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Welcome to the OneMain Financial Fourth Quarter and Full-Year 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 on 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 Peter Poillon. You may begin.

Thank you, operator. Good morning, everyone, and thank you for joining us. Let me begin by directing you to Page 2 of the fourth 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 the OneMain website. Our discussion today will contain certain forward-looking statements reflecting management's current beliefs about the company's future financial performance and business prospects, and these forward-looking statements are subject to inherent risks and uncertainties and speak only as of today. 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 7th, and that have not been updated subsequent to this call. Our call this morning will include the 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'd like to now turn the call over to Doug.

Thanks, Pete, and good morning, everyone. Thank you for joining us today. I'm going to provide a brief overview of 2023, and then I'll discuss our performance for the fourth quarter and our progress against key strategic initiatives. As many of you heard at Investor Day in December, while we continue to navigate the current credit environment, we feel that OneMain has never been better positioned for medium and long-term outperformance. In 2023, capital generation was nearly $800 million and our receivables reached $22 billion, supplemented by growth in our new products. In the year, we also grew our customer base to 3 million customers. We maintained our underwriting discipline in 2023, tightening our credit box throughout the year and increasing pricing and continue to feel very good about the loans we are originating today. In what was a difficult funding environment, the strength of our balance sheet and capital markets program was evident. We raised $4.6 billion including issuing 3x in the unsecured market and we continue to strengthen our already industry-leading liquidity profile. We made significant progress in the development and growth of our new products, most notably credit cards and auto finance and also announced the acquisition of Foursight to give us a platform to access franchise auto dealers. The nearly $800 million of capital generated in 2023 is a testament to OneMain strong business model. If you attended our Investor Day in December, you heard that we have a line of sight to significant capital generation growth over the medium term as the economic environment stabilizes and our new product scale. In 2023, we remained cautious in our approach to growing the credit card business, but still grew our book to $330 million in receivables and 430,000 customers. We're really pleased with the progress made last year in terms of maturing the business and customer experience. Our auto finance business grew more than $350 million in 2023. And with the acquisition of Foursight, which we expect to close this quarter, we're well positioned to drive profitable growth in this business in the years ahead. Trim by OneMain, our financial wellness platform which helps customers save money on household bills and manage everyday expenses continues to help our customers improve their financial well-being. Credit worthy by OneMain our community program that teaches young people, the importance of responsible management of credit has now provided three financial education programs to over 275,000 students in more than 3,400 high schools across the country and OneMain was certified as a most loved workplace by the Best Practice Institute for the second year in a row showcasing our deep commitment to our team members who serve our customers so well every day. Let me now turn to the results of the quarter. Capital generation. The key metric against which we measure financial performance and manage our business was $191 million. Our competitive positioning deep experience with the nonprime consumer and broadened product offering allowed us to grow receivables and our customer base despite a markedly tightened credit box. Our originations in the quarter totaled $3 billion. Even though demand for our loan products remains very strong, we deliberately reduced the pace of originations as we have taken a conservative view on credit and continued to tighten our underwriting and increase pricing in certain segments. Loan net charge-offs in the quarter were 7.7%, up seasonally from the third quarter and in line with our expectations for the quarter. Full-year net charge-offs were 7.4%, in line with our expectations at the beginning of the year. We feel good about the actions we have taken on credit over the past 18 months. Our front book continues to perform in line with expectations. And the majority of our elevated delinquency is coming from our back book, which is running off, but still represented over half of our delinquent receivables in December. Our pace of originations has slowed down the front book transition, resulting in a greater mix of higher delinquency back book receivables in our overall portfolio. This has created a dynamic in delinquency and loss metrics, which Micah will discuss later. Importantly, we feel very good about the performance of newer vintages. We are confident that this is moving the credit performance of our entire portfolio in the right direction, and we expect losses to peak in 2024 as long as the current macro environment stays relatively stable. Operating expenses are a key lever we have control over in our business, and we are taking cost actions to ensure that we keep producing operating leverage. We are driving efficiency across the business by closely examining every expense, making cuts where appropriate, but also investing in our future, whether it be in technology and digital, new products, data science or other key areas. I am very pleased with our expense management in 2023 and we expect to reduce our operating expense ratio again in 2024. Turning now to our strategic initiatives. During our Investor Day, we spent some time discussing our plans to expand OneMain's business across two complementary products with attractive returns, credit cards and auto finance, both of which are key components of our long-term strategy. Our customer base grew 15% in 2023, a sizable portion of that was driven by our stage rollout of these new products. We like the continued metrics we are seeing across our credit card portfolio. The utilization rate is excellent, and the card continues to be used regularly for groceries, gas and household goods. Our customers also really like the product and digital engagement is high, driving customer satisfaction and operating efficiencies. Given the macroeconomic uncertainty, we have tilted our new originations towards our lower line cards with an annual fee and continue to book business that meets our return thresholds even if the economic outlook changes. We're maintaining our disciplined approach to the rollout of cards as we enter 2024, but think we've built a great product and value proposition for customers, which we will be able to scale in future years. Our auto finance business loans sourced at a growing network of independent dealerships across the United States reached almost $750 million of receivables at year-end. We expect that the business we have built combined with the platform and network of franchise dealerships that we acquired with Foursight will drive profitable growth long into the future. I'll close by briefly touching on capital allocation. Our long-stated strategy remains the same. Our top priority remains investing in the business to position us for ongoing success. We will continue to invest in high-quality loans that meet our return hurdles, while also investing in new products and channels like card and auto and in data science and digital capabilities that improve the customer experience and further advance our competitive positioning. We are committed to our strong regular dividend, which is $1 per share on a quarterly basis and $4 per share annually. Our Board will continue to consider raising the dividend likely when the macro and credit environment is less uncertain. We purchased about 1.7 million shares of our stock for $65 million in 2023 and we expect to maintain a disciplined approach to repurchases in 2024. With that, let me turn the call over to Micah.

