of allowance for finance receivable losses due to the transfer of the real estate loans in other receivables from held for investment to finance receivables held for sale onSeptember 30, 2018 . The current delinquency status of our finance receivable portfolio, inclusive of recent borrower performance, volume of our TDR activity, level and recoverability of collateral securing our finance receivable portfolio, and the reasonable and supportable forecast of economic conditions (after the adoption of ASU 2016-13) are the primary drivers that can cause fluctuations in our allowance for finance receivable losses from period to period. We monitor the allowance ratio to ensure we have a sufficient level of allowance for finance receivable losses based on the estimated lifetime expected credit losses in our finance receivable portfolio. The allowance for finance receivable losses as a percentage of net finance receivables increased from prior periods due to the adoption of ASU 2016-13 and the impacts of the current economic environment. See Note 6 of the Notes to the Consolidated Financial Statements included in this report for more information about the changes in the allowance for finance receivable losses. 58
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TDR FINANCE RECEIVABLES
We make modifications to our finance receivables to assist borrowers experiencing financial difficulties. When we modify a loan's contractual terms for economic or other reasons related to the borrower's financial difficulties and grant a concession that we would not otherwise consider, we classify that loan as a TDR finance receivable.
Information regarding TDR net finance receivables is as follows:
Consumer Segment to
and GAAP GAAP
(dollars in millions) Insurance Adjustment Basis
December 31, 2020
TDR net finance receivables $ 728 $ (37) $ 691
Allowance for TDR finance receivable losses 332 (18) 314
December 31, 2019
TDR net finance receivables $ 721 $ (63) $ 658
Allowance for TDR finance receivable losses 292 (20) 272
DISTRIBUTION OF FINANCE RECEIVABLES BY FICO SCORE
There are many different categorizations used in the consumer lending industry to describe the creditworthiness of a borrower, including prime, near prime, and sub-prime. While management does not utilize FICO scores to manage credit quality, we have presented the following on how we group FICO scores into said categories for comparability purposes across our industry: •Prime: FICO score of 660 or higher •Near prime: FICO score of 620-659 •Sub-prime: FICO score of 619 or below Our customers' demographics are in many respects near the national median but may vary from national norms in terms of credit and repayment histories. Many of our customers have experienced some level of prior financial difficulty or have limited credit experience and require higher levels of servicing and support from our branch network and central servicing operations.
The following table reflects our personal loans grouped into the categories described above based on borrower FICO credit scores as of the most recently refreshed date or as of the loan origination or purchase date:
(dollars in millions)
December 31, 2020* 2019
FICO scores
660 or higher $ 4,653 $ 3,951
620-659 4,877 4,683
619 or below 8,554 9,755
Total $ 18,084 $ 18,389
* Due to the impact of COVID-19, FICO scores as of December 31, 2020 may have
been impacted due to government stimulus measures, borrower assistance programs,
and potentially inconsistent reporting to credit bureaus.
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Liquidity and Capital Resources
SOURCES AND USES OF FUNDS
We finance the majority of our operating liquidity and capital needs through a combination of cash flows from operations, secured debt, unsecured debt, borrowings from revolving conduit facilities and equity. We may also utilize other sources in the future. As a holding company, all of the funds generated from our operations are earned by our operating subsidiaries. Our operating subsidiaries' primary cash needs relate to funding our lending activities, our debt service obligations, our operating expenses, payment of insurance claims, and expenditures relating to upgrading and monitoring our technology platform, risk systems, and branch locations. We have previously purchased portions of our unsecured indebtedness, and we may elect to purchase additional portions of our unsecured indebtedness or securitized borrowings in the future. Future purchases may be made through the open market, privately negotiated transactions with third parties, or pursuant to one or more tender or exchange offers, all of which are subject to terms, prices, and consideration we may determine at our discretion. During 2020, OMH generated net income of$730 million . OMH net cash inflow from operating and investing activities totaled$1.5 billion for the year endedDecember 31, 2020 . AtDecember 31, 2020 , our scheduled principal and interest payments for 2021 on our existing debt (excluding securitizations) totaled$1.2 billion . As ofDecember 31, 2020 , we had$9.2 billion of unencumbered gross finance receivables and$107 million of unencumbered real estate loans. These real estate loans are classified as held for sale and reported in "Other assets." Based on our estimates and taking into account the risks and uncertainties of our plans, we believe that we will have adequate liquidity to finance and operate our businesses and repay our obligations as they become due for at least the next 24 months.
