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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 March 31, 2018
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to
 
Commission file number 001-36129

ONEMAIN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
27-3379612
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
601 N.W. Second Street, Evansville, IN
 
47708
(Address of principal executive offices)
 
(Zip Code)

(812) 424-8031
(Registrant’s telephone number, including area code)

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
Emerging growth company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

At May 1, 2018, there were 135,705,927 shares of the registrant’s common stock, $0.01 par value, outstanding.
 






TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2





GLOSSARY
Terms and abbreviations used in this report are defined below.
Term or Abbreviation
 
Definition
 
 
 
2017 Annual Report on Form
10-K
 
Annual Report on Form 10-K for the fiscal year ended December 31, 2017
2022 SFC Notes
 
$500 million of 6.125% Senior Notes due 2022 issued by SFC on May 15, 2017 and guaranteed by OMH
30-89 Delinquency ratio
 
net finance receivables 30-89 days past due as a percentage of net finance receivables
5.25% SFC Notes
 
$700 million of 5.25% Senior Notes due 2019 issued by SFC on December 3, 2014 and guaranteed by OMH
5.625% SFC Notes
 
$875 million of 5.625% Senior Notes due 2023 issued by SFC on December 8, 2017 and guaranteed by OMH
6.125% SFC Notes
 
collectively, the 2022 SFC Notes and the Additional SFC Notes
6.875% SFC Notes
 
$1.25 billion aggregate principal amount of 6.875% Senior Notes due 2025 issued by SFC on March 12, 2018 and guaranteed by OMH
8.25% SFC Notes
 
$1.0 billion of 8.25% Senior Notes due 2020 issued by SFC on April 11, 2016 and guaranteed by OMH
ABS
 
asset-backed securities
Accretable yield
 
the excess of the cash flows expected to be collected on the purchased credit impaired finance receivables over the discounted cash flows
Additional SFC Notes
 
$500 million of 6.125% Senior Notes due 2022 issued by SFC on May 30, 2017 and guaranteed by OMH
Adjusted pretax income (loss)
 
a non-GAAP financial measure used by management as a key performance measure of our segments
AHL
 
American Health and Life Insurance Company, an insurance subsidiary of OMFH
Apollo
 
Apollo Global Management, LLC and its consolidated subsidiaries
Apollo-Värde Transaction
 
the proposed purchase by the Apollo-Värde Group of 54,937,500 shares of OMH common stock from the Initial Stockholder pursuant to the Share Purchase Agreement entered into among OMH, the Initial Stockholder and the Apollo-Värde Group on January 3, 2018
Apollo-Värde Group
 
an investor group led by funds managed by Apollo and Värde
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
Average debt
 
average of debt for each day in the period
Average net receivables
 
average of monthly average net finance receivables (net finance receivables at the beginning and end of each month divided by two) in the period
Blackstone
 
collectively, BTO Willow Holdings II, L.P. and Blackstone Family Tactical Opportunities Investment Partnership—NQ—ESC L.P.
CDO
 
collateralized debt obligations
CFPB
 
Consumer Financial Protection Bureau
Citigroup
 
CitiFinancial Credit Company
CMBS
 
commercial mortgage-backed securities
Dodd-Frank Act
 
the Dodd-Frank Wall Street Reform and Consumer Protection Act
Exchange Act
 
Securities Exchange Act of 1934, as amended
FA Loans
 
purchased credit impaired finance receivables related to the Fortress Acquisition
FASB
 
Financial Accounting Standards Board
FHLB
 
Federal Home Loan Bank
FICO score
 
a credit score created by Fair Isaac Corporation
Fixed charge ratio
 
earnings less income taxes, interest expense, extraordinary items, goodwill impairment, and any amounts related to discontinued operations, divided by the sum of interest expense and any preferred dividends
Fortress
 
Fortress Investment Group LLC
Fortress Acquisition
 
transaction by which FCFI Acquisition LLC, an affiliate of Fortress, acquired an 80% economic interest of the sole stockholder of SFC for a cash purchase price of $119 million, effective November 30, 2010
GAAP
 
generally accepted accounting principles in the United States of America
Gross charge-off ratio
 
annualized gross charge-offs as a percentage of average net receivables

3





Term or Abbreviation
 
Definition
 
 
 
Independence
 
Independence Holdings, LLC
Indiana DOI
 
Indiana Department of Insurance
Initial Stockholder
 
Springleaf Financial Holdings, LLC
IRS
 
Internal Revenue Service
Junior Subordinated Debenture
 
$350 million aggregate principal amount of 60-year junior subordinated debt issued by SFC under an indenture dated January 22, 2007, by and between SFC and Deutsche Bank Trust Company, as trustee, and guaranteed by OMH
LIBOR
 
London Interbank Offered Rate
Logan Circle
 
Logan Circle Partners, L.P.
Merit
 
Merit Life Insurance Co., an insurance subsidiary of SFC
MetLife
 
MetLife, Inc.
Nationstar
 
Nationstar Mortgage LLC, dba “Mr. Cooper”
Net charge-off ratio
 
annualized net charge-offs as a percentage of average net receivables
Net interest income
 
interest income less interest expense
NRZ
 
New Residential Investment Corp.
ODART
 
OneMain Direct Auto Receivables Trust
OM Loans
 
purchased credit impaired personal loans acquired in the OneMain Acquisition
OMFH
 
OneMain Financial Holdings, LLC
OMFH Indenture
 
Indenture entered into on December 11, 2014, as amended or supplemented from time to time, by OMFH and certain of its subsidiaries in connection with the issuance of the OMFH Notes
OMFH Notes
 
collectively, $700 million aggregate principal amount of 6.75% Senior Notes due 2019 and $800 million in aggregate principal amount of 7.25% Senior Notes due 2021
OMFH Supplemental Indenture
 
Second Supplemental Indenture dated as of November 8, 2016, to the OMFH Indenture
OMFIT
 
