Moshe Orenbuch

Moshe Orenbuch from TD Cowen asked for an update on the Affirm Card strategy, its impact on volume, and the significance of the reported tripling of 0% APR volume on the card.

Answer

Founder & CEO Max Levchin described the card's growth as exceptionally strong, noting the trailing twelve-month GMV per cardholder has risen to approximately $4,700. He explained that 0% offers on the card act as a key frequency driver and a 'surprise and delight' feature, with more enhancements planned for the product.

Moshe Orenbuch from TD Cowen sought to clarify if 0% APR loans should be viewed as a primary acquisition channel for the Affirm Card and what factors would lead the company to increase its volume of these loans.

Answer

CEO Max Levchin described 0% APR as a powerful, on-brand tool that drives high conversion. He clarified that while it's not primarily an acquisition tool for the card, it's a "cherry on top" because it attracts high-quality users who meet the card's stricter credit requirements. CFO Robert O'Hare added that the decision to lean into the 0% mix depends on overall portfolio profitability.

Moshe Orenbuch sought to clarify the role of 0% APR loans, asking if they should be primarily viewed as a customer acquisition channel for the Affirm Card and what factors determine when the company leans into this strategy.

Answer

CEO Max Levchin described 0% APR offers as a powerful tool for building brand trust and driving GMV, calling card acquisition a 'cherry on top' due to the high credit quality of these users. CFO Robert O'Hare added that the decision to increase the 0% mix is based on overall portfolio profitability, allowing them to invest in the growth and network effects that these promotions generate.

Moshe Orenbuch inquired about AerCap's perspective on the U.S. aviation industry over the next few years, specifically regarding potential consolidation and global opportunities for capital deployment.

Answer

CEO Aengus Kelly discussed limited room for further significant consolidation in the U.S. market but noted strong global demand for both new technology and serviceable used aircraft. CFO Pete Juhas then elaborated on margin progression, highlighting an improved net spread to 8% in Q3 2025, driven by 777-300ER freighter deliveries and offset by Spirit Airlines' related downtime.

Moshe Orenbuch with TD Cowen inquired about AerCap's perspective on the U.S. aviation industry's future, including potential consolidation and global growth opportunities, as well as the progression of net spread and margin elements over the coming quarters.

Answer

CEO Aengus Kelly discussed limited room for further U.S. consolidation but strong global demand for new and used aircraft. CFO Peter Juhas elaborated on the net spread, noting positive impacts from freighter deliveries and rolling off COVID leases, offset by Spirit Airlines' downtime and engine shop costs, expecting the spread to remain stable.

Moshe Orenbuch from TD Cowen asked if the full-year CapEx guidance includes potential sale-leasebacks and questioned the potential for capital deployment in the engine business.

Answer

CFO Pete Juhas clarified that the $6 billion full-year CapEx guidance is based on the existing order book, and any sale-leaseback deals would be additive. He highlighted that engine deals allow for rapid capital deployment, referencing the $5 billion in engine orders placed last year as an example of the potential scale.

Moshe Orenbuch of TD Cowen inquired if the $3 billion second-half CapEx forecast includes potential sale-leaseback deals and asked about the potential for capital deployment in the engine business.

Answer

CFO Pete Juhas clarified that the $3 billion CapEx forecast is solely for contracted order book deliveries, and any new sale-leaseback or engine deals would be additive. He noted that as OEMs like Boeing increase delivery rates, opportunities for rapid capital deployment through sale-leasebacks and engine purchases will grow. Juhas highlighted that the engine business allows for very rapid capital deployment, referencing the $5 billion in engine orders last year as an example of its potential scale.

Moshe Orenbuch asked about the potential capital deployment capacity for the engine and helicopter businesses over the next year. He also sought more detail on the drivers behind lower leasing expenses, particularly the impact of a high renewal rate versus other timing-related factors.

Answer

CEO Aengus Kelly emphasized that capital deployment is guided by profitability and risk-adjusted ROE, not growth for its own sake. He noted AerCap has the capacity to deploy an additional $4 billion this year and double-digit billions over multiple years for accretive deals. CFO Peter Juhas attributed lower leasing expenses to both a high rate of lease extensions, which reduces transition costs, and timing of maintenance activity. He guided that the net maintenance contribution should normalize to the $30-$40 million per quarter range going forward.

Moshe Orenbuch questioned if the 2025 lease rent guidance of $6.6 billion was conservative given the Q4 run-rate and market strength. He also asked for an outlook on the engine leasing business, noting the seemingly low JV income guidance.

Answer

CFO Pete Juhas explained that lease rents are expected to see a steady, gradual increase as higher-rate leases roll through the portfolio over time. He clarified that the engine JV income guidance reflects a change in deal terms where AerCap receives full-life engines at lease-end instead of monthly maintenance revenue, which is economically better but lowers in-period revenue recognition. CEO Aengus Kelly added that the engine business is a unique and desirable asset.

