Q2 2025 OneMain Holdings Inc Earnings Call
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Speaker Change: Welcome to the 1 Main Financial second quarter 2025 earnings conference call and webcast.
Speaker Change: Hosting the call today from 1 Main is Peter Pan Head of investor relations. Today's call is being recorded at this time all participants have been placed in a listen-only mode and the floor will be open for your questions. Following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad,
If at any point, your question has been answered. You may remove yourself from the queue, by pressing star 2.
Speaker Change: We do ask that you limit yourself to 1 question and 1, follow-up and please pick up your handset to allow for optimal sound quality. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Peter Pan. You may begin
Peter Pan: Thank you, operator. Good morning, everyone, and thank you for joining us.
Peter Pan: Let me Begin by directing you to page 2 of the second quarter 2025 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 1 Main website.
Peter Pan: 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,
Peter Pan: Factors that could cause actual results to differ materially from these. Forward-looking statements are set forth in our earnings press release.
Peter Pan: We caution you not to place undue Reliance on forward-looking statements.
Peter Pan: If you may be listening to this via replay at some point after today, we remind you that the remarks made here in or as of today, July 25th and have not been updated subsequent to this call.
Speaker Change: A call this morning will include formal remarks from Doug, Shulman our chairman and chief executive officer and Jenny osterhout our Chief Financial Officer.
Speaker Change: After the conclusion of our formal remarks, we'll conduct a question and answer session.
Speaker Change: I'd like to now turn the call over to Doug.
Doug Shulman: Thanks Pete and good morning everyone. Thank you for joining us today.
Doug Shulman: Let me start by saying, we had a very strong second quarter which demonstrated our expertise in credit management and best-in-class ability to serve the non-prime consumer.
Doug Shulman: We continue to see growth in high-quality loan originations, good pricing and positive credit Trends across the board.
Doug Shulman: All leading to strong growth in capital generation.
Doug Shulman: As you know, we've been very disciplined, the last 3 years, in managing credit, optimizing pricing and executing strategic initiatives to drive growth without opening our credit box.
Doug Shulman: All of this sets us up very well for the future.
Doug Shulman: Let me provide a few of the highlights for the quarter. Capital generation was 222 million up 63% year-over-year.
Doug Shulman: Our total revenue grew 10% and receivables grew 7%. Year-over-year crossing the 25 billion Mark for the first time in the company's history.
Doug Shulman: Originations grew 9% driven by our expanded use of granular data and analytics as well as product and customer experience Innovations to opportunistically drive growth, through higher quality loans.
Doug Shulman: Returning to credit, we continue to see positive Trends, our 30 plus delinquency was 5.07%, which is down 29 basis points year-over-year as compared to up, 27 basis points last year.
Charge offs were 7.6% in the quarter down 60 basis points from last quarter and down 88 basis points compared to the second quarter of last year.
Doug Shulman: Consumer loan, net charge opiates, were 7.2% down 64, basis points from last quarter and down, 110 basis, points year-over-year.
Doug Shulman: Due to the strength of the first 2 quarters of the year, we have updated our view on 2025 net charge offs to be at the lower half of the range. We provided you at the beginning of the year.
Doug Shulman: Jenny will discuss the specifics in a few minutes but we are quite pleased with the Improvement in credit that we have seen during the first half of 2025.
Doug Shulman: Let me touch on some of the recent initiatives that are helping to drive originations in our core personal loan business.
Doug Shulman: 1 initiative is loan consolidation. As many Americans have seen growth in credit card debt. We enhanced our debt consolidation offering
Doug Shulman: This product allows customers to refinance their debt with a 1 Main loan with a single predictable payment and faster pay down.
Doug Shulman: This year, we increased awareness of the product and made changes to the customer experience to make it easier to consolidate debt with 1 Main.
Doug Shulman: Let me give you a few other examples.
Doug Shulman: We have added new data sources to further automate income verification and collateral details.
Doug Shulman: We also have a new streamlined and faster process to renew a loan for select customers who have demonstrated. Excellent credit performance.
Doug Shulman: We're also growing a new loan origination Channel as we enable credit card customers to Cross by personal loans through our credit card app.
While this is a small test.
Early results are showing excellent credit performance and low acquisition costs laying the groundwork to expand this channel in the future.
Doug Shulman: I've said before that to run a great business, it is 1,000 little things that add up to meaningful value creation.
Initiatives like these are impactful in the aggregate, as they expand our reach, improve our offers and increase application pull through rate.
This is a small sample of the many initiatives. We are working on every day. Enabling us to drive growth and efficiency across our loan business.
Doug Shulman: Let me move on to the progress. We are making on our strategic initiatives.
Doug Shulman: Today we provide access to responsible credit to more than 3.5 million customers up 11% from a year ago.
Doug Shulman: Much of the growth is attributable to the Brightway credit card and 1 Main Auto Finance business. As we're engaging more customers across our expanded multi-product platform.
Doug Shulman: Not credit card business. We ended the quarter with 752 million of receivables up. 61% from a year ago, we now have more than 920,000 credit card customers. The revenue yield has improved 140 basis points year-over-year and portfolio credit performance remains in line with our expectations and we'll move down over time as the portfolio matures.
