Q1 2021 OneMain Holdings Inc Earnings Call
[music].
Welcome to the Onemain financial first quarter 2021 earnings conference call and webcast.
Hosting the call today from Onemain as Peter play on head of Investor Relations.
Today's call is being recorded.
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It is now my pleasure to turn the floor over to Peter play on to begin. Please go ahead.
Thank you Maria.
Good morning, everyone and thank you for joining US let me begin by directing you to pages, two and three of the first quarter 2021, 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 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 27th and have not been updated subsequent to this call.
Our call. This morning will include formal remarks from Doug Shulman, our chairman and Chief Executive Officer, and Micah Conrad our Chief Financial Officer.
After the conclusion of our formal remarks, we will conduct a question and answer session. So now let me turn the call over to Doug.
Thanks, Peter as most of you know Peter as our new head of Investor Relations and I want to welcome him to the team.
Good morning to everybody else, who joined the call. We appreciate you joining us today.
We're going to cover our first quarter performance on today's call, but I would also like to spend some time, reflecting on our performance over the past year and sharing our views on what lies ahead for onemain in the years to come.
Reflecting back on the last several quarters, our business has shown tremendous resilience record low losses.
And significant capital generation.
All of which continued into this first quarter.
The ability and resiliency of our business model has been validated through this unpredictable market.
And we're well positioned for growth as we come out the other side of the pandemic on.
I want to say again, how proud I am of the Onemain Chi.
In our branches central and corporate functions who've shown incredible dedication to our customers and to each other during this difficult past year.
In the first quarter, we generated $299 million of capital 78 million more than the prior year or up 35%.
C&I adjusted earnings per share for the quarter were $3.37 per share.
Our credit outlook and recent performance are incredibly strong and continue to benefit from the proactive credit tightening we did at the start of the pandemic.
As well as the unprecedented levels of government support.
First quarter losses were four 7% and we feel confident and strong credit performance for the remainder of the year.
Two injections of fiscal stimulus, while a tailwind for credit created a headwind to our originations in the quarter as consumers receive stimulus payments and we required less new borrowing.
This was true across the industry with near Prime credit card balances declining 19% year on year near Prime installment loan balances declining 10% year over year, and our own installment loan balances declining 4%.
That said, we're already seeing a rebound in originations in the latter part of April consistent with the rebound in February rent originations moved back to 2019 levels.
And while we cannot predict the exact timing of economic activity resuming we expect to see originations improve as fiscal stimulus Wayne and the economic reopening continues.
This brings me to our future vision and the opportunities we see as we emerge from the pandemic over the last several quarters. We've discussed pieces of this vision, but let me spend a few minutes pulling it together in context, let me take you to page seven of our earnings presentation.
Our vision is to be the lender of choice to near Prime consumers meeting their currently when they have a mismatch between savings income and expenses, but also providing products and services that help them make progress to a better future over.
The next several years you can expect to see us continue to be the leader in near Prime installment lending, but also offer a suite of products services and experiences that will deepen our customer relationships increased engagement give us more proprietary day.
And make it more likely that consumers will choose to get their next lending products from one day.
Our foundational strength include a large customer base nationwide branch and digital distribution proprietary data.
Near Prime underwriting expertise and mature funding all of which uniquely position us to be the leading partner for the near Prime consumer.
Let me elaborate on a few key elements of this vision.
As we discussed last quarter, we're developing a credit card product, which will be launched in the second half of the year.
Our credit card is a natural extension from our loan product and represents a market that is five times the size of the personal loan market.
It will deepen our customer relationships, while broadening the aperture to bring in new and different customers into our ecosystem.
We'll also enhance our proprietary data and underwriting capabilities through access to purchasing behaviors.
We're designing a differentiated card products addressing the needs of the near Prime customer.
Incorporating thousands of hours of consumer research and focus groups, our customer centric design will be digital first and rewards consistent payment habits reinforce credit building behaviors and help our customers build a more secure our future.
Over time, we also anticipate developing a new hybrid product, which will merge the best features of cards and loans into one.
We've made good progress in terms of building out the infrastructure and team ahead of our second half launch we selected Mastercard as the network provider and if contracted other key partners, including our bank partner.
Issuer platform and cross and fraud solutions, we expect card to be a multibillion dollar receivables product line over the coming years and are designing the infrastructure and platform to support this growth.
As I mentioned earlier, we plan to expand on our suite of products and services that deepen our customer relationships increased engagement and give us more proprietary data.
