Q1 2024 OneMain Holdings Inc Earnings Call

[music].

Operator: Welcome to the OneMain Financial first quarter 2024 earnings conference call-in webcast. Hosting the call today from OneMain is Peter Poillon, Head of Investor Relations. Today's call is being recorded.

Welcome to the Onemain financial first quarter 2024 earnings conference call and webcast hosting the call today from Onemain as Peter play on <unk>.

Investor Relations: Investor Relations today's call is being recorded.

Operator: At this time, all participants have been placed in the listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press Star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. We do ask that you limit yourself to one question and one follow-up, and please take up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Peter Poillon. You may begin.

Investor Relations: At this time, all participants have been placed in a listen only mode and the floor will be open for your questions. Following the presentation. If you would like to ask a question at that time. Please press star one on your telephone keypad.

Investor Relations: If at any point. Your question has been answered you may remove yourself from the queue by pressing star too. We do ask that you limit yourself to one question and one follow up and please pick up your handset to allow optimal sound quality.

Speaker Change: Lastly, if you should require operator assistance. Please press star zero. It is now my pleasure to turn the floor over to Peter play on you may begin.

Peter R. Poillon: Thank you, Operator. Good morning, everyone, and thank you for joining us.

Peter: Thank you operator.

Peter: Good morning, everyone and thank you for joining us.

Peter R. Poillon: Let me begin by directing you to page two of the first quarter 2024 investor presentation, which contains important disclosures concerning forward-looking statements and the use of non-GAAP measures. The presentation can be found in the Investor Relations section of the OneMain website. Our discussion today will contain certain forward-looking statements reflecting management's current beliefs about the company's future, financial performance, and business prospects, and these forward-looking statements are subject to inherent risks and uncertainties and speak only as of today.

Peter: Let me begin by directing you to page two of the first quarter 2024, investor presentation, which contains important disclosures concerning forward looking statements.

Peter: non-GAAP measures.

Peter: The presentation can be found in the Investor Relations section of the Onemain website.

Peter: Our discussion today will contain certain forward looking statements, reflecting management's current beliefs about the company's future.

Peter: Turning to performance and business prospects and these forward looking statements are subject to inherent risks and uncertainties and speak only as of today.

Peter R. Poillon: 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 these 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, April 30th, and have not been updated subsequent to this call. The call this morning will include formal remarks from Doug Shulman, our Chairman and Chief Executive Officer, and Jenny Osterhout, our Chief Financial Officer. After the conclusion of our formal remarks, we will conduct a question and answer session. I'd like now to turn the call over to Doug.

Peter: Factors that could cause actual results to differ materially from these forward looking statements are set forth in our earnings press release.

Peter: Caution you not to place undue reliance on forward looking statements.

Peter: If you may be listening to this via replay at some point. After today, we remind you that remarks made herein are as of today April 30th and have not been updated subsequent to this call.

Peter: Our call. This morning will include formal remarks from Doug Shulman, our chairman and Chief Executive Officer and Ginnie.

Peter: Judy Osterhaus, our Chief Financial Officer.

Peter: After the conclusion of our formal remarks, we will conduct a question and answer session.

Douglas H. Shulman: Like to now turn the call over to Doug.

Douglas H. Shulman: Thanks, Pete, and good morning, everyone. Thank you for joining us today. Today, I'll cover our results for the first quarter, as well as discuss our strategic initiatives. But before I do that, I want to welcome Jenny Osterhout to today's call in her new role as chief financial officer. I've worked with Jenny for many years, most recently in her role as Chief Strategy Officer at OneMain, where she worked closely with Micah and me and had responsibility for strategy, new products, technology, digital, and corporate development. She has been a key partner in driving our strong performance over the last several years. As you get to know her, I'm sure you will find her to be strategic, knowledgeable, and a straight shooter.

Douglas H. Shulman: Thanks, Pete and good morning, everyone.

Douglas H. Shulman: Thank you for joining us today.

Douglas H. Shulman: Today I'll cover our results for the first quarter as well as discuss our strategic initiatives.

Douglas H. Shulman: Before I do that I want to welcome journey Ost or how to today's call in her new role as Chief Financial Officer.

Douglas H. Shulman: I've worked with journey for many years most recently in her role as Chief strategy Officer at Onemain, where she worked closely with Mike and me.

Douglas H. Shulman: Had responsibility for strategy, new products technology digital corporate development and it's been a key partner in driving our strong performance the last several years.

Douglas H. Shulman: As you get to know her I'm sure you will find her to be strategic knowledgeable and a straight shooter.

Douglas H. Shulman: I also want to thank Micah for facilitating a smooth transition, and he will continue to partner closely with Jenny and me to drive value for our customers and our shareholders in his new role as Chief Operating Officer. I'll start by saying we feel very good about the results this quarter, especially the credit trends, as we are seeing clear evidence that the credit tightening actions we have taken over the last couple of years are driving delinquencies and, ultimately, losses in the right direction.

Douglas H. Shulman: I also want to thank Mike for.

Douglas H. Shulman: For facilitating a smooth transition and he will continue to partner closely with Jenny and me to drive value for our customers and our shareholders in his new role as Chief operating officer.

Douglas H. Shulman: I'll start by saying, we feel very good about the results this quarter, especially the credit trends as we are seeing clear evidence that the credit tightening actions. We have taken over the last couple of years are driving delinquency and ultimately losses in the right direction.

Douglas H. Shulman: Capital generation, the key metric against which we measure financial performance and manage our business, was $155 million this quarter. Our receivables grew 6% year over year, benefiting from our expanded product offerings and strong balance sheet. We've been able to grow our portfolio and our customer base while maintaining a cautious credit posture across all of our products. Year-on-year total revenue growth was 7%.

Douglas H. Shulman: <unk>.

Douglas H. Shulman: Capital generation, the key metric against which we measure of financial performance and manage our business was $155 million this quarter.

Douglas H. Shulman: Our receivables grew 6% year over year.

Douglas H. Shulman: Benefiting from our expanded product offerings and strong balance sheet.

Douglas H. Shulman: We have been able to grow our portfolio and our customer base, while maintaining a cautious credit posture across all of our products year on year total revenue growth was 7%.

Douglas H. Shulman: Our originations totaled $2.5 billion, down 10% from a year ago, a result of our disciplined management of the business, where we only make loans that meet our return hurdles. As we've discussed previously, we have continued to selectively increase prices and tighten credit over the last year. Now, let me say a couple of things about the health of the consumer.

Douglas H. Shulman: Our originations totaled $2 $5 billion down 10% from a year ago.

Douglas H. Shulman: Results of our disciplined management of the business, where we only make loans that meet our return hurdles.

Douglas H. Shulman: As we've discussed previously we have continued to selectively increased prices and tightened credit over the last year.

Speaker Change: Let me say a couple of things about the health of the consumer.

Douglas H. Shulman: Before I do so, let me remind you that while we monitor these overall trends, we actually lend customer by customer, based on their individual credit risk, taking into consideration their geography, net disposable income, our proprietary data on current and former customers, and over 1,000 other variables. For the consumer overall, there remains a set of crosscurrents. Even though inflation has slowed down, and there has been healthy wage growth, and unemployment remains quite low.

Speaker Change: Before I do so let me remind you that while we monitor these overall trends, we actually lend customer by customer.

Speaker Change: Based on their individual credit risk taking into consideration their geography net disposable income.

Speaker Change: Our proprietary data on current and former customers.

Speaker Change: And over 1000 other variables.

Speaker Change: For the consumer overall, there remains a set of cross currents.

Speaker Change: Even though inflation has slowed down and there has been healthy wage growth and unemployment remains quite low.

Douglas H. Shulman: Interest rates remain elevated, and living expenses have increased in the last few years. For our customer, who makes on average $65,000 to $70,000 a year, their average income is up about 25% compared to pre-pandemic levels. But the cost of everyday expenses in aggregate, from food, to housing, to gas, is also up over 20%.

Speaker Change: Interest rates remain elevated and living expenses have increased the last few years.

Speaker Change: For our customer who makes on average $65 to $70000 a year. Their average income is up about 25% compared to pre pandemic, but the cost of everyday expenses in aggregate from food to housing to gas is.

Speaker Change: Also up over 20%.

Douglas H. Shulman: So while we have seen income catch up with inflation, resulting in an increase in net disposable income for our customers when compared to 2019, consumers still need to carefully manage their household budgets in this environment. Our 30-89 delinquency was 2.72%, down 56 basis points from the fourth quarter, which is better than normal seasonal trends. Loan net charge-offs were 8.6 percent, consistent with our expectation given the delinquency we saw in the second half of last year and in line with our full year strategic priority.

Speaker Change: While we have seen income catch up with inflation.

Speaker Change: <unk> and an increase in net disposable income for our customers when compared to 2019 consumers still need to carefully manage their household budgets in this environment.

Speaker Change: Our 30 to 89 delinquency was two 7% and 2% down 56 basis points from the fourth quarter, which is better than normal seasonal trends.

Speaker Change: Loan net charge offs were eight 6% consistent with our expectation given the delinquency we saw in the second half of last year and in line with our full year strategic priorities we remain.

