An index of our management’s discussion and analysis follows:
Page
Forward-Looking Statements 39
Overview 41
Recent Developments and Outlook 42
Results of Operations 45
Segment Results 48
Credit Quality 50
Liquidity and Capital Resources 55
Off-Balance Sheet Arrangements 60
Critical Accounting Policies and Estimates 60
Recent Accounting Pronouncements 60
Seasonality 60
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Table of Contents
Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
not statements of historical fact but instead represent only management's
current beliefs regarding future events. By their nature, forward-looking
statements are subject to risks, uncertainties, assumptions, and other important
factors that may cause actual results, performance or achievements to differ
materially from those expressed in or implied by such forward-looking
statements. We caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date they were made. We do not undertake
any obligation to update or revise these forward-looking statements to reflect
events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events or the non-occurrence of anticipated events,
whether as a result of new information, future developments, or otherwise,
except as required by law. Forward-looking statements include, without
limitation, statements concerning future plans, objectives, goals, projections,
strategies, events, or performance, and underlying assumptions and other
statements related thereto. Statements preceded by, followed by or that
otherwise include the words "anticipates," "appears," "are likely," "believes,"
"estimates," "expects," "foresees," "intends," "plans," "projects," and similar
expressions or future or conditional verbs such as "would," "should," "could,"
"may," or "will" are intended to identify forward-looking statements. Important
factors that could cause actual results, performance, or achievements to differ
materially from those expressed in or implied by forward-looking statements
include, without limitation, the following:
•adverse changes in general economic conditions, including the interest rate
environment and the financial markets;
•risks associated with COVID-19 and the measures taken in response thereto;
•the sufficiency of our allowance for finance receivable losses;
•increased levels of unemployment and personal bankruptcies;
•natural or accidental events such as earthquakes, hurricanes, pandemics or
floods affecting our customers, collateral, or our facilities;
•disruptions in the operation of our information systems, or other events
disrupting business or commerce;
•a failure in or breach of our operational or security systems or infrastructure
or those of third parties, including as a result of cyber-attacks;
•our credit risk scoring models may be inadequate;
•adverse changes in our ability to attract and retain employees or key
executives;
•increased competition or adverse changes in customer responsiveness to our
distribution channels or products;
•changes in federal, state, or local laws, regulations, or regulatory policies
and practices or increased regulatory scrutiny of our industry;
•risks associated with our insurance operations;
•the costs and effects of any actual or alleged violations of any federal,
state, or local laws, rules or regulations;
•the costs and effects of any fines, penalties, judgments, decrees, orders,
inquiries, investigations, subpoenas, or enforcement or other proceedings of any
governmental or quasi-governmental agency or authority;
•our substantial indebtedness and our continued ability to access the capital
markets and maintain adequate current sources of funds to satisfy our cash flow
requirements;
•our ability to comply with all our covenants; and
•the effects of any downgrade of our debt ratings by credit rating agencies.
39
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Contents
We also direct readers to the other risks and uncertainties discussed in Part I - Item 1A. "Risk Factors" in our Annual Report and in other documents we file with theSEC . If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. You should specifically consider the factors identified in this report and in the documents we file with theSEC , including our Annual Report, that could cause actual results to differ before making an investment decision to purchase our securities and should not place undue reliance on any of our forward-looking statements. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. 40 --------------------------------------------------------------------------------
Table of Contents Overview We are a leading provider of responsible personal loan products, primarily to near-prime customers. Our network of approximately 1,400 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 origination, insurance and other product sales activities, we manage loans that belong to us and loans that belong to third parties; pursue strategic acquisitions and disposals 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. AtSeptember 30, 2021 , we had approximately 2.33 million personal loans, of which 51% were secured by titled property, totaling$18.8 billion of net finance receivables, compared to approximately 2.30 million personal loans, of which 53% were secured by titled property, totaling$18.1 billion atDecember 31, 2020 . We also service personal loans for our whole loan sale partners which we commenced during the first quarter of 2021. AtSeptember 30, 2021 , we managed a combined total of 2.37 million customer accounts and$19.1 billion of managed 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. 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. EffectiveMarch 31, 2020 , our real estate loans held for sale are reported in "Other assets" of our consolidated balance sheets.