Thanks, Doug, and good morning, everyone. Our final quarter of 2023 was highlighted by continued prudent execution of credit and pricing, ongoing expense discipline and another quarter of strong funding and balance sheet management. Fourth quarter net income was $165 million or $1.38 per diluted share, down 4% from $1.44 per diluted share in the fourth quarter of 2022. C&I adjusted net income was $1.39 per diluted share, down 9% from $1.53 per diluted share in the prior year quarter. Capital generation was $191 million for the quarter compared to $229 million a year ago, reflecting the impacts of the current macro environment on our interest expense yield and net charge-offs. For full year 2023, net income was $641 million. C&I adjusted earnings were $5.43 per diluted share and capital generation was $794 million. Capital generation return on receivables was just below 4%. Managed receivables finished the year at $22.2 billion, up $1.5 billion or 7% from a year ago. Fourth quarter originations were down 13% year-over-year as we continue to tighten our underwriting and maintain a conservative approach to new originations. Part of our tightening has come through pricing actions that we've been taking throughout the year. The average APR on our loan originations is currently around 27% compared to 26% a year ago. That higher pricing has naturally led to reductions in loan volume. However, the net earnings result is expected to be positive. We plan to maintain this conservative posture until we see sustained improvement in the macro environment. Interest income was $1.2 billion, up 6% year-over-year, driven by higher average receivables and partially offset by modestly lower yield. Yield in the fourth quarter was 22.1% versus 22.3% in the prior year quarter as our pricing actions partially offset the impacts of what continues to be a challenging credit environment. Receivables from our auto finance business impacted yield by approximately 20 basis points in the fourth quarter. As we discussed in early December at Investor Day, the auto finance market is 5x larger than the personal loan market and will be a significant growth product for us in the coming years. While auto has lower pricing, it also brings a stable lower loss profile and attractive risk-adjusted returns. Interest expense for the quarter was $271 million, up $41 million versus the prior year driven by an increase in average debt to support receivables growth as well as a higher cost of funds. Interest expense as a percentage of receivables in 2023 was 4.9% up just 30 basis points from 4.6% in 2022 despite the considerable increase we saw in benchmark rates over the past two years. Fourth quarter interest expense of 5.0% was impacted by the excess cash we've been carrying on our balance sheet. Excluding these impacts, interest expense would have been around 4.8%. Looking ahead, over 90% of our average debt for 2024 is on the books today at fixed rates. So we're confident in projecting a very manageable increase in interest expense in the year ahead with an estimate of approximately 5.2% for 2024. Other revenue was $185 million, up $17 million or 10% from the prior year quarter. The increase was primarily driven by our excess cash balances as well as the higher interest we're earning on our cash. Provision expense for the quarter was $446 million, comprising current period net charge-offs of $415 million and a $31 million increase to our allowance which was driven by growth in receivables. Our allowance ratio was flat to the third quarter at 11.6%. Policyholder benefits and claims expense for the quarter was $49 million, compared to $39 million in the year ago quarter. The prior year period included some nonrecurring reserve adjustments related to observed improvements in claims experience. We generally expect claims will be around $50 million per quarter in 2024. Let's now turn to the C&I credit trends highlighted on Slide 10. Loan net charge-offs for the quarter were 7.7% with the full year coming in at 7.4%. Recoveries were 1.1% in the quarter. While recoveries fluctuate from period to period and can be impacted by the timing of charged-off loan sales and other factors, we expect recoveries to generally remain at or above this level in 2024. 