Q3 2023 OneMain Holdings Inc Earnings Call

Yeah.

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We ask that you. Please continue to stand by your conference will begin momentarily.

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Good day and welcome to the Onemain financial third quarter 2023 earnings conference call and webcast.

Hosting the call today from Onemain is Peter <unk> 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 opened 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.

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 question and please pick up your handset to allow 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 <unk>.

You may begin.

Thank you operator, good morning, everyone and thank you for joining us.

Let me begin by directing you to page to the third quarter 2023, 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 our website.

Our discussion today will contain certain forward looking statements, reflecting management's current beliefs about the company's future financial performance and business prospects and these forward looking statements are subject to inherent risks and uncertainties and speak only as of today.

Actors 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 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 October 25th 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 Micah Conrad our Chief Financial Officer.

After the conclusion of our formal remarks, we will conduct a question and answer session.

Now turn the call over to Doug.

Thanks, Pete and good morning, everyone and thank you all for joining us today.

Today I'll cover our results for the quarter as well as some of our strategic priorities.

I'll start by saying that I'm really pleased with the results of the quarter, especially in light of the current economic environment.

Capital generation, the key metric against which we measure financial performance and manage our business.

$232 million up $40 million from last quarter.

Demand for our loan products remained strong.

Our originations totaled $3 $3 billion ahead of our expectations considering the major credit tightening we did a year ago and the continued tightening we've done this year.

Receivables are up 7% year over year as we continue to underwrite high quality loans that we expect will be profitable, even if the macroeconomic environment worsens.

Two thirds of our new customer originations during the quarter were in our top two risk grades. This speaks to our excellent competitive positioning where even with a tight credit posture, we are able to grow receivables by making loans to lower risk customers.

At quarter end, we had 2.8 million customers up from about 2.3 million just two years ago, and we are well positioned to do more business with our customers over time.

Our 30 to 89 delinquency rate finished the quarter at $2, 98% up 22 basis points from the second quarter.

In line with normal seasonal trends for context delinquency increased 21 basis points and 15 basis points from second quarter to third quarter in 2018 and 2019, respectively.

Loan net charge offs in the quarter were six 7% down seasonally from seven 6% in the second quarter and in line with our expectations.

Loans originated after our major credit tightening in August 2022, which we referred to as the front book now represent about 59% of our total portfolio and should represent about two thirds of our portfolio by year end.

We are confident that as our post tightening vintages.

<unk> to grow in proportion to the total portfolio, our overall credit performance will improve over time.

As we've discussed previously that portion of our portfolio originate it before our credit tightening actions, which we call. Our back book continues to impact overall performance.

Despite unemployment levels.

At near Historic lows, and our average customer income being up since the onset of the pandemic. There are some customers that continue to struggle with higher costs.

We remain highly focused on supporting those customers.

Hallmark of our business is being there for customers when they need us and that philosophy is a cornerstone to our businesses resiliency and to shareholder value creation through the cycle.

This quarter once again, we demonstrated our deep access to capital markets by issuing the largest ABS transaction and one maintenance history, we raised nearly $3 $5 billion of funding so far in 2023.

And our strong balance sheet excellent liquidity and deep access to capital markets remains a key competitive advantage for onemain.

Turning now to our strategic initiatives as I mentioned, our customer base continues to grow and our new products and secured distribution channels are a key driver of that growth importantly.

Importantly credit performance from these products has been strong.

Our conviction has never been higher about the ability of these products to meet the needs of.

And deepen the relationships with our customers and to drive profitable growth in the years ahead.

Key metrics for our bright way credit cards, including spending categories utilization rate digital customer engagement and importantly credit performance are encouraging.

We're continuing our rollout of cards, albeit at a slower pace than we expected at the beginning of the year with a watchful eye on the macroeconomic environment.

Quarter end, we had roughly 340000 card customers and $232 million of card receivables.

We remain very disciplined in the rollout of this product, including focusing on lower credit limits and the increasing pricing where appropriate.

The bright white card is attractive to our customers.

It offers a digital first experience and it rewards our customers for positive credit behavior.

We are starting to see the first class of bright way customers graduate to our bright weight plus card after achieving 24 months of on time monthly payments not only have these customers enjoyed the benefits of a lower APR or higher credit.

Wine for each previous six month period of on time payments.

They now move to a no annual fee card and the potential to receive even more benefits if they continue to exhibit positive credit behaviors.

This graduation is an important milestone because it shows that the concept of payment equals progress is not just an idea it's a reality and it helps customers improve their financial wellbeing.

We also continue to build and grow our portfolio of secured loans sourced at the point of purchase through a growing network of independent auto dealerships.

These loans are subject to our rigorous underwriting standards and credit performance has been excellent far better than comparative industry performance.

Super Bowls from these distribution channels totaled more than $650 million today, and we plan to continue to build our auto purchase lending program in a disciplined way.

We also continue to help our customers improve their financial wellbeing with trim by Onemain.

Our financial wellness platform that helps our customers negotiate bills manage subscriptions track transactions and more of these.

These financial wellness tools provide real economic value to our customers and allow us to deepen our relationship and build loyalty with them.

I'll close by briefly touching on capital allocation.

Our strategy is unchanged our top priority is investing in the business to drive profitable growth.

This quarter, we grew our receivables by $572 million invested in our new products and channels and in digital capabilities that improve the customer experience and further advance our competitive positioning.

Our $4 per share annual dividend translates into a yield in excess of 10% at our current share price and consistent with the last few quarters. We've maintained our cautious stance on share repurchases given our desire to maintain strategic optionality.

We repurchased about 270000 shares of our stock for $11 million in the quarter with that let me turn the call over to Micah.

Thanks, Doug and good morning, everyone.

Our third quarter financial performance was highlighted by solid receivables growth, even with our ongoing efforts to prioritize higher quality originations.

We once again saw a typical seasonal patterns in our portfolio delinquency and our post tightening originations continued to perform well.

We also advanced our funding objectives with a $1 4 billion ABS transaction the largest in our history.

We continue to successfully navigate the current environment and we are confident that our competitive positioning and our strategy will continue to deliver strong results.

Third quarter, net income was $194 million or $1 61 per diluted share up.

Up 8% from $1.49 per diluted share in the third quarter of 2022.

C&I adjusted net income was $189 million or $1 57 per diluted share up 5% from $1.49 per diluted share in the prior year quarter.

Capital generation was $232 million for the quarter compared to $280 million a year ago, reflecting the impacts of the current macro environment on yield interest expense and net charge offs.

Managed receivables finished the third quarter, just shy of $22 billion up one 5 billion or 7% from a year ago.

Demand remains strong and our growth has been further supported by a constructive competitive environment.

We remain focused on generating higher quality loan business from our top two risk grades and we continue to see significant contributions from our new products and distribution channels.

Approximately one third of our year over year receivables growth came from our strategic investments in secured distribution channels and the break we had credit cards.

We expect full year receivables growth of around 7% at the higher end of our July estimate of 5% to 8%.

Third quarter interest income was $1 $2 billion up 4% year over year.

Yield was flat to the prior quarter at 22, 2%, reflecting the ongoing impact of higher delinquency levels borrower payment assistance and the strong originations in our secured distribution channels, which have lower pricing than our core loans.

Throughout this year, we've been increasing pricing and select loan segments, which has generated an overall increase to our blended APR of over 100 basis points since early June.

Unknown Attendee: To all friends on hold we do appreciate your patience in holding. We ask that you please continue to stand by.

Peter Poillon: Your conference will begin main financial third quarter 2023 earning conference call and webcast. Posting the call today from one main 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.

It will take some time for pricing on new loans to have a meaningful impact on our portfolio yield.

For this quarter, our pricing actions are helping to offset the impacts from seasonal increases in 90 plus delinquency.

Overtime and absent any major changes in the macroeconomic environment. We expect the combination of these price increases and the lower delinquency in our recent originations to increase yield.

Interest expense for the quarter was $265 million up $44 million versus the prior year, primarily from an increase in average debt to support receivables growth as well as modestly higher average cost.

Interest expense as a percentage of receivables was 5.0% in the corner.

Keep in mind the interest expense this quarter was impacted by a $1 $4 billion of August ABS issuance, and the resulting excess cash on our balance sheet.

Adjusting for this impact interest expense would have been closer to four 8%.

<unk> to four 5% a year ago.

Despite what has been an historic increase in benchmark rates, we've seen more gradual increases in our interest expense because of our diversified fixed rate and long duration funding strategy.

Other revenue was $182 million up $17 million or 10% from the prior year quarter.

The increase was primarily driven by our excess cash balances as well as the higher yield we are earning on that cash.

Provision expense was $410 million, including net charge offs of $353 million and a $57 million increase to our allowance, which was entirely driven by receivables growth.

Peter Poillon: 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 question and please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero.

Our allowance ratio was essentially flat to the second quarter and continues to reflect a cautious view of the future macroeconomic environment.

Finally, policyholder benefits and claims expense for the quarter was $48 million compared to $35 million in the third quarter of 2022.

Peter Poillon: It is now my pleasure to turn the floor over to Peter Poillon. You may begin. Thank you, operator. Good morning, everyone, and thank you for joining us.

Prior year period included nonrecurring reserve adjustments relating to improvements in claims experience, mainly in our credit life product.

$45 million to $50 million per quarter as a more normal level for our claims expense as we've seen throughout the year.

Peter Poillon: Let me begin by directing you to page two of the third quarter, 2023 Investor Presentation, which contains important disclosures concerning forward-looking statements in the use of non-GAP measures. The presentation can be found in the Investor Relations section of our website. Our discussion today will contain certain forward-looking statements reflecting management's current beliefs about the company's future, financial performance, and business prospects. And these forward-looking statements are subject to inherent risks and uncertainties and speak only as of today. Factors that could cause actual results to differ materially from these forward-looking statements are set forth in our earnings press release. We caution you not to place undue reliance on forward-looking statements.

