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

FORM 10-Q

(Mark One)
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2016
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to
 
Commission file number 001-36129

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 

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

At November 1, 2016 , there were 134,754,696 shares of the registrant’s common stock, $0.01 par value, outstanding.
 

Table of Contents


TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.    

ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)

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

 
 

Cash and cash equivalents
 
$
658

 
$
939

Investment securities
 
1,788

 
1,867

Net finance receivables:
 
 

 
 

Personal loans (includes loans of consolidated VIEs of $9.8 billion in 2016 and $11.4 billion in 2015)
 
13,656

 
13,295

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

 
1,703

Real estate loans
 
201

 
538

Retail sales finance
 
13

 
23

Net finance receivables
 
13,870

 
15,559

Unearned insurance premium and claim reserves
 
(608
)
 
(662
)
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $500 million in 2016 and $431 million in 2015)
 
(672
)
 
(592
)
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses
 
12,590

 
14,305

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

 
793

Restricted cash and cash equivalents (includes restricted cash and cash equivalents of consolidated VIEs of $548 million in 2016 and $663 million in 2015)
 
558

 
676

Goodwill
 
1,422

 
1,440

Other intangible assets
 
507

 
559

Other assets
 
664

 
611

 
 
 
 
 
Total assets
 
$
18,353

 
$
21,190

 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 

 
 

Long-term debt (includes debt of consolidated VIEs of $8.3 billion in 2016 and $11.7 billion in 2015)
 
$
13,994

 
$
17,300

Insurance claims and policyholder liabilities
 
752

 
747

Deferred and accrued taxes
 
72

 
29

Other liabilities (includes other liabilities of consolidated VIEs of $14 million in 2016 and $15 million in 2015)
 
489

 
384

Total liabilities
 
15,307

 
18,460

Commitments and contingent liabilities (Note 14)
 


 

 
 
 
 
 
Shareholders’ equity:
 
 

 
 

Common stock, par value $.01 per share; 2,000,000,000 shares authorized, 134,754,696 and 134,494,172 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
 
1

 
1

Additional paid-in capital
 
1,545

 
1,533

Accumulated other comprehensive income (loss)
 
4

 
(33
)
Retained earnings
 
1,496

 
1,308

OneMain Holdings, Inc. shareholders’ equity
 
3,046

 
2,809

Non-controlling interests
 
—

 
(79
)
Total shareholders’ equity
 
3,046

 
2,730

 
 
 
 
 
Total liabilities and shareholders’ equity
 
$
18,353

 
$
21,190


See Notes to Condensed Consolidated Financial Statements.

3
Table of Contents


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

(dollars in millions, except earnings (loss) per share)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 

 
 
 

Interest income:
 
 
 
 
 
 
 
 
Finance charges
 
$
763

 
$
422

 
$
2,271

 
$
1,227

Finance receivables held for sale originated as held for investment
 
7

 
5

 
71

 
13

Total interest income
 
770

 
427

 
2,342

 
1,240

 
 
 
 
 
 
 
 
 
Interest expense
 
215

 
171

 
655

 
500

 
 
 
 
 
 
 
 
 
Net interest income
 
555

 
256

 
1,687

 
740

 
 
 
 
 
 
 
 
 
Provision for finance receivable losses
 
263

 
79

 
674

 
233

 
 
 
 
 
 
 
 
 
Net interest income after provision for finance receivable losses
 
292

 
177

 
1,013

 
507

 
 
 
 
 
 
 
 
 
Other revenues:
 
 

 
 

 
 

 
 

Insurance
 
114

 
40

 
342

 
116

Investment
 
22

 
11

 
66

 
44

Net loss on repurchases and repayments of debt
 
—

 
—

 
(16
)
 
—

Net gain on sale of SpringCastle interests
 
—

 
—

 
167

 
—

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

 
18

 
—

Other
 
26

 
(4
)
 
49

 
(6
)
Total other revenues
 
158

 
47

 
626

 
154

 
 
 
 
 
 
 
 
 
Other expenses:
 
 

 
 

 
 

 
 

Operating expenses:
 
 

 
 

 
 

 
 

Salaries and benefits
 
191

 
100

 
597

 
305

Acquisition-related transaction and integration expenses
 
21

 
14

 
75

 
29

Other operating expenses
 
168

 
73

 
512

 
198

Insurance policy benefits and claims
 
37

 
17

 
128

 
53

Total other expenses
 
417

 
204

 
1,312

 
585

 
 
 
 
 
 
 
 
 
Income before provision for income taxes
 
33

 
20

 
327

 
76

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
8

 
1

 
111

 
1

 
 
 
 
 
 
 
 
 
Net income
 
25

 
19

 
216

 
75

 
 
 
 
 
 
 
 
 
Net income attributable to non-controlling interests
 
—

 
32

 
28

 
98

 
 
 
 
 
 
 
 
 
Net income (loss) attributable to OneMain Holdings, Inc.
 
$
25

 
$
(13
)
 
$
188

 
$
(23
)
 
 
 
 
 
 
 
 
 
Share Data:
 
 

 
 

 
 

 
 

Weighted average number of shares outstanding:
 
 

 
 

 
 

 
 

Basic
 
134,730,251

 
134,452,763

 
134,717,870

 
125,701,635

Diluted
 
134,987,134

 
134,452,763

 
134,949,337

 
125,701,635

Earnings (loss) per share:
 
 

 
 

 
 

 
 

Basic
 
$
0.19

 
$
(0.10
)
 
$
1.40

 
$
(0.18
)
Diluted
 
$
0.19

 
$
(0.10
)
 
$
1.39

 
$
(0.18
)

See Notes to Condensed Consolidated Financial Statements.


4
Table of Contents


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

(dollars in millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net income
 
$
25

 
$
19

 
$
216

 
$
75

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 

 
 

 
 

 
 

Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities
 
9

 
(3
)
 
67

 
(8
)
Foreign currency translation adjustments
 
(1
)
 
—

 
6

 
—

Income tax effect:
 
 

 
 

 
 

 
 

Net unrealized (gains) losses on non-credit impaired available-for-sale securities
 
(3
)
 
1

 
(23
)
 
3

Foreign currency translation adjustments
 
1

 
—

 
(2
)
 
—

Other comprehensive income (loss), net of tax, before reclassification adjustments
 
6

 
(2
)
 
48

 
(5
)
Reclassification adjustments included in net income:
 
 

 
 

 
 

 
 

Net realized gains on available-for-sale securities
 
(3
)
 
(4
)
 
(9
)
 
(14
)
Net realized gain on foreign currency translation adjustments
 
(5
)
 
—

 
(5
)
 
—

Income tax effect:
 
 

 
 

 
 

 
 

Net realized gains on available-for-sale securities
 
1

 
2

 
3

 
5

Reclassification adjustments included in net income, net of tax
 
(7
)
 
(2
)
 
(11
)
 
(9
)
Other comprehensive income (loss), net of tax
 
(1
)
 
(4
)
 
37

 
(14
)
 
 
 
 
 
 
 
 
 
Comprehensive income
 
24

 
15

 
253

 
61

 
 
 
 
 
 
 
 
 
Comprehensive income attributable to non-controlling interests
 
—

 
32

 
28

 
98

 
 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to OneMain Holdings, Inc.
 
$
24

 
$
(17
)
 
$
225

 
$
(37
)

See Notes to Condensed Consolidated Financial Statements.


5
Table of Contents


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
 
OneMain
Holdings, Inc.
Shareholders’
Equity
 
Non-controlling Interests
 
Total
Shareholders’
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2016
 
$
1

 
$
1,533

 
$
(33
)
 
$
1,308

 
$
2,809

 
$
(79
)
 
$
2,730

Share-based compensation expense, net of forfeitures
 
—

 
16

 
—

 
—

 
16

 
—

 
16

Withholding tax on vested RSUs
 
—

 
(4
)
 
—

 
—

 
(4
)
 
—

 
(4
)
Change in non-controlling interests:
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Distributions declared to joint venture partners
 
—

 
—

 
—

 
—

 
—

 
(18
)
 
(18
)
Sale of equity interests in SpringCastle joint venture
 
—

 
—

 
—

 
—

 
—

 
69

 
69

Other comprehensive income
 
—

 
—

 
37

 
—

 
37

 
—

 
37

Net income
 
—

 
—

 
—

 
188

 
188

 
28

 
216

Balance, September 30, 2016
 
$
1

 
$
1,545

 
$
4

 
$
1,496

 
$
3,046

 
$
—

 
$
3,046

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2015
 
$
1

 
$
529

 
$
3

 
$
1,528

 
$
2,061

 
$
(129
)
 
$
1,932

Sale of common stock, net of offering costs
 
—

 
976

 
—

 
—

 
976

 
—

 
976

Non-cash incentive compensation from Initial Stockholder
 
—

 
15

 
—

 
—

 
15

 
—

 
15

Share-based compensation expense, net of forfeitures
 
—

 
6

 
—

 
—

 
6

 
—

 
6

Excess tax benefit from share-based compensation
 
—

 
2

 
—

 
—

 
2

 
—

 
2

Withholding tax on vested RSUs
 
—

 
(4
)
 
—

 
—

 
(4
)
 
—

 
(4
)
Change in non-controlling interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions declared to joint venture partners
 
—

 
—

 
—

 
—

 
—

 
(58
)
 
(58
)
Other comprehensive loss
 
—

 
—

 
(14
)
 
—

 
(14
)
 
—

 
(14
)
Net income (loss)
 
—

 
—

 
—

 
(23
)
 
(23
)
 
98

 
75

Balance, September 30, 2015
 
$
1

 
$
1,524

 
$
(11
)
 
$
1,505

 
$
3,019

 
$
(89
)
 
$
2,930


See Notes to Condensed Consolidated Financial Statements.


6
Table of Contents


ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollars in millions)
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
 
 
 
 
Cash flows from operating activities
 
 

 
 

Net income
 
$
216

 
$
75

Reconciling adjustments:
 
 

 
 

Provision for finance receivable losses
 
674

 
233

Depreciation and amortization
 
416

 
75

Deferred income tax benefit
 
(99
)
 
(10
)
Net gain on liquidation of United Kingdom subsidiary
 
(5
)
 
—

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

Net loss on repurchases and repayments of debt
 
16

 
—

Non-cash incentive compensation from Initial Stockholder
 
—

 
15

Share-based compensation expense, net of forfeitures
 
16

 
6

Net gain on sale of SpringCastle interests
 
(167
)
 
—

Other
 
(7
)
 
(10
)
Cash flows due to changes in:
 
 

 
 

Other assets and other liabilities
 
92

 
41

Insurance claims and policyholder liabilities
 
(50
)
 
22

Taxes receivable and payable
 
49

 
(49
)
Accrued interest and finance charges
 
2

 
(1
)
Restricted cash and cash equivalents not reinvested
 
2

 
—

Other, net
 
2

 
1

Net cash provided by operating activities
 
1,139

 
398

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Net principal collections (originations) of finance receivables held for investment and held for sale
 
(998
)
 
(593
)
Proceeds on sales of finance receivables held for sale originated as held for investment
 
870

 
88

Proceeds from sale of SpringCastle interests
 
101

 
—

Cash received from CitiFinancial Credit Company
 
23

 
—

Available-for-sale securities purchased
 
(446
)
 
(382
)
Trading and other securities purchased
 
(16
)
 
(1,465
)
Available-for-sale securities called, sold, and matured
 
597

 
411

Trading and other securities called, sold, and matured
 
52

 
2,581

Change in restricted cash and cash equivalents
 
40

 
(46
)
Proceeds from sale of real estate owned
 
7

 
12

Other, net
 
(26
)
 
(13
)
Net cash provided by investing activities
 
204

 
593

 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Proceeds from issuance of long-term debt, net of commissions
 
4,552

 
1,929

Proceeds from issuance of common stock, net of offering costs
 
—

 
976

Repayments of long-term debt
 
(6,155
)
 
(850
)
Distributions to joint venture partners
 
(18
)
 
(58
)
Excess tax benefit from share-based compensation
 
—

 
2

Withholding tax on RSUs vested
 
(4
)
 
(4
)
Net cash provided by (used for) financing activities
 
(1,625
)
 
1,995

 
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
 
 
 
 
 
 
 
 
 
(dollars in millions)
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
1

 
—

 
 
 
 
 
Net change in cash and cash equivalents
 
(281
)
 
2,986

Cash and cash equivalents at beginning of period
 
939

 
879

Cash and cash equivalents at end of period
 
$
658

 
$
3,865

 
 
 
 
 
Supplemental non-cash activities
 
 
 
 
Transfer of finance receivables held for investment to finance receivables held for sale (prior to deducting allowance for finance receivable losses)
 
$
1,895

 
$
608

Transfer of finance receivables to real estate owned
 
$
7

 
$
8

Net unsettled investment security dispositions (purchases)
 
$
(15
)
 
$
40


See Notes to Condensed Consolidated Financial Statements.


7
Table of Contents


ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2016

1 . Business and Basis of Presentation     

OneMain Holdings, Inc. is referred to in this report as “OMH” or, collectively with its subsidiaries, whether directly or indirectly owned, the “Company,” “we,” “us,” or “our.” OMH is a Delaware corporation. At September 30, 2016 , Springleaf Financial Holdings, LLC (the “Initial Stockholder”) owned approximately 58% of OMH’s common stock. The Initial Stockholder is owned primarily by a private equity fund managed by an affiliate of Fortress Investment Group LLC (“Fortress”).

On November 15, 2015, OMH completed its acquisition of OneMain Financial Holdings, LLC (“OMFH”) from CitiFinancial Credit Company (“Citigroup”) for $4.5 billion in cash (the “OneMain Acquisition”). As a result of the OneMain Acquisition, OMFH became a wholly owned, indirect subsidiary of OMH. See Note 2 for further information on the OneMain Acquisition.

OMH is a financial services holding company whose principal subsidiaries are Springleaf Finance, Inc. (“SFI”) and Independence Holdings, LLC (“Independence”). SFI’s principal subsidiary is Springleaf Finance Corporation (“SFC”), and Independence’s principal subsidiary is OMFH. SFC and OMFH are financial services holding companies with subsidiaries engaged in the consumer finance and insurance businesses. OMFH, collectively with its subsidiaries, is referred to in this report as “OneMain.” OMH and its subsidiaries (other than OneMain) is referred to in this report as “Springleaf.”

BASIS OF PRESENTATION

We prepared our condensed consolidated financial statements using generally accepted accounting principles in the United States of America (“GAAP”). These statements are unaudited. The year-end condensed balance sheet data was derived from our audited financial statements, but does not include all disclosures required by GAAP. The statements include the accounts of OMH, its subsidiaries (all of which are wholly owned, except for certain indirect subsidiaries associated with a joint venture in which we owned a 47% equity interest prior to March 31, 2016), and variable interest entities (“VIEs”) in which we hold a controlling financial interest and for which we are considered to be the primary beneficiary as of the financial statement date.

We eliminated all material intercompany accounts and transactions. We made judgments, estimates, and assumptions that affect amounts reported in our condensed consolidated financial statements and disclosures of contingent assets and liabilities. In management’s opinion, the condensed consolidated financial statements include the normal, recurring adjustments necessary for a fair statement of results. Ultimate results could differ from our estimates. We evaluated the effects of and the need to disclose events that occurred subsequent to the balance sheet date. To conform to the 2016 presentation, we have reclassified certain items in prior periods, including certain items in prior periods of our condensed consolidated financial statements.

The condensed consolidated financial statements in this report should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (“ 2015 Annual Report on Form 10-K”). We follow the same significant accounting policies for our interim reporting, except for the change in accounting policy discussed below. As a result of the change in accounting policy, we have revised certain sections in our 2015 Annual Report on Form 10-K to reflect the retrospective application of this change in accounting policy, and such revised disclosures are included in exhibits to our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on August 29, 2016 (the “retrospective Form 8-K”). Therefore, the condensed consolidated financial statements in this report should also be read in conjunction with the retrospective Form 8-K.

CHANGE IN ACCOUNTING POLICY

Effective April 1, 2016, we changed our accounting policy for the derecognition of loans within a purchased credit impaired pool. Historically, we removed loans from a purchased credit impaired pool upon charge-off of the loan, based on the Company’s charge-off accounting policy at their allocated carrying value. Under our new accounting policy, loans will be removed from a purchased credit impaired pool when the loan is written-off, at which time further collections efforts would not be pursued, or sold or repaid. While both methods are acceptable under GAAP, we believe the new method for derecognition of purchased credit impaired loans is preferable as it enhances consistency with our industry peers. As of January 1, 2015, the cumulative effect of applying the change in accounting policy increased shareholders’ equity by $36 million .


8


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

•
increased income before provision for income taxes by $24 million and $27 million ;
•
increased net income by $15 million and $17 million ;
•
increased net income attributable to OMH by $15 million and $15 million ;
•
increased basic earnings per share by $0.11 and $0.11 ; and
•
increased diluted earnings per share by $0.11 and $0.11 .

Our policy for derecognition of purchased credit impaired loans following the change described above is presented below:

Purchased Credit Impaired Finance Receivables

As part of each of our acquisitions, we identify a population of finance receivables for which it is determined that it is probable that we will be unable to collect all contractually required payments. The population of accounts identified generally consists of those finance receivables that are (i) 60 days or more past due at acquisition, (ii) which had been classified as troubled debt restructured (“TDR”) finance receivables as of the acquisition date, (iii) may have been previously modified, or (iv) had other indications of credit deterioration as of the acquisition date.

We accrete the excess of the cash flows expected to be collected on the purchased credit impaired finance receivables over the discounted cash flows (the “accretable yield”) into interest income at a level rate of return over the expected lives of the underlying pools of the purchased credit impaired finance receivables. The underlying pools are based on finance receivables with common risk characteristics. We have established policies and procedures to update on a quarterly basis the amount of cash flows we expect to collect, which incorporates assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that are reflective of then current market conditions. Probable decreases in expected finance receivable cash flows result in the recognition of impairment, which is recognized through the provision for finance receivable losses. Probable significant increases in expected cash flows to be collected would first reverse any previously recorded allowance for finance receivable losses; any remaining increases are recognized prospectively as adjustments to the respective pool’s yield.

Our purchased credit impaired finance receivables remain in our purchased credit impaired pools until liquidation or write-off. We do not reclassify modified purchased credit impaired finance receivables as TDR finance receivables.

We have additionally established policies and procedures related to maintaining the integrity of these pools. A finance receivable will not be removed from a pool unless we sell, foreclose, or otherwise receive assets in satisfaction of a particular finance receivable or a finance receivable is written-off. If a finance receivable is renewed and additional funds are lent and terms are adjusted to current market conditions, we consider this a new finance receivable and the previous finance receivable is removed from the pool. If the facts and circumstances indicate that a finance receivable should be removed from a pool, that finance receivable will be removed at its allocated carrying amount, and such removal will not affect the yield used to recognize accretable yield of the pool.

We have retrospectively applied this change in accounting policy. The effect of this change in accounting policy on the amounts previously reported in our condensed consolidated statements of operations for the three and nine months ended September 30, 2015 and our condensed consolidated statements of cash flows for the nine months ended September 30, 2015 are included in the following tables.
 
 
 
 
 
 
 
 
 
 
 
 
 
 

9


Revised Condensed Consolidated Statements of Operations
(dollars in millions, except loss per share)
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
 
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
 
Finance charges
 
$
424

 
$
422

 
$
1,234

 
$
1,227

Finance receivables held for sale originated as held for investment
 
4

 
5

 
13

 
13

Total interest income
 
428

 
427

 
1,247

 
1,240

 
 
 
 
 
 
 
 
 
Interest expense
 
171

 
171

 
500

 
500

 
 
 
 
 
 
 
 
 
Net interest income
 
257

 
256

 
747

 
740

 
 
 
 
 
 
 
 
 
Provision for finance receivable losses
 
82

 
79

 
249

 
233

 
 
 
 
 
 
 
 
 
Net interest income after provision for finance receivable losses
 
175

 
177

 
498

 
507

 
 
 
 
 
 
 
 
 
Other revenues:
 
 

 
 

 
 

 
 

Insurance
 
40

 
40

 
116

 
116

Investment
 
11

 
11

 
44

 
44

Other
 
—

 
(4
)
 
(2
)
 
(6
)
Total other revenues
 
51

 
47

 
158

 
154

 
 
 
 
 
 
 
 
 
Other expenses:
 
 

 
 

 
 

 
 

Operating expenses:
 
 

 
 

 
 

 
 

Salaries and benefits
 
100

 
100

 
305

 
305

Acquisition-related transaction and integration expenses
 
14

 
14

 
29

 
29

Other operating expenses
 
73

 
73

 
198

 
198

Insurance policy benefits and claims
 
17

 
17

 
53

 
53

Total other expenses
 
204

 
204

 
585

 
585

 
 
 
 
 
 
 
 
 
Income before provision for income taxes
 
22

 
20

 
71

 
76

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
2

 
1

 
1

 
1

 
 
 
 
 
 
 
 
 
Net income
 
20

 
19

 
70

 
75

 
 
 
 
 
 
 
 
 
Net income attributable to non-controlling interests
 
31

 
32

 
93

 
98

 
 
 
 
 
 
 
 
 
Net loss attributable to OneMain Holdings, Inc.
 
$
(11
)
 
$
(13
)
 
$
(23
)
 
$
(23
)
 
 
 
 
 
 
 
 
 
Share Data:
 
 

 
 

 
 

 
 

Weighted average number of shares outstanding:
 
 

 
 

 
 

 
 

Basic
 
134,452,763

 
134,452,763

 
125,701,635

 
125,701,635

Diluted
 
134,452,763

 
134,452,763

 
125,701,635

 
125,701,635

Loss per share:
 
 

 
 

 
 

 
 

Basic
 
$
(0.08
)
 
$
(0.10
)
 
$
(0.18
)
 
$
(0.18
)
Diluted
 
$
(0.08
)
 
$
(0.10
)
 
$
(0.18
)
 
$
(0.18
)


10


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

 
 
Net income
 
$
70

 
$
75

Reconciling adjustments:
 
 

 
 
Provision for finance receivable losses
 
249

 
233

Depreciation and amortization
 
68

 
75

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

 
15

Share-based compensation expense, net of forfeitures
 
6

 
6

Other
 
(13
)
 
(10
)
Cash flows due to changes in:
 
 

 
 
Other assets and other liabilities
 
37

 
41

Insurance claims and policyholder liabilities
 
22

 
22

Taxes receivable and payable
 
(49
)
 
(49
)
Accrued interest and finance charges
 
(1
)
 
(1
)
Other, net
 
1

 
1

Net cash provided by operating activities
 
395

 
398

 
 
 
 
 
Cash flows from investing activities
 
 

 
 
Net principal collections (originations) of finance receivables held for investment and held for sale
 
(593
)
 
(593
)
Proceeds on sales of finance receivables held for sale originated as held for investment
 
88

 
88

Available-for-sale securities purchased
 
(382
)
 
(382
)
Trading and other securities purchased
 
(1,465
)
 
(1,465
)
Available-for-sale securities called, sold, and matured
 
411

 
411

Trading and other securities called, sold, and matured
 
2,581

 
2,581

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

 
12

Other, net
 
(13
)
 
(13
)
Net cash provided by investing activities
 
593

 
593

 
 
 
 
 
Cash flows from financing activities
 
 

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

 
1,929

Proceeds from issuance of common stock, net of offering costs
 
976

 
976

Repayments of long-term debt
 
(850
)
 
(850
)
Distributions to joint venture partners
 
(59
)
 
(58
)
Excess tax benefit from share-based compensation
 
2

 
2

Withholding tax on RSUs vested
 
(4
)
 
(4
)
Net cash provided by financing activities
 
1,994

 
1,995

 
 
 
 
 
Net change in cash and cash equivalents
 
2,982

 
2,986

Cash and cash equivalents at beginning of period
 
879

 
879

Cash and cash equivalents at end of period
 
$
3,861

 
$
3,865

                                      
*
The condensed consolidated statement of cash flows for the nine months ended September 30, 2015 includes a reclassification resulting from our adoption of Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting. See Note 3 for further information regarding this ASU.


11


We have also adjusted the applicable prior period amounts in the Notes to the Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 herein to reflect the impact of this change in accounting policy.

2 . Significant Transactions     

ONEMAIN ACQUISITION

On November 15, 2015, OMH completed its acquisition of OneMain from Citigroup for approximately $4.5 billion in cash after accounting for certain estimated adjustments at closing. OneMain is a leading consumer finance company in the United States, providing personal loans to primarily middle income households through a national, community based network.

We allocated the purchase price to the net tangible and intangible assets acquired and liabilities assumed, based on their respective estimated fair values as of October 31, 2015. Given the timing of this transaction and complexity of the purchase accounting, our estimate of the fair value adjustment specific to the acquired loans and intangible assets was preliminary, and our determination of the final tax positions with Citigroup was also preliminary. We intend to finalize the accounting for these matters as soon as reasonably possible and within the measurement period, which may be up to one year from the acquisition date.

The excess of the purchase price over the fair values, which we recorded as goodwill, was determined as follows:
(dollars in millions)
 
As
Reported
 
 
 
As
Adjusted
 
 
Adjustments *
 
 
 
 
 
 
 
 
Cash consideration
 
$
4,478

 
$
(23
)
(a)
$
4,455

Fair value of assets acquired:
 
 
 
 
 
 
Cash and cash equivalents
 
958

 
—

 
958

Investment securities
 
1,294

 
—

 
1,294

Personal loans
 
8,801

 
(6
)
(b)
8,795

Intangibles
 
555

 
3

(c)
558

Other assets
 
247

 
(3
)
(d)
244

Fair value of liabilities assumed:
 
 
 
 
 
 
Long-term debt
 
(7,725
)
 
—

 
(7,725
)
Unearned premium, insurance policy and claims reserves
 
(936
)
 
—

 
(936
)
Other liabilities
 
(156
)
 
1

(e)
(155
)
Goodwill
 
$
1,440

 
 
 
$
1,422

                                      
*
During the first half of 2016 , we recorded the following adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill as new information, which existed as of the acquisition date, became available:

(a)
Represents a subsequent cash payment from Citigroup as a result of reaching final agreement on certain purchase accounting adjustments.

(b)
Represents the net impact of an increase to the discount of purchased credit impaired finance receivables of $64 million and an increase to the premium on finance receivables purchased as performing receivables of $58 million as a result of revisions to the receivables valuation during the measurement period.

(c)
Represents an increase in acquired intangibles related to customer loan applications in process at the acquisition date.

(d)
Represents a decrease in valuation of acquired software asset.

(e)
Represents the settlement of a payable to Citigroup during the measurement period.

Of the adjusted $ 8.8 billion of acquired personal loans included in the table above, $8.1 billion relates to finance receivables determined not to be credit impaired at acquisition. Contractually required principal and interest of these non-credit impaired personal loans was $11.6 billion at the date of acquisition, of which $2.2 billion is not expected to be collected.


12


Changes in the carrying amount of goodwill, all of which are reported in our Consumer and Insurance segment, were as follows:
(dollars in millions)
 
Consumer
and
Insurance
 
 
 
Nine Months Ended September 30, 2016
 
 
Balance at beginning of period
 
$
1,440

Adjustments to purchase price allocation *
 
(18
)
Balance at end of period
 
$
1,422

                                      
*
Goodwill adjustments were recorded at OMFH subsidiary level.

We did not record any impairments to goodwill during the nine months ended September 30, 2016 .

The following unaudited pro forma information presents the combined results of operations of Springleaf and OneMain as if the OneMain Acquisition had occurred on January 1, 2014. The unaudited pro forma information is not necessarily indicative of the operating results that would have been achieved had the OneMain Acquisition occurred on January 1, 2014. In addition, the unaudited pro forma financial information does not purport to project the future operating results of the combined company following the OneMain Acquisition.

The unaudited pro forma information also reflects adjustments for the Lendmark Sale (as defined below), as if the Lendmark Sale had been consummated on January 1, 2015. In addition, the pro forma interest income assumes the adjustment of historical finance charges for estimated impacts of accounting for credit impaired loans. The unaudited pro forma financial information does not give effect to the SpringCastle Interests Sale or the August 2016 Real Estate Loan Sale (both of which are defined below).

As of September 30, 2016 , we had incurred approximately $137 million of acquisition-related transaction and integration expenses ( $75 million incurred during the nine months ended September 30, 2016 ) in connection with the OneMain Acquisition and the Lendmark Sale (as defined below), which we report as a component of operating expenses. These expenses include transaction costs, technology termination and certain compensation and benefit related costs.

The following table presents the unaudited pro forma financial information:
(dollars in millions)
 
Three Months Ended 
 September 30, 2015
 
Nine Months Ended 
 September 30, 2015
 
 
 
 
 
Interest income
 
$
838

 
$
2,442

Net income attributable to OneMain Holdings, Inc.
 
27

 
92


In connection with the closing of the OneMain Acquisition, on November 13, 2015, OMH and certain of its subsidiaries entered into an Asset Preservation Stipulation and Order and agreed to a Proposed Final Judgment (collectively, the “Settlement Agreement”) with the U.S. Department of Justice (the “DOJ”), as well as the state attorneys general for Colorado, Idaho, Pennsylvania, Texas, Virginia, Washington and West Virginia. The Settlement Agreement resolved the inquiries of the DOJ and such attorneys general with respect to the OneMain Acquisition and allowed OMH to proceed with the closing. Pursuant to the Settlement Agreement, OMH agreed to divest 127 branches of SFC subsidiaries across 11 states as a condition for approval of the OneMain Acquisition. The Settlement Agreement required certain of OMH’s subsidiaries (the “Branch Sellers”) to operate these 127 branches as an ongoing, economically viable and competitive business until sold to the divestiture purchaser. The court overseeing the settlement appointed a third-party monitor to oversee management of the divestiture branches and ensure the Company’s compliance with the terms of the Settlement Agreement.

SPRINGCASTLE INTERESTS SALE

On March 31, 2016, SFI, SpringCastle Holdings, LLC (“SpringCastle Holdings”) and Springleaf Acquisition Corporation (“Springleaf Acquisition” and, together with SpringCastle Holdings, the “SpringCastle Sellers”), wholly owned subsidiaries of OMH, entered into a purchase agreement with certain subsidiaries of New Residential Investment Corp. (“NRZ” and such subsidiaries, the “NRZ Buyers”) and BTO Willow Holdings II, L.P. and Blackstone Family Tactical Opportunities Investment

13


Partnership—NQ—ESC L.P. (collectively, the “Blackstone Buyers” and together with the NRZ Buyers, the “SpringCastle Buyers”). Pursuant to the purchase agreement, on March 31, 2016, SpringCastle Holdings sold its 47% limited liability company interest in each of SpringCastle America, LLC, SpringCastle Credit, LLC and SpringCastle Finance, LLC, and Springleaf Acquisition sold its 47% limited liability company interest in SpringCastle Acquisition LLC, to the SpringCastle Buyers for an aggregate purchase price of approximately $112 million (the “SpringCastle Interests Sale”). SpringCastle America, LLC, SpringCastle Credit, LLC, SpringCastle Finance, LLC and SpringCastle Acquisition LLC are collectively referred to herein as the “SpringCastle Joint Venture.”

The SpringCastle Joint Venture primarily holds subordinate ownership interests in a securitized loan portfolio (the “SpringCastle Portfolio”), which consists of unsecured loans and loans secured by subordinate residential real estate mortgages and includes both closed-end accounts and open-end lines of credit. These loans are in a liquidating status and vary in form and substance from the Company’s originated loans. At December 31, 2015, the SpringCastle Portfolio included over 232,000 of acquired loans, representing $1.7 billion in net finance receivables.

