UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)

þ☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 20172019


OR


o☐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 1-06155
001-36129 (OneMain Holdings, Inc.)
001-06155 (Springleaf Finance Corporation)

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

IndianaDelaware (OneMain Holdings, Inc.)35-041609027-3379612
Indiana (Springleaf Finance Corporation)35-0416090
(State of incorporation)(I.R.S. Employer Identification No.)
601 N.W. Second Street, Evansville, IN47708
(Address of principal executive offices)(Zip Code)

601 N.W. Second Street, Evansville, IN 47708
(Address of principal executive offices) (Zip code)

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

Securities registered pursuant to Section 12(b) of the Act: NoneSecurities Exchange Act of 1934:


OneMain Holdings, Inc.:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareOMFNew York Stock Exchange
Springleaf Finance Corporation: None

Securities registered pursuant to Section 12(g) of the Act: None


IndicateIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
OneMain Holdings, Inc.       Yes o ☑No þ☐

Springleaf Finance Corporation      Yes ☑No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
OneMain Holdings, Inc.     Yes o ☐No þ☑

Springleaf Finance Corporation     Yes ☐No ☑

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

Springleaf Finance Corporation      Yes ☑No ☐


Indicate by check mark whether the registrant has submitted electronically 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).
OneMain Holdings, Inc.      Yes þ ☑No o☐

Springleaf Finance Corporation      Yes ☑No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
OneMain Holdings, Inc.:
Large accelerated filero
☑
Accelerated filero
☐
Non-accelerated filerþ
☐
Smaller reporting companyo
☐
Emerging growth companyo☐
Springleaf Finance Corporation:(Do not check if a smaller
Large accelerated filer☐Accelerated filer☐Non-accelerated filer☑Smaller reporting company)company☐Emerging growth company☐


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

OneMain Holdings, Inc.      ☐
Springleaf Finance Corporation      ☐

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

Springleaf Finance Corporation     Yes ☐No ☑

The aggregate market value of the voting and non-voting common equity of OneMain Holdings, Inc. held by non-affiliates as of the close of business on June 28, 2019 was $2,596,092,195. All of the registrant’sSpringleaf Finance Corporation’s common stock is held by Springleaf Finance,OneMain Holdings, Inc. The registrant is indirectlydirectly owned by OneMain Holdings, Inc.


At February 14, 2018,January 31, 2020, there were 136,194,462 shares of OneMain Holdings, Inc.'s common stock, $0.01 par value, outstanding.
At January 31, 2020, there were 10,160,021 shares of the registrant’sSpringleaf Finance Corporation's common stock, $0.50 par value, outstanding.


This annual report on Form 10-K (“Annual Report”) is a combined report being filed separately by two different registrants: OneMain Holdings, Inc. and Springleaf Finance Corporation. Springleaf Finance Corporation’s equity securities are owned directly by OneMain Holdings, Inc. The registrantinformation in this Annual Report on Form 10-K is equally applicable to OneMain Holdings, Inc. and Springleaf Finance Corporation, except where otherwise indicated. Springleaf Finance Corporation meets the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K as, among other things,and, to the extent applicable, is therefore filing this form with a reduced disclosure format.

DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12, 13, and 14) of this Annual Report on Form 10-K is incorporated by reference from OneMain Holdings, Inc.'s Definitive Proxy Statement for its 2020 Annual Meeting to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.


2


Explanatory Note

This report combines the Annual Reports on Form 10-K for the year ended December 31, 2019 for OneMain Holdings, Inc. (“OMH”), and its wholly-owned direct subsidiary, Springleaf Finance Corporation (“SFC”). The information in this Annual Report on Form 10-K is equally applicable to OMH and SFC, except where otherwise indicated.

OMH and SFC is each filing on its own behalf all the information contained in this report that relates to OMH and SFC, respectively. Each registrant is not filing any information that does not relate to its own entity and therefore makes no representation to any such information.

OMH is a financial services holding company whose subsidiaries engage in the consumer finance and insurance businesses. Prior to the completion of the registrant’s equity securitiesmerger described below, OMH’s direct subsidiary was Springleaf Finance, Inc. (“SFI”).

On September 20, 2019, SFC entered into a merger agreement with its direct parent, SFI, to merge SFI with and into SFC, with SFC as the surviving entity. The merger was effective in SFC's consolidated financial statements as of July 1, 2019. As a result of SFI's merger with and into SFC, SFC became a wholly-owned direct subsidiary of OMH.

OMH and SFC are referred to in this report, collectively with their subsidiaries, whether directly or indirectly owned, indirectlyas “the Company,” “we,” “us,” or “our.”

Management operates OMH and SFC as one enterprise and believes that combining the Annual Reports on Form 10-K into a single report will result in the following benefits:

•Facilitate a better understanding by the investors of OMH and SFC by presenting the business in the same manner as management views and operates the business;
•Provide a straightforward presentation by removing duplicate disclosures as substantially all the disclosures for OMH and SFC are the same; and
•Create time and cost efficiencies through the preparation of one combined report instead of two separate reports.

There are nominal differences between OMH and SFC, and to help investors understand these differences, this report presents the following as separate notes or sections for OMH and SFC:

•Consolidated Financial Statements;
•Note 2 - Reconciliation of Springleaf Finance Corporation Results to OneMain Holdings, Inc., which is a reporting company under Results;
•Note 13 - Capital Stock and Earnings Per Share (OMH Only);
•Note 15 - Income Taxes; and
•Note 16 - Leases and Contingencies

This report also includes separate Item 9A (Controls and Procedures) and separate certifications for OMH and SFC in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that OMH and SFC are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, and which has filed with the SEC on February 21, 2018 all of the material required to be filed pursuant to Section 13, 14 or 15(d) thereof and the registrant is therefore filing this Form 10-K with a reduced disclosure format, which omits the information otherwise required by Items 10, 11, 12 and 13 as permitted under General Instruction I(2)(c) on Form 10-K.18 U.S.C. §1350.

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TABLE OF CONTENTS

9
12
21
Business
10
Item 1A.
Risk Factors
18
Item 1B.
3340
3341
3441
3441
3542
3644
3745
6066
67
68
6270
Financial Statements of OneMain Holdings, Inc. and Subsidiaries:
6371
6472
6573
6674
6775
Financial Statements of Springleaf Finance Corporation and Subsidiaries:
77
78
79
80
81
6983
135140
135140
140
141
135142
136143
136143
136143
136143
136143
137144
137144




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GLOSSARY
Terms and abbreviations used in this report are defined below.
Term or AbbreviationDefinition
Term or AbbreviationOmnibus PlanDefinition
OneMain Holdings, Inc. Amended and Restated 2013 Omnibus Incentive Plan,incentive plan effective May 25, 2016, under which equity-based awards are granted to selected management employees, non-employee directors, independent contractors, and consultants
2014-A Notesasset-backed notes issued in March 2014 by the Springleaf Funding Trust 2014-A
2016 Annual Report on Form
10-K
Annual Report on Form 10-K for the fiscal year ended December 31, 2016
2022 SFC Notes$500 million of 6.125% Senior Notes due 2022 issued by SFC on May 15, 2017 and guaranteed by OMH
2023 SFC Notes$875 million of 5.615% Senior Notes due 2023 issued by SFC on December 8, 2017 and guaranteed by OMH.
30-89 Delinquency rationet finance receivables 30-89 days past due as a percentage of net finance receivables
401(k) PlanOneMain 401(k) Plan, previously defined as the Springleaf Financial Services 401(k) Plan
5.25% SFC Notes due 2019$700 million of 5.25% Senior Notes due 2019 issued by SFC on December 3, 2014, guaranteed by OMH and redeemed in full on March 25, 2019
5.375% SFC Notes due 2029$750 million of 5.375% Senior Notes due 2029 issued by SFC on November 7, 2019 and guaranteed by OMH
6.125%
6.00% SFC Notes due 2020collectively, the 2022 SFC Notes and the Additional SFC Notes
8.25% SFC Notes$1.0 billion300 million of 8.25%6.00% Senior Notes due 2020 issued by SFC on May 29, 2013, guaranteed by OMH and redeemed in full on April 11, 201615, 2019
6.125% SFC Notes due 2024$1.0 billion of 6.125% Senior Notes due 2024 issued by SFC on February 22, 2019 and $300 million of 6.125% Senior Notes due 2024 issued by SFC on July 2, 2019 and, in each case, guaranteed by OMH
6.625% SFC Notes due 2028$800 million of 6.625% Senior Notes due 2028 issued by SFC on May 9, 2019 and guaranteed by OMH
ABO
A&SAcquisitions and Servicing
ABOaccumulated benefit obligation
ABSasset-backed securities
Accretable yieldthe excess of the cash flows expected to be collected on the purchased credit impaired finance receivables over the discounted cash flows
Additional SFC Notes$500 million of 6.125% Senior Notes due 2022 issued by SFC on May 30, 2017 and guaranteed by OMH
Adjusted pretax income (loss)a non-GAAP financial measure; income (loss) before income tax expense (benefit) onmeasure used by management as a Segment Accounting Basis, excluding 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 repurchases and repayments of debt, debt refinance costs, net loss on liquidationkey performance measure of our United Kingdom subsidiary, and income attributable to non-controlling interestssegment
AHLAmerican Health and Life Insurance Company, an insurance subsidiary of OneMain
ApolloAIGAIG Capital Corporation, a subsidiary of American International Group, Inc.
AIG Share Sale Transactionsale by SFH of 4,179,678 shares of OMH common stock pursuant to an Underwriting Agreement entered into February 21, 2018 among OMH, SFH and Morgan Stanley & Co. LLC
Annual Reportthis Annual Report on Form 10-K of OMH and SFC for the fiscal year ended December 31, 2019, filed with the SEC on February 14, 2020
AOCIAccumulated other comprehensive income (loss)
ApolloApollo Global Management, LLC and its consolidated subsidiaries
Apollo-Värde Groupan investor group led by funds managed by Apollo and Värde
Apollo-Värde Transactionthe proposed purchase by the Apollo-Värde Group of 54,937,500 shares of OMH common stock from the Initial StockholderSFH pursuant to the Share Purchase Agreement entered into among OMH, the Initial Stockholder and the Apollo-Värde Groupfor an aggregate purchase price of approximately $1.4 billion in cash on January 3,June 25, 2018
Apollo-Värde Group

ASC		an investor group led by funds managed by Apollo and Värde
ASCAccounting Standards Codification
ASUAccounting Standards Update
August 2016 Real Estate Loan SaleAverage daily debt balanceSFC and certain of its subsidiaries sold a portfolio of second lien mortgage loans for aggregate cash proceeds of $246 million on August 3, 2016
Average debtaverage of debt for each day in the period
Average net receivablesaverage of monthly average net finance receivables (net finance receivables at the beginning and end of each month divided by two) in the period
BPBPSbasis pointpoints
BlackstoneC&Icollectively, BTO Willow Holdings II, L.P.Consumer and Blackstone Family Tactical Opportunities Investment Partnership—NQ—ESC L.P.Insurance
Cash Services NoteCDOnew intercompany demand note issued to CSI in exchange for the Independence Demand Note in connection with the Note Assignment
CDOcollateralized debt obligations
CFPBCEOchief executive officer
CFOchief financial officer
CFPBConsumer Financial Protection Bureau
CMBSCitigroupCitiFinancial Credit Company
CMBScommercial mortgage-backed securities
CRACompensation CommitteeCongressional Review Actthe committee of the OMH Board of Directors, which oversees OMH's compensation programs
CSIContributionSpringleaf Financial Cash Services, Inc.On June 22, 2018, SFC entered into a Contribution Agreement with SFI, a wholly-owned subsidiary of OMH. Pursuant to the Contribution Agreement, Independence was contributed by SFI to SFC.
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Term or AbbreviationDefinition
December 20162018 Real Estate Loan SaleSFC and certain of its subsidiaries sold a portfolio of first and second lien mortgage loansreal estate, classified in finance receivables held for sale, for aggregate cash proceeds of $58$100 million on December 19, 2016


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21, 2018.
Dodd-Frank Act
Term or AbbreviationDefinition
Dodd-Frank Actthe Dodd-Frank Wall Street Reform and Consumer Protection Act
DOJDOIU.S. Department of JusticeInsurance
ERISAEmployee Retirement Income Security Act of 1974
Excess Retirement Income PlanSpringleaf Financial Services Excess Retirement Income Plan
Exchange ActSecurities Exchange Act of 1934, as amended
FA LoansFASBpurchased credit impaired finance receivables related to the Fortress Acquisition
FASBFinancial Accounting Standards Board
FHLBFebruary 2019 Real Estate Loan SaleFederal Home Loan BankSFC and certain of its subsidiaries sold a portfolio of real estate loans with a carrying value of $16 million, classified in finance receivables held for sale, for aggregate cash proceeds of $19 million on February 5, 2019
FICO scorea credit score created by Fair Isaac Corporation
FitchFitch, Inc.
Fixed charge ratioearnings 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
FortressFortress Investment Group LLC
Fortress Acquisitiontransaction by which FCFI Acquisition LLC, an affiliate of Fortress, acquired an 80% economic interest of the sole stockholder of SFC for a cash purchase price of $119 million, effective November 30, 2010
Fourth Avenue Auto Funding LSAFortress TransactionLoan and Security Agreement, dated September 29, 2017, among Fourth Avenue Auto Funding, LLC, certain third party lenders and other third parties pursuantthe distributions by SFH to which Fourth Avenue Auto Funding, LLC may borrow up to $250 millionFortress resulting from the Apollo-Värde Transaction
GAAPgenerally accepted accounting principles in the United States of America
GAPguaranteed asset protection
GLBAGramm-Leach-Bliley Act
Gross charge-off ratioannualized gross charge-offs as a percentage of average net receivables
HAMPHome Affordable Modification Program
Indenturethe SFC Base Indenture, together with all subsequent Supplemental Indentures
IndependenceIndependence Holdings, LLC
Independence Demand Notea revolving demand note entered into on November 12, 2015 whereby CSI agreed to make advances to Independence from time to time
Indiana DOIIndiana Department of Insurance
Initial StockholderSpringleaf Financial Holdings, LLC
Investment Company ActInvestment Company Act of 1940
IRSInternal Revenue Service
Junior Subordinated Debenture$350 million aggregate principal amount of 60-year junior subordinated debt issued by SFC under an indenture dated January 22, 2007, by and between SFC and Deutsche Bank Trust Company, as trustee, and guaranteed by OMH
Lendmark SaleKBRAthe sale of 127 Springleaf branches to Lendmark Financial Service, LLC, effective April 30, 2016Kroll Bond Rating Agency, Inc.
LIBOR
LIBORLondon Interbank Offered Rate
Logan CircleLogan Circle Partners, L.P.
Loss ratioannualized net charge-offs, net writedowns on real estate owned, net gain (loss) on sales ofor real estate owned, and operating expenses related to real estate owned as a percentage of average real estate loans
MeritMerit Life Insurance Co., a former insurance subsidiary of SFC. In the fourth quarter of 2019, the Company sold all of the issued and outstanding shares in Merit to a third party
MetLifeMetLife, Inc.
Military Lending Actgoverns certain consumer lending to active-duty service members and covered dependents and limits, among other things, the interest rate that may be charged
Moody’sMoody’s Investors Service, Inc.
Mystic River Funding LSANAVLoan and Security Agreement, dated September 28, 2017, among Mystic River Funding, LLC, certain third party lenders and other third parties pursuant to which Mystic River Funding, LLC may borrow up to $850 million
NationstarNationstar Mortgage LLC, dba “Mr. Cooper”


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net asset valuation
Term or AbbreviationDefinition
Net charge-off ratioannualized net charge-offs as a percentage of average net receivables
Net interest incomeinterest income less interest expense
Note AssignmentOCLIan assignment of an intercompany demand note entered into on July 19, 2016 whereby CSI sold and assigned to OMFH, and OMFH purchased and assumed from CSI, an interest in and to CSI’s right to receive $150 million principal amount outstanding under the Independence Demand Note
NRZNew Residential Investment Corp.
OCLIOneMain Consumer Loan, Inc.Inc
ODARTOneMain Direct Auto Receivables Trust
OGSC
OGSCOneMain General Services Corporation, successor to SGSCSpringleaf General Services Corporation and SFMC
OMASOMFGOneMain Assurance Services,Financial Group, LLC
OMFHOneMain Financial Holdings, LLC
OMFH NoteIndenturenew intercompany demand note issuedIndenture entered into on December 11, 2014, as amended or supplemented from time to time, by OMFH in exchange for the Independence Demand Note (in addition to the Cash Services Note)and certain of its subsidiaries in connection with the Note Assignmentissuance of the OMFH Notes
OMHOMFH Notescollectively, $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
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Term or AbbreviationDefinition
OMFH Supplemental IndentureSecond Supplemental Indenture, dated as of November 8, 2016, to the OMFH Indenture
OMFITOneMain Financial Issuance Trust
OMHOneMain Holdings, Inc.
OneMainOneMain Financial Holdings, LLC, collectively with its subsidiaries
OneMain AcquisitionAcquisition of OneMain from CitiFinancial Credit Company, effective November 1, 2015
OneMain Demand NoteOther securitiesa revolving demand note entered into on November 15, 2015 whereby SFC agreed to make advances to OMFH from time to timesecurities for which the fair value option was elected and equity securities. Other Securities recognize unrealized gains and losses in investment revenues
Other SFC Notescollectively, approximately $5.2 billion aggregate principal amount of senior notes,SFC’s 8.25% Senior Notes due 2023, and 7.75% Senior Notes due 2021, on a senior unsecured basis, and the Junior Subordinated Debenture, on a junior subordinated basis, issued by SFC and guaranteed by OMH
PBOprojected benefit obligation
PRSUsPVFPperformance-based RSUspresent value of future profits
Recovery ratioannualized recoveries on net charge-offs as a percentage of average net receivables
Retail sales finance portfoliocollectively, retail sales finance contracts and revolving retail accounts
RMBS
RMBSresidential mortgage-backed securities
RSAsrestricted stock awards
RSUsrestricted stock units
SACS&PS&P Global Ratings (formerly known as Standard & Poor’s Ratings Service)
Sale of SpringCastle intereststhe March 31, 2016 sale by SpringCastle Holdings, LLC and Springleaf Acquisition Corporation
SCP Loanspurchased credit impaired loans acquired through of the equity interest in the SpringCastle Joint Venture
SECSCLHSpringleaf Consumer Loan Holding Company
SECU.S. Securities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
Segment Accounting Basisa basis used to report the operating results of our segments,C&I segment and our Other components, which reflects our allocation methodologies for certain costs and excludes the impact of applying purchase accounting
SERPSupplemental Executive Retirement Plan
Settlement Agreementa Settlement Agreement with the U.S. Department of Justice entered into by OMH and certain of its subsidiaries on November 13, 2015, in connection with the OneMain Acquisition
S&PSFCStandard & Poor’s Ratings Services
SFCSpringleaf Finance Corporation
SFC Base IndentureIndenture, dated as of December 3, 2014
SFC Eighth Supplemental IndentureEighth Supplemental Indenture, dated as of May 9, 2019, to the SFC Base Indenture
SFC Fifth Supplemental IndentureFifth Supplemental Indenture, dated as of March 12, 2018, to the SFC Base Indenture
SFC First Supplemental IndentureFirst Supplemental Indenture, dated as of December 3, 2014, to the SFC Base Indenture
SFC Fourth Supplemental IndentureFourth Supplemental Indenture, dated as of December 8, 2017, to the SFC Base Indenture
SFC Guaranty Agreementsagreements entered into on December 30, 2013 by OMH whereby it agreed to fully and unconditionally guarantee the payments of principal, premium (if any), and interest on the Other SFC Notes, and the 6.00% Senior Notes due 2020, which were redeemed in full on April 15, 2019
SFC Ninth Supplemental IndentureNinth Supplemental Indenture, dated as of November 7, 2019, to the SFC Base Indenture
SFC Second Supplemental IndentureSecond Supplemental Indenture, dated as of April 11, 2016, to the SFC Base Indenture
SFC Senior Notes Indentures
the SFC Base Indenture as supplemented by the SFC First Supplemental Indenture, the SFC Second Supplemental Indenture, the SFC Third Supplemental Indenture, the SFC Fourth Supplemental Indenture, the SFC Fifth Supplemental Indenture, the SFC Sixth Supplemental Indenture, the SFC Seventh Supplemental Indenture, the SFC Eighth Supplemental Indenture and the SFC Ninth Supplemental Indenture
SFC Seventh Supplemental IndentureSeventh Supplemental Indenture, dated as of February 22, 2019, to the SFC Base Indenture
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Term or AbbreviationDefinition
SFC Sixth Supplemental IndentureSixth Supplemental Indenture, dated as of May 11, 2018, to the SFC Base Indenture
SFC Third Supplemental IndentureThird Supplemental Indenture, dated as of May 15, 2017, to the SFC Base Indenture
SFC Trust Guaranty Agreementagreement entered into on December 30, 2013 by OMH whereby it agreed to fully and unconditionally guarantee the related payment obligations under the trust preferred securities in connection with the Junior Subordinated Debenture


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SFHSpringleaf Financial Holdings, LLC, an entity owned primarily by a private equity fund managed by an affiliate of Fortress that sold 54,937,500 shares of OMH's common stock to the Apollo-Värde Group in the Apollo-Värde Transaction
Term or AbbreviationSFIDefinition
SFISpringleaf Finance, Inc.
SFMCSpringleaf Finance Management Corporation
SGSCSpringleaf General Services Corporation
Share Purchase AgreementShare Purchase Agreementa share purchase agreement entered into on January 3, 2018, among the Apollo-Värde Group, SFH and the Initial Stockholder and OMHCompany to acquire from the Initial StockholderSFH 54,937,500 shares of OMH’sOMH's common stock that was issued and outstanding as of such date, representing the entire holdings of OMH’sOMH's stock beneficially owned by Fortress
SLFTSpringleaf Funding Trust
SoftBankSMHCSoftBank Group CorporationSpringleaf Mortgage Holding Company
SpringCastle Interests Salethe March 31, 2016 sale by SpringCastle Holdings, LLC and Springleaf Acquisition Corporation of the equity interest in the SpringCastle Joint Venture
SpringCastle Joint Venturejoint venture among SpringCastle America, LLC, SpringCastle Credit, LLC, SpringCastle Finance, LLC, and SpringCastle Acquisition LLC in which SpringCastle Holdings, LLC previously owned a 47% equity interest in each of SpringCastle America, LLC, SpringCastle Credit, LLC and SpringCastle Finance, LLC and Springleaf Acquisition Corporation previously owned a 47% equity interest in SpringCastle Acquisition LLC
SpringCastle Portfolioloans acquired through the Company previously owned and now service on behalf of a third party. On March 31, 2016, the portfolio was sold in connection with the “Sale of SpringCastle Joint Ventureinterests”
SpringleafOMH and its subsidiaries (other than OneMain)
Tangible equitytotal equity less accumulated other comprehensive income or loss
Tangible managed assetstotal assets less goodwill and other intangible assets
Tax ActPublic Law 115-97 amending the Internal Revenue Code of 1986
TDR finance receivablestroubled debt restructured finance receivablesreceivables. Debt restructuring in which a concession is granted to the borrower as a result of economic or legal reasons related to the borrower’s financial difficulties
Thur River Funding LSATILALoan and Security Agreement, dated June 29, 2017, among Thur River Funding, LLC, certain third party lenders and other third parties pursuant to which Thur River Funding, LLC may borrow up to $350 millionTruth In Lending Act
TritonTriton Insurance Company, an insurance subsidiary of OneMain
Trust preferred securitiescapital 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
TILAUnearned finance chargesTruth-In-Lending-Actthe amount of interest that is capitalized at time of origination on a precompute loan that will be earned over the remaining contractual life of the loan
UPBunpaid principal balance for interest bearing accounts and the gross remaining contractual payments less the unaccreted balance of unearned finance charges for precompute accounts
VärdeVärde Partners, Inc.
VOBAVIEsvariable interest entities
VOBAvalue of business acquired
VFNvariable funding notes
VIEsvariable interest entities
Weighted average interest rateannualized interest expense as a percentage of average debt
WilmingtonXBRLWilmington Trust, National AssociationeXtensible Business Reporting Language
Yieldannualized finance charges as a percentage of average net receivables
YosemiteYosemite Insurance Company, a former insurance subsidiary of SFC. In the third quarter of 2018, the Company sold all of the issued and outstanding shares in Yosemite to a third party





