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OneMain Holdings, Inc.  (NYSE:OMF)
Q1 2019 Earnings Call
April 30, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the OneMain Financial First Quarter 2019 Earnings Conference Call and Webcast. Hosting the call today from OneMain is Kathryn 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 for your questions following the presentation. (Operator Instructions)

It is now my pleasure to turn the floor over to Kathryn Miller. You may begin.

Kathryn Miller -- Head of Investor Relations

Thank you, Maria. Good morning and thank you for joining us. Let me begin by directing you to Pages two and three of the first quarter 2019 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 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 30th, 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.

Douglas H. Shulman -- President and Chief Executive Officer

Thanks Kathryn, and good morning everyone. I'm very pleased to be with you today. 2019 is off to a great start. We achieved strong results across many of the key drivers of our business during the first quarter. Let me take you through a few. Consumer & Insurance earnings were $1.37 per diluted share up 16% year-over-year. Credit continued to be strong. Our net charge-off rate was 7.1% a 10 basis points improvement from the same period last year. And both our early and our late-stage delinquency rates declined year-over-year.

Our operating expense ratio also improved down 30 basis points from the first quarter of 2018. We also made further strides in our funding liquidity during the first quarter. As I said before we are very committed to having a conservative balance sheet with a long liquidity runway. As Micah will go through in greater detail. We issued $2.3 billion of secured and unsecured debt at attractive rates this quarter and we expanded our conduit capacity by another $250 million. Overall we had a great first quarter. We're well on our way to achieving the strategic priorities we outlined for the year all of which are targeted at enhancing the core strengths and earnings generation of our business.

Before I turn the call over to Micah to review our quarter's results in more detail. I'd like to highlight some of the ways in which we are building on our strengths. First our return profile. Our hybrid business model with a national branch network robust central collections and servicing and digital capabilities is driving strong results. Our C&I segment generated a return on receivables of 4.7% in the first quarter about 40 basis points better than last year driven in part by our credit performance and stronger operating leverage. But we are not standing still. We're continuing to invest in our customer experience including improved technology in our branches a streamlined application process advanced analytics and other innovations. These will lead to an enhanced customer experience and increase productivity of our teams.

Our secured lending reached 49% of ending net receivables in the first quarter representing all of the growth we've achieved in the last two years. This enhances the stability and resiliency of our business. We are also proactively ensuring the resiliency of our business through our approach to funding and liquidity. As we discussed in the past, we've been lengthening the average duration of our unsecured maturities which is now around 4.5 years. We have also staggered the timing of our unsecured securities or unsecured maturities, so that no more than 20% of our total debt comes due in any given year. And as we've shifted more toward unsecured debt we've increased our unencumbered assets and strengthened our liquidity profile giving us significant liquidity runway even in the event of disruptions in the capital markets.

Lastly, as you all know by now with the return on tangible common equity in excess of 25% our business generates considerable capital. As we continue to prioritize disciplined underwriting a conservative balance sheet, operating leverage and customer experience we expect continued profitability and strong capital generation. In this year, as I mentioned in our last call we're focused on deploying our capital by deleveraging to six times reinvesting in the business and paying dividends to our shareholders. Over time we will continue to allocate the considerable capital that we generate in a manner that best builds long-term shareholder value.

With that, let me turn the call over to Micah.

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Thanks Doug, and good morning. Our first quarter results were strong across the board. We earned $152 million of net income or $1.11 per diluted share. This was up from $124 million or $0.91 for the same period last year. Our C&I segment earned $187 million on an adjusted net income basis or $1.37 per diluted share. This compared to $160 million or $1.18 in the first quarter of 2018. As we've highlighted in the past our GAAP and C&I earnings will continue to converge driven by the declining impact of acquisition-related charges and purchase accounting. Non-C&I impacts in the first quarter included pre-tax charges of about $20 million related to the redemption of our December 2019 debt maturity. We expect non-C&I impacts to run approximately $90 million on an after-tax basis for the full year of 2019.

