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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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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:
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. At December 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 at December 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. Effective September 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
At December 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.
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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Recent Developments and Outlook
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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 across the 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 late March 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 across the 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.
Cash Dividends to OMH's Common Stockholders
On February 8, 2021, OMH declared a dividend of $3.95 per share payable on February 25, 2021 to record holders of OMH's common stock as of the close of business on February 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 May 14, 2020, OMFC issued a total of $600 million of aggregate principal amount of 8.875% Senior Notes due 2025.
On July 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 December 17, 2020, OMFC issued a total of $850 million of aggregate principal amount of 4.00% Senior Notes due 2030.
On January 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 May 1, 2020, we completed a private securitization in which OMFIT 2020-1 issued $821 million principal amount of notes backed by personal loans.
On August 21, 2020, we completed a private securitization in which OMFIT 2020-2 issued $1.0 billion principal amount of notes backed by personal loans.
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 January 2, 2020, Adam L. Rosman was appointed to the OMFC Board of Directors and as Executive Vice President. Mr. Rosman replaced John C. Anderson, who resigned as a member of OMFC's board of directors and as Executive Vice President on January 2, 2020.
Appointment of Chairman of the OMH Board of Directors
On August 28, 2020, Jay N. Levine resigned as Director and Chairman of the OMH Board of Directors, effective December 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 elected Douglas H. Shulman as Chairman of the Board, replacing Mr. Levine, effective December 31, 2020.
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.
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 of December 31, 2020 compared to $18.4 billion as of December 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 of March 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 of December 31, 2020 when compared to 2.5% and 2.1%, respectively, as of December 31, 2019.
•Under our borrower assistance programs, we waived late fees for payments due March 15, 2020 through April 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 ended December 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 ended December 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.
•In March 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 ended December 31, 2020, we also issued debt securities in both the unsecured and ABS markets. As of December 31, 2020, we had $2.3 billion of cash and cash equivalents, $9.2 billion of unencumbered gross finance receivables, and $7.2 billion in potential borrowing capacity from our 13 revolving conduit facilities.
•During the year, the Company incurred direct costs associated with COVID-19 relating to (i) information technology costs to transition employees to work remotely, (ii) branch, central operations, and corporate locations sanitization services and supplies, (iii) installation of protective barriers and other appropriate safety measures, and (iv) other costs and fees directly related to COVID-19. The Company also incurred restructuring costs associated with a reduction in workforce. For further information regarding direct costs associated with COVID-19 and restructuring charges, see “Results of Operations - Non-GAAP Financial Measures” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.
•We did not have any impairments with respect to goodwill, intangible assets, long-lived assets, and right of use assets during the year ended December 31, 2020. We currently do not anticipate any impairments as it relates to these assets at this time, but we will continue to monitor and test as appropriate.
OMH'S CONSOLIDATED RESULTS
See the table below for OMH's consolidated operating results and selected financial statistics. A further discussion of OMH's operating results for our operating segment is provided under “Segment Results” below.
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(dollars in millions, except per share amounts)
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At or for the Years Ended December 31,
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2020
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2019
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2018
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Interest income
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$
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4,368
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$
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4,127
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$
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3,658
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Interest expense
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1,027
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970
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875
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Provision for finance receivable losses
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1,319
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1,129
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1,048
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Net interest income after provision for finance receivable losses
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2,022
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2,028
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1,735
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Other revenues
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526
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622
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574
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Other expenses
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1,571
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1,552
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1,685
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Income before income taxes
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977
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1,098
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624
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Income taxes
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247
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243
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177
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Net income
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$
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730
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$
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855
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$
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447
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Share Data:
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Earnings per share:
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Diluted
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$
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5.41
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$
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6.27
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$
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3.29
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Selected Financial Statistics *
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Finance receivables held for investment:
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Net finance receivables
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$
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18,084
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$
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18,389
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$
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16,164
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Number of accounts
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2,304,951
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2,435,172
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2,373,330
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Average net receivables
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$
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17,997
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$
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17,055
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$
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15,471
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Yield
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24.24
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%
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24.13
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%
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23.56
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%
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Gross charge-off ratio
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6.46
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%
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6.79
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%
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7.13
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%
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Recovery ratio
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(0.92)
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%
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(0.74)
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%
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(0.73)
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%
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Net charge-off ratio
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5.54
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%
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6.05
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%
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6.40
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%
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30-89 Delinquency ratio
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2.28
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%
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2.46
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%
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2.42
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%
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Origination volume
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$
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10,729
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$
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13,803
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$
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11,923
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Number of accounts originated
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1,099,767
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1,481,166
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1,436,029
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Debt balances:
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Long-term debt balance
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$
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17,800
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$
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17,212
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$
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15,178
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Average daily debt balance
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18,080
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16,336
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15,444
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* See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.
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 ended December 31, 2019 filed with the SEC on February 14, 2020.
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.
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:
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(dollars in millions)
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Years Ended December 31,
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2020
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2019
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2018
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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
|
|
|
$
|
1,206
|
|
|
$
|
905
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
1,283
|
|
|
$
|
954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
$
|
(9)
|
|
|
$
|
(19)
|
|
(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 ended December 31, 2020.
(b) In 2019 and 2018, the resulting impairments on finance receivables held for sale that remained after the February 2019 and the December 2018 Real Estate Loan Sales were combined with the respective gains on sales.
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)
|
|
|
|
|
|
$
|
1,092
|
|
|
$
|
1,206
|
|
|
$
|
905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial Statistics *
|
|
|
|
|
|
|
|
|
|
|
Finance receivables held for investment:
|
|
|
|
|
|
|
|
|
|
|
Net finance receivables
|
|
|
|
|
|
$
|
18,091
|
|
|
$
|
18,421
|
|
|
$
|
16,195
|
|
Number of accounts
|
|
|
|
|
|
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
|
|
|
|
|
|
$
|
10,729
|
|
|
$
|
13,803
|
|
|
$
|
11,923
|
|
Number of accounts originated
|
|
|
|
|
|
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.
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 ended December 31, 2019 filed with the SEC on February 14, 2020.
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)
|
|
|
|
|
|
$
|
(6)
|
|
|
$
|
(9)
|
|
|
$
|
(19)
|
|
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
|
|
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 at December 31, 2020 and $18.4 billion at December 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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Consumer
and
Insurance
|
|
|
|
Segment to
GAAP
Adjustment (a)
|
|
GAAP
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 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
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.
Changes in the allowance for finance receivable losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Consumer
and
Insurance
|
|
Other
|
|
Segment to
GAAP
Adjustment
|
|
Consolidated
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 on September 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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Consumer
and
Insurance
|
|
|
|
Segment to
GAAP
Adjustment
|
|
GAAP
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.
|
|
|
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 ended December 31, 2020. At December 31, 2020, our scheduled principal and interest payments for 2021 on our existing debt (excluding securitizations) totaled $1.2 billion. As of December 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 ended December 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). At December 31, 2020, we had $8.7 billion of gross finance receivables pledged as collateral for our securitization transactions.
At December 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.
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 ended December 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 February 10, 2020 and July 27, 2020 dividend declarations of $2.83 and $2.33, respectively, each included a quarterly dividend of $0.33 per share.
To provide the primary funding for the dividends, OMFC paid dividends of $799 million to OMH for the year ended December 31, 2020.
On February 8, 2021, OMH declared a dividend of $3.95 per share payable on February 25, 2021 to record holders of OMH's common stock as of the close of business on February 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 after February 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
In December 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 on January 8, 2021 and the option to increase the monthly commitment to $25 million in gross finance receivables has not been exercised to date.
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
At December 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.
At December 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
•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 of December 31, 2020, our structured financings consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Issue Amount (a)
|
|
Initial Collateral Balance
|
|
Current
Note Amounts
Outstanding (a)
|
|
Current Collateral Balance
(b)
|
|
Current
Weighted Average
Interest Rate
|
|
Original
Revolving
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 of December 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 on May 29, 2020.
(d) On August 21, 2020, we issued $1.0 billion of notes backed by personal loans. The notes mature in September of 2035.
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 of December 31, 2020:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Advance Maximum Balance
|
|
Amount
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 September 30, 2020, we terminated the conduit facility with New River Funding, LLC and simultaneously entered into a new conduit facility with New River Funding Trust.
See Note 9 of the Notes to the Consolidated Financial Statements included in this report for information on the transaction completed subsequent to December 31, 2020.
Contractual Obligations
At December 31, 2020, our material contractual obligations were as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 December 31, 2020, there were no amounts drawn under our revolving conduit facilities.
(b) Future interest payments on floating-rate debt are estimated based upon floating rates in effect at December 31, 2020.
|
|
|
Off-Balance Sheet Arrangements
|
We have no material off-balance sheet arrangements as defined by SEC rules, and we had no material off-balance sheet exposure to losses associated with unconsolidated VIEs at December 31, 2020 or December 31, 2019.
|
|
|
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.
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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|
|
Item 8. Financial Statements and Supplementary Data.
|
An index to our financial statements and supplementary data follows:
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Topic
|
|
Page
|
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|
Financial Statements of OneMain Holdings, Inc. and Subsidiaries:
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|
|
|
|
|
|
|
|
|
Financial Statements of OneMain Finance Corporation and Subsidiaries:
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|
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|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of OneMain Holdings, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of OneMain Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income, of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 4 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses in 2020.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Finance Receivable Losses for Loans Collectively Evaluated for Impairment – Forecasted Macroeconomic Conditions
As described in Notes 3 and 6 to the consolidated financial statements, the Company’s allowance for finance receivable losses for loans collectively evaluated for impairment was $1,955 million as of December 31, 2020. Management estimates the allowance for finance receivable losses for loans collectively evaluated for impairment primarily on historical loss experience using a cumulative loss model applied to the Company’s finance receivable portfolios. Management also considers forecasted macroeconomic conditions within the Company’s reasonable and supportable forecast period, which incorporated the projected impacts of COVID-19 on the U.S. economy. Management’s forecasted macroeconomic conditions leveraged economic projections that considered estimated impacts from known government stimulus measures, the involuntary unemployment insurance coverage of the Company’s portfolio, and management’s borrower assistance efforts.
The principal considerations for our determination that performing procedures relating to the allowance for finance receivable losses for loans collectively evaluated for impairment – forecasted macroeconomic conditions is a critical audit matter are (i) the significant judgment by management in determining adjustments to the results of the cumulative loss model to reflect forecasted macroeconomic conditions, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s determination of the impact of forecasted macroeconomic conditions, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the allowance for finance receivable losses, including controls over management’s determination of the impact of forecasted macroeconomic conditions. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in testing management's process for determining forecasted macroeconomic conditions and applying those forecasts to the results of the cumulative loss model, which included (i) evaluating the appropriateness of the methodology, (ii) testing the data used in the estimate and (iii) evaluating the reasonableness of management’s determination of the impact of forecasted macroeconomic conditions on the allowance for finance receivable losses.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
February 9, 2021
We have served as the Company’s auditor since 2002.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of OneMain Finance Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of OneMain Finance Corporation and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income, of shareholder's equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 4 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses in 2020.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Finance Receivable Losses for Loans Collectively Evaluated for Impairment – Forecasted Macroeconomic Conditions
As described in Notes 3 and 6 to the consolidated financial statements, the Company’s allowance for finance receivable losses for loans collectively evaluated for impairment was $1,955 million as of December 31, 2020. Management estimates the allowance for finance receivable losses for loans collectively evaluated for impairment primarily on historical loss experience using a cumulative loss model applied to the Company’s finance receivable portfolios. Management also considers forecasted macroeconomic conditions within the Company’s reasonable and supportable forecast period, which incorporated the projected impacts of COVID-19 on the U.S. economy. Management’s forecasted macroeconomic conditions leveraged economic projections that considered estimated impacts from known government stimulus measures, the involuntary unemployment insurance coverage of the Company’s portfolio, and management’s borrower assistance efforts.
The principal considerations for our determination that performing procedures relating to the allowance for finance receivable losses for loans collectively evaluated for impairment – forecasted macroeconomic conditions is a critical audit matter are (i) the significant judgment by management in determining adjustments to the results of the cumulative loss model to reflect forecasted macroeconomic conditions, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s determination of the impact of forecasted macroeconomic conditions, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the allowance for finance receivable losses, including controls over management’s determination of the impact of forecasted macroeconomic conditions. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in testing management's process for determining forecasted macroeconomic conditions and applying those forecasts to the results of the cumulative loss model, which included (i) evaluating the appropriateness of the methodology, (ii) testing the data used in the estimate and (iii) evaluating the reasonableness of management’s determination of the impact of forecasted macroeconomic conditions on the allowance for finance receivable losses.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
February 9, 2021
We have served as the Company's auditor since 2002.
|
|
|
Item 1. Financial Statements.
|
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions, except par value amount)
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,272
|
|
|
$
|
1,227
|
|
Investment securities (includes available-for-sale securities with a fair value of $1.8 billion and
an amortized cost basis of $1.7 billion in 2020 and 2019)
|
|
1,922
|
|
|
1,884
|
|
Net finance receivables (includes loans of consolidated VIEs of $8.8 billion in 2020 and $8.4 billion
in 2019)
|
|
18,084
|
|
|
18,389
|
|
Unearned insurance premium and claim reserves
|
|
(771)
|
|
|
(793)
|
|
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $1.1 billion in
2020 and $340 million in 2019)
|
|
(2,269)
|
|
|
(829)
|
|
Net finance receivables, less unearned insurance premium and claim reserves and allowance for
finance receivable losses
|
|
15,044
|
|
|
16,767
|
|
|
|
|
|
|
Restricted cash and restricted cash equivalents (includes restricted cash and restricted cash equivalents
of consolidated VIEs of $441 million in 2020 and $400 million in 2019)
|
|
451
|
|
|
405
|
|
Goodwill
|
|
1,422
|
|
|
1,422
|
|
Other intangible assets
|
|
306
|
|
|
343
|
|
|
|
|
|
|
Other assets
|
|
1,054
|
|
|
769
|
|
Total assets
|
|
$
|
22,471
|
|
|
$
|
22,817
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
Long-term debt (includes debt of consolidated VIEs of $7.8 billion in 2020 and $7.6 billion in 2019)
|
|
$
|
17,800
|
|
|
$
|
17,212
|
|
Insurance claims and policyholder liabilities
|
|
621
|
|
|
649
|
|
Deferred and accrued taxes
|
|
45
|
|
|
34
|
|
Other liabilities (includes other liabilities of consolidated VIEs of $15 million in 2020 and $14 million
in 2019)
|
|
564
|
|
|
592
|
|
Total liabilities
|
|
19,030
|
|
|
18,487
|
|
Contingencies (Note 15)
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized, 134,341,724 and 136,101,156 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively
|
|
1
|
|
|
1
|
|
Additional paid-in capital
|
|
1,655
|
|
|
1,689
|
|
Accumulated other comprehensive income
|
|
94
|
|
|
44
|
|
Retained earnings
|
|
1,691
|
|
|
2,596
|
|
Total shareholders’ equity
|
|
3,441
|
|
|
4,330
|
|
Total liabilities and shareholders’ equity
|
|
$
|
22,471
|
|
|
$
|
22,817
|
|
See Notes to the Consolidated Financial Statements.
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
$
|
4,368
|
|
|
$
|
4,127
|
|
|
$
|
3,658
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
1,027
|
|
|
970
|
|
|
875
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
3,341
|
|
|
3,157
|
|
|
2,783
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
|
|
|
443
|
|
|
460
|
|
|
429
|
|
Investment
|
|
|
|
|
|
75
|
|
|
95
|
|
|
66
|
|
Net loss on repurchases and repayments of debt
|
|
|
|
|
|
(39)
|
|
|
(35)
|
|
|
(9)
|
|
Net gain on sale of real estate loans
|
|
|
|
|
|
—
|
|
|
3
|
|
|
18
|
|
Other
|
|
|
|
|
|
47
|
|
|
99
|
|
|
70
|
|
Total other revenues
|
|
|
|
|
|
526
|
|
|
622
|
|
|
574
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
756
|
|
|
808
|
|
|
917
|
|
Other operating expenses
|
|
|
|
|
|
573
|
|
|
559
|
|
|
576
|
|
Insurance policy benefits and claims
|
|
|
|
|
|
242
|
|
|
185
|
|
|
192
|
|
Total 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:
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
134,716,012
|
|
|
136,070,837
|
|
|
135,702,989
|
|
Diluted
|
|
|
|
|
|
134,919,258
|
|
|
136,326,911
|
|
|
136,034,143
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
$
|
5.42
|
|
|
$
|
6.28
|
|
|
$
|
3.29
|
|
Diluted
|
|
|
|
|
|
$
|
5.41
|
|
|
$
|
6.27
|
|
|
$
|
3.29
|
|
See Notes to the Consolidated Financial Statements.
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
$
|
730
|
|
|
$
|
855
|
|
|
$
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities
|
|
|
|
|
|
66
|
|
|
88
|
|
|
(44)
|
|
Retirement plan liability adjustments
|
|
|
|
|
|
(2)
|
|
|
7
|
|
|
(7)
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
2
|
|
|
5
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax effect:
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities
|
|
|
|
|
|
(15)
|
|
|
(20)
|
|
|
9
|
|
Retirement plan liability adjustments
|
|
|
|
|
|
—
|
|
|
(1)
|
|
|
3
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
—
|
|
|
(2)
|
|
|
—
|
|
Other comprehensive income (loss), net of tax, before reclassification adjustments
|
|
|
|
|
|
51
|
|
|
77
|
|
|
(48)
|
|
Reclassification adjustments included in net income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) on available-for-sale securities, net of tax
|
|
|
|
|
|
(1)
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments included in net income, net of tax
|
|
|
|
|
|
(1)
|
|
|
1
|
|
|
1
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
50
|
|
|
78
|
|
|
(47)
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
$
|
780
|
|
|
$
|
933
|
|
|
$
|
400
|
|
See Notes to the Consolidated Financial Statements.
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OneMain Holdings, Inc. Shareholders’ Equity
|
(dollars in millions)
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other Comprehensive
Income (Loss)
|
|
Retained
Earnings
|
|
Total Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2020 (pre-adoption)
|
|
$
|
1
|
|
|
$
|
1,689
|
|
|
$
|
44
|
|
|
$
|
2,596
|
|
|
$
|
4,330
|
|
Net impact of adoption of ASU 2016-13 (see Note 4)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(828)
|
|
|
(828)
|
|
Balance, January 1, 2020 (post-adoption)
|
|
1
|
|
|
1,689
|
|
|
44
|
|
|
1,768
|
|
|
3,502
|
|
Common stock repurchased and retired
|
|
—
|
|
|
(45)
|
|
|
—
|
|
|
—
|
|
|
(45)
|
|
Share-based compensation expense, net of forfeitures
|
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
17
|
|
Withholding tax on share-based compensation
|
|
—
|
|
|
(6)
|
|
|
—
|
|
|
—
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends *
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(807)
|
|
|
(807)
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
730
|
|
|
730
|
|
Balance, December 31, 2020
|
|
$
|
1
|
|
|
$
|
1,655
|
|
|
$
|
94
|
|
|
$
|
1,691
|
|
|
$
|
3,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2019
|
|
$
|
1
|
|
|
$
|
1,681
|
|
|
$
|
(34)
|
|
|
$
|
2,151
|
|
|
$
|
3,799
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense, net of forfeitures
|
|
—
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Withholding tax on share-based compensation
|
|
—
|
|
|
(5)
|
|
|
—
|
|
|
—
|
|
|
(5)
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
78
|
|
Cash dividends *
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(410)
|
|
|
(410)
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
855
|
|
|
855
|
|
Balance, December 31, 2019
|
|
$
|
1
|
|
|
$
|
1,689
|
|
|
$
|
44
|
|
|
$
|
2,596
|
|
|
$
|
4,330
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2018
|
|
$
|
1
|
|
|
$
|
1,560
|
|
|
$
|
11
|
|
|
$
|
1,706
|
|
|
$
|
3,278
|
|
Non-cash incentive compensation from SFH
|
|
—
|
|
|
110
|
|
|
—
|
|
|
—
|
|
|
110
|
|
Share-based compensation expense, net of forfeitures
|
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
21
|
|
Withholding tax on share-based compensation
|
|
—
|
|
|
(10)
|
|
|
—
|
|
|
—
|
|
|
(10)
|
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
(47)
|
|
|
—
|
|
|
(47)
|
|
Impact of AOCI reclassification due to the Tax Act
|
|
—
|
|
|
—
|
|
|
2
|
|
|
(2)
|
|
|
—
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
447
|
|
|
447
|
|
Balance, December 31, 2018
|
|
$
|
1
|
|
|
$
|
1,681
|
|
|
$
|
(34)
|
|
|
$
|
2,151
|
|
|
$
|
3,799
|
|
* Cash dividends declared were $5.94 per share in 2020 and $3.00 per share in 2019.
See Notes to the Consolidated Financial Statements.
