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Welcome to the OneMain Financial's Second Quarter 2023 Earnings Conference Call and Webcast. Hosting the call today from OneMain 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. [Operator Instructions] It is now my pleasure to turn the floor over to Peter Poillon. 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 hard-working Americans. This includes our BrightWay credit card and our expanded secured 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 a testament to our competitive positioning, strong balance sheet, and an 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 credit, 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 multiyear 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 secured distribution channels, where we continue to deliberately and carefully build a portfolio of secured loans through relationships with auto dealerships, powersports dealers and home contractors. Origination volume remains solid and credit performance is excellent. Loans sourced 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.

Thanks Doug, and good morning everyone. This quarter's financial performance was highlighted by strong receivables growth and credit trends that continue to follow normal seasonal patterns. We had a solid quarter for funding raising $1.3 billion, including accessing the unsecured market for the first time in nearly two years. Second quarter net income was $103 million, or $0.85 per diluted share, down from $1.67 per diluted share in the second quarter of 2022. Second quarter net income was impacted by CECL reserve builds resulting from our strong growth and two non-recurring regulatory settlements. Please keep in mind that prior period comparisons also reflect a historically lower level of net charge-offs. C&I adjusted net income was $122 million, or $1.01 per diluted share, down from $1.86 per diluted share in the prior year quarter. Capital generation was $192 million for the quarter, compared to $273 million a year ago. Recall capital generation excludes changes in CECL reserves, considering only the current period's charge-offs. Demand for our loan products remained strong, supported by a constructive competitive environment and continued progress in our new products and channels. Managed receivables were $21.4 billion at June 30, up $1.3 billion or 6% from a year ago with approximately one-third of that growth coming from our secured distribution channels and BrightWay credit cards. As a reminder, managed receivables also includes, $849 million of receivables sold through our forward flow agreements. Given our second quarter performance and what we can see ahead, we are now estimating full year receivables growth to be between 5% and 8%. You may recall last quarter, we signaled that we were trending toward mid-single digits, an improvement from our initial guide in early February, as a constructive competitive environment and lower early payments have offset the impacts of continued credit tightening. Second quarter interest income was $1.1 billion, flat to the prior year quarter. Yield was 22.2% in the quarter, down five basis points from the first quarter. Yield continues to reflect the ongoing impacts of higher delinquency levels, borrower payment assistance and the strong originations in our secured distribution channels. We expect yield will gradually improve over time, as our back book runs off and we see the benefits of our credit tightening and our recent pricing actions. Pricing for the second quarter originations was up modestly from first quarter. And since the end of June, we've made even further pricing adjustments that will support yield in the quarters to come. Interest expense was $242 million in the quarter, up $24 million or 11% versus the prior year, primarily from an increase in average debt to support our receivables growth. Interest expense as a percentage of receivables was 4.8%, up modestly from 4.6% a year ago, a sharp contrast to the significant increase we've seen in base rates. We expect that future changes in our interest expense will be gradual, given our primarily fixed rate, longer duration maturities and our recent mix of lower-cost secured funding. Other revenue in the second quarter was $182 million, up $29 million or 19% from the prior year quarter. The increase was primarily attributable to higher yields on our investment portfolio and on our cash balances. Provision expense was $479 million, reflecting net charge-offs of $385 million and a $94 million increase to our loan loss allowance. Note that the increase in the allowance is primarily driven by portfolio growth, as our reserve ratio was up just six basis points to 11.66%. We continue to maintain a cautious view of the future macro environment in our reserves with assumptions similar to recent quarters. Finally, policyholder benefits and claims expense for the quarter was $44 million, compared to $42 million in the second quarter of 2022. Let's now turn to the C&I credit trends, highlighted on slide eight. Loan net charge-offs were $379 million or 7.6% for the quarter. Net charge-offs were supported by strong recoveries equal to 1.3% of average receivables. Our net charge-off estimate for the year remains unchanged at 7.0% to 7.5%. 30 to 89 loan delinquency was 2.76% in the second quarter, up from 2.58% in March. This sequential increase of 18 basis points is consistent with typical seasonal patterns. As you'll see on slide nine, our post-August 2022 originations or our front book has now grown to represent about 50% of our total portfolio. These originations continue to perform within our expectations and are expected to represent 65% to 70% of our portfolio by year-end. The performance of our front book is supporting a return to more normal seasonal patterns in our portfolio. 30-plus delinquency of 5.09% was down 20 basis points in the second quarter and down 71 basis points year-to-date, very much in line with pre-pandemic comparison periods and a stark improvement from what we saw a year ago. And while we continue to be encouraged by the performance of our new originations our older vintages continue to track above pre-pandemic levels and we are proactively working with customers through what continues to be a challenging time. Turning to Slide 11. C&I operating expenses were $370 million in the quarter up 5% year-over-year while our operating expense ratio remained unchanged at 7.1%. The majority of our expense growth came from investment in our new products and channels with our core expense up just 2% versus the second quarter of 2022 despite higher levels of growth in receivables. We continue to manage our expenses closely and expect our full year OpEx ratio to be approximately 7.1% of average receivables unchanged from our previous guidance. Let's now turn to Slide 12 for an update on our balance sheet and our funding. One of the fundamental advantages of our business is our proven access to funding and the capital markets. That was on display once again this quarter as we successfully tapped both the ABS and unsecured debt markets to raise more than $1.3 billion. Importantly both debt issuances in the quarter had maturities of over 5 years as we begin to fill out the longer end of our balance maturity profile. In May, we issued in the ABS market for the second time in 2023 with an $825 million 5-year revolving deal at 5.8%. The issuance was well supported with long-term investors and a great lineup of new investors. In June, we issued in the unsecured market for the first time since August of 2021 with a $500 million 9% note due in January 2029. We saw participation from more than 20 new investors in this issuance and we were pleased with the execution in what has proven to be a choppy market. Each of our unsecured issuances since 2020 have contained a callable feature, which for this 2029 bond will begin in the middle of 2025. This is yet another important tool for us to manage our interest expense and our debt profile over time. Our secured funding mix at quarter end was 55% of outstanding debt flat to the prior quarter due to the balance of our issuance in 2Q. Our liquidity remains strong and is supported by $7.4 billion of committed bank facilities spread across 15 geographically diverse and well-established financial institutions. During the quarter, we renewed three of these facilities totaling more than $1 billion of capacity extended beyond 2026 and we have now renewed 12 of our facilities since the beginning of last year showing the strength of our key bank relationships and our liquidity position. And to wrap up the balance sheet our capital adequacy also remains strong with net leverage of 5.5x up modestly from 5.4x last quarter. With that I'd like to turn the call back over to Doug.