Doug Shulman: The credit card portfolio represents only about 3% of our total receivables today, as we remain measured in our credit card growth.
As a reminder, our goal is to grow this product conservatively with a focus on building the product for the long term.
Doug Shulman: We are confident that as we scale this business to a mature, steady state,
Doug Shulman: Its capital generation return on receivables will be similar to our personal loans business, albeit with higher Revenue, yield that absorbs higher losses.
Doug Shulman: In the meantime, we're very focused on continuously improving the user experience, growing with our best customers and reducing marginal costs per account, to ensure a profitable business, for the long run.
Doug Shulman: With over 2.6 billion dollars of receivables up 119 million from the last quarter. It is now been a little over a year since we closed the acquisition of foresight and we are pleased with the evolution of our auto business. Since then,
in the last year, our roster of active dealers, grew by 14%
Doug Shulman: Quarterly originations grew by 29%.
Doug Shulman: And we've added more than 400 million dollars of receivables.
The auto portfolio pricing, has moved up nicely and the credit performance remains in line, with expectations and better than comparable industry performance.
Doug Shulman: We've made excellent strides in carefully. Growing the auto business.
Doug Shulman: Within our discipline credit policies and are very optimistic about our offering through both independent and franchised dealers. We continue to see the auto finance business as a driver of future profitable growth.
Doug Shulman: Let me touch briefly on the current economic environment. This quarter the macroeconomic environment remained consistent with pass quarters, with policy news, causing some volatility, but our customer base continuing to manage their household balance sheets. Well,
Doug Shulman: The non-prime consumer remains resilient supported by a solid labor market and good wage growth.
Doug Shulman: And there are Provisions in the recent tax bill, that could benefit our customers, including the reduction of taxes on tips and overtime, and some of the expanded family tax benefits.
Doug Shulman: I spoke last quarter about the resiliency of our business and our ability to manage profitably through the cycle.
Doug Shulman: Our confidence is supported by our long history of serving the non-prime consumer.
Doug Shulman: A conservative underwriting approach that for the past 3 years has incorporated, a 30% cushion to ensure that the loans we originated will remain profitable even if the environment experiences stress and a strong balance sheet with tremendous liquidity. Our second quarter execution offered further evidence of this business model,
Doug Shulman: our underwriting posture remains very conservative with more than 60% of our new originations coming for our top 2 credit tiers. And once again, we demonstrated best-in-class access to Capital markets, raising 1.8 billion dollars in the quarter, in both the ABS and unsecured markets, which provides us with a lot of flexibility for the
Doug Shulman: Coming quarters.
Let me close on Capital allocation where our priorities remain the same.
Doug Shulman: We continue to focus on the long-term success of our business including strategically investing in our expanded product set.
Doug Shulman: Data science, digital Innovation as well as profitable growth.
Our regular annual dividend of 4 dollars per share yields about 7% at today's share price.
Doug Shulman: This quarter. We repurchased 460,000 shares at an average price of just below 46 dollars per share.
Doug Shulman: During the first half of 2025. We've repurchased about 780,000, shares for approximately 37 million already outpacing. The 755,000 shares we repurchased in all of 2024,
Doug Shulman: We will continue to pay our repurchases based on a number of factors including excess Capital available, economic conditions and market dynamics.
Doug Shulman: In summary, it was a great quarter. We are seeing the results of initiatives and actions. We put in motion over the past couple of years, including careful management of our credit box Innovations in our core, loan products to drive originations and new products and channels.
Doug Shulman: All of which resulted in significant Capital generation growth year-over-year.
Jenny Osterhout: With that, let me turn the call over to Jenny.
Jenny Osterhout: Thanks Doug and good morning everyone.
New Growth, solid, receivables, growth and ongoing credit performance improvements.
Jenny Osterhout: We demonstrated our industry-leading balance sheet management with great Market access and funding execution, raising 1.8 billion dollars through issuance in both the secured and unsecured markets. Providing additional flexibility for future issuances.
Jenny Osterhout: Second quarter, gaap, net income of 167 million or 1.40 cents per diluted. Share was up 137% from 59 cents per diluted share in the second quarter of 2024.
It is worth mentioning that last year's second quarter Gap, results, included purchase accounting adjustments associated with the acquisition of foresight which were excluded from our cni adjusted results.
BNI adjusted net, income of $1.45 per diluted. Share was up 42% from 1.2 in the second quarter of 2024.
Jenny Osterhout: Capital generation the metric against which we manage and measure our business totaled. 222 million up, 86 million or 63% from 136 million in the second quarter of 2024 reflecting strong growth in our loan portfolio. Improved portfolio yield and the notable improvement in our credit performance.
Jenny Osterhout: Given the strong growth in capital generation through the first 6 months of 2025. We are well positioned to generate significantly more Capital this year than we did in either of the past 2 years.
Jenny Osterhout: Managed receivables ended the quarter at 25.2 billion up 1.6 billion dollars or 7% from a year ago.