Moshe Orenbuch asked about capital deployment strategy, specifically whether AerCap would prioritize accelerated share buybacks or pursue more sale-leaseback deals given its strong balance sheet and OEM delivery delays.

Answer

CEO Aengus Kelly responded that the company is indifferent to the method of capital deployment and will choose the avenue that creates the most long-term shareholder value, whether it's share buybacks, engine purchases, or order book acquisitions. He emphasized that while CapEx is deferred, it is not eliminated, and the balance sheet always comes first.

Moshe Orenbuch inquired about the competitive dynamics in the personal loan business, specifically the impact of a competitor's acquisition by a large bank, and how much of SoFi's capital-light strategy is expected to come from the personal loan business, shifting from balance sheet to the loan platform side.

Answer

CEO Anthony Noto stated that large national banks generally don't offer personal loans, creating a gap SoFi fills by refinancing high-interest credit card debt for prime and super-prime members. He believes SoFi will maintain leadership in this product. CFO Chris Lapointe noted that total personal loan originations were up 53% year-over-year, with no significant cannibalization given SoFi's 15% market share within its credit box and the vast credit card debt market. SoFi is comfortable adding loans to its balance sheet while seeing strong LPB momentum.

Moshe Orenbuch asked about the competitive dynamics in the personal loan business, particularly in light of a competitor's acquisition by a large bank, and how the capital-light strategy impacts the personal loan business mix between on-balance sheet and Loan Platform Business.

Answer

CEO Anthony Noto explained that large national banks typically avoid offering personal loans due to potential cannibalization of high-ROE credit card businesses, positioning SoFi to lead in this segment by offering lower interest rates to prime and super prime customers. CFO Chris Lapointe noted that total personal loan originations were up 53% year-over-year, with no significant cannibalization, and SoFi comfortably added $2.7 billion of personal loans to its balance sheet in Q3.

Moshe Orenbuch of TD Cowen sought details on the Loan Platform Business, asking about the scope and duration of partner agreements and clarification on the potential use of loan tokenization.

Answer

CEO Anthony Noto described LPB demand as broad and deep, emphasizing SoFi's focus on durable, long-term partnerships. CFO Chris Lapointe provided specifics on major deals, including a $2B extension with Fortress, a $5B deal with Blue Owl, and a $1.2B deal with Fortress and Edge Focus, noting other significant partnerships are also in place. The prepared remarks suggested tokenization would be for making loans a more liquid, investable asset.

Moshe Orenbuch inquired about the expected performance of current delinquencies beyond the year-end, specifically how the loan book is anticipated to perform over the next several quarters. He also sought further details regarding the terms and structure of the new loan sale partnership.

Answer

CFO Pete Graham expressed satisfaction with the loan modification programs and noted stability in new program entrants. He acknowledged a seasonal uptick in early-stage delinquencies but did not view it as troubling for longer-term trends, expecting stability in late-stage delinquencies and roll rates. He reaffirmed confidence in the year-end guidance and a long-term net charge-off rate in the high 1% to low 2% range. Regarding the partnership, Pete Graham stated that details would be released upon completion of the deal, with more information to follow at the investor forum.

Moshe Orenbuch asked about the expected performance of current delinquencies beyond the current year, specifically regarding roll rates and the overall level of delinquency. He also inquired about further details and terms of the recently announced loan sale.

Answer

CFO Pete Graham addressed the delinquency outlook, expressing satisfaction with loan modification programs and stability in late-stage delinquencies and roll rates, reaffirming the long-term net charge-off rate. CEO Jon Witter added that the change in program terms accounts for most of the delinquency rate change. Regarding the loan sale, Pete Graham stated that details would be released upon completion, ahead of the investor forum.

Moshe Orenbuch of TD Cowen asked if the incremental $4.5-$5 billion opportunity could be managed through normal loan sales and whether new private credit structures might allow Sallie Mae to expand its addressable market by underwriting loans it currently does not target for its own balance sheet.

Answer

CEO Jonathan Witter explained that while the estimate did not assume an expansion of the credit box, it is 'entirely possible' that different partnership structures could make other parts of the credit spectrum more attractive to originate and fund differently in the future. He noted it was premature to speculate on the size or timing of such an opportunity but confirmed the company would be open to it.

Moshe Orenbuch inquired about Sallie Mae's strategy for balance sheet growth and capital return, particularly now that the CECL phase-in is complete. He also asked about the drivers behind the year-over-year decrease in operating expenses and the sustainability of this efficiency.

Answer

CEO Jonathan Witter described the company's strategy as pursuing 'moderate, accelerating, and predictable' balance sheet growth. This approach allows for steady growth in net interest income while preserving capacity for meaningful capital return through share buybacks, funded by loan sales, and a potentially growing dividend. CFO Peter Graham added that the expense reduction reflects an ongoing focus on driving operating leverage and that the company is committed to its full-year expense guidance.