OMFC's Issuance and Redemption of Unsecured Debt
For information regarding the issuance and redemption of OMFC's unsecured debt, see Note 9 of the Notes to the Consolidated Financial Statements included in this report.
Securitizations and Borrowings from Revolving Conduit Facilities
During the year endedDecember 31, 2020 , we completed two personal loan securitizations (OMFIT 2020-1 and OMFIT 2020-2, see "Securitized Borrowings" below), and redeemed three personal loan securitizations (SLFT 2016-A, OMFIT 2016-1 and ODART 2017-2). AtDecember 31, 2020 , we had$8.7 billion of gross finance receivables pledged as collateral for our securitization transactions. AtDecember 31, 2020 , the borrowing capacity of our revolving conduit facilities was$7.2 billion and no amounts were drawn nor were any personal loans pledged as collateral under these facilities.
See Notes 9 and 10 of the Notes to the Consolidated Financial Statements included in this report for further information on our long-term debt and revolving conduit facilities.
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Shares Repurchased and Retired
During the first quarter of 2020, OMH repurchased and retired 2,031,698 shares
of its common stock at an average price per share of $22.30 , for an aggregate
total of approximately $45 million , including commissions and fees. To provide
funding for the OMH stock repurchase and retirement program, the OMFC Board of
Directors authorized multiple dividend payments in the aggregate amount of
$45 million . On March 20, 2020 , OMH temporarily suspended its stock repurchase
program. OMH retains the right to reinstate the stock repurchase program as
circumstances change. For additional information regarding the shares
repurchased see Note 12 of the Notes to the Consolidated Financial Statements
included in this report.
Cash Dividends to OMH's Common Stockholders
Dividend declarations by OMH's board of directors for the year endedDecember 31, 2020 were as follows: Declaration Date Record Date Payment Date Dividend Per Share Amount Paid (in millions) February 10, 2020 February 26, 2020 March 13, 2020 $ 2.83 * $ 386 April 27, 2020 May 29, 2020 June 12, 2020 0.33 44 July 27, 2020 August 10, 2020 August 18, 2020 2.33 * 313 October 26, 2020 November 9, 2020 November 17, 2020 0.45 60 Total $ 5.94 $ 803
* Our
To provide the primary funding for the dividends, OMFC paid dividends of
OnFebruary 8, 2021 , OMH declared a dividend of$3.95 per share payable onFebruary 25, 2021 to record holders of OMH's common stock as of the close of business onFebruary 18, 2021 . To provide funding for the OMH dividend, the OMFC Board of Directors authorized a dividend in the amount of up to$531 million payable on or afterFebruary 23, 2021 . While OMH intends to pay its minimum quarterly dividend, currently$0.45 per share, for the foreseeable future, and announced its intention to evaluate dividends above the minimum every first and third quarters, all subsequent dividends will be reviewed and declared at the discretion of the board of directors and will depend on many factors, including our financial condition, earnings, cash flows, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends, and other considerations that the board of directors deems relevant. OMH's dividend payments may change from time to time, and the board of directors may choose not to continue to declare dividends in the future. See our " Dividend Policy " in Part II - Item 5 of this report for further information.
Whole Loan Sale Transaction
InDecember 2020 , we entered into a whole loan sale transaction with a third-party buyer pursuant to a committed forward flow sale agreement under which we agree to sell$15 million in gross finance receivables each month, consisting of newly originated unsecured personal loans during the two-year commitment period. The third-party buyer has an option within the first 90 days from the closing date of the agreement to increase the monthly commitment to$25 million in gross finance receivables. The unsecured personal loans are sold to an unconsolidated VIE and derecognized from our balance sheet at the time of sale. We will continue to service the personal loans sold and will be entitled a servicing fee and other fees commensurate with the services performed as part of the agreement. Our first sale was executed onJanuary 8, 2021 and the option to increase the monthly commitment to$25 million in gross finance receivables has not been exercised to date. 61 --------------------------------------------------------------------------------
Table of Contents LIQUIDITY OMH's Operating Activities Net cash provided by operations of$2.2 billion for 2020 reflected net income of$730 million , the impact of non-cash items, and an unfavorable change in working capital of$118 million . Net cash provided by operations of$2.4 billion for 2019 reflected net income of$855 million , the impact of non-cash items, and a favorable change in working capital of$67 million . Net cash provided by operations of$2.0 billion for 2018 reflected net income of$447 million , the impact of non-cash items, and a favorable change in working capital of$86 million .