OUR SEGMENT
AtSeptember 30, 2021 , Consumer and Insurance ("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 13 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information about our segment. 41 -------------------------------------------------------------------------------- Table of Contents 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, select branches began offering our two credit cards, BrightWay and BrightWay+, giving our customers access to more credit, while also enabling a better financial future. Our 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 near-prime consumers. During the remainder of 2021, we will continue to expand our credit cards offering across our branch network, and also introduce direct-to-consumer card marketing.
Issue and repayment of unsecured debt
Redemption of senior bonds at 7.75% maturing in 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.
Offer of social bonds – Issue of 3.50% Senior Notes maturing in 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.
Issue of 3.875% Senior Notes maturing in 2028
At
For further information regarding the issuances and redemption of our unsecured debt, see Note 6 of the Notes to the Condensed Consolidated Financial Statements included in this report.
Securitization transactions carried out: OMFIT 2021-1 and ODART 2021-1
For more information on our secured debt issuances, see “Liquidity and Capital Resources†under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.
42 -------------------------------------------------------------------------------- Table of Contents 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 (the "Underwriters"), for sale by the Selling Stockholders of up to 9,200,000 shares per agreement (a combined total of 18,400,000 shares) 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 to the Underwriters 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 two underwriting agreements, in July and August of 2021, with an entity managed by affiliates of Apollo, in its capacity as selling stockholder (the "Selling Stockholder"), and an underwriter (the "Underwriter") for the sale by the Selling Stockholder of up to 10,925,000 and 8,050,000 shares, respectively, of OMH's common stock. The two secondary public offerings closed during the third quarter of 2021 and resulted in the sale by the Selling Stockholder to the Underwriter for a total of 18,975,000 shares of OMH common stock. We did not receive any proceeds from the sale of the shares by the Selling Stockholders in either transaction.
Simultaneous share buyback
OnAugust 3, 2021 , pursuant to theJuly 2021 underwriting agreement, we concurrently purchased from the Underwriter 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 "Concurrent Share Buyback"). The terms and conditions of the Concurrent Share Buyback were reviewed and approved by a special committee of the OMH Board of Directors, comprised of independent and disinterested directors of OMH. The Concurrent Share Buyback was made pursuant to a new OMH board authorization and did not reduce our availability under the stock repurchase program commenced during the second quarter of 2021. The Concurrent Share Buyback was funded from our existing cash on hand. The Underwriter did not receive any compensation for the shares of OMH common stock repurchased by OMH.
Share buyback program
During the second quarter of 2021 we commenced our stock repurchase program. As ofSeptember 30, 2021 , we have$78 million of authorized share repurchase capacity, excluding fees and commissions, remaining under the program. See "Liquidity and Capital Resources" under Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 2. Unregistered Sales ofEquity Securities and Use of Proceeds of Part II included in this report for further information on our shares repurchased during the three months endedSeptember 30, 2021 .
Cash dividends to OMH ordinary shareholders
For more information on 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.
Acquisition of Trim
OnMay 14, 2021 , we completed our previously announced acquisition ofAsk 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.
Management response to the COVID-19 pandemic
In early 2020, COVID-19 evolved into a global pandemic, resulting in widespread volatility and deterioration in economic conditions 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. 43 -------------------------------------------------------------------------------- Table of Contents 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 includes states actively open for business, and ultimately, unemployment rates. There is also uncertainty regarding the effects of additional strains of COVID-19 and the impact of any related government actions. Current trends of originations and credit performance are favorable, but we continue to diligently monitor the economy and its impact to our customers. 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. We further describe our key initiatives and strategies under "Recent Developments and Outlook" of the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our Annual Report. 44
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Contents
Results of Operations The results of OMFC are consolidated into the results of OMH. Due to the nominal differences between OMFC and OMH, content throughout this section relates only to OMH. See Note 1 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information.
