OneMain Holdings, Inc. (OMF) FY 2023 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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:

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Overview

We operate in the United States and market our personal loans in 44 states. We service the loans that we originate and retain on our balance sheet, as well as loans owned by third parties on their behalf in connection with our whole loan sale program and legacy businesses. In connection with our offerings, our insurance subsidiaries offer our personal loan customers optional credit and non-credit insurance and other optional products. We also offer two credit cards, BrightWay and BrightWay+, which are designed to reward customers for responsible credit activity, such as consistent on-time payments. We strive to meet our customers at their preferred channel and to deliver a seamless customer experience through our digital platforms, distribution partnerships, or working with our expert team members at our approximately 1,400 locations. Our personal loans, credit cards, and other products help customers meet everyday needs and take steps to improve their financial well-being.

OUR PRODUCTS

Our product offerings include:

•Personal Loans — We offer personal loans through our branch network, central operations, auto dealership network, and our website, www.onemainfinancial.com, to customers who need timely access to cash. Our personal loans are non-revolving, with a fixed rate, have fixed terms generally between three and six years, and are secured by automobiles, other titled collateral, or are unsecured. At December 31, 2023, we had approximately 2.4 million personal loans totaling $21.0 billion of net finance receivables, of which 50% were secured by titled property, compared to approximately 2.3 million personal loans totaling $19.9 billion of net finance receivables, of which 52% were secured by titled property at December 31, 2022. We also service personal loans for our whole loan sale partners.

•Credit Cards — BrightWay and BrightWay+ credit cards originate through a third-party bank partner from which we purchase the receivable balances. The credit cards are offered across our branch network, through direct mail, and through our digital affiliates. Credit cards are open-ended, revolving, with a fixed rate, and are unsecured. At December 31, 2023, we had approximately 431 thousand open credit card customer accounts, totaling $330 million of net finance receivables, compared to approximately 135 thousand open credit card customer accounts, totaling $107 million of net finance receivables at December 31, 2022.

•Optional Products — We offer our customers optional credit insurance products (life, disability, and involuntary unemployment insurance) and optional non-credit insurance products through both our branch network and our central operations. Credit insurance and non-credit insurance products are provided by our affiliated insurance companies. We offer Guaranteed Asset Protection (“GAP”) coverage as a waiver product or insurance. We also offer optional membership plans from an unaffiliated company.

OUR SEGMENT

At December 31, 2023, Consumer and Insurance (“C&I”) is our only reportable segment, which includes personal loans, credit cards, and optional products. At December 31, 2023, we had $22.2 billion of managed receivables due from approximately 3.0 million customer accounts, compared to $20.8 billion of managed receivables due from approximately 2.6 million customer accounts at December 31, 2022.

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 held for sale and reported in Other assets in our consolidated balance sheets. See Note 17 of the Notes to the Consolidated Financial Statements in Part II - Item 8 in this report for more information about our segment.

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HOW WE ASSESS OUR BUSINESS PERFORMANCE

We closely monitor the primary drivers of pretax operating income, which consist of the following:

Interest Income

We track interest income, including certain fees earned on our finance receivables, and continually monitor the components that impact our yield. We include any late charges on loans that we have collected from customer payments in interest income.

Interest Expense

We track the interest expense incurred on our debt, along with amortization or accretion of premiums or discounts, and issuance costs, to monitor the components of our cost of funds. We expect interest expense to fluctuate based on changes in the secured versus unsecured mix of our debt, time to maturity, interest rates, and utilization of revolving conduit facilities.

Net Credit Losses

The credit quality of our loans is driven by our underwriting philosophy, which considers the prospective customer’s household budget, his or her willingness and capacity to repay, and the underlying collateral on the loan. We closely analyze credit performance because the profitability of our loan portfolio is directly connected to net credit losses. We define net credit losses as gross charge-offs minus recoveries in the portfolio. Additionally, because delinquencies are an early indicator of future net credit losses, we analyze delinquency trends, adjusting for seasonality, to determine whether our loans are performing in line with our original estimates. We also monitor recovery rates because of their contribution to the reduction in the severity of our charge-offs.

