OneMain Holdings Inc (OMF) 2015 Q2 法說會逐字稿

Welcome to the Springleaf Holdings second-quarter 2015 earnings conference call and webcast. Hosting today's call from Springleaf is Craig Streem, Senior Vice President Investor Relation. Today's call is being recorded.

(Operator Instructions)

It is now my pleasure to turn the floor over to Craig Streem. You may begin.

Thank you, Hope. Thanks a lot. Good morning, everyone, and thank you for joining us today.

As I always do, let me begin with slides 2 and 3 of the presentation, which you can find in the IR section of our website, and which we will, of course, be referencing from time to time during the call. Our discussion contains certain forward-looking statements about the Company's future financial performance and business prospects, and these are subject to risks and uncertainties and speak only as of today. The factors that could cause actual results to differ materially from these forward-looking statements are set forth within today's earnings press release, which was furnished to the SEC in an 8-K report and in our annual report on Form 10-K, which was filed with the SEC on March 16, 2015, as well as in the second-quarter 2015 earnings presentation posted on the IR page of our website. We do encourage you, of course, to refer to these documents for additional information regarding the risks associated with forward-looking statements.

In the second-quarter 2015 earnings material, we've given you information that compares and reconciles our non-GAAP financial measures with the GAAP financial information. We also explain why these presentations are useful to management and investors, and we would urge you to review that information in conjunction with today's discussion. And if some of you listen to the replay down the road after today, I want to remind you that the remarks we make are as of today, August 6, and have not been updated subsequent to this initial earnings call.

Also want to take a quick second now to introduce a new member of our investor relations team at Springleaf, Rohit Dewan, who joined us about two weeks ago. Some of you may know Rohit; he spent a number of years in equity research and as a PM, but most recently spent three years at the Consumer Financial Protection Bureau as a program manager, focusing on the consumer finance markets. I'm sure you're going to enjoy working with Rohit as a team member for Macrina, Jay, and me.

Our call this morning will include formal remarks from Jay Levine, our President and CEO, and Macrina Kgil, our CFO. And as Hope said, after the conclusion of our formal remarks, we will have plenty of time for Q&A.

So now it's my pleasure to turn the call over to Jay.

Thank you, Craig, and good morning, everybody. Let me begin with a brief update on our proposed acquisition of OneMain Financial. As we discussed in our earnings release and 10-Q, we're working with the Department of Justice and certain state attorneys general regarding the transaction. We look forward to continuing to provide our views on the landscape for a highly fragmented and highly competitive industry, and our goal remains to close as promptly as reasonably practical. Of course, we don't control the regulatory review process or the timing or the results, and we plan to continue to work to achieve a constructive outcome here.

Turning now to slide 4, I'd like to continue with an overview of the highlights of the quarter. First, we are really pleased to report another quarter of good growth in core earnings, up 14% year over year to $67 million. This translated to a very healthy pretax return on assets of 7.27%, up 48 basis points over last year's second quarter. Pretax income from our branch business was up 27% over last year. The key drivers of our performance this quarter are essentially the same as what you've seen from us previously. First, continued growth in receivables per branch; second, maintaining effective credit risk management; and third, generating strong risk-adjusted yields. Importantly, this was the seventh consecutive quarter of year-over-year portfolio growth above 20%. Average receivables per branch reached $5.2 million in the quarter, 27% above the year-ago level, as our branch and marketing teams successively collaborated on growing receivables per branch, driving significant margin benefits. The meaningful decline in charge-offs this quarter led to strong risk-adjusted margins. We are very pleased with how our yield has held up, given the impact of the lower rates for our direct-to-consumer auto loan product.

Let's turn now to slide 5 and get into some of the details. Our emphasis on growing average receivables per branch continues to pay off. We are now at $5.2 million versus $3.4 million at the time of our IPO in October 2013. Part of our success has been driven by shifting many of our servicing and other functions out of the branches over to our centralized servicing operations. This has had the dual benefit of driving greater servicing efficiency, while giving our branches more capacity to work with new and existing customers. We have recently completed the migration of all late-stage collection activities, as we found that these efforts are managed more successfully in a centralized environment. This has benefited both receivables growth and our credit performance. And of great importance, over this same period of time, we have successfully integrated advanced analytics into our marketing, underwriting, and servicing algorithms. This has led to stronger application volumes and better loan application conversion rates.

