Q3 2024 OneMain Holdings Inc Earnings Call
Speaker Change: [music]
Speaker Change: Price회 WHO IS CONFIRMED From the American Public Service in the United States and to the United States government.
Speaker Change: Please stand by. Your program is about to begin. If you should need audio assistance during today's program, please press star zero.
Speaker Change: Good day everyone and welcome to today's One Main Financial Q3 2024 earnings call. At this time all participants are in a listen only mode.
Speaker Change: Later, you will have the opportunity to ask questions during the question and answer session.
Speaker Change: Thank you, operator. Good morning, everyone, and thank you for joining us. Let me begin by directing you to page 2 of the third quarter 2024 investor presentation, which contains important disclosures concerning forward-looking statements and the use of non-GAAP measures. The presentation can be found in the investor relations section of the OneMain website.
Speaker Change: Our discussion today will contain certain forward-looking statements reflecting management's current beliefs about the company's future, financial performance, and business prospects. And these forward-looking statements are subject to inherent risks and uncertainties and speak only as of today.
Speaker Change: Factors that could cause actual results to differ materially from these forward-looking statements are set forth in our earnings press release.
Speaker Change: We caution you not to place undue reliance on forward-looking statements. If you may be listening to this via replay at some point after today, we remind you that the remarks made herein are as of today, October 30th, and have not been updated subsequent to this call.
Speaker Change: Our call this morning will include formal remarks from Doug Shulman, our Chairman and Chief Executive Officer, and Jeannette Osterhout, our Chief Financial Officer. After the conclusion of our formal remarks, we will conduct a question and answer session. I'd like to now turn the call over to Doug.
Doug Shulman: Thanks, Pete. Good morning, everyone, and thank you for joining us today.
Doug Shulman: We feel very good about our results for the quarter and year-to-date. Credit results are trending in a positive direction, and we continue to make good progress on our strategic initiatives to position one name for success in the years to come.
Doug Shulman: Capital generation was $211 million, and C&I adjusted earnings were $1.26 per share this quarter.
Doug Shulman: Both up significantly from last quarter. Our receivables grew 11% year-over-year, driven by an increase in loan originations and our expanded product offering.
Doug Shulman: while total revenue grew 8%.
Doug Shulman: Despite our very tight underwriting posture, third quarter origination volume grew 13% year-over-year.
Doug Shulman: This is the first time since we tightened our credit box more than two years ago that we've seen year-over-year growth in originations, and we expect to see continued growth going forward.
Doug Shulman: The momentum we saw this quarter in Originations was the result of two factors that I discussed briefly last quarter, the current constructive competitive environment and our continued use of granular data analytics and product innovation.
Doug Shulman: to find profitable pockets of growth.
Doug Shulman: We are pleased to have strong originations, even as we maintain a tight underwriting posture.
Doug Shulman: Turning to credit, any way you look at it, we like the trends we are seeing.
Doug Shulman: Our 30-89 day delinquency was 3.01%.
Doug Shulman: which is down 27 basis points year-to-date as compared to down 9 basis points last year and only down 12 basis points on average in pre-pandemic years.
Doug Shulman: These better-than-normal seasonal trends hold true for the quarter-over-quarter movements as well.
Doug Shulman: Delinquency was up four basis points from last quarter.
Doug Shulman: as compared to up 22 basis points last year in the same quarter, and up 18 basis points on average pre-pandemic.
Doug Shulman: These positive credit trends are a result of the swift action we took on credit two years ago, our disciplined underwriting since that time, our unique business model, and an unparalleled understanding of how to best serve the non-prime consumer.
Doug Shulman: Net charge-offs were 7.5% in the quarter.
Doug Shulman: down about 100 basis points from last quarter and consistent with our expectations given the delinquency levels earlier in the year.
Doug Shulman: Our credit trends make us feel very positive about the earnings trajectory of our business.
Doug Shulman: Barring a recession, we believe we saw peak losses in our consumer loan business in the first half of 2024.
Doug Shulman: We expect this will lead to growth in capital generation in 2025 and future years.
Doug Shulman: and continued positive macroeconomic trends, like lower interest rates, stable employment, and reduced inflation, could provide even more tailwinds going forward.
Doug Shulman: Our strong balance sheet and mature funding program continue to stand out as clear competitive advantages for us. In August, we completed a $750 million unsecured social bond at an interest rate of just over 7%.
Doug Shulman: The net proceeds of the offering will finance loans to individuals residing in credit-insecure or credit-at-risk counties, as defined by the Federal Reserve.
Doug Shulman: This kind of focus lending is part of the fabric of OneName and illustrates how we provide responsible access to credit across the entire nation.
Doug Shulman: Moving to our newer products, both auto finance and credit cards are important parts of our commitment to help more customers meet their needs today and progress to a better financial future while driving profitable growth for our shareholders.
