Q1 2025 OneMain Holdings Inc Earnings Call
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Speaker Change: Welcome to the Onemain financial first quarter 2025 earnings conference call and webcast.
Peter: The call today from Onemain as Peter <unk> head of Investor Relations.
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Peter: It is now my pleasure to turn the floor over to Peter <unk>.
Speaker Change: You may begin.
Speaker Change: Thank you operator, good morning, everyone and thank you for joining US let me begin by directing you to page two of the first quarter 2025, investor presentation, which contains important disclosures concerning forward looking statements and the use of non-GAAP measures.
Speaker Change: The presentation can be found in the Investor Relations section of the Onemain website or.
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 the forward looking statements.
Speaker Change: 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 April 29, 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 Jennie O's to house, our Chief Financial Officer.
Speaker Change: After the conclusion of our formal remarks.
Speaker Change: We will conduct a question and answer session.
Doug Shulman: 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, we feel great about the results in the first quarter, especially the continued positive credit trends.
Doug Shulman: Sites are actions that we took to tighten our underwriting optimized pricing and find opportunities for growth without loosening. Our credit box are now showing up in the bottom line and it put us on an upward trajectory of capital generation and earnings we re.
Doug Shulman: <unk> confident in our ability to execute on the 2025 financial objectives that we laid out at the beginning of the year.
Doug Shulman: We are operating from a position of strength.
Doug Shulman: Like every company, we are operating in an uncertain and rapidly evolving macroeconomic environment.
Doug Shulman: However, as you know we've been underwriting loans over the past few years with an extra stress cushion and we feel very well positioned today, given our experienced team resilient business model fortress balance sheet credit expertise and long experience.
Doug Shulman: Serving the non prime consumer we also continue to make excellent progress on our strategic initiatives, which is positioning us well for long term profitable growth.
Doug Shulman: Let me provide a few of the highlights of the quarter.
Doug Shulman: Capital generation of $194 million was up 25% year over year C&I adjusted earnings were $1 72 per share up 19%, our receivables grew 12% year over year and total revenue grew 10%.
Doug Shulman: Got it.
Doug Shulman: Originations grew 20% or 13% on an organic basis, we continue to acquire high quality customers at attractive pricing, even as we maintain the same conservative underwriting posture that we've had over the past two and a half years the.
Doug Shulman: Stronger originations are result of the continued constructive competitive bid environment and our expanded use of granular data and analytics as well as product innovation to Opportunistically drive growth.
Doug Shulman: Turning to credit the positive trends in delinquencies that we saw emerge in 'twenty 'twenty four have continued and those trends are resulting in lower net charge offs.
Doug Shulman: Our 30, plus delinquency was 5.08%, which is down 49 basis points year over year as compared to up 28 basis points at this time last year.
Doug Shulman: C&I net charge offs were eight 2% in the quarter down 49 basis points compared to the first quarter last year.
Doug Shulman: And consumer loan net charge offs were seven 8% down 75 basis points year over year. These.
Doug Shulman: These results reinforce our view that we are coming down from peak losses in 2024 and have a lot of tailwind behind us.
Doug Shulman: We now provide access to credit to over 3.4 million customers, that's up 14% from a year ago.
Doug Shulman: A substantial portion of that growth is attributable to a bright white credit cards and Onemain auto we view these products as important to our future growth strategies, as we acquire and engage our customers across our multi product platform.
Doug Shulman: In our credit card business, we ended the period with $676 million of card receivables.
Doug Shulman: While we've been measured in our credit card growth given the uncertain market conditions, we remain focused on building a resilient and profitable business for the long term that provides great value to our customers and attractive returns for our shareholders.
Doug Shulman: In our auto finance business, we ended the quarter with $2 $5 billion of receivables credit performance remains in line with expectations and better than comparable industry performance.
Doug Shulman: We continue to drive efficiencies between our legacy independent dealer business and newer franchise dealer business as we build a world class auto finance platform for the future.
Doug Shulman: Similar to personal loans, our underwriting posture in credit cards and auto remains conservative.
Doug Shulman: That said, we continue to invest in these businesses for the future as we are quite confident that these products are attractive to the consumers that we serve.
Doug Shulman: We're prepared to ramp growth at the appropriate time.
Doug Shulman: Let me talk for a couple of minutes about the recent uncertainty caused by trade policy.
Doug Shulman: I, obviously don't know the final outcome of tariff negotiations, nor do I know the second order effects on economic growth.
Doug Shulman: Point that inflation or interest rates.
Doug Shulman: What I do know is that to date, we are not seeing any weakness and the consumers that we serve and that I believe we are uniquely positioned to manage during these uncertain times.
Doug Shulman: We have one of the strongest and most diversified balance sheets in the industry. We maintained 24 months of liquidity runway at any given time.
Doug Shulman: Even if we keep the current pace of originations we have already pre funded much of what we need for the year, leaving us a lot of flexibility in terms of how and when we fund for the rest of the year, we have multiple options, including issuing unsecured debt issuing ABS.
Doug Shulman: Or should we need to drawing from our $7.5 billion of available bank lines, and we expect our interest expense to stay within a tight range. Since we have set up our debt stack with fixed rate long dated staggered maturities.
Doug Shulman: From a credit perspective for almost three years, we've been applying an additional 30% stress assumption to our credit models on top of the stress that we've already seen in the past few years. This means that if the losses on the loans we originated.