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income
|
|
$
|
730
|
|
|
$
|
855
|
|
|
$
|
447
|
|
Reconciling adjustments:
|
|
|
|
|
|
|
Provision for finance receivable losses
|
|
1,319
|
|
|
1,129
|
|
|
1,048
|
|
Depreciation and amortization
|
|
264
|
|
|
271
|
|
|
289
|
|
Deferred income tax charge (benefit)
|
|
(42)
|
|
|
1
|
|
|
23
|
|
Net loss on repurchases and repayments of debt
|
|
39
|
|
|
35
|
|
|
9
|
|
Non-cash incentive compensation from SFH
|
|
—
|
|
|
—
|
|
|
110
|
|
Share-based compensation expense, net of forfeitures
|
|
17
|
|
|
13
|
|
|
21
|
|
Other
|
|
3
|
|
|
(9)
|
|
|
13
|
|
Cash flows due to changes in other assets and other liabilities
|
|
(118)
|
|
|
67
|
|
|
86
|
|
Net cash provided by operating activities
|
|
2,212
|
|
|
2,362
|
|
|
2,046
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Net principal originations of finance receivables held for investment and held for sale
|
|
(748)
|
|
|
(3,305)
|
|
|
(2,373)
|
|
Proceeds on sale of finance receivables held for sale originated as held for investment
|
|
—
|
|
|
19
|
|
|
100
|
|
Available-for-sale securities purchased
|
|
(456)
|
|
|
(718)
|
|
|
(680)
|
|
Available-for-sale securities called, sold, and matured
|
|
478
|
|
|
574
|
|
|
563
|
|
Other securities purchased
|
|
(538)
|
|
|
(18)
|
|
|
(11)
|
|
Other securities called, sold, and matured
|
|
542
|
|
|
31
|
|
|
36
|
|
Other, net
|
|
(29)
|
|
|
(12)
|
|
|
(32)
|
|
Net cash used for investing activities
|
|
(751)
|
|
|
(3,429)
|
|
|
(2,397)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt, net of issuance costs
|
|
7,279
|
|
|
5,895
|
|
|
5,525
|
|
Repayment of long-term debt
|
|
(6,792)
|
|
|
(3,961)
|
|
|
(5,471)
|
|
Cash dividends
|
|
(806)
|
|
|
(408)
|
|
|
—
|
|
Common stock repurchased and retired
|
|
(45)
|
|
|
—
|
|
|
—
|
|
Withholding tax on share-based compensation
|
|
(6)
|
|
|
(5)
|
|
|
(10)
|
|
Net cash provided by (used for) financing activities
|
|
(370)
|
|
|
1,521
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents
|
|
1,091
|
|
|
454
|
|
|
(307)
|
|
Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period
|
|
1,632
|
|
|
1,178
|
|
|
1,485
|
|
Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period
|
|
$
|
2,723
|
|
|
$
|
1,632
|
|
|
$
|
1,178
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,272
|
|
|
$
|
1,227
|
|
|
$
|
679
|
|
Restricted cash and restricted cash equivalents
|
|
451
|
|
|
405
|
|
|
499
|
|
Total cash and cash equivalents and restricted cash and restricted cash equivalents
|
|
$
|
2,723
|
|
|
$
|
1,632
|
|
|
$
|
1,178
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
(57)
|
|
|
$
|
(58)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
(978)
|
|
|
$
|
(845)
|
|
|
$
|
(752)
|
|
Income taxes paid
|
|
(289)
|
|
|
(261)
|
|
|
(150)
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows (Continued)
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Supplemental non-cash activities
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for operating lease obligations
|
|
$
|
47
|
|
|
$
|
233
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of net finance receivables held for investment to finance receivables held for sale
(prior to deducting allowance for finance receivable losses)
|
|
—
|
|
|
—
|
|
|
111
|
|
Restricted cash and restricted cash equivalents primarily represent funds required to be used for future debt payments relating to our securitization transactions.
See Notes to the Consolidated Financial Statements.
ONEMAIN FINANCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions, except par value amount)
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,272
|
|
|
$
|
1,227
|
|
Investment securities (includes available-for-sale securities with a fair value of $1.8 billion and
an amortized cost basis of $1.7 billion in 2020 and 2019)
|
|
1,922
|
|
|
1,884
|
|
Net finance receivables (includes loans of consolidated VIEs of $8.8 billion in 2020 and $8.4 billion
in 2019)
|
|
18,084
|
|
|
18,389
|
|
Unearned insurance premium and claim reserves
|
|
(771)
|
|
|
(793)
|
|
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $1.1 billion in
2020 and $340 million in 2019)
|
|
(2,269)
|
|
|
(829)
|
|
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance
receivable losses
|
|
15,044
|
|
|
16,767
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and restricted cash equivalents (includes restricted cash and restricted cash equivalents
of consolidated VIEs of $441 million in 2020 and $400 million in 2019)
|
|
451
|
|
|
405
|
|
Goodwill
|
|
1,422
|
|
|
1,422
|
|
Other intangible assets
|
|
306
|
|
|
343
|
|
|
|
|
|
|
Other assets
|
|
1,054
|
|
|
768
|
|
Total assets
|
|
$
|
22,471
|
|
|
$
|
22,816
|
|
|
|
|
|
|
Liabilities and Shareholder's Equity
|
|
|
|
|
Long-term debt (includes debt of consolidated VIEs of $7.8 billion in 2020 and $7.6 billion in 2019)
|
|
$
|
17,800
|
|
|
$
|
17,212
|
|
Insurance claims and policyholder liabilities
|
|
621
|
|
|
649
|
|
Deferred and accrued taxes
|
|
47
|
|
|
35
|
|
Other liabilities (includes other liabilities of consolidated VIEs of $15 million in 2020 and $14 million
in 2019)
|
|
563
|
|
|
595
|
|
Total liabilities
|
|
19,031
|
|
|
18,491
|
|
Contingencies (Note 15)
|
|
|
|
|
|
|
|
|
|
Shareholder's equity:
|
|
|
|
|
Common stock, par value $0.50 per share; 25,000,000 shares authorized, 10,160,021 shares issued and
outstanding at December 31, 2020 and December 31, 2019
|
|
5
|
|
|
5
|
|
Additional paid-in capital
|
|
1,899
|
|
|
1,888
|
|
Accumulated other comprehensive income
|
|
94
|
|
|
44
|
|
Retained earnings
|
|
1,442
|
|
|
2,388
|
|
Total shareholder's equity
|
|
3,440
|
|
|
4,325
|
|
Total liabilities and shareholder's equity
|
|
$
|
22,471
|
|
|
$
|
22,816
|
|
See Notes to the Consolidated Financial Statements.
ONEMAIN FINANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
$
|
4,368
|
|
|
$
|
4,127
|
|
|
$
|
3,648
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
1,027
|
|
|
972
|
|
|
876
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
3,341
|
|
|
3,155
|
|
|
2,772
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for finance receivable losses
|
|
|
|
|
|
1,319
|
|
|
1,129
|
|
|
1,043
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for finance receivable losses
|
|
|
|
|
|
2,022
|
|
|
2,026
|
|
|
1,729
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues:
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
|
|
|
443
|
|
|
460
|
|
|
429
|
|
Investment
|
|
|
|
|
|
75
|
|
|
95
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on repurchases and repayments of debt
|
|
|
|
|
|
(39)
|
|
|
(35)
|
|
|
(9)
|
|
Net gain on sale of real estate loans
|
|
|
|
|
|
—
|
|
|
3
|
|
|
18
|
|
Other
|
|
|
|
|
|
47
|
|
|
106
|
|
|
56
|
|
Total other revenues
|
|
|
|
|
|
526
|
|
|
629
|
|
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
756
|
|
|
808
|
|
|
877
|
|
Other operating expenses
|
|
|
|
|
|
573
|
|
|
558
|
|
|
577
|
|
Insurance policy benefits and claims
|
|
|
|
|
|
242
|
|
|
185
|
|
|
192
|
|
Total other expenses
|
|
|
|
|
|
1,571
|
|
|
1,551
|
|
|
1,646
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
977
|
|
|
1,104
|
|
|
643
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
247
|
|
|
246
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
$
|
730
|
|
|
$
|
858
|
|
|
$
|
461
|
|
See Notes to the Consolidated Financial Statements.
ONEMAIN FINANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
$
|
730
|
|
|
$
|
858
|
|
|
$
|
461
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities
|
|
|
|
|
|
66
|
|
|
88
|
|
|
(44)
|
|
Retirement plan liability adjustments
|
|
|
|
|
|
(2)
|
|
|
7
|
|
|
(8)
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
2
|
|
|
5
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax effect:
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities
|
|
|
|
|
|
(15)
|
|
|
(20)
|
|
|
9
|
|
Retirement plan liability adjustments
|
|
|
|
|
|
—
|
|
|
(1)
|
|
|
3
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
—
|
|
|
(2)
|
|
|
—
|
|
Other comprehensive income (loss), net of tax, before reclassification adjustments
|
|
|
|
|
|
51
|
|
|
77
|
|
|
(49)
|
|
Reclassification adjustments included in net income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) on available-for-sale securities, net of tax
|
|
|
|
|
|
(1)
|
|
|
1
|
|
|
1
|
|
Reclassification adjustments included in net income, net of tax
|
|
|
|
|
|
(1)
|
|
|
1
|
|
|
1
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
50
|
|
|
78
|
|
|
(48)
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
$
|
780
|
|
|
$
|
936
|
|
|
$
|
413
|
|
See Notes to the Consolidated Financial Statements.
ONEMAIN FINANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OneMain Finance Corporation Shareholder's Equity
|
(dollars in millions)
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other Comprehensive
Income (Loss)
|
|
Retained
Earnings
|
|
Total Shareholder’s Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2020 (pre-adoption)
|
|
$
|
5
|
|
|
$
|
1,888
|
|
|
$
|
44
|
|
|
$
|
2,388
|
|
|
$
|
4,325
|
|
Net impact of adoption of ASU 2016-13 (see Note 4)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(828)
|
|
|
(828)
|
|
Balance, January 1, 2020 (post-adoption)
|
|
5
|
|
|
1,888
|
|
|
44
|
|
|
1,560
|
|
|
3,497
|
|
Share-based compensation expense, net of forfeitures
|
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
17
|
|
Withholding tax on share-based compensation
|
|
—
|
|
|
(6)
|
|
|
—
|
|
|
—
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
50
|
|
Cash dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(848)
|
|
|
(848)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
730
|
|
|
730
|
|
Balance, December 31, 2020
|
|
$
|
5
|
|
|
$
|
1,899
|
|
|
$
|
94
|
|
|
$
|
1,442
|
|
|
$
|
3,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2019
|
|
$
|
5
|
|
|
$
|
2,110
|
|
|
$
|
(34)
|
|
|
$
|
1,940
|
|
|
$
|
4,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger of SFI with OMFC
|
|
—
|
|
|
(408)
|
|
|
—
|
|
|
—
|
|
|
(408)
|
|
Cash contribution from OMH
|
|
—
|
|
|
144
|
|
|
—
|
|
|
—
|
|
|
144
|
|
Contribution of SCHC to OMFC from SFI
|
|
—
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
34
|
|
Share-based compensation expense, net of forfeitures
|
|
—
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Withholding tax on shared-based compensation
|
|
—
|
|
|
(5)
|
|
|
—
|
|
|
—
|
|
|
(5)
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
78
|
|
Cash dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(410)
|
|
|
(410)
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
858
|
|
|
858
|
|
Balance, December 31, 2019
|
|
$
|
5
|
|
|
$
|
1,888
|
|
|
$
|
44
|
|
|
$
|
2,388
|
|
|
$
|
4,325
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2018
|
|
$
|
5
|
|
|
$
|
1,909
|
|
|
$
|
6
|
|
|
$
|
1,482
|
|
|
$
|
3,402
|
|
Non-cash incentive compensation from SFH
|
|
—
|
|
|
110
|
|
|
—
|
|
|
—
|
|
|
110
|
|
Contribution of OGSC to OMFC from SFI
|
|
—
|
|
|
53
|
|
|
5
|
|
|
—
|
|
|
58
|
|
Contribution of SMHC to OMFC from SFI
|
|
—
|
|
|
30
|
|
|
—
|
|
|
—
|
|
|
30
|
|
Share-based compensation expense, net of forfeitures
|
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Withholding tax on share-based compensation
|
|
—
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
(48)
|
|
|
—
|
|
|
(48)
|
|
Impact of AOCI reclassification due to the Tax Act
|
|
—
|
|
|
—
|
|
|
3
|
|
|
(3)
|
|
|
—
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
461
|
|
|
461
|
|
Balance, December 31, 2018
|
|
$
|
5
|
|
|
$
|
2,110
|
|
|
$
|
(34)
|
|
|
$
|
1,940
|
|
|
$
|
4,021
|
|
See Notes to the Consolidated Financial Statements.
ONEMAIN FINANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income
|
|
$
|
730
|
|
|
$
|
858
|
|
|
$
|
461
|
|
Reconciling adjustments:
|
|
|
|
|
|
|
Provision for finance receivable losses
|
|
1,319
|
|
|
1,129
|
|
|
1,043
|
|
Depreciation and amortization
|
|
264
|
|
|
271
|
|
|
279
|
|
Deferred income tax charge (benefit)
|
|
(42)
|
|
|
3
|
|
|
21
|
|
Net loss on repurchases and repayments of debt
|
|
39
|
|
|
35
|
|
|
9
|
|
Non-cash incentive compensation from SFH
|
|
—
|
|
|
—
|
|
|
110
|
|
Share-based compensation expense, net of forfeitures
|
|
17
|
|
|
13
|
|
|
10
|
|
Other
|
|
3
|
|
|
(9)
|
|
|
13
|
|
Cash flows due to changes in other assets and other liabilities
|
|
(123)
|
|
|
92
|
|
|
21
|
|
Net cash provided by operating activities
|
|
2,207
|
|
|
2,392
|
|
|
1,967
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Net principal originations of finance receivables held for investment and held for sale
|
|
(748)
|
|
|
(3,305)
|
|
|
(2,372)
|
|
Proceeds on sale of finance receivables held for sale originated as held for investment
|
|
—
|
|
|
19
|
|
|
100
|
|
Cash advances on intercompany notes receivables
|
|
—
|
|
|
(3)
|
|
|
(34)
|
|
Proceeds from repayments of principal on intercompany note to parent
|
|
—
|
|
|
3
|
|
|
187
|
|
Available-for-sale securities purchased
|
|
(456)
|
|
|
(718)
|
|
|
(680)
|
|
Available-for-sale securities called, sold, and matured
|
|
478
|
|
|
574
|
|
|
563
|
|
Other securities purchased
|
|
(538)
|
|
|
(18)
|
|
|
(11)
|
|
Other securities called, sold, and matured
|
|
542
|
|
|
31
|
|
|
36
|
|
Other, net
|
|
(29)
|
|
|
(12)
|
|
|
(27)
|
|
Net cash used for investing activities
|
|
(751)
|
|
|
(3,429)
|
|
|
(2,238)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt, net of issuance costs
|
|
7,279
|
|
|
5,895
|
|
|
5,525
|
|
Repayment of long-term debt
|
|
(6,792)
|
|
|
(3,961)
|
|
|
(5,471)
|
|
Cash contribution of SCLH
|
|
—
|
|
|
12
|
|
|
—
|
|
Cash dividends to OMH
|
|
(846)
|
|
|
(408)
|
|
|
—
|
|
Cash contribution from OMH
|
|
—
|
|
|
144
|
|
|
—
|
|
|
|
|
|
|
|
|
Cash contribution of SMHC
|
|
—
|
|
|
—
|
|
|
13
|
|
Cash contribution of OGSC
|
|
—
|
|
|
—
|
|
|
11
|
|
|
|
|
|
|
|
|
Payments on intercompany notes payable
|
|
—
|
|
|
(170)
|
|
|
(99)
|
|
Withholding tax on share-based compensation
|
|
(6)
|
|
|
(5)
|
|
|
(2)
|
|
Net cash provided by (used for) financing activities
|
|
(365)
|
|
|
1,507
|
|
|
(23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents
|
|
1,091
|
|
|
470
|
|
|
(294)
|
|
Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period
|
|
1,632
|
|
|
1,162
|
|
|
1,456
|
|
Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period
|
|
$
|
2,723
|
|
|
$
|
1,632
|
|
|
$
|
1,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows (Continued)
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,272
|
|
|
$
|
1,227
|
|
|
$
|
663
|
|
Restricted cash and restricted cash equivalents
|
|
451
|
|
|
405
|
|
|
499
|
|
Total cash and cash equivalents and restricted cash and restricted cash equivalents
|
|
$
|
2,723
|
|
|
$
|
1,632
|
|
|
$
|
1,162
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
(57)
|
|
|
$
|
(58)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
(978)
|
|
|
$
|
(847)
|
|
|
$
|
(753)
|
|
Income taxes paid
|
|
(289)
|
|
|
(261)
|
|
|
(150)
|
|
|
|
|
|
|
|
|
Supplemental non-cash activities
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for operating lease obligations
|
|
$
|
47
|
|
|
$
|
233
|
|
|
$
|
—
|
|
Non-cash merger of SFI with OMFC
|
|
—
|
|
|
(408)
|
|
|
—
|
|
Non-cash contribution of SCLH
|
|
—
|
|
|
22
|
|
|
—
|
|
|
|
|
|
|
|
|
Transfer of net finance receivables held for investment to finance receivables held
for sale (prior to deducting allowance for finance receivable losses)
|
|
—
|
|
|
—
|
|
|
111
|
|
Non-cash contribution of OGSC
|
|
—
|
|
|
—
|
|
|
47
|
|
Non-cash contribution of SMHC
|
|
—
|
|
|
—
|
|
|
17
|
|
|
|
|
|
|
|
|
Restricted cash and restricted cash equivalents primarily represent funds required to be used for future debt payments relating to our securitization transactions.
See Notes to the Consolidated Financial Statements.
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2020
OneMain Holdings, Inc. (“OMH”), and its wholly-owned direct subsidiary, OneMain Finance Corporation (“OMFC”) (formerly known as Springleaf Finance Corporation (“SFC”)) are financial services holding companies whose subsidiaries engage in the consumer finance and insurance businesses. Prior to the completion of the merger described below, OMH’s direct subsidiary was Springleaf Finance, Inc. (“SFI”).
On September 20, 2019, SFC entered into a merger agreement with SFI, its direct parent at the time, to merge SFI with and into SFC, with SFC as the surviving entity. The merger was effective in SFC's consolidated financial statements as of July 1, 2019. As a result of the merger with SFI, SFC became a wholly-owned direct subsidiary of OMH.
Effective July 1, 2020, SFC was renamed to OneMain Finance Corporation (“OMFC”). The name change did not affect OMFC’s legal entity structure, nor did it have an impact on OMH’s or OMFC’s financial statements. OMFC is used in this report to include references to transactions and arrangements occurring prior to the name change.
OMH and OMFC are referred to in this report, collectively with their subsidiaries, whether directly or indirectly owned, as “the Company,” “we,” “us,” or “our.” The information in this Annual Report on Form 10-K is equally applicable to OMH and OMFC, except where otherwise indicated.
At December 31, 2020, the Apollo-Värde Group owned approximately 40.9% of OMH’s common stock.
2018 Share Sale Transactions
Prior to the Fortress Transaction, certain executives of the Company held incentive units that only provided benefits (in the form of distributions) if Springleaf Financial Holdings, LLC ("SFH") made distributions to one or more of its common members that exceeded specified threshold amounts. In connection with the Fortress Transaction, certain executive officers who were holders of SFH incentive units received a distribution of approximately $106 million in the aggregate from SFH. Although the distribution was not made by the Company or its subsidiaries, in accordance with Accounting Standards Codification ("ASC") 710, Compensation-General, we recorded non-cash incentive compensation expense of approximately $106 million, with an equal and offsetting increase to additional paid-in-capital. The impact to the Company was non-cash, equity neutral, and not tax deductible.
In addition, in connection with the distributions by SFH to AIG resulting from the AIG Share Sale Transaction, these same executive officers holding the incentive units described above, received a distribution of approximately $4 million in the aggregate from SFH in respect of their incentive interests in SFH. Consistent with the Fortress Transaction, we recorded non-cash incentive compensation expense of approximately $4 million, with an equal and offsetting increase to additional paid-in-capital. Again, the impact to the Company was non-cash, equity neutral, and not tax deductible.
|
|
|
2. Reconciliation of OneMain Finance Corporation Results to OneMain Holdings, Inc. Results
|
The results of OMFC are consolidated into the results of OMH. Due to the nominal differences between OMFC and OMH, content throughout this filing relates to both OMH and OMFC. OMFC disclosures relate only to itself and not to any other company.
