OneMain Holdings, Inc. Q1 FY2023 Earnings Call

Welcome to the OneMain Financial First Quarter 2023 Earnings Conference Call and Webcast. Hosting the call today from OneMain is Peter Poillon, Head of 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. It is now my pleasure to turn the call over to Peter Poillon. Sir, you may begin.

Thank you. Good morning, everyone, and thank you for joining us. Let me begin by directing you to Page 2 of the first quarter 2023 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. 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 are listening to this via replay at some point after today, we remind you that the remarks made herein are as of today, April 25, and have not been updated subsequent to this call. Our call this morning will include formal remarks from Doug Shulman, our Chairman and Chief Executive Officer; and Micah Conrad, our Chief Financial Officer. After the conclusion of our formal remarks, we will conduct a question-and-answer session. I would now like to turn the call over to Doug.

Thanks, Pete, and good morning, everyone. Thanks for joining us today. Today I will cover our results for the quarter, our positioning in this uncertain macroeconomic environment, and our strategic initiatives. Let me start with some highlights of our performance in the first quarter. We produced net income of $179 million and $179 million of capital generation in the quarter. We continue to see strong demand for our loan products. In what is typically a seasonally lower quarter for our lending business, we had $2.8 billion of originations despite our continued tight credit box. It is a very constructive competitive environment for us, and our strong balance sheet allows us to continue to provide responsible access to credit for our customers and make every loan that meets our risk-return criteria. Our top two risk grades, those with the best credit quality and lowest risk customers, made up approximately 65% of new customer originations in the first quarter as compared to mid-2021 levels of 30% to 40%. We're pleased with the opportunities we see to write higher credit quality loans at a pace that is modestly ahead of our expectations coming into the year. Turning to credit, our 30 to 89 delinquency rate finished the quarter at 2.58%, 49 basis points below where we ended last quarter and in line with seasonal trends. Our underwriting remains quite conservative. This credit posture, combined with favorable competitive dynamics at the higher end of our credit spectrum, is leading to an increase in the overall credit quality of our portfolio. Loan net charge-offs in the quarter were 7.7%, in line with our expectations, aided by continued solid performance in late-stage collections and post charge-off recoveries. The adjustments we made to our credit box in the middle of last year are driving improved early delinquency performance as we progress through the year. While still elevated, our back book of loans which were originated before our credit tightening last summer has stabilized, and the loans we have originated post-tightening are performing in line with expectations. As post-tightening vintages become a bigger portion of the portfolio, we should see credit move toward more normalized levels. Nonetheless, we continue to closely monitor the environment and our portfolio and remain poised to adjust as needed. Let me now talk for a minute about the macroeconomic environment. We're encouraged by the continued low unemployment numbers and what appears to be a reduction in the pace of inflation. Regardless, we continue to maintain a conservative credit posture as economic uncertainty persists. In light of recent developments in the banking sector, I want to stress that at OneMain we have built our strategy and balance sheet to be durable across a range of macroeconomic environments. This includes a diversified balance sheet with staggered maturities, a long liquidity runway, disciplined asset-liability management, and conservative underwriting. It is precisely in volatile environments like the one we are in now that our strength is most evident, and positions us to be a reliable and trusted partner for our customers when they count on us most. Turning to our BrightWay credit card, we are pleased with the continued progress. We are closely monitoring spend volume, balance builds, revolve rates, and credit performance as we continue our rollout into very targeted segments of the nonprime market. Just like the posture we are taking with personal loans, we are maintaining a conservative credit box in our card product and are only taking on customers that we are confident will meet or exceed our return hurdles even if the economy were to worsen from here. At quarter end, we had more than 160,000 card customers and $122 million of card receivables. And we're really pleased with the continued digital adoption as 99% of eligible customers who make six on-time payments make their choice to decrease their interest rate or increase their line in our app, and over 85% of customers are making payments in the app. We remain confident that our approach to carefully scaling cards while maintaining conservative underwriting standards is the right approach to build a strong business for the future with excellent returns. We also continue to see strong origination volume and good credit performance in our secured lending distribution channels. Loans from these channels today total nearly $500 million of receivables. I'm also pleased with our continued pace of innovation, especially around digital tools for customers. For example, when delinquencies ticked up last year, we shifted more of our branch team members' time to collection activities. As we have invested in digital capabilities over the past several years, we not only have the ability to shift human resources to the highest value work depending on the week, month, or year, but have given our team members and our customers more digital tools to improve efficiency, outcomes, and customer experience. Two great examples of this are click-to-pay links embedded in emails and enhanced two-way texting. When we need to reach out to customers, we don't just call them. We can text or email them. And when customers receive a text or email, they can then either engage with us via their channel of choice or complete a task like making a payment using a digital tool. These new digital capabilities are driving efficiency in our operations and a more seamless customer experience. Let me end by touching on capital return. Our $4 per share annual dividend translates into an approximately 10% yield at our current share price. During the first quarter, we repurchased about 700,000 shares for $27 million. As we discussed last quarter, we have moderated our share repurchases given the uncertain economic environment and our desire to maintain strategic optionality. That said, we remain a programmatic buyer of our shares, and we'll adapt the pace of repurchases as the environment evolves. I'll conclude here by reiterating that we feel very good about the strategic and competitive positioning of OneMain and the results for the quarter. With that, let me turn the call over to Micah.