Doug Shulman: We now have about 3.3 million customers and our multiple products are allowing us to meet more consumers with different needs and at different times in their financial journey.
Doug Shulman: Auto finance receivables were $2.3 billion at quarter end. Credit performance in the auto business remains in line with our expectations and better than comparable industry performance.
Doug Shulman: The integration of Foresight is going well and we are now operating our entire auto finance business.
Doug Shulman: All of the moving parts of the integration are progressing on plan, including technology platform consolidation, data integration, vendor cop consolidation, and more.
Doug Shulman: We feel great about our competitive positioning in the auto business and now have the capability to serve both franchise and independent car dealers.
Doug Shulman: We will be cautious in our growth and maintain very tight underwriting standards, but believe we are well positioned for the future years.
Doug Shulman: In our credit card business, we added 122,000 new accounts and $84 million in receivables during the quarter.
Doug Shulman: We've been measured in our credit card growth, given our cautious view of the environment.
Doug Shulman: But we continue to invest in data analytics that help us run the business more efficiently and profitably, as well as in improved customer self-service features that enhance the digital user experience while also reducing costs.
Doug Shulman: This has led to our service calls per customer being down more than 40% year over year as more customers are using the app to make payments, check balances, redeem a reward, and more.
Doug Shulman: We're also launching and developing more online partnerships to broaden our acquisition chance. So when the time comes to accelerate growth, we are ready.
Doug Shulman: We are confident that we have a differentiated card product that resonates well with our target customer, and we will continue to develop the business to position us for future expansion.
Doug Shulman: Finally, let me touch on capital allocation. Our priorities remain unchanged.
Doug Shulman: First and foremost, we invest in the business.
Doug Shulman: to position us for ongoing success, including making all the loans that meet our risk-return hurdles.
Doug Shulman: while also continuing to invest in new products and champs as well as data science and technology to further advance our competitive position. We are also committed to our regular dividend.
Doug Shulman: which at $4.16 per share annually yields 9% at today's price.
Doug Shulman: In the quarter, we repurchased about 420,000 shares for approximately $19 million.
Doug Shulman: Share repurchases will be an important part of our capital return strategy in the years to come.
Doug Shulman: The pace of future share repurchases will be determined by a number of factors, including our excess capital, capital needed for growth, economic conditions, and market dynamics. With that, let me turn the call over to Jimmy.
Jimmy: Thanks, Doug, and good morning, everyone. Our third quarter was highlighted by the continued improvement in credit trends, high-quality originations growth, strong revenue growth, thoughtful expense management, and great execution of our balance sheet funding with our second-ever unsecured social bond issuance.
Jimmy: Third quarter gap net income was $157 million or $1.31 per diluted share, down from $1.61 per diluted share in the third quarter of 2023.
Jimmy: D&I adjusted net income with $1.26 per diluted share, down from $1.57 in the third quarter of 2023.
Jimmy: Capital generation this quarter amounted to $211 million, which compares to $232 million.
Jimmy: in the third quarter last year, reflecting the impacts of the current macroeconomic environment on our net charge-offs, partially offset by higher revenues from portfolio growth.
Jimmy: Managed receivables finished the quarter at $24.3 billion, up $2.4 billion, or 11% from a year ago. Adjusting for the acquisition of Foresight, our organic growth was $1.1 billion, up 5%.
Jimmy: Demand for our products remains quite strong.
Jimmy: Third quarter originations of $3.7 billion were up 13% year-over-year. And, as Doug discussed, this strong growth is the result of the constructive, competitive environment, along with our focused efforts to drive originations while maintaining our conservative underwriting posture.
Jimmy: We are continuously analyzing our credit box for segments where we can expand or tighten, but there is no net change in our overall approach to our return requirements for credit appetite.
Speaker Change: His growth and originations have been achieved while maintaining pricing discipline.
Speaker Change: Third Quarter Consumer Loan Originations, APR, was 26.8%, up approximately 40 basis points since last quarter, and 10 basis points over prior year.
Speaker Change: In fact, cumulatively, since the second quarter of 2023, we have raised pricing approximately 100 basis points.
Speaker Change: These pricing levels are above the average APR in our portfolio and will gradually support our yields going forward as the book matures.
Speaker Change: You can see this starting to take hold in our 3rd quarter consumer loan yield of 22.1%, which was up 15 basis points compared to the 2nd quarter.
Speaker Change: And while consumer loan yield remains a ten basis point.
Speaker Change: Below prior year due to our expanded auto finance portfolio, the year-on-year compare has improved from last quarter.
Speaker Change: Moving to revenue, this quarter total revenue was $1.5 billion, up 8% compared to third quarter 2023. Total revenue comprises interest income of $1.3 billion, which was up 9% year over year, driven by higher average receivables.
Speaker Change: and other revenue of $181 million, down 1% from the prior year.
Speaker Change: Interest expense for the quarter was $299 million, up $34 million versus prior year, driven by an increase in average debt to support our receivables growth, and modestly higher cost of funds since last year.
