Q4 2024 OneMain Holdings Inc Earnings Call
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Speaker Change: Welcome to the OneMain financial fourth quarter 2024 earnings conference call and webcast. Hosting the call today from OneMain is Peter Poillon, Head of Investor Relations. Today's call is being recorded.
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Speaker Change: It is now my pleasure to turn the floor over to Peter Poillon. You may begin.
Thank you, Operator.
Good morning, everyone, and thank you for joining us.
Speaker Change: Let me begin by directing you to page 2 of the fourth 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.
Speaker Change: 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, January 31st, 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 Jenny 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.
Speaker Change: Thanks, Pete, and good morning, everyone. Thank you for joining us today.
Doug Shulman: In 2024, we made significant progress in our personal loan business.
Speaker Change: as well as our new products, Credit Card and Auto Lending, setting us up to drive growth in both receivables and capital generation.
Speaker Change: During the year, we continued to focus on helping our customers improve their financial well-being and finding opportunities to lend, even as we keep a very tight credit box.
Speaker Change: We also completed our acquisition of Foresight, bringing new capabilities to our auto lending business.
continued the build-out of our Brightway credit cards.
Speaker Change: proactively managed expenses, and further refined our best-in-class data science and analytics.
Speaker Change: The result was steady improvement in credit, solid growth in originations, and a customer base that grew 15% to 3.4 million customers.
Here are some highlights from the year.
Speaker Change: We expect that 2024 represented a cyclical low in earnings and will be followed by an upward trajectory in earnings and capital generation in 2025 and beyond.
Speaker Change: I'm very pleased that we met or exceeded all of the 2024 expectations that we laid out for investors at the beginning of the year. This was the result of our personalized approach that allows us to stay very close to our customers.
Speaker Change: active credit management, disciplined focus on expenses, and strategic investment in the business.
Speaker Change: For the full year, our receivables grew 11% to $24.7 billion.
Speaker Change: Focused initiatives to help improve personal loan originations without changing our conservative credit posture and growth in the bright way credit cards.
Speaker Change: In our personal loan business, we continue to invest in data science, new data sources, and credit models to even further enhance our best-in-class underwriting capability.
Speaker Change: We invested in our technology and branch network, refining the way we interact with customers to increase efficiency and enhance customer experience.
Speaker Change: And we launch new products and channels, including credit card to loan cross-marketing in our mobile app, loan payments linked to paychecks, and a new debt consolidation offering.
Speaker Change: We fully integrated our auto acquisition, giving us new capabilities in auto lending. We enter 2025 well-positioned to compete through both franchise and independent dealerships.
We grew our credit card portfolio to about 780,000 accounts.
Speaker Change: While being cautious in our growth, we've been highly focused on continuously improving the user experience to make sure our customers have access to a differentiated, highly digital card product, while we also continue to drive operating efficiencies.
Speaker Change: In 2024, we continue to demonstrate our incredibly strong balance sheet and funding program.
Speaker Change: We raised $3.9 billion in funding, including $2.4 billion in high-yield bond issuances and $1.1 billion in seven-year secure funding.
Speaker Change: We also expanded our whole loan sale program and renewed multiple bank lines and our corporate revolver.
Speaker Change: Our diversified funding program ensures we have significant excess liquidity and continues to be a strategic differentiator of OneMain.
Speaker Change: We also focused on helping our customers manage their financial wellness and on supporting the communities where we live and work.
Speaker Change: Trim by OneMain, our financial wellness platform that helps customers save money on household bills and manage everyday expenses, continue to help our customers improve their financial well-being.
Speaker Change: Trim is free to one main customers and has saved them millions of dollars through bill negotiations and subscription cancellations.
Speaker Change: Creditworthy by OneMain, our financial education program for high school students.
Speaker Change: reached more than 400,000 students in more than 4,000 high schools across the country, with many of our team members volunteering and engaging with students throughout the year.
Speaker Change: I mention Trim and Creditworthy because they illustrate the kind of company that we are.
Speaker Change: Recently, one main was recognized both in the Newsweek's Excellence Index and in Time magazine America's Best Mid-sized Companies list.
Speaker Change: for various aspects of business excellence, including growth and innovation, employee satisfaction, and ethical practices.
Speaker Change: I only named a few but I'm proud of all of our accomplishments in 2024 and believe the future has never been brighter for one Maine.
Speaker Change: Let me now turn to the results of the fourth quarter.
Speaker Change: Capital generation was 183 million dollars and CNI adjusted earnings were one dollar and sixteen cents per share.
Our receivables grew 11% year-over-year, and total revenue grew 9%.
Speaker Change: Despite our continued conservative underwriting posture, for the second consecutive quarter, Originations grew double digits year over year.
Speaker Change: The strong origination growth is a result of the constructive competitive environment throughout most of 2024 and our expanded use of granular data analytics and product innovation to opportunistically drive growth.
