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Section 1: 8-K (8-K)

Document


 
 
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (Date of earliest event reported): August 26, 2016 (August 26, 2016)
 
OneMain Holdings, Inc.

(Exact name of registrant as specified in its charter)
 
Delaware
001-36129
27-3379612
(State or other jurisdiction of incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)
 
 
 
601 N.W. Second Street,
Evansville, Indiana 47708
(Address of principal executive offices)(Zip Code)
(812) 424-8031
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
 
 
 
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




 
 
 
 
 





Item 8.01
Other Events.

OneMain Holdings, Inc. (“OMH” or, collectively with its subsidiaries, the “Company,” “we,” or “our”) is filing this Current Report on Form 8-K as a result of a change in our accounting policy for the derecognition of loans within a purchased credit impaired (“PCI”) pool, as described in more detail below. The financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in OMH’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016 (“March 2016 Form 10-Q”) have been revised to reflect the retrospective application of this change in accounting policy, and such revised financial statements and MD&A are included in Exhibit 99.1 to this Form 8-K and incorporated by reference herein. All other information in OMH’s March 2016 Form 10-Q has not been updated for events or developments that occurred subsequent to the filing of OMH’s March 2016 Form 10-Q with the U.S. Securities and Exchange Commission on May 6, 2016.

Change in Accounting Policy

As disclosed in OMH’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, effective April 1, 2016, we changed our accounting policy for the derecognition of loans within a PCI pool. Historically, we removed loans from a PCI pool upon charge-off of the loan, based on the Company’s charge-off accounting policy at their allocated carrying value. Under our new accounting policy, loans will be removed from a PCI pool when the loan is written-off, at which time further collections efforts would not be pursued, or sold or repaid. While both methods are acceptable under GAAP, we believe the new method for derecognition of PCI loans is preferable as it enhances consistency with our industry peers. For more information regarding our policy for the derecognition of PCI loans, see Note 1 of the Notes to Condensed Consolidated Financial Statements included in Exhibit 99.1 to this Form 8-K.

Item 9.01
Financial Statements and Exhibits.

(d)     Exhibits.

The following exhibit filed with this Current Report on Form 8-K supersedes the corresponding sections of OMH’s March 2016 Form 10-Q:

Exhibit Number
 
Description
99.1

Revised Financial Statements and MD&A from OneMain Holdings, Inc.’s Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2016
101
 
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Shareholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements








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 hereunto duly authorized.

 
 
 
ONEMAIN HOLDINGS, INC.
 
 
 
(Registrant)
 
 
 
 
Date:
August 26, 2016
By:
/s/ Scott T. Parker
 
 
 
Scott T. Parker
 
 
 
Executive Vice President and Chief Financial Officer









Exhibit Index

Exhibit Number
 
Description
99.1
 
Revised Financial Statements and MD&A from OneMain Holdings, Inc.’s Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2016
101
 
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Shareholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Table of Contents

Exhibit 99.1    

Revised Financial Statements and MD&A from OneMain Holdings, Inc.’s Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2016

The revised sections contained in this Exhibit 99.1 supersede the corresponding sections of OneMain Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016.

TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 


1

Table of Contents

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)
 
March 31,
2016
 
December 31,
2015
 
 
 
 
 
Assets
 
 

 
 

Cash and cash equivalents
 
$
716

 
$
939

Investment securities
 
1,872

 
1,867

Net finance receivables:
 
 

 
 

Personal loans (includes loans of consolidated VIEs of $11.7 billion in 2016 and $11.4 billion in 2015)
 
13,300

 
13,295

SpringCastle Portfolio (includes loans of consolidated VIEs of $1.7 billion in 2015)
 

 
1,703

Real estate loans
 
517

 
538

Retail sales finance
 
19

 
23

Net finance receivables
 
13,836

 
15,559

Unearned insurance premium and claim reserves
 
(643
)
 
(662
)
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $434 million in 2016 and $431 million in 2015)
 
(636
)
 
(592
)
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses
 
12,557

 
14,305

Finance receivables held for sale (includes finance receivables held for sale of consolidated VIEs of $435 million in 2015)
 
776

 
793

Restricted cash and cash equivalents (includes restricted cash and cash equivalents of consolidated VIEs of $576 million in 2016 and $663 million in 2015)
 
588

 
676

Goodwill
 
1,422

 
1,440

Other intangible assets
 
539

 
559

Other assets
 
664

 
611

 
 
 
 
 
Total assets
 
$
19,134

 
$
21,190

 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 

 
 

Long-term debt (includes debt of consolidated VIEs of $9.2 billion in 2016 and $11.7 billion in 2015)
 
$
14,870

 
$
17,300

Insurance claims and policyholder liabilities
 
747

 
747

Deferred and accrued taxes
 
91

 
29

Other liabilities
 
456

 
384

Total liabilities
 
16,164

 
18,460

Commitments and contingent liabilities (Note 14)
 


 

 
 
 
 
 
Shareholders’ equity:
 
 

 
 

Common stock, par value $.01 per share; 2,000,000,000 shares authorized, 134,751,118 and 134,494,172 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
 
1

 
1

Additional paid-in capital
 
1,537

 
1,533

Accumulated other comprehensive loss
 
(13
)
 
(33
)
Retained earnings
 
1,445

 
1,308

OneMain Holdings, Inc. shareholders’ equity
 
2,970

 
2,809

Non-controlling interests
 

 
(79
)
Total shareholders’ equity
 
2,970

 
2,730

 
 
 
 
 
Total liabilities and shareholders’ equity
 
$
19,134

 
$
21,190


See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

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

(dollars in millions except earnings per share)
 
Three Months Ended March 31,
 
2016
 
2015
 
 
 
 

Interest income:
 
 
 
 
Finance charges
 
$
785

 
$
399

Finance receivables held for sale originated as held for investment
 
46

 
4

Total interest income
 
831

 
403

 
 
 
 
 
Interest expense
 
226

 
158

 
 
 
 
 
Net interest income
 
605

 
245

 
 
 
 
 
Provision for finance receivable losses
 
197

 
80

 
 
 
 
 
Net interest income after provision for finance receivable losses
 
408

 
165

 
 
 
 
 
Other revenues:
 
 

 
 

Insurance
 
114

 
36

Investment
 
20

 
17

Net gain on sale of SpringCastle interests
 
167

 

Other
 
2

 
(1
)
Total other revenues
 
303

 
52

 
 
 
 
 
Other expenses:
 
 

 
 

Operating expenses:
 
 

 
 

Salaries and benefits
 
214

 
93

Acquisition-related transaction and integration expenses
 
33

 
3

Other operating expenses
 
167

 
62

Insurance policy benefits and claims
 
45

 
16

Total other expenses
 
459

 
174

 
 
 
 
 
Income before provision for income taxes
 
252

 
43

 
 
 
 
 
Provision for income taxes
 
87

 
8

 
 
 
 
 
Net income
 
165

 
35

 
 
 
 
 
Net income attributable to non-controlling interests
 
28

 
33

 
 
 
 
 
Net income attributable to OneMain Holdings, Inc.
 
