OneMain Holdings, Inc.

please stand by your program is about to begin if you need assistance on today's conference please press star zero welcome to the one main financial first quarter 2025 earnings conference call and webcast hosting the call today from one main is peter poyon 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 Poyan. 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 first quarter 2025 investor presentation, which contains important disclosures concerning forward-looking statements and the use of non-GAAP measures. The presentation can be found in the investor relations section of the 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 the 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, April 29th, 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 great about the results in the first quarter, especially the continued positive credit trends. The decisive actions that we took to tighten our underwriting, optimize pricing, and find opportunities for growth without loosening our credit box are now showing up in the bottom line. and have put us on an upward trajectory of capital generation and earnings. We remain confident in our ability to execute on the 2025 financial objectives that we laid out at the beginning of the year. We are operating from a position of strength. Like every company, we are operating in an uncertain and rapidly evolving macroeconomic environment. However, as you know, We've been underwriting loans over the past few years with an extra stress cushion, and we feel very well positioned today, given our experienced team, resilient business model, fortress balance sheet, credit expertise, and long experience serving the non-prime consumer. We also continue to make excellent progress on our strategic initiatives, which is positioning us well for long-term profitable growth. Let me provide a few of the highlights of the quarter. Capital generation of $194 million was up 25% year over year. C&I adjusted earnings were $1.72 per share, up 19%. Our receivables grew 12% year over year, and total revenue grew 10%. Originations grew 20% or 13% on an organic basis. We continue to acquire high-quality customers at attractive pricing, even as we maintain the same conservative underwriting posture that we've had over the past two and a half years. The strong originations are a result of the continued constructive competitive environment and our expanded use of granular data and analytics, as well as product innovation, to opportunistically drive growth. Turning to credit, the positive trends in delinquencies that we saw emerge in 2024 have continued. And those trends are resulting in lower net charge-offs. Our 30-plus delinquency was 5.08%, which is down 49 basis points year over year, as compared to up 28 basis points at this time last year. C&I net charge-offs were 8.2% in the quarter, down 49 basis points compared to the first quarter last year. and consumer loan net charge-offs were 7.8%, down 75 basis points year over year. These results reinforce our view that we are coming down from peak losses in 2024 and have a lot of tailwinds behind us. We now provide access to credit to over 3.4 million customers, That's up 14% from a year ago. A substantial portion of that growth is attributable to our Brightway credit cards and one main auto. We view these products as important to our future growth strategies as we acquire and engage our customers across our multi-product platform. In our credit card business, we ended the period with $676 million of card receivables. While we've been measured in our credit card growth, given the uncertain market conditions, we remain focused on building a resilient and profitable business for the long term that provides great value to our customers and attractive returns for our shareholders. In our auto finance business, We ended the quarter with $2.5 billion of receivables. Credit performance remains in line with expectations and better than comparable industry performance. We continue to drive efficiencies between our legacy independent dealer business and newer franchise dealer business as we build a world-class auto finance platform for the future. Similar to personal loans, our underwriting posture in credit cards and auto remains conservative. That said, we continue to invest in these businesses for the future, as we are quite confident that these products are attractive to the consumers that we serve. We're prepared to ramp growth at the appropriate time. Let me talk for a couple minutes about the recent uncertainty caused by trade policy. I obviously don't know the final outcome of tariff negotiations, nor do I know the second-order effects on economic growth, employment, inflation, or interest rates. What I do know is that, to date, we are not seeing any weakness in the consumers that we serve and that I believe we are uniquely positioned to manage during these uncertain times. We have one of the strongest and most diversified balance sheets in the industry. We maintain 24 months of liquidity runway at any given time. Even if we keep the current pace of originations, we have already pre-funded much of what we need for the year, leaving us a lot of flexibility in terms of how and when we fund. For the rest of the year, we have multiple options, including issuing unsecured debt, issuing abs or should we need to drawing from our 7.5 billion dollars of available bank lines and we expect our interest expense to stay within a tight range since we have set up our debt stack with fixed rate long-dated staggered maturities from a credit perspective For almost three years, we've been applying an additional 30% stress assumption to our credit models on top of the stress that we've already seen in the past few years. This means that if the losses on the loans we originated since the summer of 2022 saw 30% stress, we would still clear our 20% return on equity hurdles. stated another way, even if we see increases in inflation or unemployment, we have built-in cushion for our book to remain very profitable. We have a lot of experience managing our business in uncertain times. We're maintaining our already conservative credit posture and are very alert to any changes we see in our customer behavior. I feel confident that our team and business model, balance sheet, credit expertise, and experience serving the non-prime customer positions us very well to manage anything that comes our way. We've also been making progress on long-term strategic options. Let me spend a moment discussing our recent application to the Utah Department of Financial Institutions and the FDIC to form one main bank, an industrial loan company, typically referred to as an ILC. First, I want to be clear that if our application is not approved, we feel very confident in the current business plan that we laid out at our investor day and are executing on now. It would be great If we got an ILC, but it is not necessary for the success of one main. If approved, the ILC would be a small subsidiary of one main financial. It would not affect our capital allocation strategy because with an ILC, our parent company would not become a bank holding company. There's real strategic value in a subsidiary industrial bank. because it would allow us to provide access to credit to more customers and drive capital generation. It would also allow us to diversify funding, simplify our operating model, and drive some operating efficiencies in our credit card business. In terms of timing, While we believe we're uniquely qualified for approval, there's no guarantee that our application will be granted, and it's difficult to say how long the process might take. Let me close on capital allocation, where our priorities are unchanged. We continue to focus on the long-term success of our business, including strategically investing in our expanded product set, data science, and digital innovation, as well as profitable growth. Our regular annual dividend of $4.16 per share yields about 9% at today's share price. We repurchased 323,000 shares for approximately $16 million during the first quarter. We will continue to pace our repurchases based on a number of factors, including excess capital available, economic conditions, and market dynamics. With that, let me turn the call over to Jenny.

