OneMain Holdings, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The company, formerly Springleaf Holdings, Inc., acquired OneMain Financial on November 15, 2015; under its agreement with Citigroup, OneMain’s results are included from November 1. Accordingly, 2015 results are not directly comparable with 2014.
Business context and key financial metrics
OneMain is a consumer finance company focused primarily on non-prime personal loans, with related insurance products and acquired-loan servicing. At year-end, it reported more than 1,900 branches across 43 states and approximately 2.5 million customer accounts.
| Metric | 2015 | 2014 |
|---|---|---|
| Interest income | $1.931 billion | $1.982 billion |
| Interest expense | $715 million | $734 million |
| Net interest income | $1.216 billion | $1.248 billion |
| Provision for finance receivable losses | $759 million | $474 million |
| Net interest income after provision | $457 million | $774 million |
| Other revenues | $261 million | $832 million |
| Other expenses | $987 million | $701 million |
| Net income (loss) | $(122) million | $608 million |
| Net income (loss) attributable to OneMain Holdings | $(242) million | $505 million |
| Basic and diluted EPS | $(1.89) | $4.40 / $4.38 |
For 2015, the company reported non-GAAP pretax core earnings of $481 million, versus $378 million in 2014. This measure excludes specified non-core and acquisition-related items and is not a substitute for GAAP results.
At December 31, 2015, total assets were $21.056 billion, including $14.141 billion of net finance receivables after insurance reserves and the allowance. The allowance for finance receivable losses was $587 million. Cash and cash equivalents were $939 million, investment securities were $1.867 billion, and restricted cash was $676 million. Long-term debt was $17.300 billion; total shareholders’ equity was $2.605 billion.
Cash flow from operating activities was $731 million, investing activities used $2.638 billion, and financing activities provided $1.968 billion. The investing outflow principally reflected the OneMain acquisition. The filing cites $783 million of scheduled 2016 principal and interest payments on existing debt excluding securitizations. Management said it expected adequate liquidity for at least the next 12 months, subject to the risks described in the filing.
Material changes versus the prior comparable period
- Reported net loss attributable to the company of $242 million, compared with net income of $505 million in 2014. The 2014 result included a $726 million gain on sales of real estate loans and related trust assets; 2015 included no comparable gain.
- Provision for loan losses rose $285 million to $759 million. The company cited acquired OneMain portfolio provisions, growth in Springleaf personal loans, and higher personal-loan delinquency. OneMain contributed only two months of results.
- Consumer and Insurance net finance receivables rose to $13.6 billion from $3.8 billion, and 2015 originations increased to $5.7 billion from $3.6 billion, including $1.1 billion of auto-loan originations.
- Consumer and Insurance’s reported charge-off ratio increased to 6.72% from 4.94%; the 2015 measure included $62 million of additional charge-offs from aligning personal-loan charge-off policies in the integration. Excluding that amount, the company reported a 5.62% ratio. Its delinquency ratio rose to 3.03% from 2.82%.
- Debt increased to $17.3 billion from $8.356 billion, including $7.7 billion of debt acquired with OneMain. Goodwill of $1.440 billion and other intangible assets of $559 million were recorded in the acquisition.
Outlook, risks, contingencies, and unusual items
- Management expected continued personal-loan growth and strong credit performance assuming slow-to-moderate U.S. economic growth. It cited disciplined underwriting, collections, branch scale, and online lending as supports; this is forward-looking and not a quantified earnings forecast.
- Management estimated annual acquisition synergies of $275 million–$300 million, expected to be reflected beginning in the second half of 2017, and approximately $275 million of integration expenses, primarily during 2016 and the first half of 2017. Both estimates were subject to uncertainty.
- The DOJ settlement required divestiture of 127 branches across 11 states. A sale to Lendmark was agreed, but remained subject to conditions. The company said it did not expect to close by April 1, 2016 and had requested an extension; failure to complete a sale could lead to a court-appointed trustee, less favorable terms, or penalties.
- Debt and funding access are significant risks: ratings were non-investment grade, the company relied on securitizations and conduit facilities, and it warned that market disruption, weaker collections, higher credit losses, covenant issues, or downgrades could impair liquidity. A mandatory trigger event under SFC’s junior subordinated debenture arose from a 0.94x fixed-charge ratio; SFC issued $11 million of stock in January 2016 to fund the required interest payment.
- Subsequent to year-end, OMFH replaced its $3.0 billion warehouse facility with four facilities providing $2.4 billion of committed revolving financing; the new facilities eliminated the prior facility’s financial covenants. The company also completed a $500 million personal-loan securitization in February 2016.
- Other risks include consumer-credit deterioration, acquisition integration, extensive consumer-finance regulation and litigation, interest-rate and funding exposure, and operational, cyber-security, and servicing risks. The company disclosed $15 million of sales-recourse reserves and $6 million of estimated U.K. payment-protection-insurance claims at year-end; it said no material recourse requests were believed uncovered by reserves.
- The fourth quarter included a $340 million pretax loss and a $219 million loss attributable to OneMain Holdings. Quarterly provision for finance receivable losses was $510 million, substantially above other 2015 quarters.
Important facts for investors to verify
- How much of the 2015 loss and elevated loan-loss provision reflects ongoing portfolio performance versus purchase accounting, acquired-loan treatment, and integration-related policy alignment.
- Whether personal-loan delinquency and charge-off trends improve, and whether the allowance remains adequate as the expanded portfolio seasons.
- Whether the Lendmark branch divestiture closes on acceptable terms and whether DOJ deadlines or penalties arise.
- Whether integration costs and the $275 million–$300 million synergy estimate are achieved on the stated timetable.
- Liquidity, debt maturities, covenant compliance, and continued access to securitization and conduit funding; verify the effect of the post-year-end facility changes.
- Acquisition purchase-accounting estimates and potential impairment of goodwill and intangible assets; the filing described some acquisition valuations as preliminary.
- Regulatory, litigation, and insurance-reserve developments, including the CFPB’s potential supervision of consumer lending and the company’s contingent exposures.