OneMain Holdings, Inc. (NYSE:OMF) Q4 2022 Earnings Conference Call February 7, 2023 9:00 AM ET
Company Participants
Peter Poillon – Head, Investor Relations
Doug Shulman – Chairman & Chief Executive Officer
Micah Conrad – Chief Financial Officer
Conference Call Participants
Moshe Orenbuch – Credit Suisse
Vincent Caintic – Stephens
Kevin Barker – Piper Sandler
Michael Kaye – Wells Fargo
Rick Shane – JPMorgan
John Hecht – Jefferies
David Scharf – JMP Securities
Operator
Welcome to OneMain Financial Fourth Quarter and Full Year 2022 Earnings Conference Call and Webcast. Hosting the call today from OneMain is Peter Poillon, Head of Investor Relations. Today’s call is being recorded. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions, following the presentation. [Operator Instructions]
It is now my pleasure to turn the floor over to Peter Poillon. You may begin.
Peter Poillon
Thank you, Gretchen. Good morning, everyone, and thank you for joining us. Let me begin by directing you to page 2 of the fourth quarter 2022 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. 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 7th 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.
Let me turn the call over to Doug.
Doug Shulman
Thanks, Pete, and good morning everyone. Thank you for joining us today. I’d like to start today’s call by providing a brief overview of some of our accomplishments in 2022. And then I’ll cover our performance for the fourth quarter, the current credit and macroeconomic environment and discuss our key strategic initiatives.
As you all know inflation started to impact delinquency levels for many non-prime consumers in the second quarter. We demonstrated our agility by quickly pivoting our credit posture and operations. On credit, we significantly tightened our credit box over the summer and our new originations are performing as expected. Operationally, we pivoted more of our team to collections and to supporting customers who are having difficulty making ends meet.
The result is that for the last two quarters, we have seen stabilization of our credit results. Despite a significantly tightened credit box through much of the year, we originated $13.9 billion of loans and served over 2.6 million customers in 2022. This highlights our commitment to serving hard-working Americans in good times and in bad and also underscores the strength of our balance sheet. We had plenty of access to funding even in a very difficult year in the capital markets and in the bond markets in particular.
We made significant progress in 2022 building out our credit card and new secured lending distribution channels, both of which will drive significant growth in the year ahead. And through this very difficult environment, we generated almost $1.1 billion of capital demonstrating the incredible business model we have built over the years.
We also made significant progress in our ongoing commitment to be a socially responsible company, highly focused on our customers, communities and employees. We rolled out Trim, our money saving and financial wellness platform to all of our customers in 2022, as we continue to help our customers improve their financial well-being.
We launched Credit Worthy by OneMain in thousands of high schools across the country. We issued a first of its kind social ABS fund, highlighting our mission to helping hard-working Americans make progress to a better future. And we made a $50 million deposit commitment to support minority depository institutions and military veterans.
Last week, we were informed that OneMain has been included in MorningStar’s Sustainalytics Top Rated ESG Companies List for 2023, ranking in the top 10% of rated companies in the Diversified Financials Industry category. OneMain was also named to America’s 100 Most Loved Workplaces for 2022 by Newsweek. Together, these accolades showcase our deep commitment to our team members who serve our customers so well every day and to the communities in which we work.
Now let me provide a brief overview of the quarter. We had capital generation of $233 million in the quarter and demand for loan products remained strong. Originations totaled $3.5 billion in the quarter. Even with the significant tightening actions, we took earlier this year. Considering our more conservative underwriting posture, we’re really pleased with the volume of originations, as well as the overall credit quality. Our 6% year-over-year receivables growth was supported by our expanded products and distribution channels.
Our 30 to 89 delinquency levels finished the quarter at 3.07%. This is in line with normal seasonal trends. We are optimistic about this continued stabilization and credit performance, following our quick pivots last year. Net charge-offs in the quarter were 6.9%, also within our expectations and were aided by good performance in our later stage collections and strong post charge-off recoveries.
Regarding the macroeconomic environment as well as the non-prime consumer, we’re encouraged by the continued strong employment numbers. However, elevated levels of inflation are impacting consumers, particularly those at the lower end of the credit spectrum. We remain highly focused on supporting our customers, especially those most pressured by inflation.
We have several advantages that allow us to better serve our customers and set us apart from the competition. They include our community-based branch network that keeps us close to our customers, so we can work with each of them based on their own individual circumstances. Our long history serving the non-prime consumer through economic cycles, and this includes our proprietary data as well as our strong credit and data science teams and models. And we have an incredibly strong balance sheet, which we positioned with a long liquidity runway and staggered maturities exactly for times like this.
The data that we analyze shows that we are performing quite well in comparison to other nonprime lenders. And you can see that illustrated on Slide 10 of our presentation. We continue to have a very conservative underwriting posture. Today we are only making loans that will meet our return hurdles even if the macroeconomic environment worsens.