Operating Expenses

We assess our operational efficiency using various metrics and conduct extensive analysis to determine whether fluctuations in cost and expense levels indicate operational trends that need to be addressed. Our operating expense analysis also includes a review of origination and servicing costs to assist us in managing overall profitability.

Finance Receivables Originations and Purchase Volume

Because volume and portfolio size determine the magnitude of the impact of each of the above factors on our earnings, we also closely monitor originations, purchase volume, and annual percentage rate.

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Recent Developments and Outlook

RECENT DEVELOPMENTS

Acquisition of Foursight Capital LLC

On November 21, 2023, we announced that we have entered into a definitive agreement to acquire Foursight Capital LLC (“Foursight”), a wholly owned subsidiary of Jefferies Financial Group, Inc. for a purchase price of $115 million in cash. Foursight is an automobile finance company that purchases and services automobile retail installment contracts. Contracts are sourced through an extensive network of auto dealers. We will acquire Foursight's approximately $900 million auto loan portfolio in the transaction, which is expected to close in the first quarter of 2024, subject to customary closing conditions and applicable regulatory approvals.

Issuances and Redemption of Unsecured Debt

Issuance of 9.00% Senior Notes Due 2029

On June 22, 2023, OMFC issued a total of $500 million aggregate principal amount of 9.00% Senior Notes due 2029. On November 14, 2023, OMFC issued a total of $400 million aggregate principal amount as an add-on to the 9.00% Senior Notes due 2029.

Issuance of 7.875% Senior Notes Due 2030

On December 13, 2023, OMFC issued a total of $700 million aggregate principal amount of 7.875% Senior Notes due 2030.

Redemption of 6.125% Senior Notes Due 2024

On September 18, 2023, OMFC paid a net aggregate amount of $558 million, inclusive of accrued interest, to complete a partial redemption of its 6.125% Senior Notes due 2024. On December 14, 2023, OMFC paid a net aggregate amount of $546 million, inclusive of accrued interest, to complete a full redemption.

For information regarding the issuances and redemption of our unsecured debt, see “Liquidity and Capital Resources” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Securitization Transactions Completed - ODART 2023-1, OMFIT 2023-1, and OMFIT 2023-2

For information regarding the issuances of our secured debt, see “Liquidity and Capital Resources” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Cash Dividends to OMH's Common Stockholders

For information regarding the quarterly dividends declared by OMH, see “Liquidity and Capital Resources” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Regulatory Settlements

On May 24, 2023, we entered into a consent order with the NYDFS relating primarily to a past examination of our cybersecurity policies from 2017 to early 2020. Pursuant to the consent order, we agreed to pay a $4.25 million civil penalty and represent that certain improvements to our cybersecurity controls and procedures had previously been completed.

Additionally, on May 31, 2023, we entered into a consent order with the CFPB to resolve a previously disclosed investigation focused on certain refunding practices for optional insurance and membership plan products that were subsequently canceled by the consumer after purchase. Pursuant to the consent order, we agreed to issue $10 million in interest refunds to affected customers, pay a $10 million civil penalty and make certain other enhancements to our sales and refunding practices.

In agreeing to these two consent orders, we did not admit to any of the NYDFS’ or the CFPB’s factual findings or legal conclusions.

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OUTLOOK

We are actively monitoring the current macroeconomic environment, including geopolitical actions outside of the U.S., and remain prepared for any developments that may impact our business. Our financial condition and results of operations could be affected by macroeconomic conditions, including changes in unemployment, inflation, interest rates, and consumer confidence. We will continue to incorporate updates to our macroeconomic assumptions, as necessary, which could lead to further adjustments in our allowance for finance receivable losses, allowance ratio, and provision for finance receivable losses.