Thanks, Doug, and good morning, everyone. I will start by summarizing our quarterly results as our strong performance this quarter supports our confidence in our unchanged full year outlook. Our results are highlighted by receivable growth from increasing high quality originations, robust growth in total revenue, ongoing disciplined expense management, and steady improvement in credit performance. Together, these led to improving returns on a larger portfolio and therefore growth in capital generation and capital generation return on receivables. We also further strengthened our balance sheet, raising $1.5 billion in both the secured and unsecured markets, demonstrating our leading market access and funding execution. First quarter gap net income was $213 million, or $1.78 per diluted share, up 38% from $1.29 per diluted share in the first quarter of 2024. CNI adjusted net income was $1.72 per diluted share, up 19% from $1.45 in the first quarter of 2024. Capital generation, the metric against which we manage and measure our business, totaled $194 million, up 25% or $39 million from $155 million in the first quarter of 2024, reflecting growth in our loan portfolio and notable improvement in our credit performance. We have returned to year-over-year growth in capital generation as we have successfully navigated through what has been and continues to be a challenging post-COVID inflationary environment affecting our customers. Further proof that our responsive, customer-focused operating model and advanced analytics give us a significant advantage to manage through any economic scenario. Managed receivables ended the quarter at $24.6 billion, up $2.6 billion, or 12% from a year ago. First quarter originations were $3 billion, up 20% year over year. Excluding the acquisition of Foresight, our auto finance business focused on franchise dealerships. Our organic originations growth was 13%. demonstrating our ability to find profitable pockets of growth in higher quality origination segments of the near prime market. I want to point out that as of April 1st of this year, we are a year post-acquisition of Foresight, so we expect total origination growth will moderate closer to our year-over-year organic growth percentage going forward. This strong origination growth has been supported by consumer loan origination APRs that have remained steady and healthy at 26.8%. First quarter consumer loan yield was 22.4%, up 20 basis points from the fourth quarter and up 28 basis points year over year. Consumer loan yields are benefiting from the pricing actions we have taken since mid 2023, which have more than offset the impact of growing our lower yield, lower loss auto finance portfolio. Given the constructive competitive environment, we were able to sustain the improved pricing. Looking ahead, we expect modest improvement to yield. How exactly yield will trend is dependent on several factors, including pricing, which will be influenced by the competitive landscape, our 90-plus delinquency performance, and the mix of our portfolio between our personal loans and our auto finance products. Total revenue was $1.5 billion, up 10% compared to the first quarter of 2024. Interest income of $1.3 billion grew 11% year over year, driven by receivables growth and the yield improvement I just mentioned. Other revenue of $191 million grew 6% compared to the first quarter of 2024, primarily driven by higher gain on sale and servicing income associated with the expanded whole loan sale agreement I discussed on our last earnings call. Interest expense for the quarter was $311 million, up $35 million compared to the first quarter of 2024, driven by the increase in average debt to support our receivables growth and modestly higher cost of funds compared to a year ago. On the latter point, Interest expense as a percentage of average net receivables in the quarter was 5.4%. This is in line with our expectations for the full year. As you know, our balance sheet strategy to issue fixed-rate, longer-dated securities minimizes the impact from market fluctuations in any given year. We expect this metric to remain steady through 2025. First quarter provision expense was $456 million, comprising net charge-offs of $473 million, and a $17 million decrease to our reserves, driven by the typical seasonal decline in receivables during the first quarter, as our loan loss ratio remained flat quarter over quarter. I will discuss losses in more detail momentarily. Policyholder benefits and claims expense for the quarter was $49 million, essentially flat to prior year, and we continue to expect quarterly PBMC expense in the low $50 million range over the remainder of 2025. Let's turn to slide eight and look at consumer loan delinquency trends. 