UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 20192020
OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
EXCHANGE ACT OF 1934
For the transition period fromto
Commission file number
001-36129 (OneMain Holdings, Inc.)
001-06155 (Springleaf Finance Corporation)
ONEMAIN HOLDINGS, INC.
SPRINGLEAF FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware (OneMain Holdings, Inc.) | | | | 27-3379612 |
Indiana (Springleaf Finance Corporation) | | | | 35-0416090 |
(State of Incorporation)incorporation) | | | | (I.R.S. Employer Identification No.) |
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601 N.W. Second Street, Evansville, IN | 47708 |
(Address of principal executive offices) | (Zip Code) |
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)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
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OneMain Holdings, Inc.: | | | | |
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 |
Springleaf Finance Corporation: None | | | | |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
OneMain Holdings, Inc. Yes þ ☑ No o☐
Springleaf Finance Corporation Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
OneMain Holdings, Inc. Yes þ☑ No o☐
Springleaf Finance Corporation Yes ☑ No ☐
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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OneMain Holdings, Inc.: | | | | | | | | | |
Large accelerated filerþ | ☑ | Accelerated filero | ☐ | Non-accelerated filero | ☐ | Smaller reporting companyo | ☐ | Emerging growth companyo | ☐ |
Springleaf Finance Corporation: | | | | | | | | | |
Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☑ | Smaller reporting company | ☐ | Emerging growth 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
OneMain Holdings, Inc. ☐
Springleaf Finance Corporation ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
OneMain Holdings, Inc. Yes o ☐ No þ☑
Springleaf Finance Corporation Yes ☐ No ☑
At April 23, 2020, there were 134,317,604 shares of OneMain Holdings, Inc’s common stock, $0.01 par value, outstanding.
At April 23, 2020, there were 10,160,021 shares of Springleaf Finance Corporation’s common stock, $0.50 par value, outstanding.
TABLE OF CONTENTS
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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 |
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Term or Abbreviation | | Definition |
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20182019 Annual Report on Form
10-K
| | Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, filed with the SEC on February 15, 201914, 2020 |
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 |
6.125% SFC Notes due 2024 | | $1.0 billion of 6.125% Senior Notes due 2024 issued by SFC on February 22, 2019 and guaranteed by OMH |
ABS | | asset-backed securities |
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ABS | | asset-backed securities |
Accretable yield | | the excess of the cash flows expected to be collected on the purchased credit impaired finance receivables over the discounted cash flows |
Adjusted pretax income (loss) | | a non-GAAP financial measure used by management as a key performance measure of our segmentssegment |
AHLAETR | | annual effective tax rate |
AHL | | American Health and Life Insurance Company, an insurance subsidiary of OMFHOneMain Financial Holdings, LLC |
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 | | Apollo Global Management, LLC and its consolidated subsidiaries |
Apollo-Värde Group | | an investor group led by funds managed by Apollo and Värde |
Apollo-Värde Transaction | | the purchase by the Apollo-Värde Group of 54,937,500 shares of OMH common stock from SFH pursuant to the Share Purchase Agreement for an aggregate purchase price of approximately $1.4 billion in cash on June 25, 2018 |
ASC | | Accounting Standards Codification |
ASU | | Accounting Standards Update |
Average 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. |
BPSCARES Act | | basis pointsCoronavirus Aid, Relief, and Economic Security Act signed into law by President Trump on March 27, 2020 |
CDOC&I | | Consumer and Insurance |
CDO | | collateralized debt obligations |
Citigroup | | CitiFinancial Credit Company |
CMBS | | |
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CMBS | | commercial mortgage-backed securities |
Contribution | | |
Contribution | | On June 22, 2018, SFC entered into a Contribution Agreement with SFI, a wholly-owned subsidiary of OMH. Pursuant to the Contribution Agreement, Independence Holdings, LLC was contributed by SFI to SFC. |
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COVID-19 | | the global outbreak of a novel strain of coronavirus |
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Exchange Act | | Securities Exchange Act of 1934, as amended |
FASB | | Financial Accounting Standards Board |
February 2019 Real Estate Loan Sale | | SFC 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, 2019.2019 |
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FICO score | | a credit score created by Fair Isaac Corporation |
Fortress | | |
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 | | |
GAAP | | generally accepted accounting principles in the United States of America |
GAP | | guaranteed asset protection |
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Gross charge-off ratio | | annualized gross charge-offs as a percentage of average net receivables |
Indenture | | |
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 |
IRS | | |
IRS | | Internal Revenue Service |
Junior Subordinated Debenture | | $350 million aggregate principal amount of 60-year junior subordinated debt issued by SFC under an indenture dated January 22, 2007, by and between SFC and Deutsche Bank Trust Company, as trustee, and guaranteed by OMH |
LIBOR | | London Interbank Offered Rate |
Merit | | |
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Merit | | Merit Life Insurance Co., ana former insurance subsidiary of SFCSFC. In the fourth quarter of 2019, the Company sold all of the issued and outstanding shares in Merit to a third party |
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Net charge-off ratio | | annualized net charge-offs as a percentage of average net receivables |
Net interest income | | interest income less interest expense |
ODART | | |
ODART | | OneMain Direct Auto Receivables Trust |
OMFIT | | |
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OMFIT | | OneMain Financial Issuance Trust |
OMH | | OneMain Holdings, Inc. |
OneMain | | |
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Term or Abbreviation | | Definition |
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OneMain Acquisition | | Acquisition of OneMain Financial Holdings, LLC collectively with its subsidiaries |
OneMain Acquisition | | Acquisition of OneMain from CitiFinancial Credit Company, effective November 1, 2015 |
Other securities | | securities for which the fair value option was elected and equity securities. Other Securities recognize unrealized gains and losses in investment revenues |
Other SFC Notes | | collectively, SFC’s 8.25% Senior Notes due 2023, and 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 |
Pretax capital generation | | a non-GAAP financial measure used by management as a key performance measure of our segment, defined as adjusted pretax income (loss) excluding the change in allowance for finance receivable losses |
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 | | |
RMBS | | residential mortgage-backed securities |
RSAs | | restricted stock awards |
RSUs | | restricted stock units |
SEC | | |
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SCLH | | Springleaf Consumer Loan Holding Company |
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,C&I segment and our Other components, which reflects our allocation methodologies for certain costs and excludes the impact of applying purchase accounting |
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Settlement Agreement | | a Settlement Agreement with the U.S. Department of Justice entered into by OMH and certain of its subsidiaries on November 13, 2015, in connection with the OneMain Acquisition |
SFC | | Springleaf Finance Corporation |
SFC Base Indenture | | Indenture, dated as of December 3, 2014 |
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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, and the 6.00% Senior Notes due 2020, which were redeemed in full on April 15, 2019 |
SFC Senior Notes Indentures
| | the SFC Base Indenture as supplemented by the SFC First Supplemental Indenture, the SFC Second Supplemental Indenture, the SFC Third Supplemental Indenture, the SFC Fourth Supplemental Indenture, the SFC Fifth Supplemental Indenture and the SFC Sixth Supplemental Indenture |
SFC Seventh Supplemental Indenture | | Seventh Supplemental Indenture, dated as of February 22, 2019, to the SFC Base Indenture |
SFH | | |
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SFH | | Springleaf Financial Holdings, LLC, an entity owned primarily by a private equity fund managed by an affiliate of Fortress that sold 54,937,500 shares of OMH’sOMH's common stock to the Apollo-Värde Group in the Apollo-Värde Transaction |
SFI | | Springleaf Finance, Inc. |
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Share Purchase Agreement | | a share purchase agreement entered into on January 3, 2018, among the Apollo-Värde Group, SFH and the Company to acquire from SFH 54,937,500 shares of ourOMH's common stock that was issued and outstanding as of such date, representing the entire holdings of ourOMH's stock beneficially owned by Fortress |
SLFT | | Springleaf Funding Trust |
SMHC | | Springleaf Mortgage Holding Company and subsidiaries |
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SpringCastle Joint VenturePortfolio | | joint venture among SpringCastle America, LLC, SpringCastle Credit, LLC, SpringCastle Finance, LLC, and SpringCastle Acquisition LLC in which SpringCastle Holdings, LLCloans the Company previously owned and now services on behalf of 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 LLCthird party |
SpringCastle Portfolio | | loans acquired through the SpringCastle Joint Venture |
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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.Debt restructuring in which a concession is granted to the borrower as a result of economic or legal reasons related to the borrower’s financial difficulties. difficulties |
Triton | | |
Triton | | Triton Insurance Company, an insurance subsidiary of OMFHOneMain Financial Holdings, LLC |
UPB | | |
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 |
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Weighted average interest rate | | annualized interest expense as a percentage of average debt |
YieldXBRL | | eXtensible Business Reporting Language |
Yield | | annualized finance charges as a percentage of average net receivables |
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PART I — FINANCIAL INFORMATION
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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, 2020 | | December 31, 2019 |
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Assets | | | | |
Cash and cash equivalents | | $ | 4,203 | | | $ | 1,227 | |
Investment securities (includes available-for-sale securities with a fair value and amortized cost basis of $1.7 billion in 2020) | | 1,800 | | | 1,884 | |
Net finance receivables (includes loans of consolidated VIEs of $12.1 billion in 2020 and $8.4 billion in 2019) | | 18,269 | | | 18,389 | |
Unearned insurance premium and claim reserves | | (797) | | | (793) | |
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $1.4 billion in 2020 and $340 million in 2019) | | (2,182) | | | (829) | |
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses | | 15,290 | | | 16,767 | |
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Restricted cash and restricted cash equivalents (includes restricted cash and restricted cash equivalents of consolidated VIEs of $567 million in 2020 and $400 million in 2019) | | 575 | | | 405 | |
Goodwill | | 1,422 | | | 1,422 | |
Other intangible assets | | 334 | | | 343 | |
Other assets | | 1,069 | | | 769 | |
Total assets | | $ | 24,693 | | | $ | 22,817 | |
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Liabilities and Shareholders’ Equity | | | | |
Long-term debt (includes debt of consolidated VIEs of $10.9 billion in 2020 and $7.6 billion in 2019) | | $ | 20,443 | | | $ | 17,212 | |
Insurance claims and policyholder liabilities | | 633 | | | 649 | |
Deferred and accrued taxes | | 68 | | | 34 | |
Other liabilities (includes other liabilities of consolidated VIEs of $17 million in 2020 and $14 million in 2019) | | 497 | | | 592 | |
Total liabilities | | 21,641 | | | 18,487 | |
Contingencies (Note 14) | | | | |
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Shareholders’ equity: | | | | |
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized, 134,309,707 and 136,101,156 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively | | 1 | | | 1 | |
Additional paid-in capital | | 1,645 | | | 1,689 | |
Accumulated other comprehensive income | | (6) | | | 44 | |
Retained earnings | | 1,412 | | | 2,596 | |
Total shareholders’ equity | | 3,052 | | | 4,330 | |
Total liabilities and shareholders’ equity | | $ | 24,693 | | | $ | 22,817 | |
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(dollars in millions, except par value amount) | | March 31, 2019 | | December 31, 2018 |
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Assets | | |
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Cash and cash equivalents | | $ | 1,709 |
| | $ | 679 |
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Investment securities | | 1,743 |
| | 1,694 |
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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 | | (668 | ) | | (662 | ) |
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 | | 14,735 |
| | 14,771 |
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Finance receivables held for sale | | 78 |
| | 103 |
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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 |
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Goodwill | | 1,422 |
| | 1,422 |
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Other intangible assets | | 372 |
| | 388 |
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Other assets | | 724 |
| | 534 |
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Total assets | | $ | 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 $8.1 billion in 2019 and $7.5 billion in 2018) | | $ | 16,117 |
| | $ | 15,178 |
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Insurance claims and policyholder liabilities | | 642 |
| | 685 |
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Deferred and accrued taxes | | 81 |
| | 45 |
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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 | | 17,408 |
| | 16,291 |
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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, 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 | | 1,682 |
| | 1,681 |
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Accumulated other comprehensive loss | | (2 | ) | | (34 | ) |
Retained earnings | | 2,269 |
| | 2,151 |
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Total shareholders’ equity | | 3,950 |
| | 3,799 |
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Total liabilities and shareholders’ equity | | $ | 21,358 |
| | $ | 20,090 |
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See Notes to the Condensed Consolidated Financial Statements.Statements (Unaudited).
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
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| | | | | | Three Months Ended March 31, | | | | |
(dollars in millions, except per share amounts) | | | | | | 2020 | | 2019 | | |
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Interest income | | | | | | $ | 1,106 | | | $ | 956 | | | |
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Interest expense | | | | | | 255 | | | 236 | | | |
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Net interest income | | | | | | 851 | | | 720 | | | |
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Provision for finance receivable losses | | | | | | 531 | | | 286 | | | |
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Net interest income after provision for finance receivable losses | | | | | | 320 | | | 434 | | | |
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Other revenues: | | | | | | | | | | |
Insurance | | | | | | 117 | | | 110 | | | |
Investment | | | | | | 9 | | | 26 | | | |
Net loss on repurchase and repayment of debt | | | | | | — | | | (21) | | | |
Net gain on sale of real estate loans | | | | | | — | | | 3 | | | |
Other | | | | | | 15 | | | 30 | | | |
Total other revenues | | | | | | 141 | | | 148 | | | |
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Other expenses: | | | | | | | | | | |
Salaries and benefits | | | | | | 199 | | | 199 | | | |
Other operating expenses | | | | | | 151 | | | 136 | | | |
Insurance policy benefits and claims | | | | | | 68 | | | 45 | | | |
Total other expenses | | | | | | 418 | | | 380 | | | |
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Income before income taxes | | | | | | 43 | | | 202 | | | |
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Income taxes | | | | | | 11 | | | 50 | | | |
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Net income | | | | | | $ | 32 | | | $ | 152 | | | |
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Share Data: | | | | | | | | | | |
Weighted average number of shares outstanding: | | | | | | | | | | |
Basic | | | | | | 135,909,100 | | | 136,001,996 | | | |
Diluted | | | | | | 136,138,677 | | | 136,191,283 | | | |
Earnings per share: | | | | | | | | | | |
Basic | | | | | | $ | 0.24 | | | $ | 1.12 | | | |
Diluted | | | | | | $ | 0.24 | | | $ | 1.11 | | | |
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| | Three Months Ended March 31, |
(dollars in millions, except per share amounts) | | 2019 | | 2018 |
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Interest income: | | | | |
Finance charges | | $ | 953 |
| | $ | 859 |
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Finance receivables held for sale | | 3 |
| | 3 |
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Total interest income | | 956 |
| | 862 |
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Interest expense | | 236 |
| | 200 |
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Net interest income | | 720 |
| | 662 |
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Provision for finance receivable losses | | 286 |
| | 254 |
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Net interest income after provision for finance receivable losses | | 434 |
| | 408 |
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Other revenues: | | |
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Insurance | | 110 |
| | 105 |
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Investment | | 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 | | 30 |
| | 20 |
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Total other revenues | | 148 |
| | 137 |
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Other expenses: | | |
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Salaries and benefits | | 199 |
| | 199 |
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Other operating expenses | | 136 |
| | 133 |
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Insurance policy benefits and claims | | 45 |
| | 45 |
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Total other expenses | | 380 |
| | 377 |
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Income before income taxes | | 202 |
| | 168 |
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Income taxes | | 50 |
| | 44 |
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Net income | | $ | 152 |
| | $ | 124 |
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Share Data: | | |
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Weighted average number of shares outstanding: | | |
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Basic | | 136,001,996 |
| | 135,596,279 |
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Diluted | | 136,191,283 |
| | 135,897,296 |
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Earnings per share: | | |
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Basic | | $ | 1.12 |
| | $ | 0.91 |
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Diluted | | $ | 1.11 |
| | $ | 0.91 |
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See Notes to the Condensed Consolidated Financial Statements.Statements (Unaudited).
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
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| | | | | | Three Months Ended March 31, | | | | |
(dollars in millions) | | | | | | 2020 | | 2019 | | |
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Net income | | | | | | $ | 32 | | | $ | 152 | | | |
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Other comprehensive income (loss): | | | | | | | | | | |
Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities | | | | | | (55) | | | 39 | | | |
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Foreign currency translation adjustments | | | | | | (10) | | | 2 | | | |
Income tax effect: | | | | | | | | | | |
Net unrealized gains (losses) on non-credit impaired available-for-sale securities | | | | | | 13 | | | (9) | | | |
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Foreign currency translation adjustments | | | | | | 2 | | | — | | | |
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Other comprehensive income (loss), net of tax | | | | | | (50) | | | 32 | | | |
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Comprehensive income (loss) | | | | | | $ | (18) | | | $ | 184 | | | |
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| | Three Months Ended March 31, |
(dollars in millions) | | 2019 | | 2018 |
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Net income | | $ | 152 |
| | $ | 124 |
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Other comprehensive income (loss): | | |
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Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities | | 39 |
| | (24 | ) |
Foreign currency translation adjustments | | 2 |
| | (3 | ) |
Income tax effect: | | |
| | |
|
Net unrealized gains (losses) on non-credit impaired available-for-sale securities | | (9 | ) | | 4 |
|
Other comprehensive income (loss), net of tax | | 32 |
| | (23 | ) |
| | | | |
Comprehensive income | | $ | 184 |
| | $ | 101 |
|
See Notes to the Condensed Consolidated Financial Statements.Statements (Unaudited).
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | OneMain Holdings, Inc. Shareholders’ Equity | | | | | | | | |
(dollars in millions) | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total Shareholders’ Equity |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Balance, January 1, 2020 (pre-adoption) | | $ | 1 | | | $ | 1,689 | | | $ | 44 | | | $ | 2,596 | | | $ | 4,330 | |
Net impact of adoption of ASU 2016-13 (see Note 3) | | — | | | | — | | | | — | | | | (828) | | | (828) | |
Balance, January 1, 2020 (post-adoption) | | 1 | | | 1,689 | | | 44 | | | 1,768 | | | 3,502 | |
Common stock repurchased and retired | | — | | | | (45) | | | | — | | | | — | | | (45) | |
Share-based compensation expense, net of forfeitures | | — | | | | 7 | | | | — | | | | — | | | 7 | |
Withholding tax on share-based compensation | | — | | | | (6) | | | | — | | | | — | | | (6) | |
| | | | | | | | | | |
Other comprehensive loss | | — | | | | — | | | | (50) | | | | — | | | (50) | |
| | | | | | | | | | |
Cash dividends * | | — | | | | — | | | | — | | | | (388) | | | (388) | |
Net income | | — | | | | — | | | | — | | | | 32 | | | 32 | |
Balance, March 31, 2020 | | $ | 1 | | | $ | 1,645 | | | $ | (6) | | | $ | 1,412 | | | $ | 3,052 | |
| | | | | | | | | | |
| | | | | | | | | | |
Balance, January 1, 2019 | | $ | 1 | | | $ | 1,681 | | | $ | (34) | | | $ | 2,151 | | | $ | 3,799 | |
| | | | | | | | | | |
Share-based compensation expense, net of forfeitures | | — | | | 6 | | | — | | | — | | | 6 | |
Withholding tax on share-based compensation | | — | | | (5) | | | — | | | — | | | (5) | |
Other comprehensive income | | — | | | — | | | 32 | | | — | | | 32 | |
Cash dividends * | | — | | | — | | | — | | | (34) | | | (34) | |
Net income | | — | | | — | | | — | | | 152 | | | 152 | |
Balance, March 31, 2019 | | $ | 1 | | | $ | 1,682 | | | $ | (2) | | | $ | 2,269 | | | $ | 3,950 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total Shareholders’ Equity |
| | | | | | | | | | |
Balance, January 1, 2019 | | $ | 1 |
| | $ | 1,681 |
| | $ | (34 | ) | | $ | 2,151 |
| | $ | 3,799 |
|
Share-based compensation expense, net of forfeitures | | — |
| | 6 |
| | — |
| | — |
| | 6 |
|
Withholding tax on share-based compensation | | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
Other comprehensive income | | — |
| | — |
| | 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 |
|
Balance, March 31, 2018 | | $ | 1 |
| | $ | 1,563 |
| | $ | (12 | ) | | $ | 1,830 |
| | $ | 3,382 |
|
* Cash dividends declared were $2.83 per share in the first quarter of 2020 and paid were $0.25 per share in the first quarter of 2019 and no dividends were declared in 2018.2019.
See Notes to the Condensed Consolidated Financial Statements.Statements (Unaudited).
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | | | | | | | Three Months Ended March 31, | |
(dollars in millions) | | Three Months Ended March 31, | |
| 2019 | | 2018 | (dollars in millions) | | 2020 | | 2019 | |
| | | | | | | | | | |
Cash flows from operating activities | | |
| | |
| Cash flows from operating activities | | | | | |
Net income | | $ | 152 |
| | $ | 124 |
| Net income | | $ | 32 | | | $ | 152 | | |
Reconciling adjustments: | | |
| | |
| Reconciling adjustments: | | |
Provision for finance receivable losses | | 286 |
| | 254 |
| Provision for finance receivable losses | | 531 | | | 286 | | |
Depreciation and amortization | | 68 |
| | 67 |
| Depreciation and amortization | | 64 | | | 68 | | |
Deferred income tax charge (benefit) | | 9 |
| | 11 |
| Deferred income tax charge (benefit) | | (36) | | | 9 | | |
Net loss on repurchases and repayments of debt | | 21 |
| | 1 |
| |
Non-cash incentive compensation from SFH | | — |
| | 4 |
| |
Net loss on repurchase and repayment of debt | | Net loss on repurchase and repayment of debt | | — | | | 21 | | |
| Share-based compensation expense, net of forfeitures | | 6 |
| | 5 |
| Share-based compensation expense, net of forfeitures | | 7 | | | 6 | | |
Other | | (11 | ) | | 6 |
| Other | | 12 | | | (11) | | |
Cash flows due to changes in other assets and other liabilities | | 17 |
| | 83 |
| Cash flows due to changes in other assets and other liabilities | | (45) | | | 17 | | |
Net cash provided by operating activities | | 548 |
| | 555 |
| Net cash provided by operating activities | | 565 | | | 548 | | |
| | | | | | | | | |
Cash flows from investing activities | | |
| | |
| Cash flows from investing activities | | | | | |
Net principal originations of finance receivables held for investment and held for sale | | (290 | ) | | (333 | ) | Net principal originations of finance receivables held for investment and held for sale | | (188) | | | (290) | | |
Proceeds on sales of finance receivables held for sale originated as held for investment | | 19 |
| | — |
| |
Proceeds on sale of finance receivables held for sale originated as held for investment | | Proceeds on sale of finance receivables held for sale originated as held for investment | | — | | | 19 | | |
Available-for-sale securities purchased | | (154 | ) | | (197 | ) | Available-for-sale securities purchased | | (132) | | | (154) | | |
Available-for-sale securities called, sold, and matured | | 103 |
| | 156 |
| Available-for-sale securities called, sold, and matured | | 128 | | | 103 | | |
Trading and other securities called, sold, and matured | | 5 |
| | 8 |
| |
Other securities purchased | | Other securities purchased | | (4) | | | — | | |
Other securities called, sold, and matured | | Other securities called, sold, and matured | | 6 | | | 5 | | |
Other, net | | 12 |
| | (15 | ) | Other, net | | (6) | | | 12 | | |
Net cash used for investing activities | | (305 | ) | | (381 | ) | Net cash used for investing activities | | (196) | | | (305) | | |
| | | | | | | | | |
Cash flows from financing activities | | |
| | |
| Cash flows from financing activities | | | | | |
Proceeds from issuance of long-term debt, net of commissions | | 2,327 |
| | 2,805 |
| Proceeds from issuance of long-term debt, net of commissions | | 3,547 | | | 2,327 | | |
Repayment of long-term debt | | (1,425 | ) | | (1,972 | ) | Repayment of long-term debt | | (332) | | | (1,425) | | |
Dividends | | (34 | ) | | — |
| |
Cash dividends | | Cash dividends | | (387) | | | (34) | | |
Common stock repurchased and retired | | Common stock repurchased and retired | | (45) | | | — | | |
Withholding tax on share-based compensation | | (5 | ) | | (6 | ) | Withholding tax on share-based compensation | | (6) | | | (5) | | |
Net cash provided by financing activities | | 863 |
| | 827 |
| Net cash provided by financing activities | | 2,777 | | | 863 | | |
| | | | | | | | | | |
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents | | 1,106 |
| | 1,001 |
| Net change in cash and cash equivalents and restricted cash and restricted cash equivalents | | 3,146 | | | 1,106 | | |
Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period | | 1,178 |
| | 1,485 |
| Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period | | 1,632 | | | 1,178 | | |
Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period | | $ | 2,284 |
| | $ | 2,486 |
| Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period | | $ | 4,778 | | | $ | 2,284 | | |
| | | | | | | | | |
Supplemental cash flow information | | | | | Supplemental cash flow information | | |
Cash and cash equivalents | | $ | 1,709 |
| | $ | 1,807 |
| Cash and cash equivalents | | $ | 4,203 | | | $ | 1,709 | | |
Restricted cash and restricted cash equivalents | | 575 |
| | 679 |
| Restricted cash and restricted cash equivalents | | 575 | | | 575 | | |
Total cash and cash equivalents and restricted cash and restricted cash equivalents | | $ | 2,284 |
| | $ | 2,486 |
| Total cash and cash equivalents and restricted cash and restricted cash equivalents | | $ | 4,778 | | | $ | 2,284 | | |
| | | | | | | | | |
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 15 |
| | $ | — |
| Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 15 | | | $ | 15 | | |
| | Supplemental non-cash activities | | | | | Supplemental non-cash activities | | |
Right-of-use assets obtained in exchange for operating lease obligations | | $ | 173 |
| | $ | — |
| Right-of-use assets obtained in exchange for operating lease obligations | | $ | 17 | | | $ | 173 | | |
Net unsettled investment security purchases | | (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.transactions.