Except where otherwise indicated, and excluding certain insignificant cash and non-cash transactions at the OMH level, these notes relate to the consolidated financial statements for both companies, OMH and OMFC. In addition to certain intercompany payable and receivable amounts between the entities, the following is a reconciliation of the consolidated balance sheets and results of our consolidated statements of operations of OMFC to OMH:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
(dollars in millions)
|
|
OMH
|
|
OMFC
|
|
Difference
|
|
OMH
|
|
OMFC
|
|
Difference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
1,054
|
|
|
$
|
1,054
|
|
|
$
|
—
|
|
|
$
|
769
|
|
|
$
|
768
|
|
|
$
|
1
|
|
Deferred and accrued taxes
|
|
45
|
|
|
47
|
|
|
(2)
|
|
|
34
|
|
|
35
|
|
|
(1)
|
|
Other liabilities
|
|
564
|
|
|
563
|
|
|
1
|
|
|
592
|
|
|
595
|
|
|
(3)
|
|
Total shareholders' equity
|
|
3,441
|
|
|
3,440
|
|
|
1
|
|
|
4,330
|
|
|
4,325
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
(dollars in millions)
|
|
OMH
|
|
OMFC
|
|
Difference
|
|
OMH
|
|
OMFC
|
|
Difference
|
|
OMH
|
|
OMFC
|
|
Difference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
4,368
|
|
|
$
|
4,368
|
|
|
$
|
—
|
|
|
$
|
4,127
|
|
|
$
|
4,127
|
|
|
$
|
—
|
|
|
$
|
3,658
|
|
|
$
|
3,648
|
|
|
$
|
10
|
|
Interest expense
|
|
1,027
|
|
|
1,027
|
|
|
—
|
|
|
970
|
|
|
972
|
|
|
(2)
|
|
|
875
|
|
|
876
|
|
|
(1)
|
|
Provision for finance receivable losses
|
|
1,319
|
|
|
1,319
|
|
|
—
|
|
|
1,129
|
|
|
1,129
|
|
|
—
|
|
|
1,048
|
|
|
1,043
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
47
|
|
|
47
|
|
|
—
|
|
|
99
|
|
|
106
|
|
|
(7)
|
|
|
70
|
|
|
56
|
|
|
14
|
|
Salaries and benefits
|
|
756
|
|
|
756
|
|
|
—
|
|
|
808
|
|
|
808
|
|
|
—
|
|
|
917
|
|
|
877
|
|
|
40
|
|
Other operating expenses
|
|
573
|
|
|
573
|
|
|
—
|
|
|
559
|
|
|
558
|
|
|
1
|
|
|
576
|
|
|
577
|
|
|
(1)
|
|
Income before income taxes
|
|
977
|
|
|
977
|
|
|
—
|
|
|
1,098
|
|
|
1,104
|
|
|
(6)
|
|
|
624
|
|
|
643
|
|
|
(19)
|
|
Income taxes
|
|
247
|
|
|
247
|
|
|
—
|
|
|
243
|
|
|
246
|
|
|
(3)
|
|
|
177
|
|
|
182
|
|
|
(5)
|
|
Net Income
|
|
730
|
|
|
730
|
|
|
—
|
|
|
855
|
|
|
858
|
|
|
(3)
|
|
|
447
|
|
|
461
|
|
|
(14)
|
|
The following transactions are related to OMFC and have no impact on OMH's consolidated financial results.
Merger of SFI into OMFC
On September 20, 2019, OMFC entered into a merger agreement with its direct parent SFI, to merge SFI with and into OMFC, with OMFC as the surviving entity. The merger was effective in OMFC's condensed consolidated financial statements as of July 1, 2019. In conjunction with the merger, the net deficiency of SFI, after elimination of its investment in OMFC, was absorbed by OMFC resulting in an equity reduction of $408 million to OMFC, which included the elimination of the intercompany notes and receivables between OMFC and SFI, as discussed below.
The net deficiency of SFI included an intercompany note payable plus accrued interest of $166 million from SFI to OMH, which OMFC assumed through the merger. On September 23, 2019, OMFC repaid SFI’s note to OMH. Concurrently, OMH paid $22 million in other payables due to OMFC and made an equity contribution of $144 million to OMFC.
The transactions noted above resulted in a net $264 million reduction to OMFC's equity.
OMFC's Notes Receivable from Parent
As a result of the merger between SFI and OMFC, described in Note 1 and above, a $232 million note receivable from SFI to OMFC was dissolved effective July 1, 2019. Additionally, OMFC assumed a $28 million note payable from SFI to SMHC, a wholly-owned subsidiary of OMFC, and OMFC subsequently paid off the note on September 23, 2019. Interest income on these notes totaled $8 million during 2019 and $18 million during 2018, which we report in other revenues.
Springleaf Consumer Loan Holding Company (“SCLH”) Contribution
On March 10, 2019, all of the outstanding capital stock of SCLH, a subsidiary of SFI, was contributed to OMFC, and SCLH became a wholly-owned direct subsidiary of OMFC. The contribution was effective as of January 1, 2019 and increased OMFC’s total shareholder’s equity and total assets by $34 million and $53 million, respectively. The contribution is presented prospectively because it is deemed to be a contribution of net assets.
OneMain Consumer Loan, Inc. (“OCLI”) Loan Referral Fees
Through June 30, 2018, OCLI, a wholly-owned direct subsidiary of SCLH, provided personal loan application and credit underwriting services on behalf of OMFC for personal loan applications that are submitted online. OMFC was charged a fee of $35 for each underwritten approved application processed, as well as any other fees agreed to by the parties. On July 1, 2018, OMFC terminated its agreement with OCLI to provide these services. Prior to the termination, during 2018, OMFC recorded $29 million of referral fee expense. Certain costs incurred by OCLI to provide these services were a component of deferred origination costs, which are included in net finance receivables.
OneMain General Services Corporation (“OGSC”) Services Agreement
OGSC provides a variety of services to affiliates under a services agreement, including OMFC. OGSC was contributed to OMFC by OMH effective July 1, 2018, and all activity between OGSC and OMFC under the agreement is eliminated from OMFC’s results as of July 1, 2018. Prior to the contribution, during 2018, OMFC recorded $265 million of service fee expenses, which are included in operating expenses.
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3. Summary of Significant Accounting Policies
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BASIS OF PRESENTATION
We prepared our consolidated financial statements using generally accepted accounting principles in the United States of America ("GAAP"). The statements include the accounts of OMH, its subsidiaries (all of which are wholly-owned), and variable interest entities ("VIEs") in which we hold a controlling financial interest and for which we are considered to be the primary beneficiary as of the financial statement date.
We eliminated all material intercompany accounts and transactions. We made judgments, estimates, and assumptions that affect amounts reported in our consolidated financial statements and disclosures of contingent assets and liabilities. In management’s opinion, the consolidated financial statements include the normal, recurring adjustments necessary for a fair statement of results. Ultimate results could differ from our estimates. We evaluated the effects of and the need to disclose events that occurred subsequent to the balance sheet date. To conform to the 2020 presentation, we reclassified certain items in prior periods of our consolidated financial statements.
ACCOUNTING POLICIES
Operating Segment
At December 31, 2020, 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.
Finance Receivables
Generally, we classify finance receivables as held for investment based on management’s intent at the time of origination. We determine classification on a loan-by-loan basis. We classify finance receivables as held for investment due to our ability and intent to hold them until their contractual maturities. We carry finance receivables at amortized cost which includes accrued finance charges, net unamortized deferred origination costs and unamortized points and fees, unamortized net premiums and discounts on purchased finance receivables, and unamortized finance charges on precomputed receivables.
We include the cash flows from finance receivables held for investment in the consolidated statements of cash flows as investing activities, except for collections of interest, which we include as cash flows from operating activities. We may finance certain insurance products offered to our customers as part of finance receivables. In such cases, the insurance premium is included as an operating cash inflow and the financing of the insurance premium is included as part of the finance receivable as an investing cash flow in the consolidated statements of cash flows.
Finance Receivable Revenue Recognition
We recognize finance charges as revenue on the accrual basis using the interest method, which we report in interest income. We amortize premiums or accrete discounts on finance receivables as an adjustment to finance charge income using the interest method and contractual cash flows. We defer the costs to originate certain finance receivables and the revenue from nonrefundable points and fees on loans and amortize them as an adjustment to finance charge income using the interest method.
We stop accruing finance charges when four payments (approximately 90 days) become contractually past due for personal loans. We reverse finance charge amounts previously accrued upon suspension of accrual of finance charges.
For certain finance receivables that had a carrying value that included a purchase premium or discount, we stop accreting the premium or discount at the time we stop accruing finance charges. We do not reverse accretion of premium or discount that was previously recognized.
We recognize the contractual interest portion of payments received on nonaccrual finance receivables as finance charges at the time of receipt. We resume the accrual of interest on a nonaccrual finance receivable when the past due status on the individual finance receivable improves to the point that the finance receivable no longer meets our policy for nonaccrual. At that time, we also resume accretion of any unamortized premium or discount resulting from a previous purchase premium or discount.
Troubled Debt Restructured Finance Receivables
We make modifications to our personal loans to assist borrowers who are experiencing financial difficulty, are in bankruptcy or are participating in a consumer credit counseling arrangement. 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. We restructure finance receivables only if we believe the customer has the ability to pay under the restructured terms for the foreseeable future. We establish reserves on our TDR finance receivables by discounting the estimated cash flows associated with the respective receivables at the effective interest rate prior to the modification to the account and record any difference between the discounted cash flows and the carrying value as an allowance adjustment.
We may modify the terms of existing accounts in certain circumstances, such as certain bankruptcy or other catastrophic situations or for economic or other reasons related to a borrower’s financial difficulties that justify modification. When we modify an account, we primarily use 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. Additionally, as part of the modification, we may require trial payments. If the account is delinquent at the time of modification, the account is generally brought current for delinquency reporting. Account modifications that are deemed to be a TDR finance receivable are measured for impairment. Account modifications that are not classified as a TDR finance receivable are measured for impairment in accordance with our policy for allowance for finance receivable losses.
We recognize the contractual interest portion of payments received on nonaccrual finance receivables as finance charges at the time of receipt. TDR finance receivables that are placed on nonaccrual status remain on nonaccrual status until the past due status on the individual finance receivable improves to the point that the finance receivable no longer meets our policy for nonaccrual.
Allowance for Finance Receivable Losses
We establish the allowance for finance receivable losses through the provision for finance receivable losses. We evaluate our finance receivable portfolio by level of contractual delinquency in the portfolio, specifically in the late stage delinquency buckets and inclusive of the migration of the loans through the delinquency buckets. Our finance receivables consist of a large number of relatively small, homogeneous accounts. We evaluate our finance receivables for impairment as pools. None of our accounts are large enough to warrant individual evaluation for impairment.
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.
We generally charge off to the allowance for finance receivable losses personal loans that are beyond seven payments (approximately 180 days) past due. Generally, we start repossession of the titled personal property when the customer becomes two payments (approximately 30 days) past due and may charge-off prior to the account becoming seven payments (approximately 180 days) past due. Generally, we charge-off loans with bankruptcy filings at the earlier of notice of discharge or when the customer becomes seven payments past due.
We infrequently extend the charge-off period for individual personal loan accounts when, in our opinion, such treatment is warranted and consistent with our credit risk policies.
We may renew delinquent secured or unsecured personal loan accounts if the customer meets current underwriting criteria and it does not appear that the cause of past delinquency will affect the customer’s ability to repay the renewed loan. We subject all renewals to the same credit risk underwriting process as we would a new application for credit.
For our personal loans, we may offer those customers whose accounts are in good standing the opportunity of a deferment, which extends the term of an account. We may extend this offer to customers when they are experiencing higher than normal personal expenses. However, we may offer a deferment to a delinquent customer who is experiencing a temporary financial problem. The account must be current after granting the deferment. To evaluate whether a borrower’s financial difficulties are temporary, we review the terms of each deferment to ensure that the borrower has the financial ability to repay the outstanding principal and associated interest in full following the deferment and after the customer is brought current. If, following this analysis, we believe a borrower’s financial difficulties are not temporary, we will not grant deferment, and the loans may continue to age until they are charged off. We generally limit a customer to two deferments in a rolling twelve month period unless we determine that an exception is warranted and is consistent with our credit risk policies. Additionally, for borrowers that do not meet the qualifications of a deferment, we may also offer a cure agreement, settlement or a loan modification.
We also establish reserves for TDR finance receivables, which are included in our allowance for finance receivable losses. The allowance for finance receivable losses related to our TDR finance receivables represents 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 to estimate these expected cash flows are prepayment speeds, default rates, and loss severity rates.
Goodwill
Goodwill represents the amount of purchase price over the fair value of net assets we acquired in connection with the OneMain Acquisition. We test goodwill for potential impairment annually as of October 1 of each year and whenever events occur or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount.
We first complete a qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. If the qualitative assessment indicates that it is more likely than not that the reporting unit’s fair value is less than its carrying amount, we proceed with the quantitative impairment test. When necessary, the fair value of the reporting unit is calculated utilizing the income approach, which uses prospective financial information of the reporting unit discounted at a rate we estimate a market participant would use.
Intangible Assets other than Goodwill
At the time we initially recognize intangible assets, a determination is made with regard to each asset as it relates to its useful life. We have determined that each of our intangible assets has a finite useful life with the exception of the OneMain trade name, insurance licenses, lending licenses and certain domain names, which we have determined to have indefinite lives.
For intangible assets with a finite useful life, we review for impairment at least annually and whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated if the sum of undiscounted estimated future cash flows is less than the carrying value of the respective asset. Impairment is permanently recognized by writing down the asset to the extent that the carrying value exceeds the estimated fair value.
For indefinite-lived intangible assets, we review for impairment at least annually and whenever events occur or circumstances change that would indicate the assets are more likely than not to be impaired. We first complete an annual qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. If the qualitative assessment indicates that the assets are more likely than not to have been impaired, we proceed with the fair value calculation of the assets. The fair value is determined in accordance with our fair value measurement policy. If the fair value is less than the carrying value, an impairment loss will be recognized in an amount equal to the difference and the indefinite life classification will be evaluated to determine whether such classification remains appropriate.
Leases
All our leases are classified as operating leases, and we are the lessee or sublessor in all our lease arrangements. At inception of an arrangement, we determine if a lease exists. At lease commencement date, we recognize right-of-use assets and lease liabilities measured at the present value of lease payments over the lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Since our operating leases do not provide an implicit rate, we utilize the best available information to determine our incremental borrowing rate, which is used to calculate the present value of lease payments. The right-of-use asset also includes any prepaid fixed lease payments and excludes lease incentives. Options to extend or terminate a lease may be included in our lease arrangements. We reflect the renewal or termination option in the right-of-use asset and lease liability when it is reasonably certain that we will exercise those options. In the normal course of business, we will renew leases that expire or replace them with leases on other properties.
We have elected the practical expedient to treat both the lease component and non-lease component for our leased office space portfolio as a single lease component. Operating lease costs for lease payments are recognized on a straight-line basis over the lease term and are included in “Other operating expenses” in our consolidated statement of operations. In addition to rent, we pay taxes, insurance, and maintenance expenses under certain leases as variable lease payments. The lease right-of-use assets are included in “Other assets” and the lease liabilities are included in “Other liabilities” in our consolidated balance sheet.
Insurance Premiums
We recognize revenue for short-duration contracts over the related contract period. Short-duration contracts primarily consist of credit life, credit disability, credit involuntary unemployment insurance, and collateral protection policies. We defer single premium credit insurance premiums from affiliates in unearned premium reserves, which we include as a reduction to net finance receivables. We recognize unearned premiums on credit life, credit disability, credit involuntary unemployment insurance, and collateral protection insurance as revenue using the sum-of-the-digits, straight-line or other appropriate methods over the terms of the policies. Premiums from reinsurance assumed are earned over the related contract period.
We recognize revenue on long-duration contracts when due from policyholders. Long-duration contracts include term life, accidental death and dismemberment, and disability income protection. For single premium long-duration contracts, a liability is accrued, which represents the present value of estimated future policy benefits to be paid to or on behalf of policyholders and related expenses, when premium revenue is recognized. The effects of changes in such estimated future policy benefit reserves are classified in insurance policy benefits and claims in the consolidated statements of operations.
We recognize commissions on optional products as other revenue when earned.
We may finance certain insurance products offered to our customers as part of finance receivables. In such cases, unearned premiums and certain unpaid claim liabilities related to our borrowers are netted and classified as contra-assets in net finance receivables in the consolidated balance sheets. The insurance premium is included as an operating cash inflow and the financing of the insurance premium is included as part of the finance receivable as an investing cash flow in the consolidated statements of cash flows.
Policy and Claim Reserves
Policy reserves for credit life, credit disability, credit involuntary unemployment, and collateral protection insurance equal related unearned premiums. Reserves for losses and loss adjustment expenses are based on claims experience, actual claims reported, and estimates of claims incurred but not reported. Assumptions utilized in determining appropriate reserves are based on historical experience, adjusted to provide for possible adverse deviation. These estimates are periodically reviewed and compared with actual experience and industry standards, and revised if it is determined that future experience will differ substantially from that previously assumed. Since reserves are based on estimates, the ultimate liability may be more or less than such reserves. The effects of changes in such estimated reserves are classified in insurance policy benefits and claims in the consolidated statements of operations in the period in which the estimates are changed.
We accrue liabilities for future life insurance policy benefits associated with non-credit life contracts and base the amounts on assumptions as to investment yields, mortality, and surrenders. We base annuity reserves on assumptions as to investment yields and mortality. Ceded insurance reserves are included in other assets and include estimates of the amounts expected to be recovered from reinsurers on insurance claims and policyholder liabilities.
Insurance Policy Acquisition Costs
We defer insurance policy acquisition costs (primarily commissions, reinsurance fees, and premium taxes). We include deferred policy acquisition costs in other assets and amortize these costs over the terms of the related policies, whether directly written or reinsured.
Investment Securities
We generally classify our investment securities as available-for-sale or other, depending on management’s intent. Other securities primarily consist of equity securities and those securities for which the fair value option was elected.
Our investment securities classified as available-for-sale are recorded at fair value. We adjust related balance sheet accounts to reflect the current fair value of investment securities and record the adjustment, net of tax, in accumulated other comprehensive income or loss in shareholders’ equity. We record interest receivable on investment securities in other assets.
Under the fair value option, we may elect to measure at fair value, financial assets that are not otherwise required to be carried at fair value. We elect the fair value option for available-for-sale securities that are deemed to incorporate an embedded derivative and for which it is impracticable for us to isolate and/or value the derivative. We recognize any changes in fair value in investment revenues.
We classify our investment securities in the fair value hierarchy framework based on the observability of inputs. Inputs to the valuation techniques are described as being either observable (Level 1 or 2) or unobservable (Level 3) assumptions (as further described in “Fair Value Measurements” below) that market participants would use in pricing an asset or liability.
Impairments on Investment Securities
We evaluate our available-for-sale securities on an individual basis to identify any instances where the fair value of the investment security is below its amortized cost. For these securities, we then evaluate whether an impairment exists if any of the following conditions are present:
•we intend to sell the security;
•it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or
•we do not expect to recover the security’s entire amortized cost basis (even if we do not intend to sell the security).
If we intend to sell an impaired investment security or we will likely be required to sell the security before recovery of its amortized cost basis less any current period credit loss, we recognize the impairment as a direct write-down in investment revenues equal to the difference between the investment security’s amortized cost and its fair value at the balance sheet date. Once the impairment is recorded, we adjust the investment security to a new amortized cost basis equal to the previous amortized cost basis less the impairment write-down recognized in the current period.
In determining whether a credit loss exists, we compare our best estimate of the present value of the cash flows expected to be collected from the security to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, a credit loss exists and an allowance for credit losses is recorded, not to exceed the total unrealized loss on the security. The cash flows expected to be collected are determined by assessing all available information, including issuer default rate, ratings changes and adverse conditions related to the industry sector, financial condition of issuer, credit enhancements, collateral default rates, and other relevant criteria. Management considers factors such as our investment strategy, liquidity requirements, overall business plans, and recovery periods for securities in previous periods of broad market declines.
If a credit loss exists with respect to an investment in a security (i.e., we do not expect to recover the entire amortized cost basis of the security), we would be unable to assert that we will recover our amortized cost basis even if we do not intend to sell the security. Therefore, in these situations, a credit impairment is considered to have occurred.
If a credit impairment exists, but we do not intend to sell the security and we will likely not be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the impairment is bifurcated as: (i) the estimated amount relating to credit loss; and (ii) the amount relating to non-credit related factors. We recognize the estimated credit loss as an allowance on the balance sheet in investment securities, with a corresponding loss in investment revenues, and the non-credit loss amount in accumulated other comprehensive income or loss.
For investment securities in which a credit impairment was recorded through an allowance, we record subsequent increases and decreases in the allowance for credit losses as credit loss expense or reversal of credit loss expense in investment revenues. We will not reverse a previously recorded allowance to an amount below zero. We recognize subsequent increases and decreases in the fair value of our available-for-sale securities from non-credit related factors in accumulated other comprehensive income or loss.
Interest receivables on our investment securities are excluded from the amortized cost and fair value and are recorded in “Other assets.” We have elected not to measure an allowance on interest receivables due to our policy to reverse interest receivable at the time collectability is uncertain. The reversal of interest receivable is recorded in investment revenue.
