CURO Group Holdings Corp. (NYSE:CURO) Q2 2022 Earnings Conference Call August 8, 2022 5:00 PM ET
Company Participants
Tamara Schulz – Chief Accounting Officer
Don Gayhardt – Chief Executive Officer
Roger Dean – Chief Financial Officer
Conference Call Participants
Moshe Orenbuch – Credit Suisse
John Rowan – Janney
John Hecht – Jefferies
Bob Napoli – William Blair
Operator
Good day, and welcome to the CURO Holdings Second Quarter 2022 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.
I’d now like to turn the conference over to Tamara Schulz, CURO’s Chief Accounting Officer. Please go ahead.
Tamara Schulz
Thank you, and good afternoon, everyone. After the market closed today, CURO released its results for the second quarter 2022, which are available on the Investors section of our website at ir.curo.com. With me on today’s call are CURO’s Chief Executive Officer, Don Gayhardt; and Chief Financial Officer, Roger Dean.
Before I turn the call over to Don, I’d like to note that today’s discussion will contain forward-looking statements based on the business environment as we currently see it. As such, it does include certain risks and uncertainties.
Please refer to our press release issued this afternoon and our Forms 10-K and 10-Q for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today’s discussion. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update or revise these statements as a result of new information or future events.
In addition to US GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliation between these GAAP and non-GAAP measures are included in the tables found in today’s press release.
Before we begin, I’d like to remind you that we have provided a supplemental investor presentation that we will reference in our remarks, and that you can find it in the Events and Presentations section of our IR website.
With that, I would like to turn the call over to Don.
Don Gayhardt
Thanks, Tamara. Good afternoon, everyone, and thank you for joining us today. The past few months have obviously been an eventful and incredibly exciting period for us as we successfully closed on the M&A transactions that we announced in May that being the sale of our legacy US Lending business to Community Choice Financial for $345 million and our acquisition of First Heritage Credit for $140 million. The latter was our third acquisition slightly over a year following Heights Finance last December, and Flexiti earlier in 2021.
Going back to 2018,, we had set strategic goals to first transition our business into longer-term higher balance and low-rate credit products and second to diversify our channel offerings to point-of-sale and credit cards.
Closing of the recent transactions, coupled with the related financings that locked in a lower cost of funding, and more capacity to fund future US business growth to achieve those twin strategic goals. We were especially pleased to complete the transactions given the turbulent market environment in the first half of 2022. These transactions generated over $100 million of net excess proceeds. Thus we currently have about $180 million of excess liquidity to fund our business lines; US Direct Lending, Canada Direct Lending and Flexiti. I’ll take a minute to describe each one of these business lines briefly.
US Direct Lending, which is comprised of our Heights Finance and First Heritage businesses operates at 523 locations in 13 states and make small mostly sub $2500 and larger $2500 to $30000 installment loans as well as insurance and other ancillary products.
As of June 30, on a pro forma basis, without purchase accounting adjustments US Direct Lending had $730 million in receivables with a gross interest yield of 47% and including insurance and ancillary income and annualized yield of approximately 54%. Smaller loan customers have averaged FICO scores of 604 and larger loan customers averaged 621 for the overall portfolio.
I’ll point out that our more recent large loan customers have average FICO scores approaching 640 [ph]. Canada Direct Lending which is comprised of our Cash Money and LendDirect brands has 209 locations in eight provinces, plus a very high-performing internet lending channel. This business had $468 million of gross receivables as of June 30 with blended yield of approximately 52%.
Just over 20% of the loan book was originated online, which is up from just over 12% pre-pandemic. Interest plus insurance and ancillary revenues [indiscernible] to annualized implied yield of approximately 66%. Flexiti, our Canadian point-of-sale finance business had $627 million of gross receivables at June 30. About 95% were prime customers with an average FICO score of 740 and average household incomes of approximately CAD 100,000.
We’re working with our team at Flexiti to add more non-prime options, while we continue to onboard and optimize our largest merchant partner, LFL GROUP, the largest home furnishings retailer in Canada. As a prime business, the Flexiti book currently yields 14.3% comprised of interest in fees from consumers and a discount from merchant partners, as it continues to rapidly grow in size. We expect this yield to become closer to 18% and 19% as pace of growth normalizes in 2023 and larger percentage of the book is higher yielding non-prime earning assets.