Jenny Osterhout: This compares to 6%. Organic growth last quarter.
Jenny Osterhout: It has now been a year since our acquisition of 4 sites.
Jenny Osterhout: So, all growth discussed this quarter and going forward is organic.
Jenny Osterhout: Our growth highlights 1, Mains, unique ability, to find pockets of growth in higher quality. Origination segments in our personal loan product. While also carefully growing into our newer businesses and responsibly driving improved pricing across the portfolio.
Jenny Osterhout: It was just 3 years ago in the second quarter of 2022 that we reached 20 billion dollars in receivables.
Jenny Osterhout: Since this time, we've been able to increase our receivables by 25% or 5 billion dollars while maintaining a notably tightened credit box and driving new product growth including 1.3 billion dollars from the acquisition of foresight.
Decking quarter originations of 3.9 billion. Dollars were up 9% year-over-year. Despite our continued conservative credit box,
Jenny Osterhout: As we look forward to the second half of this year, we expect a more normalized mid single digit year-on-year growth in originations as we are now more than a year into the successful personal loan growth initiative, that we started in June of last year.
Jenny Osterhout: Importantly, we remain very comfortable with our full year managed receivables. Growth, guidance of 5 to 8%,
Second quarter consumer loan. Yield was 22.6% up, 19 basis points from the first quarter and up 67 basis points year-over-year.
Improvement in yield was driven by the sustained benefits of the pricing actions. We've taken and the seasonal Improvement in 90 plus delinquencies. Partially offset by an increasing mix of lower yield, lower loss Auto Finance receivables.
Jenny Osterhout: While we're pleased with the Improvement in yield this year, we expect it to moderate in the second half of the year due to the typical seasonality of 90 plus delinquencies and growth in our Auto portfolio.
Total revenue. This quarter was 1.5 billion up, 10% compared to the second quarter of 2024.
Jenny Osterhout: Interesting come of 1.3 billion grew 10% year-over-year driven by receivables growth and the yield Improvement. I just mentioned
Other revenue of 195 million grew 6% compared to the second quarter of 2024, primarily driven by higher gain on sale associated with our whole loan sales program and higher credit card Revenue associated with the growing credit card portfolio.
We now expect our 2025 Revenue growth to be at the high end of our previously discussed range of 6 to 8%.
Jenny Osterhout: Up 22 million compared to the second quarter of 2024 driven by the increase in average debt to support our receivables growth.
Jenny Osterhout: Interest expense as a percentage of average net receivables in the quarter was 5.4% consistent with the prior quarter. And in line with our expectations, for the full year,
Jenny Osterhout: Quarter provision expense was 511 million, comprising, net charge offs of 446 million and a 65 million increase to our reserves driven by the increase in receivables during the second quarter.
Jenny Osterhout: Our loan loss ratio remained flat quarter over quarter at 11.5%.
Jenny Osterhout: I'll discuss Credit in more detail momentarily.
Jenny Osterhout: Policy, holder benefits and claims expense for the quarter was 54 million.
Jenny Osterhout: Up from 47 million in the second quarter last year.
Jenny Osterhout: as we have said before, we expect quarterly PB and C expense in the low, 50 million dollar range
Jenny Osterhout: Let's turn to slide 8 and look at consumer loan delinquency trends.
Jenny Osterhout: 30 plus delinquency at June 30th. Excluding foresight was 5.07% down, 29 basis points compared to a year ago, benefiting from improvements in both early and late stage delinquencies. As we look ahead, the sustained Improvement in delinquency will result in continuing loss benefits into the second half of the year?
Jenny Osterhout: It is worth noting that we're seeing positive Trends in both early and late stage delinquency performance of our newer products, credit cards and auto finance
in addition, to our personal loan product,
Jenny Osterhout: So across the board, we are feeling good about the direction of travel.
Jenny Osterhout: On slide 9, you see our front book vintages comprised of Consumer loans, originated after August 2022. Credit tightening, now, make up 90% of total receivables.
Jenny Osterhout: The performance of the front book remains in line with expectations and is driving. Most of the delinquency and loss improvements. We are seeing
Jenny Osterhout: While the back book continues to diminish, now, making up only 10% of the total portfolio.
Jenny Osterhout: It still represents 24% of our 30 plus delinquency.
Jenny Osterhout: And as expected as the backbone continues to run down, over the remainder of this year, we anticipate it will contribute less to our delinquency results.
Jenny Osterhout: Let's now turn to charge offs and reserves as shown on slide 10.
Jenny Osterhout: Cni. Net charge offs, which include credit cards were 7.6% of average net receivables in the second quarter.
Down 88 basis points from a year ago.
Consumer loan, net charge offs, which exclude credit cards were 7.2% in the quarter down, 110 basis points year-over-year.
Jenny Osterhout: We remain confident in the continued year-over-year Improvement of losses. Over the remainder of 2025.
Jenny Osterhout: As we have discussed, before the difference between cni, net charge offs and consumer loan. Net charge offs comes from our credit card portfolio.
Jenny Osterhout: Let me spend a moment to update you on the credit trends of this small, but growing portfolio.