OneMain Financial Issuance Trust
OMH
 
OneMain Holdings, Inc.
OneMain
 
OMFH, collectively with its subsidiaries
OneMain Acquisition
 
Acquisition of OneMain from CitiFinancial Credit Company, effective November 1, 2015
OneMain Financial Funding VII LSA
 
Loan and Security Agreement, dated April 13, 2017, among OneMain Financial Funding VII, LLC, certain third party lenders and other third parties pursuant to which OneMain Financial Funding VII, LLC may borrow up to $650 million
OneMain Financial Funding VIII LSA
 
Loan and Security Agreement, dated February 2, 2018, among OneMain Financial Funding VIII, LLC, certain third party lenders and other third parties pursuant to which OneMain Financial Funding VIII, LLC may borrow up to $450 million
OneMain Financial Funding IX LSA
 
Loan and Security Agreement, dated July 14, 2017, among OneMain Financial Funding IX, LLC, certain third party lenders and other third parties pursuant to which OneMain Financial Funding IX, LLC may borrow up to $600 million
Other Securities
 
securities for which the fair value option was elected and equity securities. Other Securities recognize unrealized gains and losses in investment revenues
Other SFC Notes
 
collectively, of SFC’s 8.25% Senior Notes due 2023, 7.75% Senior Notes due 2021, and 6.00% Senior Notes due 2020, on a senior unsecured basis, and the Junior Subordinated Debenture, on a junior subordinated basis, issued by SFC and guaranteed by OMH
Recovery ratio
 
annualized recoveries on net charge-offs as a percentage of average net receivables
Retail sales finance
 
collectively, retail sales contracts and revolving retail accounts
RMBS
 
residential mortgage-backed securities
RSAs
 
restricted stock awards
RSUs
 
restricted stock units
SEC
 
U.S. Securities and Exchange Commission
Securities Act
 
Securities Act of 1933
Segment Accounting Basis
 
a basis used to report the operating results of our segments, which reflects our allocation methodologies for certain costs and excludes the impact of applying purchase accounting
Settlement Agreement
 
a Settlement Agreement with the U.S. Department of Justice entered into by OMH and certain of its subsidiaries on November 13, 2015, in connection with the OneMain Acquisition
SFC
 
Springleaf Finance Corporation

4





Term or Abbreviation
 
Definition
 
 
 
SFC Base Indenture
 
Indenture dated as of December 3, 2014
SFC First Supplemental Indenture
 
First Supplemental Indenture dated as of December 3, 2014, to the SFC Base Indenture
SFC Fourth Supplemental Indenture
 
Fourth Supplemental Indenture dated as of December 8, 2017, to the SFC Base Indenture
SFC Fifth Supplemental Indenture
 
Fifth Supplemental Indenture dated as of March 12, 2018, to the SFC Base Indenture
SFC Guaranty Agreements
 
agreements entered into on December 30, 2013 by OMH whereby it agreed to fully and unconditionally guarantee the payments of principal, premium (if any) and interest on the Other SFC Notes
SFC Notes
 
collectively, the issued and outstanding senior unsecured notes issued pursuant to the SFC senior Notes Indenture
SFC Second Supplemental Indenture
 
Second Supplemental Indenture dated as of April 11, 2016, to the SFC Base Indenture
SFC Senior Notes Indentures

 
the SFC Base Indenture as supplemented by the SFC First Supplemental Indenture, the SFC Second Supplemental Indenture, the SFC Third Supplemental Indenture, the SFC Fourth Supplemental Indenture, and the SFC Fifth Supplemental Indenture
SFC Third Supplemental Indenture
 
Third Supplemental Indenture dated as of May 15, 2017, to the SFC Base Indenture
SFC Trust Guaranty Agreement
 
agreement entered into on December 30, 2013 by OMH whereby it agreed to fully and unconditionally guarantee the related payment obligations under the trust preferred securities in connection with the Junior Subordinated Debenture
SFI
 
Springleaf Finance, Inc.
Share Purchase Agreement
 
Share Purchase Agreement entered into on January 3, 2018, among the Apollo-Värde Group, the Initial Stockholder and the Company to acquire from the Initial Stockholder 54,937,500 shares of our common stock that was issued and outstanding as of such date, representing the entire holdings of our stock beneficially owned by Fortress
SLFT
 
Springleaf Funding Trust
SoftBank
 
SoftBank Group Corporation
SpringCastle Interests Sale
 
the March 31, 2016 sale by SpringCastle Holdings, LLC and Springleaf Acquisition Corporation of the equity interest in the SpringCastle Joint Venture
SpringCastle Joint Venture
 
joint venture among SpringCastle America, LLC, SpringCastle Credit, LLC, SpringCastle Finance, LLC, and SpringCastle Acquisition LLC in which SpringCastle Holdings, LLC previously owned a 47% equity interest in each of SpringCastle America, LLC, SpringCastle Credit, LLC and SpringCastle Finance, LLC and Springleaf Acquisition Corporation previously owned a 47% equity interest in SpringCastle Acquisition LLC
SpringCastle Portfolio
 
loans acquired through the SpringCastle Joint Venture
Springleaf
 
OMH and its subsidiaries (other than OneMain)
Tangible equity
 
total equity less accumulated other comprehensive income or loss
Tangible managed assets
 
total assets less goodwill and other intangible assets
Tax Act
 
Public Law 115-97 amending the Internal Revenue Code of 1986
TDR finance receivables
 
troubled debt restructured finance receivables
Texas DOI
 
Texas Department of Insurance
Triton
 
Triton Insurance Company, an insurance subsidiary of OMFH
Trust preferred securities
 
capital securities classified as debt for accounting purposes but due to their terms are afforded, at least in part, equity capital treatment in the calculation of effective leverage by rating agencies
Unearned finance charges
 
the amount of interest that is capitalized at time of origination on a precompute loan that will be earned over the remaining contractual life of the loan
UPB
 
unpaid principal balance for interest bearing accounts and the gross remaining contractual payments less the unaccreted balance of unearned finance charges for precompute accounts
Värde
 
