OneMain Holdings, Inc. (OMF) Q4 2021 Earnings Report, Transcript and Summary

Welcome to OneMain Financial Fourth 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. [Operator Instructions] It is now my pleasure to turn the floor over to Peter Poillon, you may begin.

Thank you, Operator. Good morning everyone and thank you for joining us. Let me begin by directing you to page two of Fourth 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, February 3, 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, and good morning, everyone. This morning, I'd like to take a few minutes to look back at our progress over the past several years. I will then review our strong financial performance for the quarter. I'll then spend some time updating you on our key strategic initiatives and finally, provide an updated framework for capital returns in 2022 and beyond. As we start the New Year, I want to reflect on the strength and resiliency of our business. Since I've been with the company, I have often said that our expertise and history with serving the non-prime customer, together with our conservative balance sheet with excess liquidity, uniquely positions us to drive outstanding business results through any economic environment. I believe the last couple of years have proven that point. During 2020, when the capital markets were dislocated and many competitors had to step out of the market, we continue to lend and serve our customers and we even issued debt during the depth of the capital markets dislocation in 2020. In 2021, when our originations had headwinds due to government stimulus, we stayed the course and we're positioned well when demand returned. We also built new digital and analytics as well as new product capabilities throughout 2020 and 2021, which position us extremely well for the future. So where does this lead us now? In 2022, we are right back on the course we laid out for you at our 2019 Investor Day. Most people would agree that 2020 and 2021 were anomalous years and the right way to look at our business is we are back on track after 2019, the last year that did not have any major exogenous events like the pandemic and the resulting $6 trillion of government stimulus, which depressed both originations and losses. In 2022, we expect loan growth of 5% to 10%. We expect losses to end the year between 5.6% and 6%, which is favorable to our long-term operating framework of 6% to 7%. And our return on receivables or profitability will be above 2019 levels even while we invest in new products and channels. With regard to the strength of our customers, let me remind you of a simple truth. We lend money to people who have jobs and income, and the single largest projector of whether we will be repaid is whether people keep their jobs. In the spring of 2020, unemployment hit mid-teens. Today, it is around 4%, almost back to pre-pandemic levels. While this varies some by sector, it is a very constructive environment for our business, and we feel good about the business that we are underwriting today. As I've said before, we run our business based on the economics or capital generation of the business. This year, we anticipate generating between $1.15 billion and $1.2 billion of capital, and we are well on our way to exceeding our previously stated goal of at least $1.5 billion of annual capital generation in 2025, driven by the strength of our core business, combined with our new products and initiatives. Despite the pandemic and the resulting market turmoil, we are on track to generate approximately $4 billion of capital cumulatively over the next 3 years, barring any unforeseen macro events. Let me shift to some 2021 highlights. It was a very strong year for OneMain. For the full year, we grew our receivables by $1.5 billion and generated over $1.3 billion of capital. Our strong financial performance allowed us to continue to invest in our future and also return significant capital to our shareholders. While maintaining this sharp focus on our financial performance and service to our customers, we also achieved some important strategic milestones in 2021. We launched our differentiated credit cards, Brightway and Brightway+. We acquired and successfully integrated Trim, our customer focused, financial wellness FinTech. We've developed new partner distribution channels, which are already making contributions to our growth. And most importantly, we helped millions of customers take steps towards a better financial future, advancing our mission to be the lender of choice for non-prime customers. It was an eventful year, and we look forward to maintaining the momentum and success through 2022 and beyond. I'm very pleased with our fourth quarter financial performance. In the quarter, we generated $334 million of capital. Fourth quarter charge-offs were 4.2%, reflecting the credit tightening actions we took in 2020 in response to the pandemic and the significant impact from government support programs in early 2021. Micah will provide an overview of our credit results, and you will see that our credit performance is on an orderly path of returning to normal levels as we get further and further away from government stimulus. As I've said before, this is healthy and expected. If our credit losses stayed in the low 4% range, it would mean we are not serving enough customers. We continued to generate strong loan originations in the quarter, resulting in a nearly $500 million increase in receivables in the fourth quarter. The healthy level of origination is driven by strong demand for our core personal loan products and bolstered by growth from our new products introduced as part of our recent strategic growth initiatives. As you can see on Slide 9, a sizable portion of our growth in the quarter came from these initiatives. Over the past year, we've been leveraging the strength of our balance sheet and operating model to diversify our product offerings and distribution channels. About $360 million of our growth in the quarter was from our core products, representing a healthy annual growth rate on its own. The incremental growth of approximately $140 million came from