OneMain Holdings Inc Q4 2024 Earnings Call Transcript

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

Question: Terry Ma - Barclays Capital Inc. - Analyst : Maybe just to start off with credit, your delinquency trends inflected negative by quite a large margin this quarter down 22 basis points. Can you just speak to your confidence of just whether or not you can kind of sustain that performance going forward? And then just on your guide for the year, the 7.5% to 8% charge-offs. I guess maybe just talk about what gets to the high end versus the low end? Because obviously, the high end is not that much improvement, whereas the low end is more meaningful.

Question: Terry Ma - Barclays Capital Inc. - Analyst : Got it. That's helpful. And then maybe as a follow-up on the portfolio yield. I think you guided to kind of modest improvement in 2025. But as I look at the yield in the back half of this past year, it improved cumulatively about 30 basis points over the last two quarters. So any color around that and the dynamics going forward?

Question: Moshe Orenbuch - TD Cowen (Research) - Analyst : Maybe kind of sticking with credit a little bit, Jenny. I mean, you talked -- you mentioned kind of roll rates as a as a factor that's going to drive charge-offs relative to delinquencies. Could you just talk a little bit, I mean given obviously, we've got this persistent inflationary environment, but at least in theory that continues to get better or less bad as time goes on. And maybe are there other factors that we should be looking at?

Question: Moshe Orenbuch - TD Cowen (Research) - Analyst : Got it. And I guess as a follow-up, the kind of outlook that you put out there kind of has revenue and expenses growing at the same rate. And yes, I understand that your efficiency is better than it was pre-pandemic. But is there either something in there that you're thinking of a specific investment for a multiyear period or if we get kind of to the higher end of the range on revenue growth, would we then see that operating leverage even '25?

Question: Mark DeVries - Deutsche Bank Securities Inc. - Analyst : Yes. Thanks for the comments you provided already, Jenny, on kind of allowance coverage, but I was hoping to drill down a little bit more. Just wanted to better understand where you think that kind of ultimately goes to a CECL day 1 still relevant? Or is kind of the mix shift with adding in both auto at lower losses and card, a presumably higher kind of affecting the ultimate endpoint? Is it also kind of affecting the kind of the near intermediate term dynamics on where that goes, just kind of the relative growth in your different loan types?

Question: Mark DeVries - Deutsche Bank Securities Inc. - Analyst : Okay. Just to follow-up on the CECL reserves on card. I mean it looks like charge-offs were more than twice what they are for the average billing, but I'm assuming the average life is shorter. Is there -- I'm just trying to get a sense of the what we should model for kind of like a CECL day 1 reserve on a card balance versus the rest of kind of your consumer loan.

Question: John Hecht - Jefferies LLC - Analyst : Doug and Jenny. First question is, I know it's early, and I know you've given some color on this, but it's early to evaluate '24. But are there measures you can look at or characteristics you can look at maybe like first payment defaults or something like that, that you can kind of give us an initial take about what vintage '24 might be comparable to relative to history?

Question: John Hecht - Jefferies LLC - Analyst : Okay. And then given the forward curve, I guess, market conditions, which are pretty strong right now, and then your debt maturity stack, how should we think about cost of capital? Like, assuming all of those stay kind of where they are now, what would happen to the cost of capital over the course of the year?

Question: Kyle Joseph - Stephens Inc. - Analyst : Just wanted to get a competitive update kind of by product channel, just weighing the supply and demand of credit across card, personal loans and auto.

Question: Kyle Joseph - Stephens Inc. - Analyst : Got it. Very helpful. And then just a quick follow-up, given where we are in the year in the quarter. Just anything you'd highlight on tax refund expectations or what you've seen so far this year and kind of how you expect timing and magnitude to compare year-over-year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 2:00PM, OMF.N - Q4 2024 OneMain Holdings Inc Earnings Call

Question: Michael Kaye - Wells Fargo Prime Securities, LLC - Analyst : So ex the impact of the mix effect of the front book back book and you also mentioned you're originating higher-quality loans. Can you just give some color on how credit is performing more like a like-for-like basis? Meaning how credit is trending across the risk grades?

Question: Michael Kaye - Wells Fargo Prime Securities, LLC - Analyst : Okay. And I saw a recent Fed report that shows the share of credit card accounts making minimum payments that rolls to a 12-year high. So I'm wondering if you look at your recent trends and the use of proceeds for your loans, like have you seen a surge in debt consolidation requests? I'm wondering maybe this is also adding to the higher loan demand you've been seeing and I think Doug mentioned a new debt consolidation product. Maybe just talk about that?

Question: Mihir Bhatia - BofA Global Research - Analyst : First on the forward close. Jen, you touched on this in your comments, but could you expand on that a little bit. We've obviously seen in the last few months, private capital being very active. In the personal loan space, whether -- and others have been selling or choosing to originate loans on their behalf. So I was just wondering what's OneMain's view of that strategy? Can you just talk a little bit about how much -- how you balance originating for your balance sheet versus originating for private capital? Like what the economics are, what the puts are. Thanks.

Question: Mihir Bhatia - BofA Global Research - Analyst : Okay. Great. No, that's helpful. And then maybe just turning to the credit discussion a little bit and the consumers held. And I guess what I'm trying to square is just you're continuing to originate, I think you said two-thirds of your originations were in your top risk grades. I understand that you still are dealing with the back book and you mentioned a third of delinquencies, I think, are from the back book still. But as we get later in the '25, into '26, what does that mean for your long-term loss rates or, I guess, the health of the customer? Like how much variability is there in charge-offs between your top risk rates and the lower risk rates? So just trying to understand, longer term, the implications are continuing to originate more and more loans in the top half or the top 2 buckets of your risk weights.