See Notes to the Condensed Consolidated Financial Statements.Statements (Unaudited).
SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
| | | | | | | | | | | | | | |
| | | | |
(dollars in millions, except par value amount) | | March 31, 2020 | | December 31, 2019 |
| | | | |
Assets | | | | |
Cash and cash equivalents | | $ | 4,203 | | | $ | 1,227 | |
Investment securities (includes available-for-sale securities with a fair value and amortized cost basis of $1.7 billion in 2020) | | 1,800 | | | 1,884 | |
Net finance receivables (includes loans of consolidated VIEs of $12.1 billion in 2020 and $8.4 billion in 2019) | | 18,269 | | | 18,389 | |
Unearned insurance premium and claim reserves | | (797) | | | (793) | |
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $1.4 billion in 2020 and $340 million in 2019) | | (2,182) | | | (829) | |
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses | | 15,290 | | | 16,767 | |
| | | | |
| | | | |
Restricted cash and restricted cash equivalents (includes restricted cash and restricted cash equivalents of consolidated VIEs of $567 million in 2020 and $400 million in 2019) | | 575 | | | 405 | |
Goodwill | | 1,422 | | | 1,422 | |
Other intangible assets | | 334 | | | 343 | |
Other assets | | 1,068 | | | 768 | |
Total assets | | $ | 24,692 | | | $ | 22,816 | |
| | | | |
Liabilities and Shareholder's Equity | | | | |
Long-term debt (includes debt of consolidated VIEs of $10.9 billion in 2020 and $7.6 billion in 2019) | | $ | 20,443 | | | $ | 17,212 | |
Insurance claims and policyholder liabilities | | 633 | | | 649 | |
Deferred and accrued taxes | | 69 | | | 35 | |
Other liabilities (includes other liabilities of consolidated VIEs of $17 million in 2020 and $14 million in 2019) | | 500 | | | 595 | |
Total liabilities | | 21,645 | | | 18,491 | |
Contingencies (Note 14) | | | | |
| | | | |
Shareholder's equity: | | | | |
Common stock, par value $0.50 per share; 25,000,000 shares authorized, 10,160,021 shares issued and outstanding at March 31, 2020 and December 31, 2019 | | 5 | | | 5 | |
Additional paid-in capital | | 1,889 | | | 1,888 | |
Accumulated other comprehensive income | | (6) | | | 44 | |
Retained earnings | | 1,159 | | | 2,388 | |
Total shareholder's equity | | 3,047 | | | 4,325 | |
Total liabilities and shareholder's equity | | $ | 24,692 | | | $ | 22,816 | |
See Notes to the Condensed Consolidated Financial Statements (Unaudited).
SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | | | |
(dollars in millions) | | | | | | 2020 | | 2019 | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Interest income | | | | | | $ | 1,106 | | | $ | 956 | | | |
| | | | | | | | | | |
Interest expense | | | | | | 255 | | | 236 | | | |
| | | | | | | | | | |
Net interest income | | | | | | 851 | | | 720 | | | |
| | | | | | | | | | |
Provision for finance receivable losses | | | | | | 531 | | | 286 | | | |
| | | | | | | | | | |
Net interest income after provision for finance receivable losses | | | | | | 320 | | | 434 | | | |
| | | | | | | | | | |
Other revenues: | | | | | | | | | | |
Insurance | | | | | | 117 | | | 110 | | | |
Investment | | | | | | 9 | | | 26 | | | |
| | | | | | | | | | |
Net loss on repurchase and repayment of debt | | | | | | — | | | (21) | | | |
Net gain on sale of real estate loans | | | | | | — | | | 3 | | | |
Other | | | | | | 15 | | | 34 | | | |
Total other revenues | | | | | | 141 | | | 152 | | | |
| | | | | | | | | | |
Other expenses: | | | | | | | | | | |
Salaries and benefits | | | | | | 199 | | | 199 | | | |
Other operating expenses | | | | | | 151 | | | 137 | | | |
Insurance policy benefits and claims | | | | | | 68 | | | 45 | | | |
Total other expenses | | | | | | 418 | | | 381 | | | |
| | | | | | | | | | |
Income before income taxes | | | | | | 43 | | | 205 | | | |
| | | | | | | | | | |
Income taxes | | | | | | 11 | | | 49 | | | |
| | | | | | | | | | |
Net income | | | | | | $ | 32 | | | $ | 156 | | | |
See Notes to the Condensed Consolidated Financial Statements (Unaudited).
SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | | | |
(dollars in millions) | | | | | | 2020 | | 2019 | | |
| | | | | | | | | | |
Net income | | | | | | $ | 32 | | | $ | 156 | | | |
| | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | |
Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities | | | | | | (55) | | | 39 | | | |
| | | | | | | | | | |
Foreign currency translation adjustments | | | | | | (10) | | | 2 | | | |
Income tax effect: | | | | | | | | | | |
Net unrealized gains (losses) on non-credit impaired available-for-sale securities | | | | | | 13 | | | (9) | | | |
| | | | | | | | | | |
Foreign currency translation adjustments | | | | | | 2 | | | — | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | (50) | | | 32 | | | |
| | | | | | | | | | |
Comprehensive income (loss) | | | | | | $ | (18) | | | $ | 188 | | | |
See Notes to the Condensed Consolidated Financial Statements (Unaudited).
SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholder's Equity (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Springleaf Finance Corporation Shareholder's Equity | | | | | | | | |
(dollars in millions) | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total Shareholder’s Equity |
| | | | | | | | | | |
| | | | | | | | | | |
Balance, January 1, 2020 (pre-adoption) | | $ | 5 | | | | $ | 1,888 | | | | $ | 44 | | | | $ | 2,388 | | | $ | 4,325 | |
Net impact of adoption of ASU-2016-13 (see Note 3) | | — | | | | — | | | | — | | | | (828) | | | (828) | |
Balance, January 1, 2020 (post-adoption) | | 5 | | | 1,888 | | | 44 | | | 1,560 | | | 3,497 | |
Share-based compensation expense, net of forfeitures | | — | | | | 7 | | | | — | | | | — | | | 7 | |
Withholding tax on share-based compensation | | — | | | | (6) | | | | — | | | | — | | | (6) | |
| | | | | | | | | | |
Other comprehensive loss | | — | | | | — | | | | (50) | | | | — | | | (50) | |
Cash dividends | | — | | | | — | | | | — | | | | (433) | | | (433) | |
| | | | | | | | | | |
| | | | | | | | | | |
Net income | | — | | | | — | | | | — | | | | 32 | | | 32 | |
Balance, March 31, 2020 | | $ | 5 | | | $ | 1,889 | | | $ | (6) | | | $ | 1,159 | | | $ | 3,047 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Balance, January 1, 2019 | | $ | 5 | | | $ | 2,110 | | | $ | (34) | | | $ | 1,940 | | | $ | 4,021 | |
| | | | | | | | | | |
| | | | | | | | | | |
Contribution of SCHC to SFC from SFI | | — | | | 34 | | | — | | | — | | | 34 | |
Share-based compensation expense, net of forfeitures | | — | | | 6 | | | — | | | — | | | 6 | |
Withholding tax on shared-based compensation | | — | | | (5) | | | — | | | — | | | (5) | |
Other comprehensive income | | — | | | — | | | 32 | | | — | | | 32 | |
Cash dividends | | — | | | — | | | — | | | (34) | | | (34) | |
Net income | | — | | | — | | | — | | | 156 | | | 156 | |
Balance, March 31, 2019 | | $ | 5 | | | $ | 2,145 | | | $ | (2) | | | $ | 2,062 | | | $ | 4,210 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
See Notes to the Condensed Consolidated Financial Statements (Unaudited).
SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | |
(dollars in millions) | | 2020 | | 2019 | | |
| | | | | | |
Cash flows from operating activities | | | | | | |
Net income | | $ | 32 | | | $ | 156 | | | |
Reconciling adjustments: | | | | | | |
Provision for finance receivable losses | | 531 | | | 286 | | | |
Depreciation and amortization | | 64 | | | 68 | | | |
Deferred income tax charge (benefit) | | (36) | | | 8 | | | |
Net loss on repurchase and repayment of debt | | — | | | 21 | | | |
| | | | | | |
Share-based compensation expense, net of forfeitures | | 7 | | | 6 | | | |
Other | | 12 | | | (11) | | | |
Cash flows due to changes in other assets and other liabilities | | (45) | | | 22 | | | |
Net cash provided by operating activities | | 565 | | | 556 | | | |
| | | | | | |
Cash flows from investing activities | | | | | | |
Net principal originations of finance receivables held for investment and held for sale | | (188) | | | (290) | | | |
Proceeds on sale of finance receivables held for sale originated as held for investment | | — | | | 19 | | | |
Cash advances on intercompany notes receivables | | — | | | (2) | | | |
| | | | | | |
Available-for-sale securities purchased | | (132) | | | (154) | | | |
Available-for-sale securities called, sold, and matured | | 128 | | | 103 | | | |
Other securities purchased | | (4) | | | — | | | |
Other securities called, sold, and matured | | 6 | | | 5 | | | |
Other, net | | (6) | | | 12 | | | |
Net cash used for investing activities | | (196) | | | (307) | | | |
| | | | | | |
Cash flows from financing activities | | | | | | |
Proceeds from issuance of long-term debt, net of commissions | | 3,547 | | | 2,327 | | | |
Repayment of long-term debt | | (332) | | | (1,425) | | | |
Cash contribution of SCLH | | — | | | 12 | | | |
Cash dividends | | (432) | | | (34) | | | |
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Payments on intercompany note payable | | — | | | (6) | | | |
Withholding tax on share-based compensation | | (6) | | | (5) | | | |
Net cash provided by financing activities | | 2,777 | | | 869 | | | |
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Net change in cash and cash equivalents and restricted cash and restricted cash equivalents | | 3,146 | | | 1,118 | | | |
Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period | | 1,632 | | | 1,162 | | | |
Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period | | $ | 4,778 | | | $ | 2,280 | | | |
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Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued) | | | | | | |
| | Three Months Ended March 31, | | | | |
(dollars in millions) | | 2020 | | 2019 | | |
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Supplemental cash flow information | | | | | | |
Cash and cash equivalents | | $ | 4,203 | | | $ | 1,705 | | | |
Restricted cash and restricted cash equivalents | | 575 | | | 575 | | | |
Total cash and cash equivalents and restricted cash and restricted cash equivalents | | $ | 4,778 | | | $ | 2,280 | | | |
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Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 15 | | | $ | 15 | | | |
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Supplemental non-cash activities | | | | | | |
Right-of-use assets obtained in exchange for operating lease obligations | | $ | 17 | | | $ | 173 | | | |
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Non-cash contribution of SCLH | | — | | | 22 | | | |
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Restricted cash and restricted cash equivalents primarily represent funds required to be used for future debt payments relating to our securitization transactions.
See Notes to the Condensed Consolidated Financial Statements (Unaudited).
ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 20192020
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1. Business and Basis of Presentation |
OneMain Holdings, Inc. is referred to in this report as “OMH” or, collectively with(“OMH”), and its subsidiaries, whether directly or indirectly owned, the “Company,” “we,” “us,” or “our.” OMH is a Delaware corporation.
OMH is a financial services holding company whose principalwholly-owned direct subsidiary, is Springleaf Finance, Inc. (“SFI”). SFI’s principal subsidiary is Springleaf Finance Corporation (“SFC”). On June 22, 2018, SFI entered into a contribution agreement with OMH, whereby OMH contributed all of the common interests of Independence Holdings, LLC (“Independence”) to SFI. Immediately thereafter, SFI entered into a separate contribution agreement with SFC, pursuant to which SFI contributed all of the common interests of Independence to SFC. As a result of the contribution from SFI to SFC, Independence became a wholly owned direct subsidiary of SFC on June 22, 2018. Independence, through its wholly owned subsidiary OneMain Financial Holdings, LLC (“OMFH”) and OMFH’s are financial services holding companies whose 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 Prior to the completion of Apollo Global Management, LLC (together with its consolidated subsidiaries, “Apollo”) and Värde Partners,the merger described below, OMH’s direct subsidiary was Springleaf Finance, Inc. (“Värde” and together with Apollo, collectively, the “Apollo-Värde Group”SFI”).
On September 20, 2019, SFC entered into a Share Purchase Agreementmerger agreement with SFHits direct parent, SFI, to merge SFI with and into SFC, with SFC as the Company to acquire from SFH 54,937,500 sharessurviving entity. The merger was effective in SFC's condensed consolidated financial statements as of OMH’s common stock, par value $0.01 per share, at a purchase price per share of $26.00, representing the entire holdings of our stock beneficially owned by a private equity fund managed by an affiliate of Fortress Investment Group LLC (“Fortress”). This transaction closed on June 25, 2018 for an aggregate purchase price of approximately $1.4 billion in cash (the “Apollo-Värde Transaction”). In connection with the Apollo-Värde Transaction, certain executive officers who are holders of SFH incentive units received a distribution of approximately $106 million in the aggregate from SFH in the second quarter of 2018 asJuly 1, 2019. As a result of their ownership interests in SFH. Although the distribution was not made by the Company or its subsidiaries, in accordancemerger with ASC Topic 710, Compensation-General, we recorded non-cash incentive compensation expense of approximately $106 million, with an equal and offsetting increase to additional paid-in-capital. The impact to the Company was non-cash, equity neutral and not tax deductible.
AIG Share Sale Transaction
On February 21, 2018, the Company, SFH and Morgan Stanley & Co. LLC as underwriter entered into an underwriting agreement in connection with the sale by SFH of 4,179,678 shares of our common stock. These shares were beneficially owned by AIG Capital Corporation (“AIG”),SFI, SFC became a wholly-owned direct subsidiary of American International Group, Inc.,OMH.
OMH and represented the entire holdings of our stock beneficiallySFC are referred to in this report, collectively with their subsidiaries, whether directly or indirectly owned, by AIG. In connection withas “the Company,” “we,” “us,” or “our.” The information in this sale of our common stock by SFH, certain executive officers who held SFH incentive units, as described above, received a distribution of approximately $4 million in the first quarter of 2018. 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 equalQuarterly Report on Form 10-Q is equally applicable to OMH and offsetting increase to additional paid-in-capital. Again, the impact to the Company was non-cash, equity neutral and not tax deductible.SFC, except where otherwise indicated.
At March 31, 2019,2020, the Apollo-Värde Group owned approximately 40.4%40.9% of OMH’s common stock.
BASIS OF PRESENTATION
We prepared our condensed consolidated financial statements using GAAP.generally accepted accounting principles in the United States of America (“GAAP”). These statements are unaudited. The year-end condensed balance sheet data was derived from our audited financial statements but does not include all disclosures required by GAAP. The statements include the accounts of OMH, its subsidiaries (all of which are wholly owned)wholly-owned), and VIEsvariable interest entities (“VIEs”) in which we hold a controlling financial interest and for which we are considered to be the primary beneficiary as of the financial statement date.
We eliminated all material intercompany accounts and transactions. We made judgments, estimates, and assumptions that affect amounts reported in our condensed consolidated financial statements and disclosures of contingent assets and liabilities. In management’s opinion, the condensed consolidated financial statements include the normal, recurring adjustments necessary for a fair statement of results. Actual 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 20192020 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 20182019 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 23 below.
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2. Reconciliation of Springleaf Finance Corporation Results to OneMain Holdings, Inc. Results |
The results of SFC are consolidated into the results of OMH. Due to the nominal differences between SFC and OMH, content throughout this filing relates to both OMH and SFC. SFC disclosures relate only to itself and not to any other company.
Except where otherwise indicated, and excluding certain insignificant cash and non-cash transactions at the OMH level, these notes relate to the condensed consolidated financial statements for both companies, OMH and SFC. In addition to certain intercompany payable and receivable amounts between the entities, the following is a reconciliation of the condensed consolidated balance sheets and results of our condensed consolidated statements of operations of SFC to OMH:
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| | March 31, 2020 | | | | | | December 31, 2019 | | | | |
(dollars in millions) | | OMH | | SFC | | Difference | | OMH | | SFC | | Difference |
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Other assets | | $ | 1,069 | | | $ | 1,068 | | | $ | 1 | | | $ | 769 | | | $ | 768 | | | $ | 1 | |
Deferred and accrued taxes | | 68 | | | 69 | | | (1) | | | 34 | | | 35 | | | (1) | |
Other liabilities | | 497 | | | 500 | | | (3) | | | 592 | | | 595 | | | (3) | |
Total shareholders' equity (a) | | 3,052 | | | 3,047 | | | 5 | | | 4,330 | | | 4,325 | | | 5 | |
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| | | | | | | | | | | | | | Three Months Ended March 31, | | | | | | | | | | | | | | | | |
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(dollars in millions) | | | | | | | | | | | | | | OMH | | SFC | | Difference | | OMH | | SFC | | Difference | | | | | | |
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Other revenues (b) | | | | | | | | | | | | | | $ | 15 | | | $ | 15 | | | $ | — | | | $ | 30 | | | $ | 34 | | | $ | (4) | | | | | | | |
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Other operating expenses | | | | | | | | | | | | | | 151 | | | 151 | | | — | | | 136 | | | 137 | | | (1) | | | | | | | |
Income before income taxes | | | | | | | | | | | | | | 43 | | | 43 | | | — | | | 202 | | | 205 | | | (3) | | | | | | | |
Income taxes | | | | | | | | | | | | | | 11 | | | 11 | | | — | | | 50 | | | 49 | | | 1 | | | | | | | |
Net Income | | | | | | | | | | | | | | 32 | | | 32 | | | — | | | 152 | | | 156 | | | (4) | | | | | | | |
(a) The differences between total shareholders’ equity in the periods ended March 31, 2020 and December 31, 2019 were due to historical differences in results of operations of the companies and differences in equity awards.
(b) Other revenues include the interest income on notes receivables from parent, which were notes from SFI held by SFC and Springleaf Mortgage Holding Company and subsidiaries (“SMHC”), a wholly-owned direct subsidiary of SFC. See Note 1 and below for further discussion of the merger between SFI and SFC.
The following transactions are related to SFC and have no impact on OMH's condensed consolidated financial results.
Merger of SFI into SFC
On September 20, 2019, SFC entered into a merger agreement with its direct parent SFI, to merge SFI with and into SFC, with SFC as the surviving entity. The merger was effective in SFC's condensed consolidated financial statements as of July 1, 2019. In conjunction with the merger, the net deficiency of SFI, after elimination of its investment in SFC, was absorbed by SFC resulting in an equity reduction of $408 million to SFC, which included the elimination of the intercompany notes and receivables between SFC and SFI, as discussed below.
The net deficiency of SFI included an intercompany note payable plus accrued interest of $166 million from SFI to OMH, which SFC assumed through the merger. On September 23, 2019, SFC repaid SFI’s note to OMH. Concurrently, OMH paid $22 million in other payables due to SFC and made an equity contribution of $144 million to SFC.
The transactions noted above resulted in a net $264 million reduction to SFC's equity.
SFC's Notes Receivable from Parent
As a result of the merger between SFI and SFC, described in Note 1 and above, a $232 million note receivable from SFI to SFC was dissolved effective July 1, 2019. Additionally, SFC assumed a $28 million note payable from SFI to SMHC, a wholly-owned subsidiary of SFC, and SFC subsequently paid off the note on September 23, 2019. Interest income on these notes receivable totaled $4 million for the three months ended March 31, 2019, which we report in other revenues.
Springleaf Consumer Loan Holding Company (“SCLH”) Contribution
On March 10, 2019, all of the outstanding capital stock of SCLH, a subsidiary of SFI, was contributed to SFC and SCLH became a wholly-owned direct subsidiary of SFC. The contribution was effective as of January 1, 2019 and increased SFC’s total shareholder’s equity and total assets by $34 million and $53 million, respectively. The contribution is presented prospectively because it is deemed to be a contribution of net assets.
Parent and Affiliate Receivables and Payables
There were no receivables from parent and affiliates at March 31, 2020 and December 31, 2019 as the balances were eliminated due to the merger of SFI and SFC, and the SCLH contribution noted above. Payables to parent and affiliate are included in other liabilities and were immaterial at March 31, 2020 and December 31, 2019.
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3. Recent Accounting Pronouncements |
ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED
Leases
In February of 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize a right-of-use asset and a liability for the obligation to make payments on leases with terms greater than 12 months and to disclose information related to the amount, timing and uncertainty of cash flows arising from leases, including various qualitative and quantitative requirements. Management has reviewed this update and other ASUs that were subsequently issued to further clarify the implementation guidance outlined in ASU 2016-02. 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.
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED
Financial 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 beare 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 currentlypreviously required. The new approach will requirerequires entities to measure all expected credit losses for financial assets over their expected lives based on historical experience, current conditions, and reasonable and supportable forecasts of collectability. It is anticipated that theThe expected credit loss model will requirerequires earlier recognition of credit losses than the incurred loss approach. Therefore, we wouldWe expect ongoing changes in the allowance for finance receivable losses will be driven primarily by the nature and growth of the Company’sour loan portfolio, mix of secured and unsecured loans, credit quality, and the economic environment at that time.