In addition to these important investments in marketing and analytics, we continue to invest in customer experience, which helps drive new account acquisition and has enhanced customer retention. One of the most broadly applied measures of customer experience and loyalty is net promoter score, which essentially measures whether our customers would recommend Springleaf to a friend. Very simply, it measures the difference between a company's promoters and detractors on a scale of 1 to 100. At the end of June of this year, our net promoter score was 76 compared to the credit card industry average of just 31. We attribute our very favorable score to the highly personal nature of our customer experience in the branches. So as we talk about growth and the long-term potential of our business it is important for you to understand how serious we are about the customer experience and why we continue to invest in this critical differentiator.

Returning now to the quarter, our auto originations reached $274 million versus $207 million last quarter, with very positive growth trends month over month. Looking ahead, we expect to see full-year auto originations annualize around, or somewhat above, our second-quarter run rate. As I said last quarter, even with lower yields, our direct auto loan product is more profitable than our other loan products and is often a better option for the customer.

Turning back to the average receivables per branch, we benefited from strong growth in our auto loans, which now represents over $600 million of our $4.3 billion of branch consumer receivables. The successful rollout of our auto product, along with the enhanced marketing efforts I described a moment ago, have contributed to significant growth. At the end of 2012, more than 500 of our branches managed less than $3 million of personal loan receivables, and today that number is down to just 35 branches. At the opposite end of the spectrum, over 320 of our branches were over $5 million of receivables at quarter end. Let me remind you of the impact this has had. In 2012, we earned about $90,000 pretax per branch. For 2014, we had tripled that number, earning about $274,000 per branch. In the first quarter of this year, we had $315,000 per branch on an annualized basis, and this quarter we annualized at $372,000 per branch, almost 20% growth quarter over quarter and up 28% over last year. And we still see significant upside from here.

Turning now to slide 6, let's take a look at the trends in our risk-adjusted yield. Gross yield in the branch portfolio declined about 40 basis points from the first quarter to 26.5%, reflecting the impact of the strong growth of our auto loans. As I said in my earlier comments, our auto loans carry lower average APRs than our personal loans, so we are pleased that the overall yield has held up. Gross charge-offs came down nicely from the first quarter, a 59-basis-point improvement, reflecting a number of factors: portfolio growth, seasonality, the growing proportion of auto loans, as well as the benefits from centralizing our late-stage collections. Net charge-offs also declined significantly from the first quarter, reflecting the improvement in underlying credit performance, as well as a pickup in recoveries this quarter. We continue to receive recoveries normalizing in a range of 75 to 100 basis points. Importantly, our 60-day delinquency rate was 2.39% at the end of the second quarter, 14 basis points lower than the first quarter, adding to our confidence in our outlook for charge-offs for the balance of the year. Based on the delinquency levels we are currently seeing, combined with the portfolio shift toward more auto secure loans, we remain comfortable that net charge-offs for the full year will be within the 5% to 5.5% range.

Now as we turn to slide 6, I'm going to ask Macrina to pick up from here.

Thank you, Jay. Turning now to slide 7, let's start with our financial results for the second quarter. Our core business generated pretax earnings of $107 million, which represents a 14% increase from the second quarter of 2014. Our consumer and insurance segments earned $76 million pretax in the quarter, up 27% from last year's quarter and 17% from the first quarter. The primary driver of our improvement continues to be the growth in receivables. As Jay mentioned in his remarks, we are seeing a great opportunity to enhance our growth by investing in marketing, which added an incremental $6 million to our operating expenses in the quarter. We currently envision a similar level of investment in marketing for the last two quarters of the year as well. Looking ahead to the third quarter, consistent with our experience last year, we expect to see a higher level of provision expense versus the second quarter, due to a higher level of receivables and the typical seasonal trend of delinquencies increasing in the second half of the year.

