OneMain Holdings, Inc. (OMF) Earnings Call Transcript & Summary

Welcome. Thank you for joining us here in New York City for the OneMain 2023 Investor Day. For those of you joining via the webcast, we thank you and welcome you as well. We know that your time is really valuable, and we appreciate that you're spending a good part of your afternoon here with us listening to the OneMain story. For those of you who don't know me, I'm Peter Poillon, I'm Head of Investor Relations at OneMain. Two quick housekeeping items. First is that we are going to take a break about a 10-minute break right about the midpoint of the presentation. So right after Rajive's presentation. For those of you listening in via the webcast, there's going to be a pause. You're going to hear some background music. Please hang in there with us. It won't be too long. Second is that we're going to have a question-and-answer session after all of the presentations are done. So we'll bring all the presenters up, you can go at it with them. We do ask that you'll hold your questions until after the last presentation, which will be Micah's financial presentation. So I have the distinct pleasure of presenting the first slide. This is what I do. It's our typical forward-looking statements and our use of non-GAAP financial measures. Please read those carefully. And just as a reminder, this full slide deck plus a replay of this webcast will be available on our website in the IR section soon after the conclusion of this event -- of this live event. So, with that, I do have the distinct pleasure, like the true distinct pleasure of introducing our Chairman and CEO, Doug Shulman, after we show a short video about OneMain. [Presentation]

Welcome, everyone. Really nice to see a lot of familiar faces here today. Welcome to the folks on the webcast. As you can see from that video, we are a very special company and we're going to speak to you about it today. We're going to talk to you about why we come to work every day, and that's to improve the financial well-being of hard-working Americans. And we're going to discuss why we think today more than any time in the company's history, we are better positioned for the medium- and long-term success. Before I dive in into it, let me give you a sense of the day. I'm going to give you a strategic overview. And then you're going to hear from some of our world-class executive team. Jenny Osterhout is going to talk about our products, our channels and our digital capabilities. Rajive Chadha is going to speak about our operations and operating model. Dinesh Goyal is going to talk about how we manage credit and also how we use advanced analytics throughout the whole company. And then finally, Micah is going to wrap up and talk to you about what does all this mean financially for OneMain. And then as Pete said, we're all going to be available to answer questions. Our goal today is when you leave, you're going to feel and have a better sense of why we feel so confident in our business and our future prospects. We fill an incredibly unique place in the consumer finance landscape and in our customers' lives. We partner with our customers when they have a time of need. When many banks have pulled out of the non-prime space. We have more experience than any other non-prime player with unparalleled credit management and balance sheet management. We have a nationwide branch network, which is very hard to replicate, plus digital, plus central servicing capabilities. And we now have our hooks into two very large markets with our new products, which sets us up for profitable growth in the future. All of this leads to a business that generates significant capital and great shareholder returns. Now, before I get deeper into it, I want to say something that many of you have heard me say before, and that's that strategy means nothing without execution. And we live by the ethos of you got to get into the details, you got to get into the facts, you got to be honest with yourself about where do you do things well, where don't you do things as well and you have room for improve. You got to make plans to improve. You got to execute on it, then you got to analyze the heck out of it and then rinse and repeat and follow up. There is no substitute for being detail-oriented, disciplined and doing the hard work. That is one of the keys to driving shareholder outcomes and shareholder success. So what is our vision as a company. It is to be the lender of choice to the non-prime consumer. And it's really important that I point out, that we are sticking to our roots with this vision. And our roots are focused on non-prime customers and our roots are lending. And you'll see on the left-hand side, that our core product set remains a lending or extension of credit product set. Whether that's unsecured loan, a secured loan, auto finance or credit cards, but we also think it's important that we help our customers get to a better place financially. We do that with financial wellness, we do that with insurance products, which gives customers peace of mind. We do that with things like bill negotiation, just to name a few. This combination of lending to customers and also helping them move forward financially means that customers think of us as a partner that is there for them, leading to customers who want to do more business with us over time. So who is the OneMain customer? It's everyday middle-income Americans. Think of an auto mechanic who makes $70,000 a year, owns a house in the suburbs and has two kids. He wants to get a handle on his debt, and which has been piling up. And he wants to put it into a very straightforward amortizing loan, where he knows where all the payments are and what he owes. This simplifies his life and allows him to pay down his debt over time. Our customers come to us because we are the responsible lender. We treat our customers right, and we care about them. Most of the time, we're the best offer for a customer. We have personalized service that tailors the right product to the customers' need. We have affordable products that we offer in a transparent straightforward, easy-to-understand method with a consultative approach. And all of this is done in a pressure-free environment where we're there for our customers, and we educate them, along the way. We do the right thing for our customers, for our communities and our employees, which makes us a very strong enduring company. With employees who love to work here and customers who trust us, which ultimately benefits our shareholders. We bought Trim a couple of years ago, and we offer it to all of our customers free of charge. This helps them negotiate bills, save money on subscriptions and more. We launched Credit Worthy by OneMain. Credit Worthy is a course, that we developed for high school students that teaches them healthy credit building activities. Our team members volunteer and help teach the high school students, building loyalty with our team members and giving them an opportunity to give back. And we've now taught over 250,000 students nationwide. And we also land in what the Federal Reserve defines as credit insecure counties also referred to as credit deserts where, as I mentioned, many banks and other financial institutions have pulled out. We've issued two social bonds with proceeds dedicated to lending to underserved communities. And consumers, including minorities and women and in rural areas. And we've got some of the highest employee engagement scores in the entire financial service industry, with 2 years running being named a most loved workplace. So what sets us apart from our competition. We have a very unique and differentiated business model. No other lender has the combination of the strength of our balance sheet, our nationwide reach, the ability to serve customers in person, on the phone or digitally and has a relentless focus and deep expertise in non-prime lending. Banks have largely absented the field, since '08, '09 for the non-prime customer, largely because of capital treatment or their risk posture. Our smaller regional competitors don't have the economies of scale, financial strength or distribution reach of OneMain. And fintechs often have great technology but generally lack the credit discipline, deep funding and ability to get to know a customer that we've built out over the years. Everyone in this room is aware of the shakeout that happened in the sector in the last couple of years, where the cracks and competitors' business models became apparent. This includes AI credit models that were not as great as people thought. And fast money that flowed into balance sheets of lending companies that disappeared at the first sign of credit deterioration. We built a business for all economic conditions and every economic cycle. And that has allowed us to capitalize in turbulent times like the last year and maintain and grow our 20% market share in personal loans. Omnichannel, we've talked about it a bunch, what does that mean? We have 1,400 branches across the United States. This allows us to have deep personal relationships with customers where we have a consultative approach. We help them make a budget and understand what they can afford and decide which product is best for them. Whether it's an unsecured loan, a secured loan, a credit card and insurance product, et cetera. I visit our branches all the time. And I talk to customers. You'll hear them say things like this, I've taken a loan out from you twice in the last dozen years. Linda always takes care of me, she treats me well and helps me out if I run into a bump along the way. Rajive is going to talk more about our team members. But in the branches, they both originate loans and do collection activities. This leads to accountability and better credit results for OneMain. Also think about a customer getting a call from an area code that is their area code, not an 800 number. And when they pick up, often it's someone that they actually met in person or actually gave them the loan. This just ultimately is a competitive advantage that leads to better outcomes. But over the last 5 years, we've also enhanced this with central call centers and digital capabilities. Our central operations allow us to do capacity routing. So if a small branch is booked and they don't have time to either follow up or do something, it can get routed centrally, Rajive is going to talk about. We built a lot of capabilities around there. It allows for after hours, if you apply for a loan on a weekend or in the evening when one of the branches in your neighborhood isn't open. You can get to a live person, and it clearly gives us economies of scale in the business, which helps our operating leverage. On the digital front, we've invested a lot in our mobile and web capabilities. We've got the ability to do video and chat with customers. 50% of our loans are now closed outside of a branch. And we've got a great mobile app, where a lot of the work gets done with the customer. And also increasingly, we're developing mobile real estate and mindshare so that we can do more with customers over time. The majority of our customers have an online account, and our mobile app is the primary servicing vehicle for our card product. Mobile also allows you to decrease cost and increase self-service. And just across the board, it increases ease for people who don't want to pick up a phone or walk into a branch. So whether that's making a payment, doing a loan renewal or a card cross-sell. The list goes on. We've invested heavily also in data science and data analytics. And if you combine our advanced analytic capabilities with our proprietary data that we have on customers. It is a powerful combination that drives results across the company. Dinesh is going to talk to you more about credit but we have better underwriting and credit results than any other non-prime lenders. But in addition to credit, let me give you a couple of examples of ways we use data and analytics across the company. We can now predict which customers who apply for a loan are most likely to actually book a loan with it. We call it our propensity model. And that's based on customer characteristics, including historic data that we have in them, products that are being offered and which products have they applied for, credit attributes, so the risk profile, the time of day and the channel they came in from and a bunch of other data points. So we can actually manage work cues to route calls, route inquiries to the highest value customer at any given time. In marketing, we're using AI models to test hundreds of variables, around -- across outbound marketing, either e-mails direct mail or web. And we look at things like word placement, we test word placement, value proposition, et cetera. this has been leading to higher click-through rates and ultimately, better customer conversion. As I said at the beginning, a lot of running a great company is getting into the details. And we get into the details all day long across our entire company. What does it mean to have a fortress balance sheet. First, we have one of the strongest liquidity positions of any financial service company. I would argue including most banks. We hold 24 months of liquidity at any time, with very conservative assumptions. So what this means is if we could not access markets to get any new funding for a full 2 years, we would have the cash we needed to make loans, invest in the business and invest in the future. We also pay what we call insurance or extra to have untapped bank lines and plenty of collateral should we need it. And we have our diversified balance sheet with a combination of ABS and long-tenured unsecured debt, which allows us to stagger our maturities, smooth out interest volatility and ride out any market dislocation. The strength of our balance sheet has been evident in the last year as we have had plenty of access to capital, to continue to book good business as competitors with weaker balance sheets have had to retrench. Multiproduct, what does that mean and why is it important? We now have a suite of products for the non-prime consumer. Our personal loan products, which are and will be for the foreseeable future, the anchor of our business are designed to help a customer meet a short-term need like fixing a car or a hot water heater, consolidating debt or financing a larger transaction like a kitchen or bathroom remodeling. A couple of years ago, we added credit card to our product mix. A card is very complementary to our loan product, adding a daily transactional product to the larger episodic installment loan. We can be there for customers as they buy gas, buy groceries, by close. And the card allows us to extend $500 or $1,000 of credit to a customer that we don't feel comfortable or we wouldn't give a $10,000 loan to. It leverages our core strengths as a company. And that's non-prime lending. It gives us lower-cost acquisition channels that can be used to cross-sell in the future. It creates a longer lifetime relationship with the customer than an amortizing loan. And we see it as a large and profitable growth opportunity in the years ahead. Jenny is going to talk more about our card. Now we've been in the business of auto lending for many years. Traditionally, in the space of making a personal loan with auto as a collateral. We started what we call direct auto in 2015. More recently, we've moved into the purchase of auto financing, or the auto financing business. This, again, builds off our core strengths of underwriting and servicing the non-prime customer. 50% of our loans already have auto as a collateral, and that's in our full $20-plus billion book. So we can leverage our existing operational servicing and collateral management infrastructure and expertise as we move further into this business. We like auto finance because it further diversifies our product mix, it's complementary from a customer standpoint. It gives us a new distribution channel. It has a deep and liquid funding market, and it's a lower loss content product that reduces OneMain's overall volatility of losses, which I'll show you in a couple of minutes, our volatility of losses are already pretty low. And so we think this mix is powerful. We built out an independent dealer network slowly and deliberately over the last couple of years, and we now have $700 million of auto loans on our books. A couple of weeks ago, we signed a definitive agreement to buy Foursight Capital. We looked at a number of auto businesses and Foursight was, by far, the most compelling. This is a tuck-in transaction. It's a very comfortable size for us. It gives us a platform with a management team, scalable technology, proven credit models and a franchise dealer network. We plan to grow it in a very deliberate and systematic way, mindful of the current credit environment, but it sets us up and gives us a lot of optionality for the future as we see opportunity. As I mentioned earlier, we bought Trim in 2021, which we offer free of charge to all customers, which deepens our relationship with our customer and helps build loyalty by saving them money. So when you put all these products together, what does it mean? It means we have more customers and the more customers you have, the more business you can do with them across the product set. It means we have longer and deeper relationships. The average customer relationship with a loan is 3 years. But after a customer pays off a loan, they could have a credit card with us for a decade. We have lower cost acquisition channels through card and Trim and a new acquisition channel through auto. We have more proprietary data on customers allowing us to continually improve our credit models. Picture a customer who starts a relationship with us with a $750 line of credit on a credit card. Over the next year, they show positive credit behaviors and positive payment behaviors. And we increased their line to $1,000 and then $1,500. Then they sign up for Trim. And we help them save $500 on subscriptions and help them with some bill negotiations. This customer now has a very positive feeling about OneMain. We are the financial institution who gave them a chance with credit and who has helped them manage their finances. They're then thinking about renovating an old bathroom. And when they are on their mobile app, getting their rewards for their car -- or I mean, for their credit card, a banner pops up that offers them a preapproved $7,000 loan. I'd ask you why would they go anywhere else when they already know us and they already trust us. And we were able to make them that loan offer because we now have proprietary data on their spending and their budgeting through their credit card and Trim relationships with us. Through these two new products that I've talked about, we have more than 10x the market to grow into than we had when we were only a personal loan company. We can be very selective and very careful with credit as we enter the credit card and auto loan business. Think about it, a 1% market share in credit card and auto is an $11 billion receivable business for us. And remember, we've got 20% market share in our personal loan product. We know the non-prime customer, we have brand recognition and customer loyalty, and we think these new products are a great opportunity for us. I am not aware of a single other financial service company that has the return profile of OneMain and also has such a very big opportunity for profitable growth. So what's the result of this amazing machine that's been built over the years? The answer is outperformance. This slide speaks for itself. Our risk-adjusted yield or the margin of yield minus losses, there's a lot of other things that go in below this, is the highest in the business by a long run. And we get there with better credit results and lower credit volatility than almost any other player, which speaks to our conservative approach to underwriting, our great credit and data science team and decades of experience serving the non-prime customer. On this slide, you will see that despite our average FICO being 100 basis points lower than the average prime lender. Our credit results are very similar to prime. And our losses over time are much lower than other nonprime players, even with a lower average FICO score. But as importantly, on this slide, you see that the range of losses that we have or loss volatility as measured by standard deviation is also lower than any of our benchmarks. The business model I've spoken about and that the rest of the team is going to elaborate on, creates unique underwriting advantages for us, whether it's our nonprime expertise and data, our data science team our ability to develop relationships with customers in a branch or the nimbleness and discipline that has us continually grinding on the data, spotting patterns and adjusting accordingly. Our credit results are continually superior to the competition. All of this leads to very attractive returns as a business. As you can see on the left, that's pre-pandemic. We traditionally run or it's a pre-pandemic average, a very profitable business, just under 5% return on receivables. Even this year, with us working through our pre-2022 back book with stressed credit results, we generate a lot of capital. Just under 4% return on receivables. If you normalize this year, the machine we have built would be cranking out an even healthier return. Micah is going to speak to you about our financials more and our financial prospects, but we see a path to $30 billion of profitable receivables and a significant increase in capital generation per share in the medium term, which we define as 3 to 5 years with the timing largely dependent on the macro economy. We've built our business to maintain healthy return on receivables with a target of 5% in a normalized environment. The way I sometimes describe our business is we have incredible returns in normal times, and we have good returns even in stress times. Any way you cut it, we plan to generate a lot of excess capital every year to be deployed back into the business and to be returned to shareholders. The result of our business model, the improvements we've made to our business and the disciplined management of the business has been very positive for our shareholders. We've consistently exceeded our benchmark with 167% total shareholder return over the past 5 years, compared to 48% for the S&P financials. We have a 9% dividend yield, which gives shareholders peace of mind regardless of the cyclical pricing of the equity markets. And today, we trade at an attractive multiple, which we believe has upside as we execute on the plan that I've discussed. I'm very confident that the business performance underlying these returns can be replicated and accelerated going forward. So let me end by saying we feel incredibly positive about the business we have built, about our competitive position and about our prospects for the future. We are the lender of choice to the non-prime consumer. And I would argue that we do it better than anybody else serving this customer segment. So with that, let me turn it over to my colleague, Jenny Osterhout to tell you more about our business.