Notwithstanding, our current conservative credit box, we expect to continue to grow our balance sheet in the year ahead. We expect growth in 2023 to continue to come from higher credit quality customers along with growth from credit card and new distribution channels. To better illustrate the point on improved credit quality, I’ll point out that our top two risk grades those with the best credit quality and lowest risk customers make up about 60% of our new customer originations today versus just 37% in mid-2021.
Let me now spend a few minutes on strategic initiatives. Our top focus is managing our credit and balance sheet through this complex macroeconomic environment. But we also continue to focus on strategic initiatives that will fuel growth and profitability over the medium and long-term.
We continue to close about half of our loans outside of a branch, engaging customers through our mobile application, website, text, screen share, phone and more. We also have advanced our mobile and two-way tech strategies and now have the ability to digitally engage with customers in collections, payments and servicing. We are confident that our omni-channel strategy leveraging the best of digital phone and in-person interactions will advance our competitive position.
On new products, we continue to make excellent progress in our digital-first BrightWay credit card. During the holiday season, we saw customers regularly reach for our card to spend on holiday purchases. We’re now seeing many of our early customers hitting on-time payment milestones at which point they can choose to lower their APR or increase their credit line. The overwhelming majority of our customers are engaging directly through our mobile app.
We continue to closely analyze the performance of our cards across a number of metrics like spend volume, balance build, revolve rates and most importantly credit. Even as we maintain a conservative credit posture, we see a lot of opportunity to grow our card portfolio.
At year-end, we had approximately 135,000 card customers and $107 million of card receivables. We’re going to continue to scale this business in profitable segments, and we remain confident that our credit card business will drive meaningful growth with excellent returns in the future. This year as we scale the credit card business, it will have a mild drag on capital generation before expecting it to turn positive in 2024.
In 2025 and beyond, we expect the business will be quite profitable and begin meaningfully contributing to our capital generation growth. We also continue to see excellent results from our efforts to expand distribution channels in our secured lending business, which grew to nearly $400 million of receivables in 2022.
Let me end by touching on capital allocation. Our top priority is always investment in our business; first to underwrite high-quality loans that meet our return hurdles; and second, continued investment in the initiatives that will drive excellent capital generation growth in the future.
We will also continue to return capital to shareholders. This morning, we announced an increase to our quarterly dividend by more than 5% to $1 or $4 annually. This translates to a yield of approximately 9% at our current share price. Even in a difficult economic environment, our business has strong capital generation and we are committed to a healthy dividend level.
During the fourth quarter we repurchased 1.6 million shares bringing the full year repurchase to $7.2 million or about 5.5% of shares outstanding at the beginning of the year.
With that, let me turn the call over to Micah to take you through the financial results of the fourth quarter.
Micah Conrad
Thanks, Doug and good morning, everyone. Our conservative underwriting costs here combined with a company-wide focus on supporting our customer results is helping to deliver strong financial results. Fourth quarter net income was $180 million or $48 per diluted share down from $2.02 per diluted share in the fourth quarter of 2021.
C&I adjusted net income was $191 million or $1.56 per diluted share down from $2.38 per diluted share in the prior year quarter. Both variances reflect an increase in provision expense from the stimulus-driven historic lows we experienced in 2021.
Capital generation was strong at $233 million in the fourth quarter and came in at $1.70 billion for the full year. Managed receivables reached $20.8 billion up $1.1 billion or 6% from a year ago.
Interest income was $1.1 billion flat to the prior year quarter as higher average receivables were offset by lower portfolio yield. Yield in the fourth quarter was 22.3% down 100 basis points year-over-year reflecting higher 90-plus delinquency and the impacts of payment assistance we are providing to customers where needed.
We expect first quarter 2023 yield to be around the same level as 90-plus generally reaches normal seasonal highs in February. We then expect to see a gradual improvement during the year as 90-plus seasonally declines to its natural low in the summer and the impacts of our credit tightening begin to show through.
Pricing on new originations remains above 2021 levels as we continue to monitor the competitive environment and opportunistically take positive actions to offset the impact of a tighter credit box. We expect that current pricing will support portfolio yield in the future as new originations become a bigger part of our portfolio and the current macroeconomic impacts subside over time.
Interest expense was $230 million in the quarter, down $3 million or 1% versus the prior year. Interest expense, as a percentage of average receivables, was 4.6% this quarter, down from 4.9% a year ago, a result of the proactive actions we’ve taken to manage our funding profile over the last several years.
As you know, we’ve been extending and staggering our maturities and therefore current higher issuance rates did not meaningfully impact 2022 interest expense. Looking forward, we estimate that about 90% of our average debt for 2023 is already on the books at fixed rates. And if you want to look a little further out to 2024, it’s about 80%. This is what gives us confidence in projecting very modest increases to interest expense ahead.
Other revenue was $168 million in the fourth quarter, up $7 million or 4% from the prior year quarter. The increase was primarily associated with higher yields on our $2 billion investment portfolio.