OMH CONSOLIDATED RESULTS
See the table below for OMH’s consolidated operating results and certain financial statistics. A more in-depth discussion of OMH’s operating results for our operating segment is provided under “Segment Results†below.
At or for the At or for the
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in millions, except per share
amounts) 2021 2020 2021 2020
Interest income $ 1,113 $ 1,089 $ 3,244 $ 3,273
Interest expense 237 255 703 781
Provision for finance receivable losses 226 231 356 1,186
Net interest income after provision for
finance receivable losses 650 603 2,185 1,306
Other revenues 155 101 396 390
Other expenses 429 363 1,195 1,194
Income before income taxes 376 341 1,386 502
Income taxes 88 91 335 131
Net income $ 288 $ 250 $ 1,051 $ 371
Share Data:
Earnings per share:
Diluted $ 2.17 $ 1.86 $ 7.84 $ 2.75
Selected Financial Statistics *
Finance receivables held for investment:
Net finance receivables $ 18,843 $ 17,817 $ 18,843 $ 17,817
Number of accounts 2,334,395 2,297,167 2,334,395 2,297,167
Average net receivables $ 18,545 $ 17,740 $ 18,029 $ 18,010
Yield 23.79 % 24.39 % 24.02 % 24.24 %
Gross charge-off ratio 4.76 % 6.14 % 5.41 % 6.90 %
Recovery ratio (1.24) % (0.95) % (1.23) % (0.91) %
Net charge-off ratio 3.52 % 5.19 % 4.19 % 5.99 %
30-89 Delinquency ratio 2.20 % 1.95 % 2.20 % 1.95 %
Origination volume $ 3,870 $ 2,887 $ 9,989 $ 7,523
Number of accounts originated 404,602 300,376 1,018,924 771,628
Debt balances:
Long-term debt balance $ 17,661 $ 17,531 $ 17,661 $ 17,531
Average daily debt balance 17,680 17,546 17,192 18,331
* See “Glossary†at the beginning of this report for formulas and definitions of our main performance ratios.
45 -------------------------------------------------------------------------------- Table of Contents Comparison of Consolidated Results for the Three and Nine Months EndedSeptember 30, 2021 and 2020 Interest income increased$24 million or 2% for the three months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to growth in our loan portfolio, partially offset by lower yield.
Interest income has declined
Interest expense has decreased
Interest expense has decreased
See Notes 6 and 7 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on our long-term debt, securitization transactions and revolving conduit facilities.
Provision for finance receivable losses decreased$5 million or 2% for the three months endedSeptember 30, 2021 when compared to the same period in 2020 primarily driven by a decrease in our net charge-offs due to improved credit performance aligning with governmental stimulus payments, partially offset by a build in our allowance for finance receivable losses due to growth in our loan portfolio. Provision for finance receivable losses decreased$830 million or 70% for the nine months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to an improved outlook for unemployment and macroeconomic conditions, along with the decrease in our net charge-offs due to improved credit performance aligning with governmental stimulus payments, as compared to a build in our allowance reserve at the onset of the COVID-19 pandemic. Other revenues increased$54 million or 53% for the three months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to a net loss on the repurchase and repayment of debt in the prior year quarter and the gains on the sales of finance receivables associated with the whole loan sale program that commenced in the current year. Other revenues increased$6 million or 2% for the nine months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to the gains on the sales of finance receivables associated with the whole loan sale program that commenced in the current year 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$66 million or 18% for the three months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to the expense associated with the cash-settled stock-based awards in the current period and an increase in general operating expenses due to growth in our receivables and our strategic investments in the business, including new products, compared to COVID-19 cost cutting measures in the prior year. Other expenses remained relatively consistent for the nine months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to a decrease in insurance policy and benefits claims expense resulting from lower than expected involuntary unemployment insurance claims, offset by the expense associated with the cash-settled stock-based awards in the current period and an increase in general operating expenses due to growth in our receivables and our strategic investments in the business, including new products, compared to COVID-19 cost cutting measures in the prior year. Income taxes totaled$335 million for the nine months endedSeptember 30, 2021 compared to$131 million in the same period in 2020 due to higher pre-tax income in the current period. For the three and nine months endedSeptember 30, 2021 , the effective tax rates were 23.5% and 24.2%, respectively. For the three and nine months endedSeptember 30, 2020 , the effective tax rates were 26.8% and 26.1%, respectively. The effective tax rates differed from the federal statutory rate of 21% primarily due to the effect of state income taxes.