Jenny Osterhout: As a point of reference, we rolled out the credit card business. In August 2021, yet the portfolio size remains approximately 750 million dollars today.
Jenny Osterhout: After our initial roll out of a test portfolio, we have been extremely prudent in the ramp of the business, given the uncertain environment over that time frame.
Jenny Osterhout: as we continuously focused on improving the product and user experience,
Our losses, this quarter and our card portfolio improved modestly to the mid 19% range.
Jenny Osterhout: As we look forward we expect continued improvement over the remainder of the year with credit card, losses and anticipated to decline by around 150 basis points in the second half of the year.
Jenny Osterhout: This is primarily driven by the seasoning of the credit card, portfolio and improvements across both early and late stage delinquencies.
Jenny Osterhout: We are pleased with the overall quality of the credit card portfolio and feel confident that we are building an enduring profitable business for the long term.
Recoveries continue to remain strong amounting to 87 million in the quarter or 1.5% of receivables as we continue to utilize the various strategies. We have available to optimize recoveries
Jenny Osterhout: Loan loss reserves ended the quarter at 2.8 billion dollars while the credit performance of our portfolio is improving as reflected in our delinquency and charged off. Metrics our 11.5% Reserve coverage stayed flat during the quarter as we maintain an appropriately, conservative macroeconomic overlay. In our Reserve,
Jenny Osterhout: As a reminder, the higher loss higher yield credit card portfolio contributes to the reserve adding 35 basis points to the overall Reserve ratio at June 30th.
Speaker Change: Now, let's turn to slide 11.
Operating expenses were 415 million up. 11% compared to a year ago.
Speaker Change: Our second quarter of 2024 operating expenses for unusually low due to the expense actions. We took in the first quarter of last year adjusting for those benefits. Expense growth was aligned to our receivables growth, even as we continue to invest for the future,
Speaker Change: The 6.7% Opex ratio. This quarter is 9 basis points higher than last quarter and is in line with our expectations.
Speaker Change: As we've said before our Opex ratio can fluctuate from quarter to quarter, but we feel great about the inherent operating, leverage of our business.
Speaker Change: We remain confident in our full year, 2025 operating expense ratio guide of approximately 6.6%.
Now, turning to funding and our balance sheet on slide 12.
Speaker Change: During the quarter, we continue to optimize our balance sheet.
Speaker Change: We raised a total of 1.8 billion dollars through 2 issuances.
Speaker Change: In may, we issued a 7-year 800 million on secured Bond at 7 and 1/8 percent callable in 3 years.
Speaker Change: The bond proceeds were used to partially redeem, a significant portion of the 7 and 1/8 percent bonds that mature in March 2026. As we proactively manage our balance sheet by reducing our nearest maturity.
Speaker Change: At quarter end, only about 400 million dollars of the original 1.6 billion dollars of March 2026. Bonds remain outstanding with no further unsecured maturities until January 2027.
In June, we also issued a 3-year revolving 1 billion, ABS with a cost of funds under 5%.
Speaker Change: Both of our issuances. During the quarter, had strong market demand, including a healthy number of new investors in our name.
With 3.3 billion dollars of funding raised through the first half of 2025, we have great flexibility on amount purpose and timing of funding over the remainder of the year.
Additionally, our bank facilities totaled 7.5, billion dollars. A quarter end.
Speaker Change: With unencumbered receivables of 9.7 billion dollars contributing to our best-in-class liquidity profile.
Speaker Change: Net. Leverage at the end of the second quarter was 5.5 times flat to last quarter.
Speaker Change: Turning to slide 14 our full year 2025 guidance.
Given the strong performance of revenues and net charge offs in the first half of the year. We are updating our guidance on those metrics.
Speaker Change: Total revenue growth is now expected to come in at the high end of the previously provided 6 to 8% range.
Speaker Change: Cni, net charge offs are expected to come in between 7.5 and 7.8%.
Speaker Change: Narrowing to the lower half of the guidance range. We gave you at the beginning of the year.
Speaker Change: We are maintaining our full year managed receivables growth in the 5 to 8% range and our operating expense ratio guide of approximately 6.6%.
Speaker Change: with all of these metrics moving in the right direction, Capital generation in 2025 will significantly exceed 2024
So I'll end with how I opened. We had a really strong quarter with improved credit performance. Excellent origination.
Speaker Change: Growth in total revenue, and continued balance sheet strength.
Speaker Change: We have notable momentum as we move into the second half of 2025 and look forward to delivering outstanding shareholder value in the quarters and years ahead.
Doug Shulman: And with that, let me turn the call back over to Doug.
Doug Shulman: Thanks Jenny.
business over the past couple of years, we created very positive Trends in credit and originations
Doug Shulman: These Tailwinds that I spoke about then are clearly present. Now as we are on Pace to deliver significant Capital generation growth in 2025
Doug Shulman: We are confident in the strength of our business model and our strategic initiatives. And we have positioned 1 Main very well for the long term with intense, focus on our core loan business, as well as our new products and channels.