$
137

 
$
2

 
 
 
 
 
Share Data:
 
 

 
 

Weighted average number of shares outstanding:
 
 

 
 

Basic
 
134,694,759

 
115,027,470

Diluted
 
134,907,748

 
115,432,655

Earnings per share:
 
 

 
 

Basic
 
$
1.02

 
$
0.01

Diluted
 
$
1.01

 
$
0.01


See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

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

(dollars in millions)
 
Three Months Ended March 31,
 
2016
 
2015
 
 
 
 
 
Net income
 
$
165

 
$
35

 
 
 
 
 
Other comprehensive income:
 
 

 
 

Net unrealized gains on non-credit impaired available-for-sale securities
 
27

 
5

Foreign currency translation adjustments
 
6

 
1

Income tax effect:
 
 

 
 

Net unrealized gains on non-credit impaired available-for-sale securities
 
(10
)
 
(2
)
Foreign currency translation adjustments
 
(2
)
 

Other comprehensive income, net of tax, before reclassification adjustments
 
21

 
4

Reclassification adjustments included in net income:
 
 

 
 

Net realized gains on available-for-sale securities
 
(2
)
 
(6
)
Income tax effect:
 
 

 
 

Net realized gains on available-for-sale securities
 
1

 
2

Reclassification adjustments included in net income, net of tax
 
(1
)
 
(4
)
Other comprehensive income, net of tax
 
20

 

 
 
 
 
 
Comprehensive income
 
185

 
35

 
 
 
 
 
Comprehensive income attributable to non-controlling interests
 
28

 
33

 
 
 
 
 
Comprehensive income attributable to OneMain Holdings, Inc.
 
$
157

 
$
2


See Notes to Condensed Consolidated Financial Statements.


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Table of Contents

ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

 
 
OneMain Holdings, Inc. Shareholders’ Equity
 
 
 
 
(dollars in millions)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
OneMain
Holdings, Inc.
Shareholders’
Equity
 
Non-controlling Interests
 
Total
Shareholders’
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2016
 
$
1

 
$
1,533

 
$
(33
)
 
$
1,308

 
$
2,809

 
$
(79
)
 
$
2,730

Share-based compensation expense, net of forfeitures
 

 
7

 

 

 
7

 

 
7

Excess tax benefit from share-based compensation
 

 
2

 

 

 
2

 

 
2

Withholding tax on vested RSUs
 

 
(5
)
 

 

 
(5
)
 

 
(5
)
Change in non-controlling interests:
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Distributions declared to joint venture partners
 

 

 

 

 

 
(18
)
 
(18
)
Sale of equity interests in SpringCastle joint venture
 

 

 

 

 

 
69

 
69

Other comprehensive income
 

 

 
20

 

 
20

 

 
20

Net income
 

 

 

 
137

 
137

 
28

 
165

Balance, March 31, 2016
 
$
1

 
$
1,537

 
$
(13
)
 
$
1,445

 
$
2,970

 
$

 
$
2,970

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2015
 
$
1

 
$
529

 
$
3

 
$
1,528

 
$
2,061

 
$
(129
)
 
$
1,932

Share-based compensation expense, net of forfeitures
 

 
3

 

 

 
3

 

 
3

Excess tax benefit from share-based compensation
 

 
2

 

 

 
2

 

 
2

Withholding tax on vested RSUs
 

 
(4
)
 

 

 
(4
)
 

 
(4
)
Change in non-controlling interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions declared to joint venture partners
 

 

 

 

 

 
(18
)
 
(18
)
Net income
 

 

 

 
2

 
2

 
33

 
35

Balance, March 31, 2015
 
$
1

 
$
530

 
$
3

 
$
1,530

 
$
2,064

 
$
(114
)
 
$
1,950


See Notes to Condensed Consolidated Financial Statements.


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Table of Contents

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

(dollars in millions)
 
Three Months Ended March 31,
 
2016
 
2015
 
 
 
 
 
Cash flows from operating activities
 
 

 
 

Net income
 
$
165

 
$
35

Reconciling adjustments:
 
 

 
 

Provision for finance receivable losses
 
197

 
80

Depreciation and amortization
 
151

 
21

Deferred income tax benefit
 
(43
)
 
(9
)
Share-based compensation expense, net of forfeitures
 
7

 
3

Net gain on sale of SpringCastle interests
 
(167
)
 

Other
 
(1
)
 
(8
)
Cash flows due to changes in:
 
 

 
 

Other assets and other liabilities
 
46

 
52

Insurance claims and policyholder liabilities
 
(24
)
 
(2
)
Taxes receivable and payable
 
67

 
10

Accrued interest and finance charges
 
12

 
7

Restricted cash and cash equivalents not reinvested
 
1

 

Other, net
 
1

 

Net cash provided by operating activities
 
412

 
189

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Net principal collections (originations) of finance receivables held for investment and held for sale
 
(125
)
 
(5
)
Proceeds on sales of finance receivables held for sale originated as held for investment
 

 
52

Proceeds from sale of SpringCastle interests
 
101

 

Cash received from CitiFinancial Credit Company
 
23

 

Available-for-sale securities purchased
 
(154
)
 
(95
)
Trading and other securities purchased
 
(1
)
 
(954
)
Available-for-sale securities called, sold, and matured
 
175

 
60

Trading and other securities called, sold, and matured
 
13

 
1,211

Change in restricted cash and cash equivalents
 
12

 
(120
)
Proceeds from sale of real estate owned
 
2

 
5

Other, net
 
(4
)
 
7

Net cash provided by investing activities
 
42

 
161

 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Proceeds from issuance of long-term debt, net of commissions
 
