OneMain Holdings, Inc. Reports Fourth Quarter 2018 Results

  • 4Q 2018 diluted EPS of $1.24
  • 4Q 2018 C&I adjusted diluted EPS of $1.39
  • 4Q 2018 C&I Ending Net Finance Receivables of $16.2 billion
  • 4Q 2018 C&I Net Charge-Off ratio of 6.3%
  • Initiating quarterly dividend of $0.25 per share

EVANSVILLE, Ind.–(BUSINESS WIRE)–OneMain Holdings, Inc. (NYSE: OMF) today reported pretax income of $214
million and net income of $168 million for the fourth quarter of 2018,
compared to $187 million and $39 million, respectively, in the prior
year quarter. Net income for the fourth quarter of 2017 included
approximately $81 million of additional tax expense, primarily
reflecting the remeasurement of our deferred tax asset due to tax
reform. Earnings per diluted share were $1.24 in the fourth quarter of
2018, compared to $0.29 in the prior year quarter.

Net income was $447 million for the full year of 2018, compared to $183
million for the full year of 2017, including the aforementioned
additional tax expense in the prior year, due to tax reform. Earnings
per diluted share were $3.29 in the full year of 2018, compared to $1.35
in the prior year.

OneMain’s Board of Directors approved the initiation of a quarterly
dividend of $0.25 per share, with the dividend to be paid on March 15,
2019 to shareholders of record as of the close of business on February
26, 2019.

“We produced great earnings and results in the fourth quarter of 2018,
highlighted by robust profitability, disciplined growth, and strong
credit performance,” said Doug Shulman, President and CEO of OneMain.
“We are confident in the stability and resiliency of our business, as
demonstrated by our decision to institute a quarterly dividend. I am
excited about the opportunities ahead of us.”

The following segment results are reported on a non-GAAP basis. Refer
to the required reconciliations of non-GAAP to comparable GAAP measures
at the end of this press release.

Consumer and Insurance Segment (“C&I”)

C&I generated adjusted pretax income of $248 million and adjusted net
income of $189 million for the fourth quarter of 2018, compared to $229
million and $144 million, respectively, in the prior year quarter.
Adjusted earnings per diluted share were $1.39 for the fourth quarter of
2018, compared to $1.06 in the prior year quarter.

C&I generated adjusted net income of $688 million for the full year of
2018, compared to $480 million in the prior year. Adjusted earnings per
diluted share were $5.06 for the full year of 2018, compared to $3.54 in
the prior year.

Originations totaled $3.3 billion in the fourth quarter of 2018, up 4%
from $3.1 billion in the prior year quarter. The percentage of secured
originations was 53% in the fourth quarter of 2018, up from 44% in the
prior year quarter.

Ending net finance receivables reached $16.2 billion at December 31,
2018, up 9% from $14.8 billion in the prior year. Secured receivables
represented $1.4 billion of the increase in ending net finance
receivables from the prior year and were 47% of ending net finance
receivables at December 31, 2018, up from 43% in the prior year.

Average net finance receivables were $16.0 billion in the fourth quarter
of 2018, up 10% from $14.6 billion in the prior year quarter.

Interest income in the fourth quarter of 2018 was $959 million, up from
$875 million in the prior year quarter, reflecting higher average
receivables.

Yield was 23.8% in the fourth quarter of 2018, consistent with the prior
year quarter.

The provision for finance receivable losses was $275 million in the
fourth quarter of 2018, up from $245 million in the prior year quarter,
as a result of higher average receivables.

The 30-89 day delinquency ratio was 2.4% at December 31, 2018, up
seasonally from 2.3% at September 30, 2018 and consistent with 2.4% at
December 31, 2017.

The 90+ day delinquency ratio was 2.3% at December 31, 2018, up
seasonally from 2.0% at September 30, 2018 and consistent with 2.3% at
December 31, 2017.