Värde Partners, Inc.
VIEs
 
variable interest entities
Weighted average interest rate
 
annualized interest expense as a percentage of average debt
Yield
 
annualized finance charges as a percentage of average net receivables
Yosemite
 
Yosemite Insurance Company, an insurance subsidiary of SFC


5





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,
2018
 
December 31,
2017
 
 
 
 
 
Assets
 
 

 
 

Cash and cash equivalents
 
$
1,807

 
$
987

Investment securities
 
1,706

 
1,697

Net finance receivables:
 
 

 
 

Personal loans (includes loans of consolidated VIEs of $10.0 billion in 2018 and $9.8 billion in 2017)
 
14,858

 
14,823

Other receivables
 
129

 
134

Net finance receivables
 
14,987

 
14,957

Unearned insurance premium and claim reserves
 
(585
)
 
(590
)
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $461 million in 2018 and $465 million in 2017)
 
(689
)
 
(697
)
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses
 
13,713

 
13,670

Finance receivables held for sale
 
126

 
132

Restricted cash and restricted cash equivalents (includes restricted cash and restricted cash equivalents of consolidated VIEs of $657 million in 2018 and $482 million in 2017)
 
679

 
498

Goodwill
 
1,422

 
1,422

Other intangible assets
 
428

 
440

Other assets
 
586

 
587

 
 
 
 
 
Total assets
 
$
20,467

 
$
19,433

 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 

 
 

Long-term debt (includes debt of consolidated VIEs of $9.0 billion in 2018 and $8.7 billion in 2017)
 
$
15,898

 
$
15,050

Insurance claims and policyholder liabilities
 
728

 
737

Deferred and accrued taxes
 
72

 
45

Other liabilities (includes other liabilities of consolidated VIEs of $15 million in 2018 and $14 million in 2017)
 
387

 
323

Total liabilities
 
17,085

 
16,155

Commitments and contingent liabilities (Note 14)
 


 

 
 
 
 
 
Shareholders’ equity:
 
 

 
 

Common stock, par value $.01 per share; 2,000,000,000 shares authorized, 135,696,512 and 135,349,638 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively
 
1

 
1

Additional paid-in capital
 
1,563

 
1,560

Accumulated other comprehensive income (loss)
 
(12
)
 
11

Retained earnings
 
1,830

 
1,706

Total shareholders’ equity
 
3,382

 
3,278

 
 
 
 
 
Total liabilities and shareholders’ equity
 
$
20,467

 
$
19,433


See Notes to Condensed Consolidated Financial Statements.

6





ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(dollars in millions, except per share amounts)
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 

Interest income:
 
 
 
 
Finance charges
 
$
859

 
$
756

Finance receivables held for sale originated as held for investment
 
3

 
3

Total interest income
 
862

 
759

 
 
 
 
 
Interest expense
 
200

 
202

 
 
 
 
 
Net interest income
 
662

 
557

 
 
 
 
 
Provision for finance receivable losses
 
254

 
245

 
 
 
 
 
Net interest income after provision for finance receivable losses
 
408

 
312

 
 
 
 
 
Other revenues:
 
 

 
 

Insurance
 
105

 
103

Investment
 
13

 
19

Other
 
19

 
19

Total other revenues
 
137

 
141

 
 
 
 
 
Other expenses:
 
 

 
 

Operating expenses:
 
 

 
 

Salaries and benefits
 
194

 
186

Acquisition-related transaction and integration expenses
 
10

 
23

Other operating expenses
 
128

 
142

Insurance policy benefits and claims
 
45

 
45

Total other expenses
 
377

 
396

 
 
 
 
 
Income before income taxes
 
168

 
57

 
 
 
 
 
Income taxes
 
44

 
24

 
 
 
 
 
Net income
 
$
124

 
$
33

 
 
 
 
 
Share Data:
 
 

 
 

Weighted average number of shares outstanding:
 
 

 
 

Basic
 
135,596,279

 
135,218,586

Diluted
 
135,897,296

 
135,573,167

Earnings per share:
 
 

 
 

Basic
 
$
0.91

 
$
0.25

Diluted
 
$
0.91

 
$
0.25


See Notes to Condensed Consolidated Financial Statements.

7





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

(dollars in millions)
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
Net income
 
$
124

 
$
33

 
 
 
 
 
Other comprehensive income (loss):
 
 

 
 

Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities
 
(24
)
 
10

Foreign currency translation adjustments
 
(3
)
 

Income tax effect:
 
 

 
 

Net unrealized gains (losses) on non-credit impaired available-for-sale securities
 
4

 
(3
)
Other comprehensive income (loss), net of tax, before reclassification adjustments
 
(23
)
 
7

Reclassification adjustments included in net income:
 
 

 
 

Net realized gains on available-for-sale securities
 

 
(4
)
Income tax effect:
 
 

 
 

Net realized gains on available-for-sale securities
 

 
1

Reclassification adjustments included in net income, net of tax
 

 
(3
)
Other comprehensive income (loss), net of tax
 
(23
)
 
4

 
 
 
 
 
Comprehensive income
 
$
101

 
$
37


See Notes to Condensed Consolidated Financial Statements.