Moshe Orenbuch of TD Cowen asked about the 2025 balance sheet strategy, particularly the use of loan sales given that growth has come sooner than expected, and inquired about the impact of borrower serialization on origination forecasts.

Answer

CFO Pete Graham reiterated the company's commitment to the framework from the December 2023 Investor Forum, which uses loan sales to moderate balance sheet growth to a target rate, roughly in line with the forum's outlook. CEO Jon Witter confirmed that the serialization effect from new, non-senior borrowers is already incorporated into the company's 2025 guidance.

Moshe Orenbuch inquired about how the new card base mix (co-brand vs. private label) and temporary payment rate moves would impact loan growth, specifically how a 5% spend growth would translate. He also asked for a timeline on when billed late fees would bottom out and pricing changes would start to outweigh this impact.

Answer

Perry Beberman (EVP and CFO) explained that the translation of sales growth to loan growth is mix-dependent, with different effects from home space partners versus co-brand cards. He noted that billed late fees follow delinquency trends, with gross loss improvement providing a tailwind. He indicated that many moving parts, including shifting risk mix and pricing changes, make it difficult to pinpoint an exact inflection point, with more guidance expected in January.

Moshe Orenbuch inquired about the relationship between spend volume growth and loan growth, considering the temporary moves in payment rates and the new mix of Bread Financial's card base, particularly with more co-brand spending. He also asked for a timeline on when lower billed late fees might bottom out, allowing pricing changes to more significantly impact the net interest margin.

Answer

Perry Beberman (EVP and CFO) stated that the translation of sales growth to loan growth is mix-dependent, with different product types (e.g., home space vs. co-brand) having varying payment rates. Regarding net interest margin, he explained that billed late fees follow delinquency trends, and while lower late fees are a headwind, gross loss improvement is a tailwind. He noted that a shifting risk/product mix and pricing changes also impact NIM, making it difficult to pinpoint an exact inflection point, but more guidance would be provided in January.

Moshe Orenbuch from TD Cowen requested details on the portfolio's mix shift towards higher-end consumers, its impact on balance growth and yield, and the status of pricing actions implemented as late fee mitigants.

Answer

EVP & CFO Perry Beberman described the mix shift as 'slow and gradual,' noting that their co-brand cards are underwritten to ensure revolve behavior and are not dramatically different from high-end private label. He also stated that much of the industry's pricing is expected to remain in place, leading to a slow accretion in yield over the next year, though this may be offset by other factors like improving credit.

Moshe Orenbuch asked for the underlying causes of the observed improvement in late-stage credit roll rates and sought more detail on partner discussions regarding the interplay between pricing, growth, and value proposition.

Answer

EVP and CFO Perry Beberman attributed the better roll rates to a combination of consumer wage growth outpacing inflation and the improved credit quality of newer account vintages. Regarding partner discussions, he explained that the focus is on balancing pricing, profitability, value, and partner compensation. He noted that recent pricing changes have successfully maintained risk-adjusted margins for Bread Financial and provided incremental profit share to partners without materially impacting retail sales.

Moshe Orenbuch asked for more detail on how Bread Financial can achieve positive operating leverage with low single-digit revenue growth. He also requested specifics on the pricing impacts on the 2025 margin and how much of the potential late fee impact is expected to be mitigated by year-end 2025.

Answer

President & CEO Ralph Andretta explained that 'operational excellence' initiatives, including automation and AI, are reducing costs and driving efficiency, ensuring positive operating leverage, though the level is macro-dependent. EVP & CFO Perry Beberman reiterated the various pressures on NIM (rate cuts, lower late fees) and the offsetting multi-year burn-in of APR increases, noting the impact is complex due to the simultaneous shift to higher-quality, lower-APR new accounts.

Moshe Orenbuch with TD Cowen asked about the Discover brand's future as a lending tool, particularly regarding its potential to regain market share after Capital One's planned trimming, and how Capital One views the competitive dynamics in the premium card business given recent product launches by peers.

Answer

Richard Fairbank, Capital One's Chairman and CEO, stated that Discover's strong national brand would be nurtured as both a network and salient product brand, retaining flagship products and investing in servicing. He explained that Capital One plans to leverage its data science, analytics, and marketing channels to drive business through the Discover brand post-conversion. Regarding premium cards, Fairbank noted that competitors' increased investments and higher annual fees enhance opportunities for VentureX, which is positioned for simple messaging and strong rewards, while Capital One continues to invest in differentiated experiences.

Moshe Orenbuch asked about the future of the Discover brand as a lending tool, particularly its potential to regain market share after Discover's prior credit policy adjustments, given Capital One's underwriting capabilities. He followed up on the competitive dynamics in the premium card market, referencing recent product launches and refreshes by major players.

