OneMain Holdings, Inc.

Please stand by your program is about to begin. If you need assistance on today's program, please press star zero. Welcome to the one main financial fourth quarter 2024 earnings conference call and webcast. Hosting the call today from one main is Peter Pullian, 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 one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. We do ask that you limit yourself to one question and one 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 Pullian. You may begin.

Thank you, Operator. Good morning, everyone, and thank you for joining us. Let me begin by directing you to page two of the fourth 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 OneMain 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, January 31st, 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, and good morning, everyone. Thank you for joining us today. In 2024, we made significant progress in our personal loan business, as well as our new products, credit card and auto lending, setting us up to drive growth in both receivables and capital generation. During the year, we continued to focus on helping our customers improve their financial well-being and finding opportunities to lend even as we keep a very tight credit box. We also completed our acquisition of Foresight, bringing new capabilities to our auto lending business, continued the build-out of our Brightway credit cards, proactively managed expenses, and further refined our best-in-class data science and analytics. The result was steady improvement in credit, solid growth in originations, and a customer base that grew 15% to 3.4 million customers. Here are some highlights from the year. In 2024, we generated $685 million of capital, despite incurring peak loan losses at the beginning of the year, demonstrating the incredibly strong and resilient business model of OneMain. We expect that 2024 represented a cyclical low in earnings and will be followed by an upward trajectory in earnings and capital generation in 2025 and beyond. I'm very pleased that we met or exceeded all of the 2024 expectations that we laid out for investors at the beginning of the year. This was the result of our personalized approach that allows us to stay very close to our customers, active credit management, disciplined focus on expenses, and strategic investment in the business. For the full year, our receivables grew 11% to $24.7 billion. Some of the factors contributing to this were the growth of the auto business, including our acquisition, a positive competitive environment, focused initiatives to help improve personal loan originations without changing our conservative credit posture, and growth in the Brightway credit cards. In our personal loan business, we continued to invest in data science, new data sources, and credit models to even further enhance our best-in-class underwriting capability. We invested in our technology and branch network, refining the way we interact with customers to increase efficiency and enhance customer experience. And we launched new products and channels, including credit card to loan cross-marketing in our mobile app, loan payments linked to paychecks, and a new debt consolidation offering. We fully integrated our auto acquisition, giving us new capabilities in auto lending. We entered 2025 well-positioned to compete through both franchise and independent dealerships. We grew our credit card portfolio to about 780,000 accounts. While being cautious in our growth, we've been highly focused on continuously improving the user experience to make sure our customers have access to a differentiated, highly digital card product, while we also continue to drive operating efficiencies. In 2024, we continue to demonstrate our incredibly strong balance sheet and funding programs. We raised $3.9 billion in funding, including $2.4 billion in high-yield bond issuances and $1.1 billion in seven-year secure funding. We also expanded our whole loan sale program and renewed multiple bank lines and our corporate revolver. Our diversified funding program ensures we have significant excess liquidity and continues to be a strategic differentiator of OneMain. We also focused on helping our customers manage their financial wellness and on supporting the communities where we live and work. Trim by OneMain, our financial wellness platform that helps customers save money