Q2 2021 OneMain Holdings Inc Earnings Call
Ladies and gentlemen, thank you Kristine and by today's.
Conference is scheduled to begin momentarily until that time, you're on it can be placed on music hold thank.
Thank you.
[music].
Welcome to 1 main financial second quarter, 2021 earnings conference call and webcast hosting the call today from Onemain as Peter Pulliam and 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 opened for your questions. Following the.
And if he would like to ask a question at that time. Please press star 1 on your Touchtone phone.
And if at any point. Your question has been answered you may remove yourself from the queue by pressing the balance we.
We do ask that you limit yourself to 1 question and 1 follow up and please pick up your handset to allow optimal sound quality and lastly, if you should require operator assistance. Please press star zero and it is now my pleasure to turn the floor over to Peter. Please you may begin.
Thank you Nicole good morning, everyone and thank you for joining us on me.
Begin by directing you to pages, 2 and 3 of the second quarter 2021, Investor presentation, which contains important disclosures concerning forward looking statements and the use of non-GAAP measures and presentation can be found and 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.
On a per 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 and our earnings press release and include the effects of the COVID-19 pandemic on our business our customers and the.
Economy in general.
And you're not to replace 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 July 20 <unk>.
And if 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 Mike <unk>, Our Chief Financial Officer.
At the conclusion of our formal remarks, we will conduct a question and answer session.
Now, let me turn the call over to Doug.
Thanks, Peter and good morning, everyone. We appreciate you joining us today.
And we'll spend the majority of our time on today's call covering our second quarter performance, but I will also spend time discussing some of the strategic initiatives underway that will allow us to continue to realize our mission of improving the financial wellbeing and hard working Americans.
Our second quarter performance demonstrates the resilience of our business model as we saw strong loan originations and the latter half of the quarter, resulting in notable growth in receivables as well as record low losses capital generation was strong and the quarter and we remain.
And well positioned for continued growth and the economic recovery continues.
In the quarter, we generated $310 million of capital $98 million more than the prior year up 46 per cent.
C&I adjusted earnings for the quarter were $2.66 per share our credit performance remains very strong and continues to benefit from the proactive credit tightening actions that we implemented at the start of the pandemic.
Unprecedented levels of government support over the past 15 months and.
And our robust underwriting capabilities second quarter losses were 4.4% and we feel confident about the continuation of this excellent credit performance over the remainder of this year.
Receivables, which we refer to as managed receivables and our presentation grew 3% year over year and 4% sequentially.
It's worth highlighting the growth in our loan book with higher than the overall near prime installment loan market, which declined about 3% year over year.
We believe our strong performance and comparison to the market is driven by our growth initiatives, including our continued product innovation, new channels and advanced analytics across multiple functions within the company.
Recall that in early 2020 as the pandemic began we committed to working closely with our customers to help them through a difficult time, but we also said we would continue to stay focused on our longer term initiatives that would position us for growth as the <unk>.
The endemic waned and the economy strengthened we are now starting to see positive results from many of those initiatives.
The economic and business trends, we observed in the quarter were positive.
Unemployment rates and jobless claims have started to normalize and after a year of economic uncertainty driven by pandemic restrictions and.
Recession and multiple government stimulus packages, we are now seeing consumer demand pick up recent fed data shows personal consumption is up sharply since the start of the year importantly demand for our product has rebounded to pre pandemic levels.
We saw our originations improved each month of the quarter with June activity, resulting in a record high for the company with that said, we will closely monitor economic conditions, including the potential for a resurgence of COVID-19 associated with new bearings.
The recent strong economic backdrop is positive for our current suite of products, but also for the products, we expect to offer customers in the near future, let me elaborate a bit on that.
If you turn to slide 7 of the presentation I'd like to touch on the future vision that we discussed on this call last quarter because it is guiding our priorities and the actions we are taking at Onemain.
Our vision is to be the lender of choice to near Prime consumers meeting their current needs and when they have a mismatch between income and savings on the 1 hand and expenses on the other while also providing products and services that help customers progress to a more promise.
<unk> financial future.
We'll leverage our foundational strength to continue to be the leader and near Prime installment lending, but we are also expanding our suite of products services and experiences to deepen our customer relationships increased engagement and enhance our proprietary datasets.
All of which will provide real value to customers and make it more likely that they will want to do business with us in the future.