Our experienced management team remains focused on maintaining a strong balance sheet with a long liquidity runway and adequate capital while maintaining a conservative and disciplined underwriting model. We believe we are well positioned to serve our customers and execute on our strategic priorities, including:

•striving to be the lender of choice for nonprime consumers and improve their financial well-being;

•continuing to grow our receivables through new products and distribution channels;

•maintaining a rigorous underwriting standard with a goal of enhancing credit performance;

•leveraging our scale and cost discipline across the Company to deliver improved operating leverage; and

•maintaining a strong liquidity level with diversified funding sources.

We believe our commitment to closely monitor the macroeconomic environment, retain disciplined underwriting, drive strategic growth initiatives, and maintain a robust balance sheet strengthens our ability to navigate challenges and seize opportunities. As we pursue our key initiatives, we are confident in our ability to increase shareholder value and remain resilient and adaptable to navigate an ever-evolving economic, social, political, and regulatory landscape.

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Results of Operations

The results of OMFC are consolidated into the results of OMH. Due to the nominal differences between OMFC and OMH, content throughout this section relates only to OMH. See Note 1 of the Notes to the Consolidated Financial Statements in Part II - Item 8 in this report for further information.

OMH'S CONSOLIDATED RESULTS

See the table below for OMH's consolidated operating results and selected financial statistics. A further discussion of OMH's operating results for our operating segment is provided under “Segment Results” below.

*    See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.

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Comparison of Consolidated Results for 2023 and 2022

Interest income increased $129 million or 3% in 2023 when compared to 2022 due to growth in average net receivables, partially offset by lower yield.

Interest expense increased $127 million or 14% in 2023 when compared to 2022 due to a higher average cost of funds and an increase in average debt as we continue to grow the business.

Provision for finance receivable losses increased $319 million or 23% in 2023 when compared to 2022 driven by higher net charge-offs.

Other revenues increased $106 million or 17% in 2023 when compared to 2022 due to an increase in investment revenue due to higher market rates compared to the prior year period and a net loss on the repurchase and repayment of debt in the prior year period.

Other expenses increased $104 million or 6% in 2023 when compared to 2022 due to regulatory settlements in the current period, an increase in general operating expenses and salaries and benefits expense driven by our strategic investments in the business, as well as an increase in insurance policy and benefits claims expense largely driven by favorable claims experience in the prior period not present in the current period.

Income taxes decreased $84 million or 30% in 2023 when compared to 2022 due to lower pretax income.

See Note 13 of the Notes to the Consolidated Financial Statements in Part II - Item 8 in this report for further information on income taxes.

Comparison of Consolidated Results for 2022 and 2021

For a comparison of OMH's results of operation for the years ended 2022 and 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—OMH’s Consolidated Results” in Part II - Item 7 of OMH's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 10, 2023.

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NON-GAAP FINANCIAL MEASURES

Management uses C&I adjusted pretax income (loss), a non-GAAP financial measure, as a key performance measure of our segment. C&I adjusted pretax income (loss) represents income (loss) before income taxes on a Segment Accounting Basis and excludes regulatory settlements, net gain or loss resulting from repurchases and repayments of debt, and other items and strategic activities, which include direct costs associated with COVID-19, restructuring charges, and the expense associated with cash-settled stock-based awards. Management believes C&I adjusted pretax income (loss) is useful in assessing the profitability of our segment.

Management also uses C&I pretax capital generation, a non-GAAP financial measure, as a key performance measure of our segment. This measure represents C&I adjusted pretax income as discussed above and excludes the change in our C&I allowance for finance receivable losses in the period while still considering the C&I net charge-offs incurred during the period. Management believes that C&I pretax capital generation is useful in assessing the capital created in the period impacting the overall capital adequacy of the Company. Management believes that the Company’s reserves, combined with its equity, represent the Company’s loss absorption capacity.

Management utilizes both C&I adjusted pretax income (loss) and C&I pretax capital generation in evaluating our performance. Additionally, both of these non-GAAP measures are consistent with the performance goals established in OMH’s executive compensation program. C&I adjusted pretax income (loss) and C&I pretax capital generation are non-GAAP financial measures and should be considered supplemental to, but not as a substitute for or superior to, income (loss) before income taxes, net income, or other measures of financial performance prepared in accordance with GAAP.