See note 11 to the condensed consolidated financial statements included in this report for more information on effective tax rates.
46 -------------------------------------------------------------------------------- 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 profit before income tax on a segment accounting basis with adjusted profit before tax of C&I (non-GAAP) and pre-tax capital generation of C&I (non-GAAP) were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
(dollars in millions) 2021 2020 2021 2020
Consumer and Insurance
Income before income taxes - Segment Accounting
Basis $ 388 $ 351 $ 1,429 $ 530
Adjustments:
Cash-settled stock-based awards 31 - 31 -
Direct costs associated with COVID-19 1 4 5 13
Acquisition-related transaction and integration
expenses - 2 - 10
Net loss on repurchases and repayments of debt 1 35 40 35
Restructuring charges - 1 - 7
Adjusted pretax income (non-GAAP) $ 421
Provision for finance receivable losses$ 224 $ 232 $ 351 $ 1,184 Net charge-offs (165) (232) (564) (810) Pretax capital generation (non-GAAP)$ 480 $ 393 $ 1,292 $ 969 47
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Table of Contents
Segment Results
The results of OMFC are consolidated into the results of OMH. Due to the nominal
differences between OMFC and OMH, content throughout this section relate only to
OMH. See Note 1 of the Notes to the Condensed Consolidated Financial Statements
included in this report for further information.
See Note 18 of the Notes to the Consolidated Financial Statements in Part II -
Item 8 included in our Annual Report for a description of our segment and
methodologies used to allocate revenues and expenses to our C&I segment. See
Note 13 of the Notes to the Condensed Consolidated Financial Statements included
in this report for reconciliations of segment total to condensed consolidated
financial statement amounts.
CONSUMER AND INSURANCE
OMH’s adjusted pre-tax profit and selected financial statistics for C&I on an adjusted segment accounting basis were as follows:
At or for the At or for the
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in millions) 2021 2020 2021 2020
Interest income $ 1,111 $ 1,086 $ 3,237 $3,260
Interest expense 235 250 698 765
Provision for finance receivable losses 224 232 351 1,184
Net interest income after provision for
finance receivable losses 652 604 2,188 1,311
Other revenues 152 134 435 415
Other expenses 383 345 1,118 1,131
Adjusted pretax income (non-GAAP) $ 421 $ 393 $ 1,505 $595
Selected Financial Statistics *
Finance receivables held for investment:
Net finance receivables $ 18,847 $ 17,826 $ 18,847 $ 17,826
Number of accounts 2,334,395 2,297,167 2,334,395 2,297,167
Average net receivables $ 18,549 $ 17,750 $ 18,034 $ 18,023
Yield 23.77 % 24.34 % 24.00 % 24.16 %
Gross charge-off ratio 4.77 % 6.15 % 5.41 % 6.91 %
Recovery ratio (1.24) % (0.95) % (1.22) % (0.91) %
Net charge-off ratio 3.52 % 5.20 % 4.19 % 6.00 %
30-89 Delinquency ratio 2.20 % 1.95 % 2.20 % 1.95 %
Origination volume $ 3,870 $ 2,887 $ 9,989 $ 7,523
Number of accounts originated 404,602 300,376 1,018,924 771,628
* See “Glossary†at the beginning of this report for formulas and definitions of our main performance ratios.
48
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Table of Contents Comparison of Adjusted Income Before Tax for the Three and Nine Months Ended
Interest income increased$25 million or 2% for the three months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to growth in our loan portfolio, partially offset by lower yield.