1,673

 
1,523

Repayments of long-term debt
 
(2,335
)
 
(315
)
Distributions to joint venture partners
 
(18
)
 
(18
)
Excess tax benefit from share-based compensation
 
2

 
2

Net cash provided by (used for) financing activities
 
(678
)
 
1,192

 
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
 
 
 
 
 
 
 
 
 
(dollars in millions)
 
Three Months Ended March 31,
 
2016
 
2015
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
1

 

 
 
 
 
 
Net change in cash and cash equivalents
 
(223
)
 
1,542

Cash and cash equivalents at beginning of period
 
939

 
879

Cash and cash equivalents at end of period
 
$
716

 
$
2,421

 
 
 
 
 
Supplemental non-cash activities
 
 

 
 

Transfer of finance receivables held for investment to finance receivables held for sale (prior to deducting allowance for finance receivable losses)
 
$
1,608

 
$

Transfer of finance receivables to real estate owned
 
$
2

 
$
2

Net unsettled investment security dispositions
 
$

 
$
20


See Notes to Condensed Consolidated Financial Statements.


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Table of Contents

ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2016

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. At March 31, 2016, Springleaf Financial Holdings, LLC (the “Initial Stockholder”) owned approximately 58% of OMH’s common stock. The Initial Stockholder is owned primarily by a private equity fund managed by an affiliate of Fortress Investment Group LLC (“Fortress”).

On November 15, 2015, OMH completed its acquisition of OneMain Financial Holdings, LLC (“OMFH”) from CitiFinancial Credit Company (“Citigroup”) for $4.5 billion in cash (the “OneMain Acquisition”). As a result of the OneMain Acquisition, OMFH became a wholly owned, indirect subsidiary of OMH. See Note 2 for further information on the OneMain Acquisition.

OMH is a financial services holding company whose principal subsidiaries are Springleaf Finance, Inc. (“SFI”) and Independence Holdings, LLC (“Independence”). SFI’s principal subsidiary is Springleaf Finance Corporation (“SFC”), and Independence’s principal subsidiary is OMFH. SFC and OMFH are financial services holding companies with subsidiaries engaged in the consumer finance and insurance businesses. OMFH, collectively with its subsidiaries, is referred to in this report as “OneMain.” OMH and its subsidiaries (other than OneMain) is referred to in this report as “Springleaf.”

BASIS OF PRESENTATION

We prepared our condensed consolidated financial statements using generally accepted accounting principles in the United States of America (“U.S. 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 U.S. GAAP. The statements include the accounts of OMH, its subsidiaries (all of which are wholly owned, except for certain indirect subsidiaries associated with a joint venture in which we owned a 47% equity interest prior to March 31, 2016), and variable interest entities (“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. Ultimate 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 2016 presentation, we have reclassified certain items in prior periods, including certain items in prior periods of our condensed consolidated statements of operations and cash flows. These statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (“2015 Annual Report on Form 10-K”). We follow the same significant accounting policies for our interim reporting.

CHANGE IN ACCOUNTING POLICY

Effective April 1, 2016, we changed our accounting policy for the derecognition of loans within a purchased credit impaired (“PCI”) pool. Historically, we removed loans from a PCI pool upon charge-off of the loan, based on the Company’s charge-off accounting policy at their allocated carrying value. Under our new accounting policy, loans will be removed from a PCI pool when the loan is written-off, at which time further collections efforts would not be pursued, or sold or repaid. While both methods are acceptable under GAAP, we believe the new method for derecognition of PCI loans is preferable as it enhances consistency with our industry peers.

Our policy for derecognition of PCI loans following the change described above is presented below:

Purchased Credit Impaired Finance Receivables

As part of each of our acquisitions, we identify a population of finance receivables for which it is determined that it is probable that we will be unable to collect all contractually required payments. The population of accounts identified generally consists of those finance receivables that are (i) 60 days or more past due at acquisition, (ii) which had been classified as troubled debt

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Table of Contents

restructured (“TDR”) finance receivables as of the acquisition date, (iii) may have been previously modified, or (iv) had other indications of credit deterioration as of the acquisition date.

We accrete the excess of the cash flows expected to be collected on the purchased credit impaired finance receivables over the discounted cash flows (the “accretable yield”) into interest income at a level rate of return over the expected lives of the underlying pools of the purchased credit impaired finance receivables. The underlying pools are based on finance receivables with common risk characteristics. We have established policies and procedures to periodically (at least once a quarter) update the amount of cash flows we expect to collect, incorporating assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that are reflective of then current market conditions. Probable decreases in expected finance receivable cash flows result in the recognition of impairment, which is recognized through the provision for finance receivable losses. Probable significant increases in expected cash flows to be collected would first reverse any previously recorded allowance for finance receivable losses; any remaining increases are recognized prospectively as adjustments to the respective pool’s yield.

Our purchased credit impaired finance receivables remain in our purchased credit impaired pools until liquidation or write-off. We do not reclassify modified purchased credit impaired finance receivables as TDR finance receivables.

We have additionally established policies and procedures related to maintaining the integrity of these pools. A finance receivable will not be removed from a pool unless we sell, foreclose, or otherwise receive assets in satisfaction of a particular finance receivable or a finance receivable is written-off. If a finance receivable is renewed and additional funds are lent and terms are adjusted to current market conditions, we consider this a new finance receivable and the previous finance receivable is removed from the pool. If the facts and circumstances indicate that a finance receivable should be removed from a pool, that finance receivable will be removed at its allocated carrying amount. Removal of the finance receivable from a pool does not affect the yield used to recognize accretable yield of the pool.

