OneMain Holdings, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing is a combined annual report for OneMain Holdings, Inc. (OMH) and its wholly owned subsidiary OneMain Finance Corporation (OMFC); figures below generally refer to OMH consolidated results. This is an annual filing, with fourth-quarter data noted separately.
Business context
OneMain originates and services fixed-rate personal loans, primarily for non-prime borrowers, and offers optional insurance and related products. At year-end it reported approximately 2.3 million personal loan accounts, $18.1 billion of net finance receivables, and about 1,500 branches in 44 states. Digital originations exceeded 30% of personal loans during 2020.
Financial and operating metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Interest income | $4.368 billion | $4.127 billion |
| Interest expense | $1.027 billion | $970 million |
| Provision for finance receivable losses | $1.319 billion | $1.129 billion |
| Net interest income after provision | $2.022 billion | $2.028 billion |
| Other revenues | $526 million | $622 million |
| Other expenses | $1.571 billion | $1.552 billion |
| Income before taxes | $977 million | $1.098 billion |
| Net income | $730 million | $855 million |
| Diluted earnings per share | $5.41 | $6.27 |
- Interest income rose 5.8%, reflecting higher average receivables and yield; interest expense rose 5.9%, primarily with higher average debt, partly offset by lower funding costs.
- Net finance receivables were $18.084 billion at year-end, versus $18.389 billion a year earlier. Average net receivables were $17.997 billion. Portfolio yield was 24.24%.
- Annual originations were $10.729 billion, down from $13.803 billion; the number of accounts originated fell to 1.10 million from 1.48 million.
- Credit indicators improved year over year: net charge-off ratio was 5.54% versus 6.05%; 30–89-day delinquency was 2.28% versus 2.46%; and 90+ day delinquency was 1.75% versus 2.10%.
- Under the expected-credit-loss standard adopted January 1, 2020, the allowance rose to $2.269 billion, or 12.55% of receivables, from $829 million, or 4.51%. Adoption increased the allowance by $1.118 billion and reduced retained earnings by $828 million, net of tax; this accounting change limits direct comparison with 2019.
- Net cash provided by operating activities was $2.212 billion, compared with $2.362 billion. Investing activities used $751 million; financing activities used $370 million. Cash and cash equivalents were $2.272 billion, with restricted cash of $451 million.
- Long-term debt was $17.800 billion, up from $17.212 billion. Total assets were $22.471 billion and shareholders’ equity was $3.441 billion, down from $4.330 billion.
- At year-end, the company reported $9.2 billion of unencumbered gross finance receivables and $7.2 billion of available borrowing capacity under revolving conduit facilities, with none drawn. Management estimated a liquidity runway exceeding 24 months under multiple stress scenarios assuming no capital-markets access.
Material changes and unusual items
- COVID-19 disruption, tighter underwriting, and weaker loan demand reduced originations during 2020. Originations began recovering after their April low and increased through the fourth quarter.
- For the fourth quarter, net income was $359 million, versus $261 million in Q4 2019; provision expense was $134 million, versus $293 million. Quarterly diluted EPS was $2.67 versus $1.91.
- Higher full-year credit-loss provision reflected both the new expected-loss accounting standard and forecasts incorporating pandemic-related unemployment and economic conditions. The allowance used a 12-month reasonable-and-supportable forecast period.
- Other revenue declined 15.4%, mainly due to fewer insurance and membership products sold, lower investment income, and lower servicing income. Other expenses edged up, including higher insurance claims associated with involuntary unemployment coverage.
- OMFC issued $600 million of 8.875% senior notes due 2025 and $850 million of 4.00% notes due 2030; it redeemed $1.0 billion of 8.25% notes due 2020. It redeemed $681 million of 7.75% notes in January 2021, with a stated expected $47 million loss to be recognized in Q1 2021.
- The company completed two personal-loan securitizations in 2020, issuing $821 million and $1.0 billion of notes. OMFC’s debt ratings were non-investment grade, with stable outlooks at year-end.
- OMH declared $5.94 per share in dividends during 2020 and repurchased $45 million of shares before suspending its repurchase program in March. Management stated an intention to pay a $0.45 quarterly minimum dividend for the foreseeable future, subject to board discretion and applicable restrictions.
Outlook, risks, and contingencies
Management expected near-term originations to remain affected by the pandemic. It warned that a slow or uneven recovery, unemployment, reduced stimulus, or further outbreaks could weaken demand, increase delinquencies and losses, and require additional allowance changes. Management emphasized liquidity, disciplined underwriting, customer assistance, digital growth, and continued service to customers.
Key risks include borrower credit deterioration and uncertainty in loss estimates; dependence on debt and securitization markets; substantial indebtedness and refinancing costs; regulation of non-prime lending, collections, insurance products, and pricing; competition; cyber and vendor disruptions; and litigation or regulatory actions. The company reported various legal proceedings but stated that some potential losses could not be reasonably estimated. OMH’s largest shareholder group, Apollo-Värde, owned approximately 40.9% and had significant board influence. No material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- How the allowance and credit performance evolve as pandemic stimulus and borrower assistance effects diminish, including the assumptions behind the forecast and the sizable year-over-year allowance change.
- Whether lower delinquencies and charge-offs persist, and whether originations can recover without weakening underwriting or loan yields.
- Liquidity and refinancing capacity, including upcoming debt maturities, access to securitization markets, and the availability and terms of conduit facilities.
- The sustainability and funding of dividends, given holding-company dependence on subsidiary distributions, debt restrictions, and insurance-subsidiary dividend limits.
- Developments in litigation, regulatory examinations, and rules affecting rates, optional products, servicing, collections, and customer data.