Douglas H. Shulman: We remain pleased with the performance of our newer vintages, or front book, comprised of loans originated since August 2022, as they continue to perform in line with expectations. And while these new vintages now comprise about 70% of our receivables, the back book, those loans originated before August 2022, still account for about 50% of our delinquencies. Our increased pricing in certain segments and tighter credit box have resulted in lower originations, especially in the last two quarters.

Speaker Change: I'm pleased with the performance of our newer vintages or front book comprised of loans originated since August 2022, as they continue to perform in line with expectations and while these new vintages now comprise about 70% of our receivables.

Speaker Change: The back book those loans originated before August 2022, still account for about 50% of our delinquencies.

Speaker Change: Our increased pricing in certain segments and tighter credit box has resulted in lower originations, especially in the last two quarters.

Douglas H. Shulman: This has led to portfolio dynamics, which Jenny will discuss later. However, we remain confident that the credit performance of the overall portfolio is moving in the right direction and continue to expect that losses will peak in the first half of 2024, assuming that the macroeconomic environment remains relatively stable. Nonetheless, we are maintaining our conservative credit posture at this time. Our OPEX ratio was 6.6%. We are always disciplined in our expense management and closely evaluate where to invest and where to cut.

Speaker Change: This has led to portfolio dynamics, which Jenny will discuss later.

Speaker Change: We remain confident that the credit performance of the overall portfolio is moving in the right direction and continue to expect that losses will peak in the first half of 2024, assuming that the macroeconomic environment remains relatively stable.

Speaker Change: Table. Nonetheless, we are maintaining our conservative credit posture at this time.

Speaker Change: Our opex ratio was six 6% we are always disciplined in our expense management and closely evaluate where to invest and where to cut.

Douglas H. Shulman: This quarter, we took some targeted expense actions, primarily across headcount and real estate, as we continually hone our business for optimal efficiency and performance. Now, we turn now to our strategic initiatives, which we discussed in detail at our Investor Day in December. We talked then about how we plan to capitalize on our clear competitive advantages, including deep experience with and proprietary data on the non-prime consumer, best-in-class underwriting, a unique business model with a branch network supported by digital and central capabilities, and a fortress balance sheet.

Speaker Change: This quarter, we took some targeted expense actions primarily across head count and real estate as we continually hone our business for optimal efficiency and performance.

Speaker Change: Turning now to our strategic initiatives, which we discussed in detail at our Investor Day in December.

Speaker Change: We talk then about how we plan to capitalize on our clear competitive advantages, including deep experience with and proprietary data on the non prime consumer.

Speaker Change: Best in class underwriting.

Speaker Change: Unique business model with our branch network supported by digital and central capabilities and a fortress balance sheet. We are using these competitive advantages to position onemain for the future and expand our addressable market in a highly disciplined manner and drive.

Douglas H. Shulman: We are using these competitive advantages to position OneMain for the future and expand our addressable market in a highly disciplined manner and drive profitable growth. We served 3 million customers during the quarter, up from 2.6 million a year ago.

Speaker Change: <unk> growth.

Speaker Change: We served 3 million customers during the quarter up from $2 6 million a year ago.

Douglas H. Shulman: Much of the growth in our customer base is attributable to our new product, the Brightway credit card, and auto finance, highlighting the importance of these new products to our long-term customer acquisition, customer engagement, and growth strategy. Our auto finance receivables were $843 million at quarter end, and credit performance remains very good in this business. We recently enhanced our auto finance business with the acquisition of Foresight Capital, which closed on April 1.

Speaker Change: Much of the growth in our customer base is attributable to our new products, the bright way credit card and auto finance highlighting the importance of these new products to our long term customer acquisition customer engagement and growth strategies.

Speaker Change: Our auto finance receivables were $843 million at quarter end and credit performance remains very good in this business we.

Speaker Change: We recently enhanced our auto finance business with the acquisition of foresight capital, which closed on April one.

Douglas H. Shulman: This acquisition brings us an experienced team, scalable technology, tested credit models, a franchise dealer network, and a high-quality loan portfolio. It substantially expands our total addressable market in the auto finance segment, complementing our current direct-to-consumer independent dealer strategy by adding a national network of franchise dealers. Importantly, it further diversifies and expands our suite of lending products, supporting our position as the lender of choice for non-prime consumers. In our credit card business, we ended the quarter with 509,000 accounts and $386 million in receivables.

Speaker Change: This acquisition brings us an experienced team scalable technology tested credit models, our franchise dealer network and a high quality loan portfolio.

Speaker Change: Substantially expands our total addressable market in the auto finance segment.

Speaker Change: Complementing our current direct to consumer independent dealer strategy by adding a national network of franchise dealers importantly, it further diversifies and expands our suite of lending products supporting our position as the lender of choice for non prime.

Speaker Change: Consumers.

Speaker Change: And our credit card business, we ended the quarter with 509000 accounts and $386 million of receivables.

Douglas H. Shulman: We continue to feel really good about key business metrics, including response rates, utilization, and digital engagement. Given the credit environment, we are focusing our customer acquisition on cards that have an annual fee and a lower line of credit. We are confident that our credit card business will be a significant driver of profitable growth in the coming years, but today we have a tight credit box and will remain disciplined as we expand this business.

Speaker Change: We continue to feel really good about key business metrics, including response rates utilization and digital engagement.

Speaker Change: Given the credit environment, we are focusing our customer acquisition on cards that have an annual fee and a lower line of credit.

Speaker Change: We are confident that our credit card business will be a significant driver of profitable growth in the coming years, but today, we have a tight credit box and we'll remain disciplined as we expand this business.

Douglas H. Shulman: Now, let me briefly touch on capital allocation. Our top priority, to invest in the business, to position us for ongoing success, has not changed. As I mentioned earlier, we grow our receivables year over year with a focus on high quality, profitable origination. Once again, this quarter, about two-thirds of new customer originations were in our top two credit tiers.

Speaker Change: Now, let me briefly touch on capital allocation.

Speaker Change: Our top priority to invest in the business to position us for ongoing success.

Speaker Change: Has not changed as I mentioned earlier, we grew our receivables year over year with a focus on high quality profitable originations. Once again this quarter about two thirds of new customer originations were in our top two credit tiers.

Douglas H. Shulman: And we allocated a portion of our capital for the acquisition of Foresight, which will provide important benefits to our company and our shareholders in the years ahead. We are committed to a strong regular dividend, and our board increased the dividend by 4% this quarter. The annual dividend is now $4.16 per share, reflecting our continued confidence in the capital generation of the business and our commitment to return capital to shareholders. Share repurchases in the first quarter were modest, about 100,000 shares for approximately $5 million.

Speaker Change: And we allocated a portion of our capital for the acquisition of foresight, which will provide important benefits to our company and our shareholders in the years ahead.

Speaker Change: We are committed to a strong regular dividend and our board increased the dividend by 4% this quarter.

Speaker Change: The annual dividend is now $4 16 per share, reflecting our continued confidence in the capital generation of the business and our commitment to return capital to shareholders.

Speaker Change: Share repurchases in the first quarter were modest about 100000 shares for approximately $5 million.

Jenny Osterhout: With that said, let me now turn the call over to Jenny.

Speaker Change: With that.

Speaker Change: Let me now turn the call over to Jenny.

Jenny Osterhout: Thanks, Doug, and good morning, everyone. I'd like to start by saying that it's great to be here on my first earnings call as Chief Financial Officer of OneMain. Doug, Micah, and I, along with the rest of the executive team at OneMain, will continue to focus on serving our customers, managing the company to outperform in any environment, and executing on the strategy that we laid out at Investor Day in December. 2024 is off to a strong start, with the first quarter highlighted by positive momentum resulting from our continued proactive and granular management of the portfolio, ongoing expense discipline, and further enhancement of our already strong balance sheet.

Jenny: Thanks, Doug and good morning, everyone I'd like to start by saying that it's great to be here on my first earnings call as Chief Financial Officer of Onemain.

Jenny: Doug, Mike and I, along with the rest of the executive team at Onemain will continue to focus on serving our customers managing the company to outperform in any environment and executing on the strategy that we laid out at Investor day in December.

Jenny: 2024 is off to a strong start with our first quarter highlighted by positive momentum, resulting in our continued proactive and granular management of the portfolio ongoing expense discipline and further enhancement of our already strong balance sheet.

Jenny Osterhout: First quarter net income was $155 million, $1.29 per diluted share, down 13% from $1.48 per diluted share in the first quarter of 2023. The current quarter included a $27 million restructuring charge associated with expense initiatives that will support strategic investment in the company. GNI adjusted net income was $1.45 per diluted share, essentially flat as compared to the first quarter of 2023.

Jenny: First quarter net income was $155 million $1 29 per diluted share down 13% from $1 48 per diluted share in the first quarter of 2023.

Jenny: The current quarter included a $27 million restructuring charge associated with expense initiatives that will support strategic investment in the company.

Jenny: C&I adjusted net income was $1 45 per diluted share essentially flat as compared to the first quarter of 2023.