We have retrospectively applied this change in accounting policy. The effect of this change in accounting policy on income before provision for income taxes, net income attributable to OMH, and earnings per share, and the cumulative effect of this change in accounting policy on shareholders’ equity attributable to OMH for the following periods are included in the table below.
(dollars in millions, except earnings per share)
 
As Reported
 
As Adjusted
 
 
 
 
 
Income before provision for income taxes
 
 
 
 
Three months ended March 31, 2015
 
$
38

 
$
43

Three months ended March 31, 2016
 
275

 
252

 
 
 
 
 
Net income attributable to OMH
 
 
 
 
Three months ended March 31, 2015
 
$

 
$
2

Three months ended March 31, 2016
 
153

 
137

 
 
 
 
 
Earnings per share - Basic
 
 
 
 
Three months ended March 31, 2015
 
$

 
$
0.01

Three months ended March 31, 2016
 
1.14

 
1.02

 
 
 
 
 
Earnings per share - Diluted
 
 
 
 
Three months ended March 31, 2015
 
$

 
$
0.01

Three months ended March 31, 2016
 
1.13

 
1.01

 
 
 
 
 
Shareholders’ equity attributable to OMH
 
 
 
 
January 1, 2015
 
$
2,025

 
$
2,061

January 1, 2016
 
2,751

 
2,809


The following tables present the impact of the retrospective application of this change in accounting policy on the amounts previously reported in our (i) consolidated balance sheet as of March 31, 2016 and December 31, 2015, (ii) condensed consolidated statements of operations for the three months ended March 31, 2016 and 2015 and (iii) condensed consolidated statements of cash flows for the three months ended March 31, 2016 and 2015.


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Revised Condensed Consolidated Balance Sheet
 
 
March 31, 2016
 
December 31, 2015
(dollars in millions)
 
As Reported
 
As Adjusted
 
As Reported *
 
As Adjusted
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
716

 
$
716

 
$
939

 
$
939

Investment securities
 
1,872

 
1,872

 
1,867

 
1,867

Net finance receivables:
 
 
 
 
 
 
 
 
Personal loans
 
13,209

 
13,300

 
13,267

 
13,295

SpringCastle Portfolio
 

 

 
1,576

 
1,703

Real estate loans
 
503

 
517

 
524

 
538

Retail sales finance
 
19

 
19

 
23

 
23

Net finance receivables
 
13,731

 
13,836

 
15,390

 
15,559

Unearned insurance premium and claim reserves
 
(643
)
 
(643
)
 
(662
)
 
(662
)
Allowance for finance receivable losses
 
(600
)
 
(636
)
 
(587
)
 
(592
)
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses
 
12,488

 
12,557

 
14,141

 
14,305

Finance receivables held for sale
 
776

 
776

 
796

 
793

Restricted cash and cash equivalents
 
588

 
588

 
676

 
676

Goodwill
 
1,422

 
1,422

 
1,440

 
1,440

Other intangible assets
 
539

 
539

 
559

 
559

Other assets
 
654

 
664

 
638

 
611

 
 
 
 
 
 
 
 
 
Total assets
 
$
19,055

 
$
19,134

 
$
21,056

 
$
21,190

 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
Long-term debt
 
$
14,870

 
$
14,870

 
$
17,300

 
$
17,300

Insurance claims and policyholder liabilities
 
747

 
747

 
747

 
747

Deferred and accrued taxes
 
53

 
91

 
20

 
29

Other liabilities
 
457

 
456

 
384

 
384

Total liabilities
 
16,127

 
16,164

 
18,451

 
18,460

 
 
 
 
 
 
 
 
 
Shareholders’ equity:
 
 
 
 
 
 
 
 
Common stock
 
1

 
1

 
1

 
1

Additional paid-in capital
 
1,537

 
1,537

 
1,533

 
1,533

Accumulated other comprehensive loss
 
(13
)
 
(13
)
 
(33
)
 
(33
)
Retained earnings
 
1,403

 
1,445

 
1,250

 
1,308

OneMain Holdings, Inc. shareholders’ equity
 
2,928

 
2,970

 
2,751

 
2,809

Non-controlling interests
 

 

 
(146
)
 
(79
)
Total shareholders’ equity
 
2,928

 
2,970

 
2,605

 
2,730

 
 
 
 
 
 
 
 
 
Total liabilities and shareholders’ equity
 
$
19,055

 
$
19,134

 
$
21,056

 
$
21,190

                                      
*
As reported in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016. The condensed consolidated balance sheet as of December 31, 2015 has been revised in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016.

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Revised Condensed Consolidated Statements of Operations
(dollars in millions, except earnings per share)
 
Three Months Ended March 31, 2016
 
Three Months Ended March 31, 2015
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
 
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
 
Finance charges
 
$
779

 
$
785

 
$
402

 
$
399

Finance receivables held for sale originated as held for investment
 
47

 
46

 
4

 
4

Total interest income
 
826

 
831

 
406

 
403

 
 
 
 
 
 
 
 
 
Interest expense
 
226

 
226

 
158

 
158

 
 
 
 
 
 
 
 
 
Net interest income
 
600

 
605

 
248

 
245

 
 
 
 
 
 
 
 
 
Provision for finance receivable losses
 
227

 
197

 
87

 
80

 
 
 
 
 
 
 
 
 
Net interest income after provision for finance receivable losses
 
373

 
408

 
161

 
165

 
 
 
 
 
 
 
 
 
Other revenues:
 
 

 
 

 
 

 
 

Insurance
 
114

 
114

 
36

 
36

Investment
 
20

 
20

 
17

 
17

Net gain on sale of SpringCastle interests
 
229

 
167

 

 

Other
 
(2
)
 
2

 
(2
)
 
(1
)
Total other revenues
 
361

 
303

 
51

 
52

 
 
 
 
 
 
 
 
 
Other expenses:
 
 

 
 

 
 

 
 

Operating expenses:
 
 

 
 

 
 

 
 

Salaries and benefits
 
214

 
214

 
93

 
93

Acquisition-related transaction and integration expenses
 
33

 
33

 
3

 
3

Other operating expenses
 
167

 
167

 
62

 
62

Insurance policy benefits and claims
 
45

 
45

 
16

 
16

Total other expenses
 
459

 
459

 
174

 
174

 
 
 
 
 
 
 
 
 
Income before provision for income taxes
 
275

 
252

 
38

 
43

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
96

 
87

 
7

 
8

 
 
 
 
 
 
 
 
 
Net income
 
179

 
165

 
31

 
35

 
 
 
 
 
 
 
 
 
Net income attributable to non-controlling interests
 
26

 
28

 
31

 
33

 
 
 
 
 
 
 
 
 
Net income attributable to OneMain Holdings, Inc.
 
