OneMain Holdings Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Terry Ma - Barclays Corporate & Investment Bank - Analyst : Thank you. Good morning. Just almost a house keeping question to start off with. Does your net charge-off guidance range for the full year of 7.7% to 8.3% -- does that include the impact of the Foursight policy adjustment last quarter or not?

Question: Terry Ma - Barclays Corporate & Investment Bank - Analyst : Good morning. So it does not kind of strip out the incremental charge-offs from the policy adjustment is what you mean?

Question: Terry Ma - Barclays Corporate & Investment Bank - Analyst : Got it. Okay. That's helpful. And then I guess, just -- I guess when you guys constructed the guide at the beginning of this year, I'm assuming the base case was the midpoint. So any color you can kind of provide on what's driving the guide to be closer to the higher end of the range, whether or not it's driven by the front book or back book? Any color you can provide?

Question: Terry Ma - Barclays Corporate & Investment Bank - Analyst : Got it. That's helpful. And then maybe just one more follow up. You indicated you expect charge-offs to peak in the first half of this year. Maybe provide some color on kind of just what gives you confidence of that going forward. Thank you.

Question: Michael Kaye - Wells Fargo Securities, LLC - Analyst : I have a question about the originations. They were a lot higher than our expectations, but it really didn't translate into higher loan balances for the quarter, at least compared to my projections. So I'm wondering, is there anything in that mix of originations, like perhaps a higher percentage of renewals or maybe more prepayments this quarter or some other factors I should consider?

Question: Michael Kaye - Wells Fargo Securities, LLC - Analyst : Okay. I wanted to talk a little bit about the asset yields, they're up nicely, I think, 15 basis points quarter on quarter. And someone asked last quarter, you thought they would be more flattish quarter on quarter. I was surprised to see them up so much. So was there anything that surprised to the upside on asset yields versus your expectations? And should we see that kind of momentum continue at least in the near term?

Question: Vincent Caintic - BTIG, LLC - Analyst : Hi. Good morning. Thanks for taking my questions. First one on credit, so very helpful credit commentary this morning. If you could maybe just a broad question, but at what point do you expect to see a year-over-year positive improvement to the net charge-off rate? And if you could also remind us and help us thinking about the typical seasonality that we should be expecting with net charge-off rate. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 1:00PM, OMF.N - Q3 2024 OneMain Holdings Inc Earnings Call

Question: Vincent Caintic - BTIG, LLC - Analyst : Okay. That's helpful. Thank you very much And then kind of relatedly, so it was nice to see that the origination volume did grow year over year. I'm just wondering how you think we should be thinking about that growth rate going forward. And we've been talking about the front-book, back-book dynamic for some time. I'm curious at what point do you think we should be primarily just talking about that front book and the positive trends from that. Thank you.

Question: John Hecht - Jefferies LLC - Analyst : Good morning, guys. Thanks very much for taking my questions. Doug, you're talking about a fairly constructive competitive environment. I'm wondering, does that -- is that across all three product sets, the auto, the personal loans, and credit card? Or is there any differences that are worth pointing out?

Question: John Hecht - Jefferies LLC - Analyst : Okay. That's helpful. And then maybe just a related follow on to that is we've seen a lot of private credit enter the space with the various forward-flow agreements and just outright purchases of portfolios. How does that influence your strategic thinking? And does that also maybe over the course of time, affect the competitive dynamics?

Question: Moshe Orenbuch - TD Cowen - Analyst : Great, thanks. I think you've gotten a bunch of questions on credit. And I think the message was pretty clear that delinquencies are getting better. But the reserve rate has been flat. Can you talk a little bit about your thoughts as to what it would take either from your portfolio or the macro environment or both to see that reserve rate start to come down?

Question: Moshe Orenbuch - TD Cowen - Analyst : Got it. And maybe following up on John's question before, I'm just wondering if perhaps there aren't -- there are other lenders out there who kind of use their turndowns and create reasonable -- larger revenue streams based upon selling them through those types of arrangements either directly or indirectly. And is that something that -- and by the way, and often continuing to service the loans, I mean, is that something that you've considered as a benefit from the possibility of higher participation by private equity firms?

