Toggle SGML Header (+)


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

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

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 October 26, 2018, there were 135,794,189 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, filed with the SEC on February 21, 2018
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
 
$500 million of 6.125% Senior Notes due 2022 issued by SFC on May 15, 2017 and $500 million of 6.125% Senior Notes due 2022 issued by SFC on May 30, 2017 and, in each case, guaranteed by OMH
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
7.125% SFC Notes
 
$900 million of 7.125% Senior Notes due 2026 issued by SFC on May 11, 2018 and $700 million of 7.125% Senior Notes due 2026 issued by SFC on August 10, 2018 and, in each case, 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
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
AIG
 
AIG Capital Corporation, a subsidiary of American International Group, Inc.
AIG Share Sale
 
sale by SFH of 4,179,678 shares of OMH common stock pursuant to an Underwriting Agreement entered into February 21, 2018 among OMH, SFH and Morgan Stanley & Co. LLC
AOCI
 
Accumulated other comprehensive income (loss)
Apollo
 
Apollo Global Management, LLC and its consolidated subsidiaries
Apollo-Värde Group
 
an investor group led by funds managed by Apollo and Värde
Apollo-Värde Transaction
 
the purchase by the Apollo-Värde Group of 54,937,500 shares of OMH common stock from SFH pursuant to the Share Purchase Agreement for an aggregate purchase price of approximately $1.4 billion in cash on June 25, 2018
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
Average 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
BCFP
 
Bureau of Consumer Financial Protection, formerly known as Consumer Financial Protection Bureau (CFPB)
Blackstone
 
collectively, BTO Willow Holdings II, L.P. and Blackstone Family Tactical Opportunities Investment Partnership—NQ—ESC L.P.
CDO
 
collateralized debt obligations
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

3


Term or Abbreviation
 
Definition
 
 
 
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
Independence
 
Independence Holdings, LLC
Indiana DOI
 
Indiana Department of Insurance
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
Merit
 
Merit Life Insurance Co., an insurance subsidiary of SFC
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
Other securities
 
securities for which the fair value option was elected and equity securities. Other Securities recognize unrealized gains and losses in investment revenues
Other SFC Notes
 
collectively, SFC’s 8.25% Senior Notes due 2023, 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 portfolio
 
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, as amended
Segment Accounting Basis
 
a basis used to report the operating results of our segments, which reflects our allocation methodologies for certain costs and excludes the impact of applying purchase accounting
Settlement Agreement
 
a Settlement Agreement with the U.S. Department of Justice entered into by OMH and certain of its subsidiaries on November 13, 2015, in connection with the OneMain Acquisition
SFC
 
Springleaf Finance Corporation
SFC Base Indenture
 
Indenture dated as of December 3, 2014
SFC 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

4


Term or Abbreviation
 
Definition
 
 
 
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 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, the SFC Fifth Supplemental Indenture and the SFC Sixth Supplemental Indenture
SFC Sixth Supplemental Indenture
 
Sixth Supplemental Indenture dated as of May 11, 2018, to the SFC Base 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
SFH
 
Springleaf Financial Holdings LLC, an entity owned primarily by a private equity fund managed by an affiliate of Fortress that sold 54,937,500 shares of OMH’s common stock to the Apollo-Värde Group in the Apollo-Värde Transaction
SFI
 
Springleaf Finance, Inc.
Share Purchase Agreement
 
a share purchase agreement entered into on January 3, 2018, among the Apollo-Värde Group, SFH and the Company to acquire from SFH 54,937,500 shares of our common stock that was issued and outstanding as of such date, representing the entire holdings of our stock beneficially owned by Fortress
SLFT
 
Springleaf Funding Trust
SpringCastle 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
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. Debt restructuring in which a concession is granted to the borrower as a result of economic or legal reasons related to the borrower’s financial difficulties.
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)
 
September 30,
2018
 
December 31,
2017
 
 
 
 
 
Assets
 
 

 
 

Cash and cash equivalents
 
$
1,243

 
$
987

Investment securities
 
1,707

 
1,697

Net finance receivables:
 
 

 
 

Personal loans (includes loans of consolidated VIEs of $9.0 billion in 2018 and $9.8 billion in 2017)
 
