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OneMain Holdings, Inc. - Quarter Report: 2019 September (Form 10-Q)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-36129
ONEMAIN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
27-3379612
(State of Incorporation)
(I.R.S. Employer Identification No.)

601 N.W. Second Street, Evansville, IN 47708
(Address of principal executive offices) (Zip code)
(812) 424-8031
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
OMF
 
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company
 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No þ
At October 28, 2019, there were 136,101,006 shares of the registrant’s common stock, $0.01 par value, outstanding.
 



TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Table of Contents

GLOSSARY
Terms and abbreviations used in this report are defined below.
Term or Abbreviation
 
Definition
 
 
 
2018 Annual Report on Form
10-K
 
Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 15, 2019
30-89 Delinquency ratio
 
net finance receivables 30-89 days past due as a percentage of net finance receivables
5.25% SFC Notes due 2019
 
$700 million of 5.25% Senior Notes due 2019 issued by SFC on December 3, 2014, guaranteed by OMH and redeemed in full on March 25, 2019
6.00% SFC Notes due 2020
 
$300 million of 6.00% Senior Notes due 2020 issued by SFC on May 29, 2013, guaranteed by OMH and redeemed in full on April 15, 2019
6.125% SFC Notes due 2024
 
$1.0 billion of 6.125% Senior Notes due 2024 issued by SFC on February 22, 2019 and $300 million of 6.125% Senior Notes due 2024 issued by SFC on July 2, 2019 and, in each case, guaranteed by OMH
6.625% SFC Notes due 2028
 
$800 million of 6.625% Senior Notes due 2028 issued by SFC on May 9, 2019 and guaranteed by OMH
ABS
 
asset-backed securities
Accretable yield
 
the excess of the cash flows expected to be collected on the purchased credit impaired finance receivables over the discounted cash flows
Adjusted pretax income (loss)
 
a non-GAAP financial measure used by management as a key performance measure of our segments
AHL
 
American Health and Life Insurance Company, an insurance subsidiary of OneMain
AIG
 
AIG Capital Corporation, a subsidiary of American International Group, Inc.
AIG Share Sale Transaction
 
sale by SFH of 4,179,678 shares of OMH common stock pursuant to an Underwriting Agreement entered into February 21, 2018 among OMH, SFH and Morgan Stanley & Co. LLC
AOCI
 
Accumulated other comprehensive income (loss)
Apollo
 
Apollo Global Management, LLC and its consolidated subsidiaries
Apollo-Värde Group
 
an investor group led by funds managed by Apollo and Värde
Apollo-Värde Transaction
 
the purchase by the Apollo-Värde Group of 54,937,500 shares of OMH common stock from SFH pursuant to the Share Purchase Agreement for an aggregate purchase price of approximately $1.4 billion in cash on June 25, 2018
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
Average daily debt balance
 
average of debt for each day in the period
Average net receivables
 
average of monthly average net finance receivables (net finance receivables at the beginning and end of each month divided by two) in the period
CDO
 
collateralized debt obligations
CMBS
 
commercial mortgage-backed securities
Exchange Act
 
Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
February 2019 Real Estate Loan Sale
 
SFC and certain of its subsidiaries sold a portfolio of real estate loans with a carrying value of $16 million, classified in finance receivables held for sale, for aggregate cash proceeds of $19 million on February 5, 2019
FICO score
 
a credit score created by Fair Isaac Corporation
Fortress
 
Fortress Investment Group LLC
Fortress Acquisition
 
transaction by which FCFI Acquisition LLC, an affiliate of Fortress, acquired an 80% economic interest of the sole stockholder of SFC for a cash purchase price of $119 million, effective November 30, 2010
Fortress Transaction
 
the distributions by SFH to Fortress resulting from the Apollo-Värde Transaction
GAAP
 
generally accepted accounting principles in the United States of America
Gross charge-off ratio
 
annualized gross charge-offs as a percentage of average net receivables
Indenture
 
the SFC Base Indenture, together with all subsequent Supplemental Indentures
Independence
 
Independence Holdings, LLC
IRS
 
Internal Revenue Service

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Table of Contents

Term or Abbreviation
 
Definition
 
 
 
Junior Subordinated Debenture
 
$350 million aggregate principal amount of 60-year junior subordinated debt issued by SFC under an indenture dated January 22, 2007, by and between SFC and Deutsche Bank Trust Company, as trustee, and guaranteed by OMH
LIBOR
 
London Interbank Offered Rate
Merit
 
Merit Life Insurance Co., an insurance subsidiary of SFC
Net charge-off ratio
 
annualized net charge-offs as a percentage of average net receivables
Net interest income
 
interest income less interest expense
ODART
 
OneMain Direct Auto Receivables Trust
OMFIT
 
OneMain Financial Issuance Trust
OMH
 
OneMain Holdings, Inc.
OneMain
 
OneMain Financial Holdings, LLC, collectively with its subsidiaries
OneMain Acquisition
 
Acquisition of OneMain from CitiFinancial Credit Company, effective November 1, 2015
Other securities
 
securities for which the fair value option was elected and equity securities. Other Securities recognize unrealized gains and losses in investment revenues
Other SFC Notes
 
collectively, SFC’s 8.25% Senior Notes due 2023, and 7.75% Senior Notes due 2021, on a senior unsecured basis, and the Junior Subordinated Debenture, on a junior subordinated basis, issued by SFC and guaranteed by OMH
Recovery ratio
 
annualized recoveries on net charge-offs as a percentage of average net receivables
Retail sales finance portfolio
 
collectively, retail sales finance contracts and revolving retail accounts
RMBS
 
residential mortgage-backed securities
RSAs
 
restricted stock awards
RSUs
 
restricted stock units
Sale of SpringCastle interests
 
the March 31, 2016 sale by SpringCastle Holdings, LLC and Springleaf Acquisition Corporation of the equity interest in the SpringCastle Joint Venture
SEC
 
U.S. Securities and Exchange Commission
Securities Act
 
Securities Act of 1933, as amended
Segment Accounting Basis
 
a basis used to report the operating results of our segments, which reflects our allocation methodologies for certain costs and excludes the impact of applying purchase accounting
Settlement Agreement
 
a Settlement Agreement with the U.S. Department of Justice entered into by OMH and certain of its subsidiaries on November 13, 2015, in connection with the OneMain Acquisition
SFC
 
Springleaf Finance Corporation
SFC Base Indenture
 
Indenture, dated as of December 3, 2014
SFC Eighth Supplemental Indenture
 
Eighth Supplemental Indenture, dated as of May 9, 2019, to the SFC Base Indenture
SFC Guaranty Agreements
 
agreements entered into on December 30, 2013 by OMH whereby it agreed to fully and unconditionally guarantee the payments of principal, premium (if any), and interest on the Other SFC Notes, and the 6.00% Senior Notes due 2020, which were redeemed in full on April 15, 2019
SFC Senior Notes Indentures

 
the SFC Base Indenture as supplemented by the SFC First Supplemental Indenture, the SFC Second Supplemental Indenture, the SFC Third Supplemental Indenture, the SFC Fourth Supplemental Indenture, the SFC Fifth Supplemental Indenture, the SFC Sixth Supplemental Indenture, the SFC Seventh Supplemental Indenture and the SFC Eighth Supplemental Indenture
SFC Seventh Supplemental Indenture
 
Seventh Supplemental Indenture, dated as of February 22, 2019, to the SFC Base Indenture
SFH
 
Springleaf Financial Holdings, LLC, an entity owned primarily by a private equity fund managed by an affiliate of Fortress that sold 54,937,500 shares of OMH’s common stock to the Apollo-Värde Group in the Apollo-Värde Transaction
SFI
 
Springleaf Finance, Inc.
Share Purchase Agreement
 
a share purchase agreement entered into on January 3, 2018, among the Apollo-Värde Group, SFH and the Company to acquire from SFH 54,937,500 shares of our common stock that was issued and outstanding as of such date, representing the entire holdings of our stock beneficially owned by Fortress
SLFT
 
Springleaf Funding Trust
SpringCastle Joint Venture
 
joint venture among SpringCastle America, LLC, SpringCastle Credit, LLC, SpringCastle Finance, LLC, and SpringCastle Acquisition LLC in which SpringCastle Holdings, LLC previously owned a 47% equity interest in each of SpringCastle America, LLC, SpringCastle Credit, LLC and SpringCastle Finance, LLC and Springleaf Acquisition Corporation previously owned a 47% equity interest in SpringCastle Acquisition LLC

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Term or Abbreviation
 
Definition
 
 
 
SpringCastle Portfolio
 
loans the Company previously owned and now service on behalf of a third party. On March 31, 2016, the portfolio was sold in connection with the “Sale of SpringCastle interests”
Tax Act
 
Public Law 115-97 amending the Internal Revenue Code of 1986
TDR finance receivables
 
troubled debt restructured finance receivables. Debt restructuring in which a concession is granted to the borrower as a result of economic or legal reasons related to the borrower’s financial difficulties
Triton
 
Triton Insurance Company, an insurance subsidiary of OneMain
UPB
 
unpaid principal balance for interest bearing accounts and the gross remaining contractual payments less the unaccreted balance of unearned finance charges for precompute accounts
Värde
 
Värde Partners, Inc.
VIEs
 
variable interest entities
Weighted average interest rate
 
annualized interest expense as a percentage of average debt
XBRL
 
eXtensible Business Reporting Language
Yield
 
annualized finance charges as a percentage of average net receivables
Yosemite
 
Yosemite Insurance Company, a former insurance subsidiary of SFC. In the third quarter of 2018, the Company sold all of the issued and outstanding shares in Yosemite to a third party


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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.

ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
 
 
 
 
 
(dollars in millions, except par value amount)
 
September 30,
2019
 
December 31,
2018
 
 
 
 
 
Assets
 
 

 
 

Cash and cash equivalents
 
$
1,393

 
$
679

Investment securities
 
1,779

 
1,694

Net finance receivables (includes loans of consolidated VIEs of $9.2 billion in 2019 and $8.5 billion in 2018)
 
17,791

 
16,164

Unearned insurance premium and claim reserves
 
(762
)
 
(662
)
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $356 million in 2019 and $444 million in 2018)
 
(798
)
 
(731
)
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses
 
16,231

 
14,771

Finance receivables held for sale
 
69

 
103

Restricted cash and restricted cash equivalents (include restricted cash and restricted cash equivalents of consolidated VIEs of $427 million in 2019 and $479 million in 2018)
 
434

 
499

Goodwill
 
1,422

 
1,422

Other intangible assets
 
352

 
388

Other assets
 
730

 
534

Total assets
 
$
22,410

 
$
20,090

Liabilities and Shareholders’ Equity
 
 

 
 

Long-term debt (includes debt of consolidated VIEs of $8.2 billion in 2019 and $7.5 billion in 2018)
 
$
17,021

 
$
15,178

Insurance claims and policyholder liabilities
 
646

 
685

Deferred and accrued taxes
 
37

 
45

Other liabilities (includes other liabilities of consolidated VIEs of $15 million in 2019 and $14 million in 2018)
 
612

 
383

Total liabilities
 
18,316

 
16,291

Commitments and contingent liabilities (Note 13)
 


 

 
 
 
 
 
Shareholders’ equity:
 
 

 
 

Common stock, par value $.01 per share; 2,000,000,000 shares authorized, 136,095,674 and 135,832,278 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
 
1

 
1

Additional paid-in capital
 
1,686

 
1,681

Accumulated other comprehensive income (loss)
 
38

 
(34
)
Retained earnings
 
2,369

 
2,151

Total shareholders’ equity
 
4,094

 
3,799

Total liabilities and shareholders’ equity
 
$
22,410

 
$
20,090


See Notes to the Condensed Consolidated Financial Statements (Unaudited).

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ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions, except per share amounts)
 
2019
 
2018
 
2019
 
2018
 
 
 
 

 
 
 

Interest income:
 
 
 
 
 
 
 
 
Finance charges
 
$
1,062

 
$
930

 
$
3,012

 
$
2,692

Finance receivables held for sale
 
3

 
3

 
8

 
8

Total interest income
 
1,065

 
933

 
3,020

 
2,700

 
 
 
 
 
 
 
 
 
Interest expense
 
244

 
227

 
717

 
647

 
 
 
 
 
 
 
 
 
Net interest income
 
821

 
706

 
2,303

 
2,053

 
 
 
 
 
 
 
 
 
Provision for finance receivable losses
 
282

 
256

 
836

 
770

 
 
 
 
 
 
 
 
 
Net interest income after provision for finance receivable losses
 
539

 
450

 
1,467

 
1,283

 
 
 
 
 
 
 
 
 
Other revenues:
 
 

 
 

 
 

 
 

Insurance
 
117

 
106

 
341

 
318

Investment
 
21

 
18

 
71

 
50

Net loss on repurchases and repayments of debt
 
(2
)
 

 
(35
)
 
(9
)
Net gain on sale of real estate loans
 

 

 
3

 

Other
 
20

 
20

 
80

 
62

Total other revenues
 
156

 
144

 
460

 
421

 
 
 
 
 
 
 
 
 
Other expenses:
 
 

 
 

 
 

 
 

Salaries and benefits
 
205

 
199

 
609

 
709

Other operating expenses
 
146

 
148

 
422

 
441

Insurance policy benefits and claims
 
47

 
48

 
141

 
144

Total other expenses
 
398

 
395

 
1,172

 
1,294

 
 
 
 
 
 
 
 
 
Income before income taxes
 
297

 
199

 
755

 
410

 
 
 
 
 
 
 
 
 
Income taxes
 
49

 
51

 
161

 
131

 
 
 
 
 
 
 
 
 
Net income
 
$
248

 
$
148

 
$
594

 
$
279

 
 
 
 
 
 
 
 
 
Share Data:
 
 

 
 

 
 

 
 

Weighted average number of shares outstanding:
 
 

 
 

 
 

 
 

Basic
 
136,095,481

 
135,756,479

 
136,060,832

 
135,677,811

Diluted
 
136,376,051

 
136,107,045

 
136,272,391

 
135,991,716

Earnings per share:
 
 

 
 

 
 

 
 

Basic
 
$
1.82

 
$
1.09

 
$
4.36

 
$
2.05

Diluted
 
$
1.82

 
$
1.09

 
$
4.36

 
$
2.05


See Notes to the Condensed Consolidated Financial Statements (Unaudited).

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ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net income
 
$
248

 
$
148

 
$
594

 
$
279

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 

 
 

 
 

 
 

Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities, net reclassification adjustments
 
14

 
(3
)
 
90

 
(39
)
Foreign currency translation adjustments
 
(1
)
 
1

 
3

 
(4
)
Income tax effect:
 
 

 
 

 
 

 
 

Net unrealized gains (losses) on non-credit impaired available-for-sale securities
 
(3
)
 
1

 
(21
)
 
7

Retirement plan liability adjustments
 

 

 

 
2

Foreign currency translation adjustments
 

 

 

 
(1
)
Other comprehensive income (loss), net of tax, net reclassification adjustments
 
10

 
(1
)
 
72

 
(35
)
 
 
 
 
 
 
 
 
 
Comprehensive income
 
$
258

 
$
147

 
$
666

 
$
244


See Notes to the Condensed Consolidated Financial Statements (Unaudited).