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Forward-Looking Statements
Forward-Looking Statements    


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


various uncertainties and risks in connection with the OneMain Acquisition or Apollo-Värde Transaction which may result in an •adverse impact on us;

the impact of the Apollo-Värde Transaction on our relationships with employees and third parties;

various risks relating to continued compliance with the Settlement Agreement;

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


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 assets or businesses or the formation, termination, or operation of joint ventures or other strategic alliances, or arrangements, including increased loan delinquencies or net charge-offs, integration or migration issues, increased costs of servicing, incomplete records, and retention of customers;


risks associated with •our insurance operations,estimates of the allowance for finance receivable losses may not be adequate to absorb actual losses, causing our provision for finance receivable losses to increase, which would adversely affect our results of operations;

•increased levels of unemployment and personal bankruptcies;

•a change in the proportion of secured loans may affect our personal loan receivables and portfolio yield;

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

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

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

•a failure in or breach of our operational or security systems or infrastructure or those of third parties, including insurance claims that exceedas a result of cyber-attacks, or other cyber-related incidents involving the loss, theft or unauthorized disclosure of personally identifiable information, or “PII,” of our expectationspresent or insurance losses that exceed former customers;

•our reserves;credit risk scoring models may be inadequate to properly assess the risk of customer unwillingness or lack of capacity to repay;


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

•increased competition, or changes in customer responsiveness to our distribution channels, an inability to successfully implementmake technological improvements, and the ability of our growth strategy for our consumer lending business as well as various risks associated with successfully acquiring portfolioscompetitors to offer a more attractive range of consumer loans, pursuing acquisitions, and/or establishing joint ventures;personal loan products than we offer;




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declines in collateral values or increases in actual or projected delinquencies or net charge-offs;

•changes in federal, state, or local laws, regulations, or regulatory policies and practices including the Dodd-Frank Act (which, among other things, established the CFPB, which has broad authority to regulate and examine financial institutions, including us), that adversely affect our ability to conduct business or the manner in which we currently are permitted to conduct business, such as licensing requirements, pricing limitations or restrictions on the method of offering products, as well as changes that may result from increased regulatory scrutiny of the sub-prime lending industry, our use of third-party vendors and real estate loan servicing, or changes in corporate or individual income tax laws or regulations, including effects of the enactmentTax Act;

•risks associated with our insurance operations, including insurance claims that exceed our expectations or insurance losses that exceed our reserves;

•our inability to successfully implement our growth strategy for our consumer lending business or successfully acquire portfolios of Public Law 115-97 amending the Internal Revenue Code of 1986;personal loans;


•declines in collateral values or increases in actual or projected delinquencies or net charge-offs;

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


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


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


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


•our ability to comply with our debt covenants;


•our ability to generate sufficient cash to service all of our indebtedness;


•any material impairment or write-down of the value of our assets;


•the ownership of OMH's common stock continues to be highly concentrated, which may prevent other minority stockholders from influencing significant corporate decisions and may result in conflicts of interest;

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


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


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•management estimates and policies or changes in accounting estimates;assumptions, including estimates and assumptions about future events, may prove to be incorrect; and


effects•various risks relating to continued compliance with the Settlement Agreement with the U.S. Department of the acquisition of Fortress by an affiliate of SoftBank Group Corp.;Justice.

effects, if any, of the contemplated acquisition by an investor group of shares of our common stock beneficially owned by Fortress and its affiliates;

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




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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 the other risks and uncertainties discussed in “Risk Factors”"Risk Factors" in Part I - Item 1A of this report and in other documents filedwe 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.securities and should not place undue reliance on any of our forward-looking statements. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.




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PART I


Item 1. Business.    
Item 1. Business.


BUSINESS OVERVIEW


This report combines the Annual Reports on Form 10-K for the year ended December 31, 2019 for OneMain Holdings, Inc. (“OMH”), a financial service holding company, and its wholly-owned direct subsidiary, Springleaf Finance Corporation (“SFC”). The information in this combined report is equally applicable to OMH and SFC, except where otherwise indicated. OMH and SFC are referred to in this report, as “SFC” or, collectively with itstheir subsidiaries, whether directly or indirectly owned, “Springleaf,”as “the Company,” “we,” “us,” or “our.”


As a leadingthe nation’s largest lending-exclusive consumer finance company, we:


•provide responsible personal loan products;
•offer optional credit insurance and non-credit insurance;other products;
•service loans owned by us and service or subservice loans owned by third-parties;
•pursue strategic acquisitions and dispositions of assets and businesses, including loan portfolios or other financial assets; and,
•may establish joint ventures or enter into other strategic alliances or arrangements from time to time.alliances.


Springleaf providesWe provide origination, underwriting and servicing of personal loans, primarily to non-prime customers. We believe we are well positioned for future growth, with an experienced management team, proven access to the capital markets, and strong demand for consumer credit. At December 31, 2017,2019, we had $5.3$18.4 billion of personal loans due from over 900,000approximately 2.44 million customer accounts across 28 states.accounts.


Our network of over 6001,500 branches as of December 31, 2017 andin 44 states is staffed with expert personnel and is complemented by our online consumerpersonal loan origination businesscapabilities and centralized operations, which allowsallow us to reach customers located outside our branch footprint.network. Our digital platform provides our current and prospective customers with the option of obtainingapplying for a personal loan via our website, www.onemainfinancial.comwww.omf.com.

In connection with our personal loan business, our two insurance subsidiaries offer our customers credit and non-credit insurance, which are described below.

SFC was incorporated in Indiana in 1927 as successor to a business started in 1920. All of the common stock of SFC is owned by Springleaf Finance, Inc. (SFI). SFI is a wholly owned subsidiary of OMH, formerly Springleaf Holdings, Inc. On November, 15, 2015, OMH, through its wholly owned subsidiary, Independence, completed the acquisition of OMFH from CitiFinancial Credit Company for $4.5 billion in cash (the “OneMain Acquisition”). 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.


We also pursue strategic acquisitions and dispositions of assets and businesses, including loan portfolios and other financial assets, as well as fee-based opportunities in servicing loans for others in connection with potential strategic portfolio acquisitions through our centralized operations. See “Centralized Operations” below for further information on our centralized servicing centers. We service the loans acquired through a joint venture in which we previously owned a 47% equity interest in the SpringCastle Portfolio. On March 31, 2016, the SpringCastle Portfolio was sold in connection with the SpringCastle Interests Sale.


At December 31, 2017, the Initial StockholderPrior to June 25, 2018, Springleaf Financial Holdings, LLC (“SFH”) owned approximately 44% of OMH’s common stock. The Initial Stockholder isSFH was owned primarily by a private equity fund managed by an affiliate of Fortress. On December 27, 2017, SoftBank acquired Fortress and Fortress now operates within SoftBank as an independent business headquartered in New York.

On January 3,June 25, 2018, an investor group led by funds managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries, “Apollo”) and Värde Partners, Inc. (“Värde” and together with Apollo, collectively, the(the “Apollo-Värde Group”) entered into a definitive agreement with the Initial Stockholder and OMH to acquirecompleted its purchase from the Initial StockholderSFH of 54,937,500 shares or approximately 40.6% of OMHOMH's common stock that was issued and outstanding asat a purchase price per share of such date, representing the entire holdings$26.00 for an aggregate purchase price of OMH stock beneficially owned by Fortressapproximately $1.4 billion in cash (the “Apollo-Värde Transaction”) The Apollo-Värde Transaction is expected to close in the second quarter of 2018 and is subject to regulatory approvals and other customary closing conditions.

. Upon closing of the Apollo-Värde Transaction, OMH expects to enterentered into an Amended and Restated Stockholders’ Agreement, the expected terms of which were previously disclosedare described in OMH’sthe OMH Current Report on Form 8-K filed with the SEC on June 25, 2018. As provided for in the Amended and Restated Stockholders’ Agreement, the Apollo-Värde Group has designated six of OMH's nine directors.


At December 31, 2019, the Apollo-Värde Group owned approximately 40.4% of OMH’s common stock and is OMH’s largest stockholder.

As part of our ongoing efforts related to the integration of Springleaf and OneMain, on September 20, 2019, SFC entered into a merger agreement with its direct parent, SFI, to merge SFI with and into SFC, with SFC as the surviving entity. The merger was effective in SFC's consolidated financial statements as of July 1, 2019. As a result of SFI's merger with and into SFC, SFC became a wholly-owned direct subsidiary of OMH.


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The following chart summarizes our organization structure. The chart is provided for illustrative purposes only and does not represent all of our subsidiaries or obligations.
on January 4, 2018. Such Current Report on Form 8-K, including the Share Purchase Agreement filed as Exhibit 10.1 thereto, is incorporated by reference herein in its entirety.

omf-20191231_g1.jpg

INDUSTRY AND MARKET OVERVIEW


We operate in the consumer finance industry serving non-prime customers, a large and growing population of consumers who have limited access to credit from banks, credit card companies and other traditional lenders. According toUsing November 2019 data from Experian, as of June 2017,
non-primewe estimated that there are approximately 100 million U.S. borrowers in the U.S. hadour target market, who collectively have approximately $1.4$1.3 trillion of outstanding borrowings in the form of personal installment loans, vehicle loans and leases, and credit cards.

Our industry’s traditional lenders have undergone fundamental changes, forcing many to retrench and in some cases to exit the market altogether. In addition, we believe that the current regulatory environment creates a disincentive for these lenders to resume or support lending to non-prime borrowers. As a result, while the number of non-prime consumers in the United States has grown in recent years, the supply of consumer credit to this demographic has contracted. We believe this large and growing number of potential customers in our target market combinedprovides us with the decline in available consumer credit, provides an attractive market opportunity for our business model. See also “Competition” included in this report.growth opportunity.


We are one of the few remaining national participants in the consumer installment lending industry still serving this large and growing population of non-prime customers.industry. Our centralized operations,national branch network, combined with the capabilities resident in our national branch system,centralized operations, provide an effective nationwidea platform to efficiently and responsibly addressserve this growing market of consumers.market. We believe we are well-positioned to capitalize on the significant growth and expansion opportunity within our industry. See also “Competition” included in this report.


SEGMENTS
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Our segments coincide with how our businesses are managed. SEGMENT

At December 31, 2017, our two segments include:

2019, Consumer and Insurance; and
Insurance ("C&I") is our only reportable segment. Beginning in the fourth quarter of 2019, we included our Acquisitions and Servicing.

Beginning in 2017, we include Real Estate,Servicing (“A&S”), which was previously presented as a distinct reporting segment, in “Other.”Other. See Note 2219 of the Notes to the Consolidated Financial Statements included in this report for furthermore information on this change in our segment alignment and for more information about our segments. To conform to the new alignment of our new segments, wesegment. We have revised our prior period segment disclosures.disclosures to conform to this new alignment.


Consumer and Insurance


We originate and service secured and unsecured personal loans and offer voluntaryoptional credit and non-credit insurance and related products through our combined branch network our digital platform, and our centralized operations. Personal loan origination and servicing, along with our insurance products, forms the core of our operations. Our branch operations included nearly 600over 1,500 branch offices in 2844 states as of December 31, 2017.2019. In addition, our centralized support operations provide underwriting and servicing support to branch operations.


Our insurance business is conducted through our subsidiaries, Merit and Yosemite, and OneMain’swholly-owned insurance subsidiaries, American Health and Life Insurance Company ("AHL") and Triton Insurance Company ("Triton"). AHL and Triton. Merit and AHL areis a life and health insurance companies licensed to write credit life, credit disability, and non-credit insurance. Merit is licensed in 46 states, the District of Columbia, and the U.S. Virgin Islands, and AHL iscompany licensed in 49 states, the District of Columbia, and Canada. YosemiteCanada to write credit life, credit disability, and non-credit insurance products. Triton areis a property and casualty insurance companiescompany licensed in 50 states, the District of Columbia, and Canada to write credit involuntary unemployment and collateral protection insurance. The Company sold all of the issued and outstanding shares of its former insurance subsidiaries, Yosemite is licensedInsurance Company ("Yosemite") and Merit Life Insurance Co. ("Merit"), to third parties on September 30, 2018 and December 31, 2019, respectively. See Note 12 of the Notes to the Consolidated Financial Statements included in 46 states, and Triton is licensed in 50 states, the District of Columbia, and Canada.this report for further information on our insurance business.


Products and Services.Our personal loan portfolio is comprised of assets that have performed well through both strong and weakvarious market conditions. Our personal loans are non-revolving, fixed rate,with a fixed-rate, a fixed term of three to six years, and are secured by consumer goods, automobiles, other titled collateral, or other personal property, orare unsecured. Our loans have no pre-payment penalties.

Since mid-2014, our direct auto loan program has further expanded our lending options by offering a customized personal loan solution for our current and prospective customers. Direct auto lending is similar in nature to our traditional secured personal loans butinclude direct auto loans, which are typically larger in size and based on the collateral of newer cars with higher values. Proceeds are typically used to pay-off an existing auto loan with another lender, make home improvements, or finance the purchase of a newOur loans have no pre-payment penalties.


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or used vehicle. Our direct auto loans are reported in our personal loans, which are included in our Consumer and Insurance segment. At December 31, 2017, we had over $1.1 billion of direct auto loans.


We offer the following optional credit insurance products to our customers:


•Credit life insurance — Insures the life of the borrower in an amount typically equal to the unpaid balance of the finance receivable and provides for payment to the lender of the finance receivable in the event of the borrower’s death.


•Credit disability insurance — Provides scheduled monthly loan payments to the lender during borrower’s disability due to illness or injury.


•Credit involuntary unemployment insurance — Provides scheduled monthly loan payments to the lender during borrower’s involuntary unemployment.


We offer optional non-credit insurance policies, which are primarily traditional level-term life policies with very limited underwriting.


We offer optional membership plans for home and auto from an unaffiliated company. We have no risk of loss on these membership plans, and these plans are not considered insurance products. We recognize income from this product in other revenues— other. The unaffiliated company providing these membership plans is responsible for any required reimbursement to the customer.


We also offer a Guaranteed Asset Protection (GAP)(“GAP”) coverage as a waiver product.product or insurance. GAP waiver is a non-insurance product offered by auto lenders to cover,provides coverage in thean event of a total loss to the auto, all or part of the difference between what the customer owes on their auto loan and the payment amount made by the customer’s primary auto insurance.


Should a customer fail to maintain required insurance on property pledged as collateral for the finance receivable, we obtain collateral protection insurance, at the customer’s expense, that protects the value of that collateral.


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Customer Development.We staff each of our branch offices with local well-trained personnel, including professionals who have significant experience in the industry. Our business model revolves around an origination, underwriting, and servicing process that leverages each branch office’sour local community presence, and helps us develop personal relationships with our customers.presence. Our customers often develop a relationship with their local office representatives, which we believe not only improves the credit performance of our personal loans but also leads to additional lending opportunities.


We solicit prospective customers, as well as current and former customers, through a variety of direct mail offers and targeted online advertising, and local marketing.advertising. We use proprietary modeling, and targeting, along with data purchased from credit bureaus, alternative data providers, and our existing data/experience to acquire and develop new and profitable customer relationships.


Our digital platform allows current and prospective customers the ability to apply for a personal loan online, at onemainfinancial.comomf.com. Many of our new customer applications are sourced online, delivered via targeted marketing, search engine tools, banner advertisements,engines, e-mail, and internet loan aggregators, and affiliates.aggregators. Most online applications are closed in a branch,branch; however, we do close a small portion of our loans remotely outside the branch.


Our iLoan brand is a separate offering which is tailored toward customers who prefer an end-to-end online and centrally serviced product. iLoan is a stand-alone platform which leverages our expertise in analytics, marketing and technology to create an efficient online borrowing experience. We use learnings from the development of iLoan across the OneMain enterprise to enhance our digital capabilities.

Credit Risk. Credit quality is driven by our long-standing underwriting philosophy, which takes into accountconsiders each prospective customer’s household budget, and his or her willingness and capacity to repay the loan. We use credit risk scoring models at the time of the credit application to assess the applicant’s expected willingness and capacity to repay. We develop these models using numerous factors, including past customer credit repayment experience and application data, and periodically revalidate these models based on recent portfolio performance. Our underwriting process in the branches and for loan applications received through our website that are not automatically approved alsodeclined includes the development of a budget (net of taxes and monthly expenses) for the applicant. We may obtain a security interest in either titled property for our secured personal property or consumer household goods.loans.


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Our customers are primarily considered non-prime and often require significantly higher levels of servicing than prime or near-prime customers. As a result, we tend to charge these customers higher interest rates to compensate us for the related credit risks and servicing.servicing costs.


Account Servicing. The account Account servicing and collection processingcollections for personal loans are generally handled at the branch office where the personal loans were originated, or in our centralized service centers. All servicing and collection activity is conducted and documented on proprietary systems which log and maintain, within our centralized information systems, a permanent record of all transactions and notations made with respect to the servicing and/or collection of a personal loan, and aremay also be used to assess a personal loan application. The proprietary systems permit all levels of branch office management to review, on a daily basis, the individual and collective performance of all branch offices for which they are responsible.


Acquisitions and Servicing

SFI services the SpringCastle Portfolio that was acquired by an indirect subsidiary of OMH through a joint venture in which SFC previously owned a 47% equity interest. On March 31, 2016, we sold our interest in the SpringCastle Portfolio in connection with the SpringCastle Interests Sale. These loans consisted of unsecured loans and loans secured by subordinate residential real estate mortgages and 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 SFI is terminated, SFI will continue to provide the servicing for these loans pursuant to a servicing agreement, which SFI services as unsecured loans due to the fact that the liens are subordinated to superior ranking security interests.

Other

“Other” consists of our non-originating legacy operations, which include our liquidating real estate loan portfolio as discussed below and our liquidating retail sale finance portfolio (including retail sales finance accounts from our legacy auto finance operation).

Beginning in 2017, management no longer views or manages our liquidating real estate assets as a separate operating segment. Therefore, we are now including Real Estate, which was previously presented as a distinct reporting segment, in “Other.”

During 2016, we sold $308 million real estate loans held for sale. At December 31, 2017, our real estate loans held for investment totaled $128 million and comprised less than 3% of our net finance receivables. Real estate loans held for sale totaled $132 million at December 31, 2017.

CENTRALIZED OPERATIONS


We continually seek to identify functions that could be more effective if centralized to achieve reduced costs or free our lending specialists to service our customers and market our products. Our centralized operational functions support the following:


•mail and telephone solicitations;
•payment processing;
•originating “out of footprint”network” loans;
•servicing of delinquent real estate loans and certain personal loans;
•bankruptcy process for loans in Chapter 7, 11, 12 and 13 loans;proceedings;
•litigation requests for wage garnishments and other actions against delinquent borrowers;
•collateral protection insurance tracking;
•repossessing and re-marketing of titled collateral;
•sales and retention of customers; and
•charge-off recovery operations.


We currently have servicing facilities in Mendota Heights, Minnesota; Tempe, Arizona; London, Kentucky; Evansville, Indiana; Fort Mill, South Carolina; and Evansville, Indiana.Fort Worth, Texas. We believe these facilities position us for additional portfolio purchases or fee-based servicing, as well as additional flexibility in the servicing of our lending products.




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OPERATIONAL CONTROLS


We continuously strive to strengthen our system of internal controls to ensure compliance with laws, rules, and regulations, and to improve the oversight of our operations. We evaluate internal systems, processes and controls to mitigate operational risk and control and monitor our businesses through a variety of methods including the following:


•Our operational policies and procedures standardize various aspects of lending and collections.
•Our branch finance receivable systems control amounts, rates, terms, and fees of our customers’ accounts; create loan documents specific to the state in which the branch office operates or to the customer’s location if the loan is made electronically through our centralized operations; and control cash receipts and disbursements.
•Our accounting personnel reconcile bank accounts, investigate discrepancies, and resolve differences.
•Our credit risk management system reports allow us to track individual branch office performance and to monitor lending and collection activities.
•Our privacy and information security incident response plan establishes a privacy and information security response team that responds to information security incidents by identifying, evaluating, responding to, investigating, and resolving information security incidents impacting our information systems.
•Our executive information system is available to headquarters and field operations management to review the status of activity through the close of business of the prior day.
•Our branch field operations management structure, Regional Quality Coordinators and Compliance Field Examination team are designed to control a large, decentralized organization with succeeding levels of supervision staffed with more experienced personnel.
•Our fieldbranch operations compensation plan aligns our operating activities and goals with corporate strategies by basing the incentive portion of field personnel compensationand is based on profitability, credit quality, and credit quality.compliance.
•Our compliance departmentCompliance Department assesses our compliance with federal and state laws and regulations, as well as our compliance with our internal policies and procedures; oversees compliance training to ensure team members have a sufficient level of understanding of the laws and regulations that impact their job responsibilities; and manages our state regulatory examination process.
•Our executive officeExecutive Office of customer careCustomer Care maintains our consumer complaint resolution and reporting process.
•Our internal audit department audits our business for adherence to operational policy and procedure and compliance with federal and state laws and regulations.


PRIVACY, DATA PROTECTION, INFORMATION AND CYBER SECURITY

Regulatory and legislative activity in the areas of privacy, data protection, and information and cyber security continues to increase worldwide. We have established policies and practices that provide a framework for compliance with applicable privacy, data protection, and information and cyber security laws and work to meet evolving customer privacy expectations. Our regulators are increasingly focused on ensuring that these policies and practices are adequate, including providing consumers with choices, if required, about how we use and share their information and ensuring that we appropriately safeguard their personal information and account access.

Our consumer loan business is subject to the privacy, disclosure, and safeguarding provisions of the Gramm-Leach-Bliley Act ("GLBA") and Regulation P, which implements the statute. Among other things, the GLBA imposes certain limitations on our ability to share consumers’ nonpublic personal information with nonaffiliated third parties and requires us to develop, implement and maintain a written comprehensive information security program containing safeguards that are appropriate to the size and complexity of our business, the nature and scope of our activities, and the sensitivity of customer information that we process. Various states also have adopted laws, rules, and regulations pertaining to privacy and/or information and cyber security that may be more stringent and/or expansive than federal requirements. Certain of these requirements may apply to the personal information of our employees and contractors as well as to our customers. Various U.S. federal regulators and U.S. states and territories have also enacted data security breach notification requirements that are applicable to us. For example, the California Consumer Privacy Act and the New York Cybersecurity Regulation impose more stringent requirements with respect to privacy and data security, respectively, than federal law.

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REGULATION


Federal Laws


Various federal laws and regulations govern loan origination, servicing and collections, including:


•the Dodd-Frank Act;Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), (which, among other things, created the CFPB);
•the Equal Credit Opportunity Act (prohibits(which, among other things, prohibits discrimination against creditworthy applicants) and the CFPB’s Regulation B, which implements this statute;
•the Fair Credit Reporting Act (which, among other things, governs the accuracy and use of credit bureau reports)reports and reporting information to credit bureaus);
•the Truth in Lending Act (which, among other things, governs disclosure of applicable charges and other finance receivable terms)terms of consumer credit) and the CFPB’s Regulation Z, which implements this statute;
•the Fair Debt Collection Practices Act;Act (which, among other things, governs practices in collecting certain debts);
•the Gramm-Leach-Bliley Act (which, among other things, governs the handling of personal financial information) and the CFPB’s Regulation P, which implements this statute;
•the Military Lending Act (which, among other things, governs certain consumer lending to active-duty military servicemembers and their spouses and covered dependents, and limits among other things, the interest rate thatand certain fees, charges and premium they may be charged)charged on certain loans);
•the Servicemembers Civil Relief Act which(which, among other things, can impose limitations on the interest rate and the servicer’s ability to collect on a loan originated with an obligor who is on active dutyactive-duty status and up to nine months thereafter;thereafter);
•the Real Estate Settlement Procedures Act and the CFPB’s Regulation X (both of which regulate the making and servicing of closed end residential mortgage loans);
•the Federal Trade Commission’s Consumer Claims and Defenses Rule, also known as the “Holder in Due Course” Rule;Rule (which, among other things, allows a consumer to assert, against the assignees of certain credit contracts, certain claims that the consumer may have against the originator of the credit contracts); and
•the Federal Trade Commission Act.Act (which, among other things, prohibits unfair and deceptive acts and practices).