30 to 89 delinquency at December 31 was 3.28% and 90-plus delinquency finished the quarter at 2.88%. Delinquency remains elevated relative to pre-pandemic levels, driven primarily by our back book. While continuing to run off, our back book still represented 57% of our delinquent receivables at year-end. Our front book is performing well and is continuing to grow, but at a slower pace due to our tighter credit box and pricing actions. This has created a growth map dynamic in our delinquency and our loss metrics. In fact, the 21 basis point year-over-year increase in our 30 to 89 delinquency is entirely driven by the slowdown in our originations. To explain this a little further, newer origination vintages carry relatively low delinquency levels. For instance, the 30 to 89 delinquency you would expect to see at year-end for loans originated in the last six months is around 1%. So when you reduce the pace of new vintages as we've done in 2023, the overall portfolio will skew to a greater mix of older, higher delinquency receivables. Importantly, as Doug mentioned earlier, we like the performance of loans we're booking today and assuming a stable macro environment, our losses are expected to peak in 2024 as the back book runs down and the better front book continues to grow. Turning to Slide 13. C&I operating expenses were $382 million in the quarter, up 4% year-over-year driven by our investments in technology, data science and growth in our new products. Our OpEx ratio was 6.8% in the fourth quarter. And for the full year, it was 7.0%, reflecting our disciplined expense management and the operating leverage inherent in our business. We expect the OpEx ratio to improve again in 2024 to approximately 6.7%. As Doug noted earlier, there are a set of cost savings initiatives we are currently driving across the organization. Growth in new products, the pending acquisition of Foursight and the marginal cost structure of our personal loan business will also contribute to operating efficiency improvements. Let's now turn to Slide 14. We had another strong quarter of funding and balance sheet management. We completed two separate unsecured bond deals. The first was a $400 million add-on to the 2029 bond that we issued back in June. Note this bond is callable starting in 2025. In December, we issued a new $700 million bond at 7% and seven-eighth due in 2030 and callable starting in 2026. Both bonds were well oversubscribed with strong demand from both new and returning investors. In the quarter, we redeemed what remained of our March 2024 unsecured maturity, our next unsecured maturity is now March of 2025. We also ended the year with $1 billion of cash on our balance sheet, setting ourselves up for significant funding flexibility in 2024. Our liquidity profile is a differentiating strength of the company. And during the fourth quarter, we added $300 million of capacity with $75 million in our unsecured revolver and $225 million in our secured facilities. Our bank facilities totaled $7.7 billion across 16 diverse bank partners with unencumbered receivables ending the quarter at $8.4 billion. Wrapping up the balance sheet, our net leverage at the end of 2023 was 5.3x down from 5.5x a year ago. Let's now turn to Slide 16 and review our 2024 priorities. Let me first note that all financial metrics for 2024 reflect the expected first quarter closing of the Foursight acquisition. We are projecting 2024 managed receivables of approximately $24 billion with strong contributions from auto finance and credit card. Our estimates reflect the continued conservative credit posture that results in organic receivables growth of 3% to 5% as we focus on originating loans and cards that even if the macro environment were to worsen, we'll still meet our return thresholds. Note, the estimate also includes approximately $1 billion of acquired receivables from Foursight. 2024 revenue growth is expected to be 6% to 8%, this includes both interest income and, on the revenue, and is driven by our expected receivables growth, a modest improvement in yield from our 2023 pricing actions as well as contributions from Foursight. Interest expense is expected to be approximately 5.2% in 2024, illustrating the structural advantages in our balance sheet and our ability to shelter the impact of higher current funding rates. Full year consolidated net charge-offs are expected to be within a range of 7.7% to 8.3%. Please bear in mind this includes all products, personal loans, auto finance and credit cards and also reflects the growth math I discussed earlier. As we've noted, we expect losses to peak in 2024, and we expect to see normal seasonal patterns during the year with higher net charge-offs in the first half and lower net charge-offs in the second. As previously discussed, we expect our full-year 2024 operating expense ratio to improve from 7.0% to around 6.7%. At Investor Day in December, we laid out a medium-term path to $30 billion in receivables and a 5% capital generation return on receivables with charge-offs normalizing down to our strategic range of 6% to 7%. We are navigating the economic climate with great care, but at the same time, building the foundation for our future and we remain very confident we will achieve these objectives. Let me now turn the call back over to Doug.