on household bills and manage everyday expenses, continued to help our customers improve their financial well-being. TRIM is free to OneMain customers and has saved them millions of dollars through bill negotiations and subscription cancellations. Credit worthy by OneMain, our financial education program for high school students reached more than 400,000 students in more than 4,000 high schools across the country. with many of our team members volunteering and engaging with students throughout the year. I mention Trim and Creditworthy because they illustrate the kind of company that we are. Recently, OneMain was recognized both in the Newsweek Excellence Index and in Time Magazine America's Best Midsize Companies list. for various aspects of business excellence, including growth and innovation, employee satisfaction, and ethical practices. I only named a few, but I'm proud of all of our accomplishments in 2024 and believe the future has never been brighter for one Maine. Let me now turn to the results of the fourth quarter. Capital generation was $183 million, and C&I adjusted earnings were $1.16 per share. Our receivables grew 11% year over year, and total revenue grew 9%. Despite our continued conservative underwriting posture, for the second consecutive quarter, originations grew double digits year over year. The strong origination growth is a result of the constructive competitive environment throughout most of 2024 and our expanded use of granular data analytics and product innovation to opportunistically drive growth. Turning to credit, the positive trends that we saw in the third quarter have continued into year end. Our 30 to 89 delinquency was 3.06%, which is down 22 basis points year over year compared to up 21 basis points a year ago. We're also seeing better-than-normal seasonal trends in the quarter-over-quarter movements. Delinquency was up only five basis points from last quarter. Last year, it was up 30 basis points in the same quarter, and pre-pandemic, it was up 13 basis points on average. So we liked the trends that we are seeing. Net charge-offs were 7.9% in the quarter, up 36 basis points from last quarter, which is much better than the trends we have seen the last two years, and also better than normal seasonal trends we saw pre-pandemic. And consumer loan net charge-offs were 7.6%, which is down seven basis points year over year. These positive credit trends in both delinquencies and charge-offs reinforce our view that losses in our consumer loan portfolio peaked in the first half of 2024. Moving to our newer products, One main auto receivables increased $105 million in the quarter to $2.4 billion at year end. The credit performance in auto remains in line with our expectations and better than comparable industry performance. In our credit card business, we added $93 million in receivables during the quarter and ended the year with receivables totaling $643 million. We continue to focus on building the foundations of a great card business, which we will grow when the time is right. Let me touch on capital allocation, where our priorities are unchanged. First and foremost, we invest in the business to position us for ongoing success. In 2025, we will continue to invest in growth data science, technology and digital innovation, enhanced loan products, as well as our auto and credit card businesses. We're also committed to our regular dividend, which at $4.16 per share annually yields about 7% at today's share price. During the year, we repurchased about 755,000 shares for approximately $35 million. We will pace our future share repurchases based on a number of factors, including our excess capital, capital needed for growth, economic conditions, and market dynamics. As we turn to 2025, we feel great about all of the key drivers of our business. We continue to serve more customers and grow receivables as we enhance our personal loan business and add new products. We have actively managed credit through a tricky economic environment the past several years and expect to see continued improvements into 2025. Our balance sheet is as strong and diversified as it has ever been and we continue to invest in the business while being disciplined in expense management. Barring any shifts in the macroeconomic environment, we expect to see increased earnings and capital generation in 2025 and beyond. With that, let me turn the call over to Jenny.