Provision expense was $404 million, including current period net charge-offs of $348 million and a $56 million increase to our allowance. About half of the allowance build was from growth in receivables, with the remainder reflecting a modest increase in our reserve ratio to 11.6% as we remain cautious about the macroeconomic environment.
Policyholder benefits and claims expense for the quarter was $34 million, down from $50 million in the fourth quarter of 2021. The reduction was driven by adjustments to our claims reserves due to lower loss experience. We anticipate claims expense to return to more normal levels over the coming quarters.
Originations were $3.5 billion in the fourth quarter, down from $3.8 billion in the fourth quarter of 2021, primarily a result of our tighter underwriting posture. Managed receivables grew $300 million sequentially on the strength of solid consumer demand, a positive competitive environment and continued growth from credit cards and new distribution channel partnerships. Please note, managed receivables of $20.8 billion includes $766 million of receivables sold through our forward flow arrangements and $107 million of credit card balances.
As Doug mentioned we continue to see positive results from our credit card rollout and we expect card receivables to be between $400 million and $500 million by the end of 2023. While this rollout will create a small drag on capital generation this year, we anticipate capital generation will turn positive late this year or in early 2024. And as you know, CECL requires maintenance of lifetime loss reserves and so you should expect to see us building reserves as we scale the business.
Let’s turn to our credit trends, highlighted on slide nine. 30 to 89 delinquency was 3.07% in the fourth quarter, up from 2.81% in the third quarter. Since we first reported an elevated level of 30 to 89 delinquency in the second quarter of 2022, performance has generally followed expected seasonal patterns.
From second to fourth quarter, 30 to 89 delinquency increased 34 basis points this year, as compared to approximately 30 basis points in 2018 and 2019. If seasonal patterns continue, we should see improved performance in the first quarter, as payments typically increase during the tax refund season.
Our January 30 to 89 results were in line with these seasonal patterns, declining a few basis points from December levels. Loan net charge-offs were $344 million or 6.9% for the quarter. Full year net charge-offs came in at the low-end of our guidance at 6.1%.
Net charge-offs continue to be supported by strong recoveries which were 1.2% of average receivables in the quarter. Recoveries remain above pre-pandemic levels of approximately 0.9%, driven by a strategic investment to bring this activity in-house combined with opportunistic sales.
I wanted to draw your attention to slide 11, of our deck. As you know we’ve been gradually tightening our credit box since late 2021. However the most significant adjustment we’ve made over the last year was in early August 2022.
On the left side of the page, we show an estimate of how we expect receivables concentration to change over the coming quarters, between loans originated pre-tightening and those originated post tightening. On the right side of the page, we show the performance of those post tightening vintages for which we have at least three months of data.
As you can see the vintages are performing in line with pre-pandemic levels and these vintages are expected to have more influence in our portfolio results as we get into the back half of this year. We anticipate that by year-end 2023 approximately 70% of our book will be from loans originated since that major August tightening.
Turning to slide 12, fourth quarter operating expenses were $367 million, up 5% year-over-year. Full year operating expense was $1.4 billion and operating leverage for the year was 7.1%, down from 7.3% in 2021 and down from 7.5% in 2019.
Slide 13 looks at our expense trends over the last few years, and our expectation for the year ahead. You will see on this slide that we’ve maintained core expense within a very tight range over the past four years with 2022 expense coming in below 2019 levels. That is despite, mid-teens growth in average receivables over the same period.
In 2023, we expect core expenses to grow very modestly, in the 2% to 3% range. We also plan to invest an additional $50 million for growth, mainly in cards and distribution channels as we continue to scale those businesses.
With that said, we expect an operating expense ratio that is very much in line with what you’ve come to expect from us, about 7.1% in 2023. That’s flat to 2022 and down from historic levels.
Let’s now turn to slide 14 for an update on our balance sheet and funding. Funding markets remain quite challenged in the fourth quarter, and it is during these times that a strong balance sheet and a mature sophisticated funding program like ours is a significant advantage.
In December, we completed an $800 million ABS issuance with an average coupon of 6%. We once again we saw strong support from returning investors, while also attracting some new investors to our program.
Despite the market challenges, 2022 was overall a very productive year for OneMain. We raised $3 billion of market funding with an average coupon of about 5%, including issuing a first-of-its-kind social ABS in April.
We also completed a $350 million, three-year private funding deal with one of our long-standing bank partners.
We continue to enhance our already strong liquidity profile adding $400 million to our committed bank capacity which totaled $7.4 billion at year-end. We renewed seven secured lines during the year and we added three banks to our unsecured corporate revolver which now totals $1.25 billion.
I’m also pleased to say that in December we renewed our inaugural loan sale partnership through the end of 2023. We did so at the same level of purchases $75 million per quarter and at similar economics to our original agreement. This agreement demonstrates the confidence our partners have in OneMain. Rounding out the balance sheet our net leverage remained within range at 5.5 times down from 5.6 times in 3Q.