Let's now turn to the C&I credit trends highlighted on slide eight.

While net charge offs for the quarter were six 7%.

We continue to see strong recoveries at one 2% this quarter and while well above pre pandemic levels of 0.8% to 0.9% recoveries were a bit lower than the prior two quarters due to the timing of charged off loan sales.

We expect full year 2023, net charge offs to be approximately seven 4%.

30 to 89 delinquency was 298% and 90 plus delinquency finished the quarter at 257%.

Peter Poillon: 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, October 25th, and have not been updated subsequent to this call. Our call this morning will include formal remarks from Doug Schoenman, our Chairman and Chief Executive Officer, and Mike at Conrad or Chief Financial Officer.

Both delinquency measures continued to track in line with normal seasonal patterns and remained 25% to 30% higher than pre pandemic levels driven by the delinquency of our back book specifically those loans written prior to our August 2022 credit tightening.

Peter Poillon: After the conclusion of our formal remarks, we will conduct a question in answer session.

We expect to see improvements in delinquency overtime as the better performing front book continues to grow.

Doug Schoenman: I'd like to now turn the call over to Doug. Thanks, Pete, and good morning, everyone, and thank you all for joining us today. Today I'll cover our results for the quarter, as well as some of our strategic priorities. I'll start by saying that I'm really pleased with the results of the quarter, especially in light of the current economic environment. Capital generation, the key metric against which we measure financial performance and manage our business, was $232 million, up $40 million from last quarter.

Our front book accounted for 59% of our total portfolio at the end of the third quarter up from 50% a quarter ago.

This population of originations continues to perform in line with pre pandemic delinquency levels and is expected to represent approximately 65% of our portfolio by year end.

And about 75% by the middle of 2024.

Turning to slide 11.

C&I operating expenses were $373 million in the quarter up 4% year over year.

Our expense growth versus the prior year was entirely driven by strategic investments in technology and data science and growth in our new products and channels.

Doug Schoenman: Demand for our loan products remains strong. Our originations totaled $3.3 billion, ahead of our expectations considering the major credit tightening we did a year ago, and the continued tightening we've done this year. Receivables are up 7% year over year, as we continue to underwrite high-quality loans that we expect will be profitable, even if the macroeconomic environment worsens. Two-thirds of our new customer originations during the quarter were in our top two risk grades.

We continue to manage our operating expenses closely and remain focused on driving operating leverage even with those investments for the future.

Our opex ratio was six 8% in the third quarter and we now expect the full year to be approximately 7.0% an improvement from our previous estimate of seven 1%.

Let's now turn to slide 12.

One of our core strengths is our balance sheet management and our access to funding.

I noted earlier in August we completed the largest ABS transaction in our history.

Doug Schoenman: This speaks to our excellent competitive positioning, where even with a tight credit posture, we are able to grow receivables by making loans to lower risk customers. At quarter end, we had 2.8 million customers, up from about 2.3 million just two years ago, and we are well positioned to do more business with our customers over time. Our 30-89 delinquency rate finished the quarter at 2.98%. Up 22 basis points from the second quarter and in line with normal seasonal trends.

This $1 $4 billion three year revolving securitization priced at a blended rate of six 4%.

The issuance was substantially upsized into strong demand with three large anchor orders and a deepwater booked it included six new investors.

In September we redeemed $558 million or half of what remained on our March 2020 for our unsecured bond maturity.

You may recall the original maturity on this bond was one $3 billion.

This redemption and other market purchase of our bond we have strategically reduced this maturity to a much smaller size.

This proactive balance sheet and maturity management gives us issuance and cash flow flexibility going into 2024 with the remaining $558 million representing the only bullet maturity we have in 2024.

Doug Schoenman: For context, the link when see increased 21 basis points and 15 basis points from second quarter to third quarter in 2018 and 2019 respectively. Lone Net Charjobs in the quarter were 6.7%, down seasonally from 7.6% in the second quarter and in line with our expectations. Lone's originated after our major credit tightening in August 2022 which re-referred to as the front book now represent about 59% of our total portfolio and should represent about two-thirds of our portfolio by year end.

And even after this partial redemption, we had $1 $2 billion of cash remaining on our balance sheet at September 30th.

Our liquidity remains strong supported by $7 4 billion of Undrawn and committed bank facilities spread across 15, geographically diverse and well established financial institutions.

During the quarter, we renewed one of these relationships and our renewed nearly all of our bank lines since the beginning of last year, which will provide strong support for our liquidity position well into 2025.

With our current cash position and our Undrawn bank facilities, we remain well positioned to be selective as we look for windows of opportunity to access the markets going forward.

Doug Schoenman: We are confident that as our post tightening ventages continue to grow in proportion to the total portfolio, our overall credit performance will improve over time. As we discussed previously, that portion of our portfolio originated before our credit tightening actions, which we call our back book, continues to impact overall performance. Despite unemployment levels at near historic lows and our average customer income being up since the onset of the pandemic, there are some customers that continue to struggle with higher costs.

I'll wrap by quickly recapping, our expectations for full year 2023 weeks.

We expect receivables growth of around 7% driven by strong demand and contributions from new products and channels. We expect net charge offs to be approximately seven 4% and we expect our operating expense ratio to be about 7.0%.

I'd now like to turn the call back over to Doug.

Thanks, Mike.

I'm really proud of how our team is navigating 2023.

We are focused on executing the business today with a set of appropriate credit tightening actions and also ensuring we have a strong and conservative balance sheet.

Doug Schoenman: We remain highly focused on supporting those customers. A hallmark of our business is being there for customers when they need us. And that philosophy is a cornerstone to our businesses, resiliency, and to shareholder value creation through the cycle. This quarter, once again, we demonstrated our deep access to capital markets by issuing the largest ABS transaction in one main history. We raised nearly $3.5 billion of funding so far in 2023 and our strong balance sheet, excellent liquidity, and deep access to capital markets remains a key competitive advantage for one main.

But at the same time, we're building for the future with our credit cards secured distribution channels and digital capabilities, we feel great about our positioning and our ability to serve more customers with more products over time.

Let me end by thanking all of the Onemain team members for their dedication and passion. They bring to work every day to help hard working Americans improve their financial wellbeing with that let's open it up for questions.

The floor is now open for questions.

At this time, if you have a question or comment please press star one on your telephone keypad.

At any point. Your question is answered you may remove yourself from the queue by pressing star two.

Doug Schoenman: Turning now to our strategic initiatives, as I mentioned, our customer base continues to grow and our new products and secured distribution channels are a key driver of that growth. Importantly, credit performance from these products has been strong. Our conviction has never been higher about the availability of these products to meet the needs of and deepen the relationships with our customers and to drive profitable growth in the years ahead. Key metrics for our bright way credit cards, including spending categories, utilization rate, digital customer engagement, and importantly, credit performance are encouraging.

Again, we do ask that you limit yourself to one question and one follow up and to pick up your handset while you pose your questions to provide optimal sound quality.

Thank you.

Our first question comes from Michael Kaye with Wells Fargo. Please go ahead.

Hi, good morning.

Good morning, Jason.

Hi, good morning origination growth has been below our expectations its still running lower year over year that said.

Still seeing pretty healthy loan growth, but that seems more driven by lower payment rates, so how much longer.

Longer does the lower payment rates have to go to normalized putting aside the growth of credit cards. If this keeps up with core personal loan growth turn negative as we get closer to the payment rate normalization.

Doug Schoenman: We're continuing our roll-out of cards, albeit at a slower pace than we expected at the beginning of the year, with a watchful eye on the macro-economic environment. At quarter-end, we had roughly 340,000 card customers and 232 million dollars of card refievables. We remain very disciplined in the roll-out of this product, including focussion on lower credit limits and increasing pricing where appropriate. The bright-weight card is attractive to our customers because it offers a digital first experience and it rewards our customers for positive credit behavior.

Hey, good morning, Michael It's Mike I'll take that one.

We heard you heard in our prepared remarks, we continue to see strong demand in our originations we.

We continue to see a an accretive and constructive competitive environment. So you know as you also heard we've been really able to continue and actually increase the percentage of our originations that are coming from our top two tier risk grades were seeing some decent contributions from the <unk>.

Strategic investments we've made over the last couple of years in both are our distribution channels as well as our.

A credit card so we feel good about the growth.

We feel it's very disciplined growth as we've continued to focus on tightening credit.

Doug Schoenman: We are starting to see the first class of bright-weight customers graduate to our bright-weight plus card after achieving 24 months of on-time monthly payments. Not only have these customers enjoyed the benefits of a lower APR or higher credit line for each previous six-month period of on-time payments. They now move to a no-annual fee card and the potential to receive even more benefits if they continue to exhibit positive credit behaviors. This graduation is an important milestone because it shows that the concept of payment equals progress is not just an idea.

Throughout the year and picking our spots and make sure. We're writing loans that we have a high degree of confidence in will perform even even if we see some deterioration in the macro environment from here, but also as we talked about last quarter. The receivables have been supported by those lower early payoffs.

They are certainly.

Well below what we were seeing in 2021, which was really a function of government stimulus.

They'll just marginally below where they are in 2019.

We feel good about those payment trends.

We've talked about this before we think that's a sign of the competitive environment.

Most of almost 98% in fact of those early payoffs were not delinquent in the month before so these are customers that we we like to see retained on our balance sheet.

Doug Schoenman: It's a reality and it helps customers improve their financial well-being. We also continue to build and grow our portfolio of secured loans sourced at the point of purchase through a growing network of independent auto dealerships. These loans are subject to our rigorous underwriting standards and the credit performance has been excellent, far better than comparative industry performance. Receivables from these distribution channels total more than $650 million today and we plan to continue to build our auto purchase lending program in a disciplined way.