Thanks, Doug, and good morning, everyone. Let me begin by focusing on the quarter then briefly recap our year and conclude with what we expect for 2025. Our fourth quarter was highlighted by the continuation of improved credit trends, growth in high quality origination and solid revenue growth. We also completed the year with continued strong execution in the funding markets. Fourth quarter gap net income was $126 million or $1.05 per diluted share down from $1.38 per diluted share in the fourth quarter of 2023. CNI adjusted net income was $1.16 per diluted share, down from $1.39 in the fourth quarter of 2023. Capital generation, the metric against which we manage and measure our business, totaled $183 million, which compares to $191 million in the fourth quarter of 2023. primarily reflecting the impact of the current macroeconomic environment on our net charge-offs, partially offset by higher interest income from portfolio growth. Managed receivables finished the year at $24.7 billion, up $2.5 billion, or 11% from a year ago. Fourth quarter originations were $3.5 billion, led by strong organic growth of 11% year over year. The acquisition of Foresight in April contributed another 5% to the total year-over-year increase of 16%. This strong growth is a result of the constructive competitive environment, along with our focused efforts to drive originations within our continued conservative underwriting posture. The APR on our consumer loan originations was 27.0% this quarter. up 16 basis points from the third quarter, continuing the trend we have seen for several quarters. These origination levels will support yield as the book matures and older originations roll off. Fourth quarter consumer loan yield was 22.2%, up 14 basis points compared to the prior quarter, benefiting from pricing actions we've taken, partially offset by the continued growth in our lower loss Lower yield, one main auto business. As we look ahead to 2025, we expect flat to modest improvement in consumer loan yield from these levels, largely dependent on our product mix throughout the year. Total revenue was $1.5 billion, up 9% compared to fourth quarter 2023. Interest income of $1.3 billion grew 11% year over year, driven by receivables growth. Other revenue of $177 million was down 4% from prior year. Interest expense for the quarter was $310 million, up $39 million versus prior year, driven by an increase in average debt to support our receivables growth and modestly higher cost of funds compared to a year ago. Interest expense as a percent of average net receivables in the quarter was 5.3%. As we look forward, we expect this to increase slightly. If there is volatility in interest rates in 2025, our balance sheet strategy to issue largely fixed rate, longer dated securities minimizes the impact. Fourth quarter provision expense was $523 million, comprising net charge offs of $464 million and a $59 million increase to our allowance driven by the increase in receivables during the quarter. I'll discuss losses in more detail momentarily. Policyholder benefits and claims expense for the quarter was $49 million flat to prior year, and we expect quarterly PBMC expense in the low $50 million range in 2025. Let's turn to slide nine and look at consumer loan delinquency trends. Our 30 to 89 day delinquency at December 31st, excluding our Foresight acquisition, was 3.06%. down 22 basis points year-over-year, which is notably better than the trend we saw a year ago and the trends we saw in the pre-pandemic periods, as shown on slide 10. 30-plus delinquencies were down more than 50 basis points compared to a year ago, as 90-plus delinquencies also notably improved. This quarter marks the first year-over-year improvement on delinquency in recent years. We are actively managing credit and see these trends as encouraging signs for continued positive momentum in lower loss levels and higher earnings in 2025 and beyond. On slide 10, you can also see our front book vintages now comprise 84% of total receivables. The performance of the front book remains in line with expectations and is the primary driver of the improved credit trends in our portfolio. And while the back book makes up just 16% of the total portfolio, it still represents about one-third of our 30-plus delinquency. As the back book continues transitioning and we see the front book grow as a percentage of our portfolio, we expect our delinquency and loss metrics to continue to improve. And it is worth noting that there remains some headwind in our credit metrics, from our decisions to tighten credit, slowing originations, which has extended the average age of our portfolio. Let's now turn to charge-offs and reserves, as shown on slide 11. C&I net charge-offs, which includes credit cards, were 7.9% of average net receivables in the fourth quarter, up 36 basis points from the third quarter, which is well below the approximate 100 basis point increases we've seen the last two years, and below the approximate 50 basis point increases we saw on average in pre-pandemic years. We are also seeing the trends improve in our year-over-year comparison. These are all encouraging signs of improved loss performance in the quarters ahead. Also, it is helpful to point out that while still relatively small, the credit card portfolio is growing modestly, and we are seeing an impact in our CNI net charge-offs from the higher loss card business, which carries higher overall revenue and generates attractive risk-adjusted returns. Consumer loan net charge-offs, which exclude credit cards, were 7.6% in the quarter. down seven basis points year over year. This clearly demonstrates the improvement we have been seeing in early delinquencies and the go forward trajectory of losses as we move away from peak losses in the first half of 2024. Recoveries remain steady and strong in the quarter at $77 million or 1.3% of receivables, well above our pre-pandemic levels. Loan loss reserves ended the quarter at $2.7 billion. Our reserves increased by $59 million in the quarter, driven by portfolio growth and consumer loans and credit card receivables, while our reserve coverage remained steady at 11.5%. Once again, it's worth mentioning here that our reserves include the impact of our credit card portfolio, which, as I mentioned, is higher loss and therefore carries a higher loss reserve. And while we are seeing positive trends in our credit metrics, we haven't made changes in the macroeconomic assumptions in our reserve