UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20182019
OR
¨oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period fromto
Commission file number 001-36129
ONEMAIN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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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 registrantregistrant: (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 þNo 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, 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.
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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 oNo þ
At May 1, 2018, there were 135,705,927 shares of the registrant’s common stock, $0.01 par value, outstanding.
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Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | | OMF | | New York Stock Exchange LLC |
At April 30, 2019, there were 136,093,799 shares of the registrant’s common stock, $0.01 par value, outstanding.
TABLE OF CONTENTS
GLOSSARY
Terms and abbreviations used in this report are defined below.
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Term or Abbreviation | | Definition |
| | |
20172018 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 SFC2018, filed with the SEC on MayFebruary 15, 2017 and guaranteed by OMH2019 |
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 Notes2024 | | $1.0 billion of 8.25%6.125% Senior Notes due 20202024 issued by SFC on April 11, 2016February 22, 2019 and guaranteed by OMH |
ABS | | asset-backed securities |
Accretable yield | | the excess of the cash flows expected to be collected on the purchased credit impaired finance receivables over the discounted cash flows |
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 |
AIG | | AIG Capital Corporation, a subsidiary of American International Group, Inc. |
AIG Share Sale Transaction | | sale by SFH of 4,179,678 shares of OMH common stock pursuant to an Underwriting Agreement entered into February 21, 2018 among OMH, SFH and Morgan Stanley & Co. LLC |
AOCI | | Accumulated other comprehensive income (loss) |
Apollo | | Apollo Global Management, LLC and its consolidated subsidiaries |
Apollo-Värde 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 |
Apollo-Värde Transaction | | the purchase by the Apollo-Värde Group of 54,937,500 shares of OMH common stock from SFH pursuant to the Share Purchase Agreement for an aggregate purchase price of approximately $1.4 billion in cash on June 25, 2018 |
ASC | | Accounting Standards Codification |
ASU | | Accounting Standards Update |
Average daily debt balance | | average of debt for each day in the period |
Average net receivables | | average of monthly average net finance receivables (net finance receivables at the beginning and end of each month divided by two) in the period |
Blackstone | | collectively, BTO Willow Holdings II, L.P. and Blackstone Family Tactical Opportunities Investment Partnership—NQ—ESC L.P. |
BPS | | basis points |
CDO | | collateralized debt obligations |
CFPB | | Consumer Financial Protection Bureau |
Citigroup | | CitiFinancial Credit Company |
CMBS | | commercial mortgage-backed securities |
Dodd-Frank ActContribution | | On June 22, 2018, SFC entered into a Contribution Agreement with SFI, a wholly-owned subsidiary of OMH. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection ActContribution Agreement, Independence was contributed by SFI to SFC. |
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 |
FHLBFebruary 2019 Real Estate Loan Sale | | Federal Home Loan BankSFC and certain of its subsidiaries sold a portfolio of real estate loans with a carrying value of $16 million, classified in finance receivables held for sale, for aggregate cash proceeds of $19 million on February 5, 2019. |
FICO score | | a credit score created by Fair Isaac Corporation |
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 |
Indenture | | the SFC Base Indenture, together with all subsequent Supplemental Indentures |
Independence | | Independence Holdings, LLC |
Indiana DOI | | Indiana Department of Insurance |
Investment Company Act | | Investment Company Act of 1940 |
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Term or Abbreviation | | Definition |
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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,OneMain Financial Holdings, LLC, 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 Securitiessecurities | | 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 |
PRSUs | | performance-based RSUs |
Recovery ratio | | annualized recoveries on net charge-offs as a percentage of average net receivables |
Retail sales finance portfolio | | collectively, retail sales finance contracts and revolving retail accounts |
RMBS | | residential mortgage-backed securities |
RSAs | | restricted stock awards |
RSUs | | restricted stock units |
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 |
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Term or Abbreviation | | Definition |
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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
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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 and the SFC Sixth Supplemental Indenture |
SFC ThirdSeventh Supplemental Indenture | | ThirdSeventh Supplemental Indenture, dated as of May 15, 2017,February 22, 2019, to the SFC Base Indenture |
SFC Trust Guaranty AgreementSFH | | agreement entered into on December 30, 2013Springleaf Financial Holdings, LLC, an entity owned primarily by OMH whereby it agreeda private equity fund managed by an affiliate of Fortress that sold 54,937,500 shares of OMH’s common stock to fully and unconditionally guarantee the related payment obligations underApollo-Värde Group in the trust preferred securities in connection with the Junior Subordinated DebentureApollo-Värde Transaction |
SFI | | Springleaf Finance, Inc. |
Share Purchase Agreement | | Share Purchase Agreementa share purchase agreement entered into on January 3, 2018, among the Apollo-Värde Group, the Initial StockholderSFH and the Company to acquire from the Initial StockholderSFH 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 |
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Term or Abbreviation | | Definition |
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TDR finance receivables | | troubled debt restructured finance receivables |
Texas DOI | | Texas Departmentreceivables.Debt restructuring in which a concession is granted to the borrower as a result of Insuranceeconomic or legal reasons related to the borrower’s financial difficulties. |
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 |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
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Item 1. Financial Statements. |
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
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(dollars in millions, except par value amount) | | March 31, 2018 | | December 31, 2017 | | March 31, 2019 | | December 31, 2018 |
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Assets | | |
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| | |
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Cash and cash equivalents | | $ | 1,807 |
| | $ | 987 |
| | $ | 1,709 |
| | $ | 679 |
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Investment securities | | 1,706 |
| | 1,697 |
| | 1,743 |
| | 1,694 |
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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 |
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Other receivables | | 129 |
| | 134 |
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Net finance receivables | | 14,987 |
| | 14,957 |
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Net finance receivables (includes loans of consolidated VIEs of $9.1 billion in 2019 and $8.5 billion in 2018) | | | 16,136 |
| | 16,164 |
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Unearned insurance premium and claim reserves | | (585 | ) | | (590 | ) | | (668 | ) | | (662 | ) |
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $461 million in 2018 and $465 million in 2017) | | (689 | ) | | (697 | ) | |
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $430 million in 2019 and $444 million in 2018) | | | (733 | ) | | (731 | ) |
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses | | 13,713 |
| | 13,670 |
| | 14,735 |
| | 14,771 |
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Finance receivables held for sale | | 126 |
| | 132 |
| | 78 |
| | 103 |
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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 |
| |
Restricted cash and restricted cash equivalents (include restricted cash and restricted cash equivalents of consolidated VIEs of $558 million in 2019 and $479 million in 2018) | | | 575 |
| | 499 |
|
Goodwill | | 1,422 |
| | 1,422 |
| | 1,422 |
| | 1,422 |
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Other intangible assets | | 428 |
| | 440 |
| | 372 |
| | 388 |
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Other assets | | 586 |
| | 587 |
| | 724 |
| | 534 |
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Total assets | | $ | 20,467 |
| | $ | 19,433 |
| | $ | 21,358 |
| | $ | 20,090 |
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Liabilities and Shareholders’ Equity | | |
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Long-term debt (includes debt of consolidated VIEs of $9.0 billion in 2018 and $8.7 billion in 2017) | | $ | 15,898 |
| | $ | 15,050 |
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Long-term debt (includes debt of consolidated VIEs of $8.1 billion in 2019 and $7.5 billion in 2018) | | | $ | 16,117 |
| | $ | 15,178 |
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Insurance claims and policyholder liabilities | | 728 |
| | 737 |
| | 642 |
| | 685 |
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Deferred and accrued taxes | | 72 |
| | 45 |
| | 81 |
| | 45 |
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Other liabilities (includes other liabilities of consolidated VIEs of $15 million in 2018 and $14 million in 2017) | | 387 |
| | 323 |
| |
Other liabilities (includes other liabilities of consolidated VIEs of $16 million in 2019 and $14 million in 2018) | | | 568 |
| | 383 |
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Total liabilities | | 17,085 |
| | 16,155 |
| | 17,408 |
| | 16,291 |
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Commitments and contingent liabilities (Note 14) | |
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Commitments and contingent liabilities (Note 13) | | |
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Shareholders’ equity: | | |
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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 |
| |
Common stock, par value $.01 per share; 2,000,000,000 shares authorized, 136,082,463 and 135,832,278 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively | | | 1 |
| | 1 |
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Additional paid-in capital | | 1,563 |
| | 1,560 |
| | 1,682 |
| | 1,681 |
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Accumulated other comprehensive income (loss) | | (12 | ) | | 11 |
| |
Accumulated other comprehensive loss | | | (2 | ) | | (34 | ) |
Retained earnings | | 1,830 |
| | 1,706 |
| | 2,269 |
| | 2,151 |
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Total shareholders’ equity | | 3,382 |
| | 3,278 |
| | 3,950 |
| | 3,799 |
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Total liabilities and shareholders’ equity | | $ | 20,467 |
| | $ | 19,433 |
| | $ | 21,358 |
| | $ | 20,090 |
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See Notes to the Condensed Consolidated Financial Statements.
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
| | (dollars in millions, except per share amounts) | | Three Months Ended March 31, | |
| | Three Months Ended March 31, |
(dollars in millions, except per share amounts) | | 2018 | | 2017 | | 2019 | | 2018 |
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| | | |
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Interest income: | | | | | | | | |
Finance charges | | $ | 859 |
| | $ | 756 |
| | $ | 953 |
| | $ | 859 |
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Finance receivables held for sale originated as held for investment | | 3 |
| | 3 |
| |
Finance receivables held for sale | | | 3 |
| | 3 |
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Total interest income | | 862 |
| | 759 |
| | 956 |
| | 862 |
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Interest expense | | 200 |
| | 202 |
| | 236 |
| | 200 |
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Net interest income | | 662 |
| | 557 |
| | 720 |
| | 662 |
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| | | | | | | | |
Provision for finance receivable losses | | 254 |
| | 245 |
| | 286 |
| | 254 |
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Net interest income after provision for finance receivable losses | | 408 |
| | 312 |
| | 434 |
| | 408 |
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Other revenues: | | |
| | |
| | |
| | |
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Insurance | | 105 |
| | 103 |
| | 110 |
| | 105 |
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Investment | | 13 |
| | 19 |
| | 26 |
| | 13 |
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Net loss on repurchases and repayments of debt | | | (21 | ) | | (1 | ) |
Net gain on sale of real estate loans | | | 3 |
| | — |
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Other | | 19 |
| | 19 |
| | 30 |
| | 20 |
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Total other revenues | | 137 |
| | 141 |
| | 148 |
| | 137 |
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Other expenses: | | |
| | |
| | |
| | |
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Operating expenses: | | |
| | |
| |
Salaries and benefits | | 194 |
| | 186 |
| | 199 |
| | 199 |
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Acquisition-related transaction and integration expenses | | 10 |
| | 23 |
| |
Other operating expenses | | 128 |
| | 142 |
| | 136 |
| | 133 |
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Insurance policy benefits and claims | | 45 |
| | 45 |
| | 45 |
| | 45 |
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Total other expenses | | 377 |
| | 396 |
| | 380 |
| | 377 |
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| | | | | | | | |
Income before income taxes | | 168 |
| | 57 |
| | 202 |
| | 168 |
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| | | | | | | | |
Income taxes | | 44 |
| | 24 |
| | 50 |
| | 44 |
|
| | | | | | | | |
Net income | | $ | 124 |
| | $ | 33 |
| | $ | 152 |
| | $ | 124 |
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| | | | | | | | |
Share Data: | | |
| | |
| | |
| | |
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Weighted average number of shares outstanding: | | |
| | |
| | |
| | |
|
Basic | | 135,596,279 |
| | 135,218,586 |
| | 136,001,996 |
| | 135,596,279 |
|
Diluted | | 135,897,296 |
| | 135,573,167 |
| | 136,191,283 |
| | 135,897,296 |
|
Earnings per share: | | |
| | |
| | |
| | |
|
Basic | | $ | 0.91 |
| | $ | 0.25 |
| | $ | 1.12 |
| | $ | 0.91 |
|
Diluted | | $ | 0.91 |
| | $ | 0.25 |
| | $ | 1.11 |
| | $ | 0.91 |
|
See Notes to the Condensed Consolidated Financial Statements.
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
| | (dollars in millions) | | Three Months Ended March 31, | |
| | Three Months Ended March 31, |
(dollars in millions) | | 2018 | | 2017 | | 2019 | | 2018 |
| Net income | | $ | 124 |
| | $ | 33 |
| | $ | 152 |
| | $ | 124 |
|
| | | | | | | | |
Other comprehensive income (loss): | | |
| | |
| | |
| | |
|
Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities | | (24 | ) | | 10 |
| | 39 |
| | (24 | ) |
Foreign currency translation adjustments | | (3 | ) | | — |
| | 2 |
| | (3 | ) |
Income tax effect: | | |
| | |
| | |
| | |
|
Net unrealized gains (losses) on non-credit impaired available-for-sale securities | | 4 |
| | (3 | ) | | (9 | ) | | 4 |
|
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 |
| | 32 |
| | (23 | ) |
| | | | | | | | |
Comprehensive income | | $ | 101 |
| | $ | 37 |
| | $ | 184 |
| | $ | 101 |
|
See Notes to the Condensed Consolidated Financial Statements.
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 | | 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 |
| |
| | | | | | | | | | | |
Balance, January 1, 2019 | | | $ | 1 |
| | $ | 1,681 |
| | $ | (34 | ) | | $ | 2,151 |
| | $ | 3,799 |
|
Share-based compensation expense, net of forfeitures | | — |
| | 5 |
| | — |
| | — |
| | 5 |
| | — |
| | 6 |
| | — |
| | — |
| | 6 |
|
Withholding tax on share-based compensation | | — |
| | (6 | ) | | — |
| | — |
| | (6 | ) | | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
Other comprehensive income | | — |
| | — |
| | (23 | ) | | — |
| | (23 | ) | | — |
| | — |
| | 32 |
| | — |
| | 32 |
|
Cash Dividends * | | | — |
| | — |
| | — |
| | (34 | ) | | (34 | ) |
Net income | | | — |
| | — |
| | — |
| | 152 |
| | 152 |
|
Balance, March 31, 2019 | | | $ | 1 |
| | $ | 1,682 |
| | $ | (2 | ) | | $ | 2,269 |
| | $ | 3,950 |
|
| | | | | | | | | | | |
Balance, January 1, 2018 | | | $ | 1 |
| | $ | 1,560 |
| | $ | 11 |
| | $ | 1,706 |
| | $ | 3,278 |
|
Non-cash incentive compensation from SFH | | | — |
| | 4 |
| | — |
| | — |
| | 4 |
|
Share-based compensation expense, net of forfeitures | | | — |
| | 5 |
| | — |
| | — |
| | 5 |
|
Withholding tax on share-based compensation | | | — |
| | (6 | ) | | — |
| | — |
| | (6 | ) |
Other comprehensive loss | | | — |
| | — |
| | (23 | ) | | — |
| | (23 | ) |
Net income | | — |
| | — |
| | — |
| | 124 |
| | 124 |
| | — |
| | — |
| | — |
| | 124 |
| | 124 |
|
Balance, March 31, 2018 | | $ | 1 |
| | $ | 1,563 |
| | $ | (12 | ) | | $ | 1,830 |
| | $ | 3,382 |
| | $ | 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 |
| |
* Cash dividends declared and paid were $0.25 per share in the first quarter of 2019 and no dividends were declared in 2018.
See Notes to the Condensed Consolidated Financial Statements.
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | (dollars in millions) | | Three Months Ended March 31, | | Three Months Ended March 31, |
| 2018 | | 2017 | | 2019 | | 2018 |
| | | | | | | | |
Cash flows from operating activities | | |
| | |
| | |
| | |
|
Net income | | $ | 124 |
| | $ | 33 |
| | $ | 152 |
| | $ | 124 |
|
Reconciling adjustments: | | |
| | |
| | |
| | |
|
Provision for finance receivable losses | | 254 |
| | 245 |
| | 286 |
| | 254 |
|
Depreciation and amortization | | 67 |
| | 98 |
| | 68 |
| | 67 |
|
Deferred income tax charge | | 11 |
| | 25 |
| |
Non-cash incentive compensation from Initial Stockholder | | 4 |
| | — |
| |
Deferred income tax charge (benefit) | | | 9 |
| | 11 |
|
Net loss on repurchases and repayments of debt | | | 21 |
| | 1 |
|
Non-cash incentive compensation from SFH | | | — |
| | 4 |
|
Share-based compensation expense, net of forfeitures | | 5 |
| | 7 |
| | 6 |
| | 5 |
|
Other | | 7 |
| | (2 | ) | | (11 | ) | | 6 |
|
Cash flows due to changes in other assets and other liabilities | | 83 |
| | 38 |
| | 17 |
| | 83 |
|
Net cash provided by operating activities | | 555 |
| | 444 |
| | 548 |
| | 555 |
|
| | | | | | | | |
Cash flows from investing activities | | |
| | |
| | |
| | |
|
Net principal collections (originations) of finance receivables held for investment and held for sale | | (333 | ) | | 30 |
| |
Net principal originations of finance receivables held for investment and held for sale | | | (290 | ) | | (333 | ) |
Proceeds on sales of finance receivables held for sale originated as held for investment | | | 19 |
| | — |
|
Available-for-sale securities purchased | | (197 | ) | | (132 | ) | | (154 | ) | | (197 | ) |
Available-for-sale securities called, sold, and matured | | 156 |
| | 162 |
| | 103 |
| | 156 |
|
Trading and Other Securities called, sold, and matured | | 8 |
| | — |
| |
Trading and other securities called, sold, and matured | | | 5 |
| | 8 |
|
Other, net | | (15 | ) | | (1 | ) | | 12 |
| | (15 | ) |
Net cash provided by (used for) investing activities | | (381 | ) | | 59 |
| |
Net cash used for investing activities | | | (305 | ) | | (381 | ) |
| | | | | | | | |
Cash flows from financing activities | | |
| | |
| | |
| | |
|
Proceeds from issuance of long-term debt, net of commissions | | 2,805 |
| | 366 |
| | 2,327 |
| | 2,805 |
|
Repayment of long-term debt | | (1,972 | ) | | (666 | ) | | (1,425 | ) | | (1,972 | ) |
Dividends | | | (34 | ) | | — |
|
Withholding tax on share-based compensation | | (6 | ) | | (5 | ) | | (5 | ) | | (6 | ) |
Net cash provided by (used for) financing activities | | 827 |
| | (305 | ) | |
Net cash provided by financing activities | | | 863 |
| | 827 |
|
| | | | | | | | |
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents | | 1,001 |
| | 198 |
| | 1,106 |
| | 1,001 |
|
Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period | | 1,485 |
| | 1,147 |
| | 1,178 |
| | 1,485 |
|
Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period | | $ | 2,486 |
| | $ | 1,345 |
| | $ | 2,284 |
| | $ | 2,486 |
|
| | | | | | | | |
Supplemental cash flow information | | | | | | | | |
Cash and cash equivalents | | $ | 1,807 |
| | $ | 787 |
| | $ | 1,709 |
| | $ | 1,807 |
|
Restricted cash and restricted cash equivalents | | 679 |
| | 558 |
| | 575 |
| | 679 |
|
Total cash and cash equivalents and restricted cash and restricted cash equivalents | | $ | 2,486 |
| | $ | 1,345 |
| | $ | 2,284 |
| | $ | 2,486 |
|
| | | | | | | | |
Cash paid for amounts included in the measurement of operating lease liabilities | | | $ | 15 |
| | $ | — |
|
Supplemental non-cash activities | | | | | | | | |
Right-of-use assets obtained in exchange for operating lease obligations | | | $ | 173 |
| | $ | — |
|
Net unsettled investment security purchases | | (5 | ) | | (19 | ) | | (2 | ) | | (5 | ) |
Restricted cash and restricted cash equivalents primarily represent funds required to be used for future debt payments relating to our securitization transactions and escrow deposits.
See Notes to the Condensed Consolidated Financial Statements.
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 2018
2019
1. Business and Basis of Presentation |
|
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,
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 Initial Stockholdercommon 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 approximately 40.5%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, an investor group led by funds managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries, “Apollo”) and Värde Partners, Inc. (“Värde” and together with Apollo, collectively, 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. The Initial Stockholder isstock, par value $0.01 per share, at a purchase price per share of $26.00, representing the entire holdings of our stock beneficially 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 asInvestment Group LLC (“Fortress”). This transaction closed on June 25, 2018 for an independent business headquarteredaggregate purchase price of approximately $1.4 billion in New York.
On January 3, 2018,cash (the “Apollo-Värde Transaction”). In connection with the Apollo-Värde Group entered intoTransaction, certain executive officers who are holders of SFH incentive units received a Share Purchase Agreement withdistribution of approximately $106 million in the Initial Stockholder and the Company to acquireaggregate 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 closeSFH in the second quarter of 2018 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 is subjectoffsetting increase to regulatory approvalsadditional paid-in-capital. The impact to the Company was non-cash, equity neutral and other customary closing conditions.not tax deductible.
AIG Share Sale Transaction
On February 21, 2018, OMH entered into an underwriting agreement among OMH, the Initial StockholderCompany, SFH and Morgan Stanley & Co. LLC as underwriter entered into an underwriting agreement in connection with the sale by Springleaf Financial Holdings, LLCSFH of 4,179,678 shares of its Common Stock.our 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 thethis sale of our common stock by the Initial Stockholder on February 21, 2018,SFH, certain executive officers who held SFH incentive units, as described above, received a distribution of the specified thresholds were satisfied. In accordance with ASC Topic 710, Compensation-General, we recorded non-cash incentive compensation expense ofapproximately $4 million in the first quarter of 2018 related2018. Consistent with the accounting for the 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 the incentive units with a capital contribution offset such thatadditional paid-in-capital. Again, the impact to overall shareholders’the Company was non-cash, equity was neutral.neutral and not tax deductible.
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 inAt March 31, 2019, the consumer finance and insurance businesses.Apollo-Värde Group owned approximately 40.4% of OMH’s common stock.
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. UltimateActual 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 20182019 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 20172018 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 |
|
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.
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’sASUs that were subsequently issued to further clarify the implementation guidance outlined in ASU 2016-02. We adopted the amendments of these ASUs as of January 1, 2019. See Note 13 for additional information on the adoption of ASU 2016-02.
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.ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED
Allowance for Finance ReceivablesFinancial Instruments - Credit Losses
In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which significantly changes the way that entities will be required to measure credit losses. The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather than the “incurred loss” approach currently required. The new approach will require entities to measure all expected credit losses for financial assets over their expected lives based on historical experience, current conditions, and reasonable forecasts of collectability. 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 and 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 has developed acontinues 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 make progress in developingrefine the development of an acceptable model to estimate the expected credit losses. After the model has been reviewed and validatedlosses in accordance with our model governance policies,policies. The Company has started the parallel testing phase in 2019. The Company will provide further disclosure regarding the estimated impact on our allowance for finance receivables losses.receivable losses as the parallel testing phase is enhanced with additional levels of governance and review. In addition to the development of the model, we are assessing the additional disclosure requirements from this update.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, an increase to deferred tax assets and a corresponding one-time cumulative effect reduction to retained earnings, net of tax, 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
Insurance
In FebruaryAugust of 2018, the FASB issued ASU 2018-02,2018-12, Income Statement-Reporting Comprehensive IncomeFinancial Services - Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts, which permitsprovides targeted improvements to Topic 944 for the reclassificationassumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited-payment contracts; measurement of stranded tax effects within accumulated other comprehensive income to retained earnings from the passagemarket risk benefits; amortization of the Tax Act. This update requires additional disclosures describing the nature of the stranded tax effects.deferred acquisition costs; and enhanced disclosures. The amendments withinin this ASU become effective for the Company for fiscal years beginning after January 1, 2019,2021. We have established a cross-functional implementation team and a project plan to ensure we comply with early adoption permitted.all the amendments in this ASU at the time of adoption. We believe thatare currently evaluating the potential impact of the adoption of thisthe 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, 2018,2019, but not yet effective, would have a material impact on our consolidated financial statements or disclosures, if adopted.