Speaker Change: Turning to credit, the positive trends that we saw in the third quarter have continued into year-end.
Speaker Change: Our 30-89 delinquency was 3.06%, which is down 22 basis points year over year, compared to up 21 basis points a year ago.
We're also seeing better-than-normal seasonal trends in the quarter-over-quarter movements.
Delinquency was up only five basis points from last quarter.
Speaker Change: Last year, it was up 30 basis points in the same quarter, and pre-pandemic, it was up 13 basis points, on average, so we like the trends that we are seeing.
Speaker Change: Net charge-offs were 7.9 percent in the quarter, up 36 basis points from last quarter, which is much better than the trends we have seen the last two years and also better than normal seasonal trends we saw pre-pandemic.
And consumer loan net charge-offs were 7.6%, which is down.
Speaker Change: These positive credit trends in both delinquencies and charge-offs reinforce our view that losses in our consumer loan portfolio peaked in the first half of 2024.
Moving to our newer products.
Speaker Change: OneMain auto receivables increased $105 million in the quarter to $2.4 billion at year-end.
Speaker Change: The credit performance in auto remains in line with our expectations and better than comparable industry performance.
Speaker Change: In our credit card business, we added $93 million in receivables during the quarter.
And they ended the year with receivables totaling $643 million.
Speaker Change: We continue to focus on building the foundations of a great card business, which we will grow when the time is right.
Speaker Change: Let me touch on capital allocation, where our priorities are unchanged. First and foremost, we invest in the business to position us for ongoing success.
Speaker Change: In 2025, we will continue to invest in growth, data science, technology and digital innovation, enhanced loan products, as well as our auto and credit card businesses.
Speaker Change: We're also committed to our regular dividend, which at $4.16 per share annually, yields about 7% at today's share price.
Speaker Change: During the year, we repurchased about 755,000 shares for approximately $35 million.
Speaker Change: We will pace our future share repurchases based on a number of factors, including our excess capital, capital needed for growth, economic conditions, and market dynamics.
Speaker Change: As we turn to 2025, we feel great about all of the key drivers of our business.
Speaker Change: We continue to serve more customers and grow receivables as we enhance our personal loan business and add new products.
Speaker Change: We have actively managed credit through a tricky economic environment the past several years and expect to see continued improvements into 2025.
Speaker Change: Our balance sheet is as strong and diversified as it has ever been, and we continue to invest in the business while being disciplined in expense management.
Speaker Change: Barring any shifts in the macroeconomic environment, we expect to see increased earnings and capital generation in 2025 and beyond.
With that, let me turn the call over to Jenny.
Jenny Osterhout: Thanks, Doug, and good morning, everyone. Let me begin by focusing on the quarter, then briefly recap our year, and conclude with what we expect for 2025.
Jenny Osterhout: Our fourth quarter was highlighted by the continuation of improved credit trends, growth in high-quality originations, and solid revenue growth. We also completed the year with continued strong execution in the funding markets.
Jenny Osterhout: Fourth quarter gap net income was $126 million, or $1.05 per diluted share, down from $1.38 per diluted share in the fourth quarter of 2023.
Jenny Osterhout: CNI adjusted net income was $1.16 per diluted share, down from $1.39 in the fourth quarter of 2023.
Jenny Osterhout: Capital generation, the metric against which we manage and measure our business, totaled $183 million, which compares to $191 million in the fourth quarter of 2023.
Jenny Osterhout: primarily reflecting the impacts of the current macroeconomic environment on our net charge-offs partially offset by higher interest income from portfolio growth.
Jenny Osterhout: Managed receivables finished the year at $24.7 billion, up $2.5 billion, or 11% from a year ago.
Jenny Osterhout: Fourth quarter originations were $3.5 billion, led by strong organic growth of 11% year over year. The acquisition of Foresight in April contributed another 5% to the total year over year increase of 16%.
Jenny Osterhout: This strong growth is a result of the constructive competitive environment, along with our focused efforts to drive originations within our continued conservative underwriting posture.
Jenny Osterhout: The APR on our consumer loan originations was 27.0% this quarter, up 16 basis points from the third quarter, continuing the trend we have seen for several quarters.
Jenny Osterhout: These origination levels will support yield as the book matures and older originations roll off.
Fourth quarter consumer loan yield was 22.2 percent.
Jenny Osterhout: up 14 basis points compared to the prior quarter, benefiting from pricing actions we've taken partially offset by the continued growth in our lower-loss, lower-yield one-main auto business.
Jenny Osterhout: As we look ahead to 2025, we expect flat to modest improvement in consumer loan yield from these levels, largely dependent on our product mix throughout the year.
Jenny Osterhout: Total revenue was $1.5 billion, up 9% compared to fourth quarter 2023.
