OneMain - Q2 2023
July 26, 2023
Transcript
Operator (participant)
Please stand by. Your program is about to begin. If you need assistance during your conference today, please press star zero. Welcome to the OneMain Financial 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, 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. 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, 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 Poillon. You may begin.
Peter Poillon (Head of Investor Relations)
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. 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 twenty-sixth, 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.
Doug Shulman (Chairman and CEO)
Thanks, Pete. 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 grades, those with the best credit quality and lowest-risk customers. 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.
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. 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. 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. 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. 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 2+ 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, power sports 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. 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. Our $4 per share annual dividend translates into an approximately 8% yield at our current share price. 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.
Micah Conrad (CFO)
Thanks, Doug. 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 remains strong, supported by a constructive competitive environment and continued progress in our new products and channels. Managed receivables were $21.4 billion at June 30th, 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. 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 6 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.
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%-7.5%. 30-89 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%-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. While we continue to be encouraged by the performance of our newer 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. 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 five years as we begin to fill out the longer end of our balanced maturity profile. In May, we issued in the ABS market for the second time in 2023, with an $825 million five-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.
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. 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.
Doug Shulman (Chairman and CEO)
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. 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 hardworking Americans improve their financial well-being. With that, let me open it up for questions.
Operator (participant)
The floor is now open for questions. At this time, if you have a question or comment, please press star one on your touchtone phone. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we do ask that while you pose your question, that you pick up your handset to provide optimal sound quality. We'll take our first question from Vincent Caintic with Stephens.
Vincent Caintic (Senior Specialty Finance Analyst)
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?
Micah Conrad (CFO)
Hey, good morning, Vince. Thanks for the questions, Micah. I mean, we've been pleasantly surprised and, you know, happy, of course, but we're, you know, sort of the receivables are tracking. I think it's a, it's a bit of a mix, question or answer, I suppose. You know, we've seen certainly some improved payment behavior in the existing portfolios. Payments, as I mentioned in the prepared remarks, we're seeing them down versus prior periods. These are really early payoffs, you know, in terms of loans that are getting paid off by our customers in full. You know, 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's been really good. You know, those two, three things really are causing us to, you know, lead us to increase our estimates for the year. You know, I wanna 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, you know, we really have returns that we like. You know, all of that gets incorporated into our receivables expectation. I think, you know, the 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, better credit quality growth.
Vincent Caintic (Senior Specialty Finance Analyst)
Okay, great. Thank you, Micah. Second question, talking about the credit reserve range, so just a slight increase quarter-over-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.
Micah Conrad (CFO)
I think, you know, they haven't changed much, Vincent, from quarter-to-quarter, so I think, you know, we certainly feel comfortable with them. You know, we've been monitoring the environment closely, really looking at the portfolio on a quarter-to-quarter basis. Is anything dramatically changing? I think, you know, what you'll see in our credit results, obviously, is very normal seasonal trends. That leads us to not really feel like we have to put aside any additional reserves. You know, I think it also gives us confidence that, you know, the reserve level is good. We do have a degree of caution, and I mean, I guess you could 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%-5% unemployment rate, factored into our macro period. You know, as I've mentioned before, I want to make sure I mention again that that macro overlay, you know, could cover unemployment increases, but also persistent levels of inflation, and so those two are factored in. That's roughly a $100 million-$115 million macro overlay, so we feel really comfortable with the reserves. You know, at $11 million quarter-over-quarter, we went up about 6 basis points with the majority of that increase of $94 million coming from growth in our portfolio.
Vincent Caintic (Senior Specialty Finance Analyst)
Okay, great. Very helpful. Thanks very much.
Micah Conrad (CFO)
Thanks a lot.
Operator (participant)
We'll take our next question from Michael Kaye with Wells Fargo.
Michael Kaye (Equity Research Analyst)
Hi, good morning. I wanted to dig more into the loan growth. You know, it's coming in better than expectations. You've raised the guidance, the origination growth still seems kind of, you know, lackluster, or at least versus what my estimates are. I wanted to just talk more about that declining payment rate that you've been mentioning. I mean, is this really good or bad for the company in terms of maybe credit? You know, what's driving the payment rate de-decrease? Is this more normalization? Could you give 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?
Micah Conrad (CFO)
Let me give a little bit more context there, and, you know, maybe my answer was not completely fulsome, but you know, as I said, the receivables growth certainly is driven by stronger demand, and I would call that stronger demand and a really constructive competitive environment offset by our continued credit tightening that Doug had mentioned in his prepared remarks. Take those that sort of answers or at least gets to your originations question. 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, you know, last year when we did our August tightening, we had called out approximately $1 billion of annual originations being affected. 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 metrics that we track. When you look at number of customers making a payment, it's relatively close or, you know, within earshot of what, you know, the number of customers making a payment. It'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, we're using some of our borrower assistance tools to help them through this difficult time.