The In addition, the ASU requires that credit lossesdeveloped a new accounting treatment for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination and that are measured at amortized cost basis bedetermined 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.deterioration.
The ASU also requiresmodifies the other-than-temporary impairment model for available-for-sale debt securities by requiring companies to record allowancesan allowance for held-to-maturity and available-for-sale debt securitiescredit impairment rather than write-downs of such assets.
In addition,Management has reviewed this update and other ASUs that were subsequently issued to further clarify the implementation guidance outlined in ASU requires qualitative and quantitative disclosures that provide information about2016-13.
We adopted the allowance and the significant factors that influenced management’s estimateamendments of the allowance.
The ASU will become effective for the Company for fiscal years beginningthese ASUs as of January 1, 2020. Early
Upon adoption, is permitted for fiscal years beginning January 1, 2019. The Company’s cross-functional implementation team continues to make progress in line with the established project plan to ensure we comply with all updates from this ASU at the time of adoption. We continue to refine the development of an acceptable model to estimate the expected credit losses in accordance with our model governance policies. 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 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 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 throughrecorded an increase to the allowance for finance receivable losses of $1.12 billion, an increase to deferred tax assets of $0.28 billion, and a corresponding one-time cumulative reduction to retained earnings, net of tax, of $0.83 billion in the consolidated balance sheet as of January 1, 2020.
The adoption of this ASU, as it relates to available-for-sale debt securities, did not have a material impact on the beginningconsolidated financial statements as of January 1, 2020.
As result of the yearadoption of adoption.ASU 2016-13, several of our significant accounting policies have changed to reflect the requirements of the new standard. See below for these updated significant accounting policies as of January 1, 2020.
Allowance for Finance Receivable Losses
We establish the allowance for finance receivable losses through the provision for finance receivable losses. We evaluate our finance receivable portfolio by level of contractual delinquency in the portfolio, specifically in the late stage delinquency buckets and inclusive of the migration of the loans through the delinquency buckets. Our finance receivables consist of a large number of relatively small, homogeneous accounts. We evaluate our finance receivables for impairment as pools. None of our accounts are large enough to warrant individual evaluation for impairment.
We estimate the allowance for finance receivable losses primarily on historical loss experience using a cumulative loss model applied to our finance receivable portfolios. Our gross credit loss expectation is offset by the estimate of future recoveries using historical recovery curves. Our finance receivables are primarily segmented in the loss model by contractual delinquency status. Other attributes in the model include collateral mix and recent credit score. To estimate the gross credit losses, the model utilizes a roll rate matrix to project the first 12 months of losses and historical cohort performance to project the expected losses over the remaining term. Our methodology relies solely on historical loss experience to forecast the corresponding future outcomes. These patterns are then applied to the current portfolio to obtain an estimate of future losses. We also consider key economic trends including unemployment rates and bankruptcy filings. Forecasted macroeconomic conditions extend to our reasonable and supportable forecast period and revert to a historical average. No new volume is assumed. Renewals are a significant piece of our new volume and are considered a terminal event of the previous loan. We have elected not to measure an allowance on accrued finance charges as it is our policy to reverse finance charge amounts previously accrued after 4 contractual payments become past due.
Management exercises its judgment when determining the amount of allowance for finance receivable losses. Our judgment is based on quantitative analyses, qualitative factors, such as recent portfolio, industry, and other economic trends, and experience in the consumer finance industry. We adjust the amounts determined by our model for management’s estimate of the effects of model imprecision which include but are not limited to, any changes to underwriting criteria and portfolio seasoning.
Impairments on Investment Securities: Available-for-sale.
We evaluate our available-for-sale securities on an individual basis to identify any instances where the fair value of the investment security is below its amortized cost. For these securities, we then evaluate whether an impairment exists if any of the following conditions are present:
•we intend to sell the security;
•it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or
•we do not expect to recover the security’s entire amortized cost basis (even if we do not intend to sell the security).
If we intend to sell an impaired investment security or we will likely be required to sell the security before recovery of its amortized cost basis less any current period credit loss, we recognize the impairment as a direct write-down in investment revenues equal to the difference between the investment security’s amortized cost and its fair value at the balance sheet date. Once the impairment is recorded, we adjust the investment security to a new amortized cost basis equal to the previous amortized cost basis less the impairment write-down recognized in the current period.
In determining whether a credit loss exists, we compare our best estimate of the present value of the cash flows expected to be collected from the security to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, a credit loss exists and an allowance for credit losses is recorded, not to exceed the total unrealized loss on the security. The cash flows expected to be collected are determined by assessing all available information, including issuer default rate, ratings changes and adverse conditions related to the industry sector, financial condition of issuer, credit enhancements, collateral default rates, and other relevant criteria. Management considers factors such as our investment strategy, liquidity requirements, overall business plans, and recovery periods for securities in previous periods of broad market declines.
If a credit loss exists with respect to an investment in a security (i.e., we do not expect to recover the entire amortized cost basis of the security), we would be unable to assert that we will recover our amortized cost basis even if we do not intend to sell the security. Therefore, in these situations, a credit impairment is considered to have occurred.
If a credit impairment exists, but we do not intend to sell the security and we will likely not be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the impairment is bifurcated as: (i) the estimated amount relating to credit loss; and (ii) the amount relating to non-credit related factors. We recognize the estimated credit loss as an allowance on the balance sheet in investment securities, with a corresponding loss in investment revenues, and the non-credit loss amount in accumulated other comprehensive income or loss.
For investment securities in which a credit impairment was recorded through an allowance, we record subsequent increases and decreases in the allowance for credit losses as credit loss expense or reversal of credit loss expense in investment revenues. We will not reverse a previously recorded allowance to an amount below zero. We recognize subsequent increases and decreases in the fair value of our available-for-sale securities from non-credit related factors in accumulated other comprehensive income or loss.
Interest receivables on our investment securities are excluded from the amortized cost and fair value and are recorded in “Other assets.” We have elected not to measure an allowance on interest receivables due to our policy to reverse interest receivable at the time collectability is uncertain. The reversal of interest receivable is recorded in investment revenue.
See Notes 4, 5, and 7 for additional information on the adoption of ASU 2016-13.
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED
Insurance
In August of 2018, the FASB issued ASU 2018-12, Financial Services - Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts, which provides targeted improvements to Topic 944 for the assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited-payment contracts; measurement of market risk benefits; amortization of deferred acquisition costs; and enhanced disclosures. The amendments in this ASU become effective for fiscal yearsus beginning January 1, 2021.2022, as a result of the FASB issuing a one-year deferral of this ASU for public companies. We have established a cross-functional implementation team and a project plan to ensure we comply with all the amendments in this ASU at the time of adoption. We are currentlycontinue to make progress in evaluating the potential impact of the adoption of the ASU on our consolidated financial statements.
We do not believe that any other accounting pronouncements issued, during the three months ended March 31, 2019, but not yet effective, would have a material impact on our consolidated financial statements or disclosures, if adopted.
Our finance receivables consist of personal loans, which are non-revolving, with a fixed-rate, a fixed term of three to six years, 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: real estate loans, retail sales finance contracts and revolving retail accounts. We continue to service or sub-service liquidating real estate loans and retail sales finance contracts. Effective September 30, 2018, our real estate loans were transferred from held for investment to 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:
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(dollars in millions) | | March 31, 2020 | | December 31, 2019 |
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Gross receivables * | | $ | 18,080 | | | $ | 18,195 | |
Unearned points and fees | | (238) | | | (242) | |
Accrued finance charges | | 280 | | | 289 | |
Deferred origination costs | | 147 | | | 147 | |
Total | | $ | 18,269 | | | $ | 18,389 | |
* Gross receivables equal the unpaid principal balance (“UPB”) except for the following:
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(dollars in millions) | | March 31, 2019 | | December 31, 2018 |
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Gross receivables * | | $ | 15,968 |
| | $ | 15,978 |
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Unearned points and fees | | (202 | ) | | (201 | ) |
Accrued finance charges | | 240 |
| | 253 |
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Deferred origination costs | | 130 |
| | 134 |
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Total | | $ | 16,136 |
| | $ | 16,164 |
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* | Gross receivables equal the UPB except for the following: |
•Finance receivables purchased as a performing receivable — gross receivables are equal to UPB and, if applicable, any remaining unearned premium or discount established at the time of purchase to reflect the finance receivable balance at its initial fair value; and
•Purchased credit impaired finance receivables — gross receivables equal the remaining estimated cash flows less the current balance of accretable yield on the purchased credit impaired accounts.
accounts established prior to the adoption of ASU 2016-13; and
•Purchased credit deteriorated finance receivables — gross receivables equal the UPB and any remaining unearned discount established at the time of the adoption of ASU 2016-13 on January 1, 2020.
At March 31, 2019 and December 31, 2018, unused lines of credit extended to customers by the Company were immaterial.
CREDIT QUALITY INDICATOR
We consider the value of the collateral, the concentration of secured loans, and the delinquency status of our finance receivables as our primarykey credit quality indicators. At March 31, 2019 and December 31, 2018, 49% and 48%indicator. We monitor the delinquency of our personal loans were secured by titled collateral, respectively. We monitorfinance receivable portfolio, including the migration between the delinquency buckets and changes in the delinquency trends to manage our exposure to credit risk.risk in the portfolio. 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. We stop accruing finance charges and reverse finance charges previously accrued on nonperforming loans. We reversed net accrued finance charges of $28 million during the three months ended March 31, 2020. Finance charges recognized from the contractual interest portion of payments received on nonaccrual finance receivables totaled $4 million during the three months ended March 31, 2020. All loans in nonaccrual status are considered in our estimate of allowance for finance receivable losses.
The following is a summary of our personal loans held for investment by the year of origination and number of days delinquent, our key credit quality indicator, at March 31, 2020:
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(dollars in millions) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total |
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Performing | | | | | | | | | | | | | | |
Current | | $ | 2,515 | | | | $ | 9,465 | | | | $ | 3,541 | | | | $ | 1,298 | | | | $ | 431 | | | $ | 213 | | | $ | 17,463 | |
30-59 days past due | | 3 | | | | 127 | | | | 66 | | | | 29 | | | | 12 | | | 8 | | | 245 | |
60-89 days past due | | — | | | | 88 | | | | 48 | | | | 19 | | | | 7 | | | 5 | | | 167 | |
Total performing | | 2,518 | | | 9,680 | | | 3,655 | | | 1,346 | | | 450 | | | 226 | | | 17,875 | |
Nonperforming (Nonaccrual) | | | | | | | | | | | | | | |
90-179 days past due | | — | | | | 173 | | | | 131 | | | | 50 | | | | 18 | | | 13 | | | 385 | |
180 days or more past due | | — | | | | 3 | | | | 4 | | | | 2 | | | | — | | | — | | | 9 | |
Total nonperforming | | — | | | 176 | | | 135 | | | 52 | | | 18 | | | 13 | | | 394 | |
Total | | $ | 2,518 | | | $ | 9,856 | | | $ | 3,790 | | | $ | 1,398 | | | $ | 468 | | | $ | 239 | | | $ | 18,269 | |
The following is a summary of our personal loans held for investment by number of days delinquent:delinquent at December 31, 2019, which is prior to the adoption of ASU 2016-13 on January 1, 2020 and continue to be reported under ASC 310, Receivables:
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(dollars in millions) | | | | Total |
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Performing | | | | |
Current | | | | $ | 17,550 | |
30-59 days past due | | | | 272 | |
60-89 days past due | | | | 181 | |
Total performing | | | | 18,003 | |
Nonperforming | | | | |
90-179 days past due | | | | 377 | |
180 days or more past due | | | | 9 | |
Total nonperforming | | | | 386 | |
Total | | | | $ | 18,389 | |
|
| | | | | | | | |
(dollars in millions) | | March 31, 2019 | | December 31, 2018 |
| | | | |
Performing | | | | |
Current | | $ | 15,489 |
| | $ | 15,411 |
|
30-59 days past due | | 179 |
| | 229 |
|
60-89 days past due | | 133 |
| | 161 |
|
Total performing | | 15,801 |
| | 15,801 |
|
Nonperforming | | | | |
90-179 days past due | | 327 |
| | 355 |
|
180 days or more past due | | 8 |
| | 8 |
|
Total nonperforming | | 335 |
| | 363 |
|
Total | | $ | 16,136 |
| | $ | 16,164 |
|
PURCHASED CREDIT IMPAIRED FINANCE RECEIVABLES
OurASU 2016-13 superseded the accounting for purchased credit impaired finance receivables consistwith purchase credit deteriorated finance receivables. As a result, we converted all purchased credit impaired finance receivables to purchased credit deteriorated finance receivables in accordance with ASC Topic 326, which resulted in the gross-up of personal loans heldnet finance receivables and allowance for investment and real estate loans heldfinance receivable losses of $15 million on January 1, 2020. Due to the adoption of ASU 2016-13, the following disclosures related to purchase credit impaired finance receivables are no longer applicable for sale purchasedreporting periods beginning in connection with the OneMain Acquisition and the Fortress Acquisition, respectively.2020.
We reportpreviously reported the carrying amount of our purchased credit impaired personal loans in net finance receivables, less allowance for finance receivable losses, and our purchased credit impaired real estate loans in finance receivables held for sale as discussed below.
At MarchDecember 31, 2019, and December 31, 2018, finance receivables held for sale, reported in “Other assets,” totaled $78$64 million, and $103 million, respectively, which include purchased credit impaired real estate loans, as well as TDR real estate loans. See Note 56 for further information on our finance receivables held for sale.
Information regarding our purchased credit impaired finance receivables were as follows:
|
| | | | | | | | |
(dollars in millions) | | March 31, 2019 | | December 31, 2018 |
| | | | |
Personal Loans | | | | |
Carrying amount, net of allowance | | $ | 73 |
| | $ | 89 |
|
Outstanding balance (a) | | 116 |
| | 135 |
|
Allowance for purchased credit impaired finance receivable losses (b) | | — |
| | — |
|
| | | | |
Real Estate Loans - Held for Sale | | | | |
Carrying amount | | $ | 22 |
| | $ | 28 |
|
Outstanding balance (a) | | 39 |
| | 48 |
|
| | | | | | | | | | |
(a)(dollars in millions) | Outstanding balance is defined as UPB of the loans with a net carrying amount. | | | December 31, 2019 |
| | | | |
(b)Personal Loans | The | | | |
Carrying amount, net of allowance | | | | $ | 40 | |
Outstanding balance (a) | | | | 74 | |
Allowance for purchased credit impaired finance receivable losses reflects the carrying value of the purchased credit impaired loans held(b) | | | | — | |
| | | | |
Real Estate Loans - Held for investment 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.Sale | | | | |
Carrying amount | | | | $ | 19 | |
Outstanding balance (a) | | | | 35 | |
| | | | |
(a) Outstanding balance is defined as the UPB of the loans with a net carrying amount.
(b) The allowance for purchased credit impaired finance receivable losses reflects the carrying value of the purchased credit impaired loans held for investment exceeding the present value of the expected cash flows. As indicated above, no allowance was required as of December 31, 2019.
Changes in accretable yield for purchased credit impaired finance receivables were as follows:
|
| | | | | | | | |
| | Three Months Ended March 31, |
(dollars in millions) | | 2019 | | 2018 |
| | | | |
Personal Loans | | | | |
Balance at beginning of period | | $ | 39 |
| | $ | 47 |
|
Accretion | | (5 | ) | | (6 | ) |
Reclassifications from nonaccretable difference (a) | | — |
| | 8 |
|
Balance at end of period | | $ | 34 |
| | $ | 49 |
|
| | | | |
Real Estate Loans - Held for Sale | | | | |
Balance at beginning of period | | $ | 27 |
| | $ | 53 |
|
Accretion | | (1 | ) | | (1 | ) |
Transfer due to finance receivables sold | | (3 | ) | | — |
|
Balance at end of period | | $ | 23 |
| | $ | 52 |
|
| | | | | | | | | | | | | | |
(a) | Reclassifications from nonaccretable difference represents the increases | | | | | | | |
(dollars in accretable yield resulting from higher estimated undiscounted cash flows.millions) | | | | | | | | Three Months Ended March 31, 2019 |
| | | | | | | | |
Personal Loans | | | | | | | | |
Balance at beginning of period | | | | | | | | $ | 39 | |
Accretion | | | | | | | | (5) | |
| | | | | | | | |
Balance at end of period | | | | | | | | $ | 34 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Real Estate Loans - Held for Sale | | | | | | | | |
Balance at beginning of period | | | | | | | | $ | 27 | |
Accretion | | | | | | | | (1) | |
| | | | | | | | |
Transfer due to finance receivables sold | | | | | | | | (3) | |
Balance at end of period | | | | | | | | $ | 23 | |
TDR FINANCE RECEIVABLES
Information regarding TDR finance receivables were as follows:
| | | | | | | | | | | | | | |
(dollars in millions) | | March 31, 2020 | | December 31, 2019 |
| | | | |
Personal Loans | | | | |
TDR gross receivables (a) | | $ | 686 | | | $ | 655 | |
TDR net receivables (b) | | 688 | | | 658 | |
Allowance for TDR finance receivable losses | | 302 | | | 272 | |
| | | | |
Real Estate Loans - Held for Sale | | | | |
TDR gross receivables (a) | | $ | 50 | | | $ | 52 | |
TDR net receivables (b) | | 51 | | | 53 | |
| | | | |
(a) TDR gross receivables — gross receivables are equal to UPB and, if applicable, any remaining unearned premium or discount established at the time of purchase if previously purchased as a performing receivable.
|
| | | | | | | | |
(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 |
|
(b) TDR net receivables — TDR gross receivables net of unearned points and fees, accrued finance charges, and deferred origination costs. | |
(a) | TDR gross receivables — gross receivables are equal to UPB and, if applicable, any remaining unearned premium or discount established at the time of purchase if previously purchased as a performing receivable.
|
| |
(b) | 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, 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 for our personal loans that are held for investment and our real estate loans that are held for sale were as follows:
| | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | | Personal Loans | | Real Estate Loans | | Total |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Three Months Ended March 31, 2020 | | | | | | |
TDR average net receivables | | $ | 676 | | | $ | 52 | | | $ | 728 | |
TDR finance charges recognized | | 12 | | | 1 | | | 13 | |
| | | | | | |
Three Months Ended March 31, 2019 | | | | | | |
TDR average net receivables | | $ | 477 | | | $ | 64 | | | $ | 541 | |
TDR finance charges recognized | | 12 | | | 1 | | | 13 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
|
| | | | | | | | | | | | |
(dollars in millions) | | 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 |
|
TDR finance charges recognized | | 11 |
| | 2 |
| | 13 |
|
* Other Receivables held for sale included in the table above consist of real estate loans and were as follows: |
| | | | | | | | |
| | Three Months Ended March 31, |
(dollars in millions) | | 2019 | | 2018 |
| | | | |
TDR average net receivables | | $ | 64 |
| | $ | 90 |
|
TDR finance charges recognized | | 1 |
| | 1 |
|
Information regarding the new volume of the TDR finance receivables held for investment consisting of personal loans, are reflected inwere as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | | | |
(dollars in millions) | | | | | | 2020 | | 2019 | | |
| | | | | | | | | | |
Personal Loans | | | | | | | | | | |
Pre-modification TDR net finance receivables | | | | | | $ | 158 | | | $ | 120 | | | |
Post-modification TDR net finance receivables: | | | | | | | | | | |
Rate reduction | | | | | | 100 | | | 85 | | | |
Other * | | | | | | 58 | | | 35 | | | |
Total post-modification TDR net finance receivables | | | | | | $ | 158 | | | $ | 120 | | | |
Number of TDR accounts | | | | | | 21,818 | | | 18,506 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
* “Other” modifications primarily include potential principal and interest forgiveness contingent on future payment performance by the following table. borrower under the modified terms.
New volume of TDR otherfinance receivables are not included in the table below as they were immaterialheld for sale for the three months ended March 31, 2020 and 2019 and 2018.are not included in the table above as it is immaterial.
|
| | | | | | | | |
| | Three Months Ended March 31, |
(dollars in millions) | | 2019 | | 2018 |
| | | | |
Personal Loans | | | | |
Pre-modification TDR net finance receivables | | $ | 120 |
| | $ | 94 |
|
Post-modification TDR net finance receivables: | | | | |
Rate reduction | | $ | 85 |
| | $ | 70 |
|
Other * | | 35 |
| | 24 |
|
Total post-modification TDR net finance receivables | | $ | 120 |
| | $ | 94 |
|
Number of TDR accounts | | 18,506 |
| | 14,730 |
|
| |
* | “Other” modifications primarily include potential principal and interest forgiveness contingent on future payment performance by the |
borrower under the modified terms.
Personal loans held for investment that were modified as TDR finance receivables within the previous 12 months and for which there was a default during the period to cause the TDR finance receivables to be considered nonperforming (90 days or more past due) are reflected in the following table.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | | | |
(dollars in millions) | | | | | | 2020 | | 2019 | | |
| | | | | | | | | | |
| | | | | | | | | | |
Personal Loans | | | | | | | | | | |
TDR net finance receivables * | | | | | | $ | 31 | | | $ | 19 | | | |
Number of TDR accounts | | | | | | 4,552 | | | 2,925 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
* Represents the corresponding balance of TDR net finance receivables at the end of the month in which they defaulted.
Real estate loans held for sale that were modified as follows:
|
| | | | | | | | |
| | Three Months Ended March 31, |
(dollars in millions) | | 2019 | | 2018 |
| | | | |
Personal Loans | | | | |
TDR net finance receivables * | | $ | 19 |
| | $ | 18 |
|
Number of TDR accounts | | 2,925 |
| | 2,719 |
|
| |
* | Represents the corresponding balance of TDR net finance receivables at the end of the month in which they defaulted. |
TDR otherfinance receivables within the previous 12 months and for which there was a default during the period to cause the TDR finance receivables to be considered nonperforming (90 days or more past due) are immaterial for the three months ended March 31, 20192020 and 2018 that defaulted during the previous 12-month2019.
period were immaterial.
|
| |
4.5. Allowance for Finance Receivable Losses |
We establish an allowance for finance receivable losses through the provision for finance receivable losses. We evaluate our finance receivable portfolio by the level of contractual delinquency in the portfolio, specifically in the late stage delinquency buckets and inclusive of the migration of the loans through the delinquency buckets. We estimate and record an allowance for finance receivable losses to cover the estimated lifetime expected credit losses on our finance receivables, pursuant to the adoption of ASU 2016-13 on January 1, 2020. Prior to the adoption of ASU 2016-13, we estimated and recorded an allowance for finance receivable losses to cover estimated incurred losses on our finance receivables. Our allowance for finance receivable losses may fluctuate based upon changes in portfolio growth, credit quality, and economic conditions. See Note 3 for additional information regarding our policy for allowance for finance receivable losses.
Our current methodology to estimate expected credit losses utilized macroeconomic forecasts as of March 31, 2020, which incorporated the potential impact of the global outbreak of a novel strain of coronavirus (“COVID-19”) could have on the U.S. economy. Our forecast utilized economic projections from a major rating service, and considered a spike in the second quarter unemployment rate followed by a recovery over the second half of the year, with some offsetting benefits related to the positive impacts of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the involuntary unemployment insurance coverage of our portfolio and our borrower assistance efforts. As a result, our allowance for finance receivable losses as a percentage of finance receivables increased from 10.6% to 11.9%.