Taken as a whole, pro forma at June 30, we had combined gross loans of $1.8 billion, with a weighted average interest yield of approximately 46%. Approximately 53% of our US portfolio had a weighted average interest rate of less than 36% and all of our line of credit portfolios in Canada have ATRs below the federal rate cap.
In terms of geographic distribution, our portfolio is split 60-40 Canada-US, while the revenue base is roughly evenly split between the two countries. Setting aside all the transactions for a minute and Roger will cover more of our numbers later, we had a very good quarter from an underlying growth perspective across all of our businesses. In Canada, our Direct Lending and point-of-sale lending portfolios grew 29% and 183% respectively year-over-year. Sequential loan growth was 6% for Heights, 4% for Canada Direct Lending and 16% for Flexiti.
From a credit perspective, our trends continue to normalize to pre-pandemic levels and the quarter saw largely flat, in some cases improved NCRO rates and benign delinquency trends in line with what we’re seeing across the industry. While we have seen vintages or channels evidence credit performance that is not in line with our expectations, we’ve addressed this by selectively tightening credit, particularly in our lower credit tiers and by increasing pricing on certain products and tiers. We’ve also increased loan servicing collection capacity in both US and Canada.
Our third quarter is off to a very good start, both in terms of originations and credit. We’re being very disciplined in our marketing and credit decisioning and are not chasing volume for volume sake. Demand remains very good and we are in many cases having success at attracting, increasingly better credit quality customers. As we noted earlier, Heights for instance have seen average FICO scores of new customers increased by over 20 points versus pre pandemic levels.
Broadly speaking about the macroeconomic environment and external factors that are impacting our business. In both the US and Canada, we are seeing overall economic conditions deteriorate from the period of COVID recovery that we saw in 2021 and early 2022. But we think, it’s important to differentiate between the two countries. By and large, we’re seeing better overall conditions in Canada. We think mostly for two reasons. The first is the Canadian economy is not seeing the whiplash effect from the ending of COVID-related stimulus, which was more muted there.
In the US, our government spent in the range of 25% to 28% of GDP on stimulus for individuals and businesses, whereas in Canada the ratio was closer to 8% to 10%. So many Canadian businesses benefited from increased demands and stimulus payments in 2021 and 2022 a return to normal or the COVID hangover is not the term that — it’s not nearly as impactful as it is for US businesses. In many areas, we see Flexiti’s merchant partners reporting sales flat to down 5% year-over-year, while in the US particularly bigger ticket items, volumes are in some cases are up more than 15% year-over-year.
Secondly Canada, the economy there benefits about 17% of GDP from natural resources which is about four times the figure in the US. And then one of the commodities prices in the first half of 2022 certainly contributed to better growth in the first half of the year north of the border. We think one other factor worth mentioning is what we see in credit quality generally in Canada, which is to say like-for-like, it’s just better. I’ve been lucky to have run consumer finance businesses in Canada for more than 25 years now and have deep experience seeing Canadian consumers who are similarly situated to US consumers in terms of income and other key demographics simply demonstrate higher propensity to pay off their obligations.
Of course Canada is not without its issues most notably inflation and what looks to be a housing bubble particularly in the Greater Toronto area. The ratio of home values and household incomes has been spiking back to pre-COVID periods and a related reduction in housing starts does have a direct impact on Flexiti’s financing volumes with bigger ticket furniture and appliance merchant partners. So while it’s not without some concerns, we do like having Canada to help balance out some of the economic issues we’re seeing in the US.
And in the US, we are continuing to see our customers take-home pay increase, although negative real wages have been impacting consumers across the board in the US. And this has led to a fairly rapid dissipation of higher savings balances that had been accumulated during COVID. Based on our data as well as publicly available information, it does appear that this phenomenon is having a greater impact on lower income consumers, which makes sense given the fixed nature of much of the COVID stimulus. However, overall employment data continues to look favorable.
