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OneMain Holdings, Inc. (OMF 1.40%)
Q3Â 2019 Earnings Call
Oct 29, 2019, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the OneMain Financial Third Quarter 2019 Earnings Conference Call and Webcast. Hosting the call today from OneMain is Kathryn Miller, Head of Investor Relations. [Operator Instructions]
It is now my pleasure to turn the floor over to Kathryn Miller. You may begin.
Kathryn Miller -- Head of Investor Relations
Thank you, Maria. Good morning, and thank you for joining us. Let me begin by directing you to Pages two and three of the third quarter 2019 investor presentation, which contain important disclosures concerning forward-looking statements and the use of non-GAAP measures. The presentation can be found in the Investor Relations section of our website.
Our discussion today will contain certain forward-looking statements reflecting management's current beliefs about the company's future financial performance and business prospects, and these forward-looking statements are subject to inherent risks and uncertainties and speak only as of today. Factors that could cause actual results to differ materially from these forward-looking statements are set forth in our earnings press release. We caution you not to place undue reliance on forward-looking statements.
If you may be listening to this via replay at some point after today, we remind you that the remarks made herein are as of today, October 29, and have not been updated subsequent to this call.
Our call this morning will include formal remarks from Doug Shulman, our President and CEO; and Micah Conrad, our Chief Financial Officer. After the conclusion of our formal remarks, we'll conduct a Q&A session.
So now let me turn the call over to Doug.
Douglas H. Shulman -- President and Chief Executive Officer
Thanks, Kathryn, and good morning, everybody. I'm pleased to be with you today. We produced significant earnings growth during the third quarter, driven by the continued execution of our strategic priorities for the year and our ongoing commitment to enhance our customer experience.
We generated C&I adjusted earnings growth of 35% year-over-year and drove a 90 basis point improvement in our return on receivables, which reached 5.5% for the quarter. Credit performance continued to be strong. Our net charge-off rate was 5.2%, about 60 basis points better than last year's third quarter. Our 30-day to 89-day delinquency ratio was flat year-over-year and our 90-day ratio came in about 10 basis points better than last year. We're also continuing to exercise expense discipline and driving operating leverage in our business. Our third quarter operating expense ratio declined by about 60 basis points year-over-year, even as we continued to invest in the business.
From a funding perspective, we issued a total of $1.7 billion of seven year revolving secured debt at a blended interest rate of about 3.5%. This was an important milestone for our funding program as we became the first ever personal lender to complete a seven year revolving securitization. We're very committed to maintaining a conservative balance sheet and significant liquidity cushion. Overall, the core drivers of our business are performing very well and reflecting the benefit of the initiatives we've undertaken to enhance our customer experience and the profitability of the platform. We're using advanced analytics to optimize our marketing strategy and drive our credit model. Our streamlined application our expanded after hours support and our build-out of analytics tools -- are all improving our customer pull through.
And our investment in technology is driving greater productivity across our branch and central operations teams. Simply put, we are attracting, converting and serving more of the customers that we want to serve. This has contributed to the strong originations growth we've achieved over the last two quarters in particular. We're excited to talk about these and other initiatives at our upcoming Investor Day. We will provide an overview of our longer term plans for the company, including enhanced digital capabilities and a number of opportunities we see to further optimize our business better serve our customers and enhance profitability. We will also provide insight into the resilience of our business regardless of the economic environment and discuss our reinvestment and capital return priorities. We look forward to seeing you all there.
With that, let me turn the call over to Micah.
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Thanks, Doug and good morning everyone. I'll start by reviewing the core drivers of our third quarter results, followed with some comments on CECL and it's expected impact. We are in $248 million of net income in the third quarter or $1.82 per diluted share, primarily driven by our strong C&I performance. Our income for the quarter included the benefit of $22 million of non-recurring discrete tax items. As a result of these tax items. We now expect non C&I impacts to be about $70 million for the full year 2019 down from the $90 million, I guided to during our first quarter conference call.
Our C&I segment earned $241 million on an adjusted net income basis, or $1.77 per diluted share. This was up 35% from $179 million or $1.31 in the third quarter of 2018. Originations for the third quarter was $3.7 billion, of which 55% was secured, up from $2.9 billion and 54% secured last year. These strong originations led to ending net receivables growth of $2 billion year-over-year. Our secured portfolio grew by $1.9 billion or 26% over the same period, reflecting our continued focus on building a resilient portfolio that will continue to perform in all economic conditions. Given the growth we've achieved thus far, we are now expecting ending net receivables growth for the year to be between 12% and 14%. Interest income was $1.1 billion, up 13% from last year. The increase primarily reflected higher average receivables and higher yield, which was 24.1% in the third quarter.
The year-over-year increase in yield reflected improvement in our 90 day delinquencies and continued strength in origination APRs. These positive dynamics continue to provide stability in our yields despite continued growth in our secured portfolio mix. Total other revenue was $154 million in the third quarter, up 10% versus last year consistent with our originations and receivables growth.
Let's move on to credit, which continue to be stable. Our 30 to 89 delinquency rate of 2.3% remained consistent with last year's third quarter. Our 90-plus delinquency rate was 1.9%, down about 10 basis points from last year. And our net charge-off ratio was 5.2%, an approximate 60 basis point improvement compared with last year. Keep in mind this was driven by a particularly strong 30 to 89 delinquency rate in the first quarter of this year. We do not expect year-over-year improvements of this same magnitude in future quarters given the portfolios moderating growth of secured lending.