Thanks, Micah. Hopefully, you will take away from our comments that we are confident about our competitive positioning, feel very good about our current underwriting posture and the management of our credit box and are optimistic about the opportunities ahead. We remain well positioned to grow once the environment becomes less uncertain. With best-in-class underwriting, a unique business model, a fortress balance sheet and expanding product set with a bigger addressable market and all of the differentiating factors we laid out at our Investor Day two months ago. Most importantly, we remain highly committed to being the lender of choice to the nonprime consumer, helping our customers meet their credit needs today, but also helping them progress to a better financial future. Let me end by thanking all the OneMain team members for their dedication and hard work throughout 2023, and their continued commitment to our customers each and every day. With that, let me open it up for questions.

The floor is now open for questions. [Operator Instructions]. Thank you. Our first question is coming from Vincent Caintic with Stephens. Your line is now open.

Hi, good morning. Thank you for taking my questions. I guess first question, if you wouldn't mind elaborating on that portfolio growth, mass dynamics, I guess, how does the pace of originations and that mix shift between the front and the back book effect, how we should be thinking about the delinquencies and losses playing out over 2024? Thank you.

Good morning. Vince, its Micah. Thanks for the question. I appreciate you joining us. I think you hit it right. This is definitely more about the timing of new originations. We think this is an important concept. We wanted to share with you guys how we analyze the portfolio at a granular level. We also wanted to -- I think it's important to understand why we feel good that the credit performance that we're seeing in the portfolio is moving in the right direction. I touched on it a little bit in the prepared remarks, but I can lay it out a little bit further. Second half originations this year were, as we showed, 10% below the second half of '22. So we're down 8% in the third quarter relative to the prior year period, down 13% in the fourth quarter. So it's, of course, due to our continued tightening and our pricing actions we've taken throughout the year. So what that results in is second half originations in 2023 making up just 27% of our year-end receivables. If you compare that to a year ago, that was 32%. Meaning second half originations in '22 made up 32% of our portfolio. So you can really see the impact there of our tightening that we've done this year. The 30 to 89 delinquency rate that you'd expect to see at year-end for loans originated in the second half is about 1%. The rest of the portfolio has a delinquency rate closer to four. So when you blend that together, you get to our total 30 to 89 delinquency. The takeaway here is that nothing's changed in the relative performance of our vintages and loans within our receivables base. We've just seen a mix shift with a greater percentage of our current portfolio coming from the older originations as a result of this slowing down. Again, purpose of this whole discussion is really to reinforce our commentary that we think credit is moving in the right direction. And if you just look at the 30 to 89 year-over-year, it's not necessarily that evident.

Okay. That's very helpful detail. Thank you very much for that. And I guess just a follow-up on that. When we think about that 2024 guidance, if you can explain the different assumptions between the NCO ranges. So when you think about that low end of 7.7% versus that high end of 8.3%? Thank you.

Thanks, Vince. Yes, so I mean that's obviously a little bit -- with delinquency, we know exactly what that mix shift is. Certainly growth math and our slowdown will be a part of our loss guide -- growth math and the pace of originations certainly is always present in any of these credit performance numbers. The 7.7 to 8.3, I would say, certainly, our pace of growth will influence where that number ultimately ends. Of course, the just natural performance of loans within the portfolio. So does the back book continue to perform the same way that we've seen it perform over the last few years, same with the front book. So those variations in our loss rate are accommodate for that. As we've talked about and set in our prepared remarks and also in our presentation, we do anticipate seeing peak losses in 2024. So within that 7.7 to 8.3 guide, we also anticipate seeing normal seasonal patterns, so that's higher in the first half and lower in the second.