Thanks Micah. OneMain remains in a very strong competitive position as we continue to provide access to credit for our customers and help them through this uncertain time. Our delinquencies are in line with seasonal trends and the loans we have originated post tightening are performing well. Our balance sheet is strong enabling us to make every loan that meets our risk return criteria. And we continue to invest in new products and channels allowing us to better serve more customers over time. Before I end, I want to thank 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. With that let me open it up for questions.

[Operator Instructions] We'll take our first question from Vincent Caintic with Stephens.

Hi. Good morning. Thanks for taking my questions. Nice to see the loan growth this quarter and raising the loan growth range for the year. Just curious, if you could talk about what you're seeing that's different? And what gives you confidence in higher growth given your conservative stance?

Hey. Good morning, Vince. Thanks for the questions. This is Micah. Yeah, I mean, we've been pleasantly surprised and happy of course, but where sort of the receivables are tracking I think it's a bit of a mix question or answer I suppose. We've seen certainly some improved payment behavior in the existing portfolio. So payments, as I mentioned in the prepared remarks, we're seeing them down versus prior periods. These are really early payoffs in terms of the loans that are getting paid out by our customers in full. And we think that's partially a function of the competitive environment. So those receivables are sticking around a lot longer. Importantly, those are receivables that are paying. We've also seen strong demand as we mentioned. The competitive environment has been really good. So those two-three things really are causing us to lead us to increase our estimates for the year. I want to make sure and mention that that's also allowed us to continue to tighten credit as well, and be really selective about the loans that we're putting on our books and making sure they really have returns that we like. And so, all of that gets incorporated into our receivables expectation, but I think the net-net of all this is a little bit better growth we're going up 5% to 8%, but with also much stronger and better credit quality growth.

Okay. Great. Thank you, Micah and second question talking about the credit reserve range, so just a slight increase quarter-to-quarter. If you could talk about your comfort level about the credit reserves at this current level and what expectations are built into that? Thank you.