Our loan loss reserves increased sequentially by $50 million or by 10 basis points to 4.6% of receivables. This increase was in line with expectations and reflecting seasonally higher delinquency. Our reserve rate was down 20 basis points year-over-year driven by the lower loss profile of our portfolio compared to last year. Third quarter operating expenses were $335 million, about 5% higher than last year. On a year-to-date basis, expenses were $963 [Phonetic] million, up 3% versus 2018. This increase reflected continued investment in technology, customer experience and customer acquisition, which has been partially offset by continued operating efficiency in our branches, in our central operations. Year-to-date our operating expense ratio was 7.7%, down about 50 basis points from the comparable period last year.
And lastly, interest expense was $238 million in the third quarter, up from $218 million a year ago. Consistent with prior quarters the increase reflected higher average debt balances to support our portfolio growth as well as a greater proportion of unsecured debt.
Let's move on to our balance sheet. As you know, our priority is to maintain a conservative balance sheet and a long liquidity runway, both of which we continued to enhance during the quarter. As Doug mentioned, we issued $1.7 billion of secured debt through two seven year revolving securitizations at a blended rate of 3.5%. As a result of this longer issuance, the average tenor of our secured debt maturities is now about three years, up from two years at the end of 2016. Our third quarter tangible leverage ratio was 6.8 times, and we are well-positioned to deliver on our target of six times by year-end.
As you all know, we are a wholesale-funded business that regularly accesses the capital markets to pre-fund upcoming maturities and growth. As a result, our cash levels fluctuate from quarter-to-quarter reflecting the timing differences between debt issuance receivables growth and debt redemptions. At the end of the third quarter, we had roughly $1.2 billion of available and excess cash. Net of this available cash, our leverage ratio was about 6.3 times for the quarter.
In terms of liquidity. During the quarter we expanded our undrawn capacity to $6.9 billion. In addition to the $1.2 billion of available cash on our balance sheet we also had $8.5 billion of unencumbered assets at quarter end. These liquidity sources, along with our balanced and longer maturities provide an extended runway to operate our business without access to the capital markets.
Now let's move on to CECL. As you all know CECL requires us to move away from our current incurred loss reserving to a lifetime projected loss methodology. Keep in mind this is simply an accounting change and does not affect the cash flow or fundamental economics of the business. Accordingly, when we adopt CECL on January 1, 2020, we expect our reserve ratio to increase from the current 4.6% to between 10% and 11%. This estimate is reflective of the portfolio attributes and economic outlook as of September, 30. The ultimate amount that will be reported on January 1 will be dependent on our portfolio composition and economic outlook at that time. Reserve builds will be accompanied by an increase to our deferred tax asset of approximately 24%. The net of these two resulting in an offsetting reduction to retained earnings. As we've highlighted in the past we've always viewed reserves and tangible equity as the combined loss absorption capacity for the business. CECL simply move this capital from one account to the other with the aggregated amount remaining the same.
Unlike a bank regulatory agencies do not govern our capital levels. We see our balance sheet is very well capitalized regardless of this CECL accounting change and do not anticipate it having any impact on our capital adequacy or our ability to invest in the business or return capital to shareholders.
Let me finish by saying this, CECL is purely an accounting change. It does not impact fundamental drivers are underlying economics of our business. Our business generates very attractive returns and a considerable amount of capital for reinvestment and shareholder returns and we remain well capitalized with significant liquidity to run the business through all economic conditions.
With that, I'll turn the call back to Doug.
Douglas H. Shulman -- President and Chief Executive Officer
Thanks, Micah. As you can see, we continue to drive very strong results. Our key metrics, whether it be earnings, return on receivables, losses or liquidity are great. What really excites me is the underlying fundamentals of the business and initiatives that are gaining momentum and driving these great financial results.
We have a world-class executive team that is working extremely well together and are totally aligned against the company's priorities. We are hyper-focused on our customers and recently surpassed 2.4 million customer accounts for the first time in the company's history. This is a result of a number of factors including a finely tuned credit box that allows us to better target customers that meet our risk return profile. Marketing optimization that is starting to pay off with more customers applying who meet our risk return criteria and operational and customer experience improvements that have more customers who we approved for a loan booking those loans with us once they start the process and interact with us. I look forward to discussing these and other initiatives and plans with you at our upcoming Investor Day.
With that, let me thank all of you for joining us. And I'll turn the call over to the operator for questions.
Questions and Answers:
Operator
Thank you. The floor is now open for questions. [Operator Instructions] Our first question coming from the line of Kevin Barker of Piper Jaffray.
Kevin Barker -- Piper Jaffray -- Analyst
Thank you. Just a follow-up on your comments about the net charge off rate in the stabilization of that going forward. At what point do you think the portfolio will be basically stabilize between secured and unsecured? And at what point do you feel like the net charge-offs will start to stabilize in a range given the balance between secured and unsecured?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Yes. Good morning, Kevin. This is Micah. Thanks for your question. As you -- as we call those in the script, we can see our portfolio has started to level off a little bit, I mean it's going up by about one percentage point per quarter. If you look over the last few quarters with originations around 55 and that portfolio is 51 as you could imagine mathematically that's going to converge.