Okay.

The second question I wanted to talk a little bit about the Q4 net charge right no I understand it's a function of.

She is rolling through but just taking a step back why is it up so much quarter on quarter and it seems you know a higher quarter on a corner then you know what I observed from the Colgate quarterly trends.

It feels like there's been a change from your prior expectations I was looking over your prior comments on the Q1 earnings call and you said that.

That Ncos to fall in the mid to high 6% in the second half of this year.

Yeah. So I would say Michael we are still operating in an environment of continued higher levels of inflation and interest rates also impacting our consumers. So.

Doug Schoenman: We also continue to help our customers improve their financial well-being with trim by one main. Our financial wellness platform that helps our customers negotiate bills, manage subscriptions, track transactions and more. These financial wellness tools provide real economic value to our customers and allow us to deepen our relationship and build loyalty with them.

As you can see from some of the slides we put in our earnings deck as well we believe our performance continues to outperform peers.

But there's a lot going on within the book and the front book and the back book are as we've talked about before and we said in our prepared remarks. The front book is still performing in line with pre pandemic benchmarks every quarter that goes by that becomes a larger part of the portfolio.

Micah Conrad: We'll close by briefly touching on capital allocation. Our strategy has unchanged. Our top priority is investing in the business to drive profitable growth. This quarter we grow our receivables by $572 million. Invested in our new products and channels and in digital capabilities that improve the customer experience, then further advance our competitive position. Our $4 per share annual dividend translates into a yield in excess of 10% at our current share price. And, consistent with the last few quarters, we've maintained our cautious stance on share repurchases, given our desire to maintain strategic optionality. We repurchased about 270,000 shares of our stock for $11 million in the quarter.

But our back book continues to be the driver of delinquency.

And subsequently loss in our current portfolio.

So I think we when we first called this out at the beginning of the year.

An estimate its hard to do that at the beginning of the year for four quarters later, but we still feel good about where we are we're right within the range of where we expect it to be from a full year perspective, and giving you some of the multiples are.

Delinquency that have given.

Giving you the math over prior periods in the fourth quarter as well within the range of what we would expect to see from this quarter's 90 plus to next quarter's charge offs.

Okay. Thank you.

Thank you. Our next question comes from Kevin Barker with Piper Sandler. Please go ahead.

Good morning, Thanks for taking my questions I, just wanted to follow up on the credit.

Comments I noticed that the early stage delinquencies are turned slightly higher on a year over year basis up 18 basis.

Micah Conrad: With that, let me turn the call over to Micah. Thanks, Doug, and good morning everyone. Our third quarter financial performance was highlighted by solid receivables growth, even with our ongoing efforts to prioritize higher quality originations. We once again saw typical seasonal patterns in our portfolio delinquency and our post tightening originations continued to perform well.

<unk> points year over year versus four basis points last quarter.

What do you expect a little bit more improvement just given.

The tightening of underwriting you've done over the last year.

Could you just dig into that a little bit more on what youre seeing on the 2021 or 2022 vintages and whether they are.

Micah Conrad: We also advanced our funding objectives with a $1.4 billion ABS transaction, the largest in our history. We continue to successfully navigate the current environment, and we are confident that our competitive positioning and our strategy will continue to deliver strong results. Third quarter net income was $194 million, or $1.61 per diluted share, up 8% from $1.49 per diluted share in the third quarter of 2022. CNI adjusted net income was $189 million, or $1.57 per diluted share, up 5% from $1.49 per diluted share in the prior year quarter.

Performing in line with your expectations or was slightly worse.

Obviously, a lot of your competitors are seeing weakness, but love to see you dig into a little bit more on the vintage by vintage basis.

Yeah, Kevin So I think it's Mike again, the you know as we showed on page nine of our earnings presentation, and Doug talked about it a little bit as well.

The seasonal patterns, we're seeing in <unk> continue to be what I would call in line with what we saw pre pandemic, so 18 and 1930.

30, plus was down 35% and 45 basis points were down 25, and 30, plus and I think Doug talked a little bit about the 30 to 89 trends being very similar 2022. If you go back to that third quarter. I think you might remember we saw a pretty unusual.

Flattening of delinquency from second to third and that was coming off a more dramatic increase in the second quarter of 2022 than we were used to seeing so I think when you put those two quarters together last year, you would've seen something a little bit.

Micah Conrad: Capital generation was $232 million for the quarter compared to $280 million a year ago, reflecting the impacts of the current macro environment on yield, interest expense, and net charge offs. Managed receivables finished the third quarter just shy of $22 billion, up 1.5 billion, or 7% from a year ago. The man remains strong, and our growth has been further supported by a constructive competitive environment. We remain focused on generating higher quality loan business from our top two risk grades, and we continue to see significant contributions from our new products and distribution channels.

More muted if you will.

But I think.

Any any year is difficult to benchmark exactly and I think 22 becomes even more so given the dramatic amount of tightening we did in August of last year. So.

That's that part of that question I'll I'll address I think in terms of the front book and the back book and you know this whole this whole transition. It is it is slowing a bit that's just part of the nature of how these vintages and and the book will emerge.

Micah Conrad: Approximately one-third of our year-over-year receivables growth came from our strategic investments in secured distribution channels and the Breitway credit cards. We expect full year receivables growth of around 7% at the higher end of our July estimate of 5-8%. Third quarter interest income was $1.2 billion, up 4% year-over-year. The yield was flat to the prior quarter at 22.2%, reflecting the ongoing impacts of higher delinquency levels, borrower payment assistance, and the strong originations in our secured distribution channels, which have lower pricing than our core loans.

Grew by about front book grew by about nine percentage points this quarter we.

We would expect that to slow down a little bit I think we called out 65% end of year, so slowing down to about 7% growth.

And again it continues to perform in line with pre pandemic benchmarks.

We're very happy that that will continue to grow and we expect to see changes from that over time, but the back book I think it's also important to remember the back book is very very seasoned when I talk about the back book, it's sort of everything prior to that August tightening, including older loans. So it at this point even the.

Newest loan in that back book is 13 months old so.

Micah Conrad: Throughout this year, we've been increasing pricing in select loan segments, which has generated an overall increase to our blended APR of over 100 basis points since early June. We will take some time for pricing on new loans to have a meaningful impact on our portfolio yield, but for this quarter our pricing actions are helping to offset the impacts from seasonal increases in 90 plus delinquency. Over time, in absent any major changes in the macroeconomic environment, we expect the combination of these price increases and the lower delinquency in our recent originations to increase yield.

As a result of that the absolute delinquency in that back book is multiples higher than the delinquency in the front book just because of the seasoning Theres a lot of loans in the front book that are one month two months three months old etcetera, but as a result, you just get this difference in absolute delinquency levels, so small percentage.

Changes in the performance of that back book, which is still 41% of our portfolio can easily offset and are offsetting the positive impacts that we're seeing from front book growth. Good news is over time, we will continue to see growth in that current front book and we will anticipate that becomes a bigger driver of portfolio delinquency.

As we move forward.

Micah Conrad: Interest expense for the quarter was $265 million, up 44 million versus the prior year, primarily from an increase in average debt to support receivables growth, as well as modestly higher average cost. Interest expense as a percentage of receivables was 5.0% in the corner. Keep in mind, Interest expense to the quarter was impacted by our $1.4 billion August ABS issuance and the resulting excess cash on our balance sheet. Adjusting for this impact, Interest expense would have been closer to 4.8% compared to 4.5% a year ago.

Okay, and just to follow up on the front book comments.

Are your underwriting standards since August of last year.

Significantly tighter than what they were pre pandemic.

And is that front book performing in line with pre pandemic or better than pre pandemic.

Yes.

Kevin.

The front book is the underwriting standards are tighter, we put a level of stress and assumed extra level of stress in the event that.

There was a recession and the way our like customer lifetime value business models work as we assume certain interest rate with the length of a loan the type of loan whether it's secured or unsecured.

Micah Conrad: Despite what has been an historic increase in benchmark rates, we've seen more gradual increases in our interest expense because of our diversified fixed rate and long duration funding strategy. Other revenue was $182 million, up 17 million or 10% from the prior year quarter. The increase was primarily driven by our excess cash balances, as well as the higher yield we are earning on that cash. Provision expense was $410 million, including net charge-offs of $353 million and a $57 million increase to our allowance, which was entirely driven by receivables growth.

And then we also assume a certain amount of losses and so when we put extra stress on it all we mean is even if unemployment rises and losses go up it would still meet our 20% return on equity hurdles. So that's what extra extra stress mean, so it is tighter than prepaying.

When we didn't put an extra level of stress on with that said as Mike had mentioned before it's very hard to do apples to apples because the box is always being adjusted based on performance. We've seen in the last couple of months the algorithms, we put in place it et cetera.

Micah Conrad: Our allowance ratio was essentially flat to the second quarter and continues to reflect a cautious view of the future macroeconomic environment. Finally, policy holder benefits and claims expense for the quarter was $48 million, compared to $35 million in the third quarter of 2022. Prior year period included non-recurring reserve adjustments relating to improvements in claims experience mainly in our credit life product.

You know it is performing very similar the overall portfolio that were originating now to pre pandemic.

Micah Conrad: $45 to $50 million per quarter is a more normal level for our claims expense as we've seen throughout the year.

And we have the luxury of being able to craft a portfolio given the length of time, we'd been in the market our brand recognition and our distribution channels, our customer loyalty you know.

Both our credit box that we're super comfortable with as well as you know a nice pipeline of growth and that allows us to construct the loss profile that we're comfortable with and meets our return hurdles.

Micah Conrad: Let's now turn to the C&I credit trends highlighted on slide 8. Well net charge-offs for the quarter were 6.7%. We continued to see strong recoveries at 1.2% this quarter, and while well above pre-pandemic levels of 0.8 to 0.9% recoveries were a bit lower than the prior two quarters due to the timing of charged-off loan sales.