Speaker Change: It is worth noting that interest expense as a percent of receivables in the quarter was 5.2%.
Speaker Change: down from 5.4% in the second quarter, which, as I mentioned last quarter, was elevated due to the timing of our issuance and use of those proceeds to proactively manage our debt maturity stack.
Speaker Change: Provision expense was $512 million, comprising net charge-offs of $432 million and an $80 million increase to our allowance, driven by the increase in receivables during this order. I will touch on losses in a bit more detail in a minute.
Speaker Change: In the quarters ahead, we expect around $50 million for policyholder benefits and claims expense.
Speaker Change: Let's turn to slide 8 and look at consumer loan delinquency trends.
Speaker Change: Our 30-89 day delinquency on September 30th, excluding foresight, was 3.01%.
Speaker Change: This is down 27 basis points since the end of last year, and up 4 basis points quarter over quarter, both of which are notably better than normal seasonal patterns, as you can see on slide 9.
Speaker Change: If you adjust for the slower pace of growth on our book from our conservative credit box, our year-over-year 30- to 89-day delinquency has improved notably as compared to last year.
Speaker Change: These positive delinquency trends are indicators of future loss performance. As you know, as delinquency trends improve, charge-off trends will follow.
Speaker Change: So, we're pleased that our active management of credit over the last two years is making a positive impact on our delinquency results today, and that should translate to improved loss performance in the quarters ahead.
Speaker Change: Our front book vintages, which we define as origination starting as of August 2022, now comprise 81% of total receivables, as compared to 76% a quarter ago.
Speaker Change: We remain pleased with the quality and performance of the loans we are booking today and the performance of the front book remains in line with expectations.
Speaker Change: It is also worth noting that while the back book makes up 19% of the total portfolio, it represents 37% of our 30-plus delinquencies.
Speaker Change: We continue to see the overall book transition to front book vintages, which should further benefit our delinquency and loss metrics going forward.
Speaker Change: Let's now turn to charge-offs and reserves, as shown on slide 10.
Speaker Change: CNI net charge-offs were 7.5% of average net receivables in the third quarter. That's down about 100 basis points from the second quarter and in line with our expectations and seasonal patterns in our portfolio.
Speaker Change: Recoveries remain steady and strong in the quarter, amounting to $79 million, or 1.4% of receivables.
Speaker Change: as we remain diligent in our strategies where we look to maximize recovery value.
Speaker Change: For the rest of the year, we expect to remain at approximately this coverage level, subject to any macroeconomic changes.
Speaker Change: Now let's turn to slide 11.
Speaker Change: Operating expenses were $396 million in the quarter, up 6% compared to a year ago, driven by the acquisition of Foresight on April 1st, and our continued investment for future growth.
Speaker Change: Our operating expense ratio was 6.5% in the quarter, down 28 basis points from 3rd quarter a year ago, and up modestly from last quarter.
Speaker Change: As we mentioned on our last call, we are tireless in our focus on expense management while also committed to investing for the future in new products, people, data science, and technology.
Speaker Change: And while the OpEx ratio may moderate from quarter to quarter, we expect it to continue to trend down over time.
Speaker Change: Now let's turn to funding in our balance sheet on slide 12.
Speaker Change: During the third quarter, we issued a $750 million, 7-year unsecured social bond at 7.18%.
Speaker Change: The offering this quarter was once again well-executed and oversubscribed with a strong list of investors. We have no unsecured maturities until March 2026 and have excellent funding flexibility over the remainder of this year and next.
Speaker Change: Net leverage at the end of the third quarter was 5.7 times, comfortably within our 4 to 6 times leverage range.
Speaker Change: Let me finish up briefly with slide 14, reviewing our 2024 priorities.
Speaker Change: We expect to end the year with managed receivables of at least $24.5 billion above our original guidance.
Speaker Change: We expect revenue growth to be at the higher end of our range. Interest expense is expected to land at approximately 5.2% for the year, and we expect our full year net charge-off at the higher end of our range.
Speaker Change: Finally, we expect our operating expense ratio to be around 6.7%.
Speaker Change: Other than managed receivables, which is better than our original expectation, all of our current guidance metrics are within the range of expectations we had laid out at the beginning of the year, demonstrating the team's constant commitment to driving positive outcomes for our customers.
Speaker Change: and strong financial performance for our shareholders.
Speaker Change: I'll conclude by saying we're pleased with our results this quarter, and as we look forward with a steady macroeconomic environment supporting these trends in credit, origination, yield, and operating leverage, we believe we can drive significant capital generation growth in the future.
Speaker Change: With that, let me turn the call back over to Doug.
Doug Shulman: Thanks Jenny. All of the work that we've done the last two years to manage the business and serve our customers is showing up in the continued positive direction of credit.
Doug Shulman: We are proud of how our experienced team has navigated the company through the many uncertainties affecting the non-prime consumers.
