OneMain Holdings, Inc. (OMF) Q3 2026 Earnings Call Transcript

Welcome to the OneMain Financial Third Quarter 2026 Earnings Conference Call and Webcast. Hosting the call today from OneMain is Peter Pullian, Head of Investor Relations. Today's call is being recorded. It is now my pleasure to turn the floor over to Mr. Peter Pullian. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and thank you for joining us. Let me begin by directing you to page two of the Third Quarter 2026 Investor Presentation, which contains important disclosures concerning forward-looking statements and the use of non-GAAP measures. The presentation can be found in the Investor Relations section of the OneMain website. Our discussion today will contain certain forward-looking statements reflecting management's current beliefs about the company's future, financial performance, and business prospects. And these forward-looking statements are subject to inherent risks and uncertainties, and speak only as of today. Factors that could cause actual results to differ materially from these forward-looking statements are set forth in our earnings press release. We're costing you not to place undue reliance on forward-looking statements. If you may be listening to this via replay at some point after today, we remind you that the remarks made herein, or as of today, October 30th, have not been updated subsequent to this call. Our call this morning will include formal remarks from Doug Shulman, our Chairman and Chief Executive Officer, and Jenny Osterhout, our Chief Financial Officer. After the conclusion of our formal remarks, we will conduct a question and answer session. I'd like to now turn the call over to Doug.