calculation. given the continued uncertainty around inflation and unemployment. So I expect in the near term to see our reserve coverage remain around current levels. We will continue to assess reserve levels and expect that when the uncertainty around the macro subsides and as we see sustained improvement in the credit performance of our portfolio, our coverage level will come down in time. Now let's turn to slide 12. Operating expenses were $422 million, up 10% compared to a year ago, driven by the foresight acquisition and investment in our business. The full year 2024 OpEx ratio of 6.6% was abnormally low, resulting from the savings generated by the expense actions we took in the first quarter. As we had said, we expected to reinvest a portion of the savings in the business to drive growth and efficiencies in the future, And you can see that reinvestment in the latter part of the year. Stepping back, our business model continues to have inherent operating leverage. And you can see that as our OPEX ratio has steadily improved since 2019. Now let's turn to funding and our balance sheet on slide 13. During the quarter, we issued a $900 million, four and a half year unsecured bond at six and five eighths percent. The offering attracted a strong set of both new and returning investors and resulted in the narrowest spreads we've ever seen on an unsecured issuance. Since June of 2023, we've issued six unsecured bonds totaling $4 billion, and with each issuance, we have seen gradual improvements in pricing and healthy demand for our bonds. Also, you may have seen we've already begun our funding for 2025 earlier this month. with a five-year revolving $900 million auto ABS issuance with an average cost of funds just under 5.5%. Once again, demand for our secured paper was extremely strong. We are feeling very good about where we stand with our best-in-class funding strategy and our ability to execute. We're also pleased to have expanded our forward flow whole loan sale program to $900 million annually through the end of 2025. As we've said before, we regularly evaluate the benefits of committed flow arrangements for their near and long-term effects to our business and are pleased with economics of the program we have in place. We see these types of arrangements as useful tools to further diversify our funding options. During the quarter, we also optimized our bank lines to $7.4 billion, and as part of that, we converted a $375 million secured bank line to private placement. So we feel really good about our liquidity position and our runway. Net leverage at the end of the fourth quarter was 5.6 times, flat to prior quarter. We've adjusted the calculation to remove quarterly volatility from the impact of changes in AOCI in our adjusted capital, aligning with common market practices and how the ratings agencies measure tangible equity. Before I discuss 2025 strategic initiatives, let me briefly recap our full year 2024 performance against the expectations we laid out at the beginning of the year. First, we expected to grow our managed receivables to approximately $24 billion, inclusive of our auto finance acquisition, and the end of the year at $24.7 billion, benefiting from the strong competitive environment and the growth initiatives we successfully implemented starting in June of last year. We expected total revenue growth in the range of 6% to 8%, and we came in at the top end of our range at 7.6%. We expected interest expense as a percentage of average net receivables to come in at approximately 5.2%, and we came in at 5.26%, even as we held more excess cash on our balance sheet through much of the year and took the opportunity to raise incremental debt to manage near-term maturities and support our liquidity runway. We expected C&I net charge-offs in the range of 7.7% to 8.3% while calling peak losses in the first half of 2024. We came in within the range at 8.1% for the year with peak losses occurring in the first quarter of 2024. Finally, we expected our operating expense ratio to come down to approximately 6.7% from 7.0% in 2023. We came in at 6.6% for the full year. Even in a challenging year where we saw peak losses resulting from a negative credit cycle, we generated capital of $685 million and a return on receivables of 3.1%, demonstrating the strength of our business model. As credit improves and we continue to grow, we expect to see capital generation growth and improved returns positioning the business for continued success in the years ahead. Now let's discuss our expectations for certain key metrics in 2025, turning to slide 15. We expect to continue growing managed receivables and revenues, even as we remain cautious on the economy and maintain a tight credit posture. And as always, we are fully prepared to accelerate growth if and when conditions improve. We expect managed receivables to grow approximately 5% to 8%, reflecting solid loan origination. We expect revenue growth in the range of 6% to 8% following our expected receivables growth I just mentioned, along with modest improvement in consumer loan yield. In terms of our guide for credit, We expect full-year CNI net charge-offs in the range of 7.5 to 8.0% as we reap the benefits of the actions we took to actively manage credit over the past couple of years. We expect to see typical seasonal patterns once again in our quarterly losses, with first half 2025's net charge-offs above the full-year range and second half below. Our guide assumes no change in the macroeconomic environment, including inflation. I also think it's helpful to point out that you can see in our fourth quarter results that consumer loan net charge-offs are improving and running about 25 basis points below CNI net charge-offs. As we mature the card business and as consumer loans continue to improve, we expect that relationship will widen to approximately 40 basis points in 2025. On operating expenses, there will be some minor variability throughout the year, with a full year OPEX ratio of approximately 6.6%, in line with last year's OPEX ratio and notably better than our OPEX ratio in 2023. In summary, as we look ahead to 2025 and beyond, we see strong momentum in our business and believe we're well positioned to excel in any economic environment. To that end, we remain confident and our ability to achieve the medium-term capital generation and growth targets that we discussed during our 2023 Investor Day. And with that, let me turn the call back over to Doug.