Interest income has decreased
Interest expense has decreased
Interest expense decreased$67 million or 9% for the nine months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to a decrease in average debt along with a lower average cost of funds.
See notes 6 and 7 of the notes to the condensed consolidated financial statements included in this report for more information on our long-term debt, our securitization transactions and our revolving financing facilities.
Provision for finance receivable losses decreased$8 million or 3% for the three months endedSeptember 30, 2021 when compared to the same period in 2020 primarily driven by a decrease in our net charge-offs due to improved credit performance aligning with governmental stimulus payments, partially offset by a build in our allowance for finance receivable losses due to growth in our loan portfolio. Provision for finance receivable losses decreased$833 million or 70% for the nine months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to an improved outlook for unemployment and macroeconomic conditions, along with the decrease in our net charge-offs due to improved credit performance aligning with governmental stimulus payments, as compared to a build in our allowance reserve at the onset of the COVID-19 pandemic. Other revenues increased$18 million or 13% for the three months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to the gains on the sales of finance receivables associated with the whole loan sale program that commenced in the current year. Other revenues increased$20 million or 5% for the nine months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to the gains on the sales of finance receivables associated with the whole loan sale program that commenced in the current year and an increase in membership plans fee revenue due to loan origination growth. The increase was partially offset by a decrease in investment revenue primarily driven by lower interest rates on cash. Other expenses increased$38 million or 11% for the three months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to an increase in general operating expenses due to growth in our receivables and our strategic investments in the business, including new products, compared to COVID-19 cost cutting measures in the prior year. Other expenses decreased$13 million or 1% for the nine months endedSeptember 30, 2021 when compared to the same period in 2020 primarily due to a decrease in insurance policy and benefits claims expense due to lower than expected involuntary unemployment insurance claims, partially offset by an increase in general operating expenses due to growth in our receivables and our strategic investments in the business, including new products, compared to COVID-19 cost cutting measures in the prior year. 49
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Table of Contents
Credit Quality
FINANCE RECEIVABLES
Our net finance receivables, consisting of personal loans, were $18.8 billion at
September 30, 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. 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 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. We stop accruing finance charges and reverse finance charges
previously accrued on nonperforming loans.
50
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Table of Contents
The delinquency information for net finance receivables is as follows:
Consumer Segment to
and GAAP GAAP
(dollars in millions) Insurance Adjustment Basis
September 30, 2021
Current $ 18,137 $ (4) $ 18,133
30-59 days past due 258 - 258
Delinquent (60-89 days past due) 157 -
157
Performing 18,552 (4)
18 548
Nonperforming (90+ days past due) 295 - 295 Total net finance receivables$ 18,847 $ (4) $ 18,843 Delinquency ratio 30-89 days past due 2.20 % * 2.20 % 30+ days past due 3.77 % * 3.77 % 60+ days past due 2.40 % * 2.40 % 90+ days past due 1.57 % * 1.57 % 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 % * 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 51
-------------------------------------------------------------------------------- Table of Contents ALLOWANCE FOR FINANCE RECEIVABLE LOSSES
We estimate and record a provision for financial credit losses to cover expected credit losses over the life of our financial receivables. Our allowance for financial credit losses may fluctuate based on 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 impacts and expected recovery from COVID-19 on theU.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. AtSeptember 30, 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.
