OneMain Holdings Inc (OMF) 2016 Q4 法說會逐字稿

Welcome to the OneMain financial fourth-quarter and full-year 2016 earnings conference call and webcast. Hosting the call today from OneMain is Craig Streem, Senior Vice President of Investor Relations. Today's call is being recorded.

(Operator Instructions)

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

Thank you, Maria. Good morning, everybody. Thanks for joining us.

Let me begin by directing you to pages 2 and 3 of the fourth-quarter 2016 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 our website, and we will be referencing that presentation during this morning's call.

Our discussion today will contain certain forward-looking statements, reflecting Management's current beliefs about the Company's future financial performance and business prospects, and these forward-looking statements are subject to inherent risks and uncertainties, and speak only as of today. Factors that could cause actual results to differ materially from these forward-looking statements are set forth in our earnings press release.

We caution you not to place undue reliance on forward-looking statements. If you may be listening to this via replay at some point after today, we remind you that the remarks made herein are as of today, February 14, 2017, and have not been updated subsequent to this call.

Our call this morning will include formal remarks from Jay Levine, our President and CEO, and Scott Parker, our Chief Financial Officer. And as Maria said, we will have a Q&A period after our formal remarks. Let me turn the call now over to Jay.

Thanks, Craig, and thanks for joining us this morning. 2016 was an incredibly important and transformational year for us. We began, having just closed on the OneMain acquisition, and over the course of the year, we made significant progress in bringing the two organizations together.

The new OneMain is the leading provider of responsible loan products to working Americans, positioned to drive very solid returns, and build meaningful shareholder value. As with any combination of two large businesses, the process of bringing together Springleaf and OneMain was not simple, but I am really happy to report that the integration activities are now behind us.

Turning to slide 4, let me touch on the key topics that we will cover during our call this morning. First, our overall financial performance. For the full year, on an adjusted basis, our Consumer and Insurance segment earned almost $500 million after tax, or $3.60 per share, versus $227 million or $1.77 per share in the prior year, which included two months of results for the former OneMain.

For the quarter, our Consumer and Insurance segment earned $108 million or $0.80 per share on an adjusted basis, versus $89 million or $0.66 per share in last year's fourth quarter. Scott will take you through the financials in greater detail later in the call.

The second key topic is recent credit performance. Charge-offs for the quarter and full-year 2016 came in as we expected, with the important metric of early-stage delinquencies showing a nice improvement at year end, from the September 30 level.

As we said during our third-quarter update, early-stage delinquency in the third quarter was affected by the large number of integration activities, and in response, we placed significant focus on making sure we reversed this trend. This drove a meaningful improvement in early stage delinquency throughout the fourth quarter, and importantly, delinquency in January and early February has remained stable.

Third, I will discuss receivables growth in the fourth quarter, along with some comments on our plans for enhancing growth, beginning in the second quarter. And finally, capital and liquidity, which Scott will cover in his section. I just want to say that I am pleased with the meaningful progress we have made in 2016 to significantly reduce tangible leverage, and we continue to track well towards our goal of approximately 7 times by the fourth quarter of 2018.

Let's turn to slide 5. As we have discussed, our business generates an unlevered return on receivables in excess of 10%, which we believe is unequaled in the lending sector. As we continue to build our business, we are committed to driving growth in a manner that supports this objective.

Over time, and again in the fourth quarter, we've demonstrated that our model can effectively manage the most critical variable, credit risk, allowing us to achieve consistent profitability. We believe that our market opportunity is significant, with consumer demand remaining strong, supported by the strengthening US economy. We have seen positive trends in employment, witnessed a the 227,000 increase in non-par payroll to January, and average hourly wages recently climbing to a seven-year high. These are both very positive indicators for the financial health and borrowing capacity of our customers.

These factors, combined with the reach and effectiveness of our extensive branch network should drive healthy receivables and earnings growth over time. Our focus on unlevered returns is also important, because maintaining a strong and consistent level of risk-adjusted profitability helps ensure access to low-cost funding in the capital markets. Most importantly, not only is our loan spread attractive in and of itself, but with modest leverage it generates ROEs in the 20%-plus range.