OMH's reconciliations of income before income tax expense on a Segment Accounting Basis to C&I adjusted pretax income (non-GAAP) and C&I pretax capital generation (non-GAAP) were as follows:

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Segment Results

The results of OMFC are consolidated into the results of OMH. Due to the nominal differences between OMFC and OMH, content throughout this section relate only to OMH. See Note 1 of the Notes to the Consolidated Financial Statements in Part II - Item 8 in this report for further information.

See Note 17 of the Notes to the Consolidated Financial Statements in Part II - Item 8 in this report for a description of our segment, methodologies used to allocate revenues and expenses to our C&I segment, and reconciliations of segment total to consolidated financial statement amounts.

CONSUMER AND INSURANCE

OMH's adjusted pretax income and selected financial statistics for C&I on an adjusted Segment Accounting Basis were as follows:

*    See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.

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Comparison of Adjusted Pretax Income for Twelve Months Ended December 31, 2023 and 2022

Interest income increased $130 million or 3% in 2023 when compared to 2022 due to growth in average net receivables, partially offset by lower yield.

Interest expense increased $129 million or 15% in 2023 when compared to 2022 due to a higher average cost of funds and an increase in average debt as we continue to grow the business.

Provision for finance receivable losses increased $322 million or 23% in 2023 when compared to 2022 driven by higher net charge-offs.

Other revenues increased $83 million or 13% in 2023 when compared to 2022 due to an increase in investment revenue due to higher market rates compared to the prior year period.

Other expenses increased $94 million or 6% in 2023 when compared to 2022 due to an increase in general operating expenses and salaries and benefits expense driven by our strategic investments in the business, as well as an increase in insurance policy benefits and claims expense largely driven by favorable claims experience in the prior period not present in the current period.

Comparison of Adjusted Pretax Income for 2022 and 2021

For a comparison of OMH's adjusted pretax income for C&I for the years ended 2022 and 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—OMH’s Consolidated Results” in Part II -Item 7 of OMH's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 10, 2023.

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Credit Quality

FINANCE RECEIVABLES

Our net finance receivables, consisting of personal loans and credit cards, were $21.3 billion at December 31, 2023 and $20.0 billion at December 31, 2022. We consider the delinquency status of our finance receivables as our key credit quality indicator. We monitor the delinquency of our finance receivable portfolio, including the migration between the delinquency buckets and changes in the delinquency trends to manage our exposure to credit risk in the portfolio. Our branch and central operation team members work closely with customers as necessary and offer a variety of borrower assistance programs to help support our customers.

DELINQUENCY

We monitor delinquency trends to evaluate the risk of future credit losses and employ advanced analytical tools to manage performance. Team members are actively engaged in collection activities throughout the early stages of delinquency. We closely track and report the percentage of receivables that are contractually 30-89 days past due as a benchmark of portfolio quality, collections effectiveness, and as a strong indicator of losses in coming quarters.

When personal loans are contractually 60 days past due, we consider these accounts to be at an increased risk for loss and move collection of these accounts to our central collection operations. Use of our central operations teams for managing late-stage delinquency allows us to apply more advanced collection techniques and tools to drive credit performance and operational efficiencies.

We consider our personal loans to be nonperforming at 90 days contractually past due, at which point we stop accruing finance charges and reverse finance charges previously accrued. For credit cards, we accrue finance charges and fees until charge-off at 180 days contractually past due, at which point we reverse finance charges and fees previously accrued.

The delinquency information for net finance receivables on a Segment Accounting Basis was as follows:

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ALLOWANCE FOR FINANCE RECEIVABLE LOSSES

We estimate and record an allowance for finance receivable losses to cover the expected lifetime credit losses on our finance receivables. Our allowance for finance receivable losses may fluctuate based upon changes in portfolio growth, credit quality, and economic conditions.