Our acquisitions and servicing segments, also know as SpringCastle, generated $31 million pretax in the third quarter, versus $36 million in the first quarter of 2015 and $34 million in the second quarter of last year. Of note, in March 2015, we sold our investment in a portion of the SpringCastle notes, which reduced earnings in this segment by approximately $5 million this quarter, basically accounting for the earnings decline quarter over quarter. Our guidance for 2015 takes this impact into account. If not for this reduction in investment income, pretax earnings for the segment would've been up from the second quarter of last year by about $2 million, even with average receivables down $600 million from June 30, 2014 as a result of the portfolio runoff. This basically reflects the terrific credit performance in this portfolio, with the annualized charge-off rate down 200 basis points year over year in the quarter.

Our liquidity position continues to be strong, with over $5 billion in cash and highly liquid securities, inclusive of the equity raise we completed in early May. In addition, we have increased the level of committed undrawn facilities to over $2 billion. We also had a very successful ABS transaction in the quarter, a five-year revolving [asset back], the first ever transaction with a five-year term in our asset class.

Moving to non-core, which is laid out on pages 16 and 17 of our slide deck. Our non-core real estate segment lost $43 million in the quarter, primarily from the reduction in interest-earning assets due to real estate sales completed in 2014. The sale proceeds are currently reported in the non-core portfolio, hence the earnings drag in that segment. We plan to use the proceeds towards funding the OneMain purchase, and at that time, we will reallocate the related debt to our core consumer operations, mitigating the recurring loss in this segment.

As a result of our reduced real estate exposure, which is now just over $800 million, we began reallocating certain corporate expenses from our non-core portfolio to our core consumer operation. This quarter's operating expense in the core consumer operation is a good indication of the run rate for the balance of this 2015, assuming Springleaf on a standalone basis with the addition of the incremental planned marketing investments that I mentioned previously.

Last, we have incurred certain costs related to the OneMain purchase, amounting to about $12 million this quarter, which we also included in other non-core. These expenses were contemplated in the $250 million of one-time costs that we anticipate incurring, and we will continue to keep you updated. In addition, our non-core other results for the quarter included a one-time non-cash charge of $15 million, triggered by the gain realized by AIG on the sale of our common stock at the time of our recent equity offering.

Before I close, let's turn to slide 8 for an update on our 2015 guidance for the key drivers of our core consumer operation. First, reflecting our expectations for continued strong growth in receivables, we are increasing our target range to be $4.7 billion to $4.85 billion. Second, we are tightening the range of anticipated earnings for the acquisitions and servicing segments by bringing the low end of the range up to $105 million, with the top end remaining at $120 million pretax for the year. Our expectations for yield and the net charge-off ratio remain unchanged.

And now, I will turn it back over to the operator to begin the Q&A.

The floor is now open for questions.

(Operator Instructions)

John Hecht, Jefferies.

Good morning, guys. Thank you very much. With respect to the credit trends, they look strong, but I'm wondering can you break out delinquencies and charge-offs on auto versus the traditional installment loans to give us a sense what's going on?

Sure. What I'd say is they've been very stable on each. We do break them out in the asset-backed decks that are online. And as we've talked about in the past, there's a -- they're two very different portfolios, just by way of performance where the auto is in the low single digits and the non-auto tends to be the higher single digits. The trends have been reasonably favorable around both. What I'd say is given the rapid growth of the larger auto product that we've rolled out in the last year, it's really muted or driven down the delinquency and loss numbers on the overall auto. But if you separate that out and look at the historical hard secured, they've been very similar.

Okay. Thank you very much. And then with respect to the DOJ review I know in the 10-Q, you put out a date of September 10. What comes and goes around that time, and when do you think you'll be able to give us a more detailed outlook with respect to the timing?

What I'd say is our conversations with the DOJ are ongoing. The September 10 date was an agreement we entered into some months ago that really related to as we could close the transaction, and we're doing everything we can to move the process along as quickly as we can.