Doug Shulman: We are operating from a position of strength with an experienced team. Resilient business model.
Doug Shulman: Strong and diverse balance sheet, credit expertise, and long experience, serving the non-prime consumer, all of which should benefit our company, our customers and our shareholders, both in the near and the long term.
Doug Shulman: I'll close by thanking all of the 1 Main team members for their continued dedication to helping our customers, improve their financial well-being.
Doug Shulman: Their hard work and dedication to our customers is unmatched.
Doug Shulman: With that. Let me open it up for questions.
Doug Shulman: The floor is now open for questions at this time. If you have a question or comment, please press star 1 on your touchtone phone.
Doug Shulman: If at any point, your question is answered. You may remove yourself from the queue, by pressing star 2.
Speaker Change: Again, we ask that you limit yourself to 1 question and 1, follow-up and please pick up your handset to provide optimal sound quality. Thank you. Our first question is coming from Moshe, or muck with TD Cowen. Please go ahead.
Moshe: Great. And thanks for, uh, taking my questions. Um, I guess both Doug and Jenny, you talked a little bit about the, you know, the growth and originations and the, the the changing rate of growth there, could you just talk, you know, you flesh out a little bit about the underlying competitive Dynamic, other factors, you know that are causing this, you know, that are driving behind the success that you've had and you know, kind of how you see that, you know, going forward.
Speaker Change: Sure. Um, Let me, let me just talk. Hi Moshe, how you doing? Um I will um talk about the competitive environment for a minute and then Jenny may want to add, um, you know, the competitive environment remains quite constructive for us. Um, as you mentioned, we've had nice origination growth despite continuing to have a very tight credit box. Um,
Speaker Change: I think you can look at our pricing, so we're able to take some price, um, which shows that, you know, our offers are quite competitive and 60% of our originations are in our higher risk grades, um, which is usually where there's more competition. And we seem to be getting, uh, our fair share. I think in general, there are a lot of competitors out there. Especially for, uh, unsecured loans. You know, half our loans are um, secured with an auto, not, you know, very separate from our Auto Finance business. Um, you know, and so it's a competitive market and, you know, we have to earn our customers trust. Um, there's a lot of capital available. So, um, you know, at different times in the market, if the capital markets are tight competitors, sometimes can't get access to Capital, can't get it at a rate they want and so can't loan. I think there's abundance of capital, so that's not a constraint on, um, the comp
Speaker Change: Competitive environment but we feel quite good about our positioning, you know, we got loyal customers. We have this expanded product set. We're making the kinds of enhancements. I talked about around product and customer experience, and so I, you know, the competitive environment remains, you know, there's a lot of competition out there but it's, um, you know, we feel good about our positioning in it.
You know, the the only piece I I'd add there is, um, and Doug touched on this, but, um, really it's high quality. Um, originations growth, which we like. So it starts with credit, who are you underwriting and our ability to do that? While maintaining a pretty tight, credit appetite, um, is, is very good and then to be able to do that. Also while having good pricing, I think is another piece that that is very good and the growth is really the outcome of our choices there. Um, and so I think we're we're quite happy with where it stands.
And, you know, kind of at the higher closer to the higher end of your leverage Target. So maybe just talk a little bit about how you think about, um, you know, kind of deploying that, you know, in the, uh, you know, in the next, you know, 6 to 12 months, um, in terms of, you know, having that stronger Capital generation. And, uh, you know, relatively kind of constructive environment from a loan growth perspective,
Speaker Change: Yeah, let me take this on Capital, uh, you know, our Capital generation and our Capital allocation policy. Um, you know, we've been quite consistent for many years. Um, first use of capital is building a great business, um, and investing in our products, our people our digital capabilities, our data science and putting money, you know, putting our Capital into every loan that meets our risk return criteria. Um, second is our dividend and we're we have about a 7% yield now it's a, it's a strong dividend, it's part of the value proposition. We have to shareholders after that. We will, you know, use our, our capital and the discretionary manner where we think it has the highest return, uh, to shareholders. Um, you know, there's going to be more Access Capital. I think you've seen that, um, as capital generation goes up, you've seen, you know, quarter over quarter higher
Speaker Change: Share repurchases, you've now seen year-over-year already, higher, share repurchases. Um, you know, we could use that for share more share repurchases. We could use that for something strategic and, you know, that's, that's kind of how we think about it.
Speaker Change: Thanks very much.
Thank you. And next, we'll go to Terry mall with barklay, please. Go ahead.
Speaker Change: Hey thank you. Good morning. Um maybe a question for you Doug. You kind of called out the card portfolio. She kind of mature and eventually kind of reaches the same return and received those as a personal lending business. Um, I guess 1 any um, sense. I'm kind of timing of when that happens and then 2 as you kind of get to that point, how do you think about sizing that business and kind of growth going forward?