$
153

 
$
137

 
$

 
$
2

 
 
 
 
 
 
 
 
 
Share Data:
 
 

 
 

 
 

 
 

Weighted average number of shares outstanding:
 
 

 
 

 
 

 
 

Basic
 
134,694,759

 
134,694,759

 
115,027,470

 
115,027,470

Diluted
 
134,907,748

 
134,907,748

 
115,027,470

 
115,432,655

Earnings per share:
 
 

 
 

 
 

 
 

Basic
 
$
1.14

 
$
1.02

 
$

 
$
0.01

Diluted
 
$
1.13

 
$
1.01

 
$

 
$
0.01



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Revised Condensed Consolidated Statement of Cash Flows
(dollars in millions)
 
Three Months Ended
 March 31, 2016
 
Three Months Ended
March 31, 2015
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
 
 

 
 
 
 

 
 
Net income
 
$
179

 
$
165

 
$
31

 
$
35

Reconciling adjustments:
 
 

 
 
 
 

 
 
Provision for finance receivable losses
 
227

 
197

 
87

 
80

Depreciation and amortization
 
156

 
151

 
18

 
21

Deferred income tax benefit
 
(3
)
 
(43
)
 
(10
)
 
(9
)
Share-based compensation expense, net of forfeitures
 
7

 
7

 
3

 
3

Net gain on sale of SpringCastle interests
 
(229
)
 
(167
)
 

 

Other
 
5

 
(1
)
 
(7
)
 
(8
)
Cash flows due to changes in:
 
 

 
 
 
 

 
 
Other assets and other liabilities
 
46

 
46

 
52

 
52

Insurance claims and policyholder liabilities
 
(24
)
 
(24
)
 
(2
)
 
(2
)
Taxes receivable and payable
 
35

 
67

 
10

 
10

Accrued interest and finance charges
 
12

 
12

 
7

 
7

Restricted cash and cash equivalents not reinvested
 
1

 
1

 

 

Other, net
 
1

 
1

 

 

Net cash provided by operating activities
 
413

 
412

 
189

 
189

 
 
 
 
 
 
 
 
 
Cash flows from investing activities
 
 

 
 
 
 

 
 
Net principal collections (originations) of finance receivables held for investment and held for sale
 
(126
)
 
(125
)
 
(5
)
 
(5
)
Proceeds on sales of finance receivables held for sale originated as held for investment
 

 

 
52

 
52

Proceeds from sale of SpringCastle interests
 
101

 
101

 

 

Cash received from CitiFinancial Credit Company
 
23

 
23

 

 

Available-for-sale securities purchased
 
(154
)
 
(154
)
 
(95
)
 
(95
)
Trading and other securities purchased
 
(1
)
 
(1
)
 
(954
)
 
(954
)
Available-for-sale securities called, sold, and matured
 
175

 
175

 
60

 
60

Trading and other securities called, sold, and matured
 
13

 
13

 
1,211

 
1,211

Change in restricted cash and cash equivalents
 
12

 
12

 
(120
)
 
(120
)
Proceeds from sale of real estate owned
 
2

 
2

 
5

 
5

Other, net
 
(4
)
 
(4
)
 
7

 
7

Net cash provided by investing activities
 
41

 
42

 
161

 
161

 
 
 
 
 
 
 
 
 
Cash flows from financing activities
 
 

 
 
 
 

 
 
Proceeds from issuance of long-term debt, net of commissions
 
1,673

 
1,673

 
1,523

 
1,523

Repayments of long-term debt
 
(2,335
)
 
(2,335
)
 
(315
)
 
(315
)
Distributions to joint venture partners
 
(18
)
 
(18
)
 
(18
)
 
(18
)
Excess tax benefit from share-based compensation
 
2

 
2

 
2

 
2

Net cash provided by (used for) financing activities
 
(678
)
 
(678
)
 
1,192

 
1,192

 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
1

 
1

 

 

 
 
 
 
 
 
 
 
 
Net change in cash and cash equivalents
 
(223
)
 
(223
)
 
1,542

 
1,542

Cash and cash equivalents at beginning of period
 
939

 
939

 
879

 
879

Cash and cash equivalents at end of period
 
$
716

 
$
716

 
$
2,421

 
$
2,421


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We have also adjusted the applicable prior period amounts in the Notes to the Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 herein to reflect the impact of this change in accounting policy.

2. Significant Transactions    

SPRINGCASTLE INTERESTS SALE

On March 31, 2016, SFI, SpringCastle Holdings, LLC (“SpringCastle Holdings”) and Springleaf Acquisition Corporation (“Springleaf Acquisition” and, together with SpringCastle Holdings, the “SpringCastle Sellers”), wholly owned subsidiaries of OMH, entered into a purchase agreement with certain subsidiaries of New Residential Investment Corp. (“NRZ” and such subsidiaries, the “NRZ Buyers”) and BTO Willow Holdings II, L.P. and Blackstone Family Tactical Opportunities Investment Partnership—NQ—ESC L.P. (collectively, the “Blackstone Buyers” and together with the NRZ Buyers, the “SpringCastle Buyers”). Pursuant to the purchase agreement, SpringCastle Holdings sold its 47% limited liability company interest in each of SpringCastle America, LLC, SpringCastle Credit, LLC and SpringCastle Finance, LLC, and Springleaf Acquisition sold its 47% limited liability company interest in SpringCastle Acquisition LLC, to the SpringCastle Buyers for an aggregate purchase price of approximately $112 million (the “SpringCastle Interests Sale”). SpringCastle America, LLC, SpringCastle Credit, LLC, SpringCastle Finance, LLC and SpringCastle Acquisition LLC are collectively referred to herein as the “SpringCastle Joint Venture.”

The SpringCastle Joint Venture primarily holds subordinate ownership interests in a securitized loan portfolio (the “SpringCastle Portfolio”), which consists of unsecured loans and loans secured by subordinate residential real estate mortgages and includes both closed-end accounts and open-end lines of credit. These loans are in a liquidating status and vary in form and substance from the Company’s originated loans. At December 31, 2015, the SpringCastle Portfolio included over 232,000 of acquired loans, representing $1.7 billion in net finance receivables. For the three months ended March 31, 2016 and 2015, income before provision for income taxes of our Acquisitions and Servicing segment (which consists of the SpringCastle Sellers) totaled $220 million ($192 million attributable to OMH) and $71 million ($38 million attributable to OMH), respectively.

In connection with the SpringCastle Interests Sale, the SpringCastle Buyers paid $101 million of the aggregate purchase price to the SpringCastle Sellers on March 31, 2016, with the remaining $11 million to be paid into an escrow account within 120 days following March 31, 2016. Such escrowed funds are expected to be held in escrow for a period of up to five years following March 31, 2016, and, subject to the terms of the purchase agreement and assuming certain portfolio performance requirements are satisfied, paid to the SpringCastle Sellers at the end of such five year period. In connection with the SpringCastle Interests Sale, we recorded a net gain in other revenues at the time of sale of $167 million.