Let's turn now to slide 6. Over the long term, and across multiple credit cycles, our proven ability to manage credit risk has been a major differentiator, and when we look back over longer periods, we believe our credit performance holds up extremely well. Going back almost 20 years, Springleaf has performed strongly against other comparable sectors, such as private-label credit cards and sub-prime auto, reflecting our conservative underwriting, emphasis on secured lending, and the global and personal relationships that are the key advantages of our branch model.

Let's turn now to slide 7. I am pleased to report that the recent conversions of over 1,000 branches are complete, with minimal disruption to branch operations. With that significant undertaking now behind us, I want to take a moment to thank all our team members for the tremendous effort they put into making these conversions occur seamlessly. Their dedication and experience were invaluable.

Second, and very importantly, we have received positive feedback from our OneMain branch team members on their experience in adopting the new system. Features such as greater flexibility, more effective handling of online applications, and their new ability to document and close loans without paper are some of the key highlights. We expect to see benefits from these additional efficiencies in terms of branch productivity and receivables growth over the coming months.

Overall, our team has met the challenges of this process with great success. Now, with the heavy lifting of the integration behind us, we are placing an even greater degree of focus on enhancing receivables growth.

One of that unique and powerful aspects of our branch operation is the level of commitment of our team members to getting the job done. In the fourth quarter, we asked our branch team to do a temporary [blip] in delinquency, and they did. We asked thousands of team members to learn a new system, and they did. Now, looking ahead for the rest of the year, we are equipping them with the products and sales tools to reinvigorate growth, and we expect that once again that they will produce the results we know they are capable of.

Let's turn to slide 8 and cover credit performance. Charge-off performance in the fourth quarter was consistent with our expectations, with net charge-offs at 7.5%. For the full-year 2016, our net charge-off rate was 7.1%, right at the midpoint of what we previously projected.

Digging into credit little bit more, I am particularly pleased with our performance in the fourth quarter, as we saw the benefits of focusing our 1,700-plus branches on reducing early-stage delinquency. As you can see, early-stage delinquency actually fell sequentially, improving by 30 basis points quarter over quarter, counter to the normal seasonal trend. For full-year 2017, given the recent positive trends in early-stage delinquency and the increasing mix of secured loans, we now expect the net charge-off rate to be in the low 7%, versus our earlier expectation of 7.2% to 7.6%.

Let's turn to slide 9. Consumer and Insurance average net receivables reached $13.5 billion in the quarter, up almost 6% year over year. The growth story was mixed in the quarter, with average net receivables at the former Springleaf branches up 14% year over year, while growth at the former OneMain branches was up about 1%.

Looking at the first quarter, we expect to see the typical seasonal slowing in receivables growth, which is likely to lead to a decline in receivables for the first quarter. Growth is expected to turn positive beginning the second quarter, as all 1,700-plus branches become fully acclimated to working with the new system, and growing increasingly comfortable with the enhanced product suite they can offer customers.

An important part of our growth strategy is increasing originations of secured loans at the former OneMain branches. As a percentage of production, secured loans were 36% of originations at OneMain in the fourth quarter, up from 13% a year ago.

This percentage of originations is consistent with our expectation for secured originations at OneMain, and puts us on track to reach our target of having 35% of the former OneMain portfolio secured by the end of 2017. Now I'm going to turn the call over to Scott.

Thanks Jay. Now let's turn to slide 10, to review our fourth-quarter performance.

We earned $27 million, or $0.20 per share in the fourth quarter, versus a loss of $197 million or $1.46 per share in the fourth quarter of 2015. Our GAAP tax rate of 8% for the quarter benefited from our annual true-up of our tax provisioning. Looking ahead to 2017, we expect the effective tax rate to be around 37%.