30-plus delinquency at March 31st, excluding Foresight, was 5.08%. down 49 basis points compared to a year ago, benefiting from improvements in both early and late stage delinquencies. The seasonal quarter over quarter trend improvement of 57 basis points is also better than pre-pandemic patterns. Our 30 to 89 day delinquency was 2.63%, down nine basis points year over year, continuing the downward momentum we saw a quarter ago. We are pleased with our improving credit metrics and anticipate these positive delinquency trends will continue to enhance our loss performance in the upcoming quarters. On slide nine, you see our front book vintages, comprised of consumer loans originated after our August 2022 credit tightening, now make up 87% of total receivables. The performance of the front book remains in line with expectations and will result in improved credit trends in our portfolio going forward. While the back book continues to diminish, now only accounting for 13% of the total portfolio, it still represents more than a quarter of our 30-plus delinquency. We anticipate that the back book will continue to run down over the remainder of this year with negligible contribution by year end. Let us now turn to charge-offs and reserves as shown on slide 10. CNI net charge-offs, which include credit cards, were 8.2% of average net receivables in the first quarter, down 49 basis points from a year ago. This marks the first quarter since 2021 where CNI losses improved as compared to prior year, following the trends we saw in early delinquency in the second half of 2024. This gives us confidence in the trajectory of losses for the year, and aligns with our expectation for notable improvement in net charge-offs in 2025 compared to 2024. Consumer loan net charge-offs, which exclude credit cards, were 7.8% in the quarter, down 75 basis points year-over-year. We commented a year ago that we expected consumer loan peak losses in the first half of 2024, and we are seeing losses trend down as anticipated. Recoveries remained strong in the quarter at $88 million, or 1.5% of receivables. Recoveries in the quarter included approximately $12 million of bulk sales of charged off loans, a similar level to the first quarter of 2024. We continue to opportunistically utilize the many strategies we have available to optimize recovery. Loan loss reserves ended the quarter at $2.7 billion. While the credit performance of our portfolio is improving, as you can see in our charge-off and delinquency metrics, our reserve coverage stayed essentially flat during the quarter as we maintained our conservative macroeconomic overlay in our reserve formula. Keep in mind that our loan loss reserves include our credit card portfolio, which has higher losses that are more than offset by the greater than 30% revenue yield that the credit card product generates. The credit card portfolio naturally carries a higher reserve ratio, and although it's still a small portion of the total portfolio, it currently contributes about 30 basis points to the overall reserve ratio. We feel very good about our reserve levels, but recognize that the economy is evolving, and we will be prepared to adjust reserves, if needed, going forward. Now let's turn to slide 11. Operating expenses were $401 million, down 5% from fourth quarter, and up 11% compared to a year ago. For context, on the year-over-year comparison, the first quarter of 2024 did not include foresight expenses and was also lowered given expense reduction actions in the quarter. We feel great about the operating leverage in the business, and our expense ratio of 6.6% this quarter was down from 6.8% last quarter and in line with our expectation for full year 2025 as we drive operating efficiency while also investing for future profitable growth. Now let us turn to funding and our balance sheet on slide 12. During the quarter, we raised a total of $1.5 billion through two issuances, In January, we issued a five-year revolving $900 million auto ABS issuance with an average cost of funds just under 5.5%. In March, as the markets began to get more volatile, we issued a $600 million unsecured bond at 6.75%. The seven-year tenor of this bond provides rate flexibility with a three-year call feature and extends our maturity profile into 2032. During the quarter, we increased our secured bank lines, further strengthening our liquidity profile. Our bank facilities totaled $7.5 billion at quarter end with unencumbered receivables of $10.2 billion. We proactively raised $1.5 billion this quarter and have increased our liquidity profile. This, combined with our diversified funding sources, provides flexibility in our funding strategy over the remainder of the year. Our robust funding model with unparalleled market access and execution, regardless of the environment, gives us a competitive edge. We are diligent in our focus on maintaining our fortress balance sheet and see it as a true advantage, especially in times of uncertainty. Net leverage at the end of the first quarter was 5.5 times, slightly below last quarter. Turning to slide 14, we are maintaining our 2025 guidance that we provided to you last quarter. We had a strong first quarter and are confident in our ability to successfully manage through uncertain economic environments as we have demonstrated time and again. For full year 2025, we expect to grow managed receivables by 5% to 8% and total revenue by 6% to 8%. We expect C&I net charge-offs of 7.5% to 8% and an operating expense ratio of approximately 6.6%, all of which we expect will drive improved capital generation as compared to 2024. To date, we aren't seeing any weakness in the consumers we serve, but we are closely monitoring the markets for shifts that may impact our customers. We believe the resiliency of our business model and the experience of our teams allow us to manage comfortably within the ranges that we provided you in January. In summary, we feel great about the start of the year. Our book continues to perform well, and we believe we have solid momentum moving forward. This positions us well to deliver exceptional shareholder value in 2025 and throughout the years ahead. And with that, let me turn the call back over to Doug.