Jenny Osterhout: Interest income of $1.3 billion grew 11% year-over-year driven by receivables growth. Other revenue of $177 million was down 4% from prior year.
Jenny Osterhout: Interest expense for the quarter was $310 million, up $39 million versus prior year, driven by an increase in average debt to support our receivables growth and modestly higher cost of funds compared to a year ago.
Jenny Osterhout: Interest expense as a percent of average net receivables in the quarter was 5.3%. As we look forward, we expect this to increase slightly.
The End of the World War II
Jenny Osterhout: Let's turn to slide 9 and look at consumer loan delinquency trends.
Jenny Osterhout: Our 30- to 89-day delinquency at December 31st, excluding our Foresight Acquisition, was 3.06%.
Jenny Osterhout: down 22 basis points year over year, which is notably better than the trend we saw a year ago and the trends we saw in the pre-pandemic periods, as shown on slide 10.
Jenny Osterhout: 30-plus delinquencies were down more than 50 basis points compared to a year ago, as 90-plus delinquencies also notably improved.
Jenny Osterhout: This quarter marks the first year-over-year improvement on delinquency in recent years. We are actively managing credit and see these trends as encouraging signs for continued positive momentum in lower loss levels and higher earnings in 2025 and beyond.
Jenny Osterhout: On slide 10, you can also see our front book vintages now comprise 84% of total receivables. The performance of the front book remains in line with expectations and is the primary driver of the improved credit trends in our portfolio.
Jenny Osterhout: And while the back book makes up just 16% of the total portfolio, it still represents about one-third of our 30-plus delinquency.
Jenny Osterhout: As the back book continues transitioning and we see the front book grow as a percentage of our portfolio, we expect our delinquency and loss metrics to continue to improve.
Jenny Osterhout: And it is worth noting that there remains some headwind in our credit metrics, from our decisions to tighten credit, slowing originations which has extended the average age of our portfolio.
Jenny Osterhout: Let's now turn to charge-offs and reserves, as shown on slide 11.
Jenny Osterhout: CNI net charge-offs, which includes credit cards, were 7.9% of average net receivables in the fourth quarter.
Jenny Osterhout: up 36 basis points from the third quarter, which is well below the approximate 100 basis point increases we've seen the last two years, and below the approximate 50 basis point increases we saw on average in pre-pandemic years.
Jenny Osterhout: We are also seeing the trends improve in our year-over-year comparisons. These are all encouraging signs of improved loss performance in the quarters ahead.
Jenny Osterhout: Also, it is helpful to point out that while still relatively small, the credit card portfolio is growing modestly and we are seeing an impact in our C&I net charge-offs from the higher loss card business, which carries higher overall revenue and generates attractive risk-adjusted returns.
Jenny Osterhout: Consumer loan net charge-offs, which exclude credit cards, were 7.6% in the quarter, down seven basis points year over year.
Jenny Osterhout: This clearly demonstrates the improvement we have been seeing in early delinquencies and the go-forward trajectory of losses as we move away from peak losses in the first half of 2024.
Jenny Osterhout: Recoveries remain steady and strong in the quarter at $77 million or 1.3% of receivables, well above our pre-pandemic levels.
Loan loss reserves ended the quarter at $2.7 billion.
Jenny Osterhout: Our reserves increased by $59 million in the quarter, driven by portfolio growth in consumer loans and credit card receivables, while our reserve coverage remained steady at 11.5%.
Jenny Osterhout: Once again, it's worth mentioning here that our reserves include the impact of our credit card portfolio, which as I mentioned, is higher loss and therefore carries a higher loss reserve.
Jenny Osterhout: And while we are seeing positive trends in our credit metrics, we haven't made changes in the macroeconomic assumptions in our reserve calculation, given the continued uncertainty around inflation and unemployment.
Jenny Osterhout: So, I expect in the near term to see our reserve coverage remain around current levels.
Jenny Osterhout: We will continue to assess reserve levels and expect that when the uncertainty around the macro subsides, and as we see sustained improvement in the credit performance of our portfolio, our coverage level will come down in time.
Jenny Osterhout: Now let's turn to slide 12. Operating expenses were $422 million, up 10% compared to a year ago, driven by the Foresight acquisition and investment in our business.
Jenny Osterhout: The full year 2024 OPEX ratio of 6.6% was abnormally low, resulting from the savings generated by the expense actions we took in the first quarter.
Jenny Osterhout: As we had said, we expected to reinvest a portion of the savings in the business to drive growth and efficiencies in the future, and you can see that reinvestment in the latter part of the year.
Jenny Osterhout: Stepping back, our business model continues to have inherent operating leverage, and you can see that as our OPEX ratio has steadily improved since 2019.
Jenny Osterhout: Now let's turn to funding and our balance sheet on slide 13.
Jenny Osterhout: During the quarter, we issued a $900 million, four-and-a-half-year unsecured bond at 6 5 8 percent.