The net charge-off ratio was 6.3% in the fourth quarter of 2018, up
seasonally from 5.8% in the third quarter of 2018 and down from 6.4% in
the prior year quarter.

Operating expense for the fourth quarter of 2018 was $312 million, up 4%
from $299 million in the prior year quarter, primarily reflecting
additional investment in our business during 2018.

Acquisitions and Servicing Segment (“A&S”)

A&S broke even in the fourth quarter of 2018 on an adjusted pretax
income basis, consistent with the prior year quarter.

Other

During the fourth quarter of 2018, Other generated an adjusted pretax
loss of $3 million, compared to an adjusted pretax loss of $7 million in
the prior year quarter. Other consists of our non-originating legacy
operations, which include our liquidating real estate loan portfolio.
During the fourth quarter, we sold a portion of our real estate loans
and recorded a net gain on the sale in other revenue. The remaining real
estate loans are carried at $103 million compared to the unpaid
principal balance of $169 million.

Funding and Liquidity

As of December 31, 2018, the company had principal debt balances
outstanding of $15.5 billion, 48% of which was secured and 52% of which
was unsecured. The company had $679 million of cash and cash
equivalents, which included $226 million of cash and cash equivalents
held at our regulated insurance subsidiaries or for other operating
activities that are unavailable for general corporate purposes. The
company had undrawn revolving conduit facilities of approximately $6.0
billion and $7.6 billion of unencumbered personal loans.

Use of Non-GAAP Financial Measures

We report the operating results of Consumer and Insurance, Acquisitions
and Servicing, and Other using the Segment Accounting Basis, which (i)
reflects our allocation methodologies for certain costs, primarily
interest expense, loan loss reserves, and acquisition costs, to reflect
the manner in which we assess our business results and (ii) excludes the
impact of applying purchase accounting (eliminates premiums/discounts on
our finance receivables and long-term debt at acquisition, as well as
the amortization/accretion in future periods). Consumer and Insurance
adjusted pretax income (loss), Consumer and Insurance adjusted net
income (loss), Consumer and Insurance adjusted earnings (loss) per
diluted share, Acquisitions and Servicing adjusted pretax income (loss),
and Other adjusted pretax income (loss) are key performance measures
used by management in evaluating the performance of our business.
Consumer and Insurance adjusted pretax income (loss), Acquisitions and
Servicing adjusted pretax income (loss), and Other adjusted pretax
income (loss) represents income (loss) before income taxes on a Segment
Accounting Basis and excludes acquisition-related transaction and
integration expenses, net losses resulting from repurchases and
repayments of debt, restructuring charges, net loss on sale of real
estate loans, and non-cash incentive compensation expense. Management
believes these non-GAAP financial measures are useful in assessing the
profitability of our segments and uses these non-GAAP financial measures
in evaluating our operating performance and as a performance goal under
the company’s executive compensation programs. These non-GAAP financial
measures should be considered supplemental to, but not as a substitute
for or superior to, income (loss) before income taxes, net income, or
other measures of financial performance prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”).

Conference Call & Webcast Information

OneMain management will host a conference call and webcast to discuss
our fourth quarter 2018 results and other general matters at 8:00 am
Eastern Time on Tuesday, February 12, 2019. Both the call and webcast
are open to the general public. The general public is invited to listen
to the call by dialing 877-330-3668 (U.S. domestic) or 678-304-6859
(international), and using conference ID 3296455, or via a live audio
webcast through the Investor Relations section of the website. For those
unable to listen to the live broadcast, a replay will be available on
our website, or by dialing 800-585-8367 (U.S. domestic) or 404-537-3406,
and using conference ID 3296455, beginning approximately four hours
after the event. The replay of the conference call will be available via
audio webcast through February 26, 2019. An investor presentation will
be available on the Investor Relations page of OneMain’s website at https://www.omf.com
prior to the start of the conference call.