Over the past few quarters, we discussed our plans to extend our product offering with the rollout of a differentiated digitally enabled credit card designed specifically for the near Prime consumer I'm pleased to say that we remain on target to be and market later this year.
And with the initial tax beginning in the next several months.
As with our other product Rollouts, we will be deliberate and run a pilot before a full rollout.
Pilot will test uptake line usage and credit before scaling receivables and the latter part of 2022 with the expectation that our credit card will be a multibillion dollar receivables product over the coming years.
Once we get through the initial launch and testing and addition to scaling the credit card. We also anticipate further expanding our lending products to include a hybrid product, which will combine characteristics of both card and loans solutions to provide even more financial flexibility.
The ability for qualified customers, we're really excited about the future of our product set and the value that it will provide to customers.
We also closed on the acquisition of trim during the quarter. We are now and the integration process and look forward to offering the multitude of trim solutions to our current loan customers as we continue to focus on our mission of improving the financial wellbeing of hard working Americans.
Finally, as I mentioned earlier, the significant investment, we're making and technology new channels, new products and digital capabilities continue to have a positive impact on our results. There is no doubt that the growth and receivables we reported this.
<unk> would not have occurred without our innovations and product size and pricing as well as our expanded digital channel.
Before I turn the call over to Mike I'd like to briefly comment on capital deployment.
Consistent with our previously established framework of considering and enhanced dividend each first and third quarter.
And recognizing the strength and resilience of our business, we announced a third quarter enhanced dividend of $3.50 per share, which combined with our regular quarterly dividend of <unk> 70 per share returns for dollars and <unk> 20 per share.
And to shareholders. This quarter and addition, as we discussed on our last call. We commenced a programmatic share repurchase program and bought back 612000 shares for a total of $35 million during the second quarter.
Using our capital allocation framework is the guide we will continue to invest and loans that provide value to our customers and meet our risk return criteria and <unk>.
And the business to position us for the future and return capital to shareholders with that let me turn the call over to Mike to take you through the financial detail of the second quarter.
Thanks, Doug and good morning, everyone. We had another great quarter as consumer demand returned to pre pandemic levels, resulting in healthy receivables growth for year over year and sequentially.
And the second quarter credit performance continued to exceed our expectations while interest expense also declined.
Moving economic outlook gives us confidence and the future performance of our portfolio and allowed us to further reduce loan loss reserve coverage.
We are on $350 million of net income or $2.60 per diluted share in the quarter.
And that compares to $89 million or <unk> 66 cents per diluted share and the second quarter of last year, which was impacted by Covid related reserve builds.
On an adjusted C&I basis, we earned $358 million.
Or $2.66 per diluted share.
That compares to $107 million or <unk> 80 per diluted share and the second quarter of 2020.
Capital generation or C&I adjusted earnings excluding the impact of changes and loan loss reserves was $310 million and the second quarter up $98 million or 46% over prior year.
As Doug mentioned earlier, we have included in our materials and new metric called managed receivables. This represents the ending balances of C&I loan receivables that we hold on our books plus those receivables we sold as part of our loan sale program that began earlier this year.
We believe this is an important and relevant metric as it encompasses the full balance of C&I loans that have been originated by and our service by Onemain.
And then to receivables for the quarter were $18.3 billion.
Up $705 million from the first quarter and up 3% from a year ago, reflecting a strong rebound and consumer demand and the accelerating impact of our growth and efficiency initiatives.
We will continue to report the balance sheet equivalents of ending net receivables and average net receivables both of which exclude loans that have been sold and are important for our loan loss reserves charge off rate yield and other income statement metrics and keep in mind for all prior year comparisons manage and ending receivables.
Polls are 1 and the same as the whole loan sale program started in the first quarter of this year.
Interest income was $1.1 billion and the second quarter largely flat to prior year as slightly lower average net receivables was partially offset by higher yield.
Interest expense was $230 million down $36 million or 14% versus the prior year as we continue to benefit from the ongoing liability management actions that we're taking to reduce our cost of funds, while also extending our maturities.
Reiterating the guidance that we provided on our last call. We expect full year interest expense and the range of 5.0 to 5.2%.
Other revenue was $148 million and the second quarter up 3% compared to the prior year quarter.
Other revenue and the current period included $11 million of gain on sale revenue from the $120 million of loans, we sold during the quarter.