Investment Revenue Recognition
We recognize interest on interest bearing fixed-maturity investment securities as revenue on the accrual basis. We amortize any premiums or accrete any discounts as a revenue adjustment using the interest method. We stop accruing interest revenue when the collection of interest becomes uncertain. We record dividends on equity securities as revenue on ex-dividend dates. We recognize income on mortgage-backed and asset-backed securities as revenue using an effective yield based on estimated prepayments of the underlying collateral. If actual prepayments differ from estimated prepayments, we calculate a new effective yield and adjust the net investment in the security accordingly. We record the adjustment, along with all investment securities revenue, in investment revenues. We specifically identify realized gains and losses on investment securities and include them in investment revenues.
Variable Interest Entities
An entity is a VIE if the entity does not have sufficient equity at risk for the entity to finance its activities without additional financial support or has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated into the financial statements of its primary beneficiary. When we have a variable interest in a VIE, we qualitatively assess whether we have a controlling financial interest in the entity and, if so, whether we are the primary beneficiary. In applying the qualitative assessment to identify the primary beneficiary of a VIE, we are determined to have a controlling financial interest if we have (i) the power to direct the activities that most significantly impact the economic performance of the VIE, and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. We consider the VIE’s purpose and design, including the risks that the entity was designed to create and pass through to its variable interest holders. We continually reassess the VIE’s primary beneficiary and whether we have acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances.
Cash and Cash Equivalents
We consider unrestricted cash on hand and short-term investments having maturity dates within three months of their date of acquisition to be cash and cash equivalents.
We typically maintain cash in financial institutions in excess of the Federal Deposit Insurance Corporation’s insurance limits. We evaluate the creditworthiness of these financial institutions in determining the risk associated with these cash balances. We do not believe that the Company is exposed to any significant credit risk on these accounts and have not experienced any losses in such accounts.
Restricted Cash and Cash Equivalents
We include funds to be used for future debt payments relating to our securitization transactions, insurance regulatory deposits and reinsurance trusts with third parties, in each case, in restricted cash and cash equivalents.
Long-term Debt
We generally report our long-term debt issuances at the face value of the debt instrument, which we adjust for any unaccreted discount, unamortized premium, or unamortized debt issuance costs associated with the debt. Other than securitized products, we generally accrete discounts, premiums, and debt issuance costs over the contractual life of the security using contractual payment terms. With respect to securitized products, we have elected to amortize deferred costs over the contractual life of the security. Accretion of discounts and premiums are recorded to interest expense.
Income Taxes
We recognize income taxes using the asset and liability method. We establish deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of assets and liabilities, using the tax rates expected to be in effect when the temporary differences reverse. Deferred tax assets are also recognized for tax attributes such as net operating loss carryforwards.
Realization of our gross deferred tax asset depends on our ability to generate sufficient taxable income of the appropriate character within the carryforward periods of the jurisdictions in which the net operating and capital losses, deductible temporary differences and credits were generated. When we assess our ability to realize deferred tax assets, we consider all available evidence and we record valuation allowances to reduce deferred tax assets to the amounts that management conclude are more-likely-than-not to be realized.
We recognize income tax benefits associated with uncertain tax positions, when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more likely than not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with the taxing authority.
Retirement Benefit Plans
We have funded and unfunded noncontributory defined pension plans. We recognize the net pension asset or liability, also referred to herein as the funded status of the benefit plan, in other assets or other liabilities, depending on the funded status at the end of each reporting period. We recognize the net actuarial gains or losses and prior service cost or credit that arise during the period in other comprehensive income or loss.
Many of our employees are participants in our 401(k) Plan. Our contributions to the plan are charged to salaries and benefits within operating expenses.
Share-based Compensation Plans
We measure compensation cost for service-based and performance-based awards at estimated fair value and recognize compensation expense over the requisite service period for awards expected to vest. The estimation of awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from current estimates, such amounts will be recorded as a cumulative adjustment to salaries and benefits in the period estimates are revised. For service-based awards subject to graded vesting, expense is recognized under the straight-line method. Expense for performance-based awards with graded vesting is recognized under the accelerated method, whereby each vesting is treated as a separate award with expense for each vesting recognized ratably over the requisite service period.
Fair Value Measurements
Management is responsible for the determination of the fair value of our financial assets and financial liabilities and the supporting methodologies and assumptions. We employ widely accepted internal valuation models or utilize third-party valuation service providers to gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments or pools of finance receivables. When our valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, we determine fair value either by requesting brokers who are knowledgeable about these securities to provide a quote, which is generally non-binding, or by employing widely accepted internal valuation models.
Our valuation process typically requires obtaining data about market transactions and other key valuation model inputs from internal or external sources and, through the use of widely accepted valuation models, provides a single fair value measurement for individual securities or pools of finance receivables. The inputs used in this process include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, bid-ask spreads, currency rates, and other market-observable information as of the measurement date as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector, and other issue or issuer-specific information. When market transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly increased. We assess the reasonableness of individual security values received from our valuation service providers through various analytical techniques. As part of our internal price reviews, assets that fall outside a price change tolerance are sent to our third-party investment manager for further review. In addition, we may validate the reasonableness of fair values by comparing information obtained from our valuation service providers to other third-party valuation sources for selected securities.
We measure and classify assets and liabilities in the consolidated balance sheets in a hierarchy for disclosure purposes consisting of three “Levels” based on the observability of inputs available in the marketplace used to measure the fair values. In general, we determine the fair value measurements classified as Level 1 based on inputs utilizing quoted prices in active markets for identical assets or liabilities that we have the ability to access. We generally obtain market price data from exchange or dealer markets. We do not adjust the quoted price for such instruments.
We determine the fair value measurements classified as Level 2 based on inputs utilizing other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The use of observable and unobservable inputs is further discussed in Note 19.
In certain cases, the inputs we use to measure the fair value of an asset may fall into different levels of the fair value hierarchy. In such cases, we determine the level in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Our fair value processes include controls that are designed to ensure that fair values are appropriate. Such controls include model validation, review of key model inputs, analysis of period-over-period fluctuations, and reviews by senior management.
Earnings Per Share (OMH Only)
Basic earnings per share is computed by dividing net income or loss by the weighted-average number of shares outstanding during each period. Diluted earnings per share is computed based on the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares represent outstanding unvested restricted stock units and awards.
Foreign Currency Translation
Assets and liabilities of foreign operations are translated from their functional currencies into U.S. dollars for reporting purposes using the period end spot foreign exchange rate. Revenues and expenses of foreign operations are translated monthly from their respective functional currencies into U.S. dollars at amounts that approximate weighted average exchange rates. The effects of those translation adjustments are classified in accumulated other comprehensive income (loss) on the consolidated balance sheets.
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|
|
4. Recent Accounting Pronouncements
|
ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED
Financial Instruments - Credit Losses
In June of 2016, the FASB issued Accounting Standard Update 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which significantly changed the way that entities are required to measure credit losses. The new standard required that the estimated credit loss be based upon an “expected credit loss” approach rather than the “incurred loss” approach previously required. The new approach required entities to measure all expected credit losses for financial assets over their expected lives based on historical experience, current conditions, and reasonable and supportable forecasts of collectability. The expected credit loss model required earlier recognition of credit losses than the incurred loss approach. We expect ongoing changes in the allowance for finance receivable losses will be driven primarily by the growth of our loan portfolio, mix of secured and unsecured loans, credit quality, and the economic environment at that time. In addition, the Accounting Standard Update (“ASU”) developed a new accounting treatment for purchased financial assets with credit deterioration.
The ASU also modified the other-than-temporary impairment model for available-for-sale debt securities by requiring companies to record an allowance for credit impairment rather than write-downs of such assets.
Management has reviewed this update and other ASUs that were subsequently issued to further clarify the implementation guidance outlined in ASU 2016-13.
We adopted the amendments of these ASUs as of January 1, 2020.
Upon adoption, we recorded an increase to the allowance for finance receivable losses of $1.12 billion, an increase to deferred tax assets of $0.28 billion, and a corresponding one-time cumulative reduction to retained earnings, net of tax, of $0.83 billion in the consolidated balance sheet as of January 1, 2020.
The adoption of this ASU, as it relates to available-for-sale debt securities, did not have a material impact on the consolidated financial statements as of January 1, 2020.
As a result of the adoption of ASU 2016-13, several of our significant accounting policies have changed to reflect the requirements of the new standard. Refer to Note 3 for the Summary of Significant Accounting Policies.
See Notes 5, 6, and 7 for additional information on the adoption of ASU 2016-13.
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED
Insurance
In August of 2018, the FASB issued ASU 2018-12, Financial Services - Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts, which provides targeted improvements to Topic 944 for the assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited-payment contracts; measurement of market risk benefits; amortization of deferred acquisition costs; and enhanced disclosures. The amendments in this ASU become effective for the Company beginning January 1, 2023, as a result of the FASB issuing a one-year deferral of this ASU for public companies.
We have a cross-functional implementation team and a project plan to ensure we comply with all the amendments in this ASU at the time of adoption. We have selected a vendor for a software solution to meet the new accounting and disclosure requirements of the ASU and continue to make progress in evaluating the potential impact of the adoption of the ASU on our consolidated financial statements.
We do not believe that any other accounting pronouncements issued, but not yet effective, would have a material impact on our consolidated financial statements or disclosures, if adopted.
Our finance receivables consist of personal loans, which 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.
Net finance receivables consist of our total portfolio of personal loans. Components of our personal loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
Gross finance receivables *
|
|
$
|
17,860
|
|
|
$
|
18,195
|
|
Unearned points and fees
|
|
(225)
|
|
|
(242)
|
|
Accrued finance charges
|
|
299
|
|
|
289
|
|
Deferred origination costs
|
|
150
|
|
|
147
|
|
Total
|
|
$
|
18,084
|
|
|
$
|
18,389
|
|
* Gross finance receivables equal the unpaid principal balance of our personal loans. For precompute loans, unpaid principal balance is the gross contractual payments less the unaccreted balance of unearned finance charges.
GEOGRAPHIC DIVERSIFICATION
Geographic diversification of finance receivables reduces the concentration of credit risk associated with economic stresses in any one region. The largest concentrations of net finance receivables were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019*
|
(dollars in millions)
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Texas
|
|
$
|
1,614
|
|
|
9
|
%
|
|
$
|
1,606
|
|
|
9
|
%
|
California
|
|
1,196
|
|
|
7
|
|
|
1,193
|
|
|
6
|
|
North Carolina
|
|
1,130
|
|
|
6
|
|
|
1,217
|
|
|
7
|
|
Pennsylvania
|
|
1,123
|
|
|
6
|
|
|
1,097
|
|
|
6
|
|
Florida
|
|
1,060
|
|
|
6
|
|
|
1,025
|
|
|
6
|
|
Ohio
|
|
922
|
|
|
5
|
|
|
913
|
|
|
5
|
|
Illinois
|
|
739
|
|
|
4
|
|
|
787
|
|
|
4
|
|
Indiana
|
|
728
|
|
|
4
|
|
|
741
|
|
|
4
|
|
Georgia
|
|
712
|
|
|
4
|
|
|
748
|
|
|
4
|
|
Virginia
|
|
666
|
|
|
4
|
|
|
710
|
|
|
4
|
|
New York
|
|
580
|
|
|
3
|
|
|
573
|
|
|
3
|
|
Other
|
|
7,614
|
|
|
42
|
|
|
7,779
|
|
|
42
|
|
Total
|
|
$
|
18,084
|
|
|
100
|
%
|
|
$
|
18,389
|
|
|
100
|
%
|
* December 31, 2019 concentrations of net finance receivables are presented in the order of December 31, 2020 state concentrations.
CREDIT QUALITY INDICATOR
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. When finance receivables are 60 days contractually 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.
At 90 days or more 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. We reversed net accrued finance charges of $86 million during the year ended December 31, 2020. Finance charges recognized from the contractual interest portion of payments received on nonaccrual finance receivables totaled $14 million during the year ended December 31, 2020. All loans in nonaccrual status are considered in our estimate of allowance for finance receivable losses.
The following is a summary of our personal loans held for investment by the year of origination and number of days delinquent, our key credit quality indicator, at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
8,659
|
|
|
$
|
5,691
|
|
|
$
|
2,064
|
|
|
$
|
651
|
|
|
$
|
184
|
|
|
$
|
106
|
|
|
$
|
17,355
|
|
30-59 days past due
|
|
72
|
|
|
106
|
|
|
44
|
|
|
18
|
|
|
6
|
|
|
5
|
|
|
251
|
|
60-89 days past due
|
|
44
|
|
|
72
|
|
|
28
|
|
|
11
|
|
|
4
|
|
|
3
|
|
|
162
|
|
Total performing
|
|
8,775
|
|
|
5,869
|
|
|
2,136
|
|
|
680
|
|
|
194
|
|
|
114
|
|
|
17,768
|
|
Nonperforming (Nonaccrual)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90-179 days past due
|
|
62
|
|
|
154
|
|
|
59
|
|
|
22
|
|
|
8
|
|
|
5
|
|
|
310
|
|
180 days or more past due
|
|
1
|
|
|
3
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Total nonperforming
|
|
63
|
|
|
157
|
|
|
60
|
|
|
23
|
|
|
8
|
|
|
5
|
|
|
316
|
|
Total
|
|
$
|
8,838
|
|
|
$
|
6,026
|
|
|
$
|
2,196
|
|
|
$
|
703
|
|
|
$
|
202
|
|
|
$
|
119
|
|
|
$
|
18,084
|
|
The following is a summary of our personal loans held for investment by number of days delinquent at December 31, 2019, which is prior to the adoption of ASU 2016-13 on January 1, 2020 and continues to be reported under ASC 310, Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
Performing
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
$
|
17,550
|
|
30-59 days past due
|
|
|
|
|
|
272
|
|
60-89 days past due
|
|
|
|
|
|
181
|
|
Total performing
|
|
|
|
|
|
18,003
|
|
Nonperforming
|
|
|
|
|
|
|
90-179 days past due
|
|
|
|
|
|
377
|
|
180 days or more past due
|
|
|
|
|
|
9
|
|
Total nonperforming
|
|
|
|
|
|
386
|
|
Total
|
|
|
|
|
|
$
|
18,389
|
|
PURCHASED CREDIT IMPAIRED FINANCE RECEIVABLES
ASU 2016-13 superseded the accounting for purchased credit impaired finance receivables with purchase credit deteriorated finance receivables. As a result, 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. Due to the adoption of ASU 2016-13, the disclosures related to purchase credit impaired finance receivables are no longer applicable for reporting periods beginning in 2020.
TDR FINANCE RECEIVABLES
Information regarding TDR finance receivables were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
Personal Loans
|
|
|
|
|
TDR gross finance receivables
|
|
$
|
689
|
|
|
$
|
655
|
|
TDR net finance receivables *
|
|
691
|
|
|
658
|
|
Allowance for TDR finance receivable losses
|
|
314
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* TDR net finance receivables — TDR gross finance receivables net of unearned points and fees, accrued finance charges, and deferred origination costs.
TDR average net finance receivables and finance charges recognized on TDR finance receivables for our personal loans that are held for investment and our real estate loans that are held for sale were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Personal
Loans
|
|
Real Estate Loans
|
|
Total
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
|
|
|
|
TDR average net finance receivables
|
|
$
|
693
|
|
|
$
|
50
|
|
|
$
|
743
|
|
TDR finance charges recognized
|
|
50
|
|
|
3
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
TDR average net finance receivables
|
|
$
|
550
|
|
|
$
|
58
|
|
|
$
|
608
|
|
TDR finance charges recognized
|
|
45
|
|
|
3
|
|
|
48
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
TDR average net finance receivables
|
|
$
|
383
|
|
|
$
|
130
|
|
|
$
|
513
|
|
TDR finance charges recognized
|
|
45
|
|
|
7
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information regarding the new volume of the TDR finance receivables held for investment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal Loans
|
|
|
|
|
|
|
|
|
|
|
Pre-modification TDR net finance receivables
|
|
|
|
$
|
499
|
|
|
$
|
536
|
|
|
$
|
377
|
|
|
|
Post-modification TDR net finance receivables:
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
|
312
|
|
|
370
|
|
|
289
|
|
|
|
Other *
|
|
|
|
187
|
|
|
166
|
|
|
88
|
|
|
|
Total post-modification TDR net finance receivables
|
|
|
|
$
|
499
|
|
|
$
|
536
|
|
|
$
|
377
|
|
|
|
Number of TDR accounts
|
|
|
|
66,484
|
|
|
78,257
|
|
|
57,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* “Other” modifications primarily consist of potential principal and interest forgiveness contingent on future payment performance by the borrower under the modified terms.
New volume of TDR finance receivables held for sale are not included in the table above as they were immaterial for the years ended December 31, 2020, 2019, and 2018.
Personal loans held for investment that were modified as TDR finance receivables within the previous 12 months and for which there was a default during the period to cause the TDR finance receivables to be considered nonperforming (90 days or more past due) are reflected in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal Loans
|
|
|
|
|
|
|
|
|
|
|
TDR net finance receivables *
|
|
|
|
$
|
105
|
|
|
$
|
96
|
|
|
$
|
64
|
|
|
|
Number of TDR accounts
|
|
|
|
15,229
|
|
|
14,732
|
|
|
9,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Represents the corresponding balance of TDR net finance receivables at the end of the month in which they defaulted.
Real estate loans held for sale that were modified as TDR finance receivables within the previous 12 months and for which there was a default during the period to cause the TDR finance receivables to be considered nonperforming (90 days or more past due) were immaterial for the years ended December 31, 2020, 2019, and 2018.
|
|
|
6. Allowance for Finance Receivable Losses
|
We establish an allowance for finance receivable losses through the provision for finance receivable losses. We evaluate our finance receivable portfolio by the level of contractual delinquency in the portfolio, specifically in the late stage delinquency buckets and inclusive of the migration of the loans through the delinquency buckets. 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 for additional information regarding 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 the global outbreak of a novel strain of coronavirus (“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.
Changes in the allowance for finance receivable losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Personal
Loans
|
|
Other
Receivables
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
829
|
|
|
$
|
—
|
|
|
$
|
829
|
|
|
|
Impact of adoption of ASU 2016-13 (a)
|
|
1,118
|
|
|
—
|
|
|
1,118
|
|
|
|
Provision for finance receivable losses
|
|
1,319
|
|
|
—
|
|
|
1,319
|
|
|
|
Charge-offs
|
|
(1,162)
|
|
|
—
|
|
|
(1,162)
|
|
|
|
Recoveries
|
|
165
|
|
|
—
|
|
|
165
|
|
|
|
Balance at end of period
|
|
$
|
2,269
|
|
|
$
|
—
|
|
|
$
|
2,269
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
731
|
|
|
$
|
—
|
|
|
$
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for finance receivable losses
|
|
1,129
|
|
|
—
|
|
|
1,129
|
|
|
|
Charge-offs
|
|
(1,157)
|
|
|
—
|
|
|
(1,157)
|
|
|
|
Recoveries
|
|
126
|
|
|
—
|
|
|
126
|
|
|
|
Balance at end of period
|
|
$
|
829
|
|
|
$
|
—
|
|
|
$
|
829
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
673
|
|
|
$
|
24
|
|
|
$
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for finance receivable losses
|
|
1,050
|
|
|
(2)
|
|
|
1,048
|
|
|
|
Charge-offs
|
|
(1,102)
|
|
|
(2)
|
|
|
(1,104)
|
|
|
|
Recoveries
|
|
110
|
|
|
3
|
|
|
113
|
|
|
|
Other (b)
|
|
—
|
|
|
(23)
|
|
|
(23)
|
|
|
|
Balance at end of period
|
|
$
|
731
|
|
|
$
|
—
|
|
|
$
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) As a result of the adoption of ASU 2016-13 on January 1, 2020, we recorded a one-time adjustment to the allowance for finance receivable losses. See Notes 4 and 5 for additional information on the adoption of ASU 2016-13.
(b) 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 on September 30, 2018.
The allowance for finance receivable losses and net finance receivables by impairment method were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for finance receivable losses:
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
1,955
|
|
|
$
|
557
|
|
|
|
|
|
|
Purchased credit impaired finance receivables *
|
|
—
|
|
|
—
|
|
|
|
|
|
|
TDR finance receivables
|
|
314
|
|
|
272
|
|
|
|
|
|
|
Total
|
|
$
|
2,269
|
|
|
$
|
829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables:
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
17,393
|
|
|
$
|
17,691
|
|
|
|
|
|
|
Purchased credit impaired finance receivables *
|
|
—
|
|
|
40
|
|
|
|
|
|
|
TDR finance receivables
|
|
691
|
|
|
658
|
|
|
|
|
|
|
Total
|
|
$
|
18,084
|
|
|
$
|
18,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for finance receivable losses as a percentage of finance receivables
|
|
12.55
|
%
|
|
4.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* As a result of the adoption of ASU 2016-13 on January 1, 2020, the accounting for purchased credit impaired finance receivables was superseded with purchase credit deteriorated finance receivables which are collectively evaluated for impairment. See Notes 4 and 5 for additional information on the adoption of ASU 2016-13.