The reference I made to early payoffs are really loans that are paying in full. You know, 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, you know, 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. 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.
Michael Kaye (Equity Research Analyst)
Okay. Okay, that's helpful. I want to talk a little bit about the asset yields. You know, I've been surprised they haven't been a bit stronger than what you've been reporting. I know you've been guiding that, you know, modest improvement, and I think they've come in, you know, below, you know, what I would consider modest improvement. They're declining. I wanted to understand, you know, what's the dynamic that's holding the asset yields back? I know you mentioned borrower assistance, just in your last response. Is that part of it, that's creating a challenging for the asset yields?
Micah Conrad (CFO)
Yeah. You know, in general, Michael, yields are still being impacted by the macro environment. You know, and I think you hit on the two of them that are, you know, most impactful. One is the higher level of 90+. As a reminder, we reverse any accrued interest when a loan becomes 90 days past due, and we stop accruing on that loan at that point. The higher levels of 90+ 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, you know, if we extend a temporary modification to a customer for three months, we may take the accrued interest on that loan, put it on the back of the loan, and recognize it on a cash basis. You know, those two things do have an impact on yield. Given the higher levels of activity in 90+ and also borrower assistance, it's creating that temporary pressure in that area. I also mentioned, and, you know, we had, we had called out at 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.
You know, 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 attractive returns. The growth in that channel certainly has given a little bit of pressure to yield as well, with future earnings to come. You know, I think also worth 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, you know, some of these things in terms of the macro environment certainly is what we're looking for to get back to, you know, a regular way yield. I think in the medium term, we can definitely see, gaining back 100 basis points on our yields.
Doug Shulman (Chairman and CEO)
Hey, folks, this is Doug. I just want to hop in since there were two questions about growth and just remind everyone, you know, we don't manage the business to growth targets. We gave you what we think the growth is going to be. You know, 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. 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.
We're now booking loans that even if we go into a mild recession, unemployment goes up into the 5-ish%, they still meet our return on equity thresholds. 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. We're pleased with the output, but as you know, 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? We're pleased with the growth, but not managing the growth, but we did give you the number where we think it'll come in.
Michael Kaye (Equity Research Analyst)
Okay. All right. Thanks. Thanks a lot.
Operator (participant)
We'll take our next question from Mihir Bhatia with Bank of America.
Mihir Bhatia (Director and Equity Research Analyst)
Good morning, thank you for taking my questions. I have a couple of credit questions, so maybe I'll just start with the allowance ratio or the coverage ratio question. I guess, like, you know, where do you expect it to trend from here? The reason I ask is, your guidance implies a meaningful improvement in credit losses over the next couple of quarters, which, you know, you see some evidence of that in the delinquencies. You also talked about the higher quality borrowers you are adding, becoming a larger and larger part of the portfolio. When does that manifest itself into a lower allowance ratio? It does sound like there's some level of conservatism that you're putting into the allowances, but is the level of conservatism higher today than it was three months ago?
Just trying to understand some of those moving pieces within that allowance ratio. Thank you.
Micah Conrad (CFO)
Yeah, thanks, Mihir, for the question. I think, you know, in general, our expectations embedded in our reserves on the macro environment going forward are pretty consistent with what you see from peers. You know, somewhere in that 4.5%-5% unemployment rate going forward. That is certainly a part of why our reserves are at a level that are higher than, you know, a CECL day one or what we might consider a normal level of reserves. I'd put that at probably about 60 basis points, you know, roughly speaking. You know, we'll see. I think with these reserves, we're required under CECL to have a view on the future macro. We use a number of different macroeconomic sources to do that. You know, there's some judgment calls there as well.
You know, I think what we'll be looking to see is, number one, we start to see real improvement in delinquency. We've been following seasonal trends, but, you know, we'd like to see that trend down, given where the portfolio is headed, as you mentioned. I also, you know, would point out that, you know, we've got to have a view on the macro environment that continues to improve. That's either unemployment, you know, starts to look like we're sort of in the soft landing category, if I can use that term, or else inflation continues to moderate itself down over time. I think, you know, who knows? Who knows when that'll happen, Mihir, but it's probably a quarter or two away before we start thinking that direction.
Mihir Bhatia (Director and Equity Research Analyst)
Got it. Then maybe just staying on the credit side of the equation, just can you talk to us a little bit about some of the internal metrics you are seeing in terms of the pace of credit normalization or deterioration, however you describe it, right? Like, what I mean is, you know, from the outside, we see the consolidated picture, which is of course impacted by the credit tightening actions you took. What I was curious about is when you look at your customer subsegments, so on a like for like basis or, you know, using a similar risk score, risk grade, how much credit weakening are you seeing? Are you seeing signs of stability? Are you seeing the pace of normalization accelerate, decelerate? Like, where are we on that, you know, kind of core customer health, like, question?