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ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
(dollars in millions)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total Shareholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
Balance, July 1, 2019
 
$
1

 
$
1,683

 
$
28

 
$
2,429

 
$
4,141

Share-based compensation expense, net of forfeitures
 

 
3

 

 

 
3

Other comprehensive income
 

 

 
10

 

 
10

Cash dividends *
 

 

 

 
(308
)
 
(308
)
Net income
 

 

 

 
248

 
248

Balance, September 30, 2019
 
$
1

 
$
1,686

 
$
38

 
$
2,369

 
$
4,094

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
Balance, July 1, 2018
 
$
1

 
$
1,674

 
$
(21
)
 
$
1,835

 
$
3,489

Share-based compensation expense, net of forfeitures
 

 
4

 

 

 
4

Other comprehensive loss
 

 

 
(1
)
 

 
(1
)
Net income
 

 

 

 
148

 
148

Balance, September 30, 2018
 
$
1

 
$
1,678

 
$
(22
)
 
$
1,983

 
$
3,640

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2019
 
$
1

 
$
1,681

 
$
(34
)
 
$
2,151

 
$
3,799

Share-based compensation expense, net of forfeitures
 

 
10

 

 

 
10

Withholding tax on share-based compensation
 

 
(5
)
 

 

 
(5
)
Other comprehensive income
 

 

 
72

 

 
72

Cash dividends *
 

 

 

 
(376
)
 
(376
)
Net income
 

 

 

 
594

 
594

Balance, September 30, 2019
 
$
1

 
$
1,686

 
$
38

 
$
2,369

 
$
4,094

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2018
 
$
1

 
$
1,560

 
$
11

 
$
1,706

 
$
3,278

Non-cash incentive compensation from SFH
 

 
110

 

 

 
110

Share-based compensation expense, net of forfeitures
 

 
17

 

 

 
17

Withholding tax on share-based compensation
 

 
(9
)
 

 

 
(9
)
Other comprehensive loss
 

 

 
(35
)
 

 
(35
)
Impact of AOCI reclassification due to the Tax Act
 

 

 
2

 
(2
)
 

Net income
 

 

 

 
279

 
279

Balance, September 30, 2018
 
$
1

 
$
1,678

 
$
(22
)
 
$
1,983

 
$
3,640

* Cash dividends declared were $0.25 per share in the first and second quarters, and $2.25 per share in the third quarter of 2019.

See Notes to the Condensed Consolidated Financial Statements (Unaudited).


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ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in millions)
 
Nine Months Ended September 30,
 
2019
 
2018
 
 
 
 
 
Cash flows from operating activities
 
 

 
 

Net income
 
$
594

 
$
279

Reconciling adjustments:
 
 
 
 
Provision for finance receivable losses
 
836

 
770

Depreciation and amortization
 
203

 
191

Deferred income tax charge
 
8

 
6

Net loss on repurchases and repayments of debt
 
35

 
9

Non-cash incentive compensation from SFH
 

 
110

Share-based compensation expense, net of forfeitures
 
10

 
17

Other
 
(8
)
 
9

Cash flows due to changes in other assets and other liabilities
 
51

 
65

Net cash provided by operating activities
 
1,729

 
1,456

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Net principal originations of finance receivables held for investment and held for sale
 
(2,445
)
 
(1,703
)
Proceeds on sales of finance receivables held for sale originated as held for investment
 
19

 

Available-for-sale securities purchased
 
(499
)
 
(548
)
Available-for-sale securities called, sold, and matured
 
457

 
438

Other securities purchased
 
(13
)
 
(9
)
Other securities called, sold, and matured
 
26

 
30

Other, net
 
(1
)
 
(24
)
Net cash used for investing activities
 
(2,456
)
 
(1,816
)
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Proceeds from issuance of long-term debt, net of commissions
 
5,157

 
5,474

Repayment of long-term debt
 
(3,402
)
 
(4,852
)
Cash dividends
 
(374
)
 

Withholding tax on share-based compensation
 
(5
)
 
(9
)
Net cash provided by financing activities
 
1,376

 
613

 
 
 
 
 
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents
 
649

 
253

Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period
 
1,178

 
1,485

Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period
 
$
1,827

 
$
1,738

 
 
 
 
 
Supplemental cash flow information
 
 
 
 
Cash and cash equivalents
 
$
1,393

 
$
1,243

Restricted cash and restricted cash equivalents
 
434

 
495

Total cash and cash equivalents and restricted cash and restricted cash equivalents
 
$
1,827

 
$
1,738

 
 
 
 
 
Cash paid for amounts included in the measurement of operating lease liabilities
 
$
44

 
$

Supplemental non-cash activities
 
 
 
 
Transfer of net finance receivables held for investment to finance receivables held for sale (prior to deducting allowance for finance receivable losses)
 
$

 
$
111

Transfer of finance receivables to real estate owned
 
6

 
5

Right-of-use assets obtained in exchange for operating lease obligations
 
221

 

Net unsettled investment security purchases
 
(8
)
 

 
Restricted cash and restricted cash equivalents primarily represent funds required to be used for future debt payments relating to our securitization transactions and escrow deposits.
See Notes to the Condensed Consolidated Financial Statements (Unaudited).

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ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2019
1. Business and Basis of Presentation

OneMain Holdings, Inc. is referred to in this report as “OMH” or, collectively with its subsidiaries, whether directly or indirectly owned, the “Company,” “we,” “us,” or “our.” OMH is a Delaware corporation.

OMH is a financial services holding company whose subsidiaries engage in the consumer finance and insurance businesses. Prior to the completion of the merger described below, OMH’s direct subsidiary was Springleaf Finance, Inc. (“SFI”).

On September 20, 2019, Springleaf Finance Corporation (“SFC”) entered into a merger agreement with its direct parent, SFI, to merge SFI with and into SFC, with SFC as the surviving entity. The merger was effective in the condensed consolidated financial statements as of July 1, 2019. As a result of the merger with SFI, SFC became a wholly owned direct subsidiary of OMH.

At September 30, 2019, the Apollo-Värde Group owned approximately 40.4% of OMH’s common stock.

2018 Share Sale Transactions

As disclosed in Note 21 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K, certain executives of the Company had previously been granted incentive units that only provided benefits (in the form of distributions) if Springleaf Financial Holdings, LLC (“SFH”) made distributions to one or more of its common members that exceeded specified threshold amounts. In connection with the Fortress Transaction resulting from the Apollo-Värde Transaction described in Note 2 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K, certain executive officers who were holders of SFH incentive units received a distribution of approximately $106 million in the aggregate from SFH. Although the distribution was not made by the Company or its subsidiaries, in accordance with ASC Topic 710, Compensation-General, we recorded non-cash incentive compensation expense of approximately $106 million, with an equal and offsetting increase to additional paid-in-capital. The impact to the Company was non-cash, equity neutral and not tax deductible.

In addition, in connection with the distributions by SFH to AIG resulting from the AIG Share Sale Transaction described in Note 2 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K, these same executive officers holding the incentive units described above, received a distribution of approximately $4 million in the aggregate from SFH in respect of their incentive interests in SFH. Consistent with the Fortress Transaction, we recorded non-cash incentive compensation expense of approximately $4 million, with an equal and offsetting increase to additional paid-in-capital. Again, the impact to the Company was non-cash, equity neutral, and not tax deductible.

BASIS OF PRESENTATION

We prepared our condensed consolidated financial statements using generally accepted accounting principles in the United States of America (“GAAP”). These statements are unaudited. The year-end condensed balance sheet data was derived from our audited financial statements but does not include all disclosures required by GAAP. The statements include the accounts of OMH, its subsidiaries (all of which are wholly owned), and VIEs in which we hold a controlling financial interest and for which we are considered to be the primary beneficiary as of the financial statement date.

We eliminated all material intercompany accounts and transactions. We made judgments, estimates, and assumptions that affect amounts reported in our condensed consolidated financial statements and disclosures of contingent assets and liabilities. In management’s opinion, the condensed consolidated financial statements include the normal, recurring adjustments necessary for a fair statement of results. Actual results could differ from our estimates. We evaluated the effects of and the need to disclose events that occurred subsequent to the balance sheet date. To conform to the 2019 presentation, we have reclassified certain items in prior periods of our condensed consolidated financial statements.

The condensed consolidated financial statements in this report should be read in conjunction with the consolidated financial statements and related notes included in our 2018 Annual Report on Form 10-K. We follow the same significant accounting policies for our interim reporting, except for the new accounting pronouncements subsequently adopted and disclosed in Note 2 below.

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2. Recent Accounting Pronouncements

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

Leases

In February of 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize a right-of-use asset and a liability for the obligation to make payments on leases with terms greater than 12 months and to disclose information related to the amount, timing and uncertainty of cash flows arising from leases, including various qualitative and quantitative requirements. Management has reviewed this update and other ASUs that were subsequently issued to further clarify the implementation guidance outlined in ASU 2016-02. We adopted the amendments of these ASUs as of January 1, 2019. See Note 13 for additional information on the adoption of ASU 2016-02.

ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED

Financial Instruments - Credit Losses

In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which significantly changes the way that entities will be required to measure credit losses. The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather than the “incurred loss” approach currently required. The new approach will require entities to measure all expected credit losses for financial assets over their expected lives based on historical experience, current conditions, and reasonable forecasts of collectability. The expected credit loss model will require earlier recognition of credit losses than the incurred loss approach. We expect ongoing changes in the allowance for finance receivable losses will be driven primarily by the growth of the Company’s loan portfolio, mix of secured and unsecured loans, credit quality, and the economic environment at that time.

The ASU also modifies the other-than-temporary impairment model for available-for-sale debt securities by requiring companies to record an allowance for credit impairment rather than write-downs of such assets.

In addition, the ASU requires qualitative and quantitative disclosures that provide information about the allowance and the significant factors that influenced management’s estimate of the allowance.

The ASU will become effective for the Company for fiscal years beginning January 1, 2020. Early adoption is permitted for fiscal years beginning January 1, 2019.

The Company’s cross-functional implementation team continues to make progress in line with the established project plan to ensure we comply with all updates from this ASU at the time of adoption. The Company has performed parallel testing through the third quarter of 2019. We continue to refine our model to estimate the expected credit losses as well as finalize our processes and internal controls in order to comply with this ASU. This ASU will result in an increase to the allowance for finance receivable losses, an increase to deferred tax assets, and a corresponding one-time cumulative reduction to retained earnings, net of tax, in the consolidated balance sheet as of the beginning of the year of adoption. Based on the September 30, 2019 loan portfolio and current expectations of future economic conditions, the Company estimates its allowance for finance receivable losses as a percentage of finance receivables would increase to 10% to 11%. The actual impact will depend on the growth and characteristics of our finance receivables, current economic conditions, as well as our economic and loss forecasts at the time of adoption.

The Company’s implementation team has also been working with our investment advisor to develop a new process to comply with this ASU as it relates to available-for-sale debt securities and the related disclosure requirements. The Company does not expect the adoption of this ASU, as it relates to available-for-sale debt securities, will have a material impact on its consolidated financial statements.


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Table of Contents

Insurance

In August of 2018, the FASB issued ASU 2018-12, Financial Services - Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts, which provides targeted improvements to Topic 944 for the assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited-payment contracts; measurement of market risk benefits; amortization of deferred acquisition costs; and enhanced disclosures. The amendments in this ASU become effective for the Company for fiscal years beginning January 1, 2021. In August of 2019, the FASB proposed a one-year deferral of this ASU to become effective for the Company for fiscal years beginning January 1, 2022. We have a cross-functional implementation team and a project plan to ensure we comply with all the amendments in this ASU at the time of adoption. We continue to make progress in evaluating the potential impact of the adoption of the ASU on our consolidated financial statements.

We do not believe that any other accounting pronouncements issued during the nine months ended September 30, 2019, but not yet effective, would have a material impact on our consolidated financial statements or disclosures, if adopted.


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Table of Contents

3. Finance Receivables

Our finance receivables consist of personal loans, which are non-revolving, with a fixed-rate, a fixed term of three to six years, and are secured by automobiles, other titled collateral, or are unsecured. Prior to September 30, 2018, our finance receivables also included other receivables, which consist of our liquidating loan portfolios: real estate loans, retail sales finance contracts, and revolving retail accounts. We continue to service or sub-service liquidating real estate loans and retail sales finance contracts. Effective September 30, 2018, our real estate loans were transferred from held for investment to held for sale. See Notes 5, 6 and 7 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for more information about other receivables.
 
Net finance receivables consist of our total portfolio of personal loans. Components of our personal loans were as follows:
(dollars in millions)
 
September 30,
2019
 
December 31,
2018
 
 
 
 
 
Gross receivables *
 
$
17,615

 
$
15,978

Unearned points and fees
 
(233
)
 
(201
)
Accrued finance charges
 
267

 
253

Deferred origination costs
 
142

 
134

Total
 
$
17,791

 
$
16,164

                                      
*
Gross receivables equal the UPB except for the following:
Finance receivables purchased as a performing receivable — gross receivables are equal to UPB and, if applicable, any remaining unearned premium or discount established at the time of purchase to reflect the finance receivable balance at its initial fair value; and
Purchased credit impaired finance receivables — gross receivables equal the remaining estimated cash flows less the current balance of accretable yield on the purchased credit impaired accounts.

CREDIT QUALITY INDICATOR

We consider the concentration of secured loans, the underlying value of collateral of secured loans, and the delinquency status of our finance receivables as our primary credit quality indicators. At September 30, 2019 and December 31, 2018, 51% and 48%, respectively, of our personal loans were secured by titled collateral. We monitor delinquency trends to manage our exposure to credit risk. When finance receivables are 60 days contractually past due, we consider these accounts to be at an increased risk for loss and we transfer collection of these accounts to our centralized operations. At 90 days or more contractually past due, we consider our finance receivables to be nonperforming.

The following is a summary of our personal loans held for investment by number of days delinquent:
(dollars in millions)
 
September 30,
2019
 
December 31,
2018
 
 
 
 
 
Performing
 
 
 
 
Current
 
$
17,040

 
$
15,411

30-59 days past due
 
245

 
229

60-89 days past due
 
164

 
161

Total performing
 
17,449

 
15,801

Nonperforming
 
 
 
 
90-179 days past due
 
335

 
355

180 days or more past due
 
7

 
8

Total nonperforming
 
342

 
363

Total
 
$
17,791

 
$
16,164




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Table of Contents

PURCHASED CREDIT IMPAIRED FINANCE RECEIVABLES

Our purchased credit impaired finance receivables consist of personal loans and real estate loans purchased in connection with the OneMain Acquisition and the Fortress Acquisition, respectively.

We report the carrying amount of our purchased credit impaired personal loans in net finance receivables, less allowance for finance receivable losses, and our purchased credit impaired real estate loans in finance receivables held for sale as discussed below.

At September 30, 2019 and December 31, 2018, finance receivables held for sale totaled $69 million and $103 million, respectively, which include purchased credit impaired real estate loans, as well as TDR real estate loans. See Note 5 for further information on our finance receivables held for sale.