Thanks, Doug. Good morning, everyone. We had a solid quarter, and we continue to see positive credit trends following our August 2022 tightening. Receivables have been supported by strong demand, and we raised another $750 million of funding in challenged markets. While the environment remains uncertain, we are well positioned for both the short and long term. Our first quarter net income was $179 million, or $1.48 per diluted share, down from $2.38 per diluted share in the first quarter of 2022. C&I adjusted net income was $177 million, or $1.46 per diluted share, down from $2.36 per diluted share in the prior year quarter, and capital generation was $179 million for the quarter compared to $282 million a year ago. Keep in mind these prior year variances reflect difficult comparisons against the stimulus-driven and historically low net charge-off levels we saw in the first quarter of 2022. We continue to see strong demand for our loan products supported by a constructive competitive environment and continued progress in new products and channels. As a result, originations were $2.8 billion in the first quarter despite our tighter underwriting posture. Pricing continues to be stable and remains above 2021 levels. We have increased pricing in certain segments to offset the impact of a higher credit quality mix of originations, which generally has lower pricing. Managed receivables were $20.6 billion, down slightly from the fourth quarter, which is typical in tax season. However, receivables growth was strong versus last year at $1.1 billion, or 6%. We are now trending towards mid-single-digit growth in receivables for the full year. As a reminder, managed receivables include $839 million of receivables sold through our forward flow agreements and $122 million of credit card balances. Let me now walk through the components of our first quarter C&I results. Interest income was $1.1 billion, flat to the prior year quarter. Yield was 22.3%, flat sequentially and down about 80 basis points year-over-year, reflecting higher 90-plus delinquency and the impacts of payment assistance we are providing to customers where needed. We continue to expect modest improvement in yield over the course of the year, driven by normal seasonal delinquency patterns, the impact of our credit tightening on portfolio delinquency, and the pricing actions we've taken over the past year. Interest expense was $238 million, up $21 million, or 9% versus the prior year, primarily from an increase in average debt to support our receivables growth. Interest expense as a percentage of receivables was 4.8%, up modestly from 4.6% a year ago, despite what has been a historic increase in benchmark rates. Changes in our interest expense will generally be gradual, given our balanced debt mix and fixed-rate long duration maturities. Other revenue was $176 million, up $18 million, or 11% from the prior year quarter. The increase was primarily attributable to higher yields on our investment portfolio and our cash balances. Provision expense was $385 million and included current period net charge-offs and a modest increase to our allowance. Policyholder benefits and claims expense was $47 million compared to $42 million in the first quarter of 2022. Let's turn to the C&I credit trends highlighted on Slide 7. 