The Dodd-Frank Act and the regulations promulgated thereunder have affected and are likely in the future to affect our operations in terms of increased oversight of financial services products by the CFPB and the imposition of restrictions on the terms of certain loans. Among regulations the CFPB has promulgated are mortgage servicing regulations that became effective January 10, 2014, and are applicable to the remaining real estate loan portfolio serviced by or for Springleaf. Amendments to some sections of these mortgage servicing regulations became effective on October 19, 2017 and some becomebecame effective on April 19, 2018. The CFPB has significant authority to implement and enforce federal consumer finance laws, including the new protections established in the Dodd-Frank Act, as well as the authority to identify and prohibit unfair, deceptive, and abusive acts and practices. In addition, under the Dodd-Frank Act, securitizations of loan portfolios are subject to certain restrictions


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and additional requirements, including requirements that the originator retain a portion of the credit risk of the securities sold and the reporting of buyback requests from investors. We also utilize third-party debt collectors and will continue to be responsible for oversight of their procedures and controls. The CFPB has indicated that it intends to issue new debt collection rules in 2020, with enforcement to begin in 2021, that will directly apply to third-party debt collectors, but not to creditors. The primary rules that will likely be adopted will cover communications frequency and timing, type of information required to be provided to consumers regarding the debt, and the express permission for debt collectors to use communication strategies like text messages and e-mail. Third-party debt collectors will need to adopt adequate compliance controls.


The CFPB has supervisory, examination and enforcement authority with respect to various federal consumer protection laws for some providers of consumer financial products and services, such as any nonbank that it has reasonable cause to determine has engaged or is engaging in conduct that poses risks to consumers with regard to consumer financial products or services. In addition to the authority to bring nonbanks under the CFPB’s supervisory authority based on risk determinations, the CFPB also has authority under the Dodd-Frank Act to supervise nonbanks, regardless of size, in certain specific markets, such as mortgage companies (including mortgage originators, brokers and servicers) and payday lenders. Currently, the CFPB has supervisory authority over usthe Company with respect to mortgage servicing and mortgage origination, which allows the CFPB to conduct an examination of our mortgage servicing practices and our prior mortgage origination practices.


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The Dodd-Frank Act also gives the CFPB supervisory authority over entities that are designated as “larger participants” in certain financial services markets, including the auto financing market and the consumer installment lending market. On June 30, 2015, the CFPB published its final rule for designating “larger participants” in the auto financing market. With the adoption of this regulation, we are considered a larger participant in the auto financing market and are subject to supervision and examination by the CFPB for our direct auto loan business, including loans that are secured by autos and refinances of loans secured by autos that were for the purchase of autos. In its Fall 2016Spring 2018 rulemaking agenda, the CFPB advisedstated that its “next”it had decided to classify as “inactive” certain rulemakings previously identified in the expectation that the final decisions on proceeding will be made by the next permanent director. The larger-participant rulemaking would focus on the marketsrule for “consumerconsumer installment loans and vehicle title loans.” We expect to eventually bewas one of the rulemaking initiatives designated a “larger participant” for this market and to become subject to supervision and examination byas inactive. It is not known if or when the CFPB may consider reactivating the rulemaking process for ourthe larger-participant rule for consumer loan business, although the acting director appointed by President Trump, Mick Mulvaney, has announced a 30 day freeze on all new regulations.installment loans.


On October 5, 2017, the CFPB issued its final rule for Payday, Vehicle Title, and Certain High-Cost Installment Loans (the “small-dollar rule”). The final small-dollar rule does not apply to any loan made by the Company because our loans have a term of 46+ days, no balloon payment, and an APR limit of 36%. The proposed rule, published in 2016, had covered a relatively small segment of our loans because it calculated the 36% high-cost coverage threshold as an “all-in” APR, a term that included the cost of insurance and other ancillaryoptional products purchased within 3 days of the loan closing date. The final rule calculates the 36% figure under the traditional method prescribed by the Truth-In-Lending Act (TILA). Because the final rule replaced the proposed rule’s “all-in” APR calculation with a TILA APR calculation, - a change that the Company advocated in the public comment letter it submitted to the CFPB, - the final rule covers no loan made by the Company, even if the loan is both sold with insurance and secured by a vehicle or recurring ACH authorization.


The investigation and enforcement provisions of Title X of the Dodd-Frank Act may adversely affect our business if the CFPB also has enforcement authority andor one or more state attorneys general or state regulators believe that we have violated any federal consumer financial protection laws, including the prohibition in Title X against unfair, deceptive or abusive acts or practices. The CFPB is authorized to conduct investigations to determine whether any person is engaging in, or has engaged in, conduct that violates federal consumer financial protection laws, and to initiate enforcement actions for such violations, regardless of its direct supervisory authority. Investigations may be conducted jointly with other regulators. In furtherance of its regulatory and supervisory powers, theThe CFPB has the authority to impose monetary penalties for violations of applicable federal consumer financial laws, require remediation of practices and pursue administrative proceedings or litigation for violations of applicable federal consumer financial laws (including the CFPB’s own rules). TheIn these proceedings, the CFPB has the authority tocan obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief) and monetary penalties ranging from $5,000 per day for ordinaryviolations of law, as well as reckless or knowing violations of federal consumer financial laws to $25,000 per day for reckless violations and $1 million per day for knowing violations. In addition,(including the CFPB can assess civil penalties for Tier 1, 2, and 3 penalties set forth in Section 1055 of the Dodd-Frank Act ranging from over $5,000 to over $1 million per violation.

CFPB’s own rules). Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations implemented thereunder, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions to remedy violations of state law. If the CFPB or one or more states attorneys general or state regulators believe that we have violated anyagainst state-chartered companies, among others, for enforcement of the applicable lawsprovisions of Title X of the Dodd-Frank Act, including CFPB regulations issued under Title X, and to secure remedies provided under Title X or regulations, they could exercise their enforcement powers in ways that could have a material adverse effect on us or our business. The CFPB has actively utilized this enforcement authority against financial institutions and financial service providers by imposing significant monetary penalties; and ordering (i) restitution, (ii) mandatory changes to compliance policies and procedures, (iii) enhanced oversight and control over affiliate and third-party vendor agreements and services and (iv) mandatory review of business practices, policies and procedures by third-party auditors and consultants. If, as a result of an examination, the CFPB were to conclude that our loan origination or servicing activities violate applicable law or regulations, we could be subject to a formal or informal enforcement action. Formal enforcement actions are generally made public, which carries reputational risk. We have not been notified of any planned examinations or enforcement actions by the CFPB.other law.



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The Dodd-Frank Act also may adversely affect the securitization market because it requires among other things, that a securitizer generally retain not less than 5% of the credit risk for certain types of securitized assets that are created, transferred, sold, or conveyed through issuance of asset-backed securities with an exception for securitizations that are wholly composed of “qualified residential mortgages.” The final rules implementingrisk retention requirement has reduced the amount of financing typically obtained from our securitization transactions and has imposed compliance costs on our securitizations and costs with respect to certain of our financing transactions. With respect to each financing transaction that is subject to the risk retention requirements of Section 941 of the Dodd-Frank Act, became effective on February 23, 2015. Compliance withwe either retain at least 5% of the rule with respect to asset-backed securities collateralized by residential mortgages was required beginning on December 24, 2015. Compliance withbalance of each such class of debt obligations and at least 5% of the rule with regard toresidual interest in each related VIE or retain at least 5% of the fair value of all other classes of asset-backed securities was required beginning on December 24, 2016. TheABS interests (as defined in the risk retention requirement may limit our ability to securitize loans and impose on us additional compliance requirements to meet origination and servicing criteria for qualified residential mortgages. The impactrequirements), which is satisfied by retention of the residual interest in each related VIE, which, in each case, collectively, represents at least 5% of the economic interest in the credit risk of the securitized assets in satisfaction of the risk retention rule onrequirements. In addition, the asset-backed securities market remains uncertain. Furthermore, the Securities and Exchange Commission (the SEC)SEC adopted significant revisions to Regulation AB, imposing new requirements for asset-level disclosures for asset-backed securities backed by real estate related assets, auto related assets, or backed by debt securities. This could result in sweeping changes to the commercial and residential mortgage loan securitization markets, as well as to the market for the re-securitization of mortgage-backed securities.


State Laws


Various state laws and regulations also govern personal loans and real estate secured loans. Many states have laws and regulations that are similar to the federal laws referred to above, but the degree and nature of such laws and regulations vary from state to state. While federal law preemptslaws preempt similar state lawlaws in the event of certain conflicts,some instances, many times compliance with state laws and regulations is still required in the absencerequired.

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In general, these additional state laws and regulations, under which we conduct a substantial amount of our lending business:

•provide for state licensing and periodic examination of lenders and loan originators, including state laws adopted or amended to comply with licensing requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (which, in some states, requires licensing of individuals who perform real estate loan modifications);
•require the filing of reports with regulators and compliance with state regulatory capital requirements;
•impose maximum term, amount, interest rate, and limit other charge limitations;charges;
•impose consumer privacy rights and other obligations that may require us to notify customers, employees, state attorneys general, regulators and others in the event of a security breach;
•regulate whether and under what circumstances we may offer insurance and other ancillaryoptional products in connection with a lending transaction; and
•provide for additional consumer protections.


There is a clear trend of increased state regulation on loan origination, servicing and collection, as well as more detailed reporting, more detailed examinations, and coordination of examinations among the states.


State authorities also regulate and supervise our insurance business. The extent of such regulation varies by product and by state, but relates primarily to the following:

•licensing;
licensing;
•conduct of business, including marketing and sales practices;
•periodic financial and market conduct examination of the affairs of insurers;
•form and content of required financial reports;
•standards of solvency;
•limitations on the payment of dividends and other affiliate transactions;
•types of products offered;
•approval of policy forms and premium rates;
•formulas used to calculate any unearned premium refund due to an insured customer;
•permissible investments;
•deposits of securities for the benefit of policyholders;
•reserve requirements for unearned premiums, losses, and other purposes; and
•claims processing.


Canadian Laws

The Canadian federal and provincial insurance regulators regulate and supervise the insurance made available to borrowers through a third-party Canadian lender. Its regulation and supervision relate primarily to the following:
•licensing;
•conduct of business, including marketing and sales practices;
•periodic financial and market conduct examination of the affairs of insurers;
•form and content of required financial reports;
•standards of solvency;
•limitations on the payment of dividends and other affiliate transactions;
•types of products offered; and
•reserve requirements for unearned premiums, losses, and other purposes.

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COMPETITION


We operate primarily in the consumer installment lending industry, focusingindustry. We focus on servicing the non-prime customer. As of December 31, 2017, Springleaf maintainedcustomer through a national footprint (defined as 500 or more branchesbranch network, online, and receivables over $2 billion) of brick and mortar branches. At December 31, 2017, we had over 919,000 customer accounts and nearly 600 branch offices.the phone.




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There areWe have a large number of local, regional, national, and internet competitors in the consumer installment lending industry servingthat seek to serve the largesame population of non-prime customers. We also compete with a large number of otherThese competitors are various types of financial institutions that operate within our geographic footprintnetwork and over the Internet, including community banks and credit unions, that offer similar products and services. We believe that competition between consumer installment lenders occurs primarily on the basis of price, service quality, speed of service, flexibility of loan terms offered, and the quality of customer service provided.operational capability.


We believe that we possess several competitive strengths that position us to capitalize on the significant growth and expansion opportunity, created by the large supply-demand imbalance within our industry, and to compete effectively with other lenders in our industry. The capabilities resident in ourOur national branch system providenetwork enables us withto perform multiple functions and we believe it is a proven distribution channel for our personal loan and optional insurance products, allowing us toproducts. We can provide same-day fulfillment to approved customers and givingcustomers. Our network gives us a distinct competitive advantage over many industry participants who do not have—have, and cannot replicate without significant investment—investment, a similar footprint.network. Our digital platform and our centralized operations also enhance our nationwide footprint by allowingnetwork, which gives us the ability to originate loans and serve customers who reside outside of our branch footprint.online and over the phone. We believe our deep understanding of local markets and customers, together with our proprietary underwriting process, sophisticated data analytics, and decisioning tools allow us to price, manage, and monitor risk effectively through changing economic conditions. In addition, our high-touch relationship-based servicing model is a major contributor to our superior loan performance and distinguishes us from our competitors.


SEASONALITY


See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality” included in this report for discussion of our seasonal trends.


EMPLOYEES


As of December 31, 2017,2019, we had over 2,5009,700 employees.


AVAILABLE INFORMATION


OMH and SFC filesfile annual, quarterly, and current reports, proxy statements (only OMH), and other information with the SEC. The SEC’s website, www.sec.gov, contains these reports and other information that registrants (including OMH and SFC) file electronically with the SEC. Readers may also read and copy any document that OMH files at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room.


These reports are also available free of charge through our website, www.onemainfinancial.comwww.omf.com under “Investor Relations,” as soon as reasonably practicable after we file them with, or furnish them to, the SEC.


In addition, OMH's Code of Business Conduct and Ethics (the “Code of Ethics”), Code of Ethics for Principal Executive and Senior Financial Officers (the “Financial Officers’ Code of Ethics”), Corporate Governance Guidelines and the charters of the committees of the OMH Board of Directors are posted on our website at www.omf.com under “Investor Relations”and printed copies are available upon request. We intend to disclose any material amendments to or waivers of OMH Code of Ethics and Financial Officers’ Code of Ethics requiring disclosure under applicable SEC or NYSE rules on our website within four business days of the date of any such amendment or waiver in lieu of filing a Form 8-K pursuant to Item 5.05 thereof.

The information on our website is not incorporated by reference into this report. The website addresses listed above are provided for the information of the reader and are not intended to be active links.




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Item 1A. Risk Factors.    

Item 1A. Risk Factors.

We face a variety of risks that are inherent in our business. Accordingly, you should carefully consider the following discussion of risks inof which we are currently aware that could affect our businesses, results of operations and financial condition. In addition to the other information regarding our business providedfactors discussed in this report and in other documents we file with the SEC. These risks are subject to contingencies which may or may not occur,SEC that could adversely affect our businesses, results of operations and we are not able to express a view on the likelihood of any such contingency occurring. Newfinancial condition, new risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our business or financial performance. Therefore, the risk factors below should not be considered a complete list of potential risks that we may face.


Any risk factor described in this Annual Report on Form 10-K or in any of our other SEC filings could by itself, or together with other factors, materially adversely affect our liquidity, competitive position, business, reputation, results of operations or financial condition, including by materially increasing our expenses or decreasing our revenues, which could result in material losses.

RISKS RELATED TO OUR BUSINESS


Our consolidated results of operations and financial condition and our borrowers’ ability to make payments on their loans have been, and may in the future be, adversely affected by economic conditions and other factors that we cannot control.


Uncertainty and negative trendsdeterioration in general economic conditions in the United StatesU.S. and abroad including significant tightening of credit markets and a general decline in the value of real property, historically have created a difficult operating environment for our businesses and other companies involved in our industries.consumer lending. Many factors, including factors that are beyond our control, may impact our consolidated results of operations or financial condition and/or affect our borrowers’ willingness or capacity to make payments on their loans. These factors include: unemployment levels, housing markets, energy costs and interest rates; events such as natural disasters, acts of war, terrorism, catastrophes,catastrophes; events that affect our borrowers, such as major medical expenses, divorce or death that affect our borrowers;death; and the quality of theany collateral underlying our finance receivables. If we experience an economic downturn or if the U.S. economy is unable to continue or sustain its recovery from the most recent economic downturn, or if we become affected by other events beyond our control, we may experience a significant reduction in revenues, earnings and cash flows, difficulties accessing capital and a deterioration in the value of our investments. We may also become exposed to increased credit risk from our customers and third parties who have obligations to us.


Moreover, our customers are primarily non-prime borrowers. Accordingly, such borrowers, who have historically been and may in the future become, more likely to be affected, or more severely affected, by adverse macroeconomic conditions.conditions than prime borrowers. If our borrowers defaulta borrower defaults under a finance receivable held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral, if any, and the outstanding principal and accrued but unpaid interest ofon the finance receivable, which could adversely affect our cash flowflows from operations. In addition, foreclosure of a real estate loan (part of our legacy real estate loan portfolio) is an expensive and lengthy process that can negatively affect our anticipated return on the foreclosed loan. The cost to service our loans may also increase without a corresponding increase in our finance charge income.


Also,We are exposed to geographic customer concentration risk. An economic downturn or catastrophic event that disproportionately affects certain geographic concentrationsregions could materially and adversely affect our business, financial condition and results of operations, including the performance of our loan portfolio may occur or increase as we adjust our risk and loss tolerance and strategy to achieve our profitability goals. Any geographic concentration may expose us to an increased risk of loss if that geographic region experiences higher unemployment rates than average, natural disasters, weak economic conditions, or other adverse economic factors that disproportionately affect that region.finance receivables portfolio. See Note 5 of the Notes to the Consolidated Financial Statements included in this report for quantification of our largest concentrations of net finance receivables.


If aspects of our business, including the quality of our finance receivables portfolio or our borrowers, are significantly affected by economic changes or any other conditions in the future, weWe cannot be certainassure you that our policies and procedures for underwriting, processing and servicing loans will adequately adapt to suchadverse economic or other changes. If we fail to adapt to changing economic conditions or other factors, or if such changes adversely affect our borrowers’ willingness or capacity to repay their loans, our results of operations, financial condition and liquidity would be materially adversely affected.


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There are risks associated with the acquisition or sale of assets or businesses orand the formation, termination or operation of joint ventures or other strategic alliances, or arrangements, including the possibility of increased delinquencies and losses, difficulties with integrating loans into our servicing platform and disruption to our ongoing business, which could have a material adverse effect on our results of operations, financial condition and liquidity.


We have previously acquired, and in the future may acquire, assets or businesses, including large portfolios of finance receivables, either through the direct purchase of such assets or the purchase of the equity of a company with such a portfolio. Since we will not have originated or serviced the loans we acquire, we may not be aware of legal or other deficiencies related to origination or servicing, and our review of the portfolio prior to purchase may not uncover those deficiencies. Further, we may have limited recourse against the seller of the portfolio.

The ability to integrate and successfully service newly acquired loan portfolios will depend in large part on the success of our development and integration of expanded servicing capabilities, including additional personnel. We may fail to realize some or


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all of the anticipated benefits of the transaction if the integration process takes longer, or is more costly, than expected. Our failure to meet the challenges involved in successfully integrating the acquired portfolios with our current business or otherwise to realize any of the anticipated benefits of the transaction could impair our operations. In addition, the integration of future large portfolio or other asset or business acquisitions and the formation, termination or operation of joint ventures or other strategic alliances or arrangements are complex, time-consuming and expensive processes that, without proper planning and effective and timely implementation, could significantly disrupt our business.


Potential difficulties we may encounter in connection with these transactions and arrangements include, but are not limited to, the following:

•the integration of the assets or business into our information technology platforms and servicing systems;

•the quality of servicing during any interim servicing period after we purchase a portfolio but before we assume servicing obligations from the seller or its agents;

•the disruption to our ongoing businesses and distraction of our management teams from ongoing business concerns;

•incomplete or inaccurate files and records;

•the retention of existing customers;

•the creation of uniform standards, controls, procedures, policies and information systems;

•the occurrence of unanticipated expenses; and

•potential unknown liabilities associated with the transactions, including legal liability related to origination and servicing prior to the acquisition.


For example, in some cases loan files and other information (including servicing records) may be incomplete or inaccurate. If our employees are unable to access customer information easily, or if we are unable to produce originals or copies of documents or accurate information about the loans, collections could be materially and adversely affected, significantly, and we may not be able to enforce our right to collect in some cases. Similarly, collections could be affected by any changes to our collection practices, the restructuring of any key servicing functions, transfer of files and other changes that would result from our assumption of the servicing of the acquired portfolios.


The anticipated benefits and synergies of our future acquisitions will assume a successful integration, and will be based on projections, which are inherently uncertain, as well as other assumptions. Even if integration is successful, anticipated benefits and synergies may not be achieved.

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.

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 allowance for finance receivable losses are not adequate to absorb actual losses, our provision for finance receivable losses would increase, which would adversely affect our results of operations.


We maintain an allowance for finance receivable losses. To estimate the appropriate level of allowance for finance receivable losses, we consider known and relevant internal and external factors that affect finance receivable collectability, including the total amount of finance receivables outstanding, historical finance receivable charge-offs, our current collection patterns, and economic trends. Our methodology for establishing our allowance for finance receivable losses is based on the guidance in Accounting Standards Codification (“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,price index, and general economic uncertainty may affect our allowance for finance receivable losses, our allowance for


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finance receivable losses may be inadequate. Our allowance for finance receivable losses is an estimate, and if actual finance receivable losses are materially greater than our allowance for finance receivable losses, our results of operations could be adversely affected. Neither state regulators nor federal regulators regulate our allowance for finance receivable losses.


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In June of 2016, the Financial Accounting Standards Board issued Accounting Standard Update ASU("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 beare required to measure credit losses. The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather than the “incurred loss” approach currently required.approach. The new approach will requirerequires 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 becomeis 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 4 of the Notes to the Consolidated Financial Statements included in this report for more information on this new accounting standard.


Our risk management efforts may not be effective.


We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, and other market-related risks, as well as operational risks related to our business, assets and liabilities. To the extent our models used to assess the creditworthiness of potential borrowers do not adequately identify potential risks, the valuations produced would not adequately represent the risk profile of the borrowerborrowers and could result in a riskier finance receivablereceivables profile than originally identified. Our risk management policies, procedures, and techniques, including our scoring technology, may not be sufficient to identify all of the risks we are exposed to, mitigate the risks we have identified or identify concentrations of risk or additional risks to which we may become subject in the future.

Our branch loan approval process is decentralized, which may result in variability of loan structures, and could adversely affect our results of operations, financial condition and liquidity.

Our branch finance receivable origination process is decentralized. We train our employees individually on-site in the branch to make loans that conform to our underwriting standards. Such training includes critical aspects of state and federal regulatory compliance, cash handling, account management and customer relations. In certain circumstances, subject to approval by district managers and/or directors of operations in certain cases, our branch officers have some authority to approve and structure loans within broadly written underwriting guidelines rather than having all loan terms approved centrally. As a result, there may be variability in finance receivable structure (e.g., whether or not collateral is taken for the loan) and loan portfolios among branch offices or regions, even when underwriting policies are followed. Moreover, we cannot be certain that every loan is made in accordance with our underwriting standards and rules, and we have in the past experienced some instances of loans extended that varied from our underwriting standards. The nature of our approval process could adversely affect our operating results and variances in underwriting standards and lack of supervision could expose us to greater delinquencies and charge-offs than we have historically experienced, which could adversely affect our results of operations, financial condition and liquidity.


Changes in market conditions, including rising interest rates, could adversely affect the rate at which our borrowers prepay their loans and the value of our finance receivables portfolio, as well as increase our financing cost, which could negatively affect our results of operations, financial condition and liquidity.


Changing market conditions, including but not limited to, changes in interest rates, the availability of credit, the relative economic vitality of the area in which our borrowers and their assets are located, changes in tax laws, other opportunities for investment available to our customers, homeowner mobility, and other economic, social, geographic, demographic, and legal factors beyond our control, may affect the rates at which our borrowers prepay their loans. Generally, in situations where prepayment rates have slowed, the weighted-average life of our finance receivables has increased. Any increase in interest rates may further slow the rate of prepayment for our finance receivables, which could adversely affect our liquidity by reducing the cash flows from, and the value of, the finance receivables we hold for sale or utilize as collateral in our secured funding transactions.