AVAILABLE-FOR-SALE SECURITIES
Cost/amortized cost, allowance for credit losses, unrealized gains and losses, and fair value of fixed maturity available-for-sale securities by type were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Cost/
Amortized
Cost
|
|
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020*
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
$
|
12
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12
|
|
Obligations of states, municipalities, and political subdivisions
|
|
87
|
|
|
|
|
5
|
|
|
—
|
|
|
92
|
|
Commercial paper
|
|
28
|
|
|
|
|
—
|
|
|
—
|
|
|
28
|
|
Non-U.S. government and government sponsored entities
|
|
137
|
|
|
|
|
9
|
|
|
—
|
|
|
146
|
|
Corporate debt
|
|
1,124
|
|
|
|
|
95
|
|
|
(1)
|
|
|
1,218
|
|
Mortgage-backed, asset-backed, and collateralized:
|
|
|
|
|
|
|
|
|
|
|
RMBS
|
|
208
|
|
|
|
|
7
|
|
|
—
|
|
|
215
|
|
CMBS
|
|
55
|
|
|
|
|
3
|
|
|
—
|
|
|
58
|
|
CDO/ABS
|
|
77
|
|
|
|
|
2
|
|
|
(1)
|
|
|
78
|
|
Total
|
|
$
|
1,728
|
|
|
|
|
$
|
121
|
|
|
$
|
(2)
|
|
|
$
|
1,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* There was no allowance for credit losses related to our investment securities as of December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Cost/
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
December 31, 2019*
|
|
|
|
|
|
|
|
|
Fixed maturity available-for-sale securities:
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
|
|
Obligations of states, municipalities, and political subdivisions
|
|
91
|
|
|
2
|
|
|
(1)
|
|
|
92
|
|
Commercial paper
|
|
91
|
|
|
—
|
|
|
—
|
|
|
91
|
|
Non-U.S. government and government sponsored entities
|
|
144
|
|
|
3
|
|
|
—
|
|
|
147
|
|
Corporate debt
|
|
1,054
|
|
|
45
|
|
|
(1)
|
|
|
1,098
|
|
Mortgage-backed, asset-backed, and collateralized:
|
|
|
|
|
|
|
|
|
RMBS
|
|
214
|
|
|
3
|
|
|
—
|
|
|
217
|
|
CMBS
|
|
56
|
|
|
1
|
|
|
—
|
|
|
57
|
|
CDO/ABS
|
|
84
|
|
|
1
|
|
|
—
|
|
|
85
|
|
Total
|
|
$
|
1,745
|
|
|
$
|
55
|
|
|
$
|
(2)
|
|
|
$
|
1,798
|
|
* The balances reported as of December 31, 2019 are not subject to ASU 2016-13 which was adopted on January 1, 2020 and continue to be reported under ASC 320, Investments – Debt and Equity Securities.
As of December 31, 2020, interest receivables reported in “Other assets” totaled $12 million. Amounts reversed from investment revenue for available-for-sale securities were immaterial.
Fair value and unrealized losses on available-for-sale securities by type and length of time in a continuous unrealized loss position without an allowance for credit losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Longer
|
|
Total
|
(dollars in millions)
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states, municipalities, and political subdivisions
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
Commercial paper
|
|
19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
Non-U.S. government and government sponsored entities
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Corporate debt
|
|
45
|
|
|
(1)
|
|
|
8
|
|
|
—
|
|
|
53
|
|
|
(1)
|
|
Mortgage-backed, asset-backed, and collateralized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
CDO/ABS
|
|
17
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
(1)
|
|
Total
|
|
$
|
92
|
|
|
$
|
(2)
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
$
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019*
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
Obligations of states, municipalities, and political subdivisions
|
|
29
|
|
|
(1)
|
|
|
4
|
|
|
—
|
|
|
33
|
|
|
(1)
|
|
Commercial paper
|
|
76
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
76
|
|
|
—
|
|
Non-U.S. government and government sponsored entities
|
|
19
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
33
|
|
|
—
|
|
Corporate debt
|
|
63
|
|
|
(1)
|
|
|
13
|
|
|
—
|
|
|
76
|
|
|
(1)
|
|
Mortgage-backed, asset-backed, and collateralized:
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
|
|
45
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
—
|
|
CMBS
|
|
15
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
22
|
|
|
—
|
|
CDO/ABS
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
Total
|
|
$
|
261
|
|
|
$
|
(2)
|
|
|
$
|
41
|
|
|
$
|
—
|
|
|
$
|
302
|
|
|
$
|
(2)
|
|
* The balances reported as of December 31, 2019 are not subject to ASU 2016-13 which was adopted on January 1, 2020 and continue to be reported under ASC 320, Investments – Debt and Equity Securities.
On a lot basis, we had 148 and 398 investment securities in an unrealized loss position at December 31, 2020 and 2019, respectively. We do not consider the unrealized losses to be credit-related, as these unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. Additionally, at December 31, 2020, there were no credit impairments on investment securities that we intend to sell. We do not have plans to sell any of the remaining investment securities with unrealized losses as of December 31, 2020, and we believe it is more likely than not that we would not be required to sell such investment securities before recovery of their amortized cost.
We continue to monitor unrealized loss positions for potential credit impairments. During 2020, there were no material credit impairments related to our investment securities. Therefore, there were no material additions or reductions in the allowance for credit losses (impairments recognized or reversed in earnings) on credit impaired available-for-sale securities during 2020.
Prior to the adoption of ASU 2016-13, other-than-temporary impairment losses, primarily on corporate debt, in investment revenues were immaterial during 2019 and 2018. There were no material additions or reductions in the cumulative amount of credit losses (recognized in earnings) on other-than-temporarily impaired available-for-sale securities during 2019 and 2018.
The proceeds of available-for-sale securities sold or redeemed totaled $259 million, $284 million, and $341 million during 2020, 2019, and 2018, respectively. The net realized gains and losses were immaterial during 2020, 2019, and 2018.
Contractual maturities of fixed-maturity available-for-sale securities at December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Fair
Value
|
|
Amortized
Cost
|
|
|
|
|
|
Fixed maturities, excluding mortgage-backed, asset-backed, and collateralized securities:
|
|
|
|
|
Due in 1 year or less
|
|
$
|
152
|
|
|
$
|
150
|
|
Due after 1 year through 5 years
|
|
607
|
|
|
570
|
|
Due after 5 years through 10 years
|
|
557
|
|
|
509
|
|
Due after 10 years
|
|
180
|
|
|
159
|
|
Mortgage-backed, asset-backed, and collateralized securities
|
|
351
|
|
|
340
|
|
Total
|
|
$
|
1,847
|
|
|
$
|
1,728
|
|
Actual maturities may differ from contractual maturities since issuers and borrowers may have the right to call or prepay obligations. We may sell investment securities before maturity for general corporate and working capital purposes and to achieve certain investment strategies.
The fair value of securities on deposit with third parties totaled $604 million and $633 million at December 31, 2020 and 2019, respectively.
OTHER SECURITIES
The fair value of other securities by type was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity other securities:
|
|
|
|
|
Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government and government sponsored entities
|
|
1
|
|
|
1
|
|
Corporate debt
|
|
17
|
|
|
24
|
|
Mortgage-backed, asset-backed, and collateralized bonds
|
|
17
|
|
|
15
|
|
Total bonds
|
|
35
|
|
|
40
|
|
Preferred stock *
|
|
13
|
|
|
19
|
|
Common stock *
|
|
27
|
|
|
26
|
|
Other long-term investments
|
|
—
|
|
|
1
|
|
Total
|
|
$
|
75
|
|
|
$
|
86
|
|
* We employ an income equity strategy targeting investments in stocks with strong current dividend yields. Stocks included have a history of stable or increasing dividend payments.
Net unrealized losses on other securities held were immaterial at December 31, 2020. Net unrealized gains were $6 million and net unrealized losses were $7 million on other securities held at December 31, 2019 and 2018, respectively. Net realized gains and losses on other securities sold or redeemed were immaterial during 2020, 2019, and 2018.
Other securities primarily consist of equity securities and those securities for which the fair value option was elected. We report net unrealized and realized gains and losses on other securities held, sold, or redeemed in investment revenue.
|
|
|
8. Goodwill and Other Intangible Assets
|
GOODWILL
The carrying amount of goodwill totaled $1.4 billion at December 31, 2020 and 2019. We did not record any impairments to goodwill during 2020, 2019 and 2018.
OTHER INTANGIBLE ASSETS
The gross carrying amount and accumulated amortization, in total and by major intangible asset class were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Other Intangible Assets
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
223
|
|
|
$
|
(194)
|
|
|
$
|
29
|
|
Trade names
|
|
220
|
|
|
—
|
|
|
220
|
|
Value of business acquired (“VOBA”)
|
|
105
|
|
|
(74)
|
|
|
31
|
|
Licenses
|
|
25
|
|
|
—
|
|
|
25
|
|
Other
|
|
13
|
|
|
(12)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
586
|
|
|
$
|
(280)
|
|
|
$
|
306
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
223
|
|
|
$
|
(160)
|
|
|
$
|
63
|
|
Trade names
|
|
220
|
|
|
—
|
|
|
220
|
|
VOBA
|
|
105
|
|
|
(71)
|
|
|
34
|
|
Licenses
|
|
25
|
|
|
—
|
|
|
25
|
|
Other
|
|
13
|
|
|
(12)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
586
|
|
|
$
|
(243)
|
|
|
$
|
343
|
|
Amortization expense totaled $37 million in 2020, $39 million in 2019, and $43 million in 2018. The estimated aggregate amortization of other intangible assets for each of the next five years is reflected in the table below.
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Estimated Aggregate Amortization Expense
|
|
|
|
2021
|
|
$
|
32
|
|
2022
|
|
3
|
|
2023
|
|
3
|
|
2024
|
|
3
|
|
2025
|
|
2
|
|
Carrying value and fair value of long-term debt by type were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(dollars in millions)
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
Senior debt
|
|
$
|
17,628
|
|
|
$
|
19,278
|
|
|
$
|
17,040
|
|
|
$
|
18,332
|
|
Junior subordinated debt
|
|
172
|
|
|
148
|
|
|
172
|
|
|
177
|
|
Total
|
|
$
|
17,800
|
|
|
$
|
19,426
|
|
|
$
|
17,212
|
|
|
$
|
18,509
|
|
Weighted average effective interest rates on long-term debt by type were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
At December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Senior debt
|
|
5.68
|
%
|
|
5.90
|
%
|
|
5.64
|
%
|
|
5.70
|
%
|
|
5.85
|
%
|
Junior subordinated debt
|
|
5.64
|
|
|
8.68
|
|
|
8.13
|
|
|
4.09
|
|
|
7.65
|
|
Total
|
|
5.68
|
|
|
5.93
|
|
|
5.66
|
|
|
5.68
|
|
|
5.87
|
|
Principal maturities of long-term debt (excluding projected repayments on securitizations by period) by type of debt at December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Debt
|
|
|
|
|
(dollars in millions)
|
|
Securitizations
|
|
|
|
Unsecured
Notes (a)
|
|
Junior
Subordinated
Debt (a)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates (b)
|
|
0.95%-6.94%
|
|
|
|
4.00%-8.88%
|
|
1.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
—
|
|
|
|
|
$
|
635
|
|
|
$
|
—
|
|
|
$
|
635
|
|
2022
|
|
—
|
|
|
|
|
992
|
|
|
—
|
|
|
992
|
|
2023
|
|
—
|
|
|
|
|
1,175
|
|
|
—
|
|
|
1,175
|
|
2024
|
|
—
|
|
|
|
|
1,300
|
|
|
—
|
|
|
1,300
|
|
2025
|
|
—
|
|
|
|
|
1,835
|
|
|
—
|
|
|
1,835
|
|
2026-2067
|
|
—
|
|
|
|
|
3,999
|
|
|
350
|
|
|
4,349
|
|
Securitizations (c)
|
|
7,821
|
|
|
|
|
—
|
|
|
—
|
|
|
7,821
|
|
|
|
|
|
|
|
|
|
|
|
|
Total principal maturities
|
|
$
|
7,821
|
|
|
|
|
$
|
9,936
|
|
|
$
|
350
|
|
|
$
|
18,107
|
|
|
|
|
|
|
|
|
|
|
|
|
Total carrying amount
|
|
$
|
7,789
|
|
|
|
|
$
|
9,839
|
|
|
$
|
172
|
|
|
$
|
17,800
|
|
Debt issuance costs (d)
|
|
(30)
|
|
|
|
|
(87)
|
|
|
—
|
|
|
(117)
|
|
(a) Pursuant to the Base Indenture, the Supplemental Indentures and the Guaranty Agreements, OMH agreed to fully and unconditionally guarantee, on a senior unsecured basis, payments of principal, premium and interest on the Unsecured Notes and Junior Subordinated Debenture. The OMH guarantees of OMFC’s long-term debt are subject to customary release provisions.
(b) The interest rates shown are the range of contractual rates in effect at December 31, 2020.
(c) Securitizations are not included in the above maturities by period due to their variable monthly repayments, which may result in pay-off prior to the stated maturity date. At December 31, 2020, there were no amounts drawn under our revolving conduit facilities. See Note 10 for further information on our long-term debt associated with securitizations and revolving conduit facilities.
(d) Debt issuance costs are reported as a direct deduction from long-term debt, with the exception of debt issuance costs associated with our revolving conduit facilities, which totaled $33 million at December 31, 2020 and are reported in “Other assets.”
2020 DEBT ISSUANCES AND REDEMPTIONS
8.875% Senior Notes Due 2025 Offering
On May 14, 2020, OMFC issued a total of $600 million aggregate principal amount of 8.875% Senior Notes due 2025 under the Base Indenture, as supplemented by the Tenth Supplemental Indenture, pursuant to which OMH provided a guarantee on an unsecured basis.
Redemption of 8.25% Senior Notes Due 2020
On June 29, 2020, OMFC issued a notice of full redemption of its 8.25% Senior Notes due 2020. On July 29, 2020, OMFC paid an aggregate amount of $1.0 billion, inclusive of accrued interest and premiums, to complete the redemption. In connection with the redemption, we recognized a $35 million net loss on repurchases and repayments of debt for the year ended December 31, 2020.
4.00% Senior Notes Due 2030 Offering
On December 17, 2020, OMFC issued a total of $850 million aggregate principal amount of 4.00% Senior Notes due 2030 under the Base Indenture, as supplemented by the Eleventh Supplemental Indenture, pursuant to which OMH provided a guarantee on an unsecured basis.
Redemption of 7.75% Senior Notes Due 2021
On December 9, 2020, OMFC issued a notice of full redemption of its 7.75% Senior Notes due 2021. On January 8, 2021, OMFC paid a net aggregate amount of $681 million, inclusive of accrued interest and premiums, to complete the redemption. In connection with the redemption, we will recognize $47 million of net loss on repurchases and repayments of debt in the first quarter of 2021.
DEBT COVENANTS
OMFC 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. Some or all of these agreements also contain certain restrictions, including (i) restrictions on the ability to create senior liens on property and assets in connection with any new debt financings and (ii) OMFC’s ability to sell or convey all or substantially all of its assets, unless the transferee assumes OMFC’s obligations under the applicable debt agreement. In addition, the OMH guarantees of OMFC’s long-term debt discussed above are subject to customary release provisions.
With the exception of OMFC’s junior subordinated debenture, none of our debt agreements requires OMFC or any of its subsidiaries to meet or maintain any specific financial targets or ratios. However, certain events, including non-payment of principal or interest, bankruptcy or insolvency, or a breach of a covenant or a representation or warranty, may constitute an event of default and trigger an acceleration of payments. In some cases, an event of default or acceleration of payments under one debt agreement may constitute a cross-default under other debt agreements resulting in an acceleration of payments under the other agreements.
As of December 31, 2020, OMFC was in compliance with all of the covenants under its debt agreements.
Junior Subordinated Debenture
In January of 2007, OMFC issued the Junior Subordinated Debenture, consisting of $350 million aggregate principal amount of 60-year junior subordinated debt. The Junior Subordinated Debenture underlies the trust preferred securities sold by a trust sponsored by OMFC. OMFC can redeem the Junior Subordinated Debenture at par beginning in January of 2017. The interest rate on the remaining principal balance of the Junior Subordinated Debenture consists of a variable floating rate (determined quarterly) equal to 3-month LIBOR plus 1.75%, or 1.99% as of December 31, 2020. On December 30, 2013, OMH entered into a guaranty agreement whereby it agreed to fully and unconditionally guarantee, on a junior subordinated basis, the payment of principle of, premium (if any), and interest on the Junior Subordinated Debenture.
Pursuant to the terms of the Junior Subordinated Debenture, OMFC, upon the occurrence of a mandatory trigger event, is required to defer interest payments to the holders of the Junior Subordinated Debenture (and not make dividend payments) unless OMFC obtains non-debt capital funding in an amount equal to all accrued and unpaid interest on the Junior Subordinated Debenture otherwise payable on the next interest payment date and pays such amount to the holders of the Junior Subordinated Debenture. A mandatory trigger event occurs if OMFC’s (i) tangible equity to tangible managed assets is less than 5.5% or (ii) average fixed charge ratio is not more than 1.10x for the trailing four quarters.
Based upon OMFC’s financial results for the 12 months ended December 31, 2020, a mandatory trigger event did not occur with respect to the interest payment due in January of 2021, as OMFC was in compliance with both required ratios discussed above.
|
|
|
10. Variable Interest Entities
|
CONSOLIDATED VIES
As part of our overall funding strategy and as part of our efforts to support our liquidity from sources other than our traditional capital market sources, we have transferred certain finance receivables to VIEs for asset-backed financing transactions, including securitization and revolving conduit transactions. We have determined that OMFC or OMFH is the primary beneficiary of these VIEs and, as a result, we include each VIE’s assets, including any finance receivables securing the VIE’s debt obligations, and related liabilities in our consolidated financial statements and each VIE’s asset-backed debt obligations are accounted for as secured borrowings. OMFC or OMFH is deemed to be the primary beneficiary of each VIE because OMFC or OMFH, as applicable, has the ability to direct the activities of the VIE that most significantly impact its economic performance, including the losses it absorbs and its right to receive economic benefits that are potentially significant. Such ability arises from OMFC’s or OMFH’s and their affiliates’ contractual right to service the finance receivables securing the VIEs’ debt obligations. To the extent we retain any debt obligation or residual interest in an asset-backed financing facility, we are exposed to potentially significant losses and potentially significant returns.
The asset-backed debt obligations issued by the VIEs are supported by the expected cash flows from the underlying finance receivables securing such debt obligations. Cash inflows from these finance receivables are distributed to repay the debt obligations and related service providers in accordance with each transaction’s contractual priority of payments, referred to as the “waterfall.” The holders of the asset-backed debt obligations have no recourse to the Company if the cash flows from the underlying finance receivables securing such debt obligations are not sufficient to pay all principal and interest on the asset-backed debt obligations. With respect to any asset-backed financing transaction that has multiple classes of debt obligations, substantially all cash inflows will be directed to the senior debt obligations until fully repaid and, thereafter, to the subordinate debt obligations on a sequential basis. We retain an interest and credit risk in these financing transactions through our ownership of the residual interest in each VIE and, in some cases, the most subordinate class of debt obligations issued by the VIE, which are the first to absorb credit losses on the finance receivables securing the debt obligations. With respect to each financing transaction that is subject to the risk retention requirements of the Dodd-Frank Act, we either retain at least 5% of the balance of each such class of debt obligations and at least 5% of the residual interest in each related VIE or retain at least 5% of the fair value of all ABS interests (as defined in the risk retention requirements), which is satisfied by retention of the residual interest in each related VIE, which, in each case, collectively, represents at least 5% of the economic interest in the credit risk of the securitized assets in satisfaction of the risk retention requirements. We expect that any credit losses in the pools of finance receivables securing the asset-backed debt obligations will likely be limited to our retained interests described above. We have no obligation to repurchase or replace qualified finance receivables that subsequently become delinquent or are otherwise in default.
We parenthetically disclose on our consolidated balance sheets the VIE’s assets that can only be used to settle the VIE’s obligations and liabilities if its creditors have no recourse against the primary beneficiary’s general credit. The carrying amounts of consolidated VIE assets and liabilities associated with our securitization trusts and revolving conduit facilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2
|
|
|
$
|
4
|
|
Net finance receivables
|
|
8,772
|
|
|
8,428
|
|
Allowance for finance receivable losses
|
|
1,085
|
|
|
340
|
|
Restricted cash and restricted cash equivalents
|
|
441
|
|
|
400
|
|
Other assets
|
|
33
|
|
|
29
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Long-term debt
|
|
$
|
7,789
|
|
|
$
|
7,643
|
|
Other liabilities
|
|
15
|
|
|
15
|
|
Other than the retained subordinate and residual interests in our consolidated VIEs, we are under no further obligation than is otherwise noted herein, either contractually or implicitly, to provide financial support to these entities. Consolidated interest expense related to our VIEs totaled $338 million in 2020, $326 million in 2019, and $341 million in 2018.