Information regarding our purchased credit impaired finance receivables were as follows:
(dollars in millions)
 
September 30,
2019
 
December 31,
2018
 
 
 
 
 
Personal Loans
 
 
 
 
Carrying amount, net of allowance
 
$
48

 
$
89

Outstanding balance (a)
 
86

 
135

Allowance for purchased credit impaired finance receivable losses (b)
 

 

 
 
 
 
 
Real Estate Loans - Held for Sale
 
 
 
 
Carrying amount
 
$
20

 
$
28

Outstanding balance (a)
 
36

 
48

                                      
(a)
Outstanding balance is defined as UPB of the loans with a net carrying amount.
(b)
The allowance for purchased credit impaired finance receivable losses reflects the carrying value of the purchased credit impaired loans held for investment exceeding the present value of the expected cash flows. As indicated above, no allowance was required as of September 30, 2019 or December 31, 2018.

Changes in accretable yield for purchased credit impaired finance receivables were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Personal Loans
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
46

 
$
52

 
$
39

 
$
47

Accretion
 
(6
)
 
(7
)
 
(15
)
 
(21
)
Reclassifications from nonaccretable difference *
 

 

 
16

 
19

Balance at end of period
 
$
40

 
$
45

 
$
40

 
$
45

 
 
 
 
 
 
 
 
 
Real Estate Loans - Held for Sale
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
23

 
$
51

 
$
27

 
$
53

Accretion
 
(1
)
 
(1
)
 
(2
)
 
(3
)
Transfer due to finance receivables sold
 

 

 
(3
)
 

Balance at end of period
 
$
22

 
$
50

 
$
22

 
$
50

                               
*
Reclassifications from nonaccretable difference represents the increases in accretable yield resulting from higher estimated undiscounted cash flows.


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Table of Contents

TDR FINANCE RECEIVABLES

Information regarding TDR finance receivables were as follows:
(dollars in millions)
 
September 30,
2019
 
December 31,
2018
 
 
 
 
 

Personal Loans
 
 
 
 

TDR gross receivables (a)
 
$
593

 
$
450

TDR net receivables (b)
 
595

 
453

Allowance for TDR finance receivable losses
 
242

 
170

 
 
 
 
 
Real Estate Loans - Held for Sale
 
 
 
 
TDR gross receivables (a)
 
$
54

 
$
89

TDR net receivables (b)
 
55

 
75

(a)
TDR gross receivables — gross receivables are equal to UPB and, if applicable, any remaining unearned premium or discount established at the time of purchase if previously purchased as a performing receivable.
(b)
TDR net receivables — TDR gross receivables net of unearned points and fees, accrued finance charges, and deferred origination costs.

TDR average net receivables held for investment and held for sale and finance charges recognized on TDR finance receivables held for investment and held for sale were as follows:
(dollars in millions)
 
Personal
Loans
 
Other Receivables *
 
Total
 
 
 
 
 
 
 
Three Months Ended September 30, 2019
 
 
 
 
 
 
TDR average net receivables
 
$
571

 
$
55

 
$
626

TDR finance charges recognized
 
11

 
1

 
12

 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
 
 
 
 
TDR average net receivables
 
$
396

 
$
134

 
$
530

TDR finance charges recognized
 
11

 
2

 
13

 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
 
 
 
 
 
TDR average net receivables
 
$
525

 
$
59

 
$
584

TDR finance charges recognized
 
35

 
2

 
37

 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
TDR average net receivables
 
$
366

 
$
136

 
$
502

TDR finance charges recognized
 
34

 
6

 
40

                                          
* Other receivables held for sale included in the table above consist of real estate loans and were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
TDR average net receivables
 
$
55

 
$
102

 
$
59

 
$
93

TDR finance charges recognized
 
1

 
1

 
2

 
4




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Table of Contents

Information regarding the new volume of the TDR finance receivables held for investment, consisting of personal loans, are reflected in the following table.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Personal Loans
 
 
 
 
 
 
 
 
Pre-modification TDR net finance receivables
 
$
129

 
$
91

 
$
373

 
$
270

Post-modification TDR net finance receivables:
 
 
 
 
 
 
 
 
Rate reduction
 
$
86

 
$
73

 
$
257

 
$
206

Other *
 
43

 
18

 
116

 
64

Total post-modification TDR net finance receivables
 
$
129

 
$
91

 
$
373

 
$
270

Number of TDR accounts
 
18,545

 
13,729

 
55,358

 
41,237


*
“Other” modifications primarily include potential principal and interest forgiveness contingent on future payment performance by the
borrower under the modified terms.

New volume of TDR other receivables for the three and nine months ended September 30, 2019 and 2018 are not included in the table above as they were immaterial.

Personal loans held for investment that were modified as TDR finance receivables within the previous 12 months and for which there was a default during the period to cause the TDR finance receivables to be considered nonperforming (90 days or more past due) are reflected in the following table.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Personal Loans
 
 
 
 
 
 
 
 
TDR net finance receivables *
 
$
27

 
$
12

 
$
66

 
$
48

Number of TDR accounts
 
4,202

 
1,880

 
10,298

 
7,221


                                      
*
Represents the corresponding balance of TDR net finance receivables at the end of the month in which they defaulted.

TDR other receivables for the three and nine months ended September 30, 2019 and 2018 that defaulted during the previous 12-month period were immaterial.


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Table of Contents

4. Allowance for Finance Receivable Losses

Changes in the allowance for finance receivable losses by finance receivable type were as follows:
(dollars in millions)
 
Personal
Loans
 
Other
Receivables
 
Total
 
 
 
 
 
 
 
Three Months Ended September 30, 2019
 
 

 
 

 
 

Balance at beginning of period
 
$
744

 
$

 
$
744

Provision for finance receivable losses
 
282

 

 
282

Charge-offs
 
(260
)
 

 
(260
)
Recoveries
 
32

 

 
32

Balance at end of period
 
$
798

 
$

 
$
798

 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 

 
 

 
 

Balance at beginning of period
 
$
678

 
$
24

 
$
702

Provision for finance receivable losses
 
257

 
(1
)
 
256

Charge-offs
 
(255
)
 
(1
)
 
(256
)
Recoveries
 
26

 
1

 
27

Other *
 

 
(23
)
 
(23
)
Balance at end of period
 
$
706

 
$

 
$
706

 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
 
 
 
 
 
Balance at beginning of period
 
$
731

 
$

 
$
731

Provision for finance receivable losses
 
836

 

 
836

Charge-offs
 
(862
)
 

 
(862
)
Recoveries
 
93

 

 
93

Balance at end of period
 
$
798

 
$

 
$
798

 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
Balance at beginning of period
 
$
673

 
$
24

 
$
697

Provision for finance receivable losses
 
772

 
(2
)
 
770

Charge-offs
 
(821
)
 
(2
)
 
(823
)
Recoveries
 
82

 
3

 
85

Other *
 

 
(23
)
 
(23
)
Balance at end of period
 
$
706

 
$

 
$
706

                                      
*
Other consists primarily of the reclassification of allowance for finance receivable losses due to the transfer of the real estate loans in other receivables from held for investment to finance receivables held for sale. See Note 3 included in this report for further information.


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Table of Contents

The allowance for finance receivable losses and net finance receivables by impairment method were as follows:
(dollars in millions)
 
September 30,
2019
 
December 31,
2018
 
 
 
 
 
Allowance for finance receivable losses:
 
 
 
 
Collectively evaluated for impairment
 
$
556

 
$
561

Purchased credit impaired finance receivables
 

 

TDR finance receivables
 
242

 
170

Total
 
$
798

 
$
731

 
 
 
 
 
Finance receivables:
 
 
 
 
Collectively evaluated for impairment
 
$
17,148

 
$
15,622

Purchased credit impaired finance receivables
 
48

 
89

TDR finance receivables
 
595

 
453

Total
 
$
17,791

 
$
16,164

 
 
 
 
 
Allowance for finance receivable losses as a percentage of finance receivables
 
4.49
%
 
4.52
%




5. Finance Receivables Held for Sale

We reported finance receivables held for sale of $69 million at September 30, 2019 and $103 million at December 31, 2018, which consist entirely of real estate loans, and are carried at the lower of cost or fair value, applied on an aggregate basis.

In February 2019, we sold a portfolio of real estate loans with a carrying value of $16 million for aggregate cash proceeds of $19 million and recorded a net gain in other revenues of $3 million (“February 2019 Real Estate Loan Sale”). After the recognition of the February 2019 Real Estate Loan Sale, the carrying value of the remaining loans classified in finance receivables held for sale exceeded their fair value and, accordingly, we marked the remaining loans to fair value and recorded an impairment in other revenue of $3 million.

On September 30, 2018, we transferred $88 million of real estate loans (net of allowance for finance receivable losses) from held for investment to held for sale due to management’s intent to no longer hold these finance receivables for the foreseeable future.

At September 30, 2019, the carrying value of our finance receivables held for sale was not impaired. We did not have any other material transfers to or from finance receivables held for sale during the three and nine months ended September 30, 2019 and 2018.


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Table of Contents

6. Investment Securities

AVAILABLE-FOR-SALE SECURITIES

Cost/amortized cost, unrealized gains and losses, and fair value of fixed maturity available-for-sale securities by type were as follows:
(dollars in millions)
 
Cost/
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
 
 
 
 
September 30, 2019
 
 

 
 

 
 

 
 

Fixed maturity available-for-sale securities:
 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
$
11

 
$

 
$

 
$
11

Obligations of states, municipalities, and political subdivisions
 
74

 
2

 

 
76

Certificates of deposit and commercial paper
 
66

 

 

 
66

Non-U.S. government and government sponsored entities
 
138

 
4

 

 
142

Corporate debt
 
1,044

 
43

 
(2
)
 
1,085

Mortgage-backed, asset-backed, and collateralized:
 
 

 
 

 
 

 
 
RMBS
 
175

 
3

 

 
178

CMBS
 
60

 
1

 

 
61

CDO/ABS
 
78

 
2

 

 
80

Total
 
$
1,646

 
$
55

 
$
(2
)
 
$
1,699

 
 
 
 
 
 
 
 
 
December 31, 2018
 
 

 
 

 
 

 
 

Fixed maturity available-for-sale securities:
 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
$
21

 
$

 
$

 
$
21

Obligations of states, municipalities, and political subdivisions
 
91

 

 
(1
)
 
90

Certificates of deposit and commercial paper
 
63

 

 

 
63

Non-U.S. government and government sponsored entities
 
145

 

 
(2
)
 
143

Corporate debt
 
1,027

 
2

 
(32
)
 
997

Mortgage-backed, asset-backed, and collateralized:
 
 

 
 

 
 

 
 
RMBS
 
130

 

 
(2
)
 
128

CMBS
 
72

 

 
(1
)
 
71

CDO/ABS
 
94

 
1

 
(1
)
 
94

Total
 
$
1,643

 
$
3

 
$
(39
)
 
$
1,607




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Table of Contents

Fair value and unrealized losses on available-for-sale securities by type and length of time in a continuous unrealized loss position were as follows:
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
(dollars in millions)
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2019
 
 

 
 

 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
$

 
$

 
$
2

 
$

 
$
2

 
$

Obligations of states, municipalities, and political subdivisions
 
11

 

 
6

 

 
17

 

Non-U.S. government and government sponsored entities
 
6

 

 
14

 

 
20

 

Corporate debt
 
57

 
(1
)
 
26

 
(1
)
 
83

 
(2
)
Mortgage-backed, asset-backed, and collateralized:
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
30

 

 

 

 
30

 

CMBS
 
9

 

 
11

 

 
20

 

CDO/ABS
 
4

 

 
1

 

 
5

 

Total
 
$
117

 
$
(1
)
 
$
60

 
$
(1
)
 
$
177

 
$
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 

 
 

 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
$
3

 
$

 
$
16

 
$

 
$
19

 
$

Obligations of states, municipalities, and political subdivisions
 
10

 

 
57

 
(1
)
 
67

 
(1
)
Non-U.S. government and government sponsored entities
 
19

 
(1
)
 
97

 
(1
)
 
116

 
(2
)
Corporate debt
 
377

 
(14
)
 
448

 
(18
)
 
825

 
(32
)
Mortgage-backed, asset-backed, and collateralized:
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
23

 

 
78

 
(2
)
 
101

 
(2
)
CMBS
 
10

 

 
54

 
(1
)
 
64

 
(1
)
CDO/ABS
 
18

 

 
33

 
(1
)
 
51

 
(1
)
Total
 
$
460

 
$
(15
)
 
$
783

 
$
(24
)
 
$
1,243

 
$
(39
)


On a lot basis, we had 266 and 1,767 investment securities in an unrealized loss position at September 30, 2019 and December 31, 2018, respectively. We do not consider the unrealized losses to be credit-related as these unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. Additionally, at September 30, 2019, other-than-temporary impairments on investment securities that we intend to sell were immaterial. We do not have plans to sell any of the remaining investment securities with unrealized losses as of September 30, 2019, and we believe it is more likely than not that we would not be required to sell such investment securities before recovery of their amortized cost.

We continue to monitor unrealized loss positions for potential impairments. During the three and nine months ended September 30, 2019, other-than-temporary impairment credit losses, primarily on corporate debt, in investment revenues were immaterial. During the three months ended September 30, 2018, we did not recognize any other-than-temporary impairment credit losses and during the nine months ended September 30, 2018, other-than-temporary impairment credit losses were immaterial.

There were no material additions or reductions in the cumulative amount of credit losses (recognized in earnings) on other-than-temporarily impaired available-for-sale securities during the three and nine months ended September 30, 2019 and 2018.

The proceeds of available-for-sale securities sold or redeemed during the three and nine months ended September 30, 2019 totaled $36 million and $245 million, respectively. The proceeds of available-for-sale securities sold or redeemed during the three and nine months ended September 30, 2018 totaled $118 million and $258 million, respectively. The realized gains and losses were immaterial during the three and nine months ended September 30, 2019 and 2018.


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Contractual maturities of fixed-maturity available-for-sale securities at September 30, 2019 were as follows:
(dollars in millions)
 
Fair
Value
 
Amortized
Cost
 
 
 
 
 
Fixed maturities, excluding mortgage-backed, asset-backed, and collateralized securities:
 
 

 
 

Due in 1 year or less
 
$
207

 
$
206

Due after 1 year through 5 years
 
545

 
533

Due after 5 years through 10 years
 
460

 
436

Due after 10 years
 
168

 
158

Mortgage-backed, asset-backed, and collateralized securities
 
319

 
313

Total
 
$
1,699

 
$
1,646



Actual maturities may differ from contractual maturities since issuers and borrowers may have the right to call or prepay obligations. We may sell investment securities before maturity for general corporate and working capital purposes and to achieve certain investment strategies.

The fair value of securities on deposit with third parties totaled $507 million and $515 million at September 30, 2019 and December 31, 2018, respectively.