Friday’s Jobs Report in the US provided a great upside there, as well as initial jobless claims while picking up from COVID recovery levels are still suggesting a relatively tight labor market as does the number of job openings.
Looking at our businesses at this point in the cycle, we certainly were happy to have traded our legacy businesses for the better credit quality Heights and First Heritage customers. Competitively, we think we’re in a great spot. Both in the US and in Canada our market positions are very good and we have a lot of durable competitive advantages relative to our peers. While we use financial technology or direct lending businesses have been around for over 25 years and been through many cycles. We have great discipline and operating credit models and we’re going to stick to that. And as I said earlier we’re not going to chase volume or growth. We’ve tightened in some areas and I suspect we’ll do more given current trends.
As we look at our businesses now, we love the three businesses that we have; our new US Direct Lending comprises of Heights and First Heritage, Canada Direct Lending, which is our Cash Money LendDirect brands and Flexiti, our Canada point-of-sale business. These businesses are all very well-positioned in the markets in which they operate. They have significant untapped growth and profitability opportunities and exceptional leadership.
As we said when we announced the transaction in May, we put a lot of time and energy into M&A and the related financing activity. But that’s now in the rearview mirror and we’re excited to put 100% of our efforts in running these businesses and maximizing the potential and the value of these businesses. To that end and to ensure the best allocation of our time and capital, we decided to close our OPT+ and Revolve brand debit card and DBA products, which mostly appealed to the customer base that we sold the Community Choice.
We also plan to refine our First Phase credit card marketing and origination plans as that card offering was also targeted to the legacy US customer base. In the near-term, we plan to increase marketing of First Phase to Height’s small loan customers with good credit histories as well as introducing a larger balance card product for near prime Heights and First Heritage customers likely in 2024.
We’re going to focus very hard on originations and what we spend for customer and acquisition costs. We’re focused on funding, we are focused on credit and we’re going to continue to be very focused on operating expenses. There’s no question in this current environment with recession fears, rising interest rates, high inflation and potential job losses trending on, we continue to evaluate the ongoing right sizing of our cost base and we’ll be more selective on new projects and new opportunities. And as I said, there’s a lot of confidence in the business and leadership team.
So we’re going to keep investing in people and processes and technology to help our businesses continue to grow while seeing our operating expenses as percentage of our earning asset base decline meaningfully.
I’ll close by commenting on the financial outlook for 2022 and 2023 that we’ve provided on May 19th. The forward interest rate curves or CDOR and SOFR steepened dramatically during the second quarter before moderating a bit. While there are lot of outcomes that would result in those curves being overly aggressive, some of which were already seen most of that magnitude were increased interest expense on our variable rate ABL facilities and likely steer our earnings to the lower end of the 2022 and 2023 ranges.
I’ll now turn the call over to Roger to review the details of our second quarter 2022 results.
Roger Dean
Thanks Don, and good afternoon. Adjusted net loss for the quarter was $11.3 million or $0.28 adjusted loss per share compared to $0.40 adjusted diluted earnings per share in the second quarter of 2021. The primary drivers of the year-over-year decline in earnings were the loan loss provision dynamics of strong sequential loan growth and normalizing credit performance in the second quarter compared to the lingering COVID-19 impacts on demand and loss rates in the second quarter of last year.
Our U.S. business also returned to normal tax refund seasonality and the related traditional impact on Q1 and Q2 earnings. Interest expense also rose year-over-year on higher non-recourse ABL borrowings to support loan growth and additional senior note issuance to fund in part the Heights acquisition in the fourth quarter of 2021.
Total revenues in the second quarter increased $117 million or 62% year-over-year. Heights added $74 million of revenue and Canada point-of-sale lending contributed $24 million or 230% growth, compared to the second quarter of 2021.
Canada Direct Lending revenue rose 22.1% year-over-year. Consolidated operating expenses for the quarter increased $47 million, compared to the prior year driven primarily by the expense base that we acquired with Heights and Flexiti along with post-pandemic normalized advertising spend.
