Business context and reporting period
OneMain Holdings, Inc. (OMH), together with its operating subsidiary OneMain Finance Corporation (OMFC), provides consumer personal loans, credit cards and optional insurance in the U.S. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2023. Unless noted, amounts are in millions of dollars.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Interest income | $1,167 | $1,118 | $3,377 | $3,313 |
| Interest expense | $267 | $223 | $749 | $661 |
| Net interest income | $900 | $895 | $2,628 | $2,652 |
| Provision for finance receivable losses | $410 | $421 | $1,275 | $998 |
| Income before income taxes | $246 | $246 | $619 | $923 |
| Net income | $194 | $185 | $476 | $696 |
| Diluted earnings per share | $1.61 | $1.49 | $3.94 | $5.55 |
- Receivables and credit: Net finance receivables were $21.1 billion at September 30, 2023, up from $20.0 billion at year-end 2022. The allowance for finance receivable losses was $2.45 billion, or 11.62% of receivables. The nine-month allowance ratio was 11.62%, versus 11.42% in the prior-year period.
- Credit performance: The net charge-off ratio was 6.74% in Q3, versus 5.92% a year earlier; for the first nine months it was 7.39%, versus 5.81%. Personal-loan 30–89 day delinquency was 2.98% in Q3, versus 2.81% a year earlier.
- Cash flow: Nine-month operating cash flow was $1.84 billion; investing activities used $2.15 billion and financing activities provided $1.12 billion. Cash and restricted cash together ended at $1.77 billion, including $1.19 billion unrestricted cash and $580 million restricted cash.
- Debt and liquidity: Long-term debt was $19.85 billion, up from $18.28 billion at December 31, 2022. The company reported $7.5 billion of unencumbered loans, no drawings on its $1.25 billion corporate revolver or $6.2 billion of conduit facilities, and $350 million outstanding under private secured term funding. OMFC’s debt ratings were below investment grade: S&P BB, Moody’s Ba2 and KBRA BB+.
- Capital returns: OMH declared $3.00 per share in dividends during the first nine months and repurchased $45 million of shares. It stated that it intends to pay its then-current $1.00 quarterly dividend for the foreseeable future, subject to Board review and other factors.
Material changes versus prior comparable periods
- Q3 net income increased to $194 million from $185 million, while pretax income was unchanged at $246 million. Lower income tax expense contributed to the net-income increase.
- For the first nine months, net income fell to $476 million from $696 million. Net interest income declined despite higher interest income, as funding costs rose; provision for credit losses increased by $277 million, primarily due to higher net charge-offs.
- Management attributed higher interest income mainly to receivables growth, partly offset by lower yield. Interest expense increased as average debt and cost of funds rose. Nine-month personal-loan originations declined to $9.84 billion from $10.41 billion.
- Credit-card receivables expanded to $232 million from $79 million a year earlier, and open accounts increased to approximately 339,000 from 104,000.
- Operating cash flow rose from $1.72 billion to $1.84 billion for the nine-month period, while investing cash outflow increased from $1.50 billion to $2.15 billion, largely reflecting greater net loan originations and purchases.
Outlook, commentary, risks and unusual items
- Management gave no specific earnings or credit-loss guidance. It said it is monitoring unemployment, inflation, interest rates and consumer confidence, and that changes in its macroeconomic outlook or loan-loss expectations could affect the allowance and provision.
- Management said it believes liquidity is adequate and emphasized maintaining a strong balance sheet, disciplined underwriting and a long liquidity runway. These are forward-looking assessments, not guarantees.
- In June 2023, OMFC issued $500 million of 9.00% senior notes due 2029. During the nine months, it also completed three personal-loan securitizations and partially redeemed $558 million of 6.125% notes due 2024.
- Regulatory settlements included a CFPB consent order requiring $10 million of customer interest refunds, a $10 million civil penalty and practice enhancements, and a NYDFS order with a $4.25 million penalty. The company did not admit to the agencies’ findings or conclusions. It reported $24 million of regulatory-settlement adjustments in its nine-month segment reconciliation.
- Risks highlighted include worsening economic conditions and borrower defaults, adequacy of credit-loss reserves, higher rates and funding costs, access to capital markets, substantial indebtedness, regulatory scrutiny, litigation, and cybersecurity or operational disruptions. The company reported no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether rising charge-offs and delinquencies, portfolio seasoning and economic assumptions warrant further increases in the credit-loss allowance.
- How loan growth, lower personal-loan yield and higher funding costs affect future net interest income and profitability.
- Debt maturities, securitization performance, refinancing access and liquidity available after accounting for restricted cash and insurance-related funds.
- The financial and operational effects of the CFPB and NYDFS consent orders, including completion of required customer refunds and controls enhancements.
- The Board’s future dividend and repurchase decisions, which remain discretionary and subject to financial, contractual and regulatory considerations.