Yeah. I think they haven't changed much Vincent, from quarter-to-quarter. So I think we certainly feel comfortable with them. We've been monitoring the environment closely really looking at the portfolio on a quarter-to-quarter basis is anything dramatically changing. And I think what you'll see in our credit results obviously is very normal seasonal trends. So that leads us to not really feel like we have to put aside any additional reserves. I think it also gives us confidence that the reserve level is good. We do have a degree of caution. And I guess, you can call it conservatism, but we'll see how the macro environment plays out. We do have some caution in the reserves. We continue to have a 4.5% to 5% unemployment rate factored into our macro period. And as I've mentioned before, I want to make sure I mention again that macro overlay could cover unemployment increases but also persistent levels of inflation and so those two are factored in. It's roughly $100 million $115 million macro overlay. So we feel really comfortable with the reserves, at 11%. As you know this quarter-over-quarter we went up about six basis points with the majority of that increase of $94 million coming from growth in our portfolio.

Okay. Great, very helpful. Thanks very much.

Thanks a lot.

We'll take our next question from Michael Kaye with Wells Fargo.

Hi. Good morning. I wanted to dig more in Q1 the loan growth. It's coming in better than expectations. You've raised the guidance, but the origination growth still seems kind of lackluster at least versus what my estimates are. So I wanted to just talk more about that decline in payment rate that you've been mentioning. I mean is this really good or bad for the company in terms of maybe credit? Is this really, what's driving the payment rate decreases? Is this more normalization? And could you give us some like historical perspective of these payment rates, where they stand today versus pandemic versus historical averages? And do you expect these payment rates to continue to moderate?

Yeah. So let me give a little bit more context there. And maybe my answer was not completely fulsome. But as I said the receivables growth certainly is driven by stronger demand. And I would call that stronger demand in a really constructive competitive environment offset by our continued credit tightening that Doug had mentioned in his prepared remarks. Now, take those -- that sort of answers or at least gets to your originations question. So originations in the quarter, they were down 4% year-over-year in light of the aggressive tightening that we made in August of last year as well as July and continue to make throughout this year, I think down 4% on originations we're pretty happy about that given the aggressive tightening we made. I mean, I think last year when we did our August tightening we had called out approximately $1 billion of annual originations being affected. And so I think you've got to keep that in context when you look at the year-over-year originations performance. In terms of the receivables growth and the impact of payments, I'll call out a couple of things and the metrics that we track. When you look at number of customers making a payment, it's relatively close or within earshot of what -- the number of customers making a payment's in the high 80s versus pre-pandemic levels. What we are seeing is customers are paying in some cases can't make the full payment. So we're using some of our borrower assistance tools to help them through this difficult time. And the reference I made to early payoffs are really loans that are paying in full. And so -- we saw a lot of it in 2021, when the government was throwing cash at our customers. They had excess cash to pay off loans. We also think that, that's a function of the competitive environment where loans are not getting written away from us as frequently as they may have been in the past. And so -- those -- again those are the pieces that contribute to the receivables growth because those are loans that are on the books and would presumably be written away. We think they're customers who are paying, and I look at it as a good thing net-net.

Okay. Okay. That's helpful. I want to talk a little bit about the asset yields. I get surprised they haven't been a bit stronger than what you've been reporting. I know you've been guiding that modest improvement, I think they've come in below what I would consider a modest improvement or declining. So I wanted to understand what's the dynamic that's holding the asset yields back, I know you mentioned borrower assistance just in your last response. So is that part of it that's creating a challenging for the asset yields?

Yeah. So in general Michael yields are still being impacted by the macro environment. And I think you hit on the two of them that are most impactful. One is the higher level of 90-plus. As a reminder we reversed our -- any accrued interest when a loan becomes 90 days past due and we stop accruing on that loan at that point. So the higher levels of 90-plus there do create a downward pressure on overall yield. Also some of the borrower payment assistance that we do creates some timing differences in yield where if we extend the temporary modification to a customer for three months we will we may take the accrued interest on that loan put it on the back of the loan and recognize it on a cash basis. And those two things do have an impact on yield. And given the higher levels of activity in 90-plus and also borrower assistance it's creating that temporary pressure in that area. I also mentioned and we had called out -- maybe fourth quarter of last year we had shown some pictures in our earnings deck around our prime pricing and also our secured distribution channel. So Doug called out, the strong growth we're seeing in that secured distribution channel. And those do have lower APRs. They of course have lower losses and we think very, very attractive returns. But the growth in that channel certainly has given a little bit of pressure to yield as well with future earnings to come. And I think also, we're certainly mentioning again we continue to actively manage our originations and our receivables. We have made some significant pricing increases over the last six weeks in certain segments that we do expect will help yield as we move into the latter part of 2023 and into 2024. And some of these things in terms of the macro environment certainly is what we're looking for to get back to a regular way yield. But I think in the medium term we can definitely see gaining back 100 basis points on our yield.