Answer

Richard Fairbank, CEO and Chairman, emphasized nurturing the Discover brand as a salient product brand, retaining flagship products, leveraging Discover's strong servicing, and integrating Capital One's data science and marketing post-conversion, despite a short-term 'growth brownout.' Regarding premium cards, Fairbank discussed Capital One's long-term strategy to win with heavy spenders, highlighting VentureX's success and how competitors' recent moves (higher fees, more premium products) might enhance VentureX's opportunity, while Capital One continues to invest in differentiated experiences.

Moshe Orenbuch of TD Cowen asked for an outlook on the competitive landscape at the high end of the credit card market and how the Discover acquisition helps. He also inquired about plans to use unregulated debit interchange to create a rewards checking model.

Answer

Richard Fairbank, Founder, Chairman & CEO, described the top of the card market as an 'arms race' in lounges and marketing, positioning Venture X as a differentiated competitor. Regarding debit, he stated that while Discover's cash-back debit product will remain for existing customers, the focus will be on investing in and growing Capital One's successful 'no fees, no minimums' national bank offering.

Moshe Orenbuch asked how the Discover acquisition will specifically advance Capital One's national banking franchise and what actions are needed for the Discover card portfolio, including whether it might shrink before it grows.

Answer

Richard Fairbank, Chairman and CEO, explained that the vertical integration with Discover's network will improve the economics of their digital-first national bank, enabling greater investment in its organic growth. He praised Discover's complementary card business, highlighting its customer experience and prime focus, and stated the goal is to preserve its strengths and leverage it as a growth platform, not just for cost efficiencies.

Moshe Orenbuch asked about the growth outlook for non-prime businesses in card and auto, given improving credit. He also inquired about the future direction of reserve levels.

Answer

CEO Richard Fairbank characterized the non-prime segment with the word "stability," noting that credit in this part of the market was the first to normalize and that originations are stable. He confirmed the company continues to lean into both card and auto in this segment. CFO Andrew Young explained that while an improving loss forecast will eventually lower the coverage ratio, near-term movements will be influenced by factors like the Q1 runoff of seasonal balances. He also reminded investors of the ~50 basis point step-up in coverage from the Walmart portfolio termination.

Moshe Orenbuch with TD Cowen asked about Ally Financial's strategy to improve conversion and closing rates in the competitive environment, given its strong application volume, and whether this is an area for future focus into 2026. He followed up by asking CFO Russ Hutchinson about the expectation for Capital Risk Transfer (CRT) transactions in 2026, considering the RWA impact of assets that ran off in 2025.

Answer

CEO Michael Rhodes explained that Ally continuously analyzes its rich data sets to identify incremental opportunities within micro-segments, aiming to find new veins of profitable business while carefully considering the macro environment. CFO Russ Hutchinson added that Ally's Pass-Through Programs also provide value to dealers and economic benefit from servicing paper, leveraging the high volume of loan activity. CFO Russ Hutchinson confirmed that Ally intends to continue using CRT transactions thoughtfully and opportunistically in 2026, as they offer a low cost of capital, while also paying close attention to the capital ramp-off speed.

Moshe Orenbuch questioned the continued use of Credit Risk Transfer (CRT) transactions given their cost and improving capital levels, and also asked about the profitability impact of the recent reinsurance policy renewal.

Answer

CFO Russ Hutchinson defended CRTs as a cost-effective method to build CET1 capital by lowering risk-weighted assets, which preserves capacity for growth and buybacks. Regarding the insurance business, he acknowledged the reinsurance renewal had tighter terms but explained that they can reprice dealer floor plan policies annually to offset the higher costs, remaining bullish on the segment's returns.

Moshe Orenbuch requested a breakdown of the factors driving the change in origination yield, specifically the impact of the credit tier mix. He also asked about the current portfolio vintage composition and when the less favorable 2022 and 2023 vintages would become less significant.

Answer

CFO Russ Hutchinson clarified that the increase in originated yield from Q4 to Q1 was almost entirely driven by the shift in the highest credit quality tier mix from 49% to 44%. Regarding vintages, Hutchinson stated the rollover is progressing as expected, with the 2022 vintage projected to be only about 10% of the book by year-end. CEO Michael Rhodes added that macroeconomic unpredictability is the primary reason for their cautious outlook despite the positive vintage trends.

Moshe Orenbuch requested more detail on the specific loss mitigation strategies that improved flow-to-loss rates in Q4. He also asked how to reconcile the guidance for flat earning assets in 2025 with the plan to allocate capital for growth, and what the NIM impact of the underlying asset mix shift would be.

Answer

CFO Russ Hutchinson detailed three key loss mitigation strategies: optimizing repossession timing by giving collectors more time, enhancing communication with delinquent borrowers using preferred channels (text, email), and reducing friction for loan modifications and extensions. He noted that recidivism rates on modified loans are low. On earning assets, Hutchinson explained that the flat guidance reflects the runoff of lower-yielding mortgage and securities portfolios being replaced by growth in higher-yielding retail auto and corporate finance loans, creating a favorable mix shift that is a tailwind to margin.

