OneMain Holdings Inc (OMF) 2021 Q1 法說會逐字稿

Welcome to the OneMain Financial First 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 to begin. Please go ahead.

Thank you, Maria. Good morning, everyone, and thank you for joining us. Let me begin by directing you to Pages 2 and 3 of the first quarter 2021 investor presentation, which contains important disclosures concerning forward-looking statements and the use of non-GAAP measures. The presentation can be found in the Investor Relations section of our website.

Our discussion today will contain certain forward-looking statements reflecting management's current beliefs about the company's future financial performance and business prospects, and these forward-looking statements are subject to inherent risks and uncertainties and speak only as of today.

Factors that could cause actual results to differ materially from these forward-looking statements are set forth in our earnings press release and include the effects of the COVID-19 pandemic on our business, our customers and the economy in general.

We caution you not to place undue reliance on forward-looking statements. If you may be listening to this via replay at some point after today, we remind you that the remarks made herein are as of today, April 27, and have not been updated subsequent to this call.

Our call this morning will include formal remarks from Doug Shulman, our Chairman and Chief Executive Officer; and Micah Conrad, our Chief Financial Officer. After the conclusion of our formal remarks, we will conduct a question-and-answer session.

So now let me turn the call over to Doug.

Thanks, Peter. As most of you know, Peter is our new Head of Investor Relations, and I want to welcome him to the team. Good morning to everybody else who joined the call. We appreciate you joining us today. We're going to cover our first quarter performance on today's call. But I would also like to spend some time reflecting on our performance over the past year and sharing our views on what lies ahead for OneMain in the years to come.

Reflecting back on the last several quarters, our business has shown tremendous resilience, record low losses and significant capital generation, all of which continued into this first quarter. The stability and resiliency of our business model has been validated through this unpredictable market, and we're well positioned for growth as we come out the other side of the pandemic.

I want to say again how proud I'm of the OneMain team in our branches, central and corporate functions, who've shown incredible dedication to our customers and to each other during this difficult past year.

In the first quarter, we generated $299 million of capital, $78 million more than the prior year or up 35%. C&I adjusted earnings per share for the quarter were $3.37 per share. Our credit outlook and recent performance are incredibly strong and continue to benefit from the proactive credit tightening we did at the start of the pandemic as well as the unprecedented levels of government support.

First quarter losses were 4.7%, and we feel confident in strong credit performance for the remainder of the year. 2 injections of fiscal stimulus, while a tailwind for credit, created a headwind to originations in the quarter as consumers receive stimulus payments, and we required less new borrowings.

This was true across the industry with near prime credit card balances declining 19% year-on-year, near prime installment loan balances declining 10% year-over-year, and our own installment loan balances declining 4%. That said, we're already seeing a rebound in originations in the latter part of April, consistent with the rebound in February when originations moved back to 2019 levels.

And while we cannot predict the exact timing of economic activity resuming, we expect to see originations improve as fiscal stimulus wanes and the economic reopening continues. This brings me to our future vision and the opportunities we see as we emerge from the pandemic.

Over the last several quarters, we discussed pieces of this vision, but let me spend a few minutes pulling it together in context. Let me take you to Page 7 of our earnings presentation. Our vision is to be the lender of choice to near prime consumers, meeting their current need when they have a mismatch between savings, income and expenses but also providing products and services that help them make progress to a better future.

Over the next several years, you can expect to see us continue to be the leader in near prime installment lending but also offer a suite of products, services and experiences that will deepen our customer relationships, increase engagement, give us more proprietary data and make it more likely that consumers will choose to get their next lending product from OneMain.

Our foundational strengths include a large customer base, nationwide branch and digital distribution, proprietary data, near prime underwriting expertise and mature funding, all of which uniquely position us to be the leading partner for the near prime consumer.

Let me elaborate on a few key elements of this vision. As we discussed last quarter, we're developing a credit card product, which will be launched in the second half of the year. A credit card is a natural extension from our loan product. And represents a market that is 5x the size of the personal loan market.

It will deepen our customer relationships while broadening the aperture to bring in new and different customers into our ecosystem. It will also enhance our proprietary data and underwriting capabilities through access to purchasing behaviors. We're designing a differentiated card product, addressing the needs of the near prime customer. Incorporating thousands of hours of consumer research and focus groups, our customer-centric design will be digital-first and reward consistent payment habits, reinforce credit building behaviors and help our customers build a more secure future.