Policyholder benefits and claims expense was $48 million and the second quarter down $42 million year over year.
And the second quarter of 2020 claims expense was significantly elevated at $90 million as we experienced a high level of involuntary unemployment insurance claims during the peak of the pandemic.
<unk> claims have consistently moderated since that time and the current quarter expense has trended back to normalized levels as anticipated.
Let's turn to slide 9 to review, our originations and receivable trends.
We originated $3.8 billion and the second quarter up 87% from second quarter 2020.
Importantly, our originations this period were essentially flat to the comparable pre pandemic quarter of 2019 originations.
Originations improved meaningfully each month as the quarter progressed as the impacts of government stimulus programs subsided and economic conditions continued to improve and in fact, our June 2021 originations reached an all time high at nearly $1.5 billion and we've seen good momentum continue into July.
Slide 10 lays out how originations measured against comparable periods of 2019 trended throughout the second quarter.
The bar graphs provide the actual originations while the percentages below each of the bars shows the growth percentage adjusted for differences and the number of business days and each respective period. So for example, you can see that while may originations were down on a dollar basis from 2019, when adjusting for business days.
Actually 2% better than 2019.
June performance and improved further and ended 10% higher and 2019 levels.
Assuming the current economic environment continues we expect to grow our receivables by 8% to 10% and 2021 we.
We expect receivables at December 31 will include about $350 million of receivable sold but serviced by Onemain for our whole loan sale partners.
Let's now turn to slide 11, and walk through our recent credit trends are.
Our credit performance continues to be strong as the adjustments we made last year combined with multiple rounds of government stimulus and improving economic conditions have all had a very positive effect on delinquency and losses over recent quarters.
Second quarter net charge offs were 4.4%, a 192 basis point improvement year over year, and a 26 basis point improvement over last quarter.
After on a historic low for 30 to 89 day delinquency and the first quarter.
Second quarter rose seasonally to 176% up a modest 13 basis points against the previous record low set in second quarter of last year.
Following the strong 30 to 89 performance from last quarter, our 90, plus delinquency hit a record low of 136% and the second quarter.
Down 53 basis points year over year.
Delinquency levels achieved over the past 2 quarters gives us confidence that we'll continue to see strong net charge offs performance through the remainder of the year. While there continues to be some level of uncertainty and the macro environment, we feel great about the outlook for credit and we now expect full year 2021, net charge offs of about 4.2.
<unk>, a significant improvement from our expectations at the beginning of the year.
Our loan loss reserve trends are shown on slide 12, we ended the first quarter with just under $2.1 billion of reserves and a reserve ratio of 11, 8%.
And the second quarter, you can see that we reduced our reserves by $64 million.
The net reduction reflected an increase of $58 million associated with our growth and the quarter and $122 million reduction from the expected performance of our portfolio under improving macroeconomic conditions. This brought our reserves to 2.0 billion and a ratio to 11.1.
<unk> at the end of second quarter, So 40 basis points higher and the pre pandemic level of 10, 7%.
Turning to slide 13 second quarter operating expense was 332 million, 12% higher and the comparable prior year quarter and 7.5% of average receivables.
The year over year expense growth and the quarter reflects continued investment and new products and growth initiatives the year over year increase and production as well as the difficult comparison against second quarter 2020, operating expenses, which benefited from the cost actions, we took and response to the emergence of the pandemic.
We expect that our continued investment and the business combined with strong loan demand will result, and our operating expenses growing in the upper end of the 5% to 7% range. We discussed on our last call, but recall. This is after our Opex declined 3% and 2020 I think it's important to point out that even with access.
<unk> investment and growth and receivables of $1.3 billion since 2019, our opex ratio remains below the comparable period in 2019.
This reflects the operating leverage of our model and the efficiency actions, we continue to drive across the business.
Let's now move on to the balance sheet on slide 14.
We continue to maintain significant sources of liquidity with $1.6 billion of available cash and $7.3 billion and Undrawn conduit capacity and $9.7 billion of unencumbered receivables.
We had a busy funding quarter, raising $1.7 billion.
And may we issued and $850 million 5 year revolving ABS deal with what we believe was a very impressive cost of funds of 156%.
In June we completed a $750 million 6 year, social bond, which was affirmed by S&P to be aligned with social bond principles net proceeds of the bond will finance loans to individuals residing and credit in secure our credit at risk counties as defined by the Federal Reserve Bank.