In connection with the SpringCastle Interests Sale, the SpringCastle Buyers paid $101 million of the aggregate purchase price to the SpringCastle Sellers on March 31, 2016, with the remaining $11 million paid into an escrow account on July 29, 2016. Such escrowed funds are expected to be held in escrow for a period of up to five years following March 31, 2016, and, subject to the terms of the purchase agreement and assuming certain portfolio performance requirements are satisfied, paid to the SpringCastle Sellers at the end of such five -year period. In connection with the SpringCastle Interests Sale, we recorded a net gain in other revenues at the time of sale of $ 167 million .

As a result of this sale, SpringCastle Acquisition and SpringCastle Holdings no longer hold any ownership interests of the SpringCastle Joint Venture. However, unless we are terminated, we will remain as servicer of the SpringCastle Portfolio under the servicing agreement for the SpringCastle Funding Trust. In addition, we deconsolidated the underlying loans of the SpringCastle Portfolio and previously issued securitized interests, which were reported in long-term debt, as we no longer were considered the primary beneficiary.

Prior to the SpringCastle Interests Sale, affiliates of the NRZ Buyers owned a 30% limited liability company interest in the SpringCastle Joint Venture, and affiliates of the Blackstone Buyers owned a 23% limited liability company interest in the SpringCastle Joint Venture (together, the “Other Members”). The Other Members are parties to the purchase agreement for purposes of certain limited indemnification obligations and post-closing expense reimbursement obligations of the SpringCastle Joint Venture to the SpringCastle Sellers.

The NRZ Buyers are subsidiaries of NRZ, which is externally managed by an affiliate of Fortress. The Initial Stockholder, which owned approximately 58% of OMH’s common stock as of March 31, 2016, the date of sale, was owned primarily by a private equity fund managed by an affiliate of Fortress. Mr. Edens, Chairman of the Board of Directors of OMH, also serves as Chairman of the Board of Directors of NRZ. Mr. Edens is also a principal of Fortress and serves as Co-Chairman of the Board of Directors of Fortress. Mr. Jacobs, a member of the Board of Directors of OMH, also serves as a member of NRZ’s Board of Directors and Fortress’ Board of Directors.

The purchase agreement included customary representations, warranties, covenants and indemnities. We did not record a sales recourse obligation related to the SpringCastle Interests Sale.

SFC’S OFFERING OF 8.25% SENIOR NOTES

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

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

The notes are SFC’s senior unsecured obligations and rank equally in right of payment to all of SFC’s other existing and future unsubordinated indebtedness from time to time outstanding. The notes are effectively subordinated to all of SFC’s secured

14


obligations to the extent of the value of the assets securing such obligations and structurally subordinated to any existing and future obligations of SFC’s subsidiaries with respect to claims against the assets of such subsidiaries.

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

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

LENDMARK SALE

On November 12, 2015, OMH and the Branch Sellers entered into a purchase and sale agreement with Lendmark Financial Services, LLC (“Lendmark”) to sell 127 Springleaf branches and, subject to certain exclusions, the associated personal loans issued to customers of such branches, fixed non-information technology assets and certain other tangible personal property located in such branches to Lendmark (the “Lendmark Sale”) for a purchase price equal to the sum of (i) the aggregate unpaid balance as of closing of the purchased loans multiplied by 103% , plus (ii) for each interest-bearing purchased loan, an amount equal to all unpaid interest that had accrued on the unpaid balance at the applicable note rate from the most recent interest payment date through the closing, plus (iii) the sum of all prepaid charges and fees and security deposits of the Branch Sellers to the extent arising under the purchased contracts as reflected on the books and records of the Branch Sellers as of closing, subject to certain limitations if the purchase price would exceed $695 million and Lendmark would be unable to obtain financing on certain specified terms. In anticipation of the sale of these branches, SFC transferred $608 million of personal loans from held for investment to held for sale on September 30, 2015.

Pursuant to the Settlement Agreement, we were required to dispose of the branches to be sold in connection with the Lendmark Sale within 120 days following November 13, 2015, subject to such extensions as the DOJ may approve. As we did not believe we would be able to consummate the Lendmark Sale prior to April 1, 2016, we requested two extensions of the closing deadline set forth in the Settlement Agreement. The DOJ granted our requests through May 13, 2016.

On May 2, 2016, we completed the Lendmark Sale for an aggregate cash purchase price of $624 million . Such sale was effective as of April 30, 2016, and included the sale to Lendmark of personal loans with an unpaid principal balance (“UPB”) as of March 31, 2016 of $600 million . We have entered into a transition services agreement with Lendmark dated as of May 2, 2016 (the “Transition Services Agreement”), and our activities will remain subject to the oversight of the Monitoring Trustee appointed by the court pursuant to the Settlement Agreement until the expiration of the Transition Services Agreement. The Transition Services Agreement is currently scheduled to expire on or before February 2, 2017, subject to an additional three -month extension with the permission of the DOJ. Although we continue to take such steps as we believe are necessary to comply with the terms of the Settlement Agreement, no assurance can be given that we will not incur fines or penalties associated with our activities pursuant to the Transition Services Agreement or our efforts to comply with the terms of the Settlement Agreement.

REAL ESTATE LOAN SALE

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


15


3 . Recent Accounting Pronouncements     

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

Consolidation

In February of 2015, the Financial Accounting Standards Board (the “FASB”) issued ASU 2015-02, Consolidation - Amendments to the Consolidation Analysis , which amends the current consolidation guidance and ends the deferral granted to reporting entities with variable interests in investment companies from applying certain prior amendments to the VIE guidance. This ASU is applicable to entities across all industries, particularly those that use limited partnerships as well as entities in any industry that outsource decision making or have historically applied related party tiebreakers in their consolidation analysis and disclosures. The standard became effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We have adopted this ASU and concluded that it does not have a material effect on our consolidated financial statements.

Technical Corrections and Improvements

In June of 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements , to correct differences between original guidance and the Accounting Standards Codification, clarify the guidance, correct references and make minor improvements affecting a variety of topics. The amendments to this transition guidance became effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We have adopted this ASU and concluded that it does not have a material effect on our consolidated financial statements.

Debt Instruments

In March of 2016, the FASB issued ASU 2016-06, Contingent Puts and Call Options in Debt Instruments , which clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. The ASU requires assessing the embedded call (put) options solely in accordance with the four-step decision sequence. The amendment of this ASU becomes effective on a modified retrospective basis for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We have early adopted this ASU and concluded that it does not have a material effect on our consolidated financial statements.

Stock Compensation

In March of 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting , which simplifies the accounting for share-based payment transactions, income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU were adopted as follows:

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

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

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

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

•
We adopted the amendment requiring the classification of excess tax benefits on the statement of cash flows to be presented in the operating activities instead of the financing activities, under the prospective method as of September 30, 2016. This amendment did not have a material impact on our consolidated financial statements.

16


ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED

Revenue Recognition

In May of 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , which provides a consistent revenue accounting model across industries. In August of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date , to defer the effective date of the new revenue recognition standard by one year, which would result in the ASU becoming effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. In March of 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations, which clarifies the implementation of the guidance on principal versus agent considerations from ASU 2014-09, Revenue from Contracts with Customers . ASU 2016-08 does not change the core principle of the guidance in ASU 2014-09, but rather clarifies the distinction between principal versus agent considerations when implementing ASU 2014-09. In April of 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing , to clarify the implementation guidance of ASU 2014-09 relating to performance obligations and licensing. In May of 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, to clarify guidance in ASU 2014-09 related to assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts/contract modifications. We are evaluating whether the adoption of these accounting pronouncements will have a material effect on our consolidated financial statements.

Short-Duration Insurance Contracts Disclosures

In May of 2015, the FASB issued ASU 2015-09, Disclosures about Short-Duration Contracts , to address enhanced disclosure requirements for insurers relating to short-duration insurance contract claims and unpaid claims liability rollforward for long and short-duration contracts. The disclosures are intended to provide users of financial statements with more transparent information about an insurance entity’s initial claim estimates and subsequent adjustments to those estimates, the methodologies and judgments used to estimate claims, and the timing, frequency, and severity of claims. The amendments in this ASU become effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. We are evaluating the potential impact of the adoption of the ASU on our consolidated financial statements.

Financial Instruments

In January of 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities , which simplifies the impairment assessment of equity investments. The update requires equity investments to be measured at fair value with changes recognized in net income. This ASU eliminates the requirement to disclose the methods and assumptions to estimate fair value for financial instruments, requires the use of the exit price for disclosure purposes, requires the change in liability due to a change in credit risk to be presented in other comprehensive income, requires separate presentation of financial assets and liabilities by measurement category and form of asset (securities and loans), and clarifies the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The amendments in this ASU become effective prospectively for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. We are evaluating whether the adoption of this ASU will have a material effect on our consolidated financial statements.

Leases

In February of 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . The ASU will require lessees to recognize assets and liabilities on leases with terms greater than 12 months and to disclose information related to the amount, timing and uncertainty of cash flows arising from leases, including various qualitative and quantitative requirements. The amendments in this ASU become effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. We are evaluating whether the adoption of this ASU will have a material effect on our consolidated financial statements.

Investments

In March of 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting , which eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The ASU requires that an entity that has available-for-sale securities recognize, through earnings, the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendment in this ASU becomes effective prospectively for annual periods, and interim periods within

17


those annual periods, beginning after December 15, 2016. We are evaluating whether the adoption of this ASU will have a material effect on our consolidated financial statements.

Revenue Recognition and Derivatives and Hedging

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

Allowance for Finance Receivables Losses

In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU significantly changes the way that entities will be required to measure credit losses. The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather than the “incurred loss” approach currently required. The new approach will require entities to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable forecasts of collectability. It is anticipated that the expected credit loss model will require earlier recognition of credit losses than the incurred loss approach.

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

The ASU also requires companies to record allowances for held-to-maturity and available-for-sale debt securities rather than write-downs of such assets.

In addition, the ASU requires qualitative and quantitative disclosures that provide information about the allowance and the significant factors that influenced management’s estimate of the allowance.

The ASU will become effective for the Company for fiscal years beginning January 1, 2020. Early adoption is permitted for fiscal years beginning January 1, 2019. We believe the adoption of this ASU will have a material effect on our consolidated financial statements and we are in the process of evaluating the expected impacts.

Statement of Cash Flows

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

We do not believe that any other accounting pronouncements issued during the nine months ended September 30, 2016 , but not yet effective, would have a material impact on our consolidated financial statements or disclosures, if adopted.

4 . Finance Receivables     

Our finance receivable types include personal loans, real estate loans, and retail sales finance as defined below:

•
Personal loans — are secured by consumer goods, automobiles, or other personal property or are unsecured, typically non-revolving with a fixed-rate and a fixed, original term of three to six years . At September 30, 2016 , we had over 2.2 million personal loans representing $13.7 billion of net finance receivables, compared to 2.2 million personal loans totaling $13.3 billion at December 31, 2015 .

•
Real estate loans — are secured by first or second mortgages on residential real estate, generally have maximum original terms of 360 months , and are considered non-conforming. Real estate loans may be closed-end accounts or open-end home equity lines of credit and are primarily fixed-rate products. Since we ceased real estate lending in January of 2012, our real estate loans are in a liquidating status.

18


•
Retail sales finance — include retail sales contracts and revolving retail accounts. Retail sales contracts are closed-end accounts that represent a single purchase transaction. Revolving retail accounts are open-end accounts that can be used for financing repeated purchases from the same merchant. Retail sales contracts are secured by the personal property designated in the contract and generally have maximum original terms of 60 months . Revolving retail accounts are secured by the goods purchased and generally require minimum monthly payments based on the amount financed calculated after the most recent purchase or outstanding balances. Our retail sales finance portfolio is in a liquidating status.

Our finance receivable types also included the SpringCastle Portfolio at December 31, 2015, as defined below:

•
SpringCastle Portfolio — included unsecured loans and loans secured by subordinate residential real estate mortgages that were sold on March 31, 2016, in connection with the SpringCastle Interests Sale. The SpringCastle Portfolio included both closed-end accounts and open-end lines of credit. These loans were in a liquidating status and varied in substance and form from our originated loans. Unless we are terminated, we will continue to provide the servicing for these loans pursuant to a servicing agreement, which we service as unsecured loans because the liens are subordinated to superior ranking security interests.

Components of net finance receivables held for investment by type were as follows:
(dollars in millions)
 
Personal
Loans
 
SpringCastle
Portfolio
 
Real Estate
Loans
 
Retail
Sales Finance
 
Total
 
 
 
 
 
 
 
 
 
 
 
September 30, 2016
 
 

 
 

 
 

 
 

 
 

Gross receivables *
 
$
15,607

 
$
—

 
$
200

 
$
14

 
$
15,821

Unearned finance charges and points and fees
 
(2,175
)
 
—

 
—

 
(1
)
 
(2,176
)
Accrued finance charges
 
145

 
—

 
1

 
—

 
146

Deferred origination costs
 
79

 
—

 
—

 
—

 
79

Total
 
$
13,656

 
$
—

 
$
201

 
$
13

 
$
13,870

 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 

 
 

 
 

 
 

 
 

Gross receivables *
 
$
15,353

 
$
1,672

 
$
534

 
$
25

 
$
17,584

Unearned finance charges and points and fees
 
(2,261
)
 
—

 
—

 
(2
)
 
(2,263
)
Accrued finance charges
 
147

 
31

 
4

 
—

 
182

Deferred origination costs
 
56

 
—

 
—

 
—

 
56

Total
 
$
13,295

 
$
1,703

 
$
538

 
$
23

 
$
15,559

                                      
*
Gross receivables are defined as follows:

•
Finance receivables purchased as a performing receivable — gross finance receivables equal the UPB for interest bearing accounts and the gross remaining contractual payments for precompute accounts; additionally, the remaining unearned discount, net of premium established at the time of purchase, is included in both interest bearing and precompute accounts to reflect the finance receivable balance at its initial fair value;

•
Finance receivables originated subsequent to the respective OneMain and Fortress acquisitions — gross finance receivables equal the UPB for interest bearing accounts and the gross remaining contractual payments for precompute accounts;

•
Purchased credit impaired finance receivables — gross finance receivables equal the remaining estimated cash flows less the current balance of accretable yield on the purchased credit impaired accounts; and

•
TDR finance receivables — gross finance receivables equal the UPB for interest bearing accounts and the gross remaining contractual payments for precompute accounts; additionally, the remaining unearned discount, net of premium established at the time of purchase, is included in both interest bearing and precompute accounts previously purchased as a performing receivable.


19


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

 
$
2

SpringCastle Portfolio
 
—

 
365

Real estate loans
 
10

 
30

Total
 
$
11

 
$
397


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

CREDIT QUALITY INDICATORS

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

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

Delinquent and Nonperforming Finance Receivables

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

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


20


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

 
 

 
 

 
 

 
 

Net finance receivables:
 
 

 
 

 
 

 
 

 
 

Performing
 
 
 
 
 
 
 
 
 
 
Current
 
$
12,992

 
$
—

 
$
152

 
$
13

 
$
13,157

30-59 days past due
 
211

 
—

 
14

 
—

 
225

60-89 days past due
 
145

 
—

 
7

 
—

 
152

Total performing
 
13,348

 
—

 
173

 
13

 
13,534

Nonperforming
 
 
 
 
 
 
 
 
 
 
90-119 days past due
 
115

 
—

 
3

 
—

 
118

120-149 days past due
 
99

 
—

 
3

 
—

 
102

150-179 days past due
 
91

 
—

 
2

 
—

 
93

180 days or more past due
 
3

 
—

 
20

 
—

 
23

Total nonperforming
 
308

 
—

 
28

 
—

 
336

Total
 
$
13,656

 
$
—

 
$
201

 
$
13

 
$
13,870

 
 
 
 
 
 
 
 
 
 
 
Total 60+ delinquent finance receivables
 
$
453

 
$
—

 
$
35

 
$
—

 
$
488

 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 

 
 

 
 

 
 

 
 

Net finance receivables:
 
 

 
 

 
 

 
 

 
 

Performing
 
 
 
 
 
 
 
 
 
 
Current
 
$
12,777

 
$
1,588

 
$
486

 
$
22

 
$
14,873

30-59 days past due
 
170

 
49

 
13

 
—

 
232

60-89 days past due
 
127

 
26

 
19

 
—

 
172

Total performing
 
13,074

 
1,663

 
518

 
22

 
15,277

Nonperforming
 
 
 
 
 
 
 
 
 
 
90-119 days past due
 
97

 
16

 
3

 
—

 
116

120-149 days past due
 
58

 
12

 
2

 
1

 
73

150-179 days past due
 
62

 
11

 
2

 
—

 
75

180 days or more past due
 
4

 
1

 
13

 
—

 
18

Total nonperforming
 
221

 
40

 
20

 
1

 
282

Total
 
$
13,295

 
$
1,703

 
$
538

 
$
23

 
$
15,559

 
 
 
 
 
 
 
 
 
 
 
Total 60+ delinquent finance receivables
 
$
348

 
$
66

 
$
39

 
$
1

 
$
454


PURCHASED CREDIT IMPAIRED FINANCE RECEIVABLES

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

•
OneMain Acquisition - effective November 1, 2015, we acquired personal loans (the “OM Loans”), some of which were determined to be credit impaired.

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


21


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

•
Joint venture acquisition of the SpringCastle Portfolio (the “SCP Loans”) - on April 1, 2013, we acquired a 47% equity interest in the SCP Loans, some of which were determined to be credit impaired on the date of purchase. On March 31, 2016, we sold the SpringCastle Portfolio in connection with the SpringCastle Interests Sale described in Note 2 .

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

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

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

 
 

 
 

Carrying amount, net of allowance
 
$
380

 
$
—

 
$
72

 
$
452

Outstanding balance
 
519

 
—

 
109

 
628

Allowance for purchased credit impaired finance receivable losses
 
29

 
—

 
8

 
37

 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 

 
 

 
 

Carrying amount, net of allowance
 
$
652

 
$
350

 
$
89

 
$
1,091

Outstanding balance
 
911

 
482

 
136

 
1,529

Allowance for purchased credit impaired finance receivable losses
 
—

 
—

 
12

 
12

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

Carrying amount
 
$
56

Outstanding balance
 
85

 
 
 
December 31, 2015
 
 

Carrying amount
 
$
59

Outstanding balance
 
89


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


22


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

 
 

 
 

Balance at beginning of period
 
$
87

 
$
—

 
$
61

 
$
148

Accretion (a)
 
(15
)
 
—

 
(1
)
 
(16
)
Reclassifications from nonaccretable difference (b)
 
—

 
—

 
8

 
8

Transfer due to finance receivables sold
 
—

 
—

 
(11
)
 
(11
)
Balance at end of period
 
$
72

 
$
—

 
$
57

 
$
129

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 

 
 

 
 

Balance at beginning of period
 
$
—

 
$
411

 
$
53

 
$
464

Accretion (a)
 
—

 
(19
)
 
(2
)
 
(21
)
Reclassifications from nonaccretable difference (b)
 
—

 
—

 
1

 
1

Balance at end of period
 
$
—

 
$
392

 
$
52

 
$
444

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 

 
 

 
 

Balance at beginning of period
 
$
151

 
$
375

 
$
66

 
$
592

Accretion (a)
 
(56
)
 
(16
)
 
(5
)
 
(77
)
Other (c)
 
(23
)
 
—

 
—

 
(23
)
Reclassifications from nonaccretable difference (b)
 
—

 
—

 
7

 
7

Transfer due to finance receivables sold
 
—

 
(359
)
 
(11
)
 
(370
)
Balance at end of period
 
$
72

 
$
—

 
$
57

 
$
129

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 

 
 

 
 

Balance at beginning of period
 
$
—

 
$
452

 
$
54

 
$
506

Accretion (a)
 
—

 
(60
)
 
(6
)
 
(66
)
Reclassifications from nonaccretable difference (b)
 
—

 
—

 
4

 
4

Balance at end of period
 
$
—

 
$
392

 
$
52

 
$
444

                                      
(a)
Accretion on our purchased credit impaired FA Loans held for sale included in the table above were as follows:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Accretion
 
$
2

 
$
1

 
$
4

 
$
4


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

(c)
Other reflects a measurement period adjustment in the first quarter of 2016 based on a change in the expected cash flows in the purchase credit impaired portfolio related to the OneMain Acquisition. The measurement period adjustment created a decrease of $23 million to the beginning balance of the OM Loans accretable yield.


23


TROUBLED DEBT RESTRUCTURED FINANCE RECEIVABLES

Information regarding TDR finance receivables held for investment and held for sale were as follows:
(dollars in millions)
 
Personal
Loans (a)
 
SpringCastle
Portfolio
 
Real Estate
Loans (a)
 
Total
 
 
 
 
 
 
 

 
 
September 30, 2016
 
 
 
 
 
 

 
 
TDR gross finance receivables (b)
 
$
117

 
$
—

 
$
137

 
$
254

TDR net finance receivables
 
117

 
—

 
138

 
255

Allowance for TDR finance receivable losses
 
49

 
—

 
11

 
60

 
 
 
 
 
 
 

 
 
December 31, 2015
 
 
 
 
 
 

 
 
TDR gross finance receivables (b)
 
$
46

 
$
14

 
$
200

 
$
260

TDR net finance receivables
 
46

 
13

 
201

 
260

Allowance for TDR finance receivable losses
 
17

 
4

 
34

 
55

                                      
(a)
TDR finance receivables held for sale included in the table above were as follows:
(dollars in millions)
 
Personal
Loans
 
Real Estate
Loans
 
Total
 
 
 
 
 

 
 
September 30, 2016
 
 
 
 

 
 
TDR gross finance receivables
 
$
—

 
$
90

 
$
90

TDR net finance receivables
 
—

 
90

 
90

 
 
 
 
 

 
 
December 31, 2015
 
 
 
 

 
 
TDR gross finance receivables
 
$
2

 
$
92

 
$
94

TDR net finance receivables
 
2

 
92

 
94


(b)
As defined earlier in this Note.

As of September 30, 2016 , we had no commitments to lend additional funds on our TDR finance receivables.

TDR average net receivables held for investment and held for sale and finance charges recognized on TDR finance receivables held for investment and held for sale were as follows:
(dollars in millions)
 
Personal
Loans *
 
SpringCastle
Portfolio
 
Real Estate
Loans *
 
Total
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
 

 
 

 
 

 
 

TDR average net receivables
 
$
102

 
$
—

 
$
159

 
$
261

TDR finance charges recognized
 
4

 
—

 
3

 
7

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
TDR average net receivables
 
$
30

 
$
12

 
$
199

 
$
241

TDR finance charges recognized
 
—

 
1

 
2

 
3

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
TDR average net receivables
 
$
83

 
$
—

 
$
187

 
$
270

TDR finance charges recognized
 
7

 
—

 
9

 
16

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
TDR average net receivables
 
$
28

 
$
12

 
$
197

 
$
237

TDR finance charges recognized
 
2

 
1

 
8

 
11


24


                                      
*
TDR finance receivables held for sale included in the table above were as follows:
(dollars in millions)
 
Personal
Loans
 
Real Estate
Loans
 
Total
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
 
 
 

 
 
TDR average net receivables
 
$
—

 
$
112

 
$
112

TDR finance charges recognized
 
—

 
2

 
2

 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
TDR average net receivables
 
$
—

 
$
92

 
$
92

TDR finance charges recognized
 
—

 
2

 
2

 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
TDR average net receivables
 
$
1

 
$
105

 
$
106

TDR finance charges recognized
 
—

 
5

 
5

 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
TDR average net receivables
 
$
—

 
$
91

 
$
91

TDR finance charges recognized
 
—

 
4

 
4



25


Information regarding the new volume of the TDR finance receivables held for investment and held for sale were as follows:
(dollars in millions)
 
Personal
Loans (a)
 
SpringCastle
Portfolio
 
Real Estate
Loans (a)
 
Total
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
 

 
 

 
 

 
 

Pre-modification TDR net finance receivables
 
$
48

 
$
—

 
$
3

 
$
51

Post-modification TDR net finance receivables:
 
 
 
 
 
 
 
 
Rate reduction
 
$
43

 
$
—

 
$
3

 
$
46

Other (b)
 
3

 
—

 
1

 
4

Total post-modification TDR net finance receivables
 
$
46

 
$
—

 
$
4

 
$
50

Number of TDR accounts
 
6,241

 
—

 
86

 
6,327

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
Pre-modification TDR net finance receivables
 
$
8

 
$
1

 
$
6

 
$
15

Post-modification TDR net finance receivables:
 
 
 
 
 
 
 
 
Rate reduction
 
$
3

 
$
1

 
$
3

 
$
7

Other (b)
 
3

 
—

 
2

 
5

Total post-modification TDR net finance receivables
 
$
6

 
$
1

 
$
5

 
$
12

Number of TDR accounts
 
1,557

 
142

 
95

 
1,794

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
Pre-modification TDR net finance receivables
 
$
148

 
$
1

 
$
13

 
$
162

Post-modification TDR net finance receivables:
 
 
 
 
 
 
 
 
Rate reduction
 
$
136

 
$
1

 
$
11

 
$
148

Other (b)
 
8

 
—

 
3

 
11

Total post-modification TDR net finance receivables
 
$
144

 
$
1

 
$
14

 
$
159

Number of TDR accounts
 
19,866

 
157

 
291

 
20,314

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
Pre-modification TDR net finance receivables
 
$
24

 
$
5

 
$
16

 
$
45

Post-modification TDR net finance receivables:
 
 
 
 
 
 
 


Rate reduction
 
$
11

 
$
5

 
$
12

 
$
28

Other (b)
 
9

 
—

 
4

 
13

Total post-modification TDR net finance receivables
 
$
20

 
$
5

 
$
16

 
$
41

Number of TDR accounts
 
4,900

 
550

 
272

 
5,722


26


                                      
(a)
TDR finance receivables held for sale included in the table above were as follows:
(dollars in millions)
 
Personal
Loans
 
Real Estate
Loans
 
Total
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
 

 
 

 
 

Pre-modification TDR net finance receivables
 
$
—

 
$
1

 
$
1

Post-modification TDR net finance receivables
 
$
—

 
$
2

 
$
2

Number of TDR accounts
 
—

 
39

 
39

 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
Pre-modification TDR net finance receivables *
 
$
—

 
$
1

 
$
1

Post-modification TDR net finance receivables *
 
$
—

 
$
2

 
$
2

Number of TDR accounts
 
50

 
33

 
83

 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
Pre-modification TDR net finance receivables *
 
$
—

 
$
3

 
$
3

Post-modification TDR net finance receivables *
 
$
—

 
$
4

 
$
4

Number of TDR accounts
 
174

 
90

 
264

 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
Pre-modification TDR net finance receivables *
 
$
—

 
$
4

 
$
4

Post-modification TDR net finance receivables *
 
$
—

 
$
5

 
$
5

Number of TDR accounts
 
50

 
77

 
127

                                      
*
Pre- and post-modification TDR personal loans held for sale for the nine months ended September 30, 2016 and the three and nine months ended September 30, 2015 were less than $1 million and, therefore, are not quantified in the table above.

(b)
“Other” modifications primarily include forgiveness of principal or interest.

Net finance receivables held for investment and held for sale 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) were as follows:
(dollars in millions)
 
Personal
Loans
 
SpringCastle
Portfolio
 
Real Estate
Loans (a)
 
Total
 
 
 

 
 
 
 
 
 
Three Months Ended September 30, 2016
 
 

 
 

 
 
 
 
TDR net finance receivables (b)
 
$
7

 
$
—

 
$
1

 
$
8

Number of TDR accounts
 
1,080

 
—

 
13

 
1,093

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
TDR net finance receivables (b) (c)
 
$
1

 
$
—

 
$
1

 
$
2

Number of TDR accounts
 
343

 
26

 
9

 
378

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
TDR net finance receivables (b) (c)
 
$
13

 
$
—

 
$
3

 
$
16

Number of TDR accounts
 
2,120

 
19

 
52

 
2,191

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
TDR net finance receivables (b)
 
$
3

 
$
1

 
$
2

 
$
6

Number of TDR accounts
 
857

 
122

 
35

 
1,014


27


                                      
(a)
TDR finance receivables held for sale included in the table above were as follows:
(dollars in millions)
 
Real Estate
Loans
 
 
 
Three Months Ended September 30, 2016
 
 
TDR net finance receivables *
 
$
—

Number of TDR accounts
 
4

 
 
 
Three Months Ended September 30, 2015
 
 
TDR net finance receivables *
 
$
—

Number of TDR accounts
 
1

 
 
 
Nine Months Ended September 30, 2016
 
 
TDR net finance receivables
 
$
1

Number of TDR accounts
 
25

 
 
 
Nine Months Ended September 30, 2015
 
 
TDR net finance receivables
 
$
1

Number of TDR accounts
 
14

                                      
*
TDR real estate loans held for sale for the three months ended September 30, 2016 and 2015 that defaulted during the previous 12-month period were less than $1 million and, therefore, are not quantified in the combined table above.

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

(c)
TDR SpringCastle Portfolio loans for the nine months ended September 30, 2016 and the three months ended September 30, 2015 that defaulted during the previous 12-month period were less than $1 million and, therefore, are not quantified in the combined table above.



28


5 . Allowance for Finance Receivable Losses     

Changes in the allowance for finance receivable losses by finance receivable type were as follows:
(dollars in millions)
 
Personal
Loans
 
SpringCastle
Portfolio
 
Real Estate
Loans
 
Retail
Sales Finance
 
Consolidated Total
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
 

 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
587

 
$
—

 
$
20

 
$
1

 
$
608

Provision for finance receivable losses
 
261

 
—

 
2

 
—

 
263

Charge-offs
 
(213
)
 
—

 
(4
)
 
—

 
(217
)
Recoveries
 
17

 
—

 
1

 
—

 
18

Balance at end of period
 
$
652

 
$
—

 
$
19

 
$
1

 
$
672

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 

 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
141

 
$
3

 
$
41

 
$
1

 
$
186

Provision for finance receivable losses
 
61

 
16

 
2

 
—

 
79

Charge-offs
 
(58
)
 
(18
)
 
(4
)
 
—

 
(80
)
Recoveries
 
10

 
3

 
2

 
—

 
15

Other (a)
 
(1
)
 
—

 
—

 
—

 
(1
)
Balance at end of period
 
$
153

 
$
4

 
$
41

 
$
1

 
$
199

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 

 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
541

 
$
4

 
$
46

 
$
1

 
$
592

Provision for finance receivable losses
 
652

 
14

 
8

 
—

 
674

Charge-offs
 
(585
)
 
(17
)
 
(10
)
 
(1
)
 
(613
)
Recoveries
 
44

 
3

 
4

 
1

 
52

Other (b)
 
—

 
(4
)
 
(29
)
 
—

 
(33
)
Balance at end of period
 
$
652

 
$
—

 
$
19

 
$
1

 
$
672

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 

 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
132

 
$
3

 
$
46

 
$
1

 
$
182

Provision for finance receivable losses
 
173

 
53

 
6

 
1

 
233

Charge-offs
 
(179
)
 
(61
)
 
(15
)
 
(2
)
 
(257
)
Recoveries
 
28

 
9

 
4

 
1

 
42

Other (a)
 
(1
)
 
—

 
—

 
—

 
(1
)
Balance at end of period
 
$
153

 
$
4

 
$
41

 
$
1

 
$
199

                                      
(a)
Other consists of the elimination of allowance for finance receivable losses due to the transfer of personal loans held for investment to finance receivable held for sale on September 30, 2015.

(b)
Other consists of:

•
the elimination of allowance for finance receivable losses due to the sale of the SpringCastle Portfolio on March 31, 2016, in connection with the sale of our equity interest in the SpringCastle Joint Venture. See Note 2 for further information on this sale; and

•
the elimination of allowance for finance receivable losses due to the transfer of real estate loans held for investment to finance receivable held for sale on June 30, 2016.


