OneMain Holdings, Inc. — 2019 Form 10-K
Business context and reporting period. Fiscal year ended December 31, 2019; filed February 14, 2020. This combined filing covers OneMain Holdings, Inc. (OMH) and wholly owned subsidiary Springleaf Finance Corporation (SFC). OneMain originates and services fixed-rate personal loans, primarily to non-prime customers, and offers optional insurance. It reported approximately 2.44 million personal-loan accounts and $18.4 billion of net finance receivables at year-end.
Key financial results
Amounts below are OMH consolidated, in millions except per-share data and ratios.
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Interest income | $4,127 | $3,658 | Up 13% |
| Interest expense | $970 | $875 | Up 11% |
| Provision for finance receivable losses | $1,129 | $1,048 | Up 8% |
| Net interest income after provision | $2,028 | $1,735 | Up $293 |
| Other revenues | $622 | $574 | Up 8% |
| Other expenses | $1,552 | $1,685 | Down 8% |
| Income before taxes | $1,098 | $624 | Up 76% |
| Net income | $855 | $447 | Up 91% |
| Diluted EPS | $6.27 | $3.29 | Up 91% |
| Operating cash flow | $2,362 | $2,046 | Up $316 |
Fourth quarter. 2019 net income was $261 million, versus $168 million in Q4 2018. Q4 2019 diluted EPS was $1.91, versus $1.24.
Margins and credit. The filing does not provide a conventional net profit or operating margin measure in the cited summary data. Portfolio yield rose to 24.13% from 23.56%; net charge-off ratio improved to 6.05% from 6.40%, while the 30–89-day delinquency ratio increased slightly to 2.46% from 2.42%. Net finance receivables held for investment grew to $18.389 billion from $16.164 billion. Allowance for finance receivable losses was $829 million, or 4.51% of finance receivables, versus $731 million, or 4.52%.
Cash flow, debt, and liquidity. Investing activities used $3.429 billion, mainly reflecting loan originations and securities purchases; financing activities provided $1.521 billion. Year-end cash and cash equivalents were $1.227 billion, including $182 million unavailable for general corporate purposes; a further $1.884 billion of investment securities was held in insurance operations and unavailable for general corporate purposes. Long-term debt was $17.212 billion, up from $15.178 billion. Management estimated scheduled 2020 principal and interest payments on existing debt, excluding securitizations, at $1.7 billion. It stated liquidity would be adequate for at least the next 12 months, subject to stated risks. SFC’s ratings were below investment grade: S&P BB-, Moody’s Ba3, and KBRA BB+, each with a stable outlook.
Material changes and unusual items
- Loan originations increased to $13.803 billion from $11.923 billion; management attributed higher interest income primarily to portfolio growth and improved yield.
- The portfolio mix shifted toward secured personal loans: 52% of loans were secured by titled collateral, versus 48% in 2018. Management cited this mix shift and improved collections as factors supporting lower allowance requirements as a percentage of receivables.
- Other expenses fell partly because 2018 included $110 million of non-cash incentive compensation tied to shareholder transactions. 2019 included a $9 million net gain on the sale of Merit Life Insurance Co.; the sale closed December 31, 2019.
- SFC issued $1.0 billion of 6.125% notes due 2024, an additional $300 million of those notes, $800 million of 6.625% notes due 2028, and $750 million of 5.375% notes due 2029. It redeemed $700 million of 5.25% notes due 2019 and $300 million of 6.00% notes due 2020; debt repurchases and repayments generated a $35 million net loss.
- OMH declared $3.00 per share in 2019 dividends, including a $2.00 special dividend; total cash dividends paid were $408 million. In February 2020 it declared a $0.33 regular dividend and a $2.50 special dividend.
- Effective in the fourth quarter, the Acquisitions and Servicing activity was moved into “Other” from a separate reporting segment because servicing revenues and expenses had declined; prior segment disclosures were revised. SFI merged into SFC, with a $264 million net reduction to SFC equity and no impact on OMH equity.
- Adoption of the expected-credit-loss standard on January 1, 2020 was estimated to increase the allowance by $1.12 billion and deferred tax assets by $0.28 billion, with a one-time $0.83 billion after-tax reduction to retained earnings.
Outlook, commentary, and risks
Management’s priorities were growing receivables, maintaining credit performance, improving operating leverage, increasing tangible equity and reducing leverage, and maintaining diversified funding and liquidity. Assuming continued moderate U.S. economic growth, management expected strong credit performance, citing disciplined underwriting and collection efforts. It also noted customer activity shifting from traditional channels toward online channels. No specific financial earnings or growth guidance was provided.
- Key exposures include economic deterioration, unemployment and borrower defaults, credit-loss estimates, interest-rate and funding-cost changes, and the ability to access securitization and debt markets. The company’s non-prime borrowers may be more affected by adverse conditions.
- Regulatory, litigation, and compliance risks include federal and state consumer-finance oversight, debt collection and optional-product practices, insurance regulation, and privacy and cybersecurity requirements. The filing also describes risks from vendors, operational disruptions, and data breaches.
- Debt is substantial; liquidity depends on portfolio collections, funding access, ratings, covenant compliance, and subsidiary cash availability. The company reported compliance with debt covenants at year-end and no amounts drawn under its $7.1 billion of revolving conduit facilities.
- Apollo-Värde owned approximately 40.4% of OMH and had rights to designate a majority of the board under the stockholders agreement. Its shares were pledged under non-recourse margin loan agreements; lenders may foreclose following a default.
- The federal securities class action relating to alleged post-acquisition integration disclosures was settled and dismissed with prejudice in 2019, without admission of liability. Other legal contingencies remain; the filing says certain potential losses cannot be reasonably estimated.
Important facts for investors to verify
- Review loan growth, secured/unsecured mix, delinquency trends, charge-offs, TDR balances, and the adequacy of the allowance, particularly after the 2020 expected-credit-loss adoption.
- Assess accessible liquidity against debt maturities, interest costs, securitization capacity, ratings, and restrictions on cash held in insurance subsidiaries and securitization structures.
- Check whether the announced dividend policy remains supportable by cash generation, leverage, and legal or contractual restrictions.
- Review the full legal-contingency disclosures, regulatory developments, and cybersecurity and third-party vendor risks; verify any material developments after the filing date.
- Consider the effects of the controlling shareholder’s governance influence and margin-loan pledge on public shareholders.