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Section 1: 10-Q (10-Q)

Document


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

FORM 10-Q

(Mark One)
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2016
 
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 1-06155

SPRINGLEAF FINANCE CORPORATION
(Exact name of registrant as specified in its charter)

Indiana
 
35-0416090
(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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer þ
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

At November 1, 2016, there were 10,160,021 shares of the registrant’s common stock, $0.50 par value, outstanding.
 


Table of Contents

TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.    

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)

(dollars in millions, except par value amount)
 
September 30,
2016
 
December 31,
2015
 
 
 
 
 
Assets
 
 

 
 

Cash and cash equivalents
 
$
272

 
$
321

Investment securities
 
573

 
604

Net finance receivables:
 
 

 
 

Personal loans (includes loans of consolidated VIEs of $2.6 billion in 2016 and $3.6 billion in 2015)
 
4,775

 
4,300

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

 
1,703

Real estate loans
 
201

 
538

Retail sales finance
 
13

 
23

Net finance receivables
 
4,989

 
6,564

Unearned insurance premium and claim reserves
 
(216
)
 
(250
)
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $103 million in 2016 and $128 million in 2015)
 
(214
)
 
(224
)
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses
 
4,559

 
6,090

Finance receivables held for sale (includes finance receivables held for sale of consolidated VIEs of $435 million in 2015)
 
166

 
793

Notes receivable from parent and affiliates
 
3,482

 
3,804

Restricted cash and cash equivalents (includes restricted cash and cash equivalents of consolidated VIEs of $166 million in 2016 and $282 million in 2015)
 
176

 
295

Other assets
 
279

 
281

 
 
 
 
 
Total assets
 
$
9,507

 
$
12,188

 
 
 
 
 
Liabilities and Shareholder’s Equity
 
 

 
 

Long-term debt (includes debt of consolidated VIEs of $2.4 billion in 2016 and $5.5 billion in 2015)
 
$
6,542

 
$
9,582

Insurance claims and policyholder liabilities
 
242

 
230

Deferred and accrued taxes
 
134

 
128

Other liabilities (includes other liabilities of consolidated VIEs of $4 million in 2016 and $7 million in 2015)
 
285

 
216

Total liabilities
 
7,203

 
10,156

Commitments and contingent liabilities (Note 14)
 


 


 
 
 
 
 
Shareholder’s equity:
 
 

 
 

Common stock, par value $.50 per share; 25,000,000 shares authorized, 10,160,021 and 10,160,020 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
 
5

 
5

Additional paid-in capital
 
799

 
789

Accumulated other comprehensive loss
 
(13
)
 
(24
)
Retained earnings
 
1,513

 
1,341

Springleaf Finance Corporation shareholder’s equity
 
2,304

 
2,111

Non-controlling interests
 

 
(79
)
Total shareholder’s equity
 
2,304

 
2,032

 
 
 
 
 
Total liabilities and shareholder’s equity
 
$
9,507

 
$
12,188


See Notes to Condensed Consolidated Financial Statements.


3

Table of Contents

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)

(dollars in millions)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016

2015
 
 
 

 
 
 
 

 
 
Interest income:
 
 
 
 
 
 
 
 
Finance charges
 
$
296

 
$
417

 
$
976

 
$
1,214

Finance receivables held for sale originated as held for investment
 
7

 
5

 
71

 
13

Total interest income
 
303

 
422

 
1,047

 
1,227

 
 
 
 
 
 
 
 
 
Interest expense
 
135

 
171

 
429

 
500

 
 
 
 
 
 
 
 
 
Net interest income
 
168

 
251

 
618

 
727

 
 
 
 
 
 
 
 
 
Provision for finance receivable losses
 
87

 
78

 
263

 
230

 
 
 
 
 
 
 
 
 
Net interest income after provision for finance receivable losses
 
81

 
173

 
355

 
497

 
 
 
 
 
 
 
 
 
Other revenues:
 
 

 
 

 
 

 
 

Insurance
 
43

 
40

 
122

 
116

Investment
 
8

 
11

 
22

 
43

Interest income on notes receivable from parent and affiliates
 
56

 
5

 
158

 
11

Net loss on repurchases and repayments of debt
 

 

 
(16
)
 

Net gain on sale of SpringCastle interests
 

 

 
167

 

Net gain (loss) on sales of personal and real estate loans
 
(4
)
 

 
18

 

Other
 
4

 
(7
)
 
(2
)
 
(8
)
Total other revenues
 
107

 
49

 
469

 
162

 
 
 
 
 
 
 
 
 
Other expenses:
 
 

 
 

 
 

 
 

Operating expenses:
 
 

 
 

 
 

 
 