Moshe Orenbuch asked about the vintage-like performance of spend volumes and key revenue drivers, seeking insights into how new accounts and higher spend from existing accounts contribute over the next several quarters.

Answer

CFO Christophe Le Caillec stated that American Express does not disclose spend or revenue by vintage. However, he highlighted that recent customers over-index on fee-paying and premium products, are younger, and tend to transact 25% more than older cohorts. Chairman and CEO Stephen Squeri added that younger, premium cardholders tend to stay longer, grow their spend as their lives evolve, and provide more value over time, creating loyalty and engagement.

Moshe Orenbuch of TD Cowen revisited the competition topic, suggesting this is the first time a Platinum refresh is happening 'into the teeth' of such a competitive environment and asked how it might play out differently.

Answer

Chairman and CEO Stephen Squeri disagreed with the premise, recalling the refresh ten years ago when a competitor launched a new card with a 'huge bang,' which he characterized as more intense. He expressed confidence that their upcoming launch will be highly competitive and innovative, based on their extensive experience, and stated, 'every time we've done this, it's worked out pretty well for us.'

Moshe Orenbuch requested a deeper analysis of the SME business, asking about the momentum behind the Q4 acceleration and any specific plans for 2025.

Answer

CEO Stephen Squeri clarified that the SME story is centered on organic spending, as acquisition and attrition rates remain stable. He noted that organic SME spend has not yet returned to pre-COVID levels, and the recent improvement was a positive turnaround from a period of deceleration. He stated that restoring organic spend lift, driven by small business confidence, is the key to the segment's future contribution to billings growth.

Moshe Orenbuch of TD Cowen inquired about the revenue recognition timeline for new and refreshed card programs, the factors driving management's increased confidence in the business, and the key drivers behind Arculus's positive financial contribution.

Answer

President & CEO Jonathan Wilk explained that card issuers typically place orders one to two quarters ahead of launches, influencing revenue timing. He stated that management's heightened confidence is based on the large organic growth opportunity in the premium card market and tangible efficiency gains from the CompoSecure Operating System. Wilk also confirmed that Arculus's profitability is primarily driven by strong revenue growth, with investments remaining relatively stable.

Moshe Orenbuch of TD Cowen inquired about the revenue recognition timing for new and refreshed card programs, such as the Citi Strata card. He also asked for the key factors behind Executive Chairman Dave Cote's stated increase in confidence in the business and later followed up on the drivers behind the Arculus segment's positive contribution.

Answer

CEO Jonathan Wilk explained that card orders from issuers typically occur one to two quarters ahead of a program's launch. Speaking on behalf of Dave Cote, Wilk attributed the increased confidence to strong organic growth potential and the tangible efficiencies gained from the CompoSecure Operating System. Regarding Arculus, Wilk clarified that its positive contribution is primarily driven by revenue growth, with investment spending remaining relatively stable.

Moshe Orenbuch of TD Cowen questioned if the reaffirmed 2025 guidance was conservative given building sales momentum and asked for specifics on near-term M&A focus areas.

Answer

CEO Jon Wilk confirmed that Q1 was in line with expectations and that momentum is building as anticipated for the full year, supporting the current forecast. On M&A, Wilk stated the company is looking broadly in and around its current space and up and down the value chain, emphasizing a disciplined approach to find accretive deals without narrowing the focus publicly at this time.

Moshe Orenbuch of TD Cowen inquired about the expected acceleration of revenue growth during 2025, the specific drivers behind it, and the tangible benefits anticipated from the CompoSecure Operating System (COS). He also sought clarification on the pro forma guidance concerning Resolute payments and questioned why Arculus's Q4 profitability wasn't translating into a more significant adjusted EBITDA growth forecast for 2025.

Answer

CEO Jonathan Wilk explained that while the company would not provide quarterly guidance, it has good visibility into a strengthening sales pipeline that supports the forecast for accelerating growth throughout the year. He noted that the moderated EBITDA outlook accounts for strategic investments in sales and engineering talent to support the COS implementation and future growth. Wilk also clarified the mid-single-digit growth guidance applies to the business on a pro forma basis, both with and without the Resolute management fee.

Moshe Orenbuch of TD Cowen requested a framework for thinking about the potential amount of excess capital Air Lease could generate and how that relates to its improving returns. He also asked about the company's aircraft sales strategy for 2026 and beyond, considering the lighter sales volume in the current quarter.

Answer

EVP & CFO Gregory Willis explained that the company is not prepared to quantify future excess capital, noting it depends on continued execution of its sales pipeline and that it only recently returned to its target leverage. CEO John Plueger reiterated that any capital deployment will be meaningful. Regarding sales, both executives confirmed the plan is to maintain the current pace of approximately $1.5 billion annually for the next several years, as this maximizes opportunities without needing acceleration.

