OneMain Holdings, Inc.

Good day, everyone, and welcome to today's one main financial Q3 2024 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question anytime by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Today's call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Peter Pouillon.

Thank you, Operator. Good morning, everyone, and thank you for joining us. Let me begin by directing you to page two of the third quarter 2024 investor presentation, which contains important disclosures concerning forward-looking statements and the use of non-GAAP measures. The presentation can be found in the investor relations section of the one main website. 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. Factors that could cause actual results to differ materially from these forward-looking statements are set forth in our earnings press release. We caution you not to place undue reliance on forward-looking statements. If you may be listening to this via replay at some point after today, we remind you that the remarks made herein are as of today, October 30th, and have not been updated subsequent to this call. Our call this morning will include formal remarks from Doug Shulman, our Chairman and Chief Executive Officer, and Jenny Osterhout, our Chief Financial Officer. After the conclusion of our formal remarks, we will conduct a question and answer session. I'd like to now turn the call over to Doug.

Thanks, Pete. Good morning, everyone, and thank you for joining us today. We feel very good about our results for the quarter and year to date. to make good progress on our strategic initiatives to position one name for success in the years to come. Capital generation was $211 million, and C&I adjusted earnings were $1.26 per share this quarter, both up significantly from last quarter. Our receivables grew 11% year over year, driven by an increase in loan originations and our expanded product offerings, while total revenue grew 8%. Despite our very tight underwriting posture, third quarter origination volume grew 13% year-over-year. This is the first time since we tightened our credit box more than two years ago that we've seen year-over-year growth in origination. and we expect to see continued growth going forward. The momentum we saw this quarter in originations was the result of two factors that I discussed briefly last quarter, the current constructive competitive environment and our continued use of granular data analytics and product innovation to find profitable pockets of growth. We are pleased to have strong originations even as we maintain a tight underwriting posture. Turning to credit, any way you look at it, we like the trends we are seeing. Our 30-89 day delinquency was 3.01%, which is down 27 basis points year-to-date, as compared to down 9 basis points last year, and only down 12 basis points on average in pre-pandemic years. These better-than-normal seasonal trends hold true for the quarter-over-quarter movements as well. Delinquency was up four basis points from last quarter, as compared to up 22 basis points last year in the same quarter, and up 18 basis points on average pre-pandemic. These positive credit trends are a result of the swift action we took on credit two years ago. Our disciplined underwriting since that time our unique business model, and an unparalleled understanding of how to best serve the non-prime consumer. Net charge-offs were 7.5% in the quarter, down about 100 basis points from last quarter, and consistent with our expectations given the delinquency levels earlier in the year. Our credit trends make us feel very Barring a recession, we believe we saw peak losses in our consumer loan business in the first half of 2024. We expect this will lead to growth in capital generation in 2025 and future years. And continued positive macroeconomic trends like lower interest rates, stable employment, and reduced inflation could provide even more tailwinds going forward. program continue to stand out as clear competitive advantages for us. In August, we completed a $750 million unsecured social bond at an interest rate of just over 7%. The net proceeds of the offering will finance loans to individuals residing in credit insecure or credit at risk counties, as defined by the Federal Reserve. This kind of focused lending is part of the fabric of One Name and illustrates how we provide responsible access to credit across the entire nation. Moving to our newer products, both auto finance and credit cards are important parts of our commitment to help more customers meet their needs today and progress to a better financial future while driving profitable growth for our shareholders. We now have about 3.3 million customers, and our multiple products are allowing us to meet more consumers with different needs and at different times in their financial journey. Auto finance receivables were $2.3 billion at quarter end. Credit performance in the auto business remains in line with our expectations and better than comparable industry performance. The integration of Foresight is going well, and we are now operating our entire auto finance business under the one main auto brand. All of the moving parts of the integration are progressing on plan, including technology platform consolidation, data integration, vendor cost consolidation, and more. We feel great about our competitors. card users. We'll be cautious in our growth and maintain very tight underwriting standards, but believe we are well positioned for the future years. In our credit card business, we added 122,000 new accounts and $84 million in receivables during the quarter. We've been measured in our credit card growth But we continue to invest in data analytics that help us run the business more efficiently and profitably, as well as in improved customer self-service features that enhance the digital user experience while also reducing costs. This has led to our service calls per customer being down more than 40% year over year, as more customers are using the app to make payments, check balances, redeem a reward, and more. We're also launching and developing more online partnerships to broaden our acquisition chain, so when the time comes to accelerate growth, we are ready. We are confident that we have a differentiated card product that resonates well with our target customer, and we will continue to develop the business to position us for future expansion. Finally, Let me touch on capital allocation. Our priorities remain unchanged. First and foremost, we invest in the business to position us for ongoing success, including making all the loans that meet our risk-return hurdles, while also continuing to invest in new products and champs, as well as data science and technology to further advance our competitive positions. We are also committed to our regular dividend, which at $4.16 per share annually yields 9% at today's price. In the quarter, we repurchased about 420,000 shares for approximately $19 million. Share repurchases will be an important part of our capital return strategy in the years to come. The pace of future by a number of factors, including our excess capital, capital needed for growth, economic conditions, and market dynamics. With that, let me turn the call over to Jamie.