Our finance receivable types includereceivables consist of personal loans, and other receivables as defined below:
Personal loans —which 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.
Otheryears, and are secured by automobiles, other titled collateral or are unsecured. Prior to September 30, 2018, our finance receivables —also included other receivables, which consist of our liquidating loan portfolios in a liquidating status. We ceased originatingportfolios: real estate loans, and purchasing retail sales finance 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 onfinance contracts. Effective September 30, 2018, 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.
Components of net finance receivableswere transferred from held for investment by typeto held for sale. See Notes 5, 6 and 7 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for more information about Other Receivables.
Net finance receivables consist of our total portfolio of personal loans. Components of our personal loans were as follows:
| | (dollars in millions) | | Personal Loans | | Other Receivables | | Total | | March 31, 2019 | | December 31, 2018 |
| | | | | | | | | | |
March 31, 2018 | | |
| | |
| | |
| |
Gross receivables (a)(b) | | $ | 14,710 |
| | $ | 128 |
| | $ | 14,838 |
| |
Gross receivables * | | | $ | 15,968 |
| | $ | 15,978 |
|
Unearned points and fees | | (169 | ) | | — |
| | (169 | ) | | (202 | ) | | (201 | ) |
Accrued finance charges | | 198 |
| | 1 |
| | 199 |
| | 240 |
| | 253 |
|
Deferred origination costs | | 119 |
| | — |
| | 119 |
| | 130 |
| | 134 |
|
Total | | $ | 14,858 |
| | $ | 129 |
| | $ | 14,987 |
| | $ | 16,136 |
| | $ | 16,164 |
|
| | | | | | | |
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:equal the UPB except for the following: |
Finance receivables purchased as a performing receivable — gross finance receivables are equal theto UPB and, theif applicable, any remaining unearned premium net ofor discount established at the time of purchase to reflect the finance receivable balance at its initial fair value; and
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; andaccounts.
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, 20182019 and December 31, 2017,2018, unused lines of credit extended to customers by the Company were immaterial.
CREDIT QUALITY INDICATOR
We consider the value and recoverability of the collateral, if any, securing a loan at loan originationthe concentration of secured loans, and the delinquency status of our finance receivables as our primary credit quality indicators. At March 31, 20182019 and December 31, 2017, 43%2018, 49% and 48% of our personal loans were secured by titled collateral.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 receivablesour personal loans held for investment by type and by number of days delinquent:
| | (dollars in millions) | | Personal Loans | | Other Receivables | | Total | | March 31, 2019 | | December 31, 2018 |
| | | | | | | | | | |
March 31, 2018 | | |
| | |
| | |
| |
Performing | | | | | | | | | | |
Current | | $ | 14,213 |
| | $ | 103 |
| | $ | 14,316 |
| | $ | 15,489 |
| | $ | 15,411 |
|
30-59 days past due | | 174 |
| | 7 |
| | 181 |
| | 179 |
| | 229 |
|
60-89 days past due | | 134 |
| | 2 |
| | 136 |
| | 133 |
| | 161 |
|
Total performing | | 14,521 |
| | 112 |
| | 14,633 |
| | 15,801 |
| | 15,801 |
|
Nonperforming | | | | | | | | | | |
90-179 days past due | | 329 |
| | 3 |
| | 332 |
| | 327 |
| | 355 |
|
180 days or more past due | | 8 |
| | 14 |
| | 22 |
| | 8 |
| | 8 |
|
Total nonperforming | | 337 |
| | 17 |
| | 354 |
| | 335 |
| | 363 |
|
Total | | $ | 14,858 |
| | $ | 129 |
| | $ | 14,987 |
| | $ | 16,136 |
| | $ | 16,164 |
|
| | | | | | | |
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 receivablespersonal loans held for investment and real estate loans held for sale purchased in connection with the OneMain Acquisition and the Fortress Acquisition.Acquisition, respectively.
We report the carrying amount (which initially was the fair value) of our purchased credit impaired finance receivablespersonal loans in net finance receivables, less allowance for finance receivable losses orand our purchased credit impaired real estate loans in finance receivables held for sale as discussed below.
At March 31, 20182019 and December 31, 2017,2018, finance receivables held for sale totaled $126$78 million and $132$103 million, respectively, which include purchased credit impaired finance receivables,real estate loans, 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.real estate loans. See Note 5 for further information on our finance receivables held for sale.
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 | | March 31, 2019 | | December 31, 2018 |
| | | | | | | | |
OM Loans | | | | | |
Personal Loans | | | | | |
Carrying amount, net of allowance | | $ | 152 |
| | $ | 176 |
| | $ | 73 |
| | $ | 89 |
|
Outstanding balance (a) | | 209 |
| | 243 |
| | 116 |
| | 135 |
|
Allowance for purchased credit impaired finance receivable losses(b) | | — |
| | 6 |
| | — |
| | — |
|
| | | | | | | | |
FA Loans (b) | | | | | |
Carrying amount, net of allowance | | $ | 54 |
| | $ | 57 |
| |
Real Estate Loans - Held for Sale | | | | | |
Carrying amount | | | $ | 22 |
| | $ | 28 |
|
Outstanding balance (a) | | 91 |
| | 94 |
| | 39 |
| | 48 |
|
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) | PurchasedThe allowance for purchased credit impaired FA Loansfinance receivable losses reflects the carrying value of the purchased credit impaired 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 thaninvestment exceeding the present value of the expected cash flows.
As indicated above, no allowance was required as of March 31, 2019 or December 31, 2018.
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, | | Three Months Ended March 31, |
(dollars in millions) | | 2018 | | 2017 | | 2019 | | 2018 |
| | | | | | | | |
OM Loans | | | | |
| |
Personal Loans | | | | | |
Balance at beginning of period | | $ | 47 |
| | $ | 59 |
| | $ | 39 |
| | $ | 47 |
|
Accretion | | (6 | ) | | (11 | ) | | (5 | ) | | (6 | ) |
Reclassifications from nonaccretable difference (a) | | 8 |
| | — |
| | — |
| | 8 |
|
Balance at end of period | | $ | 49 |
| | $ | 48 |
| | $ | 34 |
| | $ | 49 |
|
| | | | | | | | |
FA Loans | | | | |
| |
Real Estate Loans - Held for Sale | | | | | |
Balance at beginning of period | | $ | 53 |
| | $ | 60 |
| | $ | 27 |
| | $ | 53 |
|
Accretion (b) | | (1 | ) | | (1 | ) | |
Accretion | | | (1 | ) | | (1 | ) |
Transfer due to finance receivables sold | | | (3 | ) | | — |
|
Balance at end of period | | $ | 52 |
| | $ | 59 |
| | $ | 23 |
| | $ | 52 |
|
| |
(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. |
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 |
|
|
| | | | | | | | |
(dollars in millions) | | March 31, 2019 | | December 31, 2018 |
| | | | |
|
Personal Loans | | | | |
|
TDR gross receivables (a) | | $ | 499 |
| | $ | 450 |
|
TDR net receivables (b) | | 502 |
| | 453 |
|
Allowance for TDR finance receivable losses | | 196 |
| | 170 |
|
| | | | |
Real Estate Loans - Held for Sale | | | | |
TDR gross receivables (a) | | $ | 58 |
| | $ | 89 |
|
TDR net receivables (b) | | 58 |
| | 75 |
|
| |
(a) | Other Receivables held for sale included inTDR gross receivables — gross receivables are equal to UPB and, if applicable, any remaining unearned premium or discount established at the table above weretime of purchase if previously purchased as follows:a performing receivable. |
|
| | | | | | | | |
(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.TDR net receivables — TDR gross receivables net of unearned points and fees, accrued finance charges, deferred origination costs and any impairment for real estate loans held for sale. |
As of March 31, 2018,2019, 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 | | Personal Loans | | Other Receivables * | | Total |
| | | | | | | | | | | | |
Three Months Ended March 31, 2019 | | | | | | | |
TDR average net receivables | | | $ | 477 |
| | $ | 64 |
| | $ | 541 |
|
TDR finance charges recognized | | | 12 |
| | 1 |
| | 13 |
|
| | | | | | | |
Three Months Ended March 31, 2018 | | |
| | |
| | |
| | | | | | |
TDR average net receivables | | $ | 337 |
| | $ | 139 |
| | $ | 476 |
| | $ | 337 |
| | $ | 139 |
| | $ | 476 |
|
TDR finance charges recognized | | 11 |
| | 2 |
| | 13 |
| | 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: |
* Other Receivables held for sale included in the table above consist of real estate loans and were as follows: | | | | Three Months Ended March 31, | | Three Months Ended March 31, |
(dollars in millions) | | 2018 | | 2017 | | 2019 | | 2018 |
| | | | | | | | |
TDR average net receivables | | $ | 90 |
| | $ | 89 |
| | $ | 64 |
| | $ | 90 |
|
TDR finance charges recognized | | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Information regarding the new volume of the TDR finance receivables held for investment, consisting of personal loans, are reflected in the following table. New volume of TDR other receivables are not included in the table below as they were immaterial for the three months ended March 31, 2019 and held for sale were as follows:2018.
| | | | | | | | | | | Three Months Ended March 31, |
(dollars in millions) | | Personal Loans | | Other Receivables (a) | | Total | | 2019 | | 2018 |
| | | | | | | | | | |
Three Months Ended March 31, 2018 | | | | | | | |
Personal Loans | | | | | |
Pre-modification TDR net finance receivables | | $ | 94 |
| | $ | 2 |
| | $ | 96 |
| | $ | 120 |
| | $ | 94 |
|
Post-modification TDR net finance receivables: | | | | | | | | | | |
Rate reduction | | $ | 70 |
| | $ | 2 |
| | $ | 72 |
| | $ | 85 |
| | $ | 70 |
|
Other (b) | | 24 |
| | — |
| | 24 |
| |
Other * | | | 35 |
| | 24 |
|
Total post-modification TDR net finance receivables | | $ | 94 |
| | $ | 2 |
| | $ | 96 |
| | $ | 120 |
| | $ | 94 |
|
Number of TDR accounts | | 14,730 |
| | 29 |
| | 14,759 |
| | 18,506 |
| | 14,730 |
|
| | | | | | | |
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. |
borrower under the modified terms.
Personal loans held for investment that were modified as TDR personal loansfinance receivables within the previous 12 months and for which there was a default during the period to cause the TDR personal loansfinance receivables to be considered nonperforming (90 days or more past due) were as follows:
| | | | Three Months Ended March 31, | | Three Months Ended March 31, |
(dollars in millions) | | 2018 | | 2017 | | 2019 | | 2018 |
| | | | |
| | | | |
Personal Loans | | | | | |
TDR net finance receivables * | | $ | 18 |
| | $ | 12 |
| | $ | 19 |
| | $ | 18 |
|
Number of TDR accounts | | 2,719 |
| | 1,793 |
| | 2,925 |
| | 2,719 |
|
| |
* | 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, 20182019 and 20172018 that defaulted during the previous 12-month
period were immaterial.
4. Allowance for Finance Receivable Losses |
|
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 |
|
|
| | | | | | | | | | | | |
(dollars in millions) | | Personal Loans | | Other Receivables | | Total |
| | | | | | |
Three Months Ended March 31, 2019 | | |
| | |
| | |
|
Balance at beginning of period | | $ | 731 |
| | $ | — |
| | $ | 731 |
|
Provision for finance receivable losses | | 286 |
| | — |
| | 286 |
|
Charge-offs | | (311 | ) | | — |
| | (311 | ) |
Recoveries | | 27 |
| | — |
| | 27 |
|
Balance at end of period | | $ | 733 |
| | $ | — |
| | $ | 733 |
|
| | | | | | |
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 |
|
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 | % |
|
| | | | | | | | |
(dollars in millions) | | March 31, 2019 | | December 31, 2018 |
| | | | |
Allowance for finance receivable losses: | | | | |
Collectively evaluated for impairment | | $ | 537 |
| | $ | 561 |
|
Purchased credit impaired finance receivables | | — |
| | — |
|
TDR finance receivables | | 196 |
| | 170 |
|
Total | | $ | 733 |
| | $ | 731 |
|
| | | | |
Finance receivables: | | | | |
Collectively evaluated for impairment | | $ | 15,561 |
| | $ | 15,622 |
|
Purchased credit impaired finance receivables | | 73 |
| | 89 |
|
TDR finance receivables | | 502 |
| | 453 |
|
Total | | $ | 16,136 |
| | $ | 16,164 |
|
| | | | |
Allowance for finance receivable losses as a percentage of finance receivables | | 4.54 | % | | 4.52 | % |
5. Finance Receivables Held for Sale 17
|
|
5. Finance Receivables Held for Sale |
We reportreported finance receivables held for sale of $126$78 million at March 31, 20182019 and $132$103 million at December 31, 2017,2018, which consist entirely of real estate loans and are carried at the lower of cost or fair value, and consist entirelyapplied on an aggregate basis. In February 2019, we sold a portfolio of real estate loans.loans with a carrying value of $16 million for aggregate cash proceeds of $19 million and recorded a net gain in other revenues of $3 million (“February 2019 Real Estate Loan Sale”). After the recognition of the February 2019 Real Estate Loan Sale, the carrying value of the remaining loans classified in finance receivables held for sale exceeded their fair value and, accordingly, we marked the remaining loans to fair value and recorded an impairment in other revenue of $3 million. At March 31, 2018 and December 31, 2017,2019, the faircarrying 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.was not impaired.
We did not have any material transfers to or from finance receivables held for sale during the three months ended March 31, 20182019 and 2017.2018.
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 | | Cost/ Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| | | | | | | | | | | | | | | | |
March 31, 2018 | | |
| | |
| | |
| | |
| |
March 31, 2019 | | | |
| | |
| | |
| | |
|
Fixed maturity available-for-sale securities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
U.S. government and government sponsored entities | | $ | 29 |
| | $ | — |
| | $ | — |
| | $ | 29 |
| | $ | 17 |
| | $ | — |
| | $ | — |
| | $ | 17 |
|
Obligations of states, municipalities, and political subdivisions | | 132 |
| | — |
| | (1 | ) | | 131 |
| | 87 |
| | — |
| | — |
| | 87 |
|
Certificates of deposit and commercial paper | | 39 |
| | — |
| | — |
| | 39 |
| | 59 |
| | — |
| | — |
| | 59 |
|
Non-U.S. government and government sponsored entities | | 128 |
| | 1 |
| | (2 | ) | | 127 |
| | 143 |
| | 2 |
| | — |
| | 145 |
|
Corporate debt | | 980 |
| | 5 |
| | (16 | ) | | 969 |
| | 1,056 |
| | 13 |
| | (10 | ) | | 1,059 |
|
Mortgage-backed, asset-backed, and collateralized: | | |
| | |
| | |
| | | | |
| | |
| | |
| | |
RMBS | | 122 |
| | — |
| | (3 | ) | | 119 |
| | 141 |
| | 1 |
| | (1 | ) | | 141 |
|
CMBS | | 86 |
| | — |
| | (1 | ) | | 85 |
| | 67 |
| | — |
| | (1 | ) | | 66 |
|
CDO/ABS | | 99 |
| | — |
| | (1 | ) | | 98 |
| | 82 |
| | 1 |
| | — |
| | 83 |
|
Total | | $ | 1,615 |
| | $ | 6 |
| | $ | (24 | ) | | $ | 1,597 |
| | $ | 1,652 |
| | $ | 17 |
| | $ | (12 | ) | | $ | 1,657 |
|
| | | | | | | | | | | | | | | | |
December 31, 2017 | | |
| | |
| | |
| | |
| |
December 31, 2018 | | | |
| | |
| | |
| | |
|
Fixed maturity available-for-sale securities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
U.S. government and government sponsored entities | | $ | 28 |
| | $ | — |
| | $ | — |
| | $ | 28 |
| | $ | 21 |
| | $ | — |
| | $ | — |
| | $ | 21 |
|
Obligations of states, municipalities, and political subdivisions | | 135 |
| | — |
| | — |
| | 135 |
| | 91 |
| | — |
| | (1 | ) | | 90 |
|
Certificates of deposit and commercial paper | | 60 |
| | — |
| | — |
| | 60 |
| | 63 |
| | — |
| | — |
| | 63 |
|
Non-U.S. government and government sponsored entities | | 126 |
| | — |
| | (1 | ) | | 125 |
| | 145 |
| | — |
| | (2 | ) | | 143 |
|
Corporate debt | | 941 |
| | 12 |
| | (5 | ) | | 948 |
| | 1,027 |
| | 2 |
| | (32 | ) | | 997 |
|
Mortgage-backed, asset-backed, and collateralized: | | |
| | |
| | |
| | | | |
| | |
| | |
| | |
RMBS | | 100 |
| | — |
| | (1 | ) | | 99 |
| | 130 |
| | — |
| | (2 | ) | | 128 |
|
CMBS | | 88 |
| | — |
| | (1 | ) | | 87 |
| | 72 |
| | — |
| | (1 | ) | | 71 |
|
CDO/ABS | | 96 |
| | — |
| | — |
| | 96 |
| | 94 |
| | 1 |
| | (1 | ) | | 94 |
|
Total | | $ | 1,574 |
| | $ | 12 |
| | $ | (8 | ) | | $ | 1,578 |
| | $ | 1,643 |
| | $ | 3 |
| | $ | (39 | ) | | $ | 1,607 |
|
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 | | Less Than 12 Months | | 12 Months or Longer | | Total |
(dollars in millions) | | Fair Value | | Unrealized Losses * | | Fair Value | | Unrealized Losses * | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2018 | | |
| | |
| | |
| | |
| | |
| | |
| |
March 31, 2019 | | | |
| | |
| | |
| | |
| | |
| | |
|
U.S. government and government sponsored entities | | $ | 18 |
| | $ | — |
| | $ | 10 |
| | $ | — |
| | $ | 28 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 17 |
| | $ | — |
| | $ | 17 |
| | $ | — |
|
Obligations of states, municipalities, and political subdivisions | | 91 |
| | (1 | ) | | 19 |
| | — |
| | 110 |
| | (1 | ) | | 5 |
| | — |
| | 38 |
| | — |
| | 43 |
| | — |
|
Non-U.S. government and government sponsored entities | | 100 |
| | (2 | ) | | 12 |
| | — |
| | 112 |
| | (2 | ) | | 1 |
| | — |
| | 45 |
| | — |
| | 46 |
| | — |
|
Corporate debt | | 669 |
| | (13 | ) | | 86 |
| | (3 | ) | | 755 |
| | (16 | ) | | 63 |
| | (1 | ) | | 416 |
| | (9 | ) | | 479 |
| | (10 | ) |
Mortgage-backed, asset-backed, and collateralized: | | | | | | | | | | | | | |
RMBS | | 71 |
| | (2 | ) | | 24 |
| | (1 | ) | | 95 |
| | (3 | ) | | 10 |
| | — |
| | 63 |
| | (1 | ) | | 73 |
| | (1 | ) |
CMBS | | 45 |
| | — |
| | 34 |
| | (1 | ) | | 79 |
| | (1 | ) | | 3 |
| | — |
| | 42 |
| | (1 | ) | | 45 |
| | (1 | ) |
CDO/ABS | | 56 |
| | (1 | ) | | 23 |
| | — |
| | 79 |
| | (1 | ) | | 3 |
| | — |
| | 30 |
| | — |
| | 33 |
| | — |
|
Total | | $ | 1,050 |
| | $ | (19 | ) | | $ | 208 |
| | $ | (5 | ) | | $ | 1,258 |
| | $ | (24 | ) | | $ | 85 |
| | $ | (1 | ) | | $ | 651 |
| | $ | (11 | ) | | $ | 736 |
| | $ | (12 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2017 | | |
| | |
| | |
| | |
| | |
| | |
| |
December 31, 2018 | | | |
| | |
| | |
| | |
| | |
| | |
|
U.S. government and government sponsored entities | | $ | 21 |
| | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | 24 |
| | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | 16 |
| | $ | — |
| | $ | 19 |
| | $ | — |
|
Obligations of states, municipalities, and political subdivisions | | 65 |
| | — |
| | 20 |
| | — |
| | 85 |
| | — |
| | 10 |
| | — |
| | 57 |
| | (1 | ) | | 67 |
| | (1 | ) |
Non-U.S. government and government sponsored entities | | 89 |
| | (1 | ) | | 13 |
| | — |
| | 102 |
| | (1 | ) | | 19 |
| | (1 | ) | | 97 |
| | (1 | ) | | 116 |
| | (2 | ) |
Corporate debt | | 387 |
| | (3 | ) | | 93 |
| | (2 | ) | | 480 |
| | (5 | ) | | 377 |
| | (14 | ) | | 448 |
| | (18 | ) | | 825 |
| | (32 | ) |
Mortgage-backed, asset-backed, and collateralized: | | | | | | | | | | | | | |
RMBS | | 40 |
| | — |
| | 25 |
| | (1 | ) | | 65 |
| | (1 | ) | | 23 |
| | — |
| | 78 |
| | (2 | ) | | 101 |
| | (2 | ) |
CMBS | | 40 |
| | — |
| | 38 |
| | (1 | ) | | 78 |
| | (1 | ) | | 10 |
| | — |
| | 54 |
| | (1 | ) | | 64 |
| | (1 | ) |
CDO/ABS | | 48 |
| | — |
| | 26 |
| | — |
| | 74 |
| | — |
| | 18 |
| | — |
| | 33 |
| | (1 | ) | | 51 |
| | (1 | ) |
Total | | $ | 690 |
| | $ | (4 | ) | | $ | 218 |
| | $ | (4 | ) | | $ | 908 |
| | $ | (8 | ) | | $ | 460 |
| | $ | (15 | ) | | $ | 783 |
| | $ | (24 | ) | | $ | 1,243 |
| | $ | (39 | ) |
| |
* | 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 1,7181,031 and 1,2291,767 investment securities in an unrealized loss position at March 31, 20182019 and December 31, 2017,2018, respectively. We do not consider the unrealized losses to be credit-related, as these unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. Additionally, at March 31, 2018,2019, other-than-temporary impairments on investment securities that we had nointend to sell were immaterial. We do not have plans to sell any of the remaining investment securities with unrealized losses as of March 31, 2019, and we believe it is more likely than not that we would not be required to sell such investment securities before recovery of their amortized cost.
We continue to monitor unrealized loss positions for potential impairments. During the three months ended March 31, 20182019 and 2017, we recognized less than $1 million of2018, other-than-temporary impairment credit losses, primarily on our available-for-sale securitiescorporate debt, in investment revenues.revenues were immaterial.
During the three months ended March 31, 2018 and 2017, thereThere 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.
securities during the three months ended March 31, 2019 and 2018.