Jenny Osterhout: Capital generation was $155 million for the quarter, compared to $179 million a year ago, reflecting the impacts of the current macroeconomic environment on our interest expense, yield, and net charge-off. Managed receivables this quarter were $22 billion, up $1.3 billion, or 6% from a year ago. This does not reflect receivables from the Foresight Acquisition, which closed on April 1st.

Jenny: Capital generation was $155 million for the quarter compared to $179 million a year ago.

Jenny: Reflecting the impact of the current macroeconomic environment on our interest expense yield and net charge offs.

Jenny: Managed receivables this quarter.

Jenny: $92 billion.

Jenny: Up $1 3 billion or 6% from a year ago. It did not reflect receivables from the <unk> acquisition, which closed on April 1st.

Jenny Osterhout: So the receivables growth this quarter is all organic. First quarter originations of $2.5 billion were down seasonally from the fourth quarter and down 10% year over year as we've maintained our conservative approach to new originations. As discussed in previous quarters, a good portion of our tightening has come from a pricing action that we've taken which offers what we view as a compelling trade-off of lower volume for higher profitability.

Jenny: So the receivables growth this quarter is all organic.

Jenny: First quarter originations of $2 $5 billion were down seasonally from the fourth quarter and down 10% year over year as we've maintained a conservative approach to new origination.

Jenny: As discussed in previous quarters, a good portion of our tightening has come by our pricing actions that we've taken which offer what we view as a compelling trade off of lower volume for higher profitability.

Jenny Osterhout: The average APR on our loan originations in the quarter was 26.8%, up more than 100 basis points from first quarter 2023. While we're encouraged by positive signs in our portfolio's credit performance, for now, we are maintaining our conservative underwriting. As we go forward, we will adjust our underwriting posture as we monitor credit performance and the macroeconomic environment.

Jenny: The average APR on our loan originations in the quarter with 26, 8% up more than 100 basis points from first quarter 2023.

Jenny: While we are encouraged by positive signs in our portfolio's credit performance for now we are maintaining our conservative underwriting as we go forward, we will adjust our underwriting process here as we monitor credit performance and the macroeconomic environment.

Jenny Osterhout: Total revenue, comprising interest income and total other revenue, grew 7% as compared to first quarter 2023, in line with our full year guidance range of 6 to 8%. Interest income was $1.2 billion, up 7% year over year, driven by higher average receivables. Yield in the first quarter was 22.1%, flat compared to the fourth quarter, as our pricing actions, which I mentioned earlier, offset the impacts of the credit environment and the growth of the auto book, which has a lower APR. Other revenue was $180 million, up 2% from the prior year.

Jenny: Total revenue comprising interest income and total other revenue grew 7% as compared to first quarter 2023 in line with our full year guidance range of 6% to 8%.

Jenny: Interest income was $1 $2 billion.

Jenny: Up 7% year over year, driven by higher average receivable.

Jenny: Yield in the first quarter was 22, 1% flat compared to the fourth quarter as our pricing actions, which I mentioned earlier offset the impact of the credit environment and the growth of the auto book, which has lower APR.

Jenny: Other revenue was $180 million up 2% from the prior year.

Jenny Osterhout: Interest expense for the quarter was $276 million, up $38 million versus the prior year, driven by an increase in average debt to support our receivables growth, higher cash levels, as well as a modestly higher cost of funds. First quarter interest expense was impacted by the excess cash we've been carrying on our balance sheet through the quarter.

Jenny: Interest expense for the quarter with $276 million up $38 million versus the prior year driven by an increase in average debt to support our receivables growth higher cash levels as well as modestly higher cost of funds.

Jenny: Interest expense as a percentage of receivables in the quarter was five 2% first quarter interest expense was impacted by the excess cash we've been carrying on our balance sheet through the quarter. Excluding these impacts interest expense would have been closer to 5% in the quarter and we continue to expect full year interest expense of approximately.

Jenny Osterhout: Excluding these impacts, interest expense would have been closer to 5% in the quarter, and we continue to expect full-year interest expense of approximately 5.2%. While the interest rate environment remains uncertain, our balance sheet strategy with staggered maturities and longer tenors has allowed us to mitigate the volatility in the market over the last few years. Provision expense was $431 million, comprising net charge-offs of $457 million and a $26 million decrease in our allowance, which was driven by the seasonal decline in our receivables. However, our allowance ratio remains flat to the fourth quarter at 11.6%. Policyholder benefits and claims expense for the quarter was $50 million, compared to $47 million in the first quarter of 2023.

Jenny: A five 2%.

Jenny: While the interest rate environment remains uncertain, our balance sheet strategy with staggered maturities and longer tenures has allowed us to mitigate the volatility in the market over the last few years.

Jenny: Provision expense was $431 million, comprising net charge offs of $457 million.

Jenny: And a $26 million decrease in our allowance, which was driven by the seasonal decline in our receivable.

Jenny: Our allowance ratio remained flat to the fourth quarter at 11, 6%.

Jenny: Policyholder benefits and claims expense for the quarter was $50 million compared to the $47 million in first quarter 2023.

Jenny Osterhout: This is in line with our previously stated expectation of approximately $50 million each quarter. Let's now turn to the C&I credit trends highlighted on slide 9. Loan net charge-offs were 8.6%, in line with expectations for the quarter. However, recoveries remained strong in the quarter.

Jenny: This is in line with our previously stated expectation of approximately $50 million each quarter.

Speaker Change: Let's now turn to the C&I credit trends highlighted on slide nine.

Speaker Change: Loan net charge offs were eight 6% inline with expectations for the quarter.

Speaker Change: Recoveries remained strong in the quarter, they were $77 million or one 5% of receivables and including some opportunistic sales of charged off loans during the quarter.

Jenny Osterhout: They were $77 million, or 1.5% of receivables, and included some opportunistic sales of charged-off loans during the quarter. 30 to 89 day delinquency at March 31st was 2.72%, which was 56 basis points better than the 3.28% we saw in December. While we typically see a seasonal reduction in 30 to 89 day delinquency from fourth to first quarter, this 56 basis point reduction is better than normal seasonal trends. Front book vintages, which we define as origination starting in August 2022, now comprise about 70% of total receivables as compared to 65% at year end.

Speaker Change: 30 to 89 day delinquency at March 31 was 272%, which was 56 basis points better than the 3% to 8%. We saw in December while we typically see a seasonal reduction in 30 to 89 day delinquency from fourth to first quarter, It's 56 base.

Speaker Change: At this point reduction is better than normal seasonal trends.

Speaker Change: Front book Vintages, which we define as origination starting in August 2022, now comprise about 70% of total receivable as compared to 65% at year end.

Jenny Osterhout: However, currently, 50% of our 30 plus delinquencies still come from the back book vintages that only represent 30% of our receivable. So while we are pleased that we continue to see the front post perform in line with expectations, as we discussed last quarter, our portfolio is growing at a slower pace due to our credit tightening and pricing actions. The result of this slower growth is an extension of the weighted average life of our portfolio.

Speaker Change: However, currently 50% of our 30, plus delinquencies still come from the back book vintages that only represents 30% of our receivables.

Speaker Change: So while we are pleased that we continue to see the front book performed in line with expectations as we discussed last quarter. Our portfolio is growing at a slower pace due to our credit tightening and pricing action.

Speaker Change: The result of the slower growth is an extension of the weighted average life of our portfolio. This drives the delinquency and loss performance of the portfolio to skew more to the older and higher delinquency receivable with a smaller percentage of the more recent lower delinquency receivables on the book.

Jenny Osterhout: This drives the delinquency and loss performance of the portfolio to skew more to the older and higher delinquency receivables with a smaller percentage of the more recent lower delinquency receivables on the book. Without this dynamic, our current quarter's 30 to 89 delinquencies would be lower than last year.

Speaker Change: Without this dynamic our current quarter 30 to 89 delinquencies would be lower than last year.

Jenny Osterhout: I want to emphasize that we remain pleased with the performance of the loans we are booking today, and as the back book runs down and the better performing front book continues to grow, our losses will improve. We continue to expect net charge-offs to peak in the first half of 2024, with typical seasonal patterns thereafter. Now, let's turn to slide 12.

Speaker Change: I want to emphasize that we remain pleased with the performance of the loans, we are booking today and at the back book runs down and the better performing front book continues to grow our losses will improve.

Speaker Change: We continue to expect net charge offs to peak in the first half of 2024 with typical seasonal patterns thereafter.

Speaker Change: Now, let's turn to slide 12, operating expenses were $362 million in the quarter flat year over year.

Jenny Osterhout: Operating expenses were $362 million in the quarter, flat year over year. However, expenses in the quarter were positively impacted by expense reduction actions taken this quarter. We expect our full-year OPEX ratio to fall in line with our guidance of approximately 6.7% as we continue our practice to both manage expenses and further invest in our business for future growth. The specific expense reduction actions taken this quarter were the result of our rigorous focus on expense management, as well as the fruits of our focus on digital engagement and the optimization of our branch footprint. The majority of these expense reductions came from headcount and real estate.