OTHER SECURITIES

The fair value of other securities by type was as follows:
 
 
 
 
 
(dollars in millions)
 
September 30,
2019
 
December 31,
2018
 
 
 
 
 
Fixed maturity other securities:
 
 

 
 

Bonds
 
 

 
 

Non-U.S. government and government sponsored entities
 
$
1

 
$
1

Corporate debt
 
27

 
43

Mortgage-backed, asset-backed, and collateralized bonds
 
11

 
2

Total bonds
 
39

 
46

Preferred stock (a)
 
15

 
19

Common stock (a)
 
25

 
21

Other long-term investments
 
1

 
1

Total
 
$
80

 
$
87


                                     
(a)
The Company employs an income equity strategy targeting investments in stocks with strong current dividend yields. Stocks included have a history of stable or increasing dividend payments.

The net unrealized gains and losses on other securities were immaterial for the three and nine months ended September 30, 2019 and 2018. Net realized gains and losses on other securities sold or redeemed were immaterial for the three and nine months ended September 30, 2019 and 2018. We report these gains and losses in investment revenues.

Other securities include equity securities and those securities for which the fair value option was elected.


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7. Long-term Debt

Principal maturities of long-term debt (excluding projected repayments on securitizations and revolving conduit facilities by period) by type of debt at September 30, 2019 were as follows:
 
 
Senior Debt
 
 
 
 
(dollars in millions)
 
Securitizations
 
Unsecured
Notes (a)
 
Junior
Subordinated
Debt (a)
 
Total
 
 
 
 
 
 
 
 
 
Interest rates (b)
 
2.31% - 6.94%

 
5.63% - 8.25%

 
4.05
%
 
 
 
 
 
 
 
 
 
 
 
Fourth quarter 2019
 
$

 
$

 
$

 
$

2020
 

 
1,000

 

 
1,000

2021
 

 
646

 

 
646

2022
 

 
1,000

 

 
1,000

2023
 

 
1,175

 

 
1,175

2024-2067
 

 
4,949

 
350

 
5,299

Securitizations (c)
 
8,237

 

 

 
8,237

Total principal maturities
 
$
8,237

 
$
8,770

 
$
350

 
$
17,357

 
 
 
 
 
 
 
 
 
Total carrying amount
 
$
8,200

 
$
8,649

 
$
172

 
$
17,021

Debt issuance costs (d)
 
$
(32
)
 
$
(77
)
 
$

 
$
(109
)
                                      
(a)
Pursuant to the SFC Base Indenture, the SFC supplemental indentures and the SFC Guaranty Agreements, OMH agreed to fully and unconditionally guarantee, on a senior unsecured basis, payments of principal, premium and interest on the SFC Unsecured Senior Notes and Junior Subordinated Debenture. The OMH guarantees of SFC’s long-term debt are subject to customary release provisions.

(b)
The interest rates shown are the range of contractual rates in effect at September 30, 2019. The interest rate on the remaining principal balance of the Junior Subordinated Debenture consists of a variable floating rate (determined quarterly) equal to 3-month LIBOR plus 1.75%, or 4.05% as of September 30, 2019.

(c)
Securitizations have a stated maturity date but are not included in the above maturities by period due to their variable monthly repayments, which may result in pay-off prior to the stated maturity date. At September 30, 2019, there were no amounts drawn under our revolving conduit facilities. See Note 8 for further information on our long-term debt associated with securitizations and revolving conduit facilities.

(d)
Debt issuance costs are reported as a direct deduction from long-term debt, with the exception of debt issuance costs associated with our revolving conduit facilities, which totaled $30 million at September 30, 2019 and are reported in “Other assets”.

SFC’S 6.125% SENIOR NOTES DUE 2024 OFFERINGS

On February 22, 2019, SFC issued $1.0 billion aggregate principal amount and on July 2, 2019, SFC issued an additional $300 million aggregate principal amount of 6.125% Senior Notes due 2024 (the “6.125% SFC Notes due 2024”) under the SFC Senior Notes Indentures, as supplemented by the SFC Seventh Supplemental Indenture, pursuant to which OMH provided a guarantee on an unsecured basis.

REDEMPTION OF 5.25% SENIOR NOTES DUE 2019

As a result of the February 2019 offering of the 6.125% SFC Notes due 2024 as described above, SFC issued a notice of redemption to redeem all of the outstanding principal amount of its 5.25% Senior Notes due 2019. On March 25, 2019, SFC paid an aggregate amount of $706 million, inclusive of accrued interest and premiums, to complete the redemption. In connection with the redemption, we recognized $21 million of net loss on the repurchases and repayments of debt for the nine months ended September 30, 2019.


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REDEMPTION OF 6.00% SENIOR NOTES DUE 2020

On March 15, 2019, SFC issued a notice of redemption of its 6.00% Senior Notes due 2020. On April 15, 2019, SFC paid an aggregate amount of $317 million, inclusive of accrued interest and premiums, to complete the redemption. In connection with the redemption, we recognized $11 million of net loss on repurchases and repayments of debt for the nine months ended September 30, 2019.

SFC’S 6.625% SENIOR NOTES DUE 2028 OFFERING

On May 9, 2019, SFC issued a total of $800 million aggregate principal amount of 6.625% Senior Notes due 2028 (the “6.625% SFC Notes due 2028”) under the SFC Senior Notes Indentures, as supplemented by the SFC Eighth Supplemental Indenture, pursuant to which OMH provided a guarantee on an unsecured basis.



8. Variable Interest Entities

CONSOLIDATED VIES

We have transferred finance receivables to VIEs for asset-backed financing transactions and include the assets and liabilities in our consolidated financial statements because we are the primary beneficiary of each VIE. We account for these asset-backed debt obligations as secured borrowings.

See Note 3 and Note 13 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for more detail regarding VIEs.

We parenthetically disclose on our consolidated balance sheets the VIE’s assets that can only be used to settle the VIE’s obligations and liabilities if its creditors have no recourse against the primary beneficiary’s general credit. The carrying amounts of consolidated VIE assets and liabilities associated with our securitization trusts and revolving conduit facilities were as follows:
(dollars in millions)
 
September 30,
2019
 
December 31,
2018
 
 
 
 
 
Assets
 
 

 
 

Cash and cash equivalents
 
$
3

 
$
2

Finance receivables - Personal loans
 
9,188

 
8,480

Allowance for finance receivable losses
 
356

 
444

Restricted cash and restricted cash equivalents
 
427

 
479

Other assets
 
30

 
26

 
 
 
 
 
Liabilities
 
 

 
 

Long-term debt
 
$
8,200

 
$
7,510

Other liabilities
 
15

 
14



Other than the retained subordinate and residual interests in our consolidated VIEs, we are under no further obligation than is otherwise noted herein, either contractually or implicitly, to provide financial support to these entities. Consolidated interest expense related to our VIEs totaled $79 million and $243 million for the three and nine months ended September 30, 2019, compared to $86 million and $259 million for the three and nine months ended September 30, 2018.

SECURITIZED BORROWINGS

Each of our securitizations contains a revolving period ranging from one to seven years during which no principal payments are required to be made on the related asset-backed notes. The indentures governing our securitization borrowings contain early amortization events and events of default, that, if triggered, may result in the acceleration of the obligation to pay principal and interest on the related asset-backed notes. Our total securitized borrowings at September 30, 2019 were $8.2 billion.


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Table of Contents

REVOLVING CONDUIT FACILITIES

We had access to 13 conduit facilities with a total borrowing capacity of $6.9 billion as of September 30, 2019. Our conduit facilities’ revolving period end ranges from one to three years. Principal balances of outstanding loans, if any, are due and payable in full ranging from approximately three to nine years as of September 30, 2019. Amounts drawn on these facilities are collateralized by our personal loans.

At September 30, 2019, no amounts were drawn under these facilities.



9. Insurance

Changes in the reserve for unpaid claims and loss adjustment expenses (not considering reinsurance recoverable):
 
 
At or for the Nine Months Ended September 30,
(dollars in millions)
 
2019
 
2018
 
 
 
 
 
Balance at beginning of period
 
$
117

 
$
154

Less reinsurance recoverables
 
(4
)
 
(23
)
Net balance at beginning of period
 
113

 
131

Additions for losses and loss adjustment expenses incurred to:
 
 
 
 
Current year
 
154

 
152

Prior years *
 
(13
)
 
(5
)
Total
 
141

 
147

Reductions for losses and loss adjustment expenses paid related to:
 
 
 
 
Current year
 
(85
)
 
(81
)
Prior years
 
(57
)
 
(63
)
Total
 
(142
)
 
(144
)
Net balance at end of period
 
112

 
134

Plus reinsurance recoverables
 
3

 
4

Transfer of reserves
 

 
(19
)
Balance at end of period
 
$
115

 
$
119

                                      
*
Reflects (i) a redundancy in the prior years’ net reserves of $13 million at September 30, 2019 primarily due to a favorable development of credit life, disability, and unemployment claims during the year and (ii) a redundancy in the prior years’ net reserves of $5 million at September 30, 2018, primarily due to a favorable development of credit disability and unemployment claims during the year.

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Table of Contents

10. Earnings Per Share


The computation of earnings per share was as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions, except per share data)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Numerator (basic and diluted):
 
 

 
 

 
 

 
 

Net income
 
$
248

 
$
148

 
$
594

 
$
279

Denominator:
 
 

 
 

 
 

 
 

Weighted average number of shares outstanding (basic)
 
136,095,481


135,756,479


136,060,832


135,677,811

Effect of dilutive securities *
 
280,570


350,566


211,559


313,905

Weighted average number of shares outstanding (diluted)
 
136,376,051


136,107,045


136,272,391


135,991,716

Earnings per share:
 
 

 
 

 
 

 
 

Basic
 
$
1.82

 
$
1.09

 
$
4.36

 
$
2.05

Diluted
 
$
1.82

 
$
1.09

 
$
4.36

 
$
2.05


                                      
*    We have excluded the following shares in the diluted earnings per share calculation for three and nine months ended September 30, 2019 and 2018 because these shares would be anti-dilutive, which could impact the earnings per share calculation in the future:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Performance-based shares
 
182,034

 
10,415

 
168,387

 
51,014

Service-based shares
 
2,963

 
162,223

 
128,807

 
214,386



Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during each period. Diluted earnings per share is computed based on the weighted-average number of shares outstanding plus the effect of potentially dilutive shares outstanding during the period using the treasury stock method. The potentially dilutive shares represent outstanding unvested RSUs and RSAs.

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Table of Contents

11. Accumulated Other Comprehensive Income (Loss)

Changes, net of tax, in accumulated other comprehensive income (loss) were as follows:
(dollars in millions)
 
Unrealized
Gains (Losses)
Available-for-Sale Securities
 
Retirement
Plan Liabilities
Adjustments
 
Foreign
Currency
Translation
Adjustments
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2019
 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
30

 
$
(3
)
 
$
1

 
$
28

Other comprehensive income before reclassifications
 
11

 

 
(1
)
 
10

Balance at end of period
 
$
41

 
$
(3
)
 
$

 
$
38

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
(24
)
 
$
3

 
$

 
$
(21
)
Other comprehensive income (loss) before reclassifications
 
(2
)
 

 
1

 
(1
)
Balance at end of period
 
$
(26
)
 
$
3

 
$
1

 
$
(22
)
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
(28
)
 
$
(3
)
 
$
(3
)
 
$
(34
)
Other comprehensive income before reclassifications
 
69

 

 
3

 
72

Balance at end of period
 
$
41

 
$
(3
)
 
$

 
$
38

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
4

 
$
4

 
$
3

 
$
11

Other comprehensive income (loss) before reclassifications
 
(33
)
 
2

 
(5
)
 
(36
)
Reclassification adjustments from accumulated other comprehensive income
 
1

 

 

 
1

Impact of AOCI reclassification due to the Tax Act
 
2

 
(3
)
 
3

 
2

Balance at end of period
 
$
(26
)
 
$
3

 
$
1

 
$
(22
)


Reclassification adjustments from accumulated other comprehensive income (loss) to the applicable line item on our condensed consolidated statements of operations were immaterial for the three and nine months ended September 30, 2019 and 2018.


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Table of Contents

12. Income Taxes


We had a net deferred tax asset of $98 million and $129 million at September 30, 2019 and December 31, 2018, respectively. The decrease in our net deferred tax asset of $31 million was primarily driven by the change in mark-to-market valuation of our receivables and amortization of tax goodwill, partially offset by the release of the valuation allowance against certain state deferred taxes.

The effective tax rate for the nine months ended September 30, 2019 was 21.3%, compared to 32.0% for the same period in 2018. The effective tax rate for the nine months ended September 30, 2019 differed from the federal statutory rate of 21% due to the effect of state income taxes, which was offset by the release of the valuation allowance against certain state deferred taxes. The effective tax rate for the nine months ended September 30, 2018 differed from the federal statutory rate of 21% primarily due to the effect of discrete tax expense for non-deductible compensation expense and state income taxes.

We are currently under examination of our U.S. federal tax returns for the years 2014 to 2016 by the IRS. We are also under examination by various states for the years 2011 to 2017. Management believes it has adequately provided for taxes for such years.

Our gross unrecognized tax benefits, including related interest and penalties, totaled $13 million at September 30, 2019 and $17 million at December 31, 2018. We accrue interest related to uncertain tax positions in income tax expense. The amount of any change in the balance of uncertain tax liabilities over the next 12 months is not expected to be material to our consolidated financial statements.



13. Leases and Contingencies

LEASES

Our leases primarily consist of leased office space, automobiles, and information technology equipment.

As described in Note 2, we have adopted ASU 2016-02, Leases, as of January 1, 2019, using the optional transition approach. As a result of this election, the prior periods presented have not been adjusted. Additionally, we have elected the practical expedient to treat both the lease component and non-lease component for our leased office space portfolio as a single lease component.

All our leases are classified as operating leases. At inception of an arrangement we determine if a lease exists. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. At lease commencement date, we recognize right-of-use assets and lease liabilities measured at the present value of lease payments over the lease term. Since our operating leases do not provide an implicit rate, we utilize the best available information to determine our incremental borrowing rate, which is used to calculate the present value of lease payments. The right-of-use asset also includes any prepaid fixed lease payments and excludes lease incentives. Options to extend or terminate a lease may be included in our lease arrangements. We reflect the renewal or termination option in the right-of-use asset and lease liability when it is reasonably certain that we will exercise those options. Operating lease costs for lease payments are recognized on a straight-line basis over the lease term and are included in “Other operating expenses” in our condensed consolidated statement of operations. The operating lease right-of-use assets are included in “Other assets” and the operating lease liabilities are included in “Other liabilities” in our condensed consolidated balance sheet.

Our operating leases have remaining lease terms of one year to ten years. In the normal course of business, we will renew leases that expire or replace them with leases on other properties. In addition to rent, we pay taxes, insurance, and maintenance expenses under certain leases as variable lease payments. As of September 30, 2019, our operating right-of-use asset balance was $166 million, and our operating lease liability balance was $179 million. Our operating lease costs totaled $15 million and $47 million for three and nine months ended September 30, 2019, respectively. Our variable lease costs totaled $4 million and $12 million for three and nine months ended September 30, 2019, respectively. Our sublease income was immaterial for three and nine months ended September 30, 2019.