Speaker Change: Yeah, look, we're not. Um, giving any like, forward guidance on card per se, but let me tell you how, I, um, how I think about it, which is, um, you know, over time, uh, the, the card yields will remain above 30%. They're already above 30%, they, you know,
Speaker Change: Will move up up and down a little bit but in general, they'll um, you know, we're confident they're going to be above 30%. Um, losses are kind of in the mid teens, um, you it's lower actual um operating expense because it's a digital product and without needing the branch infrastructure, um, to do it. And so if you add all of those things up, you know, you get to a similar uh Capital generation return on receivables. Um,
You know, we're really not chasing growth in card. We're being quite measured. And right now, we're kind of perfecting the product. Making sure we feel really good about the cards we put on our book. Um, driving, you know, when you're in the early stages you have higher unit costs. And then over time those units costs go down, they go down just by the nature of, uh, more receivables against a fixed cost base. But they also were actively working to drive those down. And every year, um, they're they're going down some and then we will ramp it as appropriate. We've actually been quite conservative. I mean we've been at this um 4 years and we still have under a billion dollars of receivables. During that time we had a non-prime consumer economic cycle and so
Speaker Change: So we're in no rush we think this is a great product. We now have a bunch of customers, you know we have almost a million customers. Um we're seeing some really nice results from our test of cross, sell from people who have cards to loans and we're just going to keep the pace as appropriate, um, at some point, we probably will, um, accelerate growth, but we're not at that point. Now,
Speaker Change: Got it super helpful. And then um, as a follow up just on the um, recently passed, um, 1, big, beautiful bill, you kind of also called out, um, reduction of taxes on tips and overtime and also the expanded credits. Um, any idea how um, much the
Speaker Change: Or your borrower base. Thank you.
Speaker Change: Yeah, look. Um, first of all, I want to be really clear, you know, my, my comments were that some of the provisions, could help some of our customers. We are not baking anything in to our, you know, internal projections or our guidance or anything around the bill. So I want to be really clear about that. But just, you know, to Dimension it, if you look at
Speaker Change: Um, you know, a bunch of Industry, segments, Healthcare manufacturing construction. Um, and then you add retail and Hospitality that is around 40 to 50% of our portfolio. Um, those are likely places that either have overtime or tips. You know, the question is, you know, how much of an impact is it going to be? How much are they going to save? And is it really going to affect, uh, payment patterns at all? I think it's TBD and way too early and then there's some other Provisions. Like um, you know, Child Care be benefits, uh, child tax credits that generally could help, um, our customers and so, um, you know, that's the dimension of it. I mentioned it because it's a could be a net positive, but it's not something we're, you know, we've baked in
Got it. Thank you.
Mark de: Our next question comes from, Mark de with Deutsche Bank, please go ahead.
Mark de: Yeah, thanks. Um,
you know, with, with the front bug now, you know, 90% of the portfolio in the back, both down to 24%. Um, how much longer should we kind of expect this year-over-year in in Improvement in credit to persist? In other words, how much longer do we kind of have this Tailwind?
Mark de: Thanks. Um, I'll take that. Um, listen, I I think overall, in terms of its hard for me to give you exactly a sense of um, how long will be continued to see it? I think we really like what we're seeing and we're really liking the trending, the trends. And, um, you know, so we're the 30 to 89 being down 8 basis points compared to last year and that 30 plus down 29 basis points compared to last year. I mean, I think we really like this direction of travel and, and, you know, the quarter over quarter Improvement, may vary some but we're, we're really liking where we're going. And um, we're also seeing better later. Stage roll rates which leads to better loss outcomes. So I think generally, we're feeling quite good about this. I don't know that I can give you a specific moment when you know, when we'll get back to a place where you know, year-over-year we're not coming down.
Speaker Change: Okay, fair enough. And then um, I just wanted to to clarify my understanding of, I think Jenny and your prepared comments calling out kind of a moderation of growth, in the back. After the year, at least relative to to the first half trend is that, you know, attributable, more to just tougher comps or or, or are you pulling back a little bit on on credit?
Speaker Change: Um, really if I, if I look at, you know, our originations growth, um, last quarter, so last quarter, our originations growth was 20%. And then, if you look at that organically, it's 13. It was 13%. And so this quarter we were at a 9% growth in originations. Um, and I think really, you know what you're seeing is, we've been very focused on, you know how growth outcomes while maintaining our our credit box, um, and we've been doing that for about a year. So if, you know, I I, I do think, you know, you're starting to lap the sum of those initiatives. And so you'll see that with some of the moderation in the origination growth. Um, we, you know, we're we're very pleased with, with where we are. Um, uh,
and and uh, and and
Speaker Change: Sticking to our guidance of that 5 to 8% receivables growth for the year. So that should give you a sense of where we're expecting to land.
Speaker Change: Got it. Thank you.
Speaker Change: Our next question comes from John. Heck with Jeffrey's please go ahead.