Over time, we also anticipate developing a new hybrid product which will merge the best features of cards and loans into one. We've made good progress in terms of building out the infrastructure and team ahead of our second half launch. We selected Mastercard as the network provider and has contracted other key partners, including a bank partner, issuer platform and fraud solutions.

We expect card to be a multibillion-dollar receivables product line over the coming years and are designing the infrastructure and platform to support this growth. As I mentioned earlier, we plan to expand on our suite of products and services that deepen our customer relationships, increase engagement and give us more proprietary data.

Our insurance products and financial education services have always been a core part of our offering and are deeply valued by our customers. Augmenting these existing capabilities, we are excited to announce the acquisition of Trim, a customer-focused financial wellness fintech that provides tools for consumers to save on monthly expenses and analyze their personalized spending data.

Trim's subscription monitoring and bill negotiation services offer tangible benefits for customers, generating more than $90 in annual savings per initial bill negotiation. Trim fits squarely within our mission to help improve the financial well-being of hard-working Americans and propels our data and analytics strategy with access to approximately 1 billion customer transactions and over 600,000 users with a linked bank account.

This acquisition brings a proven team with depth in digital product development and customer engagement, gives our current customers added financial wellness services that we expect will lead to increased loyalty and engagement and gives us another channel to acquire proprietary data that we can use for underwriting and marketing.

As we deepen our customer relationships with new services and channels, we continue to make significant investments in technology and our digital capabilities. These investments have enabled us to supplement our incredibly strong and important branch network with digital capability and enabling nearly half our customers to close their loans digitally in the first quarter.

As we expand our products, services and channels, we have a simple goal, to improve the financial well-being of hard-working Americans. We feel confident that our vision for the future of the company will result in robust growth in the years to come. Even with the investments we are making, we continue to generate robust excess capital.

To that end, our existing capital allocation framework remains consistent. First, we will invest in disciplined portfolio growth. Second, we will continue to invest in the business. The initiatives that I've discussed today and on previous calls are examples of this. We will also consider inorganic opportunities as the rise, as evidenced by our Trim

Transaction with a bias towards smaller tuck-in transactions.

Any excess capital we generate beyond these priorities will be returned to shareholders. Consistent with this framework, but also recognizing the continued evolution of the business, today, we are announcing 2 enhancements to our capital returns. We are increasing our quarterly minimum dividend or regular dividend by 56% to $0.70 per share or $2.80 annually.

We're also commencing a programmatic $150 million share repurchase. As we move to a more normalized macro environment this year and with our increased conviction around our company's growth prospects, this is a natural time to institute a repurchase program to drive additional value creation.

With that said, we'll continue to have a bias towards dividends and plan to supplement our minimum dividend with increased dividend every first and third quarter as appropriate. These enhancements should provide additional regularity and consistency to our shareholders without sacrificing the robust yield they have become accustomed to as we emerge from the pandemic with increased conviction in the stability and resiliency of our business and our growth prospects.

The macro environment has greatly improved from the last time we spoke. Most notably, the rollout of COVID vaccines is progressing well and is great news for the reopening of the U.S. economy. We feel confident in the fundamentals of our core business and the strategic pivots we have made to date and plan to make in the near future, to position us to serve all of our constituents, our customers, our employees, our communities and our shareholders.

With that, let me turn the call over to Micah to take you through the financial details of the first quarter.

Thanks, Doug, and good morning, everyone. We had a strong first quarter as credit performance remained very healthy. Interest expense improved and operating expenses tracked below the prior year level, even if we accelerated our investment in the business. An improving economic outlook has given us greater confidence in the future performance of our portfolio, which allowed us to further reduce our loan loss reserve coverage.

We earned $413 million of net income or $3.06 per diluted share in the quarter. That's a significant improvement over the $32 million of net income or $0.24 per diluted share we earned in the first quarter last year, which was impacted by COVID-related reserve building. On an adjusted C&I basis, we earned $455 million or $3.37 per diluted share. That compares to $45 million or $0.33 per diluted share in the year ago quarter.

Capital generation, or C&I adjusted earnings, excluding the impact of changes in loan loss reserves, was $299 million in the first quarter, up $78 million or 35% over prior year. Ending receivables for the quarter were $17.6 billion, down 3% from $18.1 billion in the fourth quarter and down 4% from 1Q '20, reflecting impacts from 2 rounds of government stimulus.