Jenny Osterhout: The offering attracted a strong set of both new and returning investors and resulted in the narrowest spreads we've ever seen on an unsecured issuance.
Jenny Osterhout: Since June of 2023, we've issued six unsecured bonds totaling $4 billion, and with each issuance, we have seen gradual improvements in pricing and healthy demand for our bonds.
Jenny Osterhout: Also, you may have seen we've already begun our funding for 2025 earlier this month, with a five-year revolving $900 million auto ABS issuance with an average cost of funds just under 5.5%.
Jenny Osterhout: Once again, demand for our secured paper was extremely strong. We are feeling very good about where we stand with our best-in-class funding strategy and our ability to execute.
Jenny Osterhout: We're also pleased to have expanded our Forward Flow Hold Loan Sale Program to $900 million annually through the end of 2025.
Jenny Osterhout: As we've said before, we regularly evaluate the benefits of committed flow arrangements for their near and long-term effects to our business and are pleased with the economics of the program we have in place. We see these types of arrangements as useful tools to further diversify our funding options.
Jenny Osterhout: During the quarter, we also optimized our bank lines to $7.4 billion, and as part of that, we converted a $375 million secured bank line to private placement.
Jenny Osterhout: So we feel really good about our liquidity position and our runway.
Jenny Osterhout: Net leverage at the end of the fourth quarter was 5.6 times, flat to prior quarter. We've adjusted the calculation to remove quarterly volatility from the impact of changes in AOCI in our adjusted capital, aligning with common market practices and how the ratings agencies measure tangible equity.
Jenny Osterhout: Before I discuss 2025 strategic initiatives, let me briefly recap our full year 2024 performance against the expectations we laid out at the beginning of the year.
Jenny Osterhout: First, we expected to grow our managed receivables to approximately $24 billion.
Jenny Osterhout: inclusive of our auto finance acquisition, and we ended the year at $24.7 billion, benefiting from the strong competitive environment and the growth initiatives we successfully implemented starting in June of last year.
Jenny Osterhout: We expected total revenue growth in the range of 6 to 8 percent and we came in at the top end of our range at 7.6 percent.
Jenny Osterhout: We expected interest expense as a percentage of average net receivables to come in at approximately 5.2%.
Jenny Osterhout: And we came in at 5.26%, even as we held more excess cash on our balance sheet through much of the year and took the opportunity to raise incremental debt to manage near-term maturities and support our liquidity runway.
Jenny Osterhout: We expected C&I net charge-offs in the range of 7.7% to 8.3% while calling peak losses in the first half of 2024.
Jenny Osterhout: Finally, we expected our operating expense ratio to come down to approximately 6.7% from 7.0% in 2023. We came in at 6.6% for the full year.
Jenny Osterhout: Even in a challenging year where we saw peak losses resulting from a negative credit cycle, we generated capital of $685 million and a return on receivables of 3.1%, demonstrating the strength of our business model.
Jenny Osterhout: As credit improves and we continue to grow, we expect to see capital generation growth and improved returns positioning the business for continued success in the years ahead.
Jenny Osterhout: Now let's discuss our expectations for certain key metrics in 2025, turning to slide 15.
Jenny Osterhout: We expect to continue growing managed receivables and revenues, even as we remain cautious on the economy and maintain a tight credit posture.
Jenny Osterhout: And, as always, we are fully prepared to accelerate growth if and when conditions improve.
Jenny Osterhout: We expect managed receivables to grow approximately 5-8%, reflecting solid loan origination.
Jenny Osterhout: We expect revenue growth in the range of 6% to 8% following our expected receivables growth I just mentioned, along with modest improvement in consumer loan yield.
Jenny Osterhout: In terms of our guide for credit, we expect full-year C&I net charge-offs in the range of 7.5% to 8.0% as we reap the benefits of the actions we took to actively manage credit over the past couple of years.
Jenny Osterhout: We expect to see typical seasonal patterns once again in our quarterly losses with first half 2025's net charge-offs above the full year range and second half below.
Jenny Osterhout: Our guide assumes no change in the macroeconomic environment, including inflation.
Jenny Osterhout: I also think it's helpful to point out that you can see in our fourth quarter results that consumer loan net charge-offs are improving and running about 25 basis points below C&I net charge-offs.
Jenny Osterhout: As we mature the card business, and as consumer loans continue to improve, we expect that relationship will widen to approximately 40 basis points in 2025.
Jenny Osterhout: On operating expenses, there will be some minor variability throughout the year with a full year OPEX ratio of approximately 6.6%, in line with last year's OPEX ratio and notably better than our OPEX ratio in 2023.
Jenny Osterhout: In summary, as we look ahead to 2025 and beyond, we see strong momentum in our business and believe we're well positioned to excel in any economic environment.