And I'll remind everyone over the last few years the secured mix has really moved from 36% at the end of 2016 to where it is today at 51%. So it's been a pretty market shift and losses over that point in time have declined from 7% in 2017 down to our current range of 6.1% to 6.3%, which we still feel good about, but secured mix is moderating. So we would expect the loss improvement will also moderate. We're not ready to call it anything for 2020 yet, but you can see in the delinquency trends, if you look over the last couple of quarters. Our 30 to 89 delinquency rate has been flat to the prior year. So the portfolio remains really strong. We really feel good about it. But the secured mix is moderating and as such will be losses.
Kevin Barker -- Piper Jaffray -- Analyst
Okay. And then, at what point do you feel like you're going to hit that stabilized rate. Do you think it's probably sometime in mid 2020? Or later, in 2020? Just given that mix shift?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Yes, it's hard to say it now, right. We're not calling up 2020 yet, but I would direct it back to the delinquency trends.
Kevin Barker -- Piper Jaffray -- Analyst
Okay. Thanks for taking my questions.
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Well, thanks.
Operator
Our next question comes from the line of Michael Kaye of Wells Fargo.
Michael Kaye -- Wells Fargo -- Analyst
Hi, good morning. On CECL, how should we think about the provision expense post CECL versus under the current GAAP accounting any thoughts on that? And also an early thoughts on if you plan to give some additional pro forma EPS metrics post CECL just to normalize some of the noise around the provision expense?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Yeah. Good morning, Michael. Thanks. So just to back up on the CECL in our day one reserve build that we called out, again it's we're going to -- we're expecting at this point. Our current reserving to go from 4.6% is the ratio of receivables upwards to a range of between 10% and 11%. We are running about 40 models under CECL. We incorporating up to 20 loan level attributes and a variety of macroeconomic variables.
I will caution you that our current estimate is reflective of our portfolio attributes in the macroeconomic outlook as of today or September 30 ultimately what we report on January 1 will be dependent on the portfolio composition and macro views at that time. With respect to the day two or earnings impact going forward. One of the things about CECL, it's different from our current reserving methodology is really the sensitivity of that model and how it reacts to the different things are going on in the portfolio. So in general reserve changes under CECL will be more sensitive to portfolio growth and less sensitive to seasonal delinquency than our current reserving methodology. And there is a few drivers under CECL that will impact the quarterly provision, first in a growing portfolio will be an increased level of reserving versus the methodology we have today just by virtue of having that 10% to 11% versus 4.6%.
Second again the composition and attributes of the portfolio are very important in any given quarter, that will have a larger impact on the provision when it's projecting losses on a life of loan basis. And third, of course, as we've mentioned the macroeconomic conditions will drive future loss forecast is that -- that can create fluctuation in the reserves. Again this is a -- accounting change only as we mentioned and talked about a lot. The fundamental economics of the business don't change. And in terms of the future, we've got a few quarters of parallel testing on our belts if you really good about where we are with CEC it's a little premature for us to guide around that expected earnings impact quite yet. But in future calls we'll provide more clarity on this as well as the non-GAAP metrics to allow for year-over-year comparisons with 2019 financial.
Michael Kaye -- Wells Fargo -- Analyst
Okay. Thank you. Just given your current, a lot of that excess cash, is there anything you could say about potentially using that to pay down that $1 billion of unsecured due in December, 2020. I think it has 8.25 coupon was it in terms of your waiting for a specific date to pay that down or if that's the plan?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Yes I don't have any specific comments on that Michael I mean the $1 billion that we have on the balance sheet was really a result of our $1.7 billion of very, very successful ABS issuance. And as we mentioned that in about 3.5%, which is very, very attractive funding for us. We will tend to access the markets when they're supportive and as you know, we raised about $4 billion a year just to run the business grow and satisfy maturities. Nothing specific on next year's maturity at the end of December.
Michael Kaye -- Wells Fargo -- Analyst
Okay. Thank you.
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Thanks, Michael.
Operator
Our next question comes from the line from John Hecht of Jefferies.
John Hecht -- Jefferies -- Analyst
Good morning, guys. Thanks very much for taking my questions.
Douglas H. Shulman -- President and Chief Executive Officer
Hi John.
John Hecht -- Jefferies -- Analyst
Yes, how are you guys? I think the first one is what do you guys think is driving the incremental growth? Is it market share gains? Is that your borrowers be more willing to take on more credits, these are just the overall macroeconomic trends.
Douglas H. Shulman -- President and Chief Executive Officer
Yeah, look, it's, I think a number of things, first of all, the business is performing well and you're seeing the benefit of a number of initiatives that we started in the fourth quarter of last year and the first quarter of this year. We have marketing efforts that are driving more customers that we want to apply for loans to apply for those loans.
We're using advanced analytics to help refine our understanding of the total lifetime value of a customer when they come in the door, which helps us improve customers that have the right risk adjusted returns. I mentioned on the last call, we have a streamlined application. We've expanded our after our central support and we build out a number of analytical tools, which are all helping with the customer pull through and our investments in technology are starting to pay off and drive better efficiency and productivity across our branch in central operations.
So, a piece of the driver is these initiatives that are resulting us attracting and converting more of the customers we want to convert. However, the mix shift that Micah had talked about earlier, which is usually for a larger secured loan than an unsecured loan has also been a driver. And so I think, between the two of the trends of us attracting the right customer and doing a good job operationally and with marketing and all throughout our processes together with more customers are choosing a secured loan at this point. Those are the two main drivers of the growth.