Great. Thank you very much.

Sanjay Sakhrani, KBW.

Hi, thank you for taking my question. This is actually Stephen Kwok filling in for Sanjay. Just to circle back around the OneMain acquisition, just wondering if you could touch upon in terms of around the state AGs. Exactly what are the areas that they're potentially looking at? That would be -- any thoughts around there would be helpful.

Sure. Look, I think the state AGs -- I can't comment specifically on what any individual one is looking at, and I think their process continues to be ongoing, so it's difficult to know the exact. But I'd say they're similar things to what DOJ is looking at.

And then are there any talks around -- like are there any changes that needs to be made in order to accommodate them? I just wanted to see if there's any other highlights around there.

We haven't had any dialogue with anybody, and it's premature to go there around anything other than closing the deal. What I'd say is what we said in the very beginning, that this is a large, highly fragmented market. We think there is a 100 million-plus target customers. Combined, we'll touch a couple million of them or a very small percentage. And we look forward to continuing to work with both the DOJ and the states to resolve whatever questions they have.

Got it. And my last question just deals around the auto. Are you seeing any signs of like competition within the auto space? Just wanted to get your thoughts on that.

I'd say there's competition everywhere for everything we do, as we well know. We think we've got a unique product, in terms of the direct auto refinance. Around indirect, we think it's highly competitive, as which is one of the reasons we elected not to enter the marketplace. Around direct and especially to our customer base, especially with the ability of what we do, which is fulfilling same day. There's fewer players that do it and it's been an important product. But I'm sure, as always there is banks, credit unions, and others that are looking at the space and will continue to grow in the space.

Great. Thank you for taking my questions.

Sure. Thank you, Steven.

David Scharf, JMP Securities.

Good morning. Thank you. On the credit topic, just in terms of some of the second-half color you provided on provisioning, should we -- recognizing the seasonality involved there, but based on recent trends, should we be looking at any material change up or down in the overall allowance rate?

David, this is Macrina. We don't expect to see a big change in the allowance percentage. Of course, our receivables are growing, so the absolute dollar value will be growing higher. But we expect to see allowance percentage to be consistent.

Okay. And in terms of just the mix effect of ramping up direct auto, just assuming credit trends remain relatively stable, should we be looking at further declines in the NCO rate? Is that expected, just based on the asset mix shift?

Yes, you could. Certainly the auto runs at a lower charge-off rate, and it becomes a bigger mix, which is how we got to the range we did of 5% to 5.5%.

Okay, so certainly it will caveat some of the seasonality. Jay, turning to just the overall demand set, I think you made reference to partly as a result of more centralized marketing underwriting, that the loan application conversion rates were increasing. Can you provide a little more color, order of magnitude?

Sure. I'd say what's really interesting and what's changed so much is how many of our loans start online. Over the last, if you go back for the last few years, 70% of our new customer applications actually start the process either on a digital device or a computer or something, a mobile device. And what's important is how quickly you get back to them. We may or may not be the only place they've applied to, and response times are critical. We have done study after study of do we get back to them in 1 minute, 5 minutes, 10 minutes, within the hour, and certainly if the branches are busy with servicing other things, it makes it harder to respond, cause you can only really be on one phone call at a time.

What we've seen is by some of these other things rolling out, there is actually more capacity to get to people faster, which has made the single biggest difference in conversion. The probability of converting a loan, if you don't get to that customer after 24 hours, is very low. So what I'd say is conversion rates, we're still more or less approving one out of five. We unfortunately turn down four out of five loans that we see. And those trends have maintained. But of those that get transferred, we've probably converted 2% to 4% more, or a 10% increase, which has been pretty significant for us. Which is one of the reasons we've actually see material growth in the new customer side.

Got it. Got it. And then lastly - - Okay, and then just lastly, listen, realize there's a limited amount that you can disclose beyond what's been in the press release on the awaiting regulatory approval on OneMain. On a no-name basis, are you -- can you share with us perhaps how many state AGs have become more active in this process?

Not really. As you can imagine, there's a number. It's not -- and I will just leave it at that.