Okay, great. That's very helpful. Thanks very much.

Thanks, Vince.

Thank you. Our next question comes from Rick Shane with JPMorgan. Your line is open.

Hey guys, thanks for taking my questions this morning. Look, essentially, the guidance suggests that charge-offs are going to hit a 10-year peak in the first half of this year and then start to receive. I'm curious how we should think about reserves, which are already reflecting that. Will your reserve rates start to come down before losses peak and ultimately, as you go back to sort of a normal loss rate, more in line with your long-term targets, what do you think the reserve rate will be?

Hey Rick, it is Micah. I think in terms of the timing of when the reserve will move around, it's a little tricky to call reserves are less sensitive to the periodic charge-offs than they are the delinquency levels and the expectations for the future. As we talked about before, CECL is a very elaborate model, a lot of inputs and assumptions. And it's also important to remember that it's a lifetime model. So we expect the majority of our first half losses, which as we talked about, are going to be elevated relative to second half. Both because of seasonal trends but also because the majority of those first half losses are going to be coming from the underperforming back book, which is still 57% of our delinquent receivables at the end of fourth quarter. And these loss expectations have been reserved for and been included in our model for quite some time, as you pointed out. The front book is performing well, continuing to perform the way we like it and in line with expectations. That made up 65% of our receivables at year-end, and that's going to be what really drives most of the lifetime losses expected under CECL, given that it is that lifetime model that goes far beyond 2024. So again, there's some puts and takes there. I think as we see this transition continue to take place in our portfolio, we see delinquency levels start to move down. And then, of course, our expectations of the macro environment going forward are also part of that model. That's when we'll start to see the model move itself in the right direction. It's hard to say exactly where that lands. A lot of this is a mix shift in the portfolio. We've got cards now. We've got an auto book that's growing, but if you go back to the original days of CECL in early 2020, relatively benign environment, we were around 10.7%. So I can certainly see us getting back to 11 context over time. I think another way to look at it is our allowance ratio today is 11.6%, and we think about 60 basis points of that is due to our macro-overlay. So I think all of this triangulates around the general area of about 11% is kind of a normal good environment CECL reserve for us.

Incredibly helpful answer, thank you guys.

Yes, thanks Rick.

Thank you. We'll take our next question from Michael Kaye with Wells Fargo.

Hi, seems like the year-over-year decline in originations, it's accelerating. You mentioned little bit tightened underwriting that pricing actions. But I'm trying to understand, I think how much of origination volume are you leaving on the table from these actions, particularly on the core personal loan product. And if you do decide to ramp up again, how much does marketing need to increase to get the origination engine really fully hung again?

Yes, thanks Michael. Good to hear from you. As I said earlier in the call, we're just taking a conservative posture right now on credit. There's still a fair amount of uncertainty in the macro environment and a fair number of cross currents. Unemployment is a bright spot, but some people can't get as many hours as they had and some people are losing jobs even though the overall picture is good. Inflation, while it's moderated is still impacting customers because prices remain elevated, even though they're not growing as much year-over-year. And then we've still got interest rates. So there's still just a bunch of cross currents in the environment. I also mentioned and Micah have mentioned, we really like the performance of our recent vintages. So where the box is now is we're booking really good business. And it's a really good competitive environment. So we're still able to pick our spots and book good business where it is. We often talk about a tightened credit box, but I'll just repeat what I've said before. There is no big credit box. It's very, very granular by state, by the risk of a customer, by the product that they choose or we offer them by the channel that it comes in. And so we are cutting the credit box more than we're opening, but we're doing some of both all the time on a very granular level. The net is cutting. We also have what we call weather vein. So we're always booking a small amount of business right below our credit cutoff. So we can see how that performs and get a sense if we're, like you said, leaving money on the table. I think the punchline is there's a decent chance we're leaving money on the table right now, but we're being conservative, and we take being stewards of our shareholders' capital very seriously. And when we're ready to ramp up, I don't think it's going to take a big turnaround. We already have our marketing. We've got direct mail campaigns. We've got e-mail campaigns. We've got affiliate channels and partners. We now have auto dealers where we can have different things happening. We've got a lot of social media and digital. And so all those levers are still running at different levels, so it would be pretty easy for us to ramp it back up. What I will say is we still have very strong demand because of the competitive environment. We've been in the market. People like our product. And so we still have -- we could be booking more business today if we wanted. We're just choosing not to.