8





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

(dollars in millions)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Shareholders’
Equity
Balance, January 1, 2018
 
$
1

 
$
1,560

 
$
11

 
$
1,706

 
$
3,278

Non-cash incentive compensation from Initial Stockholder
 

 
4

 

 

 
4

Share-based compensation expense, net of forfeitures
 

 
5

 

 

 
5

Withholding tax on share-based compensation
 

 
(6
)
 

 

 
(6
)
Other comprehensive income
 

 

 
(23
)
 

 
(23
)
Net income
 

 

 

 
124

 
124

Balance, March 31, 2018
 
$
1

 
$
1,563

 
$
(12
)
 
$
1,830

 
$
3,382

 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2017
 
$
1

 
$
1,548

 
$
(6
)
 
$
1,523

 
$
3,066

Share-based compensation expense, net of forfeitures
 

 
7

 

 

 
7

Withholding tax on share-based compensation
 

 
(5
)
 

 

 
(5
)
Other comprehensive income
 

 

 
4

 

 
4

Net income
 

 

 

 
33

 
33

Balance, March 31, 2017
 
$
1

 
$
1,550

 
$
(2
)
 
$
1,556

 
$
3,105


See Notes to Condensed Consolidated Financial Statements.


9





ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in millions)
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
Cash flows from operating activities
 
 

 
 

Net income
 
$
124

 
$
33

Reconciling adjustments:
 
 

 
 

Provision for finance receivable losses
 
254

 
245

Depreciation and amortization
 
67

 
98

Deferred income tax charge
 
11

 
25

Non-cash incentive compensation from Initial Stockholder
 
4

 

Share-based compensation expense, net of forfeitures
 
5

 
7

Other
 
7

 
(2
)
Cash flows due to changes in other assets and other liabilities
 
83

 
38

Net cash provided by operating activities
 
555

 
444

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Net principal collections (originations) of finance receivables held for investment and held for sale
 
(333
)
 
30

Available-for-sale securities purchased
 
(197
)
 
(132
)
Available-for-sale securities called, sold, and matured
 
156

 
162

Trading and Other Securities called, sold, and matured
 
8

 

Other, net
 
(15
)
 
(1
)
Net cash provided by (used for) investing activities
 
(381
)
 
59

 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Proceeds from issuance of long-term debt, net of commissions
 
2,805

 
366

Repayment of long-term debt
 
(1,972
)
 
(666
)
Withholding tax on share-based compensation
 
(6
)
 
(5
)
Net cash provided by (used for) financing activities
 
827

 
(305
)
 
 
 
 
 
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents
 
1,001

 
198

Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period
 
1,485

 
1,147

Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period
 
$
2,486

 
$
1,345

 
 
 
 
 
Supplemental cash flow information
 
 
 
 
Cash and cash equivalents
 
$
1,807

 
$
787

Restricted cash and restricted cash equivalents
 
679

 
558

Total cash and cash equivalents and restricted cash and restricted cash equivalents
 
$
2,486

 
$
1,345

 
 
 
 
 
Supplemental non-cash activities
 
 
 
 
Net unsettled investment security purchases
 
(5
)
 
(19
)
 

Restricted cash and restricted cash equivalents primarily represent funds required to be used for future debt payments relating to our securitization transactions and escrow deposits.

See Notes to Condensed Consolidated Financial Statements.


10





ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2018

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, 2018, the Initial Stockholder owned approximately 40.5% of OMH’s common stock. The Initial Stockholder is owned by a private equity fund managed by an affiliate of Fortress. On December 27, 2017, SoftBank acquired Fortress and Fortress now operates within SoftBank as an independent business headquartered in New York.

On January 3, 2018, the Apollo-Värde Group entered into a Share Purchase Agreement with the Initial Stockholder and the Company to acquire from the Initial Stockholder 54,937,500 shares of OMH common stock representing the entire holdings of our stock beneficially owned by Fortress. This transaction is expected to close in the second quarter of 2018 and is subject to regulatory approvals and other customary closing conditions.

On February 21, 2018, OMH entered into an underwriting agreement among OMH, the Initial Stockholder and Morgan Stanley & Co. LLC as underwriter in connection with the sale by Springleaf Financial Holdings, LLC of 4,179,678 shares of its Common Stock. These shares were beneficially owned by AIG Capital Corporation (“AIG”), a subsidiary of American International Group, Inc., and represented the entire holdings of our stock beneficially owned by AIG. As disclosed in Note 21 of the Notes to Consolidated Financial Statements in Part II - Item 8 included in our 2017 Annual Report on Form 10-K, certain executives of the Company had previously been granted incentive units that only provide benefits (in the form of distributions) if the Initial Stockholder makes distributions to one or more of its common members that exceed specified amounts. In connection with the sale of our common stock by the Initial Stockholder on February 21, 2018, certain of the specified thresholds were satisfied. In accordance with ASC Topic 710, Compensation-General, we recorded non-cash incentive compensation expense of $4 million in the first quarter of 2018 related to the incentive units with a capital contribution offset such that the impact to overall shareholders’ equity was neutral.

OMH is a financial services holding company whose principal subsidiaries are SFI and Independence. SFI’s principal subsidiary is 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.

BASIS OF PRESENTATION

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

We eliminated all material intercompany accounts and transactions. We made judgments, estimates, and assumptions that affect amounts reported in our condensed consolidated financial statements and disclosures of contingent assets and liabilities. In management’s opinion, the condensed consolidated financial statements include the normal, recurring adjustments necessary for a fair statement of results. 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 2018 presentation, we have reclassified certain items in prior periods of our condensed consolidated financial statements.

The condensed consolidated financial statements in this report should be read in conjunction with the consolidated financial statements and related notes included in our 2017 Annual Report on Form 10-K. We follow the same significant accounting policies for our interim reporting, except for the new accounting pronouncements subsequently adopted and disclosed below.


11





2. Recent Accounting Pronouncements    

ACCOUNTING PRONOUNCEMENTS RECENTLY 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. Management has reviewed this update and other ASU’s that were subsequently issued to further clarify the implementation guidance outlined in ASU 2014-09. The Company’s implementation efforts included the identification of revenue streams that are within the scope of the new guidance and the review of related contracts with customers to determine their effect on certain non-interest income items presented in our consolidated statements of operations and the additional presentation disclosures required. We concluded that substantially all of the Company’s revenues are generated from activities that are outside the scope of this ASU. We adopted the amendments of these ASU’s as of January 1, 2018 and concluded that it does not have a material impact 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 for financial liabilities measured under the fair value option, 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. In February of 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall, which made technical corrections, and improvements to the codification, specifically related to ASU 2016-01. The Company has adopted these ASU’s as of January 1, 2018 using a cumulative-effect adjustment to the balance sheet. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) shall be applied prospectively to equity investments that exist as of the date of adoption of this update. We adopted all other amendments of these ASU’s as of January 1, 2018 and presented this change on a retrospective basis for all periods presented. We concluded that this ASU does not have a material impact on our consolidated financial statements.