our new products and distribution channels, including cards and loans to higher credit quality customers. These are just a couple of examples of taking advantage of our scale, operating leverage, deep customer knowledge and superior data and analytics to drive profitable incremental growth. During the quarter, we made notable progress with the integration of Trim. Trim's slate of expense saving tools like bill negotiation, subscription monitoring and cancellation, account aggregation and spend tracking in auto insurance price comparison supports OneMain's commitment to improving the financial well-being of hard-working Americans. When we help customers lower their monthly bills, cancel unneeded subscriptions or help them to track and reduce their spending, it results in tangible dollars that go back into customers' pockets. When a customer uses Trim, it also deepens our engagement with that customer, builds loyalty and increases the chance of them doing future business with us. Key to our product diversification strategy is our recently launched credit cards, Brightway and Brightway+. In 2021, we were able to build a team, launched 2 separate credit cards and a mobile app and book 66,000 cards by year-end. Take-up rates and our cost to acquire were both in line with our expectations. We are very pleased that the reciprocity aspect of the card where consistent on-time payments result in improved terms for customers, is resonating very well with our target market. Recognizing, it is still very earthly in the process. We are encouraged by several key metrics, especially the digital engagement. Over 90% of our approved customers have already downloaded and installed the app and nearly 90% of payments are being made in the app. Activation and spend metrics are in line with our projections, and we're pleased to see that customers are using the cards for everyday purchases, including groceries, dining out and gas. We're taking a very measured and deliberate approach to the cards rollout, recognizing the importance of validating our credit risk models before scaling. During the first half of this year, we are tempering volume, and we expect to begin meaningfully scaling in the second half of this year, and we'll continue to monitor credit performance closely. As you see on Slide 7, we are encouraged by the early results and the value that our credit cards provide to customers. As a reminder, the total addressable market for non-prime credit cards is $420 billion, 5x the size of the installment loan market. So we anticipate this to be a source of growth for us. We expect our cards portfolio to generate $100 million to $150 million of capital by 2025, with more growth in the years beyond. Finally, let me shift to our capital allocation and return framework. Our business strategy, execution and capital allocation policy over the past several years has paid off for investors. Our total shareholder return for the past 3 years has been 215% as compared with 100% for the S&P 500 and 84% for our peers. Our capital return program has been historically biased towards dividends, driven by the existence of a 40% shareholder, which limited liquidity in our stock. Over the past year, that shareholder has sold its stake. Liquidity in the stock has doubled as average daily volume increased from about 700,000 shares at the beginning of the year to about 1.4 million shares today. And we have been evolving to a more predictable and regular cadence of capital returns, including share repurchases. In the fourth quarter, we bought back 3.7 million shares. Our shares are trading at levels we believe are extremely attractive. And as such, we've been prioritizing buybacks for the last few months. We are incredibly confident in our business model and our strategic positioning over the next few years. So let me discuss our path forward. Our first and highest priority remains investing in the business. Our business generates a greater than 6% return on receivables, which translates into a return on adjusted capital of over 30%. We will continue to prioritize investment in balance sheet growth that meets these attractive returns. We will also continue to invest in digital, technology, data science and new products. These investments are essential fuel for the approximately $4 billion of cumulative capital generation that we anticipate over the next 3 years. We will also continue to consider acquisitions to drive our strategy and shareholder value. We have made small investments in the FinTech space over the past couple of years, including our acquisition of Trim last year. We looked at several credit card platforms but chose to build our own card, taking advantage of the synergies with our customer base and operating platform. We will continue to look at other opportunities to enhance our business and we'll remain open to strategically and opportunistically deploying capital to acquisitions that drive shareholder value. Any capital that we don't deploy to our balance sheet or growth initiatives will be returned to shareholders in a manner we believe maximizes value. Yesterday, we announced that we are increasing our regular dividend by $1 or 36%. We've said in the past that we are shifting our capital allocation to be more consistent and predictable. This robust regular dividend is well within our comfort range and downturn planning scenarios. This $3.80 regular dividend translates into over 7% yield at our current share price. At this time, we decided to have a large step-up in our regular dividend, given our confidence in the business and as we transition our capital return policy to one that shareholders can count on year in and year out. We also plan to increase the regular dividend annually. Our Board has also authorized a $1 billion share repurchase plan, and we expect to utilize approximately 1/3 of that in 2022. We expect share repurchases to be a meaningful per share growth lever to our already strong prospects for organic business growth. With that, let me turn the call over to Micah to take you through the financial details of the fourth quarter and provide our 2022 strategic priorities.

