OneMain Holdings, Inc. (OMF) Q2 2021 Earnings Report, Transcript and Summary

Welcome to OneMain Financial Second Quarter 2021 Earnings Conference Call and Webcast. Hosting the call today from OneMain is Peter Poillon, Head of Investor Relations. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] It is now my pleasure to turn the floor over to Peter Poillon. You may begin.

Thank you, Nicole. Good morning, everyone, and thank you for joining us. Let 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. 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, July 22, 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. Now let me turn the call over to Doug.

Thanks, Peter, and good morning, everyone. We appreciate you joining us today. 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 of hardworking Americans. Our second quarter performance demonstrates the resilience of our business model as we saw strong loan originations in the latter half of the quarter, resolving a notable growth and receivables as well as record low losses. Capital generation was strong in the quarter and we remain well positioned for continued growth as the economic recovery continues. In the quarter, we generated $310 million of capital, $98 million more than the prior year, up 46%. 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, the unprecedented levels of government support over the past 15 months 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 in our presentation, grew 3% year-over-year and 4% sequentially. It's worth highlighting the growth in our loan book was higher than the overall near prime installment loan market, which declined about 3% year-over-year. We believe our strong performance in 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 pandemic 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, a recession and multiple government stimulus packages, we are now seeing consumer demand pickup. 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 originations improve 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 resurgence of COVID associated with new variants. 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 when they have a mismatch between income and savings on the one hand and expenses on the other, while also providing products and services that help customers progress to a more promising financial future. We will leverage our foundational strengths to continue to be the leader in near prime installment lending. But we are also expanding our suite of products, services, and experiences to deepen our customer relationships, increase engagement, and enhance our proprietary dataset. 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 in market later this year with the initial tests beginning in the next several months. As with our other product rollouts, we will be deliberate and run a pilot before a full rollout. The pilot will test uptake, line usage and credit before scaling receivables in the latter part of 2022, with the expectation that our credit card will be a multi-billion-dollar receivables product over the coming years. Once we get through the initial launch and testing, in 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 loan solutions to provide even more financial flexibility for qualified customers. We are 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 in 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 hardworking Americans. Finally, as I mentioned earlier, the significant investments we're making in technology, new channels, new products and digital capabilities continue to have a positive impact on our results. There is no doubt that the growth in receivables we reported this quarter would not have occurred without our innovations in product size and pricing as well as our expanded digital channel. Before I turn the call over to Micah, I'd like to briefly comment on capital deployment. Consistent with our previously established framework of considering an 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 $0.70 per share returns $4.20 per share to shareholders this quarter. In addition, as we discussed on our last call, we commenced the programmatic share repurchase program and bought back 612,000 shares for a total of $35 million during the second quarter. Using our capital allocation framework as the guide, we will continue to invest in loans that provide value to our customers and meet our risk return criteria, invest in the business to position us for the future and return capital to shareholders. With that, let me turn the call over to Micah 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 both year-over-year and sequentially. In the second quarter, credit performance continued to exceed our expectations while interest expense also declined. The improving economic outlook gives us confidence in the future performance of our portfolio and allowed us to further reduce loan loss reserve coverage. We earned $350 million of net income or $2.60 per diluted share in the quarter. That compares to $89 million or $0.66 per diluted share in the second quarter of last year, which was impacted by COVID-related reserve bills. On an adjusted C&I basis, we earned in $358 million or $2.66 per diluted share. That compares to $107 million or $0.80 per diluted share in the second quarter of 2020. Capital generation or C&I adjusted earnings excluding the impact of changes in loan loss reserves was $310 million in the second quarter, up $98 million or 46% over prior year. As Doug mentioned earlier, we've included in our materials a 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've 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. Managed 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 rebounding 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 loan loss reserves, charge off rates, yield and other income statement metrics. And keep in mind for all prior year comparisons, manage and ending receivables are one in the same as the