Thanks, Pete, and good morning, everyone. Thank you for joining us today. Let me begin with a few highlights from the quarter before I discuss momentum across the company As we continue to deliver profitable growth through disciplined execution and progress against our strategic priorities. Financial performance was great this quarter. Receivables continue to grow. Credit is moving in a decidedly positive direction. We further fortified our already We have a strong balance sheet and capital generation continues to grow. Capital generation for the quarter was $284 million, up 4% year over year. We're seeing excellent growth across our business while maintaining our conservative underwriting posture. The growth is driven by ongoing product innovation in our personal loans business and continued discipline execution in our newer products, auto finance and credit cards. Receivables reached $28 billion in the quarter, which is a 9% year-over-year growth. We saw good credit performance in the quarter. Our consumer loan 30 to 89 delinquency declined 12 basis points year over year, better than the three basis point decline we saw last quarter. Year to date, the decline has been 28 basis points, which compares positively to low single digit declines in both the prior year and pre-pandemic years. We also saw improvement in later stage delinquencies, with 90-plus delinquencies declining nine basis points year-over-year, compared to a three-basis point increase last quarter. These improving delinquency trends point to lower losses going forward, and we expect lower year-over-year losses in 2027, getting us closer to our longer-term normalized loss range for consumer loans. C&I net charge-offs were 7.2 percent, and consumer loan net charge-offs were 6.9 percent, both down significantly from last quarter. We also continued to see good recoveries, resulting from our efforts over the past several years to improve recovery capabilities across the business. We had 7% year-over-year growth in our consumer loan business. In our personal loan business, secured lending, which carries lower losses, accounted for nearly 60% of our originations this quarter. And our enhanced debt consolidation offering, new home fixture secured loan offering, and increased use of bank data all contributed to higher originations in personal loans. We are pleased with our loan growth, but as I've said before, growth is an outcome. Great lending businesses start with a disciplined credit box and build on that by innovating and executing on a thousand little things that add up to meaningful value creation. Across OneMain, our team members are continuously finding ways to make better use of the rich data our business generates, refine our marketing to reach more customers, better tailor our offers to increase pull-through rates, improve our digital experience to make it easier for customers to do business with us, and drive efficiencies in our branch and operations. It is this focus on continuous improvement and execution that is driving the profitable growth that we see today. Turning to Alito Finance, receivables grew 16% year-over-year to $3.2 billion. We've increased application flow while maintaining our conservative Underwriting standards by improving Salesforce productivity, expanding our dealer network, and deepening dealer relationships to generate more applications per dealer. As this business continues to mature, we expect to do more volume with our existing dealers. Importantly, credit performance in auto finance remains good and in line with our expectations. Our credit card business delivered another strong quarter with excellent results across all key metrics, and we now have 1.5 million customer accounts. Receivables have now reached $1.4 billion. Our expanded card offering and focus on customer experience are helping attract new customers and drive digital engagement. We are seeing this materialize both in our results and also reflected in frequent usage of our highly rated mobile app. Credit performance in the card business continues to improve, building on the momentum from the first half of the year with lower losses and better delinquency trends compared to a year ago, and we continue to drive down unit cost and generate greater operating leverage as we scale. We are very happy with the trends in our credit card business, which underscore the value this business brings to OneMain in terms of capital generation and diversification. The strength of our balance sheet and funding program were again evident this quarter. In August, we raised $2.3 billion at very attractive pricing with tight spreads through three separate issuances on a single day. Once again, we demonstrated our leading access to the capital markets, even further fortifying our incredibly strong balance sheet with a long liquidity runway. Let me spend a minute discussing how we're investing in technology and digital capabilities to make it easier for customers to do business with us, support profitable growth, and improve efficiency. Over the past year, we've built a new mobile and web experience that has brought loans, credit cards, and our MyMoney financial wellness tool together in one place. We've now made this new mobile app experience available to all of our customers. Customers can more easily manage their accounts, access tools to help with their financial lives, and explore personalized offers across our products. We're seeing growing engagement with our digital channels, creating additional opportunities to serve our existing customers, attract more customers, and make our business more efficient. We also recognize how AI could have significant potential across our business, and we're approaching it with discipline. Our approach is to apply the technology in those places where we see the clearest opportunities, starting with targeted use cases and expanding where the evidence supports further investment. Our internal use has focused on deploying AI to improve how our team members work today with an eye towards automating high-volume manual processes and operations, helping team members and corporate functions work more effectively, and driving productivity and innovation in product and software development. While we're also starting to pilot AI in selected, lower-risk, customer-facing interactions, these use cases carry a very high bar for accuracy, transparency, and trust. So we'll move very deliberately there and scale over time only where the results and customer experience support it. As we expand our use of AI, we have put in place a governance framework in which security, privacy, human accountability, and customer trust are foundational to how we deploy the technology. And it's also important to remember that our branch network, deep customer relationships, and personalized service will remain key differentiators of one main, particularly when, as adoption of AI increases, customers will ascribe more value to trusted human interactions and guidance. Let me briefly touch on the consumer. The positive credit trends we see on our book are pointing to continued resiliency in our consumer base. While higher oil prices and some inflationary pressure continue to create uncertainty in the macro picture, the labor Market remains strong. Importantly, we don't underwrite to the generalized consumer. We offer personal loans, credit cards, and auto loans to customers who meet our conservative underwriting standards. At the end of the day, we hold a nationwide portfolio of risk, which is only a subset of the overall non-prime consumer base, and our data points to a stable and resilient customer. Turning to capital allocation, our priorities remain unchanged. We will continue to extend credit to every customer that meets our risk return criteria, and we will invest in the business to innovate, meet customer needs, drive efficiency, and create long-term shareholder Our regular dividend, currently $4.20 per share on an annualized basis, represents a 7% yield at today's share price. In the third quarter, we repurchased 538,000 shares for $34 million, bringing our total repurchases year-to-date to $171 million. As I have said, all things being equal, we expect incremental capital returns to be more weighted towards share repurchases going forward, while still maintaining our current dividend. As you can see, we had another strong quarter. OneMain's best-in-class data science and underwriting, experienced team with unparalleled expertise in serving the non-prime consumer. Our digital and technology innovation, diverse product offering, and strong balance sheet create unique competitive advantages for our company, which are evident in the results this quarter. We are focused on building on these strengths by executing our strategic priorities and driving profitable growth across the business. With that, let me turn the call over to Jenny.