Thanks, Doug, and good morning, everyone. We had a great quarter as strong demand for our loans, combined with execution against our growth initiatives continues to drive healthy receivables growth. As Doug mentioned, net charge-offs were strong, coming in at 4.2% for both the quarter and the full year. We earned $262 million on a GAAP basis or $2.02 per diluted share in the quarter. On an adjusted C&I basis, we earned $310 million or $2.38 per diluted share, down 14% on a per share basis from the fourth quarter of 2020. Recall that prior year results benefited from loan loss reserve reductions of nearly $60 million, whereas in the current quarter, we've increased loan loss reserves by $32 million driven by solid growth in our receivables. Capital generation was $334 million in the fourth quarter, up 2% compared to prior year. For the full year, capital generation was $1.3 billion, up 23% over prior year. Managed receivables grew to $19.6 billion, up $499 million from the third quarter and up $1.5 billion or 9% from a year ago, reflecting strong consumer demand and the continued positive impact from our growth initiatives. Interest income was $1.1 billion in the fourth quarter, up 2% compared to prior year, primarily driven by higher receivables. Portfolio yield was 23.3% in the quarter as compared to 23.8% in the third quarter. Fourth quarter yield reflects normal seasonal increases in 90-plus delinquency as well as the impact from new initiatives, including growth in our prime pricing and new distribution channels. As you can see on Slide 9, these originations are driving very attractive returns of 6%, but do shift some of the metrics when compared to our core loans. We anticipate full year 2022 yield to be at similar levels to 4Q '21. However, we expect the first quarter to reflect normal and seasonal 90-plus delinquency trends. While yield has moved around a bit, we expect to see continued improvement in our interest expense and other metrics and expect overall improvement in our 2022 profitability when compared to historical levels. Interest expense was $233 million for the quarter, down 4% versus the prior year despite an increase in average debt. Interest expense as a percentage of average receivables improved 51 basis points year-over-year from 5.4% a year ago to 4.9% this quarter and improved 19 basis points sequentially. We expect to see continued improvement in our interest expense over the next several quarters as our funding costs benefit from the last few years of balance sheet strategy and liability management. We remain acutely aware of the potential for rising interest rates, yet we are very confident in our projections as nearly 90% of our 2022 debt is already on the books at fixed interest rates. And as we look out over the next 2 years, we have $3.3 billion of debt maturing at an average cost of funds of about 5%. As a comparison point, we issued $3.2 billion at an average cost of 2.3% in 2021. We have created a great deal of flexibility in our funding profile as a result of years of balance sheet development and a very deliberate strategy to extend the duration of our maturities and shift our debt to a larger mix of unsecured. This strategy has supported our liquidity over the years and is now paying off in our financial results. Let me move on to other revenue, which was $161 million in the fourth quarter, up 18% compared to the prior year quarter. The increase was primarily driven by economics from our whole loan sale program, including $17 million of gain on sale revenue from the approximately $180 million of loans sold during the quarter. We anticipate this level of sales and gains to continue in future quarters. Finally, policyholder benefits and claims expense was $50 million in the quarter, up from $41 million in the prior year. Let's now turn to Slide 8 to review our originations and receivables trends. Originations were $3.8 billion in the fourth quarter, up 20% from 4Q '20. Our originations led to managed receivables growth of 9% year-over-year and 3% sequentially. As a reminder, our managed receivables this quarter include $414 million of receivables sold but serviced by OneMain for our whole loan sale partners. The credit performance of our portfolio continues to be in line with expectations and trending back to normal levels. Our early-stage 30 to 89 delinquency came in at 2.43%, up seasonally from 2.20% in the third quarter and up from 2.28% in the fourth quarter of 2020. 90-plus delinquency came in at 1.99%, also up seasonally from 1.57% in the third quarter and up from 1.75% in fourth quarter '20. Recoveries remained strong at $57 million in the quarter or 1.18% of average receivables. Recoveries remain above historical levels of 90 basis points and contributed positively to our fourth quarter net charge-offs of 4.2%. For the year, net charge-offs were also 4.2% as we had projected. As we look forward to 2022, we expect full year charge-offs to be in the range of 5.6% to 6.0%. Our loan loss reserve trends are shown on Slide 11. We ended the fourth quarter with $2.1 billion of reserves and a reserve ratio of 10.9%, slightly below last quarter and modestly above CECL day 1 levels of 10.7%. We increased our reserves in the quarter by $32 million due to strong receivables growth in the quarter. Turning to Slide 12. Fourth quarter operating expense was $348 million. Our full year operating expense was $1.3 billion, within our guidance for the year and just 4% higher than 2019 levels, even as we have accelerated investment in our business and generated significant growth in our receivables. Let's turn to Slide 13 for a little deeper dive into our expenses over the last few years. You see on this slide that we have maintained our core C&I expense, the dark blue portions of the bar graph, at a very balanced level. In fact, core C&I expense is flat to 2019 despite nearly 8% growth in average receivables and accelerated investment over that period. This reflects our disciplined expense management, operating efficiency efforts and the operating leverage inherent in our business. For 2022, we expect modest growth in our core expenses and within our long-term operating framework of 3% to 5%. We have also been accelerating investment in our future in new tech, digital, customer experience, data science and new products. In 2022, we expect to invest an additional $50 million in these areas. About 60%, we plan to direct to growth-related investment in new products and distribution channels, including our credit card. The remainder, we plan to invest in our technology capabilities, digital and customer experience capabilities and data science to drive growth and continue to enhance our underwriting. Even with these investments for the future, we expect our OpEx ratio to improve against 2019 levels as we continue to drive incremental operating efficiencies across our business. Let's now move on to discuss our funding, liquidity and capital on Slide 14. As we discussed on our last call, in October, we issued a $1 billion ABS deal at a weighted average coupon of just 0.98%. Later in the quarter, we redeemed our $1 billion unsecured [6.125%] notes that were due in May of this year. Our next unsecured maturity is now March of 2023, giving us a good deal of issuance flexibility in 2022, as I discussed a bit earlier. During the quarter, we continued to enhance our liquidity position by closing a new $1 billion 5-year unsecured corporate revolver, which has enabled us to reduce our conduit capacity to $6 billion. Unsecured corporate revolvers are rarely available to non-investment-grade companies, and we believe our success is very much a reflection of our track record of strong business performance and our bank partners' confidence in our balance sheet and our business. Our total committed capacity now stands at our targeted level of $7 billion, which supports a liquidity runway in excess of 24 months under numerous economic scenarios. You see on the slide that we ended the year with $400 million of available cash and unencumbered receivables of $10.2 billion so our liquidity resources remain robust. Going forward, we plan to use our secured conduit facilities as a source of flexible funding in between our capital markets issuance, driving even more efficiencies through our best-in-class balance sheet. We had $600 million of drawn conduit as of December 31. At year-end, our leverage was 5.5x, relatively flat to Q3 as strong capital generation in the quarter allowed us to repurchase $192 million of OneMain stock and return another $90 million to shareholders through our regular dividend. Going forward, we expect to continue to run our business within our long-standing leverage range of 4 to 6x. Let me end by recapping some of our 2022 guidance. We expect managed receivables to grow 5% to 10%, in line with our long-term operating framework. We expect net charge-offs in the range of 5.6% to 6.0%. We expect capital generation return on receivables to be approximately 6%. This target compares very favorably to 2018 and 2019 years that, of course, were unaffected by the pandemic. And as you know, we run our business to optimize capital generation and we expect to generate a very healthy $1.15 billion to $1.2 billion in 2022. As we incorporate the announced share buyback program, we expect capital generation per share to be between $9.10 and $9.50. With that, I'd like to turn the call back to Doug.