Hi, Folks this is Doug. I just want to hop in since there are two questions about growth and just remind everyone, we don't manage the business to growth targets. We gave you what we think the growth is going to be. Our view is that growth is an outcome of we're going to have the credit box that meets our risk return thresholds. And then, we're going to have excellent marketing, excellent customer experience, excellent product set. I think we're very pleased given, how tight our credit box is. And remember, our credit box -- we tightened it because we saw some elevated delinquency in the spring of 2022. And then we layered on a metric for recession. So, we're now booking loans that even if we go into a mild recession, unemployment goes up into the 5-ish percent, they still meet our return on equity threshold, given that we think it's because of our strong competitive position that 65% of the loans we're booking today are in our top two risk grades. And so, we're pleased with the output. But as, someone told me when I came into this job who's been in the business a long time. Anyone can make a loan, the question is, can you make good loans that pay you back. And so we're pleased, with the growth but not managing the growth. But we did give you the number, where we think it will come in.

Okay. Thanks, Doug

Yes. I mean, I think that's a very broad question. I'll try to answer some of it. I think there are certainly puts and takes in the macro environment right now, unemployment remains low as you know. We are seeing some wage growth in our customer base and in the consume – general and the non-prime consumer as Doug highlighted on his remarks. Costs are up, right? Mortgages, rent, all the things you see in the environment, food, gasoline, even with inflation 3%, 3.5%, 4% higher than prior year, that's still a multiple of that higher than three years ago. So I would say in general, the non-prime consumer is still struggling with inflation. We see that on a like-for-like basis across the FICO spectrum. If you were to look a year-ago, we probably we would have told you and we did tell you that we were seeing more challenges in the lower income, lower FICO space. A year later that has kind of moved itself up into the higher levels of the FICO spectrum and you're hearing that from other near prime and even prime lenders on their public calls. And so I would put it somewhere in the 20% to 30% higher delinquency level in general on a like-for-like basis. But through our aggressive tightening last year and our continued sort of surgical management of our originations and the way we're thinking about deploying capital, we've been able to generate a result that on our recent originations looks more like a 2019 level. And I think you pair that with continued growth and we're pretty happy about where the book is right now.

Got it. And then just my last question, turning to the credit card product? I know it's early days but maybe just update us on, what are some of the key learnings so far? Are you seeing that product resonate with a certain type of one main customer more? I think you mentioned, you've started rolling out loans within the app there. So just where have you needed to tweak? And also any changes to the full year expectations there?

Yes, Mihir we – we're still in the early days of credit card. And a couple of years ago when we first started issuing the cards, we ran a lot of different test sales by customer type, credit quality, product type, different kinds of product features. And we put about 65,000 cards into market. Some of those – and we pushed the envelope so we could see where the different breaking points were for profitability so that we could then decide where we wanted to start rolling things out. And so the learnings are numerous like depending on what fee you charged and what channel you went through some of those we didn't like the results we were seeing. And so we only used those in test and we didn't put those in production. Similarly, depending on what we could charge for the card as far as yield, depending on the credit results that met our return on equity thresholds. And so after we rolled out in 2021, we watched performance for most of 2022. And now we're rolling out cards in credit bands, where we can price appropriately, with the product features through the channels that make the most sense to us and that we're highly confident or profitable. And again, just like with our loans, we're only booking cards now that will be profitable even if losses are higher than our expectation because we have a very conservative credit book. So we've had tons of learnings as you roll out a new product. And we as a company just continue to grind on every single detail and analyze all of those different factors I said, as we incrementally tweak our box, our customer experience and our product. And so we like what we've seen. We think it's a good growth channel. Similar to loans, we're not managing to any sort of growth targets. We're managing to profitability and return on equity products. And so we like what we've seen with the rollout and we plan to continue the rollout in some very specific segments that we have a lot of confidence in.