29


The allowance for finance receivable losses and net finance receivables by type and by impairment method were as follows:
(dollars in millions)
 
Personal
Loans
 
SpringCastle
Portfolio
 
Real Estate
Loans
 
Retail
Sales Finance
 
Total
 
 
 
 
 
 
 
 
 
 
 
September 30, 2016
 
 

 
 

 
 

 
 

 
 

Allowance for finance receivable losses:
 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
 
$
574

 
$
—

 
$
—

 
$
1

 
$
575

Purchased credit impaired finance receivables
 
29

 
—

 
8

 
—

 
37

TDR finance receivables
 
49

 
—

 
11

 
—

 
60

Total
 
$
652

 
$
—

 
$
19

 
$
1

 
$
672

 
 
 
 
 
 
 
 
 
 
 
Finance receivables:
 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
 
$
13,130

 
$
—

 
$
129

 
$
13

 
$
13,272

Purchased credit impaired finance receivables
 
409

 
—

 
24

 
—

 
433

TDR finance receivables
 
117

 
—

 
48

 
—

 
165

Total
 
$
13,656

 
$
—

 
$
201

 
$
13

 
$
13,870

 
 
 
 
 
 
 
 
 
 
 
Allowance for finance receivable losses as a percentage of finance receivables
 
4.77
%
 
—
%
 
9.96
%
 
3.55
%
 
4.85
%
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 

 
 

 
 

 
 

 
 

Allowance for finance receivable losses:
 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
 
$
524

 
$
—

 
$
—

 
$
1

 
$
525

Purchased credit impaired finance receivables
 
—

 
—

 
12

 
—

 
12

TDR finance receivables
 
17

 
4

 
34

 
—

 
55

Total
 
$
541

 
$
4

 
$
46

 
$
1

 
$
592

 
 
 
 
 
 
 
 
 
 
 
Finance receivables:
 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
 
$
12,599

 
$
1,340

 
$
387

 
$
23

 
$
14,349

Purchased credit impaired finance receivables
 
652

 
350

 
42

 
—

 
1,044

TDR finance receivables
 
44

 
13

 
109

 
—

 
166

Total
 
$
13,295

 
$
1,703

 
$
538

 
$
23

 
$
15,559

 
 
 
 
 
 
 
 
 
 
 
Allowance for finance receivable losses as a percentage of finance receivables
 
4.07
%
 
0.25
%
 
8.72
%
 
3.46
%
 
3.81
%

6 . Finance Receivables Held for Sale     

We report finance receivables held for sale of $166 million at September 30, 2016 and $793 million at December 31, 2015 , which are carried at the lower of cost or fair value. At September 30, 2016 , finance receivables held for sale consisted entirely of real estate loans, compared to $ 617 million of personal loans and $ 176 million of real estate loans at December 31, 2015 . At September 30, 2016 and December 31, 2015 , the fair value of our finance receivables held for sale exceeded the cost. We used the aggregate basis to determine the lower of cost or fair value of finance receivables held for sale.

On June 30, 2016, we transferred $257 million of real estate loans (after deducting allowance for finance receivable losses) from held for investment to held for sale due to management’s intent to no longer hold these finance receivables for the foreseeable future. In connection with the August 2016 Real Estate Loan Sale, we sold a portfolio of second lien mortgage loans with a carrying value of $250 million and recorded a net loss in other revenues of $4 million .

On May 2, 2016, we sold personal loans held for sale with a carrying value of $602 million and recorded a net gain in other revenues at the time of sale of $22 million .


30


During March of 2016, we transferred $ 1.6 billion of loans of the SpringCastle Portfolio (after deducting allowance for finance receivable losses) from held for investment to held for sale due to management’s intent to no longer hold these finance receivables for the foreseeable future. We simultaneously sold our interests in these finance receivables held for sale on March 31, 2016 in the SpringCastle Interests Sale and recorded a net gain in other revenues at the time of sale of $ 167 million .

We did not have any other material transfer activity to or from finance receivables held for sale during each of the three and nine months ended September 30, 2016 and 2015 .

7 . Investment Securities     

AVAILABLE-FOR-SALE SECURITIES

Cost/amortized cost, unrealized gains and losses, and fair value of available-for-sale securities by type were as follows:
(dollars in millions)
 
Cost/
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
 
 
 
 
September 30, 2016
 
 

 
 

 
 

 
 

Fixed maturity available-for-sale securities:
 
 

 
 

 
 

 
 

Bonds
 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
$
39

 
$
1

 
$
—

 
$
40

Obligations of states, municipalities, and political subdivisions
 
132

 
3

 
—

 
135

Non-U.S. government and government sponsored entities
 
116

 
3

 
—

 
119

Corporate debt
 
1,041

 
28

 
(2
)
 
1,067

Mortgage-backed, asset-backed, and collateralized:
 
 

 
 

 
 

 
 
Residential mortgage-backed securities (“RMBS”)
 
81

 
1

 
—

 
82

Commercial mortgage-backed securities (“CMBS”)
 
111

 
1

 
—

 
112

Collateralized debt obligations (“CDO”)/Asset-backed securities (“ABS”)
 
82

 
—

 
—

 
82

Total bonds
 
1,602

 
37

 
(2
)
 
1,637

Preferred stock (a)
 
15

 
—

 
—

 
15

Common stock (a)
 
19

 
2

 
—

 
21

Other long-term investments
 
2

 
—

 
—

 
2

Total (b)
 
$
1,638

 
$
39

 
$
(2
)
 
$
1,675

 
 
 
 
 
 
 
 
 
December 31, 2015
 
 

 
 

 
 

 
 

Fixed maturity available-for-sale securities:
 
 

 
 

 
 

 
 

Bonds
 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
$
112

 
$
—

 
$
(1
)
 
$
111

Obligations of states, municipalities, and political subdivisions
 
140

 
1

 
(1
)
 
140

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

 
1

 
(1
)
 
126

Corporate debt
 
1,018

 
3

 
(22
)
 
999

Mortgage-backed, asset-backed, and collateralized:
 
 

 
 

 
 

 
 
RMBS
 
128

 
—

 
—

 
128

CMBS
 
117

 
—

 
(1
)
 
116

CDO/ABS
 
71

 
—

 
—

 
71

Total bonds
 
1,712

 
5

 
(26
)
 
1,691

Preferred stock (a)
 
14

 
—

 
(1
)
 
13

Common stock (a)
 
23

 
—

 
—

 
23

Other long-term investments
 
2

 
—

 
—

 
2

Total (b)
 
$
1,751

 
$
5

 
$
(27
)
 
$
1,729


31


                                      
(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.

(b)
Excludes an immaterial interest in a limited partnership that we account for using the equity method and Federal Home Loan Bank common stock of $1 million at September 30, 2016 and December 31, 2015 , which is classified as a restricted investment and carried at cost.

Fair value and unrealized losses on available-for-sale securities by type and length of time in a continuous unrealized loss position were as follows:
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
(dollars in millions)
 
Fair
Value
 
Unrealized
Losses *
 
Fair
Value
 
Unrealized
Losses *
 
Fair
Value
 
Unrealized
Losses
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2016
 
 

 
 

 
 

 
 

 
 

 
 

Bonds:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
$
1

 
$
—

 
$
—

 
$
—

 
$
1

 
$
—

Obligations of states, municipalities, and political subdivisions
 
23

 
—

 
2

 
—

 
25

 
—

Non-U.S. government and government sponsored entities
 
9

 
—

 
—

 
—

 
9

 
—

Corporate debt
 
105

 
(1
)
 
10

 
(1
)
 
115

 
(2
)
RMBS
 
19

 
—

 
—

 
—

 
19

 
—

CMBS
 
38

 
—

 
—

 
—

 
38

 
—

CDO/ABS
 
15

 
—

 
—

 
—

 
15

 
—

Total bonds
 
210

 
(1
)
 
12

 
(1
)
 
222

 
(2
)
Preferred stock
 
4

 
—

 
6

 
—

 
10

 
—

Common stock
 
3

 
—

 
—

 
—

 
3

 
—

Other long-term investments
 
—

 
—

 
1

 
—

 
1

 
—

Total
 
$
217

 
$
(1
)
 
$
19

 
$
(1
)
 
$
236

 
$
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 

 
 

 
 

 
 

 
 

 
 

Bonds:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
$
102

 
$
(1
)
 
$
—

 
$
—

 
$
102

 
$
(1
)
Obligations of states, municipalities, and political subdivisions
 
69

 
(1
)
 
2

 
—

 
71

 
(1
)
Non-U.S. government and government sponsored entities
 
19

 
(1
)
 
—

 
—

 
19

 
(1
)
Corporate debt
 
786

 
(22
)
 
7

 
—

 
793

 
(22
)
RMBS
 
107

 
—

 
—

 
—

 
107

 
—

CMBS
 
104

 
(1
)
 
5

 
—

 
109

 
(1
)
CDO/ABS
 
71

 
—

 
—

 
—

 
71

 
—

Total bonds
 
1,258

 
(26
)
 
14

 
—

 
1,272

 
(26
)
Preferred stock
 
2

 
—

 
6

 
(1
)
 
8

 
(1
)
Common stock
 
16

 
—

 
—

 
—

 
16

 
—

Other long-term investments
 
1

 
—

 
—

 
—

 
1

 
—

Total
 
$
1,277

 
$
(26
)
 
$
20

 
$
(1
)
 
$
1,297

 
$
(27
)
                                     
*
Unrealized losses on certain available-for-sale securities were less than $ 1 million and, therefore, are not quantified in the table above.

On a lot basis, we had 465 and 2,404 investment securities in an unrealized loss position at September 30, 2016 and December 31, 2015 , respectively. We do not consider the unrealized losses to be credit-related, as these unrealized losses primarily relate

32


to changes in interest rates and market spreads subsequent to purchase. Additionally, at September 30, 2016 , we had no plans to sell any investment securities with unrealized losses, and we believe it is more likely than not that we would not be required to sell such investment securities before recovery of their amortized cost.

We continue to monitor unrealized loss positions for potential impairments. During the three and nine months ended September 30, 2016 , we recognized less than $1 million of other-than-temporary impairment credit losses on corporate debt in investment revenues. During the three and nine months ended September 30, 2015 , we did not recognize any other-than-temporary impairment credit losses on available-for-sale securities in investment revenues.

Changes in the cumulative amount of credit losses (recognized in earnings) on other-than-temporarily impaired available-for-sale securities were as follows:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
—

 
$
1

 
$
2

 
$
1

Reductions:
 
 
 
 
 
 
 
 
Realized due to dispositions with no prior intention to sell
 
—

 
—

 
2

 
—

Balance at end of period
 
$
—

 
$
1

 
$
—

 
$
1


The proceeds of available-for-sale securities sold or redeemed and the resulting realized gains, realized losses, and net realized gains were as follows:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Proceeds from sales and redemptions
 
$
57

 
$
168

 
$
344

 
$
374

 
 
 
 
 
 
 
 
 
Realized gains
 
$
3

 
$
4

 
$
10

 
$
15

Realized losses
 
—

 
—

 
(1
)
 
(1
)
Net realized gains
 
$
3

 
$
4

 
$
9

 
$
14


Contractual maturities of fixed-maturity available-for-sale securities at September 30, 2016 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
 
$
152

 
$
152

Due after 1 year through 5 years
 
623

 
615

Due after 5 years through 10 years
 
378

 
361

Due after 10 years
 
208

 
200

Mortgage-backed, asset-backed, and collateralized securities
 
276

 
274

Total
 
$
1,637

 
$
1,602


Actual maturities may differ from contractual maturities since 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 bonds on deposit with insurance regulatory authorities totaled $170 million and $152 million at September 30, 2016 and December 31, 2015 , respectively.


33


TRADING AND OTHER SECURITIES

The fair value of trading and other securities by type was as follows:
(dollars in millions)
 
September 30,
2016
 
December 31,
2015
 
 
 
 
 
Fixed maturity trading and other securities:
 
 

 
 

Bonds
 
 

 
 

Non-U.S. government and government sponsored entities
 
$
3

 
$
3

Corporate debt
 
97

 
124

Mortgage-backed, asset-backed, and collateralized:
 
 
 
 

RMBS
 
1

 
2

CMBS
 
2

 
2

CDO/ABS
 
3

 
—

Total bonds
 
106

 
131

Preferred stock
 
6

 
6

Total *
 
$
112

 
$
137

                                     
*
The fair value of other securities, which we have elected the fair value option, totaled $112 million at September 30, 2016 and $128 million at December 31, 2015 .

The net unrealized and realized gains (losses) on our trading and other securities, which we report in investment revenues, were as follows:
(dollars in millions)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net unrealized gains (losses) on trading and other securities held at period end
 
$
(2
)
 
$
(1
)
 
$
6

 
$
3

Net realized gains (losses) on trading and other securities sold or redeemed
 
4

 
(1
)
 
4

 
(2
)
Total
 
$
2

 
$
(2
)
 
$
10

 
$
1


8 . Transactions with Affiliates of Fortress     

SUBSERVICING AGREEMENT

Nationstar Mortgage LLC (“Nationstar”) subservices the real estate loans of certain of our indirect subsidiaries (collectively, the “Owners”). Investment funds managed by affiliates of Fortress indirectly own a majority interest in Nationstar. The Owners paid Nationstar subservicing fees of less than $1 million for the three months ended September 30, 2016 and 2015 and $1 million for the nine months ended September 30, 2016 and 2015 .

INVESTMENT MANAGEMENT AGREEMENT

Logan Circle Partners, L.P. (“Logan Circle”) provides investment management services for Springleaf investments. Logan Circle is a wholly owned subsidiary of Fortress. Costs and fees incurred for these investment management services were less than $1 million for the three months ended September 30, 2016 and 2015 . Costs and fees incurred for these investment management services totaled $1 million for the nine months ended September 30, 2016 and 2015 .

SALE OF EQUITY INTEREST IN SPRINGCASTLE JOINT VENTURE

On March 31, 2016, we sold our 47% equity interest in the SpringCastle Joint Venture, which owns the SpringCastle Portfolio, to certain subsidiaries of NRZ and Blackstone. See Note 2 for further information on this sale. NRZ is managed by an affiliate of Fortress.


34


Unless we are terminated, we will continue to act as the servicer of the SpringCastle Portfolio for the SpringCastle Funding Trust pursuant to a servicing agreement. Servicing fees revenue totaled $10 million and $21 million for the three and nine months ended September 30, 2016 . At September 30, 2016 , the servicing fees receivable from the SpringCastle Funding Trust totaled $3 million .

9 . Long-term Debt     

Principal maturities of long-term debt (excluding projected repayments on securitizations and revolving conduit facilities by period) by type of debt at September 30, 2016 were as follows:
 
 
Senior Debt
 
 
 
 
(dollars in millions)
 
Securitizations
 
Medium
Term
Notes
 
Junior
Subordinated
Debt
 
Total
 
 
 
 
 
 
 
 
 
Interest rates (a)
 
2.04% - 6.94%

 
5.25% - 8.25%

 
6.00
%
 
 
 
 
 
 
 
 
 
 
 
Fourth quarter 2016
 
$
—

 
$
—

 
$
—

 
$
—

First quarter 2017
 
—

 
—

 
—

 
—

Second quarter 2017
 
—

 
—

 
—

 
—

Third quarter 2017
 
—

 
257

 
—

 
257

Fourth quarter 2017
 
—

 
1,032

 
—

 
1,032

2018
 
—

 
—

 
—

 
—

2019
 
—

 
1,400

 
—

 
1,400

2020
 
—

 
1,300

 
—

 
1,300

2021-2067
 
—

 
1,750

 
350

 
2,100

Securitizations (b)
 
8,303

 
—

 
—

 
8,303

Total principal maturities
 
$
8,303

 
$
5,739

 
$
350

 
$
14,392

 
 
 
 
 
 
 
 
 
Total carrying amount
 
$
8,287

 
$
5,535

 
$
172

 
$
13,994

Debt issuance costs (c)
 
$
(19
)
 
$
(16
)
 
$
—

 
$
(35
)
                                      
(a)
The interest rates shown are the range of contractual rates in effect at September 30, 2016 .

(b)
Securitizations are not included in above maturities by period due to their variable monthly repayments. At September 30, 2016 , there were no amounts drawn under our revolving conduit facilities. See Note 10 for further information on our long-term debt associated with securitizations and revolving conduit facilities.

(c)
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 $14 million at September 30, 2016 and are reported in other assets.

GUARANTY AGREEMENTS

8.25% SFC Notes

On April 11, 2016, OMH entered into a Second Supplemental Indenture, pursuant to which it agreed to fully and unconditionally guarantee, on a senior unsecured basis, the payments of principal, premium (if any) and interest on $1.0 billion of the 8.25% SFC Notes. As of September 30, 2016 , $1.0 billion aggregate principal amount of the 8.25% SFC Notes were outstanding. See Note 2 for further discussion of this offering.

5.25% SFC Notes

On December 3, 2014, OMH entered into the Base Indenture and the First Supplemental Indenture, pursuant to which it agreed to fully and unconditionally guarantee, on a senior unsecured basis, the payments of principal, premium (if any) and interest on $700 million of 5.25% Senior Notes due 2019 issued by SFC (the “5.25% SFC Notes”). As of September 30, 2016 , $700 million aggregate principal amount of the 5.25% SFC Notes were outstanding.


35


Other SFC Notes

On December 30, 2013, OMH entered into Guaranty Agreements whereby it agreed to fully and unconditionally guarantee the payments of principal, premium (if any) and interest on approximately $5.2 billion aggregate principal amount of senior notes, on a senior unsecured basis, and $350 million aggregate principal amount of a junior subordinated debenture, on a junior subordinated basis, issued by SFC (collectively, the “Other SFC Notes”). The Other SFC Notes consisted of the following: 8.25% Senior Notes due 2023; 7.75% Senior Notes due 2021; 6.00% Senior Notes due 2020; a 60 -year junior subordinated debenture; and all senior notes outstanding on December 30, 2013, issued pursuant to the Indenture dated as of May 1, 1999 (the “1999 Indenture”), between SFC and Wilmington Trust, National Association (the successor trustee to Citibank N.A.). The 60 -year junior subordinated debenture underlies the trust preferred securities sold by a trust sponsored by SFC. On December 30, 2013, OMH entered into a Trust Guaranty Agreement whereby it agreed to fully and unconditionally guarantee the related payment obligations under the trust preferred securities. As of September 30, 2016 , approximately $2.9 billion aggregate principal amount of the Other SFC Notes were outstanding.

The OMH guarantees of SFC’s long-term debt discussed above are subject to customary release provisions.

OMFH Notes

On December 11, 2014, OMFH and certain of its subsidiaries entered into an indenture (the “OMFH Indenture”), among OMFH, the guarantors listed therein and The Bank of New York Mellon, as trustee, in connection with OMFH’s issuance of $700 million aggregate principal amount of 6.75% Senior Notes due 2019 and $800 million in aggregate principal amount of 7.25% Senior Notes due 2021 (collectively, the “OMFH Notes”). The OMFH Notes are OMFH’s unsecured senior obligations, guaranteed on a senior unsecured basis by each of its wholly owned domestic subsidiaries, other than certain subsidiaries, including its insurance subsidiaries and securitization subsidiaries. As of September 30, 2016 , $1.5 billion aggregate principal amount of the OMFH Notes were outstanding.

Subsequently, on November 8, 2016, OMH agreed to fully, unconditionally, and irrevocably guarantee the OMFH Notes. See Note 18 for further information on OMH’s guarantee of the OMFH Notes.

10 . Variable Interest Entities     

As part of our overall funding strategy and as part of our efforts to support our liquidity from sources other than our traditional capital market sources, we have transferred certain finance receivables to VIEs for securitization transactions. Since these transactions involve securitization trusts required to be consolidated, the securitized assets and related liabilities are included in our condensed consolidated financial statements and are accounted for as secured borrowings.

CONSOLIDATED VIES

We evaluated the securitization trusts and determined that these entities are VIEs of which SFC or OMFH is the primary beneficiary, and therefore, we consolidated such entities. SFC or OMFH is deemed to be the primary beneficiary of each of these VIEs because SFC or OMFH has the ability to direct the activities of each VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses and the right to receive benefits that are potentially significant to each VIE. Such ability arises from SFC’s or OMFH’s and their affiliates’ contractual right to service the securitized finance receivables. Our retained subordinated notes and residual interest trust certificates expose us to potentially significant losses and potentially significant returns.

The asset-backed securities issued by the securitization trusts are supported by the expected cash flows from the underlying securitized finance receivables. Cash inflows from these finance receivables are distributed to investors and service providers in accordance with each transaction’s contractual priority of payments (“waterfall”) and, as such, most of these inflows must be directed first to service and repay each trust’s senior notes or certificates held principally by third-party investors. The holders of the asset-backed securities have no recourse to the Company if the cash flows from the underlying qualified securitized assets are not sufficient to pay all principal and interest on the asset-backed securities. After these senior obligations are extinguished, substantially all cash inflows will be directed to the subordinated notes until fully repaid and, thereafter, to the residual interest that we own in each securitization trust. We retain interests in these securitization transactions, including residual interests in each securitization trust and, in some cases, subordinated securities issued by the VIEs. We retain credit risk in the securitizations through our ownership of the residual interest in each securitization trust, and, in some cases, ownership of the most subordinated class of asset-backed securities, which are the first to absorb credit losses on the securitized assets. We expect that any credit losses in the pools of securitized assets will likely be limited to our subordinated and residual

36


retained interests. We have no obligation to repurchase or replace qualified securitized assets that subsequently become delinquent or are otherwise in default.

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 were as follows:
(dollars in millions)
 
September 30,
2016
 
December 31,
2015
 
 
 
 
 
Assets
 
 

 
 

Cash and cash equivalents
 
$
4

 
$
11

Finance receivables:
 
 

 
 

Personal loans
 
9,843

 
11,448

SpringCastle Portfolio
 
—

 
1,703

Allowance for finance receivable losses
 
500

 
431

Finance receivables held for sale
 
—

 
435

Restricted cash and cash equivalents
 
548

 
663

Other assets
 
14

 
48

 
 
 
 
 
Liabilities
 
 

 
 

Long-term debt
 
$
8,287

 
$
11,654

Other liabilities
 
14

 
17


SECURITIZATION TRANSACTIONS

SFC Auto Loan Securitization

ODART 2016-1 Securitization. On July 19, 2016, SFC completed a private securitization transaction in which OneMain Direct Auto Receivables Trust 2016-1 (“ODART 2016-1”), a wholly owned special purpose vehicle of SFC, issued $754 million principal amount of notes backed by direct auto loans with an aggregate UPB of $754 million as of June 30, 2016. $700 million principal amount of the notes issued by ODART 2016-1, represented by Classes A, B and C, were sold to unaffiliated parties at a weighted average interest rate of 2.27% , and $54 million principal amount of Class D notes were retained. The maturity dates of the notes occur on January 15, 2021 for the Class A, May 17, 2021 for the Class B, September 15, 2021 for the Class C and February 15, 2023 for the Class D. The first principal and interest payment on the notes was due on August 15, 2016. The indenture governing the ODART 2016-1 notes contains events of default which, if triggered, may result in the acceleration of the obligation to pay principal and interest on the notes.

SFC Consumer Loan Securitization

Call of 2013-B Notes. On February 16, 2016, Sixteenth Street Funding LLC (“Sixteenth Street”), a wholly owned subsidiary of SFC, exercised its right to redeem the asset backed notes issued by the Springleaf Funding Trust 2013-B on June 19, 2013 (the “2013-B Notes”). To redeem the 2013-B Notes, Sixteenth Street paid a redemption price of $371 million , which included $1 million of accrued interest and excluded $30 million for the Class C and Class D Notes owned by Sixteenth Street on February 16, 2016, the date of the optional redemption. The outstanding principal balance of the 2013-B Notes was $400 million on the date of the optional redemption.

OMFH Consumer Loan Securitizations

OMFIT 2016-1 Securitization. On February 10, 2016, OMFH completed a private securitization transaction in which OneMain Financial Issuance Trust 2016-1 (“OMFIT 2016-1”), a wholly owned special purpose vehicle of OMFH, issued $500 million of notes backed by personal loans. $414 million of the notes issued by OMFIT 2016-1, represented by Classes A and B, were sold to unaffiliated third parties at a weighted average interest rate of 3.79% , and $86 million of the notes issued by OMFIT 2016-1, represented by Classes C and D, were retained by OMFH. The notes mature on February 20, 2029 and have a 34 -month revolving period during which no principal payments are required to be made on the notes. These notes are collateralized by a pool of secured and unsecured fixed rate personal loans with an aggregate UPB of $570 million as of February 10, 2016. The indenture governing the notes contains customary early amortization events and events of default,

37


which, if triggered, may result in the acceleration of the obligation to pay principal and interest on the notes.

On May 17, 2016, $45 million of the notes issued by OMFIT 2016-1, represented by Class C, were sold to unaffiliated third parties at an interest rate of 6.00% .

OMFIT 2016-2 Securitization. On March 23, 2016, OMFH completed a private securitization transaction in which OneMain Financial Issuance Trust 2016-2 (“OMFIT 2016-2”), a wholly owned special purpose vehicle of OMFH, issued $890 million of notes backed by personal loans. $733 million of the notes issued by OMFIT 2016-2, represented by Classes A and B, were sold to unaffiliated third parties at a weighted average interest rate of 4.37% , and $157 million of the notes issued by OMFIT 2016-2, represented by Classes C and D, were retained by OMFH. The notes mature on March 20, 2028 and have a 23 -month revolving period during which no principal payments are required to be made on the notes. These notes are collateralized by a pool of secured and unsecured fixed rate personal loans with an aggregate UPB of $1.0 billion as of March 23, 2016. The indenture governing the notes contains customary early amortization events and events of default, which, if triggered, may result in the acceleration of the obligation to pay principal and interest on the notes.

On July 25, 2016, OneMain Financial Funding III, LLC, a wholly owned special purpose vehicle of OMFH, sold $83 million principal amount of the previously retained Class C Notes issued by OMFIT 2016-2 to unaffiliated third parties at an interest rate of 5.67% .

OMFIT 2016-3 Securitization. On June 7, 2016, OMFH completed a private securitization transaction in which OneMain Financial Issuance Trust 2016-3 (“OMFIT 2016-3”), a wholly owned special purpose vehicle of OMFH, issued $350 million of notes backed by personal loans. $317 million of the notes issued by OMFIT 2016-3, represented by Classes A, B and C, were sold to unaffiliated third parties at a weighted average interest rate of 4.33% , and $33 million of the notes issued by OMFIT 2016-3, represented by Class D, were retained by OMFH. The notes mature on June 18, 2031 and have a 59 -month revolving period during which no principal payments are required to be made on the notes. These notes are collateralized by a pool of secured and unsecured fixed rate personal loans with an aggregate UPB of $397 million as of June 7, 2016. The indenture governing the notes contains customary early amortization events and events of default, which, if triggered, may result in the acceleration of the obligation to pay principal and interest on the notes.

REVOLVING CONDUIT FACILITIES

Conduit Facilities

As of September 30, 2016 , our borrowings under conduit facilities consisted of the following:
(dollar in millions)

Note Maximum
Balance

Amount
Drawn

Revolving
Period End







Springleaf
 
 
 
 
 
 
First Avenue Funding LLC (a)

$
250


$
—


June 2018
Midbrook 2013-VFN1 Trust (b)

300


—


February 2018
Mill River 2015-VFN1 Trust (c)

100


—


May 2018
Second Avenue Funding LLC

250


—


June 2018
Springleaf 2013-VFN1 Trust (d)

850


—


January 2018
Sumner Brook 2013-VFN1 Trust

350


—


January 2018
Whitford Brook 2014-VFN1 Trust (e)

250


—


June 2018
 
 
 
 
 
 
 
OneMain
 
 
 
 
 
 
OneMain Financial B3 Warehouse Trust

350


—


January 2019
OneMain Financial B4 Warehouse Trust

750


—


February 2019
OneMain Financial B5 Warehouse Trust (f)

550


—


February 2019
OneMain Financial B6 Warehouse Trust (g)

600


—


February 2019
Total

$
4,600


$
—




38


                                      
(a)
First Avenue Funding LLC. On June 30, 2016, we amended the note purchase agreement with the First Avenue Funding LLC (“First Avenue”) to extend the revolving period ending in March 2018 to June 2018. Following the revolving period, the principal amount of the notes, if any, will be reduced as cash payments are received on the underlying direct auto loans and will be due and payable in full 12 months following the maturity of the last direct auto loan held by First Avenue.

(b)
Midbrook 2013-VFN1 Trust. On February 24, 2016, we amended the note purchase agreement with the Midbrook Funding Trust 2013-VFN1 to (i) extend the revolving period ending in June 2016 to February 2018 and (ii) decrease the maximum principal balance from $300 million to $250 million on February 24, 2017. Following the revolving period, the principal amount of the notes, if any, will be reduced as cash payments are received on the underlying personal loans and will be due and payable in the 36 th month following the end of the revolving period.

(c)
Mill River 2015-VFN1 Trust. On January 21, 2016, we amended the note purchase agreement with the Mill River 2015-VFN1 Trust to decrease the maximum principal balance from $400 million to $100 million .

(d)
Springleaf 2013-VFN1 Trust. On January 21, 2016, we amended the note purchase agreement with the Springleaf 2013-VFN1 Trust to (i) increase the maximum principal balance from $350 million to $850 million and (ii) extend the revolving period ending in April 2017 to January 2018, which may be extended to January 2019, subject to the satisfaction of customary conditions precedent. Following the revolving period, the principal amount of the notes, if any, will be reduced as cash payments are received on the underlying personal loans and will be due and payable in the 36 th month following the end of the revolving period.

(e)
Whitford Brook 2014-VFN1 Trust. On February 24, 2016, we amended the note purchase agreement with the Whitford Brook Funding Trust 2014-VFN1 (the “Whitford Brook 2014-VFN1 Trust”) to extend the revolving period ending in June 2017 to June 2018. Following the revolving period, the principal amount of the notes, if any, will be reduced as cash payments are received on the underlying personal loans and will be due and payable in the 12 th month following the end of the revolving period.

(f)
OneMain Financial B5 Warehouse Trust. On March 21, 2016, we refinanced the OneMain Financial B1 Warehouse Trust into OneMain Financial B5 Warehouse Trust with the same unaffiliated financial institutions that provided committed financing on a revolving basis for personal loans originated by OMFH’s subsidiaries. The maximum principal balance under the new facility is $550 million . The aggregate maximum capacity for this facility is subject to a scheduled reduction of $100 million on January 21, 2017 and a further reduction of $100 million on January 21, 2018.

(g)
OneMain Financial B6 Warehouse Trust. On July 28, 2016, we amended the note purchase agreement with the OneMain Financial B6 Warehouse Trust to decrease the maximum principal balance from $750 million to $600 million .

VIE INTEREST EXPENSE

Other than our retained subordinate and residual interests in the remaining consolidated securitization trusts, we are under no obligation, either contractually or implicitly, to provide financial support to these entities. Consolidated interest expense related to our VIEs for the three and nine months ended September 30, 2016 totaled $81 million and $261 million , respectively, compared to $49 million and $136 million for the three and nine months ended September 30, 2015 , respectively.

DECONSOLIDATED VIES

As a result of the SpringCastle Interests Sale on March 31, 2016, we deconsolidated the securitization trust holding the underlying loans of the SpringCastle Portfolio and previously issued securitized interests, which were reported in long-term debt.

As a result of the sales of the mortgage-backed retained certificates during 2014, we (i) deconsolidated the securitization trusts holding the underlying real estate loans and previously issued securitized interests which were reported in long-term debt and (ii) established a reserve for sales recourse obligations of $7 million related to these sales. At September 30, 2016 , this reserve totaled $7 million . We had no repurchase activity associated with these sales as of September 30, 2016 . See Note 14 for further information on the total reserve for sales recourse obligations relating to our real estate loan sales, including the sales of the mortgage-backed retained certificates.