Thanks, Micah. OneMain occupies a unique and important place in the lending market for non-prime consumers. As many banks have vacated this space, we remain as a responsible place for customers to get access to credit at a fair price with excellent service. We pride ourselves on providing access to credit to our customers with a focus on ensuring they can afford it and pay us back. This means success for our customers and for our business. We've doubled down on our mission of improving the financial well-being of hard-working Americans and the foundational strength of our business and the investments in innovation are propelling us to our vision of being the lender of choice for the non-prime consumer. At the start of the call, I mentioned the strong financial results and some of the significant milestones achieved in 2021. I never lose sight of the fact that our success is a result of the effort, dedication and accomplishments of our more than 8,500 OneMain team members who come to work every day to make a difference for our customers and our shareholders. I thank them for that dedication and hard work throughout a particularly difficult environment in 2021. Thank you all for joining us today, and we're happy to take your questions.

[Operator Instructions] And we will take our first question from Michael Kaye with Wells Fargo.

You're seeing a large ramp-up in net charge-offs and delinquencies ahead of most of the consumer finance industry. Can you talk a little bit more about what gives you confidence, this is just credit normalization and not a more broad deterioration in credit? Like for example, are there any underlying trends from your advantage point that gives you confidence in any part of the portfolio that's overperforming or underperforming your credit expectations?

Michael, this is Micah. As you know, we underwrite by state. We underwrite by industry. We have a long history of credit profile in performance with this customer base. We also underwrite to income, which is unique in the industry. We're constantly evaluating credit performance, and we're adjusting as we see results. Overall, I think consumer balance sheets remain strong. We feel really good about the overall performance of the portfolio. And that view is embedded in our 5.6% to 6.0% loss guidance for 2022. We remain focused on the long-term profitability of the business, but we feel good about both.

And I thought I heard Doug mention a 6% to 7% net loss operating framework. I was a little surprised it's not a little bit lower now, just given that some of those new products to higher prime originations, the distribution partnerships, the whole loan sales. I was wondering why that 6% to 7% doesn't really become something lower, let's say, 6% to 6.5%?

Yes. Michael, look, I think on an annual basis, we'll give you some sense of loss ranges. We really don't manage the business to losses. We manage it to return on receivables and capital generation. And so I think that's just a long-term framework that I wanted to remind everyone that we're well within and we're actually going to be under this year. And I think the way to think about it is we managed to risk-adjusted returns. And we have different profiles of different customers. And what we're looking at is the bottom line of the business. So that's how we think about it.

We will take our next question from Vincent Caintic with Stephens.

Okay. First, on the credit card, so excited to see that that's launched. Maybe if you could talk about the initial learnings there and what you're thinking about for illustrative economics of the card. And that pathway to $100 million to $150 million by 2025, any initial thoughts you can give on that path?