30 to 89 loan delinquency was 2.58% in the first quarter, down from 3.07% in December. This sequential reduction of 49 basis points is at the higher end of reductions we typically see in the first quarter. This is due in part to our post-tightening originations growing as a share of our receivables. Post-August 2022 vintages as of March 31 comprised 38% of total receivables compared to 27% at year-end. On Slide 8, we show the delinquency performance of our September 2022 originations at six months on book and our fourth quarter '22 originations at three months on book; both are performing very much in line with our expectations. And while we are encouraged to see new originations performing well, our seasoned vintages continue to track above pre-pandemic levels, and we are proactively working with customers through what continues to be a challenging time. Loan net charge-offs were $376 million, or 7.7% for the quarter, consistent with our expectations. Net charge-offs were supported by strong recoveries of 1.4% of average receivables. Recoveries remain above pre-pandemic levels of approximately 0.8% driven by our strong operational performance as well as opportunistic sales of charged-off inventory. This quarter's recoveries include $11 million of proceeds from a sale. We are maintaining our full year net charge-off range of 7.0% to 7.5%. We expect net charge-offs to improve in the back half of the year, given normal seasonal trends and improving credit quality within the portfolio. Turning to Slide 9, I wanted to quickly highlight an accounting standard update that impacted our CECL reserves in the quarter. The standard became effective on January 1 and eliminates the accounting guidance for troubled debt restructurings, including the specific reserving methodology for these loans. In accordance with the adoption of this new standard, our C&I allowance was reduced by approximately $20 million, with that adjustment flowing directly to retained earnings. The reduction was then partially offset by an increase of $3 million that ran through provision expense in the first quarter income statement for a net change of $17 million. The economic factors used in our CECL reserves were unchanged from the prior quarter. And as a result, our reserve ratio was consistent at 11.6%. C&I operating expenses were $362 million in the quarter, down $5 million sequentially and up a modest 4% year-over-year. Our operating expense ratio was 7.1% in the quarter, which is in line with our full year guide. We remain focused on cost discipline and even more so, given the current market uncertainty. We're also focused on continuing to invest in growth initiatives for the future. The majority of our year-over-year expense growth came from investment in our new products and channels, with our core expense up just 2% versus the first quarter of 2022. Let's now turn to Slide 11 for an update on our balance sheet and our funding. One of the key strengths of OneMain is our strong balance sheet, characterized by a balance of funding sources, long duration staggered maturities, and a strong liquidity profile. Our secured funding mix is currently 55% of our outstanding debt. The duration of our debt is just over three years. And our next significant unsecured maturity is not until 2024, having just paid off an $800 million maturity last month. The proactive management of our funding structure and our balance sheet has significantly reduced the impact of rising rates on our interest expense and has given us a great degree of issuance flexibility over the past year. In February, we completed a three-year revolving $750 million Auto ABS issuance with an average coupon of 5.6%. This was below the 6.0% coupon from our December issuance, even with an increase in advance rate from 73% to 95%. We saw strong support from both returning and new investors, and the issuance was well oversubscribed demonstrating the confidence investors have in OneMain. Our liquidity is supported by $7.4 billion of committed bank facilities spread across 15 geographically diverse and well-established financial institutions. These are typically three-year commitments with staggered terms. And since the beginning of 2022, we renewed 9 of these 15 relationships, securing continued liquidity well into 2025 and 2026. And our capital adequacy remains strong, with net leverage of 5.4x, down from 5.5x last quarter. With that, I'd like to turn the call back to Doug.