15,750

 
14,823

Other receivables
 

 
134

Net finance receivables
 
15,750

 
14,957

Unearned insurance premium and claim reserves
 
(631
)
 
(590
)
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $451 million in 2018 and $465 million in 2017)
 
(706
)
 
(697
)
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses
 
14,413

 
13,670

Finance receivables held for sale
 
207

 
132

Restricted cash and restricted cash equivalents (includes restricted cash and restricted cash equivalents of consolidated VIEs of $478 million in 2018 and $482 million in 2017)
 
495

 
498

Goodwill
 
1,422

 
1,422

Other intangible assets
 
398

 
440

Other assets
 
583

 
587

Total assets
 
$
20,468

 
$
19,433

Liabilities and Shareholders’ Equity
 
 

 
 

Long-term debt (includes debt of consolidated VIEs of $8.1 billion in 2018 and $8.7 billion in 2017)
 
$
15,731

 
$
15,050

Insurance claims and policyholder liabilities
 
689

 
737

Deferred and accrued taxes
 
24

 
45

Other liabilities (includes other liabilities of consolidated VIEs of $15 million in 2018 and $14 million in 2017)
 
384

 
323

Total liabilities
 
16,828

 
16,155

Commitments and contingent liabilities (Note 14)
 


 

 
 
 
 
 
Shareholders’ equity:
 
 

 
 

Common stock, par value $.01 per share; 2,000,000,000 shares authorized, 135,791,943 and 135,349,638 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
 
1

 
1

Additional paid-in capital
 
1,678

 
1,560

Accumulated other comprehensive income (loss)
 
(22
)
 
11

Retained earnings
 
1,983

 
1,706

Total shareholders’ equity
 
3,640

 
3,278

Total liabilities and shareholders’ equity
 
$
20,468

 
$
19,433


See Notes to Condensed Consolidated Financial Statements (Unaudited).

6


ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(dollars in millions, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 

 
 
 

Interest income:
 
 
 
 
 
 
 
 
Finance charges
 
$
930

 
$
805

 
$
2,692

 
$
2,329

Finance receivables held for sale originated as held for investment
 
3

 
3

 
8

 
10

Total interest income
 
933

 
808

 
2,700

 
2,339

 
 
 
 
 
 
 
 
 
Interest expense
 
227

 
207

 
647

 
612

 
 
 
 
 
 
 
 
 
Net interest income
 
706

 
601

 
2,053

 
1,727

 
 
 
 
 
 
 
 
 
Provision for finance receivable losses
 
256

 
243

 
770

 
724

 
 
 
 
 
 
 
 
 
Net interest income after provision for finance receivable losses
 
450

 
358

 
1,283

 
1,003

 
 
 
 
 
 
 
 
 
Other revenues:
 
 

 
 

 
 

 
 

Insurance
 
106

 
107

 
318

 
314

Investment
 
18

 
19

 
50

 
58

Net loss on repurchases and repayments of debt
 

 
(1
)
 
(9
)
 
(29
)
Other
 
20

 
27

 
62

 
71

Total other revenues
 
144

 
152

 
421

 
414

 
 
 
 
 
 
 
 
 
Other expenses:
 
 

 
 

 
 

 
 

Operating expenses:
 
 

 
 

 
 

 
 

Salaries and benefits
 
197

 
185

 
697

 
562

Acquisition-related transaction and integration expenses
 
9

 
22

 
47

 
59

Other operating expenses
 
141

 
134

 
406

 
413

Insurance policy benefits and claims
 
48

 
48

 
144

 
139

Total other expenses
 
395

 
389

 
1,294

 
1,173

 
 
 
 
 
 
 
 
 
Income before income taxes
 
199

 
121

 
410

 
244

 
 
 
 
 
 
 
 
 
Income taxes
 
51

 
52

 
131

 
100

 
 
 
 
 
 
 
 
 
Net income
 
$
148

 
$
69

 
$
279

 
$
144

 
 
 
 
 
 
 
 
 
Share Data:
 
 

 
 

 
 

 
 

Weighted average number of shares outstanding:
 
 

 
 

 
 

 
 

Basic
 
135,756,479

 
135,253,493

 
135,677,811

 
135,240,664

Diluted
 
136,107,045

 
135,711,212

 
135,991,716

 
135,599,369

Earnings per share:
 
 

 
 

 
 

 
 

Basic
 
$
1.09

 
$
0.52

 
$
2.05

 
$
1.07

Diluted
 
$
1.09

 
$
0.51

 
$
2.05

 
$
1.07


See Notes to Condensed Consolidated Financial Statements (Unaudited).