Our insurance products and financial Education services have always been a core part of our offering and a deeply valued by our customers augmenting. These existing capabilities. We are excited to announce the acquisition of trim.
Our customer focused financial wellness spin attack that provides tools for consumers to save on monthly expenses and analyze their personalized spending data trends subscription monitoring and bill negotiations services offered tangible benefits for customers.
Mers generating more than $90 and annual savings per initial bill negotiation.
<unk> fits squarely within our mission to help improve the financial wellbeing of hard working Americans and propels, our data and analytics strategy with access to approximately 1 billion customer transactions and over 600000 users with a linked.
Bank accounts.
This acquisition brings a proven team with depth in digital product development and customer engagement gives our current customers added financial wellness services that we expect will lead to increased loyalty and engagement.
It gives us another channel to acquire proprietary data that we can use for underwriting and marketing.
As we deepen our customer relationships with new services and channels. We can do continue to make significant investments in technology and our digital capabilities.
These investments have enabled us to supplement our incredibly strong and important branch network with digital capability.
And enabling nearly half our customers to close their loans digitally in the first quarter.
As we expand our products services and channels, we have a simple goal too.
To improve the financial wellbeing of hard working Americans.
We feel confident that our vision for the future of the company will result in robust growth in the years to come.
Even with the investments, we're making we continue to generate robust excess capital.
To that end, our existing capital allocation framework remains consistent.
First we will invest in disciplined portfolio growth.
Second we will continue to invest in the business the initiatives that I've discussed today and on previous calls are examples of debt. We will also consider inorganic opportunities as they rise.
As evidenced by our trade transaction with a bias towards smaller tuck in transactions.
Any excess capital we generate beyond these priorities will be returned to shareholders.
Consistent with this framework, but also recognizing the continued evolution of the business today, we are announcing two enhancements to our capital returns.
We are increasing our quarterly minimum dividends or regular dividend by 56 per cent to 70 cents per share or $2 80 annually.
We're also commencing a programmatic $150 million share repurchase.
As we move to a more normalized macro environment this year and with our increased conviction around our company's growth prospects. This is a natural time, Inc.
Institute, a repurchase program to drive additional value creation.
With that said, we'll continue to have a bias towards dividends and plan to supplement our minimum dividends with increased dividend every first and third quarter as appropriate.
These enhancements should provide additional regularity and consistency to our shareholders without sacrificing the robots yield they have become accustomed to as we emerge from the pandemic with increased conviction in the stability and resiliency of our business.
And our growth prospects.
The macro environment has greatly improved from the last time, we spoke most notably the rollout of COVID-19 vaccines is progressing well and is great news for the reopening of the U S economy.
We feel confident in the fundamentals of our core business and the strategic pivot we have made to date and plan to make in the near future.
Position us to serve all of our constituents our customers our employees our communities and our shareholders with that let me turn the call over to Mike to take you through the financial details of the first quarter.
Thanks, Doug and good morning, everyone. We had a strong first quarter as credit performance remained very healthy interest expense improved and operating expenses tracked below the prior year level, even if as we accelerated our investment in the business and improving economic outlook has given us greater confidence in the future performance of our <unk>.
Folio, which allowed us to further reduce our loan loss reserve coverage.
We earned $413 million of net income or $3.06 per diluted share in the quarter. That's a significant improvement over the $32 million of net income or <unk> 24 cents per diluted share. We earned in the first quarter of last year, which was impacted by COVID-19 related reserve building.
On an adjusted C&I basis, we earned $455 million or $3.37 per diluted share that compares to 45 million or <unk> 33 per diluted share in the year ago quarter.
Capital generation or C&I adjusted earnings excluding the impact of changes in loan loss reserves was $299 million in the first quarter up $78 million or 35% over prior year.
Ending receivables for the quarter were $17 6 billion down 3% from $18 1 billion in the fourth quarter and down 4% from <unk> 20, reflecting impacts from two rounds of government stimulus.
Interest income was $1 1 billion in the first quarter down 4% versus prior year.
Driven by lower receivables as yields were essentially unchanged year over year.
Interest expense was $233 million down $16 million or 6% versus the prior year and down $9 million sequentially. As we continue to benefit from the liability management actions, we've taken to reduce our reduce our cost of funds. While also extending our maturities along those lines as we discussed on our last.
Call in early January we utilized a portion of the proceeds from our Q4 bond issuance of $850 million at 4% to redeemed $650 million of seven and three quarter per cent bonds.
We expect interest expense to track near first quarter levels for the remainder of the year.