Thanks, Doug, and good morning, everyone. Our third quarter was highlighted by the continued improvement in credit trends, high-quality originations growth, strong revenue growth, thoughtful expense management, and great execution of our balance sheet funding with our second ever unsecured social bond issuance. Third quarter gap net income was $157 million, or $1.31 per diluted share, down from $1.61 per diluted share in the third quarter of 2023. D&I adjusted net income with $1.26 per diluted share, down from $1.57 in the third quarter of 2023. Capital generation this quarter amounted to $211 million, which compares to $232 million in the third quarter last year, reflecting the impacts of the current macroeconomic environment on our net charge-off, partially offset by higher revenues from portfolio growth. Managed receivables finished the quarter at $24.3 billion, up $2.4 billion, or 11% from a year ago. Adjusting for the acquisition of Foresight, our organic growth was $1.1 billion, up 5%. Demand for our product remains quite strong. Third quarter origination of $3.7 billion were up 13% year over year. And, as Doug discussed, this strong growth is the result of the constructive, competitive environment, along with our focused efforts to drive originations while maintaining our conservative underwriting posture. We are continuously analyzing our credit box for segments where we can expand or tighten, but there is no net change in our overall approach to our return requirements or credit appetites. We expect this origination growth to continue through the fourth quarter and feel very comfortable that we will end the year with at least $24.5 billion of receivables. This growth in originations has been achieved while maintaining pricing discipline. Third quarter consumer loan originations APR was 26.8%, up approximately 40 basis points since last quarter and 10 basis points over prior year. In fact, cumulatively, since the second quarter of 2023, we have raised pricing approximately 100 basis points. These pricing levels are above the average APR in our portfolio and will gradually support our yields going forward as the book matures. You can see this starting to take hold in our third quarter consumer loan yield of 22.1%, which was up 15 basis points compared to the second quarter. And while consumer loan yield remains 10 basis points below prior year due to our expanded auto finance portfolio, the year-on-year compare has improved from last quarter. Moving to revenue, this quarter total revenue was $1.5 billion, up 8% compared to third quarter 2023. Total revenue comprises interest income of $1.3 billion, which was up 9% year-over-year, driven by higher average receivables. and other revenue of $181 million, down 1% from the prior year. Interest expense for the quarter was $299 million, up $34 million versus prior year, driven by an increase in average debt to support our receivables growth and modestly higher cost of funds since last year. It is worth noting that interest expense as a percent of receivables in the quarter was 5.2%. down from 5.4% in the second quarter, which, as I mentioned last quarter, was elevated due to the timing of our issuance and use of those proceeds to proactively manage our debt maturity stacks. Provision expense was $512 million, comprising net charge-offs of $432 million and an $80 million increase to our allowance, driven by the increase in receivables during the quarter. I will touch on losses in a bit more detail in a minute. Policyholders' benefits and claims expense for the quarter was $43 million compared to $48 million in third quarter 2023, reflecting positive reserve adjustments from favorable claims performance in our portfolio. In the quarters ahead, we expect around $50 million for policyholder benefits and claims expense. Let's turn to slide eight and look at consumer loan delinquency trends. Our 30 to 89-day delinquency on September 30th, excluding Foresight, was 3.01%. This is down 27 basis points since the end of last year and up four basis points quarter over quarter, both of which are notably better than normal seasonal patterns, as you can see on slide 9. If you adjust for the slower pace of growth on our book from our conservative