Interest income was at $1.1 billion in the first quarter, down 4% versus prior year, driven by lower receivables as yields were essentially unchanged year-over-year. Interest expense was $233 million, down $16 million or 6% versus the prior year and down $9 million sequentially as we continue to benefit from the liability management actions we've taken to reduce our cost of funds while also extending our maturities.

Along those lines, as we discussed on our last call, in early January, we utilized a portion of the proceeds from our Q4 bond issuance of $850 million at 4% to redeem $650 million of 7.75% bonds. We expect interest expense to track near first quarter levels for the remainder of the year.

Other revenue was $136 million in the first quarter, flat compared to the prior year quarter. Policyholder benefits and claims expense was $33 million in the first quarter, down $35 million year-over-year and down $8 million sequentially.

In the first quarter of 2020, claims expense was elevated at $68 million as we expected a flow of involuntary unemployment insurance claims to materialize as the pandemic set in. IUI claims have consistently moderated since last April and our first quarter expense of $33 million reflects a positive reserve adjustment related to favorable experience in our portfolio.

We are seeing fewer claims, and our IUI customers are going back to work sooner than we originally anticipated. We expect claims expense to trend toward normal levels over the course of the year.

Let's turn to Slide 10 to review our originations and receivables trends. We originated $2.3 billion in the first quarter, down 12% from first quarter 2020. The impacts of government stimulus programs, combined with tax season, reduced loan demand in the quarter as we had anticipated.

On Slide 11, we take a deeper dive into our origination trends in the first quarter. This slide compares our first quarter 2021 monthly originations to a comparable pre-pandemic first quarter 2019, which we believe is a more appropriate proxy for normal quarterly performance than 2020.

As we discussed on our last call, an inverse relationship exists between government relief programs and consumer demand for loans. That relationship is evident on this slide. First, in the level of January originations, which were impacted by the $600 per person stimulus that was passed in late December.

As we moved into February, trends improved considerably, and we were seeing performance at or near 2019 levels for most of the month. This trend continued into early March, right up until the $1,400 per person checks started to be distributed in the middle of the month.

Importantly, February and early March trends were consistent with 2019, giving us confidence that underlying demand remains healthy. To that end, we are seeing improved performance throughout the month of April, similar to what we saw in February.

As demand returns, we are well positioned to take advantage of future growth opportunities, particularly given the strong macro backdrop that is evident in our delinquency results. We have recently normalized loss expectations in our underwriting to pre-pandemic levels, except for high-risk industries where we continue to underwrite to an expectation of higher losses.

We are optimistic about several growth initiatives we've introduced, including new product capabilities, strategic pricing, digital enhancement and new channel partners. These initiatives combined with normal increases in seasonal demand, economic reopening and the diminishing impact from stimulus give us confidence that originations will improve.

Let's now turn to Slide 12 and walk through our recent credit trends. A significant portion of stimulus funds, particularly the latest round, were directed to debt repayment, which has the benefit of supporting our credit performance even as it creates a short-term growth headwind. You can see from these charts that along with our decisive credit tightening last year as the pandemic began, government stimulus has had a very positive effect on delinquency and losses over recent quarters.

First quarter net charge-offs were 4.7%, a 179 basis point improvement year-over-year. 30 to 89 delinquency in 1Q reached historic lows of 1.57%, down 69 basis points year-over-year. 90-plus delinquency was 1.82%, down 34 basis points year-over-year. We expect 90-plus to strengthen in the second quarter on the heels of our first quarter 30 to 89 performance.

Our delinquency levels give us confidence that we will continue to see strong net charge-off performance through 2021 and while there are always unknowns in the macro environment, we feel good about the outlook for credit. And we expect full year 2021 net charge-offs to now come in at approximately 5%. That's a significant improvement from our original full year 2021 expectation of below 6%.

Our loan loss reserve trends are shown on Slide 13. We ended 2020 with just under $2.3 billion of reserves and a reserve ratio of 12.6%. In the first quarter, we reduced our reserves by $208 million. This includes a $50 million reduction associated with our lower receivables balance and about $158 million reduction from an improved outlook for future macro conditions and our strong portfolio performance to date.