Thank you Doug Thank you Michael.

Okay. Thanks, Kevin.

Thank you. Our next question comes from Vincent <unk> with Stephens.

Hey, good morning, Thanks for taking my questions I want to dig in.

Hi.

Hey, good morning, I wanted to dig into the front book and back book dynamic.

Micah Conrad: We expect full-year 2023 net charge-offs to be approximately 7.4%. 30-89 delinquency was 2.98%, and 90-plus delinquency finished the quarter at 2.57%. Both delinquency measures continued to track in line with normal seasonal patterns and remain 25-30% higher than pre-pandemic levels. Criminals, driven by the delinquency of our back book, specifically those loans written prior to our August 2022 credit tightening.

In more detail.

The.

So.

13 months, having passed since the since that August.

August 2022.

Update.

I guess the loss of stuff, we're seeing apply to the fourth quarter net charge offs.

Is that I guess being driven by the loss of merchants since we're kind of in the meat of that Oh, what typically happened with a kind of a 12 month loss emergence cycle and then is there a way to.

Break out sort of how youre thinking about a credit allowance for your blended portfolio. So you have that versus like once you're.

Micah Conrad: We expect to see improvements in delinquency over time as the better performing front book continues to grow. Our front book accounted for 59% of our total portfolio at the end of the third quarter, up from 50% a quarter ago. This population of originations continues to perform in line with pre-pandemic delinquency levels and is expected to represent approximately 65% of our portfolio by year end and about 75% by the middle of 2024.

Once the book, it's primarily.

The new origination front book originations. Thank you.

Yeah.

Let me, let me try to unpack that a little bit Vincent This is Mike I think.

The fourth quarter losses are going to come from 30 to 89 delinquency that happened in the second quarter or third quarter losses are going to come from 30 to 89 that occurred in the first quarter of this year. So.

Micah Conrad: Turning to slide 11, CNI operating expenses were 373 million in the quarter, up 4% year over year. Our expense growth versus the prior year was entirely driven by strategic investments in technology and data science and growth in our new products and channels. We continue to manage our operating expenses closely and remain focused on driving operating leverage even with those investments for the future.

The vast majority of that 30 to 89 emerging to loss now and in the fourth and then the fourth quarter will have come from a lot of pre tightening vintages. It just takes some time.

For you know those are supposed to particularly for losses for the new book to become a larger part of that so.

That's piece one I think.

Asked about just sort of the the front and back book in terms of reserves.

Micah Conrad: Our OPEX ratio was 6.8% in the third quarter and we now expect the full year to be approximately 7.0%. An improvement from our previous estimate of 7.1%.

Losses.

I think in terms of the reserves you know we've we've got.

A reserve model that really is focused and built around delinquency buckets. So you know while our vintages are certainly a part of that we use vintages for back testing and model validation not necessarily <unk>.

Micah Conrad: Let's now turn to slide 12. One of our core strengths is our balance sheet management and our access to funding. As I noted earlier, in August we completed the largest ABS transaction in our history. This $1.4 billion three year revolving scuritization priced at a blended rate of 6.4%. The issuance was substantially upsized into strong demand with three large anchor orders and a deep order book that included six new investors. In September, we redeemed 558 million or half of what remained on our March 2024 unsecured bond maturity.

<unk> the model directly from those vintage expectations, but what.

What we do in our reserving is large we look at delinquency buckets, and we look at the roll rates historically, and the expected roll rates and performance of those delinquency buckets as they emerge into loss.

By virtue of front, the front book, becoming a larger part of the portfolio.

We of course, we will see those have a lower level of delinquency as we've called out so that will influence our loss reserves and you know.

Micah Conrad: You may recall the original maturity on this bond was $1.3 billion. Through this redemption and other market purchase about bond, we have strategically reduced this maturity to a much smaller size. This proactive balance sheet and maturity management gives us issuance and cash flow flexibility going into 2024 with the remaining 558 million representing the only bullet maturity we have in 2024. And even after this partial redemption, we had $1.2 billion of cash remaining on our balance sheet at September 30th.

Again on the back book with the back book being very seasoned with a higher level of delinquency than that front book, we're going to have naturally higher reserves on that book because of the delinquent stock and so the two things are kind of right now sort of mixing into our reserves and of course, we also have macro overlays in there as we've talked about.

Before with expected unemployment four 5% to 5%. So yeah, we would expect to see as the back the front book becomes a larger part of the portfolio are those reserves will start to be impacted more so by that front book as time goes on.

Micah Conrad: Our liquidity remains strong supported by $7.4 billion of undrawn and committed bank facilities spread across 15 geographically diverse and well-established financial institutions. During the quarter, we renewed one of these relationships and have renewed nearly all of our bank lines since the beginning of last year, which will provide strong support for our liquidity position well into 2025.

Did I I think you had a third question in there.

Did I hit what you were looking for yes.

Yeah, I think that's it.

That's helpful. I mean, I guess, presumably the mid 2020 fours with the front book being 75% of that that.

All else equals that reserve rate would be would.

It would be lower at that time.

Interpreting that because of the lower losses, and lower delinquencies and losses with the front book.

Micah Conrad: With our current cash position and our undrawn bank facilities, we remain well positioned to be selective as we look for windows of opportunity to access the markets going false.

Yeah, I mean, I think that's a that's a decent general expectation you know there's a lot of things that will go on between now and the middle of 2024 with the macro environment, We got to see how the back book continues to perform.

Micah Conrad: Award. I'll wrap by quickly recapping our expectations for full year 2023. We expect receivables growth of around 7 percent driven by strong demand and contributions from new products and channels. We expect net charge-offs to be approximately 7.4 percent, and we expect our operating expense ratio to be about 7.0 percent.

And does the front book continued to perform like we expected it be so a lot out there I don't want to commit to.

Any any any particular number but I think your hypothesis is sound.

Okay, great. Thanks, Thanks for that very helpful.

And then second question separately on the auto purchase lending program that $650 million. So it isn't just good to see the growth there I know broadly.

Doug Schoenman: I'd now like to turn the call back over to Doug. Thanks, Micah.

Doug Schoenman: I'm really proud of how our team is navigating 2023. We are focused on executing the business today with a set of appropriate credit-tightening actions and also ensuring we have a strong and conservative balance sheet. But at the same time, we're building for the future with our credit cards, secured distribution channels, and digital capabilities. We feel great about our positioning and our ability to serve more customers with more products over time.

With the pure auto lenders that I cover that it's been sort of volatile in some some banks for instance, FX into that space.

Volatility there and so I'm wondering if you could talk about your thoughts about that market and the opportunities that youre seeing where you can beat in that and grow that program. Thank you.

Yeah, no thanks for that.

I guess a couple of things one is.

We've been in the secured lending business for many many years about half of our book is secured by an auto so we actually know that the business of making loans against auto as a collateral very well you know we understand underwriting pricing perfecting <unk>.

Doug Schoenman: Let me end by thanking all of the OneMain team members for the dedication and passion they bring to work every day to help hard-working Americans improve their financial well-being.

Leanne collateral management all of all of those pieces a few years ago. I mentioned, we started to expand our secure distribution channels, mostly through dealer track, which as we signed up to a platform that's hooked into a lot of auto dealers they would send off potential.

Unknown Attendee: With that, let's open it up for questions. The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we do ask that you limit yourself to one question and one's follow-up and to pick up your handset while you pose your question to provide optimal sound quality. Thank you.

Loans to make for it and auto and we started to inch our way into the market, which we viewed is that just a separate.

Distribution.

Channel.

When those auto.

Michael Kaye: Our first question comes from Michael Kaye with Wells Fargo. Please go ahead. All right. Good morning. Hi. Good morning.

Potential loan for an auto purchase comes to us.

We do are a very similar disciplined underwriting that we do when we make an installment loan secured by an auto. So you know first we put the 30% extra stress on there and so we've run a very tight credit box since.

Doug Schoenman: A origination growth has been below our expectations. It's still running lower year over year. That said, you're still seeing pretty healthy, long growth. But that seems more driven by lower payment rates. So how much longer does the lower payment rates have to go to normalize? Putting aside the growth of credit cards, if this keeps up, could core personal long growth turn negative as we get closer to the payment rate normalization? Hey. Good morning, Michael.

August 2022.

We also work very closely and directly with the customers. So we get on the phone with a customer we talk them through their loan they're loan size, what they can afford and what their net disposable income and so we have a very hands on approach.

Doug Schoenman: Let's make a update that one. You know, as we heard in our prepared remarks, we continue to see strong demand in our originations. We continue to see an creative and constructive competitive environment. So, you know, as you also heard, we've been really able to continue and actually increase the percentage of our originations that are coming from our top two tier risk grades. We're seeing some decent contributions from the strategic investments we've made over the couple of years in both our distribution channels as well as our credit cards.

Similar to our core business and as a result, because we are going slow we have tight underwriting standards and we're more hands on in the lending process than your typical indirect auto.

Auto lender, we've seen really good credit results and so you know roughly this is up five or 600 billion dollar market and we've got under a 1 billion of receivables. So there's plenty of opportunity for us to in a very slow measured way adds important portfolio growth through this channel with <unk>.

Doug Schoenman: So, you know, we feel good about the growth. We feel it's very disciplined growth as we've continued to focus on tightening credit throughout the year and picking our spots and make sure we're writing loans that we have a high degree of confidence in, we'll perform even if we see some deterioration in the macro environment from here. But also, as we talked about last quarter, the receivables have been supported by those lower early payoffs.

Loans that we like a lot. So we're very bullish on it we think it's a.

Great opportunity.

For us, but we're also very cautious and disciplined in how we build this out.

Okay, great very helpful. Thanks, so much.