Our methodology to estimate expected credit losses uses recent macroeconomic forecasts, which include forecasts for unemployment. We leverage projections from various industry leading providers. We also consider inflationary pressures, consumer confidence levels, and interest rate increases that may continue to impact the economic outlook. At December 31, 2023, our economic forecast used a reasonable and supportable period of 12 months. We may experience further changes to the macroeconomic assumptions within our forecast, as well as changes to our loan loss performance outlook, both of which could lead to further changes in our allowance for finance receivable losses, allowance ratio, and provision for finance receivable losses.

Changes in our allowance for finance receivable losses were as follows:

(a)    As a result of the adoption of ASU 2022-02, we recorded a one-time adjustment to the allowance for finance receivable losses. See Notes 3, 4, and 5 of the Notes to the Consolidated Financial Statements in Part II - Item 8 in this report for additional information on the adoption of ASU 2022-02.

(b)    Not applicable.

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The current delinquency status of our finance receivable portfolio, inclusive of recent borrower performance and loss performance, volume of our modified finance receivable activity, level and recoverability of collateral securing our finance receivable portfolio, and the reasonable and supportable forecast of economic conditions are the primary drivers that can cause fluctuations in our allowance ratio from period to period. We monitor the allowance ratio to ensure we have a sufficient level of allowance for finance receivable losses based on the estimated lifetime expected credit losses in our finance receivable portfolio. The allowance for finance receivable losses as a percentage of net finance receivables increased slightly from the prior year period primarily due to a weaker macroeconomic outlook and portfolio mix. See Note 5 of the Notes to the Consolidated Financial Statements in Part II - Item 8 in this report for more information about the changes in the allowance for finance receivable losses.

Liquidity and Capital Resources

SOURCES AND USES OF FUNDS

We finance the majority of our operating liquidity and capital needs through a combination of cash flows from operations, secured debt, unsecured debt, borrowings from revolving conduit facilities, whole loan sales, and equity. We may also utilize other sources in the future. As a holding company, all of the funds generated from our operations are earned by our operating subsidiaries. Our operating subsidiaries’ primary cash needs relate to funding our lending activities, our debt service obligations, our operating expenses, payment of insurance claims, and supporting strategic initiatives.

We have previously purchased portions of our unsecured indebtedness, and we may elect to purchase additional portions of our unsecured indebtedness or securitized borrowings in the future. Future purchases may be made through the open market, privately negotiated transactions with third parties, or pursuant to one or more tender or exchange offers, all of which are subject to terms, prices, and consideration we may determine at our discretion.

During the year ended December 31, 2023, OMH generated net income of $641 million. OMH’s net cash outflow from operating and investing activities totaled $343 million for the year ended December 31, 2023. At December 31, 2023, our scheduled interest payments for 2024 totaled $526 million and there were no scheduled principal payments for 2024 on our existing unsecured debt. As of December 31, 2023, we had $8.4 billion of unencumbered receivables.

Based on our estimates and considering the risks and uncertainties of our plans, we believe that we will have adequate liquidity to finance and operate our businesses and repay our obligations as they become due.

OMFC’s Issuances, Redemptions, and Repurchases of Unsecured Debt

On June 22, 2023, OMFC issued a total of $500 million aggregate principal amount of 9.00% Senior Notes due 2029 under the Base Indenture, as supplemented by the Fifteenth Supplemental Indenture, pursuant to which OMH provided a guarantee on an unsecured basis. On November 14, 2023, OMFC issued a total of $400 million aggregate principal amount of 9.00% Senior Notes due 2029 in an add-on to the 9.00% Senior Notes due 2029 under the Base Indenture, as supplemented by the Fifteenth Supplemental Indenture, pursuant to which OMH provided a guarantee on an unsecured basis.

On August 18, 2023, OMFC issued a notice to partially redeem its 6.125% Senior Notes due 2024. On September 18, 2023, OMFC paid a net aggregate amount of $558 million, inclusive of accrued interest, to complete the partial redemption. On November 14, 2023, OMFC issued a notice to fully redeem the remaining 6.125% Senior Notes due 2024. On December 14, 2023, OMFC paid a net aggregate amount of $546 million, inclusive of accrued interest, to complete a full redemption.