Changes in the allowance for finance receivable losses by finance receivable type were as follows:
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | |
(dollars in millions) | | 2020 | | 2019 | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Personal Loans | | | | | | |
Balance at beginning of period | | $ | 829 | | | $ | 731 | | | |
Impact of adoption of ASU 2016-13 * | | 1,118 | | | — | | | |
Provision for finance receivable losses | | 531 | | | 286 | | | |
Charge-offs | | (337) | | | (311) | | | |
Recoveries | | 41 | | | 27 | | | |
Balance at end of period | | $ | 2,182 | | | $ | 733 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
* As a result of the adoption of ASU 2016-13 on January 1, 2020, we recorded a one-time adjustment to the allowance for finance receivable losses. See Notes 3 and 4 for additional information on the adoption of ASU 2016-13.
|
| | | | | | | | | | | | |
(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 impairment method were as follows:
| | | | | | | | | | | | | | | | | | | |
(dollars in millions) | | March 31, 2020 | | December 31, 2019 | | | | | |
| | | | | | | | | |
Allowance for finance receivable losses: | | | | | | | | | |
Collectively evaluated for impairment | | $ | 1,880 | | | $ | 557 | | | | | | |
Purchased credit impaired finance receivables * | | — | | | — | | | | | | |
TDR finance receivables | | 302 | | | 272 | | | | | | |
Total | | $ | 2,182 | | | $ | 829 | | | | | | |
| | | | | | | | | |
Finance receivables: | | | | | | | | | |
Collectively evaluated for impairment | | $ | 17,581 | | | $ | 17,691 | | | | | | |
Purchased credit impaired finance receivables * | | — | | | 40 | | | | | | |
TDR finance receivables | | 688 | | | 658 | | | | | | |
Total | | $ | 18,269 | | | $ | 18,389 | | | | | | |
| | | | | | | | | |
Allowance for finance receivable losses as a percentage of finance receivables | | 11.95 | % | | 4.51 | % | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
* As a result of the adoption of ASU 2016-13 on January 1, 2020, the accounting for purchased credit impaired finance receivables was superseded with purchase credit deteriorated finance receivables which are collectively evaluated for impairment. See Notes 3 and 4 for additional information on the adoption of ASU 2016-3.
|
| | | | | | | | |
(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 | % |
|
| |
5.6. Finance Receivables Held for Sale |
We reported finance receivables held for sale, reported within “Other assets,” of $78$61 million at March 31, 20192020 and $103$64 million at December 31, 2018,2019, which consist entirely of real estate loans, and are carried at the lower of cost or fair value, applied on an aggregate basis.
In February 2019, we sold a portfolio of real estate 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, 2019,2020, the carrying value of our finance receivables held for sale was not impaired.
We did not have any other material transfers to or from finance receivables held for sale during the three months ended March 31, 20192020 and 2018.
|
| |
6.7. Investment Securities |
AVAILABLE-FOR-SALE SECURITIES
Cost/amortized cost, allowance for credit losses, unrealized gains and losses, and fair value of fixed maturity available-for-sale securities by type were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | | Cost/ Amortized Cost | | | | | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| | | | | | | | | | | | |
March 31, 2020* | | | | | | | | | | | | |
Fixed maturity available-for-sale securities: | | | | | | | | | | | | |
U.S. government and government sponsored entities | | $ | 11 | | | | | | | $ | — | | | $ | — | | | $ | 11 | |
Obligations of states, municipalities, and political subdivisions | | 88 | | | | | | | 1 | | | — | | | 89 | |
Commercial paper | | 76 | | | | | | | — | | | — | | | 76 | |
Non-U.S. government and government sponsored entities | | 136 | | | | | | | 4 | | | (1) | | | 139 | |
Corporate debt | | 1,061 | | | | | | | 25 | | | (31) | | | 1,055 | |
Mortgage-backed, asset-backed, and collateralized: | | | | | | | | | | | | |
RMBS | | 212 | | | | | | | 8 | | | (3) | | | 217 | |
CMBS | | 64 | | | | | | | 1 | | | (2) | | | 63 | |
CDO/ABS | | 87 | | | | | | | 1 | | | (6) | | | 82 | |
Total | | $ | 1,735 | | | | | | | $ | 40 | | | $ | (43) | | | $ | 1,732 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
* There was 0 allowance for credit losses related to our investment securities as of March 31, 2020.
|
| | | | | | | | | | | | | | | | |
(dollars in millions) | | Cost/ Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| | | | | | | | |
March 31, 2019 | | |
| | |
| | |
| | |
|
Fixed maturity available-for-sale securities: | | |
| | |
| | |
| | |
|
U.S. government and government sponsored entities | | $ | 17 |
| | $ | — |
| | $ | — |
| | $ | 17 |
|
Obligations of states, municipalities, and political subdivisions | | 87 |
| | — |
| | — |
| | 87 |
|
Certificates of deposit and commercial paper | | 59 |
| | — |
| | — |
| | 59 |
|
Non-U.S. government and government sponsored entities | | 143 |
| | 2 |
| | — |
| | 145 |
|
Corporate debt | | 1,056 |
| | 13 |
| | (10 | ) | | 1,059 |
|
Mortgage-backed, asset-backed, and collateralized: | | |
| | |
| | |
| | |
RMBS | | 141 |
| | 1 |
| | (1 | ) | | 141 |
|
CMBS | | 67 |
| | — |
| | (1 | ) | | 66 |
|
CDO/ABS | | 82 |
| | 1 |
| | — |
| | 83 |
|
Total | | $ | 1,652 |
| | $ | 17 |
| | $ | (12 | ) | | $ | 1,657 |
|
| | | | | | | | |
December 31, 2018 | | |
| | |
| | |
| | |
|
Fixed maturity available-for-sale securities: | | |
| | |
| | |
| | |
|
U.S. government and government sponsored entities | | $ | 21 |
| | $ | — |
| | $ | — |
| | $ | 21 |
|
Obligations of states, municipalities, and political subdivisions | | 91 |
| | — |
| | (1 | ) | | 90 |
|
Certificates of deposit and commercial paper | | 63 |
| | — |
| | — |
| | 63 |
|
Non-U.S. government and government sponsored entities | | 145 |
| | — |
| | (2 | ) | | 143 |
|
Corporate debt | | 1,027 |
| | 2 |
| | (32 | ) | | 997 |
|
Mortgage-backed, asset-backed, and collateralized: | | |
| | |
| | |
| | |
RMBS | | 130 |
| | — |
| | (2 | ) | | 128 |
|
CMBS | | 72 |
| | — |
| | (1 | ) | | 71 |
|
CDO/ABS | | 94 |
| | 1 |
| | (1 | ) | | 94 |
|
Total | | $ | 1,643 |
| | $ | 3 |
| | $ | (39 | ) | | $ | 1,607 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | | Cost/ Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| | | | | | | | |
December 31, 2019* | | | | | | | | |
Fixed maturity available-for-sale securities: | | | | | | | | |
U.S. government and government sponsored entities | | $ | 11 | | | | $ | — | | | | $ | — | | | $ | 11 | |
Obligations of states, municipalities, and political subdivisions | | 91 | | | 2 | | | (1) | | | 92 | |
Commercial paper | | 91 | | | — | | | — | | | 91 | |
Non-U.S. government and government sponsored entities | | 144 | | | 3 | | | — | | | 147 | |
Corporate debt | | 1,054 | | | 45 | | | (1) | | | 1,098 | |
Mortgage-backed, asset-backed, and collateralized: | | | | | | | | | | | | | |
RMBS | | 214 | | | 3 | | | — | | | 217 | |
CMBS | | 56 | | | 1 | | | — | | | 57 | |
CDO/ABS | | 84 | | | 1 | | | — | | | 85 | |
Total | | $ | 1,745 | | | $ | 55 | | | $ | (2) | | | $ | 1,798 | |
* The balances reported as of December 31, 2019 are not subject to the adoption of ASU 2016-13 on January 1, 2020 and continue to be reported under ASC 320, Investments – Debt and EquitySecurities.
As of March 31, 2020, interest receivables reported in “Other assets” totaled $13 million, and no amounts were reversed from investment revenue for available-for-sale securities.
Fair value and unrealized losses on available-for-sale securities by type and length of time in a continuous unrealized loss position without an allowance for credit losses were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less Than 12 Months | | | | 12 Months or Longer | | | | Total | | |
(dollars in millions) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | | | | | | | | | | | |
March 31, 2020 | | | | | | | | | | | | |
| | | | | | | | | | | | |
Obligations of states, municipalities, and political subdivisions | | $ | 20 | | | $ | — | | | $ | — | | | $ | — | | | $ | 20 | | | $ | — | |
Commercial paper | | 45 | | | — | | | — | | | — | | | 45 | | | — | |
Non-U.S. government and government sponsored entities | | 17 | | | (1) | | | — | | | — | | | 17 | | | (1) | |
Corporate debt | | 434 | | | (31) | | | 3 | | | — | | | 437 | | | (31) | |
Mortgage-backed, asset-backed, and collateralized: | | | | | | | | | | | | |
RMBS | | 53 | | | (3) | | | — | | | — | | | 53 | | | (3) | |
CMBS | | 31 | | | (2) | | | 3 | | | — | | | 34 | | | (2) | |
CDO/ABS | | 57 | | | (6) | | | — | | | — | | | 57 | | | (6) | |
Total | | $ | 657 | | | $ | (43) | | | $ | 6 | | | $ | — | | | $ | 663 | | | $ | (43) | |
| | | | | | | | | | | | |
December 31, 2019* | | | | | | | | | | | | |
U.S. government and government sponsored entities | | $ | — | | | $ | — | | | $ | 3 | | | $ | — | | | $ | 3 | | | $ | — | |
Obligations of states, municipalities, and political subdivisions | | 29 | | | (1) | | | 4 | | | — | | | 33 | | | (1) | |
Commercial paper | | 76 | | | — | | | — | | | | — | | | 76 | | | — | |
Non-U.S. government and government sponsored entities | | 19 | | | — | | | 14 | | | — | | | 33 | | | — | |
Corporate debt | | 63 | | | (1) | | | 13 | | | — | | | 76 | | | (1) | |
Mortgage-backed, asset-backed, and collateralized: | | | | | | | | | | | | |
RMBS | | 45 | | | — | | | — | | | — | | | 45 | | | — | |
CMBS | | 15 | | | — | | | 7 | | | — | | | 22 | | | — | |
CDO/ABS | | 14 | | | — | | | — | | | — | | | 14 | | | — | |
Total | | $ | 261 | | | $ | (2) | | | $ | 41 | | | $ | — | | | $ | 302 | | | $ | (2) | |
* The balances reported as of December 31, 2019 are not subject to the adoption of ASU 2016-13 on January 1, 2020 and continue to be reported under ASC 320, Investments – Debt and EquitySecurities.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Less Than 12 Months | | 12 Months or Longer | | Total |
(dollars in millions) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | | | | | | | | | | | |
March 31, 2019 | | |
| | |
| | |
| | |
| | |
| | |
|
U.S. government and government sponsored entities | | $ | — |
| | $ | — |
| | $ | 17 |
| | $ | — |
| | $ | 17 |
| | $ | — |
|
Obligations of states, municipalities, and political subdivisions | | 5 |
| | — |
| | 38 |
| | — |
| | 43 |
| | — |
|
Non-U.S. government and government sponsored entities | | 1 |
| | — |
| | 45 |
| | — |
| | 46 |
| | — |
|
Corporate debt | | 63 |
| | (1 | ) | | 416 |
| | (9 | ) | | 479 |
| | (10 | ) |
Mortgage-backed, asset-backed, and collateralized: | | | | | | | | | | | | |
RMBS | | 10 |
| | — |
| | 63 |
| | (1 | ) | | 73 |
| | (1 | ) |
CMBS | | 3 |
| | — |
| | 42 |
| | (1 | ) | | 45 |
| | (1 | ) |
CDO/ABS | | 3 |
| | — |
| | 30 |
| | — |
| | 33 |
| | — |
|
Total | | $ | 85 |
| | $ | (1 | ) | | $ | 651 |
| | $ | (11 | ) | | $ | 736 |
| | $ | (12 | ) |
| | | | | | | | | | | | |
December 31, 2018 | | |
| | |
| | |
| | |
| | |
| | |
|
U.S. government and government sponsored entities | | $ | 3 |
| | $ | — |
| | $ | 16 |
| | $ | — |
| | $ | 19 |
| | $ | — |
|
Obligations of states, municipalities, and political subdivisions | | 10 |
| | — |
| | 57 |
| | (1 | ) | | 67 |
| | (1 | ) |
Non-U.S. government and government sponsored entities | | 19 |
| | (1 | ) | | 97 |
| | (1 | ) | | 116 |
| | (2 | ) |
Corporate debt | | 377 |
| | (14 | ) | | 448 |
| | (18 | ) | | 825 |
| | (32 | ) |
Mortgage-backed, asset-backed, and collateralized: | | | | | | | | | | | | |
RMBS | | 23 |
| | — |
| | 78 |
| | (2 | ) | | 101 |
| | (2 | ) |
CMBS | | 10 |
| | — |
| | 54 |
| | (1 | ) | | 64 |
| | (1 | ) |
CDO/ABS | | 18 |
| | — |
| | 33 |
| | (1 | ) | | 51 |
| | (1 | ) |
Total | | $ | 460 |
| | $ | (15 | ) | | $ | 783 |
| | $ | (24 | ) | | $ | 1,243 |
| | $ | (39 | ) |
On a lot basis, we had 1,031865 and 1,767398 investment securities in an unrealized loss position at March 31, 20192020 and December 31, 2018,2019, 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, 2019, other-than-temporary2020, there were no credit impairments on investment securities that we intend to sell were immaterial.sell. We do not have plans to sell any of the remaining investment securities with unrealized losses as of March 31, 2019,2020, 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 credit impairments. During the three months ended March 31, 2019 and 2018,2020, there were no credit impairments related to our investment securities. Therefore, there were no material additions or reductions in the allowance for credit losses (impairments recognized or reversed in earnings) on credit impaired available-for-sale securities during the three months ended March 31, 2020.
Prior to the adoption of ASU 2016-13, other-than-temporary impairment credit losses, primarily on corporate debt, in investment revenues were immaterial.
immaterial during the three months ended March 31, 2019. There were no material additions or reductions in the cumulative amount of credit losses (recognized in earnings) on other-than-temporarily impaired available-for-sale securities during the three months ended March 31, 2019 and 2018.2019.
The proceeds of available-for-sale securities sold or redeemed during the three months ended March 31, 2020 and 2019 totaled $58 million and March 31, 2018 were $29 million, and $71 million, respectively. The net realized gains and losses were immaterial during the three months ended March 31, 20192020 and 2018.2019.
Contractual maturities of fixed-maturity available-for-sale securities at March 31, 20192020 were as follows:
| | | | | | | | | | | | | | |
(dollars in millions) | | Fair Value | | Amortized Cost |
| | | | |
Fixed maturities, excluding mortgage-backed, asset-backed, and collateralized securities: | | | | |
Due in 1 year or less | | $ | 190 | | | $ | 190 | |
Due after 1 year through 5 years | | 550 | | | 551 | |
Due after 5 years through 10 years | | 473 | | | 474 | |
Due after 10 years | | 157 | | | 157 | |
Mortgage-backed, asset-backed, and collateralized securities | | 362 | | | 363 | |
Total | | $ | 1,732 | | | $ | 1,735 | |
|
| | | | | | | | |
(dollars in millions) | | Fair Value | | Amortized Cost |
| | | | |
Fixed maturities, excluding mortgage-backed, asset-backed, and collateralized securities: | | |
| | |
|
Due in 1 year or less | | $ | 207 |
| | $ | 208 |
|
Due after 1 year through 5 years | | 552 |
| | 549 |
|
Due after 5 years through 10 years | | 421 |
| | 417 |
|
Due after 10 years | | 187 |
| | 188 |
|
Mortgage-backed, asset-backed, and collateralized securities | | 290 |
| | 290 |
|
Total | | $ | 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 $509$605 million and $515$633 million at March 31, 20192020 and December 31, 2018,2019, respectively.
OTHER SECURITIES
The fair value of other securities by type was as follows:
| | | | | | | | | | | | | | |
| | | | |
(dollars in millions) | | March 31, 2020 | | December 31, 2019 |
| | | | |
Fixed maturity other securities: | | | | |
Bonds | | | | |
| | | | |
| | | | |
| | | | |
Non-U.S. government and government sponsored entities | | $ | 1 | | | $ | 1 | |
Corporate debt | | 18 | | | 24 | |
Mortgage-backed, asset-backed, and collateralized bonds | | 14 | | | 15 | |
Total bonds | | 33 | | | 40 | |
Preferred stock * | | 15 | | | 19 | |
Common stock * | | 19 | | | 26 | |
Other long-term investments | | 1 | | | 1 | |
Total | | $ | 68 | | | $ | 86 | |
* We employ an income equity strategy targeting investments in stocks with strong current dividend yields. Stocks included have a history of stable or increasing dividend payments.
|
| | | | | | | | |
| | | | |
(dollars in millions) | | March 31, 2019 | | December 31, 2018 |
| | | | |
Fixed maturity other securities: | | |
| | |
|
Bonds | | |
| | |
|
Non-U.S. government and government sponsored entities | | $ | 1 |
| | $ | 1 |
|
Corporate debt | | 38 |
| | 43 |
|
Mortgage-backed, asset-backed, and collateralized bonds | | 2 |
| | 2 |
|
Total bonds | | 41 |
| | 46 |
|
Preferred stock (a) | | 20 |
| | 19 |
|
Common stock (a) | | 24 |
| | 21 |
|
Other long-term investments | | 1 |
| | 1 |
|
Total | | $ | 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. |
We recognized $4 million in unrealized gains and $2 million inNet unrealized losses on other securities held were $13 million for the three months ended March 31, 2019 and 2018, respectively.2020. Net unrealized gains on other securities held were $4 million for the three months ended March 31, 2019. We report these net unrealized gains and losses in investment revenues.revenue.
Net realized gains and losses on other securities sold or redeemed are included in investment revenue and were immaterial for the three months ended March 31, 20192020 and 2018.2019. We report these net gains and losses in investment revenues.revenue.
Other securities include equity securities and those securities for which the fair value option was elected.
Principal maturities of long-term debt (excluding projected repayments on securitizations and revolving conduit facilities by period) by type of debt at March 31, 20192020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Senior Debt | | | | | | | | |
(dollars in millions) | | Securitizations | | Revolving Conduit Facilities | | Unsecured Notes (a) | | Junior Subordinated Debt (a) | | Total |
| | | | | | | | | | |
Interest rates (b) | | 1.50%-6.94% | | 1.51%-3.24% | | 5.38%-8.25% | | 3.58 | % | | |
| | | | | | | | | | |
Remainder of 2020 | | $ | — | | | $ | — | | | $ | 1,000 | | | $ | — | | | $ | 1,000 | |
2021 | | — | | | — | | | 646 | | | — | | | 646 | |
2022 | | — | | | — | | | 1,000 | | | — | | | 1,000 | |
2023 | | — | | | — | | | 1,175 | | | — | | | 1,175 | |
2024 | | — | | | — | | | 1,300 | | | — | | | 1,300 | |
2025-2067 | | — | | | — | | | 4,399 | | | 350 | | | 4,749 | |
Securitizations (c) | | 7,396 | | | — | | | — | | | — | | | 7,396 | |
Revolving conduit facilities (c) | | — | | | 3,500 | | | — | | | — | | | 3,500 | |
Total principal maturities | | $ | 7,396 | | | $ | 3,500 | | | $ | 9,520 | | | $ | 350 | | | $ | 20,766 | |
| | | | | | | | | | |
Total carrying amount | | $ | 7,364 | | | $ | 3,500 | | | $ | 9,407 | | | $ | 172 | | | $ | 20,443 | |
Debt issuance costs (d) | | (27) | | | — | | | (81) | | | — | | | (108) | |
(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, 2020.
(c) Securitizations and borrowings under revolving conduit facilities 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, 2020, an aggregate of $3.5 billion was drawn under our revolving conduit facilities. See Note 9 for further information on our long-term debt associated with securitizations and revolving conduit facilities.
(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$31 million at March 31, 2020 and are reported in “Other assets.”
|
| | | | | | | | | | | | | | | | |
| | Senior Debt | | | | |
(dollars in millions) | | Securitizations | | Unsecured Notes (a) | | Junior Subordinated Debt (a) | | Total |
| | | | | | | | |
Interest rates (b) | | 2.16% - 6.94% |
| | 5.63% - 8.25% |
| | 4.54 | % | | |
| | | | | | | | |
Remainder of 2019 | | — |
| | 299 |
| | — |
| | 299 |
|
2020 | | — |
| | 1,000 |
| | — |
| | 1,000 |
|
2021 | | — |
| | 646 |
| | — |
| | 646 |
|
2022 | | — |
| | 1,000 |
| | — |
| | 1,000 |
|
2023 | | — |
| | 1,175 |
| | — |
| | 1,175 |
|
2024-2067 | | — |
| | 3,849 |
| | 350 |
| | 4,199 |
|
Securitizations (c) | | 8,155 |
| | — |
| | — |
| | 8,155 |
|
Total principal maturities | | $ | 8,155 |
| | $ | 7,969 |
| | $ | 350 |
| | $ | 16,474 |
|
| | | | | | | | |
Total carrying amount | | $ | 8,125 |
| | $ | 7,820 |
| | $ | 172 |
| | $ | 16,117 |
|
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, 2019. The interest rate on the remaining principal balance of the Junior Subordinated Debenture consists of a variable floating rate (determined quarterly) equal to 3-month LIBOR plus 1.75%, or 4.54% as of March 31, 2019. |
| |
(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, 2019, there were no amounts drawn under our revolving conduit facilities. See Note 8 for further information on our long-term debt associated with securitizations and revolving conduit facilities. |
| |
(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$25 million at March 31, 2019 and are reported in “Other assets”.
|
SFC’S 6.125% SENIOR NOTES DUE 2024 OFFERING
On February 22, 2019, SFC issued a total of $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 an 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.
|
|
8.9. Variable Interest Entities |
CONSOLIDATED VIES
We have transferred finance receivables to VIEs for asset-backed financing transactions, including securitization and revolving conduit facilities, and include the assets and liabilities in our consolidated financial statements because we are the primary beneficiary of each VIE. We account for these asset-backed debt obligations as secured borrowings.
See Note 3 and Note 1311 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20182019 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, 2020 | | December 31, 2019 |
| | | | |
Assets | | | | |
Cash and cash equivalents | | $ | 2 | | | $ | 4 | |
Finance receivables - Personal loans | | 12,083 | | | 8,428 | |
Allowance for finance receivable losses | | 1,392 | | | 340 | |
Restricted cash and restricted cash equivalents | | 567 | | | 400 | |
Other assets | | 31 | | | 29 | |
| | | | |
Liabilities | | | | |
Long-term debt | | $ | 10,864 | | | $ | 7,643 | |
Other liabilities | | 17 | | | 15 | |
|
| | | | | | | | |
(dollars in millions) | | March 31, 2019 | | December 31, 2018 |
| | | | |
Assets | | |
| | |
|
Cash and cash equivalents | | $ | 3 |
| | $ | 2 |
|
Finance receivables - Personal loans | | 9,128 |
| | 8,480 |
|
Allowance for finance receivable losses | | 430 |
| | 444 |
|
Restricted cash and restricted cash equivalents | | 558 |
| | 479 |
|
Other assets | | 26 |
| | 26 |
|
| | | | |
Liabilities | | |
| | |
|
Long-term debt | | $ | 8,125 |
| | $ | 7,510 |
|
Other liabilities | | 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 $81 million for the three months ended March 31, 2020, compared to $82 million for the three months ended March 31, 2019, compared to $87 million for the three months ended March 31, 2018.2019.