Salaries and benefits
 
81

 
86

 
263

 
264

Other operating expenses
 
67

 
79

 
221

 
220

Insurance policy benefits and claims
 
7

 
17

 
39

 
53

Total other expenses
 
155

 
182

 
523

 
537

 
 
 
 
 
 
 
 
 
Income before provision for income taxes
 
33

 
40

 
301

 
122

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
10

 
5

 
101

 
14

 
 
 
 
 
 
 
 
 
Net income
 
23

 
35

 
200

 
108

 
 
 
 
 
 
 
 
 
Net income attributable to non-controlling interests
 

 
32

 
28

 
98

 
 
 
 
 
 
 
 
 
Net income attributable to Springleaf Finance Corporation
 
$
23

 
$
3

 
$
172

 
$
10


See Notes to Condensed Consolidated Financial Statements.


4

Table of Contents

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(dollars in millions)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net income
 
$
23


$
35


$
200


$
108

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 

 
 

 
 

 
 

Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities
 
5

 
(3
)
 
29

 
(8
)
Income tax effect:
 
 

 
 

 
 

 
 

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

 
(10
)
 
3

Other comprehensive income (loss), net of tax, before reclassification adjustments
 
4

 
(2
)
 
19

 
(5
)
Reclassification adjustments included in net income:
 
 

 
 

 
 

 
 

Net realized gains on available-for-sale securities
 
(2
)
 
(4
)
 
(5
)
 
(14
)
Net realized gain on foreign currency translation adjustments
 
(5
)
 

 
(5
)
 

Income tax effect:
 
 

 
 

 
 

 
 

Net realized gains on available-for-sale securities
 
1

 
2

 
2

 
5

Reclassification adjustments included in net income, net of tax
 
(6
)
 
(2
)
 
(8
)
 
(9
)
Other comprehensive income (loss), net of tax
 
(2
)
 
(4
)
 
11

 
(14
)
 
 
 
 
 
 
 
 
 
Comprehensive income
 
21

 
31

 
211


94

 
 
 
 
 
 
 
 
 
Comprehensive income attributable to non-controlling interests
 

 
32

 
28

 
98

 
 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to Springleaf Finance Corporation
 
$
21

 
$
(1
)
 
$
183

 
$
(4
)

See Notes to Condensed Consolidated Financial Statements.


5

Table of Contents

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholder’s Equity (Unaudited)

 
 
Springleaf Finance Corporation Shareholder’s Equity
 
 
 
 
(dollars in millions)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Springleaf Finance Corporation
Shareholder’s Equity
 
Non-controlling Interests
 
Total
Shareholder’s
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2016
 
$
5

 
$
789

 
$
(24
)
 
$
1,341

 
$
2,111

 
$
(79
)
 
$
2,032

Capital contribution from parent
 

 
10

 

 

 
10

 

 
10

Share-based compensation expense, net of forfeitures
 

 
1

 

 

 
1

 

 
1

Withholding tax on vested RSUs
 

 
(1
)
 

 

 
(1
)
 

 
(1
)
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
 

 

 
11

 

 
11

 

 
11

Net income
 

 

 

 
172

 
172

 
28

 
200

Balance, September 30, 2016
 
$
5

 
$
799

 
$
(13
)
 
$
1,513

 
$
2,304

 
$

 
$
2,304

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2015
 
$
5

 
$
771

 
$
3

 
$
1,327

 
$
2,106

 
$
(129
)
 
$
1,977

Non-cash incentive compensation from Initial Stockholder
 

 
15

 

 

 
15

 

 
15

Share-based compensation expense, net of forfeitures
 

 
1

 

 

 
1

 

 
1

Change in non-controlling interests:
 
 
 
 
 
 
 
 
 
 
 
 
 


Distributions declared to joint venture partners
 

 

 

 

 

 
(58
)
 
(58
)
Other comprehensive loss
 

 

 
(14
)
 

 
(14
)
 

 
(14
)
Net income
 

 

 

 
10

 
10

 
98

 
108

Balance, September 30, 2015
 
$
5

 
$
787

 
$
(11
)
 
$
1,337

 
$
2,118

 
$
(89
)
 
$
2,029


See Notes to Condensed Consolidated Financial Statements.


