OneMain - Earnings Call - Q1 2025

Executive Summary

• OneMain delivered solid Q1 2025: GAAP diluted EPS $1.78 and C&I adjusted EPS $1.72, with net income $213M and income before tax $275M, supported by improved credit and disciplined growth.
• EPS beat S&P Global consensus: Primary EPS $1.72 actual vs $1.57 consensus (+$0.15, ~+10%); revenue comparisons are not like-for-like under S&P’s definition, so we focus on EPS for estimate context.*
• Credit quality improved: 30+ delinquency ratio fell to 5.16% (from 5.76% in Q4) and 90+ to 2.38% (from 2.52%); consumer loan net charge-offs were 7.83% (YoY -75 bps), reinforcing a trajectory from peak losses in 2024.
• 2025 guidance maintained: managed receivables growth 5–8%, total revenue growth 6–8%, C&I net charge-offs 7.5–8.0%, and OpEx ratio ≈6.6%; quarterly dividend of $1.04 was declared again.
• Funding/liquidity remain a differentiator: $627M cash, $1.1B undrawn revolver, $6.4B undrawn conduits/VFN, and $10.2B unencumbered receivables; $1.5B of secured and unsecured issuance completed during the quarter.

What Went Well and What Went Wrong

• What Went Well

  • “We feel great about the results... decisive actions to tighten underwriting, optimize pricing... now showing up in the bottom line” (CEO). Capital generation up 25% YoY to $194M; C&I adjusted EPS up 19% YoY to $1.72.
  • Credit trends improved: 30+ delinquency 5.16% (Q4: 5.76%), 90+ delinquency 2.38% (Q4: 2.52%); consumer NCOs 7.83% (YoY -75 bps). “These results reinforce our view that we are coming down from peak losses in 2024” (CEO).
  • Growth with discipline: originations $3.0B (+20% YoY), consumer loan yield 22.4% (+20 bps q/q, +28 bps YoY), managed receivables $24.6B (+12% YoY). “We continue to acquire high-quality customers at attractive pricing” (CEO).

• What Went Wrong

  • Interest expense rose 13% YoY to $311M with increased average debt to support receivables growth; interest expense ~5.4% of average net receivables and expected to remain steady for 2025 (CFO).
  • Provision remained elevated at $456M (though down q/q), while allowance coverage stayed ~flat at 11.5% given conservative macro overlay (CFO).
  • Credit card losses remain high (seasonal/seasoning): card NCOs 19.8% in Q1, though management still expects 15–17% longer-term once the book matures (CFO).

Transcript

Operator (participant)

Please stand by, your program is about to begin. If you need assistance on today's conference, please press star zero. Welcome to the OneMain Financial First Quarter 2025 Earnings Conference Call and Webcast. Hosting the call today from OneMain is Peter Poillon, 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 Poillon. You may begin.

Peter Poillon (Head of Investor Relations)

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 OneMain website. Our discussion today will contain certain forward-looking statements reflecting management's current beliefs about the company's future, financial performance, and business prospects. 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 the question-and-answer session. I'd like to now turn the call over to Doug.

Doug Shulman (Chairman and CEO)

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. 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 OneMain 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 of 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 ABFs, or, should we need to, drawing from our $7.5 billion of available bank lines. 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 hurdle. 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, 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 OneMain 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 OneMain. If approved, the ILC would be a small subsidiary of OneMain 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.

Jenny Osterhout (CFO)

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 GAAP 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. C&I 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 Foursight, 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 Foursight. 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 product. 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 PB&C 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+ delinquency at March 31st, excluding Foursight, 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 9 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+ 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. C&I 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 C&I 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 card, 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 recoveries. 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 is 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 Foursight 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 ABF 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 5.5x, 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%-8% and total revenue by 6%-8%. We expect C&I net charge-offs of 7.5%-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. With that, let me turn the call back over to Doug.

Doug Shulman (Chairman and CEO)

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.