Thank you, Doug. Good afternoon, everyone. I am going to start with four themes for the presentation today. One, we are focused on serving the non-prime consumer and helping them with their financial lives. We are making substantial inroads in transforming our personal loan product. We are extending our broader product offering with cards and the evolution of our auto strategy. And together, these products are helping us build loyalty along the way. We are also importantly making great strides with our technology and digital capabilities. Let's start by looking at who we serve. It's no secret that access to credit is a problem for the non-prime consumers. The general pullback across the industry and the lack of capital availability makes us the leader with our unique capabilities and non-prime balance sheet, we continue to be the best provider to meet the needs of the non-prime consumer, really differentiating us especially in today's environment. How do we do it? We have served this customer base for over 100 years. Not only have we served nearly 20 million Americans over the past 20 years, we have data on nearly 70 million Americans. This unique data set allows us to better underwrite our customers and provide them with more attractive offers. It's a win for our customers and a win for our business. Dinesh will talk more about this later. This deep data on our customer base, combined with our analytics expertise and our wide distribution across the United States sets us apart. Our customers also really like us with customer satisfaction scores of 90%. They like us because we understand them, and we're there for them when others aren't. And what else are we doing to meet customer needs? We're expanding our product set. If you are a customer looking to consolidate debt, deal with an unexpected expense or other cash need, we can offer you a personal loan. If you are looking to be rewarded for your regular spend and on-time payment behavior, we can offer you a credit card. If you are looking to finance the purchase of a car, we can offer you our auto finance product. And if along the way, you're looking to get your finances on track, we can help you with our Trim by OneMain financial wellness platform. This expanding set of products requires thoughtful cutting-edge distribution. We not only continue to have an industry-leading direct mail program, long-standing relationships with our affiliate partners and inbounds directly through our 1,400 branches. We have also expanded our search engine optimization, social media and web presence. We have also added AI-powered digital marketing capabilities with best-in-class e-mail open rates. These allow us to quickly and efficiently, essentially without cost, reach that vast network of former customers I mentioned earlier. We are also growing in new distribution channels, reaching customers at over 5,000 auto dealerships across the nation with referral relationships with both auto and home improvement partners. All of this comes together to make a very attractive cost of customer acquisition. So if we turn to our products. As Doug mentioned, we can now access a combined total addressable market of $1.3 trillion in receivables, which is well over 10x the personal loan market. In addition to the opportunity to grow, I want to stress that these products are each individually very profitable with highly attractive risk-adjusted margins. We are well on our way to product diversification and a path to growth with very complementary products for our customers, meaning our products meet their very borrowing needs, while also giving us the opportunity to mean more to them. They also provide us with the opportunity to grow with a diversified balance sheet. Growing our cards book with smaller unsecured lines that we can extend over time as customers progress and simultaneously growing our auto book with stable secured loans that have better loss profiles whilst still meeting our minimum return hurdles. Together, these products are paving the way for OneMain's profitable growth ahead. Now let's look at each of them and our focus on measured sustainable growth in these markets. If we start with personal loans, we are constantly improving our offering, whether it's providing more attractive rates to our customers with secured lending, which now makes up over half of our originations. Using new data sources and analytics to offer more customers better personalized offers Introducing smaller loan sizes for customers who may not qualify for our larger loan, increasing pull-through and maximizing the value of conversations we're already having with customers. Giving customers more flexibility with dynamic loan features, meaning they can toggle with loan size or duration. And most recently, if they haven't already asking customers if they are willing to provide bank account information, for a second chance at approval. We're always looking at what's next and how we can improve our foundational loan product and experience. Now if I move to our newer products, as you have heard on our earnings calls, we are excited about our BrightWay line of credit cards. I will show you a video in a minute that details our card journey, but I want to highlight that in 2 short years, we developed a great product that customers want that rewards them for their good credit behaviors with either a larger line or lower APR. We set clear milestones and reward our customers, and by doing that, we remain the card that they regularly use and pay back, making our card economics better. We also created a best-in-class digital experience. We looked outside of our industry to create a superior app experience usually reserved for the prime customer. And we leverage OneMain scale and expertise in data science, marketing, collections and our broader corporate infrastructure to create a low cost base so that as we scale, we regularly drive down our unit costs. All this comes together with risk-adjusted margins of around 20% and a clear path to thoughtful growth. As of September 30, we had 340,000 card customers and a book of $230 million in receivables. We are extremely pleased with our progress and enthusiastic about the future, and we expect card to become a meaningful source of profitable growth for the company over time. Now let me show you this video about how it all came together. [Presentation]