7


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

(dollars in millions)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Net income
 
$
148

 
$
69

 
$
279

 
$
144

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 

 
 

 
 

 
 

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

 
(40
)
 
23

Foreign currency translation adjustments
 
1

 
3

 
(4
)
 
7

Income tax effect:
 
 

 
 

 
 

 
 

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

 
(1
)
 
7

 
(8
)
Retirement plan liability adjustments
 

 

 
2

 

Foreign currency translation adjustments
 

 
(1
)
 
(1
)
 
(3
)
Other comprehensive income (loss), net of tax, before reclassification adjustments
 
(1
)
 
4

 
(36
)
 
19

Reclassification adjustments included in net income:
 
 

 
 

 
 

 
 

Net realized losses (gains) on available-for-sale securities
 

 
(4
)
 
1

 
(12
)
Income tax effect:
 
 

 
 

 
 

 
 

Net realized gains on available-for-sale securities
 

 
2

 

 
4

Reclassification adjustments included in net income, net of tax
 

 
(2
)
 
1

 
(8
)
Other comprehensive income (loss), net of tax
 
(1
)
 
2

 
(35
)
 
11

 
 
 
 
 
 
 
 
 
Comprehensive income
 
$
147

 
$
71

 
$
244

 
$
155


See Notes to Condensed Consolidated Financial Statements (Unaudited).


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 SFH
 

 
110

 

 

 
110

Share-based compensation expense, net of forfeitures
 

 
17

 

 

 
17

Withholding tax on share-based compensation
 

 
(9
)
 

 

 
(9
)
Other comprehensive loss
 

 

 
(35
)
 

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

 

 
2

 
(2
)
 

Net income
 

 

 

 
279

 
279

Balance, September 30, 2018
 
$
1

 
$
1,678

 
$
(22
)
 
$
1,983

 
$
3,640

 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2017
 
$
1

 
$
1,548

 
$
(6
)
 
$
1,523

 
$
3,066

Share-based compensation expense, net of forfeitures
 

 
14

 

 

 
14

Withholding tax on share-based compensation
 

 
(5
)
 

 

 
(5
)
Other comprehensive income
 

 

 
11

 

 
11

Net income
 

 

 

 
144

 
144

Balance, September 30, 2017
 
$
1

 
$
1,557

 
$
5

 
$
1,667

 
$
3,230


See Notes to Condensed Consolidated Financial Statements (Unaudited).


9


ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in millions)
 
Nine Months Ended September 30,
 
2018
 
2017
 
 
 
 
 
Cash flows from operating activities
 
 

 
 

Net income
 
$
279

 
$
144

Reconciling adjustments:
 
 

 
 

Provision for finance receivable losses
 
770

 
724

Depreciation and amortization
 
191

 
265

Deferred income tax charge (benefit)
 
6

 
(32
)
Net loss on repurchases and repayments of debt
 
9

 
29

Non-cash incentive compensation from SFH
 
110

 

Share-based compensation expense, net of forfeitures
 
17

 
14

Other
 
9

 
(12
)
Cash flows due to changes in other assets and other liabilities
 
65

 
108

Net cash provided by operating activities
 
1,456

 
1,240

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Net principal originations of finance receivables held for investment and held for sale
 
(1,703
)
 
(1,582
)
Available-for-sale securities purchased
 
(548
)
 
(508
)
Available-for-sale securities called, sold, and matured
 
438

 
619

Trading and other securities purchased
 
(9
)
 

Trading and other securities called, sold, and matured
 
30

 
9

Other, net
 
(24
)
 
(1
)
Net cash used for investing activities
 
(1,816
)
 
(1,463
)
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Proceeds from issuance of long-term debt, net of commissions
 
5,474

 
3,743

Repayment of long-term debt
 
(4,852
)
 
(3,176
)
Withholding tax on share-based compensation
 
(9
)
 
(5
)
Net cash provided by financing activities
 
613

 
562

 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 

 
1

 
 
 
 
 
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents
 
253

 
340

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
 
1,738

 
1,487

 
 
 
 
 
Supplemental cash flow information
 
 
 
 
Cash and cash equivalents
 
1,243

 
916

Restricted cash and restricted cash equivalents
 
495

 
571

Total cash and cash equivalents and restricted cash and restricted cash equivalents
 
$
1,738

 
$
1,487

 
 
 
 
 
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)
 
$
111

 
$

Transfer of finance receivables to real estate owned
 
5

 
7

 

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 (Unaudited).