SECURITIZED BORROWINGS
Each of our securitizations contains a revolving period ranging from one to fiveseven years during which no principal payments are required to be made on the related asset-backed 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, 2019 were $8.1 billion.
REVOLVING CONDUIT FACILITIES
We had access to 1214 conduit facilities with a total maximum borrowing capacity of $6.2$7.1 billion as of March 31, 2019.2020. Our conduit facilities’ revolving period end ranges from approximately one to three years. Principal balances of outstanding loans, if any, are due and payable in full ranging from approximately three to eightten years as of March 31, 2019.2020. Amounts drawn on these facilities are collateralized by our personal loans.
At March 31, 2019, no amounts were2020, an aggregate of $3.5 billion was drawn under these facilities.
facilities and the remaining borrowing capacity was $3.6 billion.
Changes in the reserve for unpaid claims and loss adjustment expenses (not considering reinsurance recoverable):
| | | | | | | | | | | | | | |
| | At or for the | | |
| | Three Months Ended March 31, | | |
(dollars in millions) | | 2020 | | 2019 |
| | | | |
Balance at beginning of period | | $ | 117 | | | $ | 117 | |
Less reinsurance recoverables | | (4) | | | (4) | |
| | | | |
Net balance at beginning of period | | 113 | | | 113 | |
| | | | |
Additions for losses and loss adjustment expenses incurred to: | | | | |
Current year | | 77 | | | 54 | |
Prior years * | | (9) | | | (7) | |
Total | | 68 | | | 47 | |
Reductions for losses and loss adjustment expenses paid related to: | | | | |
Current year | | (17) | | | (17) | |
Prior years | | (30) | | | (33) | |
Total | | (47) | | | (50) | |
Foreign currency translation adjustment | | (1) | | | — | |
Net balance at end of period | | 133 | | | 110 | |
Plus reinsurance recoverables | | 3 | | | 4 | |
| | | | |
Balance at end of period | | $ | 136 | | | $ | 114 | |
* Reflects (i) a redundancy in the prior years’ net reserves of $9 million at March 31, 2020, primarily due to favorable development of credit life, term life, and credit disability claims during the year, and (ii) a redundancy in the prior years’ net reserves of $7 million at March 31, 2019, primarily due to a favorable development of credit life, disability, and unemployment claims during the year.
|
| | | | | | | | |
| | At or for the Three Months Ended March 31, |
(dollars in millions) | | 2019 | | 2018 |
| | | | |
Balance at beginning of period | | $ | 117 |
| | $ | 154 |
|
Less reinsurance recoverables | | (4 | ) | | (23 | ) |
Net balance at beginning of period | | 113 |
| | 131 |
|
Additions for losses and loss adjustment expenses incurred to: | | | | |
Current year | | 54 |
| | 50 |
|
Prior years * | | (7 | ) | | (4 | ) |
Total | | 47 |
| | 46 |
|
Reductions for losses and loss adjustment expenses paid related to: | | | | |
Current year | | (17 | ) | | (15 | ) |
Prior years | | (33 | ) | | (35 | ) |
Total | | (50 | ) | | (50 | ) |
Net balance at end of period | | 110 |
| | 127 |
|
Plus reinsurance recoverables | | 4 |
| | 23 |
|
Balance at end of period | | $ | 114 |
| | $ | 150 |
|
| | |
* | Reflects (i) a redundancy in the prior years’ net reserves of $7 million at March 31, 2019 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, 2018, primarily due to a favorable development of credit disability and unemployment claims during the year. |
| | |
11. Capital Stock and Earnings Per Share (OMH Only) |
CAPITAL STOCK
OMH has 2 classes of authorized capital stock: preferred stock and common stock. SFC has 2 classes of authorized capital stock: special stock and common stock. OMH and SFC may issue preferred stock and special stock, respectively, in one or more series. The OMH Board of Directors and the SFC Board of Directors determine the dividend, liquidation, redemption, conversion, voting, and other rights prior to issuance.
During the three months ended March 31, 2020, the OMH Board of Directors approved a stock repurchase program, which allowed us to repurchase up to $200 million of OMH’s outstanding common stock with no stated expiration. On March 20, 2020, OMH temporarily suspended its stock repurchase program. OMH retains the right to reinstate the stock repurchase program as circumstances change.
During the three months ended March 31, 2020, prior to the suspension of the program, OMH repurchased and retired 2,031,698 shares of its common stock with an average price paid per share of $22.30, for an aggregate total of approximately $45 million, including commissions and fees. The aggregate purchase price in excess of the par value of the repurchased OMH common stock is recorded as a reduction to additional paid-in-capital. To provide funding for the OMH stock repurchase and retirement program, the SFC Board of Directors authorized multiple dividend payments in the aggregate amount of $45 million.
Changes in OMH shares of common stock issued and outstanding were as follows:
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | |
| | 2020 | | 2019 | | |
| | | | | | |
Balance at beginning of period | | 136,101,156 | | | 135,832,278 | | | |
Common shares issued | | 240,249 | | | 250,185 | | | |
Common shares retired | | (2,031,698) | | | — | | | |
Balance at end of period | | 134,309,707 | | | 136,082,463 | | | |
EARNINGS PER SHARE (OMH ONLY)
The computation of earnings per share was as follows:
| | | | | | | | | | | | | | | | | | | | |
(dollars in millions, except per share data) | | | | | | Three Months Ended March 31, | | | | |
| | | | | | 2020 | | 2019 | | |
| | | | | | | | | | |
Numerator (basic and diluted): | | | | | | | | | | |
Net income | | | | | | $ | 32 | | | $ | 152 | | | |
Denominator: | | | | | | | | | | |
Weighted average number of shares outstanding (basic) | | | | | | 135,909,100 | | | 136,001,996 | | | |
Effect of dilutive securities * | | | | | | 229,577 | | | 189,287 | | | |
Weighted average number of shares outstanding (diluted) | | | | | | 136,138,677 | | | 136,191,283 | | | |
Earnings per share: | | | | | | | | | | |
Basic | | | | | | $ | 0.24 | | | $ | 1.12 | | | |
Diluted | | | | | | $ | 0.24 | | | $ | 1.11 | | | |
|
| | | | | | | | |
| | Three Months Ended March 31, |
(dollars in millions, except per share data) | | 2019 | | 2018 |
| | | | |
Numerator (basic and diluted): | | |
| | |
|
Net income attributable to OneMain Holdings, Inc. | | $ | 152 |
| | $ | 124 |
|
Denominator: | | |
| | |
|
Weighted average number of shares outstanding (basic) | | 136,001,996 |
|
| 135,596,279 |
|
Effect of dilutive securities * | | 189,287 |
|
| 301,017 |
|
Weighted average number of shares outstanding (diluted) | | 136,191,283 |
|
| 135,897,296 |
|
Earnings per share: | | |
| | |
|
Basic | | $ | 1.12 |
| | $ | 0.91 |
|
Diluted | | $ | 1.11 |
| | $ | 0.91 |
|
* We have excluded weighted-average unvested restricted stock units totaling 214,752 and 458,594 for the following shares in the diluted earnings per share calculation for three months ended March 31, 2020 and 2019, and 2018 becauserespectively, from the fully-diluted earnings per share calculations as these shares would be anti-dilutive, which could impact the earnings per share calculation in the future:future. |
| | | | | | |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
| | | | |
Performance-based shares | | 127,183 |
| | 97,161 |
|
Service-based shares | | 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 shares outstanding plus the effect of potentially dilutive shares outstanding during the period using the treasury stock method. The potentially dilutive shares represent outstanding unvested RSUs and RSAs.
34
|
| |
11.12. 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) |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Three Months Ended March 31, 2020 | | | | | | | | | | |
Balance at beginning of period | | $ | 41 | | | $ | 3 | | | $ | — | | | | | $ | 44 | |
Other comprehensive (loss) before reclassifications | | (42) | | | — | | | (8) | | | | | (50) | |
| | | | | | | | | | |
Balance at end of period | | $ | (1) | | | $ | 3 | | | $ | (8) | | | | | $ | (6) | |
| | | | | | | | | | |
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) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
* There were 0 amounts related to available-for-sale debt securities for which an allowance for credit losses was recorded during the three months ended March 31, 2020.
|
| | | | | | | | | | | | | | | | |
(dollars in millions) | | 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 |
|
Other comprehensive loss before reclassifications | | (20 | ) | | — |
| | (3 | ) | | (23 | ) |
Balance at end of period | | $ | (16 | ) | | $ | 4 |
| | $ | — |
| | $ | (12 | ) |
Reclassification adjustments from accumulated other comprehensive income (loss) to the applicable line item on our condensed consolidated statements of operations were immaterial for the three months ended March 31, 20192020 and March 31, 2018.2019.
We had a net deferred tax asset of $109$429 million and $129$104 million at March 31, 20192020 and December 31, 2018,2019, respectively. The increase in our net deferred tax asset of $325 million was primarily due to the tax effect of the increase in the allowance for finance receivable losses from both the adoption of ASU 2016-13 and the current period activity. See Note 5 for further information on the increase in allowance. The increase was partly offset by favorable mark-to-market valuation of our receivables.
We follow the guidance of ASC 740, Income Taxes, for interim reporting of income taxes under which we calculate an estimated annual effective tax rate (“AETR”) and apply the AETR to our year-to-date income (loss) before income taxes. In addition, we recognize any discrete items as they occur. Our estimates may need to be further adjusted throughout the year as the effects of COVID-19 plays out in the economic and financial markets, and as a result our AETR may significantly change in the remaining period of 2020.
The effective tax rate for the three months ended March 31, 20192020 was 24.8%24.3%, compared to 26.2%24.8% for the same period in 2018.2019. The effective tax rates for the three months ended March 31, 20192020 and 20182019 differed from the federal statutory rate of 21% primarily due to the effect of state income taxes.
We are currently under examination of our U.S. federal tax returnreturns for the years 2014 to 2016 by the IRS. We are also under examination ofby various states for the years 2011 to 2017.2018. Management believes it has adequately provided for taxes for such years.
Our gross unrecognized tax benefits, including related interest and penalties, totaled $14$12 million at March 31, 20192020 and $17 million at December 31, 2018.2019. 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.
35
|
|
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
atOn March 27, 2020, President Trump signed into law the present valueCARES Act. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of leaseemployer side social security payments, overnet operating loss carryback periods, and technical corrections to tax depreciation methods for qualified improvement property. We continue to examine the lease term. Sinceimpacts the CARES Act may have on our operating leasesbusiness. We do not provide an implicit rate, we utilizeexpect the best available informationCARES Act to determinehave a material impact on our incremental borrowing rate which is usedtax expense. We will continue to calculate the present value of lease payments. The right-of-use asset also includes any prepaid fixed lease payments and excludes lease incentives. Optionsmonitor legislative developments related 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.COVID-19.
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 | %14. Contingencies |
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 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 consolidated financial statements as a whole.
Federal Securities Class Action
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 OneMain 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 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 settlement agreement provides for the dismissal of the action with prejudice. The amount incurred by the Company is immaterial and has been properly accrued, including the related insurance proceeds, as of March 31, 2019. The settlement contains no admission of liability by the Company and the other defendants.
36
During the three months ended March 31, 2019 and 2018, the components of net periodic benefit cost with respect to our defined benefit pension plans were immaterial. We do not currently fund post-retirement benefits.
At March 31, 2019, our two segments included2020, Consumer and Insurance and Acquisitions and Servicing.(“C&I”) is our only reportable segment. The remaining components (which we refer to as “Other”) consist of (i) our liquidating SpringCastle Portfolio servicing activity and (ii) our non-originating legacy operations, which primarily include our liquidating real estate loans and our liquidating retail sales finance portfolios.loans.
Our segmentThe accounting policies of the C&I segment are the same as those disclosed in Note 3 and Note 2219 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20182019 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
our segments,C&I and Other, as well as reconciliations to the 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) | | (dollars in millions) | | Consumer and Insurance | | | Other | | Segment to GAAP Adjustment | | Consolidated Total |
| At or for the Three Months Ended March 31, 2018 | | | | |
| | |
| | |
| | |
| |
At or for the Three Months Ended March 31, 2020 | | At or for the Three Months Ended March 31, 2020 | | | | | | |
Interest income | | $ | 873 |
| | $ | — |
| | $ | 5 |
| | $ | (16 | ) | | $ | 862 |
| Interest income | | $ | 1,101 | | | | $ | 2 | | | $ | 3 | | | $ | 1,106 | |
Interest expense | | 194 |
| | — |
| | 5 |
| | 1 |
| | 200 |
| Interest expense | | 249 | | | | 1 | | | 5 | | | 255 | |
Provision for finance receivable losses | | 258 |
| | — |
| | (2 | ) | | (2 | ) | | 254 |
| Provision for finance receivable losses | | 530 | | | | — | | | 1 | | | 531 | |
Net interest income (loss) after provision for finance receivable losses | | 421 |
| | — |
| | 2 |
| | (15 | ) | | 408 |
| |
Net interest income after provision for finance receivable losses | | Net interest income after provision for finance receivable losses | | 322 | | | | 1 | | | (3) | | | 320 | |
Other revenues | | 106 |
| | 9 |
| | (2 | ) | | 24 |
| | 137 |
| Other revenues | | 136 | | | | 4 | | | 1 | | | 141 | |
Other expenses | | 353 |
| | 8 |
| | 10 |
| | 6 |
| | 377 |
| Other expenses | | 407 | | | | 6 | | | 5 | | | 418 | |
Income (loss) before income tax expense (benefit) | | $ | 174 |
| | $ | 1 |
| | $ | (10 | ) | | $ | 3 |
| | $ | 168 |
| Income (loss) before income tax expense (benefit) | | $ | 51 | | | | $ | (1) | | | $ | (7) | | | $ | 43 | |
| | | | | | | | | | | | | | | | | | | |
Assets | | $ | 18,033 |
| | $ | — |
| | $ | 255 |
| | $ | 2,179 |
| | $ | 20,467 |
| Assets | | $ | 22,570 | | | | $ | 72 | | | $ | 2,051 | | | $ | 24,693 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
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 | | | | | | | 8 | | | (6) | | | 148 | |
Other expenses | | 363 | | | | | | | 12 | | | 5 | | | 380 | |
Income (loss) before income tax expense (benefit) | | $ | 232 | | | | | | | $ | (3) | | | $ | (27) | | | $ | 202 | |
| | | | | | | | | | | | |
Assets | | $ | 19,197 | | | | | | | $ | 95 | | | $ | 2,066 | | | $ | 21,358 | |
*Other revenues in Other includes the gain on the February 2019 Real Estate Loan Sale as well as the impairment adjustments on the remaining loans in held for sale in 2019.
|
| |
16. Fair Value Measurements |
The accounting policies of our Fair Value Measurements are the same as those disclosed in Note 3 and Note 2320 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20182019 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 |
(dollars in millions) | | Level 1 | | Level 2 | | Level 3 | | | | |
| | | | | | | | | | |
March 31, 2020 | | | | | | | | | | |
Assets | | | | | | | | | | |
Cash and cash equivalents | | $ | 4,185 | | | $ | 18 | | | $ | — | | | $ | 4,203 | | | $ | 4,203 | |
Investment securities | | 35 | | | 1,763 | | | 2 | | | 1,800 | | | 1,800 | |
Net finance receivables, less allowance for finance receivable losses | | — | | | — | | | 18,369 | | | 18,369 | | | 16,087 | |
| | | | | | | | | | |
Restricted cash and restricted cash equivalents | | 575 | | | — | | | — | | | 575 | | | 575 | |
Other assets * | | — | | | — | | | 70 | | | 70 | | | 69 | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Long-term debt | | $ | — | | | $ | 19,980 | | | $ | — | | | $ | 19,980 | | | $ | 20,443 | |
| | | | | | | | | | |
| | | | | | | | | | |
December 31, 2019 | | | | | | | | | | |
Assets | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,159 | | | $ | 68 | | | $ | — | | | $ | 1,227 | | | $ | 1,227 | |
Investment securities | | 45 | | | 1,835 | | | 4 | | | 1,884 | | | 1,884 | |
Net finance receivables, less allowance for finance receivable losses | | — | | | — | | | 19,319 | | | 19,319 | | | 17,560 | |
| | | | | | | | | | |
Restricted cash and restricted cash equivalents | | 405 | | | — | | | — | | | 405 | | | 405 | |
Other assets * | | — | | | — | | | 84 | | | 84 | | | 74 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Long-term debt | | $ | — | | | $ | 18,509 | | | $ | — | | | $ | 18,509 | | | $ | 17,212 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements Using | | Total Fair Value | | Total Carrying Value |
(dollars in millions) | | Level 1 | | Level 2 | | Level 3 | | |
| | | | | | | | | | |
March 31, 2019 | | | | | | | | | | |
Assets | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,666 |
| | $ | 43 |
| | $ | — |
| | $ | 1,709 |
| | $ | 1,709 |
|
Investment securities | | 37 |
| | 1,702 |
| | 4 |
| | 1,743 |
| | 1,743 |
|
Net finance receivables, less allowance for finance receivable losses | | — |
| | — |
| | 16,872 |
| | 16,872 |
| | 15,403 |
|
Finance receivables held for sale | | — |
| | — |
| | 80 |
| | 80 |
| | 78 |
|
Restricted cash and restricted cash equivalents | | 575 |
| | — |
| | — |
| | 575 |
| | 575 |
|
Other assets * | | — |
| | — |
| | 13 |
| | 13 |
| | 13 |
|
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Long-term debt | | $ | — |
| | $ | 16,681 |
| | $ | — |
| | $ | 16,681 |
| | $ | 16,117 |
|
| | | | | | | | | | |
December 31, 2018 | | | | | | | | | | |
Assets | | | | | | | | | | |
Cash and cash equivalents | | $ | 618 |
| | $ | 61 |
| | $ | — |
| | $ | 679 |
| | $ | 679 |
|
Investment securities | | 34 |
| | 1,655 |
| | 5 |
| | 1,694 |
| | 1,694 |
|
Net finance receivables, less allowance for finance receivable losses | | — |
| | — |
| | 16,734 |
| | 16,734 |
| | 15,433 |
|
Finance receivables held for sale | | — |
| | — |
| | 103 |
| | 103 |
| | 103 |
|
Restricted cash and restricted cash equivalents | | 499 |
| | — |
| | — |
| | 499 |
| | 499 |
|
Other assets * | | — |
| | 1 |
| | 15 |
| | 16 |
| | 16 |
|
| | | | | | | | | | |
Liabilities | | | | | | | | |
| | |
Long-term debt | | $ | — |
| | $ | 15,041 |
| | $ | — |
| | $ | 15,041 |
| | $ | 15,178 |
|
| |
* | Other assets at March 31, 2019 and December 31, 2018 include miscellaneous receivables related to our liquidating loan portfolios. |
*Other assets at March 31, 2020 and December 31, 2019 includes finance receivables held for sale and 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 | | (dollars in millions) | | Level 1 | | Level 2 | | Level 3 | | | Total Carried At Fair Value |
| | | | | | | | | | | | | | | | | |
March 31, 2019 | | |
| | |
| | |
| | |
| |
March 31, 2020 | | March 31, 2020 | | | | | | | | |
Assets | | |
| | |
| | |
| | |
| Assets | | | | | | | | |
Cash equivalents in mutual funds | | $ | 1,033 |
| | $ | — |
| | $ | — |
| | $ | 1,033 |
| Cash equivalents in mutual funds | | $ | 3,951 | | | $ | — | | | $ | — | | | $ | 3,951 | |
Cash equivalents in securities | | — |
| | 43 |
| | — |
| | 43 |
| Cash equivalents in securities | | — | | | 18 | | | — | | | 18 | |
Investment securities: | | |
| | |
| | |
| | |
| Investment securities: | | | | | | | | | |
Available-for-sale securities | | |
| | |
| | |
| | |
| Available-for-sale securities | | | | | | | | | |
| U.S. government and government sponsored entities | | — |
| | 17 |
| | — |
| | 17 |
| U.S. government and government sponsored entities | | — | | | 11 | | | — | | | 11 | |
Obligations of states, municipalities, and political subdivisions | | — |
| | 87 |
| | — |
| | 87 |
| Obligations of states, municipalities, and political subdivisions | | — | | | 89 | | | — | | | 89 | |
Certificates of deposit and commercial paper | | — |
| | 59 |
| | — |
| | 59 |
| |
Commercial paper | | Commercial paper | | — | | | 76 | | | — | | | 76 | |
Non-U.S. government and government sponsored entities | | — |
| | 145 |
| | — |
| | 145 |
| Non-U.S. government and government sponsored entities | | — | | | 139 | | | — | | | 139 | |
Corporate debt | | — |
| | 1,057 |
| | 2 |
| | 1,059 |
| Corporate debt | | 4 | | | 1,051 | | | — | | | 1,055 | |
RMBS | | — |
| | 141 |
| | — |
| | 141 |
| RMBS | | — | | | 217 | | | — | | | 217 | |
CMBS | | — |
| | 66 |
| | — |
| | 66 |
| CMBS | | — | | | 63 | | | — | | | 63 | |
CDO/ABS | | — |
| | 83 |
| | — |
| | 83 |
| CDO/ABS | | — | | | 81 | | | 1 | | | 82 | |
| Total available-for-sale securities | | — |
| | 1,655 |
| | 2 |
| | 1,657 |
| Total available-for-sale securities | | 4 | | | 1,727 | | | 1 | | | 1,732 | |
Other securities | | |
| | |
| | |
| |
|
| Other securities | | | | | | | |
Bonds: | | |
| | |
| | |
| |
|
| Bonds: | | | | | | | |
| Non-U.S. government and government sponsored entities | | — |
| | 1 |
| | — |
| | 1 |
| Non-U.S. government and government sponsored entities | | — | | | 1 | | | — | | | 1 | |
Corporate debt | | — |
| | 37 |
| | 1 |
| | 38 |
| Corporate debt | | — | | | 18 | | | — | | | 18 | |
RMBS | | — |
| | 1 |
| | — |
| | 1 |
| RMBS | | — | | | 1 | | | — | | | 1 | |
| CDO/ABS | | — |
| | 1 |
| | — |
| | 1 |
| CDO/ABS | | — | | | 13 | | | — | | | 13 | |
Total bonds | | — |
| | 40 |
| | 1 |
| | 41 |
| Total bonds | | — | | | 33 | | | — | | | 33 | |
Preferred stock | | 13 |
| | 7 |
| | — |
| | 20 |
| Preferred stock | | 12 | | | 3 | | | — | | | 15 | |
Common stock | | 24 |
| | — |
| | — |
| | 24 |
| Common stock | | 19 | | | — | | | — | | | 19 | |
Other long-term investments | | — |
| | — |
| | 1 |
| | 1 |
| Other long-term investments | | — | | | — | | | 1 | | | 1 | |
Total other securities | | 37 |
| | 47 |
| | 2 |
| | 86 |
| Total other securities | | 31 | | | 36 | | | 1 | | | 68 | |
Total investment securities | | 37 |
| | 1,702 |
| | 4 |
| | 1,743 |
| Total investment securities | | 35 | | | 1,763 | | | 2 | | | 1,800 | |
| Restricted cash in mutual funds | | 560 |
| | — |
| | — |
| | 560 |
| Restricted cash in mutual funds | | 573 | | | — | | | — | | | 573 | |
Total | | $ | 1,630 |
| | $ | 1,745 |
| | $ | 4 |
| | $ | 3,379 |
| Total | | $ | 4,559 | | | $ | 1,781 | | | $ | 2 | | | $ | 6,342 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements Using | | | | | | Total Carried At Fair Value |
(dollars in millions) | | Level 1 | | Level 2 | | Level 3 | | |
| | | | | | | | |
December 31, 2019 | | | | | | | | |
Assets | | | | | | | | |
Cash equivalents in mutual funds | | $ | 775 | | | $ | — | | | $ | — | | | $ | 775 | |
Cash equivalents in securities | | — | | | 68 | | | — | | | 68 | |
Investment securities: | | | | | | | | |
Available-for-sale securities | | | | | | | | |
| | | | | | | | |
U.S. government and government sponsored entities | | — | | | 11 | | | — | | | 11 | |
Obligations of states, municipalities, and political subdivisions | | — | | | 92 | | | — | | | 92 | |
Certificates of deposit and commercial paper | | — | | | 91 | | | — | | | 91 | |
Non-U.S. government and government sponsored entities | | — | | | 147 | | | — | | | 147 | |
Corporate debt | | 5 | | | 1,093 | | | — | | | 1,098 | |
RMBS | | — | | | 217 | | | — | | | 217 | |
CMBS | | — | | | 57 | | | — | | | 57 | |
CDO/ABS | | — | | | 85 | | | — | | | 85 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total available-for-sale securities | | 5 | | | 1,793 | | | — | | | 1,798 | |
Other securities | | | | | | | | | | | |
Bonds: | | | | | | | | | | | | |
Non-U.S. government and government sponsored entities | | — | | | 1 | | | — | | | 1 | |
Corporate debt | | — | | | 23 | | | 1 | | | 24 | |
RMBS | | — | | | 1 | | | — | | | 1 | |
| | | | | | | | |
CDO/ABS | | — | | | 12 | | | 2 | | | 14 | |
Total bonds | | — | | | 37 | | | 3 | | | 40 | |
Preferred stock | | 14 | | | 5 | | | — | | | 19 | |
Common stock | | 26 | | | — | | | — | | | 26 | |
Other long-term investments | | — | | | — | | | 1 | | | 1 | |
Total other securities | | 40 | | | 42 | | | 4 | | | 86 | |
Total investment securities | | 45 | | | 1,835 | | | 4 | | | 1,884 | |
Restricted cash in mutual funds | | 403 | | | — | | | — | | | 403 | |
Total | | $ | 1,223 | | | $ | 1,903 | | | $ | 4 | | | $ | 3,130 | |
|
| | | | | | | | | | | | | | | | |
| | 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, 20192020 and 2018the 2019 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.inputs.