Gross loans receivable grew year-over-year by just over $1 million or 127%, primarily driven by our acquisition of Heights in December and its strong year-to-date 2022 loan growth which contributed $492 million of balances.
Continued growth in Flexiti added $406 million in loan balances year-over-year. Canada and U.S. Direct Lending, excluding Heights Finance, combined with gross loans receivable grew 29% and 10% respectively, versus the second quarter of 2021.
Since the end of last quarter gross loans receivable grew $152 million or 9%, primarily due to growth in Canada point-of-sale lending of $85 million or 16% sequentially and U.S. Direct Lending of $54 million or 8% sequentially.
On the credit quality side our credit metric trends in Q2 were consistent with what many of our peers have reported overall with continuing trends towards orderly normalization, but still favorable to pre-pandemic run rates.
Our consolidated quarterly net charge-off rates for the second quarter improved year-over-year by 60 basis points, as our portfolio mix continues to shift to lower loss rate products. The loans originated by Heights and Flexiti are a bigger percentage of our overall loan portfolio. Obviously the acquisitions have distorted the year-over-year comparisons.
But if we look at the year-to-date performance metrics for our continuing businesses that is, Flexiti, Canadian Direct Lending and Heights combined, Q2 of 2022 net charge-off rates improved 10 basis points and past due rates increased 100 basis points sequentially compared to Q1. Both metrics remain below comparable 2019 levels.
Looking at it by business, U.S. net charge-off rates improved 617 basis points year-over-year while past-due rates increased 102 basis points to a year ago. Sequentially, U.S. net charge-offs improved by 374 basis points while past-due rates increased by 141 basis points.
Both comparisons are affected by our Heights acquisition at the end of December. If we take Heights out of the numbers U.S. net charge-off rates were 630 basis points higher year-over-year, while past-due rates were 200 basis points higher. Sequentially, U.S. net charge-off rates were up 290 basis points and the past-due rate was up 90 basis points.
Heights’ net charge-offs and past-due rates were up 30 basis points and 160 basis points respectively, versus first quarter. And at the direct lending net charge-off rates increased 150 basis points and the past-due rate was up 276 basis points, compared to Q2 of last year.
Sequentially, Canadian Direct Lending net charge-off rates improved 50 basis points, while past-due rates increased 60 basis points. For Canada point-of-sale, we’ve had a very stable and consistent net charge-off and capacity rates trends over the past year.
You’ll see in our balance sheet that the assets and liabilities of the businesses sold on July 7th 2022 were reclassified for accounting purposes as held for sale as of June 30th. The disposition and related reporting will be included in our financials next quarter.
And as we previously announced, in July we refinanced and expanded the existing Heights’ non-recourse asset-backed warehouse facility and we entered into a new non-recourse asset-backed warehouse facility and we entered into a new non-recourse asset-backed warehouse facility to support our First Heritage business.
In total, providing $650 million of funding capacity. Each was priced at 425 basis points over 1-month SOFR with a 91% advance rate on new originations and two-year revolving periods. Additionally, the maturity of our US senior revolver is extended to August 31, 2022 in order to process the impact of the sale of the US legacy business. Two of the banks in the syndicate have processing relationships with the sold business and has elected to drop out of the facility which is what we expected. Therefore, we expect the facility to renew a capacity of at least $40 million compared to $50 million previously.
As of July 31, 2022 as Don mentioned, we had over $180 million of available liquidity including unrestricted cash and undrawn capacity on the various ABL facilities. That $180 million includes the impact of the change to the senior revolver [indiscernible].
In our recent meetings, our Board authorized a quarterly dividend at $0.11 per share. And in closing, I’d like to echo Don’s comments about the transformational nature of the past six quarters transactions, which we’re now focused on executing to their full potential. It’s an exciting time at CURO, as we’re well financed and positioned. Thanks to our historical strengths in credit marketing and technology across a diversified and growing portfolio of businesses.
This concludes our prepared remarks. And I’ll ask the operator to begin the Q&A.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session [Operator Instructions] And our first question will come from Moshe Orenbuch of Credit Suisse. Please go ahead.
Moshe Orenbuch
Great. Thanks. Congratulations, Don and Roger for getting all the moving parts in sequence there.