Thanks, Jenny. I'll just reiterate, we delivered a strong quarter across our entire business, from credit to originations to funding to expense management, all of which sets us up for continued growth in capital generation. We are confident in the unique strength of our business model and our strategic initiatives, and we have positioned OneMain very well in the current environment and for the long term. I'll close by offering my thanks to all of the OneMain team members for their continued dedication to help our customers improve their financial well-being. With that, let me open it up for questions.

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 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 from Moshe Orenbook of TD Cowan.

Great. Thanks so much, and congratulations. Doug, I was hoping you could expand a little bit on the benefits of the ILC, what it can do in terms of – you talked a little bit about market expansion. Can you discuss that just in a little more detail? Thanks.

Sure. Hi, Moshe. How are you doing? Look, as I've said, we think that the ILC, if it's approved, will be additive to to our strategy, not necessary, but additive. And it'll drive some extra capital generation for our business. I think it complements our overall strategy to be the lender of choice to the non-prime consumer. The benefits as we see them, and we've gone through this in detail, is over time, we'd be able to serve more customers because a unified nationwide rate structure allows us to price for risk. And there's some states where we have, you know, we abide by state rate caps. We voluntarily cap our rates at 36%. But there's some places where we don't take on customers because they pose too much risk because we can't price for it. So that's one for market expansion. It also would allow us to simplify our operating model. Right now, we have, you know, laws in 47 states that we abide by, the different loan caps, you know, different structures, different rates with different structures. So, it would provide some operating efficiency in that way. We'd obviously get access to funding, which would be a nice diversification of our or to deposit funding, which would be a nice diversification of our balance sheet. And right now we use a partner bank as the issuing bank for our credit card, and so we'd be able to have our own bank as the issuing bank for our growing credit card portfolio. One of the keys to the IOC, though, is we'd be able to do all of that and get all those benefits without the parent company becoming a bank holding company and all of the attendant capital implications that come with bank holding company status. So we think it would be great to get an ILC. We put the work in. We're having constructive dialogue with the FDIC and the state of Utah. And, you know, we'll keep going down that path.

Got it. Got it. Maybe just on credit, I guess, you know, you mentioned in the slides, Jenny, you spoke about it, that there's been essentially better performance on the late stage, if you will, the early stage kind of being in line with seasonal patterns in the late stage, you know, kind of better than. Is there like some underlying reason there that that is happening? Is it that the... You know, the performance, does it in any way relate to the front book, back book performance? And any kind of, you know, help you can give us there would be good. Thanks.