Operator (participant)

The floor is now open for questions. At this time, if you have a question or comment, please press star one on your touch-tone phone. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we do ask that while you pose your question, that you pick up your handset to provide optimal sound quality. Thank you. Our first question is from Moshe Orenbuch of TD Cowan.

Moshe Orenbuch (Managing Director)

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.

Doug Shulman (Chairman and CEO)

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 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 are some states where we have we abide by state rate caps.

We voluntarily cap our rates at 36%, but there are some places where we do not take on customers because they pose too much risk because we cannot price for it. That is one for market expansion. It also would allow us to simplify our operating model. Right now, we have laws in 47 states that we abide by, the different loan caps, different structures, different rates with different structures. It would provide some operating efficiency in that way. We would 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. Right now, we use a partner bank as the issuing bank for our credit card, and we would be able to have our own bank as the issuing bank for our growing credit card portfolio.

One of the keys to the ILC, 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. 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 we'll keep going down that path.

Moshe Orenbuch (Managing Director)

Got it. Got it. Maybe just on credit, I guess you mentioned in the slides, Jenny, you spoke about it, that there has been essentially better performance on the late stage, if you will, the early stage kind of being in line with seasonal patterns and the late stage kind of better than. Is there some underlying reason there that that is happening?

Is it that the performance is, does it in any way relate to the front book, back book performance? Any kind of help you can give us there would be good. Thanks.

Jenny Osterhout (CFO)

Thanks, Moshe. 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 product, but even when we look at the roles from 30-89 to loss for consumer loans, excluding Foursight, we find the trends are modestly better than what we typically see. 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. Right now, we're watching it and pleased to see it.

Moshe Orenbuch (Managing Director)

Thanks very much.

Operator (participant)

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

Mark DeVries (Senior Research Analyst)

Yeah, thanks. 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?

Jenny Osterhout (CFO)

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.

It is 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 is 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. A lot of it depends on that mix and how our products grow. Obviously, as you mentioned, there are the expectations about the future and unemployment and inflation, which go into the overlay. I think given there is more uncertainty today than we have in prior quarters, this is one time when I really want to say we are going to wait and see how it plays out in terms of where reserves will go going forward.

Mark DeVries (Senior Research Analyst)

Okay, got it. 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.

Doug Shulman (Chairman and CEO)

Yeah. I mean, I think a lot of it is the macro uncertainty where 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 OneMain. We're spending this time solidifying that platform.

Similar with card, great value proposition, very good utilization rates, engagement rates on the app. We have been driving down the unit cost as we scale the product. A lot of what we are doing now is just hardening those platforms. I think there is no magic number or indicator that is going to tell us it is time to grow. As long as we keep seeing steady credit performance, we have got 30% stress overlay on those new businesses. Once we start feeling that we are 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 we will likely accelerate.

Mark DeVries (Senior Research Analyst)

Got it. Thank you.

Operator (participant)

Our next question is from Rick Shane of JPMorgan.

Rick Shane (Managing Director and Senior Equity Research Analyst)

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 recoveries as you emerge from this period of elevated charge-offs and what you expect in terms of recoveries going forward.

Jenny Osterhout (CFO)

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. That is in line with our first quarter 2024 in terms of debt sales. There is 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. I don't think this is really a matter of used car 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 I think you could expect something similar for the future.

Rick Shane (Managing Director and Senior Equity Research Analyst)

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

Jenny Osterhout (CFO)

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

Rick Shane (Managing Director and Senior Equity Research Analyst)

Terrific. Thank you very much, Jenny.

Operator (participant)

Our next question is from Michael Kaye of Wells Fargo. Mr.

Kaye, you may want to check your mute switch.

Michael Kaye (Equity Research Analyst)

Oh, sorry about that. I had a quick question on the ILC. 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 consumers' access to credit, but critics might say this is just an attempt to bypass state usury laws by pushing all the originations through a small ILC bank. Just love to hear your thoughts on that.