On December 13, 2023, OMFC issued a total of $700 million aggregate principal amount of 7.875% Senior Notes due 2030 under the Base Indenture, as supplemented by the Sixteenth Supplemental Indenture, pursuant to which OMH provided a guarantee on an unsecured basis.

From time to time we may purchase portions of our unsecured indebtedness through the open market. During the year ended December 31, 2023, we repurchased $176 million of our unsecured notes.

OMFC’s Unsecured Corporate Revolver

At December 31, 2023, the borrowing capacity of our corporate revolver was $1.3 billion, and no amounts were drawn.

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Securitizations and Borrowings from Revolving Conduit Facilities

During the year ended December 31, 2023, we completed three personal loan securitizations (ODART 2023-1, OMFIT 2023-1, OMFIT 2023-2, see “Securitized Borrowings” below) and redeemed one personal loan securitization (OMFIT 2020-1). During the year ended December 31, 2023, we entered into two new revolving conduit facilities. At December 31, 2023, the borrowing capacity of our revolving conduit facilities was $6.4 billion. At December 31, 2023, we had $12.6 billion of gross finance receivables pledged as collateral for our securitizations, conduit facilities, and private secured term funding.

Subsequent to year-end, on January 18, 2024, we entered into two credit card revolving variable funding note (“VFN”) facilities. The maximum capacity of our credit card revolving VFN facilities was $300 million.

Private Secured Term Funding

At December 31, 2023, an aggregate amount of $350 million was outstanding under the private secured term funding collateralized by our personal loans. No principal payments are required to be made until after April 25, 2025, followed by a subsequent one-year amortization period at the expiration of which the outstanding principal amount is due and payable.

See Notes 8 and 9 of the Notes to the Consolidated Financial Statements in Part II - Item 8 in this report for further information on our long-term debt, securitization transactions, private secured term funding, and revolving conduit facilities.

Credit Ratings

Our credit ratings impact our ability to access capital markets and our borrowing costs. Rating agencies base their ratings on numerous factors, including liquidity, capital adequacy, asset quality, quality of earnings, and the probability of systemic support. Significant changes in these factors could result in different ratings.

The table below outlines OMFC’s long-term corporate debt ratings and outlook by rating agencies:

Currently, no other entity has a corporate debt rating, though they may be rated in the future.

Stock Repurchased

During the year ended December 31, 2023, OMH repurchased 1,651,717 shares of its common stock through its stock repurchase program for an aggregate total of $65 million, including commissions and fees. As of December 31, 2023, OMH held a total of 15,383,804 shares of treasury stock. To provide funding for the OMH stock repurchases, the OMFC Board of Directors authorized dividend payments in the amount of $60 million.

For additional information regarding the shares repurchased, see Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities of Part II in this report.

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Cash Dividend to OMH's Common Stockholders

As of December 31, 2023, the dividend declarations for the current year by the Board were as follows:

To provide funding for the dividend, OMFC paid dividends of $478 million to OMH during the year ended December 31, 2023.

On February 7, 2024, OMH declared a dividend of $1.00 per share payable on February 23, 2024 to record holders of OMH's common stock as of the close of business on February 20, 2024. To provide funding for the OMH dividend, the OMFC Board of Directors authorized a dividend in the amount of up to $121 million payable on or after February 21, 2024.

While OMH intends to pay its minimum quarterly dividend, currently $1.00 per share, for the foreseeable future, all subsequent dividends will be reviewed and declared at the discretion of the Board and will depend on many factors, including our financial condition, earnings, cash flows, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends, and other considerations that the Board deems relevant. OMH’s dividend payments may change from time to time, and the Board may choose not to continue to declare dividends in the future. See our “Dividend Policy” in Part II - Item 5 of this report for further information.