Thanks, Moshe. You know, I think you're spot on. We are seeing modest improvement in those roles from delinquency to charge. We find that an encouraging sign. There is a bit of noise from our newer auto products. But even when we look at the rolls from 30 to 89 to loss for consumer loans excluding foresight, we find the trends are modestly better than what we typically see. And I should say we're also seeing this in cards, but it's a newer book, so we don't quite have a view of what typical looks like yet. I'm hesitant to call it a trend yet. We're monitoring it closely, and we obviously think it's a positive trend. And if it continues, it could help us achieve the lower ends of our guidance range. But right now, we're watching it and pleased to see it.

Thanks very much.

And our next question is from Mark DeVries of Deutsche Bank. Your line is open.

Yeah, thanks. You know, it makes a lot of sense that your reserve ratio is mostly unchanged despite the strong credit trends, just given the macro uncertainty. Though, if uncertainty doesn't really transition to a weaker economy, how should we expect that reserve ratio to kind of move over the course of the year if these strong credit trends hold?

So, thank you. It's a good question. I mean, as you know, CECL is pretty complex. we forecast those expected losses for the lifetime, incorporating past, current, and expected future performance. So it's primarily driven by current book performance and looking at the direction of our delinquency, looking at those roll rates I just talked about, our recoveries, and our credit mix. There's a little bit of product mix as well with the growing credit card portfolio and the pressures. That puts a little bit of pressure on the reserves, while the growing auto portfolio helps bring reserves down a bit. So a lot of it depends on that mix and how our products grow. And then obviously, as you mentioned, there are the expectations about the future and unemployment and inflation, which go into the overlay. Given there's more uncertainty today than we have in prior quarters, this is one time when I really want to say we're going to wait and see how it plays out in terms of where reserves will go going forward.

Okay, got it. And then, Doug, in your prepared comments, you alluded to kind of the ability when you're ready to kind of accelerate growth in the new products. Just curious what you want to see before you really look to accelerate the growth in card and auto.

Yeah, I mean, I think a lot of it is the macro uncertainty where, you know, these are newer products. We're not in a rush. We're solidifying the platform. In auto, we've put the two companies together. We've moved on to one technology. We've built our credit models over multiple years and have combined those models and teams. We've got a very good cost structure, and we can leverage a bunch of the cost structure that we already had at one main. And so we're spending this time solidifying that platform. Similar with CARD, you know, great value proposition. very good utilization rates, engagement rates on the app. We've been driving down the unit cost as we scale the product. And so a lot of what we're doing now is just hardening those platforms. I think there's no magic you know, number indicator that's going to tell us it's time to grow. Like as long as we keep seeing steady credit performance, we've got 30% stress overlay on those new businesses. Once we start feeling that we're kind of fully out of the woods from the inflation driven credit cycle that we saw for the past three years will be the time will likely accelerate.

Got it. Thank you.

Our next question is from Rick Shane of JP Morgan.

Thanks, guys, for taking my questions. Look, one of the things we see in the first quarter results is a nice benefit from recoveries on the charge-off rate. I'm curious if that is a function of stronger used car prices or it is a function of basically catch-up. You have more as you emerge from this period of elevated charge-offs and what you expect in terms of recoveries going forward.

Thanks, Rick. This is Jenny. You're right. We do continue to see strong recovery performance and positive trending above those pre-pandemic recovery levels. We had about 88 million in recoveries this quarter. And that includes about $12 million of post-charge-off debt sales. So that's in line with our first quarter 24 in terms of debt sales. So there's not much of a shift there year over year. We're really looking at the value of internal versus external collections with those bulk sales and making sure we maximize the economics. You know, I don't think this is really a matter of used cart prices. Obviously, that's something that we'll watch for the future. But for today, I think it's really just generally the work that we're putting in, and we like where our recoveries stand. And, you know, I think you could expect something similar for the future.

Got it. And on sales of charge-off receivables, how is pricing compared to a year ago?

In terms of the sales, you know, we've seen, I'd say, it's slightly down in terms of compared to a year ago, but it's pretty stable. I mean, we're still seeing demand for those sales. Terrific.

Thank you very much, Jenny.

Our next question is from Michael K. of Wells Fargo. And Mr. Kaye, you may want to check your mute switch.