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, 20192020 and 2018, respectively.2019.
FAIR VALUE MEASUREMENTS — VALUATION METHODOLOGIES AND ASSUMPTIONS
See Note 2320 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20182019 Annual Report on Form 10-K for information regarding our methods and assumptions used to estimate fair value.
40
|
| |
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 |
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 are 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, thatwhich speak only as of the date they were made. We do not undertake any obligation to update 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, 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”“projects,” and similar expressions or future or conditional verbs such as “would,” “should,” “could,” “may,” or “will,”“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:
•adverse changes in general economic conditions, including the interest rate environment and the financial markets;
•risks associated with the COVID-19 pandemic and the mitigation efforts by governments to the pandemic and related effects on us, our customers, and employees;
•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;
•a change in the proportion of secured loans may affect our personal loan receivables and portfolio yield;
•adverse changes in the rate at which we can collect or potentially sell our finance receivables portfolio;
•natural or accidental events such as earthquakes, hurricanes, tornadoes, fires, or floods affecting our customers, collateral, or our branches or other operating facilities;
•war, acts of terrorism, riots, civil disruption, pandemics, disruptions in the operation of our information systems, or other events disrupting business or commerce;
•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, or other events disrupting business or commerce;
•a 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 loss, theft or unauthorized disclosure of personally identifiable information, or “PII,” of our present or former customers;
•our credit risk scoring models may 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;
•increased competition, lack ofor changes in customer responsiveness to our distribution channels, an inability to make technological improvements, and the ability of our competitors to offer a more attractive range of personal loan products than we offer;
•changes in federal, state, or local laws, regulations, or regulatory policies and practices that adversely affect our ability to conduct business or the manner in which we currently 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 Tax Act and the CARES 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•our inability to successfully implement our growth strategy for our consumer lending business or successfully acquire portfolios of personal loans;
•declines in collateral values or increases in actual or projected delinquencies or net charge-offs;
•potential liability relating to finance receivables which we have sold or securitized or may sell or securitize in the future 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;litigation;
•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;litigation;
•our continued ability to access the capital markets or the sufficiency of ourand maintain adequate 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 ourOMH's 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;
•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;
•management estimates and assumptions, including estimates and assumptions about future events, may prove to be incorrect; and
any failure to achieve the SpringCastle Portfolio performance requirements, which could, among other things, cause us to lose our loan servicing rights over the SpringCastle Portfolio; and
•various risks relating to continued compliance with the Settlement Agreement with the U.S. Department of Justice.
We also direct readers to the other risks and uncertainties discussed in other documents we filedfile 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. You should specifically consider the factors identified in this report and in the documents we file with the SEC, including our 2019 Annual Report on Form 10-K, that could cause actual results to differ before making an investment decision to purchase our common stock securities and should not place undue reliance on any of our forward-looking statements.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 approximately 1,600over 1,500 branch offices in 44 states is staffed with expert personnel and is complemented by our online origination capabilities and centralized operations which allows us to reach customers located outside our branch network.and digital presence through online lending. Our digital platform provides current and prospective customers the option of obtainingapplying for 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, and other products.
In addition to our loan originations, and insurance and other product sales activities, we service loans owned by us and service loans owned by 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.
OUR PRODUCTS
Our product offerings include:
•Personal Loans — We offer personal loans through our branch network, centralized operations, and our website, www.omf.com, to customers who generally need timely access to cash. Our personal loans are non-revolving, with a fixed-rate, a fixed term of three to six years, and are secured by automobiles, other titled collateral, or are unsecured. At March 31, 2019,2020, we had approximately 2.32.40 million personal loans, of which 52% were secured by titled property, representing $16.1$18.3 billion of net finance receivables, compared to approximately 2.42.44 million personal loans, of which 52% were secured by titled property, totaling $16.2$18.4 billion at December 31, 2018.
2019.
•Insurance Products — We offer our customers 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. We offer GAP coverage as a waiver product or insurance. 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. Wewe continue to service or sub-service liquidating real estate loans and retail sales finance contracts. Effective September 30, 2018, our real estate loans were transferred from held for investment to 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.
loans.
OUR SEGMENTSSEGMENT
At March 31,Beginning in the fourth quarter of 2019, we had two operating segments:
Consumer and Insurance; and
Acquisitions and Servicing.
C&I is our only reportable segment. The remaining components (which we refer to as “Other”) consist of (i) our liquidating SpringCastle Portfolio servicing activity and (ii) our non-originating legacy operations, which primarily include our liquidating real estate loan portfolio and our liquidating retail sales finance portfolio.
loans. See Note 15 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information about our segments.
segment.
|
| |
Recent Developments and Outlook |
RECENT DEVELOPMENTS
Cash Dividends to ourOMH's Common Stockholders
On February 11, 2019, the Company announced an initial quarterly dividend of $0.25 per share and paid $34 million on March 15, 2019 to record 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.
Issuance of 6.125% Senior Notes Due 2024 and Redemptions of 5.25% Senior Notes due 2019 and 6.00% Senior Notes Due 2020
For information regarding such notes issuancethe quarterly dividends declared by OMH, see “Liquidity and redemptions, see Note 7 of the Notes to the Condensed Consolidated Financial Statements included in this report.
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, 2019 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 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. We further describe our key initiatives and strategies under “Recent Developments and Outlook”Capital Resources” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.
Stock Repurchase Program
During the quarter ended March 31, 2020, the OMH Board of Directors approved a stock repurchase program, which allowed us to repurchase up to $200 million of OMH’s outstanding common stock. See Note 11 of the Notes to the Condensed Consolidated Financial Statements and Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Part II - Item 7 included in this report for further information on our 2018 Annual Reportshares repurchased.
Appointment of Member of the SFC Board of Directors and Executive Vice President of SFC
On January 2, 2020, Adam L. Rosman was appointed to the SFC Board of Directors and as Executive Vice President. Mr. Rosman replaced John C. Anderson, who resigned as a member of SFC's board of directors and as Executive Vice President on Form 10-K.January 2, 2020.
OUTLOOK
COVID-19 has evolved into a global pandemic and has spread to many regions of the world, including the United States. We are closely tracking the evolving impact of COVID-19 and are focused on helping our customers and employees through these difficult times. We are generally classified as an essential business by government authorities as we play a vital role by providing over 2.4 million personal loans to hardworking Americans in hundreds of local communities where we have over 1,500 branches that are located in 44 states as of March 31, 2020. Our central operations remain operational and essentially all our branches remain open.
As it became apparent COVID-19 would have an impact to our business and our customers, we took active and decisive steps to implement an immediate COVID-19 operational response to:
•Maintain strong capital and liquidity: We have a strong balance sheet and liquidity profile as a result of numerous actions taken over the last several years to increase conduit lines, deleverage and extend our maturities. We elected to draw an aggregate $3.5 billion under our conduit facilities as of March 31, 2020 as a prudent measure in order to increase liquidity and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic. It has been the long-term strategy of the Company to run a conservative balance sheet which places a premium on safety and a long liquidity runway. As a result, we had $4.2 billion of cash and cash equivalents as of March 31, 2020, which we believe is sufficient to run our operation under numerous stress scenarios through 2021. We believe our liquidity runway could be further extended with our $3.6 billion of undrawn committed capacity under our revolving conduit facilities and our $6.1 billion of unencumbered personal loans.
•Tighten underwriting: We actively monitor the changing economic environment and adjust our underwriting standards accordingly. We quickly took steps to tighten underwriting standards and reduce originations to higher risk categories of lending. We are using our decades of experience and proprietary data to serve our customers while maintaining an appropriately conservative portfolio risk-management program.
•Continuous stress testing: It is our practice to stress test our portfolio regularly. For the last several years, our underwriting models have incorporated the estimated impacts of a potential downturn, such that our pre-provision return suggests we maintain profitability with a 100% increase in losses.
•Focus on serving our customers: Our top priority is to service and care for our current customers. We actively engaged with other lenders to put forward solutions to help our customers through this difficult time. We have taken steps to enhance our servicing capacity by shifting branch team members toward a greater focus on servicing existing loans. This is in addition to our employees who are already solely focused on servicing, which we believe is a clear differentiator for us and will lead to better outcomes for our customers and for our business. In addition, we have enhanced our borrower assistance program to ensure that we can help customers who are immediately impacted by the coronavirus, including offering reduced and deferred payment options, waiving late fees for payments due March 15, 2020 through April 30, 2020, and suspending credit bureau reporting for newly delinquent accounts. The enrollment in our borrower assistance program may increase in the near term, which may also adversely affect our income and other results of operations.
•Deploy business continuity plans: We deployed business continuity plans to ensure operational flexibility through any environment, including the ability to work remotely. Our hybrid operating model, with fully scaled branch and central operations teams, can dynamically reroute application and servicing capabilities to service centers and branches across the United States. Although a small number of branches have been temporarily closed and reopened for a variety of reasons, from deep cleaning to government mandate, all of our teams, both branch and central operations, remain operational today. We continue to serve our customers by appointment while maintaining social distancing and other safety protocols to keep our employees and customers safe.
Certain preliminary borrower trends have emerged in connection with the COVID-19 pandemic. A tightening of our underwriting standards, combined with significantly lower consumer demand, has led to a significant reduction in originations volume. However, delinquencies have declined thus far in April 2020 when compared to March 2020 due in part to our enhanced borrower assistance program and to increased cash payments.
As a result of the COVID-19 pandemic, we expect near term impacts to affect our originations, reserves, and involuntary unemployment insurance claims. Our credit tightening measures, combined with reduced customer demand, may result in lower originations as “stay at home” orders remain in place and economic uncertainty remains high. We may experience further changes to the macroeconomic assumptions within our forecast used in our credit loss allowance model, as well as changes to our loan loss performance outlook, both of which could lead to further changes in our allowance for loan losses, reserve rate, and provision expense.
The full extent to which the COVID-19 pandemic will impact our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the mitigation efforts by government entities, as well as our own immediate COVID-19 operational response. We have and will continue to take active and decisive steps in this time of uncertainty and remain committed to the safety of our employees, while also continuing to serve our customers by remaining open with appropriate protective protocols in place. We have served working Americans for many decades at scale, through both changing economic conditions and natural disasters, and will continue to remain focused on our strategic priorities of strong liquidity, disciplined underwriting, and serving our customers.
The results of SFC are consolidated into the results of OMH. Due to the nominal differences between SFC and OMH, content throughout this section relate only to OMH. See Note 2 of the Notes to the Consolidated Financial Statements included in this report for the reconciliation of results of SFC to OMH.
OMH'S CONSOLIDATED RESULTS
See the table below for ourOMH's consolidated operating results and selected financial statistics. A further discussion of ourOMH's operating results for each of our operating segmentssegment is provided under “Segment Results” below.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | At or for the Three Months Ended March 31, | | | | |
(dollars in millions, except per share amounts) | | | | | | 2020 | | 2019 | | |
| | | | | | | | | | |
Interest income | | | | | | $ | 1,106 | | | $ | 956 | | | |
Interest expense | | | | | | 255 | | | 236 | | | |
Provision for finance receivable losses | | | | | | 531 | | | 286 | | | |
Net interest income after provision for finance receivable losses | | | | | | 320 | | | 434 | | | |
| | | | | | | | | | |
Other revenues | | | | | | 141 | | | 148 | | | |
Other expenses | | | | | | 418 | | | 380 | | | |
Income before income taxes | | | | | | 43 | | | 202 | | | |
Income taxes | | | | | | 11 | | | 50 | | | |
Net income | | | | | | $ | 32 | | | $ | 152 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Share Data: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Earnings per share: | | | | | | | | | | |
| | | | | | | | | | |
Diluted | | | | | | $ | 0.24 | | | $ | 1.11 | | | |
| | | | | | | | | | |
Selected Financial Statistics * | | | | | | | | | | |
Finance receivables held for investment: | | | | | | | | | | |
Net finance receivables | | | | | | $ | 18,269 | | | $ | 16,136 | | | |
Number of accounts | | | | | | 2,400,536 | | | 2,326,835 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Average net receivables | | | | | | $ | 18,380 | | | $ | 16,146 | | | |
Yield | | | | | | 24.17 | % | | 23.92 | % | | |
Gross charge-off ratio | | | | | | 7.35 | % | | 7.82 | % | | |
Recovery ratio | | | | | | (0.90) | % | | (0.70) | % | | |
Net charge-off ratio | | | | | | 6.45 | % | | 7.12 | % | | |
30-89 Delinquency ratio | | | | | | 2.25 | % | | 1.93 | % | | |
Origination volume | | | | | | $ | 2,589 | | | $ | 2,582 | | | |
Number of accounts originated | | | | | | 276,773 | | | 276,329 | | | |
Debt balances: | | | | | | | | | | |
Long-term debt balance | | | | | | $ | 20,443 | | | $ | 16,117 | | | |
Average daily debt balance | | | | | | 17,675 | | | 15,839 | | | |
|
| | | | | | | | |
| | At or for the Three Months Ended March 31, |
(dollars in millions, except per share amounts) | | 2019 | | 2018 |
| | | | |
Interest income | | $ | 956 |
| | $ | 862 |
|
Interest expense | | 236 |
| | 200 |
|
Provision for finance receivable losses | | 286 |
| | 254 |
|
Net interest income after provision for finance receivable losses | | 434 |
| | 408 |
|
Other revenues | | 148 |
| | 137 |
|
Other expenses | | 380 |
| | 377 |
|
Income before income taxes | | 202 |
| | 168 |
|
Income taxes | | 50 |
| | 44 |
|
Net income | | $ | 152 |
| | $ | 124 |
|
| | | | |
Share Data: | | | | |
Earnings per share: | | | | |
Diluted | | $ | 1.11 |
| | $ | 0.91 |
|
| | | | |
Selected Financial Statistics * | | | | |
Finance receivables held for investment: | | | | |
Net finance receivables | | $ | 16,136 |
| | $ | 14,987 |
|
Number of accounts | | 2,326,835 |
| | 2,348,676 |
|
Finance receivables held for sale: | | | | |
Net finance receivables | | $ | 78 |
| | $ | 126 |
|
Number of accounts | | 2,357 |
| | 2,345 |
|
Finance receivables held for investment and held for sale: | | | | |
Average net receivables | | $ | 16,146 |
| | $ | 14,986 |
|
Average daily debt balance | | $ | 15,839 |
| | $ | 14,947 |
|
Yield | | 23.92 | % | | 23.25 | % |
Gross charge-off ratio |
| 7.82 | % | | 7.85 | % |
Recovery ratio |
| (0.70 | )% | | (0.75 | )% |
Net charge-off ratio | | 7.12 | % | | 7.10 | % |
30-89 Delinquency ratio | | 1.93 | % | | 2.11 | % |
Origination volume | | $ | 2,582 |
| | $ | 2,540 |
|
Number of accounts originated | | 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, 20192020 and 20182019
Interest income increased $94$150 million or 11%16% for the three months ended March 31, 20192020 when compared to the same period in 20182019 primarily due to continued growth in our loan portfolio and higher yield, which was primarily driven by lower amortization of purchase premium on non-credit impaired finance receivables.portfolio.
Interest expense increased $36$19 million or 18%8% for the three months ended March 31, 20192020 when compared to the same period in 20182019 primarily due to thean increase in average debt of $1.8 billion, which was issued at a lower cost than our average cost of funds and is 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.portfolio.
See Notes 78 and 89 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 revolving conduit facilities.
Provision for finance receivable losses increased $32$245 million or 13%86% for the three months ended March 31, 20192020 when compared to the same period in 20182019 primarily driven by the growth in our loan portfolio offset by lower required provision due to the continued changeimpact of COVID-19 on our estimated allowance for loan loss requirement as we have incorporated unfavorable forecasted economic trends, including a rise in portfolio mix to more secured personal loans. Asunemployment, and as a result, of the transfer of the remaining real estate loans to held for sale, the level ofour allowance for finance receivable losses as a percentage of net finance receivables hasin the current period increased from 10.6% to 11.9%.
Other revenues decreased from the same period in 2018.
Other revenues increased $11$7 million or 8%5% for the three months ended March 31, 20192020 when compared to the same period in 20182019 primarily due to (i) a $13$17 million increase ofdecrease in investment revenue primarily driven by unrealized gainsmark-to-market losses on equity investment securities and an increase in interest income on our cash and cash equivalents, (ii) an $11 million decrease related to the 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.prior period. The increasedecrease was partially offset by $20a $21 million of higherincrease related to the net lossesloss on repurchases and repayments of debt.debt in the prior period and a $7 million increase in insurance products sold due to higher loan volume.
Other expenses increased $3$38 million or less than 1%10% for the three months ended March 31, 20192020 when compared to the same period in 2018 reflecting our strategy2019 due to reinvesta $23 million increase in insurance policy benefits and claims primarily related to an increase in involuntary unemployment insurance claims reserves, a $10 million increase in our business.marketing initiatives, and our continued investment in our business operations.
Income taxes totaled $50decreased $39 million or 78% for the three months ended March 31, 2019 compared to $44 million for the same period in 2018. The increase is primarily due to higher pre-tax income in the current period2020 when compared to the same period in 2018.2019 due to lower pre-tax income in the current period. The effective tax rate for the three months ended March 31, 20192020 was 24.8%24.3% compared to 26.2%24.8% for the same period in 2018.2019. The effective tax rates for the three months ended March 31, 20192020 and 20182019 differed from the federal statutory rate of 21% primarily due to the effect of state income taxes.
See Note 13 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on effective tax rates.
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 segment. Adjusted pretax income (loss) represents income (loss) before income taxes on a Segment Accounting Basis and excludes direct costs incurred as result of COVID-19, net loss resulting from repurchases and repayments of debt, acquisition-related transaction and integration expenses, net gain on sale of cost method investment, restructuring charges, and net loss on sale of real estate loans. Management believes adjusted pretax income (loss) is useful in assessing the profitability of our segments, in evaluating our operating performance and as a performance goal under the Company’s executive compensation programs. We describe oursegment.
Management also uses adjusted pretax income (loss) under “Resultsexcluding the change in allowance for finance receivables losses (“pretax capital generation”), a non-GAAP financial measure, as a key performance measure of Operations”our segment. This measure represents adjusted pretax income as discussed above and excludes the change in our allowance for finance receivable losses in the period while still considering the net charge-offs incurred during the period. Management believes that pretax capital generation is useful in assessing the capital created in the period impacting the overall capital adequacy of the Management’s DiscussionCompany. Management believes that the Company’s reserves, combined with our equity represent the loss absorption of the Company.
Management utilizes both adjusted pretax net income (loss) and Analysispretax capital generation in evaluating our performance. Additionally, both of Financial Condition and Results of Operationsthese non-GAAP measures are consistent with the performance goals established in Part II - Item 7 included in our 2018 Annual Report on Form 10-K.
OMH’s executive compensation program. Adjusted pretax income (loss) is aand pretax capital generation are non-GAAP financial measuremeasures 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.
TheOMH's reconciliations of income (loss) before income tax expense (benefit) on a Segment Accounting Basis to adjusted pretax income (loss) (non-GAAP) by segment and Consumer and Insurance pretax capital generation (non-GAAP) were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | | | |
(dollars in millions) | | | | | | 2020 | | 2019 | | |
| | | | | | | | | | |
Consumer and Insurance | | | | | | | | | | |
Income before income taxes - Segment Accounting Basis | | | | | | $ | 51 | | | $ | 232 | | | |
Adjustments: | | | | | | | | | | | | |
Direct costs associated with COVID-19 | | | | | | 3 | | | | — | | | |
Acquisition-related transaction and integration expenses | | | | | | | 6 | | | | 6 | | | |
Net loss on repurchase and repayment of debt | | | | | | — | | | 16 | | | |
Net gain on sale of cost method investment | | | | | | | | — | | | | (11) | | | |
Restructuring charges | | | | | | | — | | | 3 | | | |
Adjusted pretax income (non-GAAP) | | | | | | $ | 60 | | | $ | 246 | | | |
| | | | | | | | | | |
Provision for finance receivable losses | | | | | | | $ | 530 | | | $ | 276 | | | |
Net charge-offs | | | | | | | (296) | | | (284) | | | |
Pretax capital generation (non-GAAP) | | | | | | | $ | 294 | | | $ | 238 | | | |
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Other | | | | | | | | | | |
Loss before income taxes - Segment Accounting Basis | | | | | | $ | (1) | | | $ | (3) | | | |
Adjustments: | | | | | | | | | | |
| | | | | | | | | | |
Net loss on sale of real estate loans * | | | | | | | — | | | 1 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Adjusted pretax loss (non-GAAP) | | | | | | $ | (1) | | | $ | (2) | | | |
|
| | | | | | | | |
| | Three Months Ended March 31, |
(dollars in millions) | | 2019 | | 2018 |
| | | | |
Consumer and Insurance | | | | |
Income before income taxes - Segment Accounting Basis | | $ | 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 | | 6 |
| | 10 |
|
Restructuring charges | | 3 |
| | — |
|
Adjusted pretax income (non-GAAP) | | $ | 246 |
| | $ | 211 |
|
| | | | |
Acquisitions and Servicing | | | | |
Income before income taxes - Segment Accounting Basis | | $ | — |
| | $ | 1 |
|
Adjustments | | — |
| | — |
|
Adjusted pretax income (non-GAAP) | | $ | — |
| | $ | 1 |
|
| | | | |
Other | | | | |
Loss before income tax benefit - Segment Accounting Basis | | $ | (3 | ) | | $ | (10 | ) |
Net loss on sale of real estate loans * | | 1 |
| | — |
|
Adjusted pretax loss (non-GAAP) | | $ | (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. See Note 6 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information regarding the real estate loan sale.