The variations in the provision for financial losses receivable are as follows:
Consumer Segment to
and GAAP Consolidated
(dollars in millions) Insurance Adjustment Total
Three Months Ended September 30, 2021
Balance at beginning of period $ 2,011 $ (11) $ 2,000
Provision for finance receivable losses 224 2 226
Charge-offs (223) - (223)
Recoveries 58 - 58
Balance at end of period $ 2,070 $ (9) $ 2,061
Three Months Ended September 30, 2020
Balance at beginning of period $ 2,342 $ (18) $ 2,324
Provision for finance receivable losses 232 (1) 231
Charge-offs (274) - (274)
Recoveries 42 1 43
Balance at end of period $ 2,342 $ (18) $ 2,324
Nine Months Ended September 30, 2021
Balance at beginning of period $ 2,283 $ (14) $ 2,269
Provision for finance receivable losses 351 5 356
Charge-offs (730) - (730)
Recoveries 166 - 166
Balance at end of period $ 2,070 $ (9) $ 2,061
Allowance ratio 10.98 % (a) 10.94 %
Nine Months Ended September 30, 2020
Balance at beginning of period $ 849 $ (20) $ 829
Impact of adoption of ASU 2016-13 (b) 1,119 (1)
1,118
Provision for finance receivable losses 1,184 2 1,186 Charge-offs (932) 1 (931) Recoveries 122 - 122 Balance at end of period$ 2,342 $ (18) $ 2,324 Allowance ratio 13.14 % (a) 13.05 %
(a) Not applicable. (b) Following the adoption of ASU 2016-13, we recorded a one-time adjustment to the provision for financial losses receivable.
52 -------------------------------------------------------------------------------- Table of Contents 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 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 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 4 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information about the changes in the allowance for finance receivable losses.
TDR FINANCING 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.
The information relating to net financial receivables TDR is as follows:
Consumer Segment to
and GAAP GAAP
(dollars in millions) Insurance Adjustment Basis
September 30, 2021
TDR net finance receivables $ 681 $ (25) $ 656
Allowance for TDR finance receivable losses 292 (11) 281
December 31, 2020
TDR net finance receivables $ 728 $ (37) $ 691
Allowance for TDR finance receivable losses 332 (18) 314
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-------------------------------------------------------------------------------- Table of Contents DISTRIBUTION OF FINANCE RECEIVABLES BY FICO SCORE There are many different categorizations used in the consumer lending industry to describe the creditworthiness of a borrower, including prime, near-prime, and sub-prime. While management does not utilize 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) September 30, 2021 December 31, 2020 FICO scores * 660 or higher $ 4,896 $ 4,653 620-659 5,172 4,877 619 or below 8,775 8,554 Total $ 18,843 $ 18,084
* Due to the impact of COVID-19, FICO scores as of
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Liquidity and Capital Resources
SOURCES AND USE OF FUNDS
We finance the majority of our operating liquidity and capital needs through a combination of cash flows from operations, secured debt, unsecured debt, borrowings from revolving conduit facilities, whole loan sales, and equity. We may also utilize other sources in the future. As a holding company, all of the funds generated from our operations are earned by our operating subsidiaries. Our operating subsidiaries' primary cash needs relate to funding our lending activities, our debt service obligations, our operating expenses, payment of insurance claims, and expenditures relating to upgrading and monitoring our technology platform, risk systems, and branch locations. We have previously purchased portions of our unsecured indebtedness, and we may elect to purchase additional portions of our unsecured indebtedness or securitized borrowings in the future. Future purchases may be made through the open market, privately negotiated transactions with third parties, or pursuant to one or more tender or exchange offers, all of which are subject to terms, prices, and consideration we may determine at our discretion. During the nine months endedSeptember 30, 2021 , OMH generated net income of$1.1 billion . OMH's net cash inflow from operating and investing activities totaled$140 million for the nine months endedSeptember 30, 2021 . AtSeptember 30, 2021 , our scheduled principal and interest payments for the remainder of 2021 on our existing debt (excluding securitizations) totaled$91 million . As ofSeptember 30, 2021 , we had$11.0 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 Unsecured Debt Issue and Repayment Notice
For information concerning the issuance and the repayment notice of the unsecured debt of OMFC, see Note 6 of the notes to the condensed consolidated financial statements included in this report.