A big thank you to Nick Clements who's right here. And the team. It's fun to see that video. Now if we shift gears to auto finance. As Doug mentioned, we've been in the secured lending business for nearly a decade. About half of our book is secured by an auto so we already know the business of loans within auto as collateral. We understand underwriting, perfecting a lean, collateral management, and we have great access to the secured funding markets. Over the past 3 years, we expanded our secured distribution channels to reach auto dealers to make loans at the point of purchase. We have grown our auto finance book with tight underwriting standards and the book has shown great credit results. We have grown this business in a slow and measured way to build a portfolio that we like a lot. So given our experience, the potential growth opportunity in auto, and our desire to grow with a franchise dealer network, we looked to Foursight, announcing recently that we've reached a definitive agreement to acquire Foursight. Together, this gives us the opportunity to expand. We are excited about Foursight and what it brings with it, which is an experienced team, scalable technology, tested credit models and a franchise dealer network. All of this strategic value, along with a high-quality loan portfolio. It extends our already sound position in nonprime auto lending. These businesses will combine to over $1.6 billion in receivables across the United States, giving us a path to growth in the non-prime auto space. Now if I turn to what we're doing to drive loyalty across our products with Trim by OneMain. In 2022, we began providing financial wellness products on our platform, Trim by OneMain at no cost to our customers. Over 10% of OneMain customers now use our financial wellness tools, and we are just getting started. We see our offerings have a tangible impact on their finances, having saved some of them as much as $800 a year. Customers interacting with Trim by OneMain helps their finances and the company, driving loyalty, increasing engagement and improving payment behaviors. We believe Trim is so helpful to our customers that they will want to keep using it and stay engaged with us even after their personal loan payments ends, and come to us should they have another borrowing need, which brings me to our improvements in technology and digital. You have heard Micah talk about this almost every quarter end. We have been investing in our tech and digital capabilities. So what have we done? We have strengthened our infrastructure as measured in uptime and availability for both our team members and our customers. We've improved how we protect OneMain and our customers from increasing cyber threats and fraud, building a complete and disciplined program. We've leveraged more cloud-based technology to unlock the power of data in underwriting, marketing and collections, increasing our speed of progress, by bringing in new data sources faster, building new models faster, significantly improving our turnaround time from months to weeks. Dinesh will talk more about why this matters later. We are constantly enhancing our digital experiences and automating processes to be simple and efficient, benefiting our customers and our bottom line. All of this sets us up for our omnichannel future. What does omnichannel look like? We are looking to meet customers where they choose to engage with us, be it on the app, the web, over the phone, text, chat, video, in person. Rajive will touch more on this in a minute, but we are now able to deliver a seamless experience that involves a combination of digitally driven experiences, people-led experiences and empowered self-service tools. This combination is setting us up to win in an increasingly digital world, where we have multiple relationships with our customers. We can now see customers who begin their relationship with us, with a loan and then Trim and then a card or a card and then loan to name a few. Customers who engage with us through multiple products have shown increased loyalty as seen through slower payoff rates and higher NPS scores. Ultimately, we expect in addition to better loyalty to see they are more likely to take another product with OneMain and importantly, more likely to pay us back. All this adds up to more satisfied customers and better returns for our company. It's early days, but we are already seeing the synergies and the benefits of multiproduct relationships, and we have our eyes on many more opportunities to further improve the cross-product experiences as we grow our new products. Let me leave you with this. It's our vision to be the lender of choice for the non-prime consumer. We have made substantial progress already towards that goal. We will remain focused on execution, and we are focused on the opportunity to grow profitably. With that, let me bring up Rajive to talk about our operating model.

Thank you, Jenny. Very good afternoon, everyone. I'm really excited to be here today to speak to you about our best in industry omnichannel operating model. A model that continues to deliver market-leading results for us. Over the next few minutes, I will share with you the magic that delivers these superior results. Today, I have four key takeaways for you. One, as Doug mentioned, we have a really impressive nationwide branch network, which produces phenomenally impactful results for us. And Doug shared those results with you. We also have some very strong central and digital capabilities now. And these three combined to help us deliver a true unmatched omnichannel experience every day to our customers. Two, we have successfully digitized many customer experiences and customer journeys. These are not only helping us get greater customer engagement. We are also getting significantly improved business results from this. Jenny talked about our new products. We have a platform in our omnichannel capabilities, that allowed us to launch these new products in a very efficient and timely manner. And it has the bandwidth today to allow for the scaling up that we would like to see over the next few years that you saw in the numbers that both Jenny and Doug shared with you. And fourth, this omnichannel model that we have, it is built on the core foundations of customer centricity and data-driven execution, that have helped us deliver highly competitive products, while maintaining the highest standards on underwriting and operational rigor. So what is this omnichannel model that we are all speaking about? How does it work? Well, Today, customers engage with us through our branches. They engage with us through our central call centers, and they engaged with us through our various digital assets. But what is really unique about the model is that we have successfully been able to build seamless orchestration amongst our channels so that our customers today have greater choice and flexibility on how they want to engage with us. For example, if they choose to engage for a certain part of their journey with us through a different channel, they can do that very easily today. Let me give you an example. A customer applies with us digitally through one of our digital assets, as do over 90% of our new loan customers today, the customer then decides to come into the branch to have a face-to-face discussion with our experienced team member, about product selection, budgeting. But then she has to go and pick up her kids and go home, which she does. And then she can close the loan digitally from the convenience of her home and get it funded in real time. Seamless experience across multiple channels, all for the same journey of originating and funding a loan. Great customer convenience, stickier customer relationship for us, and by the way, much better business results overall that we get from this omnichannel capability. This is very, very difficult to implement and build, and we are glad that we have invested in this, to today reap the benefits of our investments. Now Doug spoke about the branch network. We have 1,400 branches across the country. And this well-oiled machine continues to deliver outstanding results for us every day. Now interestingly, if we were a bank today, we would have the seventh largest branch network in United States. With over 90% of our prospects, living within driving distance of a OneMain Financial branch. These branches are managed by highly tenured branch managers. You see that data of an average 14 years of experience in non-prime lending. These branch leaders are hands-on coaches and managers who handle the complicated tasks themselves. They are working branch managers. And our branch managers are personally there for every loan closing with the customer. Why is that important? It sets the stage for a great future relationship with that customer and that branch. Customers tell us that one of the biggest reasons they like doing business with us and they do repeat business with us is because of this personal attention they get, especially from the branch manager. It sets the expectations and the relationship for future engagements with that customer. Very, very important. Very unique, not easy to deliver. And the thousands of team members we have, they are trained, recruited and trained to perform every customer activity every day. They do loan originations every day. They also collect money every day. This aspect of our operating model, extremely unique and a huge competitive advantage for us because it gives us the ability and the nimbleness to make massive pivots in terms of capacity utilization and resource allocation in almost real time. And that's exactly what we did when we started seeing elevated delinquencies in our portfolio. We were able to increase our effective collection capacity in our branch network by over 50% immediately. Why? Because our team members did collections work every day. We just had to get them to just increase the amount of time they were spending in customer outreach with past-due customers. Our competitors, none of our competitors have this capability, this nimbleness at this scale and would take them years to get to this level of capability because, again, it's not easy to build. It requires a lot of detail and a lot of investment and a lot of focus. And the great news for us is that if tomorrow, the environment changes -- well, not tomorrow, but whenever we change, the environment changes and we are ready to get back and do more business, we can do exactly the same in almost real time, we can move back and allocate a lot more capacity in our branches to originations work without having to add any additional expense or headcount, think about that. This nimbleness, this capability to make these massive pivots is a big competitive differentiator for us and a big reason why you're seeing the results that Doug shared with you on our credit performance in the marketplace. Let's talk about our central operations. These operations are now a pretty material part of our business, and they give our customers added flexibility and choice as to when they can engage with us, what time they want to engage with us. They give us scale and efficiencies. And they gave us some really specialized skills that we have, particularly beneficial for our new products. Now a customer can choose to engage and engage exclusively with our central operations with our call centers. They can originate a loan end-to-end with a call center rep. They can make a payment with a call center rep. But if a customer applies after hours, branch hours, a call center rep will partner with the branch to help set up the closing in the branch next day if that's what the customer chooses to do, seamless experience driven by customer choice. And you can see multi-channel capability being live there and working in tandem together. Now we have central operations now in onshore sites as well as offshore sites. Obviously, a big advantage for us as we strategically look to manage our costs and gain more efficiencies, particularly as we're looking to scale up the new products that we have launched. And the digital experiences that I spoke about earlier, they are really adding create business value for us. Today, over 90% of our new loan customers apply digitally. Over 75% of our new loan customers enroll for recurring electronic monthly payments for their loans, big, big benefit when it comes to delinquencies and losses. And today, our team members are engaging virtually with our customers using digital tools like SMS, chat, video, co-browse, to help customers close a loan and get a loan funded in real time with the same underwriting standards that we have in a face-to-face interaction. How does this work? Well, let me show you a short video on that. [Presentation]