Speaker Change: <unk> in the quarter were positively impacted by expense reduction actions taken this quarter, we expect our full year opex ratio to fall in line with our guidance of approximately six 7% as we continue our practice to both manage expenses and further invest in our business for future growth.

Speaker Change: The specific expense reduction actions taken this quarter were the result of our rigorous focus on expense management as well as the fruits of our focus on digital engagement and the optimization of our branch footprint.

Speaker Change: The majority of these expense reductions came from head count and real estate. These.

Jenny Osterhout: These expense actions will create additional capacity for us to invest for growth in the future while continuing to drive operating leverage. Our OPEX ratio was 6.6% in the first quarter, down from 7.1% in the same quarter of 2023. This reflects the disciplined approach to expense management I just described as well as the operating leverage inherent in our business that we outlined at Investor Day in December. Now let's turn to funding on our balance sheet on slide 13.

Speaker Change: These expense actions will create additional capacity for us to invest for growth in the future, while continuing to drive operating leverage.

Speaker Change: Our opex ratio was six 6% in the first quarter down from seven 1% in the same quarter of 2023.

Speaker Change: This reflects the disciplined approach to expense management I, just described as well as the operating leverage inherent in our business that we outlined at Investor day in December.

Speaker Change: Now, let's turn to funding and our balance sheet on slide 13.

Jenny Osterhout: We came into 2024 in great shape from a liquidity perspective, having issued $2.5 billion of unsecured and secured debt in the second half of last year and having redeemed the March 2024 maturity. During the first quarter, we didn't issue any debt, but we continued to make progress on our best-in-class liquidity profile by increasing our bank facilities and adding a new partner to our whole loan sale program. You may also have seen that last week we issued a $1.1 billion seven-year revolving securitization priced at a blended rate of 5.99%.

Speaker Change: We came into 2024 in great shape from a liquidity perspective, having issued $2 5 billion of unsecured.

Speaker Change: And secured debt in the second half of last year, and having redeemed the March 2020 for maturity.

Speaker Change: During the first quarter, we didn't issue any debt, but we continued to make progress on our best in class liquidity profile by increasing our bank facilities, and adding a new partner to our whole loan sale program.

Speaker Change: You also probably saw that last week, we issued a $1 1 billion seven year revolving securitization priced at a blended rate of 599%.

Jenny Osterhout: This was the first seven-year tenor ABS we've issued since 2019 and is a testament to the strength of our funding program. We had a deep order book that included both new investors and a long list of returning ABS investors. This issuance extends our maturity profile into 2031 and beyond and, with the cash on our balance sheet, provides further funding flexibility. Let me add a little more context on the changes to our liquidity profile that I mentioned. In January, we closed our first credit card facilities with two members of our banking group.

Speaker Change: This was the first seven year tenure ABS, we've issued since 2019 and is a testament to the strength of our funding program.

Speaker Change: We had a deep order book that included both new Investor and a long list of returning ABS investors.

Speaker Change: Issuance extends our maturity profile into 2031 and beyond and with the cash on our balance sheet provides further funding flexibility.

Speaker Change: Let me add a little more context on the changes to our liquidity profile that I mentioned.

Speaker Change: In January we closed our first credit card facilities with two members of our banking group.

Jenny Osterhout: The initial combined commitment for the two facilities is $300 million, bringing the company's bank facilities to $8 billion from $7.7 billion in Q4 2023. We see these new credit card facilities as strategically important as we build out the ADS program for cards, giving us a new funding channel that further diversifies our balance. On the whole loan sale front, we signed an 18 month, $600 million forward flow agreement with a new partner with attractive pricing, essentially swapping out another partnership that we chose not to renew.

Speaker Change: The initial combined commitment for the two facilities is $300 million.

Speaker Change: Springing company bank facilities to $8 billion from $7 7 billion in Q4 2023.

Speaker Change: We see these new credit card facilities are strategically important as we build out the ABS program for card.

Speaker Change: Giving us a new funding channel that further diversifies our balance sheet.

Speaker Change: On the whole loan sale front, we signed an 18 months $600 million forward flow agreement with a new partner with attractive pricing essentially swapping out another partnership that we chose not to renew.

Jenny Osterhout: While small, we see the Whole Loan Sale Program as a positive development and a further extension of our best-in-class funding program. Wrapping up the balance sheet, our net leverage at the end of the first quarter was 5.3 times, flat compared to the previous quarter. Turning briefly to slide 15, our 2024 priorities. We continue to feel very good about the priorities we laid out on the fourth quarter earnings call, and those priorities remain unchanged.

Speaker Change: While small we see the whole loan sale program as a positive development and a further extension of our best in class funding program.

Speaker Change: Wrapping up the balance sheet, our net leverage at the end of the first quarter was five three times flat compared to last quarter.

Speaker Change: Turning briefly to slide 15, our 2024 priority.

Speaker Change: We continue to feel very good about the priorities, we laid out on the fourth quarter earnings call and those priorities remain unchanged.

Jenny Osterhout: We expect to end the year with managed receivables of approximately $24 billion, which includes approximately $1 billion from Foresight. We continue to expect full-year total revenue growth in a range of 6 to 8 percent. We also expect full-year interest expense as a percentage of average net receivables to be approximately 5.2% and full-year consolidated net charge-offs in the range of 7.7% to 8.3%, with peak charge-offs in the first half of the year.

Speaker Change: We expect to end the year with managed receivables of approximately $24 billion, which includes approximately $1 billion from foresight.

Speaker Change: We continue to expect full year total revenue growth in a range of 6% to 8%.

Speaker Change: We also expect full year interest expense as a percentage of average net receivables to be approximately five 2% and full year consolidated net charge offs in the range of seven 7% to eight 3% with peak charge offs in the first half of the year.

Jenny Osterhout: And finally, as I mentioned earlier, we expect our full-year operating expense ratio to be around 6.7%. We had a really solid first quarter with positive signs in our credit trends, and we remain confident in our ability to execute and deliver shareholder value throughout the years ahead. While over the past few years, I've had the opportunity to meet many of you, I look forward to spending more time with all of you going forward. With that, I'll turn the call back over to Doug.

Speaker Change: And finally as I mentioned earlier, we expect our full year operating expense ratio to be around six 7%.

Speaker Change: We had a really solid first quarter with positive signs in our credit trends and remain confident in our ability to execute and deliver shareholder value throughout the years ahead.

Speaker Change: Well over the past few years I've had the opportunity to meet many of you I look forward to spending more time with all of you going forward.

Speaker Change: With that let me turn the call back over to Doug.

Douglas H. Shulman: Thanks, Jenny. We feel really good about the direction of credit, as we have carefully managed our underwriting and pricing to ensure we meet our return hurdles. Our new products, credit card and auto finance, have matured nicely and are positioned to be major contributors to profitable growth in the coming years. And as we deepen our customer relationships and expand and diversify our product offerings, we have further solidified our position as the lender of choice to the non-prime consumer.

Douglas H. Shulman: Thanks Jenny.

Speaker Change: Feel really good about the direction of credit.

Douglas H. Shulman: As we have carefully managed our underwriting and pricing to ensure we meet our return hurdles.

Douglas H. Shulman: Our new products credit card and auto finance have matured nicely and are positioned to be major contributors to profitable growth in the coming years.

Douglas H. Shulman: And as we deepen our customer relationships and expand into diversified our product offerings. We have further solidified our position as the lender of choice to the non prime consumer.

Douglas H. Shulman: As always, I'm incredibly grateful to all of our talented team members who are highly committed to helping our customers meet their credit needs today but also helping them progress to a better financial future. With that, I'll open it up to questions.

Douglas H. Shulman: As always I'm incredibly grateful to all of our talented team members, who are highly committed to helping our customers meet their credit needs today, but also helping them progress to a better financial future with that let me open it up for questions.

Operator: And the floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your touchtone telephone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Again, we do ask that while you pose your question, you pick up your handset to provide optimal sound quality. Thank you. And our first question will come from John Rowan with JANI. Please go ahead.

Speaker Change: And the floor is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone telephone.

Speaker Change: Any point. Your question has been answered you may remove yourself from the queue by pressing star two.

Douglas H. Shulman: We do ask that while you pose your question you pick up your handset to provide optimal sound quality.

Douglas H. Shulman: And our first question will come from John Rowan with Janney. Please go ahead.

John J. Rowan: Good morning. Jenny, I just want to unpack what you were talking about with the delinquency buckets and the growth math, okay? Because it sounded like you said that, you know, one of the buckets, maybe the 3089 day came down more than you would expect seasonally because of, you know, the growth math, but maybe the 90 plus day did not come down in lockstep because of, you know, that growth math. I just want to make sure I understood that correctly and maybe just, you know, walk us through what we should expect on the growth map, the effect on delinquencies going forward.

John Rowan: Good morning.

John Rowan: Jimmy I was wondering if some pack where you were talking about with the delinquency buckets and the growth math right. It sounded like you said that one of the buckets, maybe the 30 to 89 day came down more than you would expect seasonally because of the growth math, but maybe the 90 plus day.

John Rowan: Did not come down.

John Rowan: In lockstep because of that growth math, just to make sure I understood that correctly and maybe just walk us through what we should expect.

