OneMain Holdings, Inc.

Welcome to the OneMain Financial third quarter 2022 earnings conference call and webcast. Hosting the call today from OneMain is Peter Poyant, 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 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. We do ask that you limit yourself to one question and one follow-up and to 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 Poyan. Sir, you may begin.

Thank you, Chelsea. Good morning, everyone, and thank you for joining us. Let me begin by directing you to page two of the third quarter 2022 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. 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. 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 27th, 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. Let me turn the call over to Doug.

Thanks, Pete, and good morning, everyone. Thanks for joining us today. This morning, I'll take some time to review our quarterly performance, the current credit and macroeconomic environment, and provide an update on our key strategic initiatives. Our capital generation remains strong, coming in at $283 million for the quarter. As I touched on last quarter, demand remains strong, and we've seen improvements in the competitive environment, which has led to an increase in attracting higher credit quality business. Originations were $3.6 billion for the quarter, down 8% from the third quarter last year, but relatively strong given our cautious underwriting posture. Originations this year have also been supported by our expanded products and distribution channels, which made a meaningful contribution to our 7% year-over-year receivables growth. Our 30 to 89 delinquency finished at 2.81%. This is in line with, or slightly better than, normal seasonal trends. We're encouraged by the stabilization of delinquency this quarter, given the worsening we saw in the second quarter. Net charge-offs in the quarter were 5.9%, supported by continued positive performance in our later stage delinquency and also in post-charge-off recoveries. I'm also really pleased that we continue to demonstrate one of our core strengths, our balance sheet and funding capabilities, by raising $1 billion in a difficult funding market. Regarding the non-prime consumer overall, while unemployment rates remain at historically low levels, it is clear that inflation has presented challenges to some consumers. especially those at the lower end of the credit spectrum. We've reflected this in our tighter underwriting. We started to see inflation become a challenge for consumers across the entire industry in the second quarter. However, from the data we see, which we've provided on page nine of our presentation, our book is performing quite well in comparison to other non-prime lenders. This is due to the competitive advantages we have developed in our business model. These include our branch-based network, which enables us to work closely with our customers. The relationship that our community-based team members have with their customers is especially valuable during challenging times. We also have a long history of serving the nonprime consumer. during which we have developed a suite of tools and techniques to help customers stay on track. We tailor collections and assistance treatments based on sophisticated analytics. This increases the likelihood that we will be repaid, even when a customer hits a rough patch. This is a result that is both good for our customers and good for our business. And we stayed very disciplined in our underwriting and have been tightening our credit box for almost a year now. We were early to selectively cut our credit box in late 2021 and early 2022 and have followed on with very meaningful tightening this summer. Our current credit posture is conservative. given the uncertainty associated with the persistent elevated inflation and the weakened macroeconomic outlook. As you may recall, we underwrite each loan to meet an expected return hurdle. Embedded in the return hurdle calculation are many assumptions, including pricing, acquisition costs, funding costs, and charge-off assumptions, just to name a few of them. Our current underwriting is set so that even if the macro environment deteriorates meaningfully further, beyond the delinquency levels we are seeing today, the loans we are booking today will meet our return hurdles. We see this as a no regrets move given the current environment. If we have a significant economic downturn, we are ready for it. and the business we are booking today will be quite profitable. But we have the ability to dynamically adjust our box so we can make changes in the future as the economic picture evolves. The net effect of this posture is a moderation of balance sheet growth and a migration of our originations to better credit quality loans. For instance, we have significantly decreased unsecured loans to new customers. And our top two risk grades, those with the best credit quality and lowest risk customers, make up 60% of our new originations today versus 37% a year ago. We're seeing strong application flow in higher credit quality segments, partly driven by competitive dynamics, as competitors without our stable funding and strong balance sheet have reduced their originations. We're seeing a lot of opportunity to write profitable new business, even with our more conservative credit box. And while we are beginning to see the benefits of our tighter underwriting in recent vintages, these changes will take some time to fully materialize in our $20 billion portfolio. We expect to maintain a conservative underwriting posture until we have more clarity about how the environment will evolve. Let me now spend a few minutes on our strategic initiatives. First, let me be perfectly clear. Our focus right now is on credit and balance sheet management. given the uncertain macroeconomic environment. However, it is also critical to continue to drive our longer-term strategic initiatives that will fuel future growth and profitability. We continue to invest in customer experience, technology, and data analytics. I've spoken at length in the past about how our digital investments have helped us maintain our competitive position in loan originations. Let me talk for a moment about how newer digital and analytics tools are also generating positive results in servicing and collections. We risk score our entire portfolio on a monthly basis. The scores are generated using machine learning models that leverage internal and external credit payment, and behavioral data. We then optimize who we reach out to, when to reach out, and how to reach out. Based on payment patterns, responsiveness, and demonstrated changes in circumstances, we will dynamically evolve our interactions with customers, whether it be through phone calls, texts, or emails. We've developed these techniques over a number of years, and you can see the positive results in the backend delinquency performance of the last several quarters. Said another way, our digital tools and advanced analytics, combined with our locally-based team members, are resulting in fewer customers moving the charge off, even if they fall behind on a payment at some point in time. We continue to make excellent progress on our BrightRay credit card. Our customers are excited about the reciprocity value proposition, our commitment to reward them for their positive payment behavior. At quarter end, we had 104,000 cards issued and $79 million of card receivables, up from 79,000 cards and 64 million of receivables as of June 30th. We've been very disciplined in the rollout of our credit card. We ended 2021 with approximately 66,000 accounts across a range of test cells. And throughout 2022, we've been monitoring the performance of these test accounts across a range of metrics, including spend, balance build, revolve rates, and credit. This quarter, we began our targeted rollout into select segments identified from our test cells. We've taken a conservative credit card underwriting posture, similar to the very tight credit box we have in our personal loans, which gives us plenty of cushion and a high level of confidence that the cards we are booking today will be profitable regardless of the economic picture. In addition to credit performance, we're seeing positive signs in spend patterns and digital engagement. Our customers are engaging and paying us in our Brightway mobile app, as well as giving us very high ratings in customer experience across this mainly digital channel. We also continue to see growth and strong credit performance from our expanded distribution channels. These include partnerships such as dealer track, which allow us to use our core capabilities and expertise to expand our secured lending. Let me touch on capital allocation. As always, our first and highest priority is investing in our business to generate strong returns. As I discussed earlier, we're focusing on underwriting higher credit quality loans while continuing to invest in important growth initiatives that will drive strong capital generation in the future. We also continue to return excess capital to shareholders through our regular dividend and share repurchases. Our current $3.80 annual dividend provides a very healthy yield of approximately 12% at the current share price. We also repurchased another 1.2 million shares this quarter. Year-to-date, we've repurchased approximately 5.6 million shares, or about 4.5% of shares outstanding at the beginning of the year. Let me finish by saying we really like our competitive positioning, especially in turbulent economic times. We have built our business with a fortress balance sheet which allows us to keep making every loan that meets our return hurdles. We are strategically investing in the business to put us in a position of strength for the long run. And we have decades of experience lending to non-prime consumers, including in difficult environments, which gives us great confidence that we can adjust our credit box and work with our customers as needed, whatever the future may bring. With that, let me turn the call over to Micah to take you through the financial results of the third quarter.