Don Gayhardt
Thank you, Moshe.
Moshe Orenbuch
I guess to some degree, I’m not sure we really care that much about how the legacy US business ex-Heights was performing right? I mean I think the real question is the expected performance of Heights and First Heritage as we go forward? And is there a – given your commentary about the customer base and about the acquisitions is there like and the commentary that you made about kind of generally being able to choose to a slightly better customer. Can you just discuss kind of the outlook into the back half of the year?
Don Gayhardt
Yes Moshe. It’s Don. I’ll give you some comments and Roger can obviously, can fill any details on this. I think that – just quickly Heights and First Heritage together ended the quarter at about $730 million in receivables. We expect that in if you look at sort of June 30 to December 31 period, so to the end of the year, we’ll see growth somewhere in – across the two quarters. We’ll see growth overall somewhere in the mid-teens.
I guess to say on a sequential basis it’s 7% a quarter or somewhere in that range right in that rang so yes a decent growth. But as I mentioned we have – we are definitely certainly at the bottom end of the credit box there and in Canada as well. We have – could just trend a little bit there raise minimum credit scores incomes reduce kind of credit offers et cetera. So I mean it’s not – it’s not a one-size-fits-all approach.
We’re very sort of granular about how we do it by product and by state by channel et cetera. But there’s – so we feel like we’ve got – we’ve had good luck as I mentioned in attracting, whether you look at sort of the smaller loan side of the Heights First Heritage business with the larger loan side. In both cases we’re seeing kind of the credit quality in the inbound customers getting better. So it gives us an opportunity to be so not only the overall originations we’re taking a little bit out of that, but we’re also — the balance that we’re improving is better. So we feel like this line is pretty good for the back half of the year.
And I’d say, if you’re looking into 2023 and I just want to — we have opened a number of new branches and some that I sort of had in the pipeline when we bought them. We’re slowing that down a little bit, but that’s contributing to some of the growth that we’re talking about there. As we look into 2023, we’d expect that those numbers that 15-point kind of mid-teens 14% to 15% growth rate would probably come off by maybe 300 basis points or probably in 2023. You’re looking at kind of low double-digit growth in portfolio — I’m sorry I’m sorry you are looking at a high single-digit growth in that portfolio.
So — and I think that we feel from a credit quality standpoint, the moves we’ve made both on the credit box and also adding — we added some servicing and collection capabilities there. We’re building out some late-stage capabilities and both of those businesses kind of centralized late-stage capabilities as neither of them really had and are helping on the recovery side. So we — I think the 3Q charge-offs are going to improve on a like-for-like basis probably by a couple of 100 basis points as a result of both of those issues. And it’s hard to say, I mean our forecast implies that we’ll see charge-offs and that business probably be — you consolidate US Direct Lending business certainly be somewhere in the 12%, 13% range in 2020 across 2023.
So I don’t know Roger do you have any other sort of thoughts about that. But I think I we always try to — I just want to shut up here. But I think that it’s always important, I think to look at the growth rates that are in, when you’re kind of comparing that just our business lines to one of them, but also sort of externally. And some of the growth rates that are out there that are being posted by some of the — our peers in kind of a more broadly different peer group are so far in excess of the numbers that I’m talking about.
I think just the general rule is a lender that grows the fastest has the highest credit losses is something of a rule I always kind of went by. I think we feel good about where we’re sort of the kind of growth we are getting and the quality and kind of the disciplined growth we’re getting in that business. And I would say in general both of those businesses Heights and First Heritage are performing to the earnings targets that we gave out when we bought those businesses. I don’t know Roger, if you have anything else to add there.