6

Table of Contents

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollars in millions)
 
Nine Months Ended September 30,

2016
 
2015
 
 
 
 
 
Cash flows from operating activities
 
 

 
 

Net income
 
$
200

 
$
108

Reconciling adjustments:
 
 

 
 

Provision for finance receivable losses
 
263

 
230

Depreciation and amortization
 
108

 
71

Deferred income tax benefit
 
(94
)
 
(10
)
Net gain on liquidation of United Kingdom subsidiary
 
(5
)
 

Net gain on sales of personal and real estate loans
 
(18
)
 

Net loss on repurchases and repayments of debt
 
16

 

Non-cash incentive compensation from Initial Stockholder
 

 
15

Share-based compensation expense, net of forfeitures
 
1

 
1

Net gain on sale of SpringCastle interests
 
(167
)
 

Other
 
6

 
(9
)
Cash flows due to changes in:
 
 

 
 

Other assets and other liabilities
 
17

 
23

Insurance claims and policyholder liabilities
 
(21
)
 
22

Taxes receivable and payable
 
95

 
(29
)
Accrued interest and finance charges
 
(6
)
 

Restricted cash and cash equivalents not reinvested
 
2

 

Other, net
 
2

 
(1
)
Net cash provided by operating activities
 
399

 
421

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Net principal collections (originations) of finance receivables held for investment and held for sale
 
(455
)
 
(552
)
Proceeds on sales of finance receivables held for sale originated as held for investment
 
871

 
88

Proceeds from sale of SpringCastle interests
 
101

 

Cash advances on intercompany notes receivables
 
(643
)
 
(147
)
Proceeds from repayments of principal and assignment of intercompany note receivables
 
887

 
77

Available-for-sale securities purchased
 
(218
)
 
(382
)
Trading and other securities purchased
 
(10
)
 
(1,457
)
Available-for-sale securities called, sold, and matured
 
291

 
408

Trading and other securities called, sold, and matured
 
18

 
2,563

Change in restricted cash and cash equivalents
 
42

 
(46
)
Proceeds from sale of real estate owned
 
7

 
12

Other, net
 
6

 
1

Net cash provided by investing activities
 
897

 
565

 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Proceeds from issuance of long-term debt, net of commissions
 
2,984

 
1,929

Proceeds from intercompany note payable
 
670

 

Repayments of long-term debt
 
(4,320
)
 
(850
)
Distributions to joint venture partners
 
(18
)
 
(58
)
Payments on note payable to affiliate
 
(670
)
 

Withholding tax on RSUs vested
 
(1
)
 

Capital contribution from parent
 
10

 

Net cash provided by (used for) financing activities
 
(1,345
)
 
1,021

Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
 
 
 
 
 
 
 
 
 
(dollars in millions)
 
Nine Months Ended September 30,
 
2016
 
2015
 
 
 
 
 
Net change in cash and cash equivalents
 
(49
)
 
2,007

Cash and cash equivalents at beginning of period
 
321

 
749

Cash and cash equivalents at end of period
 
$
272

 
$
2,756

 
 
 
 
 
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)
 
$
1,895

 
$
608

Increase in finance receivables held for investment financed with intercompany payable
 
$
89

 
$

Transfer of finance receivables to real estate owned
 
$
7

 
$
8

Net unsettled investment security dispositions (purchases)
 
$
(24
)
 
$
40


See Notes to Condensed Consolidated Financial Statements.


7

Table of Contents

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2016

1. Business and Basis of Presentation    

Springleaf Finance Corporation (“SFC” or, collectively with its subsidiaries, whether directly or indirectly owned, “Springleaf,” the “Company,” “we,” “us,” or “our”) is a wholly owned subsidiary of Springleaf Finance, Inc. (“SFI”). SFI is a wholly owned subsidiary of OneMain Holdings, Inc. (“OMH”).

At September 30, 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”).

SFC is a financial services holding company with subsidiaries engaged in the consumer finance and insurance businesses.

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 SFC, its subsidiaries (all of which are wholly owned, except for certain 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 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 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, except for the change in accounting policy discussed below. As a result of the change in accounting policy, we have revised certain sections in our 2015 Annual Report on Form 10-K to reflect the retrospective application of this change in accounting policy, and such revised disclosures are included in exhibits to our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on August 29, 2016 (the “retrospective Form 8-K”). Therefore, the condensed consolidated financial statements in this report should also be read in conjunction with the retrospective Form 8-K.

CHANGE IN ACCOUNTING POLICY

Effective April 1, 2016, we changed our accounting policy for the derecognition of loans within a purchased credit impaired pool. Historically, we removed loans from a purchased credit impaired 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 purchased credit impaired 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 purchased credit impaired loans is preferable as it enhances consistency with our industry peers. As of January 1, 2015, the cumulative effect of applying the change in accounting policy increased shareholder’s equity by $37 million.

For the nine months ended September 30, 2016, the effect of this change in accounting policy was as follows:

decreased income before provision for income taxes by $56 million;
decreased net income by $34 million; and
decreased net income attributable to SFC by $37 million.

The effect of the change in accounting policy on the amounts reported in our condensed consolidated statements of operations for the three months ended September 30, 2016, was less than $1 million.