Thanks, Doug, and good morning, everyone. Let me begin by summarizing our strong third-quarter results. We delivered excellent high-quality originations and good credit performance with lower losses that are better than seasonal trends and improved delinquency metrics across all products, providing a tailwind for further loss improvement ahead. We enhanced operating efficiency through disciplined expense management, while continuing to invest in initiatives that strengthen the business. We also bolstered our balance sheet during the quarter with both unsecured and ABS issuances. Taken together, these results position us well for continued profitable growth over the medium and longer term. Consumer loan originations increased 17% year-on-year in the quarter, while credit card unit originations and purchase volume each grew more than 80%, consistent with our plan to scale the credit card business over time. Managed receivables grew 9% year-on-year, accelerating from 7% growth last quarter. As Doug said, we view growth as an outcome, and this quarter's combination of portfolio growth and improving credit performance is particularly encouraging. Funding and the strength of our balance sheet were once again highlights in the quarter. We raised $2.3 billion in the public markets through three separate issuances across the ABS and unsecured markets, providing excellent flexibility for future funding needs. Additionally, we continued our share repurchases. Year-to-date, we've repurchased $171 million of our shares, which, combined with our healthy dividend, resulted in more than half a billion dollars returned to shareholders so far this year. Third quarter gap net income was $185 million, or $1.60 per diluted share. We generated CNI adjusted net income of $174 million, or $1.51 per diluted share in the quarter. The strong loan originations and credit card purchase volume I mentioned earlier, drove a $1.1 billion sequential increase in net finance receivables in the quarter. This strong receivables growth resulted in a $146 million increase in our CECL loan loss reserve in the quarter, $85 million higher than in the third quarter of last year. Capital generation, the metric against which we manage and measure our business, totaled $284 million, up 4% from $272 million in the third quarter of 2025, reflecting the continued growth of the business. Managed receivables ended the quarter at $28.1 billion, up $2.2 billion, or 9% from a year ago. Managed receivables at the end of September included $1.8 billion of finance receivables serviced for others. Third quarter originations of $4.5 billion increased 17% year-on-year. In consumer loans, we delivered strong growth while maintaining our consistent and conservative underwriting, driven by our innovative personal loans initiatives and continued scaling of our auto finance business. The personal loans initiatives we have progressed over the past several quarters continue to gain traction and attract customers to one main. Encouragingly, their early credit performance is in line or better than our expectations. The auto finance business delivered strong growth with third quarter originations up 26% year on year as we continue to grow our dealer network and further penetrate dealer relationships. Our credit card business continued to build momentum, with unit originations up 84% and purchase volume up 82% year-on-year. We continue to benefit from the enhancements to our Brightway offering, as we appeal to more customers and deepen engagement with existing customers. Overall, we are pleased with the pace and quality of the growth across the businesses, which was achieved through superior execution while maintaining our conservative credit posture. Turning to yield, third quarter consumer loan yield was 22.6%, up slightly year on year, even as the mix of our consumer loans portfolio has shifted towards more secured lending. Our asset yields remain strong as we continue to maintain our disciplined pricing. As market rates adjust in this dynamic rate environment, we will continue to monitor the market for opportunities to optimize pricing, but we expect our consumer loan yields to hold at current levels through year end. Third-quarter revenue yield in our credit card portfolio was 34.9%, up from last quarter and a year ago. Total revenue in the third quarter was $1.7 billion, up 7% year-on-year. Interest income of $1.5 billion grew 7% from the third quarter of last year, outpacing the 6% growth in average net receivables on our balance sheet. Other revenue of $211 million was up 5% from last year, primarily due to higher credit card revenue as we grow the card business, as well as higher servicing fees from our growing portfolio of loans serviced for third parties. Interest expense for the quarter was $345 million, up 8% compared to the third quarter of 2025, driven by higher average debt to support our receivables growth. Our interest expense as a percentage of net receivables was 5.3% this quarter, an increase of three basis points to last quarter. As we look forward, we expect our funding costs to remain at approximately this level through year-end. Our longer-term staggered debt maturity profile will mitigate the impact of potentially higher market interest rates into the future. Third quarter provision expense was $615 million, consisting of $469 million of net charge-off and a $146 million increase in reserves, which, as I mentioned earlier, was driven by the strong receivables growth during the third quarter. Policy holder benefits and claims expense for the quarter was $53 million, up from $48 million in the third quarter of last year. We continue to expect quarterly PB&C expenses in the mid-$50 million range going forward. Let's turn to credit, starting on slide 8. I would like to first highlight that unlike in prior quarters, all delinquency metrics on slide 8 now reflect consumer loans, including Foresight, the auto finance business we acquired. We now have enough combined quarterly results to provide a consolidated view of consumer loan delinquency metrics, which helps simplify the analysis of credit trends. As a reminder, including foresight in our delinquency metrics increases early stage delinquency rates, but lowers the role to loss, consistent with typical auto finance industry dynamics. Next. 30 to 89 delinquency on September 30th was 3.08%, down 12 basis points compared to a year ago, an improvement from the three basis point decline we saw last quarter. On slide nine, you'll see that the 28 basis point year to date improvement in 30 to 89 delinquency was better than the low single digit improvements, both last year and in the pre-pandemic period, as delinquency continues. The call continues to trend lower. 90-plus delinquencies declined 9 basis points from a year ago, following the improvements in our 30-89 delinquency last quarter. 