Moshe Orenbuch asked for more details on potential organic growth opportunities now that the company has more capital flexibility, and for context on Q1's performance relative to the company's multi-year yield improvement outlook.

Answer

CEO & President John Plueger highlighted flexibility to consider opportunities like acquiring used aircraft fleets or even certain undelivered Boeing aircraft originally intended for China. EVP & CFO Greg Willis added that Q1 performance is tracking well against internal models, supporting their long-term projections for yield improvement.

Moshe Orenbuch from TD Cowen asked if the environment for lease renewals is continuing to improve and what the top capital deployment priority would be if the company were at its leverage target today.

Answer

CEO John Plueger responded 'unequivocally, yes,' confirming that the strength in lease renewal rates is accelerating into 2025. Hypothetically, he stated that a stock buyback looks 'very, very strongly' compelling at the current stock price, though the final decision would be made upon reaching their leverage goal. CFO Greg Willis supported this by contrasting the high premium on aircraft sales with the stock's trading value.

Moshe Orenbuch from TD Cowen questioned how lease renewals in 2025 would be priced, particularly for those previously renegotiated during COVID, and asked about factors affecting 2025 deliveries post-Boeing strike.

Answer

CEO John Plueger clarified that lease extensions are repriced to current market rates to capitalize on the strong demand environment, not just reverted to pre-COVID levels. He also identified a potential risk to 2025 deliveries from supply chain disruptions following the Boeing strike but noted that Boeing's deliberate, quality-focused production restart is a positive, even if it results in a slower ramp-up.

Moshe Orenbuch of TD Cowen asked about the divergence between the higher adjusted yield and lower forecasted collections, the reasons for worsening underperformance in the back book, the cause of declining average loan sizes, and the rationale for a high forecasted collection rate for the 2025 vintage despite past negative revisions.

Answer

CFO Jay Martin explained that higher yields on new loan originations are offsetting the performance drag from older vintages. He attributed the underperformance, mainly in pre-scorecard change 2024 loans, to inflation and model inaccuracies in volatile times. Chief Treasury Officer Douglas Busk and Martin noted the smaller loan size is due to a different mix of vehicles and consumers, not necessarily lower quality. Martin justified the high 2025 collection forecast by stating it reflects adjustments for past underperformance and a different business mix.

Moshe Orenbuch of TD Cowen inquired about the divergence between lower collections and a higher adjusted yield, the reasons for increased underperformance in older loan vintages, the cause of declining average loan sizes, and the rationale for maintaining high forecasted collection rates on new loans despite nine consecutive quarters of downward revisions.

Answer

Chief Financial Officer Jay Martin explained that higher yields on new loan originations are offsetting the performance-related yield decline from older loans. He attributed the underperformance in the 2022-2024 vintages to persistent inflation, particularly affecting loans originated before the Q3 2024 scorecard change. Chief Treasury Officer Douglas Busk added that the smaller loan size reflects a different mix of vehicles being financed rather than a change in borrower quality.

Moshe Orenbuch inquired about the Q1 forecast changes, specifically why the adjusted yield decreased this quarter despite a smaller forecast adjustment compared to the previous quarter. He also asked for clarification on the drivers of the $76 million GAAP provision and the meaning behind a slight increase in purchased loans versus portfolio loans.

Answer

Executive Jay Martin explained that the $76 million provision for forecast changes was driven by a $21 million decrease in undiscounted cash flows combined with a slowing of cash flow timing. Regarding the adjusted yield, Martin pointed to a new metric showing the yield on new originations did increase, but the overall adjusted revenue percentage was impacted by an unusually high cash balance, which increased adjusted capital. CEO Kenneth Booth addressed the loan mix, stating the minor shift was likely due to random variation rather than a reflection of increased competition.

Moshe Orenbuch inquired about the drivers behind the recent slowdown in growth, asking to distinguish between the impact of internal scorecard changes and the external competitive environment. He also questioned why the adjusted yield increased despite a reduction in forecasted collections from the previous quarter.

Answer

CEO Kenneth Booth acknowledged it was difficult to precisely separate the impact of the internal scorecard change from the competitive environment, but highlighted that Q4 was still the company's second-highest unit and dollar volume ever. Regarding the adjusted yield, Mr. Booth explained that the higher yield on new business originated in Q4 more than compensated for the negative impact of the prior quarter's downward revision in collection forecasts.

Moshe Orenbuch questioned management's confidence in loan performance estimates, given six consecutive quarters of downward revisions, and asked whether this points to an estimation or an underwriting problem. He also inquired about the halt in share repurchases during the third quarter.

Answer

CEO Kenneth Booth acknowledged that forecasting models are less accurate in volatile periods but stated that current estimates reflect recent underperformance from the 2021-2022 vintages. He emphasized that these seasoned cohorts will have less future impact and that underwriting for new loans has been adjusted. Chief Treasury Officer Douglas Busk explained the pause in buybacks was a conservative capital approach due to higher revolver balances, high-end leverage, and market uncertainty, clarifying it does not signal a new long-term trend.

