OneMain Holdings, Inc. (OMF) September 2026 Conference Transcript

All right, we'll get started. So I'm very pleased to have One Main Holdings on stage with me. And we have Jenny Osterhardt, the Chief Financial Officer. So welcome, Jenny.

Thank you. Thank you for having me.

So let's jump right into it, maybe just beginning with consumer. There's been renewed concerns around household budgets, just given higher gas prices and some signs of inflation pressure. How would you characterize the health of a non-prime consumer today?

You know, it's interesting. You can read the papers. You can look at all the stats out there. But frankly, you know, when we look at our customer base, it doesn't match up with what we're seeing. Let me just talk a little bit about who our customers are. So we don't use FICO to underwrite, but our average customer has about a 630 FICO, just to give you a sense. they have been at their jobs for you know about half of them have been at their jobs for over five years really you're seeing 40 percent homeowners so a really good you know we call them hard-working Americans $80,000 a year in annual income so you know sort of your average American. And when we look at payment behaviors, we're seeing really good payment behaviors where you can then look at sentiment and you can spend time in the branches and you can feel that folks are trying to make things work. But I think what you're seeing right now is that they're able to sort of move things around and make their family budgets work. So at the end of the day, right now, we're still seeing everyone work through it. I would say the pieces we'll be watching are obviously, you know, the two things you watch. You watch for employment, which right now we're seeing, you know, generally very good employment numbers. And then you also watch inflation, and they're on inflation, fuel prices. We've seen very modest change on our, you know, on our card that we have, we now have some spend data. And so we're seeing, you know, a move that's pretty minor, 7.5% of our average spend was on gas, and that's moved to about 8% of average spend. So you're not seeing major shifts, but we'll watch gas prices. And we'll also watch for other pieces like electricity bills, I think, place insurance, places where you can see major shifts very quickly or things that we would watch. But right now, really seeing good payment behavior.

Got it. And that's helpful. Maybe we'll just jump right into credit performance. That's me in the focus this year. Net charge-offs were 8.3% in the first half. That compares to your guide of 7.4% to 7.9%. What gives you confidence in achieving your guide and what would bring you to the high or low end?

Right. So that guide of 7.4% to 7.9%, I think we're feeling very good about that guide. We saw really, really good year-on-year improvement. If I look at the second quarter, you know, first quarter we were about one basis point year-over-year in our 30 to 89 delinquency improvement. And then if you looked at that second quarter, we were seven basis points in terms of that So we like that sort of that movement. And if we look at to be at the low end of our guide, we talked a little bit about roll rates, but we've seen a little bit higher roll rates. If those were to continue, you would you would see us at the high end of our guide. You'd have to see the economy stay, you know, rather like it has been to be at the low end. You'd have to see improvements in those roll rates. We're really at that point in the year when that's going to be what affects our losses and maybe some improvement in the economy. But overall, I think we're feeling very good about the guide, very good about the long-term trajectory of losses.

Got it. And if I just take the midpoint of your guide, that implies net charge offs or flat year of a year. Just over the next few years, how confident are you in migrating back to your target 6% to 7% net charge off range? And if we think about how card and auto kind of impact that, maybe just any color around that.

So if I look, in 2019, we were a personal loans company. That's what we did. You know, it was a different economy, and we were in the 6% to 7% guide. And I think that relates to why you asked the question about the different products. If you looked at us today, I would think you'd look at our consumer loan book. that's personal loans and auto. And I would compare that back to that 2019 number. And then we'll talk about cards in a minute. But cards obviously comes with a different loss rate. Last year, we saw this massive improvement. We went from 8.2% losses to 7.65% losses. It was outsized improvement. This year, you mentioned it's been rather flat. I think as we look forward, you're not always going to see an exactly linear path, but we feel pretty confident in that consumer loan loss level coming in below 7% over time. So I think you're going to see that get there. And then cards, which is included in our overall C&I, so it's consumer loans plus cards, depending on the growth of cards and its percentage of the book, you're going to then see that impact our overall C&I loss number.

Got it. Okay, that's helpful. Maybe we'll just talk about the recovery side of the net charge-off equation a little bit. You know, recovery rates in the last two quarters have been materially better, up by about 30 basis points year-over-year on average. What's the driver of that, and can you touch upon the sustainability of that going forward?