Our Consumer and Insurance segment earned $108 million or $0.80 per share in the fourth quarter on an adjusted basis. C&I adjusted earnings were down $0.10 versus the prior quarter, and up $0.14 versus the fourth quarter of 2015.

Return on receivables for the fourth quarter was 3.2%, down from 3.6% in the fourth quarter of 2015. The decline in return on receivables was driven by lower yields associated with the mix shift towards more secured lending, seasonally adjusted higher charge-offs, and higher funding costs. These were partially offset by lower operating expense. Bear in mind that the modest yield compression is due to mix shift toward secured lending, which will result in lower losses over time.

Before we move on to the full-year performance, I want to mention a couple of items related to the first-quarter outlook. First, receivables typically designed in the first quarter, as Jay just mentioned, as consumers pulled back on spending and borrowing after the holiday season.

In addition, as we get into February and March, consumers receive tax refunds, which they frequently use to repay borrowings. The combination of these factors is expected to reduce receivable balances in the first quarter by about 2%. As a result of receivable decline and our strong delinquency performance, we expect a reserve release in the first quarter, potentially greater than the release in the first quarter of 2016.

Now let's turn to slide 11, to review our full-year 2016 performance. We earned $215 million in 2016, compared to a loss of $220 million in 2015, a positive swing of $435 million.

Our Consumer and Insurance segment earned $486 million, or $3.60 per share on an adjusted basis. C&I adjusted earnings more than doubled versus a prior year, driven by our acquisition of OneMain.

On the right side of the page, you will see a return analysis for the full-year performance of our C&I segment on an adjusted basis. We maintained a healthy unlevered return on receivables of 11%, which walks down to a 3.6% return on receivables in 2016, down from 4.1% the prior year. The decline for the prior year was driven by lower yields, higher charge-offs, and higher average funding costs. These were partially offset by lower operating expenses, as a result of the realized synergies from the acquisition.

Turning to slide 12, I want to highlight our progress on expense reductions and operating leverage, as we continue to drive efficiencies from the acquisition of OneMain. You can see the pre-acquisition profile of a 13% operating expense to receivables ratio at Springleaf, with its smaller footprint, and 9% at OneMain. When we closed the deal, the combined Company was running at about a 10.8% in the C&I segment, and we have made meaningful reductions from there.

In the fourth quarter, C&I expenses were $325 million or 9.6% of receivables, a significant reduction of 120 basis from the fourth quarter of 2015. To date, we have achieved run rate savings of more than $100 million, as compared to the fourth quarter of 2015. As we look to 2017, we expect to see continued progress towards achieving our committed cost savings of $200 million.

The additional savings are expected to begin in the second quarter, as we migrate away from the transition services agreement with Citi, realize the benefit of having consolidated certain overlapping branches in the first quarter, and reduce third-party services supporting the integration. By the end of 2017, we expect to be at a run rate that is over $200 million below the fourth quarter of 2015.

Turning to slide 13, you can see a summary of our $14.3 billion in debt. Similar to last quarter, we have a mix of about 60% secured, with the balance unsecured maturity profile.

On the liquidity side, we continue to be in a very strong position. We have about $4 billion of unencumbered consumer loans, and $4.8 billion of undrawn conduit capacities at the end of the year. These liquidity sources allow us to maintain our policy of having greater than 12 months of forward liquidity coverage, without any new capital markets transactions, mitigating potential market volatility.

In 2016, we raised nearly $3 billion of term ABS, including the successful launch of our new auto ABS program, plus $1 billion of unsecured bonds. We ended the year with our first Springleaf personal loan ABS issuance since 2015, where we achieved our best Class-A spread of 150 basis points since the program's inception.

A few weeks ago, we closed our second auto ABS deal, in which we raised $270 million, including a one-year revolving period, and a Class-A spread of 70 basis points, and a weighted average cost of about 2.6%. The cost of funds at this transaction were similar to our transaction six months ago, even with the resolving nature and longer term.