Thanks, Micah. OneMain remains in a very strong competitive position, as we continue to provide access to credit for our customers and to help them through this uncertain time. Our balance sheet is strong, enabling us to make every loan that meets our risk-return thresholds. Our back book remains stable, and the loans we have originated post-tightening are performing in line with expectations. We continue to invest in new products and our omni-channel platform, allowing us to better serve more customers over time. As we close, let me thank all of our talented and dedicated team members across the country who help our customers improve their financial well-being every day. With that, we'll open it up for questions.

Thank you. The floor is now open for questions. And our first question will come from John Hecht with Jefferies. Your line is open.

Hi, everyone. Good morning. I appreciate you taking my question. My first question is regarding the detailed slide you usually include in the deck about guidance. I know you mentioned various components of the guidance in your prepared remarks, but I'm curious if there are any changes or trends that are either better or worse than expected, or if you could provide any updates on that.

Good morning, John. It's Micah. Thanks for the question. We didn't have any material updates as you heard from the prepared remarks to any of the strategic priorities. We've kind of given a lot of direction in the past also as we get into these question-and-answer sessions. I'm happy to review what we said just to make sure everyone's clear and provide a little bit of textual commentary around the trends as well. On receivables growth, you've heard us say we're trending towards mid-single digits. As of today, we're seeing strong demand for applications. We see a very strong and accretive competitive environment. And some of the payment dynamics in the portfolio are also supporting that mid-single digit call out. On yield, we put out 22.3 for the first quarter. That was, as you might remember, spot on to what I had guided to in the fourth quarter just in terms of where we thought we would be in the first. We do feel like we're hitting a bottom on yield. We expect yield to modestly improve as we go through the year here with seasonal impacts and trends of 90 plus. Our credit box adjustments and the post-August originations becoming a bigger part of our portfolio as the year goes on, and also some of the pricing increases that we've been making over the last year that we expect to start taking hold. So we do expect that modestly throughout the year to improve. Losses, we're still trending in the 7% to 7.5% range that we had put out last quarter. I think last quarter, we also talked about the kind of trajectory of first half, second half. We're still in that ballpark. We think first half is going to be mid to high 7s, with mid to high 6s in the second half. And I think our delinquency results that you saw today support those expectations. And then interest expense and the OpEx ratio, we expect that to be relatively flat for the remainder of the year. So hopefully that's helpful. It gives you enough to kind of get a sense for where we're headed.

Yes, that's very helpful. Thank you. For my second question, considering the market, many lenders have announced some form of pullback in underwriting standards. Historically, such periods have benefited companies like OneMain, allowing for more selective customer acquisition and attracting higher quality customers. Doug, your comments hinted that you might be experiencing this trend. Could you elaborate on customer acquisition costs and your ability to attract higher quality customers in this environment?

Yes, John, as I said, we feel really well positioned in this market. We built our balance sheet with a lot of liquidity so that we weren't forced to do any pullbacks because of funding, and we have plenty of funding. That allows us to stay in the market and serve our customers. With that said, we significantly tightened our credit box last summer. And post-August, we cut out a lot of the lower performing credit. The business we're booking today will be profitable and meet our return hurdles, even if the economy deteriorates. And I mentioned we've got just around 65% of our business being booked in higher credit quality customers; that's generally goes above 660. In 2021, that was 30% to 40%. And we're doing it without increasing the cost of acquisition. I think we're just getting more of the market now. We're getting it because we have a balance sheet that can book loans that meet our return hurdles, because we still are in the marketing, and we've done a lot around just our product, our customer experience, our value proposition that we think, even in a more benign macro environment, we think we'd still be getting our fair share of the market. And we'll just keep trying to have a great product, provide value to customers and work with our customers over time. And we feel pretty good that we'll be able to grow the book. And as Micah said, we're trending a little higher in originations than we thought we would at the beginning of the year, and we don't see any reason for that to stop.

Perfect. Thanks very much, guys.

Thank you. Our next question will come from Kevin Barker with Piper Sandler. Your line is open.

Thank you very much. I just wanted to follow up on some of the comments around asset yields and just margins in general. You're pretty clear on asset yields continuing to improve due to seasonality through the year. But would you dig a little bit further in on the funding cost as well? I know the rest of the industry is under a lot of pressure and you have more fixed rate debt. But could we see a little incremental improvement due to the pay down of your maturing debt in the back half of the year, combined with issuance of some securitizations? Maybe just a little more detail on what's happening on the funding side? Thanks.

Yes, Kevin, you've made a good point. Most of our debt is at fixed rates, which gives us a competitive edge considering the recent increases in funding costs across the market. We designed our balance sheet for times like these, particularly during the strong performance we saw in 2021. I’ve mentioned this before, but in 2020 and 2021, we significantly invested in unsecured and long-term debt while rates were in the 3% range. This is benefiting us now, as our last five issuances since early 2022 have all been asset-backed securities on the secured lending side, generally averaging about 5%, which aligns closely with our average funding costs, providing us an advantage. Therefore, our interest expense hasn’t increased substantially; it was 4.6% last year and is now 4.8%. Moving forward, due to the structure of our balance sheet, it takes time for changes in benchmark rates to affect our interest expense. To give you an example, our next 12 months’ issuances will only account for 10% of our average debt in 2024, allowing us to signal stable issuance. While there might be a slight increase, it won't be significant, which is beneficial for our net interest margin and profitability. We've also discussed how yields are gradually improving, particularly for the 90-plus loans, assuming a favorable macroeconomic outlook. Additionally, our operating leverage is notably strong for our profitability. When we add new loans, our operational expenses increase by 2% instead of 7%, helping us maintain the profitability we are accustomed to seeing.