This brought our reserves to just under $2.1 billion and our ratio to 11.8% at the end of 1Q. Our reserves remain approximately 110 basis points or about $200 million higher than pre pandemic levels after the introduction of CECL. We will continue to closely track macro trends and our portfolio performance and adjust our reserves accordingly.

Turning to Slide 14. First quarter operating expense was $323 million, 2% lower than last year's first quarter and 7.3% of average receivables. Expenses continue to benefit from the cost actions we took in response to the emergence of the pandemic in 2Q of last year and reflect continued investment in new products, including our credit card, our operating platform and enhancements in our digital capabilities, which in total contributed to the sequential quarterly increase.

We expect that with improvements in loan demand and continued acceleration of our investments, operating expenses will grow modestly quarter-to-quarter throughout the remainder of 2021.

Let's now move on to the balance sheet on Slide 15. We continue to maintain significant sources of liquidity with $1.2 billion of available cash, $7.2 billion in undrawn conduit capacity and $9.2 billion of unencumbered receivables.

During the quarter, we completed $45 million of whole loan sales. In early April, we expanded the forward flow agreement with our first partner from $15 million per month to $25 million per month. And we also added a second partner to our program at $15 million per month.

We now expect $120 million of whole loan sales per quarter for the next 2 years at very attractive pricing. As we discussed last quarter, we remain committed to keeping the majority of our loan production on our balance sheet. The whole loan sale program broadens our funding sources and provides additional strategic flexibility. As an example, we can potentially use the program to expand the range of customers we serve and further position the business for long-term growth. Whole loan sales also allow us to generate some very attractive capital-efficient earnings.

In the first quarter, capital generation was $299 million, up 35% from the first quarter of 2020. Our leverage ratio was 4.7x, reflecting our strong capital generation as well as the $3.95 per share cash dividend we paid in February. Our total adjusted capital, which includes after tax reserves and adjusted tangible equity, was $3.3 billion at the end of the quarter, 6.5% higher than a year ago.

Turning to Slide 17. We have consistently delivered on our capital allocation framework, delivering portfolio growth at attractive returns, investing in our business and our future while returning considerable capital to our shareholders.

Consistent with this, we increased our minimum quarterly dividend to $0.70 per share to be paid in May, and announced that we are commencing a programmatic share repurchase to enhance our capital allocation strategy. We will continue to evaluate dividends above the minimum every first and third quarter, consistent with previous cadence and guidance.

In closing, let's move to Slide 19, where I've shared some updated financial strategic priorities for full year 2021. We expect to maintain stable yield on our receivables at or near 24% over the remainder of the year. We expect interest expense to range between 5.0% and 5.2% of receivables.

As I mentioned earlier, we now expect full year net charge-offs will come in at around 5%. Our operating expenses should grow 5% to 7% year-over-year after declining 3% in 2020. This includes approximately $100 million of investments in our future, including new products and channels, our operating model and our digital initiatives. Lastly, we will continue to maintain our net leverage in a range of 4 to 6x.

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

Thanks, Micah. The core fundamentals of our business remain strong, and we're investing heavily in our future. While the impact of government stimulus created a headwind for growth in the quarter, our credit results remain outstanding. And I believe that the stimulus will have very positive effects on the economy overall.

Our experience through the pandemic has reinforced the core strengths on which we have developed our future vision, a customer centric organization, rounded in unmatched understanding of the near prime customer, underwriting proprietary data and strong access to capital.

Our strategy is rounded in these existing foundational strengths and gives us conviction in our strategy to become the lender of choice for near prime consumers. To make this more tangible, we've laid out on Slide 9, some of our 5-year goals with ambitious but achievable targets for the breadth and depth of the business we are aiming to build.

We aspire to double our customer base, the majority of which will have 2 or more products, leading to deeper and more lasting customer relationships where we help them improve their financial well-being.

In doing so, we also will continue to grow our business and our earnings, with a goal of at least $1.5 billion of capital generation in 2025. OneMain is a unique business and that we can simultaneously deliver significant value to our customers, employees, communities and shareholders. I've been at OneMain for 2.5 years, and I'm very proud of what we have achieved to date. However, I'm even more excited about what lies ahead.

Overall, as we continue into 2021, we expect the environment to continue to improve, along with growing demand as the economy fully reopens. We also believe the investments we have made over the past several years and that we accelerated in 2020 and into 2021 will position us for growth in the years to come.

Thanks for joining us today, and we're happy to take your questions.