Jenny Osterhout: To that end, we remain confident in our ability to achieve the medium-term capital generation and growth targets that we discussed during our 2023 Investor Day. And with that, let me turn the call back over to Doug.
Doug Shulman: Thanks, Jenny. I'm pleased with the results for the quarter and for the full year, and especially pleased with the progress we continue to make to enhance our competitive position.
Speaker Change: Just five years ago, we were a monoline provider of personal loans offered through our branch network.
Speaker Change: Today, we offer personal loans through multiple channels, including our branches, and have added credit cards for customers' everyday transactions and auto loans at the point of purchase.
This has expanded our addressable market ten times.
Speaker Change: And as we expand our business, we are bringing to bear our deep understanding of the non-prime consumer and our over 100-year history of best-in-class credit and balance sheet management.
Speaker Change: We have a lot of momentum going into 2025 and are excited to bring even more value to an ever-growing set of customers.
Speaker Change: I'll close by offering my thanks to all of the OneMain team members for their dedication and hard work throughout 2024 and their continued commitment to our customers every day.
With that, let me open it up to questions.
The floor is now open for questions.
Speaker Change: At this time, if you have a question or comment, please press star 1 on your telephone keypad.
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.
Thank you.
Our first question is coming from Terry Ma of Barclays.
Hey, thank you. Good morning. Good morning, Terry.
Terry MA: Good morning. Just to start off with credit, your delinquency trends inflected negative by quite a large margin this quarter, down 22 basis points. Can you just speak to your confidence of
Speaker Change: just whether or not you can kind of sustain that performance going forward. And then just on your guide for the year, the seven and a half to 8% charge off. I guess maybe just talk about what gets to the high end versus the low end, because obviously the high end is not that much improvement, whereas the low end is more meaningful. Thank you.
Jenny Osterhout: Thanks, Terry. It's Jenny. So let me start with your first question on sort of the credit trends.
Speaker Change: So, generally, we're really pleased with the continued improvement we've seen across
Speaker Change: early delinquency and late-stage delinquency. We're confident we've come down from those peak losses in the first quarter of 2024, and we're
Speaker Change: We look forward to lower losses driving improved earnings in CapGen.
Speaker Change: When we look at our delinquency trends this quarter, we really see them all pointing in the right direction.
Speaker Change: Consumer loan delinquency is better than our historical patterns and we saw it was you mentioned 22 basis points better than last year and only five basis points higher than the third quarter which is very good seasonally.
Speaker Change: And for losses, our consumer loan net charge-offs are down seven basis points year over year, so we've crossed over 2023 in our improving.
Speaker Change: And, you know, we focus on delinquency because that's the best leading indicator for losses.
Speaker Change: From where we sit right now, we really feel like we've seen the impact of our underwriting changes that we made since August 2022, and we're expecting that momentum to come through in 2025.
Speaker Change: and to hit on your second piece, you know, the go forward and the guide.
Speaker Change: and what it would take to put us sort of at the top end of that range or at the bottom end. I mean, it really is dependent on...
Speaker Change: the pace of the back book rolling off, those continued delinquency trends, and the roll rates.
Douglas Shulman, Richard Shane, Micah Conrad, Douglas Shulman, Peter Poillon
Speaker Change: towards the top end or to the extent it gets much worse, you know, it could push you much further. So, so I think those are sort of I think that's the best way to guide you.
Speaker Change: Got it. That's helpful. And then maybe as a follow up on the portfolio yield, I think you got it to kind of modest improvement.
Douglas Shulman, Micah Conrad, Douglas Shulman, Peter Poillon
Speaker Change: or so, any color around that and the dynamics go forward.
Thank you.
Speaker Change: Yeah, no problem. Thanks. So you're right. I said before, we're expecting very modest improvement from our fourth quarter run rate, which was 22.2% on consumer loan yield for for next year, or for this year, I should say.
Speaker Change: We are already seeing the improvements from the pricing actions that we've taken in the personal loan portfolio and the auto portfolio over the past several quarters, and that's starting to flow through. But as you know, those tailwinds are
Speaker Change: Partially offset by credit, and there's also the growth in our lower-loss, lower-yield auto business.
Speaker Change: And it takes time. So looking forward, that rate of improvement really will depend on our product mix, meaning auto, which types of personal loans we're lending, the state rate mix, etc.
David Scharf, David Scharf, David Scharf
We'll take our next question from Moshe Orenbuck, TD Cowen.
Thank you. Thank you. Thank you.
Speaker Change: you know, as a factor that's going to drive charge-offs, you know, relative to delinquencies. Could you just talk a little bit, I mean, given, obviously, we've got this persistent inflationary environment, but at least in theory, that continues to get better or less bad as time goes on. And maybe are there other factors that we should be looking at?
Speaker Change: Thanks for that. I think that's right. It's one of the key metrics that we're looking at. We do see roles from delinquency to charge-off performing pretty well. There is a little bit of noise from some of our new products.