30-plus delinquency was 5.34%, down 21 basis points from the prior year, and improvement from the flat year-on-year trend last quarter. We are encouraged by the improvement across all delinquency metrics this quarter, which helps support our confidence in lower year-on-year losses in the fourth quarter and into 2027. Before turning to net charge-off, I want to highlight the continued impact of our back book, which consists of loans originated before August 2022. While representing just 3% of our total portfolio, it accounts for 10% of 30-plus delinquencies, which is more than twice the expected level for similarly seasoned loans. While our front book continues to perform in line with expectations, the negative impact of the relatively small aging back book continues to linger on our balance sheet and disproportionately weighs on credit performance. As we move into 2027, we expect this impact to continue to subside. Moving to net charge-offs for the quarter, as shown on slide 10, third-quarter CNI net charge-offs, which include the results from our growing higher-yield, higher-loss credit card portfolio, were 7.2%, down 96 basis points sequentially, a notable improvement from the 56 basis points We are pleased to see the improvement we anticipated in year-over-year roll rate trends this quarter, which we believe will continue through the end of the year. Combined with the recent improvement in delinquency rates, these trends should drive notably lower loss rates year-on-year in the fourth quarter. Recoveries remain strong in the quarter, increasing 15% year-on-year to $101 million. Recoveries as a percentage of average net receivables increased to 1.6% from 1.5% a year ago, Reflecting continued enhancements to our comprehensive loss recovery strategy. CNI net charge-offs include a 35 basis point contribution from our small but growing credit card business, which has higher yields and higher losses. However, I'd like to highlight the continued strong improvement in credit performance in our credit card business. Net charge-offs declined 274 basis points year on year to 13.9% in the quarter. Given our strong performance throughout 2026, we expect full-year credit card net charge-offs to land comfortably within our longer-term target range of 15% to 17%. 30-plus delinquency in our card business declined 135 basis points year-on-year, giving us greater confidence that the loss improvement tailwind should continue. Our card business has delivered consistently strong credit performance over the past several quarters. As we look ahead, we expect to continue to pursue growth with the same conservative approach we have taken since inception. Loan loss reserves ended the quarter at $3.1 billion, with a reserve coverage ratio of 11.7%. Our loan loss ratio increased five basis points from 11.6% last quarter, as expected, driven by the change in mix of our portfolio as our credit card business continues to grow in proportion to the total portfolio. In the third quarter, credit card receivables grew by $239 million, or 21% sequentially, accounting for approximately 20% of total net receivables growth in the quarter. While the credit card reserve ratio was largely unchanged from prior quarter, it is nearly two times higher than the reserve rate on consumer loans. As strong credit card growth is expected to continue to shift our While there is a modest impact to our reserve ratio, the growth of the credit card business brings strong risk-adjusted margins, positive capital generation, and further diversifies our overall business for the longer term. Now let's turn to expenses on slide 11. Operating expenses were $453 million, up 6% from a year ago, compared to the 9% growth we saw in managed receivables. The operating expense increase reflects continued investments in credit cards and auto finance, as well as enhancements to our data science, technology, and digital capabilities. These initiatives support growth across our businesses by improving customer experiences, increasing team member productivity, and expanding our data and analytical capabilities while driving greater efficiency and scalability over time. Our OPEX ratio was 6.5%, down from 6.7% last quarter and 6.6% a year ago. This improvement reflects our continued focus on expense discipline and our ability to drive operating leverage while supporting business growth. Looking ahead, we will remain focused on balancing investment in opportunities that support future profitable growth and operating expense efficiency. Now, turning to funding on slide 12, where I will provide a bit more detail on our balance sheet. As I touched on earlier, we strengthened our balance sheet during the quarter. In August, we raised $2.3 billion across three issuances in one day, a record for one main. We issued a $1 billion two-year revolving ABS at 5.15%, a $680 million five-year revolving ABS at 5.47%, and a $600 million unsecured bond due in 2034 at 7 and 1 8th percent. Demand was strong across the three transactions, resulting in attractive spreads ahead of recent market rate increases. This strong execution reinforces the strength of our funding platform and our ability to raise capital, even with an uncertain market backdrop. Our bank lines are unchanged at $7.5 billion, providing substantial liquidity and additional flexibility to our funding program. Our net leverage at the end of the third quarter was 5.5 times, flat compared to the prior quarter and a year ago, and within our target range. Our balance sheet remains a key competitive advantage supported by staggered long-term maturities, a diversified funding mix, ample liquidity, and consistent market access. This combination provides flexibility, supports stable execution, and positions us well through economic cycles and volatile credit markets. Turning to our full-year 2026 guidance, shown on slide 14, we are narrowing our full-year managed receivables growth guidance range. We now expect managed receivables to grow at the high end of our previous guidance range We are also narrowing our CNI net charge-off guidance range. We now expect CNI net charge-offs to come in at the higher end of our previous guidance range of 7.4 to 7.9%. As I mentioned earlier, lower delinquencies and improving role rate trends support our expectation for further year-on-year loss improvement in the fourth quarter and into 2027. We are maintaining our OPEX Ratio Guide of approximately 6.6% for the year. In closing, we are pleased with our performance and the momentum we continue to build across the business. Healthy originations growth, improving credit trends, disciplined expense management, and our diversified funding program support our ability to drive continued capital generation growth in the years ahead. So with that, let me turn the call back over to Doug.