Doug Shulman: Since the summer of 2022 saw 30% stress, we would still clear our 20% return on equity hurdle.
Doug Shulman: Stated another way, even if we see increases in inflation or unemployment, we had built in cushion for our book can remain very profitable.
Doug Shulman: We have a lot of experience managing our business in uncertain times, we're maintaining our already conservative credit posture and are very alert to any changes we see in our customer behavior.
Confident that our team business model balance sheet credit expertise and experience serving the non prime customer positions us very well to manage anything that comes our way.
Doug Shulman: We've also been making progress on long term strategic options, let me spend a moment discussing our recent application to the Utah Department of financial institutions, and the FDIC to form one main bank an industrial loan company.
Doug Shulman: <unk> referred to as an ILC.
Doug Shulman: First I want to be clear that if our application is not approved we feel very confident in the current business plan that we laid out at our Investor day and are executing on now it would be great. If we got an ILC, but it is not necessary for the.
Doug Shulman: The success of Onemain.
Doug Shulman: If approved the ILC would be a small subsidiary of Onemain financial.
Doug Shulman: It would not affect our capital allocation strategy, because with an ILC our parent company would not become a bank holding company.
Doug Shulman: There's real strategic value in a subsidiary industrial bank, because it would allow us to provide access to credit to more customers and drive capital generation.
Doug Shulman: It would also allow us to diversify funding simplify our operating model and drive some operating efficiencies and our credit card business in terms of timing, while we believe we're uniquely qualified for approval. There is no guarantee that our application will be granted and it's difficult to say how.
Doug Shulman: Long the process might take.
Doug Shulman: Let me close on capital allocation, where our priorities are unchanged. We continue to focus on the long term success of our business, including strategically investing in our expanded product set data science and digital innovation as well as profitable growth.
Doug Shulman: Our regular annual dividend of $4 16 per share.
Doug Shulman: Yields about 9% at today's share price.
Doug Shulman: We repurchased 323000 shares for approximately $16 million during the first quarter, we will continue to pace our repurchases based on a number of factors, including excess capital available economic conditions and market dynamics with that.
Jenny: Let me turn the call over to Jenny.
Jenny: Thanks, Doug and good morning, everyone.
Jenny: I'll start by summarizing our quarterly results as our strong performance this quarter supports our confidence in our unchanged full year outlook.
Jenny: Our results are highlighted by receivable growth from increasing high quality originations robust growth in total revenue ongoing disciplined expense management and steady improvement in credit performance.
Jenny: Together these led to improving returns on a larger portfolio and therefore growth in capital generation and capital generation return on receivables.
Jenny: We also further strengthened our balance sheet, raising $1 $5 billion debt issuance in both the secured and unsecured markets, demonstrating our leading market access and funding execution.
Jenny: First quarter GAAP net income was $213 million or $1.78 per diluted share up 38% from $1.29 per diluted share in the first quarter of 2024.
Jenny: C&I adjusted net income was $1.72 per diluted share up 19% from $1.45 in the first quarter of 2024.
Jenny: Capital generation, the metric against which we manage and measure our business totaled $194 million up 25% or $39 million from $155 million in the first quarter of 2024.
Jenny: Selecting growth in our loan portfolio and notable improvement in our credit performance.
We have returned to year over year growth and capital generation as we have successfully navigated through what has been and continues to be a challenging post COVID-19 inflationary environment affecting our customers further proof that our responsive customer focused operating model and advanced analytics gave us.
Jenny: A significant advantage to manage through any economic scenario.
Jenny: Managed receivables ended the quarter at $24 $6 billion up $2 $6 billion or 12% from a year ago.
Jenny: First quarter originations were $3 billion up 20% year over year, excluding the acquisition of foresight, our auto finance business is focused on franchise dealerships.
Jenny: Our organic originations growth was 13%.
Jenny: Demonstrating our ability to find profitable pockets of growth in higher quality originations segments of the near Prime market.
Jenny: I want to point out that as of April 1st of this year. We are a year post acquisition of foresight. So we expect total origination growth will moderate closer to our year over year organic growth percentage going forward.
Jenny: This strong origination growth has been supported by consumer loan origination apr's that have remained steady and healthy at 26, 8%.
Jenny: First quarter consumer loan yield was 22, 4% up 20 basis points from the fourth quarter and up 28 basis points year over year.
Jenny: Consumer loan yields are benefiting from the pricing actions, we have taken since mid 2023, which have more than offset the impact of growing our lower yield lower loss auto finance portfolio, given the constructive competitive environment, we were able to sustain the improved pricing.
Jenny: Looking ahead, we expect modest improvement to yield how exactly yield will trend is dependent on several factors, including pricing, which will be influenced by the competitive landscape. Our 90, plus delinquency performance and the mix of our portfolio between our personal loans in our auto finance product.
Jenny: Total revenue was $1 $5 billion up 10% compared to the first quarter of 2020 for.
Jenny: Interest income of $1 $3 billion grew 11% year over year, driven by receivables growth and the yield improvement I just mentioned other.
Jenny: Other revenue of $191 million grew 6% compared to the first quarter of 2024.
Jenny: Primarily driven by higher gain on sale and servicing income associated with the expanded whole loan sale agreement I discussed on our last earnings call.