SECURITIZED BORROWINGS
Each of our securitizations contains a revolving period ranging from two to seven years during which no principal payments are required to be made on the related asset-backed notes. The indentures governing our securitization borrowings contain early amortization events and events of default, that, if triggered, may result in the acceleration of the obligation to pay principal and interest on the related asset-backed notes.
REVOLVING CONDUIT FACILITIES
We had access to 13 revolving conduit facilities with a total maximum borrowing capacity of $7.2 billion as of December 31, 2020. Our conduit facilities contain revolving periods during which time no principal payments are required, but may be made without penalty, followed by a subsequent amortization period. Principal balances of outstanding loans, if any, are due and payable in full over periods ranging up to ten years as of December 31, 2020. Amounts drawn on these facilities are collateralized by our personal loans.
At December 31, 2020, no amounts were drawn under these facilities.
Our insurance business is conducted through our wholly-owned insurance subsidiaries, American Health and Life Insurance Company ("AHL") and Triton Insurance Company ("Triton"). AHL is a life and health insurance company licensed in 49 states, the District of Columbia, and Canada to write credit life, credit disability, and non-credit insurance products. Triton is a property and casualty insurance company licensed in 50 states, the District of Columbia, and Canada to write credit involuntary unemployment, credit disability, and collateral protection insurance. As part of our continuing integration efforts in connection with the OneMain Acquisition, we sold all of the issued and outstanding shares of our former insurance subsidiaries, Merit Life Insurance Co. (“Merit”) and Yosemite Insurance Company (“Yosemite”) during the 2019 and 2018 periods, respectively.
INSURANCE RESERVES
Components of our insurance reserves were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
December 31,
|
|
2020
|
|
2019*
|
|
|
|
|
|
Finance receivable related:
|
|
|
|
|
Payable to OMH:
|
|
|
|
|
Unearned premium reserves
|
|
$
|
662
|
|
|
$
|
712
|
|
Claim reserves
|
|
109
|
|
|
81
|
|
Subtotal (a)
|
|
771
|
|
|
793
|
|
Payable to third-party beneficiaries (b)
|
|
236
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-finance receivable related (b)
|
|
385
|
|
|
403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,392
|
|
|
$
|
1,442
|
|
* The 2019 presentation has been conformed to the 2020 presentation.
(a) Reported as a contra-asset to net finance receivables.
(b) Reported in insurance claims and policyholder liabilities.
Our insurance subsidiaries enter into reinsurance agreements with other insurers. Reserves related to unearned premiums, claims and benefits assumed from non-affiliated insurance companies totaled $338 million and $369 million at December 31, 2020 and 2019, respectively.
Reserves related to unearned premiums, claims and benefits ceded to non-affiliated insurance companies totaled $66 million and $71 million at December 31, 2020 and 2019, respectively.
Changes in the reserve for unpaid claims and loss adjustment expenses (net of reinsurance recoverables):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
At or for the Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
117
|
|
|
$
|
117
|
|
|
$
|
154
|
|
Less reinsurance recoverables
|
|
(4)
|
|
|
(4)
|
|
|
(23)
|
|
|
|
|
|
|
|
|
Net balance at beginning of period
|
|
113
|
|
|
113
|
|
|
131
|
|
|
|
|
|
|
|
|
Additions for losses and loss adjustment expenses incurred to:
|
|
|
|
|
|
|
Current year
|
|
272
|
|
|
200
|
|
|
199
|
|
Prior years *
|
|
(11)
|
|
|
(15)
|
|
|
(10)
|
|
Total
|
|
261
|
|
|
185
|
|
|
189
|
|
Reductions for losses and loss adjustment expenses paid related to:
|
|
|
|
|
|
|
Current year
|
|
(161)
|
|
|
(121)
|
|
|
(118)
|
|
Prior years
|
|
(67)
|
|
|
(64)
|
|
|
(69)
|
|
Total
|
|
(228)
|
|
|
(185)
|
|
|
(187)
|
|
Foreign currency translation adjustment
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
Net balance at end of period
|
|
145
|
|
|
113
|
|
|
132
|
|
Plus reinsurance recoverables
|
|
3
|
|
|
4
|
|
|
4
|
|
Less transfer of reserves
|
|
—
|
|
|
—
|
|
|
(19)
|
|
Balance at end of period
|
|
$
|
148
|
|
|
$
|
117
|
|
|
$
|
117
|
|
* Reflects a redundancy in the prior years’ net reserves of $11 million, $15 million, and $10 million at December 31, 2020, 2019, and 2018, respectively, primarily due to net favorable developments of term life, credit life, and credit disability during 2020, and favorable developments of credit life, disability, and unemployment claims during 2019 and 2018.
Incurred claims and allocated claim adjustment expenses, net of reinsurance, as of December 31, 2020, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
At December 31, 2020
|
(dollars in millions)
|
|
|
2016 (a)
|
|
2017 (a)
|
|
2018 (a)
|
|
2019 (a)
|
|
2020
|
|
Incurred-but-
not-reported Liabilities (b)
|
|
Cumulative Number of Reported Claims
|
|
Cumulative
Frequency (c)
|
Credit Insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accident Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
$
|
138
|
|
|
$
|
135
|
|
|
$
|
133
|
|
|
$
|
131
|
|
|
$
|
131
|
|
|
$
|
—
|
|
|
50,207
|
|
|
2.7
|
%
|
2017
|
|
|
—
|
|
|
136
|
|
|
129
|
|
|
125
|
|
|
125
|
|
|
2
|
|
|
43,948
|
|
|
2.4
|
%
|
2018
|
|
|
—
|
|
|
—
|
|
|
146
|
|
|
135
|
|
|
134
|
|
|
9
|
|
|
42,852
|
|
|
2.2
|
%
|
2019
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
155
|
|
|
150
|
|
|
22
|
|
|
45,189
|
|
|
2.0
|
%
|
2020
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
226
|
|
|
97
|
|
|
59,996
|
|
|
2.7
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
|
$
|
766
|
|
|
|
|
|
|
|
(a) Unaudited.
(b) Includes expected development on reported claims.
(c) Frequency for each accident year is calculated as the ratio of all reported claims incurred to the total exposures in force.
Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance, as of December 31, 2020, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(dollars in millions)
|
|
2016 *
|
|
2017 *
|
|
2018*
|
|
2019*
|
|
2020
|
Credit Insurance
|
|
|
|
|
|
|
|
|
|
|
Accident Year
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
$
|
74
|
|
|
$
|
113
|
|
|
$
|
124
|
|
|
$
|
129
|
|
|
$
|
131
|
|
2017
|
|
—
|
|
|
75
|
|
|
108
|
|
|
118
|
|
|
122
|
|
2018
|
|
—
|
|
|
—
|
|
|
82
|
|
|
116
|
|
|
125
|
|
2019
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88
|
|
|
129
|
|
2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
129
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
636
|
|
|
|
|
|
|
|
|
|
|
|
|
All outstanding liabilities before 2016, net of reinsurance
|
|
—
|
|
Liabilities for claims and claim adjustment expenses, net of reinsurance
|
|
$
|
130
|
|
* Unaudited.
The reconciliations of the net incurred and paid claims development to the liability for claims and claim adjustment expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
December 31,
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance:
|
|
|
|
|
|
|
Credit insurance
|
|
$
|
130
|
|
|
|
|
|
Other short-duration insurance lines
|
|
2
|
|
|
|
|
|
Total
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance lines other than short-duration
|
|
16
|
|
|
|
|
|
Total gross liability for unpaid claims and claim adjustment expense
|
|
$
|
148
|
|
|
|
|
|
We use completion factors to estimate the unpaid claim liability for credit insurance and most other short-duration products. For some products, the unpaid claim liability is estimated as a percent of exposure.
There have been no significant changes in methodologies or assumptions during 2020.
Our average annual percentage payout of incurred claims by age, net of reinsurance, as of December 31, 2020, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
|
|
1
|
|
2
|
|
3
|
|
4
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
Credit insurance*
|
|
58.5
|
%
|
|
27.1
|
%
|
|
7.7
|
%
|
|
4.0
|
%
|
|
1.3
|
%
|
* Unaudited.
STATUTORY ACCOUNTING
Our insurance subsidiaries file financial statements prepared using statutory accounting practices prescribed or permitted by the Department of Insurance ("DOI") which is a comprehensive basis of accounting other than GAAP. The primary differences between statutory accounting practices and GAAP are that under statutory accounting, policy acquisition costs are expensed as incurred, policyholder liabilities are generally valued using prescribed actuarial assumptions, and certain investment securities are reported at amortized cost. We are not required and did not apply purchase accounting to the insurance subsidiaries on a statutory basis.
Statutory net income (loss) for our insurance companies by type of insurance was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Property and casualty:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Triton
|
|
$
|
(7)
|
|
|
$
|
16
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
Life and health:
|
|
|
|
|
|
|
Merit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
53
|
|
AHL
|
|
114
|
|
|
56
|
|
|
32
|
|
Statutory capital and surplus for our insurance companies by type of insurance were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
Property and casualty:
|
|
|
|
|
Triton
|
|
$
|
137
|
|
|
$
|
144
|
|
|
|
|
|
|
Life and health:
|
|
|
|
|
|
|
|
|
|
AHL
|
|
261
|
|
|
192
|
|
Our insurance companies are also subject to risk-based capital requirements adopted by the Texas DOI. Minimum statutory capital and surplus is the risk-based capital level that would trigger regulatory action. At December 31, 2020 and 2019, our insurance subsidiaries’ statutory capital and surplus exceeded the risk-based capital minimum required levels.
DIVIDEND RESTRICTIONS
Our insurance subsidiaries are subject to domiciliary state regulations that limit their ability to pay dividends. Our previously owned insurance subsidiaries, Merit and Yosemite, were domiciled in Indiana, with Merit redomesticating to Texas on January 28, 2019. AHL and Triton are domiciled in Texas. State law restricts the amounts that our insurance subsidiaries may pay as dividends without prior notice to the state of domicile DOI. The maximum amount of dividends, referred to as “ordinary dividends,” for an Indiana or Texas domiciled life insurance company that can be paid without prior approval in a 12 month period (measured retrospectively from the date of payment) is the greater of: (i) 10% of policyholders’ surplus as of the prior year-end or (ii) the statutory net gain from operations as of the prior year-end. Any amount greater must be approved by the state of domicile DOI. The maximum ordinary dividends for an Indiana or Texas domiciled property and casualty insurance company that can be paid without prior approval in a 12 month period (measured retrospectively from the date of payment) is the greater of: (i) 10% of policyholders’ surplus as of the prior year-end or (ii) the statutory net income. Any amount greater must be approved by the state of domicile DOI. These approved dividends are called “extraordinary dividends.”
Ordinary dividends paid were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
AHL
|
|
$
|
48
|
|
|
$
|
—
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
Merit
|
|
—
|
|
|
—
|
|
|
37
|
|
|
|
|
|
|
|
|
Extraordinary dividends paid were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Triton
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
70
|
|
Merit
|
|
—
|
|
|
140
|
|
|
—
|
|
Yosemite
|
|
—
|
|
|
—
|
|
|
42
|
|
|
|
|
12. Capital Stock and Earnings Per Share (OMH Only)
|
CAPITAL STOCK
OMH has two classes of authorized capital stock: preferred stock and common stock. OMFC has two classes of authorized capital stock: special stock and common stock. OMH and OMFC may issue preferred stock and special stock, respectively, in one or more series. The OMH Board of Directors and the OMFC Board of Directors determine the dividend, liquidation, redemption, conversion, voting, and other rights prior to issuance.
During the first quarter of 2020, the OMH Board of Directors approved a stock repurchase program, which allows us to repurchase up to $200 million of OMH’s outstanding common stock with no stated expiration. On March 20, 2020, OMH temporarily suspended its stock repurchase program. OMH retains the right to reinstate the stock repurchase program as circumstances change.
Prior to the suspension of the program, OMH repurchased and retired 2,031,698 shares of its common stock with an average price paid per share of $22.30, for an aggregate total of approximately $45 million, including commissions and fees. The aggregate purchase price in excess of the par value of the repurchased OMH common stock is recorded as a reduction to additional paid-in-capital. 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.
Par value and shares authorized at December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OMH
|
|
OMFC
|
|
|
Preferred Stock *
|
|
Common Stock
|
|
Special Stock
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Par value
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
$
|
—
|
|
|
$
|
0.50
|
|
Shares authorized
|
|
300,000,000
|
|
|
2,000,000,000
|
|
|
25,000,000
|
|
|
25,000,000
|
|
* No shares of OMH preferred stock or OMFC special stock were issued and outstanding at December 31, 2020 or 2019.
Changes in OMH shares of common stock issued and outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Years Ended December 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
|
|
|
136,101,156
|
|
|
135,832,278
|
|
|
135,349,638
|
|
Common shares issued
|
|
|
|
|
|
272,266
|
|
|
268,878
|
|
|
482,640
|
|
Common shares retired
|
|
|
|
|
|
(2,031,698)
|
|
|
—
|
|
|
—
|
|
Balance at end of period
|
|
|
|
|
|
134,341,724
|
|
|
136,101,156
|
|
|
135,832,278
|
|
OMFC shares issued and outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Stock
|
|
Common Stock
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Shares issued and outstanding
|
|
—
|
|
|
—
|
|
|
10,160,021
|
|
|
10,160,021
|
|
EARNINGS PER SHARE (OMH ONLY)
The computation of earnings per share was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Numerator (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
$
|
730
|
|
|
$
|
855
|
|
|
$
|
447
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding (basic)
|
|
|
|
|
|
134,716,012
|
|
|
136,070,837
|
|
|
135,702,989
|
|
Effect of dilutive securities *
|
|
|
|
|
|
203,246
|
|
|
256,074
|
|
|
331,154
|
|
Weighted average number of shares outstanding (diluted)
|
|
|
|
|
|
134,919,258
|
|
|
136,326,911
|
|
|
136,034,143
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
$
|
5.42
|
|
|
$
|
6.28
|
|
|
$
|
3.29
|
|
Diluted
|
|
|
|
|
|
$
|
5.41
|
|
|
$
|
6.27
|
|
|
$
|
3.29
|
|
* We have excluded weighted-average unvested restricted stock units totaling 231,125, 270,955, and 287,506 for 2020, 2019, and 2018, respectively, from the fully-diluted earnings per share calculations as these shares would be anti-dilutive, which could impact the earnings per share calculation in the future.
Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during each period. Diluted earnings per share is computed based on the weighted-average number of shares outstanding plus the effect of potentially dilutive shares outstanding during the period using the treasury stock method. The potentially dilutive shares represent outstanding unvested restricted stock units (“RSUs”) and restricted stock awards (“RSAs”).
|
|
|
13. Accumulated Other Comprehensive Income (Loss)
|
Changes, net of tax, in accumulated other comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Unrealized
Gains (Losses)
Available-for-Sale Securities *
|
|
Retirement
Plan Liabilities
Adjustments
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
|
Total
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
41
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
|
|
$
|
44
|
|
Other comprehensive income (loss) before reclassifications
|
|
51
|
|
|
(2)
|
|
|
2
|
|
|
|
|
51
|
|
Reclassification adjustments from accumulated other
comprehensive income
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
|
|
(1)
|
|
Balance at end of period
|
|
$
|
91
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
|
|
$
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(28)
|
|
|
$
|
(3)
|
|
|
$
|
(3)
|
|
|
|
|
$
|
(34)
|
|
Other comprehensive income before reclassifications
|
|
68
|
|
|
6
|
|
|
3
|
|
|
|
|
77
|
|
Reclassification adjustments from accumulated other comprehensive income
|
|
1
|
|
|
—
|
|
|
—
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
41
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
|
|
$
|
11
|
|
Other comprehensive loss before reclassifications
|
|
(35)
|
|
|
(4)
|
|
|
(9)
|
|
|
|
|
(48)
|
|
Reclassification adjustments from accumulated other comprehensive income
|
|
1
|
|
|
—
|
|
|
—
|
|
|
|
|
1
|
|
Impact of AOCI reclassification due to the Tax Act
|
|
2
|
|
|
(3)
|
|
|
3
|
|
|
|
|
2
|
|
Balance at end of period
|
|
$
|
(28)
|
|
|
$
|
(3)
|
|
|
$
|
(3)
|
|
|
|
|
$
|
(34)
|
|
* There were no amounts related to available-for-sale debt securities for which an allowance for credit losses was recorded during the year ended December 31, 2020.
Reclassification adjustments from accumulated other comprehensive income (loss) to the applicable line item on our consolidated statements of operations were immaterial for the years ended December 31, 2020, 2019, and 2018.
OMH and all of its eligible domestic U.S. subsidiaries file a consolidated life/non-life federal tax return with the IRS. AHL, an insurance subsidiary of OneMain, is not an eligible company under Internal Revenue Code Section 1504 and therefore, files separate federal life insurance tax returns. Income taxes from the consolidated federal and state tax returns are allocated to our eligible subsidiaries under a tax sharing agreement with OMH.
The Company’s foreign subsidiaries/branches file tax returns in Canada, Puerto Rico, and the U.S. Virgin Islands. The Company recognizes a deferred tax liability for the undistributed earnings of its foreign operations, if any, as we do not consider the amounts to be permanently reinvested. As of December 31, 2020, the Company had no undistributed foreign earnings.
Components of income before income tax expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Income before income tax expense - U.S. operations
|
|
$
|
973
|
|
|
$
|
1,082
|
|
|
$
|
610
|
|
Income before income tax expense - foreign operations
|
|
4
|
|
|
16
|
|
|
14
|
|
Total
|
|
$
|
977
|
|
|
$
|
1,098
|
|
|
$
|
624
|
|
Components of income tax expense (benefit) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
235
|
|
|
$
|
205
|
|
|
$
|
131
|
|
Foreign
|
|
9
|
|
|
3
|
|
|
3
|
|
State
|
|
45
|
|
|
34
|
|
|
20
|
|
Total current
|
|
289
|
|
|
242
|
|
|
154
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
(43)
|
|
|
15
|
|
|
15
|
|
|
|
|
|
|
|
|
State
|
|
1
|
|
|
(14)
|
|
|
8
|
|
Total deferred
|
|
(42)
|
|
|
1
|
|
|
23
|
|
Total
|
|
$
|
247
|
|
|
$
|
243
|
|
|
$
|
177
|
|
Expense from foreign income taxes includes foreign subsidiaries/branches that operate in Canada, Puerto Rico, and the U.S. Virgin Islands.
OMH's reconciliations of the statutory federal income tax rate to the effective income tax rate were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
21.00
|
%
|
|
21.00
|
%
|
|
21.00
|
%
|
|
|
|
|
|
|
|
State income taxes, net of federal
|
|
3.52
|
|
|
3.49
|
|
|
3.65
|
|
Change in valuation allowance
|
|
0.08
|
|
|
(2.07)
|
|
|
—
|
|
Nondeductible compensation
|
|
0.25
|
|
|
0.13
|
|
|
3.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
0.48
|
|
|
(0.39)
|
|
|
(0.13)
|
|
Effective income tax rate
|
|
25.33
|
%
|
|
22.16
|
%
|
|
28.37
|
%
|
OMFC's reconciliations of the statutory federal income tax rate to the effective income tax rate were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
21.00
|
%
|
|
21.00
|
%
|
|
21.00
|
%
|
|
|
|
|
|
|
|
State income taxes, net of federal
|
|
3.52
|
|
|
3.49
|
|
|
3.68
|
|
Change in valuation allowance
|
|
0.08
|
|
|
(2.06)
|
|
|
—
|
|
Nondeductible compensation
|
|
0.25
|
|
|
0.13
|
|
|
3.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
0.48
|
|
|
(0.29)
|
|
|
(0.06)
|
|
Effective income tax rate
|
|
25.33
|
%
|
|
22.27
|
%
|
|
28.35
|
%
|
The higher effective income tax rate in 2020 as compared to 2019 is primarily due to the release of the valuation allowance against certain state deferred taxes in 2019. The lower effective income tax rate in 2019 as compared to 2018 is primarily due to the release of the valuation allowance against certain state deferred taxes in 2019 and the effect of discrete tax expense for non-deductible compensation in 2018.
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits (all of which would affect the effective income tax rate if recognized) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
12
|
|
|
$
|
17
|
|
|
$
|
15
|
|
Increases in tax positions for current years
|
|
2
|
|
|
2
|
|
|
—
|
|
Increases in tax positions for prior years
|
|
—
|
|
|
2
|
|
|
8
|
|
Lapse in statute of limitations
|
|
(4)
|
|
|
(3)
|
|
|
(6)
|
|
Settlements with tax authorities
|
|
—
|
|
|
(6)
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
10
|
|
|
$
|
12
|
|
|
$
|
17
|
|
Our gross unrecognized tax benefits include related interest and penalties. We accrue interest and penalties related to uncertain tax positions in income tax expense. The amount of any change in the balance of uncertain tax liabilities over the next 12 months is not expected to be material to our consolidated financial statements.