10


ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 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 December 31, 2017, prior to the Apollo-Värde and AIG Share Sale transactions described below, Springleaf Financial Holdings LLC (“SFH”), owned approximately 44% of OMH’s common stock. SFH was owned primarily by a private equity fund managed by an affiliate of Fortress Investment Group LLC (“Fortress”). At September 30, 2018, an investor group led by funds managed by Apollo and Värde (the “Apollo-Värde Group”) owned approximately 40.5% of OMH’s common stock.

OMH is a financial services holding company whose principal subsidiary is Springleaf Finance, Inc. (“SFI”). SFI’s principal subsidiary is Springleaf Finance Corporation (“SFC”). On June 22, 2018, SFI entered into a contribution agreement with OMH, whereby OMH contributed all of the common interests of Independence Holdings, LLC (“Independence”) to SFI. Immediately thereafter, SFI entered into a separate contribution agreement with SFC, pursuant to which SFI contributed all of the common interests of Independence to SFC. As a result of the contribution from SFI to SFC, Independence became a wholly owned direct subsidiary of SFC on June 22, 2018. Independence, through its wholly owned subsidiary OneMain Financial Holdings, LLC (“OMFH”) and OMFH’s subsidiaries, and SFC engage in the consumer finance and insurance businesses.

Apollo-Värde Transaction

On January 3, 2018, the Apollo-Värde Group entered into a share purchase agreement with SFH and the Company to acquire from SFH 54,937,500 shares of OMH’s common stock, par value $0.01 per share, at a purchase price per share of $26.00, representing the entire holdings of our common stock beneficially owned by Fortress (the “Share Purchase Agreement”). This transaction (the “Apollo-Värde Transaction”) closed on June 25, 2018 for an aggregate purchase price of approximately $1.4 billion in cash. The Share Purchase Agreement was filed as Exhibit 10.1, to our Current Report on Form 8-K filed with the SEC on January 4, 2018. As provided for in the Share Purchase Agreement, in accordance with the Amended and Restated Stockholders’ Agreement, the Apollo-Värde Group has the ability to designate six (6) of the nine (9) directors.

Upon closing of the Apollo-Värde Transaction, we entered into an Amended and Restated Stockholders’ Agreement, the terms of which are described in our Current Report on Form 8-K, filed with the SEC on June 25, 2018. 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 SFH makes distributions to one or more of its common members that exceed specified amounts. In connection with the Apollo-Värde Transaction, certain executive officers who are holders of SFH incentive units received a distribution of approximately $106 million in the aggregate from SFH as a result of their ownership interests in SFH. Although the distribution was not made by the Company or its subsidiaries, in accordance with ASC Topic 710, Compensation-General, we recorded non-cash incentive compensation expense of approximately $106 million, with an equal and offsetting increase to additional paid-in-capital. The impact to the Company was non-cash, equity neutral and not tax deductible.

AIG Share Sale Transaction

On February 21, 2018, the Company entered into an underwriting agreement among OMH, SFH and Morgan Stanley & Co. LLC as underwriter in connection with the sale by SFH 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. In connection with this sale of our common stock by SFH, certain executive officers who are holders of SFH incentive units, as described above, received a distribution of approximately $4 million in the first quarter of 2018. Consistent with the accounting for distribution from the Apollo-Värde Transaction described above, the Company recognized non-cash incentive compensation expense of approximately $4 million, with an equal and offsetting increase to additional paid-in-capital. Again, the impact to the Company was non-cash, equity neutral and not tax deductible.


11


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 in Note 2 below.

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 ASUs 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 this ASU as of January 1, 2018 and concluded they do 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 ASUs 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 ASUs as of January 1, 2018 and presented this change on a retrospective basis for all periods presented. We concluded that these ASUs do 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.