Yes. Look, Vincent, I think it's still early days, but everything we've seen is positive. Our goal was to have 60,000 pilot accounts opened by the end of the year, and we were right around that number. We've got enough in the test cells of both our Brightway which is a little lower credit line, kind of a feeder card for the rest of our business and our Brightway+, which is more current customers, higher credit line take-up rates and our cost of acquisition have been excellent and better than our projections. I've always talked about this digital-first card. We've built a excellent app where we're encouraging all the interaction to happen. And as I mentioned, 90% of cards we approve have installed the app and 90% of payments so far are coming through the app. That allows us for both the card and our other products just to have deeper engagement and a new way to engage and reach customers. The next, I'd say, call it, 6 months is going to be a cooling off period. We're not going to be issuing many cards. We'll issue a few. I always talked about 3 things we're looking for. One is do people take our card, I think we've seen the take-up rates being good. Second, do people use the line, and we've seen good line usage. And then the third is credit results and really season our credit models. That, we need another 6 months. I think you can expect ramp up at the end of the year, assuming we see the results we want. If we don't, I think you'll still see some ramp in the areas where we see the results because we have different channels that are coming in, different cards, different customer profiles. As far as the economics, we think the return on receivables as we get into steady state and this matures are going to be 7%. So they'll be very favorable to our current product. I think we need a little more time. We feel very confident we'll work things out, and we wanted to give you a sense of the kind of profitability you could see in 2025 as we roll it out and we know what the rollout schedule looks like, we can give you more information about kind of the milestones, balances and profitability along the way. I think the thing I want to emphasize is everything is looking great now. We're very pleased with what we've seen, but we're also going to be very careful and we're going to roll this out in a very deliberate and measured way, so we make sure we have the results we want as we get into the -- looking at credit.

Great. And then next question. Just the ranges to the 2022 guidance. Maybe if you could talk about how do you get to the low and high end of the range for, say, the originations and then also for the charge-offs? And does the charge-off ranges -- you've talked about the risk-adjusted return, does that influence by maybe the yield that we should be expecting in 2022? .

Thanks, Vincent. Let me grab the first part of your question. And then if I may ask the second one, remind me. But the -- in terms of the guidance and the ranges, our 5% to 10% managed receivables growth range does come from our just overall operating framework, which is based on the market we play. And we think it's reasonable to expect 5% to 10% on average and over time. So we sort of start the year there. We feel good about that range. In terms of the credit, and I'll talk a little bit about both of these relative to macro factors and then our own portfolio. With credit, there's certainly a lot of factors that will influence the 5.6% to 6.0% range, include things like unemployment, wage growth, inflation are 3 that I think of immediately. That said, we have a well-diversified portfolio as well by state. So the state level economics are also very important, not just national level stats. And within our book, overall delinquency levels, obviously, are a big factor, but the velocity at which delinquency moves to loss is also key. And if you look at 2021, the ratio between 90 plus and losses a quarter later is still running lower than historical norms. That's due to both continued performance of back-end delinquency roll rates, which we've talked about before, but also recoveries that remain really strong. And so both of those things, how they normalize over the next year are going to also influence that range on charge-offs and then to a lesser degree, of course, the receivables growth, which is a denominator. I think on the receivables side of things, just following up on the operating framework where I started a little bit less sensitive to credit and macro factors. In general, our consumers have demand for credit when they feel good about the future. So a healthy economic backdrop is important. Competition plays a factor as well, but we aren't seeing really any impediments to growth there. I think your second question, which was around net interest margin as it relates to yield. As we mentioned, we expect full year yield to be around 4Q '21 levels. We think 1Q just from normal seasonal trends will be a bit lower than the 4Q '21 level. But we do anticipate NIM, which is to put credit losses aside for a second. If you look at net interest margin, which incorporates our interest expense, we expect that to be strong next year. We do have significant tailwinds on our interest expense, which we believe will offset the year-over-year impact of the decline in yield. And then obviously, with our guide on capital generation, return on receivables, we expect a very, very strong performance that compares well against pre-pandemic periods.

We will take our next question from Kevin Barker with Piper Sandler.

Could you just clarify the term capital generation for the listeners here? I assume it's net income plus adjustments for any reserve build to reserve releases relative to the loan portfolio. Could you just clarify that?

Sure, Kevin. Yes, that's exactly right. So I come back to capital generation as it relates to the way we view our capital. We use for our leverage metric and adjusted capital measure, which is defined quite clearly in the appendix of our earnings materials. We look at loss absorption capital, which is a combination of our adjusted tangible equity plus our reserves after tax. So that forms the basis for our capital. When we look at capital formation, our adjusted capital is roughly $3 billion in that neighbourhood. When we look at capital generation that we put out here, $1.15 billion to $1.2 billion, that becomes the capital formation of the business as it relates to our existing and beginning capital levels. So that capital generation is tied directly to the way we view capital and the way we manage and run the business. What it excludes, and you articulated it well, all it excludes is the loan loss reserve changes in our portfolio due to that, the way we look at those within our capital base.