Doug Shulman (Chairman and CEO)

Yeah.

I talked on the first question, gave you all the benefits of ILC, unified rate structure, simplified operating model, access to deposit fundings, issuing bank for the credit card, and it's a unique bank license, which wouldn't make us a bank holding company as the parent, which we think would be positive. We obviously cap our rates. 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. 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 a good portion of loans in the ILC.

Michael Kaye (Equity Research Analyst)

All right. Okay.

I know you do not see disclosing it in the earnings press release, but I calculated the credit card net charge-off rate very high. It is up to 20%, up from 17% last quarter. I just wanted to confirm you are still comfortable with the credit performance.

Jenny Osterhout (CFO)

Yep. Thanks. Michael, this is Jenny. This quarter, you are closed. This quarter, our card losses, which will come out, it will come out in the Q, 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. They did go up some. Again, they are better than our expectations. The book has been growing, and it is small, and it is seasoning. There is some of that dynamic. For the long term, we still feel quite good about where it is going, and we like the returns for the business.

Remember, it has an over 30% revenue yield, which includes annual fees, late fees. The losses, we still expect to be in that 15%-17% range. Supporting really good return on receivables in the long term.

Michael Kaye (Equity Research Analyst)

Okay. All right. Thank you.

Operator (participant)

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

Mihir Bhatia (Equity Research Analyst)

Yeah. Hi. Good morning. Thank you for taking my question. Wanted to start with the yield outlook and the competitive intensity. I think, Jenny, you mentioned in your comments that there is modest improvement in yields still, but potentially subject to competitive intensity. 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? Any comments on competitive intensity that you are seeing? Thank you.

Doug Shulman (Chairman and CEO)

Yeah.

Look, the competitive environment remains constructive for us. In the quarter, we did not see any massive shifts from what we have talked about before. We are still able to get double-digit originations growth with about 2/3 of our loans in our top two risk grades, and we have gotten some price improvement along the way. We are able to compete very well in this competitive environment. 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 gives us the ability to get tighter spreads than a lot of our competitors. We have plenty of access to funding, and that can be volatile in this kind of a market.

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. I think it positions us well in the market. We haven't seen any major changes from the fourth quarter, but we're still seeing a constructive competitive environment.

Mihir Bhatia (Equity Research Analyst)

Thank you for that. Maybe just switching gears 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 would it be a little different now compared to 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.

Doug Shulman (Chairman and CEO)

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, the 30% stress that we put on all originations, assumption, which effectively tightened our credit box pretty significantly in August of 2022, remains in place. What that means is if the performance of our credit, our models basically, our models are run, and on a regular basis, they're updated, and they assume current credit performance.

In 2022, 2023, 2024, 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 is still some cushion in our book if we saw either inflation or unemployment start to tick up. I think the exact effects of inflation are 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 have been underwriting, so we feel well prepared for it if it was going to happen.

Mihir Bhatia (Equity Research Analyst)

Got it. Apologies for misspeaking. I do see no significant changes in inflation. Thank you.

Operator (participant)

Our next question is coming from Kyle Joseph of Stephens.

Kyle Joseph (Managing Director)

Hey, good morning. Thanks for taking my questions. Most of it 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 on the auto side, was there any sort of pull forward? On the card side, have you seen any sort of spend or volume discrepancies? I guess in terms of on the personal loan, any sort of shift in demand or willingness to borrow or less of a willingness to borrow, I'd say?

Doug Shulman (Chairman and CEO)

Yeah.

I mean, look, what I'd say is everyone who's alive and awake in April 2025, it feels like it's a very volatile environment with the stock market swings and all the press. 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. 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. 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 kind of everything we're seeing in our business.

Kyle Joseph (Managing Director)

Okay. Got it. Great.

Thanks for taking my question.

Operator (participant)

Our next question is coming from Vincent Caintic of BTIG.