Got it. Thank you very much.

Vincent Caintic, Macquarie.

Hey, thank you so much, guys. Good morning. Understood that you can't discuss too much of the specifics around the OneMain regulatory issue. But just if you could give us a sense if you could reiterate your confidence in the deal closing, and that the economics that you have laid out previously are still intact. Thank you.

Sure. I'll say when we looked at the numbers back in March and we look at the numbers today based on the transaction before us, and especially post the equity raise, we feel good about the $800 million to $900 million number. So nothing has changed on that side. As a matter of fact, I think the more we look at our growth numbers, you look at Lending Club's origination numbers, you look at really the growth of the installment lending, we feel outstanding about our ability to get that done. Clearly the dialogues in Washington and the states are ongoing. We feel very confident that this is a pro-consumer transaction. We're going to roll out additional products. We're going to be offering to a broader range of customers. And it's just a matter of time, we hope, till Washington and the states understand where we're going from.

Thank you, that's really helpful. And to the extent that it's possible, what the scope of the concern and potential remedies to those concerns might be.

As you can imagine, those are conversations we're having and I think it's premature to discuss any of those at this point.

Got it. Understood. Thank you very much.

Sure.

Mark DeVries, Barclays.

Yes, thank you. I know you can't really see in the delinquency or charge-off there, which is obviously very good and stable. But are you seeing any signs of concern or deterioration in oil patch states? And if so, are you doing anything to tighten up underwriting in those states?

The answer is not really. We don't have -- while we do have modest Texas exposure, it's not been a tremendous state for us and modest Oklahoma. We're not in the Dakotas, the fracking states, et cetera. There has been isolated instances where there have been layoffs, but it really hasn't been material at all. And the good news is we do have branches that are on the ground. They let us know what's happening, and where possible, we'll work with customers to get through the situations. But it hasn't had any material impact on the numbers thus far.

Okay, and any concern on OneMain's exposure? I guess they are in the Dakotas.

Not that we know of, but that's between -- you guys should be asking them.

Okay. And so you don't really see any need to tighten up underwriting here?

No. We look at, as you can imagine, our underwriting processes haven't changed. It's all about verified income, largely the customer coming into the branch, and understanding the job prospects. We're in the committee, so we think our underwriting process actually has held up very well through multiple cycles, especially if you go back over time. That sort of understanding the customer, understanding the communities, and understanding his job to prospects has certainly been one of our great benefits over the years.

Got it. Thank you.

JR Bizzell, Stephens.

Good morning, and thank you for taking my question. Jay, the direct auto product continues to be impressive, and that growth continues to strengthen quarter over quarter. Just wondering if you could walk through us -- walk-through with what has changed and are you marketing around it more? Has there been a change in the box that has increased that product as a percentage of sales within the box?

I think it's about a consistent percentage as a percentage of our origination over the last couple quarters. What it would say is there has been increased awareness, both in the communities, in our branches, among our staff to make sure every time a customer with a car of a recent vintage, which is on average six or seven years or less, comes in that we present both options in terms of loans. We have spent some money on marketing. We have gone out and targeted where you've gone and go out and buy lists of those that have certain vintages of automobile, where you think there happens to be a loan that could be refinanced. And we've spent some of the additional marketing dollars this quarter going after that, and we've been happy with the results of that. We'll probably continue to see that. So I think it's a little bit of really coming into its own, as well as a little bit of spend on marketing.

Great. And then building on that, the target origination goals, just wondering if you can give us an idea of where you feel comfortable getting that as a percentage of your originations on a go-forward basis?

We're comfortable for it to be as much as it allows it to grow to, because it's really about giving customers choices. It's certainly a good percentage and probably not that far off from where we thought it would get to at the 25% range, 20%, 25%. But if it got bigger, because we really do think at the rates we're charging, the terms, it really is a very important and reasonable option for all of these customers to have.

Great. And last one for me switching gears. It's been a couple of months since the CFPB laid out the payday proposals, and we still haven't heard much from that. But just wondering from a competitive stance, have you seen anything change maybe some of the competitors out there trying to dip down into your space? And/or have you seen a consumer shift maybe getting more and more traffic through the door than you are seeing before the rule proposal?