Whole Loan Sale Transactions

We have whole loan sale flow agreements with third parties, with remaining terms of less than one year, in which we agreed to sell a total of $60 million gross receivables per quarter of newly originated unsecured personal loans along with any associated accrued interest. During the year ended December 31, 2023, we sold $585 million of gross finance receivables, compared to $720 million during the year ended December 31, 2022. See Note 4 of the Notes to the Consolidated Financial Statements included in this report for further information on the whole loan sale transactions.

Subsequent to year-end, we entered into a whole loan sale flow agreement with a third party, with a term of less than two years, in which we agreed to sell $600 million of gross receivables of newly originated unsecured personal loans along with any associated accrued interest.

LIQUIDITY

OMH's Operating Activities

Net cash provided by operations of $2.5 billion for the year ended December 31, 2023 reflected net income of $641 million, the impact of non-cash items including provision for finance receivable losses of $1.7 billion, and an unfavorable change in working capital of $44 million. Net cash provided by operations of $2.4 billion for the year ended December 31, 2022 reflected net income of $872 million, the impact of non-cash items including provision for finance receivable losses of $1.4 billion, and an unfavorable change in working capital of $82 million. Net cash provided by operations of $2.2 billion for the year ended December 31, 2021 reflected net income of $1.3 billion, the impact of non-cash items, and an unfavorable change in working capital of $48 million.

OMH's Investing Activities

Net cash used for investing activities of $2.9 billion for the year ended December 31, 2023 was due to net principal originations and purchases of finance receivables and purchases of available-for-sale and other securities, partially offset by the proceeds from sales of finance receivables and calls, sales, and maturities of available-for-sale and other securities. Net cash used for investing activities of $2.1 billion for both the years ended December 31, 2022 and 2021 was primarily due to net principal originations and purchases of finance receivables and purchases of available-for-sale and other securities, partially offset by the

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proceeds from sales of finance receivables and calls, sales, and maturities of available-for-sale and other securities.

OMH's Financing Activities

Net cash provided by financing activities of $932 million for the year ended December 31, 2023 was primarily due to the issuance and borrowings of long-term debt, partially offset by repayments and repurchases of long-term debt and cash dividends paid. Net cash used for financing activities of $326 million and $1.8 billion for the years ended December 31, 2022 and 2021, respectively, were primarily due to repayments and repurchases of long-term debt, cash dividends paid, and the cash paid to repurchase common stock, partially offset by the issuance and borrowings of long-term debt.

OMH's Cash and Investments

At December 31, 2023, we had $1.0 billion of cash and cash equivalents, which included $148 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, 2023, we had $1.7 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, rising interest rates, 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 secured and unsecured debt issuances, debt refinancing transactions, unsecured corporate revolvers, and revolving conduit facilities), or a combination of the foregoing;

•purchasing portions of our outstanding indebtedness through open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration, as we may determine; and

•obtaining new and extending existing secured revolving facilities to provide committed liquidity in case of prolonged market fluctuations.

However, it is possible that the actual outcome of one or more of our plans could be materially different than expected or that one or more of our significant judgments or estimates could prove to be materially incorrect.

OUR INSURANCE SUBSIDIARIES

Our insurance subsidiaries are subject to state regulations that limit their ability to pay dividends. See Note 10 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in this report for further information on these state restrictions and the dividends paid by our insurance subsidiaries from 2021 through 2023.

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OUR DEBT AGREEMENTS

The debt agreements which OMFC and its subsidiaries are a party to include customary terms and conditions, including covenants and representations and warranties. See Note 8 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in this report for more information on the restrictive covenants under OMFC’s debt agreements, as well as the guarantees of OMFC’s long-term debt.

Securitized Borrowings

We execute private securitizations under Rule 144A of the Securities Act of 1933, as amended. As of December 31, 2023, our structured financings consisted of the following:

(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, 2023.

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Revolving Conduit Facilities

In addition to the structured financings, we had access to 16 revolving conduit facilities with a total borrowing capacity of $6.4 billion as of December 31, 2023:

See “Liquidity and Capital Resources - Sources and Uses of Funds - Securitizations and Borrowings from Revolving Conduit Facilities” above for information on the credit card revolving conduit facilities entered into subsequent to December 31, 2023.