And could you remind us the per share number you put out, I believe, was $910 million to $950 million, is that correct?

$910 million to $950 million, correct.

Okay. And then on your targeted reserve levels, you're at 10.9% on your portfolio today, you're guiding to lower net charge-offs for this year relative to what you've had in pre-pandemic levels. And it seems like you could bring that lower just given the shifts in the portfolio. Is there anything within the newer products and the shifts in the portfolio that would either impact the reserve level, whether it's net charge-offs or the duration of the portfolio?

Yes. I mean all those certainly could impact where we end up on the sort of resting reserve rate, if you will. We were at 10.7% when we installed CECL several years ago, and it was the first quarter of 2020, which is almost 2 years ago. So I will say the portfolio is different today than it was 2 years ago. We have some of these new products coming in. And we sit today at about 10.9% of receivables. So call that roughly $50 million higher than pre-COVID levels. I certainly can see if macroeconomic trends continue to be strong, and we expect and see strong performance in the portfolio. The coming quarters that reserve certainly could move back towards those day 1 CECL levels. I think there's a lot to still be determined. We tend to be conservative in our balance sheet, as we've said, and very aggressive in managing our business and our performance. So we take a degree of conservatism here with our reserving until we really feel confident with the level that we feel we can be sustained at.

We will take our next question from Moshe Orenbuch with Credit Suisse.

I think, Micah, you had referred to the fact that your growth guidance has been consistent and went back to look and it was kind of the same pretty much in 2018 and '19. I think in 2018, you kind of came at the high end and ’19 a little bit above. As you look out now with the benefit of these other elements, can you talk about how kind of the new products kind of enter into that idea of selling loans? Like, how should we think about those in the context of your 5% to 10% guidance.

Yes. I mean, thanks, Moshe. The 5% to 10% is definitely reflective of all the new products we have. To some extent, that also can include our expected balances on our credit card by the end of the year. So when we look at receivables, we're going to be looking at the full picture of the credit card and the loan receivables. We'll, of course, be breaking that out for you in the future. But in the context of our guidance, credit cards included in there, all of our new distribution channels, our prime pricing, et cetera. It is consistent with what we've seen in the past. And we feel pretty good about what the overall environment looks like for credit, for consumer credit. And as such, we felt good putting out that 5% to 10% guidance again. That is on a managed receivables basis. So as you think about ending on balance sheet receivables, we had about $400 million -- just over $400 million of receivables that are in that managed receivables number at the end of the year that had been sold and serviced by our whole loan sale partners. We are selling about $180 million per quarter. And so you can factor that in. I would think about as you're trying to come up with an estimate for our receivables at the end of the year. Use the managed receivables growth, incorporate some assumption for credit card, and then I would take the $180 million of asset sales and add that to the end of year balances for the loans that we've sold and then assume something for some runoff on that book, and it will get you to the ending balance sheet receivables.

Got it. And maybe I should have tacked this on to the prior question, but anything that you can kind of say about your trends in January with that. And just as a follow-up question, sorry -- is, you mentioned this idea of kind of having done really a lot on the unsecured funding side and then said it's now paying off. Is there an opportunity to increase the secured portion of funding over the course of 2022?

Yes. Look, that's a great question, and thanks for asking. I think we obviously, as you heard from my comments, we feel very, very good about our balance sheet. We've done a lot over the last few years. We put ourselves in a position of strength that we can be opportunistic with our issuance. I definitely think there's an opportunity there to move our secured portion of our debt up a little bit.We've always said we have about a 50-50 mix. That's not meant to be precise. It's meant to more just be directional. We want to have a healthy mix of that lower-cost ABS and utilizing our receivables for efficiency on our balance sheet, but also using the benefit and long-term nature of unsecured to balance our liquidity. And we've been -- as the unsecured markets have been very strong, we issued a 3.5% and 3.875% on unsecured in 2021. Those rates obviously are a little bit higher now, probably closer in the 4.5% to 5% context. But we've been opportunistic. And while the unsecured market has presented opportunities for us to extend duration and liquidity, we've taken that. And now that puts us in the position to maybe do a little bit more on the asset-backed lower cost side. We issued in August at 1%, as you heard me say a number of times, I never thought I'd actually see that. But rates have backed up a little bit on ABS. We still think we can issue there within the 2% to 2.5% range. And we feel really good. I mean, I think roughly 5% of our debt is floating rate. So we feel like we have a lot of insulation against rising rates and a lot of flexibility and opportunity within our issuance agenda.