credit box, Our year-over-year 30- to 89-day delinquency has improved notably as compared to last year. These positive delinquency trends are indicators of future loss performance. As you know, as delinquency trends improve, charge-up trends will follow. So we're pleased that our active management of credit over the last two years is making a positive impact on our delinquency results today, and that should translate to improved loss performance in the quarters ahead. Our front book vintages, which we define as origination starting as of August 2022, now comprise 81% of total receivables, as compared to 76% a quarter ago. We remain pleased with the quality and performance of the loans we are booking today, and the performance of the front book remains in line with expectations. It is also worth noting that while the back book makes up 19% of the total portfolio, It represents 37% of our 30-plus delinquencies. We continue to see the overall bulk transition to front book vintages, which should further benefit our delinquency and loss metrics going forward. Let's now turn to charge-offs and reserves, as shown on slide 10. C&I net charge-offs were 7.5% of average net receivables in the third quarter. That's down about 100 basis points from the with our expectations and seasonal patterns in our portfolios. Consumer loan net charge-offs, which exclude credit cards, were 7.3% in the quarter. We remain confident that consumer loan losses peaked in the first half of 2024, assuming a steady macroeconomic environment ahead. Recoveries remain steady and strong in the quarter, amounting to $79 million, or 1.4% of receivables. as we remain diligent in our strategies where we look to maximize recovery value. Loan loss reserves ended the quarter at $2.7 billion. Our reserves increased by $80 million in the quarter, driven by portfolio growth, while our reserve coverage remained steady at 11.5%. For the rest of the year, we expect to remain at approximately this coverage level, subject to any macroeconomic changes. Now let's turn to slide 11. Operating expenses were $396 million in the quarter, up 6% compared to a year ago, driven by the acquisition of Foresight on April 1st and our continued investment for future growth. Our operating expense ratio was 6.5% in the quarter, down 28 basis points from third quarter a year ago and up modestly from last quarter. As we mentioned on our last call, we are tireless in our focus products, people, data science, and technology. And while the OpEx ratio may moderate from quarter to quarter, we expect it to continue to trend down over time. Now let's turn to funding in our balance sheet on slide 12. During the third quarter, we issued a $750 million seven-year unsecured social bond at 7.18%. The offering this quarter was once again well executed and oversubscribed. with a strong list of investors. We have no unsecured maturities until March 2026 and have excellent funding flexibility over the remainder of this year and next. Net leverage at the end of the third quarter was 5.7 times comfortably within our four to six times leverage range. Let me finish up briefly with slide 14, reviewing our 2024 priorities. We expect to end the year with managed receivables of at least $24.5 billion above our original guidance. We expect revenue growth to be at the higher end of our range. Interest expense is expected to land at approximately 5.2% for the year, and we expect our full-year net charge-off at the higher end of our range. Finally, we expect our operating expense ratio to be around 6.2%, Other than managed receivables, which is better than our original expectations, all of our current guidance metrics are within the range of expectations we had laid out at the beginning of the year, demonstrating the team's constant commitment to driving positive outcomes for our customers and strong financial performance for our shareholders. I'll conclude by saying we're pleased with our results this quarter, and as we look forward with a steady macroeconomic environment supporting these trends credit, origination, yield, and operating leverage, we believe we can drive significant capital generation growth in the future. With that, let me turn the call back over to Doug.