Jenny: Interest expense for the quarter was $311 million up $35 million compared to the first quarter of 2024, driven by the increase in average debt to support our receivables growth and modestly higher cost of funds compared to a year ago.
Jenny: On the latter point interest expense as a percentage of average net receivables in the quarter was five 4%.
Jenny: This is in line with our expectations for the full year.
Jenny: As you know our balance sheet strategy to issue fixed rate longer dated securities Minimises the impact from market fluctuations in any given year. We expect this metric to remain steady through 2025.
Jenny: First quarter provision expense was $456 million, comprising net charge offs of $473 million and $17 million decrease to our reserves driven by the typical seasonal decline in receivables during the first quarter as our loan loss ratio remained flat quarter over quarter.
Jenny: Sure.
Jenny: I will discuss losses in more detail momentarily.
Jenny: Policyholder benefits and claims expense for the quarter was $49 million essentially flat to prior year and we continue to expect quarterly <unk> expense in the low $50 million range over the remainder of 2025.
Jenny: Let's turn to slide eight and look at consumer loan delinquency trends.
Jenny: 30, plus delinquency at March 31, excluding foresight was 5.08% down.
Jenny: Down 49 basis points compared to a year ago benefiting from improvements in both early and late stage delinquencies.
Jenny: The seasonal quarter over quarter trend improvement of 57 basis points is also better than pre pandemic patterns.
Jenny: Our 30 to 89 day delinquency was 263% down 90 basis points year over year, continuing the downward momentum we saw a quarter ago.
Jenny: We are pleased with our improving credit metrics and anticipate these positives delinquency trends will continue to enhance our loss performance in the upcoming quarters.
Jenny: On slide nine you see our front book vintages comprised of consumer loans originated after our August 2022 credit tightening.
Jenny: Now make up 87% of total receivables the performance of the front book remains in line with expectations and will result in improved credit trends in our portfolio going forward.
Jenny: While the back book continues to diminish now only accounting for 13% of the total portfolio. It still represents more than a quarter of our 30 plus delinquency.
Jenny: We anticipate that the back book will continue to run down over the remainder of this year with negligible contribution by yearend.
Jenny: Let us now turn to charge offs and reserves as shown on slide 10.
Jenny: Eni net charge offs, which include credit cards were eight 2% of average net receivables in the first quarter down 49 basis points from a year ago.
Jenny: This marks the first quarter since 2021, where C&I losses improved as compared to prior year.
Jenny: Following the trends we saw in early delinquency in the second half of 2024.
Jenny: This gives us confidence in the trajectory of losses for the year and aligns with our expectation for notable improvement in net charge offs in 2025 compared to 2024.
Jenny: Consumer loan net charge offs, which exclude credit card or seven 8% in the quarter down 75 basis points year over year, we commented a year ago that we expected consumer loan peak losses in the first half of 2024, and we are seeing losses trend down as <unk>.
Jenny: Anticipated.
Jenny: Recoveries remained strong in the quarter at $88 million or one 5% of receivables.
Jenny: <unk> in the quarter, including approximately $12 million of bulk sales of charged off loans, a similar level to the first quarter of 2024.
Jenny: We continue to Opportunistically utilize the many strategies, we have available to optimize recovery.
Jenny: Loan loss reserves ended the quarter at $2 7 billion while.
Jenny: While the credit performance of our portfolio is improving as you can see in our charge off and delinquency metrics. Our reserve coverage stayed essentially flat during the quarter as we maintained our conservative macroeconomic overlay in our reserve formula.
Jenny: Keep in mind that our loan loss reserves include our credit card portfolio, which has higher losses that are more than offset by the greater than 30% revenue yield that the credit card product generates.
Jenny: The credit card portfolio naturally carries a higher reserve ratio and although it's still a small portion of the total portfolio. It currently contributes about 30 basis points to the overall reserve ratio.
Jenny: We feel very good about our reserve levels, but recognize that the economy is evolving and we will be prepared to adjust reserves if needed going forward.
Jenny: Now, let's turn to slide 11, operating expenses were $401 million down, 5% from fourth quarter and up 11% compared to a year ago for context on the year over year comparison. The first quarter of 2024 does not include foresight expenses and was also.
Jenny: <unk> lowered given expense reduction actions in the quarter.
Jenny: We feel great about the operating leverage in the business and our expense ratio of six 6%. This quarter was down from six 8% last quarter and in line with our expectation for full year 2025, as we drive operating efficiency, while also investing for future profitable growth.
Jenny: Now, let us turn to funding and our balance sheet on slide 12.
Jenny: During the quarter, we raised a total of $1 $5 billion through two issuances in.
Jenny: In January we issued a five year revolving 900 million dollar auto ABS issuance with an average cost of funds just under five 5%.
Jenny: In March as the markets began to get more volatile we issued 600 million dollar unsecured bond at six and three quarters percent. The seven year tenor of this bond provides the right flexibility with a three year call feature and extends our maturity profile into 2032.
Jenny: During the quarter, we increased our secured bank lines further strengthening our liquidity profile.
Our bank facilities totaled $7 $5 billion at quarter end with unencumbered receivables of $10 2 billion.
Jenny: We proactively raised $1 $5 billion this quarter and have increased our liquidity profile.