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Table of Contents

As of September 30, 2019, maturities of lease liabilities, excluding leases on a month-to-month basis, were as follows:
(dollars in millions)
 
Operating Leases
 
 
 
2019 (excluding the nine months ended September 30, 2019)
 
$
16

2020
 
60

2021
 
48

2022
 
36

2023
 
20

2024
 
10

Thereafter
 
7

Total lease payments
 
197

Imputed interest
 
(18
)
Total
 
$
179


Weighted Average Remaining Lease Term
 
3.9 years

Weighted Average Discount Rate
 
3.77
%


As of December 31, 2018, under ASC 840, Leases, annual rental commitments for leased office space, automobiles and information technology equipment accounted for as operating leases, excluding leases on a month-to-month basis, were as follows:
(dollars in millions)
 
Lease Commitments
 
 
 
2019
 
$
60

2020
 
50

2021
 
37

2022
 
26

2023
 
12

2024+
 
12

Total
 
$
197



Rental expense totaled $74 million in 2018.

LEGAL CONTINGENCIES

In the normal course of business, we have been named, from time to time, as defendants in various legal actions, including arbitrations, class actions and other litigation arising in connection with our activities. Some of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. While we will continue to evaluate legal actions to determine whether a loss is reasonably possible or probable and is reasonably estimable, there can be no assurance that material losses will not be incurred from pending, threatened or future litigation, investigations, examinations, or other claims.

We contest liability and/or the amount of damages, as appropriate, in each pending matter. Where available information indicates that it is probable that a liability had been incurred at the date of the consolidated financial statements and we can reasonably estimate the amount of that loss, we accrue the estimated loss by a charge to income. In many actions, however, it is inherently difficult to determine whether any loss is probable or even reasonably possible, or to estimate the amount of any loss. In addition, even where loss is reasonably possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is not always possible to reasonably estimate the size of the possible loss or range of loss.


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Table of Contents

For certain legal actions, we cannot reasonably estimate such losses, particularly for actions that are in their early stages of development or where plaintiffs seek substantial or indeterminate damages. Numerous issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the actions in question, before a loss or additional loss or range of loss or additional loss can be reasonably estimated for any given action.

For certain other legal actions, we can estimate reasonably possible losses, additional losses, ranges of loss or ranges of additional loss in excess of amounts accrued, but do not believe, based on current knowledge and after consultation with counsel, that such losses will have a material adverse effect on our consolidated financial statements as a whole.

Federal Securities Class Action

On February 10, 2017, a putative class action lawsuit, Galestan v. OneMain Holdings, Inc., et al., was filed in the U.S. District Court for the Southern District of New York, naming as defendants the Company and two of its officers. The lawsuit alleged violations of the Exchange Act for allegedly making materially misleading statements and/or omitting material information concerning alleged integration issues after the OneMain Acquisition in November 2015, and was filed on behalf of a putative class of persons who purchased or otherwise acquired the Company’s common stock between February 25, 2016 and November 7, 2016. The complaint sought an award of unspecified compensatory damages, an award of interest, reasonable attorney’s fees, expert fees and other costs, and equitable relief as the court may deem just and proper. On April 23, 2019, the parties executed a settlement agreement, which received final approval from the Court on August 9, 2019. Pursuant to the settlement agreement, the action was dismissed with prejudice. The settlement contained no admission of liability by the Company and the other defendants.

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Table of Contents

14. Segment Information

At September 30, 2019, our two reportable segments were Consumer and Insurance and Acquisitions and Servicing. The remaining components (which we refer to as “Other”) consist of our non-originating legacy operations, which include our liquidating real estate loans and our liquidating retail sales finance portfolios.

Our segment accounting policies are the same as those disclosed in Note 3 and Note 22 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K. We report the operating results of our segments and Other using the Segment Accounting Basis, which (i) reflects our allocation methodologies for interest expense and operating costs, and (ii) excludes the impact of applying purchase accounting.

The following tables present information about our segments, as well as reconciliations to the consolidated financial statement amounts.
(dollars in millions)
 
Consumer
and
Insurance
 
Acquisitions
and
Servicing
 
Other
 
Segment to
GAAP
Adjustment
 
Consolidated
Total
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2019
 
 
 
 

 
 

 
 

 
 

Interest income
 
$
1,060

 
$

 
$
2

 
$
3

 
$
1,065

Interest expense
 
238

 

 
1

 
5

 
244

Provision for finance receivable losses
 
277

 

 

 
5

 
282

Net interest income after provision for finance receivable losses
 
545

 

 
1

 
(7
)
 
539

Other revenues
 
152

 
4

 
1

 
(1
)
 
156

Other expenses
 
385

 
5

 
3

 
5

 
398

Income (loss) before income tax expense (benefit)
 
$
312

 
$
(1
)

$
(1
)
 
$
(13
)
 
$
297


Three Months Ended September 30, 2018
 
 
 
 

 
 

 
 

 
 

Interest income
 
$
935

 
$

 
$
4

 
$
(6
)
 
$
933

Interest expense
 
218

 

 
4

 
5

 
227

Provision for finance receivable losses
 
253

 

 

 
3

 
256

Net interest income after provision for finance receivable losses
 
464

 

 

 
(14
)
 
450

Other revenues
 
140

 
8

 
1

 
(5
)
 
144

Other expenses
 
378

 
8

 
5

 
4

 
395

Income (loss) before income tax expense (benefit)
 
$
226

 
$

 
$
(4
)
 
$
(23
)
 
$
199



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Table of Contents

(dollars in millions)
 
Consumer
and
Insurance
 
Acquisitions
and
Servicing
 
Other
 
Segment to
GAAP
Adjustment
 
Consolidated
Total
 
 
 
 
 
 
 
 
 
 
 
At or for the Nine Months Ended September 30, 2019
 
 
 
 

 
 

 
 

 
 

Interest income
 
$
3,013

 
$

 
$
7

 
$

 
$
3,020

Interest expense
 
700

 

 
4

 
13

 
717

Provision for finance receivable losses
 
816

 

 

 
20

 
836

Net interest income after provision for finance receivable losses
 
1,497

 

 
3

 
(33
)
 
1,467

Other revenues
 
442

 
23

 
3

 
(8
)
 
460

Other expenses
 
1,125

 
18

 
13

 
16

 
1,172

Income (loss) before income tax expense (benefit)
 
$
814

 
$
5

 
$
(7
)
 
$
(57
)
 
$
755

 
 
 
 
 
 
 
 
 
 
 
Assets
 
$
20,276

 
$

 
$
82

 
$
2,052

 
$
22,410


At or for the Nine Months Ended September 30, 2018
 
 
 
 

 
 

 
 

 
 

Interest income
 
$
2,718

 
$

 
$
14

 
$
(32
)
 
$
2,700

Interest expense
 
624

 

 
13

 
10

 
647

Provision for finance receivable losses
 
772

 

 
(5
)
 
3

 
770

Net interest income after provision for finance receivable losses
 
1,322

 

 
6

 
(45
)
 
1,283

Other revenues
 
352

 
25

 
(2
)
 
46

 
421

Other expenses
 
1,119

 
25

 
127

 
23

 
1,294

Income (loss) before income tax expense (benefit)
 
$
555

 
$

 
$
(123
)
 
$
(22
)
 
$
410

 
 
 
 
 
 
 
 
 
 
 
Assets
 
$
18,152

 
$

 
$
238

 
$
2,078

 
$
20,468



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Table of Contents

15. Fair Value Measurements

The accounting policies of our Fair Value Measurements are the same as those disclosed in Note 3 and Note 23 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K.

The following table presents the carrying amounts and estimated fair values of our financial instruments and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used:
 
 
Fair Value Measurements Using
 
Total
Fair
Value
 
Total
Carrying
Value
(dollars in millions)
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2019
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,345

 
$
48

 
$

 
$
1,393

 
$
1,393

Investment securities
 
39

 
1,736

 
4

 
1,779

 
1,779

Net finance receivables, less allowance for finance receivable losses
 

 

 
18,559

 
18,559

 
16,993

Finance receivables held for sale
 

 

 
80

 
80

 
69

Restricted cash and restricted cash equivalents
 
434

 

 

 
434

 
434

Other assets *
 

 

 
11

 
11

 
11

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
$

 
$
18,145

 
$

 
$
18,145

 
$
17,021

 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
618

 
$
61

 
$

 
$
679

 
$
679

Investment securities
 
34

 
1,655

 
5

 
1,694

 
1,694

Net finance receivables, less allowance for finance receivable losses
 

 

 
16,734

 
16,734

 
15,433

Finance receivables held for sale
 

 

 
103

 
103

 
103

Restricted cash and restricted cash equivalents
 
499

 

 

 
499

 
499

Other assets *
 

 
1

 
15

 
16

 
16

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 

 
 
Long-term debt
 
$

 
$
15,041

 
$

 
$
15,041

 
$
15,178


                                     
*
Other assets at September 30, 2019 and December 31, 2018 include miscellaneous receivables related to our liquidating loan portfolios.

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FAIR VALUE MEASUREMENTS — RECURRING BASIS

The following tables present information about our assets measured at fair value on a recurring basis and indicates the fair value hierarchy based on the levels of inputs we utilized to determine such fair value:
 
 
Fair Value Measurements Using
 
Total Carried At Fair Value
(dollars in millions)
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
September 30, 2019
 
 

 
 

 
 

 
 

Assets
 
 

 
 

 
 

 
 

Cash equivalents in mutual funds
 
$
850

 
$

 
$

 
$
850

Cash equivalents in securities
 

 
48

 

 
48

Investment securities:
 
 

 
 

 
 

 
 

Available-for-sale securities
 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 

 
11

 

 
11

Obligations of states, municipalities, and political subdivisions
 

 
76

 

 
76

Certificates of deposit and commercial paper
 

 
66

 

 
66

Non-U.S. government and government sponsored entities
 

 
142

 

 
142

Corporate debt
 

 
1,084

 
1

 
1,085

RMBS
 

 
178

 

 
178

CMBS
 

 
61

 

 
61

CDO/ABS
 

 
79

 
1

 
80

Total available-for-sale securities
 

 
1,697

 
2

 
1,699

Other securities
 
 

 
 

 
 

 


Bonds:
 
 

 
 

 
 

 


Non-U.S. government and government sponsored entities
 

 
1

 

 
1

Corporate debt
 

 
26

 
1

 
27

RMBS
 

 
1

 

 
1

CDO/ABS
 

 
10

 

 
10

Total bonds
 

 
38

 
1

 
39

Preferred stock
 
14

 
1

 

 
15

Common stock
 
25

 

 

 
25

Other long-term investments
 

 

 
1

 
1

Total other securities
 
39

 
39

 
2

 
80

Total investment securities
 
39

 
1,736

 
4

 
1,779

Restricted cash in mutual funds
 
432

 

 

 
432

Total
 
$
1,321

 
$
1,784

 
$
4

 
$
3,109


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Fair Value Measurements Using
 
Total Carried At Fair Value
(dollars in millions)
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 

 
 

 
 

 
 

Assets
 
 

 
 

 
 

 
 

Cash equivalents in mutual funds
 
$
426

 
$

 
$

 
$
426

Cash equivalents in securities
 

 
61

 

 
61

Investment securities:
 
 

 
 

 
 

 
 

Available-for-sale securities
 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 

 
21

 

 
21

Obligations of states, municipalities, and political subdivisions
 

 
90

 

 
90

Certificates of deposit and commercial paper
 

 
63

 

 
63

Non-U.S. government and government sponsored entities
 

 
143

 

 
143

Corporate debt
 

 
995

 
2

 
997

RMBS
 

 
128

 

 
128

CMBS
 

 
71

 

 
71

CDO/ABS
 

 
93

 
1

 
94

Total available-for-sale securities
 

 
1,604

 
3

 
1,607

Other securities
 
 

 
 

 
 

 
 
Bonds:
 
 

 
 

 
 

 
 

Non-U.S. government and government sponsored entities
 

 
1

 

 
1

Corporate debt
 

 
42

 
1

 
43

RMBS
 

 
1

 

 
1

CDO/ABS
 

 
1

 

 
1

Total bonds
 

 
45

 
1

 
46

Preferred stock
 
13

 
6

 

 
19

Common stock
 
21

 

 

 
21

Other long-term investments
 

 

 
1

 
1

Total other securities
 
34

 
51

 
2

 
87

Total investment securities
 
34

 
1,655

 
5

 
1,694

Restricted cash in mutual funds
 
482

 

 

 
482

Total
 
$
942

 
$
1,716

 
$
5

 
$
2,663



Due to the insignificant activity within the Level 3 assets during the three and nine months ended September 30, 2019 and 2018, we have omitted the additional disclosures relating to the changes in Level 3 assets measured at fair value on a recurring basis and the quantitative information about Level 3 unobservable inputs in the tables above.


FAIR VALUE MEASUREMENTS — NON-RECURRING BASIS

We measure the fair value of certain assets on a non-recurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Net impairment charges recorded on assets measured at fair value on a non-recurring basis were immaterial for the three and nine months ended September 30, 2019 and 2018.