As a result of this sale, SpringCastle Acquisition and SpringCastle Holdings no longer hold any ownership interests of the SpringCastle Joint Venture. However, unless terminated, SFI will remain as servicer of the SpringCastle Portfolio, under the existing servicing agreement for the SpringCastle Funding Trust. In addition, we deconsolidated the underlying loans of the SpringCastle Portfolio and previously issued securitized interests, which were reported in long-term debt, as we no longer were considered the primary beneficiary.

Prior to the SpringCastle Interests Sale, affiliates of the NRZ Buyers owned a 30% limited liability company interest in the SpringCastle Joint Venture, and affiliates of the Blackstone Buyers owned a 23% limited liability company interest in the SpringCastle Joint Venture (together, the “Other Members”). The Other Members are parties to the purchase agreement for certain limited indemnification obligations and post-closing expense reimbursement obligations of the SpringCastle Joint Venture to the SpringCastle Sellers.

The NRZ Buyers are subsidiaries of NRZ, which is externally managed by an affiliate of Fortress. The Initial Stockholder, which owned approximately 58% of OMH’s common stock as of March 31, 2016, is owned primarily by a private equity fund managed by an affiliate of Fortress. Mr. Edens, Chairman of the board of directors of OMH, also serves as Chairman of the board of directors of NRZ. Mr. Edens is also a principal of Fortress and serves as Co-Chairman of the board of directors of Fortress. Mr. Jacobs, a member of the board of directors of OMH, also serves as a member of NRZ’s board of directors and Fortress’ board of directors.

The purchase agreement included customary representations, warranties, covenants and indemnities. We did not record a sales recourse obligation related to this sale.


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ONEMAIN ACQUISITION

On November 15, 2015, OMH completed its acquisition of OneMain from Citigroup for approximately $4.5 billion in cash after accounting for certain estimated adjustments at closing. OneMain is a leading consumer finance company in the United States, providing personal loans to primarily middle income households through a national, community based network.

We allocated the purchase price to the net tangible and intangible assets acquired and liabilities assumed, based on their respective estimated fair values as of October 31, 2015. Given the timing of this transaction and complexity of the purchase accounting, our estimate of the fair value adjustment specific to the acquired loans and intangible assets was preliminary, and our determination of the final tax positions with Citigroup was also preliminary. We intend to finalize the accounting for these matters as soon as reasonably possible and within the measurement period, which may be up to one year from the acquisition date.

The excess of the purchase price over the fair values, which we recorded as goodwill, was determined as follows:
(dollars in millions)
 
As
Reported
 
 
 
As
Adjusted
 
 
Adjustments *
 
 
 
 
 
 
 
 
Cash consideration
 
$
4,478

 
$
(23
)
(a)
$
4,455

Fair value of assets acquired:
 
 
 
 
 
 
Cash and cash equivalents
 
958

 

 
958

Investment securities
 
1,294

 

 
1,294

Personal loans
 
8,801

 
(6
)
(b)
8,795

Intangibles
 
555

 

 
555

Other assets
 
247

 

 
247

Fair value of liabilities assumed:
 
 
 
 
 
 
Long-term debt
 
(7,725
)
 

 
(7,725
)
Unearned premium, insurance policy and claims reserves
 
(936
)
 

 
(936
)
Other liabilities
 
(156
)
 
1

(c)
(155
)
Goodwill
 
$
1,440

 

 
$
1,422

                                      
*
During the first quarter of 2016, we recorded the following adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill as new information, which existed as of the acquisition date, was brought to our attention:

(a)
Represents a subsequent cash payment from Citigroup as a result of reaching final agreement on certain purchase accounting adjustments.

(b)
Represents the net impact of an increase to the discount of purchased credit impaired finance receivables of $64 million and an increase to the premium on finance receivables purchased as performing receivables of $58 million as a result of revisions to the receivables valuation during the measurement period. This adjustment also resulted in $15 million of additional loan premium amortization and $3 million of additional loan discount accretion during the first quarter of 2016, of which $7 million and $1 million, respectively, would have been recorded during the two months ended December 31, 2015, had the adjustment been retroactively reflected since the acquisition date.

(c)
Represents the settlement of a payable to Citigroup during the measurement period.

Of the adjusted $8.8 billion of acquired personal loans included in the table above, $8.1 billion relates to finance receivables determined not to be credit impaired at acquisition. Contractually required principal and interest of these non-credit impaired personal loans was $11.6 billion at the date of acquisition, of which $2.2 billion is not expected to be collected.


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Changes in the carrying amount of goodwill, all of which are reported in our Consumer and Insurance segment, were as follows:
(dollars in millions)
 
Consumer
and
Insurance
 
 
 
Three Months Ended March 31, 2016
 
 
Balance at beginning of period
 
$
1,440

Adjustments to purchase price allocation *
 
(18
)
Balance at end of period
 
$
1,422

                                      
*
Goodwill adjustments were recorded at OMFH subsidiary level.

We did not record any impairments to goodwill during the three months ended March 31, 2016.

The following unaudited pro forma information presents the combined results of operations of Springleaf and OneMain as if the OneMain Acquisition had occurred on January 1, 2015. The unaudited pro forma information also reflects adjustments for (i) the financing arrangements and (ii) the anticipated sale of certain personal loans classified as finance receivables held for sale in connection with the Lendmark Sale (as defined below), as if the transactions had been consummated on January 1, 2015. In addition, the pro forma interest income assumes the adjustment of historical finance charges for estimated impacts of accounting for credit impaired loans. The unaudited pro forma information is not necessarily indicative of the operating results that would have been achieved had the OneMain Acquisition occurred on January 1, 2015. In addition, the unaudited pro forma financial information does not purport to project the future operating results of the combined company following the OneMain Acquisition.

As of March 31, 2016, we have incurred approximately $95 million of acquisition-related transaction and integration expenses ($33 million incurred during the first quarter of 2016) in connection with the OneMain Acquisition and the Lendmark Sale (as defined below), which we report as a component of operating expenses. These expenses include transaction costs, technology termination and certain compensation and benefit related costs. We anticipate incurring approximately $275 million of acquisition-related expenses in connection with the OneMain Acquisition and the Lendmark Sale, which we expect to incur primarily during 2016 and the first half of 2017.