Doug Shulman: demonstrating our long history and understanding of how to best serve our customers and drive our financial report.
Doug Shulman: We like our competitive positioning, including the growth potential of our core business and new products, and believe we have many tailwinds of business going forward.
Doug Shulman: So while we're pleased with how the business is performing today, we're even more excited about the future. All of this is driven by the great team members of OneMain, who come to work every day to make a difference in the lives of our customers.
Doug Shulman: and to drive value for our shareholders.
Doug Shulman: With that, let me open it up for questions.
Speaker Change: Thank you. And the floor is now open for questions at this time. If you have a question or comment, please press Star 1 on your touchstone phone.
Speaker Change: If at any point your question is answered, you may remove yourself from the queue by pressing star 2. Again, we do ask that while you pose your question, that you pick up your handset to provide optimal sound quality. And our first question is coming from Terry Ma with Barchly's. Please go ahead.
Terry MA: Thank you, good morning. Just almost a housekeeping question to start off with. Does your net charge-off guidance range for the full year of 7.7 to 8.3 percent, does that include the impact of the foresight policy adjustment last quarter or not?
Speaker Change: That does include the impact of the forced-take policy. That's the last word or two.
Speaker Change: Thank you. Bye-bye.
Speaker Change: Good morning.
Speaker Change: Morning. So it does not kind of strip out the incremental charge-offs from the policy adjustment.
Speaker Change: That is what you mean.
Speaker Change: Thanks. Bye.
Speaker Change: Got it. Okay, that's helpful. And then, I guess, just...
Speaker Change: I guess when you guys constructed the guide at the beginning of this year, I'm assuming the base case was the midpoint. So any color you can kind of provide on what's driving the guide to be closer to the higher end of the range, like whether or not it's driven by the front book or back book, any color you can provide.
Speaker Change: You know, we're coming in within our guidance, so we're happy with where we're landing. We don't think this should be surprising given the delinquency that we've seen in the past few months.
Speaker Change: Bye!
Speaker Change: and how they drive our losses. We provided that beginning of the year loss range around unexpected outcomes, as we said, and we saw slower growth in originations.
Speaker Change: at the Maxwell Environment Institute.
Speaker Change: All of that sort of driving where we're living for the year, at that extent.
Speaker Change: in the range, but at the higher end.
Speaker Change: Got it. That's helpful. Then maybe just one more follow-up. You indicated you expect charge-off to have peaked in the first half of this year. Maybe provide some color on kind of just what gives you confidence of that going forward. Thank you.
Speaker Change: I think really when you look at the frequency...
Speaker Change: They drive your charge off about two quarters later, so really what we're seeing is...
Speaker Change: like to transcend, we're seeing inclinquency, we look at inclinquency this quarter, we're relatively flat, but it would have been better than last year if you took into account growth maps And so we're liking that direction of travel and you should see that start to translate into Boston
Speaker Change: Thank you.
Speaker Change: And I think Terry, it's all the things we've been talking about, which is a much tighter credit box, the last couple of years.
Speaker Change: as it becomes a bigger part of our delinquency number of victims.
Speaker Change: I think this is all about how it shows up.
Speaker Change: Thank you and next we'll take our next question from Michael Kay with Wells Fargo.
Michael Kay: I had a question about originations. You know, they were a lot higher than our expectations.
Michael Kay: But it really didn't translate into higher loan balances for the quarter, at least compared to, you know, my projections So I'm wondering, is there anything in that mix of originations, like perhaps a higher percentage of renewals or maybe more prepayments this quarter or some other factor I should consider?
Speaker Change: I don't think so, Michael. You know, we're...
Speaker Change: happy with our originations, but as you know we view growth as an outcome. So we have a tight credit box, we have really good competitive positioning. Some of the competitors, especially banks, are still kind of an out-of-the-box economy.
Speaker Change: Thank you.
Speaker Change: We've been able to have price with our originations, and so we're happy to see an originations uptick. It's, you know, as expected, I think, in the numbers. So, I'm not sure, you know, our team can do a follow-up with you about your translation originations, about this site.
Speaker Change: It's nothing surprising.
Speaker Change: Okay, I want to talk a little bit about the asset yields, you know, they're up nicely.
Speaker Change: I think 15 basis points quarter-on-quarter and someone asked last quarter You thought they would be more flattish quarter-on-quarter so surprised to see him up so much So, you know was anything that surprised to the upside on on asset yields versus your expectations and should we see that kind of momentum? Continue at least in the in the near term
Speaker Change: Our third quarter yield was 22.1%. That was up about 15 basis points from the second quarter.
Speaker Change: On the second quarter, we've been talking about some of those pricing actions we've been able to make in the competitive environment starting to take hold, and really those come through gradually and over time.
Speaker Change: And so we did start to see...
Speaker Change: And most of those are coming from our personal loan portfolio, and that's the major driver for that 100 basis points increase since the second quarter of 2023 that I spoke about earlier.