Yeah.
Other revenue was $136 million in the first quarter flat compared to the prior year quarter.
Policyholder benefits and claims expense was $33 million on the first quarter down $35 million year over year and down 8 million sequentially.
In the first quarter of 2020 claims expense was elevated at $68 million as we expected a flow of involuntary unemployment insurance claims to materialize as the pandemic set in.
<unk> claims of consistently moderated since last April and our first quarter expense of 33 million reflects a positive reserve adjustments related to favorable experience in our portfolio.
We are seeing fewer claims and our iui customers are going back to work sooner than we originally anticipated.
We expect claims expense to trend toward normal levels over the course of the year.
Let's turn to slide 10 to review, our originations and receivables trends.
We originated $2 3 billion in the first quarter down 12% from first quarter 2020 the.
The impact of government stimulus programs combined with tax season reduced loan demand in the quarter as we had anticipated.
On slide 11, we take a deeper dive into our origination trends in the first quarter. This slide compares our first quarter 2021 monthly originations to a comparable pre pandemic first quarter 2019, which we believe is a more appropriate proxy for normal quarterly performance in 2020.
As we discussed on our last call an inverse relationship exists between government relief programs and consumer demand for loans that relationship is evident on this slide first in the level of January originations, which were impacted by the $600 per person stimulus that was passed in late December.
As we moved into February trends improve considerably and we were seeing performance at or near 2019 levels for most of the month.
This trend continued into early March right up until the <unk> hundred dollars per person checks started to be distributed in the middle of per month.
Importantly February and early March trends were consistent with 2019, giving us confidence that underlying demand remains healthy.
To that end, we are seeing improved performance throughout the month of April similar to what we saw in February.
As demand returns, we are well positioned to take advantage of future growth opportunities, particularly given the strong macro backdrop that is evidenced in our delinquency results.
We have recently normalized loss expectations in our underwriting to pre pandemic levels, except for high risk industries, where we continue to underwrite to an expectation of higher losses.
We are optimistic about several growth initiatives, we've introduced including new product capabilities strategic pricing digital enhancement and new channel partners. These initiatives combined with normal increases in seasonal demand economic reopening and the diminishing impact from stimulus give us confidence that.
<unk> will improve.
Let's now turn to slide 12, and walk through our recent credit trends.
A significant portion of stimulus funds, particularly the latest round were directed to debt repayment, which has the benefit of supporting our credit performance, even as it creates a short term growth headwind.
You can see from these charts that along with our decisive credit tightening last year as the pandemic began government stimulus has had a very positive effect on delinquency and losses over recent quarters.
First quarter net charge offs were four 7%, a 179 basis point improvement year over year.
30 to 89 delinquency and <unk> reached historic lows of 157% down 69 basis points year over year.
90, plus delinquency was 182% down 34 basis points year over year, we expect 90 plus to strengthen in the second quarter on the heels of our first quarter 30 to 89 performance.
Our delinquency levels give us confidence that we will continue to see strong net charge off performance through 'twenty, one from 2021 and while there are always unknowns in the macro environment, we feel good about the outlook for credit and we expect full year 2021, net charge offs to now come in at approximately 5%.
It's a significant improvement from our original full year 2021 expectation of below 6%.
Our loan loss reserve trends are shown on slide 13, we.
We ended 2020 with just under $2 $3 billion of reserves and a reserve ratio of 12, 6% in the first quarter, we reduced our reserves by $208 million. This includes a $50 million reduction associated with our lower receivables balance and about $158 million reduction from an.
<unk> outlook for future macro conditions, and our strong portfolio performance to date.
This brought our reserves to just under $2 1 billion on a ratio to 11, 8% at the end of <unk>.
Our reserves remain approximately 110 basis points or about $200 million higher than pre pandemic levels. After the introduction of seasonal.
We will continually continue to closely track macro trends and our portfolio performance and adjust our reserves accordingly.
Turning to slide 14 first quarter operating expense was 323 million, 2% lower than last year's first quarter and seven 3% of average receivables.
Expenses continue to benefit from the cost actions. We took in response to the emergence of the pandemic in <unk> of last year and reflect continued investment in new products, including our credit card, our operating platform and enhancements in our digital capabilities, which in total contributed to the sequential quarterly increase.
We expect that with improvements in loan demand and continued acceleration of our investments operating expenses will grow modestly quarter to quarter throughout the remainder of 2021.
Let's now move onto the balance sheet on slide 15.