FAIR VALUE MEASUREMENTS — VALUATION METHODOLOGIES AND ASSUMPTIONS

See Note 23 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for information regarding our methods and assumptions used to estimate fair value.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

An index to our management’s discussion and analysis follows:

Topic
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact but instead represent only management’s current beliefs regarding future events. By their nature, forward-looking statements are subject to risks, uncertainties, assumptions, and other important factors that may cause actual results, performance or achievements to differ materially from those expressed in or implied by such forward-looking statements. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. We do not undertake any obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events or the non-occurrence of anticipated events, whether as a result of new information, future developments, or otherwise, except as required by law. Forward-looking statements include, without limitation, statements concerning future plans, objectives, goals, projections, strategies, events, or performance, and underlying assumptions and other statements related thereto. Statements preceded by, followed by or that otherwise include the words “anticipates,” “appears,” “are likely,” “believes,” “estimates,” “expects,” “foresees,” “intends,” “plans,” “projects,” and similar expressions or future or conditional verbs such as “would,” “should,” “could,” “may,” or “will” are intended to identify forward-looking statements. Important factors that could cause actual results, performance, or achievements to differ materially from those expressed in or implied by forward-looking statements include, without limitation, the following:

adverse changes in general economic conditions, including the interest rate environment and the financial markets;

risks related to the acquisition or sale of assets or businesses or the formation, termination, or operation of joint ventures or other strategic alliances, including increased loan delinquencies or net charge-offs, integration or migration issues, increased costs of servicing, incomplete records, and retention of customers;

our estimates of the allowance for finance receivable losses may not be adequate to absorb actual losses, causing our provision for finance receivable losses to increase, which would adversely affect our results of operations;

increased levels of unemployment and personal bankruptcies;

our strategy of increasing the proportion of secured loans may lead to declines in or slower growth in our personal loan receivables and portfolio yield;

adverse changes in the rate at which we can collect or potentially sell our finance receivables portfolio;


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our decentralized branch loan approval process could expose us to greater than historical delinquencies and charge-offs;

natural or accidental events such as earthquakes, hurricanes, tornadoes, fires, or floods affecting our customers, collateral, or our branches or other operating facilities;

war, acts of terrorism, riots, civil disruption, pandemics, disruptions in the operation of our information systems, or other events disrupting business or commerce;

a failure in or breach of our operational or security systems or infrastructure or those of third parties, including as a result of cyber-attacks, or other cyber-related incidents involving the loss, theft or unauthorized disclosure of personally identifiable information, or “PII,” of our present or former customers;

our credit risk scoring models may be inadequate to properly assess the risk of customer unwillingness or lack of capacity to repay;

adverse changes in our ability to attract and retain employees or key executives to support our businesses;

increased competition, lack of customer responsiveness to our distribution channels, an inability to make technological improvements, and the ability of our competitors to offer a more attractive range of personal loan products than we offer;

changes in federal, state, or local laws, regulations, or regulatory policies and practices that adversely affect our ability to conduct business or the manner in which we are permitted to conduct business, such as licensing requirements, pricing limitations or restrictions on the method of offering products, as well as changes that may result from increased regulatory scrutiny of the sub-prime lending industry, our use of third party vendors and real estate loan servicing, or changes in corporate or individual income tax laws or regulations, including effects of the Tax Act;

risks associated with our insurance operations, including insurance claims that exceed our expectations or insurance losses that exceed our reserves;

our inability to successfully implement our growth strategy for our consumer lending business or successfully acquire portfolios of personal loans;

declines in collateral values or increases in actual or projected delinquencies or net charge-offs;

potential liability relating to finance receivables which we have sold or securitized or may sell or securitize in the future if it is determined that there was a non-curable breach of a representation or warranty made in connection with such transactions;

the costs and effects of any actual or alleged violations of any federal, state, or local laws, rules or regulations, including any associated litigation;

the costs and effects of any fines, penalties, judgments, decrees, orders, inquiries, investigations, subpoenas, or enforcement or other proceedings of any governmental or quasi-governmental agency or authority and any associated litigation;

our continued ability to access the capital markets and maintain adequate current sources of funds to satisfy our cash flow requirements;

our ability to comply with our debt covenants;

our ability to generate sufficient cash to service all of our indebtedness;

any material impairment or write-down of the value of our assets;

the ownership of our common stock continues to be highly concentrated, which may prevent other minority stockholders from influencing significant corporate decisions and may result in conflicts of interest;


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the effects of any downgrade of our debt ratings by credit rating agencies, which could have a negative impact on our cost of and/or access to capital;

our substantial indebtedness, which could prevent us from meeting our obligations under our debt instruments and limit our ability to react to changes in the economy or our industry or our ability to incur additional borrowings;

our ability to maintain sufficient capital levels in our regulated and unregulated subsidiaries;

changes in accounting standards or tax policies and practices and the application of such new standards, policies and practices;

management estimates and assumptions, including estimates and assumptions about future events, may prove to be incorrect;

any failure to achieve the SpringCastle Portfolio performance requirements, which could, among other things, cause us to lose our loan servicing rights over the SpringCastle Portfolio; and

various risks relating to continued compliance with the Settlement Agreement with the U.S. Department of Justice.

We also direct readers to the other risks and uncertainties discussed in other documents we file with the SEC.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. You should specifically consider the factors identified in this report and in the documents we file with the SEC, including our 2018 Annual Report on Form 10-K, that could cause actual results to differ before making an investment decision to purchase our securities and should not place undue reliance on any of our forward-looking statements. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.


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Overview

We are a leading provider of responsible personal loan products, primarily to non-prime customers. Our network of approximately 1,600 branch offices in 44 states is staffed with expert personnel and is complemented by our online origination capabilities and centralized operations, which allows us to reach customers located outside our branch network. Our digital platform provides current and prospective customers the option of obtaining a personal loan via our website, www.omf.com. The information on our website is not incorporated by reference into this report. In connection with our personal loan business, our insurance subsidiaries offer our customers optional credit and non-credit insurance products.

In addition to our loan originations and insurance sales activities, we service loans owned by us and service loans owned by third parties; pursue strategic acquisitions and dispositions of assets and businesses, including loan portfolios or other financial assets; and may establish joint ventures or enter into other strategic alliances.

OUR PRODUCTS

Our product offerings include:

Personal Loans — We offer personal loans through our branch network, centralized operations, and our website, www.omf.com, to customers who generally need timely access to cash. Our personal loans are non-revolving, with a fixed-rate, a fixed term of three to six years, and are secured by automobiles, other titled collateral, or are unsecured. At September 30, 2019, we had exceeded 2.4 million personal loans, representing $17.8 billion of net finance receivables, compared to $16.2 billion at December 31, 2018.

Insurance Products — We offer our customers optional credit insurance products (life insurance, disability insurance, and involuntary unemployment insurance) and optional non-credit insurance products through both our branch network and our centralized operations. Credit insurance and non-credit insurance products are provided by our affiliated insurance companies. We also offer optional home and auto membership plans of an unaffiliated company.

Our non-originating legacy products include:

Other Receivables — We ceased originating real estate loans in 2012 and purchasing retail sales finance contracts and revolving retail accounts in 2013. We continue to service or sub-service liquidating real estate loans and retail sales finance contracts. Effective September 30, 2018, our real estate loans were transferred from held for investment to held for sale. See Notes 5, 6 and 7 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for more information about other receivables.

OUR SEGMENTS

At September 30, 2019, we had two reportable segments:

Consumer and Insurance; and
Acquisitions and Servicing.

The remaining components (which we refer to as “Other”) consist of our non-originating legacy operations, which primarily include our liquidating real estate loan portfolio and our liquidating retail sales finance portfolio. See Note 14 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information about our segments.

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Recent Developments and Outlook

RECENT DEVELOPMENTS    

Cash Dividends to our Common Stockholders

For information regarding the quarterly dividends declared by the Company, see the “Liquidity and Capital Resources” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Issuances and Redemptions of 6.125% Senior Notes Due 2024, 5.25% Senior Notes Due 2019, 6.00% Senior Notes Due 2020, and 6.625% Senior Notes Due 2028

For information regarding the issuances and redemptions of our unsecured debt, see Note 7 of the Notes to the Condensed Consolidated Financial Statements included in this report.

Securitization Transactions Completed: OMFIT 2019-1, OMFIT 2019-A, OMFIT 2019-2 and ODART 2019-1

For information regarding the issuances of our secured debt, see the “Liquidity and Capital Resources” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Appointment of Executive Vice President and Chief Operating Officer (“COO”) of OMH

On June 24, 2019, our Board of Directors appointed Rajive Chadha as Executive Vice President and COO, effective on his first day of employment, July 15, 2019. Mr. Chadha replaced Robert A. Hurzeler, who resigned as Executive Vice President and COO on May 1, 2019 and departed the Company on May 31, 2019.

Departure of OMH’s Chief Financial Officer (“CFO”) and Appointment of CFO of OMH

On April 25, 2019, our Board of Directors appointed Micah R. Conrad as CFO. Mr. Conrad replaced Scott T. Parker, who resigned as Executive Vice President and CFO on March 26, 2019 and departed the Company on April 4, 2019. Mr. Parker’s departure was not due to any disagreement between Mr. Parker and the Company relating to the Company’s financial reporting or condition, policies or practices. Mr. Conrad served as the Company’s acting CFO from March 26, 2019 until his appointment as CFO of OMH.

Sale of Merit Life Insurance Co.

As part of our continuing integration efforts from the OneMain Acquisition, on March 7, 2019 we entered into a Share Purchase Agreement to sell all of the issued and outstanding shares of Merit, a wholly owned subsidiary of SFC to a third-party insurance holding company. The assets and liabilities of Merit that are subject to sale are classified as held for sale as of September 30, 2019 and are reflected in “Other assets” and “Other liabilities,” respectively, in our condensed consolidated balance sheet.



OUTLOOK

With our experienced management team, long track record of successfully accessing the capital markets, and strong demand for consumer credit, we believe we are well positioned to execute on our strategic priorities to strengthen our capital base. We further describe our key initiatives and strategies under “Recent Developments and Outlook” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our 2018 Annual Report on Form 10-K.

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Results of Operations

CONSOLIDATED RESULTS

See the table below for our consolidated operating results and selected financial statistics. A further discussion of our operating results for each of our operating segments is provided under “Segment Results” below.

 
At or for the
Three Months Ended September 30,
 
At or for the
Nine Months Ended September 30,
(dollars in millions, except per share amounts)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Interest income
 
$
1,065

 
$
933

 
$
3,020

 
$
2,700

Interest expense
 
244

 
227

 
717

 
647

Provision for finance receivable losses
 
282

 
256

 
836

 
770

Net interest income after provision for finance receivable losses
 
539

 
450

 
1,467

 
1,283

Other revenues
 
156

 
144

 
460

 
421

Other expenses
 
398

 
395

 
1,172

 
1,294

Income before income taxes
 
297

 
199

 
755

 
410

Income taxes
 
49

 
51

 
161

 
131

Net income
 
$
248

 
$
148

 
$
594

 
$
279

 
 
 
 
 
 
 
 
 
Share Data:
 
 
 
 

 
 

 
 

Earnings per share:
 
 
 
 
 
 

 
 

Diluted
 
$
1.82

 
$
1.09

 
$
4.36

 
$
2.05

 
 
 
 
 
 
 
 
 
Selected Financial Statistics *
 
 
 
 
 
 

 
 

Finance receivables held for investment:
 
 
 
 
 
 
 
 
Net finance receivables
 
$
17,791

 
$
15,750

 
$
17,791

 
$
15,750

Number of accounts
 
2,406,753

 
2,382,331

 
2,406,753

 
2,382,331

Finance receivables held for sale:
 
 
 
 
 
 
 
 
Net finance receivables
 
$
69

 
$
207

 
$
69

 
$
207

Number of accounts
 
2,128

 
4,424

 
2,128

 
4,424

Finance receivables held for investment and held for sale:
 
 
 
 
 
 
 
 
Average net receivables
 
$
17,434

 
$
15,695

 
$
16,706

 
$
15,307

Yield
 
24.16
 %
 
23.51
 %
 
24.10
 %
 
23.51
 %
Gross charge-off ratio

5.92
 %
 
6.46
 %
 
6.89
 %

7.19
 %
Recovery ratio

(0.73
)%
 
(0.70
)%
 
(0.74
)%

(0.76
)%
Net charge-off ratio
 
5.19
 %
 
5.76
 %
 
6.15
 %
 
6.43
 %
30-89 Delinquency ratio
 
2.30
 %
 
2.33
 %
 
2.30
 %
 
2.33
 %
Origination volume
 
$
3,657

 
$
2,899

 
$
10,118

 
$
8,655

Number of accounts originated
 
395,899

 
345,680

 
1,082,576

 
1,063,971

Debt balances:
 
 
 
 
 
 
 
 
Long-term debt balance
 
$
17,021

 
$
15,731

 
$
17,021

 
$
15,731

Average daily debt balance
 
16,271

 
15,743

 
16,028

 
15,420

                                     
*
See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.

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Comparison of Consolidated Results for Three and Nine Months Ended September 30, 2019 and 2018

Interest income increased $132 million or 14% and $320 million or 12% for the three and nine months ended September 30, 2019, respectively, when compared to the same periods in 2018 primarily due to continued growth in our loan portfolio along with higher yield, which was primarily driven by lower amortization of purchase premium on non-credit impaired finance receivables.

Interest expense increased $17 million or 7% and $70 million or 11% for the three and nine months ended September 30, 2019, respectively, when compared to the same periods in 2018 primarily due to an increase in average debt, consistent with the growth in our loan portfolio, and our strategic actions to increase unsecured debt, which tends to have higher interest rates than secured debt, in order to achieve a more proportional mix of secured and unsecured funding.

See Notes 7 and 8 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on our long-term debt, securitization transactions and our conduit facilities.

Provision for finance receivable losses increased $26 million or 10% and $66 million or 9% for the three and nine months ended September 30, 2019, respectively, when compared to the same periods in 2018 primarily driven by the growth in our loan portfolio. The allowance for finance receivable losses as a percentage of net finance receivables was flat from prior periods reflecting lower allowance requirements due to the shift in portfolio mix to more secured personal loans and improvements in the effectiveness of our collections, offset by the impacts of continued liquidation of purchased credit impaired finance receivables resulting from the OneMain Acquisition.

Other revenues increased $12 million or 8% for the three months ended September 30, 2019 when compared to the same period in 2018 primarily due to an increase in insurance products sold.

Other revenues increased $39 million or 9% for the nine months ended September 30, 2019 when compared to the same period in 2018 primarily due to (i) a $23 million increase in insurance products sold, (ii) a $21 million increase in investment revenue primarily driven by an increase in interest income due to higher yield and a larger average cash and cash equivalents balance, and an increase in unrealized gains on equity investment securities due to improved market conditions, (iii) an $11 million net gain on sale of a cost method investment, and (iv) a $7 million increase due to the additional net gain on the Sale of SpringCastle interests. The increase was partially offset by $26 million of higher net losses on repurchases and repayments of debt.

Other expenses decreased $122 million or 9% for the nine months ended September 30, 2019 when compared to the same period in 2018 primarily due to $106 million of non-cash incentive compensation expense related to the Fortress Transaction and $14 million of impairment loss on the sale of Yosemite, both occurring in the second quarter of 2018.

Income taxes totaled $49 million and $161 million for the three and nine months ended September 30, 2019, respectively, compared to $51 million and $131 million for the three and nine months ended September 30, 2018, respectively.

The effective tax rates of 16.3% and 21.3% for the three and nine months ended September 30, 2019, respectively, differed from the federal statutory rate of 21% due to the effect of state income taxes, which was offset by the release of the valuation allowance against certain state deferred taxes.

The effective tax rates were 25.7% and 32.0% for the three and nine months ended September 30, 2018, respectively. The effective tax rate for the three months ended September 30, 2018 differed from the federal statutory rate of 21% primarily due to the effect of state income taxes. The effective tax rate for the nine months ended September 30, 2018 differed from the federal statutory rate of 21% primarily due to the effect of discrete tax expense for non-deductible compensation expense and state income taxes.

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NON-GAAP FINANCIAL MEASURES

Adjusted Pretax Income (Loss)

Management uses adjusted pretax income (loss), a non-GAAP financial measure, as a key performance measure of our segments. Adjusted pretax income (loss) represents income (loss) before income taxes on a Segment Accounting Basis and excludes net losses resulting from repurchases and repayments of debt, net gain on sale of cost method investment, acquisition-related transaction and integration expenses, restructuring charges, additional net gain on Sale of SpringCastle interests, net loss on sale of real estate loans, and non-cash incentive compensation expense related to the Fortress Transaction. Management believes adjusted pretax income (loss) is useful in assessing the profitability of our segment and uses adjusted pretax income (loss) in evaluating our operating performance and as a performance goal under our executive compensation programs. Adjusted pretax income (loss) is a non-GAAP financial measure and should be considered supplemental to, but not as a substitute for or superior to, income (loss) before income taxes, net income, or other measures of financial performance prepared in accordance with GAAP.