John Hecht -- Jefferies -- Analyst
Okay. That's great color. Thank you. Second is with respect to the -- you had a slightly high-yield this quarter, I know Micah you attributed some of that to go with DCUs, would you also mention pricing strength that I believe -- is there any kind of target market for your push the pricing up or is it just more of a mix shift or how do we think about that?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Yeah, John. That's been going on for a number of years, as you know, in the second quarter of '17 is really when we started a lot of our price testing, we ensure all of our markets, we remain competitive from a price standpoint, we feel really good about where our APRs had been trending last couple of years. On the trend in yield that's obviously a function of those APRs, but it's also a function of 90 plus delinquency which reverses out of yield, when we get to that 90 day plus point. So to the extent we continue to have really positive trends on the back-end of our collections and our delinquency buckets that supportive of yield. It's a function of product mix and also stable payments. And I think all of those have been relatively supportive, which is driving the continued stability in our yields, we feel really good about.
John Hecht -- Jefferies -- Analyst
Great. Thanks guys and congratulations on a good quarter.
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Thank you.
Douglas H. Shulman -- President and Chief Executive Officer
Thanks, John.
Operator
Our next question comes from the line of Eric Wasserstrom of UBS.
Eric Wasserstrom -- UBS -- Analyst
Great. Thanks very much. Maybe just going back to the investment in the centralized operations. Can you just remind us what functions that was actually take on and sort of how it manifests itself in terms of the operating particularly more specifically rather the cost -- the cost component of the income statement?
Douglas H. Shulman -- President and Chief Executive Officer
Yeah. So we have, but large centralized operation that does a number of things, traditionally it was focused on collections, after 90 days and then recovery activities. Over the last year we've also increased our central sales and servicing team. And so when I'm referring to some of the things that are happening in Central operations, we've been running test where sometimes we sweep delinquencies earlier than 90 days into Central, which helps with both overflow and it also allows you to do a champion challenger test to see kind of what is more effective. We also have after hours, so when somebody applies online and the branches closed rather than waiting till the next day to be contacted by OneMain they can be contacted immediately perfect their application, schedule to go into a branch.
We also have just overflow calling. So if a branch is busy and there's a lot of people in there and there is more people who want to talk to the branch, they can flip over to our central operations. So we have a whole number of things happening. And I think we refer to it as our hybrid model that we've got branch in Central that can complement each other. And we've also talked about this before. One of the great things is should we ever end up in a situation where we want to ramp up collections that provides quite a bit of overflow where we can toggle, where we've got a lot of branch staff central that who are both trained to do service and closing of loans, but also to do collection, which gives us a lot of operational flexibility, depending on where the focus is.
Eric Wasserstrom -- UBS -- Analyst
Thanks. And how do we think about the accretion of this functionality to the operating leverage?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Yes, this is Micah. So it's some of what Doug talked about accretes to portfolio growth, right? And being able to get the applications quicker with some of our central operations and just pairing that together with our branches to enhance some of the growth in unit production and receivables growth we're seeing that. And then of course, some of the growth results in operating efficiency and expense reductions. We have continued to maintain cost discipline within the company and drive these efficiencies. One of the things we'll see this year enhancing our branch productivity, which is really a result of what Doug talked about.
So somewhat of a cost play, but also more adding receivables without adding that extra dollar expense. We're also leveraging our scale to reduce third party vendor cost and I'd be remiss if I didn't say that we're reinvesting these savings in our core technology to be -- continue to be efficient and invest in our customer experience and enhancements to the business and you'll hear more about this upcoming Investor Day for sure.
Eric Wasserstrom -- UBS -- Analyst
And, so if I could just sneak in one last clarification on CECL. Micah, you gave the detailed impacts, but can you just help me with my arithmetic and what TCE level approximately, does that suggest?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Yeah, so, Eric. We've come a long way from our 17 times leverage, feel really good about where we are. I want to remind folks that the economics of the business won't change, our balance sheet remains strong. I'm not ready to give that out at this point.
Eric Wasserstrom -- UBS -- Analyst
Okay. Great. Thanks very much.
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Thanks.
Operator
Our next question comes from the line of Moshe Orenbuch of Credit Suisse.
Moshe Orenbuch -- Credit Suisse -- Analyst
Great. Thanks. And given all of those things that you talked about with respect to the operating side of their ability to help you grow -- continue to grow loans at a very, very healthy rate. As you get feedback from your customers, are there other products that you can kind of, maybe not completely different products, but the tweaks to this that could kind of keep that going, even longer other things that you're learning that'll allow that growth to continue?
Douglas H. Shulman -- President and Chief Executive Officer
Yes. Moshe, it's a good question. A quite a bit of time on, our core product, the installment loan, we'll go through some of this in our Investor Day, the market has been growing and we don't feel reason that it's not going to continue to grow into the future because there's a fair amount of our customers that come in for debt consolidation who are looking to a regular monthly payment that's controllable, that cannot move debt out of the cycle of debt as opposed to add a number of credit cards that they hold. So there's been a bunch of conversion from credit cards to personal loans which is a big market that has quite a bit of room to grow.
We are always looking and asking what else can we do to help our customers, because as we spent time with our customers we're often there for them in a time of need. And because we have proprietary underwriting that isn't just a credit score we can help them sometimes when people who just have more simpler models and not a 100 years of experience working with the near problem, a customer won't pick on that risk and as you see we have the risk adjusted returns.