Thanks, Jenny. I'm pleased with the results for the quarter and for the full year, and especially pleased with the progress we continue to make to enhance our competitive positions. Just five years ago, we were a monoline provider of personal loans offered through our branch network. Today, we offer personal loans through multiple channels, including our branches, and have added credit cards for customers' everyday transactions and auto loans at the point of purchase. This has expanded our addressable market 10 times. And as we expand our business, we are bringing to bear our deep understanding of the non-prime consumer and our over 100-year history of best-in-class credit and balance sheet management. We have a lot of momentum going into 2025 and are excited to bring even more value to an ever-growing set of customers. I'll close by offering my thanks to all of the one main team members for their dedication and hard work throughout 2024 and their continued commitment to our customers every day. With that, let me open it up to questions.

The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star 2. Again, we do ask that while you pose your question that you pick up your handset to provide optimal sound quality. Thank you. Our first question is coming from Terry Ma of Barclays.

Hey, thank you. Good morning. Good morning, Terry. Good morning. 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-off. So 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. Thank you.

Thanks, Terry. It's Jenny. So let me start with your first question on sort of the credit trends. So generally, we're really pleased with the continued improvement we've seen across early delinquency and late-stage delinquency. We're confident we've come down from those peak losses in the first quarter of 2024, and we're We look forward to lower losses driving improved earnings and cap gen. When we look at our delinquency trends this quarter, we really see them all pointing in the right direction. So that 3.06% consumer loan delinquency is better than our historical patterns. And we saw it was, you mentioned 22 basis points better than last year and only five basis points higher than the third quarter, which is very good seasonally. And for losses, our consumer loan net charge-offs are down seven basis points year over year, so we've crossed over 2023 and are improving. And, you know, we focus on delinquency because that's the best leading indicator for losses. So from where we sit right now, we really feel like we've seen the impact of our underwriting changes that we made since August 2022, and we're expecting that momentum to come back. through in 2025. And to hit on your second piece, you know, the go-forward and the guide and what it would take to put us sort of at the top end of that range or at the bottom end, I mean, it really is dependent on the pace of the back book rolling off, those continued delinquency trends, and the roll rates through to loss. Our growth in originations also impacts delinquencies, so to the extent that we can continue to grow. And then there's the macro, obviously, and to the extent it gets better, you know, it could push you towards the top end or to the extent it gets much worse, you know, it could push you much further. So I think those are sort of, I think that's the best way to guide you.

Got it. That's helpful. William Boschelli, M.D.: : And then, maybe as a follow up on the portfolio yield, I think you got it to kind of modest improvement in 2025 but, as I look at the yield in the back half of. William Boschelli, M.D.: : This past year did improve you know cumulatively about 30 basis points over the last two quarters, so any color around that and the dynamics go forward, thank you.

yeah no problem thanks. So, you're right. I said before we're expecting very modest improvement from our fourth quarter run rate, which was 22.2% on consumer loan yield for next year, or for this year, I should say. We are already seeing the improvements from the pricing actions that we've taken in the personal loan portfolio and the auto portfolio over the past several quarters, and that's starting to flow through. But as you know, those tailwinds are partially offset by credit. And there's also the growth in our lower loss, lower yield auto business. And it takes time. So looking forward, that rate of improvement really will depend on our product mix, meaning auto, which types of personal loans we're lending, the state rate mix, etc.

We'll take our next question from Moshe Orenbuck, TD Cowan.

Great, thanks. Maybe kind of sticking with credit a little bit, Jenny, I mean, you talked, you mentioned kind of roll rates as a, you know, as a factor that's going to drive charge-offs, you know, relative to delinquencies. Could you 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?

No, thanks for that. I think that's right. It's one of the key metrics that we're looking at. We do see rolls from delinquency to charge-off performing pretty well. There is a little bit of noise from some of our new products. But if you look at the rolls from 30 to 89 for consumer loans, excluding foresight to charge off, those trends are in line to slightly better than what we would typically see. So that's a good sign, and we're watching it closely. And to the extent it continues, it would be a great sign for credit.