Moreover, the vast majority of our finance receivables are fixed-rate finance receivables, which generally decline in value if interest rates increase. As such, if changing market conditions cause interest rates to increase substantially, the value of our fixed-rate finance receivables could decline. Recent increasesIncreases in market interest rates could negatively impact our net interest income, and further increases in market interest rates could continue to negatively impact such net interest income, as well as


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our cash flow from operations and results of operations. Our consumer loans generally bear interest at a fixed rate and, accordingly, we are generally unable to increase the interest rate on such loans to offset any increases in our cost of funds as market interest rates increase. Additionally, becauseBecause we are subject to applicable legal and regulatory restrictions in certain jurisdictions that limit the maximum interest rate that we may charge on a certain population of our consumer loans, we are limited in our ability to increase the interest rate on our loans to offset any increases in our cost of funds as market interest rates increase. Our yield, as well as our cash flows from operations and results of operations, could be materially and adversely affected if we are unable to increase the interest rates charged on newly originated loans to offset any increases in our cost of funds as market interest rates increase. Accordingly, any increase in interest rates could negatively affect our results of operations, financial condition and liquidity.


We may be required to indemnify or repurchase finance receivables from purchasers of finance receivables that we have sold or securitized, or which we will sell or securitize in the future, if our finance receivables fail to meet certain criteria or characteristics or under other circumstances, which could adversely affect our results of operations, financial condition and liquidity.


In 2016, we sold our interests in the SpringCastle Portfolio as a result of the SpringCastle Interests Sale, $602 million of personal loans in connection with the Lendmark Sale, and $308 million of our legacy real estate loan portfolio. We securitized $3.3 billion of our consumer loan portfolio as of December 31, 2017. In addition, we sold $6.4 billion of our legacy real estate loan portfolio in 2014. The documents governing our finance receivable sales and securitizations contain provisions that require us to indemnify the purchasers of securitized finance receivables, or to repurchase the affected finance receivables, under certain circumstances. While our sale and securitization documents vary, they generally contain customary provisions that may require us to repurchase finance receivables if:

•our representations and warranties concerning the quality and characteristics of the finance receivable are inaccurate;
•there is borrower fraud; or
•we fail to comply, at the individual finance receivable level or otherwise, with regulatory requirements in connection with the origination and servicing of the finance receivables.


As a result
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Many purchasers of real estate loansor investors in finance receivables (including through securitizations) are particularly aware of the conditions under which originators must indemnify purchasers or repurchase finance receivables and would benefit from enforcing any repurchase remedies that they may have. At its extreme,maximum, our exposure to repurchases or our indemnification obligations under our representations and warranties could include the current unpaid balance of all finance receivables that we have sold or securitized, and which are not subject to settlement agreements with purchasers.


The risk of loss on the finance receivables that we have securitized is recognized in our allowance for finance receivable losses since all of our consumer loan securitizations are recorded on-balanceon our balance sheet. If we are required to indemnify purchasers or repurchase finance receivables that we sell or have sold that result in losses that exceed our reserve for sales recourse or recognize losses on securitized finance receivables that exceed our recorded allowance for finance receivable losses associated with our securitizations, this could adversely affect our results of operations, financial condition and liquidity.


Our business and reputation may be materially impacted by information system failures, cyber threats, or network disruptions.

Our business relies heavily on information systems to deliver products and services to our customers, and to manage our ongoing operations. These systems may encounter service disruptions due to system, network or software failure, security breaches, computer viruses, accidents, power disruptions, telecommunications failures, acts of terrorism or war, physical or electronic break-ins, or other events or disruptions. In addition, denial-of-service attacks could overwhelm our internet sites and prevent us from adequately serving customers. Cyber threats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. We may have no current capability to detect certain vulnerabilities, which may allow them to persist in our system environment over long periods of time. Cyber threats can have cascading impacts that unfold with increasing speed across our computer systems and networks and those of our third-party vendors. System redundancy and other continuity measures may be ineffective or inadequate, and our business continuity and disaster recovery planning may not be sufficient to adequately address the disruption. A disruption could impair our ability to offer and process our loans, provide customer service, perform collections or other necessary business activities, which could result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, or otherwise materially adversely affect our financial condition and operating results.

There may be losses or unauthorized access to or releases of confidential information, including personally identifiable information, that could subject us to significant reputational, financial, legal and operational consequences.

Our operations rely heavily on the secure processing, storage and transmission of confidential customer and other information including, among other things, personally identifiable information (“PII”), in our computer systems and networks, as well as those of third parties. Our branch offices and centralized servicing centers, as well as our administrative and executive offices, are part of an electronic information network that is designed to permit us to originate and track finance receivables and collections and perform other tasks that are part of our everyday operations. We devote significant resources to network and data security, including through the use of encryption and other security measures intended to protect our computer systems and data. These security measures may not be sufficient and may be vulnerable to hacking, employee error, malfeasance, system error, faulty password management or other irregularities. For example, third parties may attempt to fraudulently induce employees or customers into disclosing usernames, passwords or other sensitive information, which may in turn be used to access our computer systems. Any failure, interruption, or breach in our cyber security could result in reputational harm, disruption of our customer relationships, or our inability to originate, process and service our finance receivable products. Further, any of these cyber security and operational risks could expose us to lawsuits by customers for identity theft or other damages resulting from data breach involving PII or misuse of their PII and possible financial liability, any of which could have a material adverse effect on our results of operations, financial condition and liquidity. In addition, regulators may impose penalties and/or require remedial action if they identify weaknesses in our security systems, and we may be required to incur significant costs to increase our cyber security to address any vulnerabilities that may be discovered or to remediate the harm caused by any security breaches. As part of our business, we may share confidential customer information and proprietary information with customers, vendors, service providers, and business partners. The information systems of these third parties may be vulnerable to security breaches and, despite our best efforts, we may not be able to ensure that these third parties have appropriate security controls in place to protect the information we share with them. If our confidential information is intercepted, stolen, misused, or mishandled while in possession of a third party, it could result in reputational harm to us, loss of customer business, and additional regulatory scrutiny, and it could expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our results of operations, financial condition and liquidity. Although we have insurance that is intended to cover certain losses from such events, there can be no assurance that such insurance will be adequate or available.

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We are also subject to the theft or misuse of physical customer and employee records at our facilities.

Our branch offices and centralized servicing centers have physical customer records necessary for day-to-day operations that contain extensive confidential information about our customers, including financial data and PII. We also retain physical records in various storage locations. The loss or theft of customer information and data from our branch offices, central servicing facilities, or other storage locations could subject us to additional regulatory scrutiny and penalties and could expose us to civil litigation and possible financial liability, which could have a material adverse effect on our results of operations, financial condition and liquidity. In addition, if we cannot locate original documents (or copies, in some cases) for certain finance receivables, we may not be able to collect on those finance receivables.

Certain of our operations rely on external vendors.

We rely on third-party vendors to provide products and services necessary to maintain day-to-day operations. For example, we outsource a portion of our information systems, communication, data management and transaction processing to third parties. Accordingly, we are exposed to the risk that these vendors might not perform in accordance with the contracted arrangements or service level agreements because of changes in the vendor’s organizational structure, financial condition, support for existing products and services, or strategic focus. Such failure to perform could be disruptive to our operations, and have a materially adverse impact on our business, results of operations and financial condition. These third parties are also sources of risk associated with operational errors, system interruptions or breaches and unauthorized disclosure of confidential information. If the vendors encounter any of these issues, we could be exposed to disruption of service, damage to reputation and litigation.

Our insurance operations are subject to a number of risks and uncertainties, including claims, catastrophic events, underwriting risks and dependence on a primary distribution channel.


Insurance claims and policyholder liabilities are difficult to predict and may exceed the related reserves set aside for claims (losses) and associated expenses for claims adjudication (loss adjustment expenses). Additionally, events such as hurricanes, tornados, earthquakes,natural disasters, pandemic disease, cyber security breaches and other types of catastrophes, and prolonged economic downturns, could adversely affect our financial condition orand results of operations. Other risks relating to our insurance operations include changes to laws and regulations applicable to us, as well as changes to the regulatory environment. Examples includeenvironment, such as: changes to laws or regulations affecting capital and reserve requirements; frequency and type of regulatory monitoring and reporting; consumer privacy, use of customer data and data security; benefits or loss ratio requirements; insurance producer licensing or appointment requirements; required disclosures to consumers; and collateral protection insurance (i.e., insurance some of our lender companies purchase, at the customer’s expense, on that customer’s loan collateral for the periods of time the customer fails to adequately, as required by histhe customer's loan, insure histhe collateral). Because our customers do not affirmatively consent to collateral protection insurance at the time it is purchased, and hence do not directly agree to the amount charged for collateral protection at the time it is purchased, regulators may in the future prohibit our insurance companies from providing this insurance to our lending operations. Moreover, our insurance companies are predominately dependent on our lending operations as the primary source of business and product distribution. If our lending operations discontinue offering insurance products, including as a result of regulatory requirements or rate caps, our insurance operations would need to find an alternate distribution partner for their products.products, of which there can be no assurance.



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We are a party to various lawsuits and proceedings and may become a party to various lawsuits and proceedings in the future which, if resolved in a manner adverse to us, could materially adversely affect our results of operations, financial condition and liquidity.


In the normal course of business, from time to time, we have been named, and may be named in the future, as a defendant in various legal actions, including governmental investigations, examinations or other proceedings, arbitrations, class actions and other litigation, arising in connection with our business activities. Certain of the legal actions may include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Some of these proceedings are pending in jurisdictions that permit damage awards disproportionate to the actual economic damages alleged to have been incurred. The continued occurrences of large damage awards in general in the United States,U.S., including large punitive damage awards in certain jurisdictions that bear little or no relation to actual economic damages incurred by plaintiffs, create the potential for an unpredictable result in any given proceeding. A large judgment that is adverse to us could cause our reputation to suffer, encourage additional lawsuits against us and have a material adverse effect on our results of operations, financial condition and liquidity. For additional information regarding pending legal proceedings and other contingencies, see Note 1916 of the Notes to the Consolidated Financial Statements included in this report.


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Our use of derivatives exposes us to credit and market risks.

From time to time, we may enter into derivative financial instruments for economic hedging purposes, such as managing our exposure to interest rate risk. By using derivative instruments, we are exposed to credit and market risks, including the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost, default risk, and the risk of insolvency or other inability of the counterparty to a particular derivative financial instrument to perform its obligations.

If we lose the services of any of our key management personnel, our business could suffer.


Our future success significantly depends on the continued service and performance of our key management personnel. Competition for these employees is intense and we may not be able to attract and retain key personnel. We do not maintain any “key man” or other related insurance. The loss of the service of members of our senior management or key team members, or the inabilityIf we are unable to attract additionalappropriately qualified personnel, as needed,we may not be successful in originating loans and servicing our customers, which could materially harm our business.business, financial condition and results of operations.


Employee misconduct could harm us by subjecting us to monetary loss, significant legal liability, regulatory scrutiny and reputational harm.


Our reputation is critical to maintainingdeveloping and developingmaintaining relationships with our existing and potential customers and third parties with whom we do business. There is a risk that our employees could engage in misconduct that adversely affects our business. For example, if an employee were to engage—or be accused of engaging—in illegal or suspicious activities including fraud or theft, we could suffer direct losses from the activity, and in addition we could be subject to regulatory sanctions and suffer serious harm to our reputation, financial condition, customer relationships, and ability to attract future customers or employees. Employee misconduct could prompt regulators to allege or to determine, based upon such misconduct, that we have not established adequate supervisory systems and procedures to inform employees of applicable rules or to detect and deter violations of such rules. It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent misconduct may not be effective in all cases. Misconduct by our employees, or even unsubstantiated allegations of misconduct, could result in a material adverse effect on our reputation and our business.

Current and proposed regulations relating to consumer privacy, data protection and information security could increase our costs.

We are subject to a number of federal and state consumer privacy, data protection, and information security laws and regulations. For example, we are subject to the federal Gramm-Leach-Bliley Act, which governs the use of personal financial information by financial institutions. Moreover, various federal and state regulatory agencies require us to notify customers in the event of a security breach. Federal and state legislators and regulators are increasingly pursuing new guidance, laws, and regulation. Compliance with current or future customer privacy, data protection, and information security laws and regulations could result in higher compliance, technology or other operating costs. Any violations of these laws and regulations may require us to change our business practices or operational structure, and could subject us to legal claims, monetary penalties, sanctions, and the obligation to indemnify and/or notify customers or take other remedial actions.

Significant disruptions in the operation of our information systems could have a material adverse effect on our business.

Our business relies heavily on information systems to deliver products and services to our customers, and to manage our ongoing operations. These systems may encounter service disruptions due to system, network or software failure, security breaches, computer viruses, natural disasters or other reasons. There can be no assurance that our policies and procedures addressing these issues will adequately address the disruption. A disruption could impair our ability to offer and process consumer loans, provide customer service, perform collections activities or perform other necessary business activities, which could result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability.



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Security breaches in our information systems, in the information systems of third parties or in our branches, central servicing facilities, or our internet lending platform or our proprietary company data held by third parties could adversely affect our reputation and could subject us to significant costs and regulatory penalties.

Our operations rely heavily on the secure processing, storage and transmission of confidential customer and other information in our computer systems and networks. Our branch offices and centralized servicing centers, as well as our administrative and executive offices, are part of an electronic information network that is designed to permit us to originate and track finance receivables and collections, and perform several other tasks that are part of our everyday operations. Our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code that could result in disruption to our business, or the loss or theft of confidential information, including customer information. Any failure, interruption, or breach in our cyber security, including through employee misconduct or any failure of our back-up systems or failure to maintain adequate security surrounding customer information, could result in reputational harm, disruption in the management of our customer relationships, or the inability to originate, process and service our finance receivable products. Further, any of these cyber security and operational risks could result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to lawsuits by customers for identity theft or other damages resulting from the misuse of their personal information and possible financial liability, any of which could have a material adverse effect on our results of operations, financial condition and liquidity. In addition, regulators may impose penalties or require remedial action if they identify weaknesses in our security systems, and we may be required to incur significant costs to increase our cyber security to address any vulnerabilities that may be discovered or to remediate the harm caused by any security breaches. As part of our business, we may share confidential customer information and proprietary information with clients, vendors, service providers, and business partners. The information systems of these third parties may be vulnerable to security breaches and we may not be able to ensure that these third parties have appropriate security controls in place to protect the information we share with them. If our confidential information is intercepted, stolen, misused, or mishandled while in possession of a third party, it could result in reputational harm to us, loss of customer business, and additional regulatory scrutiny, and it could expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our results of operations, financial condition and liquidity. Although we have insurance that is intended to cover certain losses from such events, there can be no assurance that such insurance will be adequate or available.

Our branch offices and centralized servicing centers have physical customer records necessary for day-to-day operations that contain extensive confidential information about our customers, including financial and personally identifiable information. We also retain physical records in various storage locations outside of these locations. The loss or theft of customer information and data from our branch offices, central servicing facilities, or other storage locations could subject us to additional regulatory scrutiny and penalties, and could expose us to civil litigation and possible financial liability, which could have a material adverse effect on our results of operations, financial condition and liquidity. In addition, if we cannot locate original documents (or copies, in some cases), we may not be able to collect on the finance receivables for which we do not have documents.


We may not be able to make technological improvements as quickly as some of our competitors, which could harm our ability to compete with our competitors and adversely affect our results of operations, financial condition and liquidity.


The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial and lending institutions to better serve customers and reduce costs. Our future success and, in particular, the success of our centralized operations, will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services as quickly as some of our competitors or be successful in marketing these products and services to our existing and new customers. Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to compete with our competitors and adversely affect our results of operations, financial condition and liquidity.


As part of our growth strategy, we have committed to building our lending business. If we are unable to successfully implement our strategy, our results of operations, financial condition and liquidity may be materially adversely affected.

We believe that our future success depends on our ability to implement our strategy, the key feature of which has been to shift our primary focus to originating personal loans as well as acquiring portfolios of personal loans, pursuing acquisitions of companies, and/or establishing joint ventures or other strategic alliances. We have also expanded our digital presence in online lending through our centralized operations, which may involve additional risks associated with verifying income and customer identities.

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We may not be able to implement our strategy successfully, and our success depends on a number of factors, including, but not limited to, our ability to:
•address the risks associated with our focus on personal loans (including direct auto loans), including, but not limited to consumer demand and changes in economic conditions and interest rates;
•address the risks associated with the new centralized method of originating and servicing our loans online through our centralized operations, which represents a departure from our traditional high-touch branch-based servicing function and includes the potential for higher default and delinquency rates;
•integrate, and develop the expertise required to capitalize on, our centralized operations;
•obtain regulatory approval in connection with the acquisition of loan portfolios and/or companies in the business of selling loans or related products;
•comply with regulations in connection with doing business and offering loan products over the internet, including various state and federal e-signature rules mandating that certain disclosures be made, and certain steps be followed in order to obtain and authenticate e-signatures, with which we have limited experience;
•finance future growth; and
•successfully source, underwrite and integrate new acquisitions of loan portfolios and other businesses.

In order for us to realize the benefits associated with our focus on originating and servicing personal loans and growing our business, we must implement our strategic objectives in a timely and cost-effective manner as well as anticipate and address any potential risks. In any event, we may not realize these benefits for many years, or our competitors may introduce more compelling products, services or enhancements. If we are not able to realize the benefits of our personal loan focus, or if we do not do so in a timely manner, our results of operations, financial condition and liquidity could be negatively affected which would have a material adverse effect on our business.

If goodwill and other intangible assets become impaired, it could have a negative impact on our profitability.

Goodwill represents the amount of acquisition cost over the fair value of net assets we acquired. If the carrying amount of goodwill and other intangible assets exceeds the fair value, an impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in our results of operations in the periods in which the impairments become known. There can be no assurance that our future evaluations of goodwill and other intangible assets will not result in findings of impairments and related write-downs, which may have a material adverse effect on our financial condition and results of operations. See Note 9 of the Notes to the Consolidated Financial Statements included in this report.

We could face environmental liability and costs for damage caused by hazardous waste (including the cost of cleaning up contaminated property) if we foreclose upon or otherwise take title to real estate pledged as collateral.


If a real estate loan goes into default, we may start foreclosure proceedings in appropriate circumstances, which could result in our taking title to the mortgaged real estate. We also consider alternatives to foreclosure, such as “short sales,” where we do not take title to mortgaged real estate. There is a risk that toxic or hazardous substances could be found on property after we take title. In addition, we own certain properties through which we operate our business, such as the buildings at our headquarters and certain servicing facilities. As the owner of any property where hazardous waste is present, we could be held liable for clean-up and remediation costs, as well as damages for any personal injuries or property damage caused by the condition of the property. We may also be responsible for these costs if we are in the chain of title for the property, even if we were not


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responsible for the contamination and even if the contamination is not discovered until after we have sold the property. Costs related to these activities and damages could be substantial. Although we have policies and procedures in place to investigate properties for potential hazardous substances before taking title to properties, these reviews may not always uncover potential environmental hazards.

We ceased real estate lending and the purchase of retail finance contracts in 2012 and are in the process of liquidating these portfolios, which subjects us to certain risks which could adversely affect our results of operations, financial condition and liquidity if we do not effectively manage such risks.

In connection with our plan for strategic growth and new focus on consumer lending, we have engaged in a number of restructuring initiatives, including, but not limited to, ceasing real estate lending, ceasing purchasing retail sales contracts and revolving retail accounts from the sale of consumer goods and services by retail merchants, closing certain of our branches and reducing our workforce.

In 2014, we entered into a series of transactions relating to the sales of our beneficial interests in our real estate loans, the related servicing of these loans, and the sales of certain performing and non-performing real estate loans, which substantially completed our plan to liquidate our real estate loans. Consequently, as of December 31, 2017, our real estate loans held for investment and held for sale totaled $128 million and $132 million, respectively.

Moreover, if we fail to realize the anticipated benefits of the restructuring of our business and associated liquidation of our legacy portfolios or are subjected to litigation or claims for indemnification for breaches of representations or warranties made in connection with our previous real estate loan sales, we may experience an adverse effect on our results of operations, financial condition and liquidity.

As part of our growth strategy, we have committed to building our consumer lending business. If we are unable to successfully implement our growth strategy, our results of operations, financial condition and liquidity may be materially adversely affected.

We believe that our future success depends on our ability to implement our growth strategy, the key feature of which has been to shift our primary focus to originating consumer loans as well as acquiring portfolios of consumer loans, pursuing acquisitions of companies, and/or establishing joint ventures or other strategic alliances or arrangements. We have also expanded into internet lending through our centralized operations.

We may not be able to implement our new strategy successfully, and our success depends on a number of factors, including, but not limited to, our ability to:

address the risks associated with our focus on personal loans (including direct auto loans), including, but not limited to consumer demand for finance receivables, and changes in economic conditions and interest rates;

address the risks associated with the new centralized method of originating and servicing our internet loans through our centralized operations, which represents a departure from our traditional high-touch branch-based servicing function and includes the potential for higher default and delinquency rates;

integrate, and develop the expertise required to capitalize on, our centralized operations;
obtain regulatory approval in connection with the acquisition of consumer loan portfolios and/or companies in the business of selling consumer loans or related products;

comply with regulations in connection with doing business and offering loan products over the Internet, including various state and federal e-signature rules mandating that certain disclosures be made and certain steps be followed in order to obtain and authenticate e-signatures, with which we have limited experience;

finance future growth; and

successfully source, underwrite and integrate new acquisitions of loan portfolios and other businesses.

In order for us to realize the benefits associated with our new focus on originating and servicing consumer loans and growing our business, we must implement our strategic objectives in a timely and cost-effective manner as well as anticipate and address any risks to which we may become subject. In any event, we may not realize these benefits for many years, or our



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competitors may introduce more compelling products, services or enhancements. If we are not able to realize the benefits, or if we do not do so in a timely manner, our results of operations, financial condition and liquidity could be negatively affected which would have a material adverse effect on business.

RISKS RELATED TO OUR INDUSTRY AND REGULATION


We operate in a highly competitive market, and we cannot ensure that the competitive pressures we face will not have a material adverse effect on our results of operations, financial condition and liquidity.


The consumer finance industry is highly competitive. Our profitability depends, in large part, on our ability to underwrite and originate finance receivables. We compete with other consumer finance companies as well as other types of financial institutions that offer similar consumer financial products and services in originating finance receivables.services. Some of these competitors may have greater financial, technical and marketing resources than we possess. Some competitors may also have a lower cost of funds and access to funding sources that may not be available to us. While banksBanks and credit card companies, which had focused largely on prime customers following the financial crisis, have decreased theirrecently resumed lending to non-prime customerscustomers. This shift could increase competition in recent years, there is no assurance that such lenders will not resume those lending activities. Further, because of increasedthe markets in which we operate. Increased regulatory pressure on payday lenders could cause many of those lenders are starting to makestart making more traditional installment consumer loans in order to reduce regulatory scrutiny of their practices, which could increase competition in markets in which we operate. In addition, in July 2013, the Dodd-Frank Act’s three-year moratorium on banks affiliated with non-financial businesses expired. When the Dodd-Frank Act was enacted in 2010, a moratorium was imposed that prohibited the Federal Deposit Insurance Corporation from approving deposit insurance for certain banks controlled by non-financial commercial enterprises. The expiration of the moratorium could result in an increase of traditionally non-financial enterprises entering the banking space, which could increase the number of our competitors. There can be no assurancepractices. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our results of operations, financial condition and liquidity.


Our businesses are subject to regulation in the jurisdictions in which we conduct our business.business and failure to comply with such regulations may have a material adverse impact on our results of operations, financial condition and liquidity.


Our businesses are subject to numerous federal, state, and local laws and regulations, and various state authorities regulate and supervise our insurance operations. The laws under which a substantial amount of our consumer and real estate businesses are conducted generally: provide for state licensing of lenders and, in some cases, licensing of employees involved in real estate loan modifications; impose limits on the termterms of a finance receivable,consumer credit, including amounts, interest rates and charges on the finance receivables;charges; regulate whether and under what circumstances insurance and other ancillaryoptional products may be offered to consumers in connection with a lendingconsumer credit transaction; regulate the manner in which we use personal data; and provide for other consumer protections. We are also subject to extensive servicing regulations with which we must comply with when servicing our legacy real estate loans and the SpringCastle Portfolio, and whichservicing loan portfolios on behalf of other parties. Additionally, we will have to comply with these servicing regulations if we acquire loan portfolios in the future and assume the servicing obligations for the acquired loans or other financial assets. The extent of state regulation of our insurance business varies by product and by jurisdiction, but relates primarily to the following: licensing; conduct of business; periodic examination of the affairs of insurers; form and content of required financial reports; standards of solvency; limitations on dividend payments and other related partyaffiliate transactions; types of products offered; approval of policy forms and premium rates; formulas to calculate any unearned premium refund due to an insured customer; permissible investments; deposits of securities for the benefit of policyholders; reserve requirements for unearned premiums, losses and other purposes; and claims processing.