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Table of Contents

Our policy for derecognition of purchased credit impaired 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 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 update on a quarterly basis the amount of cash flows we expect to collect, which incorporates 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, and such removal will 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 the amounts previously reported in our condensed consolidated statements of operations for the three and nine months ended September 30, 2015 and our condensed consolidated statements of cash flows for the nine months ended September 30, 2015 are included in the following tables.
 
 
 
 
 
 
 
 
 
 
 
 
 
 

9

Table of Contents

Revised Condensed Consolidated Statements of Operations
(dollars in millions)
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
 
 

 
 
 
 

 
 
Interest income:
 
 
 
 
 
 
 
 
Finance charges
 
$
419

 
$
417

 
$
1,221

 
$
1,214

Finance receivables held for sale originated as held for investment
 
4

 
5

 
13

 
13

Total interest income
 
423

 
422

 
1,234

 
1,227

 
 
 
 
 
 
 
 
 
Interest expense
 
171

 
171

 
500

 
500

 
 
 
 
 
 
 
 
 
Net interest income
 
252

 
251

 
734

 
727

 
 
 
 
 
 
 
 
 
Provision for finance receivable losses
 
82

 
78

 
247

 
230

 
 
 
 
 
 
 
 
 
Net interest income after provision for finance receivable losses
 
170

 
173

 
487

 
497

 
 
 
 
 
 
 
 
 
Other revenues:
 
 

 
 

 
 

 
 

Insurance
 
40

 
40

 
116

 
116

Investment
 
11

 
11

 
43

 
43

Interest income on notes receivable from parent and affiliates
 
5

 
5

 
11

 
11

Other
 
(1
)
 
(7
)
 
(3
)
 
(8
)
Total other revenues
 
55

 
49

 
167

 
162

 
 
 
 
 
 
 
 
 
Other expenses:
 
 

 
 

 
 

 
 

Operating expenses:
 
 

 
 

 
 

 
 

Salaries and benefits
 
86

 
86

 
264

 
264

Other operating expenses
 
79

 
79

 
220

 
220

Insurance policy benefits and claims
 
17

 
17

 
53

 
53

Total other expenses
 
182

 
182

 
537

 
537

 
 
 
 
 
 
 
 
 
Income before provision for income taxes
 
43

 
40

 
117

 
122

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
7

 
5

 
14

 
14

 
 
 
 
 
 
 
 
 
Net income
 
36

 
35

 
103

 
108

 
 
 
 
 
 
 
 
 
Net income attributable to non-controlling interests
 
31

 
32

 
93

 
98

 
 
 
 
 
 
 
 
 
Net income attributable to Springleaf Finance Corporation
 
$
5

 
$
3

 
$
10

 
$
10



10

Table of Contents

Revised Condensed Consolidated Statement of Cash Flows
(dollars in millions)
 
Nine Months Ended September 30, 2015
 
As Reported
 
As Adjusted
 
 
 
 
 
Cash flows from operating activities
 
 

 
 
Net income
 
$
103

 
$
108

Reconciling adjustments:
 
 

 
 

Provision for finance receivable losses
 
247

 
230

Depreciation and amortization
 
64

 
71

Deferred income tax benefit
 
(10
)
 
(10
)
Non-cash incentive compensation from Initial Stockholder
 
15

 
15

Share-based compensation expense, net of forfeitures
 
1

 
1

Other
 
(13
)
 
(9
)
Cash flows due to changes in:
 
 

 
 
Other assets and other liabilities
 
23

 
23

Insurance claims and policyholder liabilities
 
22

 
22

Taxes receivable and payable
 
(29
)
 
(29
)
Other, net
 
(1
)
 
(1
)
Net cash provided by operating activities
 
422

 
421

 
 
 
 
 
Cash flows from investing activities
 
 

 
 
Net principal collections (originations) of finance receivables held for investment and held for sale
 
(552
)
 
(552
)
Proceeds on sales of finance receivables held for sale originated as held for investment
 
88

 
88

Cash advances on intercompany notes receivables
 
(147
)
 
(147
)
Principal collections on intercompany notes receivables
 
77

 
77

Available-for-sale securities purchased
 
(382
)
 
(382
)
Trading and other securities purchased
 
(1,457
)
 
(1,457
)
Available-for-sale securities called, sold, and matured
 
408

 
408

Trading and other securities called, sold, and matured
 
2,563

 
2,563

Change in restricted cash and cash equivalents
 
(46
)
 
(46
)
Proceeds from sale of real estate owned
 
12

 
12

Other, net
 
1

 
1

Net cash provided by investing activities
 
565

 
565

 
 
 
 
 
Cash flows from financing activities
 
 

 
 
Proceeds from issuance of long-term debt, net of commissions
 
1,929

 
1,929

Repayments of long-term debt
 
(850
)
 
(850
)
Distributions to joint venture partners
 
(59
)
 
(58
)
Net cash provided by financing activities
 
1,020

 
1,021

 
 
 
 
 
Net change in cash and cash equivalents
 
2,007

 
2,007

Cash and cash equivalents at beginning of period
 
749

 
749

Cash and cash equivalents at end of period
 
$
2,756

 
$
2,756


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 Part I, Item 2 herein to reflect the impact of this change in accounting policy.