39


11 . Earnings (Loss) Per Share     

The computation of earnings (loss) per share was as follows:
(dollars in millions, except earnings (loss) per share)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Numerator (basic and diluted):
 
 

 
 

 
 

 
 

Net income (loss) attributable to OneMain Holdings, Inc.
 
$
25

 
$
(13
)
 
$
188

 
$
(23
)
Denominator:
 
 

 
 

 
 

 
 

Weighted average number of shares outstanding (basic)
 
134,730,251


134,452,763


134,717,870


125,701,635

Effect of dilutive securities *
 
256,883


—


231,467


—

Weighted average number of shares outstanding (diluted)
 
134,987,134


134,452,763


134,949,337


125,701,635

Earnings (loss) per share:
 
 

 
 

 
 

 
 

Basic
 
$
0.19

 
$
(0.10
)
 
$
1.40

 
$
(0.18
)
Diluted
 
$
0.19

 
$
(0.10
)
 
$
1.39

 
$
(0.18
)
                                      
*
We have excluded the following shares in the diluted earnings (loss) per share calculation for the three and nine months ended September 30, 2016 and 2015 because these shares would be anti-dilutive, which could impact the earnings (loss) per share calculation in the future:

•
573,658 and 593,331 performance-based shares and 870,645 and 521,127 service-based shares for the three months ended September 30, 2016 and 2015 , respectively; and
•
576,437 and 593,068 performance-based shares and 960,032 and 472,259 service-based shares for the nine months ended September 30, 2016 and 2015 , respectively.

Basic earnings (loss) per share is computed by dividing net income or loss by the weighted-average number of shares outstanding during each period. Diluted earnings (loss) per share is computed based on the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares represent outstanding unvested restricted stock units and restricted stock awards.


40


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 September 30, 2016
 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
20

 
$
(19
)
 
$
4

 
$
5

Other comprehensive income (loss) before reclassifications
 
6

 
—

 
—

 
6

Reclassification adjustments from accumulated other comprehensive income (loss)
 
(2
)
 
—

 
(5
)
 
(7
)
Balance at end of period
 
$
24

 
$
(19
)
 
$
(1
)
 
$
4

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
2

 
$
(13
)
 
$
4

 
$
(7
)
Other comprehensive loss before reclassifications
 
(2
)
 
—

 
—

 
(2
)
Reclassification adjustments from accumulated other comprehensive income (loss)
 
(2
)
 
—

 
—

 
(2
)
Balance at end of period
 
$
(2
)
 
$
(13
)
 
$
4

 
$
(11
)
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
(14
)
 
$
(19
)
 
$
—

 
$
(33
)
Other comprehensive income (loss) before reclassifications
 
44

 
—

 
4

 
48

Reclassification adjustments from accumulated other comprehensive income (loss)
 
(6
)
 
—

 
(5
)
 
(11
)
Balance at end of period
 
$
24

 
$
(19
)
 
$
(1
)
 
$
4

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 

 
 

 
 

 
 

Balance at beginning of period
 
$
12

 
$
(13
)
 
$
4

 
$
3

Other comprehensive loss before reclassifications
 
(5
)
 
—

 
—

 
(5
)
Reclassification adjustments from accumulated other comprehensive income (loss)
 
(9
)
 
—

 
—

 
(9
)
Balance at end of period
 
$
(2
)
 
$
(13
)
 
$
4

 
$
(11
)

Reclassification adjustments from accumulated other comprehensive income (loss) to the applicable line item on our condensed consolidated statements of operations were as follows:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Unrealized gains on investment securities:
 
 

 
 

 
 

 
 

Reclassification from accumulated other comprehensive income (loss) to investment revenues, before taxes
 
$
3

 
$
4

 
$
9

 
$
14

Income tax effect
 
(1
)
 
(2
)
 
(3
)
 
(5
)
Reclassification from accumulated other comprehensive income (loss) to investment revenues, net of taxes
 
2

 
2

 
6

 
9

 
 
 
 
 
 
 
 
 
Unrealized gains on foreign currency translation adjustments:
 
 

 
 

 
 

 
 

Reclassification from accumulated other comprehensive income (loss) to other revenues
 
5

 
—

 
5

 
—

Total
 
$
7

 
$
2

 
$
11

 
$
9


41


13 . Income Taxes     

At September 30, 2016 , we had a net deferred tax asset of $171 million , compared to $95 million at December 31, 2015 . The increase in net deferred tax asset of $76 million was primarily due to changes in the fair value of our finance receivables, purchase accounting for debt writedown, and an increase in allowance for finance receivable losses, partially offset by the impact of the SpringCastle Interests Sale and amortization of goodwill for tax purposes.

The effective tax rate for the nine months ended September 30, 2016 was 33.9% , compared to 1.3% for the same period in 2015 . The effective tax rate for the nine months ended September 30, 2016 differed from the federal statutory rate primarily due to the effect of the non-controlling interests in the previously owned SpringCastle Portfolio, partially offset by the effect of state income taxes. The effective tax rate for the nine months ended September 30, 2015 differed from the federal statutory rate primarily due to the effect of the non-controlling interests in the previously owned SpringCastle Portfolio.

We are currently under examination of our U.S. federal tax return for the years 2011 to 2013 by the Internal Revenue Service. Management believes it has adequately provided for taxes for such years.

The Company’s unrecognized tax positions, including interest and penalties, totaled $17 million at September 30, 2016 and $15 million at December 31, 2015 , $10 million of which would affect the effective tax rate if recognized. The amount of any change in the balance of uncertain tax positions over the next 12 months is not expected to be material to our consolidated financial statements.

14 . Contingencies     

LEGAL CONTINGENCIES

In the normal course of business, we have been named, from time to time, as defendants in various legal actions, including arbitrations, class actions and other litigation arising in connection with our activities. Some of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. While we will continue to evaluate legal actions to determine whether a loss is reasonably possible or probable and is reasonably estimable, there can be no assurance that material losses will not be incurred from pending, threatened or future litigation, investigations, examinations, or other claims.

We contest liability and/or the amount of damages, as appropriate, in each pending matter. Where available information indicates that it is probable that a liability had been incurred at the date of the condensed consolidated financial statements and we can reasonably estimate the amount of that loss, we accrue the estimated loss by a charge to income. In many actions, however, it is inherently difficult to determine whether any loss is probable or even reasonably possible or to estimate the amount of any loss. In addition, even where loss is reasonably possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is not always possible to reasonably estimate the size of the possible loss or range of loss.

For certain legal actions, we cannot reasonably estimate such losses, particularly for actions that are in their early stages of development or where plaintiffs seek substantial or indeterminate damages. Numerous issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the actions in question, before a loss or additional loss or range of loss or additional loss can be reasonably estimated for any given action.

For certain other legal actions, we can estimate reasonably possible losses, additional losses, ranges of loss or ranges of additional loss in excess of amounts accrued, but do not believe, based on current knowledge and after consultation with counsel, that such losses will have a material adverse effect on our condensed consolidated financial statements as a whole.

SALES RECOURSE OBLIGATIONS

Real Estate Loan Sales

At September 30, 2016 , our reserve for sales recourse obligations totaled $14 million , which primarily related to the real estate loan sales in 2014. During the three months ended September 30, 2016 and 2015 and the nine months ended September 30, 2016 , we had no repurchase activity related to our real estate loan sales in 2014. For the nine months ended September 30, 2015 , we repurchased 13 loans, totaling $1 million , associated with the real estate loan sales in 2014. At September 30, 2016 , there were no material recourse requests with loss exposure that management believed would not be covered by the reserve.

42


However, we will continue to monitor any repurchase activity in the future and will adjust the reserve accordingly. When recourse losses are reasonably possible or exposure to such losses exists in excess of the liability already accrued, it is not always possible to reasonably estimate the size of the possible recourse losses or range of losses.

The activity in our reserve for sales recourse obligations primarily associated with the real estate loan sales during 2014 was as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
15

 
$
18

 
$
15

 
$
24

Recourse losses
 
—

 
—

 
—

 
(5
)
Provision for recourse obligations, net of recoveries *
 
(1
)
 
—

 
(1
)
 
(1
)
Balance at end of period
 
$
14

 
$
18

 
$
14

 
$
18

                                     
*
Reflects the elimination of the reserve associated with other prior sales of finance receivables.

We did not establish a reserve for sales recourse obligations associated with the August 2016 Real Estate Loan Sale.

Lendmark Sale

We did not establish a reserve for sales recourse obligations associated with the personal loans sold to Lendmark in May of 2016 due to the higher credit quality of the personal loans sold.

15 . Benefit Plans     

The following table presents the components of net periodic benefit cost with respect to our defined benefit pension plans:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Components of net periodic benefit cost - pension plans:
 
 

 
 

 
 

 
 

Interest cost
 
$
4

 
$
4

 
$
12

 
$
12

Expected return on assets
 
(5
)
 
(5
)
 
(13
)
 
(14
)
Net periodic benefit cost
 
$
(1
)
 
$
(1
)
 
$
(1
)
 
$
(2
)

We do not currently fund post retirement benefits.


43


16 . Segment Information     

Our segments coincide with how our businesses are managed. At September 30, 2016 , our three segments included:

•
Consumer and Insurance — We originate and service personal loans (secured and unsecured) through two business divisions: branch operations and centralized operations. We also offer credit insurance (life insurance, disability insurance, and involuntary unemployment insurance), non-credit insurance, and ancillary products, such as warranty protection. As a result of the OneMain Acquisition, our combined branch operations primarily conduct business in 44 states. Our centralized operations underwrite and process certain loan applications that we receive from our branch operations or through an internet portal. If the applicant is located near an existing branch (“in footprint”), our centralized operations make the credit decision regarding the application and then request, but do not require, the customer to visit a nearby branch for closing, funding and servicing. If the applicant is not located near a branch (“out of footprint”), our centralized operations originate the loan.

•
Acquisitions and Servicing — We service the SpringCastle Portfolio that was acquired through a joint venture in which we previously owned a 47% equity interest. On March 31, 2016, the SpringCastle Portfolio was sold in connection with the sale of our equity interest in the SpringCastle Joint Venture. These loans consist of unsecured loans and loans secured by subordinate residential real estate mortgages and include both closed-end accounts and open-end lines of credit. These loans are in a liquidating status and vary in substance and form from our originated loans. Unless we are terminated, we will continue to provide the servicing for these loans pursuant to a servicing agreement, which we service as unsecured loans because the liens are subordinated to superior ranking security interests.

•
Real Estate — We service and hold real estate loans secured by first or second mortgages on residential real estate. Real estate loans previously originated through our branch offices or previously acquired or originated through centralized distribution channels are serviced by: (i) MorEquity and subserviced by Nationstar; (ii) Select Portfolio Servicing, Inc.; or (iii) our centralized operations. Investment funds managed by affiliates of Fortress indirectly own a majority interest in Nationstar. Prior to the OneMain Acquisition, this segment also included proceeds from the sale of our real estate loans in 2014. We used these proceeds to acquire OneMain.

The remaining components (which we refer to as “Other”) consist of our other non-originating legacy operations, which are isolated by geographic market and/or distribution channel from our three segments. These operations include: (i) Springleaf legacy operations in 14 states where we also ceased branch-based personal lending; (ii) Springleaf liquidating retail sales finance portfolio (including retail sales finance accounts from its legacy auto finance operation); (iii) Springleaf lending operations in Puerto Rico and the U.S. Virgin Islands; and (iv) the operations of Springleaf United Kingdom subsidiary, prior to its liquidation on August 16, 2016.

On November 15, 2015, we completed our acquisition of OneMain, and their results are included in our consolidated results for the three and nine months ended September 30, 2016. We include OneMain’s operations within the Consumer and Insurance segment.

The accounting policies of the segments are the same as those disclosed in Note 3 to the consolidated financial statements of our 2015 Annual Report on Form 10-K, except as described below.

Due to the nature of the Fortress and OneMain acquisitions, we applied purchase accounting. However, we report the operating results of Consumer and Insurance, Acquisitions and Servicing, Real Estate, and Other using a “Segment Accounting Basis,” which (i) reflects our allocation methodologies for certain costs, primarily interest expense, loan loss reserves and acquisition costs to reflect the manner in which we assess our business results and (ii) excludes the impact of applying purchase accounting (eliminates premiums/discounts on our finance receivables at acquisition, as well as the amortization/accretion in future periods). These allocations and adjustments currently have a material effect on our reported segment basis income as compared to GAAP. We believe a Segment Accounting Basis (a basis other than GAAP) provides investors a consistent basis on which management evaluates segment performance.


44


We allocate revenues and expenses (on a Segment Accounting Basis) to each segment using the following methodologies:

Interest income
Directly correlated with a specific segment.
Interest expense
Acquisitions and Servicing  - This segment includes interest expense specifically identified to the SpringCastle Portfolio.
Consumer and Insurance, Real Estate and Other  - The Company has securitization debt and unsecured debt. The Company first allocates interest expense to its segments based on actual expense for securitizations and secured term debt and using a weighted average for unsecured debt allocated to the segments. Average unsecured debt allocations for the periods presented are as follows:
Subsequent to the OneMain Acquisition
Total average unsecured debt is allocated as follows:
l  Consumer and Insurance  - receives remainder of unallocated average debt; and
l  Real Estate and Other  - at 100% of asset base. (Asset base represents the average net finance receivables including finance receivables held for sale.)
The net effect of the change in debt allocation and asset base methodologies for the three months ended September 30, 2015, had it been in place as of the beginning of the year, would be an increase in interest expense of $59 million for Consumer and Insurance and a decrease in interest expense of $44 million and $15 million for Real Estate and Other, respectively.
The net effect of the change in debt allocation and asset base methodologies for the nine months ended September 30, 2015, had it been in place as of the beginning of the year, would be an increase in interest expense of $179 million for Consumer and Insurance and a decrease in interest expense of $134 million and $45 million for Real Estate and Other, respectively.
For the period third quarter 2014 to the OneMain Acquisition
Total average unsecured debt was allocated to Consumer and Insurance, Real Estate and Other, such that the total debt allocated across each segment equaled 83%, up to 100% and 100% of each of its respective asset base. Any excess was allocated to Consumer and Insurance.
Average unsecured debt was allocated after average securitized debt to achieve the calculated average segment debt.
Asset base represented the following:
l  Consumer and Insurance  - average net finance receivables, including average net finance receivables held for sale;
l  Real Estate  - average net finance receivables, including average net finance receivables held for sale, cash and cash equivalents, investments including proceeds from Real Estate sales; and
l   Other  - average net finance receivables other than the periods listed below:
l  May 2015 to the OneMain Acquisition  - average net finance receivables and cash and cash equivalents, less proceeds from equity issuance in 2015, operating cash reserve and cash included in other segments.
l   February 2015 to April 2015 - average net finance receivables and cash and cash equivalents, less operating cash reserve and cash included in other segments.
Provision for finance receivable losses
Directly correlated with a specific segment, except for allocations to Other, which are based on the remaining delinquent accounts as a percentage of total delinquent accounts.
Other revenues
Directly correlated with a specific segment, except for: (i) net gain (loss) on repurchases and repayments of debt, which is allocated to the segments based on the interest expense allocation of debt and (ii) gains and losses on foreign currency exchange, which are allocated to the segments based on the interest expense allocation of debt.
Acquisition-related transaction and integration expenses
Consists of: (i) acquisition-related transaction and integration costs related to the OneMain Acquisition, including legal and other professional fees, which we primarily report in Other, as these are costs related to acquiring the business as opposed to operating the business; (ii) software termination costs, which are allocated to Consumer and Insurance; and (iii) incentive compensation incurred above and beyond expected cost from acquiring and retaining talent in relation to the OneMain Acquisition, which are allocated to each of the segments based on services provided.
Other expenses
Salaries and benefits - Directly correlated with a specific segment. Other salaries and benefits not directly correlated with a specific segment are allocated to each of the segments based on services provided.
Other operating expenses - Directly correlated with a specific segment. Other operating expenses not directly correlated with a specific segment are allocated to each of the segments based on services provided.
Insurance policy benefits and claims  - Directly correlated with a specific segment.

45


The “Segment to GAAP Adjustment” column in the following tables primarily consists of:

•
Interest income - reverses the impact of premiums/discounts on non-impaired purchased finance receivables and the interest income recognition under guidance in Accounting Standards Codification (“ASC”) 310-20, Nonrefundable Fees and Other Costs , and reestablishes interest income recognition on a historical cost basis;

•
Interest expense - reverses the impact of premiums/discounts on acquired long-term debt and reestablishes interest expense recognition on a historical cost basis;

•
Provision for finance receivable losses - reverses the impact of providing an allowance for finance receivable losses upon acquisition and reestablishes the allowance on a historical cost basis and reverses the impact of recognition of net charge-offs on purchased credit impaired finance receivables and reestablishes the net charge-offs on a historical cost basis;

•
Other revenues - reestablishes the historical cost basis of mark-to-market adjustments on finance receivables held for sale and on realized gains/losses associated with our investment portfolio;

•
Acquisition-related transaction and integration expenses - reestablishes the amortization of purchased software assets on a historical cost basis; and

•
Other expenses - reestablishes expenses on a historical cost basis by reversing the impact of amortization from acquired intangible assets and including amortization of other historical deferred costs.

The following tables present information about the Company’s segments, as well as reconciliations to the condensed consolidated financial statement amounts.
(dollars in millions)
 
Consumer
and
Insurance
 
Acquisitions
and
Servicing
 
Real 
Estate
 
Other
 
Eliminations
 
Segment to
GAAP
Adjustment
 
Consolidated
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended 
  September 30, 2016
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest income
 
$
827

 
$
—

 
$
10

 
$
1

 
$
—

 
$
(68
)
 
$
770

Interest expense
 
191

 
—

 
8

 
1

 
—

 
15

 
215

Provision for finance receivable losses
 
224

 
—

 
1

 
—

 
—

 
38

 
263

Net interest income after provision for finance receivable losses
 
412

 
—

 
1

 
—

 
—

 
(121
)
 
292

Other revenues
 
151

 
12

 
(12
)
 
(5
)
 
—

 
12

 
158

Acquisition-related transaction and integration expenses
 
17

 
—

 
1

 
4

 
—

 
(1
)
 
21

Other expenses
 
367

 
10

 
8

 
1

 
—

 
10

 
396

Income (loss) before provision for (benefit from) income taxes
 
$
179

 
$
2

 
$
(20
)
 
$
(10
)
 
$
—

 
$
(118
)
 
$
33

Three Months Ended 
  September 30, 2015
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest income
 
$
293

 
$
113

 
$
17

 
$
1

 
$
—

 
$
3

 
$
427

Interest expense
 
43

 
22

 
58

 
16

 
—

 
32

 
171

Provision for finance receivable losses
 
62

 
15

 
(4
)
 
—

 
—

 
6

 
79

Net interest income (loss) after provision for finance receivable losses
 
188

 
76

 
(37
)
 
(15
)
 
—

 
(35
)
 
177

Other revenues
 
55

 
13

 
(2
)
 
—

 
(13
)
 
(6
)
 
47

Acquisition-related transaction and integration expenses
 
—

 
—

 
—

 
14

 
—

 
—

 
14

Other expenses
 
166

 
27

 
8

 
1

 
(13
)
 
1

 
190

Income (loss) before provision for (benefit from) income taxes
 
77

 
62

 
(47
)
 
(30
)
 
—

 
(42
)
 
20

Income before provision for income taxes attributable to non-controlling interests
 
—

 
32

 
—

 
—

 
—

 
—

 
32

Income (loss) before provision for (benefit from) income taxes attributable to OneMain Holdings, Inc.
 
$
77

 
$
30

 
$
(47
)
 
$
(30
)
 
$
—

 
$
(42
)
 
$
(12
)

46


(dollars in millions)
 
Consumer
and
Insurance
 
Acquisitions
and
Servicing
 
Real 
Estate
 
Other
 
Eliminations
 
Segment to
GAAP
Adjustment
 
Consolidated
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or for the Nine Months Ended 
  September 30, 2016
 
 
 
 

 
 

 
 

 
 
 
 

 
 

Interest income
 
$
2,507

 
$
102

 
$
40

 
$
3

 
$
—

 
$
(310
)
 
$
2,342

Interest expense
 
551

 
20

 
35

 
2

 
—

 
47

 
655

Provision for finance receivable losses
 
669

 
14

 
5

 
—

 
—

 
(14
)
 
674

Net interest income after provision for finance receivable losses
 
1,287

 
68

 
—

 
1

 
—

 
(343
)
 
1,013

Net gain on sale of SpringCastle interests
 
—

 
167

 
—

 
—

 
—

 
—

 
167

Other revenues
 
467

 
36

 
(30
)
 
(5
)
 
(11
)
 
2

 
459

Acquisition-related transaction and integration expenses
 
62

 
1

 
1

 
19

 
—

 
(8
)
 
75

Other expenses
 
1,140

 
47

 
21

 
—

 
(11
)
 
40

 
1,237

Income (loss) before provision for (benefit from) income taxes
 
552

 
223

 
(52
)
 
(23
)
 
—

 
(373
)
 
327

Income before provision for income taxes attributable to non-controlling interests
 
—

 
28

 
—

 
—

 
—

 
—

 
28

Income (loss) before provision for (benefit from) income taxes attributable to OneMain Holdings, Inc.
 
$
552

 
$
195

 
$
(52
)
 
$
(23
)
 
$
—

 
$
(373
)
 
$
299

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
$
15,728

 
$
5

 
$
371

 
$
242

 
$
—

 
$
2,007

 
$
18,353

At or for the Nine Months Ended 
  September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
818

 
$
355

 
$
52

 
$
6

 
$
—

 
$
9

 
$
1,240

Interest expense
 
119

 
67

 
177

 
48

 
(5
)
 
94

 
500

Provision for finance receivable losses
 
172

 
53

 
(7
)
 
1

 
—

 
14

 
233

Net interest income (loss) after provision for finance receivable losses
 
527

 
235

 
(118
)
 
(43
)
 
5

 
(99
)
 
507

Other revenues
 
162

 
45

 
4

 
—

 
(45
)
 
(12
)
 
154

Acquisition-related transaction and integration expenses
 
—

 
—

 
—

 
29

 
—

 
—

 
29

Other expenses
 
471

 
82

 
24

 
16

 
(40
)
 
3

 
556

Income (loss) before provision for (benefit from) income taxes
 
218

 
198

 
(138
)
 
(88
)
 
—

 
(114
)
 
76

Income before provision for income taxes attributable to non-controlling interests
 
—

 
98

 
—

 
—

 
—

 
—

 
98

Income (loss) before provision for (benefit from) income taxes attributable to OneMain Holdings, Inc.
 
$
218

 
$
100

 
$
(138
)
 
$
(88
)
 
$
—

 
$
(114
)
 
$
(22
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets *
 
$
5,503

 
$
1,880

 
$
3,551

 
$
2,255

 
$
—

 
$
(24
)
 
$
13,165

                                      
*
In connection with our policy integration with OneMain, we report unearned insurance premium and claim reserves related to finance receivables (previously reported in insurance claims and policyholder liabilities) as a contra-asset to net finance receivables, which totaled $240 million at September 30, 2015 .


47


17 . Fair Value Measurements     

The fair value of a financial instrument is the amount that would be expected to be received if an asset were to be sold or the amount that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The degree of judgment used in measuring the fair value of financial instruments generally correlates with the level of pricing observability. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments traded in other-than-active markets or that do not have quoted prices have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. An other-than-active market is one in which there are few transactions, the prices are not current, price quotations vary substantially either over time or among market makers, or little information is released publicly for the asset or liability being valued. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is listed on an exchange or traded over-the-counter or is new to the market and not yet established, the characteristics specific to the transaction, and general market conditions.

The following table summarizes the fair values and carrying values of our financial instruments and indicates the fair value hierarchy based on the level of inputs we utilized to determine such fair values:
 
 
Fair Value Measurements Using
 
Total
Fair
Value
 
Total
Carrying
Value
(dollars in millions)
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2016
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
589

 
$
69

 
$
—

 
$
658

 
$
658

Investment securities
 
35

 
1,743

 
10

 
1,788

 
1,788

Net finance receivables, less allowance for finance receivable losses
 
—

 
—

 
13,984

 
13,984

 
13,198

Finance receivables held for sale
 
—

 
—

 
166

 
166

 
166

Restricted cash and cash equivalents
 
558

 
—

 
—

 
558

 
558

Other assets:
 
 
 
 
 
 
 
 
 
 
Commercial mortgage loans
 
—

 
—

 
45

 
45

 
45

Escrow advance receivable
 
—

 
—

 
9

 
9

 
9

Receivables related to sales of real estate loans and related trust assets
 
—

 
1

 
—

 
1

 
5

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
$
—

 
$
14,577

 
$
—

 
$
14,577

 
$
13,994

 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
939

 
$
—

 
$
—

 
$
939

 
$
939

Investment securities
 
36

 
1,829

 
2

 
1,867

 
1,867

Net finance receivables, less allowance for finance receivable losses
 
—

 
—

 
15,943

 
15,943

 
14,967

Finance receivables held for sale
 
—

 
—

 
819

 
819

 
793

Restricted cash and cash equivalents
 
676

 
—

 
—

 
676

 
676

Other assets:
 
 
 
 
 
 
 
 
 
 
Commercial mortgage loans
 
—

 
—

 
62

 
62

 
62

Escrow advance receivable
 
—

 
—

 
11

 
11

 
11

Receivables related to sales of real estate loans and related trust assets
 
—

 
1

 
—

 
1

 
5

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 

 
 
Long-term debt
 
$
—

 
$
17,616

 
$
—

 
$
17,616

 
$
17,300



48


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
(dollars in millions)
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
September 30, 2016
 
 

 
 

 
 

 
 

Assets
 
 

 
 

 
 

 
 

Cash equivalents in mutual funds
 
$
158

 
$
—

 
$
—

 
$
158

Cash equivalents securities
 
—

 
69

 
—

 
69

Investment securities:
 
 

 
 

 
 

 
 

Available-for-sale securities
 
 

 
 

 
 

 
 

Bonds:
 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
—

 
40

 
—

 
40

Obligations of states, municipalities, and political subdivisions
 
—

 
135

 
—

 
135

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

 
119

 
—

 
119

Corporate debt
 
—

 
1,066

 
1

 
1,067

RMBS
 
—

 
82

 
—

 
82

CMBS
 
—

 
112

 
—

 
112

CDO/ABS
 
—

 
81

 
1

 
82

Total bonds
 
—

 
1,635

 
2

 
1,637

Preferred stock
 
8

 
7

 
—

 
15

Common stock
 
21

 
—

 
—

 
21

Other long-term investments
 
—

 
—

 
2

 
2

Total available-for-sale securities *
 
29

 
1,642

 
4

 
1,675

Other securities
 
 

 
 

 
 

 


Bonds:
 
 

 
 

 
 

 


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

 
3

 
—

 
3

Corporate debt
 
—

 
93

 
4

 
97

RMBS
 
—

 
1

 
—

 
1

CMBS
 
—

 
2

 
—

 
2

CDO/ABS
 
—

 
2

 
1

 
3

Total bonds
 
—

 
101

 
5

 
106

Preferred stock
 
6

 
—

 
—

 
6

Total other securities
 
6

 
101

 
5

 
112

Total investment securities
 
35

 
1,743

 
9

 
1,787

Restricted cash in mutual funds
 
163

 
—

 
—

 
163

Total
 
$
356

 
$
1,812

 
$
9

 
$
2,177

                                     
*
Excludes an immaterial interest in a limited partnership that we account for using the equity method and Federal Home Loan Bank common stock of $1 million at September 30, 2016 , which is carried at cost.


49


 
 
Fair Value Measurements Using
 
Total Carried At Fair Value
(dollars in millions)
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 

 
 

 
 

 
 

Assets
 
 

 
 

 
 

 
 

Cash equivalents in mutual funds
 
$
240

 
$
—

 
$
—

 
$
240

Investment securities:
 
 

 
 

 
 

 
 

Available-for-sale securities
 
 

 
 

 
 

 
 

Bonds:
 
 

 
 

 
 

 
 

U.S. government and government sponsored entities
 
—

 
111

 
—

 
111

Obligations of states, municipalities, and political subdivisions
 
—

 
140

 
—

 
140

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

 
126

 
—

 
126

Corporate debt
 
—

 
999

 
—

 
999

RMBS
 
—

 
128

 
—

 
128

CMBS
 
—

 
116

 
—

 
116

CDO/ABS
 
—

 
71

 
—

 
71

Total bonds
 
—

 
1,691

 
—

 
1,691

Preferred stock
 
6

 
7

 
—

 
13

Common stock
 
23

 
—

 
—

 
23

Other long-term investments
 
—

 
—

 
2

 
2

Total available-for-sale securities (a)
 
29

 
1,698

 
2

 
1,729

Trading and other securities
 
 

 
 

 
 

 
 
Bonds:
 
 

 
 

 
 

 
 

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

 
3

 
—

 
3

Corporate debt
 
—

 
124

 
—

 
124

RMBS
 
—

 
2

 
—

 
2

CMBS
 
—

 
2

 
—

 
2

Total bonds
 
—

 
131

 
—

 
131

Preferred stock
 
6

 
—

 
—

 
6

Total trading and other securities (b)
 
6

 
131

 
—

 
137

Total investment securities
 
35

 
1,829

 
2

 
1,866

Restricted cash in mutual funds
 
277

 
—

 
—

 
277

Total
 
$
552

 
$
1,829

 
$
2

 
$
2,383

                                      
(a)
Excludes an immaterial interest in a limited partnership that we account for using the equity method and Federal Home Loan Bank common stock of $1 million at December 31, 2015 , which is carried at cost.

(b)
The fair value of other securities totaled $128 million at December 31, 2015 .

We had no transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2016 .