Thanks, Jenny. We had another strong quarter, and I feel great about the trajectory of our business. Growth accelerated across all products, further demonstrating our ability to grow while maintaining our consistent and conservative underwriting posture. And credit performance improved, providing a clear path to lower and more normalized losses moving into 2027. These trends demonstrate the strength of our core business and the value of our investments in new products and innovation in driving profitable growth. Looking ahead, we will build on this progress through disciplined execution to drive further gains in performance. Combined with our strong balance sheet and consistent capital access, we are well-positioned to deliver sustained growth in capital generation and strong returns to our shareholders for the years to come. Before I close, I'd like to thank our team members across all of OneMaine, whose hard work and dedication are at the heart of our success and our mission to help hard-working Americans improve their financial well-being. With that, let me open it up to questions.

Thank you. If you'd like to ask a question, you may press star 1 from your telephone keypad. We'll now go to our first question, which is from the line of John Hecht with Jeffries. Please proceed with your question.

Morning, guys. Thanks for taking my questions. First one is just related to the accelerating growth in receivables, and I know some of this is related to the success of CARD and the auto segment, but you also have very good momentum in personal loans, and we've also seen other – some of them are peers. Some of them maybe call it indirect peers of yours that have also had pretty strong growth and momentum in that category. So, Doug, I guess, is there something going on like a structural shift where maybe borrowers are using personal loans more than alternatives and the market is shifting? Or what's your perspective and what's going on there?

You know, we, I don't think there's necessarily a structural shift, or at least we're not seeing evidence of it. I think we're picking up market share. And, you know, we're especially pleased with the growth, given how tight our credit box is, and that we're staying disciplined around that. And so I think the growth we're generating, you know, we've been doing a lot of innovation around our personal loan product. I've talked about debt consolidation, a home fixture secured product, you know, bank data, about 40% of our originations now. Now, people share bank data with us. That's up from 30% a year ago. That's a much more streamlined process than having to produce multiple pay stubs, get them verified. So it's just an easier process for folks. A lot of our digital processes are adding, and obviously, we have a very good brand pull-through because customers know we've got an excellent product at a fair price, that we treat them well, that we work with them when they have issues. And then you add to that, about five years ago, we decided to expand into auto and credit card. And we have done it in a very slow, disciplined manner, again, with super tight credit posture. And those are now maturing and coming to bear. So, you know, we don't have evidence that it's a structural shift. We think it's just us continually improving, you know, the business and taking some market share from others.

Okay. That's great color. And then in the card segment, you know, still good growth and I guess good credit trajectory there. Maybe can you talk about the customer behavior? How much of these are called unique customers versus cross-sells? What's the behavior of the customer? How quickly do they ramp in terms of revolving and so forth? Maybe just a little bit of detail there.

Yeah. Look, as I said, we actually launched our card business five years ago. We started with a whole bunch of test case to see how our marketing landed, how our product sets landed, what was line usage, and most importantly, what was credit. And then we expanded places where we had good credit and the return on receivables and long-term profitability was going to meet our return hurdles. And so we've really been, you know, kind of step by step moving into the market. I think part of what you're seeing is just more refined models with very high confidence in credit, and you're seeing that come through in our credit results. We also now have refined and have more options in the market, lower fees, higher rewards, no fees, with modest rewards. So for different credit segments, we've got a variety of cards, and so we now have more of a full-spectrum offering that allows people to pick the kind of card they want with one main, where we started with just two basic cards. And then we've really refined our analytics. And so we're now able to market to customers that are lower risk and more likely to use their line. So we've seen a little bit more line usage early on, but that's specific because we've been targeting those customers in our marketing material. And so I think it's a mix of things that have led us. I think line usage is pretty similar. It ramps in a similar way. We do now have a much more refined line increase and line decrease program, which creates better credit on the decrease side, obviously a little growth on the increase side. So I think it's just an amalgamation of, you know, five years of experience, you know, together with our decades of experience serving the non-prime consumer, and you're seeing, you know, really all the metrics come together.

Great. Thank you very much.

Our next question is from the line of Aaron Signovix with Truist Securities. Please see their questions.