The following table presents the unaudited pro forma financial information:
(dollars in millions)
 
 
Three Months Ended March 31,
 
2015
 
 
 
Interest income
 
$
795

Net income attributable to OneMain Holdings, Inc.
 
41


In connection with the closing of the OneMain Acquisition, on November 13, 2015, OMH and certain of its subsidiaries entered into an Asset Preservation Stipulation and Order and agreed to a Proposed Final Judgment (collectively, the “Settlement Agreement”) with the U.S. Department of Justice (the “DOJ”), as well as the state attorneys general for Colorado, Idaho, Pennsylvania, Texas, Virginia, Washington and West Virginia. The Settlement Agreement resolved the inquiries of the DOJ and such attorneys general with respect to the OneMain Acquisition and allowed OMH to proceed with the closing. Pursuant to the Settlement Agreement, OMH agreed to divest 127 branches of SFC subsidiaries across 11 states as a condition for approval of the OneMain Acquisition. The Settlement Agreement requires the Branch Sellers to operate these 127 branches as an ongoing, economically viable and competitive business until sold to the divestiture purchaser. The court overseeing the settlement appointed a third-party monitor to oversee management of the divestiture branches and ensure the Company’s compliance with the terms of the Settlement Agreement.

LENDMARK SALE

On November 12, 2015, OMH and certain of its subsidiaries (the “Branch Sellers”) entered into an agreement with Lendmark Financial Services, LLC (“Lendmark”) to sell the branches to Lendmark (the “Lendmark Sale”) for a purchase price equal to the sum of (i) the aggregate unpaid balance as of closing of the purchased loans multiplied by 103%, plus (ii) for each interest-bearing purchased loan, an amount equal to all unpaid interest that has accrued on the unpaid balance at the applicable note rate

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from the most recent interest payment date through the closing, plus (iii) the sum of all prepaid charges and fees and security deposits of the Branch Sellers to the extent arising under the purchased contracts as reflected on the books and records of the Branch Sellers as of closing, subject to certain limitations if the purchase price would exceed $695 million and Lendmark is unable to obtain financing on certain specified terms. In anticipation of the sale of these branches, SFC transferred $608 million of personal loans from held for investment to held for sale on September 30, 2015. At March 31, 2016, the personal loans held for sale totaled approximately $606 million, primarily due to originations, net of charge-offs of personal loans in these branches during the past six months. The branches to be sold represent 6% of the branches and 4% of the personal loans held for investment and held for sale of the combined company as of March 31, 2016.

Pursuant to the Settlement Agreement, we were required to dispose of the branches to be sold in connection with the Lendmark Sale within 120 days following November 13, 2015, subject to such extensions as the DOJ may approve. As we did not believe we would be able to consummate the Lendmark Sale prior to April 1, 2016, we requested two extensions of the closing deadline set forth in the Settlement Agreement. The DOJ granted our requests through May 13, 2016.

On May 2, 2016, we completed the Lendmark Sale. See Note 18 for further information on the subsequent closing.

3. Recent Accounting Pronouncements    

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

Consolidation

In February of 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2015-02, Consolidation - Amendments to the Consolidation Analysis, which amends the current consolidation guidance and ends the deferral granted to reporting entities with variable interests in investment companies from applying certain prior amendments to the VIE guidance. This ASU is applicable to entities across all industries, particularly those that use limited partnerships as well as entities in any industry that outsource decision making or have historically applied related party tiebreaker in their consolidation analysis and disclosures. The standard became effective for public business entities for annual periods beginning after December 15, 2015. We evaluated the potential impact of the adoption of this ASU and concluded that it will not have a material effect on our consolidated financial statements.

Technical Corrections and Improvements

In June of 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements, to correct differences between original guidance and the Codification, clarify the guidance, correct references and make minor improvements affecting a variety of topics. The amendments to this transition guidance became effective for fiscal years beginning after December 15, 2015. We evaluated the potential impact of the adoption of this ASU and concluded that it will not have a material effect on our consolidated financial statements.

ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED

Revenue Recognition

In May of 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides a consistent revenue accounting model across industries. In August of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date, to defer the effective date of the new revenue recognition standard by one year, which would result in the ASU becoming effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Many of our revenue sources are not within the scope of this new standard, and we are evaluating whether the adoption of this ASU for those revenue sources that are in scope will have a material effect on our consolidated financial statements.

Short-Duration Insurance Contracts Disclosures

In May of 2015, the FASB issued ASU 2015-09, Disclosures about Short-Duration Contracts, to address enhanced disclosure requirements for insurers relating to short-duration insurance contract claims and unpaid claims liability rollforward for long and short-duration contracts. The disclosures are intended to provide users of financial statements with more transparent information about an insurance entity’s initial claim estimates and subsequent adjustments to those estimates, the methodologies and judgments used to estimate claims, and the timing, frequency, and severity of claims. The amendments in this ASU become effective for annual periods beginning after December 15, 2015, and interim periods within annual periods

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Table of Contents

beginning after December 15, 2016. We are currently evaluating the potential impact of the adoption of the ASU on our consolidated financial statements.

Financial Instruments

In January of 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which simplifies the impairment assessment of equity investments. The update requires equity investments to be measured at fair value with changes recognized in net income. This ASU eliminates the requirement to disclose the methods and assumptions to estimate fair value for financial instruments, requires the use of the exit price for disclosure purposes, requires the change in liability due to a change in credit risk to be presented in other comprehensive income, requires separate presentation of financial assets and liabilities by measurement category and form of asset (securities and loans), and clarifies the need for evaluation allowance on a deferred tax asset related to available-for-sale securities. The amendments in this ASU become effective prospectively for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. We will evaluate whether the adoption of this ASU will have a material effect on our consolidated financial statements.

Leases

In February of 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU will require lessees to recognize assets and liabilities 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. The amendments of this ASU become effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. We will evaluate whether the adoption of this ASU will have a material effect on our consolidated financial statements.

Debt Instruments

In March of 2016, the FASB issued ASU 2016-06, Contingent Puts and Call Options in Debt Instruments, which clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. The ASU requires assessing the embedded call (put) options solely in accordance with the four-step decision sequence. The amendment of this ASU becomes effective on a modified retrospective basis for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. We will evaluate whether the adoption of this ASU will have a material effect on our consolidated financial statements.