Jenny: This combined with our diversified funding sources provide flexibility in our funding strategy over the remainder of the year.
Jenny: Our robust funding model with unparalleled market access and execution, regardless of the environment gives us a competitive edge.
Jenny: We are diligent in our focus on maintaining our fortress balance sheet and see it as a true advantage, especially in times of uncertainty.
Jenny: Net leverage at the end of the first quarter was five five times slightly below last quarter.
Jenny: Turning to slide 14.
Jenny: We are maintaining our 2025 guidance that we provided to you last quarter, we had a strong first quarter and are confident in our ability to successfully manage through uncertain economic environments. As we have demonstrated time and again.
Jenny: For full year 2025, we expect to grow manage receivables by 5% to 8%.
Jenny: And total revenue by 6% to 8% we.
Jenny: We expect C&I net charge offs of 7.5% to 8% and.
Jenny: And in the operating expense ratio of approximately six 6%.
Jenny: All of which we expect will drive improved capital generation as compared to 2024.
Jenny: To date, we arent seeing any weakness in the consumers we serve but we are closely monitoring the markets for shifts that may impact our customers. We believe the resiliency of our business model and the experience of our teams allow us to manage comfortably within the ranges that we provided you in January.
Jenny: In summary, we feel great about the start of the year. Our book continues to perform well and we believe we have solid momentum moving forward this positions us well to deliver exceptional shareholder value in 2025 and throughout the years ahead.
Doug Shulman: And with that let me turn the call back over to Doug.
Doug Shulman: Thanks Jenny.
Doug Shulman: I'll, just reiterate we delivered a strong quarter across our entire business.
Doug Shulman: From credit to originations to funding to expense management.
Doug Shulman: All of which sets us up for continued growth in capital generation we.
Doug Shulman: We are confident in the unique strength of our business model and our strategic initiatives and we are positioned onemain very well in the current environment and for the long term.
Doug Shulman: I'll close by offering my thanks to all of the Onemain team members for their continued dedication to help our customers improve their financial wellbeing.
Doug Shulman: With that let me open it up for questions.
Doug Shulman: The floor is now opened for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone.
Doug Shulman: If at any point. Your question is answered you may remove yourself from the queue by pressing star two.
Doug Shulman: Again, we do ask that while you pose your question that you pick up your handset to provide optimal sound quality.
Doug Shulman: Thank you.
Speaker Change: Our first question is from Moshe Orenbuch of TD Cowen.
Speaker Change: Great. Thanks, so much and congratulations.
Speaker Change: Doug I was hoping you could expand a little bit on the benefits.
Speaker Change: The ILC what it what it can do in terms of.
Speaker Change: You talked a little bit about market expansion.
Chuck: Chuck can you can you discuss that just in a little more detail. Thanks.
Chuck: Sure Hi, Moshe how are you doing.
Chuck: The.
Chuck: Look.
Chuck: As I've said, we think that the ILC.
Chuck: If it's approved will be additive to our strategy not necessary, but additive and it will drive some extra capital generation for our business.
Chuck: I think it complements our overall strategy to be the lender of choice to the non prime consumer.
Chuck: The benefits as we see them and we've gone through this in detail.
Chuck: Is over time, we'd be able to serve more customers.
Chuck: Because a unified nation wide rate structure allows us to price for risk and there are some states where we have.
Chuck: Yeah, we abide by state.
Chuck: Rate caps, we voluntarily cap our rates at 36%, but there are some places where we don't take on customers because they pose too much risk because we can't price for us. So that's one from market expansion. It also would allow us to simplify our operating model right now we have.
Chuck: <unk> was <unk> 47 states that we abide by the different different loan caps.
Chuck: Different structures different rates with different structures. So it would provide some operating efficiency in that way, we would obviously get access to funding, which would be a nice diversification of our.
Chuck: Our to deposit funding, which would be a nice diversification of our balance sheet and right now we use a partner bank as the issuing bank for our credit card and so we'd be able to have our own bank as the issuing bank for our growing credit card.
Chuck: Hi.
Chuck: Portfolio, one of the keys to the ILC, though as we'd be able to do all of that and get all those benefits without the parent company, becoming a bank holding company and all of the attendant capital.
Chuck: Implications that come with bank holding company status. So we think it would be great to get an ILC. We put the work in we're having constructive dialogue with the FDIC and the state of Utah and yes, we.
Chuck: We will keep going down that path.
Chuck: Got it got it.
Chuck: Maybe just.
Chuck: On credit I guess.
Speaker Change: You mentioned in the slides Jenny you spoke about it.
Chuck: Yes.
Chuck: Essentially better performance on that late stage. If you will early stage kind of being in line with seasonal patterns in the late stage.
Chuck: Kind of better than.
Speaker Change: Is there like some underlying reason there that.
Chuck: That is happening is it that the.
Chuck: The performance as it does it in any way relate to the front book back book performances.
Chuck: Any kind of effect.
Chuck: Help you can give us there would be.
Chuck: It would be good thanks.
Moshe Orenbuch: Thanks Moshe.
Speaker Change: I think you're spot on we are seeing modest improvement in those roles from delinquency to charge off and that's we find that an encouraging sign.
Speaker Change: There is a bit of noise from our newer auto product, but even when we look at the rolls from 30 to 89 to loss for consumer loans, excluding foresight.