Let's move on to the key drivers of our C&I financial performance. Originations for the quarter were $2.6 billion of which 56% was secured up from $2.5 billion and 44% secured last year. Ending net receivables were $16.2 billion reflecting $1.3 billion of growth year-over-year. Our secured portfolio over the same period grew by $1.5 billion which will continue to enhance the profitability and stability of the business over longer term. Yield in the first quarter was 23.9% an increase of about 10 basis points compared to the first quarter of 2018.

The increase generally reflected an improved 90-day delinquencies which led to fewer income reversals in the quarter. Our origination APRs remained stable despite our secured growth so we continue to expect yields at this level for the remainder of the year. Interest income was $954 million up 9% from last year's levels. This increase primarily reflected higher-average receivables and higher yields. Total other revenue was $151 million in the first quarter up 14% versus last year due to the higher investment income. This was largely driven by positive mark-to-market adjustments on equity securities in our insurance portfolio as well as higher interest income on our cash balances.

As Doug mentioned credit performance was strong across the board. Our 30 to 89 delinquency rate was 1.9% for the first quarter. Our 90-plus delinquency rate was 2.1%, and our net charge-off ratio was 7.1%, an improvement of 10 basis points versus the same period last year. Our loan loss reserve decreased sequentially by $8 million or 10 basis points to 4.7% of receivables. This decline generally reflected typical seasonality as well as the benefit of our portfolio's higher secured mix.

First quarter operating expenses were $309 million an increase of 4% year-over-year largely reflecting inflationary increases and investment in the business. With 9% growth in average receivables we continue to leverage the scale of our platform and delivered 30 basis points of improvement in our OpEx ratio.

And lastly, interest expense was $229 million in the first quarter up from $194 million a year ago. The increase primarily reflected both higher-average debt balances as well as a greater proportion of unsecured debt. Now that we've reached our targeted funding mix we expect interest expense to level off between $230 million and $240 million per quarter for the remainder of 2019.

Now onto our balance sheet. As you know we've been very focused on enhancing our capital funding and liquidity and over the last year in particular we've continued to deliver our balance sheet, balanced our funding mix, extended the average duration of our unsecured maturities and significantly streamlined our liquidity. We built on this progress in Q1 as we continue to successfully access the debt markets. From a secured debt perspective we issued a total of $1.3 billion in ABS at rates below 4%. This included a two year revolving personal loan offering of $600 million as well as a five year revolving direct auto issuance of $700 million our largest long-tenure revolving transaction to date.

We also issued a $1 billion of five year unsecured notes at just over 6%. This allowed us to redeem a 2019 maturity of $700 million as well as a 2020 majority of $300 million, the latter was completed in mid-April. As Doug mentioned the average tenure of our unsecured debt is now 4.5 years and our net scheduled unsecured maturity is not until the end of 2020. Our tangible leverage ratio was 6.8 times at the end of the quarter. We remain on track to reduce our leverage to six times by year-end, while also continuing to access the debt markets when favorable.

In fact excluding the impact of the excess cash that resulted from our opportunistic debt issuance leverage would have been about a 0.5 return lower. We also further diversified our sources of liquidity during the quarter. We added 11th conduit bank to our roster and expanded our total undrawn capacity to about $6.2 billion. We had $6.9 billion of unencumbered assets and also of $1.7 billion of cash. The liquidity sources along with our longer maturities provide significant runway without accessing the capital markets. All in we drove a very strong results in the first quarter both in terms of our operations as well as our balance sheet.

And with that, I'll turn the call back to Doug.

Douglas H. Shulman -- President and Chief Executive Officer

Thanks, Micah. We're very pleased that the business is in such a strong position. We're going to continue to focus on the major levers of the business to build on this performance. We will manage credit prudently to ensure that we maximize risk-adjusted returns. We will continue to have a conservative balance sheet with a long liquidity runway. We will ensure that we provide a great customer experience through our differentiated business model with branch central and digital capabilities and we will continue to drive operating efficiencies in the business.

So with that, let me thank you for joining us and I'll turn the call back over to the operator for Q&A.

Questions and Answers:

Operator

Thank you. The floor is now open for question. (Operator Instructions) Thank you. Our first question is coming from John Hecht of Jefferies.