(Operator Instructions) Our first question is coming from Michael Kay of Wells Fargo.

I wanted to see if you could provide more color on customer demand trends. Where is it coming back the strongest, the weakest, maybe by product, geography? And how much some of these newer products like Smaller Dollar and Prime are contributing?

Michael, it's Micah. Thanks for the question. I think we're seeing demand relatively the same geographically. I don't think we see significant differences. There's pockets here. For instance, we had some storm impact in February in Texas that impacted demand in that state.

But broadly speaking, we see levels that are pretty consistent across the country. We are confident that the underlying demand is there. We've seen it come back when stimulus impacts have dissipated in the summer of 2020. And as recently as February, as you can see in our slide presentation, when originations came back to 2019 levels.

I think the product level demand is relatively consistent. As you probably know, Michael, no one comes in looking for a secured or unsecured loan. That's part of our process when we go through budgets and needs with our consumers. But it's early to kind of tell what's going to happen from here, but we see some positive trends happening in April.

Okay. Second question, I wanted to know, I mean you talked a good bit about customer demand origination trends. But I wanted to hear more about the collection trends. I think I saw in the presentation, you talked about pretty elevated collections in March. I think it was over $1 billion. So the question is, like has that collection trends begun to normalize in Q2 so far?

Yes. I mean, in April, a bit. As we've talked about a lot in the past, we have an inverse correlation between demand and originations and stimulus and a very positive correlation with credit and payment. And so we did see strong performance on payments. We saw this happen in May and June of last year.

We just collect a little over $1 billion in March relative to a normal month of $850 million. That gives us confidence, obviously, in our future credit performance, it contributes to the strong delinquency performance we had in the month and it's certainly an output of having check show up in consumer bank accounts.

So overall, a very healthy consumer. We've seen the trends moderate a bit, though I would say April payments are still strong as they've been since last April when we started this process post COVID. So feeling very, very good about the outlook for credit.

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

Great. Micah, I guess the 2 sets of loan sales that you're talking about kind of add up to about $0.5 billion kind of annually. Maybe could you just flesh that out a little more in terms of both the types of -- I mean, are you already selling loans that are not in your typical type?

Are you selling -- I mean, I guess, my real question is, is this more of a funding source diversification? Or is it an outlet for loans with different characteristics.

Yes, Moshe, thanks for the question. I think it's both. I mean, first and foremost, this -- we view this as an enhancement to our already terrific funding program. The current arrangements we have are for 40 -- about $40 million a month, so, call it $120 million per quarter. And this is committed funding for 2 years. It's at a very attractive price, as we've talked about in the past. There's not necessarily any goal around size or volumes. We're pretty happy with the success that we've had so far and improving out this market.

Now what we're selling today is all unsecured loans. And it's all originations that we would otherwise have put on our balance sheet. I would be remiss if I didn't mention or note that we remain committed to having the vast majority of our originations on our balance sheet, but we think this is a great diversification of the funding program for us and at a very attractive price.

Now moving forward, we certainly expect these types of relationships could lead to customer expansion opportunities at the higher end of what we're comfortable originating in our model and holding on our balance sheet and also at the low end.

So that's why it was important for us as we selected and talked to the partners that we were going to do business with that they both had that in their mind, and we will continue to have discussions like that going forward.

Got it. And Doug, congratulations on the acquisition of Trim. I'm assuming that the purchase price is not a huge capital need given for starters that the amount itself wasn't even disclosed. But could you talk a little bit just about how you see that type of acquisition fitting in that capital plan?

Is it a -- is that -- are you thinking about that as a modest amount, a larger amount? And can you also just relate how you think about the use of the buyback versus the special dividend as you go forward?

Sure. Thanks, Mosche. We're excited about the Trim transaction. We tried to give you a little more color around our strategic vision, which was to really have a broad range of lending products, but also products and services that deepen the customer relationship, increase loyalty, add proprietary data and in doing so, make it more likely that our current customers and future customers will take their next lending product from us.

And the Trim transaction fits very squarely in there. It's a financial wellness tool, helps people save money on bills. We think it'll provide value to our current customers and our future customers, and we welcome the Trim customers into our ecosystem.

We've said before that we'll be opportunistic around acquisitions that add either capabilities or products that we think would be valuable to our customers as we help them improve their financial well-being. Trim fits that. I've been pretty vocal that our bias is to smaller tuck-in transactions like Trim.