OMH's Investing Activities
Net cash used for investing activities of$751 million ,$3.4 billion , and$2.4 billion for 2020, 2019, and 2018, respectively, was primarily due to net principal originations of finance receivables held for investment and held for sale and purchases of available-for-sale and other securities, partially offset by calls, sales, and maturities of available-for-sale and other securities.
OMH's Financing Activities
Net cash used for financing activities of$370 million for 2020 was primarily due to debt repayments, cash dividends paid, and the cash paid on the common stock repurchased, offset by the issuances of long-term debt. Net cash provided by financing activities of$1.5 billion for 2019 was primarily due to net issuances of long-term debt offset primarily by the cash dividends paid in 2019. Net cash provided by financing activities of$44 million for 2018 was primarily due to net issuances of long-term debt.
OMH's Cash and Investments
AtDecember 31, 2020 , we had$2.3 billion of cash and cash equivalents, which included$211 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, 2020 , we had$1.9 billion of investment securities, which are all held as part of our insurance operations and are unavailable for general corporate purposes.
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 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
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•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 11 of the Notes to the Consolidated Financial Statements included in this report for further information on these state restrictions and the dividends paid by our insurance subsidiaries from 2018 through 2020.
OUR DEBT AGREEMENTS
The debt agreements to which OMFC and its subsidiaries are a party include customary terms and conditions, including covenants and representations and warranties. See Note 9 of the Notes to the Consolidated Financial Statements included in this report for further information on the restrictive covenants under OMFC's debt agreements, as well as the guarantees of OMFC's long-term debt. Securitized Borrowings We execute private securitizations under Rule 144A of the Securities Act of 1933. As ofDecember 31, 2020 , our structured financings consisted of the following: Current Initial Current Collateral Current Original Issue Amount Collateral Note Amounts Balance Weighted Average Revolving (dollars in millions) (a) Balance Outstanding (a) (b) Interest Rate Period SLFT 2015-B$ 314 $ 336 $ 166 $ 190 4.04 % 5 years SLFT 2017-A 652 685 428 484 3.12 % 3 years OMFIT 2015-3 293 329 225 240 4.39 % 5 years OMFIT 2016-3 350 397 317 415 4.33 % 5 years OMFIT 2017-1 947 988 334 397 3.08 % 2 years OMFIT 2018-1 632 650 600 683 3.60 % 3 years OMFIT 2018-2 368 381 350 400 3.87 % 5 years OMFIT 2019-1 632 654 600 687 3.79 % 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 (c) 821 958 821 958 4.12 % 2 years OMFIT 2020-2 (d) 1,000 1,053 1,000 1,053 2.03 % 5 years ODART 2018-1 947 964 630 674 3.62 % 2 years ODART 2019-1 737 750 700 750 3.79 % 5 years Total securitizations$ 9,382 $ 9,984 $ 7,821$ 8,818 (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 ofDecember 31, 2020 . (c) On May 1, 2020, we issued$821 million of notes backed by personal loans. The notes mature in May of 2032. We initially retained$71 million of the Class C notes and subsequently sold the Class C notes onMay 29, 2020 . (d) OnAugust 21, 2020 , we issued$1.0 billion of notes backed by personal loans. The notes mature in September of 2035. 63 -------------------------------------------------------------------------------- Table of Contents Revolving Conduit Facilities In addition to the structured financings, we have access to 13 revolving conduit facilities with a total borrowing capacity of$7.2 billion as ofDecember 31, 2020 : Amount (dollars in millions) Advance Maximum Balance Drawn
Rocky River Funding, LLC $ 400 $ -
OneMain Financial Funding IX, LLC 850
-
Mystic River Funding, LLC 850
-
OneMain Financial Funding VIII, LLC 500
-
Thayer Brook Funding, LLC 500
-
Hubbard River Funding, LLC 250
-
Seine River Funding, LLC 650
-
New River Funding Trust * 250
-
Hudson River Funding, LLC 500
-
Columbia River Funding, LLC 500
-
St. Lawrence River Funding, LLC 250
-
OneMain Financial Funding VII, LLC 850
-
OneMain Financial Auto Funding I, LLC 850
-
Total $ 7,200 $ -
* On