I was saying this earlier today to someone, but recoveries are such a core piece of what we do regularly and just in the normal course of business. We, a little while back, invested more in our internal recovery capabilities. And to talk about what some of those things are, I mean, that can be looking at the tools that you use and the models that you use to determine who you're going to contact, how you're going to contact them. And let me, just to give you some examples. I mean, it used to be you called the next person on your queue at the time that worked for you. You know, think about in today's day and age, you've got to think about, well, how can we predict what's the best time to call a customer? How can we predict what's the best method to reach them? Should we call them? Should we chat with them? Should we text with them? Should we send them a notification in the app? Should we email them so they can see it later? So you have so many more channels to determine what's the best way to reach them. And then you can also determine who on your, you know, what's the right, should we put this in the, where, who should contact them. So I think there's so much that we did around investing in those analytics. And it also comes with making sure you have the right data sources to figure out some of those pieces. And I think that's an ongoing effort. I mean, the world's changing. We're moving into folks who are much more digitally native. So that's going to change the way that you're doing and doing recoveries. We also have had, since the sort of 21-22 inflation, if you want to call this an inflation cycle, more inventory. And so, you know, as we've looked, you have more opportunity to go and look at externally that, you know, what you, the value of that inventory and what somebody else can can do with it so i think it's just given us a little boost there as well in terms of recoveries but if i look at the second half of the year i think you'll see an average of what we've seen over the past few quarters and you know it's it's obviously been been great to see the improvements that we've seen there got it that's helpful maybe just to follow up on that inventory piece any sense on when that excess inventory normalizes um i don't you know i think you've seen some others talk about it too i think it's sort of a phenomenon that's not just a one main phenomenon i think as you know over time as you see the trajectory of losses improve you're going to start to see less inventory um but for you know i think through the end of the year you still have a little bit more inventory and then we'll look we'll look at it again next year okay got it that's helpful maybe just to switch gears a little bit um so one main has one of the largest branch networks in a nation.

Can you just talk about how that fits with one main strategy? And are the branches primarily a customer acquisition advantage, a servicing advantage, or something else?

Capital A advantage. I really, I love talking about our branches. I think they're, you know, I just talked about changing customer behaviors and how folks' behaviors are changing, but I also still think there's so much value in talking to a person face-to-face. You know, we have 1,300 branches across 44 states. We have the seventh largest, if we were a bank, we'd have the seventh largest branch network in the United States. It's core to our model, and I think it will be core to our model for a long time. And let me explain why. I mean, it builds trust. I think when you know that there's a one main branch, you've seen it on your way to work or you've seen it to drop off your kid at soccer, it gives you this sense of comfort and trust. I think trust is so important in the industry. You also have this in this moment, and I would just say we always talk about this, but it's a pretty stressful moment. I mean, if you live in Texas and your HVAC goes out and you need a new air conditioning system and you don't know where you're going to get $10,000, when you go in, you are stressed when you have that conversation, it is helpful to have somebody who has seen many of these conversations sit and talk to you about your options. So it's a consultative process where we also guide you. And our branch managers, on average, have over 14 years of experience. So they've sat with many customers who have been in a position just like you. And I really think there's so much value in that. And you're also at the same time always looking to help put the customer into a loan that you think they're going to be able to pay back. And remember, you have this dual model where you're both up front in the initial acquisition process, but you also have your branch team members there if, you know, for the minority of our customers who do need help or in figuring out how to make a payment, just having had that conversation at the beginning, you may not even be talking to the exact same person, but to know that they know Sally or that they sit in a branch with Sally and it's the same person that you talk to, it really builds trust and we think it drives better outcomes. I have to say that But a lot of what we're doing and investing in, in terms of the digital capabilities that we have, are also to help make those team members more productive. How can I take the branch manager and make it so that we really make the most value out of their time, out of their workday? And so this isn't just about, okay, you've got this branch network and we're doing things the way we've always done them. I'd say this is really about how can you look and make sure you're making the most of the human connection, making the most of the experience that that person has while simultaneously leveraging your central sites, so where you have your central sites and capabilities, and self-service. Maybe for certain activities, we'd rather just allow the customer to do it themselves. So it's really figuring all of this out is a major effort of what we're doing at the company. And it's exciting. I mean, it's really exciting. You can sort of feel it. It's pretty palpable.