Sure. Thanks Vincent.

Thank you. Our next question will come from Erin <unk> with Citi. Please go ahead.

Doug Schoenman: They are certainly well below what we were seeing in 2021, which was really a function of government stimulus. Still, just marginally below where they are in 2019. But, you know, we feel good about those payment trends. You know, we've talked about this before. We think that's a sign of the competitive environment. Most of almost 98 percent, in fact, of those early payoffs were not the link went in the month before. So, these are customers that we like to see retained on our our balance sheet.

Thanks.

Wondering if you could talk a little bit about the competitive environment and you know.

It had kind of moved in your favor when.

It was a little bit more difficult to finance or are you still seeing them.

Unknown Attendee: Okay.

A better inflow of opportunities relative to where you were a few quarters back.

Yeah look it remains a very constructive combative environment for US ballot, you know our strong balance sheet and our access to funding and having plenty of liquidity. So we can make the loans that meet our return profile clearly stands us in good stead and I think the fact that we.

Micah Conrad: The second question I wanted to talk a little bit about on the Q4 net charge rate. You know, I understand it's a function of, you know, the Qs rolling through, but just taking a step back, why is it up so much quarter on quarter? And it seems, you know, higher quarter on quarter than, you know, what I've observed, you know, from the pre-COVID quarterly trends. It just feels like there's been a change from your prior expectations.

<unk> never had to pull out because of funding constraints and our consistency of our brand in the market for customers is an important part of that.

As you've seen from our results even with a much tighter credit posture than we had a year ago, we're still having nice origination growth, which speaks to a good competitive environment. We also have been able to take some pricing actions and we're still able to book lower risk customer.

Micah Conrad: I was looking over your prior comments from the Q1 earnings core and you said that expected NCOs to fall in the mid to high 6% in the second half of this year. Yeah, so I would say, Michael, we are still operating an environment of continued higher levels of inflation. And the interest rates also impacting our consumers. So, as you can see, from some of the slides, we put in our earnings deck as well.

<unk> at a higher price and so we like the competitive environment.

Competitors ebb and flow of how much there in the market and we've got a pretty broad competitor set and.

Micah Conrad: We believe our performance continues to outperform peers. But there's a lot going on within the book and the front book and the back book, as we've talked about before, and we said in our prepared remarks, the front book is still performing in line with pre-pandemic benchmarks every quarter that goes by. That becomes a larger part of the portfolio. But our back book continues to be the driver of delinquency and subsequently lost in our current portfolio.

So you know competitors arent as funding constrained now adds they were yeah 16 months ago, but in general it's still a very constructive environment for us.

And thanks, and then on the.

Flow sales that you make are you still selling around $180 million a quarter in which the demand for.

For whole loans that you're seeing right now.

Yeah, Aaron right now, but 135 per quarter you remember we started this program with three partners back in 2021 really with our strategy to diversify funding and really build the plumbing for future Optionality as well.

Micah Conrad: So, you know, I think we, you know, when we first called this out at the beginning of the year, you know, it was an estimate. It's hard to do that at the beginning of the year for, you know, four quarters later, but we still feel good about where we are. We're right within the range of where we expected to be from a full year perspective. And, you know, given you some of the multiples of delinquency that have, you know, given you the map over prior periods, and the fourth quarter is well within the range of what we would expect to see from this quarter's 90 plus to next quarter's charge off. Thank you.

First of those relationships, we extended through December 2023 that happened a year ago in December 2022. The second one expired. This March we chose not to renew that one in the third we just renewed in August so I would say the market's decent I think theres a lot of opportunities for buyers out there.

There with other companies that are struggling a little bit more than we are.

Kevin Barker: Our next question comes from Kevin Barker with Piper Sandler. Please go ahead. Good morning. Thanks for taking my questions. I just wanted to follow up on the credit comments. I noticed that the early stage to the link with these have turned slightly higher on a year of a year basis. Up 18 basis points, year of year versus four basis points last quarter. Would have expected a little bit more improvement just given the tightening of underwriting you've done over the last year.

So we continue to be open to that market. I think we're also just very happy as well to put loans on our balance sheet with diversified funding, we have but I would expect it to be a part of our programs in the future and we'll engage and continue to engage with investors and partners. There are when the time is right and we think the pricing is.

Right based on.

What we can what we can generate for holding the loans on our balance sheet.

Kevin Barker: Could you just dig into that a little bit more on what you're seeing on the, you know, 2021 or 2022 vindages, and whether they are, you know, performing in line with your expectations or slightly worse, you know, obviously a lot of your competitors are seeing weakness, but love to see it dig into a little bit more on the vintage by vintage basis.

Thank you.

Thank you.

Your next question comes from David Scharf with JMP Securities.

Good morning, and thanks for taking my questions.

Wanted to I wanted to quickly shift to.

The yield discussion and outlook.

Micah Conrad: Yeah, Kevin. So I think let's make it again. The, you know, as we showed on page nine of our earnings presentation and Doug talked about it a little bit as well. You know, the seasonal patterns we're seeing in 3Q continued to be what I would call in line with what we saw pre-pendemic. So 18 and 19, 30 plus was down 35 and 45 basis points were down 25 and 30 plus. And I think Doug talked a little bit about the 30 to 89 trends being very similar.

And in particular.

You noted your comments about it obviously takes time for some of the pricing actions to kind of.

Fully work through the portfolio.

But I'm wondering if you could can you given that.

The growth in auto card I mean, it seems like upwards of a quarter of the portfolio now.

Our newer asset classes, you know you made reference to.

The weighted average impact of some lower yielding.

Micah Conrad: 2022, if you go back to that third quarter, I think you might remember, we saw a pretty unusual sort of flattening of delinquency from second to third. And that was coming off a more dramatic increase in the second quarter of 2022 than we were used to seeing. So I think when you put those two quarters together last year, you would have seen something a little bit more muted if you well. But you know, I think any any year is difficult to benchmark exactly.

Assets could you give us a.

Sense for how we should think about kind of the price increases you know versus just the product mix.

And in terms of kind of where the growth is going to come from next year.

Product mix wise, you know, where the price increases enough to offset that.

Yeah. So let me let me let me tackle some of the the yield questions in there David and maybe you can kind of circle back on on growth expectation. So card right. Now is 232 million are the.

Micah Conrad: And I think 22 becomes even more so given the dramatic amount of tightening we did in August of last year. So you know, that's that's that part of that question I'll address. I think in terms of the front book and the back book and, you know, this whole, this whole transition, it is, it is slowing a bit that's just part of the nature of how these ventages and and the book will emerge.

The auto purchase and distribution channels.

<unk> that we spoke about or about 660, so putting both of those together is still quite a bit under $1 billion on a on a $22 billion portfolio. So it's still relatively small, but I also want to point out that when I when we speak about yield.

Micah Conrad: It grew by about in front book grew by about nine percentage points this quarter. We would expect that to slow down a little bit. I think we called up 65% end of year. So slowing down to about seven percent growth. And again, it continues to perform in line with pre-pendemic benchmarks. And we're we're very happy that that will continue to grow and we expect to see changes from that over time. But the back book, I think is also important to remember, the back book is very, very season.

We're talking about loan yield.

And so the 22.2 excludes the credit card credit card, if we think about a little bit differently, just because it's got a bunch of fee.

<unk> revenue, so well, we'll break that out a little bit more going forward when the when the portfolio for cards becomes a little bit bigger and I think we've included some of it in our in our SEC filings as well the Qs in the caves and so when.

When I speak of yield it's going to be all around loan yield that auto purchase and distribution channel business is part of it.

Micah Conrad: When I talk about the back book, it's sort of everything prior to that August tightening, including older loans. So at this point, even the newest loan in that back book is 13 months old. So, you know, as a result of the absolute delinquency in that back book is multiples higher than the delinquency in the front book just because of seasoning. There's a lot of loans in the front book that are one month, two month, three month old, etc.

We talked about pricing changes in the prepared remarks, and you referred to it we've we've done well over 100 basis points since early June are.

We you know as were doing about $3 billion a quarter of origination so for that to flow through at $22 billion portfolio, that's going to take a little bit of time.

But it is there is.

Is starting to make a difference.

Micah Conrad: But, you know, as a result, you just get this difference in absolute delinquency level. So small percentage changes in the performance of that back book, which is still 41% of our portfolio can easily offset and are offsetting the positive impacts that we're seeing from front book growth. Good news is over time, we'll continue to see growth in that current front book. And we'll anticipate that becomes a bigger driver of portfolio delinquency as we move forward.

We've done a few things there we believe increased loan side, we've increased pricing.

Through loan size management in certain states that have tiered pricing, where the larger loan attracts a lower APR and so I think that's beneficial because it's it's credit positive with a with a marginally lower loan size, but also we we generate some incremental pricing from that also in our affiliate.

Prime segments, where we've talked about doing a bunch of risk based pricing over the last few years, given the competitive environment, Doug just talked about we've seen some opportunity to increase price there and interestingly, our core APR, which excludes the new distribution channels is currently higher than 2019 levels. So.

Doug Schoenman: Okay, and just to follow up on the front book comments, are your underwriting standards since August the last year significantly tighter than what they were pre-pandemic? And is that front book performing inline with pre-pandemic or better than pre-pandemic? Yeah, Kevin, the front book is the underwriting standards are tighter. We put a level of stress and assumed extra level of stress in the event that there was a recession. And, you know, the way our like customer lifetime value models work is we assume certain interest rate, we certainly length of the type of loan, whether it's secured or unsecured.

We definitely feel like we've taken some some good pricing opportunities in the portfolio that distribution channel pricing, it's closer to around 17%, 18%. So we like those loans. They have a lower loss expected loss rates I've talked about how they are performing from a delinquency and loss.