Moshe Orenbuch inquired about the competitive dynamics driving the strong origination growth and how OneMain plans to deploy its increasing capital generation.

Answer

Chairman & CEO Doug Shulman described the competitive environment as constructive, allowing for good pricing and growth in high-quality originations. He reiterated the capital allocation priorities: investing in the business, maintaining the dividend, and then using excess capital for discretionary share repurchases or strategic actions. EVP & CFO Jenny Osterhout added that the growth is a positive outcome of their disciplined credit appetite and pricing strategy.

Moshe Orenbuch inquired about the specific benefits of the proposed Industrial Loan Company (ILC), particularly regarding market expansion, and asked for the underlying reasons for the better-than-seasonal performance in late-stage delinquencies.

Answer

CEO Douglas Shulman detailed that an ILC would be additive, allowing OneMain to serve more customers with a unified rate structure, simplify operations, diversify funding with deposits, and act as its own issuing bank for credit cards without the parent company becoming a bank holding company. CFO Jenny Osterhout confirmed that the improved delinquency trends are encouraging, driven by the front book/back book dynamic, and could help the company achieve the lower end of its guidance range.

Moshe Orenbuch asked about the factors influencing roll rates from delinquency to charge-offs, particularly in the current inflationary environment. He also questioned the lack of operating leverage in the 2025 guidance, where revenue and expenses are projected to grow at similar rates, and asked if higher revenue growth could change that dynamic.

Answer

CFO Jenny Osterhout stated that roll rates from delinquency to charge-off are performing in line with or slightly better than typical trends. CEO Douglas Shulman added that credit improvements are driven by active management and originating loans to higher-quality customers, which has stabilized performance despite persistent inflation. Regarding operating leverage, Osterhout acknowledged there is potential for it if origination growth exceeds expectations, but the current guidance reflects portfolio growth, some yield improvement, and fee revenue from the card business.

Moshe Orenbuch of TD Cowen asked what it would take for the loan loss reserve rate to decrease, given it has remained flat despite improving credit trends. He also explored whether OneMain has considered creating revenue streams by selling its loan turndowns to private credit firms, potentially retaining servicing rights.

Answer

CFO Jenny Osterhout stated that while reserves increased due to portfolio growth, the coverage rate was steady, and they would need to see consistent improvement in charge-offs and a stable macro environment before considering reserve releases. Both Osterhout and CEO Douglas Shulman confirmed they evaluate such programs but currently find the economics of holding loans on their own balance sheet to be superior for shareholder returns.

Moshe Orenbuch of TD Cowen inquired about the consumer credit issues observed early in the quarter, seeking assurance they were not persistent, and asked about the drivers behind the strong Q2 SMB originations.

Answer

Chairman & CEO David Fisher explained that the consumer credit issue was isolated to one of five consumer products and was quickly addressed by tightening credit models, a routine adjustment. He noted that even with the pullback, consumer originations saw strong year-over-year growth. For SMB, Fisher attributed the rock-solid performance and strong originations to incredibly stable credit and a strong competitive position, describing the growth as feeling like 'running downhill.'

Moshe Orenbuch asked for an elaboration on the expected performance of fair value premiums, the impact of new customers on credit mix and revenue margins, and whether customer graduation is a key growth driver.

Answer

CFO Steve Cunningham explained that fair value premiums are highly sensitive to lifetime credit expectations and their current stability reflects a stable outlook. He noted that a recent influx of new customers in the CashNet business led to a mix shift with higher initial charge-offs but strong lifetime economics, an effect expected to moderate after Q2. He confirmed that growth is driven by both acquiring new customers and graduating existing ones to other products, which balances the overall consumer revenue yield.

Moshe Orenbuch inquired about the competitive landscape for both consumer and small business lending and asked if Enova is observing the same reduced seasonality in its business that other non-prime lenders have reported.

Answer

CEO David Fisher stated that competition has not negatively impacted the company, as evidenced by strong origination growth in Q4 and early Q1, describing competitive pressures as 'fleeting.' CFO Steve Cunningham added that Enova expects to see typical seasonal patterns in Q1, driven by post-holiday behavior and the tax refund season.

Moshe Orenbuch asked for more detail on how new products with large partners, like Amazon Pay Later, will contribute to growth. He also questioned why share repurchases were not being accelerated given high returns and slowing loan growth.

Answer

President and CEO Brian Doubles explained that new products like Amazon Pay Later and the physical PayPal card enhance their multi-product strategy, allowing them to cater to specific customer needs and purchase types, with the main growth impact expected in 2026. Regarding buybacks, EVP and CFO Brian Wenzel noted that the timing of repurchases can be restricted by periods of material non-public information, such as the recent announcements of the Walmart and Amazon deals, but reaffirmed their confidence in returning capital.