John Hecht -- Jefferies -- Analyst

Good morning, guys. Thanks very much for taking my questions. Welcome, Micah. First question is $2.5 billion of originations. I'm wondering number one is do you guys have any stats of -- what the composition that is in terms of new and recurring customers? And then the second question would be Doug you mentioned investing in the customer experience. I'm wondering on the front end what you guys have been investing and what it means for kind of the loan approval process?

Douglas H. Shulman -- President and Chief Executive Officer

Yes. So, we don't break down the new and existing, but we have a nice mix of returning customers and new originations really across all of our product lines. When it comes to the customer experience we're very focused as a team and as a company on making sure we provide great value, great products to our customers as they try to access credit and then also the experiences as easy and seamless as possible. And so we do it in a number of ways, first our branch pay in-person relationship model has proven to be a great one. And so the first thing we do is we make sure we have great people in our 1,600 branches across the country that they're well trained and that they know our priority is putting the customer first. So we are investing a lot in training and development.

We're also investing in our customer facing technology both in the branches and online. In the branches, we're rolling out a new online experience for people in the branches so they can walk through options, see what they have and so we're making sure we have enhanced screens. We're also putting iPads in the branches so people can do things while they wait and we can do things like upload, chats and take pictures of cars when we're making loan secured by auto. I think in the online we're continuing to make sure both our things like our landing page and the flow-through and customers come into learn about us are best-in-class and acceptable easy to understand.

And we're also investing in making sure that our application process is as streamlined and simple as possible. And so we're really taking kind of top to bottom view both how we engage with customers in person, how we engage with them on the phone when they talk to somebody in one of our call centers centrally and also that how they invest -- or how they engage with us online. And so we're really doing work across the board.

John Hecht -- Jefferies -- Analyst

Great. Appreciate the color. Thanks.

Operator

Our next question comes from the line of Michael Kaye of Wells Fargo.

Michael Kaye -- Wells Fargo -- Analyst

Hi, good morning. It looks like the year-over-year change in originations you know it's continue to moderate of the last few quarters. I was just wondering what are you really seeing on the loan demand side of the equation from your customers? Also I'm interested to know if you've been tightening your underwriting, perhaps, around edges as we're later in the credit cycle?

Douglas H. Shulman -- President and Chief Executive Officer

Yes look, first of all there's tremendous demand for credit and lot of our customers are ones that are underserved more broadly in financial services in the financial market. The key for us is we always get a lot more applications than actually meet our risk/return profile. And so the way we talk about it is we want to book every single loan with customers that want to do business with us that we want to do business with them and that's determined by our risk and return requirements and the credit profile.

And so we've this combination of excellent marketing so people know about us; a good customer experience which I talked about so when people come in that they flow through our process well; and then it ends with our begins and it ends with our credit underwriting order to make sure we're disciplined. What I would say about our underwriting is we're continually tweaking our underwriting, a to make sure we using artificial intelligence and best-in-class technology so we keep learning and evolving as we go. We have certain customers that only qualify for a secured loan. And so yes we have been, look we're being, I'd like to talk about the prudent with our underwriting. Over the last 12 months we have done some tightening around the edges and we'll keep looking at that recognizing that we're 10 years into an economic expansion.

Michael Kaye -- Wells Fargo -- Analyst

Alright. Makes sense. On the second question is you continued to have good momentum with your secured originations. I know you don't mix the secured as it necessarily an outcome you try to solve for, but just wondering your sense on how much further penetration you're seeing in your core customer base with the secured lending product?

Douglas H. Shulman -- President and Chief Executive Officer

Yes look we think our secured product, we've two of them are really great product for customers. We give customers choice based on the loans they qualify for. And like I said some customers a lot of customers qualify for both an unsecured and the secured loan, some just qualify for a secured loan. As you said we're not solving for a particular outcome because we give our customers choice. As a result the mix of originations are going to fluctuate from quarter-to-quarter. With that said, we do think there's room to grow. We anticipate the portfolio will get to 50% or over 50% later this year secured just based on what we've seen on customer demand over the last several quarters.

