OneMain Holdings, Inc. (OMF) Q4 2016 Earnings Report, Transcript and Summary

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, Investor Relations. Today’s call is being recorded. 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. [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 contain 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. The 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 maybe listening to this via replay at some point after today, we remind you that 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. So 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'm 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 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 delinquency showing a nice improvement at year-end from the September 30th 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 made in 2016 to significantly reduce tangible leverage and we continue to track well towards our goal of approximately seven times by the fourth quarter of ’18. Let’s turn to Slide 5. As we 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 have 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 U.S. economy. We have seen positive trends in employment, witnessed the 227,000 increase in non-farm payrolls in 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 that 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 local 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 recent conversions of over 1000 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 key 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 with 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 the heavy lifting of integration behind us we are placing an even greater dignity of focus on enhancing receivables growth. One of the 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 deal with the temporary blip in delinquency and they did. We asked thousands of team members to learn the new system and they did. Now, looking ahead to the rest of the year, we are equipping them with the products and sales tools to reinvigorate growth and we expect that once again they will produce the results we know they are capable of. Let us 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 a little bit more, I'm particularly pleased with our performance in the fourth quarter as we saw the benefits of focusing our 1700 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 7s versus our expectation of 7.2 to 7.6. Let us 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 in 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 in the second quarter as all 1700 plus branches and become fully [Indiscernible] to working with the new system and grow increasingly comfortable with the enhanced product suite they can offer customers. An important part of our growth strategy is increasing originations of secured loans with 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 ’17. Now I’m now 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 cost. These were partially offset by lower operating expense. Bear in mind that the modest yield compression is due to the mix shift towards secured lending, which will result in lower losses over time. Before we move onto the full year performance, I want to mention a couple of items related to the first quarter outlook. First, receivables particularly declined 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 receivables decline and our strong delinquency performance, we expect that reserve release in the first quarter potentially greater than the release in the first quarter of 2016. Now let us 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 the 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 was down to 3.6% return on receivables in 2016 down from 4.1% in the prior year. The decline from 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 expensive reductions and operating leverage as we continue to derive 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 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 points from the fourth quarter of 2015. Today 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 in 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 had about $4 billion of unencumbered consumer loans and $4.8 billion of undrawn conduit capacity 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 of this transaction was similar to our transaction six months ago, even with the revolving 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 7 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 previously provided we have outlined the more significant elements that walk down to the $300 million tangible capital build that we expect in 2016. As we move past 2017, tangible capital growth should accelerate as we expect the drag from acquisition related costs and real estate to fall to less than $100 million per year, and [taper off] in subsequent years. At this point I would 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 in customer acquisition, retention and credit performance. We remain comfortable with our full year 2017 Consumer and Insurance EPS guidance of $3.75 to $4.00 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 7s. 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 the commitment to serve our customers and reinvigorate growth. Our 1700 plus branches are highly scalable and as our asset base grows we expect to see tremendous operating leverage in earnings per share. Now I’d like to turn the call back to Maria for Q&A.

The floor is now open for questions. [Operator Instructions] Thank you. Our first question comes from the line of [Indiscernible].

Can you talk a little bit, it sounds like, you have done pretty well with the conversion at the branch level, are there other phases that we should be thinking about in terms of like 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 loan. So we are thrilled to be where we are. All the other things that have to be done are all technologies, including what Scott mentioned, which is getting off the Citi TSA. So we are in very good shape as it relates to all the activities relating to centralized staff and [staff].

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

No. There is something else that needs to happen.

Okay. Thank you.

Our next question comes from the line of Sanjay Sakhrani of KBW.

Hi. Thanks for taking the question. This is actually Stephen filling in for Sanjay. My first question is around loan growth, as we look out beyond 2017 and given that now you are done through all the system conversions, can you talk about how loan growth should trend – can you get back to your original targets of 10% to 15%, thanks?

Look. 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.

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

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 a quarter ago.

Great. Thanks for taking my questions.

Sure. Thanks.

Our next question comes from the line of Rick Shane of JP Morgan.

Hi guys. Thanks for taking my question. 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 sort of expectations. I'm curious last quarter there was no mention of 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 Rick. We have talked about this as part of the integration process. We have branches that are kind of very near to each other. And so what we did was consolidated those loans into one branch and move most of the people into that branch. It was part of the cost savings activity that we had planned. There is nothing new and it is not related to the receivable growth.

Got it. Okay, and then two housekeeping questions, just because I know a lot of folks’ models run of, ours certainly does what was the 60 plus day delinquency number?

We will forward [Indiscernible].

Terrific and then 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?