And New York, and at least 75% of which will be allocated to minorities and women.
We are all very proud of this issuance as it is emblematic of how we serve all hardworking Americans.
As I mentioned earlier, we also completed a $120 million of whole loan sales during the quarter and we expect this level of loan sales to continue in future quarters.
Our mature funding programs remain a hallmark of Onemain and we believe they stand out as a clear competitive advantage for us.
We continue to deliver on our capital allocation framework, which includes delivering portfolio growth at attractive returns investing and our business and our future and returning considerable capital to our shareholders consistent with this framework, we announced and enhanced dividend of $3.50 per share and addition.
2 or <unk> 70 per share regular quarterly dividend on slide 17, we've laid out our consistently strong dividend history, Inc.
<unk> the $4.20 per share per share dividend to be paid in August we will have paid out $9.30 per share during the last 12 months equating to a yield of approximately 16%.
And the quarter, we also repurchased over 600000 shares of our stock for a total of $35 million.
As of June 30, we had $120 million remaining under our current authorization.
We continue to execute on our disciplined capital allocation framework, while maintaining our leverage ratio our net leverage at the end of the second quarter was 4.5 times comfortably and the low end of our strategic range.
In closing, let's move to slide 19, where we provide some updated financial strategic priorities for full year 2021.
We expect the yield on our average net receivables to remain stable at approximately 24% for the full year.
We expect our interest expense to range between <unk> 5.0, and 5.2% of average net receivables.
As I mentioned earlier, our loss experience in 2021 has been quite strong and we expect full year net charge offs will be approximately 4.2%.
We expect operating expenses to come in at the high end of our 5% to 7% year over year growth range and lastly, assuming a continued positive economic backdrop, we expect our receivables to grow 8% to 10% this year with that I'll turn the call back to Doug.
Thanks, Mike.
The resiliency and strength of our business model is now showing through as the market stabilizes and consumer demand picks up.
We are pleased that the technology and operational enhancements that we made to digitize our business before the pandemic allowed us to continuously provide outstanding service to our customers throughout this unprecedented period and we will continue to meet our customers where they want to be met.
Providing service and whatever channel they choose in person on the phone or through digital interactions. We are committed to continuing to invest and our business to ensure we can meet customer needs and to provide the financial products and solutions to help our customers improve their.
Well being.
I'd also like to mention our inaugural social bond that Mike discussed earlier I was incredibly pleased by the strong demand we saw for this bond as the market validated the efforts we've made across our entire organization to ensure that hard working Americans from underserved communities.
And have access to the financial solutions they need on.
I'm proud of Onemain strong record of supporting our customers and I'm committed to continually advancing these efforts the.
And the strategic initiatives and innovations we have executed over the past several years are continuing to pay off as many parts of the economy have reopened and consumer demand has picked up and.
And we believe that the investment and our business, which we accelerated in 2020 and into 2021 will position us for growth and the years to come.
Thank you for joining us today, and we're happy to take your questions.
The floor is now open for questions.
And if you have a question. Please press star 1 on you touched on.
If at any point your question Andrew.
Labor and local stuff on.
Thank you by testing the balance.
Thank you and we do ask but why you pose your question and thank you pick up from here.
Right.
Quality.
Thank you all price question will come from the line of Michael Kaye with Wells Fargo.
Hi, good morning, Thanks for taking my questions.
The uptick and any inflation and I was wondering what's your view on the impact to the business. For example, how should we think about the potential impact from a loan growth operating expense, that's always been a consumer credit perspective.
Hey, good morning, Michael It's Mike Thanks for the question.
Good 1 I think as we think about inflation.
With respect to originations could be marginally positive things cost a little bit more than they've cost and the past.
I think you hit on the other the other big piece of this which is potentially rising rates I'll remind you left from 5% of our debt is floating so we feel like we're on a pretty good position with respect to that we have a long maturity structure and we've been really opportunistically, replacing a lot of our higher cost debt and our stack with.
Lower cost debt from the very recent really strong markets and base rates have been great, but I think the strength of our programs and our credit spreads have also been a contributor.
And we issue anywhere from $3 billion to $4 billion, a year and which is not a huge portion of our close to $18 billion of debt. So to the extent there is rate increases we think it'll be it'll.