Um, thank you guys very much for taking my questions. Um, just a couple things. I mean, I guess touching on the uh, on the credit side of the business. It looks like payment rates accelerated a little bit in the quarter. Um, so I'm wondering if if there's anything to take away from that and then, you know, tag on to that is any impact from, you know, the the I guess the student loan repayment update uh, in terms of reporting and uh, requirements
Speaker Change: Thanks. Um, I'll take that. You know, I'd say in terms of payments, I don't think we see anything particularly unusual on payments, um, I'd mentioned before but we are seeing good, um, trajectory on delinquency. I think what you see there is that, you know, customers are going delinquent, but seem to be able to then make a payment after following delinquent, and that's a phenomenon, you know, we've seen for a while, I don't know that I'd called a trend yet. Um, so that's just 1. Interesting piece here, um, to move to your to your question on student loans. You know, we, we monitor the, the whole portfolio. Very closely. And we've been highly focused on this, since that deferral period ended in October of 2023. So um, it's been a while since um, since the FED collections action started in, may we have not noted, any significant difference in the performance of the segment of the portfolio that has a student loan compared to the segment of
Speaker Change: The portfolio without a student loan. Um and just 1 other, you know, piece to mention on. This is that um many of our customers are current on their student loans and many
Are also still in deferred status but it's, you know, clearly something that will be watching um, and closely monitor versus our other population.
Denny, thank you and then Doug just, you know, maybe you're updated thoughts on the branch Network, um, versus on the online Channel. I, I know the branch Network's important from a servicing and customer interaction perspective. But where are you now kind of on this journey of the becoming more digital? And how does that impact your thinking about the branch Network?
Yeah. Look we um,
Speaker Change: We view that we're going to be able to serve our customers.
Um, across multiple channels in person.
Speaker Change: On the phone and online or on a mobile app and um, we're always working to optimize, um, exactly, you know, which of these channels, It's a combination is most value added, um, to our customers and our business model and then where customer preferences, um, you know, our real focus with the branch network is, um, you know, our customers really like, um, having personalized service.
Speaker Change: Someone to talk to someone to help think about managing their debt.
Speaker Change: Getting them into the right size loan thinking about a loan consolidation and paying off credit cards and getting into a single monthly payment. And then they also really like if they have a hiccup in their life you know 1 spouse loses a job or they're between jobs that they have someone to call and we will we will work with them and so the value added is the customer interactions that are Branch team members have. And um you know, our branch managers have average ten year or 15 years, they really know their customer base and they know how to work, um, with this customer. So what we're always trying to do is free our Branch team members up to do value added work. And so, a lot of what we put into the app is, make a payment, change your payment date, forgot my password, um, check my balance and so we continually made that easier and gotten more and more people to use uh the app.
Speaker Change: For that. And then we've also supplemented our branches with our Central call center. So if there's overflow and collection or a branch is busy, booking loans, and they need to have some help. And so a lot of what we're doing is optimizing the work for maximum efficiency for us maximum efficiency for our our customers and making sure our branches are focused on engaging.
Speaker Change: aging with customers, which customers really like
Speaker Change: We'll take our next question from. Thank you so much.
We'll take our next question from Rick. Shane with JP Morgan.
Hey, good morning everybody. Um look, you've done a good job, sort of laying out the case of on credit of uh dilution of the back book tightening of credit on the front book, um, the 1 Factor, that's probably a little bit harder for us to understand is, um, what's really going on from a macro perspective? If you were to look at cohorts on a like for like basis on credit
Speaker Change: Are you seeing your consumer stable, improving deteriorating? Just to give us a sense of where we are uh, in that cycle.
Speaker Change: Our consumer has been quite stable, you know, I'd say for over a year now, as you know, that, um, you know, there was deterioration in 22 and and, you know, into 23, um, I think like for like, you know, we're booking better quality credit than we did. You know, if you go way back prepaying demick and we're managing the book to be about the same. So we've got tools in our toolkit, that allows us to kind of manage who we put on the book. Um, but I, I do think the overall, the non-prime consumer has been stable. I don't think they've, you know, seen their economic situation yet wildly better. Um, it also hasn't gotten, you know, worse. It's been stable. The last, you know, 12 to 18 months. I think what you've seen us do is carefully managed the business. So our numbers of continued to get better and
Speaker Change: Um, you know, we know how to kind of manage.
Speaker Change: within any sort of economic environment to make to drive positive Capital generation
Speaker Change: Got it and and look you know if we were to go back to 2022, uh in the April to August time frame, where credit, you know, shifted rapidly that was obviously triggered. Uh in part by the rapid rapid spike in gas prices. Um we estimate that your customer probably they're spending at the pump is uh you know High single digits of their uh spending
Speaker Change: What are the inputs? Excuse me that you're looking at right now to sort of measure the health of your consumer. Um and what are you seeing? Obviously gas prices have been a nice Tailwind. What are the offsetting headwinds in terms of?
Speaker Change: Other expenses.
Speaker Change: I mean, look we we're interested in macro Trends and we're all over them and we understand, you know, whether it's
Food or housing or Transportation costs, like we watch that, but the real inputs we look at is each customer that comes in. Do they have a job? Don't they, how much do they make? Um, how much do they spend? What's their net disposable income? What's their debt level?