whole loan sale program started in the first quarter of this year. Interest income was $1.1 billion in 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 in the range of 5.0% to 5.2%. Other revenue was $148 million in the second quarter, up 3% compared to the prior year quarter. Other revenue in the current period included $11 million of gain on sale revenue from the 120 million of loans we sold during the quarter. Policy holder benefits and claims expense was $48 million in the second quarter down $42 million year-over-year. In the second quarter of 2020, claims expense was significantly elevated at $90 million as we experienced the high level of involuntary unemployment insurance claims during the peak of the pandemic. IUI claims have consistently moderated since that time and the current quarter expense is 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 in 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 improved meaningfully each month as the quarter progressed as the impacts of government stimulus programs subsided and economic conditions continued to improve. In fact, our June 2021 originations reached an all-time high at nearly 1.5 billion, and we're seeing 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 in the number of business days in 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 May was actually 2% better than 2019. June performance then improved further and ended 10% higher than 2019 levels. Assuming the current economic environment continues, we expect to grow our receivables by 8% to 10% in 2021. We expect receivables at December 31 will include about $350 million of receivable sold but serviced by OneMain for our home loan sale partners. Let's now turn to Slide 11 and walk through our recent credit trends. 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 the last quarter. After an historic low for 30 to 89 days delinquency in the first quarter, second quarter rose seasonally to 1.76% 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 1.36% in the second quarter, down 53 basis points year-over-year. The delinquency levels achieved over the past two quarters give us confidence that we'll continue to see strong net charge off performance for the remainder of the year. While there continues to be some level of uncertainty in 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%, 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%. In 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 in the quarter and $122 million reduction from the expected performance of our portfolio under improving macro economic conditions. This brought our reserves to $2.0 billion and our ratio to 11.1% at the end of second quarter, still 40 basis points higher than the pre-pandemic level of 10.7%. Turning to Slide 13, second quarter operating expense was $332 million, 12% higher than the comparable prior year quarter and 7.5% of average receivables. The year-over-year expense growth in the quarter reflects continued investment in new products and growth initiatives. The year over year increase in production as well as the difficult comparison against second quarter of 2020 operating expenses which benefited from the cost actions we took in response to the emergence of the pandemic. We expect that our continued investment in the business combined with strong loan demand will result in 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% in 2020. I think it's important to point out that even with accelerating investment and growth in receivables of 1.3 billion since 2Q19, 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, $7.3 billion in undrawn conduit capacity and $9.7 billion of unencumbered receivables. We had a busy funding quarter, raising $1.7 billion. In May, we issued an $850 million five-year revolving ABS deal with what we believe was a very impressive cost of funds of 1.56%. In June, we completed a $750 million six-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 in credit insecure or credit at risk counties as defined by the Federal Reserve Bank of 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 $120 million of whole loan sale 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, we believe they stand out as a clear competitive advantage for us. We continue to deliver on a capital allocation framework, which includes delivering portfolio growth at attractive returns, investing in our business and our future, and returning considerable capital to our shareholders. Consistent with this framework, we announced enhanced dividend of $3.50 per share in addition to our $0.70 per share regular quarterly dividend. On Slide 17, we've laid out our consistently strong dividend history. Including the $4.20 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%. In the quarter we also repurchased over 600,000 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 second quarter was 4.5 times, comfortably in the lower 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 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, Micah. 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 in whatever channel they choose, in-person, on the phone or through digital interactions. We are committed to continuing to invest in our business to ensure we can meet customer needs and to provide the financial products and solutions to help our customers improve their financial wellbeing. I'd also like to mention our inaugural Social Bond that Micah 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 hardworking Americans from underserved communities have access to the financial solutions they need. I'm proud of OneMain’s strong record of supporting our customers and I'm committed to continually advancing these efforts. 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 we believe that the investment in our business, which we accelerated in 2020 and into 2021 will position us for growth in the years to come. Thank you for joining us today. And we're happy to take your questions.

