Executive Summary / Key Takeaways

• OneMain Holdings, a long-standing leader in non-prime consumer finance, is executing a strategic transformation from a monoline lender to a multi-product platform (personal loans, auto finance, credit cards) leveraging its extensive branch network and digital capabilities.
• Decisive credit tightening implemented since mid-2022, coupled with investments in data analytics and technology, is yielding tangible results, with Q1 2025 showing improved credit trends (lower year-over-year net charge-offs) and strong capital generation growth (up 25% YoY).
• The company's "fortress balance sheet," characterized by diversified funding sources, proactive debt management (no unsecured maturities until March 2026), and ample liquidity ($10.2 billion unencumbered receivables at Q1 2025), provides a significant competitive advantage, particularly in volatile markets.
• Strategic initiatives like the integration of the Foursight auto acquisition and the application to form an Industrial Loan Company (ILC) are designed to drive future profitable growth, diversify funding, enhance operational efficiency, and expand market access, without altering the parent company's capital structure.
• Management maintains its full-year 2025 guidance, anticipating continued growth in managed receivables (5-8%) and total revenue (6-8%), alongside further improvement in C&I net charge-offs (7.5-8.0%), signaling confidence in the business trajectory and ability to generate increased earnings and capital.

The Resilient Core: Building on a Century of Non-Prime Expertise

OneMain Holdings, Inc. traces its roots back over a century, evolving from a traditional branch-based personal loan provider into a dynamic multi-product financial services company focused on the non-prime consumer. This historical journey, marked by adapting to changing economic cycles and consumer needs, forms the bedrock of its current strategy. Originally known as Springleaf Holdings, the company's transformation, including its rebranding to OneMain in 2015 and subsequent expansion beyond personal loans, reflects a deliberate effort to broaden its addressable market and deepen customer relationships.

Today, OneMain operates a hybrid model, combining a significant physical footprint of over 1,300 locations across 47 states with growing digital capabilities. This omnichannel approach is a key differentiator, catering to customers who value both the convenience of online access and the personalized service and trust fostered by local branches. The company's core business, the Consumer and Insurance (CI) segment, encompasses personal loans (secured and unsecured), auto finance, credit cards, and related insurance products. This segment is the engine of the business, driving the vast majority of revenue and capital generation.

In the competitive landscape of consumer finance, OneMain faces a diverse set of rivals. Traditional banks and credit unions often serve the prime segment but may retreat from non-prime lending during economic uncertainty. Fintech lenders like LendingClub (LC) and Upstart (UPST) leverage digital-first models and advanced algorithms, offering speed and potentially lower costs. Larger financial institutions like Discover Financial Services (DFS) and Synchrony Financial (SYF) compete across credit cards and other consumer credit products, often benefiting from scale and diversified funding sources like deposits.

OneMain's competitive advantage lies in its deep understanding of the non-prime borrower, its established infrastructure (both physical and digital), and its sophisticated credit risk management capabilities honed over decades. While digital competitors like Upstart boast advanced AI models for risk assessment, OneMain's hybrid model allows for a more nuanced, high-touch approach, particularly valuable for secured lending and collections. Its extensive branch network, a legacy asset, provides a tangible presence that builds trust and facilitates complex transactions like secured loans, offering a level of service that purely digital players cannot replicate. This allows OneMain to effectively compete for customers who may be overlooked or underserved by other lenders.

Central to OneMain's operational effectiveness is its ongoing investment in technology and data science. While specific, quantifiable metrics on the performance advantages of its proprietary technology were not detailed, management emphasizes its role in enhancing underwriting capabilities, refining credit models, improving customer experience through digital self-service features (like the BrightWay app), and driving operational efficiencies. Initiatives like leveraging payroll data access (with customer permission) for income verification are cited as examples of using new data sources and tools to improve offer accuracy, streamline the application process, and increase "pull-through" rates, all while maintaining credit quality. The strategic intent behind these investments is clear: to maintain a competitive edge in risk assessment, improve customer acquisition efficiency, and reduce operating costs over time, thereby supporting profitability and operating leverage.