Oh, sorry about that. I had a quick question on the ILC. So, you know, if you are in fact approved, I wanted to confirm, do you plan to put all your originations through the bank, not just a relatively small amount of prime loans, which will likely stay in the bank? I mean, you could probably say that the ILC is going to expand a consumer's access to credit, but You know, critics might say this is just an attempt to bypass state usury laws by pushing all the originations through a small ILC bank. I'd just love to hear your thoughts on that.

Yeah, we, you know, I talked, you know, on the first question, gave you all the benefits of ILC, unified rate structure, simplified operating model. access to deposit funding, issuing bank for the credit card. And it's a unique bank license, which wouldn't make us a bank holding company at the parent, which we think would be positive. We obviously cap our rates. So words like usurious, Michael, we fully reject. We're a responsible lender who provides great value to our customers. If we had an ILC, our rates wouldn't go higher than our max rate is now. And we would put a bunch of our loans through the ILC, not just the loans that would stay there, but we'd also be keeping, you know, a good portion of loans in the ILC. All right.

Okay. I know you don't... I don't see you disclosing it in the earnings press release, but, you know, I calculated the credit card net charge-off rate, you know, very high. It's up to 20%, up from 17% last quarter. I just wanted to confirm you're still comfortable with the credit performance?

Yeah. Thanks. Michael, this is Jenny. So you're close. This quarter, our card losses, which will come out, it'll come out in the queue, were 19.8%. This quarter, those losses were actually a bit better than our expectations. Seasonally, losses on cards are higher in the first half of the year. So they did go up some. But again, they're better than our expectations. The book has been growing, and it's small, and it's seasoning. So there's some of that dynamic. And for the long term, we still feel quite good about where it's going, and we like the returns for the business. Remember, it has an over 30% revenue yield, which includes annual fees, late fees. And the losses, we still expect to be in that 15% to 17% range. So supporting really good return on receivables in the long term.

Okay. All right. Thank you.

Our next question is from Mihir Bhatia of Bank of America.

Mr. Bhatia? Yeah. Hi. Good morning. Thank you for taking my question. I wanted to start with the yield outlook and the competitive intensity. I think, Jenny, you mentioned in your comments that there's modest improvements in yields still are potentially subject to competitive intensity. So maybe just talk about that a little bit. What are you seeing in the market? Did you see competitors pull back in April with the noise around macro and tariffs? Just any comments on competitive intensity that you're seeing? Thank you.

Yeah, look, the competitive environment remains constructive for us. In the quarter, we didn't see any massive shifts from what we've talked about before. We're still able to get double-digit originations growth with, you know, about two-thirds of our loans in our top two risk grades, and we've gotten some price improvement along the way. So we're able to compete very well in this competitive environment. You know, Competitors can still get access to capital, but as you know, the debt markets have been very volatile and the strength of our balance sheet and gives us the ability to get tighter spreads than a lot of our competitors. And also we have plenty of access to funding and that can be volatile in this kind of a market. And then, you know, a bunch of folks in the competitive landscape, some of the tech players, have ebbed and flowed around how much they've originated over the past three years since there's been some dislocation caused by inflation. Our customers and the customers who come to us tell us they appreciate that we've been consistently in the market, available to provide access to credit to non-prime customers through thick and thin. And so I think it positions us well in the market. So we haven't seen any major changes from the fourth quarter, but we're still seeing a constructive, competitive environment.

Okay. Thank you for that. And then maybe just switching you back to credit for a second. Your credit outlook assumes no inflation. With tariffs coming, what I wanted to understand a little bit more was the impact of inflation on your credit performance. How fast does it come through? Given that you tightened underwriting, added that 30% stress layer, how fast Would it be a little different now compared to like 2022, 2023 when inflation had an effect on your losses? Just trying to understand just the tolerance around that assumption, if you will. Thank you.