Thank you.

Thank you. We'll take our next question from Kevin Barker with Piper Sandler.

Good morning. Thanks for taking my questions. I just wanted to follow up on credit again one more time. So the year-over-year growth rate on your 30 day to 90 day delinquency rate has slowed quite a bit. I think it's up only three basis points year-over-year versus the previous quarters which have been much higher. Given that trend do you expect your consolidated 30-day delinquency rates to have like negative growth by the end of the year? And is that embedded in the guidance for net charge-offs of 7% to 7.5%?

Hey, Kevin, it's Micah. As you probably know by this point in the year maybe we've got July and a little bit of August where 30 to 89 delinquency will actually impact charge-offs in 2023. So I think we feel very, very good about the charge-offs and the charge-off range because of that reason. It's effectively already embedded in our delinquency buckets at this point because we have a 180-day charge-off policy. So what we will start to see in the second half of the year will really start to inform where our losses will be in the first half of 2024. But to answer your question with the front book now being 50% and growing we do anticipate improvement in the 30 to 89 year-over-year. When that happens I don't know. That is something that remains unseen. But over time as that front book becomes bigger and bigger and performing at 2019 2018-type levels that would be a good assumption.

So given what you reported for the quarter and the improvement that we saw particularly in the first quarter it would imply that we're probably already seeing some of that negative growth on a year-over-year basis on delinquencies. Are you seeing that maybe in the month of June and maybe the early part of here in July?

Yes. I mean, I think, that's why you pointed it out as well as I could that if you look at our 30 to 89 relative to 2022 in the first quarter we were up 35-or-so basis points. And in the second quarter it's up only 3%. So we are seeing that performance improvement in the portfolio today and we hope to see it continue.

And then a quick one on the macro overlays on the reserves. Are you anticipating some impact from the repayment of student debt in the fourth quarter on your customer base? And in general what are your expectations for the impact of the repayment of student debt particularly for your customers? Thank you.

Look Kevin, we're monitoring it really closely. We obviously know what trade lines all our customers have. A lot of our customers have actually been paying their student loans all along. Historically speaking, we've tracked this and looked at it. Loans where a customer has a student loan trade line perform very much like loans that don't. That said since 2020 when the moratorium on payments started out of abundance of caution, we actually have been imputing a monthly payment of a student loan into our net disposable income our ability to pay calculations when we make a loan. And most of the loans on our books we've made since 2020. So we actually factored in a student loan payment when making loans to folks. Over the last year or so we've also made some adjustments to thin-file applicants who have student loans on their bureau. So generally, look, we understand the portfolio very well. We are not overly concerned because we think we've managed this going, but we're going to monitor the situation closely. There's some talk that there may be some extension of while not the moratorium because the Supreme Court ruled it down that Biden administration may do some sort of phased-in payment. So we're watching it not overly concerned, but we'll follow it and make any adjustments if we need to.

Thanks, Doug. Thanks, Micah.

Thank you.

And we will take our next question from Rick Shane with JPMorgan.

Hi, guys. Thanks for taking my questions this morning. Just to continue that topic and then I have something else I want to delve into. Have you provided or can you provide what percentage of your customers actually have student loans? I'm assuming you underindex versus the broader population for student loans?

Yes, Rick, I don't think we've disclosed that number.

Any interest in doing it now?

No, I don't think we're going to do new disclosures, no.

Okay. Fair enough. Anyway if we could turn to slide 9, I'd love to think about this a little bit. And the first question is going to be oddly precise. But when you talk about the portfolio mix by vintage here, are you talking on a gross or net basis? And the reason I ask is I am curious if there is a difference in the reserve rate for the -- let's describe the portfolio is essentially being two different cohorts. And should we see a roll down in reserve rate as the mix shifts towards the better cohort?

Rick, I'm going to ask you a question if that's okay. When you say gross versus net what do you mean by that?

I mean, loan balances versus net of reserves.