Performance Reflecting Discipline and Strategic Growth

OneMain's recent financial performance underscores the impact of its strategic decisions and operational focus. For the three months ended March 31, 2025, the company reported robust results, particularly when compared to the prior year period. Interest income grew to $1,308 million, an increase of 12% from $1,173 million in Q1 2024. This growth was primarily driven by an increase in average net receivables and an improvement in portfolio yield, reflecting the benefit of pricing actions taken since mid-2023. Interest expense also increased, up 13% to $312 million, due to higher average debt levels needed to support receivables growth and a higher average cost of funds. However, the company's strategy of utilizing fixed-rate, longer-dated securities is expected to keep interest expense as a percentage of average net receivables within a tight range through 2025.

The provision for finance receivable losses increased by 6% to $456 million, commensurate with portfolio growth. Despite this, the net interest income after provision for finance receivable losses saw significant growth, rising 16% to $540 million from $465 million in Q1 2924. Other revenues contributed $188 million, up 5%, boosted by higher gains on the sale of finance receivables and growth in credit card revenue, partially offset by lower investment revenue. Other expenses increased 3% to $453 million, driven by general operating expenses and strategic investments, though partially offset by the absence of prior-period restructuring charges.

The bottom line reflected this operational strength, with income before income taxes climbing 35% to $275 million, resulting in net income of $213 million, up 37% from $155 million in Q1 2024. Diluted earnings per share rose to $1.78 from $1.29.

Capital generation, a key metric for management, was $194 million in Q1 2025, a 25% increase year-over-year, demonstrating improving returns on a larger portfolio. Managed receivables ended Q1 2025 at $24.6 billion, up 12% year-over-year. Originations volume in Q1 2025 was strong at $3 billion, representing a 20% increase year-over-year (13% organic growth excluding the Foursight acquisition). This growth was achieved while maintaining a conservative underwriting posture, highlighting the effectiveness of leveraging data analytics and product innovation within a constructive competitive environment.

Credit quality indicators showed positive momentum. The C&I net charge-off ratio improved to 8.17% in Q1 2025, down from 8.66% in Q1 2024, marking the first year-over-year improvement since 2021. Consumer loan net charge-offs specifically decreased to 7.82% from 8.58%. Delinquency trends also showed improvement, with the 30-89 day delinquency ratio at 2.77% for consumer loans at March 31, 2025, down from 3.24% at December 31, 2024. Management attributes this improvement to the seasoning of the "front book" (loans originated under tighter standards since August 2022), which now comprises 87% of receivables and is performing in line with expectations. The "back book" (pre-tightening vintages), while only 13% of receivables, still accounts for over a quarter of 30-plus day delinquencies but is expected to run off significantly by year-end 2025. The allowance for finance receivable losses stood at $2.7 billion, representing 11.52% of net finance receivables, a slight decrease from 11.64% at December 31, 2024, primarily due to seasonal portfolio decline, though management maintains a conservative macroeconomic overlay given ongoing uncertainty.

The expansion into new products is contributing meaningfully. Auto finance receivables reached $2.2 billion at March 31, 2025, a substantial increase year-over-year, benefiting from the Foursight acquisition and organic growth. Credit card receivables grew to $676 million, up 75% year-over-year, with over 836,000 open accounts. While still a smaller portion of the portfolio, the credit card business generates a revenue yield exceeding 30%, offsetting its higher loss characteristics and contributing positively to overall returns.

Fortress Balance Sheet and Strategic Flexibility

A cornerstone of OneMain's investment thesis is its robust balance sheet and sophisticated funding strategy. The company relies on a diversified mix of funding sources, including secured debt (securitizations, revolving conduit facilities, private secured term funding) and unsecured debt, complemented by cash flows from operations, whole loan sales, and equity.

As of March 31, 2025, the company held $627 million in cash and cash equivalents and $736 million in restricted cash and restricted cash equivalents. Importantly, $139 million of cash and $1.7 billion of investment securities were held within regulated insurance subsidiaries or for other operating activities and are unavailable for general corporate purposes. The company maintains a significant liquidity runway, targeting 24 months of coverage, and reported $10.2 billion of unencumbered receivables at quarter-end, providing substantial financial flexibility.

