Chesswood Group Ltd CHWWQ

nonprime segment

[Nashville35]

one of biggest non-prime lenders onemain financial ($20 billion net receivables book) share price up +10% post results.  read thru on non-prime consumer which is less than 1/3^rd of chw lending book (and mostly equipment-based vs unsecured).  lending book (types of lending) very different than chw but does have good insights into macro on earnings call.   onemain yield is 22-23% so much higher risk book than chw.

30-89 day delinquencies up only 8 bps to 2.81% vs q2, and company encouraged by the stabilization seen in q3 (after seeing weakness begin in may of 2022).   chargeoffs were 5.9% in q3 vs 6.0% in q2, and saw strong recoveries (1.2% of avg receivables).   vs guidance given for full year in july, now see chargeoffs at lower end of previous range.

earnings call:

“Some modest improvement in lowest credit quality tiers in the third quarter.”

“Inflation has presented challenges to some consumers, especially at low-end of credit spectrum, and this began in May 2022.  We have reflected that in our underwriting changes.”

“Demand remains strong and we’ve seen improvement in the competitive environment, which has led to an increase in attracting higher credit quality business.” 

“Moderation of balance sheet growth and a migration of our origination to higher credit quality loans.  We have significantly decreased unsecured loans and our top two credit quality buckets now make up 60% of new originations, vs 37% a year ago. “

“Competitors without our balance sheet strength and stable funding have reduced their originations.  Seeing lots of opportunities to write profitable new business even with our more conservative credit box.   Strong application flow in higher credit quality segments.”

“Maintain conservative underwriting stance until we get a clearer view of the economic environment.”

“We are seeing opportunities, due to the number of players who moved down to non-prime last year and have now moved back out of non-prime market.”