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2. Significant Transactions    

OMH’S ACQUISITION OF ONEMAIN FINANCIAL HOLDINGS, LLC

On November 15, 2015, OMH, through its wholly owned subsidiary, Independence Holdings, LLC (“Independence”), completed its acquisition of OneMain Financial Holdings, LLC (“OMFH”) from CitiFinancial Credit Company (“Citigroup”) for approximately $4.5 billion in cash (the “OneMain Acquisition”). As a result of the OneMain Acquisition, OMFH became a wholly owned, indirect subsidiary of OMH. OMFH is not a subsidiary of SFC and SFC is not a subsidiary of OMFH.

In connection with the closing of the OneMain Acquisition, on November 13, 2015, OMH and certain subsidiaries of SFC 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 required certain of OMH’s subsidiaries (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.

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, on March 31, 2016, 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.

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 paid into an escrow account on July 29, 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 SFI is terminated, SFI will remain as servicer of the SpringCastle Portfolio under the 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 purposes of certain limited indemnification obligations and post-closing expense reimbursement obligations of the SpringCastle Joint Venture to the SpringCastle Sellers.


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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, the date of sale, was 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 the SpringCastle Interests Sale.

SFC’S OFFERING OF 8.25% SENIOR NOTES

On April 11, 2016, SFC issued $1.0 billion aggregate principal amount of 8.25% Senior Notes due 2020 (the “8.25% SFC Notes”) under an Indenture dated as of December 3, 2014 (the “Base Indenture”), as supplemented by a First Supplemental Indenture, dated as of December 3, 2014 (the “First Supplemental Indenture”) and a Second Supplemental Indenture, dated as of April 11, 2016 (the “Second Supplemental Indenture” and, collectively with the Base Indenture and the First Supplemental Indenture, the “Indenture”), pursuant to which OMH provided a guarantee of the notes on an unsecured basis.

SFC used a portion of the proceeds from the offering to repurchase approximately $600 million aggregate principal amount of its existing senior notes that mature in 2017, at a premium to principal amount from certain beneficial owners, and certain of those beneficial owners purchased new SFC senior notes in the offering. SFC intends to use the remaining net proceeds for general corporate purposes, which may include further debt repurchases and repayments.

The notes are SFC’s senior unsecured obligations and rank equally in right of payment to all of SFC’s other existing and future unsubordinated indebtedness from time to time outstanding. The notes are effectively subordinated to all of SFC’s secured obligations to the extent of the value of the assets securing such obligations and structurally subordinated to any existing and future obligations of SFC’s subsidiaries with respect to claims against the assets of such subsidiaries.

The notes may be redeemed at any time and from time to time, at the option of SFC, in whole or in part at a “make-whole” redemption price specified in the Indenture. The notes will not have the benefit of any sinking fund.

The Indenture contains covenants that, among other things, (i) limit SFC’s ability to create liens on assets and (ii) restrict SFC’s ability to consolidate, merge or sell its assets. The Indenture also provides for events of default which, if any of them were to occur, would permit or require the principal of and accrued interest on the notes to become, or to be declared, due and payable.

LENDMARK SALE

On November 12, 2015, OMH and the Branch Sellers entered into a purchase and sale agreement with Lendmark Financial Services, LLC (“Lendmark”) to sell 127 Springleaf branches and, subject to certain exclusions, the associated personal loans issued to customers of such branches, fixed non-information technology assets and certain other tangible personal property located in such 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 had accrued on the unpaid balance at the applicable note rate 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 would be unable to obtain financing on certain specified terms. In anticipation of the sale of these branches, we transferred $608 million of personal loans from held for investment to held for sale on September 30, 2015.

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 for an aggregate cash purchase price of $624 million. Such sale was effective as of April 30, 2016, and included the sale to Lendmark of personal loans with an unpaid principal balance (“UPB”) as of March 31, 2016 of $600 million. OMH has entered into a transition services agreement with Lendmark dated as of May 2, 2016 (the “Transition Services Agreement”), and OMH’s and our activities will remain subject to the oversight of the Monitoring Trustee appointed by the court pursuant to the Settlement Agreement until the expiration of the Transition Services

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Agreement. The Transition Services Agreement is currently scheduled to expire on or before February 2, 2017, subject to an additional three-month extension with the permission of the DOJ. Although we and OMH continue to take such steps as we believe are necessary to comply with the terms of the Settlement Agreement, no assurance can be given that we will not incur fines or penalties associated with OMH’s or our activities pursuant to the Transition Services Agreement or OMH’s or our efforts to comply with the terms of the Settlement Agreement.