So we're looking at both innovations to our current product set, as well as new products. What I would say is over the last year since I've been here, our main focus has been on strengthening the current business and optimizing it, because we think there was a lot to be done there and we have a good runway for growth just within the core. And I think you're seeing some of that producing now. With that that said we're certainly going to continue to evaluate opportunities to expand our product set in the future.
Moshe Orenbuch -- Credit Suisse -- Analyst
Great. And just on a slightly different tack, I mean there were some questions about specific debt issues. But maybe Micah you could just talk a little bit about the philosophy of kind of managing the right hand side of the balance sheet now given the fact that the capital markets have been pretty favorable and both in terms of sprints and rates what you might be doing over the next several quarters?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Yes. Moshe, we're obviously very, very happy with our capital markets program. Certainly the markets have been favorable, but there has been a lot of effort from the team here, OneMain to really do a lot of outreach with our fixed income base, we spend a lot of time with our rating agencies and we've really built quite the program here. And just from a high level point of view, we've said it before, our goal is to manage and run a conservative and resilience balance sheet. Long liquidity runway is very, very important to us. We typically issue about $4 million a year. It's going to be in a mix of ABS and unsecured. So I think our philosophy is still to have a balanced mix of the two. ABS has been very, very attractive for us as you see from the $1.7 billion we did it at 3.5%, I mean, both of those were seven-year revolvers which gives about an eight-year life on those securitizations.
So we're not only getting great rates from ABS, we're also getting tenor. And that doesn't come without building a program over the years and building relationships with all of our investors. So I think you'll continue to see us use a mix of about half and half. That's going be opportunistic as well. So we will issue when the markets are supportive.
Moshe Orenbuch -- Credit Suisse -- Analyst
Great. Thanks so much.
Operator
Our next question comes from the line of Vincent Caintic of Stephens.
Vincent Caintic -- Stephens -- Analyst
Hey, thanks. Good morning. And a very strong third quarter and it's impressively across the Board. I'm wondering as we're thinking about a 2020, sort of are there any particular items in the third quarter and as we're thinking about the fourth quarter that are more one timer? So I know you mentioned the losses maybe a little bit of moderation of the loan growth side, but how should we think about 2020 from the base of third quarter? And then just because you beat so much versus the prior guidance of spooning what sort of change in the actual versuswhat you were thinking earlier this year with prior guidance?
Douglas H. Shulman -- President and Chief Executive Officer
Okay. That's a lot. Thank you, Vincent. I'll try to unpack that a little bit. We did call up the losses as we talked about the secured mix in the portfolio is moderating and very much expectedly so. So we do expect loss improvements to also moderate. In terms of yields, we feel comfortable with our call out on stable yields for the rest of this year not quite ready to give any further guidance on 2020 at this point and certainly do that in the fourth quarter call. As we get into the early part of next year. The one item, that I did call out in the third quarter was that discrete tax item on a GAAP basis, you will not see that in our C&I results as we use a statutory rate throughout the year for those results, but that $22 million certainly is something that we don't expect to recur that was driven by the release of a valuation allowance and some of our state deferred -- deferred tax assets which came from a combination of our strong earnings growth and our internal continued efforts to streamline our legal entity structure was the big items for the quarter, I would call out.
Vincent Caintic -- Stephens -- Analyst
Okay. Great. Thank you. And I guess when I think about the third quarter and one of the questions I've been getting from investors on the strong third quarter results is usually when you have the three different things so very strong loan growth, very strong yield and in lower losses usually you kind of take two and give up the third. So when the yields are strong it's because underwriting for higher loss rate or when loan growth is strong, so maybe you could give up on something else, but just wondering, first if we could get a comment on you from that. And then the if you could talk about your recent vintage performance, how have they been doing and if you've been underwriting to a different level or things at different system? Thank you.
Douglas H. Shulman -- President and Chief Executive Officer
Yeah, let me start, and then Micah might -- might add in. I've said it before on these calls, which we think of growth as an output of running the business, where we're going to underwrite to have loans that meet our risk adjusted return and we're going to try to get people, a great customer experience. So once they start interacting with us, they want to book loans with us. And so, I think you're seeing us hitting across a number of variables, which is running, I think of it as we run a disciplined analytical set of processes to manage a nationwide portfolio of risk. And this quarter you're seeing the output of around both risk, and the price that we have for risk and the losses they come out of that being the very good and the result of us putting it together an attractive powerful platform.
I -- my goal is to continue with that and we don't necessarily say hey, let's do one and not the other, we try to hit on all cylinders and we've been doing well, the last bunch of quarters and our intention as management is to keep driving that and hit around. Again book the right loans with the right risk adjusted returns and growth will be whatever growth is based on hitting on all those levers.
Vincent Caintic -- Stephens -- Analyst
Great. Thanks. Very helpful. And I see you at Investor Day. Thanks very much.
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Okay. Thank you.
Operator
Our next question comes from the line of Rick Shane of JPMorgan.
Rick Shane -- JPMorgan -- Analyst
Hey guys, thanks for taking my question. As we head into 2020 in look, you guys are demonstrating strong growth and very high returns on capital. Obviously, set you up for potential return of capital, I'd love to go sort of through the thought process dividend versus repurchase and wondering specifically two factors, one to CECL impact that calculus in anyway. For example, does it change the characteristic of a potential dividend from a qualified dividend to return of capital and also curious if the concentrated position of a sponsor influences that decision at all as well.
