OneMain Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. OneMain provides consumer finance and insurance products, principally personal loans, credit cards, and optional insurance. The figures below are consolidated and in millions of dollars, except per-share amounts and ratios.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Interest income | $1,094 | $1,089 |
| Interest expense | $239 | $219 |
| Net interest income | $855 | $870 |
| Provision for finance receivable losses | $385 | $238 |
| Net interest income after provision | $470 | $632 |
| Other revenues | $177 | $162 |
| Other expenses | $412 | $395 |
| Income before taxes | $235 | $399 |
| Net income | $179 | $303 |
| Diluted EPS | $1.48 | $2.38 |
| Operating cash flow | $562 | $552 |
Interest income was nearly flat as receivables growth was offset by lower yield. Net interest income declined as funding costs rose. Higher credit-loss provision was the principal factor behind lower earnings. The filing does not provide a conventional operating-margin figure.
Credit, balance sheet, and liquidity
- Net finance receivables were $19.8 billion at March 31, 2023, versus $20.0 billion at year-end; average net receivables were $19.9 billion for the quarter, up from $19.1 billion a year earlier.
- The allowance for finance receivable losses was $2.3 billion, or 11.60% of net finance receivables. The allowance ratio for personal loans was 11.55%, compared with 10.92% in the prior-year period.
- The consolidated net charge-off ratio rose to 7.80% from 5.57%; the 30–89-day personal-loan delinquency ratio increased to 2.58% from 2.25%. Personal-loan yield declined to 22.27% from 23.12%.
- Total assets were $22.4 billion, long-term debt was $18.2 billion, and shareholders’ equity was $3.1 billion. Debt included $10.1 billion of consolidated VIE debt.
- Cash and cash equivalents were $544 million, including $177 million unavailable for general corporate purposes; restricted cash was $531 million. Investment securities of $1.8 billion were held for insurance operations and unavailable for general corporate purposes.
- Operating and investing activities generated net cash of $358 million. The $1.25 billion corporate revolver was undrawn; revolving conduit capacity remaining was $6.1 billion. Management reported $8.5 billion of unencumbered loans and scheduled remaining-2023 principal and interest payments of $508 million, excluding securitizations.
Material changes and capital returns
- Compared with Q1 2022, net income fell 41% and diluted EPS fell from $2.38 to $1.48. Provision for credit losses rose 62%, while interest expense increased 9%.
- Personal-loan originations declined to $2.8 billion from $3.0 billion. Credit-card receivables grew to $122 million from $50 million, and open accounts increased to about 161,000 from 74,000.
- OneMain adopted ASU 2022-02 on January 1, 2023. Adoption reduced the allowance by $16 million and increased opening retained earnings by $12 million, net of tax; the standard also changed disclosures for loan modifications.
- OneMain repurchased 683,384 shares for $27 million and paid a quarterly dividend of $1.00 per share. The board declared another $1.00-per-share dividend payable in May 2023. Future dividends remain subject to board discretion.
- In February, the company issued $750 million of notes backed by direct auto loans in the ODART 2023-1 securitization.
Outlook, risks, and contingencies
- No specific earnings or revenue guidance was provided. Management said it is monitoring economic conditions and expects to update macroeconomic assumptions as needed; changes could affect the allowance and credit-loss provision. Management emphasized disciplined underwriting, adequate capital, and a long liquidity runway.
- Key risks cited include unemployment, inflation, interest rates, consumer confidence, delinquencies and defaults, access to capital markets, non-investment-grade credit ratings, debt covenants, cyber and operational disruptions, and regulatory scrutiny.
- The CFPB is considering whether to recommend legal action concerning alleged violations related to refunds for certain optional insurance and membership products. OneMain disputes that it violated the law, is cooperating, and cannot estimate the timing or outcome. It stated that it does not currently expect a material adverse effect.
- The company faces other legal matters and governmental inquiries in the ordinary course; some potential losses cannot be reasonably estimated. It also reported state tax examinations for 2017–2021 and $6 million of gross unrecognized tax benefits, including interest and penalties.
- Available-for-sale securities had a $1.716 billion fair value against $1.859 billion amortized cost. Management attributed unrealized losses primarily to interest rates and market spreads, not credit impairment, and reported no plans to sell the affected securities before recovery.
Important facts for investors to verify
- Whether rising charge-offs and delinquency trends continue, and whether the allowance remains adequate under changing economic forecasts.
- How loan yields, funding costs, and access to secured and unsecured financing affect earnings and liquidity.
- The availability of reported liquidity, given restrictions on portions of cash and investment securities, and upcoming debt service requirements.
- Developments in the CFPB matter and any other legal or regulatory proceedings, including potential costs or business restrictions.
- The sustainability of the $1.00 quarterly dividend and the pace of share repurchases relative to credit performance and capital needs.