Speaker Change: But if you look at the rolls from 30 to 89 for consumer loans, excluding foresight to charge off, those trends are in line to slightly better than what we would typically see. So that's a good sign, and we're watching it closely. And to the extent it continues, it would be a great sign for credit.
Speaker Change: Let me just add, Moshe, a little bit on credit, is
Speaker Change: You know, a lot of the improvement we're seeing is us actively managing the book, which means we've got a very high-touch personalized business model where we can work with any customer who might be getting into trouble and we think we get priority of payment.
And also, we've been originating.
Speaker Change: better credit customers who have, you know, plenty of net disposable income to pay us back.
And so what we've seen since, really, 22...
Speaker Change: You know, the credit performance of the loans we were booking all last year are performing as expected. But I think the important thing is, you know, as you mentioned, I mean,
Cumulative inflation is still high.
Speaker Change: You know, a customer still goes to the grocery store and pays $140 for their groceries when they used to pay $100 five years ago, and that's in their mind.
Speaker Change: The good news is income has caught up in aggregate, and so in general, you know, people are kind of curious about high and low end of the range.
If we see vintages of
customers, monthly vintages, quarterly vintages.
Speaker Change: start performing better than expected, that's what will start to, you know, drive things down and get you to lower end of the range.
Speaker Change: And so we're really happy that we've been able to manage our business to get the portfolio average of credit.
Speaker Change: It's not like the broad consumer has gotten wildly better in the last year. It's more, we've gotten better consumers on our book.
Got it, thanks.
Speaker Change: I guess as a follow-up, the kind of outlook that you put out there kind of has revenue and expenses growing at the same rate.
Speaker Change: And yes, I understand that your efficiency is better than it was, you know, pre-pandemic, but, you know, is there...
Speaker Change: either something in there that you're thinking of as specific investment for a multi-year period, or if we get to the higher end of the range on revenue growth, would we then see that operating leverage even at 25?
Speaker Change: Thanks. You know, I think there is some room in there, and I think we've got to wait and see how growth, originations growth, plays out, so I think there is some room to swing in there, but, you know, revenue growth broadly follows the growth in the portfolio and receivables, and there is some yield improvement in our revenues and a bit of fee revenue from the card book,
Speaker Change: And so, you know, the short answer is I think there's some room for that.
Thank you.
Our next question is from Mark DeVries of Deutsche Bank.
Thank you.
Speaker Change: or is kind of the mixed shift, you know, with adding in both auto at lower losses and car at presumably higher, kind of affecting the ultimate end point. Is it also kind of affecting the, kind of the near intermediate term dynamics on where that goes, just kind of the relative growth in your different...
Loan Types.
Thanks, it's a good question.
Speaker Change: So there's obviously a lot that goes into how we look at the Cecil Reserve, and so I'm going to break it down into its parts a little bit.
Speaker Change: and then we can come back to sort of how to think about the go forward.
Speaker Change: We said before we're confident in our delinquency and our loss metrics improving and
Douglas Shulman, Richard Shane, Micah Conrad, Douglas Shulman, Peter Poillon
I'd really say inflation, unemployment, and interest rates.
Speaker Change: And given there is a little uncertainty, we're just not ready to assume that things get better.
Speaker Change: So I think to the extent things get better, there's some potential there. And then you're right, there is some product mix. We have a growing but pretty immature card portfolio.
Speaker Change: So as that portfolio grows and we really figure out where it steadies out to, I think that's another piece of this. And so.
Speaker Change: Today, we're at that 11.5, and over time, we could see that overall reserve coming down. I would say about 50 basis points. I wouldn't expect it to get back to day one.
Speaker Change: but it's really dependent on the market environment and that product mix and the timing of the two.
Speaker Change: Okay, just to follow up on the CECL reserves on CARD. I mean, it looks like charge-offs are more than twice what they are for the average bill, but I'm assuming the average life is shorter. Is there, I'm just trying to get a sense of what we should model for kind of like a CECL day one reserve on a CARD balance versus the rest of your consumer loans.
Speaker Change: Yeah, when we look at it, we see consumer loans is closer to about 11.2% if you didn't have CARD, and then if you added in CARD, you'd obviously get closer to the reserve levels that we have today.
Okay, it's helpful, thank you.
Our next question is coming from John Hecht of Jeffreys
Doug Shulman: Morning, Doug and Jenny, thanks for taking my question. Good morning, John . Good morning.
John Hecht: Thanks. First question is, I know it's early and you've given some color on this, but it's early to evaluate 24, but are there measures you can look at or characteristics you can look at, maybe like first payment defaults or something like that, that you can kind of give us an initial take about what vintage 24 might be comparable to relative to history?
Thank you. Bye. Bye.
Thank you. Thank you.
and we continue to see early payoffs.