A very happy customer and a very productive team member. They're able to close more loans in their regular work day, more operating leverage for the company. Just tremendous, tremendous benefits all around and these digital capabilities and tools, as I said, the customer can work with them on their own, but they're also embedded in the experience and the engagement that our branch and central team members are having with our customers, whether it's in originations, it's in payments, it's in collections, it's in regular servicing. So really excited about the digital capabilities we've been able to create. And Jenny spoke about our aspirations for -- with our new products. The cards and auto asset pools, non-prime cards and auto asset pools are over 10x that of the personal loan business. Huge potential for us. Now the great news for us there is that we already have this dynamic platform that has not only allowed us to launch these products fast, but has, again, the bandwidth to support them on an ongoing basis and scale up these products even further. We are able to leverage our core non-prime capabilities and fixed costs for these new products, helping them deliver better unit profitability. Let me give -- let's talk about auto first. In auto, as you heard, we've been doing secured lending for almost a decade. So for our auto lending, we have been able to leverage our capabilities in secured underwriting. All the learnings we've had from our experience, credit learnings we've had with secured lending. Our title management and lean perfection infrastructure, our centralized vehicle repossession infrastructure and the vehicle remarketing infrastructure where we go and sell these vehicles in auction houses after we repossess them. We already have all that set up. We don't need to set all that up just for this business. So think of the leverage this business is getting from the existing fixed cost infrastructure that we've already built successfully. Let's look at cards. Cards, we've had -- we have a digital-first strategy. You saw the best-in-class mobile app in the video. That is being supported with our deep expertise in non-prime servicing and collections. And we are seeing really impressive results there as well. So again, the cards business doesn't need to set up a whole new infrastructure and start to learn from scratch because we know non-prime lending, we know that customer, and we have a lot of that infrastructure already built out. So very excited about our future and as we continue to leverage our existing core capabilities we've already built. Now let's talk data. I have -- I'm a little embarrassed to share this. I have over 30 years' work experience in some very large reputed banks with some great consumer franchises across the world. The obsession that our company has with granular data analysis, data-based decisioning and database execution is unmatched. I have not experienced it before. And we have been using it successfully to make some major transformations and create tremendous business value for our company. I've got two specific examples for you from our originations business. On the left side, is the example that Doug also touched upon, it's how we are using predictive models in combination with application level valuation, to do application routing in real time and also work allocation in real time for a team member, providing them real-time consistent guidance about what transaction, what activity should they be working on at any moment of time. The impact is there for you to see. Our team members are very productive, and we are seeing a 6% improvement in our application to loan conversion ratio. That is worth almost $800 million of incremental annual originations for our company. Think about that, what that means in terms of revenue and capture. On the right side, is the illustration of income verification. Now income verification is a very critical ingredient in our ability to pay assessment of the customer, today -- but it is, it can be a friction point for the customer. They have to send documents. Our team members have to manually review them, it takes time. But today, we are able to leverage these high-quality alternate data sources for almost 1/3 of our approved applications. And we actually use, the alternate data source exclusively in about 1/4 of the loans that we are booking today for real-time income verification. Great customer convenience, no headache of sending documents. Team members are very productive. Turn times are very impressive because we are doing income verification in real time. And, we are creating operating efficiencies, which is directly benefiting us as a company in terms of greater operating leverage. And by the way, the use of these alternate sources is also helping us get higher conversion rates on our applications, helping us book more loans. So convenience, productivity gains, greater operating leverage, more business value for the company. And the proof of the footing folks is in the massive improvement we have seen in our operating KPIs. These are the core operating KPIs that we look at every day for our business. You'll see that our applications per FTE, full-time employee has gone up 23% in the last few years. Our accounts per FTE has gone up by 23% as well. While we have improved our customer engagement scores, NPS by 11%. And the best part, all this has happened while we've continued to deliver market-leading credit performance for the company. Direct benefit to the company's financials with great operating leverage, and you're going to hear more specifically from Micah on operating leverage. So I hope you've got a good view into our robust platform, the omnichannel platform that we have. And how we create the magic. We do really have a secret sauce. And the secret sauce has some key ingredients. It is our fabulous distribution. It's our experienced and highly trained team members. It's our tenured leadership. It's the proprietary data and the execution that we have, which is databased. All these key ingredients are the ones that help us deliver magic every day. And we are very focused on optimizing these ingredients even further to make our operating network more effective and more efficient. So thank you very much. And I think with that, we're going to take a break. Peter?

Thanks, Rajive. So we've hit the midpoint. We have refreshments in the lobby. We do want to make this a pretty brief break, probably about 10 minutes. We have a great second half coming up. It will be led off by Dinesh Goyal talking about credit, Micah, about our finances and then the all-important Q&A. So hope to see you back soon. [Break]

Okay. Welcome back. Thanks for that cooperation that was pretty impressive. So I'd like to just kick it right off with Dinesh Goyal, our Chief Credit Officer.