[Operator Instructions] Thank you. Our first question will come from the line of Michael Kaye with Wells Fargo.

Hi, good morning. Thanks for taking my questions. With the uptick in inflation, 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, debt cost than a consumer credit perspective?

Hey, good morning, Michael. It's Micah. Thanks for the question. It's a good one. 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 in the past. I think you hit on the other big piece of this, which is potentially rising rates. I'll remind you, less than 5% of our debt is floating. So we feel like we're in a pretty good position with respect to that. We have a long maturity structure. We've been really opportunistically replacing a lot of our higher cost debt that's in 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. We issue anywhere from $3 billion to $4 billion a year, which is not a huge portion of our close to $18 billion a debt. So to the extent there is rate increases, we think it'll be sort of ratable over time, but hopefully offset with our continued strong credit spreads. I think those are the two biggest pieces.

Okay. No, great. Wanted to ask about the IRS trial tax credit dollars. How should we think about how it impacts your loan growth? I mean, is this more like a Goldilocks scenario where it isn't too big given your average $8,000 average ticket, but it's big enough to be helpful core credit?

Yes, I think that sounds right, Michael. I mean, this is in some ways, some of this is an acceleration of credit and also the credit has increased from $2,000 to $3,000 or $3,600 depending on the age of the child. It only affects 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 consumers. But in the grand scheme of things, I don't think it's meaningful enough for it to impact our business or originations in 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. Given the tighter underwriting 2020 and how strong the 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 2022, just given the back book should start to look better, just given the tighten underwriting that we saw?

Yes. I mean that lots as 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. I mean, 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 in the quarter below 2019, 2Q 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 are – the revolving debt to annual income is down about 30% or 40% from a year ago. So I think with the strong consumer balance sheet, 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 2020, we do expect to see a migration up towards 2019 trends, I think is just going to happen over time versus a cliff.

Great. And then earlier today there was comments about one company, that's consumer lender, that was not releasing as much reserves as it had previously or versus peers. And they cited the expiration of foreclosure moratoriums and forbearance programs that could impact credit in the back half or early – back half of this year and early 2022. Do you anticipate any impact from the expiration of those government programs just given the outsize impact they had over the last year to 18 months?

Yes, we don't see this as a big risk with our customer base. We're monitoring our payment trends very closely and they remain strong even into July. And I would remind you also as a precaution in our underwriting since – really about 2Q 2020, we've been adjusting for forbearance in both our risk scoring and our ability to pay underwriting. So meaning we would, if a loan was in forbearance on the consumer’s bureau, we would have treated that as an expense for our underwriting. And so we don't expect to impact us materially.

Okay. Thank you for taking the questions.

Thank you.

The next question will come from the line of John Hecht with Jefferies.

Good morning, guys. Thanks very much for taking my questions.

Good morning.

The first one is just because a couple of credit card companies have reported. I mean, 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 a structural? Is it something structural tied to the product or is it that you're 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?

Yes. Look, we – if you look at June, we've had an upward trend through the quarter. In 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 in 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 in 2019 as it was in 2021 in June. We attribute a lot of our growth to the initiatives that we started building towards in 2018 and 2019 and that we accelerated in 2020 and 2021. So innovations around our loan size, innovations around pricing and competitive channels, our digital customer experience, which will give people options of how to interact with us a lot less fall off through the pipeline because we've enhanced the customer experience when you're on our website, the clarity of our offering. And then there's 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 then we continually improved our model. So I do think our product is different than a credit card, so they're going to have different trends. But even within installment loans in 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. Micah, what do you think – is there a long-term, I guess, goal of the mix of secured versus unsecured debt? Or is that a dynamic kind of decision based on rates and spreads?

Yes, we've always had a little bit of a range of there. I mean, we've always said, John, that we like to be 50-50. I think that just signals really that we want a nice mix of the two. The ABS markets are deep. They tend to be lower costs. We did an 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 two are sort of beneficial in 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 sort of naturally amortize down and we have to replace them with new issuance, where the unsecured are more bullets. But I would say there's no magic to it. Other than we like to have the balance of the two, and we also have very chunky issuance where we're doing $750 million to $1 billion sometimes in the debt markets. So that will 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 DeVries with Barclays.

Yes, thanks. You gave us an indication if you've seen it so far, what the trends are for loan growth in July. Are you continuing to kind of build on the momentum from June? And is there anything to call out from a product perspective on whether kind of some of the new initiatives are contributing to the acceleration?

Yes. Look, July remains strong similar to June. We don't anticipate seeing the kind of acceleration we thought April through June going forward, but at least the beginning of July is strong. Assuming there's the economic reopening continues and there's not some major shock with the Delta variant, we think loan growth is going to be strong for the remainder of the year. I don't think anything particular to call out with product. 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. It's not a small dollar loan, it's $2,500, $3,000 for people who didn't qualify for an $8,000 loan, but could meet those payments and that's been a very good product. People have then as their credit has grown, some people have taken out larger loans after that. And we're very excited, our credit card is going to – the pilots are going to launch very soon. And so we think that's going to be a great product in the market. Our Trim product, which is really now a value-added 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 loan sale program every quarter? And then I think there's clearly an arbitrage in the capital markets between what the fixed income investors are willing to pay for those loans and what equity investors are paying for the cash flows. So obviously, sales and share repurchases look pretty attractive here, but just how are you thinking about weighing those factors?