Micah Conrad (CFO)
Yeah, I mean, I think that's a very broad question. I'll try to answer some of it. I think, you know, 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 general, in the non-prime consumer, as Doug highlighted on his remarks. You know, costs are up, right? Mortgages, rent, you know, all the things you see in the environment, food, gasoline, you know, even with inflation,3%, 3.5%, 4% higher than prior year, that's still a multiple of that higher than three years ago. You know, 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 would've told you, and we did tell you that we were seeing more challenges in the lower income, lower FICO space. You know, 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. I would put it somewhere in the 20%-30% higher delinquency level in general on a like for like basis.
Through our aggressive tightening last year and our continued, you know, 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. You know, I think you pair that with continued growth, and we're pretty happy about where the book is right now.
Mihir Bhatia (Director and Equity Research Analyst)
Got it. Just my last question, turning to the credit card product. I know it's early doors, 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 OneMain customer more? I think you mentioned you've started rolling out loans within that, within the app there. Just where have you needed to tweak? And also any changes to the full year expectations there?
Doug Shulman (Chairman and CEO)
Mihir, we, you know, 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, you know, a lot of different test sells, by customer type, credit quality, product type, different kinds of product features.
We put about 65,000 cards into market. Some of those, you know, 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. You know, the learnings are numerous. Like, you know, 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, you know, what we could charge for the card as far as yield, depending on the credit results, it met our return on equity thresholds.
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 are profitable. 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 buck. We've had tons of learnings as you roll out a new product. You know, 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. You know, we like what we've seen.
We think it's a good growth channel. Similar to loans, you know, 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.
Mihir Bhatia (Director and Equity Research Analyst)
Thank you.
Operator (participant)
Thank you. We'll take our next question from Kevin Barker with Piper Sandler.
Kevin Barker (Managing Director and Senior Equity Research Analyst)
Good morning. Thanks for taking my questions. I just wanted to follow up on credit again one more time. The year-over-year growth rate on your 30- to 90-day delinquency rate has slowed quite a bit. I think it's up only on three basis points year-over-year, versus, you know, the previous quarters, which have been, you know, much higher. You know, given that trend, do you expect your consolidated 30-day delinquency rates to have, like, negative growth by the end of the year? Is that embedded in the guidance for net charge-off, so 7%-7.5%?
Micah Conrad (CFO)
Hey, Kevin, it's Micah. As you probably know, by this point in the year, you know, maybe we've got July and a little bit of August, where 30-89 delinquency will actually impact charge-offs in 2023. 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. What we will start to see in the second half of the year, we will really start to inform where our losses will be in the first half of 2024. To answer your question, you know, with the front book now being 50% and growing, we do anticipate improvement in the 30-89 year-over-year. You know, 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.
Kevin Barker (Managing Director and Senior Equity Research Analyst)
Given what you reported for the quarter and the improvement that we saw, particularly in the first quarter, you 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?
Micah Conrad (CFO)
Yeah, I mean, I think that's why, you know, you pointed it out, as well as I could, that, you know, if you look at our 30 to 89 relative to 22 in the first quarter, we were up 35 or so basis points, and in the second quarter it's up only three. We are seeing that performance improvement in the portfolio today, and we hope to see it continue.
Kevin Barker (Managing Director and Senior Equity Research Analyst)
A quick one on the, on the macro overlays on the reserves. You know, are you anticipating some impact from the repayment of student debt in the fourth quarter, on your customer base? In general, you know, what are your expectations for the impact of the repayment of student debt, particularly for your customers? Thank you.
Doug Shulman (Chairman and CEO)
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, you know, 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 or ability-to-pay calculations when we make a loan. Most of the loans on our books we've made since 2020. 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. Generally, look, we understand the portfolio very well. We are not overly concerned because we think we've managed this going, but we're gonna monitor the situation closely. There's some talk that there may be some extension of, well, not the moratorium, because the Supreme Court ruled it down, that the Biden administration may do some sort of phased-in payment. We're watching it, not overly concerned, but we'll follow it and make any adjustments if we need to.
Kevin Barker (Managing Director and Senior Equity Research Analyst)
Thanks, Doug. Thanks, Micah.
Micah Conrad (CFO)
Sure. Thank you.
Operator (participant)
We'll take our next question from Rick Shane with JPMorgan.
Rick Shane (Managing Director and Senior Equity Research Analyst)
Hey, 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 your under index versus the broader population for student loans.
Doug Shulman (Chairman and CEO)
Yeah, Rick, I don't think we've disclosed that number.