We continue to maintain significant sources of liquidity with $1 2 billion of available cash $7 2 billion in Undrawn conduit capacity and $9 2 billion of unencumbered receivables.
During the quarter, we completed $45 million of whole loan sales in early April we expanded the forward flow agreement with our first partner from $15 million per month to $25 million per month, and we also added a second partner to our program at $15 million per month, we now expect $120 million.
On the whole loan sales per quarter for the next two years at very attractive pricing.
As we discussed last quarter, we remain committed to keeping the majority of our loan production on our balance sheet.
Whole loan sale program broadens, our funding sources and provides additional strategic flexibility.
As an example, we can potentially use the program to expand the range of customers, we serve and further position the business for long term growth.
Whole loan sales also allow us to generate some very attractive capital efficient earnings.
In the first quarter capital generation was $299 million up 35% from the first quarter of 2020, our leverage ratio was four seven times, reflecting our strong capital generation as well as the $3 95 per share cash dividend we paid in February.
Our total adjusted capital, which includes after tax reserves and adjusted tangible equity was $3 3 billion at the end of the quarter six 5% higher than a year ago.
Turning to slide 17.
We have consistently delivered on our capital allocation framework delivering portfolio growth at attractive returns investing in our business and our future while returning considerable capital to our shareholders consistent with this we increased our minimum quarterly dividend to <unk> 70 per share to be paid in may.
Had announced that we are commencing a programmatic share repurchase to enhance our capital allocation strategy.
We will continue to evaluate dividends above the minimum every first from third quarter consistent with previous cadence and guidance.
In closing, let's move to slide 19, where I've shared some updated financial strategic priorities for full year 2021.
We expect to maintain stable yield on our receivables at or near 24% over the remainder of the year.
We expect interest expense to range between 5.0, and five 2% of receivables.
As I mentioned earlier, we now expect full year net charge offs will come in at around 5%.
Our operating expenses should grow 5% to 7% year over year after declining 3% in 2020.
This includes approximately $100 million of investments in our future, including new products and channels, our operating model and our digital initiatives.
Lastly, we will continue to maintain our net leverage in a range of four to six times.
With that I'll turn the call bad debt.
Thanks, Mike.
The core fundamentals of our business remains strong and we are investing heavily in our future while the impact of government stimulus created a headwind for growth in the quarter. Our credit results remain outstanding and I believe that the stimulus will have very positive effect on net.
The economy overall.
Our experience through the pandemic has reinforced the core strength on which we have developed our future vision.
Customer centric organization.
<unk> unmatched understanding of the near prime customer underwriting proprietary data and strong access to capital.
Our strategy is grounded in these existing foundational strength and gives us conviction in our strategy to become the lender of choice for near Prime consumers.
To make this more tangible we've laid out on slide nine some of our five year goals with ambitious but achievable targets for the breadth and depth of the business we are aiming to build.
We aspire to double our customer base, the majority of which will have two or more products, leading to deeper and more lasting customer relationships, where we help them improve their financial wellbeing.
In doing so we also will continue to grow our business and our earnings with a goal of at least one $5 billion of capital generation in 2025.
One main is a unique business and that we can simultaneously deliver significant value to our customers employees communities and shareholders.
Been at Onemain for two and a half years and I'm very proud of what we have achieved today. However, I am even more excited about what lies ahead overall as we continue into 2021, we expect the environment to continue to improve along with growing demand as the economy.
<unk> fully reopens. We also believe the investments we have made over the past several years and that we accelerated into 2020 and into 2021 will position us for growth in the years to come and thanks for joining us today and we're happy to take your questions.
Thank you the floor is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone.
If at any point. Your question is answered you may remove yourself from the queue by pressing the pound key.
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Our first question is coming from Michael Kaye of Wells Fargo.
Hey, good morning, I wanted to see if you could provide more color on customer demand trends, where is it coming back the strongest to weakest maybe by product geography, how much some of these newer products like smaller dollar in prime are contributing.
Good morning, Michael It's Mike a football as well. Thanks for the question you know I think we're seeing demand relatively.
The same geography geographically I don't think we see significant differences there's pockets here for instance, we had some storm impact in February in Texas that impacted demand in that state, but broadly speaking, we see levels that are pretty consistent across the country.
We are confident that the underlying demand is there you know we've seen it.
<unk> seen it come back when stimulus impacts have dissipated in the summer of 2020 and as recently as February as you can see in our slide presentation. When originations came back to 2019 levels are I think the product level demand is relatively consistent as you probably know Michael no. One comes in looking for a secured or unsecured loans and that's part of.