Let me just add, Moshe, a little bit on credit is, you know, a lot of the improvement we're seeing is is us actively managing the book, which means, you know, we've got a very high-touch personalized business model where we can work with any customer who might be getting into trouble and we think we get priority of payment. And also, we've been originating better credit customers who have, you know, plenty of net disposable income to pay us back. And so what we've seen since really 22... Credit was pretty volatile, and we didn't see what we had originated in 21 performing in line with expectations. We've really seen things stabilize, which means the credit performance of the loans we were booking all last year are performing as expected. But I think the important thing is, as you mentioned, I mean, cumulative inflation is still high. You know, a customer still goes to the grocery store and pays $140 for their groceries when they used to pay $100 five years ago, and that's in their mind. The good news is income is caught up in aggregate. And so in general, you know, people kind of curious about high and low end of the range. If we see vintages of customers, monthly vintages, quarterly vintages, start performing better than expected, that's what will start to drive things down and get you to lower end of the range. And so we're really happy that we've been able to manage our business to get the portfolio average of credit dropping this year and we think it'll drop again next year. Um, and we think seeing things really stabilized and we've been spot on with our assumptions as we underwrite. Um, and so, but the consumer, you know, it's not like the cons, it's not like the broad consumer has gotten wildly better in the last year. It's more, we've gotten better consumers on our book.

Got it. Thanks. And I guess as a followup, um, you know, the, the, kind of outlook that you put out there kind of has revenue and expenses growing at the same rate um and yes I understand that your efficiency is better than it was you know pre-pandemic but you know is there either something in there that's you know you're thinking of as specific investment for a multi-year period or uh if we get you know kind of to the higher end of the range on on revenue growth would we then see that operating leverage even 25.

Thanks. You know, I think there is some room in there. We'll wait and see how growth, Originations growth, plays out. So I think there is some room to swing in there. But, you know, revenue growth broadly follows the growth in the portfolio and receivables. And there is some yield improvement in our revenues and a bit of fee revenue from the card book. And so, you know, the short answer is I think there's some room for that.

Thank you. Our next question is from Mark DeVries of Deutsche Bank.

Yeah, thanks for the comments you provided already, Jenny, on kind of allowance coverage, but was hoping to drill down a little bit more. Just wanted to better understand where you think that kind of ultimately goes to. Is CECL day one still relevant or is kind of the mix shift, you know, with adding in both auto at lower losses and car to presumably higher kind of affecting the ultimate end point? 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?

Thanks, Adrian. It's a good question. So there's obviously a lot that goes into how we look at the CECL reserve. And so I'm going to break it down into its parts a little bit. And then we can come back to sort of how to think about the go forward. We said before, we're confident in our delinquency and our loss metrics improving. And Our reserves look at lifetime losses, and as those continue to improve in the portfolio, we should see shifts on our consumer loan reserves, and those should come in gradually. There is the macro overlay, which reflects the uncertainty in the future direction of, I'd really say, inflation, unemployment, and interest rates. And given there is a little uncertainty, we're just not ready to assume that things get better So I think to the extent things get better, there's some potential there. And then you're right, there is some product mix. We have a growing but pretty immature card portfolio. So as that portfolio grows and we really figure out where it steadies out to, I think that's, you know, another piece of this. Today, we're at that 11.5, and over time, we could see that overall reserve coming down, I would say, about 50 basis points. I wouldn't expect it to get back to day one, but it's really dependent on the market environment and that product mix and the timing of the two.

Okay. Just to follow up on the CECL reserves on CARD, I mean, it looks like charge-offs for more than twice what they are for the average bill, but I'm assuming the average life is shorter. I'm just trying to get a sense of what we should model for kind of like a CECL day one reserve on a card balance versus the rest of your consumer loans.

Yeah, when we look at it, we see consumer loans is closer to you know, about 11.2% if you didn't have CARD, and then if you added in CARD, you'd obviously get closer to the reserve levels that we have today.

Okay. It's helpful. Thank you.

Our next question is coming from John Hecht of Jefferies.

Morning, Doug and Jenny. Thanks for taking my question. Morning, John.