Turning to slide 14, we continue to delever our balance sheet. Our tangible leverage decreased to 10.4 times at the end of 2016, down from 10.7 times at the end of the third quarter. And we continue to be on pace to reach our targeted leverage range of seven times by the end of 2018.

On the right side, you will see a table that goes into more detail on our expected tangible capital build over the next year. At the top of the page, you will see the underlying adjusted earnings for the C&I segment that we have guided to. Below that, as we have previously provided, we have outlined the more significant elements that walk down to the $300 million tangible capital build that we expect in 2017.

As we move past 2017, tangible capital growth should accelerate, as we expect the drag from acquisition-related costs in real estate to fall to less than $100 million per year, and tail off in subsequent years. At this point, I'd like to turn it back to Jay for his closing remarks.

Thanks, Scott. In closing I want to affirm how strongly we feel about the power and potential of our business, which continues to prove its value through customer acquisition, retention and credit performance. We remain comfortable with our full-year 2017 Consumer and Insurance EPS guidance of $3.75 to $4, with receivables expected to end the year in the range of $14.3 billion to $15 billion, and credit losses for the year expected to be in the low 7%s.

In 2016, we asked a lot of our team members, as we brought Springleaf and OneMain together, and they stepped up. Our branch network is now fully integrated and operating under one brand, with a commitment to serve our customers and reinvigorate growth. Our 1,700-plus branches are highly scalable, and as our asset base grows, we expect to see tremendous operating leverage in earnings per share. Now, I would like to turn the call back to Maria for Q&A.

(Operator Instructions)

Don Fandetti, Citigroup.

You talked a little bit, it sounds like you've done pretty well with the conversion at the branch level. are there other phases that we should be thinking about, in terms of central processing systems, et cetera? And can you talk about what the risk of that could be?

Sure. As I said in my comments, we have completed everything that needs to be done that affects customers and people touching any loans, so we are thrilled to be where we are. All the other things that have to be done are all technology, including what Scott mentioned, which is getting off the CPS. We are in very good shape as it relates to all the activity relating to centralized staff and branch staff.

There is no more conversions that need to take place at this point?

No, there is nothing else that needs to happen.

Okay. Thank you.

Sanjay Sakhrani, Keefe Bruyette & Woods.

This is actually Steven filling in for Sanjay. My first question is around loan growth. As we look out beyond 2017, and given that now you've gone all the system conversions, can you talk about how loan growth will trend? Can you get back to your original targets of 10% to 15%?

Over the long-term I think we absolutely feel that way, given the enormous potential base, the broad franchise we have, the demand we see, and where the economy sits. I think we feel good about achieving double-digit growth over the long-term.

And that is something that is possibly achievable in 2018?

Absolutely.

Great. And following up, can you talk about the competitive environment? I believe last quarter, you mentioned you were seeing a little bit more on the competitive side. I just wanted to get a bead on that.

At this point, we see the competitive environment is very stable. We haven't seen tremendous new players come in, change the landscape, and we see it in multiple ways, but at this point, I wouldn't say there has been any significant change since we last commented on it.

Thanks for taking my questions.

Rick Shane, JPMorgan.

When we look at the results, I think my impression is that credit is a bit better, and growth is at the low end of expectations. I am curious, last quarter, there was no mention about additional branch consolidation. This quarter, there is. Is there a little bit of a preparation here for achieving numbers on lower growth? Is that what we are seeing between the lines?

No. We have talked about as part of the integration process, that we have branches that are very near to each other, and what we did was consolidated those loans into one branch, and moved most of the people into that branch. It was part of the cost savings activity that we had planned. It is nothing new, and it's not related to the receivable growth.

Got it, okay. And then two housekeeping questions, just because I know a lot of folks' models run off them, ours certainly does. What was your 60 day delinquency number? 60-plus day delinquency number?

We'll pull it and get back to you.

Terrific. Last question, just because I don't remember off the top of my head, what is your reserve policy, in terms of number of quarters or number of days?