50


The following table presents changes in Level 3 assets measured at fair value on a recurring basis:
 
 
 
 
Net gains (losses) included in:
 
Purchases, sales, issues, settlements (a)
 
Transfers into
Level 3
(b)
 
Transfers
out of
Level 3
(c)
 
Balance
at end of
period
 
 
Balance at beginning
of period
 
Other revenues
 
Other comprehensive
income (loss)
 
 
 
 
(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended 
  September 30, 2016
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Investment securities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Available-for-sale securities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Bonds:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Corporate debt
 
$
1

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1

CDO/ABS
 
—

 
—

 
—

 
1

 
—

 
—

 
1

Total bonds
 
1

 
—

 
—

 
1

 
—

 
—

 
2

Other long-term investments
 
1

 
—

 
1

 
—

 
—

 
—

 
2

Total available-for-sale securities
 
2

 
—

 
1

 
1

 
—

 
—


4

Other securities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Bonds:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Corporate debt
 
4

 
—

 
—

 
—

 
—

 
—

 
4

CDO/ABS
 
—

 
—

 
—

 
1

 
—

 
—

 
1

Total other securities
 
4

 
—

 
—

 
1

 
—

 
—

 
5

Total
 
$
6

 
$
—

 
$
1

 
$
2

 
$
—

 
$
—

 
$
9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended 
  September 30, 2015
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Investment securities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Available-for-sale securities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Preferred stock
 
$
—

 
$
—

 
$
—

 
$
10

 
$
—

 
$
—

 
$
10

Other long-term investments
 
1

 
—

 
—

 
—

 
—

 
—

 
1

Total
 
$
1

 
$
—

 
$
—

 
$
10

 
$
—

 
$
—

 
$
11


51


 
 
 
 
Net gains (losses) included in:
 
Purchases, sales, issues, settlements (a)
 
Transfers into
Level 3 (b)
 
Transfers
out of
Level 3 (c)
 
Balance
at end of
period
 
 
Balance at beginning
of period
 
Other revenues
 
Other comprehensive
income (loss)
 
 
 
 
(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended 
  September 30, 2016
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Investment securities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Available-for-sale securities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Bonds:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Corporate debt
 
$
—

 
$
—

 
$
—

 
$
—

 
$
1

 
$
—

 
$
1

CDO/ABS
 
—

 
—

 
—

 
1

 
—

 
—

 
1

Total bonds
 
—

 
—

 
—

 
1

 
1

 
—

 
2

Other long-term investments
 
2

 
—

 
—

 
—

 
—

 
—

 
2

Total available-for-sale securities
 
2

 
—

 
—

 
1

 
1

 
—

 
4

Other securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bonds:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt
 
—

 
—

 
—

 
—

 
4

 
—

 
4

CDO/ABS
 
—

 
—

 
—

 
1

 
—

 
—

 
1

Total other securities
 
—

 
—

 
—

 
1

 
4

 
—

 
5

Total
 
$
2

 
$
—

 
$
—

 
$
2

 
$
5

 
$
—

 
$
9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended 
  September 30, 2015
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Investment securities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Available-for-sale securities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Bonds:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Corporate debt
 
$
4

 
$
—

 
$
—

 
$
(4
)
 
$
—

 
$
—

 
$
—

CMBS
 
3

 
—

 
—

 
—

 
—

 
(3
)
 
—

Total bonds
 
7

 
—

 
—

 
(4
)
 
—

 
(3
)
 
—

Preferred stock
 
—

 
—

 
—

 
10

 
—

 
—

 
10

Other long-term investments
 
1

 
—

 
—

 
—

 
—

 
—

 
1

Total
 
$
8

 
$
—

 
$
—

 
$
6


$
—


$
(3
)
 
$
11


52


                                      
(a)
The detail of purchases and settlements is presented in the table below:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Investment securities:
 
 
 
 
 
 
 
 
Purchases
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
Bonds:
 
 
 
 
 
 
 
 
Corporate debt
 
$
2

 
$
—

 
$
2

 
$
—

CDO/ABS
 
1

 
—

 
1

 
—

Total bonds
 
3

 
—

 
3

 
—

Preferred stock
 
—

 
10

 
—

 
10

Total available-for-sale securities
 
3

 
10

 
3

 
10

Other securities
 
 
 
 
 
 
 
 
Bonds:
 
 
 
 
 
 
 
 
CDO/ABS
 
1

 
—

 
1

 
—

Total purchases
 
4

 
10

 
4

 
10

Settlements
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
Bonds:
 
 
 
 
 
 
 
 
Corporate debt
 
(2
)
 
—

 
(2
)
 
(4
)
Total
 
$
2

 
$
10

 
$
2

 
$
6


(b)
During the nine months ended September 30, 2016 , we transferred corporate debt securities totaling $5 million into Level 3 primarily related to the reduced observability of pricing inputs.

(c)
During the nine months ended September 30, 2015 , we transferred CMBS securities totaling $3 million out of Level 3 primarily related to the greater observability of pricing inputs.

We used observable and/or unobservable inputs to determine the fair value of positions that we have classified within the Level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the Level 3 category presented in the Level 3 tables above may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

The unobservable inputs and quantitative data used in our Level 3 valuations for our investment securities were developed and used in models created by our third-party valuation service providers, which values were used by us for fair value disclosure purposes without adjustment.

Quantitative information about Level 3 inputs for our assets measured at fair value on a recurring basis for which information about the unobservable inputs was reasonably available to us at September 30, 2016 and December 31, 2015 is as follows:
 
 
 
Range (Weighted Average)
 
Valuation Technique(s)
Unobservable Input
September 30, 2016
December 31, 2015
Corporate debt
Discounted cash flows
Yield
2.13% - 10.76% (5.22%)
—
RMBS
Discounted cash flows
Spread
—
665 bps (a)
Other long-term investments
Discounted cash flows and indicative valuations
Historical costs
Nature of investment
Local market conditions
Comparables
Operating performance
Recent financing activity
(b)
(b)
                                      
(a)
At December 31, 2015 , RMBS consisted of one bond, which was less than $1 million .


53


(b)
We applied the third-party exception which allows us to omit certain quantitative disclosures about unobservable inputs for other long-term investments. As a result, the weighted average ranges of the inputs for these investment securities are not applicable.

The fair values of the assets using significant unobservable inputs are sensitive and can be impacted by significant increases or decreases in any of those inputs. Level 3 broker-priced instruments, including RMBS (except for the one bond described in note (a) above), CMBS, and CDO/ABS, are excluded from the table above because the unobservable inputs are not reasonably available to us.

Our RMBS, CMBS, and CDO/ABS securities have unobservable inputs that are reliant on and sensitive to the quality of their underlying collateral. The inputs, although not identical, have similar characteristics and interrelationships. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment speeds. An improvement in the workout criteria related to the restructured debt and/or debt covenants of the underlying collateral may lead to an improvement in the cash flows and have an inverse impact on other inputs, specifically a reduction in the amount of discount applied for marketability and liquidity, making the structured bonds more attractive to market participants.

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.

Assets measured at fair value on a non-recurring basis on which we recorded impairment charges were as follows:
 
 
Fair Value Measurements Using *
 
 
(dollars in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
 
September 30, 2016
 
 

 
 

 
 

 
 

Assets
 
 

 
 

 
 

 
 

Finance receivables held for sale
 
$
—

 
$
—

 
$
157

 
$
157

Real estate owned
 
—

 
—

 
6

 
6

Commercial mortgage loans
 
—

 
—

 
3

 
3

Total
 
$
—

 
$
—

 
$
166

 
$
166

 
 
 
 
 
 
 
 
 
December 31, 2015
 
 

 
 

 
 

 
 

Assets
 
 

 
 

 
 

 
 

Real estate owned
 
$
—

 
$
—

 
$
11

 
$
11

Commercial mortgage loans
 
—

 
—

 
8

 
8

Total

$
—

 
$
—

 
$
19

 
$
19

                                      
*
The fair value information presented in the table is as of the date the fair value adjustment was recorded.

Net impairment charges recorded on assets measured at fair value on a non-recurring basis were as follows:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Assets
 
 

 
 

 
 

 
 

Finance receivables held for sale
 
$
—

 
$
—

 
$
5

 
$
—

Real estate owned
 
1

 
1

 
2

 
3

Commercial mortgage loans
 
(1
)
 
—

 
—

 
(2
)
Total
 
$
—

 
$
1

 
$
7

 
$
1


In accordance with the authoritative guidance for the accounting for the impairment of finance receivables held for sale, we wrote down certain finance receivables held for sale reported in our Real Estate segment to their fair value during the second quarter of 2016 and recorded the writedowns in other revenues.

54


In accordance with the authoritative guidance for the accounting for the impairment of long-lived assets, we wrote down certain real estate owned reported in our Real Estate segment to their fair value less cost to sell for the three and nine months ended September 30, 2016 and 2015 and recorded the writedowns in other revenues. The fair values of real estate owned disclosed in the table above are unadjusted for transaction costs, as required by the authoritative guidance for fair value measurements. The amounts of real estate owned recorded in other assets are net of transaction costs as required by the authoritative guidance for accounting for the impairment of long-lived assets.

In accordance with the authoritative guidance for the accounting for the impairment of commercial mortgage loans, we recorded allowance adjustments on certain impaired commercial mortgage loans reported in our Consumer and Insurance segment to record their fair value for the three and nine months ended September 30, 2016 and 2015 and recorded the net impairments in investment revenues.

The inputs and quantitative data used in our Level 3 valuations for our real estate owned and commercial mortgage loans are unobservable primarily due to the unique nature of specific real estate assets. Therefore, we used independent third-party providers, familiar with local markets, to determine the values used for fair value disclosures without adjustment.

Quantitative information about Level 3 inputs for our assets measured at fair value on a non-recurring basis at September 30, 2016 and December 31, 2015 was as follows:
 
 
 
Range (Weighted Average)
 
Valuation Technique(s)
Unobservable Input
September 30, 2016
December 31, 2015
Finance receivables held for sale
Income approach
Market value for similar type loan transactions to obtain a price point
*
—
Real estate owned
Market approach
Third-party valuation
*
*
Commercial mortgage loans
Market approach
Income approach
Cost approach
Local market conditions
Nature of investment
Comparable property sales
Operating performance
*
*
                                      
*
We applied the third-party exception which allows us to omit certain quantitative disclosures about unobservable inputs for the assets measured at fair value on a non-recurring basis included in the table above. As a result, the weighted average ranges of the inputs for these assets are not applicable.

FAIR VALUE MEASUREMENTS — VALUATION METHODOLOGIES AND ASSUMPTIONS

We use the following methods and assumptions to estimate fair value.

Cash and Cash Equivalents

The carrying amount of cash and cash equivalents, including cash and certain cash equivalents, approximates fair value.

Mutual Funds

The fair value of mutual funds is based on quoted market prices of the underlying shares held in the mutual funds.

Investment Securities

We utilize third-party valuation service providers to measure the fair value of our investment securities, which are classified as available-for-sale or as trading and other and consist primarily of bonds. Whenever available, we obtain quoted prices in active markets for identical assets at the balance sheet date to measure investment securities at fair value. We generally obtain market price data from exchange or dealer markets.

We estimate the fair value of fixed maturity investment securities not traded in active markets by referring to traded securities with similar attributes, using dealer quotations and a matrix pricing methodology, or discounted cash flow analyses. This methodology considers such factors as the issuer’s industry, the security’s rating and tenor, its coupon rate, its position in the capital structure of the issuer, yield curves, credit curves, composite ratings, bid-ask spreads, prepayment rates and other relevant factors. For fixed maturity investment securities that are not traded in active markets or that are subject to transfer

55


restrictions, we adjust the valuations to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.

We elect the fair value option for investment securities that are deemed to incorporate an embedded derivative and for which it is impracticable for us to isolate and/or value the derivative.

The fair value of certain investment securities is based on the amortized cost, which is assumed to approximate fair value.

Finance Receivables

The fair value of net finance receivables, less allowance for finance receivable losses, both non-impaired and purchased credit impaired, are determined using discounted cash flow methodologies. The application of these methodologies requires us to make certain judgments and estimates based on our perception of market participant views related to the economic and competitive environment, the characteristics of our finance receivables, and other similar factors. The most significant judgments and estimates made relate to prepayment speeds, default rates, loss severity, and discount rates. The degree of judgment and estimation applied is significant in light of the current capital markets and, more broadly, economic environments. Therefore, the fair value of our finance receivables could not be determined with precision and may not be realized in an actual sale. Additionally, there may be inherent limitations in the valuation methodologies we employed, and changes in the underlying assumptions used could significantly affect the results of current or future values.

Finance Receivables Held for Sale

We determined the fair value of finance receivables held for sale that were originated as held for investment based on negotiations with prospective purchasers (if any) or by using projected cash flows discounted at the weighted-average interest rates offered by us in the market for similar finance receivables. We based cash flows on contractual payment terms adjusted for estimates of prepayments and credit related losses.

Restricted Cash and Cash Equivalents

The carrying amount of restricted cash and cash equivalents approximates fair value.

Commercial Mortgage Loans

Given the short remaining average life of the portfolio, the carrying amount of commercial mortgage loans approximates fair value. The carrying amount includes an estimate for credit related losses, which is based on independent third-party valuations.

Real Estate Owned

We initially base our estimate of the fair value on independent third-party valuations at the time we take title to real estate owned. Subsequent changes in fair value are based upon independent third-party valuations obtained periodically to estimate a price that would be received in a then current transaction to sell the asset.

Escrow Advance Receivable

The carrying amount of escrow advance receivable approximates fair value.

Receivables Related to Sales of Real Estate Loans and Related Trust Assets

The carrying amount of receivables related to sales of real estate loans and related trust assets less estimated forfeitures, which are reflected in other liabilities, approximates fair value.

Long-term Debt

We either receive fair value measurements of our long-term debt from market participants and pricing services or we estimate the fair values of long-term debt using projected cash flows discounted at each balance sheet date’s market-observable implicit-credit spread rates for our long-term debt.


56


We record at fair value long-term debt issuances that are deemed to incorporate an embedded derivative and for which it is impracticable for us to isolate and/or value the derivative. At September 30, 2016 , we had no debt carried at fair value under the fair value option.

We estimate the fair values associated with variable rate revolving lines of credit to be equal to par.

18 . Subsequent Event     

OMH GUARANTY OF OMFH DEBT

On November 8, 2016, OMH entered into a second supplemental indenture (the “Supplemental Indenture”) to the OMFH Indenture, pursuant to which OMH agreed to fully, unconditionally and irrevocably guarantee the outstanding OMFH Notes in accordance with and subject to the terms of the OMFH Indenture. Further, as permitted by the terms of the OMFH Indenture, OMFH intends to satisfy its reporting obligations under the OMFH Indenture with respect to providing OMFH financial information to the holders of the OMFH Notes by furnishing financial information relating to the Company.

See Note 9 for further information on the OMFH Indenture and the OMFH Notes.


57


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

An index to our management’s discussion and analysis follows:

Topic
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Forward-Looking Statements    

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact but instead represent only management’s current beliefs regarding future events. By their nature, forward-looking statements involve inherent risks, uncertainties and other important factors that may cause actual results, performance or achievements to differ materially from those expressed in or implied by such forward-looking statements. We caution you not to place undue reliance on these forward-looking statements that speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions to 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. Forward-looking statements include, without limitation, statements concerning future plans, objectives, goals, projections, strategies, events or performance, and underlying assumptions and other statements related thereto. Statements preceded by, followed by or that otherwise include the words “anticipates,” “appears,” “are likely,” “believes,” “estimates,” “expects,” “foresees,” “intends,” “plans,” “projects” and similar expressions or future or conditional verbs such as “would,” “should,” “could,” “may,” or “will,” are intended to identify forward-looking statements. Important factors that could cause actual results, performance or achievements to differ materially from those expressed in or implied by forward-looking statements include, without limitation, the following:

•
the inability to obtain, or delays in obtaining, cost savings and synergies from the OneMain Acquisition and risks and other uncertainties associated with the integration of the companies;

•
unanticipated expenditures relating to the OneMain Acquisition;

•
any litigation, fines or penalties that could arise relating to the OneMain Acquisition;

•
the impact of the OneMain Acquisition on each company’s relationships with employees and third parties;

•
various risks relating to the Lendmark Sale, in connection with the previously disclosed Settlement Agreement with the DOJ;

•
risks relating to continued compliance with the Settlement Agreement;

•
changes in general economic conditions, including the interest rate environment in which we conduct business and the financial markets through which we can access capital and also invest cash flows from our Consumer and Insurance segment;


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•
levels of unemployment and personal bankruptcies;

•
natural or accidental events such as earthquakes, hurricanes, tornadoes, fires, or floods affecting our customers, collateral, or branches or other operating facilities;

•
war, acts of terrorism, riots, civil disruption, pandemics, disruptions in the operation of our information systems, cyber-attacks or other security breaches, or other events disrupting business or commerce;

•
changes in the rate at which we can collect or potentially sell our finance receivables portfolio;

•
the effectiveness of our credit risk scoring models in assessing the risk of customer unwillingness or lack of capacity to repay;

•
changes in our ability to attract and retain employees or key executives to support our businesses;

•
changes in the competitive environment in which we operate, including the demand for our products, customer responsiveness to our distribution channels, our ability to make technological improvements, and the strength and ability of our competitors to operate independently or to enter into business combinations that result in a more attractive range of customer products or provide greater financial resources;

•
risks related to the acquisition or sale of loan portfolios, including delinquencies, integration or migration issues, increased costs of servicing, incomplete records, and retention of customers;

•
the inability to successfully and timely expand our centralized loan servicing capabilities through the integration of the Springleaf and OneMain servicing facilities;

•
risks associated with our insurance operations;

•
the inability to successfully implement our growth strategy for our consumer lending business as well as successfully acquiring portfolios of consumer loans, pursuing acquisitions, and/or establishing joint ventures;

•
declines in collateral values or increases in actual or projected delinquencies or credit losses;

•
changes in federal, state or local laws, regulations, or regulatory policies and practices, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (which, among other things, established the Consumer Financial Protection Bureau, which has broad authority to regulate and examine financial institutions, including us), that affect our ability to conduct business or the manner in which we 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-party vendors and real estate loan servicing;

•
potential liability relating to real estate and personal loans which we have sold or may sell in the future, or relating to securitized loans, if it is determined that there was a non-curable breach of a representation or warranty made in connection with such transactions;

•
the costs and effects of any actual or alleged violations of any federal, state or local laws, rules or regulations, including any litigation associated therewith, any impact to our business operations, reputation, financial position, results of operations or cash flows arising therefrom, any impact to our relationships with lenders, investors or other third parties attributable thereto, and the costs and effects of any breach of any representation, warranty or covenant under any of our contractual arrangements, including indentures or other financing arrangements or contracts, as a result of any such violation;

•
the costs and effects of any fines, penalties, judgments, decrees, orders, inquiries, investigations, subpoenas, or enforcement or other proceedings of any governmental or quasi-governmental agency or authority and any litigation associated therewith;

•
our continued ability to access the capital markets or the sufficiency of our current sources of funds to satisfy our cash flow requirements;

•
our ability to comply with our debt covenants;

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•
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 effects of any downgrade of our debt ratings by credit rating agencies, which could have a negative impact on our cost of and/or access to capital;

•
our substantial indebtedness, which could prevent us from meeting our obligations under our debt instruments and limit our ability to react to changes in the economy or our industry, or our ability to incur additional borrowings;

•
the impacts of our securitizations and borrowings;

•
our ability to maintain sufficient capital levels in our regulated and unregulated subsidiaries;

•
changes in accounting standards or tax policies and practices and the application of such new standards, policies and practices;

•
changes in accounting principles and policies or changes in accounting estimates;

•
any failure or inability to achieve the SpringCastle Portfolio performance requirements set forth in the SpringCastle Interests Sale purchase agreement; and

•
the effect of future sales of our remaining portfolio of real estate loans and the transfer of servicing of these loans, including the environmental liability and costs for damage caused by hazardous waste if a real estate loan goes into default.

We also direct readers to other risks and uncertainties discussed in other documents we file with the SEC.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. You should specifically consider the factors identified in this report that could cause actual results to differ before making an investment decision to purchase our common stock. 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.

Overview    

On November 15, 2015, we completed our acquisition of OneMain from Citigroup. The acquisition of OneMain has brought together two branch-based consumer finance companies with complementary strategies and locations. Together, we provide personal loans primarily to non-prime customers through our combined network of over 1,800 branch offices in 44 states as of September 30, 2016 and on a centralized basis as part of our centralized operations and our iLoan platform (our online consumer loan origination business). We also write credit and non-credit insurance policies covering our customers and the property pledged as collateral for our personal loans.

OUR PRODUCTS

Our product offerings include:

•
Personal Loans — We offer personal loans through our combined branch network and over the internet through our centralized operations to customers who generally need timely access to cash. Our personal loans are typically non-revolving with a fixed-rate and a fixed, original term of three to six years and are secured by consumer goods, automobiles, or other personal property or are unsecured. At September 30, 2016 , we had over 2.2 million personal loans, representing $13.7 billion of net finance receivables, of which 43% were secured by collateral, compared to 2.2 million personal loans totaling $13.3 billion at December 31, 2015 , of which 27% were secured by collateral. Personal loans held for sale totaled $617 million at December 31, 2015.

•
Insurance Products — We offer our customers credit insurance (life insurance, disability insurance, and involuntary unemployment insurance) and non-credit insurance through both our combined branch network and our centralized operations. Credit insurance and non-credit insurance products are provided by the Springleaf insurance subsidiaries,

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Merit Life Insurance Co. and Yosemite Insurance Company, and by the OneMain insurance subsidiaries, American Health and Life Insurance Company and Triton Insurance Company. We also offer home and auto membership plans of an unaffiliated company as an ancillary product.

Our products also included the SpringCastle Portfolio at December 31, 2015, as described below:

•
SpringCastle Portfolio — We service the SpringCastle Portfolio that was acquired through a joint venture in which we previously owned a 47% equity interest. On March 31, 2016, the SpringCastle Portfolio was sold in connection with the SpringCastle Interests Sale. These loans consisted of unsecured loans and loans secured by subordinate residential real estate mortgages and include both closed-end accounts and open-end lines of credit. These loans were in a liquidating status and varied in substance and form from our originated loans. Unless we are terminated, we will continue to provide the servicing for these loans pursuant to a servicing agreement, which we service as unsecured loans due to the fact that the liens are subordinated to superior ranking security interests.

Our non-originating legacy products include:

•
Real Estate Loans — We ceased real estate lending in January of 2012, and during 2014, we sold $6.4 billion real estate loans held for sale, and in connection with the August 2016 Real Estate Loan Sale, we sold a portfolio of second lien mortgage loans with a carrying value of $250 million. The remaining real estate loans may be closed-end accounts or open-end home equity lines of credit, generally have a fixed rate and maximum original terms of 360 months, and are secured by first or second mortgages on residential real estate. Our first lien mortgages are serviced by third-party servicers, and we continue to provide servicing for our second lien mortgages (home equity lines of credit). At September 30, 2016 , we had $201 million of real estate loans held for investment, of which 94% were secured by first mortgages, compared to $538 million at December 31, 2015, of which 38% were secured by first mortgages. Real estate loans held for sale totaled $166 million and $176 million at September 30, 2016 and December 31, 2015, respectively.

•
Retail Sales Finance — We ceased purchasing retail sales contracts and revolving retail accounts in January of 2013. We continue to service the liquidating retail sales contracts and will provide revolving retail sales financing services on our revolving retail accounts. We refer to retail sales contracts and revolving retail accounts collectively as “retail sales finance.”

OUR SEGMENTS

At September 30, 2016 , we had three operating segments:

•
Consumer and Insurance;
•
Acquisitions and Servicing; and
•
Real Estate.

Following the OneMain Acquisition, we include OneMain’s operations within the Consumer and Insurance segment. See Note 16 of the Notes to Condensed Consolidated Financial Statements for more information about our segments.

Recent Developments and Outlook    

ONEMAIN ACQUISITION

On November 15, 2015, we completed our acquisition of OneMain from Citigroup for approximately $4.5 billion in cash. The purchase price for the OneMain Acquisition was based on OMFH's balance sheet as of 11:59 p.m. on October 31, 2015. The OneMain Acquisition brings together two branch-based consumer finance companies with complementary strategies and locations, focused on the non-prime market in the United States.

We believe the OneMain Acquisition will result in a number of strategic benefits and opportunities, including:

•
Significant expansion of our geographical presence. We believe that our expanded footprint will allow us to reach new customers for our personal finance products and further enhance our reputation in the communities we serve.


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•
Diversification of our customer base. Our branch customer base more than doubled as a result of the OneMain Acquisition and, in addition, we believe the OneMain Acquisition will enable us to extend our reach to higher credit score segments than we historically served.

•
Product opportunities and scale benefits. We expect the OneMain Acquisition to enable us to distribute existing Springleaf products through OneMain branches and leverage key OneMain sales practices to achieve greater scale benefits in existing Springleaf branches.

•
Significant cost savings opportunities by combining complementary businesses. We expect the highly complementary nature of our two operating companies, including branch operations, to enable us to achieve significant ongoing cost savings. Expected drivers of cost savings include consolidation of branch operations, elimination of redundant centralized and corporate functions and greater efficiency of marketing programs. We expect to realize approximately $275 million - $300 million of synergies from the OneMain Acquisition, with that amount fully reflected in our results by the end of 2017. We also anticipate incurring approximately $275 million of acquisition-related expenses to consolidate the two operating companies, which we expect to incur primarily during 2016 and the first half of 2017. As of September 30, 2016 , we had incurred approximately $137 million of acquisition-related transaction and integration expenses ($75 million incurred during the nine months ended September 30, 2016).

The estimated synergies were derived by comparing the operating expenses expected in the second half of 2017 of the combined operations to the sum of operating expenses expected to be generated on a stand-alone basis, as if each company had the same business strategies. The foregoing estimates of synergies and charges in connection with consolidating the two companies and expectations regarding when they will be fully reflected in our results are subject to various risks, uncertainties and assumptions, many of which are beyond our control. Therefore, no assurance can be given as to when or if they will be realized. See “Forward-Looking Statements” above.

See Note 2 of the Notes to Condensed Consolidated Financial Statements for further information on the OneMain Acquisition.

SPRINGCASTLE INTERESTS SALE

On March 31, 2016, the SpringCastle Sellers, wholly owned subsidiaries of OMH, entered into a purchase agreement with the SpringCastle Buyers. Pursuant to the purchase agreement, SpringCastle Holdings sold its 47% limited liability company interest in each of SpringCastle America, LLC, SpringCastle Credit, LLC and SpringCastle Finance, LLC, and Springleaf Acquisition sold its 47% limited liability company interest in SpringCastle Acquisition LLC, to the SpringCastle Buyers for an aggregate purchase price of approximately $112 million.

As a result of this sale, SpringCastle Acquisition and SpringCastle Holdings no longer hold any ownership interests of the SpringCastle Joint Venture. However, unless we are terminated, we will remain as servicer of the SpringCastle Portfolio under the servicing agreement for the SpringCastle Funding Trust.

See Note 2 of the Notes to Condensed Consolidated Financial Statements for further information on the SpringCastle Interests Sale.

LENDMARK SALE

As part of our initiative to close the OneMain Acquisition, on November 13, 2015, OMH and certain of its subsidiaries, the Branch Sellers, entered into the Settlement Agreement with the DOJ, as well as certain state attorneys general, to resolve any inquiries of the DOJ and such state attorneys general with respect to the OneMain Acquisition. Pursuant to this agreement, OMH agreed to divest 127 Springleaf branches across 11 states as a condition for approval of the OneMain Acquisition.

On November 12, 2015, the Branch Sellers entered into a purchase and sale agreement with respect to the Lendmark Sale, and on May 2, 2016, the Branch Sellers completed the sale of 127 Springleaf branches to Lendmark for an aggregate cash purchase price of $624 million. See Note 2 of the Notes to Condensed Consolidated Financial Statements for further information on the Settlement Agreement and the Lendmark Sale.


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REAL ESTATE LOAN SALE

In connection with the August 2016 Real Estate Loan Sale, we sold a portfolio of second lien mortgage loans for aggregate cash proceeds of $246 million and recorded a net loss in other revenues at the time of sale of $4 million . The proceeds from this sale, together with cash on hand, were used to pay off $375 million aggregate principal amount of our senior notes that matured in the third quarter of 2016. Unless we are terminated or we resign as servicer, we will continue to service the loans included in this sale pursuant to a servicing agreement. The purchase and sale agreement and the servicing agreement include customary representations and warranties and indemnification provisions.

LIQUIDATION OF UNITED KINGDOM SUBSIDIARY

On August 16, 2016, we liquidated our United Kingdom subsidiary, Ocean Finance and Mortgages Limited, which had previously ceased originating real estate loans in 2012. In connection with this liquidation, we recorded a net gain in other revenues on the date of liquidation of $5 million resulting from a net realized foreign currency translation gain.

OUTLOOK

On November 15, 2015, we completed the OneMain Acquisition, the most significant acquisition transaction ever undertaken by the Company. Assuming the U.S. economy continues to experience slow to moderate growth, we expect to continue our long history of strong credit performance and believe the strong credit quality of our loan portfolio will continue as the result of our disciplined underwriting practices and ongoing collection efforts. We also continue to see growth in the volume of secured loan originations, driven by our strategy to increase the proportion of our loan originations that are secured loans in order to mitigate credit risk exposure and the migration of customer activity from traditional channels, such as direct mail to online channels (primarily serviced through our combined branch network), where we believe we are well suited to capture volume due to our scale, technology, and deployment of advanced analytics.

During the third quarter of 2016, we completed a number of significant integration initiatives related to the OneMain Acquisition. These initiatives involved substantial changes in operating policies and procedures in the OneMain branch network and significant personnel realignment across our OneMain and Springleaf field management personnel. We developed and implemented unified pricing, credit and underwriting policies across all of our branches and consolidated branch incentive and commission plans. In addition, during the third quarter of 2016, we began preparations for the conversion of approximately 100 of the former OneMain branches (representing approximately 10% of the former OneMain branch network’s net finance receivables) to the Springleaf loan origination and servicing systems. This conversion, as well as the re-branding of all of the Springleaf branches and websites under the “OneMain Financial” name and logo, was completed on October 1, 2016.

Given the volume and breadth of these integration-related changes, the significant time and effort involved with OneMain branch and field management personnel transitioning to new operating policies and procedures and, in the case of the OneMain branches that were converted to the Springleaf loan origination and servicing systems, the significant time and effort expended by OneMain branch personnel in receiving training and becoming familiar with Springleaf’s loan origination and servicing systems, we experienced adverse productivity impacts on loan origination growth during the third quarter of 2016, primarily at the former OneMain branches that have experienced the most significant amount of integration-related changes. We believe this integration-related activity has also resulted in a slight increase in our early stage 30-89 day delinquencies for loans originated in 2016 that is not attributable to normal seasonal activity, but is instead attributable to our impacted branch personnel, primarily at the former OneMain branches having less time available to pursue their normal loan monitoring and collection activities.

Additionally, we have observed an increase in unsecured credit availability to our target customer base in recent months from online lenders and various other unsecured credit providers. Given these market dynamics and in an effort to mitigate our credit risk exposure as part of our disciplined underwriting strategy, we have tightened our underwriting criteria for unsecured personal loans to lower credit tier customers. We have also continued to execute on our strategy of increasing the proportion of our loan originations that are secured loans (which typically have lower credit losses and yields relative to unsecured personal loans), particularly within the former OneMain branches where secured loan originations have historically represented a smaller proportion of total loan originations than those of the former Springleaf branches. While we have been able to increase secured loan originations at former OneMain branches in recent quarters, not every unsecured customer has the collateral or the willingness to take on a secured loan, and we believe this has contributed to slower growth in personal loan net finance receivables than anticipated in the former OneMain branches. Our focus on increasing secured loan originations, combined with the lower productivity experienced at former OneMain branches resulting from the significant integration activities discussed above, have led us to lower our expectations for growth in our personal loan net finance receivables for the balance of 2016 and 2017.

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Further, as a result of our experience during the third quarter and given the substantial integration-related systems conversion activity and consolidation of approximately 120 branches that we have planned through the first half of 2017, we believe that there exists the potential for a heightened level of delinquency, net charge-offs and increases in the provision for receivables losses for the balance of 2016 and 2017. Once the branch consolidations and the systems conversion of the former OneMain branches are successfully completed, which we are currently targeting for completion in the first half of 2017, we expect to be well positioned to re-accelerate growth in our personal loan net finance receivables and, with the successful execution of our secured lending and disciplined underwriting strategies, we expect to benefit from lower future credit losses beginning in 2018 consistent with our long-term historical experience prior to the acquisition of OneMain. No assurance can be given, however, that these actions and strategies will be effective, that we will be successful in implementing these actions and strategies, or that we will not incur increased credit losses or declines in or lower growth of our personal loan net finance receivables in the future.

However, with an 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 of capturing the benefits of the OneMain Acquisition and strengthening our capital base through the following key initiatives:

•
Reinvigorating growth in receivables at OneMain through enhanced marketing strategies and product options, including an expansion of our direct auto lending, upon the successful completion of the integration activities planned through the first half of 2017;
•
Growing secured lending originations at OneMain with a goal of enhancing credit performance;
•
Leveraging scale and cost discipline across the company to realize acquisition cost synergies;
•
Reducing leverage;
•
Maintaining a strong liquidity level and diversified funding sources; and
•
Optimizing non-core assets.

In furtherance of our strategic priorities, we regularly consider strategic acquisitions, dispositions and other transactions, and we have been involved in transactions of various magnitudes involving a variety of forms of consideration and financing. There can be no assurance, however, that we will engage in strategic acquisitions, dispositions or other transactions in the future, including any such transactions that are of similar magnitude to any of our prior transactions.