The proceeds of available-for-sale securities sold or redeemed during the three months ended March 31, 2019 and the resulting netMarch 31, 2018 were $29 million and $71 million, respectively. The realized gains and losses were as follows:immaterial during the three months ended March 31, 2019 and 2018.
|
| | | | | | | | |
(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, 20182019 were as follows:
| | (dollars in millions) | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost |
| | | | | | | | |
Fixed maturities, excluding mortgage-backed, asset-backed, and collateralized securities: | | |
| | |
| | |
| | |
|
Due in 1 year or less | | $ | 166 |
| | $ | 166 |
| | $ | 207 |
| | $ | 208 |
|
Due after 1 year through 5 years | | 556 |
| | 562 |
| | 552 |
| | 549 |
|
Due after 5 years through 10 years | | 363 |
| | 369 |
| | 421 |
| | 417 |
|
Due after 10 years | | 210 |
| | 211 |
| | 187 |
| | 188 |
|
Mortgage-backed, asset-backed, and collateralized securities | | 302 |
| | 307 |
| | 290 |
| | 290 |
|
Total | | $ | 1,597 |
| | $ | 1,615 |
| | $ | 1,657 |
| | $ | 1,652 |
|
Actual maturities may differ from contractual maturities since issuers and borrowers may have the right to call or prepay obligations. We may sell investment securities before maturity for general corporate and working capital purposes and to achieve certain investment strategies.
The fair value of securities on deposit with third parties totaled $493$509 million and $537$515 million at March 31, 20182019 and December 31, 2017,2018, respectively.
OTHER SECURITIES
The fair value of other securities by type was as follows:
| | | | | | | | | | |
(dollars in millions) | | March 31, 2018 | | December 31, 2017 | | March 31, 2019 | | December 31, 2018 |
| | | | | | | | |
Fixed maturity other securities: | | |
| | |
| | |
| | |
|
Bonds | | |
| | |
| | |
| | |
|
Non-U.S. government and government sponsored entities | | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
|
Corporate debt | | 62 |
| | 68 |
| | 38 |
| | 43 |
|
Mortgage-backed, asset-backed, and collateralized: | | | | |
| |
RMBS | | 1 |
| | 1 |
| |
CDO/ABS | | 3 |
| | 4 |
| |
Mortgage-backed, asset-backed, and collateralized bonds | | | 2 |
| | 2 |
|
Total bonds | | 67 |
| | 74 |
| | 41 |
| | 46 |
|
Preferred stock * | | 19 |
| | 20 |
| |
Common stock * | | 22 |
| | 23 |
| |
Preferred stock (a) | | | 20 |
| | 19 |
|
Common stock (a) | | | 24 |
| | 21 |
|
Other long-term investments | | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Total | | $ | 109 |
| | $ | 118 |
| | $ | 86 |
| | $ | 87 |
|
| |
*(a) | The Company employs an income equity strategy targeting investments in stocks with strong current dividend yields. Stocks included have a history of stable or increasing dividend payments. |
UnrealizedWe recognized $4 million in unrealized gains (losses)and $2 million in unrealized losses on other securities held at March 31, 2018 and 2017 were $2 million for the three months ended March 31, 2019 and 2018, respectively. We report these unrealized gains and losses in investment revenues.
Net realized gains and losses on other securities sold or redeemed were immaterial for the three months ended March 31, 2017. Net realized gains (losses) on other securities sold or redeemed during the 20182019 and 2017 periods were immaterial for the three months ended March 31, 2018 and 2017.2018. We report these gains and losses in investment revenues.
7. Transactions with Affiliates Other securities include equity securities and those securities for which the fair value option was elected.
SUBSERVICING AGREEMENT
Nationstar subservices the real estate loans of certain of our indirect subsidiaries. Investment funds managed by affiliates of Fortress indirectly own a majority interest in Nationstar. On February 12, 2018, Nationstar’s parent, Nationstar Mortgage Holdings Inc. (“NSM”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). In connection with the closing of the transactions contemplated by the Merger Agreement, investment funds managed by affiliates of Fortress have agreed to elect to receive cash merger consideration with respect to no less than 50% of the shares in NSM held by such funds and, following such closing, will no longer indirectly own a majority interest in Nationstar. The subservicing fees paid to Nationstar were immaterial for the three months ended March 31, 2018 and 2017.
SERVICING AGREEMENT
In 2016, we sold our equity interest in the SpringCastle Joint Venture, which owns the SpringCastle Portfolio, to certain subsidiaries of NRZ and Blackstone. NRZ is managed by an affiliate of Fortress.
Unless we are terminated, we will continue as the servicer of the SpringCastle Portfolio for the SpringCastle Funding Trust pursuant to a servicing agreement. Servicing fees revenue totaled $8 million for the three months ended March 31, 2018, compared to $10 million for the three months ended March 31, 2017. At March 31, 2018 and December 31, 2017, the servicing fees receivable from the SpringCastle Funding Trust totaled $3 million.
Principal maturities of long-term debt (excluding projected repayments on securitizations and revolving conduit facilities by period) by type of debt at March 31, 20182019 were as follows:
| | | | Senior Debt | | | | | | Senior Debt | | | | |
(dollars in millions) | | Securitizations | | Medium Term Notes | | Junior Subordinated Debt | | Total | | Securitizations | | Unsecured Notes (a) | | Junior Subordinated Debt (a) | | Total |
| | | | | | | | | | | | | | | | |
Interest rates (a)(b) | | 2.04% - 6.94% |
| | 5.25% - 8.25% |
| | 3.47 | % | | | | 2.16% - 6.94% |
| | 5.63% - 8.25% |
| | 4.54 | % | | |
| | | | | | | | | | | | | | | | |
Second quarter 2018 | | $ | — |
| | $ | 400 |
| | $ | — |
| | $ | 400 |
| |
Remainder of 2018 | | — |
| | — |
| | — |
| �� | — |
| |
2019 | | — |
| | 696 |
| | — |
| | 696 |
| |
Remainder of 2019 | | | — |
| | 299 |
| | — |
| | 299 |
|
2020 | | — |
| | 1,299 |
| | — |
| | 1,299 |
| | — |
| | 1,000 |
| | — |
| | 1,000 |
|
2021 | | — |
| | 1,046 |
| | — |
| | 1,046 |
| | — |
| | 646 |
| | — |
| | 646 |
|
2022 | | — |
| | 1,000 |
| | — |
| | 1,000 |
| | — |
| | 1,000 |
| | — |
| | 1,000 |
|
2023-2067 | | — |
| | 2,424 |
| | 350 |
| | 2,774 |
| |
Securitizations (b) | | 9,043 |
| | — |
| | — |
| | 9,043 |
| |
2023 | | | — |
| | 1,175 |
| | — |
| | 1,175 |
|
2024-2067 | | | — |
| | 3,849 |
| | 350 |
| | 4,199 |
|
Securitizations (c) | | | 8,155 |
| | — |
| | — |
| | 8,155 |
|
Total principal maturities | | $ | 9,043 |
| | $ | 6,865 |
| | $ | 350 |
| | $ | 16,258 |
| | $ | 8,155 |
| | $ | 7,969 |
| | $ | 350 |
| | $ | 16,474 |
|
| | | | | | | | | | | | | | | | |
Total carrying amount | | $ | 9,015 |
| | $ | 6,711 |
| | $ | 172 |
| | $ | 15,898 |
| | $ | 8,125 |
| | $ | 7,820 |
| | $ | 172 |
| | $ | 16,117 |
|
Debt issuance costs (c) | | $ | (28 | ) | | $ | (45 | ) | | $ | — |
| | $ | (73 | ) | |
Debt issuance costs (d) | | | $ | (28 | ) | | $ | (69 | ) | | $ | — |
| | $ | (97 | ) |
| |
(a) | Pursuant to the SFC Base Indenture, the SFC supplemental indentures and the SFC Guaranty Agreements, OMH agreed to fully and unconditionally guarantee, on a senior unsecured basis, payments of principal, premium and interest on the SFC Unsecured Senior Notes and Junior Subordinated Debenture. The OMH guarantees of SFC’s long-term debt are subject to customary release provisions. |
| |
(b) | The interest rates shown are the range of contractual rates in effect at March 31, 2018.2019. The interest rate on the UPBremaining principal balance of the Junior Subordinated Debenture consists of a variable floating rate (determined quarterly) equal to 3-month LIBOR plus 1.75%, or 3.47%4.54% as of March 31, 2018.2019. |
| |
(b)(c) | Securitizations have a stated maturity date but are not included in the above maturities by period due to their variable monthly repayments, which may result in pay-off prior to the stated maturity date. At March 31, 2018,2019, there were no amounts drawn under our revolving conduit facilities. See Note 98 for further information on our long-term debt associated with securitizations and revolving conduit facilities. |
| |
(c)(d) | Debt issuance costs are reported as a direct deduction from long-term debt, with the exception of debt issuance costs associated with our revolving conduit facilities, which totaled $20$25 million at March 31, 20182019 and are reported in other assets.“Other assets”. |
SFC’S OFFERING OF 6.875%6.125% SENIOR NOTES DUE 20252024 OFFERING
On March 12, 2018,February 22, 2019, SFC issued $1.25a total of $1.0 billion aggregate principal amount of 6.875%6.125% Senior Notes due 20252024 (the “6.875%“6.125% SFC Notes”Notes due 2024”) under an Indenture dated as of December 3, 2014 (the “SFC Base Indenture”),the SFC Senior Notes Indentures, as supplemented by a Fifththe SFC Seventh Supplemental Indenture, dated as of March 12, 2018 (the “SFC Fifth Supplemental Indenture” and, collectively, with the SFC Base Indenture, the SFC First Supplemental Indenture, the SFC Second Supplemental Indenture, the SFC Third Supplemental Indenture, and the SFC Fourth Supplemental Indenture, the “SFC Senior Notes Indentures”), pursuant to which OMH provided a guarantee of the 6.875% SFC Notes on an unsecured basis.
SFC intends to use the net proceeds from the saleREDEMPTION OF 5.25% SENIOR NOTES DUE 2019
As a result of the 6.875%offering described above, SFC issued a notice of redemption to redeem all of the outstanding principal amount of its 5.25% Senior Notes for general corporate purposes, which may include debtdue 2019. On March 25, 2019, SFC paid an aggregate amount of $706 million, inclusive of accrued interest and premiums, to complete the redemption. We recognized approximately $21 million of net loss on the repurchases and repayments.
The 6.875% SFC Notes are SFC’s senior unsecured obligations and rank equally in rightrepayments of payment to all of SFC’s other existing and future unsubordinated indebtedness from time to time outstanding. The notes are effectively subordinated to all of SFC’s secured obligations todebt for the extent of the value of the assets securing such obligations and structurally subordinated to any existing and future obligations of SFC’s subsidiaries with respect to claims against the assets of such subsidiaries.
The notes may be redeemed at any time and from time to time, at the option of SFC, in whole or in part at a “make-whole” redemption price specified in the SFC Senior Notes Indentures. The notes will not have the benefit of any sinking fund.
GUARANTY AGREEMENTS
OMH entered into the SFC Base Indenture and the following SFC supplemental indentures, pursuant to which OMH agreed to fully and unconditionally guarantee, on a senior unsecured basis the payments of principal, premium (if any) and interest on the following notes:
|
| | | | | | | | | | |
Guarantee Agreement | | Date Entered | | SFC Supplemental Indentures | | Interest rate | | March 31, 2018 Outstanding balance (dollars in millions) |
| | | | | | | | |
6.875% SFC Notes | | 3/12/2018 | | SFC Fifth Supplemental Indenture | | 6.875% | | $ | 1,250 |
|
5.625% SFC Notes | | 12/8/2017 | | SFC Fourth Supplemental Indenture | | 5.625% | | 875 |
|
6.125% SFC Notes | | 5/15/2017 | | SFC Third Supplemental Indenture | | 6.125% | | 1,000 |
|
8.25% SFC Notes | | 4/11/2016 | | SFC Second Supplemental Indenture | | 8.25% | | 1,000 |
|
5.25% SFC Notes | | 12/3/2014 | | SFC First Supplemental Indenture | | 5.25% | | 700 |
|
The supplemental indentures listed above contain covenants that, among other things, (i) limit SFC’s ability to create liens on assets and (ii) restrict SFC’s ability to consolidate, merge or sell its assets. The SFC Senior Notes Indentures also provide for events of default which, if any of them were to occur, would permit or require the principal of and accrued interest on the SFC Notes to become, or to be declared, due and payable. We describe our guarantee agreements in Note 12 of the Notes to Consolidated Financial Statements in Part II - Item 8 included in our 2017 Annual Report on Form 10-K.three months ended March 31, 2019.
Other SFC NotesREDEMPTION OF 6.00% SENIOR NOTES DUE 2020
On December 30, 2013, OMH entered intoMarch 15, 2019, SFC Guaranty Agreements whereby it agreed to fully and unconditionally guarantee the paymentsissued a Notice of principal, premium (if any) and interest on the Other SFC Notes. The Other SFC Notes consistedFull Redemption of the following:
8.25% Senior Notes due 2023;
7.75% Senior Notes due 2021;
its 6.00% Senior Notes due 2020; and
the Junior Subordinated Debenture.
The Junior Subordinated Debenture underlies the trust preferred securities sold by a trust sponsored by SFC.2020. On December 30, 2013, OMH entered into theApril 15, 2019, SFC Trust Guaranty Agreement whereby it agreed to fully and unconditionally guarantee the related payment obligations under the trust preferred securities. As of March 31, 2018, $1.6 billionpaid an aggregate principal amount of $317 million, inclusive of accrued interest and premiums, to complete the Other SFC Notes were outstanding.
The OMH guarantees of SFC’s long-term debt discussed above are subject to customary release provisions.
OMFH Notes
On December 11, 2014, OMFH and certain of its subsidiaries entered into the OMFH Indenture, among OMFH, the guarantors listed therein and The Bank of New York Mellon, as trustee, in connection with OMFH’s issuance of the OMFH Notes. The OMFH Notes are OMFH’s unsecured senior obligations, guaranteed on a senior unsecured basis by each of its wholly owned domestic subsidiaries, other than certain subsidiaries, including its insurance subsidiaries and securitization subsidiaries. As of March 31, 2018, $800 million aggregate principal amount of the OMFH Notes were outstanding.
On November 8, 2016, OMH entered into the OMFH Supplemental Indenture, pursuant to which OMH agreed to fully, unconditionally and irrevocably guarantee the outstanding OMFH Notes in accordance with and subject to the terms of the OMFH Indenture. Further, as permitted by the terms of the OMFH Indenture, OMFH intends to satisfy its reporting obligations under the OMFH Indenture with respect to providing OMFH financial information to the holders of the OMFH Notes by furnishing financial information relating to the Company.
On December 8, 2017, OMFH provided notice to note holders to redeem on January 8, 2018, all $700 million outstanding principal amount of OMFH Notes due 2019 at a redemption price equal to 103.375%, plus accrued and unpaid interest to the redemption date. The notes were redeemed on January 8, 2018.redemption. In connection with the redemption we recognized $1.2will recognize approximately $11 million of net loss on repurchases and repayments of debt for the three and six months ended March 31, 2018.
On March 19, 2018, OMFH provided notice to note holders to redeem $400 million in aggregate principal amount of OMFH Notes due 2021 on April 18, 2018, at a redemption price in cash equal to 103.625%, plus accrued and unpaid interest to the redemption date on the principal amount. See Note 18 for more detail on this redemption.
The OMH guarantees of OMFH’s long-term debt discussed above are subject to customary release provisions.June 30, 2019.
9. Variable Interest Entities |
|
8. Variable Interest Entities |
CONSOLIDATED VIES
As part of our overall funding strategy, weWe have transferred certain finance receivables to VIEs for asset-backed financing transactions including securitization and conduit transactions. We have determined that either of SFC or OMFH isinclude the primary beneficiary of these VIEsassets and as a result, we include each VIE’s assets, including any finance receivables securing the VIE’s debt obligations, and related liabilities in our consolidated financial statements andbecause we are the primary beneficiary of each VIE’sVIE. We account for these asset-backed debt obligations are accounted for as secured borrowings.
See Note 3 and Note 13 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20172018 Annual
Report on Form 10-K for more detail regarding VIEs.
We parenthetically disclose on our consolidated balance sheets the VIE’s assets that can only be used to settle the VIE’s obligations and liabilities if its creditors have no recourse against the primary beneficiary’s general credit. The carrying amounts of consolidated VIE assets and liabilities associated with our securitization trusts and revolving conduit facilities were as follows:
| | (dollars in millions) | | March 31, 2018 | | December 31, 2017 | | March 31, 2019 | | December 31, 2018 |
| | | | | | | | |
Assets | | |
| | |
| | |
| | |
|
Cash and cash equivalents | | $ | 4 |
| | $ | 4 |
| | $ | 3 |
| | $ | 2 |
|
Finance receivables: | | |
| | |
| |
Personal loans | | 9,978 |
| | 9,769 |
| |
Finance receivables - Personal loans | | | 9,128 |
| | 8,480 |
|
Allowance for finance receivable losses | | 461 |
| | 465 |
| | 430 |
| | 444 |
|
Restricted cash and restricted cash equivalents | | 657 |
| | 482 |
| | 558 |
| | 479 |
|
Other assets | | 21 |
| | 20 |
| | 26 |
| | 26 |
|
| | | | | | | | |
Liabilities | | |
| | |
| | |
| | |
|
Long-term debt | | $ | 9,015 |
| | $ | 8,688 |
| | $ | 8,125 |
| | $ | 7,510 |
|
Other liabilities | | 15 |
| | 15 |
| | 16 |
| | 14 |
|
Other than the retained subordinate and residual interests in our consolidated VIEs, we are under no further obligation than is otherwise noted herein, either contractually or implicitly, to provide financial support to these entities. Consolidated interest expense related to our VIEs totaled $82 million for the three months ended March 31, 2019, compared to $87 million for the three months ended March 31, 2018.
SECURITIZED BORROWINGS
Each of our securitizations contains a revolving period ranging from one to five years during which no principal payments are required to be made on the related asset-backed notes, except for the ODART 2016-1 securitization which has no revolving period.notes. The indentures governing our securitization borrowings contain early amortization events and events of default, that, if triggered, may result in the acceleration of the obligation to pay principal and interest on the related asset-backed notes.
Our total securitized borrowings at March 31, 2018 consisted of the following:
|
| | | | | | | | | | | | | | | | | | |
(dollars in millions) | | Issue Amount (a) | | Current Note Amounts Outstanding | | Current Weighted Average Interest Rate | | Original Revolving Period | | Issue Date | | Maturity Date |
| | | | | | | | | | | | |
Consumer Securitizations: | | | | | | | | | | | | |
SLFT 2015-A | | $ | 1,163 |
| | $ | 1,053 |
| | 3.50 | % | | 3 years |
| | 02/26/15 | | 11/2024 |
SLFT 2015-B | | 314 |
| | 314 |
| | 3.78 | % | | 5 years |
| | 04/07/15 | | 05/2028 |
SLFT 2016-A (b) | | 532 |
| | 500 |
| | 3.10 | % | | 2 years |
| | 12/14/16 | | 11/2029 |
SLFT 2017-A (b) | | 652 |
| | 619 |
| | 2.98 | % | | 3 years |
| | 06/28/17 | | 07/2030 |
OMFIT 2014-2 | | 1,185 |
| | 235 |
| | 4.59 | % | | 2 years |
| | 07/30/14 | | 09/2024 |
OMFIT 2015-1 | | 1,229 |
| | 1,052 |
| | 3.83 | % | | 3 years |
| | 02/05/15 | | 03/2026 |
OMFIT 2015-2 | | 1,250 |
| | 593 |
| | 3.62 | % | | 2 years |
| | 05/21/15 | | 07/2025 |
OMFIT 2015-3 | | 293 |
| | 293 |
| | 4.21 | % | | 5 years |
| | 09/29/15 | | 11/2028 |
OMFIT 2016-1 (b) | | 500 |
| | 459 |
| | 4.01 | % | | 3 years |
| | 02/10/16 | | 02/2029 |
OMFIT 2016-2 (b) | | 890 |
| | 786 |
| | 4.52 | % | | 2 years |
| | 03/23/16 | | 03/2028 |
OMFIT 2016-3 (b) | | 350 |
| | 317 |
| | 4.33 | % | | 5 years |
| | 06/07/16 | | 06/2031 |
OMFIT 2017-1 (b) | | 947 |
| | 900 |
| | 2.70 | % | | 2 years |
| | 09/06/17 | | 09/2032 |
OMFIT 2018-1 (c) | | 632 |
| | 600 |
| | 3.60 | % | | 3 years |
| | 02/28/18 | | 03/2029 |
OMFIT 2018-2 (d) | | 368 |
| | 350 |
| | 3.87 | % | | 5 years |
| | 03/19/18 | | 03/2033 |
Total consumer securitizations | | | | 8,071 |
| | | | | | | | |
| | | | | | | | | | | | |
Auto Securitizations: | | | | | | | | | | | | |
ODART 2016-1 (b) | | 754 |
| | 142 |
| | 3.19 | % | | — |
| | 07/19/16 | | Various |
ODART 2017-1 (b) | | 300 |
| | 255 |
| | 2.63 | % | | 1 year |
| | 02/01/17 | | Various |
ODART 2017-2 (b) | | 605 |
| | 575 |
| | 2.63 | % | | 1 year |
| | 12/11/17 | | Various |
Total auto securitizations | | | | 972 |
| | | | | | | | |
| | | | | | | | | | | | |
Total secured structured financings | | | | $ | 9,043 |
| | | | | | | | |
| |
(a) | Issue Amount includes the retained interest amounts as applicable and as noted below while the Current Note Amounts Outstanding balances reflect pay-downs subsequent to note issuance and exclude retained interest amounts. |
| |
(b) | For these borrowings, we describe our consumer and auto securitizations initial retained amounts in Note 13 of the Notes to Consolidated Financial Statements in Part II - Item 8 included in our 2017 Annual Report on Form 10-K. |
| |
(c) | OMFIT 2018-1 Securitization. We initially retained approximately $32 million of the asset-backed notes.
|
| |
(d) | OMFIT 2018-2 Securitization. We initially retained approximately $18 million of the asset-backed notes.
|
2019 were $8.1 billion.