Doug Schoenman: And then we also assume a certain amount of losses. And so when we put extra stress on it, all we mean is even if unemployment rises and losses go up, it would still meet our 20% return on equity hurdle. So that's what extra stress means. So it is tighter than pre-pandemic when we didn't put an extra level of stress on. With that said, as Mike mentioned before, it's very hard to do apples to apples because the box is always being adjusted based on performance we've seen the last couple of months, the algorithms we put in place, et cetera.

The endpoint, but they do generate some lower yield so that is a little bit of a headwind on our overall yield but you know again, we like that business and.

And we expect with this higher pricing you know assuming it continues we're gonna be watchful of course with the competitive environment, but we should start to see improvements in yield from.

From pricing, but also as this better performing front book grows as a percentage of the portfolio when that will be it's hard for me to say exactly into what degree, but hopefully that gives you some sense for what we're thinking.

Yeah No no that's very helpful. And then maybe just a follow up.

Digging into our auto purchase.

Yes.

Scaled nicely here.

Can you talk about the breadth of distribution I mean every auto lender franchise.

Doug Schoenman: You know, it is performing very similar the overall portfolio that we are originating now to pre-pandemic. And we have the luxury of being able to craft a portfolio, given the length of time we've been in the market, our brand recognition, our distribution channels, our customer loyalty, you know, both a credit box that we're super comfortable with, as well as, you know, a nice pipeline of growth that allows us to construct a lost profile that we're comfortable with and meets our return hurdles.

Independent has pretty much hooked into dealer track as well as route one.

It's actually getting a application Cynthia that's the trick.

Can you talk a little bit about just the profile.

How many how many dealerships he actually kind of receiving applications from currently are they all independents.

Trading franchise.

Some of these prequalified loans that consumers are getting just a little more of that dynamic.

Yeah.

So we are at this point only doing it direct auto business with independent dealers.

Michael Kaye: Thank you, Doug. Thank you, Michael. Okay. Thank you.

And we have a.

You know dealer network management team, who diligence is the dealers does appropriate.

Vincent Caintic: Our next question comes from Vincent Kankic with Stephens. Good morning. Thanks for taking my questions.

Screening before they come on monitors them and also has a dialog about sending us applications and sending us. Good application. So you know you're absolutely right. It's easy to plug into something you need to make sure you've got a relationship.

Vincent Caintic: I want to begin to the front. Good morning. One of the big and to that front book and that book, Dynamic, in more detail. So, you know, with 13 months having passed since that August, 2022 update, I guess the losses that we're seeing implied in the fourth quarter in a charge-offs, is that, I guess, being driven by the loss of merchants since we're kind of in the meat of that, a little bit typically happen with a kind of a 12-month loss of merchant cycle.

With with the dealers Yeah, we've got a couple of thousand dealers right now that are active we I don't think they disclosed that number as this thing grows we'll talk more.

About auto we're not in with franchise dealers now that's an indirect business and so ours is it currently a direct business, but we would consider the indirect.

Vincent Caintic: And is there a way to break out sort of how you're thinking about a credit allowance for your blended portfolio so you have that versus, like, once the book is primarily the new originations, the front book originations. Thank you. Let me try to unpack that a little bit, Vincent. This is Mike. I think, you know, the fourth quarter losses are going to come from 30 to 89 delinquency that happened in the second quarter.

Business in the future and like we said we've got good relationships with them. We built this slowly and deliberately we've had a very tight credit box.

Since the beginning we have a direct relationship with the customers, where we have a conversation with them before.

They get alone and kind of go through the application and make sure they meet our underwriting standards.

Standards and so that's a that's a little more sense of the business.

Vincent Caintic: Our third quarter losses are going to come from 30 to 89 that occurred in the first quarter of this year. So, you know, the vast majority of that 30 to 89 emerging to loss now and in the fourth quarter will have come from a lot of pre-tightening ventages. It just takes some time for, you know, those, particularly for losses for the new book to become a larger part of that. So, that's piece one.

Got it thanks, so much.

Sure.

Thank you. Our next question comes from John Hecht with Jefferies. Please go ahead.

Morning, guys. Thanks, very much for taking my questions a.

A lot of my questions have been actually asked and answered I guess, one question kind of on the not the distribution for auto loans, but the distributions for the more core consumer unsecured loans.

Any changes in consumer behavior there is.

Hi, it's upon the branch network consistent with where it was a year ago is there more demand sort of just from a digital interaction perspective and does the changes in that affect your strategic outlook for kind of how are you.

Vincent Caintic: I think you asked about just sort of the front and back book in terms of reserves and losses. I think in terms of he reserves, you know, we've got a reserve model that really is focused and built around delinquency bucket. So, you know, while our ventages are certainly a part of that, we use ventages for back testing and model validation, not necessarily building the model directly from those vintage expectations. But what we do in our reserving is largely we look at delinquency buckets and we look at the role rates historically and the expected role rates and performance of those delinquency buckets as the emerge into loss.

Vincent Caintic: By virtue of front, the front book becoming a larger part of the portfolio, we, we of course, we'll see those have a lower level of delinquency as we've called out so that will influence our our loss reserves and, you know, again on the back book with the back book being very seasoned with a higher level of delinquency than that front book, we're going to have naturally higher reserves on that book because of the delinquency stock. And so the two things are kind of right now sort of mixing into our reserves.

Perceive the branch versus online channels at this point.

Yeah look so we are our distribution is is multifaceted and quite diversified.

We've got our branch network you know both for new.

New customers, but also for former customers and existing customers looking to.

Our lending product or a different lending product.

We've got digital which we've ramped up quite a bit in the last several years, so rather that's unpaid search and social media.

Paid search and we've also built up a very large email distribution.

Base with former customers people, who came in and applied in the past et cetera. So that's a very nice low cost.

Distribution, we have direct mail, which.

Yeah.

We can quantify we send out mail, we know response rates, we've actually decreased that some in the year that'll that'll ebb and flow based on return profile and kind of the tightness of our credit box and then we've got relationships with a different distribution affiliates like credit.

Vincent Caintic: And of course, we also have macro overlays in there as we've talked about before with expected unemployment for an after 5%. So, you know, we would expect to see as the back, as the front book becomes a larger part of the portfolio, those reserves will start to be impacted more so by that front book. As time goes on, did I, I think you had a third question in there, did I hit what you were looking for?

Vincent Caintic: Yeah, and I think that's that's, I mean, just presumably the mid 2024's with the front book being 75% of that that all else equal, the reserve rate would be, would be lower at that time, sort of how I'm interpreting that because of the lower losses and lower delinquency, some lower losses with the front book. Yeah, I mean, I think that's a decent general expectation. You know, there's a lot of things that will go on between now and the middle of 2024 with the macro environment.

Karma Lendingtree all of those are kind of our affiliates I think the big shift in consumer behavior. We've seen in the last several years isn't so much the channel they show up in but it's how they want to engage with US and that's you know we've talked a lot about our investment in.

Digital so 95% of people come in through the website or the app more and more people.

Upload their documents through the App and the website pick their loan size.

Size length term, we built out this co browsing capability, which we use extensively where.

Even if there's someone in a branch bookings alone somebody doesn't need to come in and accept to exchange car title or those kinds of things, where we can be on the computer screen at the same time with them and take them through a very disciplined underwriting discussion discussion about features and put them in.

Vincent Caintic: We got to see how the back book continues to perform and does the front book continues to perform what we're expected to be. So a lot out there, I don't want to commit to any any any particular number, but I think your hypothesis is is sound.

Vincent Caintic: Okay, great. Thanks. Thanks for that. Very helpful.

Vincent Caintic: And second question separately on the auto purchase landing program that 650 million so it's just good to see the growth there. I know broadly, with the pure auto lenders that I covered, it's been sort of volatile and some, some banks, for instance, that exit that space and just, you know, volatility there. And so I wonder if you could talk about your thoughts about that pocket and the opportunities that you're seeing where you can be in and grow that program.

And in the right loan for them and then we have a lot of digital engagement afterwards, whether it's checking your balance payments.

With our card rewards upgrades to the new card et cetera. So yeah.

Yeah, we like every other financial service institution or every company has.

Had you know invest in a.

Multi channel.

Omnichannel platform, where you can do business with us in person on the phone or digitally and we're continuing to lean into that digital engagement. So that we you know are on par with everyone else and best in class for the places where we have.

Vincent Caintic: Thank you. Yeah, no, thanks. So I guess a couple of things. One is we've been in the secured lending business for many, many years about half of our book is secured by an auto. So we actually know the business of making loans against auto as a collateral very well. You know, we understand underwriting pricing, perfecting a lean collateral management, all of all of of those pieces. A few years ago, I mentioned we started to expand our secured distribution channels mostly through dealer track, which is we signed up to a platform that's hooked into a lot of auto dealers.

Have competitive advantage.

Broadly for the branch, we have less branches now than we did five years ago and you know we.

We're not wildly growing our branch network, but we like our branch network, we think its a competitive differentiator.

Customers tell us they like to be able to walk into a branch even if they choose.

Not too it's part of our brand and being in the community working closely with people is super important. So branch will remain important but we've also been building out our central call center capabilities, and our digital capabilities to complement that.

Vincent Caintic: They would send up potential loans to make for an auto and we started to inch our way into the market, which we viewed as just a separate distribution channel. When those auto potential loan for an auto purchase comes to us, we do our very similar discipline underwriting that we do when we make an installment loan secured by an auto. So first we put the 30% extra stress on there and so we've run a very tight credit box since August 2022.

Okay. That's very helpful. I appreciate that.

And then.

Second questions sort of on the M. A L L balance and Mike Forgive me. If you have you discussed this but it's been pretty stable I'm just kind of wondering kind of puts and takes is is this the kind of proper allowance given the given the.

I don't know kind of the uncertainty around the macro outlook and then kind of what are puts and takes that would cause you to move it one direction or the other.