Moshe Orenbuch from TD Cowen explored how Synchrony might use the benefits from its pricing changes to drive growth, such as by adding value to consumer propositions or underwriting deeper into the credit spectrum. He also asked about the company's approach to utilizing its new share repurchase authorization, given its excess capital position.

Answer

CEO Brian Doubles explained that instead of a simple price rollback, they are discussing with partners how to reinvest in programs through enhanced value propositions, promotions, or approving more customers at the margin with strong risk-adjusted returns. CFO Brian Wenzel stated that while organic growth is the top priority for capital, the new $2.5 billion share repurchase authorization provides significant flexibility, and they are not precluded from increasing it if growth doesn't materialize as expected.

Moshe Orenbuch asked about the recent renewals with JCPenney and Sam's Club, specifically inquiring about new program aspects like the 'Synchrony Pay Later' offering and the overall economics of the deals. He also sought more detail on which areas might see a reversal of credit tightening first.

Answer

President and CEO Brian Doubles expressed excitement about the renewals and highlighted the 'Pay Later' product as part of a multi-product ecosystem that helps graduate customers to revolving credit, enhancing lifetime value. While not disclosing specific economics, he stated he was 'extremely happy' with the terms. EVP and CFO Brian Wenzel added that a reversal of tightening would likely involve accelerating dual card upgrades and increasing credit line activity, particularly in large-balance platforms.

Moshe Orenbuch asked to separate the drivers of the spending volume slowdown between Synchrony's credit tightening, consumer preferences, and policy changes, and what macro factors would prompt a reversal of tightening.

Answer

EVP and CFO Brian Wenzel noted that based on control groups, the company's pricing changes (PPPCs) did not have a material impact on spending volume. The slowdown is attributed to consumers trading down (e.g., lower average transaction values) and credit actions that had a modest impact on volume but a more meaningful one on new accounts. CEO Brian Doubles added that consumers are rationally managing budgets amid inflation, and a reversal of tightening would depend on seeing more stability and less uncertainty in the economic environment.

Moshe Orenbuch asked about the spreads and return on equity (ROE) for new loan originations and requested more detail on what management means by an 'opportunistic' share repurchase strategy.

Answer

CEO David L. Yowan stated that new originations target a mid-teens ROE over time, fitting into the existing portfolio's economic model. Regarding buybacks, Yowan explained 'opportunistic' means first balancing growth investments with returns, and second, accelerating repurchases when the stock's discount to tangible book value is greatest.

Moshe Orenbuch asked about the timeline for the total loan portfolio to return to growth, given the continued runoff of legacy assets, and whether this growth is dependent on regulatory changes. He also inquired if the 2025 EPS guidance implies a rising or falling earnings run-rate through the year.

Answer

CEO David Yowan outlined a three-part growth strategy focused on existing products, potential policy changes, and new product expansion. CFO Joe Fisher clarified that the EPS run-rate is expected to be at the higher end of the guidance range by Q4 2025, after accounting for seasonal pressures in the first and third quarters.

Moshe Orenbuch asked about the level of returns on tangible book value needed for the stock to trade at that value and requested a breakdown of net interest margins between legacy and refinance loan portfolios.

Answer

CEO David L. Yowan clarified that the focus is on the immediate value of repurchasing shares at a discount, not on a specific target for stock price relative to book value. He noted that the Earnest growth business is being priced to achieve mid-teens returns. CFO Joe Fisher provided color on margins, stating that while not formally disclosed, refinance loan NIM is typically below 2% and legacy asset NIM has historically been above 4%.

Moshe Orenbuch followed up on several topics, asking about the impact of reduced marketing on private lending, the strategic objectives of the BPS sale beyond cost-cutting, and the potential risk to the FFELP portfolio's remaining cash flow forecast.

Answer

CFO Joe Fisher quantified the marketing cost reduction impact as under $10 million. CEO David L. Yowan detailed three objectives for the BPS sale: facilitating shared service expense reduction, achieving a higher valuation multiple for the business, and enabling greater scale under a new owner. Fisher addressed the FFELP cash flow risk by noting that approximately $3.4 billion is principal return, with the primary risk being to the remaining cash flow from servicing fees and interest if prepayments were to accelerate dramatically.

Moshe Orenbuch asked about the level of marketing costs at historical origination volumes, the objectives of the BPS sale beyond cost savings, and the potential risk to the remaining FFELP cash flows from continued prepayments.

Answer

CFO Joe Fisher quantified the marketing cost impact as under $10 million. CEO David L. Yowan outlined three BPS sale objectives: facilitating expense reduction, achieving a higher valuation multiple, and enabling greater business scale under a new owner. CFO Joe Fisher added that the primary risk to FFELP cash flow is on future servicing fees and interest, as the principal return of roughly $3.4 billion is more secure.