Yeah. Let me take it and give you directionally stuff. First, I would correct you. Our credit outlook does not expect no inflation. Within the range, it can tolerate some inflation. Second of all, you know, the 30% stress that we put on all originations, you know, assumption, which effectively tightened our credit box pretty significantly in August of 2022, remains in place. And so what that means is if the performance of our credit, you know, our models basically show Our models are run, and on a regular basis, they're updated, and they assume current credit performance. So in 22, 23, 24, they were assuming current credit performance, which had some elevated delinquencies. We said even if losses are 30% higher at their peak, we would still meet our 20% return on equity hurdle. We underwrite to our return on equity hurdle. We feel very comfortable that there's still some cushion, you know, in our book if we saw either inflation or unemployment start to tick up. I think the exact effects of inflation, very hard to predict. I mean, we saw it in the cycle when there was massive inflation. The whole industry saw stressed credit. What small ticks of inflation would do is a little unknown, but we've been underwriting, so we feel well prepared for it if it was going to happen.

Got it. And apologies for mistaking. I do see no significant changes in inflation. Thank you.

Our next question is coming from Kyle Joseph of Stevens.

Hey, good morning. Thanks for taking my questions. Most have been answered. But just wanted to get a sense, obviously, you guys have a tremendous portfolio of consumers across a number of products. But just wanted to hear if you're seeing any sort of shift in consumer behavior. Obviously, we see the data in terms of consumer confidence. But, you know, on the auto side, was there any sort of pull-forwards On the card side, have you seen any sort of spend or volume discrepancies? And then I guess in terms of on the personal loan, any sort of shifts in demand or willingness to borrow or less of a willingness to borrow, I'd say.

Yeah, I mean, look, what I'd say is, you know, everyone who's alive and awake in, you know, April 2025, it feels like it's a very volatile environment with the stock market swings and all the press, but On our book to date, we're really not seeing any of that. We're seeing good demand across our products. We're seeing really steady and predictable credit trends, which, because of the way we've managed our business, are all headed in the right direction. You know, we actually... do a structured survey of our branches to get feedback. And we didn't see in the first quarter any change in sentiment from what they saw in the previous quarters. And so, you know, we really like our consumer is not seeing the stress. We're not seeing it on our books. And we feel actually quite positive about, you know, kind of everything we're seeing in our business.

Okay, got it. Great. Thanks for taking my question.

Our next question is coming from Vincent Kantik of BTIG.

Hi, good morning. Thank you for taking my question. I had a follow-up on the credit reserve rate. So, you know, a lot of good results and commentary about credit performance and, you know, looking at that credit reserve rate of 11.5%, I assume that it would have TAB, Mark McIntyre:" They with the credit trends would have otherwise gone lower, so I just want to understand in that 11.5% how much conservatism is baked in if you can maybe talk about the assumptions you're making like you know with macro trends like unemployment rates. TAB, Mark McIntyre:" And what would cause credit reserves would have to change like I would assume that you can even hit the high end of your loss rate guidance of 8.8% and still be okay with that 11.5% so I just want to understand. the level of conservatism that's baked into that.

Thank you. So just to start with the macro assumptions, because I think that might be the easiest place to start here. You know, we really factor in from a number of sources, but mostly a survey of economists and Moody's analytics. And that assumption was raised modestly quarter over quarter. We review both the baseline scenario and we also look at downside scenarios as part of our process. So to the extent that we see those assumptions change, those would impact our macro overlay. Today we have an assumption on unemployment that peaks at about 6% at about 12 months based on those forecasts. And so we'll be watching and adjust those as needed. And then I mentioned before, but, you know, yes, it's primarily driven by current book performance, but there's also that product mix element. So, you know, to the extent that we have more card than expected, I think that could be some pressure on that reserve rate. And then you know, to counter that auto provides a slightly lower reserve rate. I would just say those two do not move in, you know, they move against each other, but they aren't of equal sizing. So I really, you know, in terms of where that will go for the future, I think right now, just given the amount of uncertainty, you know, we really have to wait and see where that reserve rate will go.

Okay, that makes sense. Thank you. And then kind of relatedly, if you could talk about your underwriting posture. It doesn't sound like that has changed, even with credit seemingly getting better. If you could talk about what it would take to either feel more comfortable or, on the other hand, what macro conditions where you would have to feel like you would tighten further. Thank you.