Michael Kaye -- Wells Fargo -- Analyst

Great. Thank you.

Operator

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

Eric Wasserstrom -- UBS -- Analyst

Great. Thanks for taking my question. A couple of different questions. First just on pricing conditions. Can you any changes you think about underwriting standards -- some of the other topics that you've just touched on? Is that been reflected on in pricing at the stage?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Eric, this is Micah. I would say it's included in our pricing today, I mean, we continue to from time-to-time, test our pricing and ensure we're competitive in the markets, but and again I think Doug talked about with respect to how we are underwriting the mix of secured etc is reflected in our pricing. And as I mentioned even with the higher mix of secured originations, our APRs do remain stable. That gives us confidence in the remainder of the year that we expect yields to also remain stable.

Eric Wasserstrom -- UBS -- Analyst

Got it. And then just in terms of reserve adequacy. How are you approaching that topic at this point?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

In terms of our current reserves?

Eric Wasserstrom -- UBS -- Analyst

Correct.

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Yes, I mean, we go through a process as most companies do every quarter to evaluate our reserves. As you can see from our numbers the reserves have been very stable for the last as many quarters that I can remember. We are 4.7% as a percentage of receivables this quarter. What that reflects is the continued mix toward secured lending and the lower loss rates that come along with that.

Eric Wasserstrom -- UBS -- Analyst

Got it. And just lastly, how should we think about operating leverage for you guys sort of on a medium-term horizon?

Douglas H. Shulman -- President and Chief Executive Officer

Yes, I mean, we continue to drive operating leverage as we saw from the results. I'll note that we're running the business with long-term priorities in mind. So as Doug mentioned, we're investing for the future, we're also driving efficiencies in the business. And both of those will of course materialize into the expense number, but there's also the other component of operating leverage which is receivables so we continue to drive receivables growth with less than equal growth in OpEx and continue to drive that leverage as a result.

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Yes, I would just add, there's inherent operating leverage in our business in that we're a scale business. We're nationwide. We've got cost space some of which is fixed and so -- and the incremental revenue doesn't necessarily bring with an incremental cost. And so that's part of the operating leverage you're seeing. Also we're very focused on being a disciplined management team which is we're going to drive costs out of the business for anything that we don't think adds value to our customers or our resiliency or our stability or our risk profile. So as a management team, we're being very disciplined about making investments in the business to position us for the future, but also cutting things that aren't adding value at the current time. So there's both inherent operating leverage and then also management discipline that we're layering on top of that.

Eric Wasserstrom -- UBS -- Analyst

Great. Thanks very much.

Operator

Our next question comes from the line of Rick Shane of JPMorgan.

Rick Shane -- JPMorgan -- Analyst

Hi, guys. Thanks for taking my questions this morning. I want to look a little bit forward on the reserves as we move to a CECL environment. Historically, your reserve policy has been a little bit shorter than some of the other consumer finance companies that we look at. I'd love to get your thoughts sort of, by the three products, what the reserve -- how you'll think about the reserve levels going forward. And then the second question is, look, you guys have the advantage of not being a bank, and so you're not tied off in the bank capital requirements. I'm curious if you've had conversations with the rating agencies how they will be looking at essentially moving from capital to reserve and will they be sort of looking at that on a more holistic basis.

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Yes. Rick, good morning. This is Micah. So -- well, into your first question, first, which was the reserve levels, how we think about it. When we build our reserves, as you noted, we have a 7.5 or so -- somewhere in the range of seven to eight month loss emergence policy. And of course, we follow GAAP for our reserves today. We do look at that by product, and we roll up the reserves. So products have different dynamics obviously with payments speeds and losses, etc. So we've look at that obviously on a quarterly basis. When we think about CECL, we are working through the various CECL scenarios and what that means for us. We don't have anything new to share in terms of numbers at this point. But we're in the process of, as many other companies are, running our models in parallel. We expect to have something for you later in the year.

In terms of the rating agencies, we don't -- we are in a lot of conversations with the rating agencies about how they're thinking about it. We certainly don't speak for them. So I would probably want to ask them what their views are today. But we -- I would note that we did receive rating upgrades from both Moody's and S&P. Right after the first quarter earnings, we announced our dividend and also with CECL very known and on the horizon.