12


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 they do 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 they do not have a material impact on our consolidated financial statements.

In February of 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income: Reclassifications of Certain Tax Effects from Accumulated Other 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 elected to early adopt as of April 1, 2018 and reclassified $2 million of stranded tax effects resulting in a decrease to retained earnings and an increase to accumulated other comprehensive income.

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 they do 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 they do 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 ASUs 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 continues to make progress in line with the established project plan to ensure we comply with all updates from this ASU at the time of adoption. 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 in the final phase of 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

13


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.

In July of 2018, the FASB issued ASU 2018-11, Leases: Targeted Improvements, which allows for a transition option to adopt the standard on the date of initial application as opposed to the modified retrospective approach. We plan to make the election to adopt the standard using this transition relief.

Allowance for Finance Receivable Losses

In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which significantly changes the way that entities will be required to measure credit losses. The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather than the “incurred loss” approach currently required. The new approach will require entities to measure all expected credit losses for financial assets over their expected lives based on historical experience, current conditions, and reasonable forecasts of collectability. 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 ongoing 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.

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 continues to make progress in line with the established project plan to ensure we comply with all updates from this ASU at the time of adoption. We continue to refine the development of an acceptable model to estimate the expected credit losses in accordance with our model governance policies. After the model has been subject to a parallel testing phase in 2019, the Company will provide further disclosure regarding the estimated impact on our allowance for finance receivable losses. In addition to the development of the model, we are assessing the additional disclosure requirements from this update and the impact the adoption may have on any available-for-sale securities held by the Company. 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.

Insurance

In August of 2018, the FASB issued ASU 2018-12, Financial Services - Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts, which provides targeted improvements to Topic 944 for the assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited-payment contracts; measurement of market risk benefits; amortization of deferred acquisition costs; and enhanced disclosures. The amendments in this ASU become effective for fiscal years beginning January 1, 2021. We are currently evaluating the potential impact of the adoption of the ASU on our consolidated financial statements.

We do not believe that any other accounting pronouncements issued during the nine months ended September 30, 2018, but not yet effective, would have a material impact on our consolidated financial statements or disclosures, if adopted.


14


3. Finance Receivables    

Our finance receivables consist of personal loans and, prior to September 30, 2018, also included 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 in 2012 and purchasing retail sales contracts and revolving retail accounts (“retail sales finance portfolio”) in 2013. 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 loans and retail sales finance portfolio into “Other Receivables.” Previously, we presented real estate loans and retail sales finance portfolio as distinct receivable types. In order to conform to this new alignment, we have revised our prior period finance receivable disclosures.

On September 30, 2018, we transferred our real estate loans previously classified as Other Receivables from held for investment to held for sale due to management’s intent to no longer hold these finance receivables for the foreseeable future. See Notes 4 and 5 included in this report for additional information related to this transfer.

Components of net finance receivables held for investment by type were as follows:
(dollars in millions)
 
Personal
Loans
 
Other Receivables
 
Total
 
 
 
 
 
 
 
September 30, 2018
 
 

 
 

 
 

Gross receivables (a)(b)
 
$
15,579

 
$

 
$
15,579

Unearned points and fees
 
(193
)
 

 
(193
)
Accrued finance charges
 
233

 

 
233

Deferred origination costs
 
131

 

 
131

Total
 
$
15,750

 
$

 
$
15,750

 
 
 
 
 
 
 
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 discount, net of premium 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 September 30, 2018 and December 31, 2017, unused lines of credit extended to customers by the Company were immaterial.


15


CREDIT QUALITY INDICATOR

We consider the value and concentration of secured loans and the delinquency status of our finance receivables as our primary credit quality indicators. At September 30, 2018 and December 31, 2017, 46% and 43% of our personal loans were secured by titled collateral, respectively. We monitor delinquency trends to manage our exposure to credit risk. When finance receivables are 60 days contractually past due, we consider these accounts to be at an increased risk for loss and we transfer collection of these accounts to our centralized operations. At 90 days or more contractually past due, we consider our finance receivables to be nonperforming.

