OneMain Holdings, Inc.

Welcome to the OneMain Financial First Quarter 2020 Earnings Conference Call and Webcast. Hosting the call today from OneMain is Catherine Miller, 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. If you would like to ask a question at that time, please press star 1 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from queue by pressing the pound key. We do ask that you limit yourself to one question and one follow-up, and please pick up your handset to allow optimal sound quality. Lastly, if you require further assistance, please press star zero. It is now my pleasure to turn the floor over to Catherine Miller. You may begin.

Thank you, Stephanie. Good morning, and thank you for joining us. Let me begin by directing you to pages 2 and 3 of the first quarter 2020 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. 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 and include the effects of the COVID-19 pandemic on our business, our customers, and the economy in general. 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, April 28th, and have not been updated subsequent to this call. Our call this morning will include formal remarks from Doug Shulman, our President and CEO, and Micah Conrad, our Chief Financial Officer. After the conclusion of our formal remarks, we'll conduct a Q&A session. So now let me turn the call over to Doug.

Thanks, Catherine, and good morning, everyone. Before we get into a discussion of this quarter, I'd like to first acknowledge that this is a challenging time for everyone. We'd also like to express our deep gratitude to all of those on the front lines of this crisis. And I'd like to give a big thank you to all of the one main team members who have really stepped up to serve our customers during this difficult time. At OneMain, we are first and foremost focused on the well-being of our customers, team members, and the communities we serve. We believe our customer, the average American, is resilient. They are hardworking, employed across a wide variety of industries, ranging from healthcare to manufacturing to education, government, and transportation. We are committed To helping our customers through this time of uncertainty. Because of our essential role in providing credit to hardworking Americans, we have remained open to provide service in person, on the phone, and through our digital channels. For our customers who have experienced economic hardship as a result of COVID-19, we are working with them to provide individualized borrowers assistance. About 6% of our customers have availed themselves of one of our borrower's assistance options this month. We've also temporarily waived late fees for payments and suspended credit bureau reporting to help customers with newly delinquent accounts. We have also expanded and enhanced our remote closing capabilities, resulting in approximately 50% of our present customer renewals for the first three weeks in March closing outside of a branch. These closings still include a detailed conversation with one of our team members and ability to pay underwriting. In addition, we have started seeing an uptick in claims for unemployment insurance. This valuable product that we offer to customers will cover loan payments for those who lose their job One of the unique strengths of our model is our local and intimate customer relationships. It is times like these when our model is more important than ever. We've also supported our over 9,000 team members and the communities within which we operate. Our central operations functions implemented work-from-home protocols with minimal disruption, and we have adapted the branch processes to protect employees while also remaining open and available to our customers. We've donated $1 million to the Feeding America Response Fund and the CDC Foundation Emergency Response Fund and have also rolled out other philanthropic initiatives across the company. Many of our customers have done business with OneMain for many years, and providing them support during these difficult times is a foundational principle of our company. As we highlighted in our Investor Day in November, we have a strong foundation which makes us uniquely well-positioned to navigate all economic climate. Our long-standing key priorities have always centered around strong and stable credit performance, a disciplined approach to originations, and a conservative balance sheet with a long liquidity runway. These priorities remain the same in the face of this pandemic. Over the last couple of years, we've taken numerous intentional steps in anticipation of and preparation for a potential downturn. Our business has more than enough operational and financial flexibility to respond to a weakening economic climate. We have deep experience with and proprietary data on the non-prime consumer. We have originated $145 billion of loans since 2006 and have served this customer through previous economic cycles. Our current loan portfolio was originated and constructed with a requirement of profitability through an 08-09 severe recession. In addition, for the last two years, we have been mindful of the late cycle dynamic and have underwritten our loans with that in mind. Our secured lending is also an important component of our portfolio risk management. Having collateral reduces the frequency of loss by about 50%. We have a hybrid operating model that enables us to dynamically reallocate resources to provide efficient and effective support to our customers. This includes a fully scaled team of over 1,000 employees Exclusively focused on collections and 6,500 employees in the branches who have reallocated more of their time towards servicing. We generate healthy returns on our receivables, providing cushion to absorb even a dramatic increase in