I see. Okay. So on the originations and the receivables that are on the left side of that page those are pre-reserves. So in your terms gross. They will match what we print on our managed receivables paid that you also have in the deck there, okay? So I guess to go a little bit further into that the 50% that's from the front book as we would call it, they're both 50% obviously. But that is the balance of receivables related to all loans originated since August 2022. So some of them have paid down a little bit from August, some of them are brand new, okay? Hopefully that's helpful and clarifies your question. In terms of the reserves, we are certainly incorporating that view into our reserve expectations. Now we're going to look at where the portfolio roll rates have been in the past, what we think they're going to look like in the future with those better vintages starting to build and those all get incorporated into our reserve expectations. But I think as you've heard us say numerous times, we do take a conservative or cautious view on our reserves. I don't feel at this point that there is any strong indication we should be taking those reserves down given the uncertainty in the environment and we'll continue to watch that and of course manage it on a quarterly basis based on what we see out there.

Got it. So when we look at the reserve build during the quarter and there are a couple of ways to look at it, obviously, there was six basis points of increasing reserve rate. That implies that 85% of the reserve growth -- actually 87% of the reserve growth in the quarter was due to growth and that made sense. And a six basis point increase in the reserve rate is really within the margin of error. But if the portfolio is shifting towards front book, which is a better cohort than the back book it does suggest that perhaps you took the reserve rate up on the front book a little bit as well. And again I understand being conservative, but I just want to make sure that we understand what's going on there.

Yeah. I mean Rick I think absent handing over the model to you there's really no way for me to easily explain that to you. There are a lot that go -- a lot of things that go on in our CECL model. You've got the back book aging. And when loans age, they have different reserve rates. You've got elevated levels of delinquency that have different level of reserve rates than current loans. The front book as I mentioned we are definitely considering the performance expectations on that front book, but we also can't predict the future. And so we just continue to take a conservative and cautious view. We impute these macro overlays that are meant to keep that conservatism at that level. And we'll manage it on a quarterly basis. It's hard for me to get into really granular discussions about that on this type of call.

Got it. Understood. And I guess the last part of this is that for the last couple of quarters and I appreciate the disclosure in terms of showing the change in delinquencies on a year-over-year basis. But in the last couple of quarters you provided cohort comparison versus 2019 on a six-month basis and on a three-month basis. And what you had illustrated previously was that the front book was performing highly consistently with the 2019 vintage on a like-for-like basis. That disclosure is not here. Just curious, if there is any change there or if the performance for the front book is continuing to trend closely with the 2019. And if you mentioned this before, I apologize we're juggling a lot today so I apologize.

No. No, it's okay. I mean we're -- we -- it's something we don't want to get into the habit every single quarter of looking at vintage level results. But I can tell you they are continuing to perform at our level of expectation. Some of the challenges with vintage as I'll point out to you are for instance the late 2019 vintages by the time we get to June and July of 2020, those vintages started to be heavily influenced by government stimulus. And so, there's just getting into those granular numbers creates a whole another sort of challenge with year-over-year comparisons. And we decided at this point given that the front book is 50% of our portfolio there's enough contribution that we can just sort of come back to our 30 to 89 and 30-plus metrics and really send the same message.

But to your question the front book is -- does continue to perform well.

Great. Yeah. And thank you for the clarification. It's a subtlety I wouldn't have thought of, but it makes a ton of sense because of the way we're showing the aging on that other stuff. Thank you guys.

Yeah. Thanks, Rick.

And we'll take our last question from Matthew Hurwit with Jefferies.

Hi, guys. Good morning. Thanks for taking my question.

Hi, Matt.

Just one for me. You said last quarter that you expected yield to improve modestly from where it was. Just wondering if that's still the case what underlies that expectation? Thanks.

Yeah. I mean, I definitely still feel like it will moderately increase over time. Again, as I said earlier, it's really going to be a function of the macro environment. And when we start to see improvement in customers needing help making payments and also our 90-plus, we are in a seasonal pattern now where 90-plus will gradually rise through the first quarter. So that becomes some -- an element of our forecasting and our expectations. I also talked about the secured distribution channels becoming a bigger part of our portfolio which has created some pressure on yield. Of course we love those loans. They have great returns but they do have some pressure on the yield top line. But we've also made increased -- some really I think aggressive pricing moves. We feel good about them. We're at a level of APR that I think will continue to provide some support. And Matthew it's just -- it's hard to predict exactly when that happens. But I think over the next three, four quarters, we're certainly going to start to see some gradual improvement.

Okay. Understood. Thanks very much, and congrats on the quarter.

Thanks a lot.

Thanks, Matt, and hey, thanks everyone for joining us. Appreciate you spending time with us this morning. Our team is here, if you've got any follow-up and hope everyone has a great day.