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Results of Operations    

CONSOLIDATED RESULTS

On November 15, 2015, we completed the OneMain Acquisition. The results of OneMain are included in our consolidated operating results and selected financial statistics for the three and nine months ended September 30, 2016 in the table below. A further discussion of our operating results for each of our operating segments is provided under “Segment Results” below.
(dollars in millions, except earnings (loss) per share)
 
Three Months Ended 
 September 30,
 
At or for the
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Interest income
 
$
770

 
$
427

 
$
2,342

 
$
1,240

Interest expense
 
215

 
171

 
655

 
500

Provision for finance receivable losses
 
263

 
79

 
674

 
233

Net interest income after provision for finance receivable losses
 
292

 
177

 
1,013

 
507

Net gain on sale of SpringCastle interests
 
—

 
—

 
167

 
—

Other revenues
 
158

 
47

 
459

 
154

Acquisition-related transaction and integration expenses
 
21

 
14

 
75

 
29

Other expenses
 
396

 
190

 
1,237

 
556

Income before provision for income taxes
 
33

 
20

 
327

 
76

Provision for income taxes
 
8

 
1

 
111

 
1

Net income
 
25

 
19

 
216

 
75

Net income attributable to non-controlling interests
 
—

 
32

 
28

 
98

Net income (loss) attributable to OMH
 
$
25

 
$
(13
)
 
$
188

 
$
(23
)
 
 
 
 
 
 
 
 
 
Share Data:
 
 

 
 

 
 

 
 

Weighted average number of shares outstanding:
 
 

 
 

 
 

 
 

Basic
 
134,730,251

 
134,452,763

 
134,717,870

 
125,701,635

Diluted
 
134,987,134

 
134,452,763

 
134,949,337

 
125,701,635

Earnings (loss) per share:
 
 

 
 

 
 

 
 

Basic
 
$
0.19

 
$
(0.10
)
 
$
1.40

 
$
(0.18
)
Diluted
 
$
0.19

 
$
(0.10
)
 
$
1.39

 
$
(0.18
)
 
 
 
 
 
 
 
 
 
Selected Financial Statistics
 
 

 
 

 
 

 
 

Finance receivables held for investment:
 
 
 
 
 
 
 
 
Net finance receivables
 
 

 
 

 
$
13,870

 
$
6,439

Number of accounts
 
 

 
 

 
2,227,522

 
1,143,961

Finance receivables held for sale:
 
 
 
 
 
 
 
 
Net finance receivables
 
 
 
 
 
$
166

 
$
789

Number of accounts
 
 
 
 
 
3,191

 
147,675

Finance receivables held for investment and held for sale: (a)
 
 
 
 
 
 
 
 
Average net receivables (b)
 
$
13,831

 
$
6,932

 
$
14,682

 
$
6,721

Yield (b)
 
21.92
 %
 
24.25
 %
 
21.17
 %
 
24.39
 %
Gross charge-off ratio (b)
 
6.23
 %

4.62
 %

5.57
 %

5.10
 %
Recovery ratio (b)
 
(0.52
)%

(0.85
)%

(0.47
)%

(0.83
)%
Net charge-off ratio (b)
 
5.71
 %
 
3.77
 %
 
5.10
 %
 
4.27
 %
Delinquency ratio (b)
 
 
 
 
 
3.54
 %
 
3.53
 %
Origination volume
 
$
2,220

 
$
1,191

 
$
7,138

 
$
3,293

Number of accounts originated
 
318,234

 
219,613

 
996,742

 
600,323

                                     
(a)
Includes personal loans held for sale, but excludes real estate loans held for sale in order to be comparable with our segment statistics disclosed in “Segment Results.”

(b)
See “Key Financial Definitions” at the end of our management's discussion and analysis for formulas and definitions of key performance ratios.

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Comparison of Consolidated Results for the Three Months Ended September 30, 2016 and 2015

Interest income increased for the three months ended September 30, 2016 when compared to the same period in 2015 due to the net of the following:
(dollars in millions)
 
 
 

Three Months Ended September 30, 2016 compared to 2015
 

Increase in average net receivables
$
445

Decrease in yield
(104
)
Increase in interest income on finance receivables held for sale
2

Total
$
343


•
Average net receivables increased for the three months ended September 30, 2016 primarily due to (i) loans acquired in the OneMain Acquisition and (ii) the continued growth of our loan portfolio (primarily of our secured personal loans). This increase was partially offset by (i) the SpringCastle Interests Sale, (ii) the Lendmark Sale, and (iii) our liquidating real estate loan portfolio, including the transfer of $257 million of real estate loans to finance receivables held for sale on June 30, 2016.

•
Yield decrease d for the three months ended September 30, 2016 primarily due to (i) the continued growth of secured personal loans, which generally have lower yields relative to our unsecured personal loans, (ii) the August 2016 Real Estate Loan Sale of second lien mortgage loans, which generally had higher yields relative to our remaining real estate loans, and (iii) the effects of purchase accounting adjustments relating to the OneMain Acquisition.

•
Interest income on finance receivables held for sale increased for the three months ended September 30, 2016 primarily due to the transfer of $257 million of real estate loans to finance receivables held for sale on June 30, 2016, which were sold on August 3, 2016.

Interest expense increased for the three months ended September 30, 2016 when compared to the same period in 2015 due to the net of the following:
(dollars in millions)
 
 
 

Three Months Ended September 30, 2016 compared to 2015
 

Increase in average debt
$
86

Decrease in weighted average interest rate
(42
)
Total
$
44


•
Average debt increased for the three months ended September 30, 2016 primarily due to (i) debt acquired in the OneMain Acquisition and (ii) net unsecured debt issued during the past 12 months. This increase was partially offset by (i) the elimination of the debt associated with the SpringCastle Interests Sale and (ii) net repayments under our conduit facilities. See Notes 9 and 10 of the Notes to Condensed Consolidated Financial Statements for further information on our long-term debt, consumer loan securitization transactions and our conduit facilities.

•
Weighted average interest rate on our debt decreased for the three months ended September 30, 2016 primarily due to (i) debt acquired from the OneMain Acquisition, which generally has a lower weighted average interest rate relative to SFC's weighted average interest rate, and (ii) the repurchase of $600 million unsecured notes, which had a higher interest rate relative to our other indebtedness, in connection with SFC’s offering of the 8.25% SFC Notes. The decrease was partially offset by (i) SFC’s offering of the 8.25% SFC Notes in April of 2016 and (ii) the elimination of debt associated with the SpringCastle Interests Sale, which generally had a lower interest rate relative to our other indebtedness.

Provision for finance receivable losses increased $184 million for the three months ended September 30, 2016 when compared to the same period in 2015 primarily due to (i) net charge-offs of $144 million during the 2016 period resulting from the OneMain Acquisition and (ii) higher net charge-offs on Springleaf personal loans reflecting growth during the past 12 months. This increase was partially offset by (i) the absence of net charge-offs on the previously owned SpringCastle Portfolio and (ii)

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the continued refinement of our estimates of allowance for finance receivable losses and their related assumptions based on ongoing integration and alignment of collection and charge-off practices.

Other revenues increased $111 million for the three months ended September 30, 2016 when compared to the same period in 2015 primarily due to the net of (i) other revenues of $95 million during the 2016 period resulting from the OneMain Acquisition, which consisted of insurance revenues of $71 million , investment revenues of $14 million , and remaining other revenues of $10 million , (ii) $10 million of servicing charge income for the SpringCastle Portfolio in the 2016 period, (iii) foreign currency translation adjustment gain of $5 million in the 2016 period resulting from the liquidation of our United Kingdom subsidiary, and (iv) net loss on the August 2016 Real Estate Loan Sale of $4 million in the 2016 period.

Acquisition-related transaction and integration costs of $21 million and $14 million for the three months ended September 30, 2016 and 2015 , respectively, reflected increased costs relating to the OneMain Acquisition and the Lendmark Sale, including branch and system conversions, information technology costs, certain compensation and benefit related costs, and other costs and fees that would not have been incurred in the ordinary course of business. See “Non-GAAP Financial Measures” below for further information regarding these costs.

Other expenses increased $206 million for the three months ended September 30, 2016 when compared to the same period in 2015 due to the following:

•
Salaries and benefits increased $91 million for the three months ended September 30, 2016 primarily due to salaries and benefits of $96 million in the 2016 period resulting from the OneMain Acquisition. This increase was partially offset by a decrease in Springleaf average staffing as a result of the Lendmark Sale in May of 2016.

•
Other operating expenses increased $95 million for the three months ended September 30, 2016 due to other operating expenses of $95 million in the 2016 period resulting from the OneMain Acquisition, which consisted primarily of advertising expenses of $25 million, occupancy costs of $20 million, amortization on other intangible assets of $16 million, and information technology expenses of $12 million.

•
Insurance policy benefits and claims increase d $ 20 million for the three months ended September 30, 2016 primarily due to insurance policy benefits and claims of $30 million in the 2016 period resulting from the OneMain Acquisition, partially offset by a $10 million decrease in Springleaf insurance policy benefits and claims during the 2016 period primarily due to favorable variances in benefit reserves.

Provision for income taxes totaled $8 million for the three months ended September 30, 2016 compared to $1 million for the same period in 2015 . The effective tax rate for the three months ended September 30, 2016 was 24.5% compared to 4.5% for the same period in 2015 . The effective tax rate for the three months ended September 30, 2016 differed from the federal statutory rate primarily due to the effect of discrete tax benefits from our early implementation of ASU 2016-09 (see Note 3 of the Notes to Condensed Consolidated Financial Statements for further information on this ASU) and the income tax treatment of the net realized foreign currency translation gain arising from our United Kingdom subsidiary liquidation. The effective tax rate for the three months ended September 30, 2015 differed from the federal statutory rate primarily due to the effect of the non-controlling interests in the previously owned SpringCastle Portfolio. As discussed in Note 2 of the Notes to Condensed Consolidated Financial Statements, on March 31, 2016, the Company sold its equity interest in the SpringCastle Portfolio.

Comparison of Consolidated Results for the Nine Months Ended September 30, 2016 and 2015

Interest income increased for the nine months ended September 30, 2016 when compared to the same period in 2015 due to the net of the following:
(dollars in millions)
 
 
 

Nine Months Ended September 30, 2016 compared to 2015
 

Increase in average net receivables
$
1,428

Decrease in yield
(391
)
Increase in number of days in 2016
7

Increase in interest income on finance receivables held for sale
58

Total
$
1,102



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•
Average net receivables increased for the nine months ended September 30, 2016 primarily due to (i) loans acquired in the OneMain Acquisition and (ii) the continued growth of our loan portfolio (primarily of our secured personal loans). This increase was partially offset by (i) the SpringCastle Interests Sale, (ii) the transfer of $608 million of personal loans to finance receivables held for sale on September 30, 2015, and (iii) our liquidating real estate loan portfolio, including the transfer of $257 million of real estate loans to finance receivables held for sale on June 30, 2016.

•
Yield decreased for the nine months ended September 30, 2016 primarily due to (i) the continued growth of secured personal loans, which generally have lower yields relative to our unsecured personal loans, (ii) the August 2016 Real Estate Loan Sale of second lien mortgage loans, which generally had higher yields relative to our remaining real estate loans, and (iii) the effects of purchase accounting adjustments relating to the OneMain Acquisition.

•
Interest income on finance receivables held for sale increased for the nine months ended September 30, 2016 primarily due to (i) the transfer of $608 million of our personal loans to held for sale on September 30, 2015, which were sold in the Lendmark Sale on May 2, 2016, and (ii) the transfer of $257 million of real estate loans to finance receivables held for sale on June 30, 2016, which were sold on August 3, 2016.

Interest expense increased for the nine months ended September 30, 2016 when compared to the same period in 2015 due to the net of the following:
(dollars in millions)
 
 
 

Nine Months Ended September 30, 2016 compared to 2015
 

Increase in average debt
$
324

Decrease in weighted average interest rate
(169
)
Total
$
155


•
Average debt increased for the nine months ended September 30, 2016 primarily due to (i) debt acquired in the OneMain Acquisition and (ii) net unsecured debt issued during the past 12 months. This increase was partially offset by (i) the elimination of the debt associated with the SpringCastle Interests Sale and (ii) net repayments under our conduit facilities. See Notes 9 and 10 of the Notes to Condensed Consolidated Financial Statements for further information on our long-term debt, consumer loan securitization transactions and our conduit facilities.

•
Weighted average interest rate on our debt decreased for the nine months ended September 30, 2016 primarily due to (i) debt acquired from the OneMain Acquisition, which generally has a lower weighted average interest rate relative to SFC's weighted average interest rate, and (ii) the repurchase of $600 million unsecured notes, which had a higher interest rate relative to our other indebtedness, in connection with SFC’s offering of the 8.25% SFC Notes. The decrease was partially offset by (i) SFC’s offering of the 8.25% SFC Notes in April of 2016 and (ii) the elimination of debt associated with the SpringCastle Interests Sale, which generally had a lower interest rate relative to our other indebtedness.

Provision for finance receivable losses increased $441 million for the nine months ended September 30, 2016 when compared to the same period in 2015 primarily due to (i) net charge-offs of $319 million during the 2016 period resulting from the OneMain Acquisition and (ii) higher net charge-offs on Springleaf personal loans reflecting growth during the past 12 months. This increase was partially offset by (i) lower net charge-offs on the previously owned SpringCastle Portfolio reflecting the SpringCastle Interests Sale and the improved central servicing performance as the acquired portfolio matured under our ownership, (ii) lower net charge-offs on our real estate loans reflecting the liquidating status of the real estate loan portfolio and the transfer of $257 million of real estate loans to finance receivables held for sale on June 30, 2016, and (iii) the continued refinement of our estimates of allowance for finance receivable losses and their related assumptions based on ongoing integration and alignment of collection and charge-off practices.

Net gain on sale of SpringCastle interests of $167 million for the nine months ended September 30, 2016 reflected the net gain associated with the sale of our equity interest in the SpringCastle Joint Venture on March 31, 2016. See Note 2 of the Notes to Condensed Consolidated Financial Statements for further information on the sale.

Other revenues increased $305 million for the nine months ended September 30, 2016 when compared to the same period in 2015 primarily due to the net of (i) other revenues of $290 million during the 2016 period resulting from the OneMain Acquisition, which consisted of insurance revenues of $220 million , investment revenues of $44 million , and remaining other revenues of $26 million , (ii) $21 million of servicing charge income for the SpringCastle Portfolio in the 2016 period, (iii) net

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gain on sales of personal and real estate loans of $18 million in the 2016 period, (iv) increase in Springleaf insurance revenues of $6 million reflecting higher earned credit premiums during the 2016 period, (v) foreign currency translation adjustment gain of $5 million in the 2016 period resulting from the liquidation of our United Kingdom subsidiary, (vi) decrease in Springleaf investment revenues of $22 million during the 2016 period primarily due to lower realized gains on the sale of investment securities and a decrease in invested assets, and (vii) net loss on repurchases and repayments of debt of $16 million in the 2016 period.

Acquisition-related transaction and integration costs of $75 million and $29 million for the nine months ended September 30, 2016 and 2015 , respectively, reflected increased costs relating to the OneMain Acquisition and the Lendmark Sale, including branch and system conversions, information technology costs, certain compensation and benefit related costs, and other costs and fees that would not have been incurred in the ordinary course of business. See “Non-GAAP Financial Measures” below for further information regarding these costs.

Other expenses increased $681 million for the nine months ended September 30, 2016 when compared to the same period in 2015 due to the following:

•
Salaries and benefits increase d $292 million for the nine months ended September 30, 2016 primarily due to (i) salaries and benefits of $291 million in the 2016 period resulting from the OneMain Acquisition and (ii) an increase in Springleaf average staffing during the 2016 period prior to the Lendmark Sale. This increase was partially offset by non-cash incentive compensation expense of $15 million recorded in the second quarter of 2015 relating to the rights of certain executives to receive a portion of the cash proceeds from the sale of OMH’s common stock by the Initial Stockholder.

•
Other operating expenses increased $314 million for the nine months ended September 30, 2016 primarily due to (i) other operating expenses of $286 million in the 2016 period resulting from the OneMain Acquisition, which consisted primarily of advertising expenses of $71 million, occupancy costs of $59 million, amortization on other intangible assets of $54 million, and information technology expenses of $38 million, (ii) an increase in Springleaf information technology expenses of $9 million during the 2016 period, (iii) an increase in Springleaf advertising expenses of $9 million during the 2016 period, and (iv) an increase in Springleaf professional fees of $8 million during the 2016 period primarily reflecting debt refinance costs.

•
Insurance policy benefits and claims increase d $75 million for the nine months ended September 30, 2016 primarily due to insurance policy benefits and claims of $89 million in the 2016 period resulting from the OneMain Acquisition, partially offset by a $14 million decrease in Springleaf insurance policy benefits and claims during the 2016 period primarily due to favorable variances in benefit reserves.

Provision for income taxes totaled $111 million for the nine months ended September 30, 2016 compared to $1 million for the same period in 2015 . The effective tax rate for the nine months ended September 30, 2016 was 33.9% compared to 1.3% for the same period in 2015 . The effective tax rate for the nine months ended September 30, 2016 differed from the federal statutory rate primarily due to the effect of the non-controlling interests in the previously owned SpringCastle Portfolio, partially offset by the effect of state income taxes. The effective tax rate for the nine months ended September 30, 2015 differed from the federal statutory rate primarily due to the effect of the non-controlling interests in the previously owned SpringCastle Portfolio. The effective tax rate for the nine months ended September 30, 2016 differed from the same period in 2015 primarily due to the SpringCastle Interests Sale. As discussed in Note 2 of the Notes to Condensed Consolidated Financial Statements, on March 31, 2016, the Company sold its equity interest in the SpringCastle Portfolio.

NON-GAAP FINANCIAL MEASURES

Segment Accounting Basis

We report the operating results of Consumer and Insurance, Acquisitions and Servicing, Real Estate, and Other using the Segment Accounting Basis, which (i) reflects our allocation methodologies for certain costs, primarily interest expense, loan loss reserves and acquisition costs to reflect the manner in which we assess our business results and (ii) excludes the impact of applying purchase accounting (eliminates premiums/discounts on our finance receivables at acquisition, as well as the amortization/accretion in future periods). These allocations and adjustments currently have a material effect on our reported segment basis income as compared to GAAP. See Note 16 of the Notes to Condensed Consolidated Financial Statements for a complete discussion of our segment accounting. We believe the Segment Accounting Basis (a basis other than GAAP) provides investors a consistent basis on which management evaluates segment performance.


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The reconciliations of income (loss) before provision for income taxes attributable to OMH on a GAAP basis (purchase accounting) to the same amounts under a Segment Accounting Basis were as follows:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Income (loss) before provision for income taxes attributable to OMH - GAAP basis
 
$
33

 
$
(12
)
 
$
299

 
$
(22
)
GAAP to Segment Accounting Basis adjustments: (a) (b)
 
 
 
 
 
 
 
 
Interest income
 
68

 
(3
)
 
310

 
(9
)
Interest expense
 
15

 
32

 
47

 
94

Provision for finance receivable losses
 
38

 
6

 
(14
)
 
14

Other revenues
 
(12
)
 
6

 
(2
)
 
12

Acquisition-related transaction and integration expenses
 
(1
)
 
—

 
(8
)
 
—

Other expenses
 
10

 
1

 
40

 
3

Income before provision for income taxes attributable to OMH - Segment Accounting Basis
 
$
151

 
$
30

 
$
672

 
$
92

                                      
(a)
The GAAP to Segment Accounting Basis adjustments primarily consists of:

•
Interest income - reverses the impact of premiums/discounts on non-impaired purchased finance receivables and the interest income recognition under guidance in ASC 310-20, Nonrefundable Fees and Other Costs , and reestablishes interest income recognition on a historical cost basis;

•
Interest expense - reverses the impact of premiums/discounts on acquired long-term debt and reestablishes interest expense recognition on a historical cost basis;

•
Provision for finance receivable losses - reverses the impact of providing an allowance for finance receivable losses upon acquisition and reestablishes the allowance on a historical cost basis and reverses the impact of recognition of net charge-offs on purchased credit impaired finance receivables and reestablishes the net charge-offs on a historical cost basis;

•
Other revenues - reestablishes the historical cost basis of mark-to-market adjustments on finance receivables held for sale and on realized gains/losses associated with our investment portfolio;

•
Acquisition-related transaction and integration expenses - reestablishes the amortization of purchased software assets on a historical cost basis; and

•
Other expenses - reestablishes expenses on a historical cost basis by reversing the impact of amortization from acquired intangible assets and including amortization of other historical deferred costs.

(b)
Purchase accounting was not elected at the segment level.

We also report selected financial statistics relating to the net finance receivables and credit quality of Consumer and Insurance, Acquisitions and Servicing, Real Estate, and Other using a Segment Accounting Basis.

Adjusted Pretax Earnings (Loss)

Management uses adjusted pretax earnings (loss), a non-GAAP financial measure, as a key performance measure of our segments. Adjusted pretax earnings (loss) represents income (loss) before provision for (benefit from) income taxes on a Segment Accounting Basis and excludes acquisition-related transaction and integration expenses, net gain (loss) on sales of personal and real estate loans, net gain on sale of SpringCastle interests, SpringCastle transaction costs, losses resulting from accelerated repayment and repurchases of long-term debt, debt refinance costs, and net loss on liquidation of our United Kingdom subsidiary. Management believes adjusted pretax earnings (loss) is useful in assessing the profitability of our segments and uses adjusted pretax earnings (loss) in evaluating our operating performance. Adjusted pretax earnings (loss) is a non-GAAP measure and should be considered supplemental to, but not as a substitute for or superior to, income (loss) before provision for (benefit from) income taxes, net income, or other measures of financial performance prepared in accordance with GAAP.


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The reconciliations of income (loss) before provision for (benefit from) income taxes attributable to OMH on a Segment Accounting Basis to adjusted pretax earnings (loss) (non-GAAP) were as follows:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Consumer and Insurance
 
 
 
 
 
 
 
 
Income before provision for income taxes - Segment Accounting Basis
 
$
179

 
$
77

 
$
552

 
$
218

Adjustments:
 
 
 
 
 
 
 
 
Acquisition-related transaction and integration expenses
 
17

 
—

 
62

 
—

Net gain on sale of personal loans
 
—

 
—

 
(22
)
 
—

Net loss on repurchases and repayments of debt
 
—

 
—

 
13

 
—

Debt refinance costs
 
—

 
—

 
4

 
—

Adjusted pretax earnings (non-GAAP)
 
$
196

 
$
77

 
$
609

 
$
218

 
 
 
 
 
 
 
 
 
Acquisitions and Servicing
 
 
 
 
 
 
 
 
Income before provision for income taxes attributable to OMH - Segment Accounting Basis
 
$
2

 
$
30

 
$
195

 
$
100

Adjustments:
 
 
 
 
 
 
 
 
Net gain on sale of SpringCastle interests
 
—

 
—

 
(167
)
 
—

Acquisition-related transaction and integration expenses
 
—

 
—

 
1

 
—

SpringCastle transaction costs
 
—

 
—

 
1

 
—

Adjusted pretax earnings attributable to OMH (non-GAAP)
 
$
2

 
$
30

 
$
30

 
$
100

 
 
 
 
 
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
Loss before benefit from income taxes - Segment Accounting Basis
 
$
(20
)
 
$
(47
)
 
$
(52
)
 
$
(138
)
Adjustments:
 
 
 
 
 
 
 
 
Net loss on sale of real estate loans
 
12

 
—

 
12

 
—

Net loss on repurchases and repayments of debt
 
—

 
—

 
1

 
—

Acquisition-related transaction and integration expenses
 
1

 
—

 
1

 
—

Debt refinance costs
 
—

 
—

 
1

 
—

Adjusted pretax loss (non-GAAP)
 
$
(7
)
 
$
(47
)
 
$
(37
)
 
$
(138
)
 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
Loss before benefit from income taxes - Segment Accounting Basis
 
$
(10
)
 
$
(30
)
 
$
(23
)
 
$
(88
)
Adjustments:
 
 
 
 
 
 
 
 
Acquisition-related transaction and integration expenses
 
4

 
14

 
19

 
29

Net loss on liquidation of United Kingdom subsidiary
 
5

 
—

 
5

 
—

Adjusted pretax earnings (loss) (non-GAAP)
 
$
(1
)
 
$
(16
)
 
$
1

 
$
(59
)
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
Income before provision for income taxes attributable to OMH - Segment Accounting Basis
 
$
151

 
$
30

 
$
672

 
$
92

Adjustments:
 
 
 
 
 
 
 
 
Net gain on sale of SpringCastle interests
 
—

 
—

 
(167
)
 
—

Acquisition-related transaction and integration expenses *
 
22

 
14

 
83

 
29

Net loss (gain) on sales of personal and real estate loans
 
12

 
—

 
(10
)
 
—

Net loss on repurchases and repayments of debt
 
—

 
—

 
14

 
—

Net loss on liquidation of United Kingdom subsidiary
 
5

 
—

 
5

 
—

Debt refinance costs
 
—

 
—

 
5

 
—

SpringCastle transaction costs
 
—

 
—

 
1

 
—

Total adjusted pretax earnings attributable to OMH (non-GAAP)
 
$
190

 
$
44

 
$
603

 
$
121


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*
Acquisition-related transaction and integration expenses include the following costs incurred as a result of the OneMain Acquisition and the Lendmark Sale:

•
Compensation and employee benefit costs, including retention awards and severance costs;

•
Accelerated amortization of acquired software asset;

•
Branch renovations, including refurbishments to the OneMain brand;

•
Branch infrastructure and other fixed asset integration costs;

•
Information technology costs, such as internal platform development, software upgrades and licenses, and technology termination costs;

•
Legal fees;

•
Project management costs;

•
System conversions, including payroll, marketing, risk, and finance functions; and

•
Other costs and fees directly related to the OneMain Acquisition and integration.


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Segment Results    

See Note 16 of the Notes to Condensed Consolidated Financial Statements for (i) a description of our segments, (ii) reconciliations of segment totals to condensed consolidated financial statement amounts, (iii) methodologies used to allocate revenues and expenses to each segment, and (iv) further discussion of the differences in our Segment Accounting Basis and GAAP.

CONSUMER AND INSURANCE

Adjusted pretax operating results and selected financial statistics for Consumer and Insurance (which are reported on an adjusted Segment Accounting Basis) were as follows:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
At or for the
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Interest income
 
$
827

 
$
293

 
$
2,507

 
$
818

Interest expense
 
191

 
43

 
551

 
119

Provision for finance receivable losses
 
224

 
62

 
669

 
172

Net interest income after provision for finance receivable losses
 
412

 
188

 
1,287

 
527

Other revenues
 
151

 
55

 
458

 
162

Other expenses
 
367

 
166

 
1,136

 
471

Adjusted pretax earnings (non-GAAP)
 
$
196

 
$
77

 
$
609

 
$
218

 
 
 
 
 
 
 
 
 
Selected Financial Statistics
 
 

 
 

 
 

 
 

Finance receivables held for investment:
 
 
 
 
 
 
 
 
Net finance receivables
 
 

 
 

 
$
13,485

 
$
4,044

Number of accounts
 
 

 
 

 
2,217,588

 
870,877

Finance receivables held for sale:
 
 
 
 
 
 
 
 
Net finance receivables
 
 
 
 
 
$
—

 
$
608

Number of accounts
 
 
 
 
 
—

 
144,392

Finance receivables held for investment and held for sale:
 
 
 
 
 
 
 
 
Average net receivables *
 
$
13,416

 
$
4,476

 
$
13,436

 
$
4,130

Yield *
 
24.51
 %
 
25.97
 %
 
24.92
 %
 
26.43
 %
Gross charge-off ratio *
 
6.97
 %
 
5.19
 %
 
7.64
 %
 
5.79
 %
Recovery ratio *
 
(0.74
)%
 
(0.89
)%
 
(0.73
)%
 
(0.89
)%
Net charge-off ratio *
 
6.23
 %
 
4.30
 %
 
6.91
 %
 
4.90
 %
Delinquency ratio *
 
 
 
 

 
3.33
 %
 
2.90
 %
Origination volume
 
$
2,219

 
$
1,167

 
$
7,118

 
$
3,227

Number of accounts originated
 
318,234

 
219,613

 
996,742

 
600,323

                                     
*
See “Key Financial Definitions” at the end of our management's discussion and analysis for formulas and definitions of key performance ratios.

Comparison of Pretax Operating Results for the Three Months Ended September 30, 2016 and 2015

Interest income , which consisted entirely of finance charges, increased $534 million for the three months ended September 30, 2016 primarily due to the net of the following:

•
Average net receivables increased for the three months ended September 30, 2016 primarily due to (i) loans acquired in the OneMain Acquisition and (ii) the continued growth of our loan portfolio (primarily of our secured personal loans). This increase was partially offset by the Lendmark Sale.


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•
Yield decreased for the three months ended September 30, 2016 primarily due to the continued growth of secured personal loans, which generally have lower yields relative to our unsecured personal loans.

Interest expense increase d $148 million for the three months ended September 30, 2016 primarily due to (i) interest expense on debt acquired in the OneMain Acquisition and (ii) a change in the methodology of allocating interest expense, as described in the allocation methodologies table in Note 16 of the Notes to Condensed Consolidated Financial Statements.

Provision for finance receivable losses increased $162 million for the three months ended September 30, 2016 primarily due to (i) provision for finance receivable losses of $138 million in the 2016 period resulting from the OneMain Acquisition and (ii) higher net charge-offs on Springleaf personal loans reflecting growth during the past 12 months. This increase was partially offset by the continued refinement of our estimates of allowance for finance receivable losses and their related assumptions based on ongoing integration and alignment of collection and charge-off practices.

Other revenues increased $96 million for the three months ended September 30, 2016 when compared to the same period in 2015 primarily due to other revenues of $98 million during the 2016 period resulting from the OneMain Acquisition, which consisted of insurance revenues of $71 million , investment revenues of $17 million , and remaining other revenues of $10 million .

Other expenses increased $201 million for the three months ended September 30, 2016 due to the following:

•
Salaries and benefits increased $93 million for the three months ended September 30, 2016 primarily due to salaries and benefits of $96 million in the 2016 period resulting from the OneMain Acquisition. This increase was partially offset by a decrease in Springleaf average staffing as a result of the Lendmark Sale in May of 2016.

•
Other operating expenses increased $88 million for the three months ended September 30, 2016 primarily due to (i) other operating expenses of $85 million in the 2016 period resulting from the OneMain Acquisition, which consisted primarily of advertising expenses of $25 million, occupancy costs of $20 million, and information technology expenses of $15 million, and (ii) an increase in Springleaf information technology expenses of $2 million during the 2016 period.

•
Insurance policy benefits and claims increased $20 million for the three months ended September 30, 2016 primarily due to insurance policy benefits and claims of $30 million in the 2016 period resulting from the OneMain Acquisition, partially offset by a $10 million decrease in Springleaf insurance policy benefits and claims during the 2016 period primarily due to favorable variances in benefit reserves.

Comparison of Pretax Operating Results for the Nine Months Ended September 30, 2016 and 2015

Interest income increased $1.7 billion for the nine months ended September 30, 2016 due to the following:

•
Finance charges increased $1.6 billion for the nine months ended September 30, 2016 primarily due to the net of the following:

◦
Average net receivables increased for the nine months ended September 30, 2016 primarily due to (i) loans acquired in the OneMain Acquisition and (ii) the continued growth of our loan portfolio (primarily of our secured personal loans). This increase was partially offset by the transfer of $608 million of our personal loans to finance receivables held for sale on September 30, 2015.

◦
Yield decreased for the nine months ended September 30, 2016 primarily due to the continued growth of secured personal loans, which generally have lower yields relative to our unsecured personal loans.

•
Interest income on finance receivables held for sale of $56 million for the nine months ended September 30, 2016 resulted from the transfer of personal loans to finance receivables held for sale on September 30, 2015 and sold in the Lendmark Sale on May 2, 2016.