Got it. And OneMain applied for a bank charter last year. Any updates that you can share on the status of the application? And then maybe also just to take a step back, just remind us why OneMain applied for a bank charter.

I wish I had more of an update. I don't. Obviously, we think it's a really strong application. We think we've been doing this for over 100 years, and we would be a great applicant for an FDIC charter. Just as a reminder of why we did this, because I do think it is helpful for our strategy. I would say if we don't get it, we have a great strategy, and we would be fine. I think of it as the word we've been using is an amplifier. It allows us to reach more customers in more states. I think that's the first and foremost piece of this. It also reduces some of the complexity. Just to give you an example, in North Carolina, if you lend to a customer, if you lend them $4,000, you have a certain rate. If you lend them $4,000 to $8,000, you have a different rate. If you lend them $8,000 to $12,000, you have a different rate. So all of that drives complexity. And then you compare that in each state, you have different complexity. It can be complexity on the collection side, it can be collection, it can be complexity on the underwriting side. So all of that, you know, there's a simplification of what's happening in the back and sort of the bowels of one main. We also today use a credit card bank for our credit card, we would be able to do that ourselves. And then there is some funding flexibility that it would allow us over time. And I think that could be a long-term benefit for this. So, you know, it's exciting if it happens, but we'll see.

Okay. Sounds like you guys have a pretty strong case to get approved for one. But maybe just switching gears again, you've indicated your reserve ratio should trend higher over time as credit card becomes a larger portion of the portfolio. How should investors think about the reserve ratio as the mix evolves? And what could the reserve ratio look like in a more normalized credit environment?

Cecil's my favorite topic. So I think you've seen 11.6 was our reserve rate this past quarter. That was sort of a modest increase this past quarter. That really was from the growth in our card book. And cards has a higher loss rate. So we've stated our long-term loss rate in cards is 15 to 17 percent. It also comes with a great revenue yield. We've got over 33 percent revenue yield. So overall, it's a great product. We're happy to put it on our books. The goal here is to put profitable growth on our books. And it's still such a small portion of our overall about $1 billion on our $27 billion portfolio. But, you know, even minor increments in the percentage of or the portion of cards receivables on our book are going to make changes to CECL. And that's because our CECL reserve for cards is about two times that of our reserve for consumer loans. And so while it's really good and profitable growth, it's going to inch us up. I'd say 11.7 or 11.8 are, you know, visible in the near term. I think towards the end of the year we could trend in that direction as you see some of that growth in cards.

Got it. But just shifting to loan growth, you know, OneMain has continued to maintain a conservative underwriting box. Most of your current originations today are from your higher credit tiers. What returns are you currently underwriting to today? And what would you need to see before reopening the credit box?

So we underwrite to a 20% minimum ROE hurdle. It's actually, it's pretty simple. So I start with just if you think about our, you know, you take your APR and your fees and you take your costs, so your funding costs, and then you take your operating costs, and then you take your losses. And on the losses, we've had this 30% overlay. So that means if we thought you're a 6% loss rate, you're actually going to be a 7.8% loss rate, really simple, 1.3. You multiply that by 1.3, and then you get to your 20% return hurdles. You've got a hurdle over that for us to underwrite. I'd really say for us, we're pretty conservative in how we really think about this as a focus on returns. So we're focused on long-term capital generation. To loosen that, you'd need to see on us outperformance, I'd say, over time in terms of pockets where you'd see that ROE hurdle perform better than you'd expect. And then we also run something called a weather vane test, and that's basically you take a small slice of customers who are going to perform below your 20% ROE hurdle, and we put just enough on that would allow us to read that group. And if you start to see that population moving upwards and performing above that 20% ROE hurdle, that's when you start to look at, you know, is it time for us to make moves? But unfortunately, it's not going to be something that you see externally in the environment where you're going to say, OK, you know, we now think the future is going to be better. It's going to be something that we're likely to see on us. But overall, we've seen pretty good growth. So I would also say I don't think there is the need or the pressure to think about credit right now because I think we've found so many other ways for us to think about growth.