On May 2, 2016, SFC used a portion of the proceeds from the Lendmark Sale to repay, in full, its revolving demand note with OMFH, which totaled $376 million (including interest payable of $6 million).

REAL ESTATE LOAN SALE

On August 3, 2016, SFC and certain of its subsidiaries sold a portfolio of second lien mortgage loans for aggregate cash proceeds of $246 million (the “August 2016 Real Estate Loan Sale”). In connection with this sale, we recorded a net loss in other revenues at the time of sale of $4 million. Unless we are terminated or we resign as servicer, we will continue to service the loans included in this sale pursuant to a servicing agreement. The purchase and sale agreement and the servicing agreement include customary representations and warranties and indemnification provisions.

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 tiebreakers in their consolidation analysis and disclosures. The standard became effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We have adopted this ASU and concluded that it does 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 Accounting Standards 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, and interim periods within those fiscal years, beginning after December 15, 2015. We have adopted this ASU and concluded that it does not 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 fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We have early adopted this ASU and concluded that it does not 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 amendments in this ASU were adopted as follows:

We adopted the amendment requiring recognition of tax benefits related to exercised or vested awards through the income statement rather than additional paid-in capital on a prospective basis as of January 1, 2016. Further, as of January 1, 2016, there was no impact to additional paid-in capital as a result of our adoption of this ASU under the modified retrospective method.

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We did not adopt the amendment allowing for the use of the actual number of shares vested each period, rather than estimating the number of awards that are expected to vest. We continue to use an estimate as it relates to the number of awards that are expected to vest.

We adopted the amendment for the threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates, under the modified retrospective basis as of January 1, 2016. This amendment did not have a material impact on our consolidated financial statements.

We adopted the amendment requiring the classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes to be presented in the financing activities instead of the operating activities, under the retrospective method as of January 1, 2014. This amendment did not have a material impact on our consolidated financial statements.

We adopted the amendment requiring the classification of excess tax benefits on the statement of cash flows to be presented in the operating activities instead of the financing activities, under the prospective method as of September 30, 2016. This amendment did not have a material impact 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. 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. In April of 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, to clarify the implementation guidance of ASU 2014-09 relating to performance obligations and licensing. In May of 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, to clarify guidance in ASU 2014-09 related to assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts/contract modifications. We are evaluating whether the adoption of these accounting pronouncements 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 beginning after December 15, 2016. We are 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 a valuation 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 are evaluating whether the adoption of this ASU will have a material effect on our consolidated financial statements.


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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 in this ASU become effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. We are evaluating 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 are evaluating whether the adoption of this ASU will have a material effect on our consolidated financial statements.

Revenue Recognition and Derivatives and Hedging

In May of 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815), to rescind certain SEC guidance in Topic 605 and Topic 815 as ASU 2014-09 becomes effective. Our adoption of ASU 2014-09 will bring us into alignment with this ASU. We are evaluating whether the adoption of this ASU will have a material effect on our consolidated financial statements.

Allowance for Finance Receivables Losses

In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU 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 based on historical experience, current conditions, and reasonable forecasts of collectability. It is anticipated that the expected credit loss model will require earlier recognition of credit losses than the incurred loss approach.

The ASU requires that credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis be determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price of the financial asset rather than being reported as a credit loss expense. Subsequent changes in the allowance for credit losses are recorded in earnings. Interest income should be recognized based on the effective rate, excluding the discount embedded in the purchase price attributable to expected credit losses at acquisition.

The ASU also requires companies to record allowances for held-to-maturity and available-for-sale debt securities 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. We believe the adoption of this ASU will have a material effect on our consolidated financial statements and we are in the process of evaluating the expected impacts.

Statement of Cash Flows

In August of 2016, the FASB issued ASU 2016-15, Statement of Cash Flows, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this ASU will become effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We are evaluating whether the adoption of this ASU will have a material effect on our consolidated financial statements.

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We do not believe that any other accounting pronouncements issued during the nine months ended September 30, 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 two to five years. At September 30, 2016, we had over 941,000 personal loans representing $4.8 billion of net finance receivables, compared to 890,000 personal loans totaling $4.3 billion 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. 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 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 SFI is terminated, SFI will continue to provide the servicing for these loans pursuant to a servicing agreement, which SFI services as unsecured loans because the liens are subordinated to superior ranking security interests.