Rick Shane -- JPMorgan -- Analyst

Got it. Hi, Micah, thank you very much and congratulations on the new job.

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Thank you, Rick. I appreciate it.

Operator

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

Moshe Orenbuch -- Credit Suisse -- Analyst

Great. Thanks. Was sort of wondering if there were any kind of impacts from an economic standpoint that -- during the first quarter, given the various crosscurrents that were there and whether any of that has any impact in terms of potential increased demand in the balance of the year or things are just pretty normal. How would you characterize that?

Douglas H. Shulman -- President and Chief Executive Officer

Yes. Look, not sure exactly. There were bunch of crosscurrents. There was government shutdown, lots of noise about tax refunds and then issues about the consumer. People have asked about tax refund. That's had no impact on us, and payments were the same. The government shutdown didn't have any material impact on our business. We're quite proud that we immediately implemented a plan allowing any customer impacted to defer payments during the shutdown, but it was not a material impact. And then I think on the consumer and generally, we are not seeing any signs of stress in the customer base. And as you saw, our delinquency performance remained strong and other things that we look at, like are our consumers levering up their balance sheets, are we seeing deterioration in credit profiles, looking at things like labor markets. We're not seeing a lot, and so there wasn't -- I'd say there was no major effect one way or the other on the first quarter.

Moshe Orenbuch -- Credit Suisse -- Analyst

Great. And so as you kind of look out the rest of 2019, kind of pretty much, yes, steady as it goes.

Douglas H. Shulman -- President and Chief Executive Officer

Yes. Look, we're not seeing signs of deterioration both in our book. We looked regionally and nationally, and delinquency rates are the best predictor of issues with our customers. On the macro side, labor markets are the best bellwether of the health of our customers, and we're not seeing major issues. With that said, we're quite mindful that we're 10 years into an economic expansion. And we're keeping a close eye on things, and we'll make adjustments if we see the need to.

Moshe Orenbuch -- Credit Suisse -- Analyst

Great. Switching to the other side of the balance sheet. You made a lot of -- you had a lot of discussion about kind of moving the maturities and making that substantially more liquid. And you did allude to the fact that you've gotten better execution on the secured side. Micah, maybe you could kind of just talk a little bit about that and how that plays into your thought process for financing and for...

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Yes. I mean on the secured side, we've continued to develop our programs. They've been in place for a good five or six years now. We continue to make headway. We have a AAA rating on the top tranche of all of our secured transactions. So that has certainly helped attract investors. And I think it really just becomes a question also of relationship. We spend a lot of time with investors, and we -- our assets have performed. And with performing assets, certainly people come back for more. So we feel very, very good about our secured. We feel very good on the unsecured side as well. We've had great execution, and you see it in terms of the cash that's on our balance sheet in the first quarter. We've been opportunistic to the markets. And to be able to do the five year auto ABS and have tenor along with the great rates that come with the secured funding, we're really, really in a good place.

Moshe Orenbuch -- Credit Suisse -- Analyst

Great. Thanks so much.

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question is from the line of Mark DeVries of Barclays.

Mark DeVries -- Barclays -- Analyst

Yes, thanks. First, I had a follow-up on CECL. I think you indicated we should expect some more disclosure later in the year. Were you referring just to what it means for the reserves? Or can we expect to get some disclosures around your parallel runs later in the year as well?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Yes. Thanks, Mark. I appreciate the question. As I said, we don't -- we're in process of doing all those parallel runs, following all the economic scenarios that come along with CECL. We are also looking at what does that mean going forward in terms of ongoing reserving. I think in terms of what will be ready to share at the end of the year, some estimates on what we think the January reserve build will be when we get to that point. I would also let you know that we are focused on looking at some potentially non-GAAP measures to help with the transition and understand how CECL impacts versus what we do today and hope that's helpful.