Recent capital markets activity highlights this strength. In Q1 2025, OneMain raised $1.5 billion through a $900 million auto ABS issuance and a $600 million unsecured bond offering (6.75% Senior Notes due 2032). This proactive approach, including repurchasing $115 million of unsecured notes in the quarter, has extended the company's debt maturity profile, with no unsecured maturities due until March 2026. The company also has access to substantial committed capacity through its unsecured corporate revolver ($1.1 billion) and revolving conduit facilities ($6.0 billion), further bolstering its funding capabilities. This unparalleled market access and execution, even in volatile environments, is a distinct competitive edge compared to many smaller or less established lenders.

The application to form an Industrial Loan Company (ILC) represents a strategic move to further enhance this financial flexibility. If approved, the ILC would diversify funding through access to deposits, simplify the operating model by potentially allowing a unified nationwide rate structure (within the company's voluntary 36% cap), and drive efficiencies, particularly in the growing credit card business. Management views the ILC as additive to the strategy, not essential, but a valuable opportunity to serve more customers and drive capital generation without altering the parent company's non-bank holding company status.

Outlook and Risks

Management maintains its full-year 2025 guidance, signaling confidence in the continued positive trajectory of the business. Key expectations for 2025 include:

• Managed receivables growth of 5% to 8%.
• Total revenue growth of 6% to 8%.
• C&I net charge-offs in the range of 7.5% to 8.0%.
• Operating expense ratio of approximately 6.6%.
• Quarterly policyholder benefits and claims expense in the low $50 million range.

This outlook is predicated on the assumption of no significant changes in the macroeconomic environment, including inflation. Management anticipates continued improvement in credit performance throughout 2025, with typical seasonal patterns expected, meaning first-half charge-offs may be slightly above the full-year range and second-half below. The expected improvement in the C&I net charge-off ratio (7.5-8.0% vs. 8.1% in 2024) reflects the ongoing benefits of the tightened underwriting and the diminishing impact of the older loan vintages.

Despite the positive outlook, several risks warrant investor attention. Macroeconomic conditions, particularly changes in unemployment, inflation, and interest rates, could impact customer repayment ability and credit performance. While management has built a 30% stress cushion into its underwriting for new loans, a severe or prolonged downturn could still affect portfolio quality and necessitate adjustments to the allowance for losses. The company's non-investment grade credit ratings impact its cost and access to capital, although its demonstrated market access and diversified funding mitigate this risk. Liquidity could be pressured by unexpected increases in delinquencies, declines in prepayments, or a prolonged inability to access capital markets, though current liquidity levels appear robust. Regulatory and legal risks, including potential fines or restrictions from governmental inquiries, are inherent in the financial services industry. Competition from fintechs and other lenders could intensify, potentially pressuring pricing or market share, although OneMain's hybrid model and secured product focus offer differentiation. The success of integrating Foursight and the outcome of the ILC application process are also factors to monitor.

Conclusion

OneMain Holdings is executing a clear strategy centered on disciplined credit underwriting, multi-product expansion, and leveraging its unique omnichannel distribution and robust balance sheet. The Q1 2025 results provide tangible evidence that the decisive actions taken to tighten credit are translating into improved credit performance and strong capital generation growth, positioning the company for an upward trajectory in earnings.

While macroeconomic uncertainty persists, OneMain's conservative underwriting posture, built-in stress cushion, and diversified funding sources provide a degree of resilience. The ongoing integration of Foursight and the pursuit of an ILC charter highlight a forward-looking approach aimed at driving future profitable growth and enhancing competitive positioning in the evolving consumer finance landscape. The company's ability to maintain a constructive competitive environment and achieve growth within its disciplined return hurdles underscores the strength of its market position and operational capabilities. For investors, OneMain represents an opportunity to invest in a seasoned operator in the non-prime space, poised for continued earnings and capital growth, supported by a strong balance sheet and strategic initiatives, provided the macroeconomic environment remains within reasonable bounds. The key will be monitoring the continued performance of the front book, the pace of the back book run-off, and the successful execution of its strategic growth initiatives.