Thank you, Pete. Good afternoon. Hopefully, you all had much needed caffeine. Micah and I are about to share a lot of data with you guys. As Doug shared earlier today, OneMain has delivered returns that are vastly superior to the market. At the heart of that is our ability to manage credit and price for risk. I want to hit on four main points today. We have a deep expertise in managing non-prime credit and do it better than anyone else out there. We've the agility to respond quickly and manage through a fast-changing environment. We've leveraged our scale and capabilities to expand into new products and we've been able to deliver prime-like losses in a non-prime business with low volatility. Let's look at what drives our credit. When I think of our underwriting advantage, there are really four key pillars to it. Starts what talent we have and the culture we have around it. Our senior credit leadership team has over 20 years in consumer finance, with vast majority of that doing non-prime lending. Equally important is the culture we have around managing credit. A vast amount of proprietary data. What do I mean by that? It's the data you can't go and buy from third parties. It takes decades to create those data assets. best-in-class modeling and analytics, and I'll give you a sneak preview on it later today and the local footprint and deep expertise that we have in our network. So let's start with unpacking our data assets. Both Doug and Jenny referred to the experience and data assets that we have in non-prime lending. That's just such an important part of our ability to understand every facet of what it takes to crack this business. Just since 2006, we have originated $195 billion of personal loans. Equally important is what's underneath those originations. We have tested thousands of hypothesis around marketing, credit, pricing, collections and the results from those pilots help us optimize every single part of customer originations and servicing. Let me give you one example. We see very different risk by channel. And we price for it. Equally important part of this proprietary data is the history we have, means 80% of the time before a customer has even applied for a loan with us, we have some data on them. This could be an existing customer who's applying again, could be a former customer who's coming back or even a previous applicant who's applied for credit with us before and has shared some information. A good example is our former customers. When they come back, we hold data on them that you can't just buy from credit bureaus. We can leverage that information to underwrite them for their second loan application. When I presented back in 2019, one of the things that I shared was, people are often surprised by the level of sophistication and analytics that we have because we were perceived as a branch-based lender. And we've come a long way since then. We have expanded into new products, card and auto, and we've taken this AI and analytics to more and more business use cases, some of which you heard from Jenny and Rajive earlier today. Everything we do, who should we market, direct mail, e-mail, pricing, credit, our optimization of operations is under powered by these AI-based models and the analytics that sits around it. If I look at the number of models we have since 2019, they are 10x. But equally important is the sophistication that goes into those models and the speed at which we can move. The cloud-native infrastructure we've backed means we can move a lot faster. And that's really important at a time like this. When our environment is changing and responding quickly to that environment, it's very important. Another area where we've made a big investment is in leveraging alternative data. And that's typically a catch-all for anything that you are not getting from three main credit bureaus. TransUnion, Experian and Equifax. When I started in consumer lending 20 years ago, even the most sophisticated lenders primarily use credit bureau data to underwrite. Lending has become a lot more multidimensional since then. You have everything from utilities data, telco data, your digital footprint, a whole bunch of fraud and identity data verification sources and rurally powerful bank account data. We have data scientists who join us from fintechs and join us from banks and a common observation they have is OneMain is significantly ahead of others in terms of amount of investment we've made to look into these data assets and find out what adds value in the context of non-prime lending. A really good example is bank account data. Using your debits and credits, we can figure out customers that are half the risk of what their credit bureau score would predict. And conversely customers that are 2x the risk over their credit bureau score would predict. I just think we've got a unique combination of scale, agility and appetite to push the frontier on this. A combination of our investment in talent, AI, methodology and techniques, our cloud-native infrastructure has allowed us to improve our underwriting models every year. What you see on this page is one of the comparison methods we use to see how our models are doing versus credit bureau scores. And two things stand out. One, the models that we leverage to underwrite are more than 2x as powerful as credit bureau scores. And, two, they continue to get better every year. Just since I spoke to you last, they have improved by 40%. This is such an important part of our ability to deliver alpha in this segment. Now while we have sophisticated analytics and models, what truly helps us stand out is how we combine that with the advantages our network buys us, some of which Rajive referred to earlier, but let me spend more time on it. There are many salient features of how we can leverage our network to improve our underwriting process. We are able to keep fraud losses to an industry load through a combination of identity verification, asset verification, verifying funding account. Our ability to pay process allows us to structure the loan to a customer's budget. In fact, in many instances, we can actually improve their cash flows by debt consolidation. We are able to leverage people to complement our models and our third-party data sources. A good example of that is income verification. While we want to verify using third-party data sources, we also want to maintain integrity of that. So if we cannot leverage third-party data sources, we can have humans assist. I think a really important part of the strength is the experience we have. Rajive referred to the fact that our branch manager has 14 years of tenure with OneMain. If you think about branch managers in a retail branch, they are typically spanned across multiple products. Our branch manager has spent those 14 years singularly doing one thing, non-prime lending. I've talked about talent, data, the infrastructure we have, but equally important is the culture. I often say we manage to returns, and growth is the outcome and not the other way around. Underpinning that culture is a very disciplined framework we have to evaluate risk return and make decisions. At the heart of that is this framework around return on equity. Every loan we book, we wanted to generate 20% plus return on equity. Last year, we increased that bar even higher. We said we want a minimum of 20% return on equity, assuming there is a recession in the future and our losses go up even higher than where they are today. Let me just spend a minute more on that. So we take losses we are actually seeing, which, as you all know, given the environment we are in are elevated. We apply a further 30% stress. In case there is a recession in the future, that's how much our losses may go up by. And we say, with that stress, we need a minimum of 20% return on equity before we would put a loan on our book. Another distinguishing feature of how we think about this is the granularity at which we run our business. We operate in 44 states. We have multiple products, secured, unsecured. We serve multiple customer segments, our former customers, customers that are new to franchise, people that are our current customers, we source applications through multiple channels. Jenny talked about affiliate partners, direct mail, e-mail, people who may call our branches. When you take all of these combinations, you end up with thousands of permutations and combinations and, we see different performance in each one of them. We look at every one of them individually to decide whether that's business we like or not. Let me just show you this in real life. A lot on this page, so let me unpack it. On the left here, what we've done is taken a handful of those combinations I referred to, of channel-customer type product, and each dot represents a segment. We are showing you how the actual performance of a recent origination came versus what we expected the performance to be. Generally, you will see all these dots are clustered on that 45-degree line, which means the performance came in line with what we expected. But you see a handful of dots we've called out where it came different from what we expected. The red dot where risk came in higher than what our expectation was, and you can see some of the characteristics of that segment, and a segment where performance came in better than what we expected, and we thought there was an opportunity for us to lean in there. We contracted in that segment, I highlighted in red, and we expanded in the segment I highlighted in green. What's also really interesting is the business we took out actually was profitable. We expected 17% return on equity on that. It just did not meet our hurdle of 20% plus return on equity. So hopefully, this gives you an idea of both the discipline we have around making sure we are getting good return, but also the granularity at which we are looking at it. We've talked a couple of times today about agility. And you can see that agility in the speed at which we responded to inflation that took whole post-COVID. What you see on the left here is how our origination mix changed as we responded. In quarter 1 of '21, our best to risk rates constituted 42% of our originations. Last quarter, that mix had increased to 66% because of all the changes that we made during this time. And that improved mix is what contributed to performance you see on the right. What we are showing here is how did one main delinquencies change during 7 quarters between the end of '21 and end of quarter 3 of '22. Our delinquency increase was only 1/3 of what the market saw. Let me spend a little bit more time on how that change has driven our portfolio shift. Let's start on the left here, where we are showing the mix of our front book and back book at the end of quarter 3, we typically refer to business we've originated since August of 2022 as front book, at business we originated before August '22 as back book. Front book at the end of quarter 3 is 59% of our portfolio, and we are very pleased with how it's performing. It's performing both in line with our pre-COVID vintages as well as tracking to our strategic operating framework, which is 6% to 7% loss rate. Let me also spend some time on back book. Back book at the end of quarter 3 was 41% of our receivables. Keep in mind, though, that back book is still 65% of our delinquent receivables, while it's only 41% of our overall book. And 2 reasons for that: one, back book delinquency generally trails receivables by a couple of quarters. And two, it has higher delinquency, which means it's higher share of our delinquent receivables as compared to our overall receivables. The expertise that we have built over time was an advantage is an advantage as we expand into new products. Everything I've talked about thus far, talent we have, technology that we've build, data assets that we have, models that we have. When the relationships that we have are all a huge advantage as we enter card and auto. What's more is, as we are building these multiproduct relationships, we are further increasing the data assets. A good example is being able to leverage card transaction data to originate our personal loan customers. The results on this page is ultimately a summary of everything we've talked about. Let me start with chart on the left, which is our '23 losses. Our losses are half of other non-prime lenders and more comparable to prime lenders, even though we have 100 points lower FICO. Chart on the right, now we are looking at last 7 years of performance. And a couple of things stand out. One, same, our losses are more comparable to prime lenders than they are to non-prime lenders. Doug earlier today talked about volatility that we have lower volatility than anyone else out there as measured by standard deviation. Let me unpack that for you. Our worst quarter in the last 7 years is materially better than what our peers in non-prime have delivered on an average. I feel confident that capabilities that we have position us well to deliver strong credit results regardless of the market environment. With that, let me call on stage my colleague, Micah.