John Rowan: The growth math.

John Rowan: Effect on delinquencies going forward.

Jenny Osterhout: Thanks. Thanks for the question. Let me give a bit more context. So the way we think about it, the weighted average life of our receivables has increased from that slower growth that I mentioned. And we decreased the number of new originations, meaning those younger originations. So those originated in the last two quarters, think of that as Q4 and Q1.

Speaker Change: Thanks. Thanks for the question, let me give a bit more context.

Speaker Change: So the way, we think about it the weighted average life of our receivables has increased from that slower growth that I mentioned and we decreased the number of new originations, meaning those younger origination. So those originated in the last few quarters think of that as Q4 and Q1.

Jenny Osterhout: And those younger originations as a percentage of the overall book today are 24% of the book, and on a pre-COVID book that's growing more, it would have been about 33%. So we increased the average age of our receivables for nearly 10% of the book. And that matters because those newer originations have a sub-1% delinquency rate, and we replaced those with those older vintages that have about a 4% delinquency rate. So to put that in context, excluding that change in the growth dynamic, it would be, like you said, a little bit lower than last year.

John Rowan: And those younger originations as a percentage of the overall book today are 24% of the book and on a pre Covid book.

John Rowan: That was that's growing more or would have been about 33%.

John Rowan: So we increased the average age of our receivables for nearly 10% of the book.

John Rowan: And that matters, because there's new originations have a sub 1% delinquency and we replaced those with those older vintages that have about a 4% delinquency.

John Rowan: So to put that in context, excluding that change in the growth dynamic it would.

John Rowan: Be like you said, a little bit lower than last year, and and that's to the 30 to 89 delinquency and we expect that impact will decrease.

Jenny Osterhout: And that's for the 30 to 89 delinquency. And we expect that impact will decrease as we get newer vintages on the books. We aren't seeing anything abnormal with our 90 plus. I just want to add that in, too.

John Rowan: As we get newer vintages on the books, we arent seeing anything abnormal with our 90, plus I just want to add that into.

John Rowan: Okay. Thank you and then Doug maybe just discuss kind of the market opportunity in credit cards, we haven't talked a lot about the fee structure on their credit card, but obviously there is.

Douglas H. Shulman: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.

Douglas H. Shulman: Hosel out or finalize rollout to reduce late fees.

Douglas H. Shulman: That market shaking out in the next couple of years with the new fee structure and what's your opportunity there. Thank you.

Douglas H. Shulman: So look, we think we've got a huge opportunity in credit cards. To put it in context, we have a 20% market share in the hundred billion dollar personal loan market, and the credit card market for the non-crime consumer is about 500 billion. So, you know, run simple math; if we got 1% of the market share in the $500 billion market, we'd have 5 billion receivables, and right now, we have under 400 million. So we think there's a very large growth opportunity for us without us taking on, you know, any sort of undue risk.

Douglas H. Shulman: So look we think we've got a huge opportunity in credit card.

Douglas H. Shulman: To put it in context, we have a 20% market share in the $100 billion personal loan market and the credit card market for the non prime consumer is about 500 billion. So.

Douglas H. Shulman: Run simple math, if we got 1% market share in the 500 billion market, we'd have $5 billion of receivables and right now we have under $400 million. So we think there is.

Douglas H. Shulman: Very large growth opportunity for us with out us taking on.

Douglas H. Shulman: Any sort of undue risk and so we really like our product.

Douglas H. Shulman: And so we really like our product, you know, which the way it's designed is payments equal progress, which means as you are a good payer, we will share some of the profits with you, either decrease the rate or increase your line after six on-time payments. And then we've got a graduation strategy where people can start with a card with an annual fee, and if they make 24 on-time payments, they can go to a no-fee card.

Douglas H. Shulman: Which.

Douglas H. Shulman: Its designed is.

Douglas H. Shulman: Payments equal progress, which means as you are a good payer we will share some economics with you either decrease the rate.

Douglas H. Shulman: Or increase your line after six on time payments and then we've got our graduation strategy where.

Douglas H. Shulman: People can start with a card with an annual fee and advanced 24 on time payments. They can go to a no fee card and so we have a unique value proposition. We know the non prime consumer we've got a lot of history with this consumer we've got a lot of infrastructure, we can do things like cross sell cards and loans and now we're adding.

Douglas H. Shulman: And so we have a unique value proposition. We know the non-prime consumer. We've got a lot of history with this consumer. We've got a lot of infrastructure. We can do things like cross-sell cards and loans, and now we're adding auto. And we've been slowly building this business, very deliberate for three years.

Douglas H. Shulman: The auto.

Douglas H. Shulman: And we've been slowly building this business very deliberate for three years.

Douglas H. Shulman: As I mentioned, we've got a tight credit box, and we're going to be very disciplined in the rollout. When it comes to late fees, I actually really like our positioning. Incumbent players who have a huge book and late fees were a big part of their business are going to have to shift the value proposition. We have the advantage of being a challenger, and we've assumed this was coming and built in a business model where we can hit our 20% ROE thresholds with the $8 late fee.

Douglas H. Shulman: As I mentioned, we've got a tight credit box.

Douglas H. Shulman: And we're going to be very disciplined in the rollout when it comes to late fees I actually really like our positioning.

Douglas H. Shulman: Incumbent players who have a huge book and late fees were a big part of their <unk>.

Douglas H. Shulman: Business are going to have to shift the value proposition, we have the advantage of being a challenger and we've assumed this was coming and built in.

Douglas H. Shulman: Our business model, where we can hit our 20% Roe.

Douglas H. Shulman: <unk> thresholds with.

Douglas H. Shulman: And so there are lots of levers, from pricing to annual fees to the structure of the card. And so I think we'll see how it all shakes out. Most of the large players, from what I've heard, who are already out there, basically said they'd take up pricing to make up for the fee. People will do what they're going to do. We built the model, so we've assumed it's going to be an $8 late fee. That will be the max that we'll be able to charge, and we'll build a great business with that as the parameter. Okay, thank you very much.

Douglas H. Shulman: The dollar late fee and so there's lots of levers from pricing to <unk>.

Douglas H. Shulman: Annual fees to the structure of the card and so.

Douglas H. Shulman: I think we will see how it all shakes out.

Douglas H. Shulman: Most of the large players what I've heard who are already out there basically said they'll take up pricing to make up for the fee people will do what they're going to do we built the model. So we've assumed it's going to be at $8.

Douglas H. Shulman: Late fee that will be the Max that we will be able to charge and we will build.

Douglas H. Shulman: Build a great business with that as the parameters.

Speaker Change: Okay. Thank you very much.

Speaker Change: Thank you.

Terry Ma: Our next question will come from Terry Ma with Barclays.

Speaker Change: Our next question will come from Terry MA with Barclays. Please go ahead.

Julia Guillaume: Hi, this is Julia Guillaume for PERI. I have two questions.

Speaker Change: Hi, This is Julian on for Terry.

Douglas H. Shulman: First on originations, which were down 10% year-over-year. Was that driven by incremental tightening during the quarter or more a function of what you did in the last couple of quarters pulling through? And then what do you need to see to get less conservative with underwriting?

Julian: <unk> first on originations, which were down 10% year over year.

Julian: Was that driven by incremental tightening during the quarter or more a function of.

Julian: What you did in the last couple of quarters pulling it through and then what do you need to see that less conservative underwriting.

Julian: Yes.

Julian: The first quarter.

Douglas H. Shulman: Yeah, your first quarter is seasonally our lowest origination quarter. You know, people just had a fair amount of spending around the holidays, and then tax refunds come in, which is a big check for most people in America. Originations were on pace with what we expected. And, you know, we've stated that we think our receivables will be $24 billion at the end of the year. We still think we're on pace for that

Speaker Change: Finally, our lowest origination quarter.

Speaker Change: People just had a fair amount of spending around the holidays, and then tax refunds come in which is a big check for most people.

Speaker Change: In America originations.

Speaker Change: Originations were on pace of what we expected and we've.

Speaker Change: Stated that we think our receivables will be 24 billion at the end of the year, we still think we're on pace.

Douglas H. Shulman: I'd also note originations were down 10% year-on-year in the first quarter, and they were actually down 13% year-on-year in the fourth quarter. So, you know, the trend lines are not disturbing to us at all, and we expected this with seasonality.

Speaker Change: For that I'd also note originations were down in the first quarter, 10% year on year.

Speaker Change: They were actually down 13% year on year in the fourth quarter. So.

Speaker Change: The trend lines are not disturbing to us at all and we expected this.

Speaker Change: With seasonality.

Douglas H. Shulman: So, I think, you know, part of the year-on-year variation is seasonality. We also, as I mentioned, did two things. One is we have increased pricing in certain segments. There, we really like the trade, lower originations but more profit. And in this environment, you know, we'll take that trade, you know, all day long. And then we have incrementally tightened our credit box during the year, which also contributed to it. You know, what do we need to see to open the credit box?

Speaker Change: So I think.

Speaker Change: The year on year is seasonality.

Speaker Change: We also as I mentioned did two things one is we increase pricing in certain segments.