It'll be sort of ratable over time, but hopefully offset with our continued strong credit spreads.
Those are the 2 biggest pieces.
No great.
Wanted to ask about the IRS trial cash credit dollars, how should we think about how it impacts your loan growth and is this more like a goldilocks scenario work isn't too bad given your average $8000 average ticket, but it's big enough to be helpful core credit.
Yeah, I think that sounds right Michael.
And some ways and some of this is an acceleration of credit and also the credit was increased from 2000 to 3000 or 3600, depending on the age of the child.
And it only effects, maybe about 30% of all filers, but we view it as it's an incremental monthly amount that I'm sure will be helpful to.
To consumers, but and the Grand scheme of things I don't think it's meaningful enough for it to impact our business, our originations and that way.
Okay. Thank you very much.
Thank you.
The next question will come from the line of Kevin Barker with Piper Sandler.
Good morning, Thanks for taking my questions.
And given the tighter underwriting 2020, and how strong and consumer has been with the amount of cash and savings rates there.
Do you expect to have structurally lower net charge off rates as we go into 2020.2 just given.
And the back book should start to look better.
And just given the tightening of underwriting that we sold.
Yeah, I mean, the losses, we're experiencing today Kevin.
Are certainly well below normal for our business with our second quarter charge offs were 192 basis points below the prior year level.
We don't think the losses will stay this low forever, but we do expect them to up to be below normal for some time and you can look at our early delinquency trends of 30 to 89 is a good indicator for that they remain well below about 40 basis points and the quarter below 2019.2019 levels and.
I think consumer balance sheets have continued to be strong average credit card debt is down about 25% from a year ago.
Applicants that are coming into our business our revolving debt to annual income is is down about 30% to 40% from a year ago. So I think with the strong consumer balance sheets, we should expect to see very strong credit going forward that said credit has been certainly influenced by several rounds of government.
Stimulus so as we saw in 2000.22020, and we do expect to see and migration up towards 2019 trends I think it's just going to happen over time versus versus a cliff.
And then alerts a day there was comments about.
And when a company that's consumer lender that was.
Not releasing as much reserves and it had previously or versus peers and they cited on the.
And the expiration of foreclosure moratoriums and forbearance programs that could impact credit.
And the back half or early this year and early 2022.
Do you anticipate any impact from the explorations and with government programs.
Just given the outsized and.
In fact, they had over the last year to 18 months.
Yeah, We don't we don't say and this is a big risk with our customer base, we're monitoring our payment trends very closely and they remained strong.
And going into July and.
I would remind you also as a precaution.
And our underwriting since 2002 really about <unk> 'twenty, we've been adjusting for forbearance and both our risk, scoring and our ability to pay underwriting so meaning we would.
Volume was in forbearance on the consumers Bureau, we would have treated that as an expense for our underwriting and so we don't expect it to impact us materially.
Okay. Thank you for taking my questions.
Thank you.
The next question will come from the line and John Hecht with Jefferies.
Morning, guys. Thanks, very much for taking my questions.
Yes.
First 1 is just because a couple of credit card companies have reported and I mean I guess.
And I guess, we're seeing the early stages of demand recovery across the board, but you guys are back to full throttle and.
I'm wondering.
Do you think it's structural.
Is it something structural tied to the product or is it that youre gaining market share do you guys have any thoughts as to why you've rebounded in terms of demand trends relative to other consumer finance products.
Yeah look we.
If you look at June we've had and we had an upward trend through the quarter and June our originations were up about 10% and we're measuring things against 2019, because we think that's a more normalized way to measure it because June 2020, there was a lot of things going on with the pandemic.
Demand was actually flat.
So the demand for our product was the same and 2019 as it was in 2021 in June.
We attribute a lot of our growth to the initiatives that we started building towards and 18 and 19 and that we accelerated into 2020..1 so innovations around our loan size innovations around pricing and competitive channels, our digital customer experience switch and it gives people.
Options of how to interact with a lot less fall off through the pipeline because we've enhanced the customer experience. When you are on our website the clarity.
Of our offering and then Theres a whole lot of.
Small, but important operational changes that we've talked about before.
Routing algorithms using machine learning to get any applicant routed to either the right branch or centralized call center propensity models about which calls to be making first as people come in and.
And then we've continually improved on model so.