Good afternoon, everybody. It's good to see all the familiar and importantly, friendly faces in the room. We appreciate everyone joining today here in the room, also on the webcast, and I hope you've enjoyed hearing from some of other members of our leadership team today. I'm going to try to pull this together financially for you. Sticking with the theme, I'd like to highlight several key messages today. One is our balance sheet and our funding programs, which are a strategic advantage for us, and it's been demonstrated once again this year. We have a profitable business with significant loss absorption capacity supporting capital generation through changing economic cycles. We're intently focused on driving cost efficiency and driving operating leverage in our business, which we believe will continue to support future profitability. You've heard a lot today about our new products and channels and the growth opportunities that they provide, we expect these products to be meaningful contributors to generation over time. And lastly and importantly, we expect to just deliver strong capital generation and continued shareholder returns over time. Now over the next 20 minutes or so, you'll hear me reference the medium term. Doug talked about this a little bit at the beginning, but, let me remind you, it's a period of time that's roughly 3 to 5 years from now and is dependent on the current path of the macro environment and where that takes us. Let's start with our funding programs. Funding is such an important differentiator for us. It's really an area we really distinguish ourselves. While some peers this year have struggled to fund lending opportunities, we've been able to raise $4 billion in the funding markets and with great execution given the current environment. This has helped us advance our market position, particularly with higher credit quality customers. You heard Dinesh talk about our new customer originations, of which 66% of them are in our top 2 risk grades compared to only 42% in the early part of 2021. This higher credit quality mix really positions us for strong performance once the credit environment stabilizes. The core of our strategy and funding is to maintain a balanced mix of secured and unsecured funding with staggered maturities, particularly in our unsecured bond portfolio book. Our average unsecured maturity is 3.3 years, as you'll see on the top of that slide, and our next unsecured maturity is now not until the first quarter of 2025. Our ABS programs are a true differentiator. Our structures have revolving periods generally between 2 and 5 years which creates a natural funding source for our originations as we put new loans into these structures. Our top tranche of our ABS transactions are AAA and we issue investment grade all the way down to the deepest tranche, which gives us industry-leading spreads. Capital adequacy, Doug talked a little bit about our liquidity as well. Capital adequacy and liquidity of course, core principles of our balance sheet as well. I'll talk about those in a few minutes. We have a world-class capital markets team. Led by Dave Schulz, who's in the audience with us today. Dave has built a team with a very high market IQ and a tireless focus on investor development. When we last talked to you in 2019, we discussed our core funding sources. Our corporate bonds, our consumer ABS, our auto ABS and our secured credit facilities, which we use primarily for liquidity purposes. We've since added a whole loan sale program, one focused on committed longer-term flow agreements, not the monthly at-will programs that tend to dominate the market and have proven to be unreliable. Today, our loan sale program is relatively small, but we have confidence it will grow over time. We've also enhanced our liquidity, adding a $1.2 billion unsecured revolving facility with our terrific group of bank partners, many of whom are here with us in the room today. And we expect to continue this evolution. We're nearing completion of a secured credit card facility with some of our key bank partners which will light the path for an inaugural credit card ABS issuance sometime soon. And with the anticipated addition of Foursight, we add yet another auto ABS shelf. Our capital markets team never rests, and you should expect us to continue to expand our funding sources for the years to come. As we've talked about on our earnings call for the past few quarters, our funding strategy gives us issuance flexibility and cushions our interest expense from the impact of rising market rates. In 2020 and 2021, with rates at historic lows, we took the opportunity to tilt our issuance towards longer duration unsecured debt. We positioned ourselves with 5- to 8-year maturities, holding some dry powder and more efficient ABS market should rates move higher, and we're glad we did that. When rates began their rise in 2022, we are able to pivot issuance back to the more efficient and lower-cost ABS market. This strategy helped shelter our interest expense from what has been a very sharp increase in benchmark rates. Our interest expense as a percentage of receivables has increased just modestly from a low of 4.6% to about 4.9% this year despite the increase in benchmark market rates. We're confident that our 2024 interest expense will remain below pre-pandemic levels in the low 5s. Now we've developed some really deep relationships with institutional debt investors over the past 10 years, which has served us well through these changing market conditions. We've proven we can access markets even in difficult markets, including the second quarter of 2020 during the height of the COVID market dislocation as well as the last couple of years of rising rates. Nonetheless, we choose to maintain a very strong liquidity position that ensures we can run the company in pretty difficult circumstances with no access at all to the capital markets. The left side of this slide is the simplification of our liquidity position. We, of course, have a much more sophisticated model, but this illustration should give you a sense for the ins and the outs. Our liquidity sources are anchored by our strong operating cash flow and $7.4 billion of committed lines. Importantly, our lines have no corporate covenants and no material adverse condition clauses and no cross defaults, which ensures we have certainty of our liquidity should we ever need it. You can see some of the conservative assumptions we make in our liquidity model on the right side of this slide. We assume an '08, '09 type downturn, utilizing data from our stress tests. We assume none of our bank lines are renewed at expiration. And importantly, we assume we hold receivables flat to the period of time in which we're measuring our liquidity runway. Now typically about 1/3 of our receivables in any given year will pay down annually. For our model, we assume those payments are redeployed back into loans, and we assume all charge-offs, keep in mind, elevated because we're using the '08,'09 type stress. We assume that charge-offs are topped up with new originations, again, to hold receivables flat for our models. This assumption is one very, very important lever, that we could extend liquidity with well beyond the 2 years if we ever needed to do so. Let me now touch on capital adequacy. As we think about the strength of our balance sheet, and our capital position, we need to first look at our economic model. So on the left side of this slide, you'll see our last 12 months of pre-provision return on receivables of 12.8%, this accounts for everything in our pretax capital generation, except for losses. So yield plus other revenue, less funding costs, less expenses. As you can see, by comparing it to a normalized charge-off, which is in between our 6% to 7% charge-off range, we used 6.5% for this illustration, we can withstand a significant increase in loss rates and still be generating cash flow and capital. Our adjusted capital shown on the right side of this slide or our loss absorption capacity in our balance sheet as we like to think of it, is $3.4 billion. This includes both our after-tax loss reserves and our adjusted tangible equity. If you did the math, you'd conclude we have roughly 3x after-tax loss coverage on our balance sheet. However, with the loss absorption capacity in our income statement, we would never see a world where we need that. For this reason, I'd like you to walk away with a little bit of comfort level as to why we remain confident and comfortable with our capital position and our 4x to 6x strategic leverage range. Rajive talked about the benefits of our omnichannel model, which combine a very unique community-based branch network with the efficiency of our central operations and digital capabilities that continue to evolve. Dinesh showed you what differentiates us in underwriting and data science with years of history in non-prime lending and sophisticated underwriting and credit models, and an ability to adapt and adjust with speed and agility. These advantages have helped us build and maintain our position as a national leader in non-prime lending. As a result, we've been able to consistently generate strong risk-adjusted returns in our personal loan products. Jenny laid out the market size for personal loans at about $100 billion. We have a dominant position in that market with 20% market share today. Going forward, we continue to be a leader in this space. We expect continued growth with prioritization of strong credit performance, and risk-adjusted returns. This means maintaining our personal loan losses within a range of 6% to 7% and delivering risk-adjusted returns of 18% to 20%. We've built a scaled business with an incredible amount of operating leverage. We measure our operating efficiency through our operating expense ratio. This is our C&I operating expense over average managed receivables, which for 2023, we expect to be about 7.0%. Through disciplined cost management and the inherent leverage in our operating model, we've consistently driven improvements over time, and I'll show you that a little bit on the next slide. We estimate our marginal cost to be around 3%. So for every $1 billion of receivables growth, we only add roughly $30 million of cost, not the $70 million implied by our total expense ratio. Said another way, we created about $40 million of operating leverage for every $1 billion of portfolio growth. Let's look at that operating expense ratio over the last few years. On the bottom of the slide, you can see we've been running our core business with very minimal increases year-over-year 2% to be exact for 3 years running. Rajive showed you we've driven 20% plus improvements in our team member efficiency, whether you measure that by applications per employee or accounts per employee. These improvements have been a huge contributor to us maintaining very modest expense growth over the last 3 years. And for context, over the same period, we've grown our receivables by 22%. We've been reinvesting a portion of our operating leverage to advance our competitive position and create future growth opportunities. Jenny talked about a few of the investments we've made including in our core technology, our customer experience, our data science and of course, our new products. The incremental annual investment we've made since 2021 is shown on this slide in green. Even with this investment, we have driven improvements in operating expense ratio from 7.3% in 2021 to an estimated 7% in 2023. That same expense ratio was 8% in 2018. These investments are now beginning to generate meaningful receivables growth, and we continue to identify expense opportunities and closely manage our costs. We expect to see an operating expense ratio below 7% in 2024 with the potential for further improvement in subsequent years. You've heard a lot about our new products today and the opportunity ahead. As you heard earlier, our credit card is a very unique value proposition for non-prime consumers. We expect to see adoption from both our customer base and also from the broader market, driving growth at attractive risk-adjusted returns. Revenue yield is expected to be between 30% and 34% and includes interest, fees and interchange, net of customer rewards. Consistent with what you'd expect to see from a non-prime card, we expect charge-offs to be between 10% and 15% and with the net result being a risk-adjusted margin that is very consistent with our personal loan products at around 20%. We offer two cards, the lower balance annual fee BrightWay card and the higher balance, no annual fee BrightWay+ card. Our reported yield in our net charge-offs will be a function of the mix of these two cards but the numbers here should give you a general sense for the economic profile that we expect. One of the benefits of having a scaled cards business is the attractive acquisition costs. When we add a card customer in the broader market, the acquisition cost is about 1/4 that of a loan, bringing customers through -- in through card also is done so with a relatively low level of credit exposure. We can learn with that customer over time. We can offer our personal loan product when the time is right at a 0 acquisition cost at the time. We've also talked a lot about the success of our secured distribution channels, which continue to evolve, and we're presenting here today as auto finance. In late 2020, we began offering our loans at the point of purchase with independent auto dealers, leveraging our strengths in secured underwriting and our operations. We've grown that business to about $700 million today. And importantly, we've seen outstanding credit results. With the addition of Foursight, we add even more capabilities and expertise and an expansion into the franchise dealer market. We expect our auto finance business to make consistent contributions to capital generation over the next few years with attractive risk-adjusted returns and a stable lower loss profile. So let's look at what this all could mean for growth, returns and capital generation over the medium term. We expect to finish 2023 at about $22 billion of receivables which is roughly 7% growth versus the prior year. Cards and auto have contributed nicely to this growth during a period where we've been tightening given the current credit environment. Adding Foursight puts that number closer to $23 billion. We don't expect the closing by year-end. I'm just adding it here for illustration. With a reasonable growth assumption in personal loans, and expanded contributions from card and auto, we have line of sight to reaching $30 billion of receivables over the medium term. Again, the medium term defined as 3 to 5 years depending on how macro factors play out in the next 12 to 24 months. With a bit of macro stability, scaling of our new products and our continued efforts to drive operating leverage, we can expect a capital generation return on receivables of approximately 5%. And we are targeting to deliver annual capital generation per share of $12.50 in the medium term. At $12.50 of annual capital generation per share and even at levels below the capital return opportunity is attractive. We've talked with you about our capital return framework a lot over the last few years. Our priority remains to invest in the company and invest in loans that meet our return hurdles. The capital need for receivables is roughly 17% on every dollar using the midpoint of our net leverage range. We've assumed $2.50 for this exercise. Of course, as Doug mentioned, we expect to maintain a very attractive regular dividend, which today is $4 per share annually. That still leaves a lot of remaining capital that could be used in a variety of ways including supporting higher growth, business investment, share repurchases, increased dividends or other strategic deployment. As you would expect from us, those decisions will be extremely thoughtful as we consider the best use of capital to drive shareholder returns in the medium and long term. Let me leave you with OneMains' equity value proposition as we sit here today. Remind you, we're keenly aware of the current environment, and we feel we're managing that environment really well. We also remain focused on building a great company that's positioned for long-term success. We're anchored as a leader in non-prime lending with the distinct advantages we laid out for you today. We're ready to scale new products where we believe we have a right to win and in markets that are multiples larger than the personal loan market. This again creates line of sight to $30 billion of receivables in the medium term. We generate very attractive returns even in a challenging business climate like the one we're in today. With a bit of credit normalization from a stable economy, a 5% return on receivables is certainly achievable, and we'll be driving towards this goal. Our current dividend yield is approximately 9%, we're confident this dividend is sustainable through changing macroeconomic environments, providing a solid floor to shareholder return. We have a proven track record of generating very strong shareholder returns, and you should expect nothing from us, nothing less from us in the future. I want to thank everyone for your participation today. We're going to now bring everyone up on the stage for our question-and-answer session. Thank you.