Interest expense increased $432 million for the nine months ended September 30, 2016 primarily due to (i) interest expense on debt acquired in the OneMain Acquisition and (ii) a change in the methodology of allocating interest expense, as described in the allocation methodologies table in Note 16 of the Notes to Condensed Consolidated Financial Statements.


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Provision for finance receivable losses increased $497 million for the nine months ended September 30, 2016 primarily due to (i) provision for finance receivable losses of $428 million in the 2016 period resulting from the OneMain Acquisition and (ii) higher net charge-offs on Springleaf personal loans reflecting growth during the past 12 months. This increase was partially offset by the continued refinement of our estimates of allowance for finance receivable losses and their related assumptions based on ongoing integration and alignment of collection and charge-off practices.

Other revenues increased $296 million for the nine months ended September 30, 2016 when compared to the same period in 2015 primarily due to other revenues of $304 million during the 2016 period resulting from the OneMain Acquisition, which consisted of insurance revenues of $220 million , investment revenues of $58 million , and remaining other revenues of $26 million , partially offset by a decrease in Springleaf investment revenues of $16 million in the 2016 period resulting from lower realized gains on the sale of investment securities and a decrease in invested assets.

Other expenses increased $665 million for the nine months ended September 30, 2016 due to the following:

•
Salaries and benefits increase d $310 million for the nine months ended September 30, 2016 primarily due to (i) salaries and benefits of $291 million in the 2016 period resulting from the OneMain Acquisition and (ii) an increase in Springleaf average staffing during the 2016 period prior to the Lendmark Sale.

•
Other operating expenses increase d $284 million for the nine months ended September 30, 2016 primarily due to (i) other operating expenses of $250 million in the 2016 period resulting from the OneMain Acquisition, which consisted primarily of advertising expenses of $71 million, occupancy costs of $59 million, and information technology expenses of $45 million, (ii) an increase in Springleaf information technology expenses of $9 million during the 2016 period, (iii) an increase in Springleaf advertising expenses of $9 million during the 2016 period, (iv) an increase in Springleaf professional fees of $8 million during the 2016 period primarily reflecting debt refinance costs, and (v) an increase Springleaf credit and collection related costs of $5 million in the 2016 period reflecting growth in our loan portfolio.

•
Insurance policy benefits and claims increased $71 million for the nine months ended September 30, 2016 primarily due to insurance policy benefits and claims of $84 million in the 2016 period resulting from the OneMain Acquisition, partially offset by a $13 million decrease in Springleaf insurance policy benefits and claims during the 2016 period primarily due to favorable variances in benefit reserves.


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ACQUISITIONS AND SERVICING

Adjusted pretax operating results and selected financial statistics for Acquisitions and Servicing (which are reported on an adjusted Segment Accounting Basis) were as follows:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
At or for the
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Interest income
 
$
—

 
$
113

 
$
102

 
$
355

Interest expense
 
—

 
22

 
20

 
67

Provision for finance receivable losses
 
—

 
15

 
14

 
53

Net interest income after provision for finance receivable losses
 
—

 
76

 
68

 
235

Other revenues
 
12

 
13

 
36

 
45

Other expenses
 
10

 
27

 
46

 
82

Adjusted pretax earnings (non-GAAP)
 
2

 
62

 
58

 
198

Pretax earnings attributable to non-controlling interests
 
—

 
32

 
28

 
98

Adjusted pretax earnings attributable to OMH (non-GAAP)
 
$
2

 
$
30

 
$
30

 
$
100

 
 


 


 


 


Selected Financial Statistics
 
 
 
 

 
 
 
 
Finance receivables held for investment:
 
 
 
 
 
 
 
 
Net finance receivables
 
 
 
 

 
$
—

 
$
1,789

Number of accounts
 
 
 
 

 
—

 
242,660

Average net receivables *
 
$
—

 
$
1,834

 
552

 
1,934

Yield *
 
—
%
 
24.52
%
 
24.61
%
 
24.56
%
Net charge-off ratio *
 
—
%
 
3.20
%
 
3.48
%
 
3.54
%
Delinquency ratio *
 
 

 
 

 
—
%
 
4.06
%
                                     
*
See “Key Financial Definitions” at the end of our management's discussion and analysis for formulas and definitions of key performance ratios.

On March 31, 2016, we sold our equity interest in the SpringCastle Joint Venture, the primary component of our Acquisitions and Servicing segment. See Note 2 of the Notes to Condensed Consolidated Financial Statements for further information on the SpringCastle Interests Sale.


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REAL ESTATE

Adjusted pretax operating results and selected financial statistics for Real Estate (which are reported on an adjusted Segment Accounting Basis) were as follows:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
At or for the
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Interest income
 
$
10

 
$
17

 
$
40

 
$
52

Interest expense (a)
 
8

 
58

 
35

 
177

Provision for finance receivable losses
 
1

 
(4
)
 
5

 
(7
)
Net interest income (loss) after provision for finance receivable losses
 
1

 
(37
)
 
—

 
(118
)
Other revenues (b)
 
—

 
(2
)
 
(17
)
 
4

Other expenses
 
8

 
8

 
20

 
24

Adjusted pretax loss (non-GAAP)
 
$
(7
)
 
$
(47
)
 
$
(37
)
 
$
(138
)
 
 
 
 
 
 
 
 
 
Selected Financial Statistics
 
 
 
 
 
 
 
 
Finance receivables held for investment:
 
 
 
 
 
 
 
 
Net finance receivables
 
 

 
 

 
$
210

 
$
591

Number of accounts
 
 

 
 

 
3,847

 
19,001

Average net receivables (c)
 
$
215

 
$
605

 
$
433

 
$
633

Yield (c)
 
6.97
%
 
9.15
%
 
8.43
%
 
9.11
%
Loss ratio (c)
 
7.81
%
 
3.29
%
 
3.61
%
 
3.95
%
Delinquency ratio (c) (d)
 
 

 
 

 
17.62
%
 
7.25
%
Finance receivables held for sale:
 
 
 
 
 
 
 
 
Net finance receivables
 
 
 
 
 
$
168

 
$
186

Number of accounts
 
 
 
 
 
3,191

 
3,283

                                      
(a)
Interest expense decreased $50 million and $142 million for the three and nine months ended September 30, 2016 , respectively, when compared to the same periods in 2015 primarily due to a change in the methodology of allocating interest expense, as described in the allocation methodologies table in Note 16 of the Notes to Condensed Consolidated Financial Statements, and the reallocation of interest expense to the Consumer and Insurance segment as a result of the August 2016 Real Estate Loan Sale.

(b)
Other revenues decreased $21 million for the nine months ended September 30, 2016 , when compared to the same period in 2015 primarily due to (i) impairments of $10 million recognized on our real estate loans held for sale during the nine months ended September 30, 2016 and (ii) a decrease in investment revenues during the 2016 period, as the prior period reflected higher investment income generated from investing the proceeds of the 2014 real estate loan sales.

(c)
See “Key Financial Definitions” at the end of our management's discussion and analysis for formulas and definitions of key performance ratios.

(d)
Delinquency ratio at September 30, 2016 reflected the retained real estate loan portfolio that was not eligible for sale.

OTHER

“Other” consists of our other non-originating legacy operations, which are isolated by geographic market and/or distribution channel from our three segments. These operations include: (i) Springleaf legacy operations in 14 states where we had also ceased branch-based personal lending during 2012; (ii) Springleaf liquidating retail sales finance portfolio (including retail sales finance accounts from its legacy auto finance operation); (iii) Springleaf lending operations in Puerto Rico and the U.S. Virgin Islands; and (iv) the operations of Springleaf United Kingdom subsidiary prior to its liquidation on August 16, 2016.


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Adjusted pretax operating results of the Other components (which are reported on an adjusted Segment Accounting Basis) were as follows:
(dollars in millions)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Interest income
 
$
1

 
$
1

 
$
3

 
$
6

Interest expense (a)
 
1

 
16

 
2

 
48

Provision for finance receivable losses
 
—

 
—

 
—

 
1

Net interest income (loss) after provision for finance receivable losses
 
—

 
(15
)
 
1

 
(43
)
Other revenues
 
—

 
—

 
—

 
—

Other expenses (b)
 
1

 
1

 
—

 
16

Adjusted pretax earnings (loss) (non-GAAP)
 
$
(1
)
 
$
(16
)
 
$
1

 
$
(59
)
                                      
(a)
Interest expense for the three and nine months ended September 30, 2016 when compared to the same periods in 2015 reflected a change in the methodology of allocating interest expense, as described in the allocation methodologies table in Note 16 of the Notes to Condensed Consolidated Financial Statements.

(b)
In connection with the sale of our common stock by the Initial Stockholder, we recorded non-cash incentive compensation expense of $15 million in the second quarter of 2015 relating to the rights of certain executives to receive a portion of the cash proceeds received by the Initial Stockholder.

Net finance receivables of the Other components (which are reported on a Segment Accounting Basis) were as follows:
(dollars in millions)
 
September 30,
 
2016
 
2015
 
 
 
 
 
Net finance receivables:
 
 

 
 

Personal loans
 
$
13

 
$
19

Retail sales finance
 
14

 
29

Total
 
$
27

 
$
48


Credit Quality    

Our customers encompass a wide range of borrowers. In the consumer finance industry, they are described as prime or near-prime at one extreme and non-prime or sub-prime (less creditworthy) at the other. Our customers’ incomes are generally near the national median but our customers may vary from national norms as to their debt-to-income ratios, employment and residency stability, and/or credit repayment histories. In general, our customers have lower credit quality and require significant levels of servicing.

We may offer borrowers the opportunity to defer their personal loan by extending the date on which any payment is due. We may require a partial payment prior to granting such a deferral. Deferments must bring the account contractually current or due for the current month’s payment. Borrowers are generally limited to two deferments in a rolling 12-month period unless it is determined that an exception is warranted.

In addition to deferrals, we may also offer borrowers the opportunity to cure delinquent accounts when a customer demonstrates that he or she has rehabilitated from a temporary event that caused the delinquency. An account may be brought to current status after the cause for delinquency has been identified and remediated and the customer has made two consecutive qualified payments; however, no principal or interest amounts are forgiven or credited. Independent risk management approval is required for all cures.

When a loan is 60 days past due, we transfer the loan to one of our centralized service centers for account servicing and collection processing. This process includes assessing previous collection efforts, contacting the customer to determine whether the customer’s financial problems are temporary, reviewing the collateral securing the loan and developing a plan to maintain

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contact with the customer to increase the likelihood of future payments. Certain non-routine collection activities may include litigation, repossession of collateral, or filing involuntary bankruptcy petitions.

We may renew a delinquent personal loan if the related borrower meets current underwriting criteria and we determine that it does not appear that the cause of past delinquency will affect the customer’s ability to repay the new personal loan. We employ the same credit risk underwriting process that we would use for an application from a new customer to determine whether to grant a renewal of a personal loan, regardless of whether the borrower’s account is current or delinquent.

We consider the delinquency status of the finance receivable as our primary credit quality indicator. We monitor delinquency trends to manage our exposure to credit risk. Although we engage in collection activities well before an account is 60 days past due, we consider finance receivables 60 days or more past due as delinquent and consider the likelihood of collection to decrease at such time. We record an allowance for loan losses to cover expected losses on our finance receivables. See table of net finance receivables held for investment by type and by number of days delinquent in Note 4 of the Notes to Condensed Consolidated Financial Statements.

TROUBLED DEBT RESTRUCTURING

We make modifications to our finance receivables to assist borrowers during times of financial difficulties. When we modify a loan’s contractual terms for economic or other reasons related to the borrower’s financial difficulties and grant a concession that we would not otherwise consider, we classify that loan as a TDR finance receivable.

Information regarding TDR finance receivables held for investment and held for sale were as follows:
(dollars in millions)
 
Personal
Loans *
 
SpringCastle
Portfolio
 
Real Estate
Loans *
 
Total
 
 
 
 
 
 
 
 
 
September 30, 2016
 
 
 
 
 
 
 
 
TDR net finance receivables
 
$
117

 
$
—

 
$
138

 
$
255

Allowance for TDR finance receivable losses
 
$
49

 
$
—

 
$
11

 
$
60

Number of TDR accounts
 
21,435

 
—

 
1,944

 
23,379

 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
TDR net finance receivables
 
$
46

 
$
13

 
$
201

 
$
260

Allowance for TDR finance receivable losses
 
$
17

 
$
4

 
$
34

 
$
55

Number of TDR accounts
 
12,449

 
1,656

 
3,506

 
17,611

                                      
*
TDR finance receivables held for sale included in the table above were as follows:
(dollars in millions)
 
Personal
Loans
 
Real Estate
Loans
 
Total
 
 
 
 
 
 
 
September 30, 2016
 
 
 
 
 
 
TDR net finance receivables
 
$
—

 
$
90

 
$
90

Number of TDR accounts
 
—

 
1,284

 
1,284

 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
TDR net finance receivables
 
$
2

 
$
92

 
$
94

Number of TDR accounts
 
738

 
1,322

 
2,060


Liquidity and Capital Resources    

SOURCES OF FUNDS

We finance the majority of our operating liquidity and capital needs through a combination of cash flows from operations, securitization debt, borrowings from conduit facilities, unsecured debt and equity, and may also utilize other corporate debt facilities in the future. As a holding company, all of the funds generated from our operations are earned by our operating subsidiaries.


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SFC’s Offering of 8.25% Senior Notes

On April 11, 2016, SFC issued $1.0 billion aggregate principal amount of the 8.25% SFC Notes due 2020 under the Indenture, pursuant to which OMH provided a guarantee of the notes on a senior unsecured basis. SFC used a portion of the proceeds from the offering to repurchase approximately $600 million aggregate principal amount of its existing senior notes that mature in 2017 and the remainder for general corporate purposes. See Note 2 of the Notes to Condensed Consolidated Financial Statements for further information on this offering.

Securitizations and Borrowings from Revolving Conduit Facilities

During the nine months ended September 30, 2016 , we (i) completed three consumer loan securitizations and one auto securitization, (ii) exercised our right to redeem the asset backed notes issued by the Springleaf Funding Trust 2013-B, and (iii) deconsolidated the previously issued securitized interests of the SpringCastle Funding Asset-backed Notes 2014-A. See “Structured Financings” later in this section for further information on each of our securitization transactions.

During the nine months ended September 30, 2016 , we (i) extended the revolving periods on four existing revolving conduit facilities, (ii) amended four existing revolving conduit facilities to change the maximum principal balances, and (iii) replaced the 2015 Warehouse Facility with the New Facilities (as defined below) and refinanced two of the New Facilities. Net repayments under the notes of our existing revolving conduit facilities totaled $2.6 billion for the nine months ended September 30, 2016 .

See Notes 9 and 10 of the Notes to Condensed Consolidated Financial Statements for further information on our long-term debt, consumer loan securitization transactions and conduit facilities.

Other Transactions

In addition to cash received from our senior notes offering and securitization transactions, our sources of funds were favorably impacted by the following transactions:

•
SpringCastle Interests Sale;
•
Lendmark Sale; and
•
August 2016 Real Estate Loan Sale.

See Note 2 of the Notes to Condensed Consolidated Financial Statements for further information on these transactions.

USES OF FUNDS

Our operating subsidiaries’ primary cash needs relate to funding our lending activities, our debt service obligations, our operating expenses (including acquisition-related transaction and integration expenses), payment of insurance claims and, to a lesser extent, expenditures relating to upgrading and monitoring our technology platform, risk systems, and branch locations.

At September 30, 2016 , we had $658 million of cash and cash equivalents, and during the nine months ended September 30, 2016 , we generated net income attributable to OMH of $188 million . Our net cash inflow from operating and investing activities totaled $1.3 billion for the nine months ended September 30, 2016 . At September 30, 2016 , our remaining scheduled interest payments for 2016 on our existing debt (excluding securitizations) totaled $209 million , and we had no remaining scheduled principal payments for 2016 on our existing debt. As of September 30, 2016 , we had $3.8 billion UPB of unencumbered personal loans and $439 million UPB of unencumbered real estate loans (including $230 million held for sale).

Based on our estimates and taking into account the risks and uncertainties of our plans, we believe that we will have adequate liquidity to finance and operate our businesses and repay our obligations as they become due for at least the next 12 months.

We have previously purchased portions of our unsecured indebtedness, and we may elect to purchase additional portions of our unsecured indebtedness in the future. Future purchases may be made through the open market, privately negotiated transactions with third parties, or pursuant to one or more tender or exchange offers, all of which are subject to terms, prices, and consideration we may determine.


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LIQUIDITY

Operating Activities

Net cash provided by operations of $1.1 billion for the nine months ended September 30, 2016 reflected net income of $216 million , the impact of non-cash items, and a favorable change in working capital of $97 million . Net cash provided by operations of $398 million for the nine months ended September 30, 2015 reflected net income of $75 million , the impact of non-cash items, and a favorable change in working capital of $14 million .

Investing Activities

Net cash provided by investing activities of $204 million for the nine months ended September 30, 2016 was primarily due to the SpringCastle Interests Sale, the Lendmark Sale, and the August 2016 Real Estate Loan Sale, partially offset by net principal collections and originations of finance receivables held for investment and held for sale. Net cash provided by investing activities of $593 million for the nine months ended September 30, 2015 was primarily attributable to net sales of investment securities during 2015.

Financing Activities

Net cash used for financing activities of $1.6 billion for the nine months ended September 30, 2016 was primarily due to net repayments of long-term debt. Net cash provided by financing activities of $2.0 billion for the nine months ended September 30, 2015 reflected the debt issuances associated with the 2015-A and 2015-B securitizations and the April 2015 OMH equity offering.

Liquidity Risks and Strategies

SFC’s and OMFH’s credit ratings are non-investment grade, which have a significant impact on our cost of, and access to, capital. This, in turn, can negatively affect our ability to manage our liquidity and our ability or cost to refinance our indebtedness.

There are numerous risks to our financial results, liquidity, capital raising, and debt refinancing plans, some of which may not be quantified in our current liquidity forecasts. These risks include, but are not limited, to the following:

•
our inability to grow or maintain our personal loan portfolio with adequate profitability;
•
the effect of federal, state and local laws, regulations, or regulatory policies and practices;
•
potential liability relating to real estate and personal loans which we have sold or may sell in the future, or relating to securitized loans; and
•
the potential for disruptions in the debt and equity markets.

The principal factors that could decrease our liquidity are customer delinquencies and defaults, a decline in customer prepayments, a prolonged inability to adequately access capital market funding, and unanticipated expenditures in connection with the integration of OneMain. We intend to support our liquidity position by utilizing some or all the following strategies:

•
maintaining disciplined underwriting standards and pricing for loans we originate or purchase and managing purchases of finance receivables;
•
pursuing additional debt financings (including new securitizations and new unsecured debt issuances, debt refinancing transactions and standby funding facilities), or a combination of the foregoing;
•
purchasing portions of our outstanding indebtedness through open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices, as well as with such consideration, as we may determine; and
•
obtaining new and extending existing secured revolving facilities to provide committed liquidity in case of prolonged market fluctuations.

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.


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OUR INSURANCE SUBSIDIARIES

State law restricts the amounts that the Springleaf and OneMain insurance subsidiaries may pay as dividends without prior notice to the Indiana Department of Insurance (the “Indiana DOI”) and Texas Department of Insurance (the “Texas DOI”), respectively. The maximum amount of dividends (referred to as “ordinary dividends”) for an Indiana or Texas domiciled life insurance company that can be paid without prior approval in a 12-month period (measured retrospectively from the date of payment) is the greater of: (i) 10% of policyholders’ surplus as of the prior year-end; or (ii) the statutory net gain from operations as of the prior year-end. Any amount greater must be approved by the Indiana DOI or Texas DOI prior to its payment. The maximum ordinary dividends for an Indiana or Texas domiciled property and casualty insurance company that can be paid without prior approval in a 12-month period (measured retrospectively from the date of payment) is the greater of: (i) 10% of policyholders’ surplus as of the prior year-end; or (ii) the statutory net income. Any amount greater must be approved by the Indiana DOI or Texas DOI prior to its payment. These approved dividends are called “extraordinary dividends.” During the nine months ended September 30, 2016 , Springleaf insurance subsidiaries paid extraordinary dividends to SFC totaling $63 million and OneMain insurance subsidiaries paid $105 million of extraordinary dividends to OMFH.

OUR DEBT AGREEMENTS

SFC 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. Some or all of these agreements also contain certain restrictions, including (i) restrictions on the ability to create senior liens on property and assets in connection with any new debt financings and (ii) SFC’s ability to sell or convey all or substantially all of its assets, unless the transferee assumes SFC’s obligations under the applicable debt agreement. In addition, the OMH guarantees of SFC’s long-term debt discussed above are subject to customary release provisions.

With the exception of SFC’s junior subordinated debenture, none of our debt agreements require SFC or any of its subsidiaries to meet or maintain any specific financial targets or ratios. However, certain events, including non-payment of principal or interest, bankruptcy or insolvency, or a breach of a covenant or a representation or warranty may constitute an event of default and trigger an acceleration of payments. In some cases, an event of default or acceleration of payments under one debt agreement may constitute a cross-default under other debt agreements resulting in an acceleration of payments under the other agreements.

As of September 30, 2016 , SFC was in compliance with all of the covenants under its debt agreements.

Junior Subordinated Debenture. In January of 2007, SFC issued $350 million aggregate principal amount of 60-year junior subordinated debenture (the “debenture”) under an indenture dated January 22, 2007 (the “Junior Subordinated Indenture”), by and between SFC and Deutsche Bank Trust Company, as trustee. The debenture underlies the trust preferred securities sold by a trust sponsored by SFC. SFC can redeem the debenture at par beginning in January of 2017.

Pursuant to the terms of the debenture, SFC, upon the occurrence of a mandatory trigger event, is required to defer interest payments to the holders of the debenture (and not make dividend payments to SFI) unless SFC obtains non-debt capital funding in an amount equal to all accrued and unpaid interest on the debenture otherwise payable on the next interest payment date and pays such amount to the holders of the debenture. A mandatory trigger event occurs if SFC’s (i) tangible equity to tangible managed assets is less than 5.5% or (ii) average fixed charge ratio is not more than 1.10x for the trailing four quarters.

Based upon SFC’s financial results for the 12 months ended September 30, 2016, a mandatory trigger event did not occur with respect to the interest payment due in January of 2017, as SFC was in compliance with both required ratios discussed above.

OMFH Debt Agreements

None of OMFH’s debt agreements require OMFH or any of its subsidiaries to meet or maintain any specific financial targets or ratios. However, the OMFH Indenture does contain a number of covenants that limit, among other things, OMFH’s ability and the ability of most of its subsidiaries to incur additional debt; create liens securing certain debt; pay dividends on or make distributions in respect of its capital stock or make investments or other restricted payments; create restrictions on the ability of its restricted subsidiaries to pay dividends to OMFH or make certain other intercompany transfers; sell certain assets; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; and enter into certain transactions with affiliates. The OMFH Indenture also contains customary events of default which would permit the trustee or the holders of the OMFH Notes to declare the OMFH Notes to be immediately due and payable if not cured within applicable grace periods,

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including the nonpayment of principal, interest or premium, if any, when due; violation of covenants and other agreements contained in the OMFH Indenture; payment default after final maturity or cross acceleration of certain material debt; certain bankruptcy and insolvency events; material judgment defaults; and the failure of any guarantee of the notes, other than in accordance with the terms of the OMFH Indenture or such guarantee.

As of September 30, 2016 , OMFH was in compliance with all of the covenants under its debt agreements.

Subsequently, on November 8, 2016, OMH agreed to fully, unconditionally, and irrevocably guarantee the OMFH Notes. See Note 18 of the Notes to Condensed Consolidated Financial Statements for further information on OMH’s guarantee of the OMFH Notes.

Replacement of OMFH 2015 Warehouse Facility. On February 3, 2015, OMFH entered into a revolving conduit facility with a borrowing capacity of $3.0 billion, backed by personal loans (the “2015 Warehouse Facility”). Pursuant to the terms of the 2015 Warehouse Facility, OMFH was required to (i) maintain minimum consolidated tangible shareholders’ equity of not less than $1 billion and (ii) not permit OMFH’s consolidated debt to tangible shareholders’ equity ratio to exceed 6.0 to 1.0 if a minimum draw condition exists.

On January 21, 2016, OMFH entered into four separate bilateral conduit facilities with unaffiliated financial institutions that provide an aggregate $2.4 billion of committed financing on a revolving basis for personal loans originated by OneMain (the “New Facilities”). The New Facilities replaced the 2015 Warehouse Facility that was voluntarily terminated on the same date and, as a result, the financial covenants, including the Net Worth Covenant and the Leverage Covenant in the 2015 Warehouse Facility, were eliminated. As of September 30, 2016, the aggregate borrowing capacity of the New Facilities totaled $2.25 billion. See Note 10 of the Notes to Condensed Consolidated Financial Statements for further information on the replacement of the 2015 Warehouse Facility.


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Structured Financings

We execute private securitizations under Rule 144A of the Securities Act of 1933. As of September 30, 2016 , our structured financings consisted of the following:
(dollars in millions)
 
Initial Note Amounts Issued (a)
 
Initial
Collateral
Balance (b)
 
Current
Note
Amounts
Outstanding
 
Current
Collateral
Balance (b)
 
Current
Weighted
Average
Interest Rate
 
Collateral
Type
 
Revolving
Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Securitizations:
 
 

 
 

 
 

 
 

 
 

 
 
 
 
Springleaf
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SLFT 2014-A
 
$
559

 
$
644

 
$
315

 
$
401

 
2.67
%
 
Personal loans
 
2 years
SLFT 2015-A
 
1,163

 
1,250

 
1,163

 
1,258

 
3.47
%
 
Personal loans
 
3 years
SLFT 2015-B
 
314

 
335

 
314

 
338

 
3.78
%
 
Personal loans
 
5 years
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OneMain
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OMFIT 2014-1
 
760

 
1,004

 
496

 
736

 
2.60
%
 
Personal loans
 
2 years
OMFIT 2014-2
 
1,185

 
1,325

 
1,033

 
1,165

 
2.99
%
 
Personal loans
 
2 years
OMFIT 2015-1
 
1,229

 
1,397

 
1,229

 
1,395

 
3.74
%
 
Personal loans
 
3 years
OMFIT 2015-2
 
1,250

 
1,346

 
1,250

 
1,349

 
3.07
%
 
Personal loans
 
2 years
OMFIT 2015-3
 
293

 
330

 
293

 
330

 
4.21
%
 
Personal loans
 
5 years
OMFIT 2016-1
 
459

 
569

 
459

 
561

 
4.01
%
 
Personal loans
 
3 years
OMFIT 2016-2
 
816

 
1,007

 
816

 
1,005

 
4.50
%
 
Personal loans
 
2 years
OMFIT 2016-3
 
317

 
397

 
317

 
396

 
4.33
%
 
Personal loans
 
5 years
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total consumer securitizations
 
8,345

 
9,604

 
7,685

 
8,934

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Auto Securitization:
 
 

 
 

 
 

 
 

 
 

 
 
 
 
Springleaf
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ODART 2016-1
 
700

 
754

 
618

 
688

 
2.30
%
 
Direct auto loans
 
N/A (c)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total secured structured financings
 
$
9,045

 
$
10,358

 
$
8,303

 
$
9,622

 
 

 
 
 
 
                                      
(a)
Represents securities sold at time of issuance or at a later date and does not include retained notes.

(b)
Represents UPB of the collateral supporting the issued and retained notes.

(c)
Not applicable.

In addition to the structured financings included in the table above, we had access to eleven conduit facilities with a total borrowing capacity of $4.6 billion as of September 30, 2016 , as discussed in Note 10 of the Notes to Condensed Consolidated Financial Statements. At September 30, 2016 , no amounts were drawn under these facilities.

See “Liquidity and Capital Resources - Sources of Funds - Securitizations and Borrowings from Revolving Conduit Facilities” for securitization and conduit transactions completed subsequent to September 30, 2016 .

Our securitizations have served to partially replace secured and unsecured debt in our capital structure with more favorable non-recourse funding. Our overall funding costs are positively impacted by our increased usage of securitizations, as we typically execute these transactions at interest rates significantly below those of our maturing unsecured debt.


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Off-Balance Sheet Arrangements    

We have no material off-balance sheet arrangements as defined by SEC rules. We had no off-balance sheet exposure to losses associated with unconsolidated VIEs at September 30, 2016 or December 31, 2015 , other than certain representations and warranties associated with the sales of the mortgage-backed retained certificates during 2014. As of September 30, 2016 , we had no repurchase activity related to these sales.

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 Consolidated Financial Statements in Part II, Item 8 of our 2015 Annual Report on Form 10-K. We consider the following policies to be our most critical accounting policies because they involve critical accounting estimates and a significant degree of management judgment:

•
allowance for finance receivable losses;
•
purchased credit impaired finance receivables;
•
TDR finance receivables;
•
fair value measurements; and
•
goodwill and other intangible assets.

Effective April 1, 2016, we changed our accounting policy for derecognition of purchased credit impaired loans. See Note 1 of the Notes to Condensed Consolidated Financial Statements for further information.

There have been no other material changes to our critical accounting policies or to our methodologies for deriving critical accounting estimates during the nine months ended September 30, 2016 .

Recent Accounting Pronouncements    

See Note 3 of the Notes to Condensed Consolidated Financial Statements for discussion of recently issued accounting pronouncements.

Seasonality    

Our personal loan volume is generally highest during the second and fourth quarters of the year, primarily due to marketing efforts, seasonality of demand, and increased traffic in branches after the winter months. Demand for our personal loans is usually lower in January and February after the holiday season and as a result of tax refunds. Delinquencies on our personal loans are generally lowest in the first quarter and tend to rise throughout the remainder of the year. These seasonal trends contribute to fluctuations in our operating results and cash needs throughout the year.


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Key Financial Definitions    

Average debt
average of debt for each day in the period
Average net receivables
average of monthly average net finance receivables (net finance receivables at the beginning and end of each month divided by 2) in the period
Delinquency ratio
UPB 60 days or more past due (greater than three payments unpaid) as a percentage of UPB
Fixed charge ratio
earnings less income taxes, interest expense, extraordinary items, goodwill impairment, and any amounts related to discontinued operations, divided by the sum of interest expense and any preferred dividends
Gross charge-off ratio
annualized gross charge-offs as a percentage of average net receivables
Loss ratio
annualized net charge-offs, net writedowns on real estate owned, net gain (loss) on sales of real estate owned, and operating expenses related to real estate owned as a percentage of average real estate loans
Net charge-off ratio
annualized net charge-offs as a percentage of average net receivables
Net interest income
interest income less interest expense
Recovery ratio
annualized recoveries on net charge-offs as a percentage of average net receivables
Tangible equity
total equity less accumulated other comprehensive income or loss
Tangible managed assets
total assets less goodwill and other intangible assets
Trust preferred securities
capital securities classified as debt for accounting purposes but due to their terms are afforded, at least in part, equity capital treatment in the calculation of effective leverage by rating agencies
Weighted average interest rate
annualized interest expense as a percentage of average debt
Yield
annualized finance charges as a percentage of average net receivables

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 of our 2015 Annual Report on Form 10-K.

Item 4. Controls and Procedures.    

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of September 30, 2016 , we carried out an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This evaluation was conducted under the supervision of, and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on our evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2016 to provide the reasonable assurance described above.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the third quarter of 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.    

See Note 14 of the Notes to Condensed Consolidated Financial Statements in Part I of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors.    

There have been no material changes to the risk factors included in Part I, Item 1A of our 2015 Annual Report on Form 10-K, except for changes previously disclosed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended June 30, 2016, filed with the SEC on August 5, 2016, and as set forth below:

The OneMain Acquisition may not achieve its intended results, and we may be unable to successfully integrate our and OneMain’s operations.