REVOLVING CONDUIT FACILITIES
AsWe had access to 12 conduit facilities with a total borrowing capacity of $6.2 billion as of March 31, 2018,2019. Our conduit facilities’ revolving period end ranges from one to three years. Principal balances of outstanding loans, if any, are due and payable in full ranging from three to eight years as of March 31, 2019. Amounts drawn on these facilities are collateralized by our borrowings under conduit facilities consisted of the following:
|
| | | | | | | | | | | | | | |
(dollar in millions) |
| Note Maximum Balance |
| Amount Drawn |
| Revolving Period End | | Backed by Loans Acquired from Subsidiaries of
| | Due and Payable (a) |
|
|
|
|
|
|
| | | | |
First Avenue Funding, LLC | | $ | 250 |
| | $ | — |
| | June 2018 | | SFC - auto loans | | (b) |
Seine River Funding, LLC | | 500 |
| | — |
| | December 2019 | | SFC - personal loans | | December 2022 |
Rocky River Funding, LLC | | 250 |
| | — |
| | September 2019 | | OMFH - personal loans | | October 2020 |
OneMain Financial Funding VII, LLC | | 650 |
| | — |
| | October 2019 | | OMFH - personal loans | | November 2021 |
Thur River Funding, LLC | | 350 |
| | — |
| | June 2020 | | SFC - personal loans | | February 2027 |
OneMain Financial Funding IX, LLC | | 600 |
| | — |
| | June 2020 | | OMFH - personal loans | | July 2021 |
Mystic River Funding, LLC | | 850 |
| | — |
| | September 2020 | | SFC - personal loans and auto loans | | October 2023 |
Fourth Avenue Auto Funding, LLC | | 250 |
| | — |
| | September 2020 | | SFC - auto loans | | October 2021 |
OneMain Financial Auto Funding I, LLC | | 750 |
| | — |
| | October 2020 | | OMFH - auto loans | | November 2027 |
OneMain Financial Funding VIII, LLC (c) | | 450 |
| | — |
| | January 2021 | | OMFH - personal loans | | February 2023 |
Total |
| $ | 4,900 |
|
| $ | — |
|
|
| | | | |
| |
(a) | The date following the revolving period that the principal balance of the outstanding loans, if any, will be reduced as cash payments are received on the underlying loans and will be due and payable in full.
|
| |
(b) | For First Avenue Funding, LLC, principal amount of the notes, if any, will be reduced as cash payments are received on the underlying direct auto loans and will be due and payable in full 12 months following the maturity of the last direct auto loan held by First Avenue Funding, LLC.
|
| |
(c) | On February 2, 2018, we entered in to the OneMain Financial Funding VIII LSA concurrently with the voluntary termination of the note purchase agreement with the OneMain Financial B6 Warehouse Trust. |
VIE INTEREST EXPENSEpersonal loans.
Other than the retained subordinate and residual interests in our consolidated VIEs, we are under no obligation, either contractually or implicitly, to provide financial support to these entities. Consolidated interest expense related to our VIEs for the three months endedAt March 31, 2018 totaled $87 million, compared to $80 million for the three months ended March 31, 2017.2019, no amounts were drawn under these facilities.
Changes in the reserve for unpaid claims and loss adjustment expenses (not considering reinsurance recoverable) were as follows::
| | | | At or for the Three Months Ended March 31, | | At or for the Three Months Ended March 31, |
(dollars in millions) | | 2018 | | 2017 | | 2019 | | 2018 |
| | | | | | | | |
Balance at beginning of period | | $ | 154 |
| | $ | 158 |
| | $ | 117 |
| | $ | 154 |
|
Less reinsurance recoverables | | (23 | ) | | (26 | ) | | (4 | ) | | (23 | ) |
Net balance at beginning of period | | 131 |
| | 132 |
| | 113 |
| | 131 |
|
Additions for losses and loss adjustment expenses incurred to: | | | | | | | | |
Current year | | 50 |
| | 52 |
| | 54 |
| | 50 |
|
Prior years * | | (4 | ) | | (4 | ) | | (7 | ) | | (4 | ) |
Total | | 46 |
| | 48 |
| | 47 |
| | 46 |
|
Reductions for losses and loss adjustment expenses paid related to: | | | | | | | | |
Current year | | (15 | ) | | (13 | ) | | (17 | ) | | (15 | ) |
Prior years | | (35 | ) | | (40 | ) | | (33 | ) | | (35 | ) |
Total | | (50 | ) | | (53 | ) | | (50 | ) | | (50 | ) |
Net balance at end of period | | 127 |
| | 127 |
| | 110 |
| | 127 |
|
Plus reinsurance recoverables | | 23 |
| | 27 |
| | 4 |
| | 23 |
|
Balance at end of period | | $ | 150 |
| | $ | 154 |
| | $ | 114 |
| | $ | 150 |
|
| |
* | Reflects (i) a redundancy in the prior years’ net reserves of $4$7 million at March 31, 20182019 primarily due to a favorable development of credit life, disability, and unemployment claims during the year and (ii) a redundancy in the prior years’ net reserves of $4 million at March 31, 20172018, primarily due to a favorable development of credit disability and credit involuntary unemployment insurance claims developing more favorably than anticipated.during the year. |
11. Earnings Per Share 23
The computation of earnings per share was as follows:
| | (dollars in millions, except per share data) | | Three Months Ended March 31, | |
| | Three Months Ended March 31, |
(dollars in millions, except per share data) | | 2018 | | 2017 | | 2019 | | 2018 |
| Numerator (basic and diluted): | | |
| | |
| | |
| | |
|
Net income attributable to OneMain Holdings, Inc. | | $ | 124 |
| | $ | 33 |
| | $ | 152 |
| | $ | 124 |
|
Denominator: | | |
| | |
| | |
| | |
|
Weighted average number of shares outstanding (basic) | | 135,596,279 |
|
| 135,218,586 |
| | 136,001,996 |
|
| 135,596,279 |
|
Effect of dilutive securities * | | 301,017 |
|
| 354,581 |
| | 189,287 |
|
| 301,017 |
|
Weighted average number of shares outstanding (diluted) | | 135,897,296 |
|
| 135,573,167 |
| | 136,191,283 |
|
| 135,897,296 |
|
Earnings per share: | | |
| | |
| | |
| | |
|
Basic | | $ | 0.91 |
| | $ | 0.25 |
| | $ | 1.12 |
| | $ | 0.91 |
|
Diluted | | $ | 0.91 |
| | $ | 0.25 |
| | $ | 1.11 |
| | $ | 0.91 |
|
* We have excluded the following shares in the diluted earnings per share calculation for the three months ended March 31, 20182019 and 20172018 because these shares would be anti-dilutive, which could impact the earnings per share calculation in the future: | | | | Three Months Ended March 31, | | Three Months Ended March 31, |
| | 2018 | | 2017 | | 2019 | | 2018 |
| | | | | | | | |
Performance-based shares | | 97,161 |
| | 30,685 |
| | 127,183 |
| | 97,161 |
|
Service-based shares | | 321,237 |
| | 755,631 |
| | 331,411 |
| | 321,237 |
|
Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during each period. Diluted earnings per share is computed based on the weighted-average number of common shares outstanding plus the effect of potentially dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential commonThe potentially dilutive shares represent outstanding unvested RSUs and RSAs.
12. Accumulated Other Comprehensive Income (Loss) |
|
11. Accumulated Other Comprehensive Income (Loss) |
Changes, net of tax, in accumulated other comprehensive income (loss) were as follows:
| | (dollars in millions) | | Unrealized Gains (Losses) Available-for-Sale Securities | | Retirement Plan Liabilities Adjustments | | Foreign Currency Translation Adjustments | | Total Accumulated Other Comprehensive Income (Loss) | | Unrealized Gains (Losses) Available-for-Sale Securities | | Retirement Plan Liabilities Adjustments | | Foreign Currency Translation Adjustments | | Total Accumulated Other Comprehensive Income (Loss) |
| | | | | | | | | |
Three Months Ended March 31, 2019 | | | |
| | |
| | |
| | |
|
Balance at beginning of period | | | $ | (28 | ) | | $ | (3 | ) | | $ | (3 | ) | | $ | (34 | ) |
Other comprehensive income before reclassifications | | | 30 |
| | — |
| | 2 |
| | 32 |
|
Balance at end of period | | | $ | 2 |
| | $ | (3 | ) | | $ | (1 | ) | | $ | (2 | ) |
| | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2018 | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Balance at beginning of period | | $ | 4 |
| | $ | 4 |
| | $ | 3 |
| | $ | 11 |
| | $ | 4 |
| | $ | 4 |
| | $ | 3 |
| | $ | 11 |
|
Other comprehensive loss before reclassifications | | (20 | ) | | — |
| | (3 | ) | | (23 | ) | | (20 | ) | | — |
| | (3 | ) | | (23 | ) |
Balance at end of period | | $ | (16 | ) | | $ | 4 |
| | $ | — |
| | $ | (12 | ) | | $ | (16 | ) | | $ | 4 |
| | $ | — |
| | $ | (12 | ) |
| | | | | | | | | |
Three Months Ended March 31, 2017 | | |
| | |
| | |
| | |
| |
Balance at beginning of period | | $ | (1 | ) | | $ | (4 | ) | | $ | (1 | ) | | $ | (6 | ) | |
Other comprehensive income before reclassifications | | 7 |
| | — |
| | — |
| | 7 |
| |
Reclassification adjustments from accumulated other comprehensive income (loss) | | (3 | ) | | — |
| | — |
| | (3 | ) | |
Balance at end of period | | $ | 3 |
| | $ | (4 | ) | | $ | (1 | ) | | $ | (2 | ) | |
Reclassification adjustments from accumulated other comprehensive income (loss) to the applicable line item on our condensed consolidated statements of operations were as follows:immaterial for the three months ended March 31, 2019 and March 31, 2018.
|
| | | | | | | |
(dollars in millions) | Three Months Ended March 31, |
2018 | | 2017 |
| | | |
Unrealized gains on available-for-sale securities: | |
| | |
|
Reclassification from accumulated other comprehensive income (loss) to investment revenues, before taxes | $ | — |
| | $ | 4 |
|
Income tax effect | — |
| | (1 | ) |
Reclassification from accumulated other comprehensive income (loss) to investment revenues, net of taxes | $ | — |
| | $ | 3 |
|
We had a net deferred tax asset of $135$109 million and $143$129 million at March 31, 20182019 and December 31, 2017,2018, respectively. The decrease in net deferred tax asset of $8 million was primarily due to amortization of tax goodwill and the change in debt fair value adjustment.
The effective tax rate for the three months ended March 31, 20182019 was 26.2%24.8%, compared to 41.5%26.2% for the same period in 2017.2018. The effective tax raterates for the three months ended March 31, 2019 and 2018 differed from the federal statutory rate of 21% primarily due to the effect of state income taxes and discrete tax expense for non-deductible compensation. The effective tax rate for the three months ended March 31, 2017 differed from the then-applicable federal statutory rate of 35% primarily due to the effect of state income taxes and discrete expense from share-based compensation.taxes.
We are currently under examination of our U.S. federal tax return for the years 20112014 to 20132016 by the IRS. We are also under examination of various states for the years 2011 to 2016.2017. Management believes it has adequately provided for taxes for such years.
Our gross unrecognized tax benefits, including related interest and penalties, totaled $16$14 million at March 31, 20182019 and $15$17 million at December 31, 2017.2018. We accrue interest related to uncertain tax positions in income tax expense. The amount of any change in the balance of uncertain tax liabilities over the next 12 months is not expected to be material to our consolidated financial statements.
|
|
13. Leases and Contingencies |
LEASES
Our leases primarily consist of leased office space, automobiles, and information technology equipment.
As described in Note 2, we have adopted ASU 2016-02, Leases, as of January 1, 2019. We have adopted the standard on the date of initial application using the optional transition approach. As a result of this election, the prior periods presented have not been adjusted. Additionally, we have elected the practical expedient to treat both the lease component and non-lease component for our leased office space portfolio as a single lease component.
All our leases are classified as operating leases. At inception of an arrangement we determine if a lease exists. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. At lease commencement date, we recognize right-of-use assets and lease liabilities measured
at the present value of lease payments over the lease term. Since our operating leases do not provide an implicit rate, we utilize the best available information to determine our incremental borrowing rate which is used to calculate the present value of lease payments. The right-of-use asset also includes any prepaid fixed lease payments and excludes lease incentives. Options to extend or terminate a lease may be included in our lease arrangements. We reflect the renewal or termination option in the right-of-use asset and lease liability when it is reasonably certain that we will exercise those options. Operating lease costs for lease payments are recognized on a straight-line basis over the lease term and are included in “Other operating expenses” in our condensed consolidated statement of operations. The operating lease right-of-use assets are included in “Other assets” and the operating lease liabilities are included in “Other liabilities” in our condensed consolidated balance sheet.
Our operating leases have remaining lease terms of one year to ten years. In the normal course of business, we will renew leases that expire or replace them with leases on other properties. In addition to rent, we pay taxes, insurance, and maintenance expenses under certain leases as variable lease payments. As of March 31, 2019, our operating right-of-use asset balance was $160 million and our operating lease liability balance was $175 million. Our operating lease costs totaled $17 million, our variable lease costs totaled $4 million and our sublease income was immaterial for the three months ended March 31, 2019.
As of March 31, 2019, maturities of lease liabilities, excluding leases on a month-to-month basis, were as follows:
|
| | | | |
(dollars in millions) | | Operating Leases |
| | |
2019 (excluding the three months ended March 31, 2019) | | $ | 46 |
|
2020 | | 52 |
|
2021 | | 39 |
|
2022 | | 27 |
|
2023 | | 13 |
|
2024 | | 6 |
|
Thereafter | | 6 |
|
Total lease payments | | 189 |
|
Imputed interest | | (14 | ) |
Total | | $ | 175 |
|
|
| | | |
Weighted Average Remaining Lease Term | | 3.8 years |
|
Weighted Average Discount Rate | | 3.74 | % |
As of December 31, 2018, under ASC 840, Leases, annual rental commitments for leased office space, automobiles and information technology equipment accounted for as operating leases, excluding leases on a month-to-month basis, were as follows:
|
| | | | |
(dollars in millions) | | Lease Commitments |
| | |
2019 | | $ | 60 |
|
2020 | | 50 |
|
2021 | | 37 |
|
2022 | | 26 |
|
2023 | | 12 |
|
2024+ | | 12 |
|
Total | | $ | 197 |
|
Rental expense totaled $74 million in 2018.
LEGAL CONTINGENCIES
In the normal course of business, we have been named, from time to time, as defendants in various legal actions, including arbitrations, class actions and other litigation arising in connection with our activities. Some of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. While we will continue to evaluate legal actions to determine whether a loss is reasonably possible or probable and is reasonably estimable, there can be no assurance that material losses will not be incurred from pending, threatened or future litigation, investigations, examinations, or other claims.
We contest liability and/or the amount of damages, as appropriate, in each pending matter. Where available information indicates that it is probable that a liability had been incurred at the date of the condensed consolidated financial statements and we can reasonably estimate the amount of that loss, we accrue the estimated loss by a charge to income. In many actions, however, it is inherently difficult to determine whether any loss is probable or even reasonably possible or to estimate the amount of any loss. In addition, even where loss is reasonably possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is not always possible to reasonably estimate the size of the possible loss or range of loss.
For certain legal actions, we cannot reasonably estimate such losses, particularly for actions that are in their early stages of development or where plaintiffs seek substantial or indeterminate damages. Numerous issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the actions in question, before a loss or additional loss or range of loss or additional loss can be reasonably estimated for any given action.
For certain other legal actions, we can estimate reasonably possible losses, additional losses, ranges of loss or ranges of additional loss in excess of amounts accrued, but do not believe, based on current knowledge and after consultation with counsel, that such losses will have a material adverse effect on our condensed consolidated financial statements as a whole.
Federal Securities Class ActionsAction
On February 10, 2017, a putative class action lawsuit, Galestan v. OneMain Holdings, Inc., et al., was filed in the U.S. District Court for the Southern District of New York, naming as defendants the Company and two of its officers. The lawsuit alleges violations of the Exchange Act for allegedly making materially misleading statements and/or omitting material information concerning alleged integration issues after the acquisition of OMFHOneMain Acquisition in November 2015, and was filed on behalf of a putative class of persons who purchased or otherwise acquired the Company’s common stock between February 25, 2016 and November 7, 2016. The complaint seeks an award of unspecified compensatory damages, an award of interest, reasonable attorney’s fees, expert fees and other costs, and equitable relief as the court may deem just and proper. On March 23, 2017, the court appointed a lead plaintiff for the putative class and approved the lead plaintiff’s selection of counsel. The plaintiff filed an amended complaint on June 13, 2017 challenging statements regarding the Company’s projections of future financial performance and certain statements regarding integration after the OneMain Acquisition. On September 29, 2017, pursuant to the Court’s Individual Rules and Practices, we sought permission to file a motion to dismiss the amended complaint.complaint and on December 12, 2018, the Court denied that motion. On January 4, 2019, the Company requested permission to reargue the motion to dismiss decision with respect to the challenged statements from February 2016. On April 23, 2019, the parties executed a settlement agreement, which is subject to Court approval. Papers in support of approval of the settlement have been filed with the Court. The Company believes thatsettlement agreement provides for the allegations specified indismissal of the amended complaint are without merit, and intends to vigorously defend against the claims. As the lawsuit is in the preliminary stages,action with prejudice. The amount incurred by the Company is unable to estimate a reasonably possible rangeimmaterial and has been properly accrued, including the related insurance proceeds, as of loss, if any, that may result fromMarch 31, 2019. The settlement contains no admission of liability by the lawsuit.Company and the other defendants.
SALES RECOURSE OBLIGATIONSAt March 31, 2018, our reserve for sales recourse obligations totaled $9 million, which primarily related to our real estate loan sales in 2014, with a minimal portion of the reserve related to net charge-off sales of our finance receivables. During the three months ended March 31, 2018 and 2017, we had no material repurchase activity related to these sales and no material activity related to our sales recourse obligations.
At March 31, 2018, there were no material recourse requests with loss exposure that management believed would not be covered by the reserve. However, we will continue to monitor any repurchase activity in the future and will adjust the reserve accordingly. When recourse losses are reasonably possible or exposure to such losses exists in excess of the liability already accrued, it is not always possible to reasonably estimate the size of the possible recourse losses or range of losses.
During the three months ended March 31, 20182019 and 2017,2018, the components of net periodic benefit cost with respect to our defined benefit pension plans were immaterial. We do not currently fund post retirementpost-retirement benefits.
Our segments coincide with how our businesses are managed.
At March 31, 2018,2019, our two segments included Consumer and Insurance and Acquisitions and Servicing. Servicing. The remaining components (which we refer to as “Other”) consist of our non-originating legacy operations, which include our liquidating real estate loan portfolioloans and our liquidating retail sales finance portfolio.portfolios.
Due to the nature of the OneMain Acquisition and the Fortress Acquisition, we applied purchase accounting. However, we report the operating results of Consumer and Insurance, Acquisitions and Servicing, and Other using the Segment Accounting Basis, which (i) reflects our allocation methodologies for certain costs, primarily interest expense, loan loss reserves, and acquisition costs, to reflect the manner in which we assess our business results and (ii) excludes the impact of applying purchaseOur segment accounting (eliminates premiums/discounts on our finance receivables and long-term debt at acquisition, as well as the amortization/accretion in future periods).
The accounting policies of the segments are the same as those disclosed in Note 3 and Note 22 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20172018 Annual Report on Form 10-K. We report the operating results of our segments and Other using the Segment Accounting Basis, which (i) reflects our allocation methodologies for interest expense and operating costs, and (ii) excludes the impact of applying purchase accounting.
The following tables present information about the Company’sour segments, as well as reconciliations to the condensed consolidated financial statement amounts. |
| | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | | Consumer and Insurance | | Acquisitions and Servicing | | Other | | Segment to GAAP Adjustment | | Consolidated Total |
| | | | | | | | | | |
At or for the Three Months Ended March 31, 2019 | | | | |
| | |
| | |
| | |
|
Interest income | | $ | 954 |
| | $ | — |
| | $ | 3 |
| | $ | (1 | ) | | $ | 956 |
|
Interest expense | | 229 |
| | — |
| | 2 |
| | 5 |
| | 236 |
|
Provision for finance receivable losses | | 276 |
| | — |
| | — |
| | 10 |
| | 286 |
|
Net interest income after provision for finance receivable losses | | 449 |
| | — |
| | 1 |
| | (16 | ) | | 434 |
|
Other revenues | | 146 |
| | 7 |
| | 1 |
| | (6 | ) | | 148 |
|
Other expenses | | 363 |
| | 7 |
| | 5 |
| | 5 |
| | 380 |
|
Income (loss) before income tax expense (benefit) | | $ | 232 |
| | $ | — |
|
| $ | (3 | ) | | $ | (27 | ) | | $ | 202 |
|
| | | | | | | | | | |
Assets | | $ | 19,197 |
| | $ | — |
| | $ | 95 |
| | $ | 2,066 |
| | $ | 21,358 |
|
|
| | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | | Consumer and Insurance | | Acquisitions and Servicing | | Other | | Segment to GAAP Adjustment | | Consolidated Total |
| | | | | | | | | | |
At or for the Three Months Ended March 31, 2018 | | | | |
| | |
| | |
| | |
|
Interest income | | $ | 873 |
| | $ | — |
| | $ | 5 |
| | $ | (16 | ) | | $ | 862 |
|
Interest expense | | 194 |
| | — |
| | 5 |
| | 1 |
| | 200 |
|
Provision for finance receivable losses | | 258 |
| | — |
| | (2 | ) | | (2 | ) | | 254 |
|
Net interest income after provision for finance receivable losses | | 421 |
| | — |
| | 2 |
| | (15 | ) | | 408 |
|
Other revenues | | 106 |
| | 9 |
| | (2 | ) | | 24 |
| | 137 |
|
Acquisition-related transaction and integration expenses | | 10 |
| | — |
| | — |
| | — |
| | 10 |
|
Other expenses | | 343 |
| | 8 |
| | 10 |
| | 6 |
| | 367 |
|
Income (loss) before income tax expense (benefit) | | $ | 174 |
| | $ | 1 |
|
| $ | (10 | ) | | $ | 3 |
| | $ | 168 |
|
| | | | | | | | | | |
Assets | | $ | 18,033 |
| | $ | — |
| | $ | 255 |
| | $ | 2,179 |
| | $ | 20,467 |
|
| | At or for the Three Months Ended March 31, 2017 | | | | | | | | | | | |
At or for the Three Months Ended March 31, 2018 | | | | | |
| | |
| | |
| | |
|
Interest income | | $ | 798 |
| | $ | — |
| | $ | 6 |
| | $ | (45 | ) | | $ | 759 |
| | $ | 873 |
| | $ | — |
| | $ | 5 |
| | $ | (16 | ) | | $ | 862 |
|
Interest expense | | 186 |
| | — |
| | 6 |
| | 10 |
| | 202 |
| | 194 |
| | — |
| | 5 |
| | 1 |
| | 200 |
|
Provision for finance receivable losses | | 239 |
| | — |
| | 1 |
| | 5 |
| | 245 |
| | 258 |
| | — |
| | (2 | ) | | (2 | ) | | 254 |
|
Net interest income (loss) after provision for finance receivable losses | | 373 |
| | — |
| | (1 | ) | | (60 | ) | | 312 |
| | 421 |
| | — |
| | 2 |
| | (15 | ) | | 408 |
|
Other revenues | | 137 |
| | 12 |
| | — |
| | (8 | ) | | 141 |
| | 106 |
| | 9 |
| | (2 | ) | | 24 |
| | 137 |
|
Acquisition-related transaction and integration expenses | | 20 |
| | — |
| | 6 |
| | (3 | ) | | 23 |
| |
Other expenses | | 348 |
| | 11 |
| | 6 |
| | 8 |
| | 373 |
| | 353 |
| | 8 |
| | 10 |
| | 6 |
| | 377 |
|
Income (loss) before income tax expense (benefit) | | $ | 142 |
| | $ | 1 |
| | $ | (13 | ) | | $ | (73 | ) | | $ | 57 |
| | $ | 174 |
| | $ | 1 |
| | $ | (10 | ) | | $ | 3 |
| | $ | 168 |
|
| | | | | | | | | | | | | | | | | | | | |
Assets | | $ | 15,335 |
| | $ | 2 |
| | $ | 701 |
| | $ | 1,935 |
| | $ | 17,973 |
| | $ | 18,033 |
| | $ | — |
| | $ | 255 |
| | $ | 2,179 |
| | $ | 20,467 |
|
17. Fair Value Measurements 28
The fair value of a financial instrument is the amount that would be expected to be received if an asset were to be sold or the amount that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The degree of judgment used in measuring the fair value of financial instruments generally correlates with the level of pricing observability. |
|
16. Fair Value Measurements |
The accounting policies of our Fair Value Measurements are the same as those disclosed in Note 3 and Note 23 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20172018 Annual Report on Form 10-K.