Speaker Change: There, we really like the trade lower originations, but more profit.

Speaker Change: In this environment.

Speaker Change: We will take that trade.

Speaker Change: All day long.

Speaker Change: And then we have incrementally tightened our credit box during the year last year, which also contributed to it.

Speaker Change: What do we need to see to open the credit box.

Douglas H. Shulman: You know, we are being conservative. As I mentioned, there's still some cross currents in the macro economy. You know, on the positive side, unemployment's low, wage growth has been healthy, and inflation has slowed. But bumping up against that is that prices are still persistently higher than they were in 2019. An interest rate environment remains uncertain, which affects, you know, housing prices, especially in the overall, you know, economy. We continually have what we call a weather vane, where we're booking a de minimis amount of business right below our credit cutoff. It's actually profitable.

Speaker Change: We are being conservative.

Speaker Change: As I mentioned, there is still some cross currents in.

Speaker Change: In the macro economy on the positive side Unemployment's low wage growth has been healthy and inflation has slowed but bumping up against that is prices are still persistently higher than they were in 2019 and interest rate environment remains.

Douglas H. Shulman: Uncertain, which affects housing prices, especially in the overall.

Speaker Change: Our economy.

Speaker Change: We continually.

Speaker Change: Have a what we call weather vein, where we're booking a de minimis amount of business right below our credit cut off it's actually profitable it just doesn't meet our 20%.

Douglas H. Shulman: It just doesn't meet our 20% ROE threshold, so we look at the performance of those loans we've been issuing. And so, you know, we'll keep an eye on that. When we decide to, you know, loosen up a little bit, it's not a big bang. I mean, we underwrite by state, by risk grade, by product type, and by the channel where the customer comes from. If it's a new customer, whether they're coming through a digital channel or a direct mail channel or walking into our branch, we see different performance. We have former customers, present customers, and new customers.

Speaker Change: ROE thresholds. So we look at the performance of those loans, we've been originating and so.

Douglas H. Shulman: We will keep an eye on that when we decide to.

Speaker Change: Loosen up a little bit it's not a big Bang, we underwrite by state by risk grade by product type by the channel where the customer comes from if it's a new new customer whether they are coming through a digital channel our direct mail channel or walking into our brands, we see different performed.

Speaker Change: We have former customers present customers new customers.

Douglas H. Shulman: And so I think you can expect us to, you know, when we loosen up, do it in distinct pockets. And I'd also just mention, you know, every month we are changing assumptions, and we do some loosening and some tightening. And just the net effect over the last year has been more tightening than loosening.

Douglas H. Shulman: And so I think you can expect us to when we loosen up do it in.

Douglas H. Shulman: <unk> pockets and I'd also just mention.

Speaker Change: Every month, we are.

Douglas H. Shulman: Changing assumptions and we do some loosening in some tightening.

Douglas H. Shulman: Just the net effect over the last year has been more tightening then then listening and so we're quite comfortable with.

Douglas H. Shulman: And so we're quite comfortable with our originations. I just want to repeat, we do not, you know, we don't manage to grow. We manage to profitability, and we view growth as an outcome of running a great business, having a great value proposition for customers, and having a great customer experience. And so we're super comfortable with where we are now. And, you know, we'll keep an eye on both the macro and our internal data, and we'll decide where we go from there.

Douglas H. Shulman: Our originations.

Douglas H. Shulman: Just want to repeat we do not.

Douglas H. Shulman: We don't manage to growth, we managed to profitability and we view growth as an outcome of running a great business, having a great value proposition to customers, having a great customer.

Speaker Change: Experience and so we.

Speaker Change: We're super comfortable with where we are now in.

Douglas H. Shulman: We'll keep an eye on both the macro and our internal data and we will decide where we go from there.

Speaker Change: Very helpful. Thank you and then on delinquencies the 30 to 89 day moving in the right direction could you talk about your near term outlook and the confidence level on timing on getting back to 7% target.

Douglas H. Shulman: Very helpful, thank you. And then on delinquencies, the 30 to 89 days moving in the right direction, can you talk about your near-term outlook and the confidence level and timing on getting back to our 67% target loss rate? Sure. Um, you know, as I said, we'd like the trans.

Douglas H. Shulman: Loss ratios please.

Speaker Change: Sure.

Douglas H. Shulman: As I said, we like the trends.

Douglas H. Shulman: Sure. You know, as I said, we like the trends. Quarter on quarter, we were 56 basis points down on our delinquency rate, which is a bigger drop than we saw in 2018 and 2019. And so we're really feeling like we've turned a corner. Our front book is in line with expectations and performing well, and we think peak losses will be in the first half of 2024. You know, the math will take it from there.

Douglas H. Shulman: Quarter on quarter, we were 56 basis points down in our delinquency, which is a bigger drop than we saw in 2018 in 2019, and so we're really feeling like we've turned a corner.

Douglas H. Shulman: Front book.

Douglas H. Shulman: Is in line with expectations and performing well and we think peak losses will be.

Speaker Change: First half of 2024.

Douglas H. Shulman: The math will take it down.

Douglas H. Shulman: From there.

Douglas H. Shulman: The business we're booking now is in that 6 to 7 percent loss range in aggregate for the portfolio. When we get there, it's going to depend on a lot of factors, our growth, does the macro remain stable, et cetera? So we're not calling when we're getting there, but we like the business we're booking now. It meets our 20% return thresholds, and we like the general trends.

Speaker Change: The business, we're booking now.

Douglas H. Shulman: Is in that 6% to 7% loss range in aggregate the portfolio. When we get there is going to depend on a lot of factors our growth.

Douglas H. Shulman: Does the macro remains stable et cetera, So we're not calling when we're getting there, but we like the business. We are booking now it meets our 20% return thresholds and we'd like the general trends.

John Hecht: And we will take our next question from John Hecht with Jeffreys. Please go ahead.

Douglas H. Shulman: And we will take our next question from John Hecht with Jefferies. Please go ahead.

Douglas H. Shulman: Morning, guys, and thanks for taking my questions. First, just based on the guidance and the seasoning of the back book, it looks like I think charge-offs should be peaking this quarter. The ALL has been pretty consistent for several quarters, but how do we think about where the ALL might go once you've gone through that peak charge-off cycle?

John Hecht: Morning, guys and thanks for taking my questions and welcome to the call journey.

Douglas H. Shulman: First question is yes.

John Hecht: First question is.

Douglas H. Shulman: Just based on the guidance and the seasoning of the of the.

Douglas H. Shulman: Back book, it looks like that the charge offs should people be peaking I think in this quarter.

Douglas H. Shulman: But <unk> been pretty consistent for several quarters, but how do we think about where the ALLL might go once you've gone through the peak charge off cycle.

Jenny Osterhout: Thanks. I'll take this one.

Speaker Change: Thanks, I'll I'll take this.

Jenny Osterhout: So I think you've hit it pretty spot on. We're pretty pleased with what we see on delinquency. We still think we're going to be in that range of 7, 7 to 8, 3 for the year for the annualized loss rate, and we feel pretty comfortable in that range.

Speaker Change: So I think you hit it pretty spot on we're pretty pleased with what we see on delinquency.

Jenny Osterhout: We still think we're going to be in that range of 77 to 83 for the year for the annualized loss rate.

Jenny Osterhout: And we feel pretty comfortable in that range I think typically you would see.

Jenny Osterhout: I think, you know, typically, you would see delinquency move to charge off about two quarters later. So you can expect to see the delinquency that we have here moving in the third quarter. And also, there's some seasonality in delinquency as well. So we have our lowest delinquency rate in this quarter, in the first quarter of the year, as customers get their tax refunds. And then we trend upward throughout the remainder of the year. So you would expect those same seasonal patterns to continue. But we're pretty pleased with this improvement in delinquency, and we expect that to translate into losses later in the year.

Jenny Osterhout: Delinquency move to charge off about two quarters. Later, so you can expect to see.

Jenny Osterhout: The delinquency that we have here are moving in the third quarter.

Jenny Osterhout: And also there is some seasonality in delinquency as well so we have our lowest delinquency.

Jenny Osterhout: And this quarter in the first quarter of the year as customers get their tax refunds and then we trend upward throughout the remainder of the year.

Jenny Osterhout: Expect those same seasonal patterns to continue but.

Jenny Osterhout: We're pretty pleased with this improvement in delinquency and we expect that to.

Jenny Osterhout: Translate to losses later in the year.

Jenny Osterhout: And just to round that out, the ALL ratio, like I said, keep it at consistent levels, or is delinquency starting to drop with that drop?

Jenny Osterhout: Okay.

Jenny Osterhout: Just to round it out the ALLL ratio.

Jenny Osterhout: Keep it consistent levels are as delinquencies start to drop with that with that drop.

Jenny Osterhout: Yeah, I think we're going to be thinking about reserves. We take into account what's happening in the macro environment, the growth of the book, obviously, lifetime losses as well. So, you know, we've maintained our 11.6 coverage ratio for reserves. And, you know, we'll be continually looking at all those factors as they change. And, you know, as we get to a more normalized environment, we'd expect reserve coverage to start to come down. But, you know, for now, we're very happy with where we have our reserves.