Yeah, look, we run a nationwide portfolio of risk, and You know, it all rolls up in aggregate, but in reality, we run, you know, hundreds of cells based on product, geography, channel, risk grade. You know, I think at this point, we're not taking our, you know, the one macro overlay, which is a 30% stress buffer off. If there wasn't as much new uncertainty in the environment, we might have thought about that given how positive our on-book credit trends are, but we just don't think it's prudent to be loosening our box sitting here today. We also run what we call weather vane testing, so we're always running a sliver. You know, we take our 20% ROE assumptions, and, you know, the factors that go into that is the price, the losses, the cost of acquisition, the funding, you know, the funding cost that goes in there, and obviously the operating expense that goes against, you know, the different products. And so we need to underwrite a loan that will make 20% ROE. We're always doing a sliver between 15% and 20% that's negligible. It's not going to show up in our overall numbers. But to see if the loans that we're not underwriting don't meet our credit box, actually would get us that 20% ROE because there's nothing like actual data to get there. A bunch of those weather vane tests are actually bumping up against the 20% ROE threshold. That'll be a factor that we use. And, you know, again, I've said this before, we're not probably going to just open up the box whenever it happens, and generally we don't just tighten the box. It was, you know, unusual that we just put a full 30% stress on. You start to see different performance in pockets, maybe in one state, maybe with a secured product, maybe with an unsecured product, maybe coming out of a digital channel versus a branch channel. maybe coming out of lower-risk grade or higher-risk grade, and we do micro-adjustments all the time. And if we started to loosen or started to tighten, it would most likely be around a segment, not the whole book.

Great. That's very helpful. Thank you.

Our next question is coming from John Poncari of Evercore ISI. Your line is open.

Morning. Back to the card portfolio, if you could comment just a little bit on how credit card delinquency formation is trending. Is that also trending in line with expectations like you noted for the card charge-offs? And then on the charge-off front for card, I know you noted the 15% to 17% loss rate targets. and that it's trending in line with that, is that 15% to 17% target an expectation for 2025, or is that more of a longer-term expectation for that book?

Thanks. Thanks. Let me start with your second question first. So I think in terms of going from 19-8 and getting to 15% to 17% this year, that is not our expectation for this year. That's more of a longer-term, where we think the book... the book will settle. And again, I mentioned that it's seasoning, but this is really once we start to have growth and it becomes sort of a regular book, we call it a teenage book today. So I think we're, you know, we still have very good line of sight to those, those good returns over time, but I would not say that's a 2025 guide. And then in terms of card delinquency and, you know, card credit, you know, at the start of the, we're really seeing positive trends. And I think it's probably a combination both of our customer base and our customer base doing quite well. And then also, you know, this team and, you know, again, this is calling it a teenage business, but, you know, we're working very hard in terms of how we're working on credit, how we're working on collections and, and various pieces. So I think it's both an improvement in capabilities as well as an improvement in our card book itself.

Got it. Okay. Thanks, Jenny. And then separately, I think you're sitting on relatively solid capital levels here. From the standpoint of M&A, I wonder if you could discuss any interest in future acquisitions here to build out the areas of growth, including auto in addition to the foresight deal, and then potentially on the card side or even on the insurance side. If you could just talk about any interest there to look in organically for deals, or do you think that opportunity would be kind of a hook to the sidelines here as you focus on the ILC?

I mean, look, we feel very comfortable with our organic growth plan and the strategy we laid out at our investor day a little over a year ago. And, you know, between our personal loan business, which we've been doing for a long time, we do very well, you know, and expanding that personal loan business to have different kinds of products within it, to have digital channels as well as phone channels and branch channels. We feel very good about that organic growth path. I think on card, we're well on our way. You know, as Jenny said, the book is starting to season a little bit. We're developing that platform and similar to auto. With that said, we are always opportunistically looking at things. I mean, we went out actively to find, to get the auto business to a place to the next level and bought Foresight, but we will take a look at, you know, we'll look at platforms as they come available. We don't need them, but if we find one that strategically fits, culturally fits, we feel it's super buttoned up from a regulatory standpoint like we are, and obviously the financials work, we'd consider it. similar with card. There have been a bunch of card platforms in the market. We've passed on them in the last day or two, I mean, in the last year or two, but we, you know, so it's a long way of saying we're active in the market, but we're discerning buyers and we will only do an acquisition if it makes sense and is going to be, you know, very positive for our shareholders. Looks like we are out of time. I want to thank everyone for being on the call. Obviously, reach out to the team with any questions, and we'll look forward to the ongoing dialogue. Everyone have a great day.

Thank you. This does conclude today's one main financial first quarter 2025 earnings conference call. Please disconnect your line at this time and have a wonderful day.