I do think our product is different than on a credit card, so they're going to have different trends, but even within installment loans and near prime.
Year over year, our balances are up 4%, while the market is down 3% and so we do think we're picking up some market share.
Because we've really been focused on our customer.
Okay. Thank you for the comprehensive answer.
Second question is just a little bit of liability management.
What do you think is there a long term goal of the mix.
Secured versus unsecured debt or is that is that a dynamic decision based on rates and spreads.
Yes, we've always had a little bit of a range out there I mean, we've always said John that we like to be 50, 50, and I think that just signals really that we want a nice mix of the 2.
The ABS markets are deep they tend to be lower cost we didn't issuance. This quarter as you heard on our prepared remarks that was.
Below 1.6% certainly very attractive cost of funds. We also though like the longer term duration and tenor of the unsecured market, which gives us the ability to really manage our liquidity runway. So the 2 are sort of.
Beneficial and different ways and we just seek a balance we've been actually running more towards the 40% to 43% of our debt in the secured category.
ABS deals as you know do amortize as well so those are sort of naturally amortize down and we have to replace them with new issuance, where the the unsecured on more bullets, but I would say there is no. There is no magic to it other than we like to have the balance of the 2 and.
And we also have very chunky issuance, where we are.
Doing 750 to 1 billion and sometimes in the debt market set and move around from quarter to quarter, depending on where we are.
Okay. Thanks, guys.
Thank you.
The next question will come from the line of Mark and <unk> with Barclays.
Yes.
Could you give us an indication.
And as you've seen it so far what the trends are for loan growth and July are you continuing to move.
The momentum from June and is there anything to call out on from a product perspective on on.
Whether it kind of on some of the new initiatives are contributing to the acceleration.
Yes look July remains strong.
Alerted June.
We don't anticipate seeing the kind of acceleration we saw April through June going forward, but at least the beginning of July.
Is strong.
On.
Assuming there is.
Part of the year.
Don't think anything particular to call out with product we.
We had talked about we did have a product that we rolled out close to a year ago that offered people a smaller dollar loan and it's not a small dollar loans 2500, $3000 for people, who didn't qualify for and $8000 loan, but could meet those payments and thats been a very good.
Good product.
People have then as their credits grown some people have taken out larger loans.
After that.
And we're very excited and our credit card is going to the pilots are going to launch very soon and so we think thats going to be a great product and the market our trim product, which is really now a value added way.
Way for customers to save money on bills, we're integrating that and in the first quarter, we anticipate offering that to current customers. After we have a fully integrated.
Onto our App so.
I think good continuation of the product innovations and a lot of things coming over the next year.
Okay great.
And can you talk about how you look to size the loans sale program every quarter and then I think there's there's clearly on the arbitrage and.
On the 10th largest between wealth of switching from.
Investors are willing to pay for those loans and with equity investors are paying so the cash flows.
And obviously sales and <unk> and.
Share repurchases look pretty attractive here, but just how are you thinking about weighing those sectors.
Yes in terms of the loan sale of the whole loan sale program markets and that Youre asking about the <unk>.
We don't we don't necessarily size that differently and any given quarter. These are programmatic.
Our relationships and we look at it is obviously and enhancement to our existing funding programs.
Our loan sale agreements are 2 year flow agreements, so there's a commitment to buy.
Certain amount of loans over a 2 year period that obviously is liquidity and longer term funding.
<unk> funding for us and and so those agreements are in place and the per the counterparty on the other side will buy the same amount every month at the agreed upon price. So I wouldn't say we're trying to.
Change those from quarter to quarter in terms of.
And the levels we are selling.
Okay are you looking to add partners.
And at the level you want to be on.
Yes, I mean, I think we've said in the past I will say it again and we're committed to keeping the vast majority of our loan production on our balance sheet you heard about our very very much a successful quarter in the funding markets.
With unsecured social bond and also our ABS at very attractive rates, we do remain open to additional loan sale agreements at the right terms.
And I'll leave it at that.
Okay. That's helpful. Thank you.
Thank you.
The next question will come from the line of Matt.
Orenbuch with credit Suisse.
Great Thanks and.
I guess I was thinking about asking a similar question that Jim and Mark I think Jay.
When we look at it you've generated a tremendous amount of excess capital from just the core operations of the company and so perhaps there isn't as much of a quote unquote need to generate more by loans sales, but I guess, maybe just to re ask the question.