Great. Thanks, Micah. And then a follow up on the tightening of underwriting from August 2022. You've long targeted about 6% to 7% net charge-off rate within the total book. But with the new originations being a much tighter underwriting, could we conceivably see structurally lower net charge-offs within the consolidated book or at least to new originations if we don't see a spike in unemployment, or significantly more deterioration in the economy?

Yes, I think, Kevin, it's hard to say, because that would require a little bit of prediction of the future economy, inflation still elevated, as you know. You can see from what we published on that page in our earnings deck our September origination. So that was right after our pretty major tightening in August, our September origination six months later are tracking very, very similar to 2019 levels, which is not the best benchmark in the world; it's one year, but it was the last period we had pre-pandemic. You can see the fourth quarter also tracking in line with those pre-pandemic levels. But we're still focused generally on our returns, as you know, and so when we adjusted our credit box, we're making sure that each of the loans and cohorts of loans that we are originating are meeting that 20% return hurdle. And what you're seeing on those delinquency charts for vintage performance is really reflective of that. So we liked the earnings on those loans. We'll have to see how the macro economy kind of moves forward from here. I would say if we do see a turn down in inflation and things kind of get a little back to normal without unemployment, we would expect to see some better credit performance as well. But that's all to be seen in the future here.

Thank you, Micah.

Thank you. Our next question will come from Michael Kaye with Wells Fargo. Your line is now open.

Hi. Good morning. The quarter-on-quarter change in loans held up better than I expected. So I was wondering, are you seeing the impact of less seasonal payoffs during this year's tax season? I think I heard you mention something about positive payment dynamics in your remarks. And also, if there are less seasonal payoffs that you're seeing, is this good or bad? It's going to help net interest income as the loans are around longer, but could this be signs of upcoming consumer stress in a portfolio?

Yes, good question, Michael. I just referenced the payment dynamics when I was walking through some of the expectations. We are seeing similar patterns from what we do. This is tax season. So we typically will see increased payments, just people are getting tax refunds. We see a reduction in delinquency. And we were down 49 basis points quarter-over-quarter, which I said was at the higher end of what we typically see. But average refunds from tax season are around $2,900 versus they were $3,200 last year because of the child tax credit, but very much in line with pre-pandemic levels. So I would say from that perspective, we're seeing pretty consistent payment trends relative to our expectations. Early payments and payoffs for seasoned accounts are down versus the last couple of years. We see this as a sign of the competitive environment. The availability of credit and also effects from government stimulus continued to wear on that really influenced the last couple of years. I don't see it as a credit challenge. These are actually accounts that are accretive to our earnings and our yield and they're paying customers, so we view this as a positive.

Okay. The next question is about funding. The secured mix you outlined is up to 55%. You got another $200 million maturing in the second half and another $1.3 billion in early 2024. How much longer are you going to be comfortable going without raising any unsecured debt? You haven't raised your current debt in quite some time already. You probably don't want to be out of that market for too long. So maybe you could provide some more color on that.

Yes, of course. As previously mentioned, we have a very robust balance sheet. Liquidity is a key focus for us. We currently have $7.5 billion in committed bank lines available for use when necessary, and most of these lines are not drawn at the moment. One advantage of our asset-backed securities is the revolving periods, which gives us some flexibility. However, they also start to amortize. As they amortize, any new asset-backed securities we issue don’t significantly alter our funding mix. We believe we could issue solely asset-backed securities for the remainder of the year without facing major challenges in our funding strategy. Regarding our long duration bonds, it's been about a year and a half since our last issuance. We've structured our balance sheet to ensure flexibility. As for pricing, our longer duration bonds were trading in the mid-8s yesterday. There’s a new issue concession and convexity premiums on some deeper dollar discounts, likely putting us around the 9 area. We will take advantage of opportunities for unsecured debt if they arise, but we don’t have an immediate need to proceed with that. We feel quite secure with our current position.

