OneMain Holdings, Inc.

Welcome to the OneMain Financial second quarter 2023 earnings conference call and webcast. Hosting the call today from OneMain is Peter Poyan, 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 2. We do ask that you limit yourself to one question and one follow-up, and please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star 0. It is now my pleasure to turn the floor over to Peter Poyan. You may begin.

Thank you, Shelby. Good morning, everyone, and thank you for joining us. Let me begin by directing you to page two of the second 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. 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, July 26th, 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. I'd like to now turn the call over to Doug.

Thanks, Pete, and good morning, everyone. Thank you for joining us today. Today I'll cover our results for the quarter. our competitive positioning in the current economic environment, and our strategic initiatives. Let me begin by mentioning the important progress OneMain has made this year in growing our products and channels to serve more hardworking Americans. This includes our Brightway credit card and our expanded secure distribution channels. both of which have continued to show steady growth and strong credit performance. Through our expanded product set, we've been able to grow our customer base from 2.3 million customers two years ago to 2.7 million today. As we grow our customer base, we'll be able to do more business with an expanding universe of customers and products. This quarter, capital generation, the metric against which we measure and manage our business, was $192 million. Demand for our loan products remained strong. This quarter, our originations totaled $3.7 billion, ahead of our expectations at the beginning of the year. and only modestly below originations a year ago, despite our significantly tighter underwriting posture today. Our continued strong origination volume is testament to our competitive positioning, strong balance sheet, and excellent access to capital markets, which allows us to continue to make all of the loans that meet our risk return criteria and consistently provide our customers responsible access to credit across a range of products, regardless of the economic environment. As we've discussed on previous calls, we've seen notable increases in the credit quality of our originations. 64% of new customer originations since our major credit tightening in August of 2022 have been in our top two risk rates, those with the best credit quality and lowest risk customers. And while we haven't made an across-the-board macro adjustment to our credit box since last August, we've continued to tighten our underwriting at a more granular level during 2023 by closely examining bespoke segments of underperformance by channel, geography, and customer attributes. Examples of this include reducing the size of loans in certain geographies, reducing LTVs in auto lending, tightening standards for thinner file customers, moving some lower ROE business to more affordable smaller dollar loans, and increasing pricing with some decrease in volume in segments that make sense. We're already seeing the incremental positive credit results from these adjustments in our early vintage tracking. Given the current economic uncertainty, as well as strong demand and our strong competitive positioning, We expect to maintain this conservative underwriting posture until the economic picture becomes more clear. The results of the actions we've taken are evident in our credit performance. Our 30 to 89 delinquency rate finished the quarter at 2.76%, up only 18 basis points from the first quarter, and in line with normal seasonal trends. For context, recall that delinquency rose 48 basis points in the second quarter of 2022, while back in the second quarter of 2019, delinquency was up approximately 21 basis points from the first quarter. Loan net charge-offs in the quarter were 7.6%. In line with our expectations, aided by continued good performance in late stage collections and post-charge-off recoveries. Our portfolio is now split about 50-50 between loans we originated before August 2022 and those underwritten after our credit tightening. While we are encouraged by the trends we see in our credits, we continue to be cautious as we navigate an uncertain economic environment with some headwinds and some tailwinds. On the positive side, unemployment remains near historic lows, and our customers have benefited from wage growth, with our average customer income up about 10% compared to 2019 levels. However, while we have seen the pace of inflation decrease, Some of the basic costs for the average American, notably food, housing, and gas, remain elevated, and we are working hard to support our customers who are affected by this. We are pleased that our decisive credit tightening and our differentiated business model have resulted in performance that is superior to what we see from most other non-prime lenders. And as our post-tightening vintages continue to grow in proportion to the total portfolio, we expect credit performance will normalize over time to more historic levels. During the second quarter, we demonstrated our deep access to the capital markets, raising more than $1.3 billion through two debt offerings, one in the ABS market and one in the unsecured market. We've raised over $2 billion of funding so far in 2023 and continue to feel great about our access to markets. Our strong balance sheet, liquidity, and outstanding capital access are important competitive differentiators for OneMain. Turning now to our strategic initiatives, let me start with our Brightway credit card. We continue to be very pleased with the progress of our rollout as well as the credit performance of our cards and the early results are confirming our hypothesis that a card product provides a very significant opportunity for our customers and our business. As you know, our disciplined rollout has been a multi year journey. We began offering cards in 2021 by booking about 65,000 test accounts and spent the better part of 2022 monitoring marketing and channel effectiveness, spend, and credit performance. We focused heavily on building a digital-first product by enhancing the customer experience in our Brightway app and have been very pleased to see that customers are primarily engaging with and paying us in the mobile app. Since that time, we've been focusing on our readiness to scale the card product by building out our operational and servicing infrastructure. At quarter end, we had roughly 230,000 card customers and 159 million of card receivables. And we're very excited that this month we had our first card-only customer take a loan through a pop-up offering in our mobile app. We've always thought that card customers who show positive credit behavior would be a very attractive low- or no-cost acquisition channel for loans. While it's still early days, we now have the capability to offer more than one product through our mobile app. And we're excited about the possibilities this brings to our business and customers going forward. As we've started to scale, we've maintained our conservative credit posture and have been disciplined in our rollout through the two-plus years we've been working on our card product. We're also pleased with the continued progress in our secure distribution channels. Where we continue to deliberately and carefully build a portfolio of secured loans through relationships with auto dealerships power sports dealers and home contractors. origination volume remain solid and credit performance is excellent loan source through these channels use the same hallmark ability to pay underwriting we use in the rest of the business. and almost always include a phone call directly between us and the customer. Importantly, these secured lending channels help expand our distribution capabilities and provide a growth channel with attractive returns for us in the years to come. Loans from these channels today total more than 550 million of our receivables. I'll close by briefly touching on capital allocation. Our top priority remains investing in the business, and this quarter we grew our receivables by about $700 million, invested in new products and channels, and continued to build out our technology and digital capabilities. Our next priority is our dividend, and our $4 per share annual dividend translates into an approximately 8% yield at our current share price. And finally, during the second quarter, we repurchased about 170,000 shares for $7 million. As we've discussed over the past few quarters, we've moderated our share repurchases given the uncertain economic environment and our desire to maintain strategic optionality. However, we remain active in the market and will continue to adapt the pace of repurchases as the environment evolves. With that, let me turn the call over to Micah.