The following table presents the carrying amounts and estimated fair values of our financial instruments and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used:
| | | | Fair Value Measurements Using | | Total Fair Value | | Total Carrying Value | | Fair Value Measurements Using | | Total Fair Value | | Total Carrying Value |
(dollars in millions) | | Level 1 | | Level 2 | | Level 3 | | | Level 1 | | Level 2 | | Level 3 | |
| | | | | | | | | | | | | | | | | | | | |
March 31, 2018 | | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,753 |
| | $ | 54 |
| | $ | — |
| | $ | 1,807 |
| | $ | 1,807 |
| | $ | 1,666 |
| | $ | 43 |
| | $ | — |
| | $ | 1,709 |
| | $ | 1,709 |
|
Investment securities | | 35 |
| | 1,665 |
| | 6 |
| | 1,706 |
| | 1,706 |
| | 37 |
| | 1,702 |
| | 4 |
| | 1,743 |
| | 1,743 |
|
Net finance receivables, less allowance for finance receivable losses | | — |
| | — |
| | 15,661 |
| | 15,661 |
| | 14,298 |
| | — |
| | — |
| | 16,872 |
| | 16,872 |
| | 15,403 |
|
Finance receivables held for sale | | — |
| | — |
| | 134 |
| | 134 |
| | 126 |
| | — |
| | — |
| | 80 |
| | 80 |
| | 78 |
|
Restricted cash and restricted cash equivalents | | 679 |
| | — |
| | — |
| | 679 |
| | 679 |
| | 575 |
| | — |
| | — |
| | 575 |
| | 575 |
|
Other assets * | | — |
| | — |
| | 11 |
| | 11 |
| | 11 |
| | — |
| | — |
| | 13 |
| | 13 |
| | 13 |
|
| | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | |
Long-term debt | | $ | — |
| | $ | 16,379 |
| | $ | — |
| | $ | 16,379 |
| | $ | 15,898 |
| | $ | — |
| | $ | 16,681 |
| | $ | — |
| | $ | 16,681 |
| | $ | 16,117 |
|
| | | | | | | | | | | | | | | | | | | | |
December 31, 2017 | | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 933 |
| | $ | 54 |
| | $ | — |
| | $ | 987 |
| | $ | 987 |
| | $ | 618 |
| | $ | 61 |
| | $ | — |
| | $ | 679 |
| | $ | 679 |
|
Investment securities | | 36 |
| | 1,654 |
| | 7 |
| | 1,697 |
| | 1,697 |
| | 34 |
| | 1,655 |
| | 5 |
| | 1,694 |
| | 1,694 |
|
Net finance receivables, less allowance for finance receivable losses | | — |
| | — |
| | 15,656 |
| | 15,656 |
| | 14,260 |
| | — |
| | — |
| | 16,734 |
| | 16,734 |
| | 15,433 |
|
Finance receivables held for sale | | — |
| | — |
| | 139 |
| | 139 |
| | 132 |
| | — |
| | — |
| | 103 |
| | 103 |
| | 103 |
|
Restricted cash and restricted cash equivalents | | 498 |
| | — |
| | — |
| | 498 |
| | 498 |
| | 499 |
| | — |
| | — |
| | 499 |
| | 499 |
|
Other assets * | | — |
| | — |
| | 12 |
| | 12 |
| | 12 |
| | — |
| | 1 |
| | 15 |
| | 16 |
| | 16 |
|
| | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | |
| | | | | | | | | | |
| | |
Long-term debt | | $ | — |
| | $ | 15,625 |
| | $ | — |
| | $ | 15,625 |
| | $ | 15,050 |
| | $ | — |
| | $ | 15,041 |
| | $ | — |
| | $ | 15,041 |
| | $ | 15,178 |
|
| |
* | Other assets at March 31, 2019 and December 31, 2018 include commercial mortgage loans and escrow advance receivable.miscellaneous receivables related to our liquidating loan portfolios. |
FAIR VALUE MEASUREMENTS — RECURRING BASIS
The following tables present information about our assets measured at fair value on a recurring basis and indicates the fair value hierarchy based on the levels of inputs we utilized to determine such fair value:
| | | | Fair Value Measurements Using | | Total Carried At Fair Value | | Fair Value Measurements Using | | Total Carried At Fair Value |
(dollars in millions) | | Level 1 | | Level 2 | | Level 3 * | | | Level 1 | | Level 2 | | Level 3 | |
| | | | | | | | | | | | | | | | |
March 31, 2018 | | |
| | |
| | |
| | |
| |
March 31, 2019 | | | |
| | |
| | |
| | |
|
Assets | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Cash equivalents in mutual funds | | $ | 1,475 |
| | $ | — |
| | $ | — |
| | $ | 1,475 |
| | $ | 1,033 |
| | $ | — |
| | $ | — |
| | $ | 1,033 |
|
Cash equivalents in securities | | — |
| | 54 |
| | — |
| | 54 |
| | — |
| | 43 |
| | — |
| | 43 |
|
Investment securities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Available-for-sale securities | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
U.S. government and government sponsored entities | | — |
| | 29 |
| | — |
| | 29 |
| | — |
| | 17 |
| | — |
| | 17 |
|
Obligations of states, municipalities, and political subdivisions | | — |
| | 131 |
| | — |
| | 131 |
| | — |
| | 87 |
| | — |
| | 87 |
|
Certificates of deposit and commercial paper | | — |
| | 39 |
| | — |
| | 39 |
| | — |
| | 59 |
| | — |
| | 59 |
|
Non-U.S. government and government sponsored entities | | — |
| | 127 |
| | — |
| | 127 |
| | — |
| | 145 |
| | — |
| | 145 |
|
Corporate debt | | — |
| | 967 |
| | 2 |
| | 969 |
| | — |
| | 1,057 |
| | 2 |
| | 1,059 |
|
RMBS | | — |
| | 119 |
| | — |
| | 119 |
| | — |
| | 141 |
| | — |
| | 141 |
|
CMBS | | — |
| | 85 |
| | — |
| | 85 |
| | — |
| | 66 |
| | — |
| | 66 |
|
CDO/ABS | | — |
| | 97 |
| | 1 |
| | 98 |
| | — |
| | 83 |
| | — |
| | 83 |
|
Total available-for-sale securities | | — |
| | 1,594 |
| | 3 |
| | 1,597 |
| | — |
| | 1,655 |
| | 2 |
| | 1,657 |
|
Other securities | | |
| | |
| | |
| |
|
| | |
| | |
| | |
| |
|
|
Bonds: | | |
| | |
| | |
| |
|
| | |
| | |
| | |
| |
|
|
Non-U.S. government and government sponsored entities | | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
|
Corporate debt | | — |
| | 60 |
| | 2 |
| | 62 |
| | — |
| | 37 |
| | 1 |
| | 38 |
|
RMBS | | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
|
CDO/ABS | | — |
| | 3 |
| | — |
| | 3 |
| | — |
| | 1 |
| | — |
| | 1 |
|
Total bonds | | — |
| | 65 |
| | 2 |
| | 67 |
| | — |
| | 40 |
| | 1 |
| | 41 |
|
Preferred stock | | 13 |
| | 6 |
| | — |
| | 19 |
| | 13 |
| | 7 |
| | — |
| | 20 |
|
Common stock | | 22 |
| | — |
| | — |
| | 22 |
| | 24 |
| | — |
| | — |
| | 24 |
|
Other long-term investments | | — |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 1 |
|
Total other securities | | 35 |
| | 71 |
| | 3 |
| | 109 |
| | 37 |
| | 47 |
| | 2 |
| | 86 |
|
Total investment securities | | 35 |
| | 1,665 |
| | 6 |
| | 1,706 |
| | 37 |
| | 1,702 |
| | 4 |
| | 1,743 |
|
Restricted cash in mutual funds | | 662 |
| | — |
| | — |
| | 662 |
| | 560 |
| | — |
| | — |
| | 560 |
|
Total | | $ | 2,172 |
| | $ | 1,719 |
| | $ | 6 |
| | $ | 3,897 |
| | $ | 1,630 |
| | $ | 1,745 |
| | $ | 4 |
| | $ | 3,379 |
|
| |
* |
| | | | | | | | | | | | | | | | | | | | Fair Value Measurements Using | | Total Carried At Fair Value | (dollars in millions) | | Level 1 | | Level 2 | | Level 3 | | | | | | | | | | | December 31, 2018 | | |
| | |
| | |
| | |
| Assets | | |
| | |
| | |
| | |
| Cash equivalents in mutual funds | | $ | 426 |
| | $ | — |
| | $ | — |
| | $ | 426 |
| Cash equivalents in securities | | — |
| | 61 |
| | — |
| | 61 |
| Investment securities: | | |
| | |
| | |
| | |
| Available-for-sale securities | | |
| | |
| | |
| | |
| U.S. government and government sponsored entities | | — |
| | 21 |
| | — |
| | 21 |
| Obligations of states, municipalities, and political subdivisions | | — |
| | 90 |
| | — |
| | 90 |
| Certificates of deposit and commercial paper | | — |
| | 63 |
| | — |
| | 63 |
| Non-U.S. government and government sponsored entities | | — |
| | 143 |
| | — |
| | 143 |
| Corporate debt | | — |
| | 995 |
| | 2 |
| | 997 |
| RMBS | | — |
| | 128 |
| | — |
| | 128 |
| CMBS | | — |
| | 71 |
| | — |
| | 71 |
| CDO/ABS | | — |
| | 93 |
| | 1 |
| | 94 |
| Total available-for-sale securities | | — |
| | 1,604 |
| | 3 |
| | 1,607 |
| Other securities | | |
| | |
| | |
| | | Bonds: | | |
| | |
| | |
| | |
| Non-U.S. government and government sponsored entities | | — |
| | 1 |
| | — |
| | 1 |
| Corporate debt | | — |
| | 42 |
| | 1 |
| | 43 |
| RMBS | | — |
| | 1 |
| | — |
| | 1 |
| CDO/ABS | | — |
| | 1 |
| | — |
| | 1 |
| Total bonds | | — |
| | 45 |
| | 1 |
| | 46 |
| Preferred stock | | 13 |
| | 6 |
| | — |
| | 19 |
| Common stock | | 21 |
| | — |
| | — |
| | 21 |
| Other long-term investments | | — |
| | — |
| | 1 |
| | 1 |
| Total other securities | | 34 |
| | 51 |
| | 2 |
| | 87 |
| Total investment securities | | 34 |
| | 1,655 |
| | 5 |
| | 1,694 |
| Restricted cash in mutual funds | | 482 |
| | — |
| | — |
| | 482 |
| Total | | $ | 942 |
| | $ | 1,716 |
| | $ | 5 |
| | $ | 2,663 |
|
Due to the insignificant activity within the Level 3 assets during the three months ended March 31, 2018, we have omitted the additional disclosures relating to the changes in Level 3 assets measured at fair value on a recurring basis and the quantitative information about Level 3 unobservable inputs. |
|
| | | | | | | | | | | | | | | | |
| | Fair Value Measurements Using | | Total Carried At Fair Value |
(dollars in millions) | | Level 1 | | Level 2 | | Level 3 (a) | |
| | | | | | | | |
December 31, 2017 | | |
| | |
| | |
| | |
|
Assets | | |
| | |
| | |
| | |
|
Cash equivalents in mutual funds | | $ | 709 |
| | $ | — |
| | $ | — |
| | $ | 709 |
|
Cash equivalents in securities | | — |
| | 54 |
| | — |
| | 54 |
|
Investment securities: | | |
| | |
| | |
| | |
|
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 | | — |
| | 125 |
| | — |
| | 125 |
|
Corporate debt | | — |
| | 946 |
| | 2 |
| | 948 |
|
RMBS | | — |
| | 99 |
| | — |
| | 99 |
|
CMBS | | — |
| | 87 |
| | — |
| | 87 |
|
CDO/ABS | | — |
| | 95 |
| | 1 |
| | 96 |
|
Total available-for-sale securities (b) | | — |
| | 1,575 |
| | 3 |
| | 1,578 |
|
Other securities | | |
| | |
| | |
| | |
Bonds: | | |
| | |
| | |
| | |
|
Non-U.S. government and government sponsored entities | | — |
| | 1 |
| | — |
| | 1 |
|
Corporate debt | | — |
| | 66 |
| | 2 |
| | 68 |
|
RMBS | | — |
| | 1 |
| | — |
| | 1 |
|
CDO/ABS | | — |
| | 4 |
| | — |
| | 4 |
|
Total bonds | | — |
| | 72 |
| | 2 |
| | 74 |
|
Preferred stock | | 13 |
| | 7 |
| | — |
| | 20 |
|
Common stock | | 23 |
| | — |
| | — |
| | 23 |
|
Other long-term investments | | — |
| | — |
| | 1 |
| | 1 |
|
Total other securities | | 36 |
| | 79 |
| | 3 |
| | 118 |
|
Total investment securities | | 36 |
| | 1,654 |
| | 6 |
| | 1,696 |
|
Restricted cash in mutual funds | | 484 |
| | — |
| | — |
| | 484 |
|
Total | | $ | 1,229 |
| | $ | 1,708 |
| | $ | 6 |
| | $ | 2,943 |
|
| |
(a) | Due to the insignificant activity within the Level 3 assets during 2017, we have omitted the additional disclosures relating to the changes in Level 3 assets measured at fair value on a recurring basis and the quantitative information about Level 3 unobservable inputs. |
| |
(b) | Excludes an immaterial interest in a limited partnership that we account for using the equity method and FHLB common stock of $1 million at December 31, 2017, which is carried at cost. |
We had no transfers between Level 1 and Level 2 during the three months ended March 31, 2018.2019 and 2018 period, we have omitted the additional disclosures relating to the changes in Level 3 assets measured at fair value on a recurring basis and the quantitative information about Level 3 unobservable inputs in the tables above.
FAIR VALUE MEASUREMENTS — NON-RECURRING BASIS
We measure the fair value of certain assets on a non-recurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Net impairment charges recorded on assets measured at fair value on a non-recurring basis were $3 million and immaterial for the three months ended March 31, 2019 and 2018, and 2017.respectively.
FAIR VALUE MEASUREMENTS — VALUATION METHODOLOGIES AND ASSUMPTIONS
See Note 23 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20172018 Annual Report on Form 10-K for information regarding our methods and assumptions used to estimate fair value.
Partial Redemption of OMFH 2021 Notes
On March 19, 2018, OMFH provided notice of redemption to redeem $400 million in aggregate principal amount of OMFH Notes due 2021 on April 18, 2018 at a redemption price in cash equal to the sum of (i) 103.625% of the principal amount of the notes and (ii) any accrued and unpaid interest to the redemption date on the principal amount. These notes were redeemed on April 18, 2018. In connection with the redemption, we will recognize approximately $4 million of net loss on repurchases and repayments of debt for the three months ended June 30, 2018.
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
An index to our management’s discussion and analysis follows:
Forward-Looking Statements |
|
Forward-Looking Statements |
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact but instead represent only management’s current beliefs regarding future events. By their nature, forward-looking statements involve inherentare subject to risks, uncertainties, assumptions and other important factors that may cause actual results, performance or achievements to differ materially from those expressed in or implied by such forward-looking statements. We caution you not to place undue reliance on these forward-looking statements that speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions toupdate or revise these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events or the non-occurrence of anticipated events.events, whether as a result of new information, future developments or otherwise,
except as required by law. Forward-looking statements include, without limitation, statements concerning future plans, objectives, goals, projections, strategies, events or performance, and underlying assumptions and other statements related thereto. Statements preceded by, followed by or that otherwise include the words “anticipates,” “appears,” “are likely,” “believes,” “estimates,” “expects,” “foresees,” “intends,” “plans,” “projects” and similar expressions or future or conditional verbs such as “would,” “should,” “could,” “may,” or “will,” are intended to identify forward-looking statements. Important factors that could cause actual results, performance or achievements to differ materially from those expressed in or implied by forward-looking statements include, without limitation, the following:
the inability to obtain, or delays in obtaining, cost savings and synergies from the OneMain Acquisition and risks and other uncertainties associated with the integration of the companies;
any litigation, fines or penalties that could arise relating to the OneMain Acquisition or Apollo-Värde Transaction;
the impact of the Apollo-Värde Transaction on our relationships with employees and third parties;
various risks relating to continued compliance with the Settlement Agreement;
adverse changes in general economic conditions, including the interest rate environment in which we conduct business and the financial markets through which we can access capital and also invest cash flows from our Consumer and Insurance segment;markets;
risks related to the acquisition or sale of assets or businesses or the formation, termination or operation of joint ventures or other strategic alliances, including increased loan delinquencies or net charge-offs, integration or migration issues, increased costs of servicing, incomplete records, and retention of customers;
our estimates of the allowance for finance receivable losses may not be adequate to absorb actual losses, causing our provision for finance receivable losses to increase, which would adversely affect our results of operations;
increased levels of unemployment and personal bankruptcies;
our strategy of increasing the proportion of secured loans may lead to declines in or slower growth in our personal loan receivables and portfolio yield;
adverse changes in the rate at which we can collect or potentially sell our finance receivables portfolio;
our decentralized branch loan approval process could expose us to greater than historical delinquencies and charge-offs;
natural or accidental events such as earthquakes, hurricanes, tornadoes, fires, or floods affecting our customers, collateral, or branches or other operating facilities;
war, acts of terrorism, riots, civil disruption, pandemics, disruptions in the operation of our information systems, cyber-attacks or other security breaches, or other events disrupting business or commerce;
changesa failure in or breach of our operational or security systems or infrastructure or those of third parties, including as a result of cyber-attacks; or other cyber-related incidents involving the rate at which we can collectloss, theft or potentially sellunauthorized disclosure of personally identifiable information, or “PII,” of our finance receivables portfolio;present or former customers;
the effectiveness of our credit risk scoring models in assessingmay be inadequate to properly assess the risk of customer unwillingness or lack of capacity to repay;
adverse changes in our ability to attract and retain employees or key executives to support our businesses;
changes in the competitive environment in which we operate, including the demand for our products,increased competition, lack of customer responsiveness to our distribution channels, our abilityan inability to make technological improvements, and the strength and ability of our competitors to operate independently or to enter into business combinations that result inoffer a more attractive range of customerpersonal loan products or provide greater financial resources;
risks related to the acquisition or sale of assets or businesses or the formation, termination or operation of joint ventures or other strategic alliances or arrangements, including loan delinquencies or net charge-offs, integration or migration issues, increased costs of servicing, incomplete records, and retention of customers;
risks associated with our insurance operations, including insurance claims that exceed our expectations or insurance losses that exceed our reserves;
the inability to successfully implement our growth strategy for our consumer lending business as well as various risks associated with successfully acquiring portfolios of consumer loans, pursuing acquisitions, and/or establishing joint ventures;
declines in collateral values or increases in actual or projected delinquencies or net charge-offs;than we offer;
changes in federal, state or local laws, regulations, or regulatory policies and practices including the Dodd-Frank Act (which, among other things, established the CFPB, which has broad authority to regulate and examine financial institutions, including us), that adversely affect our ability to conduct business or the manner in which we are permitted to conduct business, such as licensing requirements, pricing limitations or restrictions on the method of offering products, as well as changes that may result from increased regulatory scrutiny of the sub-prime lending industry, our use of third-partythird party vendors and real estate loan servicing, or changes in corporate or individual income tax laws or regulations, including effects of the enactmentTax Act;
risks associated with our insurance operations, including insurance claims that exceed our expectations or insurance losses that exceed our reserves;
we may be unable to successfully implement our growth strategy for our consumer lending business or successfully acquire portfolios of the Tax Act;personal loans;
declines in collateral values or increases in actual or projected delinquencies or net charge-offs;
potential liability relating to real estate and personal loansfinance receivables which we have sold or securitized or may sell or securitize in the future or relating to securitized loans, if it is determined that there was a non-curable breach of a representation or warranty made in connection with such transactions;
the costs and effects of any actual or alleged violations of any federal, state or local laws, rules or regulations, including any litigation associated therewith, any impact to our business operations, reputation, financial position, results of operations or cash flows arising therefrom, any impact to our relationships with lenders, investors or other third parties attributable thereto, and the costs and effects of any breach of any representation, warranty or covenant under any of our contractual arrangements, including indentures or other financing arrangements or contracts, as a result of any such violation;therewith;
the costs and effects of any fines, penalties, judgments, decrees, orders, inquiries, investigations, subpoenas, or enforcement or other proceedings of any governmental or quasi-governmental agency or authority and any litigation associated therewith;
our continued ability to access the capital markets or the sufficiency of our current sources of funds to satisfy our cash flow requirements;
our ability to comply with our debt covenants;
our ability to generate sufficient cash to service all of our indebtedness;
any material impairment or write-down of the value of our assets;
the ownership of our common stock continues to be highly concentrated, which may prevent other minority stockholders from influencing significant corporate decisions and may result in conflicts of interest;
the effects of any downgrade of our debt ratings by credit rating agencies, which could have a negative impact on our cost of and/or access to capital;
our substantial indebtedness, which could prevent us from meeting our obligations under our debt instruments and limit our ability to react to changes in the economy or our industry or our ability to incur additional borrowings;
the impacts of our securitizations and borrowings;
our ability to maintain sufficient capital levels in our regulated and unregulated subsidiaries;
changes in accounting standards or tax policies and practices and the application of such new standards, policies and practices;
changes in accounting principlesmanagement estimates and policies or changes in accounting estimates;
effects of the acquisition of Fortress by an affiliate of SoftBank Group Corp.;
effects, if any, of the contemplated acquisition by an investor group of shares of our common stock beneficially owned by Fortressassumptions, including estimates and its affiliates;assumptions about future events, may prove to be incorrect;
any failure or inability to achieve the SpringCastle Portfolio performance requirements, set forth inwhich could, among other things, cause us to lose our loan servicing rights over the SpringCastle Interests Sale purchase agreement;Portfolio; and
various risks relating to continued compliance with the effectSettlement Agreement with the U.S. Department of future sales of our remaining portfolio of real estate loans and the transfer of servicing of these loans, including the environmental liability and costs for damage caused by hazardous waste if a real estate loan goes into default.Justice.
We also direct readers to the other risks and uncertainties discussed in other documents we filed with the SEC.
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. You should specifically consider the factors identified in this report that could cause actual results to differ before making an investment decision to purchase our common stock.stock and should not place undue reliance on any of our forward-looking statements. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.
We are a leading provider of responsible personal loan products, primarily to non-prime customers. Our network of overapproximately 1,600 branch offices in 44 states as of March 31, 2018, is staffed with expert personnel and is complemented by our online consumer loan origination businesscapabilities and centralized operations, which allows us to reach customers located outside our branch footprint.network. Our digital platform provides current and prospective customers the option of obtaining a personal loan via our website, www.omf.com. (The information on our website is not incorporated by reference into this report.) In connection with our personal loan business, our insurance subsidiaries offer our customers optional credit and non-credit insurance.insurance products.
In addition to our loan originations and insurance sales activities, we service loans owned by us and service or subservice loans owned by third-parties;third parties; pursue strategic acquisitions and dispositions of assets and businesses, including loan portfolios or other financial assets; and may establish joint ventures or enter into other strategic alliances or arrangements from time to time.alliances.