Douglas H. Shulman -- President and Chief Executive Officer

Yes. CECL, I -- since we met, two CECL questions. Let me just state the obvious, which is December 31st and January 1st, are a day apart, and we'll be moving some numbers around on our balance sheet. But the strength of the business will not change at all. And as we've talked about, we're super focused on having a business that is resilient through all economic cycles. And it's why we've been so focused on liquidity runway and having a lot of liquidity in this business. And we're so focused on making sure we remain extremely disciplined in credit. And so we're going to run the business based on the fundamentals. It's not going to change how we run the business at all. Although as Micah said, we'll come back later in the year and give you more color on what CECL will do from an accounting standpoint.

Mark DeVries -- Barclays -- Analyst

Got it. It's helpful. And then loan -- the loan growth of 9%, this quarter is obviously running at the high end of the 5% to 10% guidance range you provided earlier. Should we -- if things kind of hold as they are, would you expect us to end up at the higher end of that range for the year?

Douglas H. Shulman -- President and Chief Executive Officer

We're not changing our guidance. I think of growth as an output. So we actually do not manage the growth. We manage a marketing program to make sure we're disciplined and attracting customers, converting the customers we want, booking loans and having good booking rates. We manage our credit and make sure we're incredibly disciplined on credit, and we do it on a very granular level. And what pops out the back end will be what pops out the back end. So we don't -- we're really not managing the business based on a growth target. So it's hard to say. But right now, we've got demand. We've got great marketing. We've got credit and underwriting. And 9% is what came out this quarter, and we're leaving the guidance as is.

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Yes. And keep in mind, Mark, we were flat quarter-over-quarter on receivables as we were last year. So the first quarter is a typical flat quarter for us. So what you're seeing in the 9% is really what we built over the last year. And as we get into second quarter, that's when we start to see quarters of growth. So...

Mark DeVries -- Barclays -- Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Kevin Barker of Piper Jaffray.

Kevin Barker -- Piper Jaffray -- Analyst

Good morning. Just to follow up on some of the comments that Micah made earlier. Could you talk about the $90 million of other non -- I mean $90 million non-C&I impact that you're expecting this year and the cadence of that $90 million difference between C&I?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Sure. Thanks, Kevin. On first quarter, it was $35 million. So there's that piece. I would say with respect to the $90 million, for the remainder of the year, we do expect continued convergence in the non-C&I impacts. And first quarter, as I mentioned, was $35 million. It had about $20 million pre-tax associated with that redemption that I mentioned of our 2019 maturities. So we do expect continued convergence over time. The path will definitely not always be linear. And so we do expect a little bit of an impact in the second quarter with respect to the maturity that we just did. But other than that, we would expect roughly something that sort of a run rate going forward after that.

Kevin Barker -- Piper Jaffray -- Analyst

Okay. And then given the debt issuance you made and to be proactive with the balance sheet, and I appreciate the interest expense guidance that you gave, would you expect a little bit of spread widening as we move through the year, given some of the pricing initiatives you've done on the asset side?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

We've done actually pretty good with our spreads. I would say that the increase in interest expense is really -- some of it's a function of obviously our secured strategy -- I mean our unsecured strategy to increase that mix of debt, but also just the continued growth in the balance sheet. So our average debt balances are up year-over-year, about 6% and in line with our receivables growth. So we would expect going forward, as I mentioned, we'll be about $230 million to $240 million. And I would say that that's largely reflecting now just the growth in the balance sheet to support the business as our transition, if you will, or mix change to unsecured has largely reached its targets. And it'll fluctuate from quarter-to-quarter, of course.

Kevin Barker -- Piper Jaffray -- Analyst

Yes. And then on the -- this pricing initiatives you made, do you think you'll see a little bit of incremental increases in spread or I guess net interest margin, given that debt cost have -- should be close to stable, right, given some of the issuance you've done and the proactive -- how proactive you were in the first quarter?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Yes. I think we -- as we said earlier, we expect our yields to remain fairly stable. On the pricing initiatives, again we run pricing tests from time-to-time, again looking at competitive forces and making sure that we're competitive in those markets and there's obviously volume impacts with that as well. But we look at APRs coming in the door. It's one of bigger signals in terms of where we think yields are going to be, and we think that's going to be stable for the remainder of the year. And I think, I answered the interest expense question.