Douglas H. Shulman -- President and Chief Executive Officer
Yes, we've talked before about our capital return priorities. And they remain the same that we've talked about before, which is we have a business that generates excess capital. Our first priority is going to be to invest in the business to ensure we're serving our customers well, innovating and positioning the platform for long-term profitability. We'll all also invest in growth as long as we see loans that meet our risk return profile and we think have a good return for our investors. We're going to prioritize a conservative balance sheet with a long liquidity runway and capital that gets generated in excess for that. As you see in this year we started to return to shareholders and we plan to continue.
Regarding CECL, I'll just repeat what might have been especially CECL vis-a-vis capital return. We have a very strong conservative balance sheet. We're going run the company based on the fundamental economics of the business, not on the accounting treatment of the business. And so CECL is not going to change the way that we think about our capital adequacy, it's not going to change the way that we think about how we're going to invest in the business and it's not going to change our ability to return capital to shareholders.
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
And Doug just if I can add to that a little bit, just to get a little bit more granular. We said before we do -- we always view, the combination of our reserves and our tangible equity as our total loss absorption capital or capacity for the business. So CECL doesn't change that because we're just moving from one account to the other effectively. Post CECL implementation though as a result of this, we will begin including reserves, net of tax in our leverage calculation, which is consistent with this thought process and methodology and it's actually a very similar methodology for leverage that's used today by S&P.
Rick Shane -- JPMorgan -- Analyst
Got it. Okay. And by the way, I agree with you, look, I think this is just balance sheet geography more than anything else. I don't think it changes the ability of the -- of the company to absorb losses. But I'm curious about is, for example, it does change the optics in terms of things like book multiple. And so in a post CECL environment buying back stock is more dilutive to book because of the geography. I'm curious if that type of consideration influences, how you think about repurchase versus dividend?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Well, I think, I have to go back to the statement that we don't -- CECL is changing any of the way we think about capital adequacy and will be including reserves in our leverage calculation. As I mentioned in the prepared remarks, we are in a bank regulatory agencies don't cover our capital level. So what we need to be mindful of is the rating agencies and how they're thinking about it. We've had extensive conversations with the rating agencies about CECL. And of course as I've said before, while we can't speak for them directly. We are confident that they understand this is an accounting and non-economic event, and we don't expect any changes in our ratings as a result.
As I mentioned, S&P sort of specifically already addresses this with the addition of general reserves. So they are already there. And as Doug mentioned, as always, we're going to continue to prioritize a conservative balance sheet with prudent levels of leverage.
Rick Shane -- JPMorgan -- Analyst
Terrific. Thank you guys very much.
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Thanks, Rick.
Operator
Our next question comes from the line of Eric Hagen of KBW.
Eric Hagen -- KBW -- Analyst
Hi, thanks. Good morning, guys. I'm filling in for Sanjay today.
Douglas H. Shulman -- President and Chief Executive Officer
Good morning.
Eric Hagen -- KBW -- Analyst
Just a clarification on the leverage. Is that the target for 6 times by the end of the year, is that coming down from 6.8 times or 6.3 times net of cash?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
The target for 6 times on a reported metric. So what the 6.3 times does just try to give you a little context around what the impact of pre-funding for growth does for the reported leverage metric, but our 6 times is based on a reported number.
Eric Hagen -- KBW -- Analyst
Okay. Got it. Okay. So the liquidity position really should remain strong. It's not necessarily coming down dramatically like almost the full turn, that's kind what we're hearing you say?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
We feel good about where we are and we feel comfortable with our year-end target for capital, liquidity being a little different may be continue to enhance our liquidity, saw us increase our conduit capacity in the quarter. We do comp that cash less liquidity until it's used and also our unencumbered receivables remains strong at over $8 billion.
Eric Hagen -- KBW -- Analyst
Got it. Okay. Great. And then a follow-up on the funding side, I'm hoping you can you -- give just a little bit more color on the feedback that you're actually getting from fixed income investors and our risk appetite to take on longer term assets especially, just considering the stage of the cycle that we're in [Indecipherable]. I realize that your ability to price seven year deal is probably at least largely based on the fact of the mix shift is changing toward more secured. But in the end, I mean do you think your ability to get that kind of deal done is, is really a function of the fixed income environment that we're in and the level of credit spreads or are you guys structuring deals differently and there is some enhancement in the deal structure that investors are drawn to?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Okay. So, there is no change in the structure of our deals. So, I mean, we certainly try to advance as much as we can out of our securitization structures and that remains strong. We haven't done anything to soften that at all, in fact it's, we've actually gotten more advancement lately over the past couple of years. I think the fixed income markets remain very supportive as I mentioned earlier. Part of that is just the programs we sell and we've established a level of trust with our fixed income investors, and we spend a lot of time on the road, telling the story and working with our fixed income investors on what the platform means and what it can deliver. I would say they feel comfortable, the markets are supportive.
I think you're seeing a lot of flows into the high-yield sector. I would probably say that those are the issuance and the appetite for risk on that side leaning a little bit more to the BB credits. So we're in a good position there and we're basically, as everyone has figured out, on the fixed income side a very strong platform and one that they're interested in continuing to do a lot of investment in and especially on the longer terms.