Okay, that is great. Second question, I apologize if I missed this, but the $1 billion of loans you're acquiring from Foursight. I don't know if Micah had mentioned, but what's the initial reserving look like on that? Is that going to hit the C&I segment? Or is that going to go through GAAP separately?

Yes, Michael, unfortunately, I've been around since the OneMain acquisition, so I kind of have a good sense for how this is going to work. We'll handle it the same way, which is to preserve within our C&I reporting the historical method of accounting. And I think that works really well because it allows all of us to see the actual real performance that Foursight will contribute. There's a lot of noise that comes out of purchase accounting, as you know. We will hold all of that purchase accounting below C&I. So we'll give you transparency to it, of course, but it is really all about timing and recognition of earnings. And so both our marks and adjustments to the balance sheet that will accrete or amortize over time associated with acquiring that balance sheet will move through outside of the segment outside of or the area outside of C&I as well, what I'll call, the day 2 CECL reserve, which is what you're referring to. The gap still requires you to book that day 2 CECL reserve on a portion of the acquired portfolio, I don't want to get into too many specifics. We will hold that outside of C&I again because it's going to accrete up over time based on the runoff of those receivables. And so there's some accounting moving through the FASB to eliminate that concept. But for now, it still exists, but we're going to keep that pure for you and outside of the C&I numbers.

But I mean how -- I mean you have $1 billion of loans coming on the balance sheet. I mean what should we assume the allowance goes up to account for that. If we assume nothing and your allowance ratio is going to have a pretty big drop. Is it like fair [indiscernible]?

Yes, again Michael, we will basically assume that the opening balance sheet for C&I purposes associated with Foursight, those balances will already exist for the C&I purpose. So they will be in our CECL reserve. We're just going to have to make an adjustment to the starting point for you. It's not going to run through earnings like that.

Yes. Okay. Got it.

If you remember, the balance sheet concept is really only at a total GAAP level. So we'll make the adjustment. You should feel comfortable, and we'll certainly be able to walk you through the math of that.

But how much of the adjustment is going to be? Is it fair to assume, let's say, mid-single digits percent of the $1 billion?

Mike, I don't know that yet. I think that's going to be a matter of how we build this model. I will give you the data. I don't have it yet.

Okay, thank you.

Thank you. We will take our next question from Moshe Orenbuch with TD Cowen. Your line is open.

Great. Thanks. And I guess, first with respect to this -- your front book, back book kind of performance you talked, you did talk a lot about delinquencies. You alluded to the charge-off performance and difference. But is there a difference in terms of how those portfolios are rolling to charge-off from delinquency?

Not particularly, Moshe. I think with our customer base, once you get a couple of payments past due, it's pretty challenging for them to move forward. I mean, we've done what we can with some of our borrower assistance tools to help customers, lower payments in the later stages of delinquency. But I would say it's more the frequency of loans running into early-stage delinquency, that is the differentiator between the front and the back.

And Micah, would you think that would improve to the extent that as time goes on, the inflationary environment is less painful? Or is there less likely to see any improvement?

I think that is the case. We're seeing -- particularly with like rents, for instance, rents are up significantly has been widely reported from 2019 levels, our average rent for a customer was about $600 and now it's closer to $900. So some of those pressures are certainly causing some trouble for certain non-prime consumers and again, particularly the renter class. But if we start to see some of that come down, I think that creates certainly immediate cash flow relief for our consumers, and we'll see that impact us all throughout our delinquency metrics, whether it's entry or back end or even recoveries.

Yes. And just last one for me, and that is the growth expectations, and you've addressed this to some extent. And despite the fact that you say that it is a very favorable environment, the growth expectations are kind of -- kind of at the lower end of where you've been historically, particularly for the core product. Is there any way to kind of dimension like how you would think it could be better or less good than that? What sort of external factors, we would be able to see that would give us a sense as to whether you're turning that up or down a little bit.