Kevin Barker -- Piper Jaffray -- Analyst

Yes. Okay. Thanks, Micah.

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Okay. Thanks, Kevin.

Operator

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

Vincent Caintic -- Stephens -- Analyst

Thanks. Good morning. Just a couple of quick follow-ups. So on -- following up on the auto secured mix question, I'm kind of wondering, first, if you could talk about -- if you could break out the yields between the auto secured portfolio versus unsecured, how we should think about that mix. And then secondly, so understanding, and thank you for the guidance, that your portfolio probably get to 50% to secured by the end of this year, is there anything that, say, keeps it from going to 60% or 70% or maybe even higher? Is it really more of a -- what the customer wants? Or is there, at some point, a limit to the mix that you see?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

So I'll take the first one. We don't break out our yields by product. But I can -- we have talked about and disclosed our APRs on those products. So the unsecured tends to be about somewhere around 29% on an APR basis and the hard secured a little lower at 28% and then direct auto will range from 20% to 21%.

Douglas H. Shulman -- President and Chief Executive Officer

Yes. And on the mix, Vincent, as I said, we give our customers choice, and they choose which product is right for them, except for in the case where they don't qualify for an unsecured loan, then they can choose to do business with us or go elsewhere. So it really will fluctuate. I wouldn't predict where it's going to go. As I said, it will likely go above 50% this year just based on the trends and what we see in the choices people are making. With that said, I would also just remind you that the unsecured market is a bigger market generally. And so there is -- I'm not sure there is a cap per se or a place it can't go to. But we think all of our products are great and provide value to the customers. The customers will make their choice. And so theoretically, there's no limit. But I think the unsecured is a bigger market.

Vincent Caintic -- Stephens -- Analyst

Okay. Great. That's helpful. And then last question. So I appreciate the commentary around the leverage and that -- I guess without the -- absent the excess cash you're holding right now, you'd be at around 6.3 times debt-to-equity leverage. So understanding your guidance is from five times to seven times for your leverage, now that you're kind of approaching the midpoint of the range and maybe even next quarter we could see you being at six times, how do you think about capital return going forward? Is it an emphasis on -- would you increase the dividend? Is it maybe buyback is starting to be part of the question? Or anything else there? Thank you.

Douglas H. Shulman -- President and Chief Executive Officer

Yes. Look, Vincent, as we've talked about and we mentioned on the call, we're really happy as a company to be in a position to return capital to shareholders for the first time. And so we announced on the last call that our policy this year was going to be, first, use excess capital to keep investing in the business and lending to our customers because that's an attractive return profile for our shareholders.

Second, we're using it to delever and the kind of stated deleveraging was to turn from seven down to six times. And then we initiated a dividend. We will update you going forward when we have anything to add to that. And so -- but again, we're very pleased that we initiated a robust dividend. We've been talking with lots of investors who in the past, we didn't talk to because initiating a dividend in the kind of 3% range opens up a whole set of investors, which accrue to the benefit of all investors, and we'll keep having the dialogue with you.

Vincent Caintic -- Stephens -- Analyst

Okay. Great. Thanks very much.

Operator

Our next question comes from the line of Arren Cyganovich of Citi.

Arren Cyganovich -- Citi -- Analyst

Thanks. You mentioned earlier in the call that you're tightening or you have been tightening around the edges on credit for the past 12 months or so. Do you see any need to do further tightening there? Or do you feel like the credits coming in roughly where you would expect?

Douglas H. Shulman -- President and Chief Executive Officer

We're really pleased with our -- the portfolio performances across multiple vintages. We track it clearly. You see our delinquency performance remain strong. As I mentioned before, we're really not seeing indications that our customer base is stressed. So household balance sheets are not levering up for our customers. Credit profiles remain strong, and leading economic indicators are not showing any major warning signs. Just for clarification, the question was -- is around the edges, do we happen to have been tightening up credits, and what I said is we're continually kind of making sure we're updating our credit box and credit profile using techniques. We do tighten around the edges, but we also sometimes open up around the edges where we see that -- there's customers that meet our risk/return profile.