Got it. So where do you see the greatest opportunities to accelerate growth without taking any incremental risk?

So we have that 6% to 9% managed receivables guide. I think we feel pretty good about that growth. Again, for us, growth is an outcome. Our consumer loan originations this past quarter was a 10% year over year, so I think quite good. Accounts was 44%. So really, you're seeing that impact from the credit card from a smaller line, having more accounts. And you're also seeing the acceleration of those newer products. In auto, you're seeing just we can get very good growth with just new geographies, new dealers, new partnerships. It's very much a, you know, for those of you who follow other auto companies, it's very much a grinded out business. You're looking, but there's so much opportunity. I think we're coming off of a smaller base. In cards, it's really about the product mix that you're changing, some of what we're doing in terms of growing with our best customers. It's how we attract and find new customers. I think, again, we're growing off of such a small base that there's just so much more that we have in the pipeline to do to grow. And then in loans, I really think what you're seeing now are the fruits of our labor that we put in back a year ago or a year and a half ago to do tests. And the three things I'd call out are, you know, we have this new home-fixtured secured product that we're still rolling out that allows folks who have a home to get the advantage of a secured product. Then you have debt consolidation, which is a product we've had for a long time, but we've really re-envisioned how we market it and how we connect it and how we interact with the folks that we're paying off. So that's become much more digital, and we've seen a lot of success there. And then we're also seeing bank data, which, you know, I think folks have been talking about for many years, but we're really seeing it, and it allows you to think about the offer that you're making to your customers and to really look at them in a different way. So I think we're feeling very, very good about growth, and it's a good reminder that you always have to invest, and I think of it almost like an R&D arm of what we have in the background to make sure that we feel good about the future.

Got it. That's helpful. so with your portfolio cards have grown meaningfully and they've become that segment's become profitable this year auto continues to grow as well how have these product lines developed compared to your initial expectations particularly around credit and also return profiles and then longer term what are your expectations for each of those let me let me start with card um in card we started in uh it was august 2021 and we did this initial test and we said oh we want to be very mindful that we get a good read on the customer and i think we're very very glad

that we did and we were very glad we did it in that moment in time because i think it was actually quite lucky because we were able to see that there was something happening in the in the card market and we were able to adjust before we really opened up and put a lot of these accounts on our book. So I think that was both deliberate and a little bit of luck. But obviously, if you look at what's happened, we were able to set up this card in a moment when the economy has been okay. I would not say it's been a great grade. And so now we're finally at this place where I think we're feeling very good about our card product. You've got 17.7% losses in the second quarter. You've got line of sight to getting within your 15% to 17% range. I talked about our 33% revenue yield. As you scale a card, you start to get cost improvements. Really feeling quite good about that team. 1.4 million customers on a $1 billion portfolio. So it's really all coming in line. We sometimes call it a teenager. I think we may be moving into our early 20s here. You know, it just feels like it's all coming together. And I think we're feeling very good about the card. It may have been taking a little bit more of a moment to get there, but I'm sure happy we stuck with it to get through to get through that auto. we started in 2020. We started auto on us with independent dealers. So think of when you look at a dealership and you see multiple types of cars on their lot. We're going into those dealers, into those independent dealers and doing direct lending with them. We started there. And then in April of 2024, we bought an auto company called Foresight based out of Utah. Today, we've got this $3 billion portfolio. It's performing very well. It's performing better than the industry. I think we're feeling very good about it. Now, it's really focused on what I talked about before, which is geographic expansion, new dealers, making sure you're really looking at how your sales team is performing, looking at our analytics. How can we improve based on what we already know about this customer set? So, auto is a really interesting business. It's a little less volatile. It also comes with slightly lower returns. I think we like the balance that these two new products give us for the long term and really think it just opens a whole new world. I think before OneMain had about a $1.3 billion total addressable market, and now we are looking at an over $1 trillion total addressable market. So it's sort of changed the whole game in terms of where we're playing.

Got it. And maybe just stepping back, are you seeing any evidence that, you know, card and auto are just becoming more valuable to the franchise, either through higher retention, lower acquisition costs, or even greater product cross-sell?