I don't think it's yet had the impact on customers. I will say we're certainly seeing the growth of online continue to, there's no doubt. Lending Club had a big quarter. I'm sure Prosper will probably do the same. There's real demand for credit, which we think is an important driver of our business, as well as a number of others. But the spillover yet from what the impact will be to the payday title I think has yet to be seen. And as I said I think on a previous call, it a mixed blessing for certainly a lot of potential customers, whether or not that option is out there or not. But we also see some of our customers who need small dollars after they've taken out some of our loans who wind up not in a great position because they've taken out some of these loans. And we think there's potential that actually enhances our credit performance in future years to the extent some of the things go the way they do. So time will tell what ultimately the impact of those regs are, but as we sit here today, I think we're watching as are a number of the other participants.

Great. Thank you for taking my questions.

Sure, as always, thank you for asking.

Eric Wasserstrom, Guggenheim.

Thank you. Just to follow up on a little bit on some of that's last question. Can you give us a sense of how much of the growth outside of auto is secular versus some of the Company-specific initiatives? I'm just trying to get a sense of what the underlying market growth may be.

I think - - when you say secular, I think there's no doubt credit is expanding nationally. So if you look at the credit card companies, you look at other credit overall, and you look at auto, you look at every single sector, I think they're growing nicely. And I think part of it is the state that we're in and the economy; we're in a steady state. There's more confidence around jobs, unemployment is low. So I think across the board -- and in general, America's delevered. So you've got people to a better place, more comfortable borrowing, so it's more about overall expansion of credit.

And I'd say at the same time, I'd say what the marketplace lenders have done, all of them in general, have may be installment loan a much more in vogue product. We call it the responsible loan product; it's one that you get into debt, you get out of debt, and as a result, most of our customers watch their credit score migrate up significantly. So we think it's becoming a more popular product than a revolving credit card. So I'd say it's a combination of all of the above. I think we're gaining market share, we're spending more on marketing, there is better awareness, and our branches have more time. But at the same time, I'd say overall credit is expanding as well.

Right, but so, for example, if we looked at your 10% growth rate, like can you give us some sense of how much of that might be actual share gain? And just to understand the efficacy of the incremental marketing spend.

It's hard to know what share, because we don't know exactly what every other -- you don't know what's going back and forth between us, credit cards, other debt. I would say we are happy and pleased to have a 10% growth-plus in customer account, which is largely even bigger if you put in this percentage of new customers. And marketing spend we're finding on average, that our marginal cost of acquisition is remaining about the same. So we haven't had to go up and spend dramatically for that marginal customer. So we continue to see efficiencies around our marketing efforts.

Great. If I could just sneak and one more on OneMain. Has -- frequently when these things progress, they move from general issues to more specific issues. Has the conversation advanced to that stage that it's becoming more narrow, or is it still very broad?

We're not really in a position where we're can talk about the ongoing dialogue with the DOJ. I'd say what I said in the beginning which is we remain optimistic and confident that we will continue to have constructive conversations and get to a good place with respect to the transaction.

Okay. Thank you very much.

Robert Dodd, Raymond James.

Hi everybody, and thank you for taking the question. Just a nit-picky one. On the auto, obviously, a year ago you were doing about $6 million in volume the second quarter, now [$270] million, so massive success, massive growth. Now that you've got a lot more data, is there any recalibration of that product going on? If I look at the data sequentially for the seasonality in play, the loan size came down just a tiny bit from Q1. The APR moved up just a little bit to within the data I've got, at least. So is that just seasonality or is there any modest readjustment to that, given the amount of data you have now versus where you were even six months ago?

We are always continuing to learn. We're trying to figure out what appropriate pricing for each vintage and credit-risk customer drives the most business. So there's always ongoing testing going on there, and this is probably the place we test the most. Because this is the place where there's probably the greatest awareness. When a customer says I already have an auto loan, it's X rate. So it's in some ways like a mortgage loan, I'm going to refinance it into Y rate. So we spend a lot of time here probably thinking about rate the most. But on the other hand, I'd say a couple things have happened over the last year that probably have had some impact on those numbers.