Rick, back to the 60-plus day delinquency quarter was 3.6%.

Okay.

And that was up from third quarter, as was 90 day plus, and that is really the blip up from the 30 day to 90 days in the third quarter, and why we see these losses coming in the first quarter, at that 8.5%. It is just running through the roll rates. And then, as we talked about on our reserve coverage, our reserve coverage is seven to eight months, our LEP is seven to eight months forward, and really is based on mix of portfolio between that range.

Terrific. Great. Thank you.

Eric Wasserstrom, Guggenheim Securities.

First, I just want to make sure I am understanding the guidance. So obviously, the EPS guidance remains the same, the loss guidance has come down, and the expense guidance is I think unchanged from the prior period. So the difference, or the offset to the lower credit losses is compression in the yield? Is that correct?

I wouldn't say compression in yields. We think that yield in 2017, probably the fourth quarter, is indicative of what we expect for 2017, but I think it will be the ramp-up of receivable growth, as I mentioned in my remarks. We expect to have a decline in the first quarter, and ramp back up starting in the second quarter, as Jay mentioned. So that is the elements going in regards to the guidance versus what you mentioned.

Okay. But if the first-quarter decline is a typical seasonal trend, why would it have -- why would the lower losses not have resulted in higher EPS guidance?

We gave a range when we did EPS range, when we gave guidance. I think we still feel comfortable with that guidance, even with the improvement on the credit side.

And just lastly, can you just go over one more time the cadence of losses that you anticipate over the course of the year, and why it is that we will see be second-half improvement? Thank you.

So I think we have given you the first two quarters, and you see the first quarter really is a manifestation of the third quarter delinquency. You see that the fourth-quarter we had improvement against seasonal trends, which helps us in the second quarter. And then the back half of the year, the combination of continuation of early stage delinquency improvement, as well as the mix shift that is happening in regards to the OneMain portfolio. So as we continue to have more secured lending versus unsecured, helps us, as well as the asset growth in the back end of the year.

Thank you very much.

David Ho, Deutsche Bank.

Can you quickly touch on what you saw in the pilot branches? What normalization, in terms of growth? And was that an indication of how the next thousand that you did, ramping up to normal? Just give me a little more detail on the improvements that you saw in the integration versus the first pilot? Thanks.

Great question. Back on October, early October, we converted 100 branches in Kentucky, North Carolina, one to test all our systems, and two, to make sure we took those learnings and rolled them out to the 1,000 branches we converted in January and February of this year. What I would say from what we have seen is the branches that have converted back in October are back to full capacity, closing loans at a pace we would like to have cut delinquencies to where we wanted to, and that is where we are now, and we probably inched our way there.

What we have seen and what we have converted in January and February, we're in better shape than what we went through in October/November. Taking the learnings of what worked and what didn't work, and making sure team members were in the best possible shape for all the things they needed for loan closings, delinquency collections, et cetera, really, all those things helped us tremendously, and we have seen significantly better progress than what we did in January/February already roll through.

Great. And going forward, can you talk about the dynamic of really pushing for mitigating the early stage delinquencies? And obviously, there is a limited number of hours for your branch employees to do both that and originate loans. Do you feel like the pendulum has shifted a little bit more towards delinquencies, or can you refocus on loans? Because obviously given that early stage lower would reduce your capacity to grow.

Very fair. Look, at the end of the day, our branch team members do a great job to either find the right balance of both collections and growth in the third and fourth quarter, particularly ask a lot of other things of them, which really pulled away from both. With the integration fully behind us, we are confident they can get to that right balance of being able to maintain delinquencies and grow receivables, as we have proven we been able to do in the past.

Great, and one more if I may. The direct auto -- how quickly does that ramp up in the legacy OneMain branches?