losses. And we have a conservative balance sheet with prudent leverage and a long liquidity runway that enables business continuity and minimizes our reliance on the capital markets. With $4 billion of cash and $3.6 billion of undrawn bank lines, we have liquidity through the end of 2021, even in an extreme scenario assuming no access to capital markets. In the first quarter, the fundamental drivers of our business were healthy. and the underlying economics of our performance were strong prior to COVID-19. Our C&I adjusted net income was $45 million and our after-tax loan loss reserve bill was $176 million. However, as I've said before, we run our business based on capital and cash generation. C&I adjusted net income excluding loan loss reserves, which we believe is a good proxy for capital generation, was $221 million for the quarter and represented a 22% increase year over year. These results serve as a reminder of the core strengths of our business, which you've heard us talk about for the last two years. Our delinquencies for the quarter were running in line with expectations until the second half of March. Consistent with other consumer lenders, we did experience a moderate increase in 30 to 89-day delinquencies by about 32 basis points year over year at the end of March. However, this trend appears to be somewhat moderating in April. We believe this improved performance in April is attributable to enhanced borrower assistance as well as the government stimulus payments. And we've seen a very healthy payment trend over the last couple of weeks. Given the economic uncertainty, we have proactively cut back on the highest risk originations. We tightened our underwriting as well as employment and income verification standards. and effectively reduced our credit box by approximately 25%. These credit tightening measures, combined with reduced customer demand, are resulting in significantly lower originations in the month of April and likely lower originations over the coming month, as stay-at-home orders remain in place and economic uncertainty remains high. While it is still early days in the current downturn, and we anticipate a high level of uncertainty in the near term, we are actively monitoring the environment and economic outlook. We were early and quick to cut back on origination, but we will remain prepared to be opportunistic as the outlook becomes more clear and attractive risk-adjusted return opportunities present themselves. We will be as prudent on the way out as we were on the way in. However, one main is uniquely positioned to capitalize on the opportunities which may arise from this dislocation. Now, let me discuss portfolio stress testing. Back in November at Investor Day, we walked you through an 08-09 severity stress test scenario. with a significant spike in unemployment to between 9% and 10% for a full year, followed by a gradual decline back to mid-single-digit unemployment over four years. Under that scenario, which was adjusted to take into account the composition of our current portfolio, our simulated portfolio losses could increase by 1.6 times. Implying annualized stress losses of just under 10%. In this scenario, our business would still be profitable. Our strong return on receivables serves as loss absorption capacity. Our full year 2019 return on receivables was about 5.5%. Our 2019 losses would have to more than double to exceed our income generation. And this doesn't even take into account other actions that we are taking, including tightening underwriting, reducing expenses, and other actions that would expand our loss absorption capacity even further. As you've seen Economists and market participants have a wide range of estimates for the economic impact of COVID-19. We know that the sudden unemployment increase is unprecedented. What we don't know is where the unemployment rate will settle once we are through the stay-at-home order phase of the pandemic. That is the number that will ultimately determine our losses. Although it could be mitigated, by the unprecedented government support being given to working Americans in the form of stimulus checks and enhanced unemployment benefits. Regardless, we have added stress factors above and beyond our 08-09 severe stress case, and under any scenario, we feel confident in our liquidity position. In terms of capital management, Our conservative balance sheet and robust liquidity position remain a unique source of strength. Over the past couple of years, we have repositioned our balance sheet to ensure stable long-term funding and a long liquidity runway. As you know, we added more unsecured, long-tenured debt to our capital stack and staggered maturity to make us very resilient As a benchmark issuer in the ABS and unsecured markets, we priced a $750 million ABS transaction last week as the first personal loan issuer to access the markets post-COVID-19. This illustrates our differentiated position in the capital markets and our ability to access liquidity. During this period of uncertainty, we have refocused our capital allocation priorities to preserve our strong balance sheet, including tightening our loan origination criteria and suspending our share buyback. Importantly, we are confident that we can maintain our regular dividends. which was instituted at levels that could be sustained even in the event of a severe recession. The ways in which we work and engage with each other has changed dramatically over the last month. With every week that passes, we learn new information and adopt further to the evolving environment. Regardless, we have spent decades building and fortifying our business to ensure We are confident that we are operating from a position of strength as we navigate the uncertainties that lie ahead. So with that, let me turn it over to Micah.