OUR PRODUCTS
Our product offerings include:
Personal Loans — We offer personal loans through our branch network, and over the Internet through our centralized operations, and our website, www.omf.com, to customers who generally need timely access to cash. Our personal loans are typically non-revolving, with a fixed-rate, and a fixed original term of three to six years, and are secured by consumer goods, automobiles, or other personal propertytitled collateral or are unsecured. At March 31, 2018,2019, we had overapproximately 2.3 million personal loans, representing $14.9$16.1 billion of net finance receivables, compared to approximately 2.4 million personal loans totaling $14.8$16.2 billion at December 31, 2017.2018.
Insurance Products — We offer our customerscustomers optional credit insurance products (life insurance, disability insurance, and involuntary unemployment insurance) and optional non-credit insurance products through both our branch network and our centralized operations. Credit insurance and non-credit insurance products are provided by our affiliated insurance companies, Merit, Yosemite, AHL and Triton.companies. We also offer optional home and auto membership plans of an unaffiliated company.
Our non-originating legacy products include:
Other Receivables —We ceased originating real estate loans in 2012 and purchasing retail sales finance contracts and revolving retail accounts in 2013. We continue to service or sub-service the liquidating real estate loans and retail sales contractsfinance contracts. Effective September 30, 2018, our real estate loans were transferred from held for investment to held for sale. See Notes 5, 6 and will provide revolving retail sales financing services7 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on our revolving retail accounts.Form 10-K for more information about Other Receivables.
OUR SEGMENTS
At March 31, 2018,2019, we had two operating segments:
Consumer and Insurance; and
Acquisitions and Servicing.
The remaining components (which we refer to as “Other”) consist of our non-originating legacy operations, which primarily include our liquidating real estate loan portfolio and our liquidating retail sales finance portfolio.
See Note 1615 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information about our segments.
Recent Developments and Outlook
|
|
Recent Developments and Outlook |
RECENT DEVELOPMENTS
Apollo-Värde TransactionCash Dividends to our Common Stockholders
On January 3, 2018, the Apollo-Värde Group entered into a Share Purchase Agreement with the Initial Stockholder andFebruary 11, 2019, the Company announced an initial quarterly dividend of $0.25 per share and paid $34 million on March 15, 2019 to acquire from the Initial Stockholder 54,937,500 sharesrecord holders of our common stock representing the entire holdings of our stock beneficially owned by Fortress. The Apollo-Värde Transaction is expected to close in the second quarter of 2018 and is subject to regulatory approvals and other customary closing conditions.
The Share Purchase Agreement is filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on January 4, 2018, and such Current Report on Form 8-K, including Exhibit 10.1 thereto, is incorporated by reference herein in its entirety. Upon closing of the Apollo-Värde Transaction, we expect to enter into an Amended and Restated Stockholders’ Agreement, the expected termsclose of which are described in such Current Reportbusiness on Form 8-K. Further, upon closing of the Apollo-Värde Transaction, we expect to recognize non-cash incentive compensation expense of approximately $108 million along with a capital contribution offset such that the overall impact to our shareholders’ equity will be neutral.
AIG Secondary Offering
February 26, 2019. 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 ofApril 29, 2019, the Company had previously been granted incentive units that only provide benefits (in the formannounced a quarterly dividend of distributions) if the Initial Stockholder makes distributions$0.25 per share, payable on June 14, 2019 to one or more of its common members that exceed specified amounts. In connection with the salerecord holders of our common stock by the Initial Stockholder on February 21, 2018, certainas of the specified thresholds were satisfied. In accordance with ASC Topic 710, Compensation-General, we recorded non-cash incentive compensation expenseclose 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.business on May 29, 2019.
RedemptionIssuance of OMFH 20196.125% Senior Notes
OMFH redeemed all $700 million outstanding principal amount Due 2024 and Redemptions of OMFH’s 6.75%5.25% Senior Notes due 2019 at a redemption price equal to 103.375%, plus accrued and unpaid interest on January 8, 2018. For further information see “Liquidity and Capital Resources” in Item 2 included in this report.
6.875%6.00% Senior Notes Due 20252020
On March 12, 2018, SFC issued $1.25 billion aggregate principal amount of 6.875% SFC Notes under the SFC Base Indenture, as supplemented by the SFC Fifth Supplemental Indenture, pursuant to which OMH provided a guarantee of the 6.875% SFC Notes on an unsecured basis. For further information regarding such notes issuance and redemptions, see Note 8 of the Notes to Condensed Consolidated Financial Statements included in this report.
Partial Redemption of OMFH 2021 Notes
On March 19, 2018, OMFH provided notice to note holders to redeem on April 18, 2018, $400 million in aggregate principal amount of OMFH Notes due 2021 at a redemption price in cash equal to the sum of (i) 103.625% of the principal amount of the notes and (ii) any accrued and unpaid interest to the redemption date on the principal amount. These notes were redeemed on April 18, 2018.
The Tax Act
On December 22, 2017, President Trump signed into law the Tax Act, which contains substantial changes to the Internal Revenue Code effective January 1, 2018, including a reduction in the federal corporate tax rate from 35% to 21%. For further information see Note 137 of the Notes to the Condensed Consolidated Financial Statements included in this report.
Cost Departure of Chief Financial Officer (“CFO”) and Appointment of CFO
On April 25, 2019, our Board of Directors appointed Micah R. Conrad as CFO. Mr. Conrad replaces Scott T. Parker, who resigned as Executive Vice President and CFO on March 26, 2019 and departed the Company on April 4, 2019. Mr. Parker’s departure was not due to any disagreement between Mr. Parker and the Company relating to the Company’s financial reporting or condition, policies or practices. Mr. Conrad has served as the Company’s Acting CFO from March 26, 2019 until his appointment as CFO.
Synergies from the OneMain Acquisition - Sale of Merit Life Insurance Co.
As part of our continuing integration efforts from the OneMain Acquisition, on March 7, 2019, we entered into a Share Purchase Agreement with a third-party insurance holding company to sell all of the issued and outstanding shares of Merit, a wholly owned subsidiary of SFC. The transaction is expected to close in the second quarter of 2019 and is subject to regulatory approval and other customary closing conditions. The assets and liabilities of Merit, that are subject to sale, are classified as held for sale as of March 31, 2018, we had incurred approximately $249 million2019 and are reflected in “Other assets” and “Other liabilities” respectively in our condensed consolidated balance sheet. Based on the estimated purchase price, there is no indication of acquisition-related transaction and integration expenses ($10 million incurred during 2018) from the OneMain Acquisition.impairment of net assets held for sale as of March 31, 2019.
OUTLOOK
With our experienced management team, long track record of successfully accessing the capital markets, and strong demand for consumer credit, we believe we are well positioned to execute on our strategic priorities to strengthen our capital base throughbase. We further describe our key initiatives and strategies under “Recent Developments and Outlook” of the following key initiatives:
Continuing the growth in receivables through enhanced marketing strategiesManagement’s Discussion and customer product options;
Growing secured lending originations with a goalAnalysis of enhancing credit performance;
Leveraging our scaleFinancial Condition and cost discipline across the Company to deliver improved operating leverage;
Increasing tangible equity and reducing leverage; and
Maintaining a strong liquidity level with diversified funding sources.
We continue to execute our strategy to increase the proportion of our loan originations secured by titled collateral (which typically have lower yields and credit losses relative to unsecured personal loans). As we continue to increase secured loans as a proportion of our total loan portfolio, our yields may be lower in future periods relative to our historical yields; however, we also expect a proportional improvement in net credit losses over time as our portfolio matures and as secured loans become a greater proportion of our total loan portfolio.
Assuming the U.S. economy continues to experience slow to moderate growth, we expect to continue our long history of strong credit performance and believe the strong credit quality of our loan portfolio will continue as the result of our disciplined underwriting practices and ongoing collection efforts. We have continued to see some migration of customer activity away from traditional channels, such as direct mail, to online channels (primarily serviced through our branch network), where we believe we are well suited to capture volume due to our scale, technology, and deployment of advanced analytics.
Results of Operations in Part II - Item 7 included in our 2018 Annual Report on Form 10-K.
CONSOLIDATED RESULTS
See the table below for our consolidated operating results and selected financial statistics. A further discussion of our operating results for each of our operating segments is provided under “Segment Results” below.
| | (dollars in millions, except per share amounts) | | At or for the Three Months Ended March 31, | |
| | At or for the Three Months Ended March 31, |
(dollars in millions, except per share amounts) | | 2018 | | 2017 | | 2019 | | 2018 |
| Interest income | | $ | 862 |
| | $ | 759 |
| | $ | 956 |
| | $ | 862 |
|
Interest expense | | 200 |
| | 202 |
| | 236 |
| | 200 |
|
Provision for finance receivable losses | | 254 |
| | 245 |
| | 286 |
| | 254 |
|
Net interest income after provision for finance receivable losses | | 408 |
| | 312 |
| | 434 |
| | 408 |
|
Other revenues | | 137 |
| | 141 |
| | 148 |
| | 137 |
|
Acquisition-related transaction and integration expenses | | 10 |
| | 23 |
| |
Other expenses | | 367 |
| | 373 |
| | 380 |
| | 377 |
|
Income before income taxes | | 168 |
| | 57 |
| | 202 |
| | 168 |
|
Income taxes | | 44 |
| | 24 |
| | 50 |
| | 44 |
|
Net income | | $ | 124 |
| | $ | 33 |
| | $ | 152 |
| | $ | 124 |
|
| | | | | | | | |
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 |
| | $ | 1.11 |
| | $ | 0.91 |
|
| | | | | | | | |
Selected Financial Statistics * | | |
| | |
| | | | |
Finance receivables held for investment: | | | | | | | | |
Net finance receivables | | $ | 14,987 |
| | $ | 13,388 |
| | $ | 16,136 |
| | $ | 14,987 |
|
Number of accounts | | 2,348,676 |
| | 2,154,034 |
| | 2,326,835 |
| | 2,348,676 |
|
Finance receivables held for sale: | | | | | | | | |
Net finance receivables | | $ | 126 |
| | $ | 148 |
| | $ | 78 |
| | $ | 126 |
|
Number of accounts | | 2,345 |
| | 2,714 |
| | 2,357 |
| | 2,345 |
|
Finance receivables held for investment: | | | | | |
Finance receivables held for investment and held for sale: | | | | | |
Average net receivables | | $ | 14,986 |
| | $ | 13,513 |
| | $ | 16,146 |
| | $ | 14,986 |
|
Average daily debt balance | | | $ | 15,839 |
| | $ | 14,947 |
|
Yield | | 23.25 | % | | 22.67 | % | | 23.92 | % | | 23.25 | % |
Gross charge-off ratio |
| 7.85 | % |
| 8.91 | % |
| 7.82 | % | | 7.85 | % |
Recovery ratio |
| (0.75 | )% |
| (0.89 | )% |
| (0.70 | )% | | (0.75 | )% |
Net charge-off ratio | | 7.10 | % | | 8.02 | % | | 7.12 | % | | 7.10 | % |
30-89 Delinquency ratio | | 2.11 | % | | 2.21 | % | | 1.93 | % | | 2.11 | % |
Origination volume | | $ | 2,540 |
| | $ | 1,812 |
| | $ | 2,582 |
| | $ | 2,540 |
|
Number of accounts originated | | 324,730 |
| | 243,652 |
| | 276,329 |
| | 324,730 |
|
| |
* | See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios. |
Comparison of Consolidated Results for the Three Months Ended March 31, 20182019 and 20172018
Interest income increased $103$94 million or 11% for the three months ended March 31, 20182019 when compared to the same period in 20172018 primarily due to continued growth in our loan portfolio and higher yield, which was primarily driven by the reduction inlower amortization of purchase premium on our non-credit impaired finance receivables.
Interest expensedecreased $2 increased $36 million or 18% for the three months ended March 31, 20182019 when compared to the same period in 20172018 primarily due to lower weighted average interest rate offset by the increase in average debt, balance primarily due toconsistent with the issuance of 6.125% SFC Notes and 5.625% SFC Notesgrowth in our loan portfolio, and our securitization transactions.strategic actions to increase unsecured debt, which tends to have higher interest rates than secured debt, in order to achieve a more proportional mix of secured and unsecured funding.
See Notes 87 and 98 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on our long-term debt, securitization transactions and our conduit facilities.
Provision for finance receivable lossesincreased $9$32 million or 13% for the three months ended March 31, 2019 when compared to the same period in 2018 primarily driven by the growth in our loan portfolio offset by lower required provision due to the continued change in portfolio mix to more secured personal loans. As a result of the transfer of the remaining real estate loans to held for sale, the level of allowance for finance receivable losses as a percentage of net finance receivables has decreased from the same period in 2018.
Other revenues increased $11 million or 8% for the three months ended March 31, 2019 when compared to the same period in 2018 primarily due to (i) a $13 million increase of investment revenue driven by unrealized gains on equity investment securities and an increase in interest income on our cash and cash equivalents, (ii) an $11 million net gain on sale of a cost method investment, and (iii) a $5 million increase in insurance premiums due to the increase in insurance products sold. The increase was partially offset by $20 million of higher net losses on repurchases and repayments of debt.
Other expenses increased $3 million or less than 1% for the three months ended March 31, 2019 when compared to the same period in 2018 reflecting our strategy to reinvest in our business.
Income taxes totaled $50 million for the three months ended March 31, 2018 when2019 compared to $44 million for the same period in 2018. The increase is primarily due to higher pre-tax income in the current period compared to the same period in 2017 primarily driven by the growth in the loan portfolio partially offset by lower net charge-offs resulting from lower levels of delinquency and greater levels of secured loans.
Other revenues decreased $4 million for the three months ended March 31, 2018 when compared to the same period in 2017 due to a decrease in investment income of $6 million due to lower realized gains on investment securities sold and mark-to-market losses on securities partially offset by an increase in insurance revenue of $2 million.
Acquisition-related transaction and integration costs decreased $13 million for the three months ended March 31, 2018 when compared to the same period in 2017 primarily due to a decrease in professional services and contractor expenses and decrease in rent expense and supplies related to branch closures. See “Non-GAAP Financial Measures” below for further information regarding these costs.
Other expenses decreased $6 million for the three months ended March 31, 2018 when compared to the same period in 2017 due to the net of the following:
Other operating expenses decreased $14 million primarily due to (i) lower lending-related costs of $12 million, (ii) a decrease in expenses of $7 million charged by Citigroup in first quarter 2017 after the termination of our Transition Services Agreement with Citigroup and (iii) $4 million lower information technology expenses. The decrease was partially offset by an increase in advertising and marketing costs of $11 million.
Salaries and benefits increased $8 million primarily due to the increase in non-cash incentive compensation expense of $4 million relating to the rights of certain executives to receive a portion of the cash proceeds from the sale of OMH’s common stock that were beneficially owned by AIG and an increase in $2 million in discretionary bonuses.
Income taxestotaled $44 million for the three months ended March 31, 2018 compared to $24 million for the same period in 2017.2018. The effective tax rate for the three months ended March 31, 20182019 was 26.2%24.8% compared to 41.5%26.2% for the same period in 2017.2018. The effective tax raterates for the three months ended March 31, 2019 and 2018 differed from the federal statutory rate of 21% primarily due to the effect of state income taxes and discrete tax expense for non-deductible compensation. The effective tax rate for the three months ended March 31, 2017 differed from the then-applicable federal statutory rate of 35% primarily due to the effect of state income taxes and discrete expense from share-based compensation.taxes.
NON-GAAP FINANCIAL MEASURES
Adjusted Pretax Income (Loss)
Management uses adjusted pretax income (loss), a non-GAAP financial measure, as a key performance measure, of our segments. Management believes adjusted pretax income (loss) is useful in assessing the profitability of our segments, and uses adjusted pretax income (loss) in evaluating our operating performance and as a performance goal under the company’sCompany’s executive compensation programs. We describe our adjusted pretax income (loss) in ourunder “Results of Operations” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our 20172018 Annual Report on Form 10-K.
Adjusted pretax income (loss) is a non-GAAP financial measure and should be considered supplemental to, but not as a substitute for or superior to, income (loss) before income taxes, net income, or other measures of financial performance prepared in accordance with GAAP.
The reconciliations of income (loss) before income taxestax expense (benefit) on a Segment Accounting Basis to adjusted pretax income (loss) (non-GAAP) by segment were as follows:
| | (dollars in millions) | | Three Months Ended March 31, | |
| | Three Months Ended March 31, |
(dollars in millions) | | 2018 | | 2017 | | 2019 | | 2018 |
| Consumer and Insurance | | | | | | | | |
Income before income taxes - Segment Accounting Basis | | $ | 174 |
| | $ | 142 |
| | $ | 232 |
| | $ | 174 |
|
Adjustments: | | | | | | | | |
Net loss on repurchases and repayments of debt | | | 16 |
| | 27 |
|
Net gain on sale of cost method investment | | | (11 | ) | | — |
|
Acquisition-related transaction and integration expenses | | 10 |
| | 20 |
| | 6 |
| | 10 |
|
Net loss on repurchases and repayments of debt | | 27 |
| | 1 |
| |
Restructuring charges | | | 3 |
| | — |
|
Adjusted pretax income (non-GAAP) | | $ | 211 |
| | $ | 163 |
| | $ | 246 |
| | $ | 211 |
|
| | | | | | | | |
Acquisitions and Servicing | | | | | | | | |
Income before income taxes - Segment Accounting Basis | | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
|
Adjustments | | — |
| | — |
| | — |
| | — |
|
Adjusted pretax income (non-GAAP)
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
|
| | | | | | | | |
Other | | | | | | | | |
Loss before income tax benefit - Segment Accounting Basis | | $ | (10 | ) | | $ | (13 | ) | | $ | (3 | ) | | $ | (10 | ) |
Adjustments: | | | | | |
Acquisition-related transaction and integration expenses | | — |
| | 6 |
| |
Net loss on sale of real estate loans * | | | 1 |
| | — |
|
Adjusted pretax loss (non-GAAP) | | $ | (10 | ) | | $ | (7 | ) | | $ | (2 | ) | | $ | (10 | ) |
* During the three months ended March 31, 2019, the resulting impairment on finance receivables held for sale remaining after the February 2019 Real Estate Loan Sale has been combined with the gain on the sale.
We describe our acquisition-related transaction and integration expenses in ourunder “Results of Operations” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our 20172018 Annual Report on Form 10-K.
See Note 1622 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for a description of our segments and methodologies used to allocate revenues and expenses to each segment. See Note 15 of the Notes to the Condensed Consolidated Financial Statements included in this report for (i) a description of our segments, (ii) reconciliations of segment totals to condensed consolidated financial statement amounts, (iii) methodologies used to allocate revenues and expenses to each segment, and (iv) further discussion of the differences in our Segment Accounting Basis and GAAP.amounts.
CONSUMER AND INSURANCE
Adjusted pretax income and selected financial statistics for Consumer and Insurance (which are reported on an adjusted Segment Accounting Basis) were as follows: | | (dollars in millions) | | At or for the Three Months Ended March 31, | |
| | At or for the Three Months Ended March 31, |
(dollars in millions) | | 2018 | | 2017 | | 2019 | | 2018 |
| Interest income | | $ | 873 |
| | $ | 798 |
| | $ | 954 |
| | $ | 873 |
|
Interest expense | | 194 |
| | 186 |
| | 229 |
| | 194 |
|
Provision for finance receivable losses | | 258 |
| | 239 |
| | 276 |
| | 258 |
|
Net interest income after provision for finance receivable losses | | 421 |
| | 373 |
| | 449 |
| | 421 |
|
Other revenues | | 133 |
| | 138 |
| | 151 |
| | 133 |
|
Other expenses | | 343 |
| | 348 |
| | 354 |
| | 343 |
|
Adjusted pretax income (non-GAAP) | | $ | 211 |
| | $ | 163 |
| | $ | 246 |
| | $ | 211 |
|
| | | | | | | | |
Selected Financial Statistics * | | |
| | |
| | |
| | |
|
Finance receivables held for investment: | | | | | | | | |
Net finance receivables | | $ | 14,870 |
| | $ | 13,157 |
| | $ | 16,170 |
| | $ | 14,870 |
|
Number of accounts | | 2,344,236 |
| | 2,147,394 |
| | 2,326,835 |
| | 2,344,236 |
|
Finance receivables held for investment: | | | | | |
Finance receivables held for investment and held for sale: | | | | | |
Average net receivables | | $ | 14,860 |
| | $ | 13,261 |
| | $ | 16,179 |
| | $ | 14,860 |
|
Yield | | 23.83 | % | | 24.39 | % | | 23.92 | % | | 23.83 | % |
Gross charge-off ratio | | 8.10 | % | | 9.58 | % | | 7.92 | % | | 8.10 | % |
Recovery ratio | | (0.89 | )% | | (1.11 | )% | | (0.81 | )% | | (0.89 | )% |
Net charge-off ratio | | 7.21 | % | | 8.47 | % | | 7.11 | % | | 7.21 | % |
30-89 Delinquency ratio | | 2.08 | % | | 2.17 | % | | 1.94 | % | | 2.08 | % |
Origination volume | | $ | 2,540 |
| | $ | 1,812 |
| | $ | 2,582 |
| | $ | 2,540 |
|
Number of accounts originated | | 324,730 |
| | 243,652 |
| | 276,329 |
| | 324,730 |
|
| |
* | See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios. |
Comparison of Adjusted Pretax Income for the Three Months Ended March 31, 20182019 and 20172018
Interest income increased $75$81 million or 9% for the three months ended March 31, 20182019 when compared to the same period in 20172018 primarily due to continued growth in our loan portfolio and partially offset by lower interest income due to lower yield on the portfolio driven by higher levels of secured loans which generally have a lower rate than unsecured loans.portfolio.
Interest expenseincreased $8$35 million or 18% for the three months ended March 31, 20182019 when compared to the same period in 20172018 primarily due to anthe increase in average debt, consistent with the growth in our loan portfolio, and our strategic actions to increase unsecured debt, which tends to have higher interest rates than secured debt, in order to achieve a more proportional mix of secured and unsecured funding.
See Notes 7 and 8 of the Notes to the Condensed Consolidated Financial Statements included in this report for the three months ended March 31, 2018.further information on our long-term debt, securitization transactions and our conduit facilities.
Provision for finance receivable losses increased $19$18 million or 7% for the three months ended March 31, 20182019 when compared to the same period in 20172018 primarily driven by the growth in theour loan portfolio partially offset by lower required provision due to the continued change in portfolio mix to more secured personal loans. As a result of this change in mix as well as improvement in the effectiveness of our collections, the level of allowance for finance receivable losses as a percentage of net charge-offs resultingfinance receivables has decreased from lower levels of delinquency and greater levels of secured loans.the same period in 2018.
Other revenues decreased $5increased $18 million or 14% for the three months ended March 31, 20182019 when compared to the same period in 2017 as2018 primarily due to (i) a $13 million increase in investment revenue decreaseddriven by $11 million due to lower realizedunrealized gains on equity investment securities sold and mark-to-market losses on securities offset by an increase in interest income on our cash and cash equivalents and (ii) a $5 million increase in insurance revenues of $2 million and an increase of $4 millionpremiums due to greater home and auto membership fees related to the increase in loan volume.insurance products sold.