So what I would say is we're being very prudent. There's certainly way more loans that we could put on our books that we choose not to because of our relatively conservative and prudent credit profile. We, as a management team, think that given we're in a long economic expansion, that's a good place to be. And we're going to stay disciplined. And if we see any indications that suggests we need to adjust the credit, our credit standards will make them. We didn't see indications in the first quarter.

Arren Cyganovich -- Citi -- Analyst

Okay. And I guess to clarify, your guidance is for less than 6.5% net charge-offs for the year. First quarter tends to be the high point. Do you expect the normal seasonal pattern to emerge for the rest of the year?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Yes. That's right. And third quarter being the lowest as -- and first quarter being the highest. But we feel good about credit. I also note that delinquency, which has been very strong, has historically also been a pretty reliable predictor of future charge-offs, so the next couple of quarters.

Douglas H. Shulman -- President and Chief Executive Officer

Yes. And as you saw, I mean we feel really good about where our credit is, where our portfolio is and whether it's charge-offs or delinquency are really looking great.

Arren Cyganovich -- Citi -- Analyst

Thank you.

Operator

Our next question comes from the line of Henry Coffey of Wedbush.

Henry Coffey -- Wedbush -- Analyst

Good morning, everyone and thank you taking my question. Sort of back to CECL. What is the average duration, either by product or just by overall portfolio of your loans right now?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Yes. Henry, this is Micah. We don't disclose that today.

Henry Coffey -- Wedbush -- Analyst

It used to be about 1 year to 1.5 years. Is that the right number?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Again, we're not going to disclose that on this call.

Henry Coffey -- Wedbush -- Analyst

What about the contractual maturity?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Well, our terms run anywhere from 36 to 48 months generally on a loan (inaudible) some payments.

Henry Coffey -- Wedbush -- Analyst

And then with CECL, where is the focus likely to be, on the contractual or on the duration of the actual loans?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

That's a good question and a little bit technical. But the CECL guidance is that we -- that you should focus on contractual -- the contractual terms, but you take consideration to payments. And we would treat renewals as payments in a CECL model. Those once again are on your books today.

Henry Coffey -- Wedbush -- Analyst

So in terms of thinking about lifetime losses, is there a number within the reported results that will give us a good sense of what that should be?

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

Later in the year, we'll have an update for you. I think -- but to answer your question, just -- I think I see where you're going. You're -- CECL probably is a better reflection of the actual life of our product, not the contractual.

Henry Coffey -- Wedbush -- Analyst

Well, I mean the real issue is CECL solving a problem that doesn't exist, but...

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

That's fair.

Henry Coffey -- Wedbush -- Analyst

And we don't have time on the call to go into it. But -- and then are -- I know some of the companies we've talked to have started to focus on something that we used to call primary capital, where you include reserve amounts into the capital equation. I don't know what your thoughts are on that sort of thing.

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

No. I don't have anything to add on that, Henry. We're focused on building the models and running our models in parallel, and we'll have more to talk about later in the year.

Henry Coffey -- Wedbush -- Analyst

Great. Thank you very much.

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

All right. Henry, thanks a lot.

Operator

And thank you. This does conclude today's OneMain Financial's first quarter 2019 earnings conference call. Please disconnect your lines at this time, and have a wonderful day.

Duration: 48 minutes

Call participants:

Kathryn Miller -- Head of Investor Relations

Douglas H. Shulman -- President and Chief Executive Officer

Micah R. Conrad -- Executive Vice President and Chief Financial Officer

John Hecht -- Jefferies -- Analyst

Michael Kaye -- Wells Fargo -- Analyst

Eric Wasserstrom -- UBS -- Analyst

Rick Shane -- JPMorgan -- Analyst

Moshe Orenbuch -- Credit Suisse -- Analyst

Mark DeVries -- Barclays -- Analyst

Kevin Barker -- Piper Jaffray -- Analyst

Vincent Caintic -- Stephens -- Analyst

Arren Cyganovich -- Citi -- Analyst

Henry Coffey -- Wedbush -- Analyst

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