One, we've rolled out later vintage. I think we've started with seven year and younger cars. We've rolled out, I want to say eight and nine-year-old cars, which will create smaller balances because they're worth less. What's interesting, and you guys probably all know this, the average car on the road is 11.5 years old. So that creates a -- cars just last a lot longer. You can finance them longer. And most of the financing that's done is generally done for cars five, six, seven years and newer. So I think we've got a niche in a product where a lot of others aren't. Now while these cars aren't necessarily of huge value, they do last longer. They maintain their value longer. But it's hard to believe that actually half the cars on the road today are actually 11.5 years and older, if the average is 11.5. So that's one of the reasons. And certainly, on some of the older cars with less value, it probably is one of the reasons rates may have gone up a little bit and dragged the overall origination from the quarter up a little bit.

Got it. Thank you.

Ken Bruce, Bank of America.

Thank you, good morning. First of all, good quarter all around. You point out some of the higher expenses in terms of marketing and some of the deal costs. Is there a way to be thinking about expenses, OpEx in particular, within the consumer loan space, either as a efficiency ratio or percentage of loans? What's the best way to think about how your expense ratios are going to look as we project it forward?

We look at our expenses in many different ways. I would first point you to looking at the consumer and insurance segment as ROA, return on our average receivables, which Jay mentioned in his comments are better than when we were a year ago. Approximately 7.3% is where we are currently. And in terms of ratio with spend, we've been looking at our marketing spend and what the ratio of that to our volume is. And we've been pretty much consistent in terms of how much we're spending versus where we're getting in volume. So we're pretty confident with where we are on the operating expenses. And as I mentioned earlier, the second half will be pretty similar to we're at for second quarter.

I guess I would've expected that to fall, just given the nature of the loans per branch and the profitability per branch. Is there any way that or am I thinking about that incorrectly? I would expect the operating leverage would, in fact, show up in those lines.

I should restate and just clarify, I was talking more in dollars rather than percentages. So in terms of dollars, the second-half dollars, I expect it to be pretty similar to where we were in the second quarter.

Okay. So that efficiency ratio would, in fact drop in that case.

That's right.

That's where you get the leverage, Ken.

Okay great. And then Jay, you talked about the expansion of credit and maybe some of the drivers of that. It's -- I'm interested if you have any sense as to how much of that is push versus pull. Obviously there's clear -- better access to credit today. And there's been a lot of marketing to, if you will, begin to not only make installment lending more en vogue, as you put it, but also drive a lot of brand recognition within some of the lenders. So I'm always challenged as to how much of this is actually true demand on the part of the consumer versus how much is just getting pushed and the overall access improving. I don't know if you've got any surveys that you've done or any sense, just based on the clientele that are coming through your branches to which is which.

I'd say our customers use our loans for a variety of purposes, and some of them involve debt consolidation, which is usually at least a chunk of some of the loans, as well as general purposes. Many good events, as I like to say, is nothing makes me happier than when I see a family put on a wedding, go to Disney, improve a home, et cetera. So we've increasingly seen the positive events of things and people are borrowing for, but it's kind of hard to know what's push and what's pull. There's certainly some, I won't call it churn, but definitely when you look at the debt consolidation and credit cards, what the Lending Club loans are used for, what some of our portions are. You've definitely got some reallocation within the overall credit stack. But as I said, increasingly we're seeing more demand for positive events than we have over the last few years.

Okay, great. Thank you. And then two somewhat deal-related but not specific in nature. You'd mentioned, I believe, something along the lines of 100 million potential customers. I'm wondering how do you see the overall market share that Springleaf has within the broader market? How should we be thinking about some of the variables that one might want to look at if they're trying to assess overall market share?