Speaker Change: We find the trends are modestly better than what we typically see so.
Speaker Change: And and I should say were also seeing this in cards, but it's a newer book. So we don't quite have a view of what typical looks like yet.
Speaker Change: Im hesitant to call it a trend yet we're monitoring it closely and we obviously think it's a positive trend and if it continues it could help us achieve the lower end of our guidance range, but right now we're watching it and pleased to see it.
Speaker Change: Okay. Thanks very much.
Speaker Change: Our next question is from Mark Devries of Deutsche Bank. Your line is open.
Speaker Change: Yeah. Thanks, Yeah. It makes a lot of sense.
Speaker Change: The ratio was mostly unchanged. Despite the strong credit trends just given the macro uncertainty.
Speaker Change: Though if uncertainty doesn't really transitioned to a weaker economy, how should we expect the reserve ratio to kind of move over the course of the year, if the strong credit trends hold.
Speaker Change:
Speaker Change: Thank you.
Speaker Change: Good question I mean, as you know six always is pretty complex.
Speaker Change: We forecast those expected losses for the lifetime.
Speaker Change: Incorporating pass a current.
Speaker Change: Current and expected future performance. So it is primarily driven by current book performance and looking at the direction of our delinquency looking at this roll rates I, just talked about our recoveries and our credit mix.
Speaker Change: There's a little bit of product mix as well.
Speaker Change: With the growing credit card portfolio and the pressures that puts a little bit of pressure on them.
Speaker Change: On the reserves, while the growing auto portfolio helps bring reserves down a bit so a lot of it depends on that mix and how our products grow.
Speaker Change: And then obviously as you mentioned there the expectations about the future and unemployment and inflation, which go into that overlay. So.
Speaker Change: Yeah I think.
Speaker Change: Given theres more uncertainty today than we have in prior quarters. This is one time when I you know I really want to say, we're going to wait and see how it plays out in terms of where reserves will go going forward.
Speaker Change: Okay got it and then.
Moshe Orenbuch: Doug in your prepared comments, you alluded to the kind of ability.
Moshe Orenbuch: When you're ready to kind of accelerate growth from the new products I'm just curious with what you want to see book before you really look to accelerate the growth in card and auto.
Moshe Orenbuch: Yeah I mean.
Moshe Orenbuch: I think a lot of it is the macro uncertainty where.
Moshe Orenbuch: These are newer products, we're not in a rush we're solidifying the platform in auto we've put the two companies together.
Moshe Orenbuch: We've moved on to one technology.
Moshe Orenbuch: We've built our credit models all of our multiple years in a combine those models and teams.
Moshe Orenbuch: We've got a very good cost structure, and we can leverage a bunch of the cost structure that we already had.
Moshe Orenbuch: At Onemain and so we're spending this time solidifying that platform similar with card great value proposition.
Moshe Orenbuch: Very good use.
Moshe Orenbuch: Utilization rates engagement rates on the App, we've been driving down the unit cost as it as we scale the product and so a lot of what we're doing now is just hardening those platforms I think there's no magic.
Moshe Orenbuch: You know number indicator thats going to tell us it's time to grow like as long as we keep seeing steady credit performance, we've got 30% stress overlay on those new <unk>.
Moshe Orenbuch: Business is once we start.
Moshe Orenbuch: Ceiling that we're kind of fully out of the woods from the inflation driven credit cycle that we saw for the past three years will be the time more likely accelerate.
Moshe Orenbuch: Got it thank you.
Moshe Orenbuch: Okay.
Speaker Change: Our next question is from Rick Shane of J P. Morgan.
Speaker Change: Thanks, guys for taking my questions.
Speaker Change: Look one of the things we see in the first quarter results is.
Speaker Change: A nice benefit from recoveries on the charge off rate I'm curious if that is a function of a stronger used car prices or is a function of basically catch up you have more.
Speaker Change: Recoveries as you emerge from this period of elevated charge offs and what you expect in terms of recoveries going forward.
Speaker Change: Thanks, Rick this.
Jenny: This is Jenny.
Speaker Change: Yeah.
Speaker Change: Youre right, we do continue to see strong recovery performance.
Speaker Change: Positive trend trending above those pre pandemic recovery level.
Speaker Change: We had about $88 million in recoveries this quarter and that includes about $12 million of post charge off debt sales. So that's in line with our first quarter 'twenty four.
Speaker Change: In terms of Ah.
And in terms of debt sales. So there is not much of a shift there year over year.
Speaker Change: Where we're really looking at the value of internal versus external collections with those box bulk sales and making sure we maximize the economics.
Speaker Change: I think this is really a matter of used car prices, obviously, that's something that we'll watch for the future but for today I think it's really just <unk>.
Speaker Change: Generally the work that we're putting in and we like where our recovery stand and you know I think you could expect something similar for the future.
Speaker Change: Got it and on sales of charged off receivables, how is pricing compared to a year ago.
Speaker Change:
Speaker Change: In terms of the sales.
Speaker Change: We've seen that.
Speaker Change: I'd say, it's slightly down in terms of compared to a year ago, but it's pretty stable I mean, we're still seeing demand for those for those sales.
Speaker Change: Terrific. Thank you very much Jenny.
Speaker Change: Okay.
Speaker Change: And our next question is from Michael Kaye of Wells Fargo.