See Note 9 of the Notes to the Consolidated Financial Statements included in this report for information on the transaction completed subsequent toDecember 31, 2020 . Contractual Obligations AtDecember 31, 2020 , our material contractual obligations were as follows: (dollars in millions) 2021 2022-2023 2024-2025 2026+ Securitizations Total Principal maturities on long-term debt: Securitization debt (a) $ - $ - $ - $ - $ 7,821$ 7,821 Medium-term notes 635 2,167 3,135 3,999 - 9,936 Junior subordinated debt - - - 350 - 350 Total principal maturities 635 2,167 3,135 4,349 7,821 18,107 Interest payments on debt (b) 607 1,088 745 808 826 4,074 Total$ 1,242 $ 3,255 $ 3,880 $ 5,157 $ 8,647$ 22,181
(a) On-balance sheet securitizations and borrowings under revolving conduit
facilities are not included in maturities by period due to their variable
monthly payments. At
(b) Future interest payments on floating-rate debt are estimated based upon
floating rates in effect at
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Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements as defined by
Critical Accounting Policies and Estimates
We 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 allowance for finance receivable losses primarily on historical loss experience using a cumulative loss model applied to our finance receivable portfolios. Our gross credit loss expectation is offset by the estimate of future recoveries using historical recovery curves. Our finance receivables are primarily segmented in the loss model by contractual delinquency status. Other attributes in the model include collateral mix and recent credit score. To estimate the gross credit losses, the model utilizes a roll rate matrix to project the first 12 months of losses and historical cohort performance to project the expected losses over the remaining term. Our methodology relies on historical loss experience to forecast the corresponding future outcomes. These patterns are then applied to the current portfolio to obtain an estimate of future losses. We also consider key economic trends including unemployment rates and bankruptcy filings. Forecasted macroeconomic conditions extend to our reasonable and supportable forecast period and revert to a historical average. No new volume is assumed. Renewals are a significant piece of our new volume and are considered a terminal event of the previous loan. We have elected not to measure an allowance on accrued finance charges as it is our policy to reverse finance charge amounts previously accrued after four contractual payments become past due. Management exercises its judgment when determining the amount of allowance for finance receivable losses. Our judgment is based on quantitative analyses, qualitative factors, such as recent portfolio, industry, and other economic trends, and experience in the consumer finance industry. We adjust the amounts determined by our model for management's estimate of the effects of model imprecision which include but are not limited to, any changes to underwriting criteria and portfolio seasoning.
TDR FINANCE RECEIVABLES
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. Loan
modifications primarily involve a combination of the following to reduce the
borrower's monthly payment: reduce interest rate, extend the term, defer or
forgive past due interest or forgive principal. Account modifications that are
deemed to be a TDR finance receivable are measured for impairment in accordance
with the authoritative guidance for the accounting for impaired loans.
The allowance for finance receivable losses related to our TDR finance
receivables represents 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 certain assumptions to estimate the expected cash flows
from our TDR finance receivables. The primary assumptions for our model are
prepayment speeds, default rates, and loss severity rates.
Recent Accounting Pronouncements
See Note 4 of the Notes to the Consolidated Financial Statements included in this report for discussion of recently issued accounting pronouncements.
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Seasonality
Our personal loan volume is generally highest during the second and fourth
quarters of the year, primarily due to marketing efforts and seasonality of
demand. Demand for our personal loans is usually lower in January and February
after the holiday season and as a result of tax refunds. Delinquencies on our
personal loans are generally lower in the first and second quarters and tend to
rise throughout the remainder of the year. These seasonal trends contribute to
fluctuations in our operating results and cash needs throughout the year. Our
normal seasonality trends continue to be affected by the COVID-19 pandemic and
mitigating efforts from government stimulus measures, whereby it decreased
demand for personal loans during 2020 and reduced delinquency below historical
experience.
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