Rick Shane (Managing Director and Senior Equity Research Analyst)
Any interest in doing it now?
Doug Shulman (Chairman and CEO)
No, I don't think we're going to do new disclosures now.
Rick Shane (Managing Director and Senior Equity Research Analyst)
Okay, fair enough. anyway, if we could turn to slide nine, I'd love to think about this a little bit. The first question is going to be oddly precise. When you talk about the portfolio mix by vintage here, are you talking on a gross or net basis? The reason I ask is I am curious if there is a difference in the reserve rate let's describe the portfolio as essentially being two different cohorts and should we see a roll down in reserve rate as the mix shifts towards the better cohort?
Micah Conrad (CFO)
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?
Rick Shane (Managing Director and Senior Equity Research Analyst)
I mean, loan balances versus net of reserve.
Micah Conrad (CFO)
I see. Okay. On the originations and the receivables that are on the left side of that page, those are pre-reserve, so in your terms, gross. They will match what we print on our managed receivables page that you also have in the deck there. Okay? 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. Some of them have paid down a little bit from August. Some of them are brand new. Okay, hopefully that's helpful and clarifies.
Rick Shane (Managing Director and Senior Equity Research Analyst)
Yeah.
Micah Conrad (CFO)
-your question. In terms of the reserves, we are certainly incorporating that view into our reserve expectations. We're gonna 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. 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, giving 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.
Rick Shane (Managing Director and Senior Equity Research Analyst)
Got it. 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 increase in 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 makes sense. You know, a six basis point increase in the reserve rate is really within the margin of error. 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. Again, I understand being conservative, but I just want to make sure that we understand what's going on there.
Micah Conrad (CFO)
Yeah, I mean, the, Rick, I think, you know, [absent] handing over the model to you, it's, there's really no way for me to easily explain that to you. There are a lot of things that go on in our CECL model. You've got the back book aging, you know, and when loans age, you know, 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, we also can't predict the future. We just continue to take a conservative and cautious view.
We impute these macro overlays that are meant to kind of keep that conservatism at that level. You know, 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.
Rick Shane (Managing Director and Senior Equity Research Analyst)
Got it. Understood. I guess the last part of this is that for the last couple quarters, and I appreciate the disclosure in terms of showing the change in delinquencies on a year-over-year basis. In the last couple quarters, you provided cohort comparisons versus 2019 on a six-month basis and on a three-month basis. 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. If you've mentioned this before, I apologize. We're juggling a lot today, so I apologize.
Micah Conrad (CFO)
No, no, it's okay. I mean, we, you know, it's something we don't want to get into the habit every single quarter of looking at vintage level results. I can tell you they are continuing to perform at our level of expectation. Some of the challenges with vintage, as you know, 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. You know, there's just getting into those granular numbers creates a whole another sort of challenge with year-over-year comparisons.
We decided at this point, given that the front book's 50% of our portfolio, there's enough contribution that we can just sort of come back to our 30-89 and 30+ metrics and really send the same message.
Rick Shane (Managing Director and Senior Equity Research Analyst)
Perfect.
Micah Conrad (CFO)
To answer your question, the front book is.
Rick Shane (Managing Director and Senior Equity Research Analyst)
That makes a ton of sense.
Micah Conrad (CFO)
Does continue to perform well.
Rick Shane (Managing Director and Senior Equity Research Analyst)
Great. Yeah, 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 you were showing the aging on that other stuff. Thank you, guys.
Micah Conrad (CFO)
Yep. Thanks, Rick. No problem.
Operator (participant)
We'll take our last question from Matthew Hurwit with Jefferies.
Matthew Hurwit (VP of Equity Research)
Hi, guys. Morning. Thanks for taking my question.
Micah Conrad (CFO)
Hi, Matthew.
Matthew Hurwit (VP of Equity Research)
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.
Micah Conrad (CFO)
Yeah, I mean, I definitely still feel like it will moderately increase over time. You know, again, as I said earlier, it's really going to be a function of the macro environment. When we start to see improvement in customers needing help making payments and also our 90+, we are, you know, in a seasonal pattern now where 90+ will gradually rise through the first quarter. You know, that becomes 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.
We've also made increased, you know, some really, I think, aggressive pricing moves. We feel good about them. You know, we're at a level of APR that I think will continue to provide some support. Matthew, it's just, you know, 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.
Matthew Hurwit (VP of Equity Research)
Okay, understood. Thanks very much and congrats on the quarter.
Micah Conrad (CFO)
Thanks a lot.
Doug Shulman (Chairman and CEO)
Thanks, Matt. 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.
Operator (participant)
Thank you. This does conclude today's OneMain Financial second quarter 2023 earnings conference call. Please disconnect your line at this time and have a wonderful day.