Roger Dean
Yeah. I probably — I think just a couple of quick thoughts to add on. I think we set — we set our outlook when we announced the transactions back in May and Don mentioned in the prepared remarks that the interest — the variable rate interest curve headwinds are probably driving those results across the board or probably driving towards the lower end of the range of the outlook that we gave. If you also recall when we announced the deals, we said that look if you break down that outlook, we said Q3 we expect it to be around breakeven or a little better. And then Q4, I believe we said $0.26 to $0.32 a share. That headwind that we’re talking about, if you look at the curves doesn’t really hit until the fourth quarter. So I think we still feel good about that former outlook for Q3 that says that in fact probably maybe a little better. We feel a little better about it. But I think that — so if you kind of break out the exit at that point, Q3 still stands as we issued it back in May Q4 is probably at the low end because of interest cost headwinds. And as we move through next year again there’s a lot of puts and takes. But — so I don’t know if that’s helpful but that’s …
Moshe Orenbuch
Yes, Roger. That’s very helpful. And thanks Don also. So maybe just a quick follow-up. Flexiti has been — had strong growth but basically, probably a little soft relative to what your original expectations were. Is that more a question about the integration of the partner, or is it more about pushing the non-prime through there? Like what do you see as the way that that gets closer to your original expectations?
Don Gayhardt
Yes. Moshe I think one of the big issue is just going to be the sales and approvals we’re seeing across from our merchant partners. Again as a reminder we’re working hard to expand and diversify the merchant base, but it’s largely concentrated in furniture appliance electronics. So larger ticket $2,500 kind of ticket items. And that while — and our biggest partner is probably LFL Group largest home furnishings retailer in Canada and their March quarter and reported June — their March quarter was on a comp store basis about 5%.
And obviously — so while our numbers are going up as we’re integrating them into our platform and we’ll continue to see really good growth. It is a little below our original expectations, largely just because of lower sales there. That’s somewhat tight with stimulus and the removal of seamless.
They’re also very levered to housing starts. I think I mentioned in the prepared remarks that the housing starts are up in Canada as they are in the US. So, people buying furniture appliances for new houses and even rental new rentals are up as well. So, that will have an impact there.
So, the other sort of macro issue is just and this is normalizing the credit there. So we expect credit over time there to be — charge-offs to be 4% to 5%. They’re running 60 basis points a quarter now. So, still kind of well below where we think.
Now, some of that the book — we will see the book ceasing. Those will go up a little bit. But I still think we’re seeing customers while it is normalizing customers are still continuing to pay off in the promotional period. So, are not — so they’re not growing into earning revolving balances.
So, you still get the merchant discount rate and we get some fees on that but we are not getting the interest earnings. So that continues to be a challenge. But we’re — I think we’re still really happy with the progress we’re making. Again onboarding a merchant like LFL has tripled the origination base. The company is not something that just — that just doesn’t fall on the tree.
So, Peter and his team have done a really terrific job. And we just — for our Board and they thing really highly of the team he has assembled and what the prospects are there. It’s happening a little slower than we’d like, but it’s still happening and the progress is still there. And I think the long-term, there is really promising. He’s said a lot of work being done to try to add some new merchants that will diversify outside some of the larger ticket categories.
Moshe Orenbuch
Great. Thanks and congrats again.
Operator
The next question comes from John Rowan with Janney. Please go ahead.
John Rowan
Good afternoon guys.
Don Gayhardt
Hey John.
John Rowan
Hey Don if I’m not mistaken did you just give guidance on the charge-off rate for the Heights and First Heritage business combined? I just want to make sure I got it if you can track and say it.
Don Gayhardt
Yes, we did. We said that we thought it would be — well, we said for the back half of this year I said in the back half of this year, we would expect it to be in high single-digits, low double-digits for the combined businesses. And then in 2013 you would expect it to be in kind of low teens call it the 12%, 13% number for 2023?
John Rowan
Okay. And just so I understand because it looks like the US NCO rate here for 2Q was 11%. Is that exclusive of the loans held for sale? I’m just trying to get an idea of that base — that number that 11% number is just Heights.
Don Gayhardt
John, you’re looking at the chart?
John Rowan
I was just looking at the press release. It has net charge-off rate by segment and it shows total US NCO rate of 11%. I just want to make sure — I just want to know if that number excludes the loans held for sale.
Don Gayhardt
No, it would include. That would be for the whole segment including the business that was sold.
John Rowan
Okay.
Don Gayhardt
And by the way, it’s probably only there for a few days, right?