Our process when we go through budgets and needs with our consumers, but you know it's it's.
It's early to kind of tell what's going to happen from here, but we see some some positive trends happening in April.
Okay.
Second question I wanted to know I mean, you talked a bit about customer.
Customer demand origination.
Friends, but I wanted to hear more about the collection trends I think I saw on the presentation, you talked about pretty elevated collections and in March it was over $1 billion. So the question is like has that collection trends picked on to normalize in Q2, so far.
Yeah, I mean in April a bit you know as we've talked about a lot in the past we have an inverse correlation between demand and originations and stimulus in a very positive correlation with credit and payments.
And so we did see strong performance on payments. We saw this happen in May and June of last year, we did collect a little over $1 billion in March relative to a normal month of $850 million that gives us confidence obviously in our future credit performance it contributes to the strong delinquency.
Performance, we had in the month end.
It's certainly an output of having check show up and consumer bank accounts. So overall very healthy consumer we've seen the trends moderate a bit though I would say April April payments are still strong as they've been since last April when when we started this process.
Post COVID-19.
Feeling very very good about the outlook for credit.
Okay. Thank you very much.
Sure.
Our next question comes from the line unless that loan book of Credit Suisse.
Great. Thanks.
Mike I guess, the two sets of loan sales that you're talking about kind of add up to about $5 billion.
Kind of annually.
Maybe could you just flesh that out a little more in terms of both the types of I mean are you already selling loans that are not on your typical type of selling.
No.
I guess my real question is this more of a funding source diversification or is it an outlet for loans with with different characteristics.
Yeah Moshe Thanks for the question I think it's both I mean first and foremost this we view this as an enhancement to our already terrific funding program.
The current arrangements, we have our 440 about $40 million a month, so call it 120 per quarter.
And you.
This this is committed funding for two years, it's at a very attractive price as we've talked about in the past.
There's not necessarily any goal around size of volumes were pretty happy with the success that we've had so far in improving out this market now.
Now in what we're selling today is all unsecured.
Loans.
And it's all originations that we would otherwise have put on our balance sheet.
You know I would be remiss, if I didn't mention it.
Note that we remain committed to having the vast majority of of our originations on our balance sheet, but we.
We think this is a great diversification of the funding program for us and at a very attractive price now moving forward. We certainly expect these types of relationships could lead to customer expansion opportunities.
At the higher end of what we're comfortable originating in our model and holding on our balance sheet and also at the low end. So that's why it was important for us as we selected and talk to the partners that we were going to do business with that they they both had that in their mind and we will we will continue to have discussions like that going forward.
Got it thanks.
Doug.
Congratulations on the acquisition of trim.
I'm assuming that.
On the purchase price is not a huge capital.
You know a huge capital need.
Given for starters.
Mount itself wasn't even disclosed.
Could you talk a little bit just about how you see that type of acquisition fitting in that capital plan or is it a.
Is that are you thinking about bad.
And so on.
Modest amounts of a larger amount.
And can you also just relate how.
How you think about the use of the buyback versus special dividends as you know as you go forward. Thank you very much.
Sure. Thanks Moshe.
We're excited about the trend transaction.
Tried to give you a little more color around our strategic vision, which was on.
To really have a broad range of lending products, but also products and services that deepen the customer relationship increase loyalty.
<unk> proprietary data and in doing so make it more likely that are our current customers and future customers will take their next blending product from us and the <unk> transaction.
Fits very squarely in their financial wellness tool helps people save money on bills, we think.
Provide value to our current customers on our future customers we welcomed.
<unk> customers into our ecosystem.
On.
We've said before that we'll be opportunistic around acquisitions that add on.
On.
Peter capabilities or products that we think would be valuable to our customers as we help them improve their financial wellbeing.
<unk> fits that I've been I've been pretty vocal that our bias is to smaller tuck in transactions like <unk>.
Trend and so.
That's what it is.
It's not a material amount it won't in any material way the trend transaction affect our capital return strategy.
Never say never on any transaction, but I think generally as we're out in the market, where we feel we decided to build cash.
Card ourselves, we're evolving our loan product, we're building out our own omni channel platform. So a lot of the big investments that we might have made sure acquisition, where down the road of doing it organically and the reason for all of that as we want.
Have real synergies and a seamless experience across our branches digital loans product card product and just make more sense to build them ourselves.
You know, it's a long way of saying biases towards tuck in transactions like this they really wont affect.
Capital returns to shareholders in any any sort of meaningful way.