We are under examination by various states for the years 2014 to 2018. Management believes it has adequately provided for taxes for such years.
Components of deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
Allowance for loan losses
|
|
$
|
568
|
|
|
$
|
210
|
|
Net operating losses and tax credits
|
|
30
|
|
|
33
|
|
Insurance reserves
|
|
19
|
|
|
31
|
|
Pension/employee benefits
|
|
15
|
|
|
16
|
|
Mark-to-market
|
|
—
|
|
|
10
|
|
Tax interest adjustment
|
|
2
|
|
|
7
|
|
Acquisition costs
|
|
5
|
|
|
6
|
|
|
|
|
|
|
Other
|
|
26
|
|
|
9
|
|
Total
|
|
$
|
665
|
|
|
$
|
322
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Goodwill
|
|
$
|
120
|
|
|
$
|
97
|
|
Debt fair value adjustment
|
|
46
|
|
|
52
|
|
Deferred loan fees
|
|
21
|
|
|
19
|
|
Mark-to-market
|
|
2
|
|
|
—
|
|
Fair value of equity and securities investments
|
|
27
|
|
|
12
|
|
Fixed assets
|
|
15
|
|
|
8
|
|
Discount - debt exchange
|
|
2
|
|
|
5
|
|
Other
|
|
5
|
|
|
4
|
|
Total
|
|
$
|
238
|
|
|
$
|
197
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
$
|
427
|
|
|
$
|
125
|
|
Valuation allowance
|
|
(22)
|
|
|
(21)
|
|
Net deferred tax assets
|
|
$
|
405
|
|
|
$
|
104
|
|
The gross deferred tax liabilities are expected to reverse in time, and projected taxable income is expected to be sufficient to create positive taxable income, which will allow for the realization of all of our gross federal deferred tax assets and a portion of the state deferred tax assets. The increase in net deferred tax asset of $301 million was primarily due to the tax effect of the increase in the allowance for finance receivable losses from both the adoption of ASU 2016-13 on January 1, 2020 and the current period activity. See Note 6 for further information on the increase in allowance. The increase was partly offset by tax amortization of goodwill.
At December 31, 2020, we had state net operating loss carryforwards of $451 million compared to $551 million at December 31, 2019. The state net operating loss carryforwards mostly expire between 2025 and 2040, except for some states which conform to the federal rules for indefinite carryforward. We had a valuation allowance on our gross state deferred tax assets, net of deferred federal tax benefit, of $19 million and $18 million at December 31, 2020 and 2019, respectively. The total valuation allowance was established based on management’s determination that the deferred tax assets are more likely than not to not be realized.
During 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Consolidated Appropriations Act of 2021 (the “CAA”) were signed into law. Among other things, the provisions of these laws relate to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, and technical corrections to tax depreciation methods for qualified improvement property. We do not anticipate the CARES Act or the CAA will have a material impact on our consolidated financial statements. We will continue to monitor legislative developments related to the COVID-19 pandemic.
|
|
|
15. Leases and Contingencies
|
LEASES
Our operating leases primarily consist of leased office space, automobiles, and information technology equipment and have remaining lease terms of one year to ten years.
Our operating right-of-use asset and liability balances were $153 million and $165 million, respectively, at December 31, 2020 and $163 million and $176 million, respectively, at December 31, 2019.
At December 31, 2020, maturities of lease liabilities, excluding leases on a month-to-month basis, were as follows:
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Operating Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
59
|
|
2022
|
|
48
|
|
2023
|
|
32
|
|
2024
|
|
20
|
|
2025
|
|
12
|
|
Thereafter
|
|
8
|
|
Total lease payments
|
|
179
|
|
Imputed interest
|
|
(14)
|
|
Total
|
|
$
|
165
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term
|
|
3.8 years
|
Weighted Average Discount Rate
|
|
3.81
|
%
|
Operating lease cost and variable lease cost, which are recorded in other operating expenses, for the years ended December 31, 2020 and 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
63
|
|
|
$
|
61
|
|
|
|
Variable lease cost
|
|
15
|
|
|
16
|
|
|
|
Total
|
|
78
|
|
|
77
|
|
|
|
Our sublease income was immaterial for 2020 and 2019.
LEGAL CONTINGENCIES
In the normal course of business, we have been named, from time to time, as defendants in various legal actions, including arbitrations, class actions, and other litigation arising in connection with our activities. Some of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. While we will continue to evaluate legal actions to determine whether a loss is reasonably possible or probable and is reasonably estimable, there can be no assurance that material losses will not be incurred from pending, threatened or future litigation, investigations, examinations, or other claims.
We contest liability and/or the amount of damages, as appropriate, in each pending matter. Where available information indicates that it is probable that a liability had been incurred at the date of the consolidated financial statements and we can reasonably estimate the amount of that loss, we accrue the estimated loss by a charge to income. In many actions, however, it is inherently difficult to determine whether any loss is probable or even reasonably possible, or to estimate the amount of any loss. In addition, even where loss is reasonably possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is not always possible to reasonably estimate the size of the possible loss or range of loss.
For certain legal actions, we cannot reasonably estimate such losses, particularly for actions that are in their early stages of development or where plaintiffs seek substantial or indeterminate damages. Numerous issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the actions in question, before a loss or additional loss or range of loss or range of additional loss can be reasonably estimated for any given action.
For certain other legal actions, we can estimate reasonably possible losses, additional losses, ranges of loss or ranges of additional loss in excess of amounts accrued, but do not believe, based on current knowledge and after consultation with counsel, that such losses will have a material adverse effect on our consolidated financial statements as a whole.
|
|
|
16. Retirement Benefit Plans
|
DEFINED CONTRIBUTION PLAN
The Company sponsors a voluntary defined contribution plan to eligible employees of the Company.
OneMain 401(k) Plan
The OneMain 401(k) Plan (the “401(k) Plan”), previously known as the Springleaf Financial Services 401(k) Plan, provided for a 100% Company matching on the first 4% of the salary reduction contributions of the employees for 2020, 2019, and 2018. The salaries and benefits expense associated with this plan was $18 million in 2020 and $17 million in 2019 and 2018.
In addition, the Company may make a discretionary profit sharing contribution to the 401(k) Plan. The Company has full discretion to determine whether to make such a contribution, and the amount of such contribution. In no event, however, will the discretionary profit sharing contribution exceed 4% of annual pay. The Company did not make any discretionary profit sharing contributions to the 401(k) Plan in 2020, 2019, or 2018.
DEFINED BENEFIT PLANS
Springleaf Financial Services Retirement Plan
The Springleaf Financial Services Retirement Plan (the “Springleaf Retirement Plan”) is a qualified non-contributory defined benefit plan, which is subject to the provisions of Employee Retirement Income Security Act of 1974 (“ERISA”). Effective December 31, 2012, the Springleaf Retirement Plan was frozen with respect to both benefits accrual and new participation. U.S. salaried employees who were employed by a participating company, had attained age 21, and completed twelve months of continuous service were eligible to participate in the plan. Employees generally vested after 5 years of service. Prior to January 1, 2013, unreduced benefits were paid to retirees at normal retirement (age 65) and were based upon a percentage of final average compensation multiplied by years of credited service, up to 44 years. Our current and former employees will not lose any vested benefits in the Springleaf Retirement Plan that accrued prior to January 1, 2013.
CommoLoCo Retirement Plan
The CommoLoCo Retirement Plan is a qualified non-contributory defined benefit plan, which is subject to the provisions of ERISA and the Puerto Rico tax code. Effective December 31, 2012, the CommoLoCo Retirement Plan was frozen. Puerto Rican residents employed by CommoLoCo, Inc., our Puerto Rican subsidiary, who had attained age 21 and completed one year of service, were eligible to participate in the plan. Our former employees in Puerto Rico will not lose any vested benefits in the CommoLoCo Retirement Plan that accrued prior to January 1, 2013.
Unfunded Defined Benefit Plans
We sponsor unfunded defined benefit plans for certain employees, including key executives, designed to supplement pension benefits provided by our other retirement plans. These include: (i) the Springleaf Financial Services Excess Retirement Income Plan (the “Excess Retirement Income Plan”), which provides a benefit equal to the reduction in benefits payable to certain employees under our qualified retirement plan as a result of federal tax limitations on compensation and benefits payable; and (ii) the Supplemental Executive Retirement Plan (“SERP”), which provides additional retirement benefits to designated executives. Benefits under the Excess Retirement Income Plan were frozen as of December 31, 2012, and benefits under the SERP were frozen at the end of August 2004.
OBLIGATIONS AND FUNDED STATUS
The following table presents the funded status of the defined benefit pension plans. The funded status of the plans is measured as the difference between the plan assets at fair value and the projected benefit obligation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Pension
|
At or for the Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of period
|
|
$
|
364
|
|
|
$
|
320
|
|
|
$
|
354
|
|
Interest cost
|
|
10
|
|
|
12
|
|
|
11
|
|
Actuarial loss (gain) (a)
|
|
42
|
|
|
47
|
|
|
(30)
|
|
Benefits paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets
|
|
(15)
|
|
|
(15)
|
|
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of period (b)
|
|
401
|
|
|
364
|
|
|
320
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of period
|
|
363
|
|
|
308
|
|
|
341
|
|
Actual return on plan assets, net of expenses
|
|
56
|
|
|
69
|
|
|
(19)
|
|
Company contributions
|
|
1
|
|
|
1
|
|
|
1
|
|
Benefits paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets
|
|
(15)
|
|
|
(15)
|
|
|
(15)
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of period (b)
|
|
405
|
|
|
363
|
|
|
308
|
|
Funded status, end of period
|
|
$
|
4
|
|
|
$
|
(1)
|
|
|
$
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets (other liabilities) recognized in the consolidated balance sheet
|
|
$
|
4
|
|
|
$
|
(1)
|
|
|
$
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax net gain (loss) recognized in accumulated other comprehensive income (loss)
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
(3)
|
|
(a) For the years ended December 31, 2020, 2019, and 2018, the actuarial gains or losses were primarily due to year-over-year fluctuations in discount rates used to calculate the present value of benefit obligations for the defined benefit plans. Adoption of updated mortality assumptions had additional impacts on calculation of gains or losses as did the implementation of refined plan demographic assumptions at December 31, 2019.
(b) Includes three underfunded benefit plans, for which the aggregate projected benefit obligation and accumulated benefit obligation exceeded the related plan assets by $14 million, $13 million, and $14 million at December 31, 2020, 2019, and 2018, respectively.
The following table presents the components of net periodic benefit cost recognized in income and other amounts recognized in accumulated other comprehensive income or loss with respect to the defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Pension
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
10
|
|
|
$
|
12
|
|
|
$
|
11
|
|
Expected return on assets
|
|
(15)
|
|
|
(15)
|
|
|
(18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
(5)
|
|
|
(3)
|
|
|
(7)
|
|
|
|
|
|
|
|
|
Other changes in plan assets and projected benefit obligation recognized in other comprehensive income or loss:
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
2
|
|
|
(7)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income or loss
|
|
2
|
|
|
(7)
|
|
|
7
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other comprehensive income
|
|
$
|
(3)
|
|
|
$
|
(10)
|
|
|
$
|
—
|
|
Assumptions
The following table summarizes the weighted average assumptions used to determine the projected benefit obligations and the net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
Projected benefit obligation:
|
|
|
|
|
Discount rate
|
|
2.30
|
%
|
|
3.08
|
%
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs:
|
|
|
|
|
Discount rate
|
|
3.08
|
%
|
|
4.12
|
%
|
Expected long-term rate of return on plan assets
|
|
4.28
|
%
|
|
5.03
|
%
|
|
|
|
|
|
Discount Rate Methodology
The projected benefit cash flows were discounted using the spot rates derived from the unadjusted FTSE Pension Discount Curve at December 31, 2020 and December 31, 2019, and an equivalent weighted average discount rate was derived that resulted in the same liability.
Investment Strategy
The investment strategy with respect to assets relating to our pension plans is designed to achieve investment returns that will (i) provide for the benefit obligations of the plans over the long term; (ii) limit the risk of short-term funding shortfalls; and (iii) maintain liquidity sufficient to address cash needs. Accordingly, the asset allocation strategy is designed to maximize the investment rate of return while managing various risk factors, including but not limited to, volatility relative to the benefit obligations, diversification and concentration, and the risk and rewards profile indigenous to each asset class.
Allocation of Plan Assets
The long-term strategic asset allocation is reviewed and revised annually. The plans’ assets are monitored by our Retirement Plans Committee and the investment managers, which can entail allocating the plans’ assets among approved asset classes within pre-approved ranges permitted by the strategic allocation.
At December 31, 2020, the actual asset allocation for the primary asset classes was 94% in fixed income securities, 5% in equity securities, and 1% in cash and cash equivalents. The 2021 target asset allocation for the primary asset classes is 94% in fixed income securities and 6% in equity securities. The actual allocation may differ from the target allocation at any particular point in time.
The expected long-term rate of return for the plans was 4.3% for the Springleaf Retirement Plan and 5.3% for the CommoLoCo Retirement Plan for 2020. The expected rate of return is an aggregation of expected returns within each asset class category. The expected asset return and any contributions made by the Company together are expected to maintain the plans’ ability to meet all required benefit obligations. The expected asset return with respect to each asset class was developed based on a building block approach that considers historical returns, current market conditions, asset volatility and the expectations for future market returns. While the assessment of the expected rate of return is long-term, and thus, not expected to change annually, significant changes in investment strategy or economic conditions may warrant such a change.
Expected Cash Flows
Funding for the U.S. pension plan ranges from the minimum amount required by ERISA to the maximum amount that would be deductible for U.S. tax purposes. This range is generally not determined until the fourth quarter. Contributed amounts in excess of the minimum amounts are deemed voluntary. Amounts in excess of the maximum amount would be subject to an excise tax and may not be deductible under the Internal Revenue Code. Supplemental and excess plans’ payments and postretirement plan payments are deductible when paid.
The expected future benefit payments, net of participants’ contributions, of our defined benefit pension plans at December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Pension
|
|
|
|
2021
|
|
$
|
17
|
|
2022
|
|
16
|
|
2023
|
|
17
|
|
2024
|
|
17
|
|
2025
|
|
17
|
|
2026-2030
|
|
90
|
|
FAIR VALUE MEASUREMENTS — PLAN ASSETS
The inputs and methodology used in determining the fair value of the plan assets are consistent with those used to measure our assets. See Note 3 for a discussion of the accounting policies related to fair value measurements, which includes the valuation process and the inputs used to develop our fair value measurements.
The following table presents information about our plan assets measured at fair value and indicates the fair value hierarchy based on the levels of inputs we utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
U.S. (a)
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
International (b)
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
U.S. investment grade (c)
|
|
45
|
|
|
307
|
|
|
—
|
|
|
352
|
|
U.S. high yield (d)
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Total
|
|
$
|
52
|
|
|
$
|
311
|
|
|
$
|
—
|
|
|
$
|
363
|
|
Investments measured at NAV (e)
|
|
|
|
|
|
|
|
42
|
|
Total investments at fair value
|
|
|
|
|
|
|
|
$
|
405
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
U.S. (a)
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
International (b)
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
U.S. investment grade (c)
|
|
49
|
|
|
290
|
|
|
—
|
|
|
339
|
|
U.S. high yield (d)
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
Total
|
|
$
|
54
|
|
|
$
|
295
|
|
|
$
|
—
|
|
|
$
|
349
|
|
Investments measured at NAV (e)
|
|
|
|
|
|
|
|
14
|
|
Total investments at fair value
|
|
|
|
|
|
|
|
$
|
363
|
|
(a) Includes index mutual funds that primarily track several indices, including S&P 500 and S&P 600, in addition to other actively managed accounts, comprised of investments in small cap and large cap companies.
(b) Includes investment mutual funds in companies in emerging and developed markets.
(c) Includes investment mutual funds in U.S. and non-U.S. government issued bonds, U.S. government agency or sponsored agency bonds, and investment grade corporate bonds.
(d) Includes investment mutual funds in securities or debt obligations that have a rating below investment grade.
(e) We have elected the practical expedient to exclude certain investments that were measured at net asset value ("NAV") per share (or equivalent) from the fair value hierarchy.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Based on our investment strategy, we have no significant concentrations of risks.
|
|
|
17. Share-Based Compensation
|
ONEMAIN HOLDINGS, INC. AMENDED 2013 OMNIBUS INCENTIVE PLAN
In 2013, OMH adopted the OneMain Holdings, Inc. Amended 2013 Omnibus Incentive Plan (the “Omnibus Plan”). As of December 31, 2020, 13,139,204 shares of common stock were reserved for issuance under the Omnibus Plan, including 714,193 shares subject to outstanding equity awards. The amount of shares reserved is adjusted annually at the beginning of the year by a number of shares equal to the excess of 10% of the number of outstanding shares on the last day of the previous fiscal year over the number of shares reserved and available for issuance as of the last day of the previous fiscal year. The Omnibus Plan allows for issuance of stock options, RSUs, RSAs, stock appreciation rights, and other stock-based awards and cash awards.
Total share-based compensation expense, net of forfeitures, for all equity-based awards totaled $15 million, $13 million, and $21 million during 2020, 2019, and 2018, respectively. The total income tax benefit recognized for stock-based compensation was $4 million, $3 million, and $6 million in 2020, 2019, and 2018, respectively. As of December 31, 2020, there was total unrecognized compensation expense of $15 million related to unvested stock-based awards that are expected to be recognized over a weighted average period of less than two years.
Service-based Awards
OMH has granted service-based RSUs to certain non-employee directors, executives and employees. The RSUs are granted with varying service terms of one year to five years and do not provide the holders with any rights as shareholders, except with respect to dividend equivalents. The grant date fair value for RSUs is generally the closing market price of OMH’s common stock on the date of the award.
Expense for service-based awards is amortized on a straight-line basis over the vesting period, based on the number of awards that are ultimately expected to vest. The weighted-average grant date fair value of service-based awards issued in 2020, 2019, and 2018, was $39.86, $30.10, and $31.55, respectively. The total fair value of service-based awards that vested during 2020, 2019, and 2018 was $15 million, $12 million, and $23 million, respectively.
The following table summarizes the service-based stock activity and related information for the Omnibus Plan for 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date Fair Value
|
|
Weighted
Average
Remaining
Term (in Years)
|
|
|
|
|
|
|
|
Unvested as of January 1, 2020
|
|
469,014
|
|
|
$
|
34.52
|
|
|
|
Granted
|
|
398,207
|
|
|
39.86
|
|
|
|
Vested
|
|
(409,602)
|
|
|
37.61
|
|
|
|
Forfeited
|
|
(34,151)
|
|
|
29.27
|
|
|
|
Unvested at December 31, 2020
|
|
423,468
|
|
|
37.09
|
|
|
0.95
|
Performance-based Awards
During 2020, 2019 and 2018, OMH awarded certain executives performance-based awards that may be earned based on the financial performance of OMH. These awards are subject to the achievement of performance goals during a one-year period or a cumulative three-year period. The awards are considered earned after the attainment of the performance goal, which occurs after the performance period when results have been evaluated and approved by the committee of the OMH Board of Directors, which oversees OMH's compensation programs (the "Compensation Committee"), and vest according to their certain terms and conditions.
The fair value for all performance-based awards is based on the closing market price of OMH's stock on the date of the award.
Expense for performance-based awards is recognized over the requisite service period when it is probable that the performance goals will be achieved and is based on the total number of units expected to vest. Expense for awards with graded vesting is recognized under the accelerated method, whereby each vesting is treated as a separate award with expense for each vesting recognized ratably over the requisite service period. If minimum targets are not achieved by the end of the respective performance periods, all unvested shares related to those targets will be forfeited and canceled, and all expense recognized to that date is reversed.
The weighted average grant date fair value of performance-based awards issued in 2020, 2019, and 2018 was $42.86, $31.86, and $24.98, respectively. The total fair value of performance-based awards that vested was immaterial during 2020, 2019, and 2018.
The following table summarizes the performance-based stock activity and related information for the Omnibus Plan for 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date Fair Value
|
|
Weighted
Average
Remaining
Term (in Years)
|
|
|
|
|
|
|
|
Unvested as of January 1, 2020
|
|
190,614
|
|
|
$
|
31.05
|
|
|
|
Granted
|
|
127,935
|
|
|
42.86
|
|
|
|
Vested
|
|
(3,250)
|
|
|
30.00
|
|
|
|
Forfeited
|
|
(24,574)
|
|
|
31.40
|
|
|
|
Unvested at December 31, 2020
|
|
290,725
|
|
|
36.23
|
|
|
1.61
|
Cash-settled Stock-based Awards
OMH has granted cash-settled stock-based awards to certain executives. These awards are granted with vesting conditions relating to the trading price of OMH's common stock and the portion of OMH's common stock owned by stockholders other than the Apollo-Värde Group, and certain other terms and conditions. The awards provide for the right to accrue cash dividend equivalents. Upon achievement, these awards would be settled in cash. The grant date fair value of the cash-settled stock-based awards was zero because the satisfaction of the required event-based performance conditions were not considered probable as of the grant dates. Vesting of the cash-settled stock-based awards was not considered probable as of December 31, 2020.