The following is a summary of net finance receivables held for investment by type and by number of days delinquent:
(dollars in millions)
 
Personal
Loans
 
Other Receivables
 
Total
 
 
 
 
 
 
 
September 30, 2018
 
 

 
 

 
 

Performing
 
 
 
 
 
 
Current
 
$
15,063

 
$

 
$
15,063

30-59 days past due
 
215

 

 
215

60-89 days past due
 
152

 

 
152

Total performing
 
15,430

 

 
15,430

Nonperforming
 
 
 
 
 
 
90-179 days past due
 
314

 

 
314

180 days or more past due
 
6

 

 
6

Total nonperforming
 
320

 

 
320

Total
 
$
15,750

 
$

 
$
15,750

 
 
 
 
 
 
 
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 September 30, 2018 and December 31, 2017, finance receivables held for sale totaled $207 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)
 
September 30,
2018
 
December 31, 2017
 
 
 
 
 
OM Loans
 
 
 
 
Carrying amount, net of allowance
 
$
107

 
$
176

Outstanding balance (a)
 
156

 
243

Allowance for purchased credit impaired finance receivable losses
 

 
6

 
 
 
 
 
FA Loans (b)
 
 
 
 
Carrying amount, net of allowance
 
$
51

 
$
57

Outstanding balance (a)
 
87

 
94

Allowance for purchased credit impaired finance receivable losses
 

 
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)
 
September 30, 2018
 
December 31, 2017
 
 
 
 
 
Carrying amount
 
$
51

 
$
44

Outstanding balance
 
87

 
72


The allowance for purchased credit impaired finance receivable losses reflects 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
September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
OM Loans
 
 
 
 

 
 
 
 
Balance at beginning of period
 
$
52

 
$
49

 
$
47

 
$
59

Accretion
 
(7
)
 
(7
)
 
(21
)
 
(27
)
Reclassifications from (to) nonaccretable difference (a)
 

 

 
19

 
10

Balance at end of period
 
$
45

 
$
42

 
$
45

 
$
42

 
 
 
 
 
 
 
 
 
FA Loans
 
 
 
 

 
 
 
 
Balance at beginning of period
 
$
51

 
$
55

 
$
53

 
$
60

Accretion (b)
 
(1
)
 
(1
)
 
(3
)
 
(4
)
Reclassifications from (to) nonaccretable difference (a)
 

 

 

 
(2
)
Balance at end of period
 
$
50

 
$
54

 
$
50

 
$
54

                                      
(a)
Reclassifications from (to) nonaccretable difference represents the increases (decreases) in accretable yield resulting from higher (lower)
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 and nine months ended September 30, 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
 
 
 
 
 

 
 
September 30, 2018
 
 
 
 

 
 
TDR gross finance receivables (b)
 
$
407

 
$
132

 
$
539

TDR net finance receivables
 
410

 
133

 
543

Allowance for TDR finance receivable losses
 
160

 

 
160

 
 
 
 
 

 
 
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)
 
September 30,
2018
 
December 31, 2017
 
 
 
 
 

TDR gross finance receivables
 
$
132

 
$
90

TDR net finance receivables
 
133

 
91


(b)
As defined earlier in this Note.

As of September 30, 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 September 30, 2018
 
 

 
 

 
 

TDR average net receivables
 
$
396

 
$
134

 
$
530

TDR finance charges recognized
 
11

 
2

 
13

 
 
 
 
 
 
 
Three Months Ended September 30, 2017
 
 
 
 
 
 
TDR average net receivables
 
$
268

 
$
142

 
$
410

TDR finance charges recognized
 
9

 
3

 
12

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

 
$
136

 
$
502

TDR finance charges recognized
 
34

 
6

 
40

 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
 
 
 
 
 
TDR average net receivables
 
$
206

 
$
139

 
$
345

TDR finance charges recognized
 
24

 
7

 
31


18


                                          
*    Other Receivables held for sale included in the table above were as follows:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollars in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
TDR average net receivables
 
$
102

 
$
92

 
$
93

 
$
90

TDR finance charges recognized
 
1

 
2

 
4

 
5


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 September 30, 2018
 
 

 
 

 
 

Pre-modification TDR net finance receivables
 
$
91

 
$
1

 
$
92

Post-modification TDR net finance receivables:
 
 
 
 
 
 
Rate reduction
 
$
73

 
$
1

 
$
74

Other (b)
 