Eric Hagen -- KBW -- Analyst
Got it. That's helpful color. Thank you very much.
Douglas H. Shulman -- President and Chief Executive Officer
Thank you.
Operator
Our next question comes from the line of John Rowan of Janney. John your line is open, make sure you're not on mute.
John Rowan -- Janney -- Analyst
Can You hear me now? [Speech Overlap] Sorry about that I had my phone muted. Micah, you gave the CECL impact on the DTO [Phonetic], I think at written down, can you just repeat that?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
On the DTA, the deferred tax asset?
John Rowan -- Janney -- Analyst
DTA, yes.
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Yes, anytime equipment reserves, you're going to have an offsetting deferred tax asset just due to the nature when you can take charges against income when you can. So our statutory rate is around 24%. So that's what we're serving.
John Rowan -- Janney -- Analyst
Okay. And then just to be clear. The Day 1 impact for the reserve build does not go through the P&L. Correct?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Correct.
John Rowan -- Janney -- Analyst
Okay. And then maybe just -- OK, and then just lastly, any thoughts on AB-539 whether incremental volume out of California. That's it from me. Thank you.
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Thanks, John.
Yeah, look AB-539, the bill in California, that are cap lending at 36% was a bill that we publicly supported. And the main reason we publicly supported is because we believe it's the right thing for our customers. We already in California and other states that did not have an interest rate cap, we already voluntarily capped our rate at 36%. So, it didn't change our pricing, but we think that's a good responsible thing to do for our customers.
You may recall that as part of the OneMain Springleaf merger, we sold a number of our California branches. So, we have been generally under penetrated in California, and we've been opening branches across the state over the last couple of years. So, we do think there is some opportunity to gain market share, but it's too early to actually size the opportunity.
John Rowan -- Janney -- Analyst
Okay. Thank you.
Douglas H. Shulman -- President and Chief Executive Officer
Thanks, John.
Operator
Our next question comes from the line of Arren Cyganovich of Citi.
Arren Cyganovich -- Citi -- Analyst
Thanks. Just touching on the comments you made about improving the customer pull through in -- I guess in combination with the higher growth percentage that you're having, I know you said you don't really manage to growth, but folks that have been through credit cycles when you see higher growth in your customer pulls through immediately makes you a little bit worried about credit. What gives you comfort that you're not pulling your customers to maybe you shouldn't have?
Douglas H. Shulman -- President and Chief Executive Officer
We're pulling through the same customers we always were. So we run -- we have a disciplined analytical process that we run. We continue to make adjustments based on our risk adjusted hurdles and we will make adjustments at the edges. Growth in our secured portfolio is a form of credit tightening because it generates lower credit losses and more stable portfolio performance over time. So we feel good that we run a portfolio of risk and return. We know this customer well, we've got world-class underwriting, more of our portfolio has been going to secured over the last couple of years. And so we monitor macro trends, our customers, we've got unique competitive advantage where we actually do pulse surveys of our branch managers to see if there's anything happening in the local economy. So, as I've said before, we are not targeting growth. We target running our business very well, across all the drivers, whether it's marketing the customer experience, but all of it needs to fit within our credit box and we feel really good about that we're booking high quality growth.
Arren Cyganovich -- Citi -- Analyst
Okay. That's helpful. Thanks. And then maybe in terms of your employee costs, in a very tight labor market, and I think historically there's been a decent turnover in some of the industries' employee base. Are you having any challenges in terms of getting employees or how are you thinking about the cost of managing the business from that standpoint?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Well, look, I think any business needs to be obsessed with it's employees and needs to be a great place to work and all the longitudinal study show if your employees think you're providing value to customers and I think there is career growth opportunities there and I think the company respects them and pays them a fair wage and give them opportunity for advancement that you have lower turnover, you attract more employees, especially, we have 10,000 employee base.
So word of mouth is a big and referrals is a big part and the study show that you actually a happier customers who reserved better and a better run company over time. So, I'm very focused on our employees, our employee value proposition. Our attrition is actually been going down in the last year, because we're very focused on that. We think we pay people fairly, we think we had a great culture where people feel like we do the right thing for customers and treat them well and we're always looking to improve our management and they feel good about the direction of the company.
So, glad you asked the question. I've got a lot of passion about focusing on our employees from the senior folks all the way down to the front line folks dealing with our customers and our attrition actually has been going down, because we've been hitting on all cylinders around making sure we are a great place to work.
Arren Cyganovich -- Citi -- Analyst
Great. Thank you.
Operator
Our next question comes from the line of Mike Grondahl of Northland Securities.
Mike Grondahl -- Northland Securities -- Analyst
Yes. Thanks, guys. Could you kind of describe your incremental marketing efforts that are kind of pushing a little bit better conversion and maybe what you're doing with -- data analytics, just so we can understand those better?
Douglas H. Shulman -- President and Chief Executive Officer
Sure. November 20, come to our Investor Day. We will give you a bunch more. On a call, look, we have got a number of customer acquisition channels, we've got a big direct mail program. We worked with a number of affiliate and partners. We've got digital efforts and across all of those we're making sure that we target the right customers, meaning the customers that meet our risk return profile and we're getting to them. We're always running tests, inserts in our mailing, how we do banners online, and what advertising we are picking up online? What's the messaging to make sure people understand our value of proposition?