Vincent Caintic: We also work very closely and directly with the customer. So we get on a phone with a customer, we talk them through their loan, their loan size, what they can afford, what's their net disposable income. And so we have a very hands-on approach similar to our core business. And as a result, because we are going flow, we have tight underwriting standards and we're more hands-on in the lending process than your typical indirect auto lender, we've seen really good credit results.

Yeah, I think for sure Jon This I mean this is absolutely.

The right allowance ratio for us given the environment.

As we've talked about there's many inputs to the reserve what we are seeking to achieve with this reserve is that.

Where appropriate it's appropriate for the expected losses across the life of the portfolio and also builds in.

Some cushion if you will for our expected macro outlook, which we've said consistently over the last I think 545 quarters at least we have not really changed as you've seen our reserve rate go from 11.44 to 11, six six or 11 six two excuse me.

Vincent Caintic: And so, you know, roughly this is a five or six hundred billion dollar market and we've got under a billion of receivables. So there's plenty of opportunity for us to in a very slow measured way add some portfolio growth through this channel with loans that we like a lot. So we're very bullish on it. We think it's a great opportunity for us, but we're also, you know, very cautious and disciplined in how we build this out.

Over the last five quarters. So been very consistent we've included a macroeconomic assumption in the forecast of 4.5% to 5% for a little bit of extra.

Vincent Caintic: Okay. Great. Very helpful. Thanks very much. Sure. Thanks, Vincent.

Question I think it's also important for us to continue to point out that you may not see that reserve need necessarily come from unemployment. It's also intended to cover other macroeconomic factors like elevated and continued levels of inflation over the lifetime losses in the book, but you know we talked a little bit earlier.

I'll just reiterate it quickly.

Arren Cyganovich: Thank you. Our next question will come from Aaron Teganovich with city. Please go ahead. Thanks. Is this one or if you talk a little bit about the competitive environment, you know, it had kind of moved in your favor when it was a little bit more difficult to finance, are you still seeing, you know, a better inflow of opportunities relative to where you were a few quarters back? Yeah, look, it remains a very constructive, competitive environment for us.

Within the portfolio of losses were reserving took four is basically the the $21 billion of receivables that we have on the balance sheet, including cards.

The vast majority is dominated by the loan book and we've got that front book back book dynamic going on where the lower delinquency and the front book is sort of causing a lower <unk>.

Reserve rate for that portion of the book and the more season back book with that higher level of delinquency of course by nature of it being delinquent attracts a higher reserve and so you're seeing a mix of those two things plus the the unemployment level and so you know our original Cecil.

Arren Cyganovich: Balance, you know, our strong balance sheet and our access to funding and having plenty of liquidity so we can make the loans that meet our return profile clearly stands us in good stead. And I think the fact that we never had to pull out because of funding constraints and our consistency of our brand in the market for customers is an important part of that. You know, as you've seen from our results, even with a much tighter credit posture than we had a year ago, we're still having nice origination growth, which speaks to a good competitive environment.

Allowance on on day, one way way back in January of 2020 was 10, 7% or about 100 basis points higher than that roughly speaking.

As credit performance continues to improve we would expect that that 11 six to gradually move down over time of course pending the outlook on the macro economy.

Alright, I appreciate the details thanks.

Xtra.

Arren Cyganovich: We also have been able to take some pricing actions and we're still able to book lower risk customers at a higher price. And so, you know, we like the competitive environment. You know, different competitors have been flowed how much they're in the market and we've got a pretty broad competitor set. And so, you know, competitors aren't as funding constrained now as they were, you know, 16 months ago, but in general, it's still a very constructive environment for us. Thanks. And on the flow sales that you make, are you still selling around 180 million a quarter and what's the demand for holdings that you're seeing right now? Yeah, Arren, right now about 135 per quarter.

Thank you our last question will come from Mihir Bhatia with Bank of America.

Hi, Good morning, a lot of my questions have been answered, but I did want to just very quickly on this front book back book dynamic.

Again.

Just wanted to make sure that I.

We probably bought for clarification question.

Really what I'm trying to understand from the onset of Hudson's question give it in the comments about getting the back book being multiples of the front book when do you expect the back book to be less of a.

You know that's very material to your credit fall beds are we talking middle of 'twenty 'twenty four or are we talking through 'twenty 'twenty four and maybe even into 25 I'm just trying to understand this evening and.

Paydown dynamics within that book.

Yeah, I'm hearing I think it's hard for me to pinpoint that given the you know we're continuing to deal with higher levels of inflation and higher levels of delinquency as a result, and that fact books.

Micah Conrad: You remember we started this program with three partners back in 2021, really with a strategy to diversify funding and really build the plumbing for future optionality as well. First of those relationships, we extended through December 2023. That happened a year ago in December 2022. The second one expired this March. We chose not to renew that one. The third, we just renewed in August. So I would say the market's decent. I think there's a lot of opportunities for buyers out there with other companies that are struggling a little bit more than we are.

I think you've highlighted it but I'll say it again I think the just because of the seasoning of that portfolio, it's going to have higher delinquency and so little small changes in the performance of that delinquency relative to the benchmark is going to cause.

You know offset any positive impact from that front book I think the best I can say is we've called out that we expect to be around 75% of the portfolio is going to be front book.

Micah Conrad: So we continue to be open to that market. I think we're also just very happy as well to put loans on our balance sheet with the diversified funding we have. But I would expect it to be a part of our programs in the future and we'll engage and continue to engage with investors and partners there when the time is right and we think the pricing is right based on what we can generate for holding loans on our balance sheet. Thank you.

By Middle of next year.

That'll give you a sense for how much you can think about in terms of the level of <unk>.

Contribution, but without being able to forecast where the absolute delinquency is for both the front book and the back book, It's hard for me to really pinpoint.

And answer and I think we need to have a little bit humility in that area to say that consumers generally are still struggling with inflation and for me to be able to predict where things might be a three.

David Scharf: Do our next question comes from David Sharf with JMP Securities.

Three quarters from now is not really knowable.

No. That's fair. Thank you and then just the last question or second question again.

Micah Conrad: Good morning and thanks for taking my questions. I wanted to quickly shift to the yield discussion and outlook. And in particular, you know, noted your comments about it is obviously take time for some of the pricing actions to kind of fully work through the portfolio. But I'm wondering, you know, given that the growth and auto card, I mean, it seems like upwards of a quarter of the portfolio now are newer asset classes, you know, you made reference to, you know, the weighted average impact is some lower yielding assets.

Just given the comments about the smaller slower rollout.

Product anyhow.

<unk> guidance, what God receivable then do you also think you're on track for the $100 million in capital generation of about 2025.

Yeah.

Look we are.

We haven't updated the guidance on it.

We're managing the card to be a long term profitable.

Product for US, we don't manage to growth, we still like a lot of pockets and so as you've seen we're growing some I think I did mention that we slowed the pace of the rollout.

Given kind of the macro environment that we're seeing and we're just gonna be cautious so I think the ending card portfolios. This year.

Micah Conrad: Can you give us a sense for how we should think about kind of the pricing increases, you know, versus just the product mix. And in terms of kind of where the growth is going to come from next year, you know, product mix wise, you know, the price increases enough to offset that.

<unk> will be below where we thought they were going to be at the beginning of the year. You know we don't have any updates at 2025, we're gonna have to just see how the next year.

Micah Conrad: Yes, let me, let me tackle some of the yield questions in there, David, and maybe we can kind of circle back on growth expectations. So, you know, card right now is 232 million, the auto purchase and distribution channels receivables that we spoke about are about 660. So, you know, putting both those together is still quite a bit under a billion dollars on a 22 billion dollar portfolio. So still relatively small, but you know, I also want to point out that when we speak about yield, we are talking about loan yield.

A year happens, so, but we're not going to push it meaning are you.

You know looking out to the medium or long term theres going be a big business for us it's going to be very profitable. The timing, we will pace based on making sure every card. We issue is to a customer who can be successful with that card use it and also pass back.

Okay now Thats fair.

I think that's what investors want you to do so thank you. Thanks for taking my questions.

Hey, thanks, everyone for joining us I will look forward to talking to you more offline and hope everyone has a great day.

Micah Conrad: And so the 22.2 excludes the credit card credit card. We think about a little bit differently just because it's got a bunch of fee based revenue. So we'll break that out a little bit more going forward when the portfolio for cards becomes a little bit bigger. And I think we've included some of it in our SEC filings as well, the queues in the case. And so when I speak of yield, it's going to be all around loan yield.

Thank you. This does conclude today's Onemain financial third quarter 2023 earnings conference call.

Please disconnect your lines at this time and have a wonderful day.

Yeah.

Okay.

[music].

Micah Conrad: That auto purchase and distribution channel business is part of it. We talked about pricing changes in the prepared remarks and you referred to it. We've done over a hundred basis points since early June. We, you know, as we're doing about three billion dollars a quarter of origination. So for that to flow through a 22 billion dollar portfolio, it's going to take a little bit of time. But it is there and it is starting to make a difference.

Hum.

Uh huh.

[music].

Micah Conrad: We've done a few things there. We've increased loan saw. We've increased pricing through loan size management in certain states that have tier pricing where the larger loan attracts a lower APR. And so I think, you know, that's beneficial because it's credit positive with a marginally lower loan size. But also we generate some incredible pricing from that. Also in our affiliate prime segments where we've talked about doing a bunch of risk-based pricing over the last few years.

Oh.

[music].

Uh huh.

[music].

Micah Conrad: Given the competitive environment Doug just talked about, we've seen some opportunity to increase price there. And interestingly, you know, our core APR which excludes the new distribution channels is currently higher than 2019 levels. So we definitely feel like we've taken some some good pricing opportunities in the portfolio. That distribution channel pricing is closer to around 17 18%. So we like those loans. They have a lower loss expected loss rate. I've talked about how they're performing from a delinquency and loss standpoint.