John Hecht: We've seen a 30 at 3 trend around to or a little bit below pre-pandemic levels. We are seeing 30 at 3 tracking closer to 2017, so I think we're quite happy with the more recent vintages.
Speaker Change: Okay. And then, you know, given the forward curve, I guess, you know, market conditions, which are pretty strong right now, and then your debt maturity stack.
Speaker Change: How should we think about cost of capital, assuming all of those stay kind of where they are now, what would happen to the cost of capital over the course of the year?
Thank you. Thank you.
Speaker Change: Thanks, that's a great question. Really, we expect this year to be slightly above where we are today, which we think is still pretty attractive given we've
Speaker Change: have risen, not as much as the cumulative impact from the rise of rates over the past several years, so we've been able to mute the rise quite a bit.
Speaker Change: This year is pretty locked in. Nearly 90% of our average debt for 2025 is already on our books at fixed rates today. In the near term, I think that's the best reasonable guide because we're relatively insulated from changes in rates in-year.
Wonderful. Thanks very much, guys.
Thank you. Thanks.
Speaker Change: Hey, good morning. Thanks for taking my questions. Just wanted to get a competitive update kind of by product channel, just weighing the supply and demand of credit across card, personal loans, and auto.
Speaker Change: Yeah, I mean let me give you a broad and then I can break it down a little. I mean personal loans is still by far the largest part of our book, the largest part of our originations. I think it's been a very constructive competitive environment for us as you see from our double-digit overall originations growth.
Speaker Change: have about two-thirds of what we're originating consistently all the way through 2024 be in our top two risk grades.
Speaker Change: and we've been able to get some price improvement along the way.
So that, you know, tells us that...
Speaker Change: You know, we still have a very good competitive position and that there's probably not as much supply for our customers with our value proposition at the price that we offer.
Speaker Change: With that said, one of the main drivers of competitive environment is people's access to capital.
Jenny Osterhout: We've got this differentiated balance sheet, you know, as Jenny said, we already have 90% of our funding on book. We've been able to
Jenny Osterhout: through this whole down cycle of the last several years of consumer credit in the non-prime space to make every single loan we want. Some of our competitors had real trouble raising
Jenny Osterhout: Funds a couple years ago. I think there is more supply of funds and people who want to lend
Jenny Osterhout: solid players. Generally, our spreads have been tighter than our competitors, so, you know, it still gives us some competitive advantage.
Jenny Osterhout: I think some of the newer tech players are, you know, you've seen kind of come in and out of the market some and so
Jenny Osterhout: I think in cards, you know, remember we have a very small book and there's a lot of different players. We're just a real upstart. So we have, you know, we find
Jenny Osterhout: channels and, you know, pockets where we have super high convictions. So it's not like we're competing broadly in the card market right now. I mean last quarter we originated 93 million of cards.
I think that market...
Jenny Osterhout: similar commentary of what I gave you. You know, the really big players and some of the banks have plenty of access to capital. Some of the smaller players have run into trouble. Some of them have sold off recently. And then a similar commentary in auto. You know, with our
with our independent dealers.
We've got a unique market position.
Jenny Osterhout: And, you know, we are, you know, a super strong player with the independent dealers and we see that market. We haven't seen a lot of competitive pressure. And then in the franchise dealers, which we've just gone into, you know, similar comment to what I said about cards is, you know, we're such a challenger and so small, you know, we're picking pockets. Foresight has
Jenny Osterhout: It's a more competitive environment than it was a couple of years ago.
Jenny Osterhout: But I don't think we're, you know, back to the same kind of some irrational competition that we saw in 21.
Speaker Change: Got it. Very helpful. And then just a quick follow-up, given where we are in the year and the quarter, just anything you'd highlight on tax refund expectations or what you've seen so far this year and kind of how you expect timing and magnitude to compare year over year?
Speaker Change: I think it's still pretty early, you know, as you know.
Speaker Change: Tax refunds usually means we have slower originations in the in the quarter, but we also, you know, some people use it to pay their loans. So we haven't seen anything wildly different than the last couple of years.
Got it. Thanks. Thanks for answering my questions.
Thank you.
Michael K.: Our next question is coming from Michael K. of Wells Fargo.
Michael K.: Hi, good morning. So extra impact of the mix effect of the front book, back book, and you also mentioned you're originating higher quality loans. Can you just give some color on how credit's performing more on a like-for-like basis, meaning how credit is trending across the risk grades?
Thank you.
Michael K.: Yeah, I'd say in general, in terms of across, we don't, we see all of our risk grades performing on the front book to expectations. So, in terms of if there's, you know, variability in terms of expected performance, I'd say there is none. Obviously, you know, you have different expectations for different risk grades. And it also goes much deeper than that in terms of by chance, you know, how they come in.
Michael K.: and a variety of other factors, but in general, no, we see no variability across the front book.