Yes. Look, Moshe, I've said over and over, growth is an output. We're going to make sure we book business with customers that we think can be successful, which means they pay us back and they keep good credit. And we're going to err on the side of conservative. I mean, the factors that drive it is one, our marketing, do we reach the right people; two is our value proposition. And I think we have now really honed our value proposition around secured loans, unsecured loans, smaller dollar loans, two types of card, fee card with a smaller line and no fee card and now we've got auto distribution to add to the channel. So we've got a range of products we can offer. Then there's the customer experience when someone actually comes, what's it like, either talking to one of our team members interacting digitally, and we've done a lot of investment around that, and we think we're really well positioned. And then the overriding factor of that is our credit box. We've now for a while, had a credit box that has the models we run, which is our historical performance, what we're seeing with delinquency, and again it's not just one credit box, it's the type of customer, the channel they come in, have they done business with us before, the state they're in because we can do different pricing. But right now, we have a macro-overlay of an extra 30% stress. So all things being equal, we're basically saying we're only going to book business if credit gets 30% worse than we think it's going to get because we want to be conservative. I think what we'll see is depending on -- we'll see payments coming in, we'll see the credit results, we'll see what's happening with our weather vein. And we'll also see what's happening externally with the macro. What's happening with employment, what's happening with inflation or interest rates coming down and our people spending more. There's all the external macro. So we're running it very tightly, but right now, we're taking a conservative posture because even though all the economic indicators, when you read the papers, and turn on CNBC, everyone thinks the economy is great. It's not so great for every person in the country and the less money you have, the tighter it is for you. And so that's why we're running things very conservatively right now. But let me just add. At the end, we are booking great business. And the business we're booking today, we feel really good about. And so what we're encouraged about is we talk about it as our front book or our newer vintages that is business, that is meeting our historical return threshold that is -- the credit is trending more towards historical norms, which gives us a lot of confidence that we can keep booking that business incrementally. Hopefully, we'll be able to book more as some of those factors play. But whenever the economy turns, we're going to be really positioned for growth.

Great, thank you.

Thanks, Moshe.

We'll take our next question from Terry Ma with Barclays. Your line is open.

Hey, thanks. Good morning. Can you maybe just talk about your confidence level and time frame for kind of drifting back to that target underwriting loss range of 6% to 7%. Is that a 2025 event or kind of like post 2025?

Good question, Terry. It's a very difficult one to pinpoint. I think we're focused on 2024. We know that the book we're underwriting today from a front book perspective, we know that those balances are tracking to an expected loss in that 6% to 7% time frame. So a lot of this is going to be determined as to how quickly that back book becomes the majority or the Lion's share of our delinquency and loss. So I think you're certainly 6% to 7% based on our guide for 2024, you're certainly looking at 2025 kind of event exactly when in 2025, our quarters reflect that 6% to 7% is will remain to be seen. But we still feel confident that it will get there. It's just a matter of which quarter we're going to see that in.

Got it. And if I look at your net loss guidance range of this year, that assumes stable macro, but the high end of that range is actually pretty similar to what the legacy entity realized in 2008. So can you maybe just talk about what additional actions or measures you can take if the macro were to get a lot worse?

Well, I think as you just heard Doug say, even if the macro were to get worse, we're still going to be booking loans, the same loans we're booking today because we've already incorporated that expected stress in our returns. I think as it relates to the net charge-off range, certainly, I think our range is comfortable enough that we feel. We've got some movement even if the macro changes. I think when we say stable macro, it doesn't mean it's completely unchanged. It just means it has to be somewhat like it is today. And if we were to see unemployment double, for instance, I think that would be a change in the macro environment that I wouldn't call necessarily stable. So that just gives us a little bit of room. Certainly, our pace of originations, as we've talked about this concept that could move us also within that range of 7.7% to 8.3%. So if we continue to say, tighten and reduce that denominator, we could end up at the high end of that range. If we start to grow towards the middle of the year, we can move towards the bottom end. So there's a lot of factors that go into that. But certainly, we wanted to call out that we've assumed in there that there's no large change to the macro environment within that range.

Okay, great. Thank you.

Thanks.

Thank you. We will take our next question from Mihir Bhatia with Bank of America. Your line is open.