And Moshe, this is Doug. Just hopping into your kind of first question, I just want to make sure people understand the way we see it, which is we think we're incredibly well positioned, our core product, our branches, we added digital distribution. We've added new products. We've done a lot of innovation. That's going to allow us to grow our balance sheet. As we've told you, we don't really manage the balance sheet to a certain growth number. We manage it to position it to serve the customers well and have a good return. So you have a growing balance sheet with a 6% return, that means we can grow our bottom line and generate capital. That means we can put more capital back into growing our balance sheet and allow us to also return capital to shareholders as we grow our dividend and do buybacks, which will allow us to grow our per share cap gen even more. So we see this cycle, obviously, growing the balance sheet is key to it, but we're going to be disciplined and we're going to grow it based on risk-adjusted returns.

And we will take our next question from John Hecht with Jefferies.

Doug, I think you mentioned tapering in the first half of this year. I just want to make sure I understood. Is that just in the credit card product or is that across the board? And if it's across the board, what's the kind of driving impetus there?

Yes. Let me be clear, it's not across the board. I was only referring to credit card. And this was always our plan, which was third and fourth quarter of 2021, put 60,000 or so test accounts on, then we needed 6 months of history of payments, so we could see any delinquencies, a good estimate of what's going to happen in the future, and you've got a very good read once you get to 60 days on book and -- or I'm sorry, 6 months on book and delinquencies there. So that's all we're saying is it's not a steady ramp of the credit card. It was put 60,000-plus cards on, look at credit quality and ramp after that to make sure that our credit models have been validated.

Great. I appreciate that color, that makes 100% logical sense to pursue it that way. Follow-up question is there's been -- the Fed loan officer survey or the bank loan officer survey showed a little bit of a pivot in underwriting for installment loans. And there's a lot of, call it, emerging participants, particularly in the digital channel out there right now. Doug, I wonder can you comment on the competitive environment and how that impacts your kind of ability to flex your underwriting model and any kind of impacts that has on just the overall business?

Yes. Look, I think in second quarter of 2021, a lot of people from what we can see through the data, opened up their credit box and there was a lot of competition. As you saw in 2021, we grew our balance sheet by 9%. And so we think we are very well positioned. We've been doing this for a long time. So we don't just open and close based on macro environments. We've got more proprietary customer data than any installment lender. And so we loan to people who can pay us back with very high NPS scores and customer loyalty. And a lot of the things you've seen us doing are making sure that in an evolving market environment, we stay competitive. So just under half of our loans are originated digitally now. Trim allows us to help customers in other ways and also increase engagement with customers. So it's a stickier customer. The card allows us to do lending to customers for daily transactions rather than a larger episodic transaction. And again, we're bringing people in with a $500 or $1,000 card product that will have the opportunity for them to cross buy a loan and vice versa. And so Micah had talked a little bit about new channels. So it is definitely a competitive market. Anytime there's market dislocation, things usually open up some. We've done this for many years, and we feel really good about our competitive position.

And we will take our next question from Meng Jiao with Deutsche Bank.

I wanted to ask a question on sort of your appetite for future strategic acquisitions. Just wanted to get a sense on whether they might be similar to sort of your Trim acquisition in terms of bolt-on FinTech or sort of what you consider portfolio acquisitions as well. And then sort of separately, but related to that, how have valuations trended in the FinTech space over the past couple of months? Any color there would be helpful.

Yes. Look, our corporate development team has been very active, but we've stayed very disciplined. So if we see acquisitions that we think have the right ROI that strategically position us, we certainly will consider them, but we're going to be disciplined. I mean, as you know, pricing out there is pretty frothy, especially private companies, the public markets and especially tech has fluctuated and gone down some, but the multiples are still quite high for a lot of potential tech acquisitions. We've invested a lot. Like I said, we also -- just take card, for example. There were some credit card portfolios and platforms and teams that were on the market and got bought. We decided we wanted to build a very highly synergistic credit card that took advantage of our scale and our underwriting and our distribution and our customer base. And so we decided that it would make more sense to build it from scratch. And so we will always look at a build partner by analysis as we do things. Hard for me to say exactly what they would be, except I'd tell you, for the last 3 years, we've looked at a lot of things. We've been very disciplined. We've only done bolt-ons that are pretty small, and we're going to stay very disciplined because we take seriously deploying our shareholders' capital.

Got it. Great. And then secondly, just on the sort of the taper on the credit card in the first half of this year, is that just mainly based on your decision to see how that portfolio sort of seasoned or is there sort of anything else that leads to your decision to taper that in the first half of this year?

Yes, I want to be really clear. We started talking about the credit card a year ago, and this is the exact plan I've laid out repeatedly and publicly, which was second half of 2021, we put a bunch of pilot accounts on, and then we see how they season and make sure we validate the models. So there's been absolutely no change. This is the plan, and it's the plan we're sticking to.

And we will take our next question from John Rowan with Janney.