Vincent Caintic (Managing Director and Specialty Finance Analyst)

Hi. Good morning. Thank you for taking my question. I had a follow-up on the credit reserve rate. A lot of good results and commentary about credit performance and looking at that credit reserve rate of 11.5%. I assume that it would have, with the credit trends, it would have otherwise gone lower. I just want to understand in that 11.5% how much conservatism is baked in, if you could maybe talk about the assumptions you're making with macro trends like unemployment rates and what would cause credit reserves would have to change. 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%. I just want to understand the level of conservatism that's baked into that.

Thank you.

Jenny Osterhout (CFO)

Just to start with the macro assumptions, because I think that might be the easiest place to start here, we really factor in from a number of sources, but mostly a survey of economists and Moody's Analytics. 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. 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. We will be watching and adjust those as needed. I mentioned before, but yes, it's primarily driven by current book performance, but there's also that product mix element.

To the extent that we have more card than expected, I think that could be some pressure on that reserve rate. To counter that, auto provides a slightly lower reserve rate. I would just say those two do not move in. They move against each other, but they are not of equal sizing. I really, in terms of where that will go for the future, I think right now, just given the amount of uncertainty, we really have to wait and see where that reserve rate will go.

Vincent Caintic (Managing Director and Specialty Finance Analyst)

Okay. That makes sense. Thank you. Kind of relatedly, if you could talk about your underwriting posture. It does not 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.

Doug Shulman (Chairman and CEO)

Yeah. Look, we run a nationwide portfolio of risk, and it all rolls up in aggregate, but in reality, we run hundreds of cells based on product, geography, channel, risk grade. I think at this point, we're not taking 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.

We take our 20% ROE assumptions, and the factors that go into that are the price, the losses, the cost of acquisition, the funding cost that goes in there, and obviously the operating expense that goes against the different products. 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.

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 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. We do micro adjustments all the time. If we started to loosen or started to tighten, it would most likely be around a segment, not the whole book.

Vincent Caintic (Managing Director and Specialty Finance Analyst)

Great. That's very helpful. Thank you.

Operator (participant)

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

John Pancari (Senior Managing Director)

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%-17% loss rate target and that it's trending in line with that. Is that 15%-17% target an expectation for 2025, or is that more of a longer-term expectation for that book? Thanks.

Jenny Osterhout (CFO)

Thanks. Let me start with your second question first. I think in terms of going from 19.8% and getting to 15%-17% this year, that is not our expectation for this year. That's more of a longer term where we think the book will settle.

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. I think we still have very good line of sight to those good returns over time, but I would not say that's a 2025 guide. In terms of card delinquency and card credit, at the start of the year we are really seeing positive trends. I think it's probably a combination both of our customer base and our customer base doing quite well. Also this team, calling it a teenage business, but we are working very hard in terms of how we are working on credit, how we are working on collections, and various pieces. I think it's both an improvement in capabilities as well as an improvement in our card book itself.

John Pancari (Senior Managing Director)

Got it. Okay. Thanks, Jenny. Then separately, I mean, 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 Foursight 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 inorganically for deals, or do you think that opportunity would be kind of put to the sidelines here as you focus on the ILC?

Doug Shulman (Chairman and CEO)

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.

Between our personal loan business, which we've been doing for a long time, we do very well, 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. 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 get the auto business to the next level and bought Foursight, but we will take a look at we'll look at platforms as they come available.

We do not need them, but if we find one that strategically fits, culturally fits, we feel it is super buttoned up from a regulatory standpoint like we are, and obviously the financials work, we would consider it. Similar with card. There have been a bunch of card platforms in the market. We have passed on them in the last day or two, in the last year or two, but we, so it is a long way of saying we are active in the market, but we are discerning buyers, and we will only do an acquisition if it makes sense and is going to be 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 will look forward to the ongoing dialogue. Everyone, have a great day.

Operator (participant)

Thank you.

This does conclude today's OneMain Financial First Quarter 2025 Earnings Conference Call. Please disconnect your line at this time and have a wonderful day.