All of our operations are subject to regular examination by state and federal regulators and, ascertain aspects of our business, by federal regulators. As a whole, our entities are subject to several hundred regulatory examinations in a given year. These examinations may result in requirements to change our policies or practices, and in some cases, we are required to pay monetary fines or make reimbursements to customers. Many state regulators and some federal regulators have indicated an intention to pool their resources in order to conduct examinations of licensed entities, including us, at the same time (referred to as a “multi-state” examination). This could result in more in-depth examinations, which could be more costlycostlier and lead to more significant enforcement actions.

The CFPB has outlined several proposals under consideration for the purpose of requiring lenders to take steps to ensure consumers have the financial ability to repay their loans. The proposals under consideration would require lenders to determine at the outset of each loan whether a consumer can afford to borrow from the lender and would require that lenders comply with various restrictions designed to ensure that consumers can affordably repay their debt to the lender. To date, the proposals under consideration by the CFPB have not been adopted. If adopted, the proposals outlined by the CFPB may require the Company to make significant changes to its lending practices to develop compliant procedures.


We are also subject to potential enforcement, supervisions and other actions that may be brought by state attorneys general or other state enforcement authorities and other governmental agencies. Any such actions could subject us to civil money


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penalties, customer remediation and increased compliance costs, as well as damage our reputation and brand and could limit or prohibit our ability to offer certain products and services or engage in certain business practices.


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State attorneys general have stated their intention to fill any void left by diminished CFPB enforcement and have a variety of tools at their disposal to enforce state and federal consumer financial laws. First, Section 1042 of the Dodd-Frank Act grants state attorneys general the ability to enforce the Dodd-Frank Act and regulations promulgated under the Dodd-Frank Act’s authority and to secure remedies provided in the Dodd-Frank Act against entities within their jurisdiction. Even if an overhaul of the Dodd-Frank Act eliminates Section 1042, stateState attorneys general will retain theiralso have enforcement authority under state law with respect to unfair or deceptive practices. UnderGenerally, under these statutes, state attorneys general may generally conduct investigations, bring actions, and recover civil penalties or obtain injunctive relief against entities engaging in unfair, deceptive, or fraudulent acts. Attorneys general may also coordinate among themselves to enter into multi-state actions or settlements. Finally,Then, several consumer financial laws like the Truth in Lending Act and Fair Credit Reporting Act grant enforcement or litigation authority to state attorneys general. Should the CFPB decrease its enforcement activity, under the Trump administration, we expect to see an increase in actions brought by state attorneys general.


The Department of Defense has made changes to the regulations that have been promulgated as a result of the Military Lending Act. Effective October 3, 2016, we are subject to the limitations of the Military Lending Act, which places a 36% “all-in” annual percentage rate limitation on allcertain fees, charges, interest, rate and credit and non-credit insurance premiums for non-purchase money loans made to active military service members, of the militarytheir spouses, or theircovered dependents. We are also no longer able to make non-purchase money loans secured by the titles of motor vehicles to service members and their dependents.these customers.


We are also subject to potential changes in federal and state law, which could lower the interest-rate limit that non-depository financial institutions may charge for consumer loans or could expand the definition of interest under federal and state law to include the cost of ancillaryoptional products, such as insurance.


We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable federal, state and local regulations, but we may not be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have a material adverse effect on our operations. In addition, changes in laws or regulations applicable to us could subject us to additional licensing, registration and other regulatory requirements in the future or could adversely affect our ability to operate or the manner in which we conduct business.


A material failure to comply with applicable laws and regulations could result in regulatory actions, including substantial fines or penalties, lawsuits and damage to our reputation, which could have a material adverse effect on our results of operations, financial condition and liquidity.

The Apollo-Värde Transaction, may be deemed a change of control for purposes of certain of our state lending and insurance licenses pursuant to which we operate our lending and insurance businesses. Accordingly, we may be required to obtain approvals for the change of control from some state lending or insurance regulators.


For more information with respect to the regulatory framework affecting our businesses, see “Business—Regulation” included in this report.


The enactmentRequirements of the Dodd-Frank Act and the creation ofoversight by the CFPB significantly increasesincrease our regulatory costs and burdens.


The Dodd-Frank Act was adopted in 2010. This law and the related regulations affect our operations in terms of increased oversight of financial services products by the CFPB, and the imposition of restrictions on the allowable terms for certain consumer credit transactions. The CFPB has significant authority to implement and enforce federal consumer finance laws, including the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act and new requirements for financial services products provided for in the Dodd-Frank Act, as well as the authority to identify and prohibit unfair, deceptive, or abusive acts and practices. In addition, the Dodd-Frank Act provides the CFPB with broad supervisory, examination and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged legal violations, and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices. Further, state attorneys general and state regulators are authorized to bring civil actions to enforce certain consumer protection provisions of the Dodd-Frank Act. The industry investigation and enforcement provisions of Title X of the Dodd-Frank Act and accompanying regulations are being phasedmay adversely affect our business if the CFPB or one or more state attorneys general or state regulators believe that we have violated any federal consumer financial protection laws, including the prohibition in over time, and while some regulations have been promulgated, many others have not yet been proposedTitle X against unfair, deceptive or finalized. We cannot predict the terms of all of the final regulations, their intended consequencesabusive acts or how such regulations will affect us or our industry.practices.



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The CFPB currently has supervisory authority over our real estate servicing activities, and likely willmay in the future have supervisory authority over at least portions of our consumer lending business. It also has the authority to bring enforcement actions for violations of laws over which it has jurisdiction regardless of whether it has supervisory authority for a given product or service. Effective in January 2014, the CFPB finalized mortgage servicing regulations, which makes it more difficult and expensive to service mortgages. The Dodd-Frank Act also gives the CFPB supervisory authority over entities that are designated as “larger participants” in certain financial services markets, including consumer installment loans and related products. The CFPB has not yet promulgated regulations that designate “larger participants” for consumer finance companies. If we are designated as a “larger participant” for this market, we also will be subject to supervision and examination by the CFPB with respect to our consumer loan business.markets. The CFPB has published regulations for “larger participants” in the market of auto finance, and we have been designated as a larger participant in this market. The larger-participant rule for consumer installment loans was one of the rulemaking initiatives the CFPB designated as inactive in its Spring 2018 rulemaking agenda. It is not known if or when the CFPB may consider reactivating the rulemaking process for the larger participant rule for consumer installment loans. The CFPB’s broad supervisory and enforcement powers could affect our business and operations significantly in terms of increased operating and regulatory compliance costs, and limits on the types of products we offer and the manner in which they are offered, among other things. See “Business—Regulation” included in this report for further information on the CFPB.


The CFPB and certain state regulators have taken actionacted against selectsome lenders regarding, for instance, debt collection and the marketing of optional products offered by the lenders in connection with their loans. The products included debt cancellation/suspension products written by the lenders which forgave a borrower’s debt or monthly minimumand other types of payment upon the occurrence of certain events in the life of the borrower (e.g., death, disability, marriage, divorce, birth of a child, etc.).protection insurance. We collect on delinquent debt. We also sell optional insurance and non-insurance products in connection with our loans. While insurance products are actively regulated by state insurance departments,Our debt collection practices and sales of optional insurance and non-insurance products could be challenged in a similar manner by the CFPB or state consumer lending regulators.


Some of the rulemaking under the Dodd-Frank Act remains to be done. As a result, the complete impact of the Dodd-Frank Act remains uncertain. The CFPB issued a proposed rule addressing third party debt collection, including communication practices and consumer disclosures, in May 2019. The CFPB also announced that it is considering rulemaking to further clarify the meaning of “abusive” under section 1031 of the Dodd-Frank Act. It is not clear what form these and other remaining regulations will ultimately take, or how our business will be affected. No assurance can be given that the Dodd-Frank Act and related regulations or any other new legislative changes enacted will not have a significant impact on our business.

For more information with respect to the regulatory framework affecting our businesses, see “Business—Regulation” included in this report.

Current and proposed regulations relating to consumer privacy, data protection and information security could increase our costs.

We are subject to a number of federal and state consumer privacy, data protection, and information security laws and regulations. For example, we are subject to the federal Gramm-Leach-Bliley Act, which governs the use of PII by financial institutions. Moreover, various state laws and regulations may require us to notify customers, employees, state attorneys general, regulators and others in the event of a security breach. Federal and state legislators and regulators are increasingly pursuing new guidance, laws, and regulations relating to consumer privacy, data protection and information security. Compliance with current or future customer privacy, data protection, and information security laws and regulations could result in higher compliance, technology or other operating costs. Any violations of these laws and regulations may require us to change our business practices or operational structure, and could subject us to material legal claims, monetary penalties, sanctions, and the obligation to compensate and/or notify customers, employees, state attorneys general, regulators and others or take other remedial actions.

Our use of third-party vendors is subject to increasing regulatory attention.review.


Recently, the CFPB and other regulators have issued regulatory guidance that has focusedfocusing on the need for financial institutions to perform increased due diligence and ongoing monitoring of third-party vendor relationships thus increasingwhich increases the scope of management involvement and decreasingdecreases the benefit that we receive from using third-party vendors. Moreover, if our regulators conclude that we have not met the heightened standards for oversight of our third-party vendors, we could be subject to enforcement actions, civil monetary penalties, supervisory orders to cease and desist or other remedial actions, which could have ana materially adverse effect on our business, reputation, financial condition and operating results. Further, federal and state regulators have been scrutinizing the practices of lead aggregators and providers recently.  If regulators place restrictions on certain practices by lead aggregators or providers, our ability to use them as a source for applicants could be affected.


Changes in federal, state or local tax laws could have a material adverse impact on our financial position, results
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On December 22, 2017, the President signed Public Law 115-97 (the “Tax Act”) into law. The Tax Act contains substantial changes to the U.S federal income tax code effective January 1, 2018, including a reduction in our federal corporate tax rate from 35% to 21%. In the long-term, we anticipate that we will have an overall benefit from the reduction in the tax rate slightly offset by potential deductions disallowed under the current law. However, we recognized a $23 million tax charge in 2017. This charge is primarily the result of the lower corporate tax rate, which required us to remeasure our net deferred tax asset to reflect the lower corporate tax rate. Although we are not aware of any provision in the Tax Act or any other pending tax legislation that would have a material adverse impact on our financial performance, the ultimate impact of the Tax Act may differ from our current assessment due to changes in interpretations and assumptions made by us as well as the issuance of any further regulations or guidance that may alter the operation of the U.S. federal income tax code. At this time, it is unclear how many U.S. states will incorporate these federal law changes, or portions thereof, into their tax codes. Further, the long-term impact of the Tax Act on the overall economy and our customers cannot be predicted so soon after the implementation of the Tax Act. Our customers are likely to experience varying effects from the provisions of the Tax Act both positive and negative. Consequently, there can be no assurance that the Tax Act will not negatively impact our operating results, financial condition, and future business operations.

We purchase and sell finance receivables, including charged offcharged-off receivables and receivables where the borrower is in default. This practice could subject us to heightened regulatory scrutiny, which may expose us to legal action, cause us to incur losses and/or limit or impede our collection activity.


As part of our business model, we purchase and sell finance receivables. Although the borrowers for some of these finance receivables are current on their payments, other borrowers may be in default (including in bankruptcy) or the debt may have been charged off as uncollectible. The CFPB and other regulators have recently significantly increased their scrutiny of the purchase and sale of debt, and collections practices undertaken by purchasers of debt, especially delinquent and charged offcharged-off debt. The CFPB has scrutinized sellers of debt for not maintaining sufficient documentation to support and verify the validity or amount of the debt. It has also scrutinized debt collectors for, among other things, their collection tactics, attempting to collect debts that no longer are valid, misrepresenting the amount of the debt and not having sufficient documentation to verify the


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validity or amount of the debt. Our purchases or sales of receivables could expose us to lawsuits or fines by regulators if we do not have sufficient documentation to support and verify the validity and amount of the finance receivables underlying these transactions, or if we or purchasers of our finance receivables use collection methods that are viewed as unfair or abusive. In addition, our collections could suffer, and we may incur additional expenses if we are required to change collection practices or stop collecting on certain debts as a result of a lawsuit or action on the part of regulators.


Changes in law and regulatory developments could result in significant additional compliance costs relating to securitizations.

The Dodd-Frank Act also may adversely affectand related rulemaking and regulatory developments has resulted, and will continue to result, in the incurrence of additional compliance costs in connection with securitization market because ittransactions. The Dodd-Frank Act requires, among other things, that a securitizer must retain at least a 5% economic interest in the credit risk of the securitized assets.assets; this requirement has reduced and will continue to reduce the amount of financing obtained from such transactions. Furthermore, sponsors are prohibited from diluting the required risk retention by dividing the economic interest among multiple parties or hedging or transferring the credit risk the sponsor is required to maintain. Moreover, the SEC’s significant changes to Regulation AB could result in sweeping changes to the commercial and residential mortgage loan securitization markets, as well as to the market for the re-securitization of mortgage-backed securities.


Rules relating to securitizations rated by nationally-recognized statistical rating agencies require that the findings of any third-party due diligence service providers be made publicly available at least five (5) business days prior to the first sale of securities, which has led and will continue to lead us to incur additional costs in connection with each securitization.

A certain amount of the rule-making under the Dodd-Frank Act remains to be done. As a result, the complete impact of the Dodd-Frank Act remains uncertain. It is not clear what form some of these remaining regulations will ultimately take, or how our business will be affected. No assurance can be given that the Dodd-Frank Act and related regulations or any other new legislative changes enacted will not have a significant impact on our business.

For more information with respect to the regulatory framework affecting our businesses, see “Business—Regulation” included in this report.


Investment Company Act considerations could affect our method of doing business.


We intend to continue conducting our business operations so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act of 1940 (the “Investment Company Act”). We are a holding company that conducts its businesses primarily through wholly ownedwholly-owned subsidiaries and are not an investment company because our subsidiaries are primarily engaged in the non-investment company business of consumer finance. Certain of our subsidiaries rely on exemptions from registration as an investment company, including pursuant to Sections 3(c)(4) and 3(c)(5) of the Investment Company Act. We rely on guidance published by the SEC staff or on our analyses of such guidance to determine our subsidiaries’ qualification under these and other exemptions. To the extent that the SEC staff publishes new or different guidance with respect to these matters, we may be required to adjust our business operations accordingly. Any additional guidance from the SEC staff could provide additional flexibility to us, or it could inhibit our ability to conduct our business operations. There can be no assurance that the laws and regulations governing the Investment Company Act status of real estate or real estate related assets or SEC guidance regarding Investment Company Act exemptions for real estate assets will not change in a manner that adversely affects our operations. If we fail to qualify for an exemption or exception from the Investment Company Act in the future, we could be required to restructure our activities or the activities of our subsidiaries, which could negatively affect us. In addition, if we or one or more of our subsidiaries fail to maintain compliance with the applicable exemptions or exceptions and we do not have another basis available to us on which we may avoid registration, and we were therefore required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure, management, operations, transactions with affiliated persons, holdings, and other matters, which could have an adverse effect on us.

Real estate loan servicing and loan modifications have come under increased scrutiny from government officials and others, which could make servicing our legacy real estate loan portfolio more costly and difficult.

Real estate loan servicers are under increased scrutiny. In addition, some states and municipalities have passed laws that impose additional duties on foreclosing lenders and real estate loan servicers, such as mandatory mediation or extensive requirements for maintenance of vacant properties, which, in some cases, begin even before a lender has taken title to property. These additional requirements can delay foreclosures, make it uneconomical to foreclose on mortgaged real estate or result in significant additional costs, which could materially adversely affect the value of our portfolio. The CFPB finalized mortgage servicing regulations that became effective in January 2014, which makes it more difficult and expensive to service real estate loans.

The U.S. Government implemented a number of federal programs to assist homeowners, including the Home Affordable Modification Program (HAMP), which expired on December 31, 2017. Loans subserviced for us by Nationstar Mortgage LLC



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and Select Portfolio Servicing, Inc. were subject to HAMP and were eligible for modification pursuant to HAMP guidelines. We have also implemented proprietary real estate loan modification programs in order to help real estate secured customers remain current on their loans. HAMP, our proprietary loan modification programs and other existing or future legislative or regulatory actions which result in the modification of outstanding real estate loans, may adversely affect the value of, and the returns on, our existing portfolio.

RISKS RELATED TO THE APOLLO-VÄRDE TRANSACTION

Failure to complete the Apollo-Värde Transaction could negatively affect our future business and financial results.

Completion of the Apollo-Värde Transaction is not assured and is subject to risks, including the risks that necessary regulatory approvals and clearances will not be obtained or that other closing conditions will not be satisfied. If the Apollo-Värde Transaction is not completed, our ongoing business and financial results may be adversely affected and we will be subject to several risks, including, that we may be subject to litigation related to any failure to complete the Apollo-Värde Transaction.

We will be subject to various uncertainties and contractual restrictions while the Apollo-Värde Transaction is pending that could adversely affect our financial results.

Uncertainty about the effect of the Apollo-Värde Transaction on counterparties to contracts, employees and other parties may have an adverse effect on us. These uncertainties could cause contract counterparties and others who deal with us to seek to change existing business relationships with us, and may impair our ability to attract, retain and motivate key personnel until the Apollo-Värde Transaction is completed and for a period of time thereafter. Employee retention and recruitment may be particularly challenging prior to completion of the Apollo-Värde Transaction, as our employees and prospective employees may experience uncertainty about their future roles with us following the Apollo-Värde Transaction.

The pursuit of the Apollo-Värde Transaction and the preparation involved may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect our financial results prior to and/or following the completion of the Apollo-Värde Transaction and could limit us from pursuing attractive business opportunities and making other changes to our business prior to completion of the Apollo-Värde Transaction.

In addition, the Share Purchase Agreement entered into in connection with the Apollo-Värde Transaction imposes certain restrictions on us. Without the consent of the Apollo-Värde Group, we are restricted from making certain acquisitions and divestitures, entering into certain contracts, incurring certain indebtedness and expenditures, paying certain dividends, repurchasing or issuing securities outside of existing share repurchase and equity award programs, and taking other specified actions until the earlier of the completion of the Apollo-Värde Transaction or the termination of the Share Purchase Agreement. These restrictions may prevent or delay pursuit of strategic corporate or business opportunities that may arise prior to the consummation of the Apollo-Värde Transaction. Adverse effects arising during the pendency of the Apollo-Värde Transaction could be exacerbated by any delays in consummation of the Apollo-Värde Transaction or termination of the related Share Purchase Agreement.

RISKS RELATED TO OUR INDEBTEDNESS


An inability to access adequate sources of liquidity may adversely affect our ability to fund operational requirements and satisfy financial obligations.


Our ability to access capital and credit may be significantly affected by disruption in the U.S. credit markets and the associated credit rating downgrades on our debt. In addition, the risk of volatility surrounding the global economic system and uncertainty surrounding regulatory reforms, such as the Dodd-Frank Act, continue to create uncertainty around access to the capital markets. Historically, we have funded our operations and repaid our debt and other obligations using funds collected from our finance receivable portfolio and new debt issuances. Although market conditions have improved since the financial crisis,Our current corporate credit ratings are below investment grade and, as a result, our traditional borrowing sources, includingcosts may further increase and our ability to cost-effectively issue large amounts ofborrow may be limited. In addition to issuing unsecured debt in the capitalpublic and private markets, particularly issuances of commercial paper,we have generally not been available to us. We have primarily raised capital through securitization transactions and, although there can be no assurances that we will be able to complete additional securitizations or issue additional unsecured debt, we currently expect our near-term sources of capital markets funding to continue to derive from securitization transactions and unsecured debt offerings.



Any future capital markets transactions will be dependent on our financial performance as well as market conditions, which may result in receiving financing on terms less favorable to us than our existing financings. In addition, our access to future financing and our ability to refinance existing debt will depend on a variety of factors such as our financial performance, the general availability of credit, our credit ratings and credit capacity at the time we pursue such financing.

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If we are unable to complete additional securitization transactions or unsecured debt offerings on a timely basis or upon terms acceptable to us or otherwise access adequate sources of liquidity, our ability to fund our own operational requirements and satisfy financial obligations may be adversely affected.


Our indebtedness is significant, which could affect our ability to meet our obligations under our debt instruments and could materially and adversely affect our business and ability to react to changes in the economy or our industry.


We currently have aOur significant amount of indebtedness. As of December 31, 2017, we had $7.9 billion of indebtedness outstanding. Interest expense on our indebtedness totaled $517 million in 2017.

The amount of indebtedness could have important consequences, including the following:

•it may require us to dedicate a significant portion of our cash flowflows from operations to the payment of the principal of, and interest on, our indebtedness, which reduces the funds available for other purposes, including finance receivable originations;originations and capital returns;

•it could limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing regulatory, business and economic conditions;

•it may limit our ability to incur additional borrowings or securitizations for working capital, capital expenditures, business development, debt service requirements, acquisitions or general corporate or other purposes, or to refinance our indebtedness;

•it may require us to seek to change the maturity, interest rate and other terms of our existing debt;

•it may place us at a competitive disadvantage to competitors that are proportionately not as highly leveraged;

•it may cause a downgrade of our debt and long-term corporate ratings; and

•it may cause us to be more vulnerable to periods of negative or slow growth in the general economy or in our business.


In addition, meeting our anticipated liquidity requirements is contingent upon our continued compliance with our existing debt agreements. An event of default or declaration of acceleration under one of our existing debt agreements could also result in an event of default and declaration of acceleration under certain of our other existing debt agreements. Such an acceleration of our debt would have a material adverse effect on our liquidity and our ability to continue as a going concern. If our debt obligations increase, whether due to the increased cost of existing indebtedness or the incurrence of additional indebtedness, the consequences described above could be magnified.


There can be no assurance that we will be able to repay or refinance our debt in the future.


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Certain of our outstanding notes contain covenants that restrict our operations and may inhibit our ability to grow our business and increase revenues.


SFC’s indenture and certain of SFC’s notes contain a covenant that limits SFC’s and its subsidiaries’ ability to create or incur liens. The restrictions may interfere with our ability to obtain new or additional financing or may affect the manner in which we structure such new or additional financing or engage in other business activities, which may significantly limit or harm our results of operations, financial condition and liquidity. A default and resulting acceleration of obligations could also result in an event of default and declaration of acceleration under certain of our other existing debt agreements. Such an acceleration of our debt would have a material adverse effect on our liquidity and our ability to continue as a going concern. A default could also significantly limit our alternatives to refinance both the debt under which the default occurred andas well as other indebtedness. This limitation may significantly restrict our financing options during times of either market distress or our financial distress, which are precisely the times when having financing options is most important.


The assessment of our liquidity is based upon significant judgments and estimates that could prove to be materially incorrect.


In assessing our current financial position and developing operating plans for the future, management has made significant judgments and estimates with respect to our liquidity, including but not limited to:



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•our ability to generate sufficient cash to service all of our outstanding debt;

•our continued ability to access debt and securitization markets and other sources of funding on favorable terms;

•our ability to complete on favorable terms, as needed, additional borrowings, securitizations, finance receivable portfolio sales, or other transactions to support liquidity, and the costs associated with these funding sources, including sales at less than carrying value and limits on the types of assets that can be securitized or sold, which would affect our profitability;

•the potential for downgrade of our debt by rating agencies, which would have a negative impact on our cost of, and access to, capital;

•our ability to comply with our debt covenants;

•our ability to make capital returns to OMH's stockholders;
•the amount of cash expected to be received from our finance receivable portfolio through collections (including prepayments) and receipt of finance charges, which could be materially different than our estimates;

•the potential for declining financial flexibility and reduced income should we use more of our assets for securitizations and finance receivable portfolio sales; and

•the potential for reduced income due to the possible deterioration of the credit quality of our finance receivable portfolios.