Securitizations and loans on renewable pipe installations
During the nine months endedSeptember 30, 2021 , we completed one personal loan securitization (OMFIT 2021-1, see "Securitized Borrowings" below), and redeemed two personal loan securitizations (OMFIT 2017-1 and SLFT 2015-B). AtSeptember 30, 2021 , we had$7.6 billion of gross finance receivables pledged as collateral for our securitization transactions. Subsequent toSeptember 30, 2021 , we issued$1.0 billion principal amount of notes backed by personal loans ("ODART 2021-1"). ODART 2021-1 has a revolving period of two years, during which no principal payments are required to be made. During the nine months endedSeptember 30, 2021 , we entered into two new revolving conduit facilities and terminated one revolving conduit facility. AtSeptember 30, 2021 , the borrowing capacity of our revolving conduit facilities was$7.3 billion , and no amounts were drawn nor were any personal loans pledged as collateral under these facilities.
See Notes 6 and 7 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information on our long-term debt, securitization transactions and revolving conduit facilities.
Redeemed shares
During the nine months endedSeptember 30, 2021 , OMH repurchased and held in treasury 1,347,844 shares of its common stock through its stock repurchase program for an aggregate total of$77 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$100 million . Additionally, onAugust 3, 2021 , OMH participated in the Concurrent Share Buyback, in which we purchased 1,700,000 shares of OMH common stock for an aggregate total of$99 million . The terms and conditions of the Concurrent Share Buyback were reviewed and approved by a special committee of the OMH Board of Directors, comprised of independent and disinterested directors of OMH. The Concurrent Share Buyback was made pursuant to a new OMH board authorization and did not reduce our availability under the stock repurchase program. To provide funding for the Concurrent Share Buyback, the OMFC Board of Directors authorized a dividend payment in the amount of$99 million . As ofSeptember 30, 2021 , OMH held a total of 3,047,844 shares of treasury stock. For additional information regarding the shares repurchased, see Item 2. Unregistered Sales ofEquity Securities and Use of Proceeds of Part II included in this report. 55
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Cash dividend to ordinary shareholders of OMH
From
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
Total $ 8.85 $ 1,180
* Our
To finance the dividend, the OMFC paid dividends of
At
payable on or after
While OMH intends to pay its minimum quarterly dividend, currently$0.70 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 included in our Annual Report for further information.
Total loan sale transactions
As ofSeptember 30, 2021 , we have whole loan sale flow agreements, with remaining terms ranging between one to two years, with third-party buyers in which we agreed to sell a combined total of$180 million gross receivables per quarter of newly originated unsecured personal loans along with any associated accrued interest. Our first sale was executed in the first quarter of 2021. During the three and nine months endedSeptember 30, 2021 , we sold$160 million and$325 million of gross finance receivables, respectively. For further information on the whole loan sale transactions, see Note 3 of the Notes to the Condensed Consolidated Financial Statements included in this report. 56 --------------------------------------------------------------------------------
Table of Contents LIQUIDITY OMH's Operating Activities Net cash provided by operations of$1.6 billion for the nine months endedSeptember 30, 2021 reflected net income of$1.1 billion , the impact of non-cash items, and an unfavorable change in working capital of$53 million . Net cash provided by operations of$1.6 billion for the nine months endedSeptember 30, 2020 reflected net income of$371 million , the impact of non-cash items, and an unfavorable change in working capital of$108 million .
OMH investment activities
Net cash used for investing activities of$1.5 billion and$257 million for the nine months endedSeptember 30, 2021 and 2020, 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$1.6 billion for the nine months endedSeptember 30, 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 securitization, the Social Bond, and the 3.875% Senior Notes due 2028. Net cash used for financing activities of$563 million for the nine months endedSeptember 30, 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.
OMH treasury and investments
AtSeptember 30, 2021 , we had$821 million of cash and cash equivalents, which included$205 million of cash and cash equivalents held at our regulated insurance subsidiaries or for other operating activities that is unavailable for general corporate purposes. AtSeptember 30, 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.