In March of 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs, which amends the amortization period for certain purchased callable debt securities held at a premium. This ASU shortens the amortization period for the premium from the adjustment of yield over the contractual life of the instrument to the earliest call date. The amendments in this ASU become effective for the Company for fiscal years beginning January 1, 2019. As the Company’s existing accounting policy was in accordance with the amendments of this ASU, we elected to early adopt as of January 1, 2018 and concluded that it does not have a material impact on our consolidated financial statements.

Statement of Cash Flows

In August of 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted the amendments of this ASU as of January 1, 2018 and concluded that it does not have a material impact on our consolidated financial statements.

Income Taxes

In October of 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. We adopted the amendments of this ASU as of January 1, 2018 and concluded that it does not have a material impact on our consolidated financial statements.


12





Compensation and Benefits

In March of 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, to improve the presentation of the net periodic pension cost and net periodic postretirement benefit costs. It requires that a company present the service cost component separately from other components of net benefit cost on the income statement. We adopted the amendments of this ASU as of January 1, 2018 and concluded that it does not have a material impact on our consolidated financial statements.

In May of 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting, which provides guidance on which changes to the terms or conditions of a share-based payment award requires an entity to apply modification accounting. We adopted the amendments of this ASU as of January 1, 2018 and concluded that it does not have a material impact on our consolidated financial statements.

Goodwill Impairment

In January of 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment, which simplifies the test for goodwill impairment by eliminating Step 2 of the impairment testing process. The amendments in this ASU will become effective for the Company for fiscal years beginning January 1, 2020. We elected to early adopt as of January 1, 2018 and concluded that it does not have a material impact on our consolidated financial statements.

ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED

Leases

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

The amendments in this ASU become effective for the Company for fiscal years beginning January 1, 2019. The Company’s cross-functional implementation team has developed a project plan to ensure we comply with all updates from this ASU at the time of adoption. We are currently in the process of implementing a new leasing system that will allow us to better account for the leases in accordance with the new guidance. We are assessing new system updates to ensure both qualitative and quantitative data requirements will be met at the time of adoption. The Company’s leases primarily consist of leased office space, automobiles and information technology equipment. At December 31, 2017, the Company had approximately $180 million of minimum lease commitments from these operating leases (refer to Note 19 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2017 Annual Report on Form 10-K). The adoption of this ASU will result in an increase in our reported assets and liabilities on the consolidated balance sheets due to the recognition of the right-of-use asset and lease liability, and we are in the process of quantifying the expected impact.

Allowance for Finance Receivables Losses

In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which significantly changes the way that entities will be required to measure credit losses. The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather than the “incurred loss” approach currently required. The new approach will require entities to measure all expected credit losses for financial assets 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. Therefore, we would expect changes in the allowance for finance receivable losses will be driven primarily by the nature and growth of the Company’s loan portfolio and the economic environment at that time.

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.


13





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. The Company’s cross-functional implementation team has developed a project plan to ensure we comply with all updates from this ASU at the time of adoption. We continue to make progress in developing an acceptable model to estimate the expected credit losses. After the model has been reviewed and validated in accordance with our governance policies, the Company will provide further disclosure regarding the estimated impact on our allowance for finance receivables losses. In addition to the development of the model, we are assessing the additional disclosure requirements from this update. We believe the adoption of this ASU will have a material effect on our consolidated financial statements through an increase to the allowance for finance receivable losses and a corresponding one-time cumulative effect reduction to retained earnings in the consolidated balance sheet as of the beginning of the year of adoption. We are in the process of quantifying the expected impacts.

Income Taxes

In February of 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income, which permits the reclassification of stranded tax effects within accumulated other comprehensive income to retained earnings from the passage of the Tax Act. This update requires additional disclosures describing the nature of the stranded tax effects. The amendments within this ASU become effective for the Company for fiscal years beginning after January 1, 2019, with early adoption permitted. We believe that the adoption of this ASU will not have a material impact on our consolidated financial statements.

We do not believe that any other accounting pronouncements issued during the three months ended March 31, 2018, but not yet effective, would have a material impact on our consolidated financial statements or disclosures, if adopted.

3. Finance Receivables    

Our finance receivable types include personal loans and other receivables 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.

Other receivables — consist of our loan portfolios in a liquidating status. We ceased originating real estate loans and purchasing retail sales contracts and revolving retail accounts. We continue to service or sub-service the liquidating real estate loans and retail sales contracts and will provide revolving retail sales financing services on our revolving retail accounts.

Beginning in 2018, we combined real estate and retail sales finance loans into “Other Receivables.” Previously, we presented real estate and retail sales finance loans as distinct receivable types. In order to conform to this new alignment, we have revised our prior period finance receivable disclosures.