So, Rick back to the 60-day delinquency, for that quarter is 3.6%, and that was up from third-quarter and it was 90 day plus, and that is really the blip up from the 30 to 89 days in the third quarter, and why we see the losses coming in the first quarter at that 8.5%, so it is just kind of running through the roll rates. And then as we talked about on our reserve coverage, our reserve coverage is 7 to 8 months, our [LAP] is 7 to 8 months forward, and that really is based on mix of portfolio between that range.

Terrific, great. Thank you guys.

Our next question comes from the line of Eric Wasserstrom of Guggenheim.

Great. Thanks for taking my question. First, I just want to make sure I'm understanding the guidance. So, the 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 on the or the offset I suppose and to the credit losses is compression in the yield. Is that correct?

Take it, I wouldn’t compression and yield. We think that yield in 2017 prior to fourth quarter is indicative of what we expect for 2017, but I think it's going to be the ramp up of receivable growth as I mention in my reports. We kind of expect to have decline in the first quarter and then ramp back up then in the starting of the second quarter as Jay mentioned. So, that's kind of the elements going in regards to the guidance versus what you mentioned.

Okay. And 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?

Well, we gave a range when we did EPS for insight and when we gave the guidance side. 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'll see the second half improvement? Thank you.

Yes. So, I think we've been kind of giving you the first two quarters. And you see the first quarter really is a manifestation of the third quarter delinquency. You see that the second quarter or 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 we have there that is happening in regards to the one main portfolio. So, as we continue to have more secured lending versus unsecured health start as well as the asset growth in the back end of the year. Those are buy back.

Okay. Thanks, very much.

Our next question comes from the line of David Bell of Deutsche Bank.

Good morning, everyone. Can you quickly touch on what you saw in the pilot branches, what kind of normalization in terms of growth and was that an indication of how they next 1000 that you did kind of ramping up to normal. Just give me a little more detail on kind of the improvements that you saw in the integration versus the first two pilot back on October?

Sure, great question. Back on October, early October, we converted a 100 branches in Kentucky, North Carolina, one to 10 dollar systems and two to make sure we got those learning and roll them out to the 1000 branches, we convert it in January and February of this year. What I say from what we've seen is the branches have converted back in October or back at full capacity, closing loans at a pace we'd like to have got delinquency to what we wanted to connect where we are now and that was we probably in start with there, what we've seen is what we've converted in January and February if we're already in better shape than what we went through in October and November. So, taking the learnings of what worked and what didn’t work and make it to your team members were in the best possible shape for all the things they needed for loan closing, delinquency collections, etcetera. Really, all those things helped us tremendously and we've seen significantly better progress of what we did in January, February, already worn 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 or branch employees that you both that and originating low and you fell like pendulum shifted a little more towards delinquencies or can you kind of refocus on low and because obviously given the early stage lower width reduce your capacity to grow.

Now, very care to locate. At the end of the day, our branch team members did a great job to find the right balance of both collections and growth in the third and fourth quarter particularly after lot of other things of them which really fell away from both. With the integration fully behind us, we're confident they can get to that price balance of being able to maintain delinquencies and grow with eight-balls as we go through the -- we do in the past.

Great. Just one more if I may. The direct auto, how quickly does that ramp up in the legacy or main branches?

Yes. It was fully rolled out a year ago. I'd say it's doing well but it's not yet achieving the full level of sales or credit ratio, and we think they will also in their spare amount of room for additional growth in sales across the board there. Those are loans that are roughly double the size, has the normal better performance. So, certainly one of our key path is continuing to push the teachings and learnings and be able to close more of those on little -- branches. But I say it's fully rolled out and again we got to do is make sure we level the penetration of sales between the two branch networks.

Great, thanks.

Our next question comes from the line of David Scharf of JMP Securities.

Hi, good morning and thanks for taking my questions. Maybe two for you Jay. The first, on the modification the slight down of 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 towards secure this year than you were communicating three months ago or is the downward revision and loss rates entirely related to delinquency management?

This is Scott, David. So, it's really the delinquency management that the expectations for the portfolio mix is consistent with what we talked about last quarter.

Okay, got it. That's helpful. And then we shift into AR growth and that be the dead horse, notwithstanding the seasonal pay down and it also sounds like from some other lenders we're hearing that tax refund season maybe running a couple of weeks behind last year. So, perhaps the seasonal buildup is pushed out a couple of weeks. But can you give us a feel both at the legacy one main, now that the integration has taken place and at the legacy leaf branch is 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're looking forward to starting that as quickly as looking in the second quarter. And hopefully it will be a balance between here and there, and previous integration we were growing north of a 100 a month and the goal is certainly to get back to there.

Got it. Okay, thank you.

Our next question comes from the line of Bob Ramsey of FBR.