On slide 16, we’ve provided some expectations for 2023. Please note these estimates assume a relatively stable macroeconomic environment. And should the environment change, we will update our expectations accordingly.
We expect managed receivables to grow in the low to mid-single-digits. This assumes we maintain our current credit box for all products and see continued growth in our distribution channel partnerships and our credit card.
Loan net charge-offs for the year are expected to be 7% to 7.5% and we expect to see normal seasonal patterns resume. We anticipate first half charge-offs to be above the full year range with second half expected to be below. First half losses are typically seasonally higher and will reflect the elevated delinquency we saw in the second half of 2022.
We expect charge-offs to improve in the second half, in line with normal seasonal trends and as our current underwriting becomes a bigger part of our receivables. And as I discussed earlier, we expect operating leverage to be roughly flat to 2022 at approximately 7.1%.
With that, I’d like to turn the call back to Doug.
Doug Shulman
Thanks Micah. The 2022 accomplishments that I highlighted at the beginning of this call demonstrates our ability to thrive in any market environment. As we look ahead, we feel really good about how our business is positioned. We’re actively managing our underwriting and have seen credit performance stabilize over the last two quarters and the business we are booking today is performing in line with expectations.
Our balance sheet, which we positioned with a long liquidity runway just for difficult markets like today, allows us to book all of the good business that we see and the foundation we are saying with our strategic initiatives including credit card and new distribution channels will drive capital generation growth whenever we merge out of this uncertain environment. We will remain alert and agile as the economic picture evolves and are prepared to adjust our credit box to drive the best possible results for our shareholders.
Finally, I just want to take a moment to thank all of our OneMain team members who come to work every day to make a difference for our customers, our communities, and our shareholders.
With that, let me turn the call over to the operator and we’re happy to take your questions.
Question-and-Answer Session
Operator
The floor is now open for questions. [Operator Instructions] Our first question is coming from Moshe Orenbuch from Credit Suisse.
Moshe Orenbuch
Yes. Thanks, Doug and Micah and Doug, I appreciate that comment at the end about being prepared to adjust the credit box. Maybe could you just talk a little bit about – obviously, your guidance you’d like it to be to some degree on the conservative side. When you think about the environments, what you talked about in terms of your advantages in funding and some of the tightening that you’re seeing kind of above you, what are the sorts of things that might happen to make that — your growth better, or in fact kind of less good than would be in that guide range?
Douglas Shulman
Yes. No, thanks, Moshe. We still have quite, an uncertain economic picture. I think which everybody knows. It’s a tricky environment to operate in. Unemployment has been a real bright spot, but inflation is still impacting our customers. And as you mentioned Moshe, we’re seeing in our recent vintages since we tightened our credit box they’re performing very good.
Our basic operating principle is, we want to be careful stewards of our shareholders’ capital. And so right now, we may have a tighter box than needed. But given the uncertainty in the environment, we’re being quite careful. So, if we have room in our current box we talked about it before for unemployment to tick up, meaning, we’ve already incorporated in the business we’re underwriting to both the stress we saw in our book in 2022, plus deterioration in the macro environment.
And so said another way, the business we’re booking today are going to meet our return hurdles even if we see some stress. And so, if we see continued stabilization, if we see a few more months of the new vintages we’re booking, performing as expected. If we see some of the clouds lift from the economic environment it feels a little less uncertain, we could open up our box, then we could have growth above where we said.
But if there’s a sudden quick move in unemployment and things go south in the economy, we could tighten up our box. And so, it’s a very difficult year to give guidance because of the uncertainty. What we’re doing is, being very careful with our balance sheet, being very careful with our underwriting and making sure we are investing for the future growth of the company whenever things become less uncertain.
Moshe Orenbuch
Great. And thanks for that. And certainly appreciate all of those difficulties. Given what you had mentioned that the levels of unemployment, but the bigger factor on your customers being the increase in inflation. Are there any signs of kind of that — the inflation in goods kind of decelerating relative to the inflation in wages in your specific customer base? And if so, how do you think that will impact you over the course of 2023?
Douglas Shulman
Very hard to pinpoint like the exact movements in inflation and goods versus services. Obviously, deceleration of inflation in goods, means people have more disposable income because things cost less, but deceleration in services can also mean less income. And so – it’s very hard to pinpoint in the short-term exactly in our customer base.
What I will tell you is and you can see from our delinquency trends, things have stabilized. We saw a spike in delinquency in the second quarter of 2022. The last couple of quarters we’ve seen good stabilization and our new originations albeit with a tighter credit box are performing spot on where we thought they would. And so if inflation keeps stabilizing and going down and unemployment stays low, I think we’ll be in very good shape. But again, we got to just keep an eye on it. It will play itself out.
Moshe Orenbuch
Got it. Thanks very much.
Operator
Our next question comes from Vincent Caintic from Stephens.