This document contains summarized information concerning OneMain
Holdings, Inc. (the “Company”) and the Company’s business, operations,
financial performance and trends. No representation is made that the
information in this document is complete. For additional financial,
statistical and business related information see the Company’s most
recent Annual Report on Form 10-K (“Form 10-K”) and Quarterly Reports on
Form 10-Q (“Form 10-Qs”) filed with the U.S. Securities and Exchange
Commission (the “SEC”), as well as the Company’s other reports filed
with the SEC from time to time. Such reports are or will be available in
the Investor Relations section of the Company’s website (
https://www.omf.com)
and the SEC’s website (
http://www.sec.gov).

Cautionary Note Regarding Forward-Looking Statements

This document contains “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are not statements of historical fact but instead represent
only management’s current beliefs regarding future events. By their
nature, forward-looking statements are subject to risks, uncertainties,
assumptions and other important factors that may cause actual results,
performance or achievements to differ materially from those expressed in
or implied by such forward-looking statements. We caution you not to
place undue reliance on these forward-looking statements that speak only
as of the date they were made. We do not undertake any obligation to
update or revise these forward-looking statements to reflect events or
circumstances after the date of this document or to reflect the
occurrence of unanticipated events or the non-occurrence of anticipated
events. Forward-looking statements include, without limitation,
statements concerning future plans (including statements regarding the
timing, declaration, amount and payment of any future dividends),
objectives, goals, projections, strategies, events or performance, and
underlying assumptions and other statements related thereto. Statements
preceded by, followed by or that otherwise include the words
“anticipates,” “appears,” “are likely,” “believes,” “estimates,”
“expects,” “foresees,” “intends,” “plans,” “projects” and similar
expressions or future or conditional verbs such as “would,” “should,”
“could,” “may,” or “will,” are intended to identify forward-looking
statements. Important factors that could cause actual results,
performance or achievements to differ materially from those expressed in
or implied by forward-looking statements include, without limitation,
the following: adverse changes in general economic conditions, including
the interest rate environment and the financial markets; risks related
to the acquisition or sale of assets or businesses or the formation,
termination or operation of joint ventures or other strategic alliances,
including increased loan delinquencies or net charge-offs, integration
or migration issues, increased costs of servicing, incomplete records,
and retention of customers; our estimates of the allowance for finance
receivable losses may not be adequate to absorb actual losses, causing
our provision for finance receivable losses to increase, which would
adversely affect our results of operations; increased levels of
unemployment and personal bankruptcies; our strategy of increasing the
proportion of secured loans may lead to declines in or slower growth in
our personal loan receivables and portfolio yield; adverse changes in
the rate at which we can collect or potentially sell our finance
receivables portfolio; our decentralized branch loan approval process
could expose us to greater than historical delinquencies and
charge-offs; natural or accidental events such as earthquakes,
hurricanes, tornadoes, fires, or floods affecting our customers,
collateral, or branches or other operating facilities; war, acts of
terrorism, riots, civil disruption, pandemics, disruptions in the
operation of our information systems, or other events disrupting
business or commerce; a failure in or breach of our operational or
security systems or infrastructure or those of third parties, including
as a result of cyber-attacks; or other cyber-related incidents involving
the loss, theft or unauthorized disclosure of personally identifiable
information, or “PII,” of our present or former customers; our credit
risk scoring models may be inadequate to properly assess the risk of
customer unwillingness or lack of capacity to repay; adverse changes in
our ability to attract and retain employees or key executives to support
our businesses; increased competition, lack of customer responsiveness
to our distribution channels, an inability to make technological
improvements, and the ability of our competitors to offer a more
attractive range of personal loan products than we offer; changes in
federal, state or local laws, regulations, or regulatory policies and
practices that adversely affect our ability to conduct business or the
manner in which we are permitted to conduct business, such as licensing
requirements, pricing limitations or restrictions on the method of
offering products, as well as changes that may result from increased
regulatory scrutiny of the sub-prime lending industry, our use of
third-party vendors and real estate loan servicing, or changes in
corporate or individual income tax laws or regulations, including
effects of the Tax Cuts and Jobs Act; risks associated with our
insurance operations, including insurance claims that exceed our
expectations or insurance losses that exceed our reserves; our ability
be unable to successfully implement our growth strategy for our consumer
lending business or successfully acquire portfolios of personal loans;
declines in collateral values or increases in actual or projected
delinquencies or net charge-offs; potential liability relating to
finance receivables which we have sold or securitized or may sell or
securitize in the future if it is determined that there was a
non-curable breach of a representation or warranty made in connection
with such transactions; the costs and effects of any actual or alleged
violations of any federal, state or local laws, rules or regulations,
including any litigation associated therewith; the costs and effects of
any fines, penalties, judgments, decrees, orders, inquiries,
investigations, subpoenas, or enforcement or other proceedings of any
governmental or quasi-governmental agency or authority and any
litigation associated therewith; our continued ability to access the
capital markets or the sufficiency of our current sources of funds to
satisfy our cash flow requirements; our ability to comply with our debt
covenants; our ability to generate sufficient cash to service all of our
indebtedness; any material impairment or write-down of the value of our
assets; the ownership of our common stock continues to be highly
concentrated, which may prevent minority stockholders from influencing
significant corporate decisions and may result in conflicts of interest;
the effects of any downgrade of our debt ratings by credit rating
agencies, which could have a negative impact on our cost of and/or
access to capital; our substantial indebtedness, which could prevent us
from meeting our obligations under our debt instruments and limit our
ability to react to changes in the economy or our industry or our
ability to incur additional borrowings; our ability to maintain
sufficient capital levels in our regulated and unregulated subsidiaries;
changes in accounting standards or tax policies and practices and the
application of such new standards, policies and practices; management
estimates and assumptions, including estimates and assumptions about
future events, may prove to be incorrect; any failure to achieve the
SpringCastle Portfolio performance requirements, which could, among
other things, cause us to lose our loan servicing rights over the
SpringCastle Portfolio; various risks relating to continued compliance
with the Settlement Agreement with the U.S. Department of Justice; and
other risks and uncertainties described in the “Risk Factors” and
“Management’s Discussion and Analysis” sections of the Company’s most
recent Form 10-K and Form 10-Qs filed with the SEC and in the Company’s
other filings with the SEC from time to time.