18

 

 
18

Total post-modification TDR net finance receivables
 
$
91

 
$
1

 
$
92

Number of TDR accounts
 
13,729

 
17

 
13,746

 
 
 
 
 
 
 
Three Months Ended September 30, 2017
 
 
 
 
 
 
Pre-modification TDR net finance receivables
 
$
77

 
$
1

 
$
78

Post-modification TDR net finance receivables:
 
 
 
 
 
 
Rate reduction
 
$
60

 
$
2

 
$
62

Other (b)
 
17

 

 
17

Total post-modification TDR net finance receivables
 
$
77

 
$
2

 
$
79

Number of TDR accounts
 
11,272

 
63

 
11,335

 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
Pre-modification TDR net finance receivables
 
$
270

 
$
2

 
$
272

Post-modification TDR net finance receivables:
 
 
 
 
 
 
Rate reduction
 
$
206

 
$
3

 
$
209

Other (b)
 
64

 

 
64

Total post-modification TDR net finance receivables
 
$
270

 
$
3

 
$
273

Number of TDR accounts
 
41,237

 
61

 
41,298

 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
 
 
 
 
 
Pre-modification TDR net finance receivables
 
$
236

 
$
14

 
$
250

Post-modification TDR net finance receivables:
 
 
 
 
 


Rate reduction
 
$
178

 
$
15

 
$
193

Other (b)
 
56

 

 
56

Total post-modification TDR net finance receivables
 
$
234

 
$
15

 
$
249

Number of TDR accounts
 
32,293

 
477

 
32,770

                                      
(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.


19


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
September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 

 
 
 
 
TDR net finance receivables *
 
$
12

 
$
21

 
$
48

 
$
63

Number of TDR accounts
 
1,880

 
3,759

 
7,221

 
10,357

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

TDR other receivables for the three and nine months ended September 30, 2018 and 2017 that defaulted during the previous 12-month period were immaterial.

4. Allowance for Finance Receivable Losses    

Changes in the allowance for finance receivable losses by finance receivable type were as follows:
(dollars in millions)
 
Personal
Loans
 
Other
Receivables
 
Total
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 

 
 

 
 

Balance at beginning of period
 
$
678

 
$
24

 
$
702

Provision for finance receivable losses
 
257

 
(1
)
 
256

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

 
1

 
27

Other*
 

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

 
$

 
$
706

 
 
 
 
 
 
 
Three Months Ended September 30, 2017
 
 

 
 

 
 

Balance at beginning of period
 
$
656

 
$
20

 
$
676

Provision for finance receivable losses
 
238

 
5

 
243

Charge-offs
 
(245
)
 
(1
)
 
(246
)
Recoveries
 
24

 
1

 
25

Balance at end of period
 
$
673

 
$
25

 
$
698

 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 

 
 

 
 

Balance at beginning of period
 
$
673

 
$
24

 
$
697

Provision for finance receivable losses
 
772

 
(2
)
 
770

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

 
3

 
85

Other*
 

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

 
$

 
$
706

 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
 

 
 

 
 

Balance at beginning of period
 
$
669

 
$
20

 
$
689

Provision for finance receivable losses
 
717

 
7

 
724

Charge-offs
 
(794
)
 
(4
)
 
(798
)
Recoveries
 
81

 
2

 
83

Balance at end of period
 
$
673

 
$
25

 
$
698

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

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
 
 
 
 
 
 
 
September 30, 2018
 
 

 
 

 
 

Allowance for finance receivable losses:
 
 

 
 

 
 

Collectively evaluated for impairment
 
$
546

 
$

 
$
546

TDR finance receivables
 
160

 

 
160

Total
 
$
706

 
$

 
$
706

 
 
 
 
 
 
 
Finance receivables:
 
 

 
 

 
 

Collectively evaluated for impairment
 
$
15,233

 
$

 
$
15,233

Purchased credit impaired finance receivables
 
107

 

 
107

TDR finance receivables
 
410

 

 
410

Total
 
$
15,750

 
$

 
$
15,750

 
 
 
 
 
 
 
Allowance for finance receivable losses as a percentage of finance receivables
 
4.48
%
 
%
 
4.48
%
 
 
 
 
 
 
 
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