Thanks. I wanted to touch on credit. I think Jenny had said that you're seeing roll rate trend improvements. When I look at the, I guess, roll rates from late to charge, at least on the metrics in my model, it looks like they're actually a little bit worse this quarter, but what roll rates were you referring to when you were talking about credit?

Yeah, I'm looking at the year-over-year roll rates. So I think when I look at, let's just say, the 30 to 89 to 90-plus or the 90-plus to loss, that year-over-year roll rate is what I'm looking at and starting to see improve. And, you know, I think we started to see this pattern in the first quarter and talked a bit about it last quarter. And we're really starting to see that come out. When I look at losses in the third quarter, you know, as we went throughout the quarter, we also saw that year-on-year trend get better. So if I then look at our year-on-year losses, by the last month, we were seeing better year-on-year losses. So I do think that that's how I'm thinking about it. I think that might be slightly different than how you're looking at it, but I hope that helps.

Yeah, we can kind of discuss it later with IR. But the other question I had is also credit related. As you're adding foresight to the delinquencies, how does that change the historical seasonality aspects of it? And also, the stronger growth in auto and card, what are you seeing from credit seasoning? Is that one of the, you know, aspects that's sort of leading to this, you know, more stubborn level of charge-offs, kind of notwithstanding the remaining 3% of a legacy book?

So, let me break that down into a couple pieces. You know, let's just start with cards because that's probably the easier piece to pull apart. I mean, we've obviously been seeing really good trends on cards, both in delinquency and in losses, and that is helping and clearly a good trend. And then when you look at consumer loans, which, you know, now we've got including foresight, it changes some of the dynamics that we have, meaning, you know, traditionally, and I talked a little bit about this earlier, But, you know, you have higher, in auto, you have higher delinquencies and then better roles to loss. I think we really see the same trends this quarter, I'd just say, across the board, when I look at with and without foresight. So, I don't think it's changing the trends. And you guys, you can see it, there's an appendix that shows you without foresight in the presentation. But overall, I'd say, you know, we're really seeing the improvements in both delinquency and laws across all products. And, you know, if I look back on foresight, when we bought them, they were slightly more prime or, you know, slightly higher on non-prime, I would say. And we've been looking at finding where is the best place for us to compete. So there are differences there where we're moving the book. But overall, everything is performing in line with our expectations, and the trends are moving in the right direction.

Thank you. The next questions are from the line of Mihir Fatia with Bank of America. Please proceed to your questions.

Thanks for taking my questions. I wanted to maybe start with staying on credit. I think you talked about a path to normalize losses in 2017. And maybe just talk a little bit about what gives you that confidence, and are the bank data loans performing better? I'm really interested to see, like, what do you think could go wrong for 2027 to not be a better loss here, given trends currently?

Got you. You're right. We did say we see a good path forward. And when we think about getting to those historical levels, we're really focused on the consumer loan portfolio, so take cards out of that equation. And we think we're getting towards that loss level in 2027, getting towards that normalized, which would get closer to 7%, which is sort of the top end of that normalized range for next year. In terms of, you know, that sort of assumes a steady macro environment. So I think to the extent you saw some major shifts in inflation or unemployment, obviously, those are the two big pieces that would affect that for next year. You know, just to be both, I always look at sensitivities on both sides. I'd say if we were to start to see, you know, some further improvements, I mean, I think we still don't, we haven't come out with our full 27 guide, and so when we come back next quarter, we can give you a better view, but I think there's some potential, you know, there's some range of outcomes that we're looking at.

Got it. Maybe just turning back to card returns for a second. Do the card returns, do cards currently clear your return hurdle after the upfront reserve? And as the line increases, expand, what keeps losses from drifting up as the book season?

So I'd say we really look at capital generation, which is not focused on the build, the CECL build. So I'd say in terms of capital generation, the credit card book is generating capital, and it is, you know, as I look at its path, it is one of the only products that I think you can have in the consumer lending business that will get you to a CapGen ROR. That is above a personal loan cap gen ROR, and we're already on that path and on the positive side of that path. So I think we're very happy with the build out of that J curve. So I think in general on cards, we're feeling quite good. I feel like every metric is moving in the right direction on both the top line and the bottom line. And, you know, when you sit down and look at the continued, I'd say, lower-hanging fruit that still fits with the cards of where we can make further improvements and continue to conservatively grow, we feel very good.

