- Capital Generation: $136 million, affected by the Foursight acquisition.
- Receivables Growth: 11% year over year, driven by the Foursight acquisition and expanded product offerings.
- Total Revenue: Grew 7% year over year.
- 30- to 89-Day Delinquency: 2.97%, down 31 basis points from the end of last year.
- Loan Net Charge-Offs: 8.3% in the quarter.
- Operating Expense Ratio: 6.4% in the second quarter.
- Debt Raised: $1.9 billion of secured and unsecured debt.
- Auto Finance Receivables: $2.2 billion at quarter-end, including $1.3 billion from Foursight.
- Credit Card Accounts: Added more than 100,000 accounts and $80 million in receivables in the quarter.
- GAAP Net Income: $71 million, or $0.59 per diluted share.
- C&I Adjusted Net Income: $1.02 per diluted share, up 1% from the second quarter of 2023.
- Managed Receivables: $23.7 billion, up $2.3 billion or 11% from a year ago.
- Second-Quarter Originations: $3.6 billion, down 4% year over year.
- Total Revenue: $1.4 billion, up 7% compared to second quarter 2023.
- Interest Income: $1.2 billion, up 9% year over year.
- Interest Expense: $295 million, up $53 million versus the prior year.
- Provision Expense: $515 million.
- Loan Loss Reserves: $2.6 billion.
- Operating Expenses: $374 million in the quarter, up 1% year over year.
- Net Leverage: 5.8 times at the end of the second quarter.
Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OneMain Holdings Inc (OMF, Financial) reported a 7% year-over-year increase in total revenue for the second quarter of 2024.
- The company saw an 11% year-over-year growth in receivables, driven by the acquisition of Foursight and expanded product offerings.
- Capital generation for the quarter was $136 million, despite the impact of the Foursight acquisition.
- The company successfully raised $1.9 billion in secured and unsecured debt, extending its debt maturity profile.
- OneMain Holdings Inc (OMF) continues to leverage data science and product innovation to find profitable growth opportunities.
Negative Points
- Second-quarter GAAP net income was $71 million, or $0.59 per diluted share, down from $0.85 per diluted share in the second quarter of 2023.
- Loan net charge-offs were 8.3% in the quarter, consistent with expectations but still a significant figure.
- The operating expense ratio was 6.4%, which, while improved, still indicates ongoing cost pressures.
- Interest expense for the quarter was $295 million, up $53 million versus the prior year, driven by increased average debt and higher cost of funds.
- The company maintained a conservative underwriting posture, which may limit growth opportunities in the near term.
Q & A Highlights
Q: Can you explain the policy adjustment for Foursight and its impact on the charge-off ratio?
A: Jeannette Osterhout, CFO: We aligned our practices post-acquisition, which brought forward the timing of loss recognition for certain secured loans. This increased net charge-offs but was offset by an equal reserve release, resulting in no impact on net income. The impact on capital generation was $22 million after-tax. This adjustment will not repeat in future quarters.
Q: What is your confidence in the credit outlook given the delinquency trends?
A: Jeannette Osterhout, CFO: We remain confident that losses will decrease for the rest of the year and maintain our annualized loss rate guidance of 7.7% to 8.3%. We feel good about the trajectory of our credit performance.
Q: Can you elaborate on the expected growth in the second half and the competitive environment?
A: Douglas Shulman, CEO: We saw an uptick in originations near the end of Q2 and expect this trend to continue. The competitive environment is constructive, with some competitors pulling back, allowing us to increase pricing. We are finding pockets of growth while maintaining a tight credit box.
Q: How is the integration of Foursight impacting your auto finance business?
A: Douglas Shulman, CEO: The integration is going well, combining our organically grown auto finance business with Foursight. This gives us a scalable platform with access to a large network of both independent and franchise auto dealers, positioning us for disciplined expansion.
Q: What are the trends in asset yields for the second half of the year?
A: Jeannette Osterhout, CFO: Excluding Foursight, our portfolio yield in Q2 was 22.4%, up 25 basis points from Q1 due to pricing actions. We expect yields to remain flat for the rest of the year, with personal loans trending towards 23%-24% and auto loans at 15%-17% in a normalized environment.
Q: Are you seeing any changes in consumer behavior or credit quality in your applications?
A: Douglas Shulman, CEO: The majority of our customers have higher net disposable income than pre-pandemic levels. We are seeing more credit card debt consolidation, indicating better quality customers willing to accept higher pricing for loans.
Q: Why haven't you tightened the guidance range for charge-offs given the positive trends?
A: Douglas Shulman, CEO: We have not made any changes to our guidance within the range. We will continue to monitor and provide updates as the year progresses.
Q: What is your outlook for reserve ratios for the rest of the year?
A: Jeannette Osterhout, CFO: We expect to hold our reserve rate steady unless there is a major shift in the macro environment. Our current reserve coverage ratio is 11.5%.
Q: What factors would lead you to loosen the credit box?
A: Douglas Shulman, CEO: We need to see continued good performance in recent vintages and stability in the macro environment, particularly around employment rates. We will open the credit box in specific pockets based on our proprietary data and credit trends.
Q: Are there differences in how you manage credit risk between personal loans and auto loans?
A: Jeannette Osterhout, CFO: Yes, they are different asset classes with different recovery strategies and collateral management. We manage them separately, looking at individual books and sub-segments to make informed decisions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