Hey, good morning guys. Just wanted to be sure I'm thinking about the operating expenses correctly. I know you target another $100 million of annualized savings by the end of '17. Is there growth that mitigates that or is it fair to take the 325 in the fourth quarter of '16 and just take 25 off of it?

It's me, and that's the toggle we have is clearly to get nominal cost reductions as you mentioned. And then as we kind of drift into 2018, we'll kind of relook what our expense expectations are close to the end of 2017. But that's all the growth. We have growth built in to the '17 plan, but that's offset with the cost actions we're talking about.

Okay. So, the $100 million is net of growth?

Correct.

Okay, got it, perfect. And then, I think you also mentioned that yield compression the fourth quarter yield, do you think is consistent with how you're thinking about the yield for the full-year of '17? I would think with more mix of secure product we would see a little bit of continued pressure on that yield. Is that not right?

We're kind of stabilizing. As we got into the fourth quarter, you look at the mix on the one main of how much origination is coming from the secured. So, I think I was trying to provide that Bob with the direction. But we had to ramp up really throughout '16, so as we go into '17 I think we're kind of on a relative kind of mix basis fairly built in.

Okay, fair enough. And then, I just want to be sure I understand correctly, the year-end balances you all had targeted a 14 three to 15, that's just for the C&I segment?

That’s correct.

Got it. And then can 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?

Yes. So, there is a lot of components of higher rates. So, in general for our business model is you have higher rates and generally suggest that how the economy that can help us on other lines, whether big growth or on the credit side. But specifically to our debt, all of our debt is fixed rate, except for our card, which were on run. If you look at our unsecured debt, if you look at the rates on our current debts that’s maturing at the end of the year, the rates, current issuances are very similar to that that is expiry. So, in the short term, near term, that was kind of the a little bit of a wash. And that 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 priced the transactions but as we've been able to offset that with the decrease in our spreads on the way as last two issuance we've done. So, in general we have a pretty spread out debt maturity, so there could be potential pressure on the interest expense, but is probably not material given how much our debt is spread over multiple years.

Got it. Okay, thank you.

Thanks.

Our next question comes from the line of John Rowan of ‎Janney.

Good morning, guys. Just one quick question from me. Do you see any change in your business or collection patterns if there is a change in the TCPA?

I think at this point, we continue to comply with all the TCPA laws. We certainly welcome any liberation running that goes with it but at this point I don’t we're not anticipating any change to our business model. And as always we take close attention to what transpired that was.

All right, thank you.

Our next question comes from the line of Moshe Orenbuch of Credit Suisse.

Great. Thanks. Most of my questions have been asked and answered. But, in terms of the two major elements of guidance, you were able to kind of show somewhat improved guidance from the credit standpoint to kind of keep the receivables guidance similar despite some of the kind of constructive comments you made. What's 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 as Scott alluded to, could we feel good about when we go through in the quarter or the early stage delinquency because of the impact that had throughout the year so we really I think the branch network is very good to managing early stage delinquency, just because of the weather warm work and keeping that as much in shaft -- guidance and the enhancement we put to that, I think growth is certainly going to be keep priority we knew we had to get through the system 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 where the emphasis is going to be just like it was on managing with the last quarter.

Great, thanks. And just given the comments on one of the previous questions on funding cost, it sounds like gap between secured debt cost and unsecured is kind of widen to your favor on the secured side. Any thoughts about kind of issuance and mix during the course of the year given that and what that might mean for your overall cost differene?

Yes Moshe, this is Scott. We kind of clearly look at kind of the difference between the issuance costs. So I think what we want to keep continue to have a healthy balance between the secured and unsecured part of debt structure but as you mentioned given what the market and availability we can move around regard to those different options throughout the year but it's something we want to continue to have access to both markets.

Okay. Thanks very much.

Our next question comes from line of John Hecht of Jefferies.

Hi guys, thanks. Like others most of my questions have been asked and answered but what if you can just with respect to the one main platform as you integrated what is happening when you are offering more secured loans and so forth and changing some underwriting processes and so forth? What happens to the average loan side and term as you make that transition?

It's really good question. In general I would say the auto loans we are writing our biggest in the previous loans over there which gives us the ability to upscale the average auto loan in general that’s in marketing larger there that had spring lead with customer base, it's got marginally higher income and proportionate newer cars. But I would say that's pretty consistent if anything slightly larger and the unsecured loans are roughly in line between the two networks.

Okay. Thanks and then final question Scott, I think you are for too normal seasonal release of reserve but it might be a little bigger this year than last year can you just tell us as you see what is that a dollar basis or it's in a more percentage basis and what was specific drop last year?

