OneMain Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. OneMain provides consumer finance and insurance products, principally personal loans, with credit cards launched in Q3 2021. OneMain Finance Corporation is consolidated into OneMain Holdings’ results; amounts below primarily refer to the consolidated company.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 or prior period |
|---|---|---|
| Interest income | $1.089 billion | $1.060 billion |
| Interest expense | $219 million | $235 million |
| Net interest income | $870 million | $825 million |
| Provision for finance receivable losses | $238 million | $(2) million |
| Other revenues | $162 million | $91 million |
| Other expenses | $398 million | $372 million |
| Income before taxes | $396 million | $546 million |
| Net income | $301 million | $413 million |
| Diluted earnings per share | $2.36 | $3.06 |
| Operating cash flow | $552 million | $556 million |
- Interest income rose 3%, mainly on loan portfolio growth, partly offset by lower yield. Interest expense fell 7%, reflecting lower average funding costs, partly offset by higher average debt.
- Net interest income after provision fell to $632 million from $827 million. Management attributed the provision increase primarily to the prior-year reserve release and higher current-period charge-offs as delinquency normalized toward pre-pandemic levels.
- Net finance receivables were $19.0 billion at quarter-end, versus $19.2 billion at December 31, 2021. Personal-loan originations were $2.959 billion, up from $2.284 billion a year earlier; credit-card receivables were $50 million.
- Portfolio yield was 23.12%, versus 24.08% a year earlier. The net charge-off ratio was 5.57%, versus 4.67%; the 30–89-day delinquency ratio was 2.26%, versus 1.57%. The allowance was $2.071 billion, or 10.91% of finance receivables, compared with 11.74% a year earlier.
- At March 31, total assets were $21.8 billion, long-term debt $17.6 billion, and shareholders’ equity $3.1 billion. Cash and cash equivalents were $640 million; restricted cash was $531 million. The company also held $1.8 billion of investment securities, all associated with insurance operations and unavailable for general corporate purposes.
- Cash from operating and investing activities totaled $602 million. Financing activities used $448 million, including $398 million of debt repayments, $126 million of dividends, and $110 million for share repurchases. Cash, cash equivalents, and restricted cash ended the quarter at $1.171 billion.
Changes and capital allocation
- Net income declined 27% year over year, with the higher credit-loss provision more than offsetting gains in net interest income and other revenues. Other revenues benefited from the absence of the prior-year debt-repurchase loss and increased whole-loan-sale gains and servicing revenue.
- Adjusted pretax income, a non-GAAP segment measure, was $398 million versus $607 million. Pretax capital generation, also non-GAAP, was $373 million versus $399 million.
- OneMain repurchased 2.28 million shares for $110 million during the quarter. The board authorized a new $1.0 billion repurchase program in February; $918 million remained available at quarter-end. The company declared a $0.95-per-share quarterly dividend.
- Debt included $7.184 billion of securitizations, $650 million drawn on revolving conduit facilities, and $9.585 billion carrying value of unsecured notes and junior subordinated debt. The $1.0 billion unsecured corporate revolver was undrawn; conduit facilities had $5.4 billion of remaining capacity. OMFC’s ratings were below investment grade: S&P BB, Moody’s Ba2, and KBRA BB+.
Outlook, risks, and unusual items
- Management gave no specific earnings or revenue guidance. It said credit trends remained favorable while delinquencies had normalized to pre-pandemic levels. It expects to update macroeconomic assumptions as needed; unemployment, inflation, supply-chain issues, geopolitical risks, labor shortages, and COVID-19 developments could affect credit losses and the allowance.
- Management said it believed liquidity was adequate to operate and meet obligations for at least 24 months. It reported $10.2 billion of unencumbered loans and $357 million of scheduled interest payments for the rest of 2022; no scheduled principal payments were due in that period on existing debt, excluding securitizations.
- After quarter-end, OMFC completed a $600 million social securitization on April 27, 2022, and entered a $350 million secured term funding on April 25. It also gave notice on April 26 to redeem $637 million of 8.875% notes due 2025 on June 1, expecting a $26 million net debt-repurchase loss in Q2.
- In March, CFPB staff notified the company it was considering recommending legal action concerning alleged violations related to refunds for optional insurance and membership products canceled after purchase. OneMain disputes that it violated the law, is cooperating, and cannot estimate the investigation’s duration or outcome; potential remedies could include penalties, restitution, or injunctive relief.
- Other principal risks include credit losses, unemployment and bankruptcies, capital-market access and refinancing costs, substantial indebtedness and covenant compliance, regulatory scrutiny, litigation, and operational or cybersecurity disruptions. The company reported no material off-balance-sheet arrangements and no material changes to market risk disclosures.
Key facts for investors to verify
- Whether delinquency normalization continues and translates into further changes in charge-offs, provisions, and the allowance.
- Whether the $2.36 diluted EPS and $398 million adjusted pretax income trend improves; assess non-GAAP measures alongside GAAP results.
- Funding costs, debt-market access, liquidity availability, and the effect of the post-quarter financing and 2025 notes redemption.
- Developments in the CFPB matter and any resulting financial, operational, or reputational consequences.
- Whether dividends and share repurchases remain consistent with credit conditions, liquidity, and capital needs.