Thanks, Jenny. All of the work that we've done the last two years to manage the business and serve our customers is showing up in the continued positive direction of credit. We're proud of how our experienced team has navigated the company through the many uncertainties affecting the non-prime consumer, demonstrating our long history and understanding of how to best serve our customers and drive our financial performance. We like our competitive positioning, including the growth potential of our core business and new products, and believe we have many tailwinds in the business going forward. So while we're All of this is driven by the great team members of OneMain who come to work every day to make a difference in the lives of our customers and to drive value for our shareholders. With that, let me open it up for questions.

Thank you. And the floor is now open for questions at this time. If you have a question or comment, please press star 1 on your touchstone phone. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we do ask that while you pose your question, that you pick up your handset to provide optimal sound quality. And our first question is coming from Terry Ma with Barclays. Please go ahead.

Thank you. Good morning. Just almost a housekeeping 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 foresight policy adjustment last quarter or not?

That does include the impact of the four state policies . Good morning.

Good morning. So, got it. So, it does not kind of strip out the incremental charge-offs from that policy adjustment is what you mean? Correct. Got it. Okay. That's helpful. 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, like whether or not it's driven by the front book or back book, any color you can provide?

Yeah. You know, we're coming in within our guidance, so we're happy with where we're landing. We don't think this should be surprising given the delinquency that we've seen in the past few years and how they drive our losses. We provided that beginning of the year loss range around unexpected outcomes. And we saw some slower growth in the originations at the beginning of the year. And the macro environment didn't improve much throughout the year. So all of that sort of driving your at that extent. So, in the range, but at the higher end of the range.

Got it. That's helpful. Then maybe just one more follow-up. You indicated you expect charge-offs to have peaked 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.

You know, I think really when you look at the they drive your charge up about two quarters later. So really what we're seeing is, you know, like the TransCent, we're seeing it's delinquency. We look at delinquency this quarter, we're relatively flat, but it would have been better than last year if you took into account growth math. And so we're liking that direction of travel, and you

Thank you. And next, we'll take our next question from Michael Kay with Wells Fargo.

I had a question about originations. There 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 you consider?

I don't think so, Michael. happy with our originations. But as you know, we view growth as an outcome. So we have a tight credit box. We have really good competitive positioning. Some of the competitors, especially banks, are still kind of out of the market. We've been able to have price with our originations.

So I'm not sure, you know, our team can just follow up with you about your translation, originating some of our balances, but there's nothing surprising. Okay. I wanted to talk a little bit about the asset yields. You know, they're up nicely. I think 15 basis points quarter on quarter. And I don't want to ask last quarter, you thought they would be more flattish quarter on quarter. I was surprised to see them up so much. So, you know, was there anything that surprised you to the upside on quarter? on asset yields versus your expectations, and should we see that kind of momentum continue, at least in the near term?

Yep. Thanks. I'll take that. You know, our third quarter yield was 22.1%. That was up about 15 basis points from the second quarter. On the second quarter, we've been talking about some of those pricing actions we've been able to make. in the competitive environment starting to take hold. And really those come through gradually and over time. And so we did start to see some of those come through. I think it's very hard to predict exactly when those are going to come through. And most of those are coming from our personal loan portfolio. And that's the major driver for that 100 basis points increase since the second quarter of 2023 that I spoke about earlier. um and so we've been you know in my mind we've been talking about this for a while um and we're doing that while also uh growing our book and growing originations and growing our lower yielding and lower loss content auto finance book so um you know all of that is is helping and um and you're seeing it take time for pricing to come through yield i think you saw that little bump I'd say in terms of where yield's going, I wouldn't expect a major bump, but over time, you know, you should start to see that pricing come through yield if we stay in this competitive environment.

Thank you. And our next question comes from Vincent Cantik with BTIG. Please go ahead.

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, you know, 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.

So let me take the second one first, Vincent, and I'll just start with, you know, we're not providing 25 guidance on this call. We'll come back with our fourth quarter results and give a better sense of 25. But in terms of loss seasonality, you know, the first quarter is our typical low delinquencies where we have tax refunds. And that translates into what you're seeing in our losses now at the 7.52% in the third quarter. And we expect to see our delinquencies be better year on year soon. And they would have been better this quarter if we'd been growing at a higher growth rate. So excluding growth maps, they would have been better than last year. And then those translate into losses two quarters later. So I think that should really give you a sense of when you're going to see losses start to come down. But again, we're not going to give a specific guide on 2025 right now.

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

Yeah, I think we're pleased to see The origination growth we had, as I mentioned earlier, we're not managing. It all starts with our credit box. We're only going to originate for our customers to be successful and pay us back. We're not relaxing our credit box. We're actually keeping it quite tight right now. Then, you know, you put in marketing, having a great product at a fair price with a great value proposition, customer experience, the investments we're doing in digital, and we'll have the output that we have for, you know, origination. So we like what we see. We have really good demand and depend on marketing.