Our team can take you through it, though, but there's, you know, it's a different cycle of losses. I mean, with a personal loan or an auto loan, you immediately have the whole loan on your book. You're generating interest, and it has very low losses the first year, and then more losses as you get to out years. With the card, you don't have the full line. It takes, you know, nine months to a year for the line to build, so you're not immediately getting revenue. And then losses actually peak a lot earlier in the first couple of years. And then you've got a stable customer in out years. And so it's a different profitability, you know, trend in card. And, you know, we run the company for the long term, and, you know, we run it based on CapGen, which is just cash on cash. And you've got to, you know, kind of ignore the CECL because you take big reserves up front. There's some penalties in CARD, but it really sets the business up well for, you know, medium to longer term. Well, thank you.

The next question is from the line of Moishe Orenbuk with T.D. Callan. Please receive your question.

Great, thanks. I was hoping maybe to put a little bit more of a fine point on the charge-off improvement. I guess when you look at the specific factors, right, I mean, obviously, if to the extent the card is growing faster, that will be somewhat of an upward pressure. But I would say, you know, Better overall growth, lower losses from the back book, the recoveries that you mentioned. Does it seem that we should see an improvement level that's better than what you're seeing currently in delinquency performance, right? In other words, if you've got 20 basis points year over year improvement in delinquency performance, should we be looking for a level of improvement in losses that's kind of better than that? And if it's not too much, maybe just kind of extend that to thinking about the reserve as well.

Yes. Let me take that. So you're right. We are seeing, let me just think about the 20 basis point improvement in delinquency. I think really what you can do is look at, take a look at our second quarter delinquency, and you translate that forward for the fourth quarter, and that should get you to a year-on-year improvement. I mean, if you take the consumer loan delinquency, you're going to apply more like a 2.4 or 2.5 roll rate to that. So just to help on the math point there. And that can get you to, I think you're in the range. It could be, I think you're spot on. It could be slightly more than the 20 basis point improvement that we saw, but, you know, it's in that range for the fourth quarter. And then you asked also about reserves. The reserve coverage and how to think about that going forward, I mentioned that we'd expect for it to go up to about 11-8 in the fourth quarter. I do think there's going to be some pressure coming from cards, but I also see some opportunity in the longer term as the book improves. So I really think of that 11-8 as, you know, looking at the fourth quarter, and then over time, I think there's, you know, some potential for that, for those two, you know, sort of the tailwinds and the headwinds to weigh each other out a little bit in terms of the reserve for the longer term. I think I'll probably come back next quarter and give you more of a view, but it depends so much on how you weight the consumer loan portfolio versus the card, just that two times loan reserve rate that we have for cards versus, you know, consumer loans. Even the smaller changes in cards as a percentage of the book can affect that loss ratio going forward.

Yeah, I mean, people talk about it offline, but, you know, a lot of the other card players are closer to 1.6 or 1.7, not 2, and your card losses are getting better. Maybe just a quick one just on the yield. You know, you highlighted the pressure from faster secured growth, but you've also got, you know, the card, you know, which you've mentioned the yield is almost, you know, the revenue yield, maybe not all interest, but the revenue yield almost 35%. I guess, you know, as we sort of think about the mix of, you know, of your business in, you know, in, in 27, you know, how do you think about it from, I mean, it feels like maybe there is a little bit lower yield, I guess, between auto and, you know, the secured personal. But that should also be contributing, I guess, from a standpoint of, you know, of a loss rate. So I don't know if you can kind of think about that. And, you know, kind of, are there any things we should kind of take away from that?

Yeah, let me, so today we sort of have those two separated out. We have our consumer loan yield, and then we have credit card revenue yield. And, you know, what I'm hearing is maybe I want to do a total yield because it would be helpful for everybody. But if I take the consumer loan yield, you know, that's been relatively flat, and you're right, that's some of the movement to secure that we've seen, which is a trade I think we're quite happy to make in terms of, you know, looking for the best ROE outcome. And I think there is some pressure there. There's also some pressure there from auto. And so we've said we're at approximately a 60% secured mix on consumer loans. I think we're probably going to be in and around that ballpark as the auto business grows. And depending on what we do with personal loans, you could see that potentially grow some more, and that'll put more pressure there. So that's right. But credit card revenue yield, I mean, we talked about the 34.9%. I'm not, you know, that'll go a little bit. I don't expect for it to continue to just build and build and build. We're pretty close to where I would expect for it to start to peak. You get some benefit there also from your, you know, it's both interest and fees. And I do think that is helpful as that business begins to grow. And it's obviously helpful to our overall return. So, you know, I think in terms of your statement and your hypothesis, we should expect for that to grow going forward, and, you know, if you think in terms of a total yield-type metric. Thank you.

The next question is from the line of Terry Barclays. Please receive your question.