14





Components of net finance receivables held for investment by type were as follows:
(dollars in millions)
 
Personal
Loans
 
Other Receivables
 
Total
 
 
 
 
 
 
 
March 31, 2018
 
 

 
 

 
 

Gross receivables (a)(b)
 
$
14,710

 
$
128

 
$
14,838

Unearned points and fees
 
(169
)
 

 
(169
)
Accrued finance charges
 
198

 
1

 
199

Deferred origination costs
 
119

 

 
119

Total
 
$
14,858

 
$
129

 
$
14,987

 
 
 
 
 
 
 
December 31, 2017
 
 

 
 

 
 

Gross receivables (a)(b)
 
$
14,664

 
$
133

 
$
14,797

Unearned points and fees
 
(168
)
 

 
(168
)
Accrued finance charges
 
210

 
1

 
211

Deferred origination costs
 
117

 

 
117

Total
 
$
14,823

 
$
134

 
$
14,957

                                      
(a)
Gross receivables are defined as follows:

Finance receivables purchased as a performing receivable — gross finance receivables equal the UPB and the remaining unearned premium, net of discount established at the time of purchase to reflect the finance receivable balance at its initial fair value;

Finance receivables originated subsequent to the OneMain Acquisition and the Fortress Acquisition — gross finance receivables equal the UPB;

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 and, if applicable, the remaining unearned premium, net of discount established at the time of purchase if previously purchased as a performing receivable.

(b)
As of January 1, 2018, we have reclassified unearned finance charges to gross receivables. To conform to this presentation, we have reclassified the prior period.

At March 31, 2018 and December 31, 2017, unused lines of credit extended to customers by the Company were immaterial.

CREDIT QUALITY INDICATOR

We consider the value and recoverability of collateral, if any, securing a loan at loan origination and the delinquency status of our finance receivables as our primary credit quality indicators. At March 31, 2018 and December 31, 2017, 43% of our personal loans were secured by titled collateral. We monitor delinquency trends to manage our exposure to credit risk. When finance receivables are 60 days contractually past due, we consider these accounts to be at an increased risk for loss and we transfer collection of these accounts to our centralized operations. At 90 days or more contractually past due, we consider our finance receivables to be nonperforming.


15





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
 
Other Receivables
 
Total
 
 
 
 
 
 
 
March 31, 2018
 
 

 
 

 
 

Performing
 
 
 
 
 
 
Current
 
$
14,213

 
$
103

 
$
14,316

30-59 days past due
 
174

 
7

 
181

60-89 days past due
 
134

 
2

 
136

Total performing
 
14,521

 
112

 
14,633

Nonperforming
 
 
 
 
 
 
90-179 days past due
 
329

 
3

 
332

180 days or more past due
 
8

 
14

 
22

Total nonperforming
 
337

 
17

 
354

Total
 
$
14,858

 
$
129

 
$
14,987

 
 
 
 
 
 
 
December 31, 2017
 
 

 
 

 
 

Performing
 
 
 
 
 
 
Current
 
$
14,124

 
$
104

 
$
14,228

30-59 days past due
 
204

 
8

 
212

60-89 days past due
 
157

 
3

 
160

Total performing
 
14,485

 
115

 
14,600

Nonperforming
 
 
 
 
 
 
90-179 days past due
 
332

 
4

 
336

180 days or more past due
 
6

 
15

 
21

Total nonperforming
 
338

 
19

 
357

Total
 
$
14,823

 
$
134

 
$
14,957


PURCHASED CREDIT IMPAIRED FINANCE RECEIVABLES

Our purchased credit impaired finance receivables consist of receivables purchased in connection with the OneMain Acquisition and the Fortress Acquisition.

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 March 31, 2018 and December 31, 2017, finance receivables held for sale totaled $126 million and $132 million, respectively, 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. See Note 5 for further information on our finance receivables held for sale.


16





Information regarding our purchased credit impaired finance receivables held for investment and held for sale were as follows:
(dollars in millions)
 
March 31, 2018
 
December 31, 2017
 
 
 
 
 
OM Loans
 
 
 
 
Carrying amount, net of allowance
 
$
152

 
$
176

Outstanding balance (a)
 
209

 
243

Allowance for purchased credit impaired finance receivable losses
 

 
6

 
 
 
 
 
FA Loans (b)
 
 
 
 
Carrying amount, net of allowance
 
$
54

 
$
57

Outstanding balance (a)
 
91

 
94

Allowance for purchased credit impaired finance receivable losses
 
9

 
9

                                      
(a)
Outstanding balance is defined as UPB of the loans with a net carrying amount.

(b)
Purchased credit impaired FA Loans held for sale included in the table above were as follows:
(dollars in millions)
 
March 31, 2018
 
December 31, 2017
 
 
 
 
 
Carrying amount
 
$
42

 
$
44

Outstanding balance
 
69

 
72


The allowance for purchased credit impaired finance receivable losses at March 31, 2018 and December 31, 2017, reflected the carrying value of the purchased credit impaired loans held for investment being higher than the present value of the expected cash flows.

Changes in accretable yield for purchased credit impaired finance receivables held for investment and held for sale were as follows:
 
 
Three Months Ended March 31,
(dollars in millions)
 
2018
 
2017
 
 
 
 
 
OM Loans
 
 
 
 

Balance at beginning of period
 
$
47

 
$
59

Accretion
 
(6
)
 
(11
)
Reclassifications from nonaccretable difference (a)
 
8

 

Balance at end of period
 
$
49

 
$
48

 
 
 
 
 
FA Loans
 
 
 
 

Balance at beginning of period
 
$
53

 
$
60

Accretion (b)
 
(1
)
 
(1
)
Balance at end of period
 
$
52

 
$
59

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

(b)
Accretion on our purchased credit impaired FA Loans held for sale included in the table above were immaterial for the three months ended March 31, 2018 and 2017.

17





TDR FINANCE RECEIVABLES

Information regarding TDR finance receivables held for investment and held for sale were as follows:
(dollars in millions)
 
Personal
Loans
 
Other Receivables (a)
 
Total
 
 
 
 
 

 
 
March 31, 2018
 
 
 
 

 
 
TDR gross finance receivables (b)
 
$
356

 
$
138

 
$
494

TDR net finance receivables
 
355

 
139

 
494

Allowance for TDR finance receivable losses
 
153

 
12

 
165

 
 
 
 
 

 
 
December 31, 2017
 
 
 
 

 
 
TDR gross finance receivables (b)
 
$
318

 
$
139

 
$
457

TDR net finance receivables
 
318

 
140

 
458

Allowance for TDR finance receivable losses
 
135

 
12

 
147

                                      
(a)
Other Receivables held for sale included in the table above were as follows:
(dollars in millions)
 
March 31,
2018
 
December 31, 2017
 
 
 
 
 

TDR gross finance receivables
 
$
88

 
$
90

TDR net finance receivables
 
89

 
91


(b)
As defined earlier in this Note.