It was fully rolled out a year ago. I would say it is doing well, but it is not yet achieving the full level of sales or penetration that we think it's capable of, so we think there is a fair amount of room for additional growth in sales across-the-board there. And as you know, those are loans that are roughly double the size, and have nominally better performance. Certainly one of our key tasks is continuing to push the teachings and learnings, to be able close more of those loans in OneMain branches. But I would say it's fully rolled out and what we have to do is make sure we level the penetration of sales between the two branch networks.

All right. Thanks.

David Scharf, JMP Securities.

Maybe two for you, Jay. First on the modification, or the slight downward revision in the loss guidance, trying to get a sense for how much of it is better than expected performance in delinquency management, in collections versus product mix?

Because clearly the trend towards underwriting more secured, you highlighted last quarter. Are you assuming that the product mix is actually going to be even more weighted toward secured this year than you were communicating three months ago? Is the downward revision and loss rates entirely related to delinquency management?

This is Scott, David. It's really the delinquency management. The expectation for the portfolio mix is consistent with what we talked about last quarter.

Okay. Got it. That is helpful. And then shifting to AR growth -- not to beat a dead horse -- not withstanding the seasonal paydown, and it also sounds like from some other lenders, we are hearing that tax refund season may be running a couple weeks behind it last year, so perhaps the seasonal build up is pushed out a couple weeks. But can you give us a feel, both at the legacy OneMain, now that the integration has taken place and at the legacy Leaf branches, what kind of AR growth in the back half of the year is contemplated, embedded in your guidance?

I think we gave the range of receivables we expect to achieve by the end of the year certainly. We are looking forward to starting that as quickly as we can in the second quarter, and hopefully it will be a balance between here and there. Previous integrations, we were growing more than 100 a month, and the goal is certainly to get back to there.

Got it. Thank you.

Bob Ramsey, FBR Capital Markets.

I just want to be sure I am thinking about operating expenses correctly. I know you targeted another $100 million of annualized savings by the end of 2017. Is there a growth that mitigates that, or is it fair to take the $325 million in the fourth quarter of 2016, and just take $25 million off of it?

The target we have is clearly to get the nominal cost reductions, as you mentioned, and then as we drift into 2018, we will relook at what our expense expectations are post the end of 2017. But we had growth built into the 2017 plan, but that's offset with the cost actions we were talking about.

Okay, so the $100 million is net of growth?

Correct.

Got it. Perfect. And then, I think you also mentioned that yield compression, the fourth-quarter yield you think is consistent with how you were thinking about the yield for the full-year of 2017? I would think with more mix of secured product, we would see a little bit of continued pressure on that yield. Is that not right?

We're stabilizing as we get into the fourth quarter. If you look at the mix on the OneMain of how much originations coming from the secured. So I think I was trying to provide that as a direction, but we have had the ramp up really throughout 2016, so as we go into 2017 I think we are on a relative mix basis, fairly built in.

Okay. Fair enough. And then I just wanted to be sure I understand correctly, the year-end balances you targeted a $14.3 billion to $15 billion, that is just for the C&I segment?

That is correct.

And then could you just maybe, last question, talk a little bit about sensitivity to rising interest rates? Maybe talk about with your debt, any impact from the December rate increase, or how we should think about additional moves in short-term rates this year?

As you know, there is a lot of components of higher rates. So in general for our business model, you have higher rates, that generally suggests a healthy economy, that could help us on other lines, whether it be growth or on the credit side.

But specifically to our debt, all of our debt at fixed rate, except for our conduits, which are undrawn. If you look at our unsecured debt, if you look at the rates on our current debt that is maturing at the end of the year, the rates on current issuances are very similar to that, that have expiry. So in the short term, near term that would be a little bit of a wash.

And as I mentioned in my prepared remarks, if you look at the secured debt side of our business, clearly the rate increases have taken our base rate for when we price the transactions, but we have been able to offset that with a decrease in our spreads on the last two additional ones we have done. So in general, we have a pretty spread out debt maturity so there could be potential pressure on the interest expense, but it is probably not material, given how much our debt has spread over multiple years.

Got it. Okay. Thank you.

John Rowan, Janney.