If one or more of these or other risks or uncertainties materialize, or
if our underlying assumptions prove to be incorrect, our actual results
may vary materially from what we may have expressed or implied by these
forward-looking statements. You should specifically consider the factors
identified in this document that could cause actual results to differ
before making an investment decision to purchase our common stock and
should not place undue reliance on any of our forward-looking
statements. Furthermore, new risks and uncertainties arise from time to
time, and it is impossible for us to predict those events or how they
may affect us.

 
OneMain Holdings, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
   
Three Months Ended Year Ended
(unaudited, $ in millions, except per share amounts) 12/31/18   9/30/18   12/31/17 12/31/18   12/31/2017
 
Interest Income:
Finance charges $ 954 $ 930 $ 854 $ 3,645 $ 3,183
Finance receivables held for sale originated as held for investment 4   3   3   13   13  
Total interest income 958 933 857 3,658 3,196
 
Interest expense (229 ) (227 ) (204 ) (875 ) (816 )
Provision for finance receivable losses (278 ) (256 ) (231 ) (1,048 ) (955 )
Net interest income after provision for finance receivable losses 451   450   422   1,735   1,425  
 
Other Revenues:
Insurance 111 106 106 429 420
Investment 16 18 15 66 73
Net gain on sale of real estate loans 18 18
Net loss on repurchases and repayments of debt (9 ) (29 )
Other (1) 8   20   25   70   96  
Total other revenues 153   144   146   574   560  
 