You know kind of to the buyback and where it fits into the strategy.
We did two things this quarter.
One is we increased the regular dividend and two is we instituted a programmatic share repurchase program, which will be now part of our toolkit going forward.
We did this for a couple of reasons. One is we were feeling like the economic uncertainty is waning.
It gives us a lot of confidence debt how strong the business is a business model performed well through this uncertain time.
Two is as bad.
Laid out on the call.
Lot of conviction around our.
Our future business and the value that it will create and so I think both of these programs.
The increased regular dividend and buyback.
They're going.
I'm going to make our capital return for our shareholders more regular and more consistent and more predictable with all of that said, we still plan to evaluate special dividends and the person in third quarter. So that hopefully that gives you some context.
Okay. Thank you.
Our next question comes from the line of answering all of it's a city.
Thanks.
All the comments on the origination trends and.
The changes that have been happening because of the stimulus.
What is your expectation for the back half of the year do you have a.
And expected level of loans.
Loan growth or is it still a little bit too unclear.
Aaron This is Mike good morning.
I think to answer it directly it's still a little unclear now again, we're very confident the underlying demand and there is there because of the trends we've seen.
In terms of when originations kind of get back to 19 levels on hopefully surpass it it's a little early to be to be forecasting that but you know us.
As we told you we have a number of near term targeted initiatives. In addition to some of these longer strategic things we've talked about.
That we think will enable us to capitalize on demand when it comes back with things like our <unk> talked a little bit about smaller dollar loan product our strategic pricing.
We have some partnerships that were involved in that they provide financing from some bigger ticket bigger ticket purchases and we've been doing a lot of work around data and analytics to enhance our operational flows and you know as an example priority routing for applications based on probability book of loans. So we don't know when demand is going to come back some of the signs are very.
Positive over the last few weeks, but a little early to tell I can tell you we'll be ready for it when it comes.
Okay. Thanks, and then.
A little more on the on the card product.
I heard in the prepared remarks, our card hybrid product, maybe you could talk a little bit about that.
Well this would this product be I'm, assuming but predominantly unsecured as theyre also going to be a secured aspect or separate secured products.
In the card outlook.
Yeah.
Just just to repeat a couple of things.
We plan on launching the card products.
Second half of this year.
On this year and early next year, we'll be testing marketing uptake in different ways.
Physician the proposition line usage, and then credit and the card will be offered to current customers will be offered to new customers coming in the door and they will also be.
Specific targeted card.
Customers, who will take a smaller line.
Might not qualify for 8000.
On a dollar loan, but we will be able to offer them a card and then over time as we see their spending and payment habits will be able to.
We'll be we'll be able to offer them.
Loans, so right out the gate there'll be a card product next on the road map is a hybrid product where think about you could have an open line on your loans that looks more like a card where you can have a card where at checkout, if youre going to buy a large consumer item.
Air Conditioner or that kind of thing where you can click on our app and actually convert that to alone. So you have a fixed monthly payment on it and so that that will be.
Part of the road map.
Going forward.
Got it okay. Thank you.
Our next question comes from Kevin Barker of Piper Sandler.
Thank you just a follow up on the buyback is there an expiration date on the buyback program.
For this year or one year or something along those lines.
There's not an exploration date.
Okay.
And then following up on.
Some of your comments around the card.
Card product.
Are you seeing.
I would assume that this is going to be something where you have more customer engagement or at least to keep the customers longer term.
On your projections.
With this you know.
Decrease the amount of customer attrition by a certain amount for your expectations or is it too early to tell like how this is going to develop.
For sure.
The strategy of pairing our card, which is daily ongoing transaction product with alone which is a large periodic transaction, we think lengthens the customer relationship and because people need a card long after they paid off the loans, but if you step back.
Our overall strategy trim to give people ongoing bill monitoring services.
Card with an app connected to it which allows them to pay on a regular basis and potentially get a loan as an extension on their card all of these things lead tours to more customer engagement.
Longer relationship with the customer more value add to the customer and again, we think more customers and more likely for all of those products that they'll come come to us I think the trick for us, which I talked about a little bit about really helping customers move to a better future.
I mean, I think one of the things that not articulated it.
Rounding year Prime customer is well some of our customers live paycheck to paycheck. They also aspire to and have the capacity did not live paycheck to paycheck forever and so we're trying to create a ecosystem and a set of products that meets their needs when they have a mismatch between.
Their savings in their income and their expenses, but also is creating tools that help them move to a better financial future.