Other expensesdecreased $5 increased $11 million for the three months ended March 31, 2018or 3% when compared to the same period in 2017 due2018 reflecting our strategy to the net of the following:
Other operating expenses decreased $12 million primarily due to (i) lower lending-related costs of $12 million, (ii) a decreasereinvest in Citigroup transition expenses of $7 million, and (iii) a decrease in information technology expenses of $4 million. The decrease was offset by an increase in advertising and marketing expenses of $12 million.our business.
Salaries and benefits increased $7 million primarily due to an increase in discretionary bonuses and branch variable incentives.
ACQUISITIONS AND SERVICING
Adjusted pretax income for Acquisition and Servicing (which areis reported on an adjusted Segment Accounting Basis) werewas as follows:
| | (dollars in millions) | | Three Months Ended March 31, | |
| | Three Months Ended March 31, |
(dollars in millions) | | 2018 | | 2017 | | 2019 | | 2018 |
| Other revenues | | $ | 9 |
| | $ | 12 |
| | $ | 7 |
| | $ | 9 |
|
Other expenses | | 8 |
| | 11 |
| | 7 |
| | 8 |
|
Adjusted pretax income (non-GAAP) | | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
|
OTHER
“Other” consists of our non-originating legacy operations which include other receivables consisting of (i) our liquidating real estate loan portfolio and (ii) our liquidating retail sales finance portfolio.portfolios.
Adjusted pretax loss of the Other components (which areis reported on an adjusted Segment Accounting Basis) werewas as follows:
| | (dollars in millions) | | Three Months Ended March 31, | |
| | Three Months Ended March 31, |
(dollars in millions) | | 2018 | | 2017 | | 2019 | | 2018 |
| Interest income | | $ | 5 |
| | $ | 6 |
| | $ | 3 |
| | $ | 5 |
|
Interest expense | | 5 |
| | 6 |
| | 2 |
| | 5 |
|
Provision for finance receivable losses | | (2 | ) | | 1 |
| | — |
| | (2 | ) |
Net interest income (loss) after provision for finance receivable losses | | 2 |
| | (1 | ) | |
Net interest income after provision for finance receivable losses | | | 1 |
| | 2 |
|
Other revenues | | (2 | ) | | — |
| | 2 |
| | (2 | ) |
Other expenses * | | 10 |
| | 6 |
| | 5 |
| | 10 |
|
Adjusted pretax loss (non-GAAP) | | $ | (10 | ) | | $ | (7 | ) | | $ | (2 | ) | | $ | (10 | ) |
| |
* | Other expenses in for the three months ended March 31, 2018 include $4 million of non-cash incentive compensation expense related to the rights of certain executives to a portion of the cash proceeds from the sale of our common stock by the Initial Stockholder. See Note 1 of the Notes to Condensed Consolidated Financial Statements included in this report.SFH. |
Net finance receivables of the Other components (which are reported on a Segment Accounting Basis) were as follows:
|
| | | | | | | | |
(dollars in millions) | | March 31, |
| 2018 | | 2017 |
Net finance receivables held for investment: | | | | |
Personal loans | | $ | — |
| | $ | 6 |
|
Other receivables | | 136 |
| | 158 |
|
Total | | $ | 136 |
| | $ | 164 |
|
| | | | |
Net finance receivables held for sale: | | | | |
Other receivables | | $ | 133 |
| | $ | 151 |
|
|
| | | | | | | | |
| | March 31, |
(dollars in millions) | | 2019 | | 2018 |
| | | | |
Net finance receivables | | | | |
Other receivables * | | $ | — |
| | $ | 136 |
|
| | | | |
Net finance receivables held for sale: | | | | |
Other receivables * | | $ | 79 |
| | $ | 133 |
|
| |
* | On September 30, 2018, we transferred our real estate loans previously classified as Other Receivables from held for investment to held for sale. See Notes 5 and 7 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for further information. |
FINANCE RECEIVABLE COMPOSITIONRECEIVABLES
The following table presents the composition of our finance receivables for each of the Company’s segments on a Segment Accounting Basis, as well as reconciliations to our totalOur net finance receivables, on a GAAP basis:
|
| | | | | | | | | | | | | | | | |
(dollars in millions) | | Consumer and Insurance | | Other | | Segment to GAAP Adjustment | | Consolidated Total |
| | | | | | | | |
March 31, 2018 | | | | | | | | |
Personal loans | | $ | 14,870 |
| | $ | — |
| | $ | (12 | ) | | $ | 14,858 |
|
Other receivables | | — |
| | 136 |
| | (7 | ) | | 129 |
|
Total | | $ | 14,870 |
| | $ | 136 |
| | $ | (19 | ) | | $ | 14,987 |
|
| | | | | | | | |
December 31, 2017 | | | | | | | | |
Personal loans | | $ | 14,820 |
| | $ | — |
| | $ | 3 |
| | $ | 14,823 |
|
Other receivables | | — |
| | 142 |
| | (8 | ) | | 134 |
|
Total | | $ | 14,820 |
| | $ | 142 |
| | $ | (5 | ) | | $ | 14,957 |
|
The largest componentconsisting of our finance receivablespersonal loans, were $16.1 billion at March 31, 2019 and primary source of our interest income is our personal loan portfolio.$16.2 billion at December 31, 2018. Our personal loans are typically non-revolving, with a fixed-rate, and a fixed original term of three to six years, and are secured by consumer goods, automobiles, or other personal propertytitled collateral or are unsecured. We consider the value and recoverability of the collateral, if any, securing a loan at loan originationthe concentration of secured loans, and the delinquency status of our finance receivables as the primary indicators of credit quality. At March 31, 20182019 and December 31, 2017, 43%2018, 49% and 48%, respectively, of our personal loans, on a consolidated basis, were secured by titled collateral.
Distribution of Finance Receivables by FICO Score
There are many different categorizations used in the consumer lending industry to describe the creditworthiness of a borrower, including prime, non-prime,near prime, and sub-prime. We track and analyze the performance of our finance receivable portfolio using many different parameters, including FICO scores, which is widely recognized in the consumer lending industry.
We group FICO scores into the following credit strength categories:
Prime: FICO score of 660 or higher
Non-prime:Near prime: FICO score of 620-659
Sub-prime: FICO score of 619 or below
Our customers are described as prime at one end of the credit spectrum and sub-primenon-prime at the other. Our customers’ demographics are in many respects near the national median but may vary from national norms in terms of credit and repayment histories. Many of our customers have experienced some level of prior financial difficulty or have limited credit experience and require higher levels of servicing and support from our branch network.
Our net finance receivablespersonal loans are grouped into the following categories based solely on borrower FICO credit scores atas of the purchase, origination, renewal, or most recently refreshed date wereor as follows:of the origination or purchase date:
| | (dollars in millions) | | Personal Loans | | Other Receivables | | Total | | March 31, 2019 | | December 31, 2018 |
| | | | | | | | | | |
March 31, 2018 | | | | | | | |
FICO scores | | | | | | | | | | |
660 or higher | | $ | 3,883 |
| | $ | 43 |
| | $ | 3,926 |
| | $ | 3,785 |
| | $ | 3,906 |
|
620-659 | | 3,924 |
| | 22 |
| | 3,946 |
| | 4,220 |
| | 4,251 |
|
619 or below | | 7,051 |
| | 64 |
| | 7,115 |
| | 8,131 |
| | 8,007 |
|
Total | | $ | 14,858 |
| | $ | 129 |
| | $ | 14,987 |
| | $ | 16,136 |
| | $ | 16,164 |
|
| | | | | | | |
December 31, 2017 | | | | | | | |
FICO scores | | | | | | | |
660 or higher | | $ | 3,950 |
| | $ | 45 |
| | $ | 3,995 |
| |
620-659 | | 3,919 |
| | 22 |
| | 3,941 |
| |
619 or below | | 6,954 |
| | 67 |
| | 7,021 |
| |
Total | | $ | 14,823 |
| | $ | 134 |
| | $ | 14,957 |
| |
DELINQUENCY
We monitor delinquency trends to evaluate the risk of future credit losses and employ advanced analytical tools to manage our exposure and appetite.exposure. Our branch team members work with customers through occasional periods of financial difficulty and offer a variety of borrower assistance programs to help customers continue to make payments. Team members also actively engage in collection activities throughout the early stages of delinquency. We closely track and report the percentage of receivables that are contractually 30-89 days past due as a benchmark of portfolio quality, collections effectiveness, and as a strong indicator of losses in coming quarters.
When finance receivables are contractually 60 days past due, we consider these accounts to be at an increased risk for loss and we transfer collection of these accounts to our centralized operations. Use of our centralized operations teams for managing late stage delinquency allows us to apply more advanced collections technologies/collection technologies and tools and drives operating efficiencies in servicing. At 90 days contractually past due, we consider our finance receivables to be nonperforming.
The following table presents (i) delinquency information of the Company’s segments on a Segment Accounting Basis, (ii) reconciliations to our totalfor net finance receivables on a GAAP basis, by number of days delinquent, and (iii) delinquency ratiosis as a percentage of net finance receivables:follows:
| | (dollars in millions) | | Consumer and Insurance | | Other | | Segment to GAAP Adjustment | | Consolidated Total | | Consumer and Insurance | | Segment to GAAP Adjustment | | GAAP Basis |
| | | | | | | | | | | | | | |
March 31, 2018 | | | | | | | | | |
March 31, 2019 | | | | | | | |
Current | | $ | 14,222 |
| | $ | 109 |
| | $ | (15 | ) | | $ | 14,316 |
| | $ | 15,520 |
| | $ | (31 | ) | | $ | 15,489 |
|
30-59 days past due | | 175 |
| | 7 |
| | (1 | ) | | 181 |
| | 180 |
| | (1 | ) | | 179 |
|
Delinquent (60-89 days past due) | | 135 |
| | 2 |
| | (1 | ) | | 136 |
| | 133 |
| | — |
| | 133 |
|
Performing | | 14,532 |
| | 118 |
| | (17 | ) | | 14,633 |
| | 15,833 |
| | (32 | ) | | 15,801 |
|
| | | | | | | | | | | | | | |
Nonperforming (90+ days past due) | | 338 |
| | 18 |
| | (2 | ) | | 354 |
| | 337 |
| | (2 | ) | | 335 |
|
Total net finance receivables | | $ | 14,870 |
| | $ | 136 |
| | $ | (19 | ) | | $ | 14,987 |
| | $ | 16,170 |
| | $ | (34 | ) | | $ | 16,136 |
|
| | | | | | | | | | | | | | |
Delinquency ratio | | | | | | | | | | | | | | |
30-89 days past due | | 2.08 | % | | 6.91 | % | | * |
| | 2.11 | % | | 1.94 | % | | * |
| | 1.93 | % |
30+ days past due | | 4.35 | % | | 20.04 | % | | * |
| | 4.47 | % | | 4.02 | % | | * |
| | 4.01 | % |
60+ days past due | | 3.18 | % | | 14.84 | % | | * |
| | 3.27 | % | | 2.91 | % | | * |
| | 2.90 | % |
90+ days past due | | 2.27 | % | | 13.12 | % | | * |
| | 2.36 | % | | 2.08 | % | | * |
| | 2.08 | % |
| | | | | | | | | | | | | | |
December 31, 2017 | | | | | | | | | |
December 31, 2018 | | | | | | | |
Current | | $ | 14,119 |
| | $ | 109 |
| | $ | — |
| | $ | 14,228 |
| | $ | 15,437 |
| | $ | (26 | ) | | $ | 15,411 |
|
30-59 days past due | | 205 |
| | 9 |
| | (2 | ) | | 212 |
| | 231 |
| | (2 | ) | | 229 |
|
Delinquent (60-89 days past due) | | 157 |
| | 4 |
| | (1 | ) | | 160 |
| | 162 |
| | (1 | ) | | 161 |
|
Performing | | 14,481 |
| | 122 |
| | (3 | ) | | 14,600 |
| | 15,830 |
| | (29 | ) | | 15,801 |
|
| | | | | | | | | | | | | | |
Nonperforming (90+ days past due) | | 339 |
| | 20 |
| | (2 | ) | | 357 |
| | 365 |
| | (2 | ) | | 363 |
|
Total net finance receivables | | $ | 14,820 |
| | $ | 142 |
| | $ | (5 | ) | | $ | 14,957 |
| | $ | 16,195 |
| | $ | (31 | ) | | $ | 16,164 |
|
| | | | | | | | | | | | | | |
Delinquency ratio | | | | | | | | | | | | | | |
30-89 days past due | | 2.44 | % | | 8.60 | % | | * |
| | 2.49 | % | | 2.43 | % | | * |
| | 2.42 | % |
30+ days past due | | 4.73 | % | | 22.75 | % | | * |
| | 4.88 | % | | 4.68 | % | | * |
| | 4.66 | % |
60+ days past due | | 3.35 | % | | 16.66 | % | | * |
| | 3.46 | % | | 3.26 | % | | * |
| | 3.25 | % |
90+ days past due | | 2.29 | % | | 14.15 | % | | * |
| | 2.39 | % | | 2.25 | % | | * |
| | 2.25 | % |
ALLOWANCE FOR FINANCE RECEIVABLE LOSSES
We record an allowance for finance receivable losses to cover incurred losses on our finance receivables. Our allowance for finance receivable losses may fluctuate based upon our continual review of the growth, credit quality, and collateral mix of the finance receivable portfoliosportfolio and changes in economic conditions.
Changes in the allowance for finance receivable losses for each of the Company’s segments on a Segment Accounting Basis, as well as reconciliations to our total allowance for finance receivable losses on a GAAP basis, were as follows:
| | (dollars in millions) | | Consumer and Insurance | | Other | | Segment to GAAP Adjustment | | Consolidated Total | | Consumer and Insurance | | Other (a) | | Segment to GAAP Adjustment | | Consolidated Total |
| | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2018 | | | | | | | | | |
March 31, 2019 | | | | | | | | | |
Balance at beginning of period | | $ | 724 |
| | $ | 35 |
| | $ | (62 | ) | | $ | 697 |
| | $ | 773 |
| | $ | — |
| | $ | (42 | ) | | $ | 731 |
|
Provision for finance receivable losses | | 258 |
| | (2 | ) | | (2 | ) | | 254 |
| | 276 |
| | — |
| | 10 |
| | 286 |
|
Charge-offs | | (297 | ) | | (2 | ) | | 9 |
| | (290 | ) | | (316 | ) | | — |
| | 5 |
| | (311 | ) |
Recoveries | | 33 |
| | 1 |
| | (6 | ) | | 28 |
| | 32 |
| | — |
| | (5 | ) | | 27 |
|
Balance at end of period | | $ | 718 |
| | $ | 32 |
| | $ | (61 | ) | | $ | 689 |
| | $ | 765 |
| | $ | — |
| | $ | (32 | ) | | $ | 733 |
|
| | | | | | | | | | | | | | | | |
Allowance ratio | | 4.83 | % | | 23.19 | % | | (a) |
| | 4.60 | % | | 4.73 | % | | (b) |
| | (b) |
| | 4.54 | % |
| | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2017 | | | | | | | | | |
March 31, 2018 | | | | | | | | | |
Balance at beginning of period | | $ | 732 |
| | $ | 31 |
| | $ | (74 | ) | | $ | 689 |
| | $ | 724 |
| | $ | 35 |
| | $ | (62 | ) | | $ | 697 |
|
Provision for finance receivable losses | | 239 |
| | 1 |
| | 5 |
| | 245 |
| | 258 |
| | (2 | ) | | (2 | ) | | 254 |
|
Charge-offs | | (313 | ) | | (2 | ) | | 18 |
| | (297 | ) | | (297 | ) | | (2 | ) | | 9 |
| | (290 | ) |
Recoveries | | 36 |
| | — |
| | (7 | ) | | 29 |
| | 33 |
| | 1 |
| | (6 | ) | | 28 |
|
Balance at end of period | | $ | 694 |
| | $ | 30 |
| | $ | (58 | ) | | $ | 666 |
| | $ | 718 |
| | $ | 32 |
| | $ | (61 | ) | | $ | 689 |
|
| | | | | | | | | | | | | | | | |
Allowance ratio | | 5.28 | % | | 18.24 | % | | (a) |
| | 4.97 | % | | 4.83 | % | | 23.19 | % | | (b) |
| | 4.60 | % |
| |
(a) | Due to the transfer of our real estate loans from held for investment to held for sale on September 30, 2018, there are no longer finance receivable losses associated in Other. See Note 5 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for further information. |
| |
(b) | Not applicableapplicable. |
The current delinquency status of our finance receivable portfolio, inclusive of recent borrower performance, the underlying collateral, mix, along with the volume of our TDR activity, and the level and recoverability of collateral securing our finance receivable portfolio are the primary drivers that can cause fluctuations in our allowance for finance receivable losses from period to period. We monitor the allowance ratio to ensure we have a sufficient level of allowance for finance receivable losses to cover estimated incurred losses in our finance receivable portfolio. The level of allowance for finance receivablesreceivable losses as a percentage of net finance receivables has decreased from 2017prior periods due to the continued change in portfolio mix to more secured personal loans and improvement in the effectiveness of our collections, and the completion of our integration.collections.
See Note 4 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information about the changes in the allowance for finance receivable losses.
TDR FINANCE RECEIVABLES
We make modifications to our finance receivables to assist borrowers during times of financial difficulties. When we modify a loan’s contractual terms for economic or other reasons related to the borrower’s financial difficulties and grant a concession that we would not otherwise consider, we classify that loan as a TDR finance receivable.
Information regarding TDR net finance receivables held for investment for each of the Company’s segments on a Segment Accounting Basis, as well as reconciliations to information regarding our total TDR finance receivables held for investment on a GAAP basis, wereis as follows:
|
| | | | | | | | | | | | | | | | |
(dollars in millions) | | Consumer and Insurance | | Other | | Segment to GAAP Adjustment | | Consolidated Total |
| | | | | | | | |
March 31, 2018 | | | | | | | | |
TDR net finance receivables | | $ | 500 |
| | $ | 74 |
| | $ | (169 | ) | | $ | 405 |
|
Allowance for TDR finance receivable losses | | 204 |
| | 24 |
| | (63 | ) | | 165 |
|
| | | | | | | | |
December 31, 2017 | | | | | | | | |
TDR net finance receivables | | $ | 481 |
| | $ | 74 |
| | $ | (188 | ) | | $ | 367 |
|
Allowance for TDR finance receivable losses | | 191 |
| | 26 |
| | (70 | ) | | 147 |
|
The allowance for non-TDR finance receivable losses continues to reflect our historical loss coverage. |
| | | | | | | | | | | | |
(dollars in millions) | | Consumer and Insurance | | Segment to GAAP Adjustment | | GAAP Basis |
| | | | | | |
March 31, 2019 | | | | | | |
TDR net finance receivables | | $ | 591 |
| | $ | (89 | ) | | $ | 502 |
|
Allowance for TDR finance receivable losses | | 226 |
| | (30 | ) | | 196 |
|
| | | | | | |
December 31, 2018 | | | | | | |
TDR net finance receivables | | $ | 555 |
| | $ | (102 | ) | | $ | 453 |
|
Allowance for TDR finance receivable losses | | 210 |
| | (40 | ) | | 170 |
|
Liquidity and Capital Resources |
|
Liquidity and Capital Resources |
SOURCES AND USES OF FUNDS
We finance the majority of our operating liquidity and capital needs through a combination of cash flows from operations, securitization debt, borrowings from conduit facilities, unsecured debt and equity, and may also utilize other corporate debt facilities in the future. As a holding company, all of the funds generated from our operations are earned by our operating subsidiaries.
Redemption of OMFH 2019 Notes
On December 8, 2017, OMFH issued a notice of redemption to redeem all $700 million outstanding principal amount of OMFH’s 6.75% Senior Notes due 2019 at a redemption price equal to 103.375%, plus accrued and unpaid interest to the redemption date. The notes were redeemed on January 8, 2018. In connection with the redemption, we recognized approximately $1 million of net loss on repurchases and repayments of debt for the three months ended March 31, 2018.
Partial Redemption of OMFH 2021 Notes
On March 19, 2018, OMFH provided notice of redemption to redeem $400 million in aggregate principal amount of OMFH Notes due 2021 on April 18, 2018 at a redemption price in cash equal to the sum of (i) 103.625% of the principal amount of the notes and (ii) any accrued and unpaid interest to the redemption date on the principal amount. These notes were redeemed on April 18, 2018. In connection with the redemption, we will recognize approximately $4 million of net loss on repurchases and repayments of debt for the three months ended June 30, 2018.
Termination of OneMain Financial B6 Warehouse Trust
On February 2, 2018, OneMain Financial B6 Warehouse Trust voluntarily terminated its note purchase agreement.
Concurrently with such termination, we entered into the OneMain Financial Funding VIII LSA with the same third party lenders who were party to the terminated note purchase agreement with the OneMain Financial B6 Warehouse Trust. Under the OneMain Financial Funding VIII LSA, we may borrow up to a maximum principal balance of $450 million.
SFC’s Offering of 6.875% Senior Notes Due 2025
On March 12, 2018, SFC issued $1.25 billion aggregate principal amount of the 6.875% SFC Notes under the SFC Base Indenture, as supplemented by the SFC Fifth Supplemental Indenture, pursuant to which OMH provided a guarantee of the 6.875% SFC Notes on an unsecured basis. SFC intends to use the net proceeds from the sale of the 6.875% SFC Notes for general corporate purposes, which may include debt repurchases and repayments. See Note 9 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information of the issuance.
Securitizations and Borrowings from Revolving Conduit Facilities
During the three months ended March 31, 2018, we completed two consumer loan securitizations. At March 31, 2018, we had approximately $10.1 billion in UPB of finance receivables pledged as collateral for our securitization transactions.
During the three months ended March 31, 2018, we (i) terminated one revolving conduit agreement and (ii) entered into one new revolving conduit agreement.
See Notes 8 and 9 of the Notes to Condensed Consolidated Financial Statements included in this report for further information on our long-term debt, loan securitization transactions and conduit facilities.
SFC entered into various transaction agreements with OMFH in connection with the following securitizations sponsored by OMFH:
the OneMain Financial Issuance Trust 2017-1 (“OMFIT 2017-1”),
the OneMain Direct Auto Receivables Trust 2017-2 (“ODART 2017-2”), and
the OneMain Financial Issuance Trust 2018-1 (“OMFIT 2018-1”).
In addition, OMFH is party to various transaction agreements entered into with SFC in connection with the closing of the OneMain Financial Issuance Trust 2018-2 (“OMFIT 2018-2”) revolving pool consumer loan securitization sponsored by SFC.
The terms of the foregoing securitization transaction agreements permit each of SFC and OMFH, as applicable, to sell, upon customary terms and conditions, including indemnification and repurchase provisions for breaches of representations and warranties, eligible consumer loans or auto loans, as applicable, during the revolving period. Through March 31, 2018, SFC has sold no loans pursuant to OMFIT 2017-1, ODART 2017-2 or OMFIT 2018-1 and OMFH has sold no loans pursuant to OMFIT 2018-2.
Subsequent to March 31, 2018, we completed the following revolving conduit facility transaction:
On April 9, 2018, we borrowed $50 million under the Thur River Funding LSA
USES OF FUNDS
Our operating subsidiaries’ primary cash needs relate to funding our lending activities, our debt service obligations, our operating expenses, (including acquisition-related transaction and integration expenses), payment of insurance claims and, to a lesser extent, expenditures relating to upgrading and monitoring our technology platform, risk systems, and branch locations.