Yes. In terms of the loan sale, the whole loan sale program markets that you're asking about, we don't necessarily size that differently in any given quarter. These are programmatic relationships. And we look at it as obviously an enhancement to our existing funding programs. Our loan sale agreements are two-year flow agreements. So there's a commitment to buy a certain amount of loans over a two-year period that obviously is liquidity and longer-term funding for us. And so those agreements are in place and 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 the levels we're selling.

Okay. Are you looking to add partners here or are you kind of at the level you want to be at?

Yes. I mean, I think, we've said in the past, we’ll 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 much 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 Moshe Orenbuch with Credit Suisse.

Hey, great thanks. And I guess I was thinking about asking a similar question to Mark. I think that, when we look at it, you've generated a tremendous amount of excess capital from just the core operations of the company. And so, you know, perhaps there isn't as much of a “need to generate more by loan sales”, but I guess maybe just to, re-ask the question, have you looked at that relationship where – whereby the fixed income markets are paying a double-digit premium for your loans and perhaps could be higher if expanded and not necessarily lower, I guess, how you think about that?

Yeah, I think Moshe of us, this is all about balance within our balance sheet and also within our funding programs, so certainly the pricing has been very accretive, but again, I think we want to maintain a certain level on our balance sheet that we feel we're comfortable with, certainly those returns are there. We think about the price in terms of, what happens if we keep the loan, what happens – what does that look like and what happens if we sell the loan? And obviously in these loan sales, they're also very, very capital efficient source of earnings. But I think we'd like it as an addition to our already existing funding programs and not sort of a new strategy for the company at that size.

Got it. Okay, thank you. That's very helpful. You talked a little bit about kind of funding opportunities, and obviously the bond that you just did and spreads, and it's been really, really good. Are there any other ways to kind of accelerate, take in more of the low rate environment into a – kind of into the cost of funds?

Well, there's a few maturities out there in the near future that are of a coupon that's higher than what we're able to raise debt at today. If you look at our entire stack, our coupon on our unsecured bonds are a little bit over 6%, and the yield on those – on that stack is just under 3%. So there's obviously some room there as you think about those bonds rolling off and new bonds coming on. Obviously the markets are very dynamic and will change. But coming up in the near term, we've got a 22 bond in May, that's at 6% and 8%, so that's certainly above where we can issue today. So we're thinking about that bond and there's a bond we issued in the – when the capital markets were in a little bit of a challenge state back in early last year that will come callable, it's a nice part of what we added over the last three bonds. We added the callable feature to our programs. And so that gives us the ability to do this liability management a little bit more effectively. And you know, that bond becomes callable in next May, and it's an 8.25% 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 in the new issue market.

Great. Thanks so much.

Thank you.

The next question comes from the line of Rick Shane with JPMorgan.

Hey guys, thanks for taking my questions. I'd like to sort of combine a couple of observations. Micah, you mentioned that the reserve rate is still 40 basis points above day one levels. Kevin Barker made the observation about the change in underwriting over the last year, given 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, the reserve rate goes below day-one levels because of the shift in the portfolio and the economic outlook?

Rick, thanks. It's a great question. I mean, certainly one 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 offer much more of a concrete view on that. One of the things with our reserves, you'll remember CECL is you have to incorporate unemployment assumptions for the lifetime of the losses that you're forecasting, the unemployment rates right now in terms of the forecast are still above what they were when we struck these reserves at 10.7%, right post implementation of CECL. We continue 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 that I don't think any of us would have expected to see even in our recoveries. If you think about post-charge-off recoveries in the quarter were $57 million, our average is $35 million-ish, $40 million a quarter and so. We're just seeing really strong payment performance and collections across all aspects of the, the delinquency spectrum in our reserves. We don't necessarily expect that to continue as we think about the life of a loan in the future snd so. It's one of those things we're just going to continue to look at it on a quarterly basis, the reserves are moving down and there's a lot of dynamics that go into that. But I think the net view is its positive, but we're being cautious as there's still some uncertainty on the horizon.