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
 
 
 
 
 
 
 
 
 
 
 
September 30, 2016
 
 

 
 
 
 

 
 

 
 

Gross receivables *
 
$
5,467

 
$

 
$
200

 
$
14

 
$
5,681

Unearned finance charges and points and fees
 
(799
)
 

 

 
(1
)
 
(800
)
Accrued finance charges
 
61

 

 
1

 

 
62

Deferred origination costs
 
46

 

 

 

 
46

Total
 
$
4,775

 
$

 
$
201

 
$
13

 
$
4,989

 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 

 
 
 
 

 
 

 
 

Gross receivables *
 
$
5,028

 
$
1,672

 
$
534

 
$
25

 
$
7,259

Unearned finance charges and points and fees
 
(833
)
 

 

 
(2
)
 
(835
)
Accrued finance charges
 
60

 
31

 
4

 

 
95

Deferred origination costs
 
45

 

 

 

 
45

Total
 
$
4,300

 
$
1,703

 
$
538

 
$
23

 
$
6,564


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*
Gross receivables are defined as follows:

Finance receivables purchased as a performing receivable — gross finance receivables equal the 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 Fortress Acquisition — gross finance receivables equal the UPB for interest bearing accounts and the gross remaining contractual payments for precompute accounts;

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; and

TDR finance receivables — gross finance receivables equal the 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 previously purchased as a performing receivable.

Unused lines of credit extended to customers by the Company were as follows:
(dollars in millions)
 
September 30,
2016
 
December 31,
2015
 
 
 
 
 
Personal loans
 
$
1

 
$
2

SpringCastle Portfolio
 

 
365

Real estate loans
 
10

 
30

Total
 
$
11

 
$
397


Unused lines of credit on our personal loans can be suspended if any of the following occurs: (i) the value of the collateral declines significantly; (ii) we believe the borrower will be unable to fulfill the repayment obligations; or (iii) any other default by the borrower of any material obligation under the agreement occurs. Unused lines of credit on our real estate loans can be suspended if any of the following occurs: (i) the value of the real estate declines significantly below the property’s initial appraised value; (ii) we believe the borrower will be unable to fulfill the repayment obligations because of a material change in the borrower’s financial circumstances; or (iii) any other default by the borrower of any material obligation under the agreement occurs. Unused lines of credit on home equity lines of credit can be terminated for delinquency. Accordingly, no reserve has been recorded for the unused lines of credit.

CREDIT QUALITY INDICATORS

We consider the delinquency status and nonperforming status of the finance receivable as our primary credit quality indicators.

We accrue finance charges on revolving retail finance receivables up to the date of charge-off at 180 days past due. Our revolving retail finance receivables that were more than 90 days past due and still accruing finance charges at September 30, 2016 and at December 31, 2015 were immaterial. Our personal loans and real estate loans do not have finance receivables that were more than 90 days past due and still accruing finance charges.

Delinquent and Nonperforming Finance Receivables

We consider the delinquency status of the finance receivable as our primary credit quality indicator. We monitor delinquency trends to manage our exposure to credit risk. We consider finance receivables 60 days or more past due as delinquent and consider the likelihood of collection to decrease at such time.

We also monitor finance receivable performance trends to evaluate the potential risk of future credit losses. At 90 days or more past due, we consider our finance receivables to be nonperforming. Once the finance receivables are considered as nonperforming, we consider them to be at increased risk for credit loss.


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The following is a summary of net finance receivables held for investment by type and by number of days delinquent:
(dollars in millions)
 
Personal
Loans
 
SpringCastle
Portfolio
 
Real Estate
Loans
 
Retail
Sales Finance
 
Total
 
 
 
 
 
 
 
 
 
 
 
September 30, 2016
 
 
 
 
 
 
 
 
 
 
Net finance receivables:
 
 
 
 
 
 
 
 
 
 
Performing
 
 
 
 
 
 
 
 
 
 
Current
 
$
4,546

 
$

 
$
152

 
$
13

 
$
4,711

30-59 days past due
 
78

 

 
14

 

 
92

60-89 days past due
 
51

 

 
7

 

 
58

Total performing
 
4,675

 

 
173

 
13

 
4,861

Nonperforming
 
 
 
 
 
 
 
 
 
 
90-119 days past due
 
38

 

 
3

 

 
41

120-149 days past due
 
31

 

 
3

 

 
34

150-179 days past due
 
28

 

 
2

 

 
30

180 days or more past due
 
3

 

 
20

 

 
23

Total nonperforming
 
100

 

 
28

 

 
128

Total
 
$
4,775

 
$

 
$
201

 
$
13

 
$
4,989

 
 
 
 
 
 
 
 
 
 
 
Total 60+ delinquent finance receivables
 
$
151

 
$

 
$
35

 
$

 
$
186

 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
Net finance receivables:
 
 
 
 
 
 
 
 
 
 
Performing
 
 
 
 
 
 
 
 
 