Speaker Change: Mr. Kelly you may want to check your mute switch.
Speaker Change: Oh, sorry about that.
Speaker Change: Had a quick question on the ILC. So if your are in fact approved.
Speaker Change: Wonder if confirm or do you plan to put all your originations through the bank.
Speaker Change: Not just a relatively small amount of prime loans, which will likely expand that bank.
Speaker Change: You could probably say that the IOC is going to expand our consumers' access to credit but.
Speaker Change: And our critics might say this is just an attempt to bypass figures where you Lars pushing.
Speaker Change: Pushing all the originations through a small ILC bank just love to hear your thoughts on that.
Speaker Change: Yeah, we.
Speaker Change: I talked.
Speaker Change: And the first question gave you all the benefits of ILC unified rate structure simplified operating model.
Speaker Change: Access to deposit fundings issuing bank for the credit card and it's a unique bank license, which wouldn't make us.
Speaker Change: A bank holding company at the parent, which we which we think would be positive. We are we obviously cap our rates so.
Speaker Change: Words like user base.
Michael Kaye: Michael we fully reject.
Michael Kaye: We're responsible lender who provides great value to our customers. If we had an ILC are rates Wouldnt go higher than our Max rate is now.
Michael Kaye: And we would put a bunch of our loans through the ILC not just the loans that would stay there, but we'd also be keeping.
Michael Kaye: A good portion of loans in the ILC.
Michael Kaye: Okay.
Michael Kaye: No you don't.
Michael Kaye: You're disclosing it in.
Michael Kaye: Our earnings press release, but you know I calculated.
Michael Kaye: Credit card net charge off rate very high it's up to 20%.
Michael Kaye: Up from 17% last quarter I just wanted to confirm.
Speaker Change: Firm, you're still comfortable with the credit performance.
Michael Kaye: Yeah Yeah.
Michael Kaye: Thanks.
Michael Kaye: Michael This is Jeremy.
Michael Kaye: So are these.
Speaker Change: This quarter you closed this quarter, our card losses, which will come out it'll come out in the Q or 19, 8%.
Speaker Change: This quarter, those losses were actually a bit better than our expectations.
Speaker Change: Seasonally losses and cards are higher in the first half of the year. So they did go up some but again they are they are better than our expectations.
Speaker Change: Book has been growing and it's small and it's seasoning. So theres some of that dynamic and for the long term, we still feel quite good about where it's going and we like the returns for the business remember it has an over 30% revenue yield which includes annual fees late fees.
Speaker Change: And the losses, we still expect to be in that 15% to 17% range. So supporting really good return on receivables in the long term.
Speaker Change: Okay alright, thank you.
Mihir Bhatia: Our next question is from Mihir Bhatia of Bank of America.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Right.
Speaker Change: Just about yet.
Speaker Change: Yes, hi, good morning, Thank you for taking my question.
Speaker Change: Wanted to start with.
Speaker Change: The yield outlook and the competitive intensity.
Speaker Change: Andy you mentioned in your comments so there is modest.
Speaker Change: Improvements in yield still potentially subject to competitive intensity. So maybe just talk about that a little bit what are you seeing in the market did you see competitors pull back in April with the noise around macro imbalance.
Speaker Change: Any comments on competitive intensity that you've seen thank you.
Speaker Change: Yeah look the competitive environment remains constructive for us in the quarter, we didn't see any massive shifts from what we've talked about before.
Speaker Change: We're still able to get double digit originations growth.
Speaker Change: With.
Speaker Change: About two thirds of our loans and our top two risk grades and we've gotten some price improvement along the way. So we're able to compete very well in this competitive environment.
Speaker Change: Competitors can still get access to capital, but as you know the debt markets have been very volatile and the strength of our balance sheet and.
Speaker Change: It gives us the ability to get tighter spreads than a lot of our competitors and also we have plenty of access to funding and that can be volatile and this kind of a market.
Speaker Change: And then a bunch of folks in the competitive landscape some of the tech players have ebbed and flowed around her.
Speaker Change: How much they've originated over the past three years since there's been some dislocation caused by inflation, our customers and the customers who come to us.
Speaker Change: They appreciate that we've been consistently in the market available to provide access to credit.
Speaker Change: To non prime customers through thick and thin and so I think it positions us well in the market. So we.
Speaker Change: We haven't seen any major change from the fourth quarter, but we're still seeing a constructive competitive environment.
Speaker Change: Okay. Thank.
Speaker Change: Thank you for that and then maybe just switching gears back to credit for a second.
Speaker Change: Your credit outlook assumes no inflation.
Speaker Change: With that it's coming what I wanted to understand a little bit more was the impact of inflation on your credit performance, how fast does it come through.
Speaker Change: Given that you tightened underwriting added that 30% stress smell.
Speaker Change: Would it be a little different now compared to like 2020 through 2023.
Speaker Change: Inflation had an effect on your losses, just trying to understand.
Speaker Change: Just a tolerance around that.
Speaker Change: Assumption if you will thank you yeah, let me.
Speaker Change: But let me take it and give you Directionally stop first I would correct you our credit outlook does not expect no inflation within the range. It can tolerate some inflation.
Second of all the 30% stress that we put on.
Speaker Change: On all originations.
Speaker Change: Our assumption.