Vincent Caintic
Good morning. Thanks for taking my question. First question Doug and Micah the – and maybe taking a step back and just kind of looking at the path to normalization here. If we look at what’s already happened, we’ve had kind of two tightenings with underwriting and then the customer maybe hasn’t – we haven’t officially gone through a recession yet but we’ve already have the impact of inflation. So maybe taking time out of the equation since we’re still in a certain environment, but could you maybe describe and play out how OneMain kind of goes through normalization and what you’re looking for before you feel comfortable? Thank you.
Micah Conrad
Yes. Vince, this is Micah. I’ll take that one. I think Doug touched on this a little bit just in terms of watching the macroeconomic environment really paying attention to what’s going on in unemployment and inflation print, certainly that influences our views. And we also look at it on a state basis. So we’re looking at the macroeconomic environment in Texas versus Florida, et cetera. And all of that influences our credit appetite.
I think ultimately what we’re looking for is to continue to see a little bit more of these vintages. And we showed you a little bit on that page of recent vintages are performing. We’re very, very pleased with that. We’re also engaging in a little bit of testing in loans that don’t necessarily meet our underwriting criteria but we want to keep our finger on the pulse of what’s going on with some risk rates that we may not be underwriting in volume today, but we still want to sort of look at leaning into those.
And I think, for us we’ve got some different actions nowadays than we had a few years ago. We’ve got a small dollar loan that gives us a lever to kind of move back in with a smaller loan value going out than our typical $7,000, $8,000 loan. We’ve also got the credit card. So I think a lot of different options there. But as Doug mentioned, still kind of maintaining that pretty conservative posture. We’ll see how the year plays out and we’ll adjust accordingly.
Vincent Caintic
Okay. Thank you for that. And then a follow-up specifically on cards. So nice to see that business starting to ramp up. The – as kind of putting that alongside with your discussion about maybe still being conservative with the overall business, can you talk about how you feel comfortable growing with card in 2023? And do the metrics, when we think about card versus the rest of your business? Are those metrics much different when we think about say the reserve ratio or yields? Thank you.
Doug Shulman
Yes. No thanks, Vincent. Look we – a couple of years ago, when we told you we were going to roll out cards, we said we were going to be very deliberate and methodical. So, over a year ago, so in late-2021, we put over 60,000 cards out, which we called test cells. And so we had two different types of cards that had different economics, so it could take different amount of risk.
We had different risk profiles. We said that we had some higher credit and lower credit in there. And we pushed the edges, because this was going to get us data about the cards and how the cards performed. And then we went through a number of different channels, branch channel, direct mail, affiliates and usually how you acquire a customer give her.
We then let those 60-plus thousand cards season and last summer, we picked the most profitable sales that were performing the best to start to build our book. And just a reminder, this is — the non-prime credit card market is a $400 billion market and we’ve got $100 million of cards that we think will get up to $400 million or $500 million. So there’s a lot of room for us to book very profitable business.
Just like with our loans, we’ve taken the actual performance of cards and that performance was during a period of high inflation, and then we put a stress factor on top of that. So we’ve assumed — in addition to what we saw with performance, we assumed losses as if there were a recession, and we’re only booking customers now that would still be profitable and meet our hurdles with the performance we saw plus with extra loss.
So, said another way, the business we’re growing right now is very conservative and we have a high degree of confidence that these will be profitable customers. We also every month risk score every card customer. And so we have the ability to manage credit lines. And obviously, we have the ability to either book more cards or less cards, as we continue to monitor performance.
Your second part of your question, once we get to scale, we’re going through the scale period right now where we’re having to build up servicing infrastructure and we have cost of acquisition of those customers. It takes a little while for balances to build. And so, there’s less capital generation at the beginning right when you book a card than there is right when you book a loan customer.
So, we’re in the proverbial J curve, but we gave you a sense of how we would move through that J curve. Once we get through that J curve, we expect the cards the profitability to be very similar to our loans. And so, it’s a great complementary business for OneMain.
Vincent Caintic
Great. Very helpful. Thanks very much.
Operator
And our next question comes from Kevin Barker from Piper Sandler.
Kevin Barker
Good morning. Thanks for taking my questions. You previously guided to capital generation or return on receivables. And I understand you’re not doing that now, but maybe you can help us understand some of the components that would make — some help — give an idea of where capital generation could come in for 2023, just given some of the headwinds from the card side as you grow that portfolio combined with asset yields coming down a bit just because of lower — I mean, higher interest rates and tightening of underwriting standards. Thank you.
Micah Conrad
Yes, Kevin. This is Micah. I’ll take that one. I mean as Doug mentioned, there is – it’s pretty tricky in this environment to give full year forecast. We’ve kind of given you the receivables growth as we mentioned we feel that’s pretty resilient, unless we see a major significant or a rapid change in the environment. Obviously, the losses we got it to the 7% to 7.5%. Again, I think it’s – this is a matter of having a relatively stable outlook. So our losses the range that we’ve given you gives some room for unemployment to pick up a bit.