Okay. Thank you.

Thank you. Our next question will come from Moshe Orenbuch. Your line is now open.

Great, thanks. I was wondering if Doug and Micah could share what indicators you need to see before expecting an increase in originations and the ability to underwrite more applications. Additionally, how should we interpret the 5% year-on-year decline, and if credit had normalized, how much higher do you believe that number could be?

Yes. If I understand your question correctly, you're asking what it would take for us to expand our credit offerings. Firstly, as we've mentioned in our previous remarks, the macroeconomic situation remains uncertain. While unemployment is a positive factor and inflation seems to be easing, it still affects our customers. We've demonstrated over the past two quarters that our loan originations following tightening measures are performing as anticipated. However, we need a few more months of consistent results to feel assured about this trend. We are very cautious with our shareholders' investments and have committed to being conservative with our balance sheet and underwriting practices. At the same time, we will pursue innovation and aggressive product development, customer experience, and digital strategies. Although we may be forgoing potential profits, we're comfortable with that due to the current uncertainty. If we decide to increase our lending, it won't be an abrupt change; instead, it will be done gradually based on risk factors and state-by-state analysis. We currently offer secured and unsecured loans, as well as two types of credit cards; one with a fee and one without. Our approach will focus on specific markets. We continuously test loans just below our credit standards, in small volumes, to gather performance data, which informs our lending decisions. These tests are not significant to our overall book but are part of our strategy. Currently, we are gaining market share, and as we mentioned, our originations are exceeding expectations despite the stringent credit criteria. We will continue to monitor our portfolio and the economic landscape, and we will expand our offerings when we feel confident, though that is not the case right now.

Got it. Maybe just a quick follow-up. You mentioned, Micah, that half the expense growth is coming from new initiatives. Can you tell us where the biggest dollar investments are going? And looking ahead, will that trend continue?

Yes. Thanks, Moshe. I believe the answer is straightforward. The primary focus is our credit card initiative, along with the related acquisition and servicing costs necessary for developing that area. The same applies to our secure distribution channels, where the costs of acquisition and servicing, as well as the investment in personnel and infrastructure, are significant. This constitutes the bulk of the investment I noted in comparison to the previous year.

Okay. Thank you.

Thank you. Our next question will come from David Scharf with JMP Securities. Your line is open.

Thanks. Good morning and thanks for taking my question. I wanted to follow up a little on not just the competitive dynamic, but maybe how to think about or how you're thinking about your target market kind of longer term. And specifically, we're obviously kind of appropriately focused on all the cyclical matters right now. But as your funding profile continues to improve structurally, is your overall cost of funding on a comparative basis continues to get better? Is the 660 and above increase of your mix, is that just something we should think of as cyclically as we typically do when you tighten, or are you starting to feel that you can meet your longer term return requirements by actually moving up the credit spectrum longer term?

Yes, look, it's a good question. 660 plus has always been a part of our business, call it the lower end of prime, higher end of near prime, however you want to define it. And we like that business. As you mentioned, we also think we have some competitive advantages in our balance sheet. One of the reasons we built out a whole loan program isn't because we needed it for funding, but we wanted to build the pipes and get the expertise of having an off-balance sheet option for the distribution that we have that's quite powerful. As you mentioned, we're in a cycle now. So it's always hard to predict what it looks like coming out of a cycle and how much competition will be there coming out of a cycle. But I could envision this being a higher percentage than it was historically, especially given now that we have balance sheet optionality in different places to put this business. So we know how to serve this customer. Generally, it's unsecured loans. We've been working on our cost structure. And as Micah said, we have a lot of operating leverage. And between efficiencies in our branches, efficiencies in our central operation, and our new digital capabilities, we've got a very good cost structure that we can service potentially lower yielding assets over the long run. So it's a long way of saying that it's certainly a possibility. We're not going to declare that we're going to keep this kind of market share as the cycle moves, but we're getting these customers now. We're serving them well. We're clearly meeting a need. It's clearly profitable for us, and we've done it for a long time. Exactly what part of the book it's going to be over the long run I think will depend on how we evolve and the market evolves.