INCENTIVE UNITS
SFH Incentive Units
In connection with the sale of OMH's common stock by SFH in 2018, as described in Note 1 of the Notes to the Consolidated Financial Statements, certain specified thresholds were satisfied. In accordance with ASC 710, Compensation-General, we recorded non-cash incentive compensation expense of $106 million related to the Apollo-Värde Transaction and $4 million related to the AIG Share Sale Transaction with a capital contribution offset. Under both of these transactions, the impacts to the Company were non-cash, equity neutral, and not tax deductible. No expense was recognized for these awards during 2020 or 2019.
At December 31, 2020, 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.
The accounting policies of the C&I segment are the same as those disclosed in Note 3, except as described below.
Due to the nature of the OneMain Acquisition and the Fortress Acquisition, we applied purchase accounting. However, we report the operating results of C&I and Other using the Segment Accounting Basis, which (i) reflects our allocation methodologies for interest expense and operating costs, and (ii) excludes the impact of applying purchase accounting.
We allocate revenues and expenses on a Segment Accounting Basis to the C&I segment and Other using the following methodologies:
|
|
|
|
|
|
Interest income
|
Directly correlated to C&I segment and Other.
|
Interest expense
|
C&I and Other - The Company has secured and unsecured debt. The Company first allocates interest expense to its C&I segment based on actual expense for secured debt. Interest expense for unsecured debt is recorded to the C&I segment using a weighted average interest rate applied to allocated average unsecured debt.
|
Total average unsecured debt is allocated as follows:
|
l Other - at 100% of asset base. (Asset base represents the average net finance receivables including finance receivables held for sale); and
|
l C&I - receives remainder of unallocated average debt.
|
Provision for finance receivable losses
|
Directly correlated to the C&I segment and Other.
|
Other revenues
|
Directly correlated to the C&I segment and Other.
|
|
|
Other expenses
|
Salaries and benefits - Directly correlated to C&I segment and Other. Other salaries and benefits not directly correlated with the C&I segment and Other are allocated based on services provided.
|
Other operating expenses - Directly correlated to the C&I segment and Other. Other operating expenses not directly correlated to the C&I segment and Other are allocated based on services provided.
|
Insurance policy benefits and claims - Directly correlated to the C&I segment.
|
Acquisition-related transaction and integration expenses - Consist of: (i) acquisition-related transaction and integration costs related to the OneMain Acquisition, including legal and other professional fees, which we primarily report in Other, as these are costs related to acquiring the business as opposed to operating the business; (ii) software termination costs, which are allocated to Consumer and Insurance; and (iii) incentive compensation incurred above and beyond expected cost from acquiring and retaining talent in relation to the OneMain Acquisition, which are allocated to C&I segment and Other based on services provided.
|
The "Segment to GAAP Adjustment” column in the following tables primarily consists of:
•Interest income - reverses the impact of premiums/discounts on purchased finance receivables and the interest income recognition under guidance in ASC 310-20, Nonrefundable Fees and Other Costs, and ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, prior to the adoption of ASU 2016-13 on January 1, 2020, and reestablishes interest income recognition on a historical cost basis;
•Interest expense - reverses the impact of premiums/discounts on acquired long-term debt and reestablishes interest expense recognition on a historical cost basis;
•Provision for finance receivable losses - reverses the impact of providing an allowance for finance receivable losses upon acquisition and reestablishes the allowance on a historical cost basis leveraging historical TDR receivables and reverses the impact of recognition of net charge-offs on purchased credit impaired finance receivables, prior to the adoption of ASU 2016-13 on January 1, 2020, and reestablishes the net charge-offs on a historical cost basis;
•Other revenues - reestablishes the historical cost basis of mark-to-market adjustments on finance receivables held for sale and on realized gains/losses associated with our investment portfolio;
•Other expenses - reestablishes expenses on a historical cost basis by reversing the impact of amortization from acquired intangible assets, including amortization of other historical deferred costs and the amortization of purchased software assets on a historical cost basis; and
•Assets - revalues assets based on their fair values at the effective date of the OneMain Acquisition and the Fortress Acquisition.
The following tables present information about C&I and Other, as well as reconciliations to the consolidated financial statement amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Consumer
and
Insurance
|
|
|
|
|
|
Other
|
|
Segment to
GAAP
Adjustment
|
|
Consolidated
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
4,353
|
|
|
|
|
|
|
$
|
6
|
|
|
$
|
9
|
|
|
$
|
4,368
|
|
Interest expense
|
|
1,007
|
|
|
|
|
|
|
4
|
|
|
16
|
|
|
1,027
|
|
Provision for finance receivable losses
|
|
1,313
|
|
|
|
|
|
|
—
|
|
|
6
|
|
|
1,319
|
|
Net interest income after provision for finance receivable losses
|
|
2,033
|
|
|
|
|
|
|
2
|
|
|
(13)
|
|
|
2,022
|
|
Other revenues
|
|
515
|
|
|
|
|
|
|
13
|
|
|
(2)
|
|
|
526
|
|
Other expenses
|
|
1,527
|
|
|
|
|
|
|
24
|
|
|
20
|
|
|
1,571
|
|
Income (loss) before income tax expense (benefit)
|
|
$
|
1,021
|
|
|
|
|
|
|
$
|
(9)
|
|
|
$
|
(35)
|
|
|
$
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
20,376
|
|
|
|
|
|
|
$
|
57
|
|
|
$
|
2,038
|
|
|
$
|
22,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
4,114
|
|
|
|
|
|
|
$
|
9
|
|
|
$
|
4
|
|
|
$
|
4,127
|
|
Interest expense
|
|
947
|
|
|
|
|
|
|
5
|
|
|
18
|
|
|
970
|
|
Provision for finance receivable losses
|
|
1,105
|
|
|
|
|
|
|
—
|
|
|
24
|
|
|
1,129
|
|
Net interest income after provision for finance receivable losses
|
|
2,062
|
|
|
|
|
|
|
4
|
|
|
(38)
|
|
|
2,028
|
|
Other revenues *
|
|
600
|
|
|
|
|
|
|
32
|
|
|
(10)
|
|
|
622
|
|
Other expenses
|
|
1,494
|
|
|
|
|
|
|
39
|
|
|
19
|
|
|
1,552
|
|
Income (loss) before income tax expense (benefit)
|
|
$
|
1,168
|
|
|
|
|
|
|
$
|
(3)
|
|
|
$
|
(67)
|
|
|
$
|
1,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
20,705
|
|
|
|
|
|
|
$
|
77
|
|
|
$
|
2,035
|
|
|
$
|
22,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
3,677
|
|
|
|
|
|
|
$
|
17
|
|
|
$
|
(36)
|
|
|
$
|
3,658
|
|
Interest expense
|
|
844
|
|
|
|
|
|
|
17
|
|
|
14
|
|
|
875
|
|
Provision for finance receivables losses
|
|
1,047
|
|
|
|
|
|
|
(5)
|
|
|
6
|
|
|
1,048
|
|
Net interest income after provision for finance receivable losses
|
|
1,786
|
|
|
|
|
|
|
5
|
|
|
(56)
|
|
|
1,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues *
|
|
495
|
|
|
|
|
|
|
27
|
|
|
52
|
|
|
574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
1,494
|
|
|
|
|
|
|
163
|
|
|
28
|
|
|
1,685
|
|
Income (loss) before income tax expense (benefit)
|
|
$
|
787
|
|
|
|
|
|
|
$
|
(131)
|
|
|
$
|
(32)
|
|
|
$
|
624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
17,893
|
|
|
|
|
|
|
$
|
120
|
|
|
$
|
2,077
|
|
|
$
|
20,090
|
|
* Other revenues in Other include the gains on the February 2019 Real Estate Loan Sale and the December 2018 Real Estate Loan Sale, as well as the impairment adjustments on the remaining loans in held for sale in 2019 and 2018, respectively.
|
|
|
19. Fair Value Measurements
|
The fair value of a financial instrument is the amount that would be expected to be received if an asset were to be sold or the amount that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The degree of judgment used in measuring the fair value of financial instruments generally correlates with the level of pricing observability. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments traded in other-than-active markets or that do not have quoted prices have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. An other-than-active market is one in which there are few transactions, the prices are not current, price quotations vary substantially either over time or among market makers, or little information is released publicly for the asset or liability being valued. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is listed on an exchange, traded over-the-counter, or is new to the market and not yet established, the characteristics specific to the transaction, and general market conditions. See Note 3 for a discussion of the accounting policies related to fair value measurements, which includes the valuation process and the inputs used to develop our fair value measurements.
The following table presents the carrying amounts and estimated fair values of our financial instruments and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
Total
Fair
Value
|
|
Total
Carrying
Value
|
(dollars in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,255
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
2,272
|
|
|
$
|
2,272
|
|
Investment securities
|
|
44
|
|
|
1,870
|
|
|
8
|
|
|
1,922
|
|
|
1,922
|
|
Net finance receivables, less allowance for finance receivable losses
|
|
—
|
|
|
—
|
|
|
18,629
|
|
|
18,629
|
|
|
15,815
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and restricted cash equivalents
|
|
451
|
|
|
—
|
|
|
—
|
|
|
451
|
|
|
451
|
|
Other assets *
|
|
—
|
|
|
2
|
|
|
60
|
|
|
62
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
—
|
|
|
$
|
19,426
|
|
|
$
|
—
|
|
|
$
|
19,426
|
|
|
$
|
17,800
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,159
|
|
|
$
|
68
|
|
|
$
|
—
|
|
|
$
|
1,227
|
|
|
$
|
1,227
|
|
Investment securities
|
|
45
|
|
|
1,835
|
|
|
4
|
|
|
1,884
|
|
|
1,884
|
|
Net finance receivables, less allowance for finance receivable losses
|
|
—
|
|
|
—
|
|
|
19,319
|
|
|
19,319
|
|
|
17,560
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and restricted cash equivalents
|
|
405
|
|
|
—
|
|
|
—
|
|
|
405
|
|
|
405
|
|
Other assets *
|
|
—
|
|
|
—
|
|
|
84
|
|
|
84
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
—
|
|
|
$
|
18,509
|
|
|
$
|
—
|
|
|
$
|
18,509
|
|
|
$
|
17,212
|
|
*Other assets at December 31, 2020 and December 31, 2019 primarily consists of finance receivables held for sale.
FAIR VALUE MEASUREMENTS — RECURRING BASIS
The following tables present information about our assets measured at fair value on a recurring basis and indicates the fair value hierarchy based on the levels of inputs we utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
Total Carried At Fair Value
|
(dollars in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash equivalents in mutual funds
|
|
$
|
2,018
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,018
|
|
Cash equivalents in securities
|
|
—
|
|
|
17
|
|
|
—
|
|
|
17
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
—
|
|
|
12
|
|
|
—
|
|
|
12
|
|
Obligations of states, municipalities, and political subdivisions
|
|
—
|
|
|
92
|
|
|
—
|
|
|
92
|
|
Commercial paper
|
|
—
|
|
|
28
|
|
|
—
|
|
|
28
|
|
Non-U.S. government and government sponsored entities
|
|
—
|
|
|
146
|
|
|
—
|
|
|
146
|
|
Corporate debt
|
|
5
|
|
|
1,207
|
|
|
6
|
|
|
1,218
|
|
RMBS
|
|
—
|
|
|
215
|
|
|
—
|
|
|
215
|
|
CMBS
|
|
—
|
|
|
58
|
|
|
—
|
|
|
58
|
|
CDO/ABS
|
|
—
|
|
|
78
|
|
|
—
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
5
|
|
|
1,836
|
|
|
6
|
|
|
1,847
|
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government and government sponsored entities
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Corporate debt
|
|
—
|
|
|
16
|
|
|
1
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDO/ABS
|
|
—
|
|
|
17
|
|
|
—
|
|
|
17
|
|
Total bonds
|
|
—
|
|
|
34
|
|
|
1
|
|
|
35
|
|
Preferred stock
|
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Common stock
|
|
26
|
|
|
—
|
|
|
1
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
Total other securities
|
|
39
|
|
|
34
|
|
|
2
|
|
|
75
|
|
Total investment securities
|
|
44
|
|
|
1,870
|
|
|
8
|
|
|
1,922
|
|
|
|
|
|
|
|
|
|
|
Restricted cash equivalents in mutual funds
|
|
441
|
|
|
—
|
|
|
—
|
|
|
441
|
|
Total
|
|
$
|
2,503
|
|
|
$
|
1,887
|
|
|
$
|
8
|
|
|
$
|
4,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
Total Carried At Fair Value
|
(dollars in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash equivalents in mutual funds
|
|
$
|
775
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
775
|
|
Cash equivalents in securities
|
|
—
|
|
|
68
|
|
|
—
|
|
|
68
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Obligations of states, municipalities, and political subdivisions
|
|
—
|
|
|
92
|
|
|
—
|
|
|
92
|
|
Certificates of deposit and commercial paper
|
|
—
|
|
|
91
|
|
|
—
|
|
|
91
|
|
Non-U.S. government and government sponsored entities
|
|
—
|
|
|
147
|
|
|
—
|
|
|
147
|
|
Corporate debt
|
|
5
|
|
|
1,093
|
|
|
—
|
|
|
1,098
|
|
RMBS
|
|
—
|
|
|
217
|
|
|
—
|
|
|
217
|
|
CMBS
|
|
—
|
|
|
57
|
|
|
—
|
|
|
57
|
|
CDO/ABS
|
|
—
|
|
|
85
|
|
|
—
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
5
|
|
|
1,793
|
|
|
—
|
|
|
1,798
|
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
Non-U.S. government and government sponsored entities
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Corporate debt
|
|
—
|
|
|
23
|
|
|
1
|
|
|
24
|
|
RMBS
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
CDO/ABS
|
|
—
|
|
|
12
|
|
|
2
|
|
|
14
|
|
Total bonds
|
|
—
|
|
|
37
|
|
|
3
|
|
|
40
|
|
Preferred stock
|
|
14
|
|
|
5
|
|
|
—
|
|
|
19
|
|
Common stock
|
|
26
|
|
|
—
|
|
|
—
|
|
|
26
|
|
Other long-term investments
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Total other securities
|
|
40
|
|
|
42
|
|
|
4
|
|
|
86
|
|
Total investment securities
|
|
45
|
|
|
1,835
|
|
|
4
|
|
|
1,884
|
|
Restricted cash equivalents in mutual funds
|
|
403
|
|
|
—
|
|
|
—
|
|
|
403
|
|
Total
|
|
$
|
1,223
|
|
|
$
|
1,903
|
|
|
$
|
4
|
|
|
$
|
3,130
|
|
Due to the insignificant activity within the Level 3 assets during 2020 and 2019, we have omitted the additional disclosures relating to the changes in Level 3 assets measured at fair value on a recurring basis and the quantitative information about Level 3 unobservable inputs.
FAIR VALUE MEASUREMENTS — NON-RECURRING BASIS
We measure the fair value of certain assets on a non-recurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Net impairment charges recorded on assets measured at fair value on a non-recurring basis were immaterial during 2020 and 2019.
FAIR VALUE MEASUREMENTS — VALUATION METHODOLOGIES AND ASSUMPTIONS
We use the following methods and assumptions to estimate fair value.
Cash and Cash Equivalents
Cash equivalents in mutual funds include positions in money market funds with weighted average maturity of less than 90 days. Money market funds are reported at their current carrying value, which approximates fair value due to the short-term nature of these instruments and are categorized as Level 1 within the fair value table.
Cash equivalents in securities includes highly liquid investments with a maturity of less than 90 days at purchase. The carrying amount of these cash equivalents approximates fair value due to the short time between the purchase and expected maturity of these securities. Cash equivalents in securities are categorized as Level 2 within the fair value table.
Restricted Cash and Restricted Cash Equivalents
The carrying amount of restricted cash and restricted cash equivalents approximates fair value.
Investment Securities
We utilize third-party valuation service providers to measure the fair value of our investment securities, which are classified as available-for-sale or other securities and consist primarily of bonds. Whenever available, we obtain quoted prices in active markets for identical assets at the balance sheet date to measure investment securities at fair value. We generally obtain market price data from exchange or dealer markets.
We estimate the fair value of fixed maturity investment securities not traded in active markets by referring to traded securities with similar attributes, using dealer quotations and a matrix pricing methodology, or discounted cash flow analyses. This methodology considers such factors as the issuer’s industry, the security’s rating and tenor, its coupon rate, its position in the capital structure of the issuer, yield curves, credit curves, composite ratings, bid-ask spreads, prepayment rates and other relevant factors. For fixed maturity investment securities that are not traded in active markets or that are subject to transfer restrictions, we adjust the valuations to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.
We elect the fair value option for investment securities that are deemed to incorporate an embedded derivative and for which it is impracticable for us to isolate and/or value the derivative.
The fair value of certain investment securities is based on the amortized cost, which is assumed to approximate fair value.
Finance Receivables
The fair value of net finance receivables, less allowance for finance receivable losses, is determined using discounted cash flow methodologies. The application of these methodologies requires us to make certain judgments and estimates based on our perception of market participant views related to the economic and competitive environment, the characteristics of our finance receivables, and other similar factors. The most significant judgments and estimates made relate to prepayment speeds, default rates, loss severity, and discount rates. The degree of judgment and estimation applied is significant in light of the current capital markets and, more broadly, economic environments. Therefore, the fair value of our finance receivables could not be determined with precision and may not be realized in an actual sale. Additionally, there may be inherent limitations in the valuation methodologies we employed, and changes in the underlying assumptions used could significantly affect the results of current or future values.
Long-term Debt
We either receive fair value measurements of our long-term debt from market participants and pricing services or we estimate the fair values of long-term debt using projected cash flows discounted at each balance sheet date’s market-observable implicit-credit spread rates for our long-term debt.
We record at fair value long-term debt issuances that are deemed to incorporate an embedded derivative and for which it is impracticable for us to isolate and/or value the derivative. At December 31, 2020, we had no debt carried at fair value under the fair value option.
We estimate the fair values associated with variable rate revolving lines of credit to be equal to par.
|
|
|
20. Selected Quarterly Financial Data (Unaudited)
|
OMH's selected quarterly financial data for 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions, except per share amounts)
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
1,096
|
|
|
$
|
1,089
|
|
|
$
|
1,077
|
|
|
$
|
1,106
|
|
Interest expense
|
|
246
|
|
|
255
|
|
|
271
|
|
|
255
|
|
Provision for finance receivable losses
|
|
134
|
|
|
231
|
|
|
423
|
|
|
531
|
|
Net interest income after provision
|
|
716
|
|
|
603
|
|
|
383
|
|
|
320
|
|
Other revenues
|
|
137
|
|
|
101
|
|
|
148
|
|
|
141
|
|
Other expenses
|
|
377
|
|
|
363
|
|
|
413
|
|
|
418
|
|
Income before income taxes
|
|
476
|
|
|
341
|
|
|
118
|
|
|
43
|
|
Income taxes
|
|
117
|
|
|
91
|
|
|
29
|
|
|
11
|
|
Net income
|
|
$
|
359
|
|
|
$
|
250
|
|
|
$
|
89
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.67
|
|
|
$
|
1.86
|
|
|
$
|
0.66
|
|
|
$
|
0.24
|
|
Diluted
|
|
2.67
|
|
|
1.86
|
|
|
0.66
|
|
|
0.24
|
|
Note: Year-to-Date may not sum due to rounding
OMH's selected quarterly financial data for 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions, except per share amounts)
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
1,107
|
|
|
$
|
1,065
|
|
|
$
|
1,000
|
|
|
$
|
956
|
|
Interest expense
|
|
252
|
|
|
244
|
|
|
238
|
|
|
236
|
|
Provision for finance receivable losses
|
|
293
|
|
|
282
|
|
|
268
|
|
|
286
|
|
Net interest income after provision
|
|
562
|
|
539
|
|
494
|
|
434
|
Other revenues
|
|
162
|
|
|
156
|
|
|
156
|
|
|
148
|
|
Other expenses
|
|
380
|
|
|
398
|
|
|
394
|
|
|
380
|
|
Income before income taxes
|
|
344
|
|
|
297
|
|
|
256
|
|
|
202
|
|
Income taxes
|
|
83
|
|
|
49
|
|
|
62
|
|
|
50
|
|
Net income
|
|
$
|
261
|
|
|
$
|
248
|
|
|
$
|
194
|
|
|
$
|
152
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.92
|
|
|
$
|
1.82
|
|
|
$
|
1.43
|
|
|
$
|
1.12
|
|
Diluted
|
|
1.91
|
|
|
1.82
|
|
|
1.42
|
|
|
1.11
|
|
Note: Year-to-Date may not sum due to rounding.