Roger Dean
Yes. No — for Q2, it’s the higher US related.
John Rowan
Okay.
Don Gayhardt
And John this alone makes sense because it’s a quarterly rate at 11%. The business we sold runs 80% annualized was running normally. So that’s a blend.
John Rowan
Okay. All right. That’s it from me. Thank you.
Operator
The next question comes from John Hecht of Jefferies. Please go ahead.
John Hecht
Hey, guys. Good afternoon. Thanks for taking my questions. I mean you’ve really diversified the business. You’ve got multiple channels in different geographies and then different products. And I guess the question would be that just given kind of where you’re may be focused on in terms of the credit exposure as well as the consumer usage of the product what would you guys expect to kind of mix shift over the next few quarters in the current environment?
Don Gayhardt
Yes, John I’ll take a swing at it. So I think that clearly the fastest-growing part of the business will be the Flexiti business, which we expect to see sequentially 15% growth there in the third quarter and 25% growth in the fourth quarter because we got the seasonality — that’s a sequential number. So you have seasonality kind of holiday shopping there.
And we would expect that it would be still over 50% growth there in 2023. That’s a full year of LFL onboarding plus some other newer merchant partners as well as some growth in non-prime. So if you look at our estimate you would likely see an earning asset base that is in US dollars potentially gets close to $3 million by the end of 2023.
And Flexiti should be in the neighborhood of 60% of that number. And then on the — and if you kind of back it that implies our Canadian Direct Lending business. We would expect that that business would grow somewhere in the low double-digits in 2023. So call it 10% to 12%.
And as I mentioned earlier the US Direct Lending business we would expect that business to grow high single-digits to 8% 9%. So if you sort of roll all those together you can see that the mix shift is going to be — in kind of rank order Flexiti will be the fastest-growing business by a pretty wide margin Canada Direct Lending next asset is US Direct Lending. So that will certainly shift the mix. I think we said it’s — we’re 60-64 now Canada earning asset and we’ll get to 60 bps-40 bps of that. The other — I’m just hitting on the asset. You obviously have higher yielding stuff in the US. So from a revenue standpoint we feel closer to 50-50.
John Hecht
Yes. Okay. That’s super helpful. And then across the sectors are you seeing like competitive opportunities developed just given kind of the changing backdrop and/or is it affecting customer acquisition costs in any of your markets or products?
Don Gayhardt
I actually think it’s been — we feel like certainly in if you look at the US Direct Lending business as I mentioned we’re seeing even though we’re tightening some at the bottom of the credit box we’re seeing better opportunities at — the stuff we’re approving is coming in at higher FICOs and higher average incomes and it’s just about credit quality something we’re improving now. So that feels better.
And I suspect that while some of that may just be coming from some of the competitive issues certainly some of the really the super high-growth, Fintech businesses out there I think there has to be some spillover just given how much volume that they were writing. I think obviously we’re probably seeing a little bit less of that in Canada. Seems like a little bit more of a static credit environment.
But I would just — our market position is great there. I mean we think that together we’re probably number one or two in our sector on the direct lending side. And we feel like the Flexiti is getting to that. We’ll be in that kind of a position by the end of 2023 from a market position and market share standpoint.
So good share and we’ll continue I think to get the volumes just given the — I think our products are well-positioned there both on the direct lending side and what Flexiti has to offer since they’ve been adding some non-prime options to help the retailer or merchant partners drive more sales.
John Hecht
Great. That’s very helpful. Thanks guys.
Operator
The next question comes from Bob Napoli of William Blair.
Bob Napoli
Hi. Good afternoon. Thank you.
Don Gayhardt
Hey, Bob.
Bob Napoli
So — and I’ve asked this question before, but I mean, it’s super high growth of Flexiti. I mean, it’s a relatively young business. The profitability of that business is going to be a big driver of where CURO’s stock price goes. How confident are you in the financial model for Flexiti? I mean, you’ve owned it for, I guess, a bit over a year now 1.5 years or so. So how confident are you in the profit model for Flexiti?