Got it. That's very helpful. It sounds like lost in all the cyclical hand-wringing is potentially your TAM may be increasing over the long haul. Just a quick follow up on card balances. I know Q1 obviously, we typically see pay downs with tax refund season, or in this case kind of modest growth for a new product. It only increased about $15 million sequentially. Are you still comfortable with that year-end $400 million to $500 million balance target that I think you've provided last call?

Yes, I think it'll be in that range. We're having a very targeted and disciplined rollout. And our goal this year for cards is to prove out the model, make sure we're really focused on spend patterns, usage, credit performance, digital engagement. And the plan was to always get more data and the second half would be a bigger rollout. So we're on plan with the rollout now. With that said, we're watching the environment, we're going to be super careful, we're going to keep a tight credit box for now, and so we're really not managing it to grow. As we mentioned, receivables overall we think are going to be in the top end of our guidance, which is in the mid-single digits. Exactly how much cards contribute will depend on what we see for the next few months and the decisions we make about the second half of the year and how big of a rollout we do. But we think it'll be somewhere in that range.

Got it. Thank you very much.

Thank you. Our last question will come from Rick Shane with JPMorgan. Your line is open.

Thanks guys for taking my questions this morning. Look, when we think back about last year, one of the conclusions is that not only is your customer base sensitive to employment, but they're also extremely sensitive to inflation. We've seen gas prices decline very significantly since mid-year last year. We're starting to see some other prices come down. Is there anything that you're seeing in terms of the portfolio that suggests that the reversal of some of those inflated prices is having an impact on credit?

Yes, it's Micah. It's a great question and a challenging one to answer. I believe the year-over-year dynamics on bank account balances play a role, as customers may have had inflated bank account balances at the beginning of last year due to stimulus. As those balances have decreased and inflation remains a challenge, we haven't observed any significant changes in the dynamics. Doug mentioned the weathervane testing we're conducting, and we continue to face challenges with the nonprime consumer. There are some potential positive signs, but not enough to warrant changes to our credit policies. It's important to remember that even a 5% increase in inflation is on top of last year's already high rates, which compounds the challenges our customers face in managing their expenses. That said, we see some encouraging trends with our new originations performing as expected and our back book stabilizing. After a dramatic increase in delinquency in May and June last year, it's since been following seasonal patterns. We feel confident about the future of our book based on what we've built, but we must remain vigilant. Overall, consumers are still struggling with inflation.

Got it. Okay. Thank you. And, look, I have my own views on the credit card business, but one advantage perhaps is that you are seeing transaction level data for your customers. I'm curious, two things. One, are there insights that you are gathering from that transaction level detail that circles back to your broader lending. And second, can you share any sense of what percentage of spending for your customers is at the pump?

Yes, Rick, to start with insights, we have always stated that the credit card business is quite complementary and strategic, aligning well with our business model for several reasons. First, it provides a daily transactional product that complements our larger, episodic loans that are paid off over time, allowing credit card customers to stay with us longer. Second, we believe we have a lower cost of acquisition because we can reach current and former customers, reducing that expense. Lastly, as you pointed out, we gain daily transactional data. I would say we are indeed gaining insights, although we do not yet have enough volume or duration to integrate it into our credit models. However, we continuously enhance our loan credit models with new data. For example, a few years ago, we began collecting bank account data for income verification, which is now included in our lending credit models. Eventually, we expect to utilize transactional data from credit cards in our lending business, just as we can apply data from our lending business to credit cards. Regarding the percentage of credit card spending at gas stations, I don't have the exact figures offhand, but the top three spending categories are groceries, gas, and dining, which aligns with our expectations. The credit card offers a utility that our loans do not, making us more valuable to our customers than before.

Terrific. Thank you guys very much.

Thank you.

Thank you. This does conclude today's OneMain Financial's first quarter 2023 earnings conference call. Please disconnect your line at this time, and have a wonderful day.