Business context and reporting period
OneMain Holdings, Inc. (OMH), together with its consolidated subsidiary OneMain Finance Corporation (OMFC), filed this unaudited Form 10-Q for the quarter ended September 30, 2021. The business primarily provides fixed-rate personal loans to near-prime customers through branches and digital channels, and offers optional insurance and other products. Consumer and Insurance is its only reportable segment.
Financial performance and key metrics
Unless noted otherwise, figures are for OMH on a consolidated basis and in U.S. dollars.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Interest income | $1.113 billion | $1.089 billion | $3.244 billion | $3.273 billion |
| Net interest income | $876 million | $834 million | $2.541 billion | $2.492 billion |
| Provision for loan losses | $226 million | $231 million | $356 million | $1.186 billion |
| Income before taxes | $376 million | $341 million | $1.386 billion | $502 million |
| Net income | $288 million | $250 million | $1.051 billion | $371 million |
| Diluted EPS | $2.17 | $1.86 | $7.84 | $2.75 |
- Portfolio and lending: Net finance receivables were $18.843 billion at September 30, 2021, up from $18.084 billion at December 31, 2020. Q3 originations were $3.870 billion, versus $2.887 billion a year earlier; managed receivables were $19.1 billion.
- Credit performance: Q3 yield was 23.79%, compared with 24.39% a year earlier. The net charge-off ratio improved to 3.52% from 5.19%; the 30–89-day delinquency ratio rose to 2.20% from 1.95% a year earlier. The allowance was $2.061 billion, or 10.94% of finance receivables, versus 12.55% at year-end 2020.
- Balance sheet and debt: Total assets were $21.963 billion and long-term debt was $17.661 billion at quarter-end, compared with $22.471 billion and $17.800 billion, respectively, at December 31, 2020. Shareholders’ equity was $3.121 billion.
- Liquidity and cash flow: Nine-month operating cash flow was $1.639 billion; investing and financing activities used $1.499 billion and $1.583 billion, respectively. Cash and cash equivalents were $821 million at quarter-end, down from $2.272 billion at year-end 2020. The company also had $459 million of restricted cash, $7.3 billion of undrawn revolving conduit capacity, and $11.0 billion of unencumbered gross finance receivables. Management believed liquidity would be adequate for at least 24 months.
Material changes versus the prior comparable period
- Q3 net income increased 15% year over year, while nine-month net income rose substantially, primarily reflecting much lower loan-loss provision than in 2020. The prior-year period included a large reserve build amid the onset of COVID-19; management cited improved unemployment and macroeconomic outlooks and lower net charge-offs in 2021.
- Q3 net interest income increased, supported by loan growth and lower interest expense, partly offset by lower yield. Nine-month net interest income also increased despite lower interest income, as funding costs and average debt declined.
- Loan originations grew, while operating expenses increased in Q3, including costs for cash-settled stock-based awards, business growth, and strategic investments. Nine-month expenses were broadly level year over year.
- OMFC issued $750 million of 3.50% senior notes due 2027 in June and $600 million of 3.875% senior notes due 2028 in August. It had redeemed $681 million of 7.75% notes in January. A subsequent $1.0 billion personal-loan securitization was issued after quarter-end.
- OMH paid approximately $1.18 billion in common dividends during the first nine months and repurchased shares, including a $99 million concurrent buyback. These capital returns contributed to the decline in cash.
Outlook, commentary, and risks
- Management said origination trends and credit performance were favorable, but emphasized uncertainty around the economic recovery, unemployment, COVID-19 variants, and potential government actions. Changes to economic assumptions could affect the allowance and future provisions. The filing provides no specific earnings or revenue guidance.
- Management described priorities of maintaining liquidity and capital coverage, disciplined underwriting, and customer relationships. BrightWay and BrightWay+ credit cards began rolling out in select branches in Q3, with further expansion and direct-to-consumer marketing planned during the remainder of 2021. The company also completed its acquisition of financial-wellness fintech Trim in May.
- Key risks include economic deterioration, unemployment and borrower defaults, adequacy of credit-loss reserves, access to capital markets, substantial indebtedness and covenant compliance, interest-rate and market conditions, regulatory scrutiny, litigation, and operational or cybersecurity disruptions. OMFC’s credit ratings were non-investment grade.
- The company reported no material off-balance-sheet arrangements and no material changes to previously disclosed market risk. Legal matters arise in the ordinary course; the filing notes that losses in certain matters cannot be reasonably estimated and gives no clear aggregate exposure value.
Important facts for investors to verify
- Whether improving loss experience and the reduced allowance ratio remain adequate as the loan portfolio grows and delinquencies evolve.
- How much of the large year-over-year earnings improvement reflects lower credit provisions versus sustainable operating performance.
- Cash availability for general corporate purposes: $205 million of reported cash was held at regulated insurance subsidiaries or for other operating activities, and the $2.0 billion investment-securities balance was unavailable for general corporate purposes.
- Debt refinancing needs, securitization performance, conduit-facility availability, and the effect of non-investment-grade ratings on funding costs and access.
- Future dividend and repurchase levels, given the cash outflows and the board’s discretion over dividends and buybacks.
- Potential effects of economic and COVID-19 developments on credit performance, insurance claims, and management’s loss estimates.