So there is a lot of things on the outbound, that we're spending time on and analytics drive really all of that. And we have got a lot of on us customer data and as we run tests we are continuously testing, and leaning and refining the out bond. Once someone hits us there is a whole set of activities, whether it on the phone, in person or them going to our website, that matters. And I talked about our streamline loan application, making sure it's easy to apply with us, the instructions are clear, that you can pre-populate it as much as possible to making it easier on folks. And then to the point of when a customer is sitting in front of us making sure we have very good technology that allows them to see the options, see the pricing, see how they can work with us and get through the closing process in an efficient, yet extremely thorough way
So it's really each of those have analytics behind them, a set of art, and science and testing that we're continually doing. That is all we've been spending time and effort on it as you see kind of throughout that process starting to pay off. Underpinning all of that, let me remind you is, our fresh box, which says whether we'll make a loan to yield or not that is not going to -- that continually gets tweaked, but we're making sure that we have high quality loans when we book them.
Mike Grondahl -- Northland Securities -- Analyst
Great. Okay. Thanks guys.
Douglas H. Shulman -- President and Chief Executive Officer
Thanks, Mike.
Operator
Our next question comes from the line of Henry Coffey of Wedbush.
Henry Coffey -- Wedbush -- Analyst
Yes, good morning, everyone and thanks for taking my question. Well, we go all the way back -- going all the way back to CECL is it an oversimplification to so to say when all the dozens of inputs. If all the dozens of inputs you've done are perfect, and they freeze, and they don't change a small assumption is loss reserve on new loans essentially going to be 10% to 11%?
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Yeah, I mean, what we've put out today will range [Indecipherable] really the loss on the portfolio. I have not gotten into the gory details of what the ratio is for new loans versus season versus delinquent, but that overall 10% to 11% is what we embedded lifetime portfolio loss estimate is. Again, given the receivables composition, the portfolio attributes and the macroeconomic conditions at this point in time.
Henry Coffey -- Wedbush -- Analyst
But I mean, just to be really simplistic when we run our models right now. We just have to say well if loans go up 100, then we had 10% to 11% of that number to the reserve and then back into our provision that's the way I'm sort of thinking about it.
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Yes, the reason we gave you a rate of range as a ratio of receivables was to help you with some of that. So I would look at it as a ratio against the total book.
Henry Coffey -- Wedbush -- Analyst
And then on the competitive front, you had a big change in California, not for you, but for other parties. You've got -- the banks don't get to just say, oh, it's a matter of geography, for the banks, it's a real -- CECL is a real problem, whereas with you, the rating agencies have basically been using primary capital for 20 years, as the basis for all this analysis. So for you, that it's not a big change. So are there pockets of competitive opportunities, doors that are opening up, either because of the change going on in states like California, and maybe you can tell us if there are any other states moving in this direction or on the bank/regulatory capital front, where you have some obvious advantages?
Douglas H. Shulman -- President and Chief Executive Officer
Yes. Look, we -- I think we stack up very well against our competitors and have a very good value proposition. I told you about California, we've been opening branches there and we're under penetrated. So we're going to continue to do that. Hard for me to say on the banks and how it's going to adjust what they do. I can just tell you, we have, as you said, the advantage of not being banks or not being mandated to build that regulatory capital back up over the next couple of years. And we really are just very focused on running our company based on the economics. So, I would just refer back to what I said before, is we're going to provide a great value proposition to our customers with a great employee base. We're going to drive around all the places we can to make sure we bring in the customers, we want to book, and whether it's marketing, operations, making sure we keep a disciplined-type credit box. We feel really good about our prospects vis-a-vis our competitors some of our non-bank competitors don't have the kind of funding program and strong balance sheet that we have. So we like our positioning and we're going to keep playing our game we're aware of our competitors, but our plan is to keep running a good business and get good risk-adjusted returns for our shareholders.
Henry Coffey -- Wedbush -- Analyst
Are there any states that you can point to that didn't have some form of restriction rate cap or something that might be putting one in place over the next 12 months to 18 months?
Douglas H. Shulman -- President and Chief Executive Officer
Not in particular different state legislatures and different governors and administrations have their ideas, but California was the big one that was on the radar.
Henry Coffey -- Wedbush -- Analyst
Great. Thank you very much.
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Thank you.
Operator
Our next question comes from the line of Kevin Barker of Piper Jaffray.
Kevin Barker -- Piper Jaffray -- Analyst
My question has been answered. Thank you.
Operator
[Operator Closing Remarks]
Duration: 62 minutes
Call participants:
Kathryn Miller -- Head of Investor Relations
Douglas H. Shulman -- President and Chief Executive Officer
Micah R. Conrad -- Executive Vice President and Chief Financial Officer
Kevin Barker -- Piper Jaffray -- Analyst
Michael Kaye -- Wells Fargo -- Analyst
John Hecht -- Jefferies -- Analyst
Eric Wasserstrom -- UBS -- Analyst
Moshe Orenbuch -- Credit Suisse -- Analyst
Vincent Caintic -- Stephens -- Analyst
Rick Shane -- JPMorgan -- Analyst
Eric Hagen -- KBW -- Analyst
John Rowan -- Janney -- Analyst
Arren Cyganovich -- Citi -- Analyst
Mike Grondahl -- Northland Securities -- Analyst
Henry Coffey -- Wedbush -- Analyst