Speaker Change: Mode and can they afford, you know, what the can they afford to a take a loan from us? And if so what is, what is the price? So the, the main input is like customer by customer. I think on in a macro, you know, setting I do think. Um, and to your, you know, earlier question wages in aggregate have, you know, over about a year ago, caught up with inflation in Aggregate and our customers now have more net disposable income, um, than they did, um, you know, before all of this down cycle and even really before pre-pandemic. And so, we underwrite to net disposable income. I mean, we obviously have, you know, um,
We, we have a thousand factors that go into our models, but it's relatively straightforward. How much do you make? How much do you spend? How much is left over and can you afford the loan, um, that we're putting you into?
Speaker Change: Uh, look, I I appreciate that. Uh, the simple description of it. It's funny. Sometimes we lose sight of that and and you guys probably don't appreciate that. It's Outsiders. It's, it's hard to sort of to appreciate that. So, thank you very much.
Speaker Change: Sure.
Our next question comes from David sharf. With Citizens Capital markets, please go ahead.
Speaker Change: All right, great. Thanks for, uh, thanks for taking my question. Squeezing me in here. Um, Doug, I actually wanted to just revisit, I think it was the very first question and just the, the competitive environment. Um,
Speaker Change: You know we we've been seeing pretty much across the board this reporting season so far credit related beats so obviously all lenders and not necessarily direct competitors to 1 Main. I mean it's a variety of asset classes, um, but but credits are clearly been performing or outperforming for for most and I assume that also is the case for many of your private competitors, and private credits have been flowing freely as as you noted. Um,
Speaker Change: Either, you know, early signs of, uh, more price competition or or I'm wondering if past Cycles, you know, are indicative of maybe how many quarters it is. You know, before you start to see uh, competitors become much more aggressive on pricing or you know you mentioned it's constructive right now but you provide a little more color on kind of what you're seeing on the margin.
Speaker Change: You know, look having been through. If I mean in
Speaker Change: Late 21 and early 22. As people were feeling more comfortable from the pandemic,
Speaker Change: Competitors flooded into the market and we watched it. And we actually watched, you know, competitors, take a little bit of share.
Speaker Change: at that time and we stuck to our knitting and we have a credit box and we have our product, um, and we have our marketing and we have our customer experience and we, you know,
Work on that every day to make it better and more refined and more specific and more granular and whatever. We can book we booked within those parameters and we actually don't get too too fussed about if the numbers go up a little bit and go down a little bit. I mean I've talked about it before as growth is an output. Um
Speaker Change: I think, you know, some of the places where there's more price competition, like a, you know, Credit Karma or Lending Tree, some of the aggregators, um, we're seeing plenty of competition. Um, some of the competitors that got burned in 2022, trying to manage non-prime credit and didn't have the expertise. We had, um, have come back in, but haven't come as far into non-prime. And so there is more competition at the, you know, call it 660 and above, then there, uh, FICO then there is 660, um, and and below. And so, we, you know, we, we, we track very carefully, you know, with the data we can get our hands on, um, originations volume product. Um, as I mentioned, before, plenty of competition in the market, um, right now, but, uh, we feel good about the fair share. We're getting
Speaker Change: And you know, we as a management team always check any impulse to get to fuss any given quarter about, you know, if origination growth is, you know, exactly some place. Instead, we just stick to our discipline have a great value proposition to our customer. And we're pretty confident that we do this very well for the non-prime consumer.
Got to know that that's very helpful color and maybe just a, a quick follow-up on the auto side. I mean, it's been a year since the foresight acquisition closed. I I know you gave some kind of growth metrics around originations, and and rooftops. Um, but more specifically C, can you provide just some of maybe your observations about the, the franchise business in particular? How how, you know, just how it's performed relative to kind of your expectations, a year ago either in terms of kind of penetration or franchise rooftops, and sort of, um, just attraction you've gained within F&I managers,
Speaker Change: yeah, um, look, we we
Speaker Change: Actually looked long and hard um, and debated, whether we were going to build it ourselves. And we found foresight which we think you know, was a best-in-class, um, Auto Lenders. They actually had very good, uh, sales team. They had very good technology which were um, have converted, our whole auto business onto which includes a portal for uh the dealers. Um they um and we've grown that nicely, you know, I mentioned that active dealers are up and, you know, we've seen active dealers up. And so I think foresight for a very small Auto lender um it was very good at competing head-to-head with the bigger Auto Lenders inside franchise.
Speaker Change: Um, and uh, for franchise dealers, they're bigger auto loans. Um, you know, they're usually, uh, higher credit quality customer. And so, we've been, we've been really pleased with it. And, you know, we're kind of growing it comes right with the rest of our business. But again, we put the same discipline of a, um, of a, a stress,
Speaker Change: you know, we're assuming we put a 30% extra stress.
Speaker Change: On our underwriting models so that, you know it, we're we're we've maintained a, a conservative credit posture, Even in our auto business.
Yeah. So I think, yeah, sure. So we're up against the hour. Um, thank you all very much for joining the call. Um, if we didn't get to your question, our IR team is happy to engage and we look forward to seeing everybody, um, during this quarter and, uh, you know, on next quarter's call. So thank you very much.
Speaker Change: Thank you. This does conclude today's 1 Main Financial second quarter 2025 earnings conference call, please disconnect your line at this time and have a wonderful day.