The reconciliations of income (loss) before income tax expense (benefit) on a Segment Accounting Basis to adjusted pretax income (loss) (non-GAAP) by segments were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Consumer and Insurance
 
 
 
 
 
 
 
 
Income before income taxes - Segment Accounting Basis
 
$
312

 
$
226

 
$
814

 
$
555

Adjustments:
 
 
 
 
 
 
 
 
Net loss on repurchases and repayments of debt
 
2

 

 
30

 
63

Acquisition-related transaction and integration expenses
 
2

 
9

 
16

 
41

Net gain on sale of cost method investment
 

 

 
(11
)
 

Restructuring charges
 
1

 

 
5

 

Adjusted pretax income (non-GAAP)
 
$
317


$
235

 
$
854

 
$
659

 
 
 
 
 
 
 
 
 
Acquisitions and Servicing
 
 
 
 
 
 
 
 
Income (loss) before income tax expense (benefit) - Segment Accounting Basis
 
$
(1
)
 
$

 
$
5

 
$

Adjustment:
 
 
 
 
 
 
 
 
Additional net gain on Sale of SpringCastle interests
 

 

 
(7
)
 

Adjusted pretax loss (non-GAAP)
 
$
(1
)
 
$

 
$
(2
)
 
$

 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
Loss before income taxes - Segment Accounting Basis
 
$
(1
)
 
$
(4
)
 
$
(7
)
 
$
(123
)
Adjustments:
 
 
 
 
 
 
 
 
Non-cash incentive compensation expense
 

 

 

 
106

Net loss on sale of real estate loans *
 

 

 
1

 

Adjusted pretax loss (non-GAAP)
 
$
(1
)
 
$
(4
)
 
$
(6
)
 
$
(17
)
                                     
*
During the nine months ended September 30, 2019, the resulting impairment on finance receivables held for sale remaining after the February 2019 Real Estate Loan Sale has been combined with the gain on the sale.

We describe our acquisition-related transaction and integration expenses under “Results of Operations” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our 2018 Annual Report on Form 10-K.


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Table of Contents

Segment Results

See Note 22 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for a description of our segments and methodologies used to allocate revenues and expenses to each segment. See Note 14 of the Notes to the Condensed Consolidated Financial Statements included in this report for reconciliations of segment totals to condensed consolidated financial statement amounts.

CONSUMER AND INSURANCE

Adjusted pretax income and selected financial statistics for Consumer and Insurance (which are reported on an adjusted Segment Accounting Basis) were as follows:

 
At or for the
Three Months Ended September 30,
 
At or for the
Nine Months Ended September 30,
(dollars in millions)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Interest income
 
$
1,060

 
$
935

 
$
3,013

 
$
2,718

Interest expense
 
238

 
218

 
700

 
624

Provision for finance receivable losses
 
277

 
253

 
816

 
772

Net interest income after provision for finance receivable losses
 
545

 
464

 
1,497

 
1,322

Other revenues
 
154

 
140

 
461

 
415

Other expenses
 
382

 
369

 
1,104

 
1,078

Adjusted pretax income (non-GAAP)
 
$
317

 
$
235

 
$
854

 
$
659

 
 
 
 
 
 
 
 
 
Selected Financial Statistics *
 
 

 
 

 
 

 
 

Finance receivables held for investment:
 
 
 
 
 
 
 
 
Net finance receivables
 
$
17,825

 
$
15,777

 
$
17,825

 
$
15,777

Number of accounts
 
2,406,753

 
2,382,331

 
2,406,753

 
2,382,331

Finance receivables held for investment and held for sale:
 
 
 
 
 
 
 
 
Average net receivables
 
$
17,469

 
$
15,619

 
$
16,740

 
$
15,203

Yield
 
24.07
 %
 
23.74
 %
 
24.06
 %
 
23.91
 %
Gross charge-off ratio
 
5.98
 %
 
6.61
 %
 
6.97
 %
 
7.41
 %
Recovery ratio
 
(0.81
)%
 
(0.79
)%
 
(0.84
)%
 
(0.87
)%
Net charge-off ratio
 
5.17
 %
 
5.82
 %
 
6.13
 %
 
6.54
 %
30-89 Delinquency ratio
 
2.30
 %
 
2.34
 %
 
2.30
 %
 
2.34
 %
Origination volume
 
$
3,657

 
$
2,899

 
$
10,118

 
$
8,655

Number of accounts originated
 
395,899

 
345,680

 
1,082,576

 
1,063,971

                                     
*
See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.

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Table of Contents

Comparison of Adjusted Pretax Income for Three and Nine Months Ended September 30, 2019 and 2018

Interest income increased $125 million or 13% and $295 million or 11% for the three and nine months ended September 30, 2019, respectively, when compared to the same periods in 2018 primarily due to continued growth in our loan portfolio.

Interest expense increased $20 million or 9% and $76 million or 12% for the three and nine months ended September 30, 2019, respectively, when compared to the same periods in 2018 primarily due to an increase in average debt, consistent with the growth in our loan portfolio, and our strategic actions to increase unsecured debt, which tends to have higher interest rates than secured debt, in order to achieve a more proportional mix of secured and unsecured funding.

See Notes 7 and 8 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on our long-term debt, securitization transactions and our conduit facilities.

Provision for finance receivable losses increased $24 million or 9% and $44 million or 6% for the three and nine months ended September 30, 2019, respectively, when compared to the same periods in 2018 primarily driven by the growth in our loan portfolio. The allowance for finance receivable losses as a percentage of net finance receivables decreased from prior periods due to the shift in portfolio mix to more secured personal loans and improvements in the effectiveness of collections.

Other revenues increased $14 million or 10% for the three months ended September 30, 2019 when compared to the same period in 2018 primarily due to an increase in insurance products sold.

Other revenues increased $46 million or 11% for the nine months ended September 30, 2019 when compared to the same period in 2018 primarily due to a $23 million increase in insurance products sold, and a $17 million increase in investment revenue primarily driven by an increase in interest income due to higher yield and a larger average cash and cash equivalents balance, and an increase in unrealized gains on equity investment securities due to improved market conditions.

Other expenses increased $13 million or 4% and $26 million or 2% for the three and nine months ended September 30, 2019, respectively, when compared to the same periods in 2018 primarily due to our continued reinvestment in our business operations.


ACQUISITIONS AND SERVICING

Adjusted pretax income (loss) for Acquisition and Servicing (which is reported on an adjusted Segment Accounting Basis) was as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Other revenues
 
$
4

 
$
8

 
$
16

 
$
25

Other expenses
 
5

 
8

 
18

 
25

Adjusted pretax income (loss) (non-GAAP)
 
$
(1
)
 
$

 
$
(2
)
 
$


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Table of Contents

OTHER

“Other” consists of our non-originating legacy operations which include other receivables consisting of our liquidating real estate loan and retail sales finance portfolios.

Adjusted pretax loss of the Other components (which is reported on an adjusted Segment Accounting Basis) was as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Interest income
 
$
2

 
$
4

 
$
7

 
$
14

Interest expense
 
1

 
4

 
4

 
13

Provision for finance receivable losses
 

 

 

 
(5
)
Net interest income after provision for finance receivable losses
 
1

 

 
3

 
6

Other revenues
 
1

 
1

 
4

 
(2
)
Other expenses *
 
3

 
5

 
13

 
21

Adjusted pretax loss (non-GAAP)
 
$
(1
)
 
$
(4
)
 
$
(6
)
 
$
(17
)
                                     
*
Other expenses for the nine months ended September 30, 2018 include $4 million of non-cash incentive compensation expense related to the rights of certain executives to a portion of the cash proceeds from the sale of OMH’s common stock by SFH.

Net finance receivables of the Other components (which are reported on a Segment Accounting Basis) were as follows:
 
 
September 30,
(dollars in millions)
 
2019
 
2018
 
 
 
 
 
Net finance receivables held for sale:
 
 
 
 
Other receivables *
 
$
70

 
$
215

                                     
*
On September 30, 2018, we transferred our real estate loans previously classified as other receivables from held for investment to held for sale. See Notes 5 and 7 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for further information.


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Table of Contents

Credit Quality

FINANCE RECEIVABLES

Our net finance receivables, consisting of personal loans, were $17.8 billion at September 30, 2019 and $16.2 billion at December 31, 2018. Our personal loans are non-revolving, with a fixed-rate, a fixed term of three to six years, and are secured by automobiles, other titled collateral, or are unsecured. We consider the concentration of secured loans, the underlying value of the collateral of the secured loans, and the delinquency status of our finance receivables as the primary indicators of credit quality. At September 30, 2019 and December 31, 2018, 51% and 48%, respectively, of our personal loans, on a consolidated basis, were secured by titled collateral.

Distribution of Finance Receivables by FICO Score

There are many different categorizations used in the consumer lending industry to describe the creditworthiness of a borrower, including prime, near prime, and sub-prime.

We group FICO scores into the following credit strength categories:

Prime: FICO score of 660 or higher
Near prime: FICO score of 620-659
Sub-prime: FICO score of 619 or below

Our customers’ demographics are in many respects near the national median but may vary from national norms in terms of credit and repayment histories. Many of our customers have experienced some level of prior financial difficulty or have limited credit experience and require higher levels of servicing and support from our branch network.

The following table reflects our personal loans grouped into the categories described above based on borrower FICO credit scores as of the most recently refreshed date or as of the origination or purchase date:
(dollars in millions)
 
September 30,
2019
 
December 31, 2018
 
 
 
 
 
FICO scores
 
 
 
 
660 or higher
 
$
3,914

 
$
3,906

620-659
 
4,568

 
4,251

619 or below
 
9,309

 
8,007

Total
 
$
17,791

 
$
16,164


DELINQUENCY

We monitor delinquency trends to evaluate the risk of future credit losses and employ advanced analytical tools to manage our exposure. Our branch team members work with customers through occasional periods of financial difficulty and offer a variety of borrower assistance programs to help customers continue to make payments. Team members also actively engage in collection activities throughout the early stages of delinquency. We closely track and report the percentage of receivables that are contractually 30-89 days past due as a benchmark of portfolio quality, collections effectiveness, and as a strong indicator of losses in coming quarters.

When finance receivables are contractually 60 days past due, we consider these accounts to be at an increased risk for loss and we transfer collection of these accounts to our centralized operations. Use of our centralized operations teams for managing late stage delinquency allows us to apply more advanced collection technologies and tools and drives operating efficiencies in servicing. At 90 days contractually past due, we consider our finance receivables to be nonperforming.


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Table of Contents

The delinquency information for net finance receivables is as follows:
(dollars in millions)
 
Consumer
and
Insurance
 
Segment to
GAAP
Adjustment
 
GAAP
 Basis
 
 
 
 
 
 
 
September 30, 2019
 
 
 
 
 
 
Current
 
$
17,071

 
$
(31
)
 
$
17,040

30-59 days past due
 
246

 
(1
)
 
245

Delinquent (60-89 days past due)
 
165

 
(1
)
 
164

Performing
 
17,482

 
(33
)
 
17,449

 
 
 
 
 
 
 
Nonperforming (90+ days past due)
 
343

 
(1
)
 
342

Total net finance receivables
 
$
17,825

 
$
(34
)
 
$
17,791

 
 
 
 
 
 
 
Delinquency ratio
 
 
 
 
 
 
30-89 days past due
 
2.30
%
 
*

 
2.30
%
30+ days past due
 
4.23
%
 
*

 
4.22
%
60+ days past due
 
2.85
%
 
*

 
2.84
%
90+ days past due
 
1.93
%
 
*

 
1.92
%
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
Current
 
$
15,437

 
$
(26
)
 
$
15,411

30-59 days past due
 
231

 
(2
)
 
229

Delinquent (60-89 days past due)
 
162

 
(1
)
 
161

Performing
 
15,830

 
(29
)
 
15,801

 
 
 
 
 
 
 
Nonperforming (90+ days past due)
 
365

 
(2
)
 
363

Total net finance receivables
 
$
16,195

 
$
(31
)
 
$
16,164

 
 
 
 
 
 
 
Delinquency ratio
 
 
 
 
 
 
30-89 days past due
 
2.43
%
 
*

 
2.42
%
30+ days past due
 
4.68
%
 
*

 
4.66
%
60+ days past due
 
3.26
%
 
*

 
3.25
%
90+ days past due
 
2.25
%
 
*

 
2.25
%
                                      
*
Not applicable.


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Table of Contents

ALLOWANCE FOR FINANCE RECEIVABLE LOSSES

We record an allowance for finance receivable losses to cover estimated incurred losses on our finance receivables. Our allowance for finance receivable losses may fluctuate based upon our continual review of the growth and credit quality of the finance receivable portfolio and changes in economic conditions.

Changes in the allowance for finance receivable losses were as follows:
(dollars in millions)
 
Consumer
and
Insurance
 
Other (a)
 
Segment to
GAAP
Adjustment
 
Consolidated
Total
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2019
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
772

 
$

 
$
(28
)
 
$
744

Provision for finance receivable losses
 
277

 

 
5

 
282

Charge-offs
 
(263
)
 

 
3

 
(260
)
Recoveries
 
36

 

 
(4
)
 
32

Balance at end of period
 
$
822

 
$

 
$
(24
)
 
$
798

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
729

 
$
30

 
$
(57
)
 
$
702

Provision for finance receivable losses
 
253

 

 
3

 
256

Charge-offs
 
(260
)
 
(1
)
 
5

 
(256
)
Recoveries
 
31

 
1

 
(5
)
 
27

Other (b)
 

 
(30
)
 
7

 
(23
)
Balance at end of period
 
$
753

 
$

 
$
(47
)
 
$
706

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
773

 
$

 
$
(42
)
 
$
731

Provision for finance receivable losses
 
816

 

 
20

 
836

Charge-offs
 
(873
)
 

 
11

 
(862
)
Recoveries
 
106

 

 
(13
)
 
93

Balance at end of period
 
$
822

 
$

 
$
(24
)
 
$
798

 
 
 
 
 
 
 
 
 
Allowance ratio
 
4.61
%
 
(c)

 
(c)

 
4.49
%
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
724

 
$
35

 
$
(62
)
 
$
697

Provision for finance receivable losses
 
772

 
(5
)
 
3

 
770

Charge-offs
 
(842
)
 
(3
)
 
22

 
(823
)
Recoveries
 
99

 
3

 
(17
)
 
85

Other (b)
 

 
(30
)
 
7

 
(23
)
Balance at end of period
 
$
753

 
$

 
$
(47
)
 
$
706

 
 
 
 
 
 
 
 
 
Allowance ratio
 
4.77
%
 
(c)

 
(c)

 
4.48
%
                                      
(a)
Due to the transfer of our real estate loans from held for investment to held for sale on September 30, 2018, there are no longer finance receivable losses in Other. See Note 5 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for further information.
(b)
Other consists primarily of the reclassification of allowance for finance receivable losses due to the transfer of the real estate loans in other receivables from held for investment to finance receivables held for sale.
(c)
Not applicable.