Speaker Change: Thank you.
Speaker Change: And so we've been, you know, in my mind, we've been talking about this for a while. And we're doing that while also...
Speaker Change: growing our book, Growing Originations, and growing our lower yielding and lower lost content auto finance book.
Speaker Change: That pricing comes through yield if we stay in this competitive environment.
Speaker Change: Thank you. And our next question comes from Vincent Kantic with BTIG. Please go ahead.
Vincent Kantic: Hi, good morning, thanks for taking my questions. First one on credit.
Vincent Kantic: So, very helpful credit commentary this morning. If you could maybe just a broad question, but...
Vincent Kantic: You know, at what point do you expect to see a year-over-year of positive improvement to the net charge-off rate?
Vincent Kantic: If you could also remind us and help us thinking about the typical seasonality that we should be expecting with a net charge off rate. Thank you.
Vincent Kantic: Yeah.
Speaker Change: So let me take the second one first, Vincent, and I'll just start with, you know, we're not providing 25 guidance on this call. We'll come back with our fourth quarter results and give a better sense of 25. But in terms of law seasonality, you know, the first quarter is our typical low delinquencies where we have tax refunds.
Speaker Change: And that translates into what you're seeing in our losses now at the 7.52% in the third quarter. And we expect to see our delinquencies be better year-on-year soon.
Speaker Change: to give a specific guide on 2025 right now.
Vincent Kantic: Okay, that's helpful. Thank you very much. And then kind of relatedly, so it was nice to see that the origination volume did grow year over year. I'm just wondering how you think we should be thinking about that growth rate going forward. And we've been talking about the front book dynamic for some time. I'm curious at what point you think we should be primarily just talking about that front book.
Vincent Kantic: and the positive trends from that.
Vincent Kantic: Thank you.
Speaker Change: Yeah, I think...
Speaker Change: We're pleased to see the origination growth we had, as I mentioned earlier. Vincent, we're not, though.
Speaker Change: You know, we're not managing anymore.
Speaker Change: It all starts with our credit box. We're only going to originate, but our customers can be successful with paying us back.
Speaker Change: Thank you. Bye.
Speaker Change: Thank you.
Speaker Change: here. Since we're not relaxing our credit box, we're actually keeping it quite tight right now.
Speaker Change: Then, you know, you put in marketing, having a great product at a fair price with a great value proposition, customer experience, the investments we're doing.
Speaker Change: digital, and we'll have the output that we have.
Speaker Change: Bye.
Speaker Change: you know, origination.
Speaker Change: and others as well.
Speaker Change: Thank you. And our next question comes from John H with Jefferies. Please go ahead.
Speaker Change: Good morning, guys. Thanks very much for taking my questions.
Speaker Change: Doug, you're talking about a fairly constructive, competitive environment.
John H: I'm wondering, is that across all three product sets, the auto, the personal loans, and credit card? Or is there any differences that are worth pointing out?
Speaker Change: Yeah, no, it's a good question.
Doug Shulman: I mean, A, we have a very tight and similar credit box.
Doug Shulman: across all three, which is, just to remind everyone, we have a 30% stress overlay in our credit box. That means
Doug Shulman: We run our models based on what we're seeing in the market, and then we actually have an overlay that even if we moved into a recession, and there's an uptick in unemployment, that we'll still need our 20% return.
Doug Shulman: So, you know, we're quite tight. I think in each of those products, we've got plenty of demand.
Doug Shulman: Especially in auto and card, we're modulating those pretty tightly because they're new products testing in the market, we're only pursuing pockets that we feel very confident in.
Doug Shulman: I think in the place where you can really see
Doug Shulman: The market dynamic is in some of the affiliate sites where we make a loan offer and someone else makes a loan offer.
Doug Shulman: That's most prevalent in our installs, thank you.
Doug Shulman: for Business.
Doug Shulman: There we see that we're winning a lot of business, and we're doing it at attractive prices, and we're doing it with higher credit quality.
Doug Shulman: Thank you.
Doug Shulman: So that's where, you know, the bulk of what we're seeing. I think at Auto & Card we're such small players and we're challengers and we're just growing that business that is, frankly, less.
Doug Shulman: There's plenty of business for us to continue, I think, after we complete the play as a team.
Speaker Change: okay that's helpful and then maybe just a related follow-on to that is
Speaker Change: Yeah, we've seen a lot of private credit enter the space with various forward flow.
Speaker Change: agreements and just outright purchases of portfolios.
Speaker Change: How does that influence your strategic thinking and does that also maybe over the course of time affect the competitive dynamics?
Speaker Change: Um, yeah, look, um...
Speaker Change: We talk a lot about our balance sheet, one of the reasons we put on long-term.
Speaker Change: unsecured debt, and we have excess bank facilities that we rarely tap, and then we have a robust ABS program. It's to have a fortress balance sheet. One, to make sure there's plenty of liquidity in any environment, but two, so we can keep doing all the lending we can.