You know, having four million customers across all three businesses, you know, there was a while there where we were sort of at a steady, steady state of about two and a half million customers. So it does start to feel like you have this new opportunity. We really do run each of these products individually to make sure they are individually profitable. And then over time, explore the value of the customer base across products. I think the most valuable cross-buy opportunity for us will be having a customer start with a transactional card product, getting to know them. Usually you start with a lower FICO, smaller line, you get to know them. Then when they have this sort of, you know, a loan product is much more episodic. When they have that need, then you can find them in the app because, you know, they're going into the app regularly. And that allows you to basically acquire a personal loan customer at about a quarter of the cost of what it would take to acquire them on the open market. So there's real value in that um i think it's something that we're exploring over time but again each of these you've got to grow the you've got to grow the card business first before you can do the work on the cross buy so i think it's really this um something that we focus on a lot which is how do you drive value in the near term while also thinking about the long term and it's something we'll be focused on got it and i guess like speaking of long term do you have a target product mix over time?

And also any new products that you may be interested in launching?

Target product mix. You know, really, I'd say we focus on returns and the product mix comes after, similar to how we've talked about growth. That said, I can tell you, you know, today we're about 85% in terms of personal loans as a percentage of the portfolio. If I look forward in the medium term, let's say three to five years, maybe that 85% becomes 75%, but this company is still going to be driven by personal loans. I think cards and auto will become a greater piece of the pie, but I still think personal loans will be pretty dominant. Never say never. I think we'll always look at products and we're always thinking about our customers and looking at what they're doing and what their needs are. But at its core, OneMain is a pretty focused company. We really try to make decisions very quickly and really prioritize where we're going to put our effort, our time, and our energy. And so I would say, you know, never say never. We'll look at potential other products. But for now, I think you guys have a pretty good sense of our strategy.

Okay. That makes sense. So I want to touch on competition today. How would you characterize the competitive environment? Are competitors behaving rationally from a pricing and underwriting perspective? And how has demand for credit evolved relative to, let's say, six months ago?

Yeah, it's an interesting one because I think we've seen, you know, demand for non-prime has been pretty steady. There was a period in 2021, 2022, when you started to see folks really give outside offers, really reach for customers, and you saw some irrational behavior. We are not seeing that right now. From what we're seeing, and it's something we monitor very closely. We're seeing pretty rational behavior. We're seeing, you know, no sense of major, major competition. Again, I think we've been putting so much effort into how can we attract customers in new and different ways. That's really been what's driving our growth. We're quite happy with where growth is, but I don't think we see any sort of irrational competition right now. got it and maybe just double clicking a little bit like how are the fintechs behaving versus the traditional balance sheet lenders any differences in competitive intensity you know it's always good to be mindful that you're on the same playing board but you're playing different games right but and i'd say you know what we've learned is we really focus on returns and we really stick to our knitting and you know other folks may be focused on growth because that's what they're valued on or focused on building a long-term cross-buy opportunity. I think you've got to remember they can play their game. You've got to play yours. But I haven't seen any major shifts in either of these two bases right now in what we're seeing.

Okay. That's helpful. Just to switch gears, do you have any updates that you can share on the state AG lawsuit, and then anything else related to regulation you were paying attention to?

I'm always paying attention to regulation. I don't have an update on the state AG lawsuit. There is a statement posted on our website. We obviously think that the claims are without merit, and we think it is, there are issues that they're looking at that were already reviewed by the CFPB when they came in in 2023. So really nothing to comment on there. But, you know, always really mindful of state and local regulation and watching what's happening, but nothing of notice.

Got it. Okay, so maybe just touching on capital returns. It's remained pretty strong with $137 million of repurchases and over $200 million of dividends year-to-date. Looking ahead, how should investors think about, you know, balancing loan growth, dividends, share repurchases, and any future investment strategic initiatives?