All right. While my colleagues get up here, I will field questions. There's microphones if you introduce yourself, and we'll try to answer your questions the best we can.

Arren Cyganovich from Citigroup. I think about your personal loan business, you've shown really good acumen and execution on that business and how you're expanding into new areas. You did it, I think, appropriately slowly on the card side. What are you thinking about from the direct auto? And how does that change your expectation of customer mix, product mix as you go forward?

Yes. Look, we tried to give you a sense of that. We very much like the auto business for the reasons that I discussed and others discussed. We think about running a nationwide portfolio mix of risk in the company. Specifically to your question, we're going to grow it very carefully. We're not in a rush. I've said over and over again, we don't have growth targets. Growth is an outcome of running a great business, having great products, having a great customer experience, no compromise on the credit box. And if you do all that well, you will have growth. So current environment, we're putting, as Dinesh said, 20% stress on even what we're seeing in auto, and we have really good results in our credit book, but we're assuming they're going to get worse, and we won't book a loan unless when they get an extra 30% worse, the credit results, we still make our 20% ROE on a marginal basis. And so that's how we'll run it. So I think you think about it very similar to our card. We'll be deliberate. We've got a lot of profitable pockets we can move into, but we will take it slow. But we now just bought a platform, which gives us a great team, excellent technology, increases our dealer network and makes it, if we feel better about the economy, we can scale it. But when we do it, we'll do it super carefully.

Michael Kaye, Wells Fargo. I was just hoping you could give an update on how you feel about the current macro environment. Are you feeling or open the credit box? Are you status quo? Any more concern?

Let me get high level and then Dinesh can talk a little bit about the credit box. We're probably feeling the same as everybody else here is feeling, which who knows. What's happening with the current macro environment where there's a lot of cross currents. We've got all the obvious factors. We've got consumers who have some stress mostly because inflation shot up and even though it seems to have stabilized some, it still remains higher than it was several years ago and costs are higher than they were several years ago. We've got to increase interest rates, which has a variety of implications in the economy, but we have really low unemployment and pretty stable employment. And then we got two major wars going on in Europe and the Middle East. And so we remain super cautious, our mathematical view of the macro environment is with elevated delinquencies and losses this year, which are all built into our models, we are now putting an extra 30% into our stress loss assumptions. And we're only booking business that allows us to meet our 20% return thresholds even when we put stress on top of already stress. And so we're actually pretty cautious right now. But we don't run our business based on like a big general credit box, as Dinesh said, so maybe you can talk a little bit about that.

One, I'll say what I called as our front book business that we are originating since August '22. That's now 59% of our receivables, we are very pleased with it. It's both coming in line with our pre-COVID vintages and tracking to our 6% to 7% loss rate target. And second is what Doug said, we don't think of opening up the credit box or tightening the credit box in broad brushstrokes, right? We look at it very granularly and are very data-driven. So I shared with you a view earlier today, which showed how while most of our segments were coming in line with expectations, there were some pockets that were higher and some pockets that were lower. We are doing that every day as the new data is coming in, looking at performance and saying, where is performance coming in worse? If it is, then tighten and where is performance coming in better? And if it is, then maybe there's an opportunity to expand. I think as the environment begins to turn, what you will see is a lot more green dots show up on that chart. And as those green dots begin to show up, we'll begin to lean into those pockets. So I think it's going to be heavily data-driven and going to be in small slices.

I saw someone back here. Yes. Sorry, I call on you, but if you're beyond the front row, I can't see you with the lights, so identify yourself.

John Hecht, Jefferies, here. Thanks so much guys for the Analyst Day. Doug, you talked about being a 20% market share in the personal lending market right now? How far can you take that before there might be a competitive or regulatory response? How fast is that end market grow every year? And then how fast do you anticipate growing to 1% or 2% market share in some of the newer markets you're going into?

Yes, do you want to take that, Jenny?

Sure. Let me start with personal loans. Listen, I think we've seen in the past couple of years, a lot of players come in and a lot of players exit. And I hope that if we left you with one thing today, it's our commitment to serve this customer segment and that we're in it for the long haul. So I think really the competitive environment and how much market share we can have depends on the macro economy. It depends on what competitors are doing. It depends on consumer health, a variety of things. So I think we expect that we can continue to grow. And that's based on the strengths that we mentioned earlier, meaning our experience serving this customer base, the data that we sit on, our advanced analytics, our operating model, this branch plus central plus digital, that Rajive talked about. And then also our funding strategies, others don't have that same capability. So we've seen banks don't participate. The capital structures don't allow them to. And we saw several community-based lenders come in and go out. We saw separate little fintechs come in and go out. So I think we feel very, very good about being able to continue to grow in personal loans. And then I'd say with cards and with auto, I mean, Doug mentioned, again, this focus on, we focus on our return hurdles and then growth is an outcome. And you saw the size, the reason we keep showing the size of those total addressable markets, which are just for non-prime is because you don't have to be a major player to grow. So if we want to grow our cards business to be $2 billion in receivables, we can do that over time and with a 5% return on receivables, that's a very healthy $100 million return in cap gen. So I think what you can expect is that we're going to look at what's happening, and we're going to grow over time, and we're going to focus on making sure that's very profitable growth.

I see someone. Looks like Kevin but it's blurry.

Kevin Barker with Piper Sandler. Just wanted to follow up on the auto market. You made a pretty convincing argument about how the card product fits into your personal loan strategy. It creates more enhancements and financial well-being for your existing customer base. Can you talk about how the auto product fits in with that with your existing customer base? And then also a follow-up on, you made the comment that the Foursight acquisition creates optionality. Can you delve into what you mean by that and what type of optionality are there for the firm?

Yes. I mean, look, if you look at the big markets for non-prime lending, which is where we put our stake and said that's going to be our future. It's personal loans, which is actually smaller, but it's been a somewhat growing market over the last 10 years. It's credit card, it's auto, and it's mortgages, HELOCs, all of those things, right? And if we want to be the lender of choice, we need to be in at least three of those. The complement is almost all of our customers have a car. And it's complementary, we always think about what's our right to play. I'm a big fan of there's any number of things we could buy to make money, but we can also just put our capital and buy some stock of another company who does it better than us. So we got to think about, are we able to do something better than others and do we have a right to play. I think from the auto market, we know the non-prime customer. We've got data on as Dinesh and Jenny pointed out, 70 million folks through a variety of sources over time. We actually know how to price an auto, perfect a lean, participate in auto capital markets, do collections, repo a car, sell a car at auction. So we've got a whole bunch of infrastructure we can leverage. I think the complementary nature from a business perspective, is around the loss content. It's a lower risk business. I think Micah took you through it. It's lower yield, but it has lower loss. It has lower cost thrown against it because it comes through a different distribution channel, and it's a very deep liquid market, so it's potentially lower funding costs. And the overall risk profile of our company, I think, goes down as we build out this product. I think from a customer, it's about customer loyalty. If you have Trim or a card with us, you get to know us, we have, when I say optionality, we could do refinancing in the future. They don't do a lot, Foursight doesn't do a lot of it, but we do a personal loan. People come to us because they need money, not to refinance their car today, but we can offer them a lower interest rate and a bigger loan for money and then in essence, they refinance their cars. So there's optionality there. There's once we have an auto loan customer and we have a relationship with them, we can offer them a personal loan or a credit card. And so I think it's just this is be the financial partner of choice for this customer. There's a bunch of synergies there. There's a bunch of operational and scale synergies we have. And then finally, from a company profile, we think it's very additive to the overall value over time of the company. So that's how we think about it.

Mihir Bhatia, Bank of America. I wanted to ask, just follow-up on the auto questions a little bit with whether it's Foursight or just even your indirect auto business, can you talk about how that, the customer service, right, on the personal loan side, on the card side, it seems more straightforward, where there's the branch connection, and that helps with the underwriting and the fraud models, et cetera. But on the indirect auto side where the dealer comes in and you have to win through the dealer, does that impact your ability to know the customer as well?