Have you looked at that.
And that relationship.
Whereby the fixed income market share.
And double digit premiums for your loans and perhaps could be higher if expanded and not necessarily lower I guess and how you think about that.
Yeah, I think I think Moshe for US. This is all about balance within our balance sheet and also within our funding program. So certainly.
Pricing has been very accretive but.
Again, I think we want to maintain a certain level on our balance sheet debt that we feel we're comfortable with.
Certainly those returns are there we think about the price and terms of what happens if we keep the loan what happened and what does that look like and what happens if we sell a lot on and obviously and.
And these loans sales Theyre also very very capital efficient source of earnings.
But I think we'd like it adds and addition to our already existing funding programs and not sort of a new strategy for the company.
Size.
Got you Okay. Thank you and that's.
Very helpful you talked a little bit about cash.
On a funding.
Opportunities and obviously.
The bond that you just did and.
Spreadsheets and really really good are there any other ways to kind of accelerate take.
<unk> taken more of the low rate.
And that environment into.
Kind of into the cost of funds.
Well Theres, a few maturities out there and the near future debt are of a coupon that's higher than what we're able to raise debt at today are if you look at our entire stack our coupon on our unsecured bonds are little bit over 6% and the yield on those on that stack is just under 3 so.
Obviously, some room there as you think about those.
Those bonds rolling off and new bonds coming on obviously the markets are very dynamic and will change.
But coming up and the near term we've got a.
On a 22 bond and in May that's at 6 and 8.
So thats certainly above where we can issue today, so we're thinking about that bond and.
And there is a bond we issued and the when the capital markets work and a.
A little bit of a challenge stayed back and early last year and debt.
And we'll come callable its a nice part of what we added over the last 3 bonds. We added a callable feature to our programs and so that gives us the ability to do this liability management, a little bit more effectively and that bond becomes callable and next day and it's an 8 and a quarter coupon. So I think that's the way we're going to think about it is replacing that higher cost.
Debt with what we hope will be continued strong yields and the new issue market.
Great. Thanks, so much thank.
Thank you.
The next question comes from line on Great Shane with J P. Morgan.
Hey, guys. Thanks for taking my questions.
I'd like to sort of combine a couple of observations Michael you mentioned that the reserve rate and still 40 basis points above day, 1 levels, Kevin Barker and need the observation about the change and.
Underwriting over the last year.
And then the short term nature of your assets. So there has been so much churn should we actually consider the possibility that over the next year.
<unk> goes below day, 1 levels because of the shift and the portfolio and the economic outlook.
Right.
Question I mean, certainly 1 we think about and I think the short answer to your question is yes, it's possible I think it's too early to sort of on.
Offer much more of a concrete view on that 1 of the things with our reserves. You'll remember are seasonal as you have to incorporate unemployment assumptions for from a lifetime of the losses that you are forecasting the unemployment rates right now and in terms of the forecast are still above.
And what they were when we struck these reserves at 10, 7% rate post implementation of seasonal.
Continuing to take a prudent approach with our reserves. If you look at our loss performance and delinquency and roll rates, we've seen some things over the last year plus debt I don't think any of us would have expected to see even and our recoveries. You know you think about post charge off recoveries.
In the quarter were $57 million, our average is 35 ish $40.40 million per quarter, and so we're just seeing really strong payment performance and and collections across all aspects of the delinquency spectrum and our reserves, we don't necessarily expect that to continue.
As we think about the life of a loan in the future and so it's 1 of those things. We're just going to continue to look at it on a quarterly basis, the reserves and moving down.
And there's a lot of dynamics that go into that but I think I think the.
Net view is it's positive but were being cautious as there is still some uncertainty on the horizon.
Got it yeah, I think it's an important consideration just in the context on how we're looking at reserves more broadly and consumer finance because you guys are uniquely positioned to sort of recast your portfolio every 12 to 18 months.
And for US and it's also a reason why we focus on the capital generation of the business, which excludes those reserving because it is especially under Cecil and very much a timing.
Event, and so we try and stay focused on the actual economic returns on the business for that reason.
Got it great clarification. Thank you guys very much.
Thanks, Rick.
The next question comes from the line of carefully with RBC capital markets.
Hi, good morning, Thanks for taking my question.