And so that's what it is. It's not a material amount. It won't in any material way, the Trim transaction affect our capital return strategy. Never say never on any transaction. But I think, generally, as we're out in the market where we feel -- we decide to build card ourselves. We're evolving our loan product. We're building out our own omnichannel platform.

So a lot of the big investments that we might have made through acquisition, we're down the road of doing it organically. And the reason for all of that is we want to have real synergies and a seamless experience across our branches, digital loan product card product and just make more sense to build them ourselves. So it's a long way of saying, bias is towards tuck-in transactions like this that really won't affect capital returns to shareholders in any sort of meaningful way.

Kind of to the buyback and where it fits into the strategy, we did 2 things this quarter. One is we increase regular dividend; and two is we instituted a programmatic share repurchase program, which will be now part of our toolkit going forward.

We did this for a couple of reasons. One is we're feeling like the economic uncertainty is waning and it gives us a lot of confidence that how strong the business is and that the business model performs so well through this uncertain time. Two is, as I laid out on the call, we have a lot of conviction around our future business and the value that it will create.

And so I think both of these programs, the increased regular dividends and the buyback, they're going to make our capital return for our shareholders more regular and more consistent and more predictable. With all of that said, we still plan to evaluate special dividends in the first and third quarter. So that -- hopefully, that gives you in context.

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

I appreciate all the comments on the origination trends and the changes that have been happening because of the stimulus. What is your expectation though for the back half of the year? Do you have an expected level of loans in loan growth? Or is it still a little bit too unclear?

Arren, this is Micah. I think to answer it directly, it's still a little unclear now. Again, we're very confident the underlying demand in there -- is there because of the trends we've seen. In terms of when originations kind of get back to '19 levels and hopefully surpass, it's a little early to be forecasting that. But as we told you, we have a number of near-term targeted initiatives in addition to some of these longer strategic things we've talked about that we think will enable us to capitalize on demand when it comes back. That's things like our -- talked a little bit about Smaller Dollar Loan product, our strategic pricing.

We have some partnerships that we're involved in that provide financing for some bigger ticket purchases. And we've been doing a lot of work around data and analytics to enhance our operational flows. And as an example, priority routing for applications based on probability book alone. So we don't know when demand is going to come back. Some of the signs are very positive over the last few weeks, but a little early to tell. I can tell you we'll be ready for it when it comes.

Okay. And then a little more on the card product. I heard in the prepared remarks, a card hybrid product. Maybe you could talk a little bit about that? And would this product be -- I'm assuming predominantly unsecured, is there also going to be a secured aspect or separate secured product in the card outlook?

Yes. Just to repeat a couple of things. We plan on launching the card product second half of this year. This year and early next year, we'll be testing marketing uptake and different ways to position the proposition, line usage and then credit.

And the card will be offered to current customers. It will be offered to new customers coming in the door. And there'll also be specific targeted card customers who will take a smaller line, might not qualify for $8,000 loan, but we'll be able to offer them a card. And then over time, as we see their spending and payment habits, we'll be able to offer them loans.

So right out the gate, it will be a card product. Next on the road map is a hybrid product, where think about you could have an open line on your loan that looks more like a card or you can have a card where at checkout, if you're going to buy a large consumer item, TV, air condition or that kind of thing, where you can click on our app and actually convert that to a loan. So you have a fixed monthly payment on it. And so that will be part of the road map going forward.

Our next question comes from Kevin Barker of Piper Sandler.

Just a follow-up on the buyback. Is there an expiration date on the buyback program for this year? Or is it 1 year or something along those lines?

There's not an expiration date.

And then following up on some of your comments around the card for card product. Are you seeing -- I would assume that this is going to be something where you have more customer engagement or at least to keep the customers longer term. In your projections, would this decrease the amount of customer attrition by a certain amount for your expectations? Or is it too early to tell like how this is going to develop?

For sure, the strategy of pairing a card, which is a daily ongoing transaction product with a loan, which is a large periodic transaction, we think lengthens the customer relationship and because people need a card long after they've paid off the loan.

But if you step back, our overall strategy, Trim to give people ongoing build monitoring services, a card with an app connected to it, which allows them to pay on a regular basis and potentially get a loan as an extension of their card. All of these things lead towards to more customer engagement, a longer relationship with the customer, more value-add to the customer. And again, we think more customers and more likely for all of those products that they'll come to us.