Thank you. And our next question comes from John H. with Jefferies. Please go ahead.

Good morning, guys. Thanks very much for taking my question. Doug, you're talking about a fairly constructive, competitive environment. I'm wondering, 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?

Yeah, no, it's a good question. I mean, A, we have a very tight and similar credit box across all three, which is, just to remind everyone, we have a 30% stress overlay in our credit box. That means, you know, We run our model based on what we're seeing in the market, and then we actually have an overlay that even if we move into a recession and there's an uptick in unemployment, that we'll still need our 20% return. So, you know, we're quite tight. I think in each of those products, we've got plenty of demand, especially in auto and car. We're modulating those. pockets that we feel very confident. I think in the, you know, the place where you can really see, you know, the market dynamics is in some of the affiliate sites where, you know, we make a loan offer and someone else makes a loan offer. That's most prevalent in our startup sector, personal loans, business. there we see that we're winning a lot of business, and we're doing it at attractive prices, and we're doing it with higher credit quality customers. So that's where, you know, the fault of what we're seeing. I think at Auto & Cart, we're such small players, and we're challengers, and we're just growing that business that is, frankly, less important because there's plenty of business for us to, I think, ask people to

Okay, that's helpful. And then maybe just a related follow-on to that is that we've seen a lot of private credit enter the space with 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?

Yeah, look, we talk a lot about our balance sheet. One of the reasons we put on long-term unsecured debt, and we have excess bank facilities that we rarely tap, and then we have a robust ABS program, is to have a fortress balance sheet. One, to make sure there's plenty of liquidity in any environment, but two, so we can keep doing all the lending we can do through any cycle. I think you saw, you know, we've seen two cycles, at least since I've been here, which is you know, the pandemic came and the capital markets froze up. A lot of people didn't have money. I think we actually found it very dead, but the deficit market was very great. And then again, in mid-2022, a lot of those full-blown facilities dried up for competitors who do more jump-in-time funds, and they really pulled out of the market. As you said, I think a lot of debt investors are now back in the market, looking for you, searching for you. So I think it will be bumpy and it will affect, you know, competitors who use that avenue a lot more than .

And we'll take our next question from Moshe Arunbuck with TD Cowan. Please go ahead.

Great, thanks. You know, 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's been flat. You know, 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, you know, to see that reserve rate start to come down?

I take the motion. You're right. This quarter, our reserve, it increased by $80 million. That reflected the growth in our portfolio. There was no change in our coverage rate. And we feel pretty good about our reserve levels today. I wouldn't expect anything to change materially this year. We have a conservative stance to reserve levels. Any change in reserves is really dependent on consistent charge-offs.

direction of the macro and sort of product mix in the portfolio so before we release reserves we want to feel very comfortable with where the book is and what the future looks like got it um maybe following up you know on john's question before you know i'm just wondering if if perhaps you know there aren't you know or you know there are other lenders out there who you know kind of use their turndowns and create, you know, you know, reasonable revenue, larger revenue streams based upon, you know, selling them through those types of arrangements, either, you know, directly or, or, or indirectly. And is that something that, and, and by the way, and, and often continuing to service the loans, I mean, is that something that you've considered, you know, as, as, you know, as a benefit from the possibility, you know, of, of higher participation by private equity firms?

Yeah, that was a good question, Moshe. It's something we actually do a little bit of in our auto business. And there's a variation, our whole loan sale is a variation on that where we sell off, not necessarily turn downs, but just have a different channel to a funding. One of the reasons we built the pipes in our auto business and we built the pipes is to have full loan sales, is to have that flexibility if we choose to pursue that path. So it's definitely something we've thought about. It's always trade-off about what do we want to put on our book, what's profitable, what are the market conditions, and then just bandwidth and how much we want to go chase stuff that we normally would turn down and figure out what kind of incremental revenue and return we could get from that. So it's a long answer to say yes. We definitely would consider it. We do a little bit of it today, and we'll keep it on our radar. And if we think it's going to have good ROE and a good return for our shareholders, we'll do more of it. Yeah.