You know, we've talked a lot about profitable growth. I think for us, you're going to focus first and foremost on when you see opportunities to grow, you're going to put that back into the business. So that's where you'll start. And then there's also investments that we're making for the future. So that can be investments in our technology and analytics, in our new products, so in cards or in auto. So we'll also look at those at where we think we need to make investments. Then, you know, our dividend coverage, it's around 7% right now. It's pretty healthy. We'll look at inorganic opportunities. That's always an option for us. But I would say, you know, in the absence of, you know, what's left over, you should expect would largely go to share repurchase. I think you've started to see a little bit of a shift there. We think it's really attractive right now. So I think that it's pretty much par for the course. You'll continue to see that as we look forward.

Got it. I want to talk about rate hikes slash cuts real quick. I think coming into this year, we were expecting three cuts. Now we're potentially expecting three hikes. How is the balance sheet positioned, and what's the kind of impact from the new kind of forward curve?

You know, I think we've, if there's something to be proud of at one minute, to lend money, we need to borrow money. And I think we do that quite well. We've got these staggered maturities. We've really had a long-term staggered maturity strategy where we have both ABS and high yield. And so I think that strategy will really pay off. We've been through, you know, a rate hike type environment where I think we've seen some of what, you know, that preparation really pay off and insulate us from some of the immediate hikes. I think for us, that's something, you know, we'll be mindful of. But we build these relationships for the long term. We think we've got really good ability to access capital. We've really good access to the capital markets, a great team. And so I think, you know, as we look ahead, we're obviously watching this piece, but I think we're sitting in a pretty good spot. Okay.

About five, six minutes left. I'll open it up to any questions from the audience. Okay. No questions. So I'll keep going. So you've previously talked about investments in AI and technology, and we've already seen some benefits like higher recoveries.

So looking ahead, where do you see the biggest opportunities for technology to create value, whether it's through credit outcomes, operating efficiency, growth, or customer experience? um you know i think here this is one where we're we're both excited about these opportunities but we're also mindful of you know this is an area where you want to uh drive and lead but you also want to be very protective of your data and make sure you have very very good governance um if i look at some of the the places where we'll focus tech and development it's such an obvious area to focus on, but it's really one where we're embedding AI into our development, looking for improvements in efficiency and also, frankly, effectiveness. How can we be better at what we do? How can we be faster in what we do? Then we're also looking at team member productivity. I think we've mentioned this before, but one example of what we have is something called OneAdvisor. It basically allows our team members access to information where they can find what they need at their fingertips more easily. It used to be you had to go into whether if it was online, it was in a specific folder. You'd have to go ask somebody which folder it was in to find it. And now you can just you get this very easy to find pieces of information. We're finding our team members. About half of them are using it regularly. and, you know, you're seeing a large number of pings on one advisor every day. We're also looking across the company. I mean, you can take finance as an example. We're looking at opportunities. Where can we leverage AI to help us do work, whether it's faster or better? And I think I'm most excited about the better. How can we make our modeling even better? But we're looking across all our functions at how we can do that. But, you know, I'm very mindful. I also want to make sure I get a return for that investment. So there's a lot of ideas out there. You have to make sure that those ideas are really backed by a return and where, you know, where you think you're going to be able to get that back. And so very mindful of that. And then the last, I mean, the investment that you also have to make in making sure that all of this is happening in an environment that's well-governed and you feel very comfortable about is really, really important. And so that's another piece that we're quite focused on. But it's pretty exciting. I know everybody's excited about AI. I think we are too, but I think we're also quite mindful with how we're putting it in place.

Got it. So just about two or three minutes left. Maybe just in closing, what's the key message that investors should be taking away from this presentation? What do you think the market may be underappreciating about the one main story? And what gets you most excited about the story going forward?

I mean, you know, I think we've been around for our customers for a very long time. We're very focused on serving this customer base. And I think there's, you know, I expect for there to be a lot of demand for credit in any macro environment going forward. And I think we're really well positioned. I talked about, you know, the branch plus digital plus central for the go forward. I think there's just so much opportunity there. Plus, we've got these newer products, so I think there's some exciting new pieces. And I also just think we're hyper-focused in terms of how we're doing this. So I think it's a pretty exciting time to be at OneMain or to invest in OneMain. I think we've got a pretty bright future. And so I think we're all just very excited to move forward in any environment.

Okay, great. I think with that, we'll end it on a positive note.

Thank you so much, Terry.