I think the trick for us, which I talked about a little bit is about really helping customers move to a better future. I mean I think one of the things that's not articulated enough around in near prime customer is while some of our customers live paycheck to paycheck, they also aspire to and have the capacity to not live paycheck to paycheck forever.

And so we're trying to create an ecosystem and a set of products that meets their needs when they have a mismatch between their savings and their income and their expenses, but also is creating tools that help them move to a better financial future. We think the way we're designing our card has reciprocity. And as people pay, we give them more value, similar with Trim and so that's how we see this. And all of that, Kevin, as you said, should lead to longer and deeper relationships with our customers.

Our next question comes from the line of John Rowan of Janney.

Micah, you gave the non-COVID or the COVID specific allowance. Can you just repeat that, the number that you gave?

The non-COVID allowance?

Or there was a specific portion of the allowance that's COVID. I'm trying to figure out what the correct allowance ratio is if you release all the COVID specific allowances.

Okay. Yes. So I'll give you a little context around that to help. It's -- the pre-COVID allowance ratio is 10.7%.

Okay.

Okay. Today, we're at 11.8%, okay, and from the fourth quarter, we were at 12.6%. We reduced that reserve in aggregate by $208 million. We've estimated about $50 million of that comes from the lower receivables with the remaining $158 million coming from what we could argue as credit-related, or in your explanation, COVID-related. So as I think about where we are relative to pre-COVID levels, I look at what -- the 11.8% ratio versus the 10.7% and against our current level of receivables, which are lower than where they were back when we implemented CECL in January of 2020, that gives us about a calculation of about $200 million higher than pre-COVID levels.

Okay. And then as far as the repurchases go, is there a cadence that we should expect? Or could there be another repurchase -- another repurchase program? Should we see another bump in earnings from a reduction in the allowance ratio down to the pre-COVID number?

Yes. I think you should think of the -- as programmatic that will now be part of our capital return strategy going forward. It will have a regular cadence that won't be -- the plan is for us not to just be episodic and in the market. We think that we've got a very good, solid strategy that's going to drive earnings growth over the years. It just should drive appreciation of the stock, and we think this is -- this will be programmatic share repurchase.

Okay. And then just lastly, if you -- I'm not sure if you've touched on it at all, but the Small Dollar product, are there any updates on how you will roll out this growth initiative?

So we launched the Small Dollar program in the summer. It's been performing very well. As a reminder, there's a couple of elements to it. It's a generally a $2,500 loan because the payments are smaller. It's easier for customers to pay back. And so losses are less, and it also increases our pull through rates. So more people take the product given when they're offered a variety of products, especially if they were only offered a secured product before, but now they're offered in unsecured small dollar.

What I would say is that it will now be just part of our broad offering. We -- one of our core principles is to give our customers choice. And so we give customers choice of a variety of products. As we adjust our credit box and more customers as the economy reopens are eligible for unsecured and secured loans, that will adjust the cadence.

And so we haven't disclosed the exact number of it, but it's been quite successful. And now we're, in addition to innovating around brand-new products like cards and bill payment services, we also continue to innovate around our core products and adjust both sizes and pricing to meet the current market competition and make sure we're serving our customers well.

Our next question comes from the line of Giuliano Bologna of Compass Point.

Just going back to the whole loan sale program, I was kind of curious if there's a sense of what kind of gain on sale you can achieve on certain loans? And if -- how that might migrate over time as you roll through different products as to start?

Yes. So this is Micah. The whole loan sale program, as we've mentioned, is unsecured loans only. So we're going to think about -- price is going to be dependent on not only the type of product that we're selling through the program, but also the risk grade and the appetite for risk that a particular partner may have.

And so we've talked about that price being well above par at $120 million per quarter. I think you can expect in the second quarter, we'll see a gain on sale of somewhere in the $10 million to $12 million range. If that's helpful.

But again, I think very much dependent on the environment, the product that we're offering and the partner that we're offering it to.

That makes a lot of sense. Then kind of going on the same line because you're mostly selling unsecured. Should we also see that as a tool that might continue to shift your secured mix because if you're selling more unsecured that you normally would have held on balance sheet that you might be continuing to increase your secured ratio on balance sheet? And then from there, part of it, like you are actually with the loan sale programs, how do you think about funding for new initiatives? Are you going to use primarily loan sales? Or do you want to keep 50-50? Or is there some ratio that you're looking for, for new programs?