Yeah. I would just, this is Jenny, I would just add, I mean, it's the same point, but it's all about the economics. We're always reviewing options, you know, whole loan sale programs and what we could put off balance sheet, and that market is pretty competitive right now, and we like the economics of putting loans on our own balance sheet, and we think that's the best return for shareholders. But we do have full loan sales, and we do get that gain on sale and that servicing fee. And we like the funding flexibility that we have with the whole loan sale program. And so, you know, it's there if we want it, I'd say.

Thank you. We'll take our next question from Mihir Bhatia with Bank of America. Please go ahead.

Thanks for taking my questions. I wanted to go back to the origination growth this quarter. 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 know, you're seeing the environment get better, getting more confident, so you feel like you can maybe start underwriting just a tad bit before anything like that's going on with the credit standards this quarter where you were maybe loosening a little bit?

No, thanks, Mihir. You know, we did not loosen the box this quarter in aggregate, but, you know, we've mentioned before that we are always adjusting pockets based on geography, risk rate, product, channel, and we look at it in very, you know, micro detail. And what Jenny and I talked about earlier some of the product innovation or investment in digital and technology we're doing. Let me give you an example of one of the things we did at the end of the second quarter, which helped drive some growth this quarter, which is for three years, we've had access to payroll data. So you apply for a loan with us, you say you make $100,000. We used to ask you to upload documents to prove that, some pay stubs, and then we put it through fraud and make sure it's accurate. We now can actually, with a lot of employers, ask people to just get access directly and we can tap it and it's electronic. We're very careful when we introduce new data sources, especially for something like income verification. And so we put that in place three years ago. We watched the credit of that versus our traditional methods of upload or bringing it into the branch and inspecting documents. We saw the credit was good or even slightly better because it's actually quite reliable, our plugging into that. But it also saves. It's a much better customer experience because you don't have to either upload a document or come into a branch or do something. So it creates a slight uptick. in the pull-through rate, the number of customers who apply and go all the way through the process. And so it's product innovations like that, not any relaxing of credit, that we're always tweaking our business model just to improve.

Got it. No, that is helpful and sounds quite interesting. Maybe just saying 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 than – 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. Like I think you mentioned, banks are still pretty tight. And so just curious if you're seeing any impact from that.

Yeah, I mean, look, post-pandemic, a lot of people shifted behavior to digital. And we have the option for our consumers to interact with us on the app or on their browser. We actually can co-browse with you. We can take you through the documents. We can show you the disclosure of the different products. And so we have not seen in the last couple of years any major movements. But the vast majority of our customers start online. So they hear about us, apply online. Some of them choose to come into a branch because there are people who want to have that personal interaction. Some of them choose to do it on the phone with us and through their browser or through their app. Our strategy is to be omnichannel. We think our branches are a huge competitive differentiator. We're in community. People know us. People drive by the branch and know we're a real company. Even people who never come into a branch say they like to know that we have a physical presence, and it gives them confidence in doing business with us. So I think it has some brand effects in addition to just the pure physical get to know your customer. It makes it much easier to do a secure deal with someone else. You know, trends are more people like to do more digitally, but, you know, we and some of the major banks also continue to be very focused on having spring change.

Thank you. We'll next go to Rick Shane with J.P. Morgan. Please go ahead.

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 portfolio as you grow the alternative products, how should we think about the impact on yield? When could we start to see those products, particularly Foursquare 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 lever some of those new asset classes?

Yes, thanks. Let me take that. Listen, one, let me just start with our auto business today is about 2.3 billion of receivables of our book, which is 24.5 billion in receivables. So you're absolutely right. Today, you know, it's included in our consumer loan yield. And, you know, as that makes shifts, you know, as we grow in auto and it becomes a larger portion of our book, that will obviously have an impact on, But it's there today, and there are a lot of things that go into yield that are also there today. So, you know, we've been very deliberate in taking pricing actions and increasing that APR on our consumer loan originations, both in our auto products and also in our personal loan products. And a lot of that is coming from personal loans, but some of it is also coming from auto. Our yields also continue to feel the impact of credits. And that will get better over time, of course, but that's dependent on the rate and the pace of improvement. And then there is that impact from auto, which is that lower yielding, but lower loss content business. And so overall, over time, we like the returns that we're seeing there. In our investor day, we laid out some of what we see in terms of our expectations on the those returns, and credit card is similar to slightly higher than what we see on personal loans, and auto is slightly lower. But I think in terms of thinking about where yield's going to go, you should expect to see, even with the growth of the auto, yields start to grow gradually over time.