Speaker Change: Which effectively tightened our credit box pretty significantly in August of 2022 remains in place and so what that means is if the performance of our credit.
Speaker Change: Our models basically.
Speaker Change: Okay.
Speaker Change: Our models are run and on a regular basis. They are updated and they assume current credit performance. So in 'twenty two 'twenty three 'twenty four they were assuming credit current credit performance, which had some elevated delinquencies. We said, even if losses are 30% higher.
Speaker Change: Fire at their peak.
Speaker Change: Would still meet our 20% return on equity hurdles. So we underwrite to our return on equity of hurdle, we feel very comfortable that theres still some cushion.
Speaker Change: In our book, if we saw either inflation or unemployment start to tick up I think the exact effects of inflation very hard to predict I mean, we saw it in the cycle when there was massive inflation.
Speaker Change: The whole industry saw stressed credit.
Speaker Change: What small ticks of inflation would do is a little unknown, but we've been underwriting so we feel well prepared for it if it was going to happen.
Speaker Change: Got it.
Speaker Change: Speaking of IDC no.
Speaker Change: Typically changes thank you.
Speaker Change: Okay.
Speaker Change: Our next question is coming from Kyle Joseph of Stephens.
Kyle Joseph: Hey, good morning, Thanks for taking my questions most have been answered.
Kyle Joseph: But just wanted to get a sense. Obviously, you guys have a tremendous portfolio of consumers across a number of products, but just wanted to hear if you're seeing any sort of shift in consumer behavior. Obviously, we see the data in terms of consumer confidence, but on the auto side was there any sort of pull forward.
Kyle Joseph: On the card side have you seen any sort of spend our volume discrepancies and then I guess in terms of on the personal loan any sort of shifts in demands or willingness to borrow are less of a willingness for all I'd say.
Yes, I mean look what I'd say is you know everyone who's alive and wake in.
Kyle Joseph: April 2025, it feels like it's a very volatile environment with the stock market swings and all the press, but on our book to date, we're really not seeing any of that we're seeing good demand across our products.
Kyle Joseph: We're seeing really steady and predictable credit trends, which because of the way we manage our business are all headed.
Kyle Joseph: In the right direction.
Kyle Joseph: We actually do.
Kyle Joseph: A structured survey of our branches to get feedback and we didn't see in the first quarter.
Kyle Joseph: Any change in sentiment from what they saw in the previous quarters and so you know.
Kyle Joseph: We really like our consumer is not seeing the stress we're not seeing it on our books and we feel actually quite positive about.
Kyle Joseph: Kind of everything we're seeing in our business.
Speaker Change: Okay got it great. Thanks for taking my questions.
Speaker Change: Our next question is coming from Vincent <unk> of BTG.
Vincent: Hey, good morning, Thank you for taking my question.
Speaker Change: Follow up on the credit reserve rate so.
Speaker Change: Lot of good results and commentary about credit performance and.
Speaker Change: Looking at that credit reserve rate of 11, 5%.
Speaker Change: I assume that it would have.
The credit trends would have otherwise gone lower so I just wanted to understand.
Speaker Change: At 11, 5% how much conservatism is baked in if you could maybe talk about the assumptions you are making like with macro trends like unemployment rates.
Speaker Change: And what would cause credit reserves would have to change.
Assume that you could even hit the high end of your loss rate guidance of eight 8% and still be okay with that 11, 5%. So I just wanted to understand that.
Speaker Change: Level of conservatism, that's baked into that thank you.
Speaker Change: Okay.
Speaker Change: So yeah.
Speaker Change: Just to start with are the macro assumptions, because I think that might be the easiest place to start here.
Speaker Change: <unk> really a factor in from.
Speaker Change: From a number of sources that mostly.
Speaker Change: Survey of economists and Moody's analytics, and and that assumption was raised modestly quarter over quarter.
Speaker Change: We review both the baseline scenario and we also look at downside scenarios as part of our process so to the extent.
Speaker Change: That we see those assumptions change those would impact our our macro overlay.
Speaker Change: We have an assumption on unemployment that peaks at about well, it's about 6% at about 12 months.
Speaker Change: Based on those forecasts.
Speaker Change: And so we'll be watching and adjust those as needed and then I mentioned before but yes, it's primarily driven by current book performance, but there's also that product mix element. So.
Speaker Change: To the extent that we have more card than I expected I think that could be some pressure on that reserve rate and then.
Speaker Change: To counter that auto provides us slightly lower reserve rate I would just say those two do not move in date.
Speaker Change: They move against each other but they aren't of equal sizing. So I really you know in terms of where that will go for the for the future I think right now just given the amount of uncertainty now we really have to wait and see where that reserve rate will go.
Speaker Change: Yes.
Speaker Change: Okay that makes sense. Thank you and then kind of Relatedly, if you could talk about.
Speaker Change: Youre underwriting posture it doesn't sound like.
Speaker Change: That has changed even with credit seemingly getting better if you could talk about.
Speaker Change: What it would take to either feel more comfortable.
Speaker Change: Or on the other hand, like what medical conditions, where you would have to feel like.
You had tightened further thank you.
Speaker Change: Yeah look we.
Speaker Change: We run a nationwide portfolio of risk and.
Speaker Change: It all rolls up in aggregate, but in reality we run.
Speaker Change: Hundreds of cells based on <unk>.