We describe our acquisition-related
Direct costs associated with COVID-19 include (i) information technology costs to transition employees to work remotely, (ii) branch, central operations, and corporate locations sanitization services and supplies, and (iii) other costs and fees directly related to COVID-19.
Acquisition-related transaction and integration expenses under “Results of Operations”incurred as a result of the Management’s DiscussionOneMain Acquisition includes (i) compensation and Analysisemployee benefit costs, such as retention awards and severance costs, (ii) accelerated amortization of Financial Conditionacquired software assets, (iii) rebranding to the OneMain brand, (iv) branch infrastructure and Results of Operations in Part II - Item 7 included in our 2018 Annual Report on Form 10-K.
other fixed asset integration costs, (v) information technology costs, such as internal platform development, software upgrades and licenses, and technology termination costs, (vi) legal fees and project management costs, (vii) system conversions, including human capital management, marketing, risk, and finance functions, and (viii) other costs and fees directly related to the OneMain Acquisition and integration.
The results of SFC are consolidated into the results of OMH. Due to the nominal differences between SFC and OMH, content throughout this section relate only to OMH. See Note 2 of the Notes to the Condensed Consolidated Financial Statements included in this report for the reconciliation of results of SFC to OMH.
See Note 2219 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20182019 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 reconciliations of segment totalstotal to condensed consolidated financial statement amounts.
CONSUMER AND INSURANCE
AdjustedOMH's adjusted pretax income and selected financial statistics for Consumer and Insurance (which are reportedC&I on an adjusted Segment Accounting Basis)Basis were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | At or for the Three Months Ended March 31, | | | | |
(dollars in millions) | | | | | | 2020 | | 2019 | | |
| | | | | | | | | | |
Interest income | | | | | | $ | 1,101 | | | | $ | 954 | | | |
Interest expense | | | | | | 249 | | | | 229 | | | |
Provision for finance receivable losses | | | | | | 530 | | | | 276 | | | |
Net interest income after provision for finance receivable losses | | | | | | 322 | | | | 449 | | | |
Other revenues | | | | | | 136 | | | 151 | | | |
Other expenses | | | | | | 398 | | | 354 | | | |
Adjusted pretax income (non-GAAP) | | | | | | $ | 60 | | | $ | 246 | | | |
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| | | | | | | | | | |
Selected Financial Statistics * | | | | | | | | | | |
Finance receivables held for investment: | | | | | | | | | | |
Net finance receivables | | | | | | $ | 18,283 | | | $ | 16,170 | | | |
Number of accounts | | | | | | 2,400,536 | | | 2,326,835 | | | |
| | | | | | | | | | |
Average net receivables | | | | | | $ | 18,397 | | | $ | 16,179 | | | |
Yield | | | | | | 24.07 | % | | 23.92 | % | | |
Gross charge-off ratio | | | | | | 7.36 | % | | 7.92 | % | | |
Recovery ratio | | | | | | (0.90) | % | | (0.81) | % | | |
Net charge-off ratio | | | | | | 6.46 | % | | 7.11 | % | | |
30-89 Delinquency ratio | | | | | | 2.26 | % | | 1.94 | % | | |
Origination volume | | | | | | $ | 2,589 | | | $ | 2,582 | | | |
Number of accounts originated | | | | | | 276,773 | | | 276,329 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
* See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.
|
| | | | | | | | |
| | At or for the Three Months Ended March 31, |
(dollars in millions) | | 2019 | | 2018 |
| | | | |
Interest income | | $ | 954 |
| | $ | 873 |
|
Interest expense | | 229 |
| | 194 |
|
Provision for finance receivable losses | | 276 |
| | 258 |
|
Net interest income after provision for finance receivable losses | | 449 |
| | 421 |
|
Other revenues | | 151 |
| | 133 |
|
Other expenses | | 354 |
| | 343 |
|
Adjusted pretax income (non-GAAP) | | $ | 246 |
| | $ | 211 |
|
| | | | |
Selected Financial Statistics * | | |
| | |
|
Finance receivables held for investment: | | | | |
Net finance receivables | | $ | 16,170 |
| | $ | 14,870 |
|
Number of accounts | | 2,326,835 |
| | 2,344,236 |
|
Finance receivables held for investment and held for sale: | | | | |
Average net receivables | | $ | 16,179 |
| | $ | 14,860 |
|
Yield | | 23.92 | % | | 23.83 | % |
Gross charge-off ratio | | 7.92 | % | | 8.10 | % |
Recovery ratio | | (0.81 | )% | | (0.89 | )% |
Net charge-off ratio | | 7.11 | % | | 7.21 | % |
30-89 Delinquency ratio | | 1.94 | % | | 2.08 | % |
Origination volume | | $ | 2,582 |
| | $ | 2,540 |
|
Number of accounts originated | | 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, 20192020 and 20182019
Interest income increased $81$147 million or 15% for the three months ended March 31, 2020 when compared to the same period in 2019 primarily due to growth in our loan portfolio.
Interest expense increased$20 million or 9% for the three months ended March 31, 20192020 when compared to the same period in 20182019 primarily due to continued growth in our loan portfolio.
Interest expense increased$35 million or 18% for the three months ended March 31, 2019 when compared to the same period in 2018 primarily due to thean increase in average debt of $1.8 billion, which was issued at a lower cost than our average cost of funds and is 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.portfolio.
See Notes 78 and 89 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 revolving conduit facilities.
Provision for finance receivable losses increased $18$254 million or 7%92% for the three months ended March 31, 20192020 when compared to the same period in 20182019 primarily driven by the growth in our loan portfolio offset by lower required provision due to the continued changeimpact of COVID-19 on our estimated allowance for loan loss requirement as we have incorporated unfavorable forecasted economic trends, including a rise in portfolio mix to more secured personal loans. Asunemployment, and 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 finance receivables hasin the current period increased from 10.6% to 11.9%.
Other revenues decreased from the same period in 2018.
Other revenues increased $18$15 million or 14%10% for the three months ended March 31, 20192020 when compared to the same period in 20182019 primarily due to (i) a $13an $18 million increasedecrease in investment revenue primarily driven by unrealized gainsmark-to-market losses on equity investment securities and an increase in interest income on our cash and cash equivalents and (ii)offset by a $5$7 million increase in insurance premiumsproducts sold due to the increase in insurance products sold.higher loan volume.
Other expenses increased $11$44 million or 3%12% for the three months ended March 31, 2020 when compared to the same period in 2018 reflecting our strategy2019 primarily due to reinvesta $23 million increase in insurance policy benefits and claims primarily related to an increase in involuntary unemployment insurance claims reserves, a $10 million increase in our business.marketing initiatives, and our continued investment in our business operations.
ACQUISITIONS AND SERVICING
Adjusted pretax income for Acquisition and Servicing (which is reported on an adjusted Segment Accounting Basis) was as follows:
53
|
| | | | | | | | |
| | Three Months Ended March 31, |
(dollars in millions) | | 2019 | | 2018 |
| | | | |
Other revenues | | $ | 7 |
| | $ | 9 |
|
Other expenses | | 7 |
| | 8 |
|
Adjusted pretax income (non-GAAP) | | $ | — |
| | $ | 1 |
|
OTHER
“Other” consists of our liquidating SpringCastle Portfolio servicing activity and our non-originating legacy operations, which include other receivables consisting ofincludes primarily our liquidating real estate loan and retail sales finance portfolios.loans.
AdjustedOMH's adjusted pretax loss of the Other components (which is reported on an adjusted Segment Accounting Basis)Basis was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | | | |
(dollars in millions) | | | | | | 2020 | | 2019 | | |
| | | | | | | | | | |
Interest income | | | | | | $ | 2 | | | $ | 3 | | | |
Interest expense | | | | | | 1 | | | 2 | | | |
| | | | | | | | | | |
Net interest income after provision for finance receivable losses | | | | | | 1 | | | 1 | | | |
Other revenues | | | | | | 4 | | | 9 | | | |
Other expenses | | | | | | 6 | | | 12 | | | |
Adjusted pretax loss (non-GAAP) | | | | | | $ | (1) | | | $ | (2) | | | |
|
| | | | | | | | |
| | Three Months Ended March 31, |
(dollars in millions) | | 2019 | | 2018 |
| | | | |
Interest income | | $ | 3 |
| | $ | 5 |
|
Interest expense | | 2 |
| | 5 |
|
Provision for finance receivable losses | | — |
| | (2 | ) |
Net interest income after provision for finance receivable losses | | 1 |
| | 2 |
|
Other revenues | | 2 |
| | (2 | ) |
Other expenses * | | 5 |
| | 10 |
|
Adjusted pretax loss (non-GAAP) | | $ | (2 | ) | | $ | (10 | ) |
| |
* | Other expenses 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 SFH.
|
Net finance receivables of the Other components, (which are reported in “Other assets,” on a Segment Accounting Basis)Basis were as follows:
| | | | | | | | | | | | | | | | |
| | March 31, | | | | |
(dollars in millions) | | 2020 | | 2019 | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net finance receivables held for sale: | | | | | | |
Other receivables | | $ | 63 | | | $ | 79 | | | |
|
| | | | | | | | |
| | 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. |
The results of SFC are consolidated into the results of OMH. Due to the nominal differences between SFC and OMH, content throughout this section relate only to OMH. See Note 2 of the Notes to the Condensed Consolidated Financial Statements included in this report for the reconciliation of results of SFC to OMH.
FINANCE RECEIVABLES
Our net finance receivables, consisting of personal loans, were $16.1$18.3 billion at March 31, 20192020 and $16.2$18.4 billion at December 31, 2018.2019. Our personal loans are non-revolving, with a fixed-rate, a fixed term of three to six years, and are secured by automobiles, other titled collateral, or are unsecured. We consider the value of the collateral, the concentration of secured loans, and the delinquency status of our finance receivables as our key credit quality indicator. We monitor the primary indicators of credit quality. At March 31, 2019 and December 31, 2018, 49% and 48%, respectively,delinquency 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 usedfinance receivable portfolio, including the migration between the delinquency buckets and changes in the consumer lending industrydelinquency trends to describemanage our exposure to credit risk in the creditworthiness of a borrower, including prime, near prime, and sub-prime.portfolio.
We group FICO scores into the following credit strength categories:
Prime: FICO score of 660 or higher
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 non-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 personal loans are grouped into the following categories based on borrower FICO credit scores as of the most recently refreshed date or as of the origination or purchase date:
|
| | | | | | | | |
(dollars in millions) | | March 31, 2019 | | December 31, 2018 |
| | | | |
FICO scores | | | | |
660 or higher | | $ | 3,785 |
| | $ | 3,906 |
|
620-659 | | 4,220 |
| | 4,251 |
|
619 or below | | 8,131 |
| | 8,007 |
|
Total | | $ | 16,136 |
| | $ | 16,164 |
|
DELINQUENCY
We monitor delinquency trends to evaluate the risk of future credit losses and employ advanced analytical tools to manage our 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 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 delinquency information for net finance receivables is as follows:
| | | | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | | Consumer and Insurance | | | | Segment to GAAP Adjustment (a) | | GAAP Basis |
| | | | | | | | |
March 31, 2020 | | | | | | | | |
Current | | $ | 17,475 | | | | | $ | (12) | | | $ | 17,463 | |
30-59 days past due | | 246 | | | | | (1) | | | 245 | |
Delinquent (60-89 days past due) | | 167 | | | | | — | | | 167 | |
Performing | | 17,888 | | | | | (13) | | | 17,875 | |
| | | | | | | | |
Nonperforming (90+ days past due) | | 395 | | | | | (1) | | | 394 | |
Total net finance receivables | | $ | 18,283 | | | | | $ | (14) | | | $ | 18,269 | |
| | | | | | | | |
Delinquency ratio | | | | | | | | |
30-89 days past due | | 2.26 | % | | | | (b) | | | 2.25 | % |
30+ days past due | | 4.42 | % | | | | (b) | | | 4.41 | % |
60+ days past due | | 3.07 | % | | | | (b) | | | 3.07 | % |
90+ days past due | | 2.16 | % | | | | (b) | | | 2.16 | % |
| | | | | | | | |
December 31, 2019 | | | | | | | | |
Current | | $ | 17,578 | | | | | $ | (28) | | | $ | 17,550 | |
30-59 days past due | | 273 | | | | | (1) | | | 272 | |
Delinquent (60-89 days past due) | | 182 | | | | | (1) | | | 181 | |
Performing | | 18,033 | | | | | (30) | | | 18,003 | |
| | | | | | | | |
Nonperforming (90+ days past due) | | 388 | | | | | (2) | | | 386 | |
Total net finance receivables | | $ | 18,421 | | | | | $ | (32) | | | $ | 18,389 | |
| | | | | | | | |
Delinquency ratio | | | | | | | | |
30-89 days past due | | 2.47 | % | | | | (b) | | | 2.46 | % |
30+ days past due | | 4.58 | % | | | | (b) | | | 4.56 | % |
60+ days past due | | 3.09 | % | | | | (b) | | | 3.08 | % |
90+ days past due | | 2.11 | % | | | | (b) | | | 2.10 | % |
(a) As a result of the adoption of ASU 2016-13, we converted all purchased credit impaired finance receivables to purchased credit deteriorated finance receivables in accordance with ASC Topic 326, which resulted in the gross-up of net finance receivables and allowance for finance receivable losses of $15 million on January 1, 2020. See Notes 3, 4, and 5 of the Notes to the Condensed Consolidated Financial Statements for additional information on the adoption of ASU 2016-13 included in this report.
|
| | | | | | | | | | | | |
(dollars in millions) | | Consumer and Insurance | | Segment to GAAP Adjustment | | GAAP Basis |
| | | | | | |
March 31, 2019 | | | | | | |
Current | | $ | 15,520 |
| | $ | (31 | ) | | $ | 15,489 |
|
30-59 days past due | | 180 |
| | (1 | ) | | 179 |
|
Delinquent (60-89 days past due) | | 133 |
| | — |
| | 133 |
|
Performing | | 15,833 |
| | (32 | ) | | 15,801 |
|
| | | | | | |
Nonperforming (90+ days past due) | | 337 |
| | (2 | ) | | 335 |
|
Total net finance receivables | | $ | 16,170 |
| | $ | (34 | ) | | $ | 16,136 |
|
| | | | | | |
Delinquency ratio | | | | | | |
30-89 days past due | | 1.94 | % | | * |
| | 1.93 | % |
30+ days past due | | 4.02 | % | | * |
| | 4.01 | % |
60+ days past due | | 2.91 | % | | * |
| | 2.90 | % |
90+ days past due | | 2.08 | % | | * |
| | 2.08 | % |
| | | | | | |
December 31, 2018 | | | | | | |
Current | | $ | 15,437 |
| | $ | (26 | ) | | $ | 15,411 |
|
30-59 days past due | | 231 |
| | (2 | ) | | 229 |
|
Delinquent (60-89 days past due) | | 162 |
| | (1 | ) | | 161 |
|
Performing | | 15,830 |
| | (29 | ) | | 15,801 |
|
| | | | | | |
Nonperforming (90+ days past due) | | 365 |
| | (2 | ) | | 363 |
|
Total net finance receivables | | $ | 16,195 |
| | $ | (31 | ) | | $ | 16,164 |
|
| | | | | | |
Delinquency ratio | | | | | | |
30-89 days past due | | 2.43 | % | | * |
| | 2.42 | % |
30+ days past due | | 4.68 | % | | * |
| | 4.66 | % |
60+ days past due | | 3.26 | % | | * |
| | 3.25 | % |
90+ days past due | | 2.25 | % | | * |
| | 2.25 | % |
(b) Not applicable
ALLOWANCE FOR FINANCE RECEIVABLE LOSSES
We estimate and record an allowance for finance receivable losses to cover the estimated lifetime expected credit losses on our finance receivables, effective with the adoption of ASU 2016-13 on January 1, 2020. Prior to the adoption of ASU 2016-13, we estimated and recorded an allowance for finance receivable losses to cover estimated 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 mixcontractual delinquency of the finance receivable portfolio and changes in economic conditions.
Our current methodology to estimate expected credit losses utilized macroeconomic forecasts as of March 31, 2020, which incorporated the potential impact that the COVID-19 pandemic could have on the U.S. economy. Our forecast utilized economic projections from a major rating service, and considered a spike in the second quarter unemployment rate followed by a recovery over the second half of the year, partially offset by positive impacts of the CARES Act, the involuntary unemployment insurance coverage of our portfolio, and our borrower assistance efforts. As a result, our allowance for finance receivable losses as a percentage of finance receivables increased from 10.6% to 11.9%. In the near-term, we may experience further changes to the macroeconomic assumptions within our forecast, as well as changes to our loan loss performance outlook, both of which could lead to further changes in our allowance for loan losses, reserve rate and provision expense.
Changes in the allowance for finance receivable losses were as follows:
| | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | | Consumer and Insurance | | Segment to GAAP Adjustment | | Consolidated Total |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Three Months Ended March 31, 2020 | | | | | | |
Balance at beginning of period | | $ | 849 | | | $ | (20) | | | $ | 829 | |
Impact of adoption of ASU 2016-13 (a) | | 1,119 | | | (1) | | | 1,118 | |
Provision for finance receivable losses | | 530 | | | 1 | | | 531 | |
Charge-offs | | (337) | | | — | | | (337) | |
Recoveries | | 41 | | | — | | | 41 | |
Balance at end of period | | $ | 2,202 | | | $ | (20) | | | $ | 2,182 | |
| | | | | | |
Allowance ratio | | 12.05 | % | | (b) | | | 11.95 | % |
| | | | | | |
Three Months Ended March 31, 2019 | | | | | | |
Balance at beginning of period | | $ | 773 | | | $ | (42) | | | $ | 731 | |
Provision for finance receivable losses | | 276 | | | 10 | | | 286 | |
Charge-offs | | (316) | | | 5 | | | (311) | |
Recoveries | | 32 | | | (5) | | | 27 | |
Balance at end of period | | $ | 765 | | | $ | (32) | | | $ | 733 | |
| | | | | | |
Allowance ratio | | 4.73 | % | | (b) | | | 4.54 | % |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(a) As a result of the adoption of ASU 2016-13, we recorded a one-time adjustment to the allowance for finance receivable losses. Additionally, we converted all purchased credit impaired finance receivables to purchased credit deteriorated finance receivables in accordance with ASC Topic 326, which resulted in the gross-up of net finance receivables and allowance for finance receivable losses of $15 million on January 1, 2020. See Notes 3, 4, and 5 of the Notes to the Condensed Consolidated Financial Statements for additional information on the adoption of ASU 2016-13 included in this report.
|
| | | | | | | | | | | | | | | | |
(dollars in millions) | | Consumer and Insurance | | Other (a) | | Segment to GAAP Adjustment | | Consolidated Total |
| | | | | | | | |
March 31, 2019 | | | | | | | | |
Balance at beginning of period | | $ | 773 |
| | $ | — |
| | $ | (42 | ) | | $ | 731 |
|
Provision for finance receivable losses | | 276 |
| | — |
| | 10 |
| | 286 |
|
Charge-offs | | (316 | ) | | — |
| | 5 |
| | (311 | ) |
Recoveries | | 32 |
| | — |
| | (5 | ) | | 27 |
|
Balance at end of period | | $ | 765 |
| | $ | — |
| | $ | (32 | ) | | $ | 733 |
|
| | | | | | | | |
Allowance ratio | | 4.73 | % | | (b) |
| | (b) |
| | 4.54 | % |
| | | | | | | | |
March 31, 2018 | | | | | | | | |
Balance at beginning of period | | $ | 724 |
| | $ | 35 |
| | $ | (62 | ) | | $ | 697 |
|
Provision for finance receivable losses | | 258 |
| | (2 | ) | | (2 | ) | | 254 |
|
Charge-offs | | (297 | ) | | (2 | ) | | 9 |
| | (290 | ) |
Recoveries | | 33 |
| | 1 |
| | (6 | ) | | 28 |
|
Balance at end of period | | $ | 718 |
| | $ | 32 |
| | $ | (61 | ) | | $ | 689 |
|
| | | | | | | | |
Allowance ratio | | 4.83 | % | | 23.19 | % | | (b) |
| | 4.60 | % |
(b) Not applicable. | |
(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. |
The current delinquency status of our finance receivable portfolio, inclusive of recent borrower performance, the underlying collateral, volume of our TDR activity, and the level and recoverability of collateral securing our finance receivable portfolio, and the reasonable and supportable forecast of economic conditions (after adoption of ASU 2016-13) 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 coverbased on the estimated incurredlifetime expected credit losses in our finance receivable portfolio. The level of allowance for finance receivable losses as a percentage of net finance receivables has decreasedincreased from prior periods due to the continued change in portfolio mix to more secured personal loans and improvement in the effectivenessadoption of our collections.ASU 2016-13.
See Note 45 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 ofexperiencing 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 is as follows:
| | | | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | | Consumer and Insurance | | | | Segment to GAAP Adjustment | | GAAP Basis |
| | | | | | | | |
March 31, 2020 | | | | | | | | |
TDR net finance receivables | | $ | 744 | | | | | $ | (56) | | | $ | 688 | |
Allowance for TDR finance receivable losses | | 326 | | | | | (24) | | | 302 | |
| | | | | | | | |
December 31, 2019 | | | | | | | | |
TDR net finance receivables | | $ | 721 | | | | | $ | (63) | | | $ | 658 | |
Allowance for TDR finance receivable losses | | 292 | | | | | (20) | | | 272 | |
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, near prime, and sub-prime. While management does not utilize FICO scores to manage credit quality, we have presented the following on how we group FICO scores into said categories for comparability purposes across our industry:
•Prime: FICO score of 660 or higher
•Near prime: FICO score of 620-659
•Sub-prime: FICO score of 619 or below
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 and central servicing operations.
The following table reflects our personal loans grouped into the categories described above based on borrower FICO credit scores as of the most recently refreshed date or as of the loan origination or purchase date:
| | | | | | | | | | | | | | |
(dollars in millions) | | March 31, 2020 | | December 31, 2019 |
| | | | |
FICO scores | | | | |
660 or higher | | $ | 3,820 | | | $ | 3,951 | |
620-659 | | 4,568 | | | 4,683 | |
619 or below | | 9,881 | | | 9,755 | |
Total | | $ | 18,269 | | | $ | 18,389 | |
|
| | | | | | | | | | | | |
(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 |
SOURCES AND USES OF FUNDS
We finance the majority of our operating liquidity and capital needs through a combination of cash flows from operations, securitizationsecured debt, unsecured debt, borrowings from revolving conduit facilities, unsecured debt and equity, andequity. We may also utilize other corporate debt facilitiessources in the future. As a holding company, all of the funds generated from our operations are earned by our operating subsidiaries. Our operating subsidiaries’ primary cash needs relate to funding our lending activities, our debt service obligations, our operating expenses, payment of insurance claims, and to a lesser extent, expenditures relating to upgrading and monitoring our technology platform, risk systems, and branch locations.