Good morning.

Thanks.

Thanks.

First question is, you know, I know it's early, and I know you've given some color on this, but, you know, 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, you know, give us an initial take about what, you know, what vintage 24 might be comparable to relative to history?

Okay. You know, we don't typically give vintage-level information, but I can, you know, I think across, I'd say so across all of our front book, I'd say we are seeing really good customer payment behavior, and we continue to see early payoffs trend around to or a little bit below pre-pandemic levels. We are seeing 30 at three tracking closer to 2017. So I think we're quite happy with the more recent vintages.

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? 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?

Thanks. That's a great question. Really, we expect this year to be slightly above where we are, which we think is still pretty attractive given we've risen not as much as the cumulative impact from the rise of rates over the past several years. So we've been able to mute the rise quite a bit. But this year is pretty locked in. Nearly 90% of our average debt for 2025 is already on our books at fixed rates today. So in the near term, I think that's the best reasonable guide because we're relatively insulated from changes in rates in-year.

Wonderful. Thanks very much, guys.

Thank you.

Thanks.

Our next question is coming from Kyle Joseph of Stevens.

Hey, good morning. Thanks for taking my questions. 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.

Yeah, I mean, let me give you a broad, and then I can break it down a little. I mean, personal loans is still by far the largest part of our book, the largest part of our originations. I think it's been a very constructive, competitive environment for us, as you see from our double-digit overall originations growth. We've been able to... have about two thirds of what we're originating consistently all the way through 2024 being our top two risk grades. And we've been able to get some price improvement along the way. So that tells us that we still have a very good competitive position and that there's probably not as much supply for our customers with our value proposition at the price that we offer. With that said, one of the main drivers of competitive environment is people's access to capital. We've got this differentiated balance sheet. As Jenny said, we already have 90% of our funding on book. We've been able, through this whole down cycle the last several years of consumer credit in the non-prime space, to make every single loan we want. Some of our competitors had real trouble raising capital. a couple of years ago, I think there is more supply of funds, and people who want to lend can get funds now, and there is capital available in the market for solid players. Generally, our spreads have been tighter than our competitors, so, you know, it still gives us some competitive advantage. I think some of the newer tech players are... You know, you've seen kind of come in and out of the market some. And so, you know, I think we're going to assume that there's going to be a lot of competition this year if the macro remains stable. I think in cards, you know, remember we have a very small book and there's a lot of different players involved. we're just a real upstart. So we have, um, you know, we find, um, channel channels and, you know, pockets where we have super high convictions. So it's not like we're competing broadly in the card market right now. I mean, last quarter we originated 93 million of cards. I think that market similar commentary of what I gave you, you know, the really big players and some of the banks have plenty of access to capital. Some of the smaller players have run into trouble. Some of them have sold off recently. And then a similar commentary in auto. You know, with our independent dealers, we've got a unique market position. And, you know, we are, you know, a super strong player with the independent dealers. And we see that market. We haven't seen a lot of competitive pressure. And then in the franchise dealers, which we've just gone into, you know, similar comment to what I said about cards is, you know, we're such a challenger and so small, you know, we're picking pockets. Foresight has, you know, deep and long relationships with dealers. And so we're leveraging that and we'll slowly expand. And so. I think overall, it's a more competitive environment than it was a couple of years ago, but I don't think we're back to the same kind of some irrational competition that we saw in 21.

Got it. Very helpful. And then just a quick follow-up, given where we are in the year and 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?

I think it's still pretty early. You know, as you know, tax refunds usually means we have slower originations in the quarter, but we also, you know, some people use it to pay their loans. So we haven't seen anything wildly different than the last couple of years.

Got it. Thanks. Thanks for answering my questions.

Thank you.

Our next question is coming from Michael K. of Wells Fargo.

Hi, good morning. So extra impact of the mix effect of the front book, back book, and you also mentioned your originating higher quality loans. Can you just give some color on how credit's performing more on like a like-for-like basis, meaning how credit is trending across the risk grades?