And as you know, we have a 180-day charge-off period. So in order for that really to impact losses, it would have to happen pretty quickly generally in the first half of the year to really move the needle on that. In terms of yield, a little bit in my prepared remarks yield also impacted by the macro environment and a level of 90-plus receivables. So, certainly, giving you a little bit of sense for that without calling out a specific full year number.
We do expect loan yield to be right around fourth quarter levels in the first quarter. And then sort of as we get through the balance of the year we expect some of the 90-plus levels to just subside because of normal seasonal patterns, but also as our front book or these post August originations start to take a little bit bigger hold in the receivables book. So that should give us a little bit of runway and upside on yield.
I think on interest expense, again, just mentioning generally in the prepared remarks, the way we’ve staggered our maturities. It just takes a lot to move interest expense quite a bit in one year. So interest expense in 2021, was around 5%, 5.1%; in 2022 4.6%; pretty likely we’ll be somewhere in the middle of that in 2023. And so I think that should give you some sense for how to build the interest expense piece of that. And we’ve given you also the expenses at about 7.1% OpEx ratio.
So – that’s for the most part, the lion’s share of our capital generation. I think, we’ve seen some year-end improvements in our policyholder benefits and claims line, some reserve adjustments we expect those to normalize back to levels around 45 to 50 a quarter. And I think, when you add all that up, we would expect to see capital generation lower than what we experienced in 2022. But with kind of some runway at the end of the year we think that can pretty much snap back in 2024 back to those levels. And that’s kind of where we are.
Kevin Barker
Great. Yeah. You touched on some macro factors there where the net charge-off would be closer to the high end with a little bit higher unemployment. Could you help us understand what macro factors you apply within your guidance assumptions for 7% to 7.5% net charge-offs? And then what are you seeing within your customer base? You touched on some stress within the non-prime consumer just given the inflationary outlook but maybe just a little more color on your macro assumptions to get to the net charge-off guide?
Micah Conrad
Yeah. So let me touch on the customer first. As we talked about in, I think numerous forums we obviously saw a pretty rapid increase in 30 to 89 delinquency in the second quarter, when it increased about 50 basis points from the first. And then since then we’ve seen relative stability. And what I mean by that is we’ve seen seasonal patterns kind of emerge, where we went from second quarter to fourth quarter up about 30 basis points or so this year, 30 to 89 and it was pretty similar to 2018 and 2019. So we’ve seen some nice stability there.
Certainly inflation is still impacting our consumers, but we feel pretty good about where things stand. I mentioned also in January, we saw a little bit of a seasonal downtick in January 30 to 89. And tech season is coming. So we hope that’s going to be really accretive and helpful for our consumer. That’s influencing some of what we’re thinking about in our loss guide, bottom end 7%; top end 7.5%. I would say on the top end is an environment that’s pretty consistent with what we’re — in what we’re assuming in our reserve numbers which is an unemployment rate somewhere in the 4.5% to 5% range, obviously, unemployment in the low threes now and pretty supportive for the time being.
So those are kind of the guardrails. And keep in mind, also, with our charge-off policy, again, without any really impacts to the back end and what’s happening in those 90, 120 and 150-plus receivables. In order to have a really dramatic move, I think in the back half of the year on losses, you’d have to see something in the early-stage delinquency happening pretty quickly. And that’s hard to foresee right now, given the employment prints and the claims numbers that we’re seeing.
Kevin Barker
Okay. Thank you, Micah.
Micah Conrad
You’re welcome.
Operator
The next question comes from Michael Kaye from Wells Fargo.
Michael Kaye
My first question is on the credit card. I wanted to get some thoughts on that impact of that CFPB proposal on late fees. How does that impact the pace of the loan balance launch over the next few years? I was wondering, if you perhaps emphasize BrightWay+ over the BrightWay considering that overhang — and then that aside how do you balance this growth opportunity with the rolling out like nonprime credit card ahead of an expected recession? And I know, it’s mostly a test portfolio at this point, but I couldn’t help noticing that the delinquencies for credit cards are already 14.5% as of Q3. Just wanted some thoughts. Thanks.
Doug Shulman
Yes. Michael, thank you. Let me take those in order. The CFPB credit card fee proposal, we’ve got the advantage that we’re just rolling out a new product. So we are not wed to any of the economic levers. We have a lot of levers in the credit card including pricing. So, we’re going to monitor it and see how it rolls — see what happens with that fee proposal. And obviously, we’ll abide by whatever — wherever it lands. But we don’t feel at this point that, it really affects our outlook or it doesn’t affect us being excited about the product.
Our real focus is we have this unique value proposition in the market of reciprocity, where as a customer pays on time, we will share in economics and either increase the line or decrease the APR. And our real focus is access to credit for the nonprime customer and have a great product in the market that works for them and obviously economically works for us. And so, we’re watching the proposal, but we feel like we’ve got plenty of room to make sure the economics work, as well as the value proposition works.