 
Current
 
$
4,077

 
$
1,588

 
$
486

 
$
22

 
$
6,173

30-59 days past due
 
65

 
49

 
13

 

 
127

60-89 days past due
 
49

 
26

 
19

 

 
94

Total performing
 
4,191

 
1,663

 
518

 
22

 
6,394

Nonperforming
 
 
 
 
 
 
 
 
 
 
90-119 days past due
 
41

 
16

 
3

 

 
60

120-149 days past due
 
34

 
12

 
2

 
1

 
49

150-179 days past due
 
31

 
11

 
2

 

 
44

180 days or more past due
 
3

 
1

 
13

 

 
17

Total nonperforming
 
109

 
40

 
20

 
1

 
170

Total
 
$
4,300

 
$
1,703

 
$
538

 
$
23

 
$
6,564

 
 
 
 
 
 
 
 
 
 
 
Total 60+ delinquent finance receivables
 
$
158

 
$
66

 
$
39

 
$
1

 
$
264


PURCHASED CREDIT IMPAIRED FINANCE RECEIVABLES

Our purchased credit impaired finance receivables consist of receivables purchased as part of the following transaction:

Ownership interest acquired by FCFI Acquisition LLC, an affiliate of Fortress (the “Fortress Acquisition”) - we revalued our assets and liabilities based on their fair value at the date of the Fortress Acquisition, November 30, 2010, in accordance with purchase accounting and adjusted the carrying value of our finance receivables (the “FA Loans”) to their fair value.

At December 31, 2015, our purchased credit impaired finance receivables also included the SpringCastle Portfolio, which was purchased as part of the following transaction:

SFI’s capital contribution of its wholly owned subsidiary, Springleaf Acquisition Corporation (“SAC”), to SFC - on July 31, 2014 (the “SAC Capital Contribution”), SFC acquired a 47% equity interest in the SpringCastle Portfolio (the

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“SCP Loans”), some of which were determined to be credit impaired when SAC acquired the SCP Loans on April 1, 2013. On March 31, 2016, we sold the SpringCastle Portfolio in connection with the SpringCastle Interests Sale described in Note 2.

We report the carrying amount (which initially was the fair value) of our purchased credit impaired finance receivables in net finance receivables, less allowance for finance receivable losses or in finance receivables held for sale as discussed below.

At September 30, 2016 and December 31, 2015, finance receivables held for sale totaled $166 million and $793 million, respectively. See Note 6 for further information on our finance receivables held for sale, which include purchased credit impaired finance receivables, as well as TDR finance receivables. Therefore, we are presenting the financial information for our purchased credit impaired finance receivables and TDR finance receivables combined for finance receivables held for investment and finance receivables held for sale in the tables below.

Information regarding our purchased credit impaired finance receivables held for investment and held for sale were as follows:
(dollars in millions)
 
SCP Loans
 
FA Loans *
 
Total
 
 
 
 
 
 
 
September 30, 2016
 
 
 
 
 
 
Carrying amount, net of allowance
 
$

 
$
72

 
$
72

Outstanding balance
 

 
109

 
109

Allowance for purchased credit impaired finance receivable losses
 

 
8

 
8

 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
Carrying amount, net of allowance
 
$
350

 
$
89

 
$
439

Outstanding balance
 
482

 
136

 
618

Allowance for purchased credit impaired finance receivable losses
 

 
12

 
12

                                      
*
Purchased credit impaired FA Loans held for sale included in the table above were as follows:
(dollars in millions)
 
FA Loans
 
 
 
September 30, 2016
 
 

Carrying amount
 
$
56

Outstanding balance
 
85

 
 
 
December 31, 2015
 
 

Carrying amount
 
$
59

Outstanding balance
 
89


The allowance for purchased credit impaired finance receivable losses at September 30, 2016 and December 31, 2015, reflected the net carrying value of the purchased credit impaired FA Loans being higher than the present value of the expected cash flows.


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Changes in accretable yield for purchased credit impaired finance receivables held for investment and held for sale were as follows:
(dollars in millions)
 
SCP Loans
 
FA Loans
 
Total
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
 
 
 
 
 
Balance at beginning of period
 
$

 
$
61

 
$
61

Accretion (a)
 

 
(1
)
 
(1
)
Reclassifications from nonaccretable difference (b)
 

 
8

 
8

Transfer due to finance receivables sold
 

 
(11
)
 
(11
)
Balance at end of period
 
$

 
$
57

 
$
57

 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
Balance at beginning of period
 
$
411

 
$
53

 
$
464

Accretion (a)
 
(19
)
 
(2
)
 
(21
)
Reclassifications from nonaccretable difference (b)
 

 
1

 
1

Balance at end of period
 
$
392

 
$
52

 
$
444

 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
Balance at beginning of period
 
$
375

 
$