Yeah, I'd say in general, in terms of across, we don't, we see all of our risk grades performing on the front book to expectations. So in terms of if there's, you know, variability in terms of expected performance, I'd say there is none. Obviously, you know, you have different expectations for different risk grades. And it also goes much deeper than that in terms of by chance, you know, how they come in. and a variety of other factors. But in general, no, we see no variability across the front book.

Okay. And I saw a recent Fed report that shows the share of credit card accounts making minimum payments, you know, it rose 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. Can you just talk about that?

Yeah, thanks. Thanks, Michael. You know, we have not seen, you know, we've steadily had, you know, 30 to 40% of our loans people use for debt consolidation. Over the last year, we have really improved that product, added a lot of automation, which makes it much easier for people to automatically pay off the debts, and it's a smoother customer interface for them. And we've also explicitly, you know, been having some marketing around debt consolidation as a value proposition. One of the reasons is what you state. I mean, there's been a real growth in balance of credit cards, and we think, you know, as we kind of – if the environment remains stable and as we even get into a better environment, I think people will be potentially wanting to pay down their credit cards, and the personal lending product is an opportunity for them to – to do that. And so we haven't seen a lot of movement yet, but we have, you know, honed our product so that we're ready if the market moves in that direction.

Okay, thank you.

We'll take our next question from Mehir Bhatia of Bank of America.

Good morning. Thank you for taking my question. uh first on the forward flow uh jen you touched on this in your comments but could you expand on that a little bit you know we've obviously seen in the last few months private capital being very active in the personal loan space whether you know and others have been selling or choosing to originate loans on their behalf so i was just wondering what's one main view of that uh strategy can you just talk a little 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.

Yep. Thanks, Mahir. You know, we really look at these types of arrangements as additive versus necessary. So, you know, we show quarter after quarter that we have access to capital through the public markets. And we really see that access as a true competitive differentiator for our business. And so, you know, we did mention today that we selectively expanded our whole loan sale forward flow program. And this year we'll have 900 million in committed flow arrangements through the end of 2025. But just, and just for scale, that's, Larger for us, we had 500 million in commitments in 2024, and the most we've done in any year was 720 million in 2022, so it is more. We think of it as nice flexibility, and we're open to exploring opportunities for more arrangements, and we have quite a few discussions. We see it as an opportunity to diversify funding sources, but we don't need those types of arrangements So that allows us to be very disciplined when we look at pricing and economic trade-offs. And, you know, we're also, we're looking at all pieces of how you make those arrangements work. And it gives us some flexibility to make decisions in terms of how, you know, when we want to enter into those arrangements.

Okay. Great. No, that's helpful. Thank you. And then Maybe just turning to the credit discussion a little bit and the consumer's health. 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 into 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 of between your top risk grades and the lower risk grades? So just try to understand, you know, longer term, the implications of continuing to originate more and more loans in the top half or the top two buckets of your risk rates. Thank you.

Yeah.

I mean, look, let me, let me give you some context because, you know, losses are a big driver, but we don't originate to a loss rate. We originate to 20%. return on equity on the equity we put into every loan. And, you know, we've got a model that includes the revenue, the operating expense, the interest, and the losses. So some of this is depending on product and the price we can charge. And so, you know, we haven't changed our longer-term guidance that, in general, In a, you know, totally stable environment, we'll be in the 6% to 7% long-term. But, you know, we are now headed down from what we think is the peak in 2024, and we're moving in the right direction in 2025. But it's going to be dependent on product. You know, when we get there, it's going to be dependent on product mix, how we go. And, again, you know, we're trying to run a – return on equity business and a profitability business, not just a like get to the loss business. And so, as I mentioned earlier, we like the direction of travel now. We had a couple of tough years with stuck with our back book. We've been turning it over and actively managing it. And I think moving from here going forward, we should see increase in earnings, increase in capital generation, and a steady decrease in losses will be part of that.

Got it. Thank you so much.

Sure. Well, we're at the top of the hour. Let me thank everyone for joining us. As always, if you have further questions, please get in touch with the team at Thank you to all of our investors for the really high quality, valuable engagement we had in 2024. And we're looking forward to talking with you more in 2025.

Thank you. This does conclude today's one main financial fourth quarter, 2024 earnings conference call and webcast. Please disconnect your line at this time and have a wonderful day.