Liquidity risks and strategies
OMFC's credit ratings are non-investment grade, which has a significant impact on our cost and access to capital. This, in turn, can negatively affect our ability to manage our liquidity and our ability or cost to refinance our indebtedness. There are numerous risks to our financial results, liquidity, capital raising, and debt refinancing plans, some of which may not be quantified in our current liquidity forecasts. These risks are further described in our "Liquidity and Capital Resources" of Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our Annual Report. The principal factors that could decrease our liquidity are customer delinquencies and defaults, a decline in customer prepayments, and a prolonged inability to adequately access capital market funding. We intend to support our liquidity position by utilizing strategies that are further described in our "Liquidity and Capital Resources" of Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our Annual Report.
However, it is possible that the actual outcome of one or more of our plans may differ materially from what we expected, or that one or more of our material judgments or estimates turn out to be materially incorrect.
OUR INSURANCE SUBSIDIARIES
Our insurance subsidiaries are subject to state regulations that limit their ability to pay dividends. AHL and Triton did not pay any dividends during the nine months endedSeptember 30, 2021 and 2020. See Note 11 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our Annual Report for further information on these state restrictions and the dividends paid by our insurance subsidiaries in 2020. 57
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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 in Part II - Item 8 included in our Annual Report for more information on the restrictive covenants under OMFC's debt agreements, as well as the guarantees of OMFC's long-term debt. Securitized Borrowings We execute private securitizations under Rule 144A of the Securities Act of 1933. As ofSeptember 30, 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 SLFT 2017-A$ 652 $ 685 $ 201 $ 261 3.62 % 3 years OMFIT 2015-3 293 329 107 130 5.23 % 5 years OMFIT 2016-3 350 397 212 290 4.58 % 5 years OMFIT 2018-1 632 650 381 423 3.78 % 3 years OMFIT 2018-2 368 381 350 400 3.87 % 5 years OMFIT 2019-1 632 654 356 402 4.01 % 2 years OMFIT 2019-2 900 947 900 995 3.30 % 7 years OMFIT 2019-A 789 892 750 892 3.78 % 7 years OMFIT 2020-1 821 958 821 958 4.12 % 2 years OMFIT 2020-2 1,000 1,053 1,000 1,053 2.03 % 5 years OMFIT 2021-1 850 904 850 904 1.57 % 5 years ODART 2018-1 947 964 327 354 3.79 % 2 years ODART 2019-1 737 750 700 750 3.79 % 5 years Total securitizations$ 8,971 $ 9,564 $ 6,955$ 7,812 (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 ofSeptember 30, 2021 .
See “Liquidity and Capital Resources – Sources and Uses of Funds – Securitizations and Borrowings from Revolving Conduit Facilities†above for information on the securitization transaction entered into thereafter.
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Revolving Conduit Facilities
In addition to the structured financings, we have access to 14 revolving conduit
facilities with a total borrowing capacity of $7.3 billion as of September 30,
2021 :
Amount
(dollars in millions) Advance Maximum Balance Drawn
OneMain Financial Auto Funding I, LLC $ 850 $ -
OneMain Financial Funding VII, LLC 850
–
OneMain Financial Funding IX, LLC 850 -
Seine River Funding, LLC 650 -
Mystic River Funding, LLC 600 -
Chicago River Funding, LLC 500 -
Columbia River Funding, LLC 500 -
Hudson River Funding, LLC 500 -
OneMain Financial Funding VIII, LLC 500 -
Thayer Brook Funding, LLC 500 -
Hubbard River Funding, LLC 250 -
New River Funding Trust 250 -
River Thames Funding, LLC 250 -
St. Lawrence River Funding, LLC 250 -
Total $ 7,300 $ -
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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 describe our significant accounting policies used in the preparation of our consolidated financial statements in Note 3 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our Annual Report. We consider the following policies to be our most critical accounting policies because they involve critical accounting estimates and a significant degree of management judgment: •allowance for finance receivable losses; and •TDR finance receivables. There have been no material changes to our critical accounting policies or to our methodologies for deriving critical accounting estimates during the nine months endedSeptember 30, 2021 . Recent Accounting Pronouncements
See note 2 of the notes to the condensed consolidated financial statements included in this report for a discussion of recently published 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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