As of March 31, 2018, we had no commitments to lend additional funds on our TDR finance receivables.

TDR average net receivables held for investment and held for sale and finance charges recognized on TDR finance receivables held for investment and held for sale were as follows:
(dollars in millions)
 
Personal
Loans
 
Other Receivables *
 
Total
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
 
 

 
 

 
 

TDR average net receivables
 
$
337

 
$
139

 
$
476

TDR finance charges recognized
 
11

 
2

 
13

 
 
 
 
 
 
 
Three Months Ended March 31, 2017
 
 
 
 
 
 
TDR average net receivables
 
$
153

 
$
134

 
$
287

TDR finance charges recognized
 
6

 
2

 
8

                                      
*
Other Receivables held for sale included in the table above were as follows:
 
 
Three Months Ended March 31,
(dollars in millions)
 
2018
 
2017
 
 
 
 
 
TDR average net receivables
 
$
90

 
$
89

TDR finance charges recognized
 
1

 
1



18





Information regarding the new volume of the TDR finance receivables held for investment and held for sale were as follows:
(dollars in millions)
 
Personal
Loans
 
Other Receivables (a)
 
Total
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
 
 
 
 
 
 
Pre-modification TDR net finance receivables
 
$
94

 
$
2

 
$
96

Post-modification TDR net finance receivables:
 
 
 
 
 
 
Rate reduction
 
$
70

 
$
2

 
$
72

Other (b)
 
24

 

 
24

Total post-modification TDR net finance receivables
 
$
94

 
$
2

 
$
96

Number of TDR accounts
 
14,730

 
29

 
14,759

 
 
 
 
 
 
 
Three Months Ended March 31, 2017
 
 
 
 
 
 
Pre-modification TDR net finance receivables
 
$
44

 
$
3

 
$
47

Post-modification TDR net finance receivables:
 
 
 
 
 


Rate reduction
 
$
39

 
$
3

 
$
42

Other (b)
 
4

 

 
4

Total post-modification TDR net finance receivables
 
$
43

 
$
3

 
$
46

Number of TDR accounts
 
6,438

 
64

 
6,502

                                      
(a)
Other Receivables held for sale included in the table above were immaterial.

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

Personal loans held for investment that were modified as TDR personal loans within the previous 12 months and for which there was a default during the period to cause the TDR personal loans to be considered nonperforming (90 days or more past due) were as follows:
 
 
Three Months Ended March 31,
(dollars in millions)
 
2018
 
2017
 
 
 
 
 

TDR net finance receivables *
 
$
18

 
$
12

Number of TDR accounts
 
2,719

 
1,793

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

TDR other receivables for the three months ended March 31, 2018 and 2017 that defaulted during the previous 12-month period were immaterial.



19





4. Allowance for Finance Receivable Losses    

Changes in the allowance for finance receivable losses by finance receivable type were as follows:
(dollars in millions)
 
Personal
Loans
 
Other
Receivables
 
Consolidated Total
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
 
 

 
 

 
 

Balance at beginning of period
 
$
673

 
$
24

 
$
697

Provision for finance receivable losses
 
254

 

 
254

Charge-offs
 
(289
)
 
(1
)
 
(290
)
Recoveries
 
27

 
1

 
28

Balance at end of period
 
$
665

 
$
24

 
$
689

 
 
 
 
 
 
 
Three Months Ended March 31, 2017
 
 

 
 

 
 

Balance at beginning of period
 
$
669

 
$
20

 
$
689

Provision for finance receivable losses
 
244

 
1

 
245

Charge-offs
 
(296
)
 
(1
)
 
(297
)
Recoveries
 
29

 

 
29

Balance at end of period
 
$
646

 
$
20

 
$
666




20





The allowance for finance receivable losses and net finance receivables by type and by impairment method were as follows:
(dollars in millions)
 
Personal
Loans
 
Other
Receivables
 
Total
 
 
 
 
 
 
 
March 31, 2018
 
 

 
 

 
 

Allowance for finance receivable losses:
 
 

 
 

 
 

Collectively evaluated for impairment
 
$
512

 
$
3

 
$
515

Purchased credit impaired finance receivables
 

 
9

 
9

TDR finance receivables
 
153

 
12

 
165

Total
 
$
665

 
$
24

 
$
689

 
 
 
 
 
 
 
Finance receivables:
 
 

 
 

 
 

Collectively evaluated for impairment
 
$
14,351

 
$
58

 
$
14,409

Purchased credit impaired finance receivables
 
152

 
21

 
173

TDR finance receivables
 
355

 
50

 
405

Total
 
$
14,858

 
$
129

 
$
14,987

 
 
 
 
 
 
 
Allowance for finance receivable losses as a percentage of finance receivables
 
4.47
%
 
18.72
%
 
4.60
%
 
 
 
 
 
 
 
December 31, 2017
 
 

 
 

 
 

Allowance for finance receivable losses:
 
 

 
 

 
 

Collectively evaluated for impairment
 
$
532

 
$
3

 
$
535

Purchased credit impaired finance receivables
 
6

 
9

 
15

TDR finance receivables
 
135

 
12

 
147

Total
 
$
673

 
$
24

 
$
697

 
 
 
 
 
 
 
Finance receivables:
 
 

 
 

 
 

Collectively evaluated for impairment
 
$
14,323

 
$
63

 
$
14,386

Purchased credit impaired finance receivables
 
182

 
22

 
204

TDR finance receivables
 
318

 
49

 
367

Total
 
$
14,823

 
$
134

 
$
14,957

 
 
 
 
 
 
 
Allowance for finance receivable losses as a percentage of finance receivables
 
4.53
%
 
18.27
%
 
4.66
%


21





5. Finance Receivables Held for Sale    

We report finance receivables held for sale of $126 million at March 31, 2018 and $132 million at December 31, 2017, which are carried at the lower of cost or fair value and consist entirely of real estate loans. At March 31, 2018 and December 31, 2017, the fair value of our finance receivables held for sale exceeded the cost. We used the aggregate basis to determine the lower of cost or fair value of finance receivables held for sale.