Question: Mihir Bhatia - BofA Securities Inc. - Analyst : Thanks for taking my questions. I wanted to go back to the origination growth this quarter. And I was wondering, I know you've tightened your credit box pretty materially compared to two years ago, but was there any -- I imagine you're consistently looking at the box and making changes at the edges. Was there any type of loosening, any type of -- you're seeing the environment get better, getting more confident. So you feel like you can maybe start underwriting just a tad bit deep or anything like that going on with the credit standards this quarter, where you may be loosening a little bit?

Question: Mihir Bhatia - BofA Securities Inc. - Analyst : Got it. No, that is helpful and sounds quite interesting. Maybe just staying along the lines of just origination and consumer behavior, are you seeing consumers increasingly looking at -- I guess, coming to the question of the salience of the branch network, are you seeing consumers now looking to engage more online and through apps then coming into the branch or wanting to come into the branch? Can you just talk a little bit about that? Because it feels like your competition is really shifting more towards online. I think you mentioned banks are still pretty tight, and so just curious if you're seeing any impact from that.

Question: Rick Shane - JPMorgan Chase & Co. - Analyst : Thanks for taking my questions this morning. I'd like to talk a little bit about loan yields and mix shift and then think about this on a risk-adjusted receivables basis as well. So obviously, you guys have been successful high grading the portfolio, raising yields on what appear to be your higher-quality buckets. As the -- as you grow the alternative products, how should we think about the impact on yield? When could we start to see those products, particularly [Four Square], on a top-line basis start to drag a little bit on yield. But more importantly, when we think about bottom line, when we think about risk-adjusted return -- or excuse me, receivable adjusted returns, do you think that those three products will continue to generate comparable returns, particularly on a levered basis because you probably have a little bit more opportunity to leverage some of those new asset class?

Question: Rick Shane - JPMorgan Chase & Co. - Analyst : Got it. Okay. That's helpful. And then just one follow up. If we can really try to dial in on this, if we think about the personal loan book, can you give us a sense on sort of a like-for-like basis in terms of your top-quality loan bucket, how much pricing power you've had in terms of incremental yield maybe over the last 12 months? I think that's what investors are kind of wondering.

Question: Mark DeVries - Deutsche Bank Securities Inc. - Analyst : Yes, thank you. Understanding you don't want to give guidance on charge-offs yet for 2025, I think it will still be helpful for us to think about what you need to see for charge-offs to trend down year over year. Am I right in that thinking that the main thing we want to look at is improvement in delinquency trends relative to seasonality kind of similar to what you observed this quarter with the early-stage delinquencies only up 4 bps Q-on-Q versus the pre-pandemic average of 18. And if I'm right about that, could you also just talk about the trajectory you've seen over the last several quarters kind of in that trend relative to seasonality?

Question: Mark DeVries - Deutsche Bank Securities Inc. - Analyst : Got it. Could you also remind us what your policies are on recoveries and what the outlook is going forward, just given kind of the larger inventory of charge-off receivables you have today?

Question: John Rowan - Janney Montgomery Scott LLC - Analyst : Sorry, I was on mute. Can you hear me?

Question: John Rowan - Janney Montgomery Scott LLC - Analyst : Okay. So just on expenses, year to date, the expense ratio is 6.5%. You're staying with 6.7% for the year. But obviously, to get to 6.7% for the year, after 6.5% for the first nine months, that implies -- based on my math, a fourth quarter number of 7.3-ish. That would be well ahead of last year. I think I have 6.9% for an OpEx ratio. Can you just explain how we get to that OpEx number for the fourth quarter? And just if it is higher year over year, just compare that to your statement that the OpEx ratio will continue to improve over time. Thank you.

Question: John Rowan - Janney Montgomery Scott LLC - Analyst : All right. Thank you.