We acquired OneMain with the expectation that the OneMain Acquisition will result in various benefits, including, among other things, cost savings and operating efficiencies. Achieving the anticipated benefits of the OneMain Acquisition is subject to a number of uncertainties (many of which are outside our control), including whether our business and the business of OneMain can be integrated in an efficient and effective manner.

The integration of OneMain is a complex, costly and time-consuming process, and the significant size and scale of OneMain increases the risks to which we are subject relative to other acquired businesses. Such risks include the following, any of which could adversely affect our business, financial condition or results of operations or our ability to achieve the anticipated benefits of the OneMain Acquisition:

•
It is possible that the integration process could take longer than anticipated and could result in the loss of valuable employees, additional and unforeseen expenses, the disruption of our ongoing business, processes and systems, or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements.

•
There may be increased risk due to integrating financial reporting and internal control systems.

•
Difficulties in combining operations of the two companies could also result in the loss of contract counterparties or other persons with whom we or OneMain conduct business and potential disputes or litigation with contract counterparties or other persons with whom we or OneMain conduct business.

•
The integration process could result in the diversion of management and employee attention and resources or other disruptions that may adversely affect our ability to grow our business, pursue loan monitoring and collection activities, or achieve the anticipated benefits of the OneMain Acquisition. During the third quarter of 2016, we completed a number of significant integration initiatives related to the OneMain Acquisition which involved a significant investment of time and effort by OneMain branch and field management personnel, as described above under “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Outlook.” We believe these integration-related activities contributed to lower than expected loan origination growth during the third quarter of 2016, primarily at the former OneMain branches, and an increase in our early stage 30-89 day delinquencies for loans originated in 2016. Given the substantial integration-related systems conversion activity and branch consolidation that we have planned through the first half of 2017, we may experience a heightened level of delinquency, net charge-offs and increases in the provision for receivables losses for the balance of 2016 and 2017. No assurance can be given, however, that we will not continue to incur increased credit losses or declines in, or lower growth of, our personal loan net finance receivables in the future once the OneMain integration has been completed.

If we experience difficulties or delays with the OneMain integration process, or if our assumptions underlying expectations regarding the OneMain Acquisition prove to be inaccurate, the anticipated benefits, expense savings and synergies may not be realized fully or at all, or may take longer to realize than expected. Failure to achieve these anticipated benefits could result in increased costs, increased credit losses or decreases in the amount of expected revenues, any of which could adversely affect our future business, financial condition, operating results and prospects. Our results of operations following the OneMain Acquisition could also be adversely affected by any issues attributable to either company’s operations that arise or are based on events or actions that occurred prior to the closing of the OneMain Acquisition.

Additionally, since the closing of the OneMain Acquisition, we remain reliant on Citigroup, the former parent company of OMFH, to provide certain operational services and support to OneMain, and a failure by Citigroup to perform such services

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could materially increase our costs or disrupt our business, which could adversely affect our financial condition and results of operations.

Our recent underwriting changes and strategy of increasing the proportion of secured loan originations within our loan portfolio may lead to declines in, or slower growth than anticipated of, our personal loan net finance receivables and yield, which could have a material adverse effect on our business, results of operations and growth prospects.

During the third quarter of 2016, in response to an increase in unsecured credit availability to our target customer base from online lenders and various other unsecured credit providers and an increase in our early stage 30-89 day delinquencies for loans originated in 2016, we tightened our underwriting criteria for unsecured personal loans to lower credit tier customers. As a result of these changes to our underwriting criteria, we are generally not underwriting new personal loans to this segment of our customer base absent collateral. We have also continued to execute on our strategy of increasing the proportion of our loan originations that are secured loans, particularly within the former OneMain branches where secured loan originations have historically represented a smaller proportion of total loan originations than those of the former Springleaf branches. Secured loans typically carry lower yields relative to unsecured personal loans. If we are unable to successfully convert lower credit tier customers to our secured loan products or otherwise increase new originations of secured personal loans, this will adversely affect our ability to grow personal loan net finance receivables. In addition, as secured loans continue to represent a larger proportion of our loan portfolio, our yields may be lower than our historical yields in prior periods.

If our estimates of 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 economic trends. Our methodology for establishing our allowance for finance receivable losses is based on the guidance in ASC 450, Contingencies and, in part, on our historic loss experience. If customer behavior changes as a result of economic conditions and if we are unable to predict how the unemployment rate, housing foreclosures, and general economic uncertainty may affect our allowance for finance receivable losses, our provision 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.

In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU significantly changes the way that entities will be required to measure credit losses. The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather than the “incurred loss” approach currently required. The new approach will require entities to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable forecasts of collectability. It is anticipated that the expected credit loss model may require earlier recognition of credit losses than the incurred loss approach. This ASU will become effective for the Company for fiscal years beginning January 1, 2020. Early adoption is permitted for fiscal years beginning January 1, 2019. We believe the adoption of this ASU will have a material effect on our consolidated financial statements. See Note 3 of the Notes to Condensed Consolidated Financial Statements for more information on this new accounting standard.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.    

None.

Item 3. Defaults Upon Senior Securities.    

None.

Item 4. Mine Safety Disclosures.    

Not applicable.

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Item 5. Other Information.    

In connection with the Company’s rebranding to OneMain Financial, the uniform resource locator (“URL”) of the Company’s website was recently changed to https://www.onemainfinancial.com. Information required to be posted to the Company’s website under SEC rules and New York Stock Exchange (“NYSE”) listing standards is now available at this new URL under “Investor Relations.” Additionally, the Company intends to disclose any amendment or waiver to the Company’s Code of Business Conduct and Ethics or Code of Ethics for Principal Executive and Senior Financial Officers requiring disclosure under applicable SEC or NYSE rules at this new URL under “Investor Relations” in lieu of filing a Form 8-K with the SEC.

Item 6. Exhibits.    

Exhibits are listed in the Exhibit Index beginning on page 91  and incorporated by reference herein.

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Signature    

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.

 
 
 
ONEMAIN HOLDINGS, INC.
 
 
 
(Registrant)
 
 
 
 
Date:
November 8, 2016
 
By
/s/ Scott T. Parker
 
 
 
 
Scott T. Parker
 
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
(Duly Authorized Officer and Principal Financial Officer)

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Exhibit Index    
Exhibit
 
 
 
 
 
10.1
 
Separation and Release of Claims Agreement dated July 31, 2016 for Minchung (Macrina) Kgil.*
 
 
 
31.1
 
Rule 13a-14(a)/15d-14(a) Certifications of the President and Chief Executive Officer of OneMain Holdings, Inc.
 
 
 
31.2
 
Rule 13a-14(a)/15d-14(a) Certifications of the Executive Vice President and Chief Financial Officer of OneMain Holdings, Inc.
 
 
 
32.1
 
Section 1350 Certifications.
 
 
 
101
 
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Shareholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
                                      
*
Management contract or compensatory plan or arrangement.

91



Exhibit 10.1    

Separation and Release of Claims Agreement

This Separation and Release of Claims Agreement (“ Agreement ”) is entered into by and between SPRINGLEAF GENERAL SERVICES CORPORATION, a Delaware corporation, (the “ Employer ” or the “Company” ) on behalf of itself, its parents, subsidiaries and other corporate affiliates and each of their respective employees, officers, directors, owners, shareholders and agents (collectively referred to herein as “ Springleaf ”), and MINCHUNG “MACRINA” KGIL (the “ Employee ”) (the Employer and the Employee are collectively referred to herein as the “ Parties ”) as of the date of execution noted below (the “ Execution Date ”).
The Parties have agreed to sever the employment relationship. Employee will receive pay, at her current base salary (less applicable tax and payroll deductions) through July 31, 2016, which will be Employee's last day of employment with Springleaf (the “ Separation Date ”). The Company may, in its sole discretion, not require Employee to work each day prior to the Separation Date. The Separation Payment (defined below) will be made to Employee not earlier than 30 days after the Separation Date and not later than 45 days after the Separation Date, provided that Springleaf has received this Agreement signed by Employee, seven days have passed since Springleaf has received this Agreement and this Agreement has not been revoked. Severance pay and certain benefits will be made available to Employee on the terms set forth below.
Except as otherwise set forth in this Agreement, the Separation Date will be the employment termination date for Employee for all purposes, meaning Employee will no longer be entitled to any further compensation, monies or other benefits from Springleaf, including coverage under any benefits plans or programs sponsored by it.
If Employee signs this Agreement, does not revoke it and otherwise complies with its terms herein, Employee will receive, in addition to all other wages and amounts due her at termination of employment, the following payments (collectively the “Separation Payment” ): (1) a lump sum payment of one year’s base salary of $350,000.00 (less any and all applicable withholdings); (2) a special lump sum payment of $499,987.00; and (3) certain payments related to COBRA coverage (as defined and described below).
If Employee signs this Agreement, does not revoke it and otherwise complies with its terms herein and in the Restricted Stock Unit Award Agreement between the Parties dated October 16, 2013 (the “2013 RSU Agreement” ), Employee shall also receive 29,411 restricted stock units ( “RSUs” ) which are scheduled to vest on January 3, 2017, pursuant to the terms of the 2013 RSU Agreement. The RSUs and issuance thereof shall be subject to the terms of the Springleaf Holdings, Inc., 2013 Omnibus Incentive Plan and Exhibit A thereto, dated October 16, 2013, as amended. Other than as set forth above, Employee agrees and acknowledges that she shall have no further rights to RSUs under the 2013 RSU Agreement and the RSU Award Agreements dated March 17, 2014 and February 17, 2015 (collectively the “RSU Agreements” ) after the Separation Date and hereby waives and releases any claim to additional RSUs under the RSU Agreements.


Minchung “Macrina” Kgil    1 Separation Agreement




All benefits available to Employee as an employee shall cease as of the Separation Date in accordance with the terms of the specific benefit plans. Further, eligibility for coverage under the Short Term and Long Term Disability programs, 401(k) contributions and matches, and all other benefits not mentioned in this Agreement will cease as of the Separation Date. Thereafter, Employee and her eligible dependents shall be entitled to exercise their option to obtain health and welfare insurance continuation coverage subject to the terms of the Consolidated Omnibus Budget Reconciliation Act, as amended ( “COBRA” ). Employee shall receive COBRA information from the Employer or its Third Party Administrator. Once this Agreement becomes effective as described below, if Employee and her eligible dependents make timely COBRA coverage election(s), then from August 1, 2016, until the earlier of: (a) the date Employee and her eligible dependents become eligible to elect coverage under another group medical benefits plan; or (b) July 31, 2017, the Employer shall by check payable to Employee, a sum of money on or before the fifteenth (15th) day of each month, the net amount of which shall pay the cost of the COBRA coverage elected by Employee and her eligible dependent(s). It is the sole responsibility of Employee and her eligible dependents to ensure that all COBRA payments are made in a timely manner. Employee agrees that she will notify Springleaf’s Deputy General Counsel, Brad Chapman, at Springleaf General Services Corporation, 601 NW Second Street, Evansville, Indiana 47708, Brad.Chapman@springleaf.com, within ten (10) days after she and her dependents become eligible to accept and receive other group health insurance coverage.

In return for the Separation Payment, Employee agrees to the following:
1.
Employee waives and releases Springleaf, its parents and affiliated companies (including OneMain Holdings, Inc. and all of its parents and subsidiaries) (collectively “Affiliates” ), and their past or present officers, directors, employees and agents (collectively the “Releasees” ), from all claims, controversies, demands, promises, actions, suits, grievances, complaints, charges, damages, debts, bonuses, stock options, promises, costs, expenses, attorneys’ fees and remedies of any kind (whether known or unknown, individually or collectively) (collectively “Claims” ) that she may have against any Releasee which arises from or relates to her employment with the Company or any of its Affiliates, or the termination of employment with the Company or any of its Affiliates, whether in law, equity, contract or tort. This release applies to Claims that Employee knows about and that she may not know about that arose any time up to the date that this Agreement is signed. This release and waiver includes, without limitation, claims under the Age Discrimination in Employment Act of 1967, as amended, the Older Workers Benefit Protection Act (OWBPA), Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, and any other federal, state or local law, statute, regulation or ordinance applicable to the employment or the termination of employment with the Company or any of its Affiliates. Employee acknowledges that she is not waiving any rights or claims that may arise after the date this Agreement is executed.
This Agreement does not modify or affect any vested rights that Employee may have under the Springleaf Financial Services Retirement Plan or the Springleaf Financial Services 401K Plan. Furthermore, this release does not waive any claims that the


Minchung “Macrina” Kgil    2 Separation Agreement




controlling law clearly states may not be released by settlement. Nothing in this Agreement generally prevents Employee from filing a charge or complaint with, or from participating in an investigation or proceeding conducted by, the EEOC, NLRB, or any other federal, state or local agency charged with the enforcement of any employment laws, although by signing this Agreement Employee waives all right to individual relief based on claims asserted in such a charge or complaint. Subject to the foregoing, Employee represents and warrants that she has not filed, directly or indirectly, nor caused to be filed, any legal proceeding against Springleaf or its Affiliates in any state, federal, arbitral or administrative forum having jurisdiction over claims of employment discrimination, claims for wages, benefits or other compensation or other claims related to her employment which are still pending and have not been dismissed or otherwise resolved. In addition, Employee retains any rights she may have under COBRA, rights she may have to unemployment insurance benefits (the application for which shall not be contested by the Employer), rights she has to indemnity, contribution and defense under any applicable indemnification agreement and/or policy and the Company’s directors’ and officers’ liability insurance, and rights she has to enforce the terms of this Agreement.

Employee acknowledges that she enters into this Agreement as a compromise and in full and final settlement of all disputed claims, if any, she may have against any of the Releasees as of the date this Agreement is signed. This Agreement does not constitute an admission of any liability or wrongdoing by any Releasee or Employee and the Releasees deny they are legally obligated for any claim or that they have engaged in any wrongdoing.
2.
Through the Separation Date, Employee agrees that she must comply with all stock ownership commitments and all personal trading policies that applied to her during her employment ( “Personal Trading Restrictions” ). The Personal Trading Restrictions imposed by these policies apply to all personal trading accounts (“Personal Accounts”) held by Employee as well as the personal accounts of immediate family members if they are subject to the Policies ( “Related Accounts” ). Failure to abide by the applicable Personal Trading Restrictions for both Personal and Related Accounts may result in trade cancellation with all associated costs borne by the account holders. To pre-clear transactions or if Employee has questions regarding personal trading, she should contact Deputy General Counsel Jack Erkilla at (812) 468-5656. Employee acknowledges that she is subject to applicable laws regarding the purchase or sale of securities based on material non-public information (“insider trading” laws) even after the Separation Date. Notwithstanding the foregoing, no Personal Trading Restrictions shall apply after the Employer announces its earnings report for the second quarter of 2016.

3.
Employee confirms that she has (i) received all compensation due as a result of services performed for Springleaf with the receipt of her final paycheck and acknowledge that she is not entitled to any further wages, bonuses or other compensation from Springleaf in any manner; (ii) reported to Springleaf any and all work-related injuries incurred during employment with Springleaf; and (iii) been properly provided any leave of absence because of her or a family member’s health


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condition and has not been subjected to any improper treatment, conduct or actions due to a request for or taking such leave.
4.
Employee fully understands the terms of this Agreement and agrees to keep the terms of this Agreement confidential ( i.e. , to not disclose the terms other than to immediate family, tax, or legal advisors or as otherwise allowed by law) until this Agreement is made public by the Employer through a regulatory filing at which point Employee’s obligations under this provision shall become null and void. In the event of any disclosure of this Agreement through a regulatory filing by Springleaf, Springleaf shall notify Employee in writing not later than three (3) business days prior to the disclosure and shall provide Employee a draft of the filing for her review. In the event that Springleaf does not file a Form 8-K or describe the Agreement in a Form 10-K/Q, but merely files the Agreement as an exhibit to a Form 10-K/Q filing, it shall have no obligation to provide Employee with a draft of the filing. Nothing in this paragraph is intended to prohibit or restrict Employee from disclosing this Agreement or providing truthful information concerning it or Springleaf’s business activities to any government or regulatory agency or from responding to a valid court order or subpoena. Except with regard to an inquiry by a government or regulatory agency, Employee agrees to promptly give notice to Springelaf at the address below of any attempts to compel disclosure of this Agreement or its terms.
5.
Employee understands that the Company is continuously involved in the development, receipt, use and refinement of information that is proprietary, confidential or that has significant commercial value. Employee acknowledges that such information is essential to the Company’s successful business operations and that disclosure to third parties or other unauthorized use may cause material harm to the Company.

For purposes of this Agreement, the term “Proprietary Information” includes any information acquired by Employee as a consequence of, or in connection with, Employee’s employment with the Company or her access to the Company’s systems or communications, whether written, electronic, oral, or in any other medium or form. Without limiting the foregoing, Proprietary Information also includes all confidential information of and confidential matters (whether made available before or after the date hereof) relating to the Company’s business, the Company and its Affiliates or any third parties. The restrictions contained herein shall not apply to Proprietary Information which (i) is or becomes generally available to the public other than by unauthorized disclosure by Employee in violation of this Agreement or other obligation of confidentiality, (ii) which Employee already knew prior to her employment or retention by the Company, (including, without limitation, information contained on her rolodex (whether paper or electronic)), or (iii) becomes available on a non-confidential basis from a third party not under an obligation to any person to keep such information confidential.
Without prejudice to or limitation on any other confidentiality obligation imposed by law, Employee agrees to keep secret and retain in strictest confidence all Proprietary Information, and not to use such information for Employee’s benefit or


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the benefit of others, except in connection with the business and affairs of the Company. Employee shall not disclose Proprietary Information to any person or use Proprietary Information in any way except (a) as required or otherwise appropriate in the course of her duties to the Company, (b) to assist the Company on Company matters, or (c) if required by law or legal process.
All memoranda, notes, lists, records, property and any other products or documents (and all copies and excerpts thereof), whether visually perceptible, machine-readable or otherwise, made, produced or compiled by Employee or made available to Employee concerning the business of the Company, shall at all times be the property of the Company and shall be delivered to the Company (i) at any time upon its request, or (ii) upon Employee’s separation from employment with the Company.
Employee agrees that all “Company Materials” (defined below) shall be deemed “work made for hire” by the Company as the “author” and owner to the extent permitted by United States copyright law. To the extent (if any) that some or all of the Company Materials do not constitute “work made for hire,” Employee hereby irrevocably assigns to the Company for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, all right, title and interest in and to such Company Materials (including without limitation any and all copyright rights, patent rights and trademark rights and goodwill associated therewith). Employee also hereby irrevocably grants to the Company for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, a royalty-free, world-wide, perpetual, nonexclusive license to use any Prior Materials (defined below) in connection with use by the Company of any Company Materials incorporating such Prior Materials. The provisions of this paragraph will apply to all Company Materials which are or have been conceived or developed by Employee, solely or jointly, whether or not further development or reduction to practice may take place after the termination of Employee’s employment or retention, by the Company. “Materials” means all articles, reports, documents, memoranda, notes, other works of authorship, data, databases, discoveries, designs, developments, ideas, creative works, improvements, inventions, know-how, processes, computer programs, software, source code, techniques and useful ideas of any description whatsoever (or portions thereof).
“Company Materials” means all Materials that Employee makes or conceives, or has made or conceived, solely or jointly, during the period of Employee’s retention by or employment with the Company, whether or not patentable or registerable under copyright, trademark or similar statutes, which either (i) are related to the current or anticipated business or activities of the Company (which includes any fund managed by the Company or any of its Affiliates during or prior to the period of Employee’s retention by or employment with the Company); (ii) fall within Employee’s responsibilities while retained by or employed with the Company; or (iii) are otherwise developed by Employee through the use of the Company’s confidential information, equipment, software, or other facilities or resources at time during which Employee has been a consultant, or employee (temporary or otherwise) of the


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Company. “Prior Materials” means any Materials in which Employee has any ownership or license (with the right to grant sublicenses) rights or interest that came into existence prior to its retention by or employment with the Company that Employee incorporates during the period of such employment or retention in any manner into any Company Materials.
Employee further agrees that Employee will execute and deliver to the Company any and all further documents or instruments and do any and all further acts which the Company reasonably requests in order to perfect, confirm, defend, police and enforce the Company’s intellectual property rights, and hereby grants to the officers of the Company an irrevocable power of attorney, coupled with interest, to such end.
6.
Employee agrees that from now until 12 months after the Separation Date, she will not, directly or indirectly (regardless of who initiates the communication) solicit, participate in the solicitation or recruitment of, or in any manner encourage or provide assistance to, any employee, consultant or agent of Springleaf to terminate his or her employment or other relationship with Springleaf, or to leave his or her employment or other relationship with Springleaf for any engagement in any capacity with any other person or entity.
7.
Employee agrees that from now until 12 months after the Separation Date, she will not directly or indirectly solicit business from any Covered Customers (as defined below) of Springleaf to provide any services and/or products that are directly or indirectly competitive with the services or products of Springleaf, on her behalf or on behalf of any other person or entity; or otherwise attempt to directly or indirectly influence such customers to divert their business from Springleaf. “Covered Customer” means a person or entity that (a) as of the Separation Date, is a person or entity to or from which Springleaf provides or receives services, prior to any interference by Employee, and (b) Employee either had contact with, supervised contact with, or had access to confidential information or trade secrets about at any time during the year preceding the Separation Date. Employee further stipulates that the foregoing restriction is reasonably limited by geography in that the restriction is inherently, narrowly limited to the place or location where a Covered Customer is available for solicitation.
8.
Employee agrees that she will not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remark, comment or statement concerning Springleaf, its businesses, or any of its employees, officers and directors. This provision, however, does not, in any way, restrict or impede Employee from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation or order. Employee agrees to promptly provide written notice of any such order to Brad A, Chapman, Springleaf’s Deputy General Counsel. At all times following the Separation Date, Springleaf shall not, and shall use good faith efforts not to permit its executive officers or directors to, make, publish or communicate to any person or entity or in any public forum any defamatory or


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disparaging remark, comment or statement concerning Employee, except to the extent required by law, legal process or applicable securities considerations.
a.
If Employee commits a breach of, or is about to commit a breach of, any of the provisions in Paragraphs 4, 5, 6, 7, or 8, or if Springleaf commits a breach of, or is about to commit a breach of, any of the provisions in Paragraph 8, the non-breaching party may have the right to have such provisions specifically enforced by any court having equity jurisdiction without having to prove the inadequacy of the available remedies at law, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. In addition, the non-breaching party may take all such other actions and remedies available to it under law or in equity and shall be entitled to such damages as it can show it has sustained by reason of such breach.
b.
The Company and Employee acknowledge that (i) the type and periods of restrictions imposed by this Agreement are fair and reasonable and are reasonably required in order to protect and maintain the proprietary interests of the Company and its legitimate business interests and the goodwill associated with its business; (ii) the time, scope, geographic area and other provisions of this Agreement have been specifically negotiated by sophisticated commercial parties, represented by legal counsel; and (iii) because of the nature of the business engaged in by the Company and the fact that investors can be and are serviced and investments can be and are made by the Company wherever they are located, Employee acknowledges and agrees that the geographic limitation is reasonable. If any provision of Section 4 through 10, or any part thereof, is held to be unenforceable by reason of it extending for too great a period of time or over too great a geographic area or by reason of it being too extensive in any other respect, the parties agree (x) such covenant shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographic areas as to which it may be enforceable and/or over the maximum extent in all other respects as to which it may be enforceable, all as determined by the court making such determination and (y) in its reduced form, such covenant shall then be enforceable, but such reduced form of covenant shall only apply with respect to the operation of such covenant in the particular jurisdiction in or for which such adjudication is made. Each of the covenants and agreements in this Agreement are distinct and severable.
The intent of the parties is that payments and benefits under this Agreement either be exempt from or comply with Section 409A of the Internal Revenue Code, to the extent subject thereto, and accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, to the extent any payments or benefits payable under this Agreement on account of Employee’s termination of employment constitute a deferral of compensation subject to Section 409A of the Code, Employee shall not be considered to have terminated employment until Employee has incurred a “separation from service” within the meaning of Treasury Regulation § 1.409A-1(h) (which shall be interpreted by (i) using “49 percent” in lieu of “20 percent” for purposes § 1.409A-1(h)(1)(ii), and (ii) using “50 percent in lieu of “80 percent” for purposes of


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§1.409A-1(h)(3)). Each amount to be paid or benefit to be provided under this Agreement shall be construed as a separate identified payment for purposes of Section 409A of the Code. Without limiting the foregoing and notwithstanding anything contained herein to the contrary, to the extent any payments or benefits payable under this Agreement on account of Employee’s termination of employment constitute a deferral of compensation subject to Section 409A of the Code and Employee is a “specified employee” within the meaning of Section 409A of the Code at the time of her separation from service, any amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Agreement during the six-month period immediately following an Employee’s separation from service shall instead be paid on the first business day after the date that is six months following Employee’s separation from service (or, if earlier, Employee’s date of death). To the extent required to avoid an accelerated or additional tax under Section 409A of the Code, amounts reimbursable to Employee under this Agreement shall be paid to Employee on or before the last day of the year following the year in which the expense was incurred and the amount of expenses eligible for reimbursement (and in kind benefits provided to Employee) during one year may not affect amounts reimbursable or provided in any subsequent year and the right to reimbursement of in-kind benefits provided under this Agreement shall not be subject to liquidation or exchange for another benefit. The Company makes no representation that any or all of the payments described in this Agreement will be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to any such payment made in accordance with the provisions of this Agreement.

If Employee is presently an officer and/or director of Springleaf or an Affiliate, Employee hereby resigns such office or directorship, effective as of the Separation Date. Employee’s execution of this Agreement shall be deemed the grant by Employee to the officers of the Company of a limited power of attorney to sign in Employee’s name and on Employee’s behalf any such documentation as may be required to be executed solely for the limited purposes of effectuating such resignations. After the Separation Date, Employee agrees not to represent herself as being an employee, officer, attorney, agent or representative of the Company, its Affiliates or parents for any purpose.

As of the Separation Date, Employee will return to Springleaf all company property, including identification cards or badges, access codes or devices, keys, laptops, computers, telephones, mobile phones, hand-held electronic devices, credit cards, electronically stored documents or files, physical files and any other company property in Employee's possession (except that Employee and the Company agree that Employee shall be able to keep her home printer).

Employee also understands and acknowledges that she has had at least 21 days (until August 21, 2016) to consider this Agreement before signing it; that this Agreement can be revoked within 7 days after signing it by sending written notice of that revocation to Springleaf Finance, Attn: Brad A. Chapman, Deputy General Counsel, 601 N.W. 2 nd Street, Evansville, IN 47708; that Springleaf has advised Employee in writing, by this paragraph, to consult with an attorney before signing this Agreement; and that the payments and benefits set forth in this Agreement exceed anything that Employee is already entitled to receive.


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Employee acknowledges that Springleaf has not threatened to withdraw or alter the benefits due under this Agreement prior to the expiration of the 21-day period; nor has the company provided different terms because Employee decided to sign the release prior to the expiration of the 21-day consideration period. If this Agreement is revoked and Employee has received any payments or other benefits, Employee will return all payments and benefits so received. Employee also agrees that changes, whether material or immaterial, do not restart the running of the above deadline for responding
Employee acknowledges and agrees that any disputes involving interpretation or enforcement of this Agreement will be resolved through mediation and arbitration in accordance with the terms of the Springleaf Finance Employee Dispute Resolution Program in effect at the time the dispute arises, subject to the terms and restrictions of the Program.
Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of one (1) business day following personal delivery (including personal delivery by telecopy or telex), or the third (3 rd ) business day after mailing by first class mail to the recipient at the address indicated below:
To the Company or Springleaf:
Springleaf General Services Corporation
601 NW Second Street
Evansville, Indiana 47708
Attn: April Park, General Counsel

with a copy which shall not constitute notice to:
OneMain Holdings, Inc.
The Metro Center
One Station Place - 3 South
Stamford, CT  06902
Attn: Jay Levine, CEO

To Employee:
At the address shown in the Company’s personnel records
or to such other address or to the attention of such other person as the recipient party will have specified by prior written notice to the sending party,
Any provision of this Agreement which is deemed by a court of competent jurisdiction to be invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction and subject to this paragraph be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable by a court of competent jurisdiction because its scope is considered excessive, such covenant shall be


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modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable.
This document, together with any RSU Agreements between Employee and the Company, constitute the final, complete, and exclusive embodiment of the entire agreement and understanding between the parties related to the subject matter hereof and to the compensatory arrangements between the Company and Employee and except as otherwise explicitly set forth in this Agreement, supersedes and preempts any prior or contemporaneous understandings, agreements, term sheets, prior drafts or representations by or between the parties, written or oral, including any agreements that contain restrictive covenant obligations.
This Agreement may be executed on separate counterparts, any one (1) of which need not contain signatures of more than one (1) party, but all of which taken together will constitute one and the same agreement.
No amendments or other modifications to this Agreement may be made except by a writing signed by all parties. No amendment or waiver of this Agreement requires the consent of any individual, partnership, corporation or other entity not a party to this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any third person any rights or remedies under or by reason of this Agreement.
All questions concerning the construction, validity and interpretation of this Agreement shall be governed by the laws of the State of New York without giving effect to principles of conflicts of law of such state.
The provisions of this Agreement necessary to carry out the intention of the parties as expressed herein shall survive the termination or expiration of this Agreement.
The waiver by either party of the other party’s prompt and complete performance, or breach or violation, of any provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation, and the failure by any party hereto to exercise any right or remedy which it may possess hereunder shall not operate nor be construed as a bar to the exercise of such right or remedy by such party upon the occurrence of any subsequent breach or violation. No waiver shall be deemed to have occurred unless set forth in a writing executed by or on behalf of the waiving party. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.
The parties acknowledge that this Agreement is the result of arm’s-length negotiations between sophisticated parties, each afforded representation by legal counsel. Each and every provision of this Agreement shall be construed as though both parties participated equally in the drafting of the same, and any rule of construction that a document shall be construed against the drafting party shall not be applicable to this Agreement.
Upon execution of this Agreement, all prior agreements executed between Employee and the Company regarding Employee’s employment with the Company, except for awards made


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pursuant to the RSU Agreements or as otherwise set forth herein, shall terminate and no longer be of force or effect between the Parties.
IN WITNESS WHEREOF , the Parties have executed this Agreement effective as of the date set forth below.
Dated: July 31, 2016


SPRINGLEAF GENERAL SERVICES CORPORATION

By: /s/Angela Celestin
Its: Executive Vice President

EMPLOYEE:
Signature:      /s/ Minchung (Macrina) Kgil Date: August 10, 2016                     Minchung “Macrina” Kgil








Return this Agreement to: Springleaf Finance, Attn: Brad A. Chapman, Deputy General Counsel, 601 N.W. 2 nd Street, Evansville, IN 47708



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Exhibit 31.1    

Certifications

I, Jay N. Levine, President and Chief Executive Officer, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of OneMain Holdings, Inc. (the “registrant”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
November 8, 2016
 
 
 
 
 
 
 
 
 
/s/ Jay N. Levine
 
 
 
Jay N. Levine
 
 
 
President and Chief Executive Officer


93


Exhibit 31.2    

Certifications

I, Scott T. Parker, Executive Vice President and Chief Financial Officer, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of OneMain Holdings, Inc. (the “registrant”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
November 8, 2016
 
 
 
 
 
 
 
 
 
/s/ Scott T. Parker
 
 
 
Scott T. Parker
 
 
 
Executive Vice President and Chief Financial Officer


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Exhibit 32.1    

Certifications

In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 of OneMain Holdings, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of Jay N. Levine, President and Chief Executive Officer of the Company, and Scott T. Parker, Executive Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 
 
 
/s/ Jay N. Levine
 
 
 
Jay N. Levine
 
 
 
President and Chief Executive Officer
 
 
 
 
 
 
 
/s/ Scott T. Parker
 
 
 
Scott T. Parker
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
Date:
November 8, 2016
 
 


95