At March 31, 2018, we had $1.8 billion of cash and cash equivalents, which included $201 million of cash and cash equivalents held at our regulated insurance subsidiaries or for other operating activities that is unavailable for general corporate purposes.
At March 31, 2018, we had $1.7 billion of investment securities, which are all held as part of our insurance operations and are unavailable for general corporate purposes.
During the three months ended March 31, 2018, we generated net income of $124 million. Our net cash inflow from operating and investing activities totaled $174 million for the three months ended March 31, 2018. At March 31, 2018, our remaining scheduled principal and interest payments for 2018 on our existing debt (excluding securitizations) totaled $791 million. As of March 31, 2018, we had $4.8 billion UPB of unencumbered personal loans and $316 million UPB of unencumbered real estate loans (including $186 million held for sale).
Based on our estimates and taking into account the risks and uncertainties of our plans, we believe that we will have adequate liquidity to finance and operate our businesses and repay our obligations as they become due for at least the next 12 months.
See Notes 8 and 9 of the Notes to Condensed Consolidated Financial Statements included in this report for further information on our long-term debt, loan securitization transactions and conduit facilities.
We have previously purchased portions of our unsecured indebtedness, and we may elect to purchase additional portions of our unsecured indebtedness in the future. Future purchases may be made through the open market, privately negotiated transactions with third parties, or pursuant to one or more tender or exchange offers, all of which are subject to terms, prices, and consideration we may determine.determine in our discretion.
During the three months ended March 31, 2019, we generated net income of $152 million. Our net cash inflow from operating and investing activities totaled $243 million in 2019. At March 31, 2019, our scheduled principal and interest payments for 2019 on our existing debt (excluding securitizations) totaled $695 million. As of March 31, 2019, we had $6.9 billion UPB of unencumbered personal loans and $136 million UPB of unencumbered real estate loans. These real estate loans are included in held for sale.
Based on our estimates and taking into account the risks and uncertainties of our plans, we believe that we will have adequate liquidity to finance and operate our businesses and repay our obligations as they become due for at least the next 12 months.
SFC’s 6.125% Senior Notes Due 2024 Offering
On February 22, 2019, SFC issued $1.0 billion aggregate principal amount of 6.125% Senior Notes due 2024 (the “6.125% SFC Notes due 2024”) under the SFC Senior Notes Indentures, as supplemented by the SFC Seventh Supplemental Indenture, pursuant to which OMH provided a guarantee on an unsecured basis.
Redemption of 5.25% Senior Notes due 2019
As a result of the offering described above, SFC issued a notice of redemption to redeem all of the outstanding principal amount of its 5.25% Senior Notes due 2019. On March 25, 2019, SFC paid an aggregate amount of $706 million, inclusive of accrued interest and premiums, to complete the redemption. We recognized approximately $21 million of net loss on the repurchases and repayments of debt for the three months ended March 31, 2019.
Redemption of 6.00% Senior Notes Due 2020
On March 15, 2019, SFC issued a Notice of Full Redemption of its 6.00% Senior Notes due 2020. On April 15, 2019, SFC paid dividends sincean aggregate amount of $317 million, inclusive of accrued interest and premiums, to complete the redemption. In connection with the redemption, we will recognize approximately $11 million of net loss on repurchases and repayments of debt for the three and six months ended June 30, 2019.
Securitizations and Borrowings from Revolving Conduit Facilities
During the three months ended March 31, 2019, we completed two personal loan securitizations (OMFIT 2019-1 and ODART 2019-1 see “Securitized Borrowings” below). At March 31, 2019, we had approximately $9.1 billion in UPB of finance receivables pledged as collateral for our securitization transactions.
During the three months ended March 31, 2019, we entered into one new revolving conduit facility.
See Notes 7 and 8 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on our long-term debt, loan securitization transactions and conduit facilities.
Cash Dividends to our Common Stockholders
On February 11, 2019, we announced an initial public offering in 2013. However, we planquarterly dividend of $0.25 per share and paid $34 million on March 15, 2019 to evaluate the potential for capital distributions in 2018 based on the achievement of our liquidity and target leverage objectives, among other factors. Any capital distribution, including any declaration and payment of future dividends torecord holders of our common stock as of the close of business on February 26, 2019. On April 29, 2019, the Company announced a quarterly dividend of $0.25 per share, payable on June 14, 2019 to record holders of our common stock as of the close of business on May 29, 2019.
While we intend to pay regular quarterly dividends for the foreseeable future, all subsequent dividends will be reviewed quarterly and declared at the discretion of our board of directors and will depend on many factors, including our financial condition, earnings, cash flows, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends, and other considerations that our board of directors deems relevant. There can be no assurances thatOur dividend payments may change from time to time, and we will make any capital distributions in 2018 or at any time thereafter and, even if we make capital distributions in 2018, there can be no assurances that we willmay not continue to do sodeclare dividends in the future.
LIQUIDITY
Operating Activities
Net cash provided by operations of $548 million for the three months ended March 31, 2019 reflected net income of $152 million and the impact of non-cash items. Net cash provided by operations of $555 million for the three months ended March 31, 2018 reflected net income of $124 million and the impact of non-cash items, and favorable change in working capital of $83 million. Net cash provided by operations of $444 million for the three months ended March 31, 2017 reflected net income of $33 million, the impact of non-cash items, and a favorable change in working capital of $38 million.items.
Investing Activities
Net cash used for investing activities of $305 million for the three months ended March 31, 2019 and $381 million for the three months ended March 31, 2018 waswere primarily due to net principal originations of finance receivables held for investment and held for sale and net purchases of available-for-sale securities, partially offset by calls, and maturities of available-for-sale securities. Net cash provided by investing activities of $59 million for the three months ended March 31, 2017 was primarily due to net principal collections of finance receivables held for investment and held for sale and net sales, calls, and maturities of available-for-sale securities.
Financing Activities
Net cash provided by financing activities of $863 million for the three months ended March 31, 2019 and $827 million for the three months ended March 31, 2018 waswere primarily due to net issuance of long-term debt. Net cash used for financing activities of $305 million at
Cash and Investments
At March 31, 2017 was primarily due to net repayments2019, we had $1.7 billion of long-term debt.cash and cash equivalents, which included $312 million of cash and cash equivalents held at our regulated insurance subsidiaries or for other operating activities that is unavailable for general corporate purposes.
At March 31, 2019, we had $1.7 billion of investment securities, which are all held as part of our insurance operations and are unavailable for general corporate purposes.
Liquidity Risks and Strategies
SFC’s and OMFH’s credit ratings are non-investment grade, which havehas a significant impact on our cost of, and access to capital. This, in turn, can negatively affect our ability to manage our liquidity and our ability or cost to refinance our indebtedness.
There are numerous risks to our financial results, liquidity, capital raising, and debt refinancing plans, some of which may not be quantified in our current liquidity forecasts. These risks include, but are not limited, tofurther described in our “Liquidity and Capital Resources” of the following:Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our 2018 Annual Report on Form 10-K.
our inability to grow or maintain our personal loan portfolio with adequate profitability;
the effect of federal, state and local laws, regulations, or regulatory policies and practices;
potential liability relating to real estate and personal loans which we have sold or may sell in the future, or relating to securitized loans; and
the potential for disruptions in the debt and equity markets.
The principalPrincipal factors that could decrease our liquidity are customer delinquencies and defaults, a decline in customer prepayments, and a prolonged inability to adequately access capital market funding. We intend to support our liquidity position by utilizing some or all the following strategies:
maintaining disciplined underwriting standardsstrategies that are further described in our “Liquidity and pricing for loans we originate or purchase and managing purchases of finance receivables;
pursuing additional debt financings (including new securitizations and new unsecured debt issuances, debt refinancing transactions and revolving conduit facilities), or a combinationCapital Resources” of the foregoing;
purchasing portionsManagement’s Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our outstanding indebtedness through open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration, as we may determine; and
obtaining new and extending existing secured revolving facilities to provide committed liquidity in case of prolonged market fluctuations.2018 Annual Report on Form 10-K.
However, it is possible that the actual outcome of one or more of our plans could be materially different than expected or that one or more of our significant judgments or estimates could prove to be materially incorrect.
OUR INSURANCE SUBSIDIARIES
Our insurance subsidiaries are subject to state regulations that limit their ability to pay dividends. State law restrictsSee Note 14 of the amounts that Merit and Yosemite may pay as dividends without prior noticeNotes to the Indiana DOI and the amounts thatConsolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for more information on these restrictions. Merit, AHL and Triton may pay as dividends without prior notice to the Texas DOI. The maximum amount of dividends, referred to as “ordinary dividends,” for an Indiana or Texas domiciled life insurance company that can be paid without prior approval in a 12 month period (measured retrospectively from the date of payment) is the greater of: (i) 10% of policyholders’ surplus as of the prior year-end or (ii) the statutory net gain from operations as of the prior year-end. Any amount greater must be approved by the Indiana DOI or Texas DOI prior to its payment. The maximum ordinary dividends for an Indiana or Texas domiciled property and casualty insurance company that can be paid without prior approval in a 12 month period (measured retrospectively from the date of payment) is the greater of: (i) 10% of policyholders’ surplus as of the prior year-end or (ii) the statutory net income. Any amount greater must be approved by the Indiana DOI or Texas DOI prior to its payment. These approved dividends are called ��extraordinary dividends.” Our insurance subsidiaries did not pay any dividends during the three months ended March 31, 20182019 and 2017.2018.
OUR DEBT COVENANTS
SFC Debt AgreementsAGREEMENTS
The debt agreements to which SFC and its subsidiaries are a party include customary terms and conditions, including covenants and representations and warranties. Some or allSee Note 12 of these agreements also contain certain restrictions, including (i) restrictionsthe Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K for more information on the ability to create senior liens on property and assets in connection with any newrestrictive covenants under SFC’s debt financings and (ii) SFC’s ability to sell or convey all or substantially all of its assets, unlessagreements, as well as the transferee assumes SFC’s obligations under the applicable debt agreement. In addition, the OMH guarantees of SFC’s long-term debt discussed above are subject to customary release provisions.
With the exception of SFC’s junior subordinated debenture, none of our debt agreements require SFC or any of its subsidiaries to meet or maintain any specific financial targets or ratios. However, certain events, including non-payment of principal or interest, bankruptcy or insolvency, or a breach of a covenant or a representation or warranty, may constitute an event of default and trigger an acceleration of payments. In some cases, an event of default or acceleration of payments under one debt agreement may constitute a cross-default under other debt agreements resulting in an acceleration of payments under the other agreements.
As of March 31, 2018, SFC was in compliance with all of the covenants under its debt agreements.
Junior Subordinated Debenture
In January of 2007, SFC issued the Junior Subordinated Debenture, consisting of $350 million aggregate principal amount of 60-year junior subordinated debt. The Junior Subordinated Debenture underlies the trust preferred securities sold by a trust sponsored by SFC. SFC can redeem the Junior Subordinated Debenture at par beginning in January of 2017. The interest rate on the UPB of the Junior Subordinated Debenture consists of a variable floating rate (determined quarterly) equal to 3-month LIBOR plus 1.75%, or 3.47% as of March 31, 2018.
Pursuant to the terms of the Junior Subordinated Debenture, SFC, upon the occurrence of a mandatory trigger event, is required to defer interest payments to the holders of the Junior Subordinated Debenture (and not make dividend payments to SFI) unless SFC obtains non-debt capital funding in an amount equal to all accrued and unpaid interest on the Junior Subordinated Debenture otherwise payable on the next interest payment date and pays such amount to the holders of the Junior Subordinated Debenture. A mandatory trigger event occurs if SFC’s (i) tangible equity to tangible managed assets is less than 5.5% or (ii) average fixed charge ratio is not more than 1.10x for the trailing four quarters.
Based upon SFC’s financial results for the three months ended March 31, 2018, a mandatory trigger event did not occur with respect to the interest payment due in April of 2018, as SFC was in compliance with both required ratios discussed above.
None of OMFH’s debt agreements require OMFH or any of its subsidiaries to meet or maintain any specific financial targets or ratios. However, the OMFH Indenture does contain a number of covenants that limit, among other things, OMFH’s ability and the ability of most of its subsidiaries to incur additional debt; create liens securing certain debt; pay dividends on or make distributions in respect of its capital stock or make investments or other restricted payments; create restrictions on the ability of its restricted subsidiaries to pay dividends to OMFH or make certain other intercompany transfers; sell certain assets; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; and enter into certain transactions with affiliates. The OMFH Indenture also contains customary events of default which would permit the trustee or the holders of the OMFH Notes to declare the OMFH Notes to be immediately due and payable if not cured within applicable grace periods, including the nonpayment of principal, interest or premium, if any, when due; violation of covenants and other agreements contained in the OMFH Indenture; payment default after final maturity or cross acceleration of certain material debt; certain bankruptcy and insolvency events; material judgment defaults; and the failure of any guarantee of the notes, other than in accordance with the terms of the OMFH Indenture or such guarantee. On November 8, 2016, OMH agreed to fully, unconditionally, and irrevocably guarantee the OMFH Notes.
As of March 31, 2018, OMFH was in compliance with all of the covenants under its debt agreements.
Structured FinancingsSecuritized Borrowings
We execute private securitizations under Rule 144A of the Securities Act of 1933. See Note 9As of March 31, 2019, our structured financings consisted of the Notes to Condensed Consolidated Financial Statements included in this report for further information on our structured financings.following:
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| | | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | | Issue Amount (a) | | Initial Collateral Balance | | Current Note Amounts Outstanding (a) | | Current Collateral Balance (b) | | Current Weighted Average Interest Rate | | Original Revolving Period |
| | | | | | | | | | | | |
SLFT 2015-A | | $ | 1,163 |
| | $ | 1,250 |
| | $ | 348 |
| | $ | 400 |
| | 4.19 | % | | 3 years |
SLFT 2015-B | | 314 |
| | 336 |
| | 314 |
| | 336 |
| | 3.78 | % | | 5 years |
SLFT 2016-A | | 532 |
| | 559 |
| | 396 |
| | 425 |
| | 3.15 | % | | 2 years |
SLFT 2017-A | | 652 |
| | 685 |
| | 619 |
| | 685 |
| | 2.98 | % | | 3 years |
OMFIT 2015-1 | | 1,229 |
| | 1,397 |
| | 387 |
| | 510 |
| | 4.94 | % | | 3 years |
OMFIT 2015-2 | | 1,250 |
| | 1,346 |
| | 207 |
| | 280 |
| | 5.09 | % | | 2 years |
OMFIT 2015-3 | | 293 |
| | 329 |
| | 293 |
| | 325 |
| | 4.21 | % | | 5 years |
OMFIT 2016-1 | | 500 |
| | 570 |
| | 390 |
| | 455 |
| | 4.07 | % | | 3 years |
OMFIT 2016-2 | | 890 |
| | 1,007 |
| | 256 |
| | 408 |
| | 5.39 | % | | 2 years |
OMFIT 2016-3 | | 350 |
| | 397 |
| | 317 |
| | 391 |
| | 4.33 | % | | 5 years |
OMFIT 2017-1 | | 947 |
| | 988 |
| | 900 |
| | 988 |
| | 2.79 | % | | 2 years |
OMFIT 2018-1 | | 632 |
| | 650 |
| | 600 |
| | 651 |
| | 3.60 | % | | 3 years |
OMFIT 2018-2 | | 368 |
| | 381 |
| | 350 |
| | 381 |
| | 3.87 | % | | 5 years |
OMFIT 2019-1 | | 632 |
| | 654 |
| | 600 |
| | 654 |
| | 3.79 | % | | 2 years |
ODART 2017-1 | | 300 |
| | 300 |
| | 94 |
| | 118 |
| | 3.43 | % | | 1 year |
ODART 2017-2 | | 605 |
| | 624 |
| | 484 |
| | 512 |
| | 2.69 | % | | 1 year |
ODART 2018-1 | | 947 |
| | 964 |
| | 900 |
| | 964 |
| | 3.56 | % | | 2 years |
ODART 2019-1 | | 737 |
| | 750 |
| | 700 |
| | 750 |
| | 3.79 | % | | 5 years |
Total securitizations | | $ | 12,341 |
| | $ | 13,187 |
| | $ | 8,155 |
| | $ | 9,233 |
| | | | |
| |
(a) | Issue Amount includes the retained interest amounts as applicable and the Current Note Amounts Outstanding balances reflect pay-downs subsequent to note issuance and exclude retained interest amounts. |
| |
(b) | Inclusive of in-process replenishments of collateral for securitized borrowings, in a revolving status. |
Revolving Conduit Facilities
In addition to the structured financings, we had access to 1012 conduit facilities with a total borrowing capacity of $4.9$6.2 billion as of March 31, 2018, as discussed in Note 9 of the Notes to Condensed Consolidated Financial Statements included in this report. At March 31, 2018, no amounts were drawn under these facilities.2019:
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| | | | | | | | | | | | |
(dollar in millions) | | Advance Maximum Balance | | Amount Drawn | | Revolving Period End | | Due and Payable |
| | | | | | | | |
Rocky River Funding, LLC | | $ | 400 |
| | $ | — |
| | June 2020 | | July 2021 |
Thur River Funding, LLC | | 350 |
| | — |
| | June 2020 | | February 2027 |
OneMain Financial Funding IX, LLC | | 600 |
| | — |
| | June 2020 | | July 2021 |
Mystic River Funding, LLC | | 850 |
| | — |
| | September 2020 | | October 2023 |
Fourth Avenue Auto Funding, LLC | | 250 |
| | — |
| | September 2020 | | October 2021 |
OneMain Financial Funding VIII, LLC | | 650 |
| | — |
| | August 2021 | | September 2023 |
OneMain Financial Auto Funding I, LLC | | 850 |
| | — |
| | June 2021 | | July 2028 |
OneMain Financial Funding VII, LLC | | 850 |
| | — |
| | June 2021 | | July 2023 |
Thayer Brook Funding, LLC | | 250 |
| | — |
| | July 2021 | | August 2022 |
Hubbard River Funding, LLC | | 250 |
| | — |
| | September 2021 | | October 2023 |
Seine River Funding, LLC | | 650 |
| | — |
| | October 2021 | | November 2024 |
New River Funding LLC | | 250 |
| | — |
| | March 2022 | | April 2027 |
Total | | $ | 6,200 |
| | $ | — |
| | | | |
See “Liquidity and Capital Resources - Sources and Uses of Funds - Securitizations and Borrowings from Revolving Conduit Facilities” above for information on the securitization and conduit transactions completed subsequent to March 31, 2018.
Our overall funding costs are positively impacted by our increased usage of securitizations, as we typically execute these transactions at interest rates below those of our unsecured debt.2019.
Off-Balance Sheet Arrangements |
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Off-Balance Sheet Arrangements |
We have no material off-balance sheet arrangements as defined by SEC rules. We had no off-balance sheet exposure to losses associated with unconsolidated VIEs at March 31, 20182019 or December 31, 2017,2018, other than certain representations and warranties associated with the sales of the mortgage-backed retained certificates during 2014. As of March 31, 2018,2019, we had no repurchase activity related to these sales.
Critical Accounting Policies and Estimates |
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Critical Accounting Policies and Estimates |
We describe our significant accounting policies used in the preparation of our consolidated financial statements in Note 3 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20172018 Annual Report on Form 10-K. We consider the following policies to be our most critical accounting policies because they involve critical accounting estimates and a significant degree of management judgment:
allowance for finance receivable losses;
purchased credit impaired finance receivables;
TDR finance receivables;
fair value measurements; and
goodwill and other intangible assets.
There have been no material changes to our critical accounting policies or to our methodologies for deriving critical accounting estimates during the three months ended March 31, 2018.
2019.
Recent Accounting Pronouncements |
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Recent Accounting Pronouncements |
See Note 2 of the Notes to the Condensed Consolidated Financial Statements included in this report for discussion of recently issued accounting pronouncements.
Our personal loan volume is generally highest during the second and fourth quarters of the year, primarily due to marketing efforts and seasonality of demand, and increased traffic in branches after the winter months.demand. Demand for our personal loans is usually lower in January and February after the holiday season and as a result of tax refunds. Delinquencies on our personal loans are generally lowest in the first quarter and tend to rise throughout the remainder of the year. These seasonal trends contribute to fluctuations in our operating results and cash needs throughout the year.
Item 3. Quantitative and Qualitative Disclosures About Market Risk. |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk. |
There have been no material changes to our market risk previously disclosed in Part II - Item 7A included in our 20172018 Annual Report on Form 10-K.
Item 4. Controls and Procedures. |
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Item 4. Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of March 31, 2018,2019, we carried out an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This evaluation was conducted under the supervision of, and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on our evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 20182019 to provide the reasonable assurance described above.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the first quarter of 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings. |
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Item 1. Legal Proceedings. |
See Note 1413 of the Notes to the Condensed Consolidated Financial Statements included in this report.
There have been no material changes to our risk factors included in Part I, Item 1A of our 20172018 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Share repurchase activity for the three months ended March 31, 20182019 was as follows:
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| | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased * | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
| | | | | | | | |
January 1, 2018 - January 31, 2018 | | — |
| | $ | — |
| | — |
| | — |
|
February 1, 2018 - February 28, 2018 | | 7,953 |
| | 33.01 |
| | — |
| | — |
|
March 1, 2018 - March 31, 2018 | | — |
| | — |
| | — |
| | — |
|
Total | | 7,953 |
| | | | | | |
|
| | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased * | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
| | | | | | | | |
January 1, 2019 - January 31, 2019 | | — |
| | $ | — |
| | — |
| | — |
|
February 1, 2019 - February 28, 2019 | | 8,246 |
| | 34.60 |
| | — |
| | — |
|
March 1, 2019 - March 31, 2019 | | — |
| | — |
| | — |
| | — |
|
Total | | 8,246 |
| | | | | | |
| |
* | Represents the surrender of shares to OMH in an amount equal to the amount of tax withheld in satisfaction of the withholding obligations of certain employees in connection with the vesting of restricted shares. As of the date of this report, OMH has no publicly announced plans or programs to repurchase OMH common stock. |
Item 3. Defaults Upon Senior Securities. |
|
Item 3. Defaults Upon Senior Securities. |
None.
Item 4. Mine Safety Disclosures. |
|
Item 4. Mine Safety Disclosures. |
Not applicable.
Item 5. Other Information. |
|
Item 5. Other Information. |
None.On May 1, 2019, Robert Hurzeler, the Company’s Executive Vice President and Chief Operating Officer, indicated to the Company that he intends to resign. His last day of employment will be May 31, 2019.
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| | |
Exhibit Number | | Description |
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| | FifthSeventh Supplemental Indenture, dated as of March 12, 2018,February 22, 2019 by and among Springleaf Finance Corporation, OneMain Holdings, Inc., as Guarantor, and Wilmington Trust, National Association as Trustee.Trustee (including the form of 6.125% Senior Notes due 2024 included therein as Exhibit A). Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on March 12, 2018.February 22, 2019. |
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101 | | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (Loss), (iv) Condensed Consolidated Statements of Shareholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements. |
* Management contract or compensatory plan or arrangement.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | |
| | | ONEMAIN HOLDINGS, INC. |
| | | (Registrant) |
| | | |
Date: | May 3, 20182019 | | By: | /s/ Scott T. ParkerMicah R. Conrad |
| | | | Scott T. ParkerMicah R. Conrad |
| | | | Executive Vice President and Chief Financial Officer |
| | | | (Duly Authorized Officer and Principal Financial Officer) |
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