The way, we're designing our card has reciprocity and as people pay we give them more value similar with trim and so that's that's how we see this and all of that Kevin as you said should lead to longer and deeper relationships with our customers.
Okay. Thank you.
Our next question comes from the line of John Rowan of Janney.
Good morning, guys.
Good morning, Mike you gave the non COVID-19 or COVID-19 specific allowance can you just repeat that the number that you gave.
The non COVID-19 allowance or there was a specific portion of the allowance. It's COVID-19 I'm trying to figure out what the correct allowance ratio as if you're really solve the COVID-19 specific allowances.
So I'll give you a little context around that to help its the pre COVID-19 allowance ratio was 10, 7%.
Okay, Okay today, where we're at 11, 8%.
Okay and from the fourth quarter, we were at $12 six we reduce debt reserve in aggregate by 208.
We've estimated about $50 million of that comes from the lower receivables with the remaining 158 coming from what we could argue as credit related or in Europe.
Explanation COVID-19 related so you know as I think about where we are relative to pre COVID-19 levels I look at what the 11.8 ratio versus the 10.7 and against our price against our current level of receivables, which are lower than where they were bad.
When we implemented Cecil in January of 2020 that gives us about a calculation of about 200 million higher.
Pre COVID-19 levels.
Okay and then.
As far as the repurchases go is there a cadence that we should expect or could there be another repurchase another repurchase program. You know should we see another bump in earnings from a reduction in the allowance ratio down to the to the pre COVID-19 number.
Yeah.
I think you should think of the.
Yeah.
As <unk>.
Programmatic that will now be part of our capital return strategy going forward.
It'll have a regular cadence.
Yes.
Yes.
Net.
Won't be the plan as far as not to just be episodic and in the market. We think that we've got a very.
Good solid strategy, that's going to drive earnings growth over the years it should should drive appreciation of the stock and we think this is.
This will be programmatic share repurchase.
Okay, and then just lastly, if you I'm not sure if you.
Touched on it at all but the small dollar product are there any updates on how you will roll out. This this growth initiative.
So we launched the small dollar per.
Program.
In the summer.
It's been performing very well.
As a reminder, there is a couple of elements to it.
Generally at $2500 loan because the payments are smaller.
Yeah.
It's easier for customers to pay back and so losses are less and it also increases our.
Pull through rates so.
More people.
Take takes the product given when they're offered a variety of.
Products, especially if they were only offered a secured product before but now they're offered.
Unsecured small dollar.
What I would say that it will now be just part of our broad offering we on one of our core principles is to give our customers choice and so we give customers choice of a variety of products.
As we adjust our credit box.
And more customers as the economy reopens are eligible for unsecured and secured loans.
That will adjust the cadence and so we haven't disclosed it.
Exact number of it but it's been quite successful and it now.
In addition to innovating around brand new products like cards and Bill payment services. We also continue to innovate around our core products and adjust.
Sizes and pricing to.
To meet the current current market competition and make sure we're serving our customers well.
Okay. Thank you.
Thanks, John.
Our next question comes from the line of Giuliano Bologna of Compass point.
Good morning, Thanks for taking my questions just going.
Moving back to the balloon cell program.
And I'm curious if there is a sense of what kind of gain on sale you can achieve on certain loans and as you know.
That might migrate over time.
Through different.
On us.
Sorry.
Yes. So this is Mike good morning Giuliano.
The whole loan sale program as we've mentioned is unsecured loans only so.
Think about price is going to be dependent on not only the type of product that were selling for the program, but also the risk grade and the appetite for risk that a particular partner may have and so we've talked about that price being well above par at $120 million per quarter I think you can.
In the second quarter, we will see a gain on sale of somewhere in the $10 million to $12 million range.
If that's helpful. But again I think very much dependent on the environment the product that we're offering and the partner that we're offering them offering them too.
Yeah.
It makes a lot of sense, then kind of going on on the same lines, because we're mostly selling unsecured.
You also see that as a tool that might continue to shift your secured mix, because if you're selling more unsecured debt.
You normally would have held on balance sheet, you might be continue to increase your secured ratio on balance sheet.
And then from there.
Part of a curiosity.
Loans held programs, how do you think about funding for new initiatives are you going on.
Use primarily loans sales or do you on acute.
$50 50 or is there some ratio that youre looking for for new programs.
So so on the balance sheet question, yes, we need to factor in the whole loan sales that are all unsecured when we think about secured mix in our portfolio, but certainly our originations are multiples of those whole loans.
Loan level so that.