Don Gayhardt
Yes. Bob, I mean, like I said earlier, when I think Moshe asked the question that it’s not happening as quickly as we envisioned a year ago. And I think there’s a lot of macro in there. I don’t — I think from an execution standpoint, we feel great about what we’re doing there. We’ve in-sourced a bunch of the customer service collection operations. We’re building out a much more robust kind of credit function there.
Roger and his team is working hard with the team up there on the treasury side and the funding side. So I think the pieces are in place I think for that business to be very successful and very profitable over the long haul. I think between the rate pressures on one hand and the macro with just sort of overall retail taking bigger to get retail being softer. It’s certainly sort of — it’s taken us longer to get to where we want to be there.
But I have absolute confidence that that business is — it’s got the right partners. I think we’re a good partner for them and a good parent for them. I think the tech side of things continues to get better. I feel great about where that business is going. It’s got really, really good leadership not just at the top, but I think they really built out. It’s not easy to sort of scale the business up and have a triple origination volume. And I think that to do that — and again it’s been — they’ve been doing it the right way. Credits been good. And it’s a prime 740 customer, but there are plenty of examples of people that have been trending that blow our prime credit portfolios and then they perform from a credit standpoint.
So we feel good about where it’s going. I wish we could push the accelerator a little bit best, but I’m not at all disappointed about where we — what the works that they’ve done and where it’s going to get to.
Bob Napoli
And then just, I mean, you’ve talked about tightening credit that’s been discussed, but can you be a little more specific about where you’re tightening credits?
Don Gayhardt
Yes. So I think that I would say, as I mentioned, it’s probably — other than I think the Flexiti prime stuff, there’s been some of them in every area. And I think the US — if I look at the US Direct Lending business, it’s been more on the historical core of that business we called Southern Management and they do sort of the $700 to $1,200 installment loans that are eight months to 15 months in duration.
And I think we’ve tightened more in that business, because that’s a lower credit quality customer and in particular the stuff that’s over — we’ve also cut on the durations there and the credit offers that extend over 12 months. We’ve moved to reduce those. We had — our US card business, we’ve cut back there. We’ll probably do a loan book, that’s 20% 25% lower than in 2023 than we had anticipated. And that’s really just from a competitive standpoint. I think, we have seen some competitive pressures in that business and not — just the unit economics aren’t as attractive as we thought at the beginning of the year. So we’re going to be a little more cautious, about how we roll that business out.
Canada Direct Lending, new credit offers, again lower tier credit quality customers of lower credit — lower offers or just hard denials. And we’ve also moved to where we have some risk-based pricing, to increase some pricing. And a lot of that is really just more to reflect sort of cost of funds, in addition to sort of the credit stuff. So again, I don’t want to divulge more competitive stuff. I’d rather not give too much detail. But I think it’s been, across the board but done in a very sort of granular and sort of targeted way, except for the I’d say the prime end of the complexity originations for now.
Bob Napoli
And consumer demand for loans, I mean with the tightening still had some pretty good growth broadly. But I mean, what are you seeing as far as consumer demand for credit?
Don Gayhardt
It’s certainly — we looked at the — I think the New York Fed, put out their data over the weekend and you saw a lot of kind of increases other than sort of mortgage stuff, all are slowing down somewhat. But certainly on the consumer side, the unsecured side, continued good growth, I think the demand continues to be good and I think that’s mostly tied to the employment markets.
And obviously, we saw the jobs numbers on Friday. But I think, it’s at a point where we feel like demand is good enough that we can still grow the business in a thoughtful kind of disciplined way and not — while still being a little bit more selective on credit. So — and I think — I don’t — so far, we’ve seen that continue this quarter both demand being pretty good, the quality of demand pretty good and credits being pretty good.
Bob Napoli
Thanks. Thank you. appreciate it.
Don Gayhardt
Yes. Thanks, Bob
Operator
This concludes our question-and-answer session. I would like to turn, the conference back over to Don Gayhardt, for any closing remarks.
Don Gayhardt
Yes. Thanks everybody, for joining. We look forward to talking to you again, after our third quarter concludes. Thanks very much.
Operator
The conference has now concluded. Thank you for attending today’s presentation and you may now disconnect.
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