Additionally, there are numerous risks to our financial results, liquidity, and capital raising and debt refinancing plans that are not quantified in our current liquidity forecasts. These risks include, but are not limited, to the following:

•our inability to grow our personal loan portfolio with adequate profitability to fund operations, loan losses, and other expenses;

•our inability to monetize assets including, but not limited to, our access to debt and securitization markets;

•our inability to obtain the additional necessary funding to finance our operations;

•the effect of current and potential new federal, state and local laws, regulations, or regulatory policies and practices, including the Dodd-Frank Act, (which, among other things, established the CFPB with broad authority to regulate and examine financial institutions), on 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;

•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 warranty made in connection with the transaction;

•the potential for increasing costs and difficulty in servicing our loan portfolio as a result of heightened nationwide regulatory scrutiny of loan servicing and foreclosure practices in the industry generally, and related costs that could be passed on to us in connection with the subservicing of our real estate loans that were originated or acquired centrally;

•reduced cash receiptsflows as a result of the liquidation of our real estate loan portfolio;

•the potential for additional unforeseen cash demands or accelerationsacceleration of obligations;

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•reduced income due to loan modifications where the borrower’s interest rate is reduced, principal payments are deferred, or other concessions are made;

•the potential for declines or volatility in bond and equity markets; and

•the potential effect on us if the capital levels of our regulated and unregulated subsidiaries prove inadequate to support our current business plans.



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We intend to repay indebtedness with one or more of the following activities,sources, among others: finance receivable collections, cash on hand, proceeds of additional debt financings (particularly new securitizations and possible new issuances and/or debt refinancing transactions), finance receivable portfolio sales, or a combination of the foregoing. There can be no assurance that we will be successful in undertaking any of these activities to support our operations and repay our obligations.

The actual outcome of one or more of our plans could be materially different than expected or one or more of our significant judgments or estimates about the potential effects of these risks and uncertainties could prove to be materially incorrect. In the event of such an occurrence, if third-party financing is not available, our liquidity could be substantially and materially adversely affected, and as a result, substantial doubt could exist about our ability to continue as a going concern.


CurrentSFC's credit ratings could adversely affect our ability to raise capital in the debt markets at attractive rates, which could negatively affect our results of operations, financial condition, and liquidity.


Each of S&P, Moody’s, and Fitch ratesKBRA rate SFC’s debt. Ratings reflect the rating agencies’ opinions of a company’s financial strength, operating performance, strategic position and ability to meet ourits obligations. Agency ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization. Each agency’s rating should be evaluated independently of any other agency’s rating.


The table below outlines SFC’s long-term corporate debt ratings and outlook by rating agencies:

As of December 31, 2019RatingOutlook
As of December 31, 2017S&PRatingBB- OutlookStable 
Moody’sBa3 Stable 
SFC:KBRABB+ 
S&PStable BStable
Moody’sB2Positive
FitchBPositive


Currently, no other Springleaf entity has a corporate debt rating, though they may be rated in the future.


If SFC’s current ratings continue in effect or our ratings are downgraded, it will likely increase the interest rate that we would have to pay to raise money in the capital markets, making it more expensive for us to borrow money and adversely impacting our access to capital. As a result, oura downgrade of SFC's ratings could negatively impact our results of operations, financial condition and liquidity.


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Our securitizations may expose us to financing and other risks, and there can be no assurance that we will be able to access the securitization market in the future, which may require us to seek more costly financing.


We have securitized, and may in the future securitize, certain of our finance receivables to generate cash to originate or purchase new finance receivables or payrepay our outstanding indebtedness. In such transactions, we typically convey a pool of finance receivables to a special purpose entity, which, in turn, conveys the finance receivables to a trust (the issuing entity). Concurrently, the trust typically issues non-recourse notes or certificates pursuant to the terms of an indenture or pooling and servicing agreement, which then are transferred to the special purpose entity in exchange for the finance receivables. The securities issued by the trust are secured by the pool of finance receivables. In exchange for the transfer of finance receivables to the issuing entity, we typically receive the cash proceeds from the sale of the trust securities, all residual interests, if any, in the cash flows from the finance receivables after payment of the trust securities, and a 100% beneficial interest in the issuing entity.


Although we have successfully completed a number of securitizations since 2012, we can give no assurances that we will be able to complete additional securitizations if the securitization markets become constrained. In addition, the value of any subordinated securities that we may retain in our securitizations might be reduced or, in some cases, eliminated as a result of an adverse change in economic conditions.conditions or the financial markets.


WeSFC, OMFG, and OMFH currently act as the servicerservicers with respect to our consumerthe personal loan securitization trusts and related series of asset-backed securities. If we defaultSFC, OMFG, or OMFH defaults in ourits servicing obligations, an early amortization event could occur with respect to the relevant asset-backed securities and weSFC, OMFG, or OMFH, as applicable, could be replaced as servicer. Servicer defaults include, for example, the failure of the servicer to make any payment, transfer or deposit in accordance with the securitization documents, a breach of representations, warrantieswarranties or agreements made by the servicer under the securitization documents and the occurrence of certain insolvency events with respect to the servicer. Such an early amortization event could damage our reputation and have materially adverse consequences on our liquidity and cost of funds.



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Rating agencies may also affect our ability to execute a securitization transaction or increase the costs we expect to incur from executing securitization transactions, not only by deciding not to issue ratings for our securitization transactions, but also by altering the criteria and process they follow in issuing ratings. Rating agencies could alter their ratings processes or criteria after we have accumulated finance receivables for securitization in a manner that effectively reduces the value of those finance receivables by increasing our financing costs or otherwise requiring that we incur additional costs to comply with those processes and criteria. We have no ability to control or predict what actions the rating agencies may take.take in this regard.


Further, other matters, such as (i) accounting standards applicable to securitization transactions and (ii) capital and leverage requirements applicable to banks and other regulated financial institutions holding residential mortgage-backed securities or otherinstitutions' asset-backed securities, could result in decreased investor demand for securities issued through our securitization transactions, or increased competition from other institutions that undertake securitization transactions. In addition, compliance with certain regulatory requirements, including the Dodd-Frank Act and the Investment Company Act, may affect the type of securitizations that we are able to complete.


If it is not possible or economical for us to securitize our finance receivables in the future, we would need to seek alternative financing to support our operations and to meet our existing debt obligations, which may be less efficient and more expensive than raising capital via securitizations and may have a material adverse effect on our results of operations, financial condition and liquidity.


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RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE


The Apollo-Värde Group is OMH's largest stockholder, and the Apollo-Värde Group may exercise significant influence over us, including through its ability to designate a majority of the members of the board of directors, and its interests may conflict with the interests of OMH's other stockholders.

Effective June 25, 2018, OMH Holdings, L.P., a Delaware limited partnership, an entity formed by the Apollo-Värde Group, an investor group led by funds managed by Apollo and Värde, completed its purchase of 54,937,500 shares of OMH's common stock formerly beneficially owned by Springleaf Financial Holdings, LLC, an entity owned primarily by a private equity fund managed by an affiliate of Fortress. The Apollo-Värde Group's holdings represent approximately 40.4% of OMH's outstanding common stock as of December 31, 2019. As a result, the Apollo-Värde Group is OMH's largest stockholder and has significant influence on all matters requiring a stockholder vote, including the election of its directors; mergers, consolidations and acquisitions; the sale of all or substantially all of OMH's assets and other decisions affecting its capital structure; the amendment of OMH's restated certificate of incorporation and its amended and restated bylaws; and its winding up and dissolution. This concentration of ownership may delay, deter or prevent acts that would be favored by OMH's other stockholders, including delaying, preventing or deterring a change in control of OMH or a merger, takeover or other business combination that may be otherwise favorable to us or OMH's other stockholders. As a result, the market price of OMH's common stock could decline, or stockholders might not receive a premium over the then-current market price of OMH's common stock upon a change in control. In addition, this concentration of share ownership may adversely affect the trading price of OMH's common stock because investors may perceive disadvantages in owning shares in a company with a significant stockholder. See additional information under “Business Overview” in Item 1 of this report.

In connection with the closing of the Apollo-Värde Transaction, OMH entered into an Amended and Restated Stockholders Agreement, which provides the Apollo-Värde Group with the right to designate a majority of the members of the board of directors, plus one director, for so long as the Apollo-Värde Group and certain of its affiliates and permitted transferees continue to beneficially own, directly or indirectly, at least 33% of OMH's issued and outstanding common stock. With such representation on the board of directors, the Apollo-Värde Group will be able to exercise significant influence over decisions affecting OMH, including its direction and policies, the appointment of management and any action requiring the vote of its board of directors, including significant corporate action such as mergers and sales of substantially all of its assets and decisions affecting its capital structure. The interests of the Apollo-Värde Group may not always coincide with OMH's interests or the interests of OMH's other stockholders. The Apollo-Värde Group may seek to cause OMH to take courses of action that, in its judgment, could enhance its investment in OMH, but which might involve risks or adversely affect OMH or its other stockholders. The terms of the Amended and Restated Stockholders Agreement are further described in OMH's Current Report on Form 8-K filed with the SEC on June 25, 2018. The Amended and Restated Stockholders Agreement is filed as Exhibit 10.1 to that Current Report on Form 8-K, and such Current Report on Form 8-K, including Exhibit 10.1 thereto, is incorporated by reference herein in its entirety.

In addition, the Apollo-Värde Group and its affiliates may conduct business with any business that is competitive or in the same line of business as us, do business with any of our clients, customers or vendors, make investments in the kind of property in which we may make investments or acquire the same or similar types of assets that we may seek to acquire. Affiliates of the Apollo-Värde Group are in the business of making or advising on investments in companies and may hold, and from time to time in the future may acquire, interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business or are vendors or customers of ours. The Apollo-Värde Group may also pursue acquisitions that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

OMH and SFC are holding companies with no operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations and enable us to pay dividends.

OMH and SFC are holding companies with no material direct operations. Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries, which own our operating assets. As a result, we are dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations and enable OMH to pay dividends on its common stock. Our subsidiaries are legally distinct from us and certain of our subsidiaries are prohibited or restricted from paying dividends or otherwise making funds available to us under certain conditions. For example, our insurance subsidiaries are subject to regulations that limit their ability to pay dividends or make loans or advances to us, principally to protect policyholders, and certain of SFC's debt agreements limit the ability of certain of our subsidiaries to pay dividends. If we are unable to obtain funds from our subsidiaries, or if our subsidiaries do not generate sufficient cash from operations, we may be unable to meet our financial obligations or pay dividends, and the board may exercise its discretion not to pay dividends.

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OMH may not pay dividends on its common stock in the future, even if liquidity and leverage targets are met.

While OMH intends to pay regular quarterly dividends for the foreseeable future, and has announced an intention to pay semi-annual special dividends, all subsequent dividends will be reviewed quarterly and declared at the discretion of the board of directors and will depend on many factors. As a result, OMH cannot provide any assurance that it will continue to pay dividends on its common stock in future periods, even if liquidity and target leverage objectives are met. See our “Dividend Policy” in Part II - Item 5 of this report for further information.

Certain provisions of an amended and restated stockholders agreement with the Apollo-Värde Group, restated certificate of incorporation and amended and restated bylaws could hinder, delay or prevent a change in control of OMH, which could adversely affect the price of OMH's common stock.

Certain provisions of the Stockholders Agreement, OMH's restated certificate of incorporation and amended and restated bylaws contain provisions that could make it more difficult for a third party to acquire us without the consent of the board of directors or the Apollo-Värde Group. These provisions provide for:
•a classified board of directors consisting of nine members with staggered three-year terms;
•certain rights to the Apollo-Värde Group and certain of its affiliates and permitted transferees with respect to the designation of directors for nomination and election to the board of directors, including the ability to appoint a majority of the members of the board of directors, plus one director, for so long as the Apollo-Värde Group and certain of its affiliates and permitted transferees continue to beneficially own, directly or indirectly at least 33% of OMH's issued and outstanding common stock;
•removal of directors only for cause and only with the affirmative vote of at least 80% of the voting interest of stockholders entitled to vote (provided, however, that for so long as the Apollo-Värde Group and certain of its affiliates and permitted transferees beneficially own, directly or indirectly, at least 30% of OMH's issued and outstanding common stock, directors may be removed with or without cause with the affirmative vote of a majority of the then issued and outstanding voting interest of stockholders entitled to vote);
•no ability for stockholders to call special meetings of OMH's stockholders (provided, however, that for so long as the Apollo-Värde Group and certain of its affiliates and permitted transferees beneficially own, directly or indirectly, at least 20% of OMH's issued and outstanding common stock, any stockholders that collectively beneficially own at least 20% of OMH's issued and outstanding common stock may call special meetings of our stockholders);
•advance notice requirements by stockholders with respect to director nominations and actions to be taken at annual meetings;
•no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of OMH's common stock can elect all the directors standing for election;
•the ability for stockholders to act outside a meeting by written consent only if unanimous, provided, however, that for so long as the Apollo-Värde Group and certain of its affiliates and permitted transferees beneficially own, directly or indirectly, at least 20% of OMH's issued and outstanding common stock, OMH's stockholders may act without a meeting by written consent of a majority of OMH's stockholders; and
•the issuance of blank check preferred stock by the board of directors from time to time in one or more series and to establish the terms, preferences and rights of any such series of preferred stock, all without approval of OMH stockholders. Nothing in OMH's restated certificate of incorporation precludes future issuances without stockholder approval of the authorized but unissued shares of OMH's common stock.

In addition, these provisions may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by the Apollo-Värde Group, our management or the board of directors. Public stockholders who might desire to participate in these types of transactions may not have an opportunity to do so, even if the transaction is favorable to stockholders. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or change our management and board of directors and, as a result, may adversely affect the market price of OMH's common stock and the ability of public stockholders to realize any potential change of control premium.

See additional information under “Business Overview” in Item 1 of this report. The terms of the Amended and Restated Stockholders’ Agreement are described in OMH's Current Report on Form 8-K filed with the SEC on June 25, 2018, and such Current Report on Form 8-K is incorporated by reference herein in its entirety.

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Certain OMH's stockholders have the right to engage or invest in the same or similar businesses as us.

The Apollo-Värde Group and its affiliates engage in other investments and business activities in addition to their ownership of OMH. Under OMH's restated certificate of incorporation, the Apollo-Värde Group and its affiliates have the right, and have no duty to abstain from exercising such right, to engage or invest in the same or similar businesses as us, do business with any of our clients, customers or vendors or employ or otherwise engage any of our officers, directors or employees. If the Apollo-Värde Group and its affiliates, or any of their respective officers, directors or employees acquire knowledge of a potential transaction that could be a corporate opportunity, they have no duty, to the fullest extent permitted by law, to offer such corporate opportunity to us, OMH's stockholders or our affiliates.

In the event that any of our directors and officers who is also a director, officer or employee of any of the Apollo-Värde Group or its affiliates acquires knowledge of a corporate opportunity or is offered a corporate opportunity, provided that this knowledge was not acquired solely in such person’s capacity as our director or officer and such person acts in good faith, then even if the Apollo-Värde Group or its affiliates pursues or acquires the corporate opportunity or if the Apollo-Värde Group or its affiliates do not present the corporate opportunity to us, such person is deemed to have fully satisfied such person’s fiduciary duties owed to us and is not liable to us.

Licensing and insurance laws and regulations may delay or impede purchases of OMH's common stock.

Certain of the states in which we are licensed to originate loans and the state in which our insurance subsidiaries are domiciled (Texas) have laws and regulations which require regulatory approval for the acquisition of “control” of regulated entities. In addition, the Texas insurance laws and regulations generally provide that no person may acquire control, directly or indirectly, of a domiciled insurer, unless the person has provided the required information to, and the acquisition is subsequently approved or not disapproved by the Department of Insurance ("DOI"). Under state insurance laws or regulations, there exists a presumption of “control” when an acquiring party acquires as little as 10% of the voting securities of a regulated entity or of a company which itself controls (directly or indirectly) a regulated entity (the threshold is 10% under the insurance statute of Texas). Therefore, any person acquiring 10% or more of OMH's common stock may need the prior approval of the Texas insurance and/or licensing regulators, or a determination from such regulators that “control” has not been acquired, which could significantly delay or otherwise impede their ability to complete such purchase.

RISKS RELATED TO FINANCIAL REPORTING

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business.business and stock price.


We maintain disclosure controls and procedures designed to ensure that we timely report information as specified in the rules and regulations of the SEC. We also maintain a system of internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of the financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Effective internal control over financial reporting is necessary for us to provide reliable reports and prevent fraud.


We believe that a control system, no matter how well designed and managed, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. We may not be able to identify all significant deficiencies and/or material weaknesses in our internal controlcontrols in the future, and our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, financial condition, results of operations and prospects.


We are a holding company with no operations
38

Our valuations may include methodologies, models, estimations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations.

We are a holding company with no material direct operations. Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries,assumptions which own our operating assets. As a result, we are dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations. Our subsidiaries are legally distinct from us and certain of our subsidiaries are prohibited or restricted from paying dividends or otherwise making funds available to us under certain conditions. For example, our insurance subsidiaries are subject to regulationsdiffering interpretations and could result in changes to financial assets and liabilities that limit their abilitymay materially adversely affect our results of operations and financial condition.

The allowance for finance receivable losses is a critical accounting estimate which requires us to pay dividends or make loans or advancesuse significant estimates and assumptions to us, principallydetermine the appropriate level of allowance. We estimate the allowance for finance receivable losses primarily on historical loss experience using a roll rate-based model applied to protect policyholders,our finance receivable portfolio. We adjust the amounts determined by the roll rate-based model for management’s estimate of the effects of model imprecision which include any changes to underwriting criteria, portfolio seasoning, and certaincurrent economic conditions, including levels of our debt agreements limit the ability of certain of our subsidiaries to pay dividends.unemployment and personal bankruptcies. If we are unable to obtain funds frompredict certain of these assumptions accurately, our subsidiaries, weallowance for finance receivable losses may be inadequate. If actual finance receivable losses are materially greater than our allowance for finance receivable losses, our results of operations, financial condition, and liquidity could be adversely affected.

We use estimates, assumptions, and judgments when certain financial assets and liabilities are measured and reported at fair value. Fair values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices and/or other observable inputs provided by independent third-party sources, when available. During periods of market disruption, including periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to value certain assets if trading becomes less frequent or market data becomes less observable. In such cases, certain asset valuations may require significant judgment, and may include inputs and assumptions that require greater estimation, including credit quality, liquidity, interest rates and other relevant inputs. Changes in underlying factors, assumptions, or estimates in any of these areas could have a material adverse effect on our results of operations, financial condition, and liquidity.

RISKS RELATED TO OMH'S COMMON STOCK

The market price and trading volume of OMH's common stock may be volatile, which could result in rapid and substantial losses for OMH's stockholders.

The market price of OMH's common stock has been and may continue to be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in OMH's common stock may fluctuate and cause significant price variations to occur. If the market price of OMH's common stock declines significantly, public stockholders may be unable to resell their shares at or above their purchase price, if at all. The market price of OMH's common stock may fluctuate or decline significantly in the future. Some of the factors that could negatively affect the share price or result in fluctuations in the price or trading volume of OMH's common stock include:
•variations in our quarterly or annual operating results;
•changes in our earnings estimates (if provided) or differences between our actual financial and operating results and those expected by investors and analysts;
•the contents of published research reports about us or our boardindustry or the failure of securities analysts to cover OMH's common stock in the future;
•additions to, or departures of, key management personnel;
•any increased indebtedness we may exercise its discretion not to, pay dividends.incur in the future;

Item 1B. Unresolved Staff Comments.    

None

Item 2. Properties.    

We generally conduct branch office operations, which consisted of over 600 branch offices at December 31, 2017, through leased properties with lease terms generally ranging from three to five years.

Our non-subsidiary affiliate, OneMain General Services Corporation, successor to SGSC and SFMC (“OGSC”), holds the leasehold interests for certain of our leases and, pursuant to intercompany arrangements, such properties are used•announcements by us for our:or others and developments affecting us;

•actions by institutional stockholders or the Apollo-Värde Group;
•litigation and governmental investigations;
•changes in market valuations of similar companies;
•speculation or reports by the press or investment community with respect to us or our industry in general;
•increases in market interest rates that may lead purchasers of OMH's shares to demand a higher yield;
•announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic relationships, joint ventures or capital commitments; and
•general market, political and economic conditions, including any such conditions and local conditions in the markets in which our borrowers are located.


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These broad company, market and industry factors may decrease the market price of OMH's common stock, regardless of our actual operating performance. The stock market in general has from time to time experienced extreme price and volume fluctuations. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
(i)
Future offerings of debt or equity securities by us may adversely affect the market price of OMH's common stock.

In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of OMH's common stock or offering debt or other equity securities, including commercial paper, medium-term notes, senior or subordinated notes, debt securities convertible into equity or shares of preferred stock. In particular, we intend to continue to seek opportunities to acquire consumer finance portfolios and/or businesses that engage in consumer finance loan servicing and/or consumer finance loan originations. Future acquisitions could require substantial additional capital in excess of cash from operations. We would expect to finance the capital required for acquisitions through a combination of additional issuances of equity, corporate indebtedness, asset-backed acquisition financing and/or cash from operations.

Issuing additional shares of OMH's common stock or other equity securities or securities convertible into equity may dilute the economic and voting rights of OMH's stockholders at the time of such issuance or reduce the market price of OMH's common stock or both. Upon liquidation, holders of debt securities and preferred shares, if issued, and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of OMH's common stock. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of OMH's common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing or nature of our future offerings. Thus, holders of OMH's common stock bear the risk that our future offerings may reduce the market price of OMH's common stock and dilute their stockholdings in us.

The market price of OMH's common stock could be negatively affected by sales of substantial amounts of OMH's common stock in the public markets.

As of December 31, 2019, approximately 40.4% of OMH's outstanding common stock was held by the Apollo-Värde Group and, subject to certain restrictions set forth in an amended and restated stockholders agreement, can be resold into the public markets in the future in accordance with the requirements of the Securities Act. A decline in the price of OMH's common stock, whether as a result of sale of stock by the Apollo-Värde Group or otherwise, might impede our ability to raise capital through the issuance of additional common stock or other equity securities.

The future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise will dilute all other stockholdings.

OMH has an aggregate of 1,863,805,538 shares of common stock authorized but unissued as of January 31, 2020. OMH may issue all of these shares of common stock without any action or approval by OMH's stockholders, subject to certain exceptions. OMH also intends to continue to evaluate acquisition opportunities and may issue common stock in connection with these acquisitions. Any common stock issued in connection with our incentive plans, acquisitions, the exercise of outstanding stock options or otherwise would dilute the percentage ownership held by existing OMH's stockholders.


Item 1B. Unresolved Staff Comments.

None.


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Item 2. Properties.

Our branch operations include over 1,500 branch offices in 44 states. We support our branch business by conducting branch office operations, branch office administration, and centralized operations, including our servicing facilities, in Mendota Heights, MinnesotaMinnesota; Tempe, Arizona; Fort Mill, South Carolina; and Tempe, Arizona (ii)Fort Worth, Texas, in leased premises. Our branch offices have lease terms generally ranging from three to five years.

We lease administrative offices in Chicago, IllinoisIllinois; Wilmington, Delaware; Irving, Texas; and Wilmington, Delaware,New York, New York, which have seven year leases that expire in 2021, 2023, 2025, and 2022, respectively, (iii)2027, respectively. Additionally, we lease an administrative office in Irving, Texas under an eight year leaseBaltimore, Maryland, that expires in 2025 and (iv)2026, half of which has been sublet. During 2018, we vacated a leased office space that expires in 2022 in Stamford, Connecticut, which has a six year lease that expires in 2022.Ourbeen sublet.