Other Expenses
Operating expenses:
Salaries and benefits (2) (206 ) (197 ) (195 ) (903 ) (757 )
Acquisition-related transaction and integration expenses (6 ) (9 ) (10 ) (54 ) (69 )
Other operating expenses (131 ) (141 ) (131 ) (536 ) (544 )
Insurance policy benefits and claims (47 ) (48 ) (45 ) (192 ) (184 )
Total other expenses (390 ) (395 ) (381 ) (1,685 ) (1,554 )
Income before income taxes 214 199 187 624 431
Income taxes (3) (46 ) (51 ) (148 ) (177 ) (248 )
Net income $ 168   $ 148   $ 39   $ 447   $ 183  
 
Share Data:
Weighted average number of diluted shares: 136.2 136.1 135.9 136.0 135.7
Diluted EPS $ 1.24 $ 1.09 $ 0.29 $ 3.29 $ 1.35

______________________

Note: Year-to-Date may not sum due to rounding.

(1)

 

4Q18 and YE 2018 include the fair value impairment of the
remaining loans in held for sale after the 4Q18 real estate loan
sale.

(2)

YE 2018 includes $106 million of incentive compensation expense
associated with the Fortress transaction, this expense was
non-cash, equity neutral and not tax deductible. See our 2Q18
Earnings Release for more information.

(3)

4Q17 and YE 2017 includes a one-time impact of tax reform. See our
4Q17 Earnings Release for more information.

 
 
OneMain Holdings, Inc.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
As of
   
(unaudited, $ in millions) 12/31/2018 9/30/2018 12/31/2017
 
Assets
Cash and cash equivalents $ 679 $ 1,243 $ 987
Investment securities 1,694 1,707 1,697
Net finance receivables:
Personal loans 16,164 15,750 14,823
Other receivables (1), (2)     134  
Net finance receivables 16,164 15,750 14,957
Unearned insurance premium and claim reserves (662 ) (631 ) (590 )
Allowance for finance receivable losses (731 ) (706 ) (697 )

Net finance receivables, less unearned insurance premium and
claim reserves and allowance for finance receivable losses

14,771 14,413 13,670
Finance receivables held for sale (2) 103 207 132
Restricted cash and restricted cash equivalents 499 495 498
Goodwill 1,422 1,422 1,422
Other intangible assets 388 398 440
Other assets 534   583   587  
Total assets $ 20,090   $ 20,468   $ 19,433  
 
Liabilities and Shareholders’ Equity
Long-term debt $ 15,178 $ 15,731 $ 15,050
Insurance claims and policyholder liabilities 685 689 737
Deferred and accrued taxes 45 24 45
Other liabilities 383   384   323  
Total liabilities 16,291   16,828   16,155  
 
Common stock 1 1 1
Additional paid-in capital 1,681 1,678 1,560
Accumulated other comprehensive income (loss) (34 ) (22 ) 11
Retained earnings 2,151   1,983   1,706  
Total shareholders’ equity 3,799   3,640   3,278  
Total liabilities and shareholders’ equity $ 20,090   $ 20,468   $ 19,433  

____________________

(1)

 

Other Receivables consist of Real Estate Loans and Retail Sales
Finance, which were reported separately in prior periods.

(2)

On September 30, 2018, the company transferred all of the real
estate loans from Other Receivables to Finance Receivables Held
for Sale.

 
     
OneMain Holdings, Inc.
CONSOLIDATED KEY FINANCIAL METRICS (UNAUDITED)
 
Three Months Ended Year Ended
 
(unaudited, $ in millions) 12/31/2018 9/30/2018 12/31/2017 12/31/2018   12/31/2017
 
Non-TDR Net Finance Receivables $ 15,711 $ 15,340 $ 14,590 $ 15,711 $ 14,590
TDR Net Finance Receivables 453   410   367   453   367  
Net Finance Receivables $ 16,164   $ 15,750   $ 14,957   $ 16,164   $ 14,957  
 