Right. So on the balance sheet question, yes, we need to factor in the whole loan sales that are all unsecured when we think about secured mix in our portfolio. But certainly, our originations are multiples of those whole loan levels. So that will also have obviously a very heavy influence on what the ultimate mix on our balance sheet looks like. But just mechanically, you're thinking about it the right way. In terms of the future products, I think that's still to be determined.

We've got 2 very strong partners that we were comfortable building a relationship with and starting with our unsecured installment loan stock, I would say everything is open to discussion in the future, and we're going to think strategically about this and decide how this can help us grow, how it can help us advance our customer growth initiatives.

And in terms of level, we really haven't thought about a particular level that we're going to disclose. But I think again, we're primarily a balance sheet lender, and I view this program more as just giving us flexibility and diversity within our funding programs, which I think is very helpful. Beyond that, I'm not willing to commit to any particular level on these transactions right now.

And our final question will come from the line of Vincent Caintic with Stephens.

A lot of positives this quarter. So first question, about your product expansion, including the credit card rollout. So I've been getting, I guess, a couple of investor questions about how much of an operational stretch it is to expand into different products. So for example, a credit card being very different from an installment loan. But on the other hand, you already have a good handle on how your customers manage their cash flow, including how they use their existing credit cards.

So maybe if you could talk about how you can handle your product expansion from credit cards and beyond with your core infrastructure in underwriting and collections?

Yes. No, it's a good question, Vincent. First of all, we've been very measured in sequence in how we've run the business. And so 2018 and 2019, we really focused on tuning the business for our core loan product.

We used data and analytics, management discipline short of the technology infrastructure, and you saw the results. We had a lot of earnings growth around that time and customer growth. I think 2020, we used kind of time during the pandemic to start making some pivots. And we started -- we decided to and launch the internal work around credit card and 2021, that will be the product that we're launching.

And so -- and things like a hybrid card will come later after 2021. And so we've been quite disciplined. We're very focused on getting the best of synergies where we have core capabilities, and we think we have a lot of them per card, but then we're also partnering with other providers for parts of the infrastructure.

So what we have -- we've got national distribution. We've got marketing database with close to 15 million customers who've done business with us in recent years. We've got deep and robust funding partners. We've got proprietary data on the near prime customer, and we know how to do kind of ability to pay budgeting.

We've been using and building out credit models, but also accessing third-party credit models. And so we're going to use -- and we've got central collection operations and automatic dialer capabilities, all the kinds of things you need for any sort of credit product.

And so we're using that. But we also have stood up a fully separate team run by a head of cards. We've contracted with Mastercard with a processor, we're using external fraud detection tools that we're plugging into. We've got a bank partner.

And so we've got a team that is places where there's deep synergies and you can use the infrastructure of OneMain. We're tapping into that. But we're also partnering with a variety of people who already have the built out infrastructure for card.

And so it's moving very methodically but quickly. And I have a lot of confidence we're going to be able to scale it up. And we paced it, if you look back over the last couple of years, I'm very focused on delivering an execution is just as important as strategy, and we've got a team who's very focused on this execution.

Great. That's very helpful. Last quick one for me. Just how we should be thinking about expenses going forward with all of these investments, the acquisition of Trim and the credit card rollout? So you gave guidance for 2021. Is that kind of a right run rate going forward in 2022? Does it sort of slow down? Or does it accelerate going forward?

So I'm going to steer clear of giving any guidance on 2022 quite yet, Vince. We've given you the 5% to 7% increase that we expect for the full year of 2021. Keep in mind that it's coming off of a year where we shrunk our expenses by 3%. This quarter's comp in the first quarter, when you compare it to 2020, it's against a pre-COVID period. So that's going to be prior to any of the cost actions we took. So we're still seeing the benefit in this quarter year over year of those actions.

But given the difference in originations activity, last year's cost cutting, I would point you more towards sequential comparisons through 2021 with like a moderate increase of $5 million to $10 million quarter as we ramp up some of our spending initiatives. But all within the constraints of that 5% to 7% year-over-year guidance we gave you.

Maria, this is Peter. I'd just like to say thank you to everyone on the call. We appreciate your time this morning. I know it's a very, very busy earnings week and a very busy earnings morning. So look forward to hearing from you in the future. Thanks, everyone.