Our investment in real estate and tangible property is not significant in relation to our total assets due to the nature of our business. At December 31, 2017, OGSC2019, our subsidiaries owned a loan servicing facility in London, Kentucky, and six buildings in Evansville, Indiana that are also utilized by us for our operations.Indiana. The Evansville buildings house our administrative offices and our centralized operations. Our servicing facilities, administrative offices, centralized operations, forand loan servicing facility support our Consumer and Insurance and Acquisitions and Servicing segments.segment.


See also Note 11 for Related Party Transactions.


Item 3. Legal Proceedings.
Item 3. Legal Proceedings.    


See Note 1916 of the Notes to the Consolidated Financial Statements included in this report.


Item 4. Mine Safety Disclosures.    

Item 4. Mine Safety Disclosures.

None.




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PART II


Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

MARKET INFORMATION AND STOCKHOLDERS

OMH’s common stock has been listed for Registrant’s Common Equity, Related Stockholder Matterstrading on the New York Stock Exchange (“NYSE”) since October 16, 2013. On November 27, 2015, we changed the symbol from “LEAF” to “OMF” as a result of the OneMain Acquisition. Our initial public offering was priced at $17.00 per share on October 15, 2013.

On January 31, 2020, there were five record holders of OMH's common stock. This figure does not reflect the beneficial ownership of shares held in nominee name. On January 31, 2020, the closing price for OMH's common stock, as reported on the NYSE, was $42.37.

DIVIDEND POLICY

OMH previously did not pay any dividends on its common stock from its initial public offering in 2013 through 2018. In February of 2019, the OMH Board of Directors announced a program of quarterly dividends of $0.25 per share, and Issuer Purchasesin July of Equity Securities.    2019 the board approved an additional special dividend of $2.00 per share payable in the third quarter of 2019. While OMH intends to pay regular quarterly dividends for the foreseeable future, and has announced an intention to pay semi-annual special dividends, all subsequent dividends will be reviewed quarterly and declared at the discretion of its board of directors and will depend on many factors, including our financial condition, earnings, cash flows, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends, and other considerations that the board of directors deems relevant. OMH's dividend payments may change from time to time, and OMH may not continue to declare dividends in the future.


No trading market exists for SFC’s common stock. All of SFC’s common stock is held by SFI.OMH. To provide funding for the quarterly and special dividends, mentioned above, SFC paid dividends to OMH of $34 million on March 13, 2019 and on June 13, 2019, $306 million on September 12, 2019, and $34 million on December 12, 2019. SFC did not pay any cash dividends on its common stock in 2017, 2016,2018 or 2015.2017.


Because SFC is awe are holding companycompanies and hashave no direct operations, SFCwe will only be able to pay cash dividends on its common stock from theour available cash on hand and any funds SFC receiveswe receive from itsour subsidiaries. Our insurance subsidiaries are subject to regulations that limit their ability to pay dividends or make loans or advances to us, principally to protect policyholders, and certain of ourSFC's debt agreements limit the ability of certain of our subsidiaries to pay dividends. See Note 14Notes 10 and 12 of the Notes to the Consolidated Financial Statements included in this report for further information on SFC's debt agreements and our insurance subsidiary dividends, and Note 12 of the Notes to Consolidated Financial Statements included in this report for more information about our debt agreements.respectively.

On January 11, 2016, SFC issued one share of SFC common stock to SFI for $10.5 million per transaction to satisfy interest payments required by SFC’s junior subordinated debenture. Each share of SFC common stock was issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. See “Liquidity and Capital Resources — Our Debt Agreements” included in this report for further information on SFC’s junior subordinated debenture.



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STOCK PERFORMANCE
Item 6. Selected
The following data and graph show a comparison of the cumulative total shareholder return for OMH's common stock, the NYSE Financial Data.    Sector (Total Return) Index, and the NYSE Composite (Total Return) Index from December 31, 2014 through December 31, 2019. This data assumes simultaneous investments of $100 on December 31, 2014 and reinvestment of any dividends. The information in this “Stock Performance” section shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.


omf-20191231_g2.jpg

At December 31,
201420152016201720182019
OneMain Holdings, Inc.$100.00  $114.85  $61.21  $71.86  $67.16  $116.53  
NYSE Composite Index100.00  95.91  107.36  127.46  116.06  145.66  
NYSE Financial Sector Index100.00  96.34  109.45  132.69  115.26  147.93  


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Item 6. Selected Financial Data.
The following table presents ourOMH's selected historical consolidated financial data and other operating data. The consolidated statement of operations data for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 and the consolidated balance sheet data as of December 31, 20172019 and 20162018 have been derived from ourOMH's audited consolidated financial statements included elsewhere herein. The statement of operations data for the years ended December 31, 20142016 and 20132015 and the consolidated balance sheet data as of December 31, 2015, 20142017, 2016, and 20132015 have been derived from ourOMH's consolidated financial statements not included elsewhere herein.


Due to the nominal differences between SFC and OMH, for the 2019 and 2018 periods, the selected historical consolidated financial data and other operating data relate only to OMH. See Note 2 of the Notes to the Consolidated Financial Statements included in this report for the reconciliation of results of SFC to OMH.

For SFC's selected historical consolidated financial data and other operating data for the years ended 2017, 2016 and 2015, see “Selected Financial Data” in Part II Item 6 of SFC's Annual Report on Form 10-K for the year ended December 31, 2018 filed on February 15, 2019.

The following selected financial data should be read in conjunction with “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations” included in this report and ourOMH's audited consolidated financial statements and related notes included in this report.
(dollars in millions, except per share amounts)At or for the Years Ended December 31,
20192018201720162015 *
Consolidated Statements of Operations Data:
Interest income$4,127  $3,658  $3,196  $3,110  $1,930  
Interest expense970  875  816  856  715  
Provision for finance receivable losses1,129  1,048  955  932  716  
Other revenues622  574  560  773  262  
Other expenses1,552  1,685  1,554  1,739  987  
Income (loss) before income tax expense (benefit)1,098  624  431  356  (226) 
Net income (loss)855  447  183  243  (93) 
Net income attributable to non-controlling interests—  —  —  28  127  
Net income (loss) attributable to OneMain Holdings, Inc.855  447  183  215  (220) 
Earnings (loss) per share:
Basic$6.28  $3.29  $1.35  $1.60  $(1.72) 
Diluted6.27  3.29  1.35  1.59  (1.72) 
Dividends:
Cash dividends declared per share$3.00  $—  $—  $—  $—  
Consolidated Balance Sheet Data:
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses$16,767  $14,771  $13,670  $12,457  $14,305  
Total assets22,817  20,090  19,433  18,123  21,190  
Long-term debt17,212  15,178  15,050  13,959  17,300  
Total liabilities18,487  16,291  16,155  15,057  18,460  
OneMain Holdings, Inc. shareholders’ equity4,330  3,799  3,278  3,066  2,809  
Non-controlling interests—  —  —  —  (79) 
Total shareholders’ equity4,330  3,799  3,278  3,066  2,730  
* On November 15, 2015, as part of our acquisition strategy, OMH completed the OneMain Acquisition. The selected financial data for 2015 includes OneMain’s results effective from November 1, 2015, pursuant to our contractual agreements with Citigroup.

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(dollars in millions) At or for the Years Ended December 31,
 2017 2016 2015 2014 2013
           
Consolidated Statements of Operations Data:          
Interest income $1,241
 $1,350
 $1,657
 $1,625
 $1,637
Interest expense 517
 556
 667
 683
 843
Provision for finance receivable losses 324
 329
 339
 352
 371
Other revenues 407
 574
 243
 745
 161
Other expenses 614
 693
 735
 657
 709
Income (loss) before income tax expense (benefit) 193
 346
 159
 678
 (125)
Net income (loss) 94
 233
 141
 445
 (76)
Net income attributable to non-controlling interests —
 28
 127
 48
 —
Net income (loss) attributable to Springleaf Finance Corporation 94
 205
 14
 397
 (76)
           
Consolidated Balance Sheet Data:          
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses $5,094
 $4,543
 $6,090
 $6,181
 $10,730
Total assets 10,824
 9,719
 12,188
 10,998
 12,612
Long-term debt 7,865
 6,837
 9,582
 8,356
 10,602
Total liabilities 8,418
 7,376
 10,156
 9,021
 11,227
Springleaf Finance Corporation shareholder’s equity 2,406
 2,343
 2,111
 2,106
 1,385
Non-controlling interests —
 —
 (79) (129) —
Total shareholder’s equity 2,406
 2,343
 2,032
 1,977
 1,385
           
Other Operating Data:          
Ratio of earnings to fixed charges 1.37
 1.61
 1.24
 1.98
 *
*Earnings did not cover total fixed charges by $125 million in 2013.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.




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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.    

The following discussion and analysis of ourOMH's financial condition and results of operations should be read together with the audited consolidated financial statements and related notes included in this report. This discussion and analysis contains forward-looking statements that involve risk, uncertainties, and assumptions. See “Forward-Looking StatementsStatements”” included in this report for more information. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including those discussed in “Risk FactorsFactors”” included in this report.


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

TopicPage
TopicPage
3745
3947
4149
4652
5055
5459
5764
5864
5965
5965


Overview    

Overview

We are a leading provider of responsible personal loan products, primarily to non-prime customers. Our network of over 6001,500 branch offices in 2844 states as of December 31, 2017,is staffed with highly trainedexpert personnel and is complemented by our online personal loan origination capabilities and centralized operations which allows us to reach customers located outside our branch footprint.and digital presence through online lending. Our digital platform provides current and prospective customers the option of obtaining an unsecuredapplying for a personal loan via our website,www.onemainfinancial.com. ( www.omf.com. The information on our website is not incorporated by reference into this report.) In connection with our personal loan business, weour insurance subsidiaries offer our customers optional credit and non-credit insurance.insurance, and other products.


In addition to our loan originations, and insurance and other product sales activities, we service loans owned by third-parties;us and service loans owned by third parties; pursue strategic acquisitions and dispositions of assets and businesses, including loan portfolios or other financial assets; and may establish joint ventures or enter into other strategic alliances or arrangements from time to time.alliances.


OUR PRODUCTS


Our product offerings include:


•Personal Loans —We offer personal loans through our branch network, and over the Internet through our centralized operations, and our website, www.omf.com, to customers who generally need timely access to cash. Our personal loans are typically non-revolving, with a fixed-rate, and a fixed original term of three to six years, and are secured by consumer goods, automobiles, or other personal propertytitled collateral, or are unsecured. At December 31, 2017,2019, we had nearly 920,000approximately 2.44 million personal loans, representing $5.3$18.4 billion of net finance receivables, compared to 928,000approximately 2.37 million personal loans totaling $4.8$16.2 billion at December 31, 2016.
2018.


•Insurance Products — We offer our customerscustomers optional credit insurance products (life insurance, disability insurance, and involuntary unemployment insurance) and optional non-credit insurance products through both our branch network and our centralized operations. Credit insurance and non-credit insurance products are provided by our affiliated insurance companies, Merit and Yosemite.companies. We offer GAP coverage as a waiver product or insurance. We also offer optional home and auto membership plans of an unaffiliated company.




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Our non-originating legacy products include:


Real Estate Loans•Other Receivables — In 2012, we We ceased originating real estate loans and the portfolio is in a liquidating status. During 2016, we sold $308 million real estate loans held for sale. At December 31, 2017, we had $128 million of real estate loans held for investment, of which 91% were secured by first mortgages, compared to $144 million at December 31, 2016, of which 93% were secured by first mortgages. Real estate loans held for sale totaled $132 million2012 and $153 million at December 31, 2017 and 2016, respectively.

Retail Sales Finance — We ceased purchasing retail sales finance contracts and revolving retail accounts in January of 2013. We continue to service theor sub-service liquidating real estate loans and retail sales contractsfinance contracts. Effective September 30, 2018, our real estate loans previously classified as other receivables were transferred from held for investment to held for sale due to management’s intent to no longer hold these finance receivables for the foreseeable future. See Notes 5, 6 and will provide revolving retail sales financing services on our revolving retail accounts.
7 of the Notes to the Consolidated Financial Statements included in this report for more information.


OUR SEGMENTSSEGMENT


At December 31, 2017, we had two operating segments:

Consumer and Insurance; and
Acquisitions and Servicing.

2019, C&I is our only reportable segment. Beginning in 2017,the fourth quarter of 2019, we include Real Estate,included our A&S, which was previously presented as a distinct reporting segment, in “Other.”Other. See Note 2219 of the Notes to the Consolidated Financial Statements included in this report for furthermore information on this change in our segment alignment and for more information about our segments. To conform to the new alignment of our segments, wesegment. We have revised our prior period segment disclosures.disclosures to conform to this new alignment.


HOW WE ASSESS OUR BUSINESS PERFORMANCE


We closely monitor the primary drivers of pretax operating income, which consist of the following:


Net Interest Income


We track the spread between the interest income, including certain fees earned on our finance receivables, and continually monitor the components that impact our yield. Generally, we include any past due fees on loans that we have collected from customer payments in interest income.

Interest Expense

We track the interest expense incurred on our debt, and continually monitor the components of our yield and our cost of funds. We expect interest expense to fluctuate based on changes in the secured versus unsecured mix of our debt, time to maturity, the cost of funds rate, and access to revolving conduit facilities.


Net Credit Losses


The credit quality of our loans is driven by our long-standing underwriting philosophy, which takes into accountconsiders the prospective customer’s household budget, and his or her willingness and capacity to repay, and the proposedunderlying collateral on the loan. We closely analyze credit performance because the profitability of our loan portfolio is directly connected to net credit losses. We define net credit losses as gross charge-offs minus recoveries in the portfolio. Additionally, because delinquencies are an early indicator of future net credit losses, we analyze delinquency trends, adjusting for seasonality, to determine whether or not our loans are performing in line with our original estimates. We also monitor recovery rates because of their contribution to the reduction in the severity of our charge-offs.


Operating Expenses


We assess our operational efficiency using various metrics and conduct extensive analysis to determine whether fluctuations in cost and expense levels indicate operational trends that need to be addressed. Our operating expense analysis also includes a review of origination and servicing costs to assist us in managing overall profitability.


Finance Receivables Originations

Because loan volume and portfolio size determine the magnitude of the impact of each of the above factors on our earnings, we also closely monitor origination volume and annual percentage rate.



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Recent Developments and Outlook
Recent Developments
RECENT DEVELOPMENTS 

Cash Dividends to OMH's Common Stockholders

For information regarding the quarterly dividends declared by OMH, see “Liquidity and Outlook    

APOLLO-VÄRDE TRANSACTION

On January 3, 2018, the Apollo-Värde Group entered into a Share Purchase Agreement with the Initial Stockholder and OMH to acquire from the Initial Stockholder 54,937, 500 shares (representing approximately 40.6% of OMH’S common stock that was issued and outstanding as of such date), representing the entire holdings of OMH’S stock beneficially owned by Fortress. The Apollo-Värde Transaction is expected to close in the second quarter of 2018 and is subject to regulatory approvals and other customary closing conditions. Further, upon closingCapital Resources” of the Apollo-Värde Transaction, we expect to recognize non-cash incentive compensation expenseManagement’s Discussion and Analysis of approximately $108 million along with a capital contribution offset such that the overall impact to our shareholders’ equity will be neutral.Financial Condition and Results of Operations in this report.


DIVIDEND OF SFMC

On April 10, 2017, SFMC, a former subsidiary of SFC, was contributed to SFI in the form of a dividend. SFI then contributed SFMC and SGSC to OMH, and SFMC merged into SGSC, which was renamed and is now OGSC. As a result of the dividend, the Company’s total shareholder equity and total assets were reduced by $38 million and $65 million, respectively, on the contribution date.

The contribution was the result of the continuing integration process, and part of a series of corporate consolidation transactions surrounding the OneMain Acquisition.

SFC’s MEDIUM-TERM NOTE ISSUANCES

6.125% SFC Notes

On May 15, 2017, SFC issued $500 million aggregate principal amountSFC's Issuances of 6.125% Senior Notes due 2022 (the “2022 SFC Notes”) under an Indenture dated as of December 3, 2014 (the “SFC Base Indenture”), as supplemented by a Third Supplemental Indenture, dated as of May 15, 2017 (the “SFC Third Supplemental Indenture” ), pursuant to which OMH provided a guarantee of the 2022 SFC Notes on an unsecured basis.

On May 30, 2017, SFC issued and sold $500 million aggregate principal amount of additional 2022 SFC Notes (the “Additional SFC Notes”) in an add-on offering. The initial 2022 SFC Notes and the Additional SFC Notes (collectively, the “6.125% SFC Notes”), are treated as a single class of debt securities and have the same terms, other than the issue date and the issue price.

SFC used a portion of these net proceeds to repurchase approximately $466 million aggregate principal amount of its existing 6.90%Due 2024, 6.625% Senior Notes due 2017 at a premium to par. SFC used the remaining net proceeds for general corporate purposes.

5.625% SFC Notes

On December 8, 2017, SFC issued $875 million aggregate principal amount of 5.625%Due 2028, 5.375% Senior Notes due 2023 (the ‘‘5.625% SFC Notes’’) underDue 2029 and Redemptions of 5.25% Senior Notes Due 2019 and 6.00% Senior Notes Due 2020

For further information regarding the SFC Base Indenture, as supplemented by a Fourth Supplemental Indenture dated asissuances and redemptions of December 8, 2017 (the “SFC Fourth Supplemental Indenture”), pursuant to which OMH provided a guarantee of the 5.625% SFC Notes on anour unsecured basis. SFC used a portion of these net proceeds to repay at maturity approximately $557 million aggregate principal amount of its existing 6.90% Medium-Term Notes. SFC intends to use the remaining net proceeds for general corporate purposes, which may include additional debt, repurchases and repayments.

Seesee Note 2 and 1210 of the Notes to Consolidated Financial Statements included in this report for further information on the SFC Offerings.

MATURITY OF SFC’S 6.90% MEDIUM-TERM NOTES

On December 15, 2017, the $557 million outstanding principal amount of SFC’s 6.90% Medium-Term Notes, Series J became due and payable.

See Note 12 of the Notes to Consolidated Financial Statements included in this report for further information on the maturity of SFC’s 6.90% medium-term notes.



39

THE TAX ACT

On December 22, 2017, the President signed into law the Tax Act, which contains substantial changes to the Internal Revenue Code effective January 1, 2018, including a reduction in the federal corporate tax rate from 35% to 21%. In the long-term, we anticipate that we will have an overall benefit from the reduction in the tax rate slightly offset by potential deductions disallowed under the current law. However, we recognized a $23 million tax charge in 2017. This charge is primarily the result of the lower corporate tax rate, which required us to remeasure our net deferred tax asset to reflect the lower corporate tax rate. For further information see Note 18 of the Notes to Consolidated Financial Statements included in this report.


IMPACT OF HURRICANES HARVEY, IRMA AND MARIASFC's Securitization Transactions Completed: OMFIT 2019-1, OMFIT 2019-A, OMFIT 2019-2 and ODART 2019-1


In AugustFor further information regarding the issuances of our secured debt, see “Liquidity and September of 2017, our customers in certain areasCapital Resources” of the United StatesManagement’s Discussion and Puerto Rico were impacted by hurricanes Harvey, IrmaAnalysis of Financial Condition and Maria. The estimated total hurricane-related impact recorded during 2017 was approximately $10 million, consisting primarilyResults of increasesOperations in this report.

Merger of SFI into SFC

As part of our efforts to streamline operations and financial reporting and improve the efficiencies in our loan loss reservebusinesses, we have taken various steps to simplify our legal entity structure. In culmination of these efforts, on September 20, 2019, SFC entered into a merger agreement with its direct parent SFI, to merge SFI with and borrower-related assistance programs. See additional discussion under “Resultsinto SFC, with SFC as the surviving entity. The merger was effective in SFC's consolidated financial statements as of Operations”July 1, 2019. As a result of SFI's merger with and “Segment Results” below.into SFC, SFC became a wholly-owned direct subsidiary of OMH. In conjunction with the merger, the net deficiency of SFI, after elimination of its investment in SFC, was absorbed by SFC resulting in an equity reduction of $408 million to SFC.


The net deficiency of SFI included an intercompany note payable plus accrued interest of $166 million from SFI to OMH which SFC assumed through the merger. On September 23, 2019, SFC repaid SFI’s note to OMH. Concurrently, OMH paid $22 million in other payables due to SFC and made an equity contribution of $144 million to SFC. Additionally, as a result of the merger, the intercompany notes between SFI and SFC were eliminated.

The transactions noted above resulted in a net $264 million reduction to SFC's equity.There was no impact to OMH's equity as a result of the merger.

Appointment of Member of the SFC Board of Directors and Executive Vice President of SFC

On January 2, 2020, Adam L. Rosman was appointed to the SFC Board of Directors and as Executive Vice President. Mr. Rosman replaced John C. Anderson, who resigned as a member of SFC's board of directors and as Executive Vice President on January 2, 2020.

Appointment of Executive Vice President and Chief Operating Officer (“COO”) of OMH

On June 24, 2019, the OMH Board of Directors appointed Rajive Chadha as Executive Vice President and COO, effective on his first day of employment, July 15, 2019. Mr. Chadha replaced Robert A. Hurzeler, who resigned as Executive Vice President and COO on May 1, 2019 and departed the Company on May 31, 2019.

Appointment of Chief Financial Officer (“CFO”) of OMH

On April 25, 2019, the OMH Board of Directors appointed Micah R. Conrad as CFO. Mr. Conrad replaced Scott T. Parker, who resigned as Executive Vice President and CFO on March 26, 2019 and departed the Company on April 4, 2019. Mr. Parker’s departure was not due to any disagreement between Mr. Parker and the Company relating to the Company’s financial reporting or condition, policies or practices. Mr. Conrad served as the Company’s acting CFO from March 26, 2019 until his appointment as CFO of OMH.

47

Appointment of Member of the SFC Board of Directors, President, and Chief Executive Officer (“CEO”) of SFC

On April 4, 2019, Richard N. Tambor was appointed to the SFC Board of Directors and as President and CEO of SFC. Mr. Tambor replaces Scott T. Parker, who resigned as a member of SFC's board of directors and as President and CEO of SFC.

Sale of Merit Life Insurance Co.

As part of our continuing integration efforts from the OneMain Acquisition, on March 7, 2019 we entered into a share purchase agreement to sell all of the issued and outstanding shares of our former insurance subsidiary, Merit. The transaction closed on December 31, 2019. We recorded a net gain of $9 million in the fourth quarter of 2019, which is included in other operating expenses. For further information regarding the sale, see Note 12 of the Notes to the Consolidated Financial Statements included in this report.

OUTLOOK


With our experienced management team, long track record of successfully accessing the capital markets, and strong demand for consumer credit, we believe we are well positioned to execute on our strategic priorities to strengthen our capital base by (i) continuingthrough the following key initiatives:

•Continuing growth in receivables through enhanced marketing strategies and customer product options, (ii) increasingoptions;
•Maintaining and enhancing credit performance;
•Leveraging our scale and cost discipline across the Company to deliver improved operating leverage;
•Increasing tangible equity and reducing leverage,financial leverage; and (iii) maintaining
•Maintaining a strong liquidity level with diversified funding sources.


Assuming the U.S. economy continues to experience slow to moderate growth, we expect to continue our long history of strong credit performance andperformance. We believe the strong credit quality of our loan portfolio will continue as the result of our disciplined underwriting practices and ongoing collection efforts. We have continued to see some migration of customer activity away from traditional channels, such as direct mail, to online channels (primarily serviced through our branch network), where we believe we are well suited to capture volume due to our scale, technology, and deployment of advanced analytics.







48
40


Results of Operations
Results
The results of Operations    SFC are consolidated into the results of OMH. Due to the nominal differences between SFC and OMH, content throughout this section relate only to OMH. See Note 2 of the Notes to the Consolidated Financial Statements included in this report for the reconciliation of results of SFC to OMH.


OMH'S CONSOLIDATED RESULTS


See the table below for ourOMH's consolidated operating results and selected financial statistics. A further discussion of ourOMH's operating results for each of our operating segmentssegment is provided under “Segment Results” below.