Hi. Good morning. This is Cordelia on for Terry. Thanks for taking my question. Just a quick one on recoveries. This year, they've been pretty strong. Could you take a moment to touch upon And what is driving the continued strength and just the durability of it moving forward, and sort of what investments you have made to improve it?

Hi, thanks. Yeah, we're pretty pleased with the strength of our recoveries, and we've talked about it a couple times throughout this year. But in the third quarter, we continued to see that recoveries increased about 15% year-on-year, and that recovery ratio as a percent of A&R was about 1.56. So that's better than what we'd seen in the third quarter of last year. And, you know, so those strong recoveries, where are they coming from? It's really a lot of it is improvements that we've made, and I talked about this on the last call, but it's about, you know, how we set up our operations, you know, who's making calls, when are you texting versus calling, who are you texting, at what time of day are you texting or calling, all of these pieces. And so you can think of various analytical models that are put together to help you improve your recoveries. And that's the internal recoveries. We're obviously always looking at sales as well and doing the analysis. Is it better to hold those customers on our balance sheet and hold them for ourselves to recover, or should we sell them to somebody else? And that's really more of an economic trade and a decision based on where the market is and our inventory and what it looks like. So I'd say most of this improvement this quarter is really due to those internal strategies that we've put in place. And in terms of the durability, I mean, I think that's part of the game. You've got to constantly get better. That's how we run the company is just to constantly look for ways that we can improve.

Our next question is in the line of Michael Dunleavy with Deutsche Bank. Please receive your question.

Hi, thanks for taking my question. You talked about the impact on credit metrics as card becomes a bigger portion of the portfolio. And, you know, you mentioned the card yield as well, very high on the revenue side. But just to get a full picture of a makeshift, is there a normalized caption return profile that you'd expect on card versus personal loan versus auto just to have in the back of our head?

Sure. I mean, let's see. In terms of CapGen ROR, I can give you sort of the general model, which would be, you know, your personal loans, you're going to be in the 4% to 5% range on a CapGen ROR. On auto, you're looking at something slightly lower, but, you know, that comes with lower losses, so we like that diversification there. And then on cards, I think it's going to build over time, eventually getting to a run rate where it's slightly higher than your personal loan. So that's sort of how I would think about it over time. You know, you're building. And obviously, some of that has to do with where you decide to play in the market as well. So it's about finding where, you know, auto is a highly competitive place. So you need to sort of find your niche and your appetite on credit. And, you know, we've come out saying that on our card book, we're looking for more like a 15 to 17 percent loss rate that sort of puts us in the niche of where we'd like to play on cards. So, you know, really, you can take breakdowns, your overall, you know, we're looking at a 20% ROE across all of these products. That's how I'd think about it. And then the market dynamics and how you look at yields and losses, our OPEX and our interest expense is sort of how you get to that calculation. But overall, I think that should give you a sense on the different CapGen RORs.

Yeah, that's perfect. Thank you. And then on the reserve rate, about it potentially moving towards around 11a, could you just talk about how much of that might be driven by the mixed shift between card and consumer loan and how much might come from the underlying rates on each of those?

Oh, I would expect that to come from the mixed shift. I would not expect for that to come from increases in the underlying rates. So, I mean, we're always looking at our models, and, you know, you're looking at the life. When you put something up for CESLA, you're looking at the life of the loan. But I think it's much more based on the weighting.

Okay, perfect. Thank you.

The next questions are from the line of Don Fandetti with Wells Fargo. Let's just see if there are questions.

Yes, can you talk about the second look, auto loan volume and credit performance? And then I guess, you know, while you talk about that, is that something you could do in cards as well, or is that more about long-term?

Um, yeah, I mean, we told you before we have a partnership with Ally, where we get a second look. We've got a couple other small ones. And, you know, so far, so good. We've got good application flow. The loss profiles, you know, very similar to or the credit profile overall is very similar to the rest of our auto book. Um, theoretically, we, we could, um, do that with card. We actually, um, you know, right now are getting plenty of demand and our Brightway card is resonating, um, in the market and we like what we see. So, you know, we always are looking for, you know, partnerships, new origination channels, um, in all of our products and are honing them. So, you know, theoretically, we could, but it's not something we're actively pursuing right now.

Got it.

Thanks. Operator, we are up against the hour, and so let me thank everyone for joining us. Obviously, our team is here for any follow-up, and hope everyone has a great day.

Thank you, Mr. Schulman. Thank you, Mr. Osterhout. Again, ladies and gentlemen, this does conclude today's one main financial third quarter 2026 earnings conference call. Please disconnect your lines this time and have a wonderful day.