Speaker Change: Okay, and I saw a recent Fed report that shows the share of credit card accounts making minimum payments, you know, rose to a 12-year high.
Speaker Change: So I'm wondering, if you look at your recent trends and the use of proceeds for your loans, have you seen a surge in debt consolidation requests? I'm wondering maybe this is also adding to the higher loan demand you've been seeing.
Speaker Change: I think Doug mentioned a new debt consolidation product. Can you just talk about that?
Yeah, thanks. Thanks, Michael.
debt consolidation.
Speaker Change: Over the last year, we have really improved that product, added a lot of automation, which makes it much easier for people to automatically pay off the debts, and it's a smoother.
Speaker Change: Customer Interface for them, and we've also explicitly, you know, been having some marketing around debt consolidation as a value proposition.
Speaker Change: One of the reasons is what you state, I mean, there's been a real growth in balance of credit cards and we think, you know, as we kind of...
Speaker Change: If the environment remains stable, and as we even get into a better environment, I think people will be potentially wanting to pay down their credit cards and the personal lending product is an opportunity for them to...
Speaker Change: to do that. And so we haven't seen a lot of movement yet, but we have, you know, honed our product so that we're ready if the market moves in that direction.
Okay, thank you.
Speaker Change: Good morning, thank you for taking my question. I wanted to start first on the forward flow. Jenny, you touched on this in your comments, but could you expand on that a little bit? You know, we've obviously seen in the last few months private capital being very active.
Speaker Change: So I was just wondering, what's OneMain's view of that strategy? Can you just talk a little bit about how you balance originating for your balance sheet versus originating for private capital, like what the economics are, what the puts are? So, thanks.
Yep. Thanks, Mihir.
Speaker Change: You know, we really look at these types of arrangements as...
Speaker Change: Additive versus Necessary. So, you know, we show quarter after quarter that we have access to capital through the public markets and we really see that access as a true competitive differentiator for our business.
Speaker Change: And so, you know, we did mention today that we selectively expanded our Whole Loan Sale Forward Flow Program, and this year we'll have 900 million in committed.
flow arrangements through the end of 2025.
But just and just for scale, that's.
Speaker Change: Larger for us, we had $500 million in commitments in 2024, and the most we've done in any year was $720 million in 2022. So it is more. We think of it as nice flexibility, and we're open to exploring opportunities for more arrangements, and we have quite a few discussions.
Speaker Change: We see it as an opportunity to diversify funding sources, but we don't need those types of arrangements.
Speaker Change: So that allows us to be very disciplined when we look at pricing.
Speaker Change: and the economic trade-offs, and we're looking at all pieces of how you make those arrangements work, and it gives us some flexibility to make decisions in terms of when we want to enter into those arrangements.
Speaker Change: Great. No, that's helpful. Thank you. And then maybe just turning to the credit discussion a little bit and, you know, the consumer's health. And I guess what I'm trying to...
Speaker Change: I think you said two-thirds of your originations were in your top risk grades.
Speaker Change: I understand that, you know, you still are dealing with the back book and you mentioned a third of delinquencies, I think, are from the back book still. But as we get later into 2025, into 2026...
Speaker Change: What does that mean for your long-term loss rates or, I guess, the health of the customer? Like, how much variability is there in charge-offs between your top risk rates and the lower risk rates? So just try to understand, you know, longer-term the implications of continuing to originate more and more loans in the top
Speaker Change: on behalf of the top two buckets of your risk range. Thank you.
Speaker Change: Yeah, I mean, look, let me give you some context, because...
Speaker Change: You know, losses are a big driver, but we don't originate to a loss rate. We originate to 20% return on equity on the equity we put into every loan.
Speaker Change: And, you know, we've got a model that includes the revenue, the operating expense, the interest, and the losses.
Speaker Change: So some of this is depending on product and the price.
We can charge.
Thank you.
Speaker Change: You know, we are now headed down from what we think is the peak.
Speaker Change: in 2024, and we're moving in the right direction in 2025. But it's going to be dependent on product, you know, when we get there, it's going to be dependent on product mix, how we go. And again, you know, we're trying to run a return on equity business and a profitability business, not just a, like, get to the loss business. And so, as I mentioned, you know, earlier, we like the direction of travel now. You know, we had a couple of tough years with.
Speaker Change: increase in capital generation and you know a steady decrease in losses will be part of that.
Thank you.
Thank you so much.
Speaker Change: Sure. Well, we're at the top of the hour. Let me thank everyone for joining us.
Speaker Change: As always, if you have further questions, please get in touch with the team. Thank you to all of our investors for the really high-quality, valuable engagement we had in 2024 and we're looking forward to talking with you more in 2025.
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Thank you.
Speaker Change: Thank you. This does conclude today's One Main Financial Fourth Quarter 2024 Earnings Conference Call-In Webcast. Please disconnect your line at this time and have a wonderful day.
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