We have previously purchased portions of our unsecured indebtedness, and we may elect to purchase additional portions of our unsecured indebtedness or securitized borrowings 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 inat our discretion.
During the three months ended March 31, 2019, we2020, OMH generated net income of $152$32 million. OurOMH net cash inflow from operating and investing activities totaled $243$369 million in 2019.for the three months ended March 31, 2020. At March 31, 2019,2020, our scheduled principal and interest payments for 20192020 on our existing debt (excluding securitizations)securitizations and borrowings under our revolving conduit facilities) totaled $695 million.$1.5 billion. As of March 31, 2019,2020, we had $6.9$6.1 billion UPB of unencumbered personal loans and $136$116 million UPB of unencumbered real estate loans. These real estate loans are included inclassified as held for sale.sale and reported in “Other assets.”
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 an 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, 2019,2020, we completed two personal loandid not terminate, cancel or enter into any new securitizations (OMFIT 2019-1 and ODART 2019-1 see “Securitized Borrowings” below).or conduit facilities. At March 31, 2019,2020, we had approximately $9.1$12.0 billion in UPB of finance receivables pledged as collateral for our securitization transactions.transactions and conduit draws.
During the three months endedAt March 31, 2019, we entered into one new revolving2020, an aggregate of $3.5 billion was drawn under our conduit facility.facilities and the remaining borrowing capacity is $3.6 billion.
See Notes 78 and 89 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.
Shares Repurchased and Retired
During the three months ended March 31, 2020, OMH repurchased and retired 2,031,698 shares of its common stock at an average price per share of $22.30, for an aggregate total of approximately $45 million, including commissions and fees. To provide funding for the OMH stock repurchase and retirement program, the SFC Board of Directors authorized multiple dividend payments in the aggregate amount of $45 million. For additional information regarding the shares repurchased see Note 11 of the Notes to the Condensed Consolidated Financial Statements and Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Part II included in this report.
Cash Dividends to ourOMH's Common Stockholders
As of March 31, 2020, dividend declarations for the current year by OMH's board of directors were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Declaration Date | | Record Date | | Payment Date | | Dividend Per Share | | | Amount Paid |
| | | | | | | | | (in millions) |
February 10, 2020 | | February 26, 2020 | | March 13, 2020 | | $ | 2.83 | | * | | | $ | 386 | |
| | | | | | | | | |
| | | | | | | | | |
*On February 11, 2019, we announced an initial10, 2020 dividend declaration consisted of a regular quarterly dividend of $0.25$0.33 per share and a special dividend of $2.50 per share.
To provide funding for the dividends, SFC paid $34dividends to OMH of $386 million on March 15, 2019 to record holders of our common stock as of the close of business on February 26, 2019. 12, 2020.
On April 29, 2019, the Company announced27, 2020, OMH declared a regular quarterly dividend of $0.25$0.33 per share payable on June 14, 201912, 2020 to record holders of ourOMH's common stock as of the close of business on May 29, 2019.2020. To provide funding for the OMH dividend, the SFC Board of Directors authorized a dividend in the amount of up to $45 million payable on or after June 9, 2020.
While we intendOMH intends to pay regular quarterly dividends for the foreseeable future, and has announced its intention to pay semi-annual special dividends, all subsequent dividends will be reviewed quarterly and declared at the discretion of ourthe 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 ourthe board of directors deems relevant. OurOMH's dividend payments may change from time to time, and wethe board of directors may not continue to declare dividends in the future.
LIQUIDITY
OMH's Operating Activities
Net cash provided by operations of $565 million for the three months ended March 31, 2020 reflected net income of $32 million, the impact of non-cash items, and an unfavorable change in working capital of $45 million. 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. items, and a favorable change in working capital of $17 million.
OMH's Investing Activities
Net cash provided by operationsused for investing activities of $555$196 million for the three months ended March 31, 2018 reflected net income of $124 million2020 and the impact of non-cash 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 were 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, sales, and maturities of available-for-sale securities.
OMH's Financing Activities
Net cash provided by financing activities of $2.8 billion for the three months ended March 31, 2020 was primarily due to net issuances of long-term debt offset by the quarterly and special cash dividends paid, and the cash paid on the common stock repurchased in the quarter. 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 were primarily due to net issuanceissuances of long-term debt.debt offset by the quarterly cash dividends paid.
OMH's Cash and Investments
At March 31, 2019,2020, we had $1.7$4.2 billion of cash and cash equivalents, which included $312$181 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, 2019,2020, we had $1.7$1.8 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 credit ratings are non-investment grade, which hasmay have a significant impact on our cost 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 are further described in our “Liquidity and Capital Resources” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our 20182019 Annual Report on Form 10-K.
Principal 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 strategies that are further described in our “Liquidity and Capital Resources” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our 20182019 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. AHL and Triton did not pay any dividends during the three months ended March 31, 2020 and 2019. On March 7, 2019, we entered into a share purchase agreement to sell all of the issued and outstanding shares of our former insurance subsidiary, Merit. The transaction closed on December 31, 2019. Merit also did not pay any dividends during the three months ended March 31, 2019. See Note 1412 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20182019 Annual Report on Form 10-K for more information on these restrictions.state regulation restrictions and the Merit AHL and Triton did not pay any dividends during the three months ended March 31, 2019 and 2018.sale.
OUR DEBT AGREEMENTS
The debt agreements to which SFC and its subsidiaries are a party include customary terms and conditions, including covenants and representations and warranties. See Note 1210 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20182019 Annual Report on Form 10-K for more information on the restrictive covenants under SFC’s debt agreements, as well as the guarantees of SFC’s long-term debt.
Securitized Borrowings
We execute private securitizations under Rule 144A of the Securities Act of 1933. As of March 31, 2019,2020, our structured financings consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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-B | | $ | 314 | | | $ | 336 | | | $ | 314 | | | $ | 320 | | | 3.78 | % | | 5 years | | | | |
SLFT 2016-A | | 532 | | | 559 | | | 120 | | | 167 | | | 3.72 | % | | 2 years | | | | |
SLFT 2017-A | | 652 | | | 685 | | | 619 | | | 685 | | | 2.98 | % | | 3 years | | | | |
OMFIT 2015-3 | | 293 | | | 329 | | | 293 | | | 325 | | | 4.21 | % | | 5 years | | | | |
OMFIT 2016-1 | | 500 | | | 570 | | | 110 | | | 192 | | | 5.13 | % | | 3 years | | | | |
OMFIT 2016-3 | | 350 | | | 397 | | | 317 | | | 391 | | | 4.33 | % | | 5 years | | | | |
OMFIT 2017-1 | | 947 | | | 988 | | | 630 | | | 663 | | | 2.70 | % | | 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 | | | | |
OMFIT 2019-2 | | 900 | | | 947 | | | 900 | | | 947 | | | 3.30 | % | | 7 years | | | | |
OMFIT 2019-A | | 789 | | | 892 | | | 750 | | | 892 | | | 3.78 | % | | 7 years | | | | |
ODART 2017-2 | | 605 | | | 624 | | | 193 | | | 227 | | | 3.22 | % | | 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 | | $ | 9,198 | | | $ | 9,726 | | | $ | 7,396 | | | $ | 8,209 | | | | | | | | | |
(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.
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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. |
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(b) | Inclusive of in-process replenishments of collateral for securitized borrowings, in a revolving status. |
(b) Inclusive of in-process replenishments of collateral for securitized borrowings in a revolving status as of March 31, 2020.
Revolving Conduit Facilities
In addition to the structured financings, we hadhave access to 1214 revolving conduit facilities with a total borrowing capacity of $6.2approximately $7.1 billion as of March 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | | Advance Maximum Balance | | Amount Drawn | | Revolving Period End | | Due and Payable |
| | | | | | | | |
Rocky River Funding, LLC | | $ | 400 | | | $ | 400 | | | April 2022 | | May 2023 |
OneMain Financial Funding IX, LLC | | 650 | | | — | | | June 2022 | | July 2023 |
Mystic River Funding, LLC | | 850 | | | 500 | | | September 2022 | | October 2025 |
Fourth Avenue Auto Funding, LLC | | 200 | | | 200 | | | June 2022 | | July 2023 |
OneMain Financial Funding VIII, LLC | | 650 | | | 200 | | | August 2021 | | September 2023 |
Thayer Brook Funding, LLC | | 250 | | | 200 | | | July 2021 | | August 2022 |
Hubbard River Funding, LLC | | 250 | | | 250 | | | September 2021 | | October 2023 |
Seine River Funding, LLC | | 650 | | | 250 | | | October 2021 | | November 2024 |
New River Funding, LLC | | 250 | | | — | | | March 2022 | | April 2027 |
Hudson River Funding, LLC | | 500 | | | 250 | | | June 2022 | | July 2025 |
Columbia River Funding, LLC | | 500 | | | 250 | | | September 2022 | | October 2025 |
St. Lawrence River Funding, LLC | | 250 | | | 250 | | | October 2022 | | November 2024 |
OneMain Financial Funding VII, LLC | | 850 | | | 500 | | | January 2023 | | February 2025 |
OneMain Financial Auto Funding I, LLC | | 850 | | | 250 | | | February 2023 | | March 2030 |
Total | | $ | 7,100 | | | $ | 3,500 | | | | | |
|
| | | | | | | | | | | | |
(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 transactionstransaction completed subsequent to March 31, 2019.2020.
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Off-Balance Sheet Arrangements |
We have no other material off-balance sheet arrangements as defined by SEC rules. Werules, and we had no material off-balance sheet exposure to losses associated with unconsolidated VIEs at March 31, 20192020 or December 31, 2018, other than certain representations and warranties associated with the sales of the mortgage-backed retained certificates during 2014. As of March 31, 2019, we had no repurchase activity related to these sales.2019.
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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 2018 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
We estimate the allowance for finance receivable losses;losses primarily on historical loss experience using a cumulative loss model applied to our finance receivable portfolios. Our gross credit loss expectation is offset by the estimate of future recoveries using historical recovery curves. Our finance receivables are primarily segmented in the loss model by contractual delinquency status. Other attributes in the model include collateral mix and recent credit score. To estimate the gross credit losses, the model utilizes a roll rate matrix to project the first 12 months of losses and historical cohort performance to project the expected losses over the remaining term. Our methodology relies solely on historical loss experience to forecast the corresponding future outcomes. These patterns are then applied to the current portfolio to obtain an estimate of future losses. We also consider key economic trends including unemployment rates and bankruptcy filings. Forecasted macroeconomic conditions extend to our reasonable and supportable forecast period and revert to a historical average. No new volume is assumed. Renewals are a significant piece of our new volume and are considered a terminal event of the previous loan. We have elected not to measure an allowance on accrued finance charges as it is our policy to reverse finance charge amounts previously accrued after four contractual payments become past due.
Management exercises its judgment when determining the amount of the allowance for finance receivable losses. Our judgment is based on quantitative analyses, qualitative factors, such as recent portfolio, industry, and other economic trends, and experience in the consumer finance industry. We adjust the amounts determined by our model for management’s estimate of the effects of model imprecision which include but are not limited to, any changes to underwriting criteria and portfolio seasoning.
TDR FINANCE RECEIVABLES
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 receivables;receivable. Loan modifications primarily involve a combination of the following to reduce the borrower’s monthly payment: reduce interest rate, extend the term, defer or forgive past due interest or forgive principal. Account modifications that are deemed to be a TDR finance receivable are measured for impairment in accordance with the authoritative guidance for the accounting for impaired loans.
The allowance for finance receivable losses related to our TDR finance receivables represents loan-specific reserves based on an analysis of the present value of expected future cash flows. We establish our allowance for finance receivable losses related to our TDR finance receivables by calculating the present value (discounted at the loan’s effective interest rate prior to modification) of all expected cash flows less the recorded investment in the aggregated pool. We use certain assumptions to estimate the expected cash flows from our TDR finance receivables. The primary assumptions for our model are prepayment speeds, default rates, and loss severity rates.
FAIR VALUE MEASUREMENTS
Management is responsible for the determination of the fair value measurements;of our financial assets and financial liabilities and the supporting methodologies and assumptions. We employ widely used financial techniques or utilize third-party valuation service providers to gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments or pools of finance receivables. When our valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, we determine fair value either by requesting brokers who are knowledgeable about these securities to provide a quote, which is generally non-binding, or by employing widely used financial techniques.
GOODWILL AND OTHER INTANGIBLE ASSETS
We test goodwill for potential impairment annually as of October 1 of each year and otherwhenever events occur or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount. If the qualitative assessment indicates that it is more likely than not that the reporting unit’s fair value is less than its carrying amount, we proceed with the quantitative impairment test. When necessary, the fair value of the reporting unit is calculated utilizing the income approach, which uses prospective financial information of the reporting unit discounted at a rate that we estimate a market participant would use.
For indefinite-lived intangible assets.
Thereassets, we review for impairment at least annually and whenever events occur or circumstances change that would indicate the assets are more likely than not to be impaired. We first complete an annual qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. If the qualitative assessment indicates that the assets are more likely than not to have been no materialimpaired, we proceed with the fair value calculation of the assets. The fair value is determined in accordance with our fair value measurement policy.
For those net intangible assets with a finite useful life, we review such intangibles for impairment at least annually and whenever events or changes to our critical accounting policies or to our methodologies for deriving critical accounting estimates duringin circumstances indicate that the three months ended March 31, 2019.carrying amounts may not be recoverable.
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Recent Accounting Pronouncements |
See Note 23 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. 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 lowestlower in the first quarterand second quarters 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. Our normal seasonality trends may be affected by COVID-19.
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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 20182019 Annual Report on Form 10-K.
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Item 4. Controls and Procedures. |
CONTROLS AND PROCEDURES OF ONEMAIN HOLDINGS, INC.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information we areOMH is required to disclose in reports that we fileOMH files or submitsubmits 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 ourthe Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of March 31, 2019, we2020, OMH carried out an evaluation of the effectiveness of ourits 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 ourOMH’s management, including ourthe Chief Executive Officer and ourthe Chief Financial Officer. Based on ourthe evaluation, ourthe Chief Executive Officer and ourthe Chief Financial Officer concluded that ourOMH's disclosure controls and procedures were effective as of March 31, 20192020 to provide the reasonable assurance described above.
Changes in Internal Control over Financial Reporting
There were no changes in ourOMH's internal control over financial reporting during the first quarter of 20192020 that have materially affected, or are reasonably likely to materially affect, ourOMH's internal control over financial reporting.
CONTROLS AND PROCEDURES OF SPRINGLEAF FINANCE CORPORATION
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information SFC is required to disclose in reports that SFC files or submits 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 management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of March 31, 2020, SFC carried out an evaluation of the effectiveness of its 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 SFC’s management, including the Chief Executive Officer and the Chief Financial Officer. Based on the evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that SFC's disclosure controls and procedures were effective as of March 31, 2020 to provide the reasonable assurance described above.
Changes in Internal Control over Financial Reporting
There were no changes in SFC's internal control over financial reporting during the first quarter of 2020 that have materially affected, or are reasonably likely to materially affect, SFC's internal control over financial reporting.
PART II — OTHER INFORMATION
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Item 1. Legal Proceedings. |
See Note 1314 of the Notes to the Condensed Consolidated Financial Statements included in this report.
In light of recent developments related to COVID-19 and the adoption of ASU 2016-13, we are supplementing our risk factors. The following supplemental risk factors should be read in conjunction with the risk factors contained in Item 1A and the information under “Forward-Looking Statements” in our 2019 Annual Report, as filed with the SEC on February 14, 2020.
RISKS RELATED TO OUR BUSINESS
The COVID-19 pandemic is adversely affecting consumer finance businesses including OneMain.
The COVID-19 pandemic has resulted in widespread volatility and deterioration in economic conditions across the United States. Governmental authorities have taken a number of steps to combat or slow the spread of the COVID-19 pandemic, including shutdowns of non-essential businesses, stay at home orders, social distancing measures, and other actions which have disrupted economic activity.These disruptions have resulted in a significant reduction in the number of customers at our branch locations and lower demand for our products, which, combined with our recent credit tightening, has decreased our loan originations. The COVID-19 pandemic has also resulted in higher unemployment in the United States, which we expect will result in increased delinquencies and credit losses on loans outstanding. In addition, if significant portions of our workforce are unable to work effectively as a result of the COVID-19 pandemic, there may be servicing and other disruptions to our business.
Federal, state and local governments have mandated or encouraged financial services companies to make accommodations to borrowers and other customers affected by the COVID-19 pandemic. Legal and regulatory responses to concerns about the COVID-19 pandemic could result in additional regulation or restrictions affecting the conduct of our business in the future. In April 2020, we announced programs to support customers and communities suffering from the effects of the COVID-19 pandemic, including offering reduced and deferred payment options for customers negatively impacted by COVID-19, waiving late fees for payments due March 15 through April 30, 2020, and suspending credit bureau reporting for newly delinquent accounts in March and April 2020. All of the foregoing may adversely affect our income and other results of operations in the near term or make collection of our personal loans more difficult or reduce income received from such loans or our ability to obtain financing with respect to such loans.
The COVID-19 pandemic has also caused significant recent volatility in financial markets and adverse economic conditions and may have significant long-term adverse effects on the U.S. economy, including increased instability in capital markets, declines in business and consumer confidence, reductions in economic activity, increased unemployment and recession, any of which may adversely affect our ability to access the capital markets and could have an adverse impact on our liquidity, our income and our ability to support our operations and other negative impacts on our financial position, results of operations, and prospects. Further, sustained adverse effects from the COVID-19 pandemic may also prevent us from satisfying our regulatory and other supervisory requirements or result in downgrades in our credit ratings.
We are unable to estimate the extent of the adverse impact of the COVID-19 pandemic on our business and operations at this time.
If our estimates of allowance for finance receivable losses are not adequate to absorb actual losses, our provision for finance receivable losses would increase, which would adversely affect our results of operations.
We maintain an allowance for finance receivable losses. To estimate the appropriate level of allowance for finance receivable losses, we consider known and relevant internal and external factors that affect finance receivable collectability, including the total amount of finance receivables outstanding, historical finance receivable charge-offs, our current collection patterns, and current and forecasted economic trends. Our methodology for establishing our allowance for finance receivable losses is based on the guidance from ASC 326, Financial Instruments – Credit Losses, which requires us to measure expected credit losses for financial assets at each reporting date. The allowance is primarily based on historical experience, current conditions, and our reasonable and supportable forecast of economic conditions. If customer behavior changes as a result of economic conditions and if we are unable to accurately predict how the unemployment rate, personal bankruptcy filings, and general economic conditions may affect our allowance for finance receivable losses, our allowance for finance receivable losses may be inadequate. Our allowance for finance receivable losses is an estimate, and if actual finance receivable losses are materially greater than our allowance for finance receivable losses, our results of operations could be adversely affected. Neither state regulators nor federal regulators regulate our allowance for finance receivable losses.
RISKS RELATED TO FINANCIAL REPORTING
Our valuations may include methodologies, models, estimations and assumptions which are subject to differing interpretations and could result in changes to financial assets and liabilities that may materially adversely affect our results of operations and financial condition.
The allowance for finance receivable losses is a critical accounting estimate which requires us to use significant estimates and assumptions to determine the appropriate level of allowance. We estimate the allowance for finance receivable losses primarily on historical loss experience using a cumulative loss model applied to our finance receivable portfolio. Our gross loss expectation is offset by the estimate of future recoveries using historical recovery curves on the active portfolio along with accounts that were previously charged-off. We adjust the amounts determined by the model for the impact of management’s economic forecast, such as the levels of unemployment and personal bankruptcy filings, and the effects of model imprecision which include any changes to underwriting criteria and portfolio seasoning. If we are unable to predict certain of these assumptions accurately, our allowance for finance receivable losses may be inadequate. If actual finance receivable losses are materially greater than our allowance for finance receivable losses, our results of operations, financial condition, and liquidity could be adversely affected.
We use estimates, assumptions, and judgments when certain financial assets and liabilities are measured and reported at fair value. Fair values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices and/or other observable inputs provided by independent third-party sources, when available.During periods of market disruption, including periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to value certain assets if trading becomes less frequent or market data becomes less observable. In such cases, certain asset valuations may require significant judgment, and may include inputs and assumptions that require greater estimation, including credit quality, liquidity, interest rates and other relevant inputs. Changes in underlying factors, assumptions, or estimates in any of these areas could have a material adverse effect on our results of operations, financial condition, and liquidity.
There have been no other material changes to our risk factors included in Part I, Item 1A of our 20182019 Annual Report on Form 10-K.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSThere were no unregistered sales of our common stock during the period covered by this Quarterly Report on Form 10-Q.
Share repurchase activity forShares Repurchased and Retired
During the three months ended March 31, 2019 was2020, the OMH Board of Directors approved a stock repurchase program, which allowed us to repurchase up to $200 million of OMH’s outstanding common stock, with no stated expiration. On March 20, 2020, OMH temporarily suspended its stock repurchase program. OMH retains the right to reinstate the stock repurchase program as follows:circumstances change. For additional information regarding shares repurchased during the period, see Notes 11 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information.
The following table presents information regarding repurchases of our common stock during the quarter ended March 31, 2020:
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Period | | Total Number of Shares Purchased | | Average Price paid per Share | | Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs |
January 1 - January 31 | | — | | | $ | — | | | $ | — | |
February 1 - February 29 | | — | | | — | | | — | |
March 1 - March 31 | | 2,031,698 | | | 22.30 | | | $ | 154,687,295 | |
Total | | 2,031,698 | | | $ | 22.30 | | | |
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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, 2019 - January 31, 2019 | | — |
| | $ | — |
| | — |
| | — |
|
February 1, 2019 - February 28, 2019 | | 8,246 |
| | 34.60 |
| | — |
| | — |
|
March 1, 2019 - March 31, 2019 | | — |
| | — |
| | — |
| | — |
|
Total | | 8,246 |
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* | 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. |
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Item 3. Defaults Upon Senior Securities. |
None.
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Item 4. Mine Safety Disclosures. |
Not applicable.None.
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Item 5. Other Information. |
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.None.
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Item 6. Exhibits.Exhibit Index. |
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Exhibit Number | | Description |
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Exhibit Number | | Description |
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101 | | |
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101 | | Interactive data files pursuant to Rule 405 of Regulation S-T:S-T, formatted in Inline XBRL: (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’Shareholder’s Equity, (v) Condensed Consolidated Statements of Cash Flows, and
(vi) Notes to the Condensed Consolidated Financial Statements.
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104 | | Cover Page Interactive Data File in Inline XBRL format (Included in Exhibit 101). |
* 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) | |
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Date: | May 3, 2019April 29, 2020 | | By: | /s/ Micah R. Conrad |
| | | | Micah R. Conrad |
| | | | Executive Vice President and Chief Financial Officer |
| | | | (Duly Authorized Officer and Principal Financial Officer) |
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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| | | SPRINGLEAF FINANCE CORPORATION | |
| | | (Registrant) | |
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Date: | April 29, 2020 | | By: | /s/ Micah R. Conrad |
| | | | Micah R. Conrad |
| | | | Executive Vice President and Chief Financial Officer |
| | | | (Duly Authorized Officer and Principal Financial Officer) |