One quick question for me. Do you see any change in your business or the collection patterns, if there is a change in the TCPA?

I would say at this point we continue to comply with all the TCPA laws. We certainly welcome any liberation or anything that goes with it, but at this point, we're not anticipating any change to our business model. And as always, we play close attention to what transpires out of Washington.

All right thank you.

Moshe Orenbuch, Credit Suisse.

Most my questions have been asked and answered, but in terms of the two major elements of guidance, you were able to show somewhat improved guidance from a credit standpoint, but kept the receivables guidance similar, despite some of the constructive comments you made. What is the process, and how do you think about the two of those, in terms of how they are likely to evolve during the next quarter or two?

I think the credit line, as Scott alluded to, we feel good about where we got to in the quarter in the early-stage delinquencies, because of the impact that has throughout the year. Clearly, the branch network is very tuned to managing early-stage delinquency just because of the way the rolls work, and keeping that as much in check, and that in turn led to the current guidance and the enhancement that we put to that.

I'd say growth is certainly going to be a key priority. We knew we had through the systems change. It was not insignificant, and very important to the long-term future of the Company, but we are in great shape now, and certainly that is where the emphasis is going to be, just like it was on managing credit through the last quarter.

Just given the comments in one of the previous questions on funding costs, sounds like the gap between secured debt costs and unsecured has widened to your favor on the secured side. Any thoughts about issuances and mix during the course of the year, given that, and what that might mean for your overall cost of funds?

Yes Moshe, this is Scott. We clearly look at the differences between the issuance costs.

So I think what we want to continue to have a healthy balance between the secured and unsecured part of our debt structure. But as you mentioned, given what the market and availability -- we can move around regards to those different options throughout the year. But it is something we want to continue to have access to both markets.

Got it. Thanks very much.

John Hecht, Jefferies & Co.

Like others, most of my questions have been asked and answered, but I wonder if you can, just with respect to the OneMain platform as you integrate it, what is happening when you are offering more secured loans and so forth, and changing underwriting processes and so forth, what happens to the average loan size and term, as you make that transition?

Really good question. In general, I'd say the auto loans that we are writing are bigger than the previous loans that were there, which gives us the ability to upsell the average auto loan. In general, that's larger there, with a customer base that is marginally higher rates, and proportionately newer cars. But I say that is pretty consistent, if anything slightly larger. And the unsecured loans are roughly in line between the two networks.

Okay. Thanks. And final question, Scott, I think normal seasonal release of reserves, but it might be a little bigger this year than last year. Can you tell us as you see, is that a dollar basis or assume more of a percentage basis, and what was the specific drop last year?

The top last year, John, was I think about $22 million. And it will be based on the delinquency trends. We are dropping a larger loss quarter at this time. So as we look to our LEP, the loss first quarter of last year was 7.5%, it's going to be 8.5%, so you get that piece that's already in the reserves that comes down. That is really going to be around receivable growth, so those are the three drivers of how we look at the first quarter.

Okay. Very helpful. Thanks.

Michael Tarkan, Compass Point.

With the integration, it is my understanding that some of your online marketing channel saw some disruption, particularly toward the front half of the fourth quarter. I'm wondering where things stand from that perspective? Maybe what impact that has on receivables growth, and whether you are up and running in those channels again?

Sure. Good question. It's good going back and remembering that October 1 we actually changed the name, and really combine from operating from two separate networks with the Springleaf name and OneMain being out there. There was a little bit of confusion, as the Springleaf name disappeared, and we evolved to one name, OneMain across the entire network.

But even with all that, we are fully back to where we were beforehand. The disruption is gone. We are now taking the acts we need, and having very good interaction with third-party aggregators, as well as our own digital sourcing.

Okay. Thanks and a quick modeling follow-up. Anything unusual in the $108 million of investment income or the $47 million of other income. I'm wondering if those are good run rates to think about going forward?