Just around the improvements in origination volume as you saw on the quarter wondering if is there any other details you'd like to call out either in terms of geographies or particular customer segments that you saw.
Any market improvement versus others. Thanks.
Yes. Thanks.
We're seeing strong.
Demand across all of our geographies and across all of our customers. So theres really no.
And nothing.
Particular, there I mean, I'll just point out again demand was flat 2019 to 2020, 1, but we were up 10% and we do credit and many of our product innovation channel innovation, and adding new channel partners operational enhancements.
And it's a lot of things that we've been talking about over the last couple of years, starting to come to fruition and seeing it and our results.
Got you very helpful and just 1 follow up if I may.
Anticipate any changes in terms of underwriting or your credit box over the near term.
And was there any changes.
And.
And the most recently completed quarter.
And.
Yes look we.
We continue to refine our credit box and every every month, there's changes based on looking at economic input.
Looking at things across.
<unk> fees and industries, we're always refining our model, we're always getting more proprietary data and broadly speaking, we're no longer expecting stress losses in most geographic regions and industries, we do still have some and.
<unk> increased loss so what I would say is we're very disciplined we underwrite to 20% Roe.
Across our portfolio and there's a lot of inputs that go into that and we continue to hone it but on <unk>.
Box is definitely more open now than it was a year ago, but thats gradually been shifting and it's been it's been refined across geographies and industries, but at this point.
And our underwriting is largely assuming not a lot of <unk>.
Stress in the market or for our customers going forward.
Great very helpful. Thank you very much.
Okay.
And next question will come from the line of John.
And as it's Jamie.
Good morning, guys.
And John.
Just a quick question most of my questions have been answered.
Is there any timing.
Around the possibility of a change and the composition of the board.
Look our.
Stockholders agreement governs the right of the consortium that bottom large share and 2018 to appoint members to the board.
And that agreement is publicly filed.
And at certain thresholds of ownership.
Their ability to appoint directors decreases rigor.
And regarding timing, we expect any transition to happen and an orderly manner over time.
That agreement, which again publicly filed is contemplate that the timing of any resignations of directors is no later than when the director is next up for reelection so I think any changes.
We would want to make sure orderly.
And note that.
That group appointed.
And number of highly qualified independent directors, who played an important role and the success of the company. So.
As a board there is definitely a consideration around continuity.
And stability so that we don't have any interruption and the forward momentum that we've got and as a company.
And certainly I don't think that there is any.
Rush to make a change.
But the.
Shareholders or the board members that would.
And gain the majority there when do they come up for reelection.
We have 3.
And 3 year terms on a rotating basis. So it just all depends on.
On the board member.
Okay alright, thank you.
Yes.
The final question will come from the line of Kevin Barker with Piper Sandler.
Yeah, I just wanted to follow up on the.
And the growth outlook.
How much of that growth has been driven by.
Some higher FICO digitally based lending.
And that you typically wouldn't target pre pandemic or earlier than that.
And I realize you expand it a little bit more lending towards.
Borrowers closer to 700 FICO versus a 625.
And so just can you can you give us an idea of what that looks like and <unk>.
Making news and 700 and FICA digitally based loans.
Yes, Kevin.
Such on that Michael.
1 of the things we've talked about in terms of our strategic initiatives, Doug laid out and we think it's the.
The majority of our growth, particularly in June has been driven by the <unk>.
Things we've done in the business 1 of those is around loan and pricing optimization and so we've talked about it and the past.
And with the word strategic pricing as well I think thats, what youre talking about so.
And so we're still we remain focused on being the lender of choice for near Prime and we've seen and opportunity over the last year to use some pricing leverage to add customers that are in that $6.80 to 700, FICO range, particularly on our affiliate channels, where theres, a little bit more rate shopping and so that's.
We've been successful there you've seen a little bit of a shift and the originations towards the higher FICO, but I would say no.
We remain focused on that near prime customer.
Okay. Thank you very much.
That does conclude the question and answer session and today's conference I would now like to teleconference and richness.
And they are selling for closing remarks.
Hey, just want to thank everyone for joining us know, it's a busy time for you. Our team is here if you've got follow up questions Love to hear from you and hope everyone has a great day.
Thank you. This does conclude today's Onemain financial second quarter 2021 earnings conference call.
Please disconnect. Your line at this time and have a wonderful day.
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