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Table of Contents

The current delinquency status of our finance receivable portfolio, inclusive of recent borrower performance, volume of our TDR activity, and the level and recoverability of collateral securing our finance receivable portfolio are the primary drivers that can cause fluctuations in our allowance for finance receivable losses from period to period. We monitor the allowance ratio to ensure we have a sufficient level of allowance for finance receivable losses to cover estimated incurred losses in our finance receivable portfolio. The allowance for finance receivable losses as a percentage of net finance receivables was flat from prior periods reflecting lower allowance requirements due to the shift in portfolio mix to more secured personal loans and improvements in the effectiveness of our collections, offset by the impacts of continued liquidation of purchased credit impaired finance receivables resulting from the OneMain Acquisition.

See Note 4 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information about the changes in the allowance for finance receivable losses.

TDR FINANCE RECEIVABLES

We make modifications to our finance receivables to assist borrowers experiencing financial difficulties. When we modify a loan’s contractual terms for economic or other reasons related to the borrower’s financial difficulties and grant a concession that we would not otherwise consider, we classify that loan as a TDR finance receivable.

Information regarding TDR net finance receivables is as follows:
(dollars in millions)
 
Consumer
and
Insurance
 
Segment to
GAAP
Adjustment
 
GAAP
 Basis
 
 
 
 
 
 
 
September 30, 2019
 
 
 
 
 
 
TDR net finance receivables
 
$
666

 
$
(71
)
 
$
595

Allowance for TDR finance receivable losses
 
264

 
(22
)
 
242

 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
TDR net finance receivables
 
$
555

 
$
(102
)
 
$
453

Allowance for TDR finance receivable losses
 
210

 
(40
)
 
170



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Table of Contents

Liquidity and Capital Resources

SOURCES AND USES OF FUNDS

We finance the majority of our operating liquidity and capital needs through a combination of cash flows from operations, securitization debt, borrowings from revolving conduit facilities, unsecured debt and equity, and may also utilize other sources in the future. As a holding company, all of the funds generated from our operations are earned by our operating subsidiaries. Our operating subsidiaries’ primary cash needs relate to funding our lending activities, our debt service obligations, our operating expenses, payment of insurance claims and, to a lesser extent, expenditures relating to upgrading and monitoring our technology platform, risk systems, and branch locations.

We have previously purchased portions of our unsecured indebtedness, and we may elect to purchase additional portions of our unsecured indebtedness in the future. Future purchases may be made through the open market, privately negotiated transactions with third parties, or pursuant to one or more tender or exchange offers, all of which are subject to terms, prices, and consideration we may determine in our discretion.

During the nine months ended September 30, 2019, we generated net income of $594 million. Our net cash outflow from operating and investing activities totaled $727 million for the nine months ended September 30, 2019. At September 30, 2019, our remaining scheduled principal and interest payments for 2019 on our existing debt (excluding securitizations) totaled $113 million. As of September 30, 2019, we had $8.5 billion UPB of unencumbered personal loans and $125 million UPB of unencumbered real estate loans. These real estate loans are included in held for sale.

Based on our estimates and taking into account the risks and uncertainties of our plans, we believe that we will have adequate liquidity to finance and operate our businesses and repay our obligations as they become due for at least the next 12 months.

SFC’s Issuances and Redemptions

For information regarding the issuances and redemptions of our unsecured debt, see Note 7 of the Notes to the Condensed Consolidated Financial Statements included in this report.

Securitizations and Borrowings from Revolving Conduit Facilities

During the nine months ended September 30, 2019, we completed four personal loan securitizations (OMFIT 2019-1, ODART 2019-1, OMFIT 2019-A, and OMFIT 2019-2, see “Securitized Borrowings” below), and redeemed three securitizations (SLFT 2015-A, OMFIT 2015-2, and OMFIT 2016-2). At September 30, 2019, we had $9.1 billion in UPB of finance receivables pledged as collateral for our securitization transactions.

During the nine months ended September 30, 2019, we entered into three new revolving conduit facilities and terminated one revolving conduit facility.

Subsequent to September 30, 2019, we completed the following transaction:

On October 31, 2019, we entered a loan and security agreement with St. Lawrence River Funding, LLC and third party lenders. Under the agreement, we may borrow up to a maximum principal balance of $250 million.

See Notes 7 and 8 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on our long-term debt, loan securitization transactions and conduit facilities.

Cash Dividends to our Common Stockholders

On February 11, 2019 and on April 29, 2019, the Company declared quarterly dividends of $0.25 per share and paid $34 million in dividends on March 15, 2019 and on June 14, 2019. On July 29, 2019, the Company declared a dividend of $2.25 per share, consisting of the regular quarterly dividend of $0.25 per share and a special dividend of $2.00 per share, and paid $306 million in dividends on September 13, 2019.

On October 28, 2019, the Company declared a quarterly dividend of $0.25 per share, payable on December 13, 2019 to record holders of our common stock as of the close of business on November 26, 2019.


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Table of Contents

While we intend to pay regular quarterly dividends for the foreseeable future, all subsequent dividends will be reviewed quarterly and declared at the discretion of our Board of Directors and will depend on many factors, including our financial condition, earnings, cash flows, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends, and other considerations that our Board of Directors deems relevant. Our dividend payments may change from time to time, and our Board of Directors may not continue to declare dividends in the future.

LIQUIDITY

Operating Activities

Net cash provided by operations of $1.7 billion for the nine months ended September 30, 2019 reflected net income of $594 million and the impact of non-cash items. Net cash provided by operations of $1.5 billion for the nine months ended September 30, 2018 reflected net income of $279 million and the impact of non-cash items.

Investing Activities

Net cash used for investing activities of $2.5 billion for the nine months ended September 30, 2019 and $1.8 billion for the nine months ended September 30, 2018 were primarily due to net principal originations of finance receivables held for investment and held for sale and purchases of available-for-sale securities, partially offset by calls, and maturities of available-for-sale securities.

Financing Activities

Net cash provided by financing activities of $1.4 billion and $613 million for the nine months ended September 30, 2019 and 2018, respectively, were primarily due to net issuances of long-term debt.

Cash and Investments

At September 30, 2019, we had $1.4 billion of cash and cash equivalents, which included $230 million of cash and cash equivalents held at our regulated insurance subsidiaries or for other operating activities that is unavailable for general corporate purposes.

At September 30, 2019, we had $1.8 billion of investment securities, which are all held as part of our insurance operations and are unavailable for general corporate purposes.

Liquidity Risks and Strategies

SFC’s credit ratings are non-investment grade, which may have a significant impact on our cost and access to capital. This, in turn, can negatively affect our ability to manage our liquidity and our ability or cost to refinance our indebtedness.
There are numerous risks to our financial results, liquidity, capital raising, and debt refinancing plans, some of which may not be quantified in our current liquidity forecasts. These risks are further described in our “Liquidity and Capital Resources” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our 2018 Annual Report on Form 10-K.

Principal factors that could decrease our liquidity are customer delinquencies and defaults, a decline in customer prepayments, and a prolonged inability to adequately access capital market funding. We intend to support our liquidity position by utilizing strategies that are further described in our “Liquidity and Capital Resources” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our 2018 Annual Report on Form 10-K.

However, it is possible that the actual outcome of one or more of our plans could be materially different than expected or that one or more of our significant judgments or estimates could prove to be materially incorrect.


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Table of Contents

OUR INSURANCE SUBSIDIARIES

Our insurance subsidiaries are subject to state regulations that limit their ability to pay dividends. See Note 14 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for more information on these restrictions. Merit paid an extraordinary dividend to SFC totaling $140 million, while AHL and Triton did not pay any dividends during the nine months ended September 30, 2019. Yosemite, prior to its sale on September 30, 2018, paid extraordinary dividends to SFC totaling $42 million and Triton paid extraordinary dividends to OneMain totaling $45 million during the nine months ended September 30, 2018. Merit and AHL did not pay any dividends during the nine months ended September 30, 2018.
 
OUR DEBT AGREEMENTS

The debt agreements to which SFC and its subsidiaries are a party include customary terms and conditions, including covenants and representations and warranties. See Note 12 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for more information on the restrictive covenants under SFC’s debt agreements, as well as the guarantees of SFC’s long-term debt.

Securitized Borrowings
We execute private securitizations under Rule 144A of the Securities Act of 1933. As of September 30, 2019, our structured financings consisted of the following:
(dollars in millions)
 
Issue Amount (a)
 
Initial Collateral Balance
 
Current
Note Amounts
Outstanding (a)
 
Current Collateral Balance
(b)
 
Current
Weighted Average
Interest Rate
 
Original
Revolving
Period
 
 
 
 
 
 
 
 
 
 
 
 
 
SLFT 2015-B
 
$
314

 
$
336

 
$
314

 
$
336

 
3.78
%
 
 5 years
SLFT 2016-A
 
532

 
559

 
227

 
267

 
3.33
%
 
 2 years
SLFT 2017-A
 
652

 
685

 
619

 
685

 
2.98
%
 
 3 years
OMFIT 2015-1
 
1,229

 
1,397

 
193

 
330

 
6.15
%
 
 3 years
OMFIT 2015-3
 
293

 
329

 
293

 
325

 
4.21
%
 
 5 years
OMFIT 2016-1
 
500

 
570

 
221

 
297

 
4.39
%
 
 3 years
OMFIT 2016-3
 
350

 
397

 
317

 
391

 
4.33
%
 
 5 years
OMFIT 2017-1
 
947

 
988

 
900

 
970

 
2.73
%
 
 2 years
OMFIT 2018-1
 
632

 
650

 
600

 
651

 
3.60
%
 
 3 years
OMFIT 2018-2
 
368

 
381

 
350

 
381

 
3.87
%
 
 5 years
OMFIT 2019-1
 
632

 
654

 
600

 
654

 
3.79
%
 
 2 years
OMFIT 2019-2
 
900

 
947

 
900

 
947

 
3.30
%
 
7 years
OMFIT 2019-A
 
789

 
892

 
750

 
892

 
3.78
%
 
7 years
ODART 2017-1
 
300

 
300

 
53

 
74

 
4.22
%
 
 1 year
ODART 2017-2
 
605

 
624

 
300

 
341

 
2.92
%
 
 1 year
ODART 2018-1
 
947

 
964

 
900

 
964

 
3.56
%
 
 2 years
ODART 2019-1
 
737

 
750

 
700

 
750

 
3.79
%
 
 5 years
Total securitizations
 
$
10,727

 
$
11,423

 
$
8,237

 
$
9,255

 
 
 
 
                                      
(a)
Issue Amount includes the retained interest amounts as applicable and the Current Note Amounts Outstanding balances reflect pay-downs subsequent to note issuance and exclude retained interest amounts.
(b)
Inclusive of in-process replenishments of collateral for securitized borrowings in a revolving status as of September 30, 2019.

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Revolving Conduit Facilities
In addition to the structured financings, we have access to 13 conduit facilities with a total borrowing capacity of $6.9 billion as of September 30, 2019:
(dollar in millions)
 
Advance Maximum Balance
 
Amount
Drawn
 
Revolving
Period End
 
Due and Payable
 
 
 
 
 
 
 
 
 
Rocky River Funding, LLC
 
$
400

 
$

 
April 2022
 
May 2023
OneMain Financial Funding IX, LLC
 
650

 

 
June 2022
 
July 2023
Mystic River Funding, LLC
 
850

 

 
September 2022
 
October 2025
Fourth Avenue Auto Funding, LLC
 
200

 

 
June 2022
 
July 2023
OneMain Financial Funding VIII, LLC
 
650

 

 
August 2021
 
September 2023
OneMain Financial Auto Funding I, LLC
 
850

 

 
June 2021
 
July 2028
OneMain Financial Funding VII, LLC
 
850

 

 
June 2021
 
July 2023
Thayer Brook Funding, LLC
 
250

 

 
July 2021
 
August 2022
Hubbard River Funding, LLC
 
250

 

 
September 2021
 
October 2023
Seine River Funding, LLC
 
650

 

 
October 2021
 
November 2024
New River Funding, LLC
 
250

 

 
March 2022
 
April 2027
Hudson River Funding, LLC
 
500

 

 
June 2022
 
July 2025
Columbia River Funding, LLC
 
500

 

 
September 2022
 
October 2025
Total
 
$
6,850

 
$

 
 
 
 

See “Liquidity and Capital Resources - Sources and Uses of Funds - Securitizations and Borrowings from Revolving Conduit Facilities” above for information on the transaction completed subsequent to September 30, 2019.


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Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements as defined by SEC rules. We had no off-balance sheet exposure to losses associated with unconsolidated VIEs at September 30, 2019 or December 31, 2018, other than certain representations and warranties associated with the sales of the mortgage-backed retained certificates during 2014. As of September 30, 2019, we had no repurchase activity related to these sales.

Critical Accounting Policies and Estimates

We describe our significant accounting policies used in the preparation of our consolidated financial statements in Note 3 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K. We consider the following policies to be our most critical accounting policies because they involve critical accounting estimates and a significant degree of management judgment:

allowance for finance receivable losses;
TDR finance receivables;
fair value measurements; and
goodwill and other intangible assets.

There have been no material changes to our critical accounting policies or to our methodologies for deriving critical accounting estimates during the nine months ended September 30, 2019.

Recent Accounting Pronouncements

See Note 2 of the Notes to the Condensed Consolidated Financial Statements included in this report for discussion of recently issued accounting pronouncements.

Seasonality

Our personal loan volume is generally highest during the second and fourth quarters of the year, primarily due to marketing efforts and seasonality of demand. Demand for our personal loans is usually lower in January and February after the holiday season and as a result of tax refunds. Delinquencies on our personal loans are generally lower in the first and second quarters and tend to rise throughout the remainder of the year. These seasonal trends contribute to fluctuations in our operating results and cash needs throughout the year.


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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to our market risk previously disclosed in Part II - Item 7A included in our 2018 Annual Report on Form 10-K.
Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of September 30, 2019, we carried out an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This evaluation was conducted under the supervision of, and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on our evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2019 to provide the reasonable assurance described above.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the third quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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Table of Contents

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

See Note 13 of the Notes to the Condensed Consolidated Financial Statements included in this report.

Item 1A. Risk Factors.

There have been no material changes to our risk factors included in Part I, Item 1A of our 2018 Annual Report on Form 10-K.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.


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Table of Contents

Item 6. Exhibit Index.
Exhibit Number
 
Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101
 
Interactive data files pursuant to Rule 405 of Regulation S-T, formatted in Inline XBRL:
   (i) Condensed Consolidated Balance Sheets,
   (ii) Condensed Consolidated Statements of Operations,
   (iii) Condensed Consolidated Statements of Comprehensive Income,
   (iv) Condensed Consolidated Statements of Shareholder’s Equity,
   (v) Condensed Consolidated Statements of Cash Flows, and
   (vi) Notes to the Condensed Consolidated Financial Statements.
 
 
 
104
 
Cover Page Interactive Data File in Inline XBRL format (Included in Exhibit 101).
 
 
 
                                     
*
Management contract or compensatory plan or arrangement.



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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
 
ONEMAIN HOLDINGS, INC.
 
 
 
(Registrant)
 
 
 
 
Date:
November 1, 2019
 
By:
/s/ Micah R. Conrad
 
 
 
 
Micah R. Conrad
 
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
(Duly Authorized Officer and Principal Financial Officer)

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