Investment income or revenue from our insurance operations are tied to receivables. And I would say that continues -- the trend there, at least on the investment of the insurance revenues declined a little bit as the portfolio -- consistent with the portfolio. And then investment revenue again will be commensurate with the portfolio, and reinvestment of the cash that we receive into the portfolio.

Are there any securities gains in there that are unlikely to repeat in a rising rate environment?

Yes. In 2016, as we recapitalize some of our insurance subsidiaries, we did upstream cash, and that did generate capital gains throughout the year, as we did dividend up that capital. So there are some capital gains that will not repeat in 2017.

Any way to quantify that just from a model perspective?

I think we will follow up on that, but I don't have the specifics.

Perfect. Thank you.

Vincent Caintic, Stephens.

Two quick follow-up questions on the reserving, and specifically on slide 28 of the presentation deck. Your allowance ratio for the non-TDR loans at 4.4%, with your outlook now that charge-offs are a bit better, and then you also have the reserve release in the first quarter. Is there any way to think about how that ratio should move over time through 2017?

As I mentioned, I think the LEP is a combination of the portfolio mix and the expectations for losses in the portfolio. As we do more secured lending, that will improve our expectations for future losses, which would essentially improve the coverage ratio on a go-forward basis. If that answers your question?

Okay. Got it. So the ratio will naturally improve just because of the secured lending portfolio increasing?

Right. It will improve our expected losses on a go-forward basis.

That makes sense. And then another one on that TDR ratio. I just noticed that has been coming down over time. Is that also related to perhaps the secured portfolio has, less TDRs in that bucket?

No the TDR decline that we have seen in 2016, was really -- the TDRs stays in there, and based on the accounting and process at OneMain, they had a larger TDR balance, and so as those accounts run off the portfolio, you have seen the decline, but I think you also seeing that it is stabilizing now. You saw most of that decline in the first half of the year.

Got it. That's all I had. Thank you.

Henry Coffey, Wedbush.

Thanks for doing a good job, and just nailing it on credit. When we try to track the future, what percentage of your assets are going to be inside your securitization, so that we can look at the monthly data and see how things are going, and how good of a benchmark is that going to be?

Henry, Scott. I think in percent of assets, it's in the 65% to 70% range. As you know, we do revolving facilities. So, and then some of those go into amortization, you get different trends. I think it is a proxy for the performance, in regards to delinquency and those type of things. But trying to extrapolate that to the whole portfolio, since depending on what the mix the portfolio and the different vintages, so that's why we try to provide additional disclosure within the appendix now that looks at some of the 60 on six, six months that is indicative of the vintage performance of the portfolio that I think is also helpful on top of trust data on securitizations.

And then, a competitive question, with the change that went on in the firm -- do you have any leakage? Did you lose people? Did you see certain branches shrink? Were there competitors that stepped in, or was it a relatively stable process?

I would say it was a very stable process. We certainly tracked turnovers, and everything stayed pretty normal for the whole process. Not without work, not without training, not without a lot of time spent to get it right, but I could not be prouder of what the team did, and sitting here to say, we are done and we're not talking about integration again.

And then the last question, when you think, there has been a lot of conversation about growth. But you are not opening new branches, so 10% growth is pretty good. How do you balance growth, credit metrics, and capital expectations when you are doing your forward-looking planning?

I think -- Henry, the combination is trying to have a balance on prudent growth, based on staying within our credit box. And from that perspective, we've talked a little bit about on the credit side, it's really what is the right end state mix of the overall portfolio between secured and unsecured lending. That's another factor we take into consideration. And then on the capital side, at least for the foreseeable future through 2018, our focus is generating earnings to build tangible equity. At that time, we have flexibility and opportunity in regards to what our optimal capital structure would be.

Great. Thank you very much.

I will turn the floor back over to Mr. Craig Streem for any additional closing remarks.

Thanks everybody for your interest, your questions this morning, and any follow-up, as always we are available. Have a good day. Thanks.

Thank you. This does concludes today's conference call. Please disconnect your line at this time, and have a wonderful day.