I tried in my — in the previous question to emphasize that, while we are now rolling out in some specific segments, we are rolling out in segments that the credit card will meet our return hurdles, even if we move into a mild recession.
And so said another way, we’re assuming from the test sells, a certain credit performance and we put stress on top of that for our decision criteria for credit cards. Right now, we’re not seeing that stress occur. So our credit cards are exceeding our return hurdles. But if employment ticks up, we go into a recession, the business we’re booking today and the business that we predicted, we would book today – or the growth that we told you we thought we’d have this year is going to be profitable growth even, if we see some deterioration in the macro economy.
Michael Kaye
Okay.
Micah Conrad
Yeah. Let me just add to that on the delinquency, Michael. Yeah. You quoted the 13% or so. Keep in mind, as we mentioned that’s got a lot of these credit cards in it that we would not book, to think it’s more than half of the portfolio at year-end, and that’s got delinquency levels that are call it twice what we’re thinking about originating going forward. So we do expect that to roll down. It’s just a function of really that test environment.
Michael Kaye
Okay. Okay. That’s great. Second follow-up question is on funding. Can you maybe talk about some of your plans to raise debt in 2023? I know, it’s partially opportunistic, but what would you consider a base case scenario for secured and unsecured funding this year? And would you be okay raising on secured debt in the 8% plus range?
Micah Conrad
Yeah. It’s a good question. I think as everything with us you should expect us to be opportunistic. We’re going to go in the markets that we think are most accretive for us. We did a good amount of ABS issuance in 2022. As you know, we were leaning heavily into the unsecured markets in the prior two years. We – I think – I think we’re comfortable, if all we need to do is issue ABS in 2023. Obviously, the unsecured markets have rallied a lot over the last several weeks. And they’re starting to look a little bit more interesting to us.
I think the balance of are complex is in the 7s, so 8 it’s a little bit above that. We – we’d like to see that stick around for a little bit, but I think it’s starting to become interesting to us. We tend – even with all the ABS issuance, we’ve done we’re still at 51% secured mix on the debt side at the end of fourth quarter. So – we’ve got a lot of flexibility. We also have the unique advantage of having $7.4 billion of committed bank lines. So, it gives us a lot of flexibility, and I think we’ll just be opportunistic this year and see where we go.
Michael Kaye
Okay. Thank you.
Operator
Our next question comes from Rick Shane from JPMorgan.
Rick Shane
Thanks, guys for taking my question. Most of them have been asked. Wanted to talk a little bit – a question that comes up for us in the current environment with cost funds ticking up a little bit given rates. How much pricing power do you have? And specifically, what I’m interested in is that as you high-grade your portfolio in terms of credit quality, are you able to do that in this environment and not compromise pricing? So, is there a distortion that we’re seeing in terms of yields?
Micah Conrad
Rick, this is Micah. So I think a couple of embedded questions there. We do have some pricing leverage within certain segments of our current business, particularly within the higher credit quality and the secured segments. When we sort of restrict the credit box or tighten a bit what we end up doing is remixing towards a higher credit quality customer. And therefore that tends to have some pressure on the APR because those customers are definitely – there’s more offers there. We’re giving a little bit of a risk-based pricing and so that does impact APR. But over the course of the last year, we – just because of the competitive environment, we have been able to make some positive influence on price in certain spots. And most of that is in that higher credit quality segment.
So I would go the opposite of the question which is we’ve actually increased price in some of those better credit quality segment and we’re still getting a lot more volume in that area. And I think it’s because competition has tightened pricing dramatically not because – I guess more because of the underpricing potentially in 2021 period. And so – we’ve always had price discipline. We’re always testing in those markets. We feel good about the business we’re getting there and we’ve been able to increase price a little bit accordingly.
Rick Shane
Got it. No that actually clearly misstated the question because that was exactly what I was trying to understand. And when you think about it now and that pricing power that you have in that segment and the remixing of the portfolio do you think on a net basis you get to a the same risk-adjusted margin or do you get to a slightly lower risk-adjusted margin but with lower volatility and definitionally less risk?
Micah Conrad
Yes. I mean we certainly haven’t changed any of the expectations on our sort of at the margin minimum risk – minimum return hurdles. So I would say generally speaking, we’re going to get to a very similar outcome on ROR, return on receivables. We just have potentially less price for less – for lower losses and we end up kind of in the same place as the bottom line.
Rick Shane
Okay. That’s great. Thanks for taking my questions this morning, guys.
Doug Shulman
Thanks, Rick.
Operator
Your next question comes from John Hecht from Jefferies.
John Hecht
Good morning, guys. Thanks for taking my questions. And most of them have been asked. I’m wondering…
Doug Shulman
Hey, John.
John Hecht
How are you, guys? The receivables growth first of all, Micah is that – just remind me is that – when you’re saying mid-single-digit receivables growth is that comparing average receivables in 2023 versus 2022? And then given that it appears that the card component will be a reasonable component of overall growth, is there anything from a seasonal perspective that will change given the ramp of cards relative to the normal installment book?