Good morning and thank you for taking the question. Just wanted to -- maybe just to start, I wanted to follow up on Rick's question. Just given the credit profile of the portfolio is improving as more of the book is from the front book. Why is the allowance ratio not declining? Like has the macro assumption got worse. Like I understand your -- like your life of loan losses, right? So presumably, the front book, which has better credit profile has lower life of loan losses than the stuff that's running off from the back book. So why is the reserve ratio just stable and not improving right now?

Yes. So again, as I said earlier, CECL is a pretty elaborate model and there's a ton of assumptions in it. And it is also lifetime. And as I said, the majority of our first half losses are coming from the underperforming back book. So that is certainly part of our CECL reserves as is the losses that will come from our underperforming back book in the second half. And I also mentioned that the front book makes up 65% of our receivables. That's going to drive most of the lifetime losses. But those two things are sort of working against one another. We've also got a macro factor in our reserve that assumes we see continued stress. And so that macro factor is about 60 basis points on a dollar basis, it's about $140 million. And that says we're going to continue to see some stress in our portfolio. That is where we will -- once we start to see delinquencies come down, once we feel more confident in the macro environment, we will then feel confident in moving those reserves down. And Mihir, I mean I've said a number of times on these calls, I think there's we want to be really certain before we start moving reserves down that we're going to see sustained improvement. It does nobody any good for us to move those things around from quarter-to-quarter to a great degree.

Got it. I appreciate that. That makes sense. Maybe just taking a step back at a higher level. Can you talk a little bit about just the competitive intensity right now? I mean it sounds like you're tightening underwriting a little bit. But like obviously, last year, you've seen a big pullback from the Fintechs that used to play a lot in this space. Are you seeing them come back? How are you thinking about that over the next year? And in your guidance, do you expect the environment to continue to be similar where you have more demand than the actual stuff that you can actually book or you want to originate right now?

Yes, thanks, Mihir. Look, it's a really good competitive environment for us. What I would say is going back to '21 and early 2022, there was a ton of supply in the market, and there was a fair amount of irrational pricing, meaning people were making loans to people with high expectations of losses at 10%, which just didn't make any sense, and people lost a lot of money when that happened. In '22, early '23, a lot of our competitors just couldn't get funding. And so we had a pretty wide-open market. But that shifted by mid-2023. I think it was back to a more normal competitive environment, where prices had risen, people with really strong balance sheets like us, had plenty of money to loan. People who didn't have as much history or not a strong balance sheet, both had tighter credit box, higher pricing and had to find funding, which was more expensive and harder to find. We've looked hard at the environment. I think right now, overall, the amount of loans being made is less than it was pre-pandemic, but it's higher than it was a couple of years ago. All of this leads us to say we plan to win, and we plan to do good business and we plan to serve customers regardless of what's happening with the competition. I mean we have a healthy amount of respect for the competition. But that's why we've built out digital originations. We've expanded our product set. We've expanded our channels. And so your question, does the growth take into account the competitive environment, it would have to change a lot for us to have to change our strategy due to the competition. I mean we kind of stick with our knitting. We have a long-term view. We stay in the market. We're incredibly disciplined around credit and it served us well. We continue to look, and we have in our deck on Slide 11, our credit results continue to be better than competition. And so I think it's because we have a long-term view, and we make sure that we're comfortable with the business we're booking.

Thank you for taking my questions.

Yes, thank you.

Thank you. We will take our next question from Arren Cyganovich with Citi. Your line is open.

Thanks. I was just hoping you could give a little idea of the magnitude of net charge-off rate increase in the first half versus the second half. I think typical seasonality, the first quarter tends to be the highest and improves in the second quarter. It sounds like the dynamics will be maybe a little bit different this year?

Yes. I think generally speaking, Arren, it's Micah. We're typically what we will see in the first half is a loss rate that's about 100 basis points higher than what you will see in the third quarter with something a little bit in the middle of those two in the fourth. So the natural trend of 30 to 89, which starts the clock on charge-offs is for 30 to 89 to kind of bottom out in February, March during tax season. And then it begins to rise throughout the year. I think just a general seasonal trend, you would follow charge-offs six months later, effectively. And as long as that relationship holds then you would expect to see that the charge-offs will be lowest in the third quarter; second lowest in the fourth and then highest in the first and second.

Got it. All right. Thank you.

Hey, everybody. Thanks so much for joining us today. As always, we're available for follow-up questions, and we look forward to seeing everybody soon.