Speaker Change: I think you saw, you know, we've seen two cycles, at least since I've been here, which is, you know, the pandemic came and the capital markets rose up. A lot of people didn't have money to invest.
Speaker Change: I think we actually found it great, the depth, the depth of our dip, it's really great.
Speaker Change: And then again in mid-2022, a lot of us will vote.
Speaker Change: facilities dried up or competitors who
Speaker Change: Thank you for just in time, folks.
Speaker Change: and they really pulled out of the park.
Speaker Change: As you said, I think a lot of investors are now back in the market, looking for you, searching for you. So I think it will be bumpy, and it will affect competitors who use that avenue a lot more.
Speaker Change: And we'll take our next question from Moshe Arunbak with TD Cowan. Please go ahead.
Moshe Arunbak: Great, thanks. I think you've gotten a bunch of questions on credit and I think the message was pretty clear that delinquencies are getting better.
Moshe Arunbak: But the reserve rate's been flat. Can you talk a little bit about your thoughts as to what it would take either from your portfolio or the macro environment or both to see that reserve rate start to come down?
Moshe Arunbak: to ask fake questions.
Speaker Change: You're right, this quarter our reserve, it increased by $80 million. That reflected the growth in our portfolio. There was no change in our coverage rate. And we feel pretty good about our reserve levels today. I wouldn't expect anything to change materially this year. We have a conservative stance to reserve levels.
Speaker Change: Any change in reserves is really dependent on consistent charge-offs, the direction of the macro, and sort of product mix in the portfolio. So before we release reserves, we want to feel very comfortable with where the book is and what the future looks like.
Speaker Change: Thank you.
Speaker Change: Thank you for joining us. Have a great evening.
Speaker Change: Douglas Shulman, Micah Conrad, Richard Shane, Douglas Shulman, Jeannette Osterhout
Speaker Change: the possibility of higher participation by private equity firms.
Speaker Change: Yeah, no, it's a good question, Moshe.
Speaker Change: It's something we actually do a little bit of in our auto business.
Speaker Change: Just, you know, have a different channel.
Speaker Change: to fund it.
Speaker Change: BOOM!
Speaker Change: One of the reasons we built the pipes in our auto business, and we built the pipes, is to have full loan sales.
Speaker Change: is to have that flexibility if we choose to pursue that path.
Speaker Change: So it's definitely something we've thought about.
Speaker Change: It's always trade-off about what do we want to put on our book, what's profitable, what are the market conditions, and then just bandwidth and how much we want to go chase stuff that we normally would turn down and figure out what kind of incremental revenue and return we could get from that.
Speaker Change: It's a long answer to say yes. We definitely would consider it. We do a little bit of it today, and you know we'll keep it on our radar, and if we think it's gonna You know have good ROE and a good return for our shareholders
Speaker Change: We'll do more of it.
Speaker Change: Yeah, I would just, this is Jenny, I would just add, I mean it's the same point, but it's all about the economics, we're always reviewing.
Speaker Change: Ah, Jesus, you know.
Speaker Change: Douglas Shulman, Micah Conrad, Richard Shane, Douglas Shulman, Jeannette Osterhout
Speaker Change: of putting loans on our own balance sheet, and we think that's the best return for shareholders. But we do have whole loan sales, and we do get that gain on sale and that servicing fee, and we like the funding flexibility that we have with the whole loan sale program. And so it's there if we want it, I'd say.
Speaker Change: Thank you. We'll take our next question from Mihir Batia with Bank of America. Please go ahead.
Mihir Batia: Thanks for taking my questions. I wanted to go back to the origination growth this quarter.
Mihir Batia: I was wondering, I know you've tightened your credit box pretty materially compared to two years ago, but was there any, I imagine y'all...
Speaker Change: consistently looking at the box and making changes at the edges. Was there any type of loosening, any type of, you know, you're seeing the environment get better, getting more confident, so you feel like you can maybe start underwriting just a tad bit before anything like that's going on with the credit standards this quarter where you were maybe loosening a little bit?
Speaker Change: Doug, thanks for being here.
Doug Shulman: You know, we did not loosen the box this quarter in aggregate.
Doug Shulman: But, you know, we've mentioned before that we are always...
Doug Shulman: adjusting pockets based on geography, risk rate, product, channel, and we look at it in very, you know, micro detail.
Doug Shulman: Both Jenny and I talked about earlier some of the product innovation or investment in
Doug Shulman: Let me give you an example of one of the things we did at the end of the second quarter, which helped drive some growth this quarter.
Doug Shulman: which is, for three years, we've had access to payroll data. So, you apply for a loan with us, you say you make $100,000, we used to ask you to upload documents to prove that, some pay stubs, and then we put it through fraud and make sure it's accurate.
Doug Shulman: We're very careful when we introduce new data sources, especially for something like income verification, and so we put that in place three years ago.