Got it. Yeah, I think it's an important consideration just in the context of how we're looking at reserves more broadly in consumer finance, because you guys are uniquely positioned to sort of recast your portfolio every 12 months to 18 months.

Yeah. And for us, it's also a reason why we focus on the capital generation of the business which excludes those reserving, because it is especially under CECL, very much a timing event. And so we try to stay focused on the actual economic returns of the business for that reason.

Got it. Great clarification, thank you guys very much.

Thanks Rick.

The next question comes from the line of Kenneth Lee with RBC Capital Markets.

Hi, good morning. Thanks for taking my question. Just around the improvements in the origination volumes, based on the quarter. One was, is there any other details you'd like to call out either in terms of geographies or particular customer segments, they saw any market improvement versus others? Thanks.

Yeah. Thanks, Kenneth. We're seeing strong demand across all of our geographies and across all of our customers. So there's really no, you know nothing particular there. I mean, I'll just point out again, demand was flat 2019 to 2021, but we were up 10% and we do credit, many of our product innovations, channel innovations, adding new channel partners, operational enhancements, 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 in our results.

Got it, very helpful. And just one follow-up if I may, do you anticipate any changes in terms of underwriting or your credit box over the near term? And was there any changes in the most recently completed quarter? Thanks.

Yeah, look we – you know, we continue to refine our credit box. In every month there's changes based on looking at economic input, looking at things across geographies and industries. We're always refining our model. We're always getting more proprietary data. Broadly speaking, we're no longer expecting stress losses in most geographic regions and industries. We do still have some anticipated increased loss. So what I would say is we're very disciplined, we underwrite to 20% ROEs across our portfolio. There's a lot of inputs that go into that and we continue to hone it, but our credit box is definitely more open now than it was a year ago, but that's gradually been shifting and it's being – been refined across geographies and industries, but at this point our underwriting is largely assuming, not a lot of stress in the market or for our customers going forward.

Great. Very helpful. Thank you very much.

The next question will come from the line of John Rowan of Janney.

Good morning guys.

Hey, John.

Just a quick question, most of my questions have been answered. Is there any timing around the possibility of change in the composition of the board?

Look our stockholders' agreement, governs the right of the consortium that bought large share in 2018 to appoint members to the board and that agreement is publicly filed. At certain thresholds of ownership, their ability to appoint directors decreases. Regarding timing, we expect any transition to happen in an orderly manner over time. That agreement which again publicly filed is, contemplates that the timing of any resignations of directors is no later than when the director is next up for re-election. So I think, any changes, we would want to make sure orderly. I'd also note that, you know that group appointed a number of highly qualified independent directors who played an important role in the success of the company. So as a board, there's definitely a consideration around continuity and stability, so that we don't have any interruption in the forward momentum that we've got as a company.

Yeah, certainly I don't think that there's any rush to make a change. But the shareholders or the board members that would, gain the majority there, when do they come up for re-election?

No, we have three year terms on a rotating basis. So it just all depends on the board member.

Okay. All right, thank you.

The final question will come from the line of Kevin Barker with Piper Sandler.

Yeah. I just wanted to follow up on the growth outlook. How much of that growth has been driven by some higher FICO, digitally-based lending that you typically wouldn't target pre-pandemic or earlier than that? I realize if you expand it a little bit more lending towards borrowers closer to 700 FICO versus a 620 FICO. And so just can you give us an idea of what that looks like by making those 700 FICO digitally based loans.

Yeah. Kevin, I'll touch on that. It’s Micah, one of the things we've talked about in terms of our strategic initiatives Doug laid out, we think it's –the majority of our growth, particularly in June has been driven by the things we've done in the business. One of those is around loan and pricing optimizations. So we've talked about it in the past with the word strategic pricing as well. I think that's what you're talking about. So I would say, we're still, we remain focused on being the lender of choice for near prime. We've seen an opportunity over the last year to use some pricing leverage to add customers that are in that 680 to 700 FICO arrange particularly on our affiliate channels where there's a little bit more rate shopping. And so that's where we've been successful there. You're seeing a little bit of a shift in the originations towards a higher FICO, but I would say, we remain focused on that near prime customer.

Okay. Thank you very much.

That does conclude the question and answer session of today's conference. I would now like to turn the conference over to Mr. Shulman for closing remarks.

Yeah. Hey, just want to thank everyone for joining us. I 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.