We did not have any material transfers to or from finance receivables held for sale during the three months ended March 31, 2018 and 2017.

6. Investment Securities    

AVAILABLE-FOR-SALE SECURITIES

Cost/amortized cost, unrealized gains and losses, and fair value of fixed maturity available-for-sale securities by type were as follows:
(dollars in millions)
 
Cost/
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
 
 
 
 
March 31, 2018
 
 

 
 

 
 

 
 

Fixed maturity available-for-sale securities:
 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
$
29

 
$

 
$

 
$
29

Obligations of states, municipalities, and political subdivisions
 
132

 

 
(1
)
 
131

Certificates of deposit and commercial paper
 
39

 

 

 
39

Non-U.S. government and government sponsored entities
 
128

 
1

 
(2
)
 
127

Corporate debt
 
980

 
5

 
(16
)
 
969

Mortgage-backed, asset-backed, and collateralized:
 
 

 
 

 
 

 
 
RMBS
 
122

 

 
(3
)
 
119

CMBS
 
86

 

 
(1
)
 
85

CDO/ABS
 
99

 

 
(1
)
 
98

Total
 
$
1,615

 
$
6

 
$
(24
)
 
$
1,597

 
 
 
 
 
 
 
 
 
December 31, 2017
 
 

 
 

 
 

 
 

Fixed maturity available-for-sale securities:
 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
$
28

 
$

 
$

 
$
28

Obligations of states, municipalities, and political subdivisions
 
135

 

 

 
135

Certificates of deposit and commercial paper
 
60

 

 

 
60

Non-U.S. government and government sponsored entities
 
126

 

 
(1
)
 
125

Corporate debt
 
941

 
12

 
(5
)
 
948

Mortgage-backed, asset-backed, and collateralized:
 
 

 
 

 
 

 
 
RMBS
 
100

 

 
(1
)
 
99

CMBS
 
88

 

 
(1
)
 
87

CDO/ABS
 
96

 

 

 
96

Total
 
$
1,574

 
$
12

 
$
(8
)
 
$
1,578



22





Fair value and unrealized losses on available-for-sale securities by type and length of time in a continuous unrealized loss position were as follows:
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
(dollars in millions)
 
Fair
Value
 
Unrealized
Losses *
 
Fair
Value
 
Unrealized
Losses *
 
Fair
Value
 
Unrealized
Losses
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2018
 
 

 
 

 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
$
18

 
$

 
$
10

 
$

 
$
28

 
$

Obligations of states, municipalities, and political subdivisions
 
91

 
(1
)
 
19

 

 
110

 
(1
)
Non-U.S. government and government sponsored entities
 
100

 
(2
)
 
12

 

 
112

 
(2
)
Corporate debt
 
669

 
(13
)
 
86

 
(3
)
 
755

 
(16
)
RMBS
 
71

 
(2
)
 
24

 
(1
)
 
95

 
(3
)
CMBS
 
45

 

 
34

 
(1
)
 
79

 
(1
)
CDO/ABS
 
56

 
(1
)
 
23

 

 
79

 
(1
)
Total
 
$
1,050

 
$
(19
)
 
$
208

 
$
(5
)
 
$
1,258

 
$
(24
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 

 
 

 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
$
21

 
$

 
$
3

 
$

 
$
24

 
$

Obligations of states, municipalities, and political subdivisions
 
65

 

 
20

 

 
85

 

Non-U.S. government and government sponsored entities
 
89

 
(1
)
 
13

 

 
102

 
(1
)
Corporate debt
 
387

 
(3
)
 
93

 
(2
)
 
480

 
(5
)
RMBS
 
40

 

 
25

 
(1
)
 
65

 
(1
)
CMBS
 
40

 

 
38

 
(1
)
 
78

 
(1
)
CDO/ABS
 
48

 

 
26

 

 
74

 

Total
 
$
690

 
$
(4
)
 
$
218

 
$
(4
)
 
$
908

 
$
(8
)
                                     
*
Unrealized losses on certain available-for-sale securities were less than $1 million and, therefore, are not quantified in the table above.

On a lot basis, we had 1,718 and 1,229 investment securities in an unrealized loss position at March 31, 2018 and December 31, 2017, respectively. We do not consider the unrealized losses to be credit-related, as these unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. Additionally, at March 31, 2018, we had no plans to sell any investment securities with unrealized losses, and we believe it is more likely than not that we would not be required to sell such investment securities before recovery of their amortized cost.

We continue to monitor unrealized loss positions for potential impairments. During the three months ended March 31, 2018 and 2017, we recognized less than $1 million of other-than-temporary impairment credit losses on our available-for-sale securities in investment revenues.

During the three months ended March 31, 2018 and 2017, there were no material additions or reductions in the cumulative amount of credit losses (recognized in earnings) on other-than-temporarily impaired available-for-sale securities.


23





The proceeds of available-for-sale securities sold or redeemed and the resulting net realized gains were as follows:
(dollars in millions)
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
 
 
Proceeds from sales and redemptions
 
$
71

 
$
113

 
 
 
 
 
Net realized gains *
 
$

 
$
4

                                     
*
Realized losses on available-for-sale securities sold or redeemed during the three months ended March 31, 2018 and 2017 were less than $1 million.

Contractual maturities of fixed-maturity available-for-sale securities at March 31, 2018 were as follows:
(dollars in millions)
 
Fair
Value