I just wanted to look at kind of your capital generation, and if we use the assumptions that you're going through 1/3 of your repurchase program and you're paying a dividend of $0.95 per quarter, it implies that you're actually going to wind up delevering the balance sheet quite a bit if given a lack of special dividends, can you kind of address that comment?

Yes, John, I'm not sure if you're factoring in the capital we have to put aside for our expected growth during the year because that's a part of the equation as well. If I -- if you look at the $1.2 billion, just for instance, to use the high end and a round number, if you look at that end of the range, the annual dividend at $380 million will cost roughly $470 million, $480 million. I mean it really somewhat depends on how many shares we buy back. But within that range, but then also 1/3 of the $1 billion share repurchase called around $330 million, rough numbers, that gives you about $800 million use of capital, which is around 70% of the total cap gen. The rest of it could be used for deleveraging, but we also need that capital to maintain our existing leverage based on balance sheet growth.

Well, in the balance sheet -- the balance sheet growth has picked up in your assumption for loan portfolio growth, correct?

That's correct.

Okay. And then just to be clear, I mean, you gave guidance for capital generation per share, but in a growth period where you're providing more -- when your provision expense is greater than your charge-offs, you should be -- your net income should be south of your capital generation per share, correct?

Right.

We'll take our final question…

Operator, I think we have time for one more.

Perfect. We will take our final question from Rick Shane with JPMorgan.

I want to follow up on John's question. When I look at the capital generation, and I run the scenarios high end, 1.2, low-end 1, 1.5 and I look at the loan growth scenarios of 5% to 10% and then factor in the distributions related dividend and repurchase, we see that excess capital generation and again, a high end is about $240 million, low end if you sort of have the most growth and the lease capital generation, about $36 million. But most of the scenarios center around about $150 million to $175 million of excess capital formation. Following up on John's question, to the extent you do wind up in a situation at the end of the year where you're $100 million, $150 million ahead of cap gen needs, would the idea be to delever the business, would it be to increase the buyback? Or would you, at that point, consider another supplemental or special dividend?

Yes. Look, we -- by embedding a fair amount of distribution into the regular, and given our plans to use the buyback in a more programmatic basis, a fair amount of the capital we've spoken for this year. I think you ran through the scenarios, and I won't -- we'll have to validate your math afterwards. But either we'll have some money left over at the end or we won't, at that point, I think our Board would certainly consider any number of things. And I think you listed the options. The options are delevering some, putting more into buybacks depending on what things look like at that point. And we remain open to a special at the end of the year if that's what we decide to do. So I think for now, we try to give guidance so people could bake in, what's going to be happening with the majority of it. If there's excess capital, we're flexible, and we'll have a serious conversation about what to do with it.

Got it. Yes. Look, I think the guidance is very helpful, and I think there's an appropriate amount of cushion in here. I mean, look, if we were looking at a scenario where there was a $50 million deficiency, we would be all over for that. It's just a question of with that sort of conservatism, what is the -- if things go well, what are the solutions to maintain ROE and returns?

Yes. I mean, look, the way we look at it is the business is doing incredibly well. We generate a lot of capital. We don't lightly put out that we expect to generate $4 billion of capital over the next 3 years. And if we have excess capital at the end, we certainly will be very judicious in how we deploy it. And I think all options remain open.

Got it. And hey, I realize we're kind of in double bonus time here, but since most people probably dropped off already, I'm just going to ask one last question anyway, which is that, when we think about the loan growth, are you at this point using portfolio sales to sort of manage that? What drives the behavior? And the reason I ask is that, obviously, one of the issues we're seeing in the card space is an expectation that repayment rates will come down. And I realize your loans have a degree of optionality, not the same degree of flexibility of a card loan, but I'm wondering if -- how you think about repayment rates in terms of your loan growth objectives?

Well, I heard 2 questions in there, I think. With respect to the whole loan sale program, we've talked about that before as being a diversification of our funding channels and our funding -- our access to different pockets of capital. And the whole loan sale program also does give us some strategic flexibility for the future with potentially originations that we might not want to put on our balance sheet that would be better suited for one of those whole loan sale buyers. But we're not at that point yet. We are absolutely not using the whole loan sale program today as a governor on receivables growth. We've got plenty of opportunity, as I spoke about in the funding markets to continue to put that on our balance sheet. We've just seen an opportunity to diversify our pockets of capital. With respect to payment rates, our payment rates absolutely remain very, very strong. We've talked about before, we've taken about $900 million to $1 billion a month in payments. We saw that accelerate quite a bit during the pandemic shortly after stimulus. But it is basically back to relatively normal levels at around high 4% in the portfolio. But it is all factored into our receivables guidance when we think about that, as is our mix of new customer versus renewals and all of the dynamics with respect to receivables growth that go into that.

Yes, we appreciate it. Look, thanks, everyone, for joining us today. Our team is here. So if you have any questions, please feel free to reach out, and we look forward to speaking with everyone soon.

This does conclude today's OneMain Financial Fourth Quarter 2021 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.