Speaker Change: Yeah, I think we're going to be thinking about reserves.

Jenny Osterhout: We've taken into account.

Jenny Osterhout: What's happening in the macro environment the growth of the book, obviously lifetime losses as well. So you know we've maintained our 11 six coverage ratio for for reserving and.

Jenny Osterhout: We will be continually looking at all those factors as they change and as we get to a more normalized environment. We would expect reserve coverage to start to come down but.

Jenny Osterhout: For now we're very happy with where we have our reserves.

Speaker Change: Okay. That's helpful and then how do we how do we think about yoga.

Jenny Osterhout: Clearly on the <unk>.

Jenny Osterhout: Front book and the personal loan book Youre pricing priced a lot higher but how do we think about yields with that mix and then the delinquency buckets and then also the auto.

Jenny Osterhout: <unk> and card segments, how should we think about the impact of all of those factors on yields.

Jenny Osterhout: And then near term.

Jenny Osterhout: Yes.

Unknown Speaker: Unknown Speaker Okay, that's helpful. And then how do we, how do we think about yields? I mean, you're clearly on the front book and the personal loan book, your price is a lot higher. But how do we think about yields with that mix, and then the delinquency buckets, and then also the auto and card segments? How should we think about the impact of all those factors on yields and then your term? Unknown AttendeeYep. I can do it.

Jenny Osterhout: I can walk a little bit through yield because it's flat here.

Speaker Change: And will discuss we are deliberately taking those pricing actions and we increased APR by over 100 basis points.

Speaker Change: We're only starting to see that flow through the portfolio, but in time it will take full effect.

Speaker Change: And then offsetting that is the impact of the current macro environment, which is what you're seeing flow through charge offs.

Speaker Change: And then there is some increased <unk>.

Speaker Change: Impact from the auto book, specifically so.

Speaker Change: But we like that trade that we're making for the lower loss volatility and lower APR content. So over time.

Speaker Change: We think yields in a normalized environment would come back on the personal loan book to about 23% to 24% and.

Unknown Attendee: Yeah, I can walk a little bit through Yield because it's flat here. Unknown Attendee, Micah Conrad, John Hecht, Terry Ma, Dinesh Goyal, Jenny Osterhout, Rajive Chadha, OneMain Holdings Inc. [inaudible]

Speaker Change: In the auto finance it would be remain in about 15% to 17% so really it will depend on.

Speaker Change: The product mix going forward in terms of where that where that lands.

David Michael Scharf: Our next question will come from David Scharf with Citizens JMP. Please go ahead.

Speaker Change: Okay. Thanks very much.

David Michael Scharf: Our next question will come from David Scharf with citizens JMP. Please go ahead.

David Michael Scharf: Thank you. Good morning, and thanks for taking my questions.

David Michael Scharf: Great. Thank you good morning, and thanks for taking my questions.

David Michael Scharf: You know what, maybe just a couple technical follow-ups. You know, on the loss rate, I... You know, there was an elevated recovery rate in the quarter. And I know you mentioned you had some opportunities. Unknown Attendee, Micah Conrad, Arren Cyganovich, Douglas Shulman, Micah Conrad, Arren Cyganovich,

David Michael Scharf: Maybe just a couple of technical follow ups.

David Michael Scharf: On the loss rate.

David Michael Scharf: There was an elevated recovery rate in the quarter.

David Michael Scharf: And I know you mentioned you had some opportunistic sale of charge offs or are you planning on increasing that or are you involved in any forward flow arrangements for charge off sales or was this just sort of one off event.

Unknown Attendee: Um, you know, we were always looking at internal and external collections, and we continue to see pretty strong recovery performance and positive trends. So we're still above our pre-pandemic recovery levels, and they're in line with our expected charge off. So we had 77 million in this quarter, which included that 11 million you mentioned of post charge-off debt sales. That's pretty consistent with the prior year, where we had 10 million of post charge-off debt sales. So again, we're just always looking at that trade and making decisions where the economics are good. But overall, we're actually quite pleased with where the recoveries are. Got it, got it.

David Michael Scharf: Yeah.

Speaker Change: We were on.

Unknown Attendee: Looking at internal and external collections and.

Unknown Attendee: We continue to see pretty strong recovery performance and positive trends. So we're still above our pre pandemic recovery level.

Unknown Attendee: And they are in line with our expected charge off so we had.

Unknown Attendee: $77 million in this quarter, which included that $11 million you mentioned.

Unknown Attendee: Post charge off debt sale, that's pretty consistent with prior year, where we had $10 million of post charge off debt sales. So again, we're just we're always looking at that trade and making decisions where the economics are good but overall, we're actually quite pleased with where recoveries are.

Unknown Attendee: Got it got it.

Unknown Attendee: Got it, got it. So just to clarify, there's no forward flow arrangements as far as debt sales are concerned? No. Okay, and just a quick follow up on OPEX, the $27 million restructuring charge. Is there a way to translate the movements in the quarter, just sort of an annualized expense savings, I mean, how should we do it?

Speaker Change: So just to clarify there is no forward flow arrangements.

Unknown Attendee: As far as sales are concerned.

Unknown Attendee: No.

Unknown Attendee: Hey.

Unknown Attendee: And just a quick follow up on Opex.

Unknown Attendee: The $27 million restructuring charge is there a way to translate.

Unknown Attendee: The.

Unknown Attendee: Movements in the quarter.

Unknown Attendee: And annualized expense savings we should.

Jenny Osterhout: Interpretation. What are you thinking?

Unknown Attendee: Interpreted that 'twenty thinking yeah.

Jenny Osterhout: Yeah, the easiest way, I do think the easiest way to do that is to think of the OPEX ratio. The 6.7% OPEX ratio, obviously, the direct cost save is well in excess of that $27 million one-time restructuring charge. So, you know, it just gives us the ability to create further capacity and continue to invest in the business throughout the year. But you would, you know, I would look at the OPEX ratio and expect that OPEX ratio to be about 6.7% for the year.

Jenny Osterhout: Yes, the easiest way I do think the easiest way to do that is to think of the opex ratio.

Jenny Osterhout: 7% Opex ratio, obviously, the direct cost savings well in excess of that $27 million, one time restructuring charge.

Jenny Osterhout: So it just gives us the ability to create further capacity and continue to invest in the business throughout the year, but you would it.

Jenny Osterhout: I would look at the Opex ratio and expect that opex ratio to be about six 7% for the year.

Jenny Osterhout: And that's, you know, a 30 basis point drop as compared to last year. So we feel like it's, you know, a pretty good drop and shows disciplined management while we're simultaneously rolling out all these new products.

Jenny Osterhout: And that yes.

Jenny Osterhout: The 40 basis point drop as compared to last year, So we feel like it.

Jenny Osterhout: A pretty good drop in shows the disciplined management, while we are simultaneously rolling out all these new products.

Douglas H. Shulman: Unknown Attendee Yeah, and it's built in. We're always cutting some places and investing some places. We think that's what disciplined management is. And the charge we took and the cost savings around that were built into the guidance we gave you last quarter. So I wouldn't change anything around that.

Jenny Osterhout: Yes.

Jenny Osterhout: Built in.

Douglas H. Shulman: We are always cutting some places and investing in some places we think thats what disciplined management is and the charge. We took in the cost saves around that were built into the guidance. We gave you last quarter. So I wouldn't change anything around that.

Unknown Attendee: Got it. I appreciate the follow-up. Thank you.

Speaker Change: Got it I appreciate the follow ups. Thank you.

Richard Barry Shane: Our next question comes from Rick Shane with J.P. Merton.

Unknown Attendee: Okay.

Richard Barry Shane: Our next question comes from Rick Shane with JP <unk> question.

Richard Barry Shane: Hey guys, thanks for taking my questions this morning.

Richard Barry Shane: Hey, guys. Thanks for taking my questions. This morning.

Douglas H. Shulman: Two things. Look, the delinquency trends, as you guys have cited, look good in the first quarter. It is worth mentioning some context, which is that other companies have cited some headwinds in Q1 credit related to lower or delayed tax refunds. I'm curious. It seems like you guys might have a little bit of potential, something left in the tank if tax refunds come through. How are you looking at that? And I don't mean that to be spun as a positive question or a leading question, but I'm curious how you guys are thinking about tax refund season and whether or not we're going to see a recovery.

Richard Barry Shane: Two things look the delinquency trends as you guys have cited.

Douglas H. Shulman: Good in the first quarter.

Douglas H. Shulman: It is worth mentioning some context, which is that.

Douglas H. Shulman: Other companies have cited some headwinds in Q1 credit related to lower or delayed tax refunds.

Douglas H. Shulman: I'm curious it seems like you guys might have a little a little bit of potential.

Douglas H. Shulman: Potential.

Douglas H. Shulman: On the left in the tank if tax refunds come through.

Douglas H. Shulman: How are you looking at that and I don't mean that to be spun as a positive question.

Douglas H. Shulman: Our leading question, but I'm curious how you guys are thinking about tax refund season.

Douglas H. Shulman: And whether or not we're going to see a catch up.