I think it's a different model, but it's one where if you have a team that knows what they're doing, it works. Rajive, you want to mention about the service thing?

Yes. So our existing auto finance model. It's more of a direct-to-consumer model where we are directly contracting with the customer, the $700 million that you've heard about. The Foursight business is the traditional indirect business. But that, again, once we buy the contract or Foursight buys the contract, the customer servicing and then the collections work, repo, that's all within our Foursight’s infrastructure through the same standards that we have for our secured lending. And we apply and we will continue to apply the same compliance and control and KYC standards that we have today for our company.

So it's -- I mean, but you're right, it's not a branch-based lending model. So it's a different model that's an expansion that has a different distribution.

This is Priya Rangarajan with RBC. This was a very well thought-out presentation. So thank you for that. I had a question for Dinesh. You showed a very nice credit decision tree. And you talked about the red dots and the green dots. What I noticed was you referred to state C and state B. And one of the customer at state C, I think, had like a higher credit rating, but still was a red dot versus the other one. So was this strictly illustrative? Or is that actual data? And are you seeing some trends between states that's different this time around? Any color around that would be very helpful.

Sure. Let me start by saying it was indeed illustrative. But I think to your larger point, this is where the experience that we've gathered over time comes in. As I said, we operate in 44 states, we do see different risk performance in them. We have multiple channels. We do see different risk performance in them. So a customer could look exactly the same on their credit bureau, but depending on geography that we are operating in, the product that we have, the channel that we have, their performance could look very different. And that's what we account for, both in the way we price that customer, and the way we tune our Credit box in terms of whether we originate them or not. So while that slide was illustrative, we do see some of these trends that you are referring to.

Yes. And the key to that, What, we underwrite to return, so Dinesh, put the return on there, not the loss. I think in those, it also certain states you can charge more than others. So a lot of the differentiation becomes, in Ohio, you can charge 24%. But in California, you can charge 36%. And so you've got more room. So a lot of the state differentiation comes into pricing.

Kenneth Lee, RBC Capital Markets. About the $30 billion managed receivables targets over the medium term. Wondering if you could talk a little bit more about some of the factors that could either accelerate or lengthen the time frame to get there? I know that you don't manage by growth, but just wanted to get a better sense of whether it's just macro dependent or are there other factors at play here?

Micah, do you want to take that?

Yes. I mean, Ken, thanks for the question. I think it's mostly dependent on macro. I mean we certainly have the ability in our operations to scale as needed. I think if you were to do the math on 3 years getting to $30 billion versus 5 years getting to $30 billion, it's somewhere in the 5% to 10% range. That could come from the mix of products. But as we've been telling you, we've been pretty cautious with our new products, in particular, but also with our core lending personal loans, as Dinesh described, and Michael asked a question earlier about our appetite for credit at this point. I think we're being cautious. We're monitoring the environment very, very closely. That's really going to be the driver as to when we're able to attain that level.

Pete Poillon, OneMain Financial. I am going to paraphrase this a little bit. Does your proposed increased size referring to the $30 billion over the medium term require a refresh on the non-bank designation, meaning does it -- can you proceed to this ever larger size without pursuing deposit funding?

Yes. I mean, the answer is absolutely yes. To get to $30 billion, I think, is no problem at all. I also think March, last March, maybe kind of prove the point that the simple way of looking at bank licenses, which are bank deposits equal good wholesale funded equal bad, that's a very simplistic view of the world. We -- if you look at the wholesale funded lending market, it's grown by multiples from '08, '09, and it's a very deep viable market and especially credit card, we just gave you the numbers on credit card and auto loans. Those are very deep liquid markets. The personal loan, we developed some of those kind of asset products, but those are very deep markets. And so we see no issue funding this balance sheet going forward. I mean we've looked, never say never about a bank. There's a bunch of pros and there's a bunch of cons of being a bank, but it is not on our critical path to get there. It's not something we're looking at in any sort of, kind of short to medium time frame right now. So I think $30 billion, very easy for our balance sheet to absorb that. Micah and Dave will tell you not -- like they'll be like, very easy. I mean they got to work hard. But the market can easily sustain that and more.

Kevin Barker, Piper Sandler again. Hi, Doug. This one might be for Micah though. So Micah...

As long as you now ask about CECL builds on Investor Day.

So Micah, you guys continue to target 6% to 7% net charge-off rates you're above that right now. You put a 30% layer and then some on a lot of your underwriting. Do you feel that you can comfortably get into that 6% to 7% target within the next year? And then within your -- talking about margin as well, your interest expense should drift a little bit higher going into next year, given maybe some improvement in credit, do you feel like asset yields can match some of the increase in interest expense we see over the next several quarters?

Yes, for sure. So let me take the credit question first. I mean we certainly, what we showed you today, all of the figures we presented were assuming a stable macro environment, obviously, our current expected losses this year in 2023 are going to be above our strategic range of 6% to 7% for the personal loans. We've got this transition that Dinesh talked about with our front book and back book. And I know you know that over the last few quarters, we've really been talking a lot on our earnings calls about the transition of our receivables from front book to back book. We wanted to give you a little bit more today sharing with you the transition of our delinquent receivables which, if I recall the numbers, we had about 41% of our receivables. We're back book at the end of third quarter, but still 65% of our delinquency. So that those elevated levels are just taking a little bit more time to come through. as Dinesh highlighted, we're expecting, call it, a 2-quarter lag or so between the transition of the receivables and the transition of delinquency. So I would expect that to continue to happen. In 2024, we'll give out a little bit more guidance as to what we think '24 looks like when we get to our first quarter earnings call. But I mean, we feel good about the front book. That's the important thing here. It performs in line with our expectations. Performing in line with a 6% to 7% annual charge-off ratio, and that will just continue to get bigger over time. So we're confident there. In terms of asset yields and funding costs, I showed you that we've gone from a low of 4.6% to 4.9%. We still expect to be in the low 5s, even going through next year. We have a lot of flexibility with the next unsecured bullet maturity not coming until early '25. So we can kind of figure out issuance. We've seen some great rally in rates over the last couple of weeks. So that's been encouraging. And on the asset yield side, even with moderate increases in interest expense, we still have some room on yields. We're in the low 22s right now. A lot of that is driven by the current credit environment. and the impact of 90-plus delinquent receivables being higher and the drag that has on yield. But we've also put in some pricing changes over the last 6 months, I would say, our pricing on new originations is over 100 basis points higher than where it was in early June. Just like delinquency is going to take a long time or a medium amount of time to come through our portfolio, it will take some time for new originations and a higher APR to come through our portfolio, but it will come. And so we feel that with a little bit of stabilizing in the macro economy, so improved credit performance from the front book, plus the pricing on new originations, our yield should start to move over the next, call it, 6 quarters or so.

We've got time, I think, for one more question, and then we're going to be, we'll be around at the reception after. Anyone? Yes. Moshe.

Moshe Orenbuch, at Cowen. So given, I guess, Doug, that a lot of the new products are probably somewhat less reliant on the branch network. How do you think about number of branches, the existence of that branch network in the -- in your efficiency and in our efficiency thought process?

Yes. Let me let Rajive take that one.

Sure. Yes, we are doing new products. But as I think Jenny said, that personal loan is still going to be the -- and Doug said, is going to be the big part of our medium-term future. So look, branches, as you saw, very important piece of our operating model. I mean, critical to us and delivering just outstanding results. So that is very, very important for us to keep in mind. And having said that, from 2016, when we were at 2,000 branches, we are down to about 1,400 branches now. So we have been kind of following the general trend you see in financial services industry. And we look at this very rigorously on a very regular basis. We look at our entire network and what's the optimum level we need to make sure that we are competitive and we have the coverage we want. And, so we will continue to do that process. As part of that process, we open branches every year. We also consolidate branches and that process is an ongoing process. But I think -- and we will always, always have branches in a significant way in our future. And these branches, we'll make sure we have enough branches, all the branches we need to serve our customers and engage with all the prospects we need to engage with. Along with all our central and digital capabilities. So that's kind of the approach we take. And we'll see with our regular process, whatever is the right level of branches we need for our network, for our platform, we'll have those branches. But they produce great results.

Yes. And you've heard me say this before also. I think a lot of the paradigm people have is banks love to talk about their shutting down of their branches and they're thinning out, I mean, our branch network is very different. Banks have the most expensive real estate in the prime location in expensive parts of a city. Our branches are in nondescript office buildings and strip malls. And so they're not a huge expense. A lot of the real estate is comparable to call centers, and you can think about it as a distributed call center when needed for capacity. And so we're going to be very focused, as Micah showed you on our operating leverage, on our operating ratios every year, we're grinding on what expenses are adding value, what expenses are important for the future, and what expenses are just hanging around because they're part of our past, and we grind on it. So if we see branches that aren't producing, aren't profitable, aren't having either good credit or down or population shift. But we'll also open some when needed. It's part of the overall cost base. Look, so with that, let me end it. Thank you all for coming and spending some time with us today. As you saw we are very excited about the future of this business. We've got a world-class team. Hopefully, we gave you a little better sense of our business today and where we're headed. And we appreciate all the partnership with many people in this room, and we look forward to continuing to produce results for all of our stakeholders, our shareholders being very important ones. So, thank you, and we have some refreshments outside, and we'll be around.