Speaker Change: Product.
Speaker Change: Geography channel risk grade.
Speaker Change: I think at this point, we're not taking our the one macro overlay, which is a 30% stress buffer off.
Speaker Change: If there wasn't as much new uncertainty in the act in the environment, we might have thought about that given how positive mark on book credit trends are but we just don't think it's prudent to be loosening our box sitting here.
Speaker Change: Today, we also run what we call weather vane testing. So we're always running a sliver, we take our 20% ROE assumptions and the factors that go into that is the price the losses.
Speaker Change: The cost of acquisition funding.
Speaker Change: The funding cost that goes in there and obviously the operating expense that goes against you.
Speaker Change: The different products.
Speaker Change: And so we need to underwrite a loan that will make 20% Roe.
Speaker Change: We're always doing a sliver between 15% and 20%.
Speaker Change: That's negligible, it's not going to show up in our overall numbers, but to see if the loans that were not underwriting don't meet our credit box.
Speaker Change: Actually would get us at 20% ROE because theres nothing like actual data to <unk>.
Speaker Change: Get there.
Speaker Change: Bunch of those weather vane tests are actually bumping up against the 20% Roe.
Speaker Change: Threshold that'll be a factor.
Speaker Change: We use and again I've said this before we're not probably going to just open up the box whenever it happens or it and generally we don't just tightened the box. It was unusual that we just put a full 30% stress on it you start to see different performance in pockets, maybe in one state maybe with the <unk>.
Cured product, maybe with an unsecured product maybe coming out of our digital channel versus the branch channel, maybe coming out of lower risk grade or higher risk grade and we do micro adjustments all the time and if we started to loosen or started to tighten it would most likely be around a segment not the.
Speaker Change: We'll book.
Speaker Change: Great. That's very helpful. Thank you.
Speaker Change: Our next question is coming from.
Speaker Change: John PON carry of Evercore ISI your line is open.
Speaker Change: Good morning.
Speaker Change: Back to the.
Speaker Change: Card.
Speaker Change: Portfolio.
Speaker Change: If you could comment just a little bit on how credit card delinquency formation is trending is that also trending in line with expectations. Like you noted for the card charge offs and then on the charge off front for card I know you noted the 15% to 17% loss rate target and that it's trending.
Speaker Change: In line with that is that 15% to 17% target and expectation for 2025 or is that more of a longer term expectation for that book.
Speaker Change: Thanks, Let me start with your second question first so I think in terms of that night going from 19, eight and getting to 15% to 17%. This year that is that it is not our expectation for this year, that's more of a longer term, where we think the book.
Speaker Change: The bulk will settle and again I mentioned that it's seasoning, but this is really once we start to have growth in it becomes sort of a.
Speaker Change: Our regular book, we call it a teenage book today, So I think.
Speaker Change: We still have very good line of sight to those.
Speaker Change: That's good returns over time, but I would not say that's a 2025.
Speaker Change: And then in terms of card delinquency and card credit.
Speaker Change: At the start of that we're really seeing positive trends and I think it's probably a combination both of our customer base and our customer base doing quite well and then also this team and again this is calling it a teenage business. We're working very hard in terms of how we're working.
Speaker Change: On credit how we're working on collections and various pieces. So I think it's both an improvement in capabilities as well as an improvement in our in our card book itself.
Speaker Change: Got it okay. Thanks, Jenny and then separately I know youre sitting on relatively solid.
Speaker Change: Capital levels here from the standpoint of M&A I Wonder if you could discuss any interest in future acquisitions here to build out the areas of growth, including auto. In addition to the foresight deal and then potentially on the card side or even on the insurance side is there.
Speaker Change: If you could just talk about any interest there to look inorganically for deals or do you think that opportunity would be kind of to the sidelines here as you focus on the ILC.
Speaker Change: I mean look we feel very comfortable with our organic growth plan and the strategy, we laid out at our Investor day, a little over a year ago and between our personal loan business, which we've been doing for a long time, we do very well.
Speaker Change: And.
Speaker Change: Banding that personal loan business to have different kinds of products within it to have digital channels as well as phone channels and branch channels.
Speaker Change: We feel very good about that organic growth path I think on card, we're well on our way as Jenny said the book is starting to season a little bit.
Speaker Change: We're developing that platform and similar to auto.
Speaker Change: With that said, we are always opportunistically looking at things I mean, we went out actively to find to get the auto business to a.
Speaker Change: To the next level and bought four site, but we will take a look at.
Speaker Change: We'll look at platforms as they come available, we don't need them, but if we find one that strategically fits culturally fits we feel is super buttoned up from a regulatory standpoint, like we are and obviously the financials.
Speaker Change: Work, we consider it similar with card there have been a bunch of card platforms in the market. We passed on on them in the last day or two in the last year or two but.
Speaker Change: We.
Speaker Change: So it's a long way of saying we're active in the market, but we are discerning buyers and we will only do an acquisition if it makes sense and is going to be very positive for our shareholders.
Speaker Change: Looks like we are out of time.
Speaker Change: Want to thank everyone for being on the call.
Speaker Change: Obviously reach out to the team with any questions and we'll look forward to the ongoing dialogue everyone have a great day.
Speaker Change: Thank you. This does conclude today's Onemain financial first quarter 2025 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.
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