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Contractual Obligations

At December 31, 2023, our material contractual obligations were as follows:

(a) On-balance sheet securitizations, private secured term funding, and borrowings under revolving conduit facilities are not included in maturities by period due to their variable monthly payments.

(b) Future interest payments on floating-rate debt are estimated based upon rates in effect at December 31, 2023.

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, 2023 or December 31, 2022.

Critical Accounting Policies and Estimates

We consider the following policies to be our most critical accounting policies because they involve critical accounting estimates and a significant degree of management judgment:

ALLOWANCE FOR FINANCE RECEIVABLE LOSSES

We estimate the expected credit losses on our finance receivables over their expected lives based on historical experience, current conditions, and reasonable and supportable forecasts of collectability. No new volume is assumed. Personal loan renewals are a significant piece of our new volume and are considered a terminal event of the previous loan. For our personal loans, we have elected not to measure an allowance on accrued finance charges as it is our policy to reverse finance charges previously accrued after four contractual payments become past due.

Our estimate of the allowance for finance receivable losses is primarily based on historical loss experience using a cumulative loss model applied to our personal loan portfolios. Our gross credit loss expectation is offset by the estimate of future recoveries using historical recovery curves. Our personal loans are primarily segmented in the loss model by contractual delinquency status. Other attributes in the model include collateral mix and recent credit score. To estimate the gross credit losses, the model utilizes a roll rate matrix to project the first 12 months of losses and historical cohort performance to project the expected losses over the remaining term. Our methodology relies on historical loss experience to forecast the corresponding future outcomes. These patterns are then applied to the current portfolio to obtain an estimate of future losses.

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Management exercises its judgment when determining the amount of allowance for finance receivable losses. Our judgment is based on quantitative analyses, qualitative factors, such as recent portfolio, industry, and other economic trends, and experience in the consumer finance industry. We may adjust the amounts determined by our model for management’s estimate of the effects of model imprecision, which include but are not limited to, any changes to underwriting criteria and portfolio seasoning.

Forecasting macroeconomic conditions requires significant judgment and involves estimation uncertainty. We consider key economic factors, most notably unemployment rates, to incorporate into our estimate of the allowance for finance receivable losses. Our macroeconomic forecast considers various scenarios of economic projections from industry leading forecast providers and extends over our reasonable and supportable forecast period, after which we revert to a historical average.

Due to the judgment and uncertainty in estimating the expected credit losses, we may experience changes to the macroeconomic assumptions within our forecast, as well as changes to our loan loss performance outlook, both of which could lead to further changes in our allowance for finance receivable losses, allowance ratio, and provision for finance receivable losses.

Macroeconomic Sensitivity

To demonstrate the sensitivity of forecasting macroeconomic conditions, we compared the output of our model using a baseline scenario to that of a downside scenario. As of December 31, 2023, the impact of a ten percentage point increase in weighting towards a downside scenario increased the estimate by approximately $25 million.

The macroeconomic scenarios are highly influenced by the timing, severity, and duration of changes in the underlying economic factors. This makes it difficult to estimate how potential changes in economic factors affect the estimated credit losses. Therefore, this hypothetical analysis is not intended to represent our expectation of changes in our estimate of expected credit losses due to a change in the macroeconomic environment, nor does it consider management’s judgment of other quantitative and qualitative information which could increase or decrease the estimate.

Recent Accounting Pronouncements

See Note 3 of the Notes to the Consolidated Financial Statements in Part II - Item 8 in this report for discussion of recently issued accounting pronouncements.

Seasonality

Our personal loan volume and demand is generally lowest during the first part of the year following the holiday season and as a result of tax refunds, and increases through the end of the year. Delinquencies follow the same trends, being generally lower during the first part of the year and rising throughout the remainder of the year. These seasonal trends contribute to fluctuations in our operating results and cash needs throughout the year.

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