Micah Conrad: But they do generate some lower yield. So that is a little bit of a headwind on our overall yield. But again, we like that business and we expect with this higher pricing, you know, assuming continues. We're going to be watchful of course with the competitive environment. But we should start to see improvements in yield from pricing. But also as this better performing front book grows as percentage of the portfolio. When that will be as hard for me to say exactly into what degree.

Micah Conrad: But hopefully that gives you some sense for what we're saying.

Micah Conrad: Yeah, no, no, it's very helpful and maybe just to follow up, digging into auto-purchase, obviously, it failed nicely here. Can you talk about the breadth of distribution? I mean, every auto-lender franchise independent is pretty much hooked into dealer track as well as Route 1. It's actually getting an application sent to you, that's the trick. Can you talk a little bit about just the profile? How many dealerships are actually kind of receiving applications from currently? Are they all independent or are you penetrating franchise in or some of these pre-qualified loans that consumers are getting? Just a little more of the dynamic.

Micah Conrad: Yeah, so we are at this point only doing a direct auto-business with independent dealers. And we have a dealer network management team who diligence is the dealers, does appropriate risk screening before they come on, monitors them, and also has a dialogue about sending us applications and sending us good applications. So, you know, you're absolutely right. It's easy to plug into something. You need to make sure you've got a relationship with the dealers.

Micah Conrad: We've got a couple thousand dealers right now that are active. I don't think it disclosed that number as this thing grows. We'll talk more about auto. We're not in with franchise dealers now. That's an indirect business. And so ours is currently a direct business, but we would consider the indirect business in the future. And like we said, we've got good relationships with them. We've built this slowly and deliberately. We've had a very tight credit box.

Micah Conrad: Since the beginning, we have a direct relationship with the customers where we have a conversation with them before they get alone and kind of go through the application and make sure they meet our underwriting standards. And so that's a little more sense of the business. Got it.

Unknown Attendee: Thanks so much.

John Tech: Thank you.

John Tech: Our next question comes from John Tech with Jeffries. Please go ahead. Good morning guys. Thanks very much for taking my questions. Yep. A lot of my questions have been actually asked and answered.

Doug Schoenman: I guess one question's kind of on the not the distribution for auto loans, but the distributions for the more core, got a consumer, unsecured loans. Are there any changes in consumer behavior there? Is the riots upon the branch network consistent with where it was a year ago? Is there more demand sort of just from a digital interaction perspective? And does the changes in that affect your strategic outlook for kind of how you perceive the branch versus online channels at this point?

Doug Schoenman: Yeah, look, so our distribution is multifaceted and quite diversified. We've got our branch network, both for new customers, but also for former customers and existing customers looking to a lending product or a different lending product. We've got digital, which we've ramped up quite a bit in the last several years, so whether that's unpaid search and social media, paid search, and we've also built up a very large email distribution base with former customers, people who came in and applied in the past, et cetera.

Doug Schoenman: So that's a very nice low cost distribution. We have direct mail, which we can quantify, we send out mail, we know response rates, we've actually decreased that sum in the year, that 11 flow based on return profile and kind of the tightness of our credit box. And then we've got relationships with different distribution affiliates, like credit karma, lending tree, all those kind of affiliates. I think the big shift in consumer behavior we've seen in the last several years isn't so much the channel they show up in, but it's how they want to engage with us.

Doug Schoenman: And we've talked a lot about our investment in digital, so 95% of people come in through the website or the app, more and more people upload their documents through the app and the website, pick their loan, size, length, term. We built out this co-browsing capability, which we use extensively, where even if there's someone in a branch booking the loan, somebody doesn't need to come in except to exchange car title or those kinds of things, where we can be on the computer screen at the same time with them and take them through a very disciplined, you know, underwriting discussion, discussion about features, and put them in the right loan for them.

Doug Schoenman: And then we have a lot of digital engagement afterwards, whether it's checking your balance, payments, you know, with our card, rewards, upgrades to the new card, et cetera. So we like every other financial service institution or every company has had, you know, invest in a... Multi-channel, omnichannel platform where you can do business with us in person on the phone or digitally, and we're continuing to lean into that digital engagement so that we are on par with everyone else in best-in-class for the places where we have competitive advantage.

Doug Schoenman: Broadly, for the branch, we have left branches now than we did five years ago and we're not wildly growing our branch network, but we like our branch network. We think it's a competitive differentiator, customers tell us they like to be able to walk into a branch even if they choose not to, it's part of our brand and being in the community working closely with people is super important. So, branch will remain important, but we've also been building out our central call center capabilities and our digital capabilities to complement that.

Micah Conrad: Okay, that's very helpful, appreciate that. And then, second question, sort of on the ALL balance, and Michael forgive me if you've discussed this, but is that pretty stable? I'm just kind of wondering, kind of puts and takes, is this the kind of proper allowance given the, I don't know, kind of uncertainty around the macro outlook, and then kind of what are puts and takes that would cause you to move it one direction or the other?

Micah Conrad: Yeah, I think for sure, John, this is absolutely the right allowance ratio for us, given the environment, you know, as we've talked about, there's many inputs to the reserve. What we are seeking to achieve with this reserve is that, you know, we're appropriate, it's appropriate for the expected losses across the life of the portfolio, and also builds in some cushion, if you will, for, you know, our expected macro outlook, which, you know, we've said consistently over the last, I think, five, four or five quarters at least, we have not really changed this.

Micah Conrad: You've seen our reserve rate go from 11.44 to 11.66, or 11.62, excuse me, over the last five quarters. So, been very consistent, we've included a macroeconomic assumption in the forecast of four and a half to five percent for a little bit of extra cushion, I think it's also important for us to continue to point out that you may not see that reserve need necessarily come from unemployment. It's also intended to cover other macroeconomic factors like elevated and continued levels of inflation over the lifetime losses in the bulk, but, you know, we talked a little bit earlier, I'll just reiterate it quickly, the, within the portfolio of losses we're reserving to four is basically the, the $21 billion of receivables that we have on the balance sheet, including cards, the vast majority is dominated by the loan book, and we've got that front book, back book, dynamic going on, where the lower delinquency in the front book is sort of causing a lower reserve rate for that portion of the book, and the more seasoned back book with that higher level of delinquency, of course, by nature of it being delinquent, attracts a higher reserve.

Micah Conrad: And so, you're seeing a mix of those two things, plus the unemployment level. And so, you know, our original Cecil allowance on day one way, way back in January of 2020 was 10.7 percent, we're about a hundred basis points higher than that, roughly speaking. So, as credit performance continues to improve, we would expect that at 11.6 to gradually move down over time, of course, pending the outlook on the max, for Economy. Alright, appreciate the details. Thanks. Thanks, John.

Mihir Bhatia: Thank you.

Micah Conrad: Our last question will come from Mihir Bhatia with Bank of America. Hi, good morning. A lot of my questions have been answered, but I did want to just very quickly touch on this from both back, both dynamic. Again, just want to make sure that I, that it's probably more for clarification questions. We have a lot of time to understand from your answer to Vincent's question, give it and the comments about in the back book being multiples of the front book.

Micah Conrad: When do you expect the back book to be less of a font, you know, that's very immaterial to your credit performance. Are we talking middle of 2024? Are we talking through 2024, maybe even into 2025? Just trying to understand the seasoning and pavement, pay down dynamics within that book. Yeah, I mean, here, I think it's hard for me to pinpoint that, given the, you know, continuing to deal with higher levels of inflation and higher levels of delinquency as a result in that fact book.

Micah Conrad: You know, I think you've highlighted it, but I'll say it again, the just because of the seasoning of that portfolio, it's going to have higher delinquency. And so little small changes in the performance of that delinquency relative to the benchmark is going to cause, you know, offset any positive impact from that front book. I think the best I can say is we've, we've, you know, called out that we expect to be around 75% of the portfolio is going to be front book by middle of next year.

Micah Conrad: You know, that'll give you a sense for how much you can think about in terms of the level of contribution, but without being able to forecast where the absolute delinquency is for both the front book and the back book, it's hard for me to really pinpoint an answer. And I think, you know, we need to have a little bit of humility in that area to say that consumers, you know, generally are still struggling with inflation and for me to be able to predict where things might be three quarters from now is not really knowable.

Mihir Bhatia: No, that's fair. Thank you.

Mihir Bhatia: And then just the last question, a second question again. Just given the comments about the slower, slower rollout of a product, any of the portfolio guidance for card receivables and do you also think you're on track for the 100 million in capital generation by 2025? Yeah, um, look, we, uh, we haven't updated the guidance on it. You know, we're managing the card to be a long-term, profitable product for us. We don't manage to grow.

Mihir Bhatia: We still like a lot of pockets. And so, as you've seen, we're growing some. I think, you know, I didn't mention that we slowed the pace of the rollout, given kind of the macro environment that we're seeing and we're just going to be cautious. So I think the ending card portfolio this year will be below where we thought they were going to be at the beginning of the year. You know, we don't have any updates to 2025.

Mihir Bhatia: We're going to have to just see how the next, you know, year happens. So, but we're not going to push it, meaning, you know, looking out to the medium or long-term, there's going to be a big business for us. It's going to be very profitable. The timing we will pace based on making sure every card we issue is to a customer who can be successful with that card. Use it and also pass back.

Mihir Bhatia: Okay, now that's fair. I think that's what the mess does want you to do. So, thank you, thanks for taking my questions.

Unknown Attendee: Yeah. Hey, thanks everyone for joining us. We'll look forward to talking to you more offline and hope everyone has a great day. Thank you.

Unknown Attendee: This does conclude today's one main financial third quarter 2023 earnings conference call. Please disconnect your line at this time and have a wonderful day.

Unknown Attendee: Yeah.