Average Net Receivables $ 15,964 $ 15,695 $ 14,738 $ 15,471 $ 14,057
Average Daily Debt Balances 15,516 15,743 14,696 15,444 14,224
Origination Volume 3,268 2,899 3,132 11,923 10,537
 
 
Non-TDR Allowance $ 561 $ 546 $ 550 $ 561 $ 550
TDR Allowance 170   160   147   170   147  
Allowance $ 731   $ 706   $ 697   $ 731   $ 697  
 
Non-TDR Allowance Ratio 3.6 % 3.6 % 3.7 % 3.6 % 3.7 %
TDR Allowance Ratio 37.5 % 39.0 % 39.9 % 37.5 % 39.9 %
Allowance Ratio 4.5 % 4.5 % 4.7 % 4.5 % 4.7 %
 
Gross Charge-Off $ 280 $ 256 $ 256 $ 1,104 $ 1,054
Recoveries (26 ) (27 ) (24 ) (113 ) (107 )
Net Charge-Off $ 254   $ 229   $ 232   $ 991   $ 947  
 
Gross Charge-Off Ratio 7.0 % 6.5 % 6.9 % 7.1 % 7.5 %
Recoveries (0.7 )% (0.7 )% (0.7 )% (0.7 )% (0.8 )%
Net Charge-Off Ratio 6.3 % 5.8 % 6.3 % 6.4 % 6.7 %
 
 
30-89 Delinquency $ 390 $ 367 $ 372 $ 390 $ 372
30+ Delinquency 753 687 729 753 729
60+ Delinquency 524 472 517 524 517
90+ Delinquency 363 320 357 363 357
 
30-89 Delinquency Ratio 2.4 % 2.3 % 2.5 % 2.4 % 2.5 %
30+ Delinquency Ratio 4.7 % 4.4 % 4.9 % 4.7 % 4.9 %
60+ Delinquency Ratio 3.3 % 3.0 % 3.5 % 3.3 % 3.5 %
90+ Delinquency Ratio 2.3 % 2.0 % 2.4 % 2.3 % 2.4 %

____________________

Note: Delinquency ratios are calculated as a percentage of net
finance receivables. Charge-off ratios are calculated as a
percentage of average net finance receivables. Ratios may not sum
due to rounding.
 
 
OneMain Holdings, Inc.
BALANCE SHEET METRICS (UNAUDITED)
 
As of
   
(unaudited, $ in millions) 12/31/2018 9/30/2018 12/31/2017
 
Liquidity
Cash and cash equivalents $ 679 $ 1,243 $ 987
Unencumbered personal loans 7,607 6,646 5,007
Undrawn conduit facilities 5,950 5,800 5,050
 
Total Assets $ 20,090 $ 20,468 $ 19,433
Less: Goodwill (1,422 ) (1,422 ) (1,422 )
Less: Other intangible assets (388 ) (398 ) (440 )
Tangible Managed Assets $ 18,280   $ 18,648   $ 17,571  
 
Long-term debt $ 15,178 $ 15,731 $ 15,050
Less: Junior subordinated debt (172 ) (172 ) (172 )
Adjusted Debt $ 15,006   $ 15,559   $ 14,878  
 
Total Shareholders’ Equity $ 3,799 $ 3,640 $ 3,278
Less: Goodwill (1,422 ) (1,422 ) (1,422 )
Less: Other intangible assets (388 ) (398 ) (440 )
Plus: Junior subordinated debt 172   172   172  
Adjusted Tangible Common Equity $ 2,161   $ 1,992   $ 1,588  
 
Adjusted Debt to Adjusted Tangible Common Equity (Tangible
Leverage)
6.9 x 7.8 x 9.4 x
 
Adjusted Tangible Common Equity to Tangible Managed Assets 11.8 % 10.7 % 9.0 %
 

Contacts

OneMain Holdings, Inc.
Investor Contact:
Rohit
Dewan 812-492-2582
rohit.dewan@omf.com

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