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.

I think the stat that is the best one there is the one that I gave earlier, that is that we've raised our consumer loan portfolio, you know, around 100 basis points since the second quarter of 2023. A lot of that is coming from pricing power that's coming at the higher, you know, if you think about where we're making pricing adjustments, I mean, most of that is on the higher end of our book because, you know, there's less competition there. normally on the lower end of the book. So I think over time, you know, in this type of environment, I'm not sure there's that much more room to go on pricing. So, you know, again, this is more about seeing the pricing that we've already put in come through.

Thank you. And we'll take our next question from Mark DeVries with Deutsche Bank. Please go ahead.

Yeah, thank you. you know, understanding you don't want to give guidance on charge-offs yet for 2025. I think it'll still be helpful for us to think about, you know, 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 four BIPs queue on queue 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?

Yeah, listen, I mean, I think, first of all, I'd say the statement that was in there was pretty accurate. I mean, really what we're looking at for next year's losses is the trajectory of swingwood season. And I think what you're hearing from us today was, you know, number one, we saw peak losses in the first half of 2024, and we feel confident in that based on where our delinquencies are today. We're very pleased with our front book performance, so those messages are in line with our expectations. And, you know, that should further drive improvement in our delinquency performance as that becomes a larger piece of the book. And so we're really seeing the benefits of those tightening actions we took early on, you know, starting in August 2022 in our results. And so it's really dependent on the pace of that improvement, you know, pace of the increase in that front book, right? You know, the macro environment, if the macro were to get better, you know, obviously that's helpful. And then trying to get it, we're just trying to get across generally that we see the direction of travel moving in this direction. And We'll come back, you know, as we said, we'll come back with more loss guidance for 2025. We'll come back with our fourth quarter results.

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 charged off receivables you have today? Sure.

Yeah, so we continue to see really strong recovery performance, positive trends. We remain above that pre-pandemic recovery level that we had. This quarter, we had $79 million in recovery, which is about $9 million of post-charge-off debt sales. That's in line with last quarter, so not much of a major shift. We're always looking to maximize returns and the value of internal versus external collections versus bulk sales and making decisions there. But overall, right now, we're quite pleased with our recovery and would expect something similar for the go forward.

Thank you. And next, we're going to go to John Rowan with Janie. Please go ahead. And John, your line is open.

Sorry, I was on mute. Can you hear me?

Yeah, we can hear you, John.

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 – you know, how we get to that, you know, that OpEx number for the fourth quarter. And just, you know, if it is higher year over year, you know, just compare that to your statement that, you know, the OpEx ratio will continue to improve over time. Thank you.

Yeah. Listen, I think we look at OpEx in terms of the trend, so multiple quarters. So, I would just start there. When we talk about those trends, we're talking about where they look from a year-on-year perspective. Expenses can be lumpy and we're focused on really running a good business, running it efficiently. We left our guidance unchanged around 6.7% if you come in in that area. So overall, yes, we're seeing great operating leverage in our business and think of it as a real strength. We've come down a lot from where we've been over the past couple years. So we're careful stewards of our spending. I think in terms of the fourth quarter, I'm not going to Your math sounds slightly higher than I would expect. But overall, I'd say we kept our guidance at around that 6.7% range. Yeah.

And the only thing I'd add, John, is we're super careful. And I've talked about this before, not spending money on things that don't add value. So if there's a program that was put in place and it wasn't a good idea to get executed, we shut it down. If there's something that the always taking aggressive expense actions. That's one of the reasons you've seen our FX ratio go down. Second is it's just a great business model. It has inherent leverage. But as you know, we're also running this business for the next three to five years, making sure we have great competitive positions and we create long-term share value. So we're also making investments and I, you know, we never get too excited. Exactly. You know, it can be bumpy expenses, but we're every day making sure we don't waste money and we make good expenses. That's our mentality.

All right. Thank you.

Thank you. I think we are out of time. So I want to thank everyone for being here today as always. Um, Feel free to follow up with our team. We're here and available, and hope everyone has a great day.

Thank you. This does conclude today's OneMain Financial's third quarter 2024 earnings call. Please disconnect your line at this time and have a wonderful day.