Douglas H. Shulman: I mean, we didn't see that data. We heard about other companies coming in. Our view, you know, we thought tax refunds came in pretty normal. And we, you know, so we're not factoring in any, you know, big boom of tax refunds coming in at abnormal times. If they do, that'll be upside.

Douglas H. Shulman: I mean, we didn't see that data we heard other other companies come in I mean, our view.

Douglas H. Shulman: Tax refunds came in pretty normal and we so we are not factoring in any big boom of tax refunds coming in abnormal times, if they do that'll be upside, but that's not in our the way we're thinking about it.

Jenny Osterhout: But that's not in our, you know, the way we're thinking about it. We, we're managing the book tightly. And, you know, I won't repeat myself too much, but we like the direction, the front books becoming bigger, everything's happening as we thought the math would play out. And so we like that direction.

Jenny Osterhout: We're managing the book.

Jenny Osterhout: Tightly and.

Jenny Osterhout: Hi.

Jenny Osterhout: I won't repeat myself too much but we like the direction the front books, becoming bigger everything is happening as we thought the math would play out.

Jenny Osterhout: We like that direction.

Unknown Speaker: Yeah, I'll just add a little bit here. Overall, we are seeing a slight increase in the total amount refunded to customers. So average refunds are up about $100. So, and there are probably about three weeks left in the season. You know, I don't think we're feeling pretty good about where we are. You see that in the delinquency results, and we'll see what happens next quarter.

Speaker Change: I'll just add a little bit here I mean overall, we are seeing actually a slight increase in the total amount refunded to customers. So with average refunds are up about $100.

Unknown Speaker: So and there's probably about three weeks left in the season.

Unknown Speaker: <unk>.

Unknown Speaker: Don.

Unknown Speaker: I think we're feeling pretty good about where we are you see that in the delinquency results and we'll see what happens next quarter.

Richard Barry Shane: Unknown Speaker Thank you. And the word I think I was grasping for, but I've been up since three o'clock was tailwind.

Speaker Change: Got it thank you and the word I think I was grasping for but had been up since three o'clock was tailwind.

Douglas H. Shulman: The second thing, and this question came up a couple of times, on your guidance slide, you pulled out the little box that talks about your medium-term strategic priorities. Is there anything to read into that? Or is that still realistically what you're targeting?

Speaker Change: The second thing and this question came up a couple of times.

Douglas H. Shulman: On your guidance Slide you pulled out a little box that talks about your medium term strategic priorities is there anything to read into that or is that still realistically what youre targeting.

Douglas H. Shulman: No, that's what we're targeting. You shouldn't read anything into it.

Speaker Change: No that's what we're targeting.

Douglas H. Shulman: You shouldn't read anything into it it's just.

Douglas H. Shulman: It's just, you know, we put together earnings slides every quarter. But what we laid out on Investor Day, we stand by 100%, which is targeting $30 billion of receivables in the medium term, to have net charge-offs in the 6% to 7% range, and to have our capital generation return on receivables in the range we've run historically. And so we feel very confident in our trajectory to get there. We've got a lot of opportunities with our current business, our superior business model, our cards, and our autos. So we definitely stand by, you know, where we're headed and where we've laid out on Investor Day. Terrific. Thank you so much.

Douglas H. Shulman: We put together earnings slides every quarter, but what we laid out at Investor day, we stand by a 100% which is.

Douglas H. Shulman: Targeting $30 billion of receivables in the medium term.

Douglas H. Shulman: To have net charge offs in the 6% to 7% range and to have our capital generation return on receivables in the range. We've run historically and so we feel very confident in our trajectory to get there. We've got a lot of opportunities with our current business, our superior business model, our cards and our <unk>.

Douglas H. Shulman: So.

Douglas H. Shulman: We definitely stand by.

Douglas H. Shulman: Where we are headed and where we laid out at Investor day.

Speaker Change: Terrific. Thank you so much guys.

Douglas H. Shulman: Terrific. Thank you so much, guys.

Speaker Change: Thank you.

Nate Richam: Our next question comes from Nate Richam with Bank of America. Please go ahead.

Douglas H. Shulman: Our next question comes from Richard <unk> with Bank of America. Please go ahead.

Douglas H. Shulman: Good morning, and thanks for taking my questions. Can you talk a little bit about the demand environment from consumers under this current backdrop? Like, is it more elevated given, like, higher inflation, maybe the need for more debt consolidation, or is it more or less the same?

Nate Richam: Good morning, and thanks for taking my questions.

Douglas H. Shulman: Talk a little bit about the demand environment from consumers and from those current backdrop like is it more elevated given the higher inflation, maybe the need for more consolidation or is it more or less to say.

Douglas H. Shulman: Um, you know, demand is pretty strong. It peaked in the first half of 2022.

Douglas H. Shulman: Demand is pretty strong.

Douglas H. Shulman: Yes.

Douglas H. Shulman: It peaked in the first half of 2022 and.

Douglas H. Shulman: And it's now been a lot more, you know, normal. You know, we're seeing kind of if you look industry-wide, we think demand is about what it was in 2019. And the industry has hit back to a state of post-pandemic equilibrium. As I mentioned, demand is always a bit slower in the first quarter. And you see that in our rich nations, and you generally see that across the industry.

Douglas H. Shulman: It's now been a lot more.

Douglas H. Shulman: Normal.

Douglas H. Shulman: We're seeing kind of if you look industry wide. We think demand is about what it was in 2019 and has hit.

Douglas H. Shulman: Industry.

Douglas H. Shulman: <unk> gone back to a state of post pandemic.

Douglas H. Shulman: Equilibrium as I mentioned demand is always a bit slower in the first quarter and you'll see that in our originations and you generally see that.

Douglas H. Shulman: Across the industry, we've been pretty pleased that we've.

Douglas H. Shulman: We've been pretty pleased that we've, you know, been able to book good business with the increased pricing, which shows our, you know, competitive advantage in our positioning in the market. And so I think the demand environment is healthy. We don't see any reason that it'll, you know, fall off in any significant way. Generally, the way it works, which is counterintuitive. I think most people think, oh, if you go into a recession, or if customers are really struggling, they take out more debt.

Douglas H. Shulman: Been able to book good business with the increased pricing, which.

Douglas H. Shulman: Shows are.

Douglas H. Shulman: Competitive advantage and our positioning in the market and so I think that the demand environment is healthy.

Douglas H. Shulman: We don't see any reason that it will fall off.

Douglas H. Shulman: And any any significant way.

Douglas H. Shulman: Generally the way it works, which is counterintuitive I think most people think Oh, if you go into a recession or if customers are really struggling they take out more debt.

Douglas H. Shulman: The reality is, consumers are actually pretty rational, and they take out that when they, they take out that when we're, you know, when they're feeling good about things. And so we see demand pretty steady in this quarter.

Douglas H. Shulman: The reality is consumers are actually pretty rational and they take out that win rate.

Douglas H. Shulman: They take out that when we're.

Douglas H. Shulman: When they are feeling good about things and so we see demand pretty steady in this quarter.

Jenny Osterhout: And then turning back to expenses, the run rate from here looks pretty solid. And I was just curious, like, what specific areas are you looking for these reinvestments? And will it kind of be like a steady trickle down throughout the year, or is it more like an opportunistic timing of like a bulk of those reinvestments?

Speaker Change: Awesome and then turning back to expenses the run rate from here it looks pretty solid and I was just curious.

Jenny Osterhout: What does the carriers are looking for these like Reinvestments will kind of be like a steady throughout the year, a trickle down or is it more like an opportunistic timing of like a book those reinvestments.

Jenny Osterhout: Yeah, I think it's more of the latter of what you described. So we'll look at, you know, as we're growing out our new products, and as we're looking at what is happening throughout the year with both the macroeconomic environment and with our customers, where we want to make those investments. So it could be both geographically where we see growth opportunities and based on product growth. But, you know, we want to leave ourselves some room to make those investments. And we're feeling pretty good about where we are in terms of expenses.

Speaker Change: Yes, I think it's more of the latter of what you describe so we'll look at.

Jenny Osterhout: We're growing out our new products and as we're looking at.

Jenny Osterhout: What is happening throughout the year with both the macroeconomic environment and with our customers, where we want to make those investments.

Jenny Osterhout: It could be both geographically, where we see growth opportunities it could be based on that product growth.

Jenny Osterhout: But.

Jenny Osterhout: Wanted to leave ourselves some room to make those investments and we're feeling pretty good about where we are in terms of expenses.

Speaker Change: Thank you.

Douglas H. Shulman: All right, thank you very much. I see we're coming up on the hour. So I want to thank everyone for joining us this morning. And we're looking forward to talking with all of you in the near future. Thank you.

Speaker Change: Alright. Thank you very much so I see we're coming up on the hour. So I want to thank everyone for joining us. This morning and were looking forward to talking with all of you in the near future.

Operator: Thank you, and this does conclude today's OneMain Financial First Quarter 2024 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.

Douglas H. Shulman: Yes.

Speaker Change: Thank you and this does conclude today's Onemain financial first quarter 2024 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.

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