Yes, so the drop last year John was I think around $22 million and so it will be based on the delinquency trends. We are dropping a larger last quarter this time right so as we go towards LAP, the losses last first quarter of last year was 7.5 it's going to be 8.5 so you get that piece which is already in the reserve that comes down then it's really going to be around receivable growth. So those are kind of the three drivers of kind of how we look at the first quarter.

Okay. Very helpful thanks.

Our next question comes from line of Michael Tarkan of Compass Point.

Thanks. With the integration it's my understanding of some of your online marketing channels saw some disruption particularly towards the front half of the fourth quarter. I am just wondering sort of where things stand from that perspective maybe what kind of impact that has on receivables growth and really whether you are up and running those channels again.

Sure. Good question. It’s good going back to remembering that October 1, we actually changed the name and really combine from operating from the two separate network with the spring with one name being out there. There was a little bit of confusion as sort of what made disappeared and we evolved to one name across the entire network but even with all that we are fully back to where we were beforehand. So the disruption is gone. We are now taking the apps we need and actually having very good interaction with third party aggregators as well as our own digital sourcing.

Okay. Thanks. And just quick modeling follow-up, anything unusual on the 108 million investment income or the 47 million of other income just wondering if those are sort of good run rates to think about going forward?

Investment and our revenue from insurance operations are kind of tied to receivables and I would say that continues to track there to at least on the investment the insurance little bit as the portfolio on consistent with the portfolio and investigations revenue again will kind of be commensurate with kind of the portfolio and reinvestment of the cash that we received in the portfolio.

Are there any security gains in there that are unlikely to repeat in the rising rate environment?

Yes, we in 2016 as we recapitalized some of our kind of insurance subsidiary we did upstream cash and that did generate some capital gains throughout the year as we dividend up that capital. So there are some capital gains and that would not repeat in 2017.

Anyway to quantify that just from model perspective?

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

Perfect. Okay thank you.

Our next question comes from line of Vincent Caintic of Stephens.

Hi, thanks. Good morning guys. Actually just two quick follow-up questions on the reserving and specifically on slide 28 of the presentation. So your allowance ratio for the non-TDR loans at 4.4%. I guess with your outlook now that charge-offs are a bit better and you also have reserve release from the first quarter. Is there any way to think about how that ratio should move overtime, over 2017?

As I mentioned Vincent, I think the early fee is a combination of kind of the portfolio mix and the expectations for losses in the portfolio. So as we do more secured lending that will improve our expectations for future losses which would essentially kind of improve the coverage ratio on a go forward basis. Does that answer the question?

Okay. Got it. So the ratio naturally improved just because of your – because of the secured lending portfolio increasing?

Right. Because the lower – they will improve our expected losses on a go forward basis.

Right. Okay. That makes sense and then just another on the TDR ratio, I just noticed that it's been coming down overtime and is that also related to perhaps the secured portfolio less TDRs in that bucket?

No the TDR is what we’ve seen in 2016 was really wasn't capital in the TDR state in there and based on the accounting and process that OneMain they had a larger TDR balance and so as those accounts get on kind of run off the portfolio you see the decline but we are also seeing that it's kind of stabilizing now. So you saw most of that decline in the first half of the year.

Okay got it. That's all I had. Thank you.

Ladies and gentlemen we have time for one more question. Our final question will come from the line of Henry Coffey of Wedbush.

Good morning everyone and thanks for doing a good job of just nailing it in on credit. When we tried 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?

Yes Henry, its Scott. I think in percentage of assets is probably in the kind of 65% to 70% range. We do revolving facilities. So kind of and then some of those go in amortization, you get different trends. I think it's kind of a proxy for the performance in regards to delinquencies and those types of things. But trying to extrapolate that to the whole portfolio expense we’re depending on what the mix of the portfolio there and different vintages. So that's why we try to provide additional disclosure that's in the appendix now that looks at some of the 60 on 6, six months kind of the indicative of kind of the vintage performance of the portfolio that I think is also helpful on top of trust data and the securitizations.

And then competitive question. With the change that went on in the firm did you find, did you have any leakage, did you lose people, did you exceed branch, did certain branches shrink? Were there competitors that's stepped in or was that a relatively stable process?

I would say that was a very stable process. We certainly tracked turnover and everything sort of stayed pretty normal through the whole process. So not without work, not without training, not without lot of time to spent to get it right, but I couldn't be proud of what the team did. I am sitting here today to say we are done and we are not talking about integration again.

And then just 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 blocks and from that perspective we talked a little bit about on the credit side it's really what's the right mix of the overall portfolio between secured and unsecured lending, so that's another fact we take into consideration. And then on the capital side, 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.

Now that was the final question. I will turn the floor back over to Mr. Craig Streem for any additional or closing remarks.

Thanks Ria, 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 conclude today’s conference call. Please disconnect your lines at this time and have a wonderful day.