That will also have obviously, a very heavy influence on what the ultimate mix on our balance sheet looks like but.
Just mechanically youre thinking about it the right way.
In terms of of the future products I think that's still to be determined we've got two very strong partners that we were comfortable building a relationship with and starting with our unsecured installment loans stock I would.
Say everything is open to discussion in the future and we're going to think strategically about this end and decide how this can help us grow how can help us advance our our customer growth initiatives and you know on.
Of level, we really haven't thought about a particular level that we're going to disclose but I. You know I think again, where we're primarily a balance sheet lender and I view. This program or is just giving us flexibility and diversity within our funding programs.
Which I think is very helpful.
On that I'm not willing to.
To commit to any particular level on these on these transactions right now.
That makes sense and that's very helpful. Thank you and I'll jump back on the junior.
Pleasure.
On the final question will come from the line of Vincent <unk> Stephens.
Thanks, Good morning, a lot of positives this quarter. So first question.
About your product expansion, including the credit card rollout, so I've been getting I.
I guess, a couple of investor questions about how much of an operational stretch it is to expand into different products. So.
For example, with credit cards being very different from an installment loans.
But on the other hand, you already have a good handle on how your customers manage their cash flow, including how they use their existing credit cards.
Maybe if you could talk about.
How you can handle your product expansion from credit cards and beyond.
The your core infrastructure.
Underwriting and collections.
Yeah, no. It's a good question Vincent.
First of all we've been.
Very measured and sequence and how we brought the business and so.
2018 in 2019, we really focused on tuning the business for our core loan products, we use data analytics management discipline.
Shored up the technology infrastructure and you saw the results.
A lot of earnings growth around that time and customer growth I think 2020, we used.
Kind of time during the pandemic to start making some pivot and we started we decided to launch.
The internal work around credit card and 2021 that will be the product that we're launching.
So things like a hybrid card will come later on.
After 2021, and so we've been quite disciplined.
We're very focused on.
Getting the best of.
Synergies, where we have core capabilities and we think we have a lot of them per card, but then we're also partnering with other.
Providers for parts of the infrastructure. So what do we have we've got national distribution. We've got you know me.
Marketing database.
Close to 15 million customers, who have done business with us.
In recent years, we've got.
Deep and robust funding partners, we've got proprietary data on the near Prime customer and we know how to do kind of ability to pay.
Budgeting.
<unk> been using in building our credit models, but also accessing third party credit models and so we're going on.
Got central collection operations.
Automatic dialer capabilities, all kinds of things you need for any sort of credit product business. So we're using that but we also had stood up a full leaf separate team.
Run by.
Cards.
We've contracted with Mastercard with a processor we're using.
External fraud detection tools different plugging into we've got on bank partner.
And so we've got a team that is.
Places, where theres deep synergies and you can use the infrastructure of Onemain were tapping into that but we're also partnering with a variety of people who already have the built out infrastructure per card and so.
It's moving.
Very.
Modestly, but quickly and I have a lot of confidence we're going to be able to scale. It up and we paid debt. If you look back over the last couple of years.
I'm very focused on.
Delivering and execution is just as important as strategy and we've got a team.
We focused on this execution.
Yes.
Great. That's very helpful. Thank you.
Last quick one from me is just how we should be thinking about.
<unk> expenses going forward with all of these investments will be on.
The acquisition of true on the credit card rollout.
So you gave guidance for 2021 is that kind of a right run rate going forward in 2022 does it sort of slow down or does it does it accelerate going forward.
So I'm going to I'm going to steer clear of giving any guidance on 2022 quite yet Vince.
So we've given you the 5% to 7% increase that we expect for the full year of 2021 keep in mind that is coming off of a year, where we shrunk our expenses by 3%.
This quarter's comp in the first quarter when you compare it to 2020, it's against the pre COVID-19 period, So that's going to be prior to any of the cost actions. We took so we're still seeing the benefit in this quarter year over year.
Of those actions, but given the difference in originations activity last year's cost cutting I would point you more towards sequential comparisons.
Through 2021, with like a moderate increase of $5 million to $10 million per quarter as we ramp up some of our spending on initiatives, but all within the constraints of that five to seven 7% year over year guidance, We gave you.
Okay, Great. That's very helpful. Thank you very much.
Hi, Mario This is Peter Hey, I'd, just like to say, thank you to everyone on the call. We appreciate your time. This morning, I know, it's a very very busy earnings week and a very busy earnings morning.
So look forward to hearing from you in the future. Thanks, everyone.
Yeah.
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