Doug Shulman: We watched the credit of that versus our traditional methods of upload or bringing it into the branch and inspecting documents. We saw the credit was...
Doug Shulman: Good or even slightly better because it's actually quite reliable our plugging into that
Doug Shulman: But it also saves, it's a much better customer experience because you don't have to either upload a document or come into a branch or do something. So it creates a slight uptick.
Doug Shulman: in the pull-through rate, the number of customers who apply and go all the way through the process. And so it's product innovations like that, not any relaxing of credit that, you know, we're always tweaking our business model just to improve it for the benefit of the customers.
Doug Shulman: and obviously for the benefit of all.
Doug Shulman: People shifted behavior to digital, and we have the option for our consumers to...
Doug Shulman: interact with us on the app or on their browser. We actually can co-browse with you. We can take you through the documents. We can show you the disclosure of the different products. And so we have not seen, you know, in the last couple of years, any major movement.
Doug Shulman: But the vast majority of our customers start online.
Doug Shulman: So they hear about us, apply online, some of them choose to come into a branch, because there are people who want to have that personal interaction, some of them choose to do it on the phone with us, and through there.
Doug Shulman: through their browser or through their app. Our strategy is to be omni-channel. We think our branches are a huge competitive differentiator.
Doug Shulman: We're in community. People know us.
Speaker Change: Douglas Shulman, Micah Conrad, Richard Shane, Douglas Shulman, Jeannette Osterhout
Speaker Change: with someone else. So trends are more people like to do more digitally, but we and some of the major banks also continue to.
Speaker Change: be very focused on having a substantial spring shed.
Speaker Change: Thank you. We'll next go to Rick Shane with J.P. Morgan. Please go ahead.
Rick Shane: Thanks for taking my questions this morning. I'd like to talk a little bit about loan yields and mixed shift and then think about this on a risk adjusted receivables basis as well.
Rick Shane: as you grow the alternative products.
Rick Shane: How should we think about the impact on yield?
Rick Shane: products, particularly Foursquare.
Rick Shane: on a top-line basis start to drag a little bit on yield.
Rick Shane: Do you think that those three products will continue to generate comparable returns, particularly on a levered basis, because you probably have a little bit more opportunity to lever some of those new asset classes?
Speaker Change: Yes, thanks. Let me take that.
Speaker Change: One, let me just start with...
Speaker Change: Our auto business today is about 2.3 billion receivables of our book, which is 24.5 billion.
Speaker Change: 5 billion in receipts.
Speaker Change: people.
Speaker Change: You're absolutely right. Today, you know, it's included in our consumer...
Speaker Change: Sloan Yield and...
Speaker Change: As we grow in auto and it becomes a larger portion of our book, that will obviously have an impact.
Speaker Change: on Yield, but it's there today, and there are a lot of things that go into Yield that are also there today.
Speaker Change: So, you know, we've been very deliberate in taking pricing actions and increasing that APR on our consumer loan originations, both in our auto products and also in our personal loan products. And a lot of that is coming from personal loans, but some of it is also coming from auto. Our yields also continue to feel the impact of credit. And that will get better over time, of course, but that's dependent on the rate and the pace of improvement.
Speaker Change: There's you know, there is that impact from auto which is that lower yielding but lower loss content business and so, you know overall over time we
Speaker Change: We like the returns that we're seeing there. In our investor day, we laid out some of what we see in terms of our expectations on those returns, and credit card is, you know,
Speaker Change: But, you know, I think in terms of thinking about where yield's going to go, you should expect to see, even with the growth of the auto, yields start to grow gradually over time.
Speaker Change: got it okay that that's helpful and then just one one follow-up if we can
Speaker Change: really try to dial in on this.
Speaker Change: if we think about the personal loan book.
Speaker Change: Can you give us a sense, on sort of a like-for-like basis, in terms of your top quality loan bucket, how much pricing power you've had in terms of incremental yield, maybe over the last 12 months? I think that's what investors are kind of wondering.
Speaker Change: I think the stat that is the best one there is the one that I gave earlier, that is that
Speaker Change: Douglas Shulman, Micah Conrad, Richard Shane, Douglas Shulman, Jeannette Osterhout
Douglas Shulman: of our book because, you know, there's less competition normally on the lower end of the book. So I think over time, you know, in this type of environment, I'm not sure there's that much more room to go on pricing. So, you know, again, this is more about seeing the pricing that we've already put in come through.
Speaker Change: Thank you and we'll take our next question from Mark DeVries with Deutsche Bank. Please go ahead.
Mark Devries: Yeah, thank you. You know, understanding you don't want to give guidance on charge-ups yet for 2025. I think it'll still be helpful for us to think about.
Mark Devries: You know, what you need to see for charge-offs to trend down year-over-year. Am I right in thinking that...
Speaker Change: The main thing we want to look at is improvement.