Micah Conrad
Yes, that’s a good question. I think the straight answer on receivables is that is the end-of-period managed receivables that we publish. So it will include credit card. It also includes those loans that we are selling through our loan flow agreements. It is not an average calculation.
On the in terms of the growth, if you say low to mid-single digits, if I sort of benchmark that at $0.5 billion to $1 billion, we’ve called out we expect credit card to be 400 to 500 at year-end coming off of 100 base. So we’ll call that $300 million to $400 million of that growth with the other $200 million to $600 million coming from the loan book. And that will be a combination of our core loans, which as we’ve talked about have had — the current credit box is pretty conservative. We tightened dramatically in August of last year. So our receivables reflect having that current credit box for the full year of 2023. It also includes some continued growth in our distribution channels.
I would think in terms of normal seasonal patterns, the credit card probably skewed a little bit more towards the second half as we continue to be very conservative there, get comfortable with performance. We will expect to see more growth in the second half than in the first on the card. And then I think in the core loan book, we expect normal seasonal patterns to emerge where typically we have trouble in terms of growing in the first quarter because of tax season. It’s also very accretive to payments and delinquency. But we do tend to not grow in the first quarter and then we reemerge into that growth pattern from second third and fourth. That’s not what we see it playing out. Obviously still a lot to be determined. But that’s kind of my view as for now.
John Hecht
Great. Thanks very much guys.
Micah Conrad
Sure.
Operator
Our next question comes from David Scharf from JMP Securities.
David Scharf
Hi, good morning. Thanks for squeezing me in here. Just one question. I wanted to follow-up on some comments you made on the prior quarter’s call and this relates to some of Rick’s questions. You had noted I think last quarter that — you had noticed quite a bit of competition pulling back. It manifested in their marketing spend and it could have either been credit driven or lack of ability access on their part. But can you provide a little more of an update on competitively what you’re seeing if any of those dynamics have reversed course, or if you’re still seeing as you define your primary — your prime competitors whether it’s still an attractive customer acquisition landscape, notwithstanding, your conservatism on loan growth?
Doug Shulman
Yeah. I mean, I think the answer is yes. We think it’s a good competitive environment for us. We been through cycles like this as a company. And specifically we built this balance sheet where in good times; we’re not doing just-in-time funding. And so we’re spending more money than competitors for insurance to have our long liquidity runway, diversified funding program. It’s in times like this that it pays off because we’re building our business for the long run.
And so the capital markets remain — it’s a difficult capital markets environment, probably a little better now than it was in the fall. And so some of the competition that couldn’t get any access to funding in the summer when delinquencies ticked up across the whole non-prime landscape, probably can get access to funding. So I think that’s stabilizing some. And so I think some competitors we’ve seen come back into the market with access to capital.
With that said, it’s still very tight. It’s very expensive. It’s more expensive for a lot of our competitors getting funding than for us. And so we’ve got advantages around pricing. We’ve got advantages — we can book every loan that we see as attractive and meets our hurdles.
So net-net, even with our more conservative credit box, we’re still seeing very healthy demand coming into our products. I think, some of it is the capital markets, some of it is competitors have had to pull back more, either because of lack of equity funding or debt funding. And we think a lot of it is the investments we’ve been making in the last several years, in our digital, in our product innovation, in our customer experience.
And so, the brand we built over time people trust and they come to us and they want to do business with us. So we like our competitive positioning. We don’t take it for granted. We need to earn our customers’ business and their trust every day. And so, we’re going to stay focused on that within our risk appetite.
David Scharf
Got it. Very helpful. And then, just one quick follow-up, a clarification, I guess, from Micah. Did I hear you suggest in terms of degree of conservatism that existing reserve levels are effectively, if not contemplating, set at what is the higher end of your loss guidance this year? That if we come in at kind of the lower end of that 7%, 7.5% range, we’d likely see the ALL come down as well?
Micah Conrad
Yes. That’s exactly right. I think, with respect to the first point, David, I think, we’ve assumed 4.5% to 5% unemployment rate in the reserves. That kind of puts them at an 11.6% reserve ratio versus pre-COVID when we first truck CECL in January 2020 at 10.7%, so almost a full point above that.
I think the reduction in the reserve ratio will really be a function of what the future looks like, as we’re always kind of pushing forward every quarter. And so, we could come in at the lower end of the charge-off range. And if the world doesn’t look great going forward we could still have those reserves in place. So that’s really something to watch out for as you think through where the year transpires.
Doug Shulman
Hey, everybody. Thanks for joining the call today. If you have follow-up, obviously, reach out to our team. I hope everyone has a good day and we look forward to continuing to talk about the business with all of you over the next several weeks months and next quarter. So thanks for joining.
Operator
Thank you. This does conclude today’s OneMain financial fourth quarter and full year 2022 earnings conference call. Please disconnect your lines at this time and have a wonderful day.
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