Sure. When we generally think of who were targeting, we're generally thinking of -- and while we don't underwrite on FICO, we're generally thinking of the 700 FICO going down, is how we look at our target market. And today, if you look at our branches, we're about to top 1 million customers serviced in our branches. We've got another few hundred thousand customers across our SpringCastle Portfolio. So that would be our market share. Again, we just look at the number of potential borrowers that are sub 700 FICO that have debt and borrow, and that's the number. There's about 120 million households; about 100 million of them have material enough debt where they would be a borrower. So that's how we think about it, and we know the OneMain count at least as of the announcement was about another 1.2 million. So when you put the two together, you've got about a 2% market share penetration across those that borrow.

Great. Thank you. And then lastly, understanding that you can't really share anything about the discussions, but what would be the go-ahead milestone that we would be able to observe? Would be the actual -- an actual deal closing or some announcement around a date? The DOJ is not prone to putting out press releases that they're giving a deal go-ahead. But what would we be looking for?

Certainly, any material information that we think is relevant we absolutely plan to disclose and have an obligation to disclose, and we will be doing that.

Great. Thank you for all your comments. I appreciate it.

Sure, thank you for the questions.

Jordan Hymowitz with Philadelphia Financial.

All my questions have basically been answered. I just had a quick comment that you just mentioned a preferred lender or some words to that effect. Since all your loans are under 36% with interest and fees, are you increasingly portraying yourselves, especially regarding the crack downs at other installment lending companies and payday companies, as the Consumers Housekeeping good choice or approval, so to speak, in these negotiations?

Jordan, we lost the question.

Let me just follow up with you later. I apologize.

No worries. Thank you, Jordan. I think it is a relative point, one we've talked about before that across the country we have set our max APRs at 36% everywhere, which we happen to think is the right place to be, given the regulatory framework and the conversations that are going on across Washington.

(Operator Instructions)

Guillermo Roditi, New River Investment.

Hi, good morning, guys. I have a quick question about -- one, are you guys seeing any material difference in income changes amongst borrowers? And are you guys feeling any competition for talent?

Two questions, right? Competition for talent, look, we're always competing for the best people in the branches. We have across the Company about 5,500 staff today, with a couple of big centers in Evansville, Tempe -- where we've opened, London, Kentucky and Minneapolis, as well as our 830 stores. And we have turnover, like a lot of companies, and we're always looking for great, new young talent and we're competing with -- in a marketplace that's increasingly competitive. What I'd say is one of the things I'm thrilled about, a little anecdotal, we just finished up our summer intern program where we had 180 interns across our Company. And I want to say north to half of those are going to stay on with us even as they continue their final year at school. So I think we found actually a great tool for continuing to grow young talent across the Company, so I'm thrilled.

As it relates to I think the first half of the question, are we really see any difference? We're seeing more new customers. But the profile, I would say, looks very similar to what it has in the past by way of income demographics, et cetera. So from there, I'd say that's what it looks like.

Thank you. And just a quick follow-up. You guys mentioned the increasing online share. Do you guys see any material difference in, let's say -- how many worker minutes go into somebody that came in through the pipeline online versus off?

Well what we keep finding, and part of it is just the growth of competition, what the Internet allows you to do is not just apply at Springleaf, but potentially apply at more than one place. So as opposed to the time it would take historically to walk into a branch, you may not want to walk into every branch in the community, so you get online and go to a few places. So we do know that almost all the marketplace lenders have gone deeper than they historically were. We know of Avant is a company we spend a lot of time looking at who has really focused a fair amount on the target set that we're going after. So response times are something that we have had to pay a lot more attention to of late, and we do see it making material difference. I couldn't say you've got to get back to them in 90 seconds now compared to 150 seconds a year ago, but I will say we continue to see the importance of response times and we largely think that's due to competition out there.

Thank you very much.

Hope, let's just check and make sure there are no more questions on the line before we move ahead.

(Operator Instructions)

And there are no further questions. I will now turn the floor back over to Craig Streem for any additional or closing remarks.

Thank you. Thank you, everybody, for your attention. Good questions this morning. I appreciate your interest, and as always, you know how to find me for follow-up. Thank you, have a good day.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.