Speaker Change: and Delinquency Trends Relative to Seasonality, kind of similar to what you observed this quarter with the early stage delinquencies.
Speaker Change: only up 4 bps Q on Q versus the pre-pandemic average of 18. And if I'm right about that, could you also just talk about the trajectory you've seen over the last several quarters, kind of in that trend relative to seasonality?
Speaker Change: Yeah, listen, I mean, I think...
Speaker Change: First of all, the statement that was in there was pretty accurate. I mean, really what we're looking at for next year's losses is the trajectory of delinquency. And I think what you're hearing from us today was...
Speaker Change: So, number one, we saw peak losses in the first half of 2024, and we feel confident in that based on where our delinquencies are today.
Speaker Change: Thank you.
Speaker Change: We're very pleased with our prep book performance, so those messages are in line with our expectations.
Speaker Change: And that should further drive improvement in our delinquency performance as that becomes a larger piece.
Speaker Change: and Jeannette Osterhout. Thank you.
Speaker Change: And so we're really seeing the benefits of those tightening actions we took early on, you know, starting in August 2022 and our results. And so it's really dependent on the pace of that improvement, you know, pace of the increase in that front book, right? You know, the macro environment, if the macro were to get better, you know, obviously, that's helpful. And then trying to get it
Speaker Change: We're just trying to get across generally that we see the direction of travel moving in this direction and we'll come back, you know, as we said we'll come back with more lost guidance for 2025 when we come back with our fourth quarter results.
Speaker Change: Got it. Could you also remind us what your policies are on recoveries and what the outlook is going forward just given kind of the larger inventory of charge-off receivables you have today?
Speaker Change: So we continue to see really strong recovery performance, positive trends. We remain above that pre-pandemic recovery level that we had. This quarter we had $79 million in recovery, which is about $9 million of post-charge-off debt sales.
Speaker Change: That's in line with last quarter. So not much of a major shift. We're always looking to maximize return
Speaker Change: and the value of internal versus external collections versus bulk sales and making decisions there. But overall, right now, we're quite pleased with our recovery and would expect something similar for the go forward.
Speaker Change: Thank you. Next we're going to go to John Rowan with Janie. Please go ahead.
Speaker Change: Shalom. Shalom. Shalom. Shalom.
Speaker Change: And John, your line is open.
John Rowan: Sorry, I was on mute. Can you hear me?
John Rowan: So just on expenses, year-to-date the expense ratio is 6.5, you're staying with 6.7 for the year, but obviously...
John Rowan: To get to 6.7 for the year after 6.5 for the first 9 months, that implies, based on my math, a fourth quarter number of 7.5.
Speaker Change: Douglas Shulman, Micah Conrad, Richard Shane, Douglas Shulman, Jeannette Osterhout
Speaker Change: Compare that to your statement that, you know, the OPEX ratio will continue to improve over time. Thank you.
Speaker Change: Thank you.
Speaker Change: Listen, I think we look at OPEX in terms of the trends, so multiple quarters, so I would just start there. When we talk about those trends, we're talking about where they look from a year-on-year perspective.
Speaker Change: Expenses can be lumpy and we're focused on really running a good business, running it efficiently. We left our guidance unchanged around 6.7%. It should come in in that area. So overall, yes, we're seeing great operating leverage in our business and think of it as a real strength. And we've come down a lot from where we've been over the past couple years.
Speaker Change: So, we're careful stewards of our spending, I think, in terms of the fourth quarter.
Speaker Change: Your math sounds slightly, you know, higher than I would expect, but overall, I'd say, you know, we kept our guidance at around that 6.7% range. Yeah, and, you know, the only thing I'd add, John, is, um...
Speaker Change: You know, we're super careful, and I've talked about this before.
Speaker Change: not spending money on things that don't add value. So if there's a program that's put in place and it wasn't a good idea to get executed, we shut it down. If there's something that the company's been doing for a long time, we try to see how we're more efficient. And so we're always taking aggressive expense actions.
Speaker Change: That's one of the reasons you've seen our experts shooting down. Second is, it's just a great business.
Speaker Change: as inherent leverage.
Speaker Change: But, as you know, we're also running this business for the next three to five years, making sure we have great competitive positions and we create long-term share value. So we're also making investments.
Speaker Change: And I, you know, we never get too excited quarter over quarter.
Speaker Change: And exactly, you know, it can be bumpy expenses, but we're every day making sure we don't waste money and we make good investments.
Speaker Change: That's our analogy.
Speaker Change #100: All right, thank you.
Speaker Change #101: Thank you.
Speaker Change #101: Thank you and I back.
Speaker Change #101: I think we are out of time, so I want to thank everyone for being here today. As always, feel free to follow up with our team. We're here and available. I hope everyone has a great day.
Speaker Change #102: Thank you. This does conclude today's OneMain Financial third quarter 2024 earnings call. Please disconnect your line at this time and have a wonderful day.