Investments

In March of 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting, which eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The ASU requires that an entity that has available-for-sale securities recognize, through earnings, the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendment in this ASU becomes effective prospectively for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. We will evaluate whether the adoption of this ASU will have a material effect on our consolidated financial statements.

Technical Corrections and Improvements

In March of 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations, which clarifies the implementation of the guidance on principal versus agent considerations from ASU 2014-09, Revenue from Contracts with Customers. ASU 2016-08 does not change the core principle of the guidance in ASU 2014-09, but rather clarifies the distinction between principal versus agent considerations when implementing ASU 2014-09. As these are technical corrections and improvements only, the company does not believe that this ASU will have a material effect on our consolidated financial statements.

Stock Compensation

In March of 2016, the FASB issued ASU 2016-09, Improvements to Employee Share - Based Payment Accounting, which simplifies the accounting for share-based payment transactions, income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendment in this ASU becomes effective on a modified retrospective transition for accounting in tax benefits recognized, retrospectively for accounting related to the

16

Table of Contents

presentation of employee taxes paid, prospective for accounting related to recognition of excess tax benefits, and either a prospective or retrospective method for accounting related to presentation of excess employee tax benefits for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. We will evaluate whether the adoption of this ASU will have a material effect on our consolidated financial statements.

We do not believe that any other accounting pronouncements issued during the first quarter of 2016, but not yet effective, would have a material impact on our consolidated financial statements or disclosures, if adopted.

4. Finance Receivables    

Our finance receivable types include personal loans, real estate loans, and retail sales finance as defined below:

Personal loans — are secured by consumer goods, automobiles, or other personal property or are unsecured, typically non-revolving with a fixed-rate and a fixed, original term of three to six years. At March 31, 2016, $3.0 billion of personal loans, or 22%, were secured by collateral consisting of titled personal property (such as automobiles) and $10.3 billion, or 78%, were secured by consumer household goods or other items of personal property or were unsecured, compared to $2.8 billion of personal loans, or 21%, secured by collateral consisting of titled personal property and $10.5 billion, or 79%, secured by consumer household goods or other items of personal property or unsecured at December 31, 2015.

Real estate loans — are secured by first or second mortgages on residential real estate, generally have maximum original terms of 360 months, and are considered non-conforming. At March 31, 2016, $201 million of real estate loans, or 39%, were secured by first mortgages and $316 million, or 61%, were secured by second mortgages, compared to $207 million of real estate loans, or 38%, secured by first mortgages and $331 million, or 62%, secured by second mortgages at December 31, 2015. Real estate loans may be closed-end accounts or open-end home equity lines of credit and are primarily fixed-rate products. Since we ceased real estate lending in January of 2012, our real estate loans are in a liquidating status.

Retail sales finance — include retail sales contracts and revolving retail accounts. Retail sales contracts are closed-end accounts that represent a single purchase transaction. Revolving retail accounts are open-end accounts that can be used for financing repeated purchases from the same merchant. Retail sales contracts are secured by the personal property designated in the contract and generally have maximum original terms of 60 months. Revolving retail accounts are secured by the goods purchased and generally require minimum monthly payments based on the amount financed calculated after the most recent purchase or outstanding balances. Our retail sales finance portfolio is also in a liquidating status.

Our finance receivable types also included the SpringCastle Portfolio at December 31, 2015, as defined below:

SpringCastle Portfolio — included unsecured loans and loans secured by subordinate residential real estate mortgages that were sold on March 31, 2016, in connection with the SpringCastle Interests Sale. The SpringCastle Portfolio included both closed-end accounts and open-end lines of credit. These loans were in a liquidating status and varied in substance and form from our originated loans. Unless terminated, we will continue to provide the servicing for these loans, which we service as unsecured loans because the liens are subordinated to superior ranking security interests.


17

Table of Contents

Components of net finance receivables held for investment by type were as follows:
(dollars in millions)
 
Personal
Loans
 
SpringCastle
Portfolio
 
Real Estate
Loans
 
Retail
Sales Finance
 
Total
 
 
 
 
 
 
 
 
 
 
 
March 31, 2016
 
 

 
 

 
 

 
 

 
 

Gross receivables *
 
$
15,293

 
$

 
$
513

 
$
21

 
$
15,827

Unearned finance charges and points and fees
 
(2,196
)
 

 

 
(2
)
 
(2,198
)
Accrued finance charges
 
139

 

 
4

 

 
143

Deferred origination costs
 
64

 

 

 

 
64

Total
 
$
13,300

 
$

 
$
517

 
$
19

 
$
13,836

 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 

 
 

 
 

 
 

 
 

Gross receivables *
 
$
15,353

 
$
1,672

 
$
534

 
$
25

 
$
17,584

Unearned finance charges and points and fees
 
(2,261
)
 

 

 
(2
)
 
(2,263
)
Accrued finance charges
 
147

 
31

 
4

 

 
182

Deferred origination costs
 
56

 

 

 

 
56

Total
 
$
13,295

 
$
1,703

 
$
538

 
$
23

 
$
15,559

                                      
*
Gross receivables are defined as follows:

Finance receivables purchased as a performing receivable — gross finance receivables equal the unpaid principal balance (“UPB”) for interest bearing accounts and the gross remaining contractual payments for precompute accounts; additionally, the remaining unearned discount, net of premium established at the time of purchase, is included in both interest bearing and precompute accounts to reflect the finance receivable balance at its initial fair value;

Finance receivables originated subsequent to the respective OneMain and Fortress acquisitions — gross finance receivables equal the UPB for interest bearing accounts and the gross remaining contractual payments for precompute accounts; and

Purchased credit impaired finance receivables — gross finance receivables equal the remaining estimated cash flows less the current balance of accretable yield on the purchased credit impaired accounts.

Included in the table above are finance receivables associated with securitizations that remain on our balance sheet. The carrying value of our personal loans totaled $11.7 billion and $11.4 billion at March 31, 2016 and December 31, 2015, respectively, and the carrying value of the SpringCastle Portfolio totaled $1.7 billion at December 31, 2015.

Unused lines of credit extended to customers by the Company were as follows:
(dollars in millions)
 
March 31,
2016
 
December 31,
2015
 
 
 
 
 
Personal loans
 
$
1

 
$