(dollars in millions, except per share amounts)
Years Ended December 31,201920182017
Interest income$4,127  $3,658  $3,196  
Interest expense970  875  816  
Provision for finance receivable losses1,129  1,048  955  
Net interest income after provision for finance receivable losses2,028  1,735  1,425  
Other revenues622  574  560  
Other expenses1,552  1,685  1,554  
Income before income taxes1,098  624  431  
Income taxes243  177  248  
Net income$855  $447  $183  
Share Data:  
Earnings per share:  
Diluted$6.27  $3.29  $1.35  
Selected Financial Statistics *  
Finance receivables held for investment:
Net finance receivables$18,389  $16,164  $14,957  
Number of accounts2,435,172  2,373,330  2,360,604  
Finance receivables held for sale:
Net finance receivables$64  $103  $132  
Number of accounts2,019  2,827  2,460  
Finance receivables held for investment and held for sale:
Average net receivables$17,055  $15,471  $14,057  
Yield24.13 %23.56 %22.64 %
Gross charge-off ratio6.79 %7.13 %7.50 %
Recovery ratio(0.74)%(0.73)%(0.76)%
Net charge-off ratio6.05 %6.40 %6.74 %
30-89 Delinquency ratio2.46 %2.42 %2.49 %
Origination volume$13,803  $11,923  $10,537  
Number of accounts originated1,481,166  1,436,029  1,442,895  
Debt balances:
Long-term debt balance$17,212  $15,178  $15,050  
Average daily debt balance16,336  15,444  14,224  
* See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.
(dollars in millions)      
Years Ended December 31, 2017 2016 2015
       
Interest income $1,241
 $1,350
 $1,657
Interest expense 517
 556
 667
Provision for finance receivable losses 324
 329
 339
Net interest income after provision for finance receivable losses 400
 465
 651
Net gain on sale of SpringCastle interests —
 167
 —
Other revenues 407
 407
 243
Other expenses 614
 693
 735
Income before income tax expense 193
 346
 159
Income tax expense 99
 113
 18
Net income 94
 233
 141
Net income attributable to non-controlling interests —
 28
 127
Net income attributable to SFC $94
 $205
 $14
       
Selected Financial Statistics (a)      
Finance receivables held for investment:      
Net finance receivables $5,442
 $4,959
 $6,564
Number of accounts 924,619
 934,618
 1,151,289
Finance receivables held for sale:      
Net finance receivables $132
 $153
 $793
Number of accounts 2,460
 2,800
 148,932
Finance receivables held for investment and held for sale: (b)      
Average net receivables $5,105
 $5,587
 $6,776
Yield 24.06 % 23.83 % 24.20 %
Gross charge-off ratio 6.90 % 6.61 % 5.18 %
Recovery ratio (1.27)% (0.97)% (0.82)%
Net charge-off ratio 5.63 % 5.64 % 4.36 %
30-89 Delinquency ratio 2.61 % 2.47 % 3.24 %
Origination volume $4,152
 $3,813
 $4,522
Number of accounts originated 590,570
 627,561
 818,758

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(a)See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.


(b)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.”
Comparison of Consolidated Results for 20172019 and 20162018


Interest income decreased $109 increased $469 million or 13% in 20172019 when compared to 2016 due to the net of the following:

Interest income on finance receivables held for sale decreased $61 million2018 primarily due to (i) personal loans soldgrowth in the Lendmark Sale in May 2016, and (ii) the real estate loans inour loan portfolio. The increase was also due to higher yield, which was primarily driven by lower amortization of purchase premium on non-credit impaired finance receivables, held for sale during 2016 period, which were soldthe continued stability in origination of annual percentage rates, and the fourth quarter of 2016.
improvement in late stage delinquency.



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Finance charges decreased $48Interest expense increased $95 million or 11% in 2019 when compared to 2018 primarily due to an increase in average debt, consistent with the net of the following:

Average net receivables held for investment decreased primarily due to (i) the SpringCastle Interests Sale and (ii) our liquidating real estate loan portfolio, including transfers of $307 million of real estate loans to finance receivables held for sale during 2016. This decrease was partially offset by the continued growth in our personal loan portfolio.

Yield on finance receivables held for investment increased primarily due to our liquidating real estate portfolio, and the sale of our SpringCastle portfolio in 2016strategic actions to increase unsecured debt, which have lower yields than our personal loan portfolio. This increase was partially offset by the continued shift of the personal loan portfolio towards higher credit quality loans with higher balances which tendtends to have loans with lower yields.
higher interest rates than secured debt, in order to achieve a more proportional mix of secured and unsecured funding.


Interest expense decreased $39 million in 2017 when compared to 2016 due to the net of the following:

Average debt decreased primarily due to debt elimination associated with the SpringCastle Interests Sale and net debt issuance and repayment activity in 2017. This decrease was partially offset by net debt issuances during the past 12 months relating to SFC’s offerings of the 6.125% SFC Notes in May of 2017 and our securitization transactions. See Notes 1210 and 1311 of the Notes to the Consolidated Financial Statements included in this report for further information on our long-term debt, securitization transactions, and our revolving conduit facilities.


Provision for finance receivable losses increased $81 million or 8% in 2019 when compared to 2018 primarily driven by the growth in our loan portfolio. The allowance for finance receivable losses as a percentage of net finance receivables was flat from prior period reflecting lower allowance requirements due to the continued shift in portfolio mix to more secured personal loans and improvements in the effectiveness of our collections, offset by the impacts of continued liquidation of purchased credit impaired finance receivables resulting from the OneMain Acquisition.
Weighted
Other revenues increased $48 million or 8% in 2019 when compared to 2018 primarily due to (i) a $31 million increase in insurance products sold due to higher loan volume and larger average loan size, (ii) a $29 million increase in investment revenue primarily driven by an increase in unrealized gains on equity investment securities due to improved market conditions and an increase in interest income due to higher yield and higher average cash and investment balances, (iii) a $13 million decrease in impairment loss recorded on the loans in finance receivables held for sale compared to the prior year, and (iv) an $11 million net gain on sale of a cost method investment. The increase was partially offset by $26 million of higher net losses on repurchases and repayments of debt and $15 million decrease in gain on sale of real estate loans sold in the prior year as compared to the current year.

Other expenses decreased $133 million or 8% in 2019 when compared to 2018 primarily due to $110 million of non-cash incentive compensation expense in 2018 related to the 2018 Apollo-Värde and AIG Share Sale Transactions, $14 million of impairment loss on the transfer of Yosemite to held for sale in 2018, and a $9 million net gain on the sale of Merit in 2019.

Income taxes totaled $243 million for 2019 compared to $177 million for 2018. The effective tax rate on our debt decreasedfor 2019 was 22.2% compared to 28.4% for 2018. The effective tax rate for 2019 differed from the federal statutory rate of 21% primarily due to the (i) repurchaseeffect of $600 million of unsecured notes, which had a higher interest rate relative to our other indebtedness, and (ii) the issuance of securitizations at a lower interest rate relative to our other indebtedness. This decrease was partiallystate income taxes, offset by (i) SFC’s offeringthe release of the 8.25% SFC Notes in Aprilvaluation allowance against certain state deferred taxes. The effective tax rate for 2018 differed from the federal statutory rate of 201621% primarily due to the effect of discrete tax expense for non-deductible compensation expense and (ii) the debt elimination associated with the SpringCastle Interests Sale, which generally had a lower interest rate relative to our other indebtedness.
state income taxes.


Interest expense on note payable to affiliate of $7 million resulting from a revolving demand note agreement between SFC and OMFH, entered into on December 1, 2015 and which was paid off in 2016. See Note 1115 of the Notes to the Consolidated Financial Statements included in this report for further information on this note.

Provision for finance receivable losses decreased $5 million in 2017 when compared to 2016 primarily due to (i) the alignment of pricing and credit strategies, which have driven originations toward higher quality customers who tend to have lower delinquencies and provision and (ii) the absence of net charge-offs on the previously owned SpringCastle Portfolio. This decrease was partially offset by (i) the growth in our personal loan portfolio and (ii) the estimated impacts of hurricanes Harvey, Irma and Maria. Based on information currently available, we estimate the impact to net charge-offs attributable to these hurricanes to be $8 million and have increased our provision for finance receivable losses accordingly.

Net gain on sale of SpringCastle interests of $167 million in 2016 reflected the net gain associated with the sale of our equity interests in the SpringCastle Joint Venture on March 31, 2016.

Other revenues remained flat in 2017 when compared to 2016. Comparable year activity within other revenues included a $41 million increase in interest income on notes receivable from parent and affiliates in the 2017 period, as discussed in Note 11 of the Notes to Consolidated Financial Statements of this report. This increase was largely offset by a decrease in insurance revenues of $20 million during 2017 primarily due to lower volume of loans with insurance products sold and a decrease in runoff business and $18 million net gain on sales of personal and real estate loans in the 2016 period.

Other expenses decreased $79 million in 2017 when compared to 2016 due to the following:

Salaries and benefits decreased $40 million primarily due to a decrease in average staffing as a result of our integration of the two legacy companies.

Other operating expenses decreased $40 million primarily due to lower allocated expenses to SFC resulting from efficiencies gained from our continued integration efforts, which resulted in a greater absorption of corporate expenses by other OMH subsidiaries.

Insurance policy benefits and claims increased $1 million primarily due to unfavorable variances in credit claim and benefit reserves.



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Income taxes totaled $99 million for 2017 compared to $113 million for 2016. The effective tax rate for 2017 was 51.2% compared to 32.8% for 2016. The effective tax rate for 2017 differed from the federal statutory rate primarily due to the recognition of the impact of the Tax Act and effects of state income taxes. As a result of the Tax Act we recognized a $23 million tax charge in 2017. This charge is primarily the result of the lower corporate tax rate, which required us to remeasure our net deferred tax asset to reflect the lower corporate tax rate. The effective tax rate for 2016 differed from the federal statutory rate primarily due to the effects of the non-controlling interest in the previously owned SpringCastle Portfolio and effects of state income taxes. See Note 18 of the Notes to Consolidated Financial Statements included in this report for further information on the effective tax rates.


Comparison of Consolidated Results for 20162018 and 20152017


Interest income decreased $307 millionFor a comparison of OMH's results of operation for the years ended 2018 and 2017, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Consolidated Results” in 2016 when compared to 2015 due toPart II Item 7 of OMH's Annual Report on Form 10-K for the net of the following:

Finance charges decreased $321 million primarily due to the following:

Average net receivables held for investment decreased primarily due to (i) the SpringCastle Interests Sale, (ii) the transfer of $608 million of our personal loans to finance receivables held for sale on September 30, 2015, and (iii) our liquidating real estate loan portfolio, including the transfers of $257 million and $50 million of real estate loans to finance receivables held for sale on June 30, 2016 and November 30, 2016, respectively. This decrease was partially offset by the continued growth of our personal loan portfolio (primarily of our secured personal loans).

Yield on finance receivables held for investment decreased 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 increased $14 million 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 transfers of $307 million of real estate loans to finance receivables held for sale during 2016, which were sold in the August 2016 Real Estate Loan Sale andyear ended December 2016 Real Estate Loan Sale.

Interest expense decreased $111 million in 2016 when compared to 2015 due to the net of the following:

Average debt decreased primarily due to (i) the elimination of the debt associated31, 2018 filed with the SpringCastle Interests Sale and (ii) net debt repurchases and repayments during 2016 relating to our consumer securitization transactions and conduit facilities. This decrease was partially offset by net unsecured debt issued during 2016. See Notes 12 and 13 of the Notes to Consolidated Financial Statements included in this report for further informationSEC on our long-term debt, consumer loan securitization transactions, and our conduit facilities.

February 15, 2019.
Weighted average interest rate on our debt increased primarily due to (i) SFC’s offering of the 8.25% SFC Notes in April of 2016, as defined in “Liquidity and Capital Resources” included in this report and (ii) the elimination of debt associated with the SpringCastle Interests Sale, which generally had a lower interest rate relative to our other indebtedness. The increase was partially offset by 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.
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Interest expense on note payable to affiliate of $7 million resulting from a revolving demand note agreement between SFC and OMFH, entered into on December 1, 2015. See Note 11 of the Notes to Consolidated Financial Statements included in this report for further information on this note.

Provision for finance receivable losses decreased $10 million in 2016 when compared to 2015 primarily due to (i) lower allowance requirements on our personal loans due to improved performance of our remaining portfolio following the Lendmark Sale, (ii) 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, and (iii) lower net charge-offs on our real estate loans reflecting the liquidating status of the real estate loan portfolio and the transfers of $307 million of real estate loans to finance receivables held for sale during 2016. This decrease was partially offset by higher net charge-offs on our personal loans reflecting growth during the past 12 months.

Net gain on sale of SpringCastle interests of $167 million in 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 Consolidated Financial Statements included in this report for further information on the sale.


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Other revenues increased $164 million in 2016 when compared to 2015 primarily due to (i) increase in interest income on notes receivable from parent and affiliates of $172 million primarily reflecting interest income on the Cash Services Note during 2016, (ii) net gain on sales of personal and real estate loans of $18 million in 2016, (iii) servicing charge income for the receivables related to the Lendmark Sale of $6 million in 2016, and (iv) foreign currency translation adjustment gain of $4 million in 2016 resulting from the liquidation of our United Kingdom subsidiary. This increase was partially offset by (i) a decrease in investment revenues of $18 million during 2016 primarily due to a decrease in invested assets and lower realized gains on the sale of investment securities and (ii) net loss on repurchases and repayments of debt of $17 million in 2016.

Other expenses decreased $42 million in 2016 when compared to 2015 due to the following:

Salaries and benefits decreased $17 million primarily due to (i) non-cash incentive compensation expense of $15 million recorded in 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 and (ii) a decrease in average staffing during 2016.

Other operating expenses decreased $8 million primarily due to the net of (i) nine additional months of servicing expenses for the SpringCastle Portfolio totaling $38 million during 2015, (ii) a decrease in deferred origination costs of $12 million during 2016, (iii) an increase in information technology expenses of $9 million during 2016, and (iv) an increase in professional fees of $8 million during 2016 primarily reflecting debt refinance costs.

Insurance policy benefits and claims decreased $17 million primarily due to favorable variances in benefit reserves during 2016, which partially resulted from a $9 million write-down of benefit reserves recorded during 2016.

Income taxes totaled $113 million for 2016 compared to $18 million for 2015. The effective tax rate for 2016 was 32.8% compared to 11.1% for 2015. The effective tax rate for 2016 and 2015 differed from the federal statutory rate primarily due to the effect of the non-controlling interest in the previously owned SpringCastle Portfolio, partially offset by the effect of state income taxes. On March 31, 2016, the Company sold its equity interest in the SpringCastle Portfolio. See Note 18 of the Notes to Consolidated Financial Statements included in this report for further information on the effective rates.

NON-GAAP FINANCIAL MEASURES


Adjusted Pretax Income (Loss)


Management uses adjusted pretax income (loss), a non-GAAP financial measure, as a key performance measure of our segments.segment. Adjusted pretax income (loss) represents income (loss) before income taxes on a Segment Accounting Basis and excludes net gain (loss) on sales of personal and real estate loans, net gain on sale of SpringCastle interests, SpringCastle transaction costs, losses resulting from repurchases and repayments of debt, debt refinance costs,acquisition-related transaction and integration expenses, net gain on sale of cost method investment, restructuring charges, additional net gain on Sale of SpringCastle interests, net loss on liquidationsale of our United Kingdom subsidiary,real estate loans, and income attributablenon-cash incentive compensation expense related to non-controlling interests.the Fortress Transaction. Management believes adjusted pretax income (loss) is useful in assessing the profitability of our segmentssegment and uses adjusted pretax income (loss) in evaluating our operating performance.performance and as a performance goal under OMH's executive compensation programs. Adjusted pretax income (loss) is a non-GAAP financial measure and should be considered supplemental to, but not as a substitute for or superior to, income (loss) before income taxes, net income, or other measures of financial performance prepared in accordance with GAAP.




44

TheOMH's reconciliations of income (loss) before income taxes attributable to SFCtax expense (benefit) on a Segment Accounting Basis to adjusted pretax income (loss) attributable to SFC (non-GAAP) by segment were as follows:


(dollars in millions)
Years Ended December 31,201920182017
Consumer and Insurance
Income before income taxes - Segment Accounting Basis$1,168  $787  $676  
Adjustments:
Net loss on repurchases and repayments of debt30  63  18  
Acquisition-related transaction and integration expenses14  47  66  
Net gain on sale of cost method investment  (11) —  —  
Restructuring charges  5  8  —  
Adjusted pretax income (non-GAAP)$1,206  $905  $760  
Other
Loss before income taxes - Segment Accounting Basis$(3) $(131) $(40) 
Adjustments:
Additional net gain on Sale of SpringCastle interests(7) —  —  
Net loss on sale of real estate loans *  1  6  —  
Non-cash incentive compensation expense—  106  —  
Acquisition-related transaction and integration expenses—  —  6  
Adjusted pretax loss (non-GAAP)$(9) $(19) $(34) 
(dollars in millions)      
Years Ended December 31, 2017 2016 2015
       
Consumer and Insurance      
Income before income taxes - Segment Accounting Basis $26
 $56
 $260
Adjustments:      
Net gain on sale of personal loans —
 (22) —
Net loss on repurchases and repayments of debt 17
 8
 —
Debt refinance costs —
 4
 —
Adjusted pretax income (non-GAAP) $43
 $46
 $260
       
Acquisitions and Servicing      
Income (loss) before income taxes - Segment Accounting Basis

 $(2) $219
 $244
Adjustments:      
Net gain on sale of SpringCastle interests —
 (167) —
SpringCastle transaction costs —
 1
 —
Income attributable to non-controlling interests —
 (28) (127)
Adjusted pretax income (loss) (non-GAAP) $(2) $25
 $117
       
Other      
Income (loss) before income taxes - Segment Accounting Basis $240
 $143
 $(195)
Adjustments:      
Net loss on sale of real estate loans —
 12
 —
Net loss on liquidation of United Kingdom subsidiary —
 6
 —
Net loss on repurchases and repayments of debt —
 1
 —
Debt refinance costs —
 1
 —
Adjusted pretax income (loss) (non-GAAP) $240
 $163
 $(195)



45

Segment Results    

* In 2019 and 2018, the resulting impairments on finance receivables held for sale that remained after the February 2019 and the December 2018 Real Estate Loan Sales were combined with the respective gains on sales. See Note 227 of the Notes to the Consolidated Financial Statements included in this report for (i) a description of our segments, (ii) reconciliations of segment totals to consolidated financial statement amounts, (iii) methodologies used to allocate revenuesmore information regarding the real estate loan sales.


Acquisition-related transaction and integration expenses to each segment, and (iv) further discussion of the differences in our Segment Accounting Basis and GAAP.

CONSUMER AND INSURANCE            

Adjusted pretax income and selected financial statistics for Consumer and Insurance (which are reported on an adjusted Segment Accounting Basis) were as follows:

(dollars in millions)      
At or for the Years Ended December 31, 2017 2016 2015
       
Interest income $1,213
 $1,192
 $1,115
Interest expense 439
 402
 190
Provision for finance receivable losses 316
 305
 255
Net interest income after provision for finance receivable losses 458
 485
 670
Other revenues 186
 205
 212
Other expenses 601
 644
 622
Adjusted pretax income (non-GAAP) $43
 $46
 $260
       
Selected Financial Statistics (a)      
Finance receivables held for investment:      
Net finance receivables $5,308
 $4,794
 $4,286
Number of accounts 919,697
 926,308
 887,523
Finance receivables held for sale:      
Net finance receivables $—
 $—
 $617
Number of accounts —
 —
 145,736
Finance receivables held for investment and held for sale: (b)      
Average net receivables $4,958
 $4,790
 $4,250
Yield 24.46 % 24.91 % 26.23 %
Gross charge-off ratio 7.00 % 7.07 % 5.92 %
Recovery ratio (1.23)% (0.95)% (0.86)%
Net charge-off ratio 5.77 % 6.12 % 5.06 %
30-89 Delinquency ratio 2.46 % 2.26 % 2.53 %
Origination volume $4,152
 $3,793
 $4,434
Number of accounts originated 590,570
 627,561
 818,758
(a)See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.

(b)Includes personal loans held for sale for the 2016 and 2015 periods in connection with the Lendmark Sale.


46

Comparison of Adjusted Pretax Income for 2017 and 2016
Interest income increased $21 million in 2017 when compared to 2016 due to the net of the following:

Interest income on finance receivables held for sale decreased $56 million in 2017 due to the transfer of our personal loans to finance receivables held for sale in the 2015 period that were sold in the Lendmark Sale in May of 2016.

Finance charges increased $77 million primarily due to the net of the following:

Average net receivables held for investment increased primarily due to the continued growth in our personal loan portfolio.

Yield on finance receivables held for investment decreased primarily due to the continued shift of the portfolio towards higher quality customers with higher average balances which have lower yields.

Interest expense increased $37 million in 2017 when compared to 2016 primarily due to an increase in the utilization of financing from unsecured notes which generally have higher interest rates relative to our other indebtedness.

Provision for finance receivable losses increased $11 million in 2017 when compared to 2016 primarily due to (i) the growth in our personal loan portfolio and (ii) the estimated impacts of hurricanes Harvey and Irma. Based on information currently available, we estimate the impact to net charge-offs attributable to these hurricanes to be $3 million and have increased our provision for finance receivable losses accordingly.

Other expenses decreased $43 million in 2017 when compared to 2016 due to the net of the following:

Salaries and benefits decreased $25 million primarily due to a decrease in average staffingincurred as a result of our
integrationthe OneMain Acquisition includes (i) compensation and employee benefit costs, such as retention awards and severance costs, (ii) accelerated amortization of the two legacy companies.

Other operating expenses decreased $19 million primarily due to lower allocated expenses to SFC resulting from
efficiencies gained from our continued integration efforts, which resulted in a greater absorption of corporate expenses
by other OMH subsidiaries.

Insurance policy benefits and claims increased $1 million primarily due to unfavorable variances in credit claim and benefit reserves.

Comparison of Adjusted Pretax Income for 2016 and 2015

Interest income increased $77 million in 2016 when compared to 2015 dueacquired software assets, (iii) rebranding to the following:

Finance charges increased $64 million primarily dueOneMain brand, (iv) branch infrastructure and other fixed asset integration costs, (v) information technology costs, such as internal platform development, software upgrades and licenses, and technology termination costs, (vi) legal fees and project management costs, (vii) system conversions, including human capital management, marketing, risk, and finance functions, and (viii) other costs and fees directly related to the netOneMain Acquisition and integration.

51


Segment Results

Average net receivables increased primarily dueThe results of SFC are consolidated into the results of OMH. Due to 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
loansnominal differences between SFC and OMH, content throughout this section relate only to finance receivables held for sale on September 30, 2015.

Yield decreased 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 and $43 million in 2016 and 2015, respectively, 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 $212 million in 2016 when compared to 2015 primarily due to a change in the methodology of allocating interest expense.OMH. See Note 222 of the Notes to the Consolidated Financial Statements included in this report for the allocation methodologies.reconciliation of results of SFC to OMH.


ProvisionSee Note 19 of the Notes to the Consolidated Financial Statements included in this report for finance receivable lossesa description of our segment and methodologies used to allocate revenues and expenses to our C&I segment and Other.

CONSUMER AND INSURANCE

OMH's adjusted pretax income and selected financial statistics for C&I on an adjusted Segment Accounting Basis were as follows:

(dollars in millions)
At or for the Years Ended December 31,201920182017
Interest income$4,114  $3,677  $3,305  
Interest expense947  844  765  
Provision for finance receivable losses1,105  1,047  963  
Net interest income after provision for finance receivable losses2,062  1,786  1,577  
Other revenues619  558  565  
Other expenses1,475  1,439  1,382  
Adjusted pretax income (non-GAAP)$1,206  $905  $760  
Selected Financial Statistics *  
Finance receivables held for investment:
Net finance receivables$18,421  $16,195  $14,820  
Number of accounts2,435,172  2,373,330  2,355,682  
Finance receivables held for investment and held for sale:
Average net receivables$17,089  $15,401  $13,860  
Yield24.07 %23.88 %23.84 %
Gross charge-off ratio6.86 %7.32 %7.94 %
Recovery ratio(0.84)%(0.84)%(0.93)%
Net charge-off ratio6.02 %6.48 %7.01 %
30-89 Delinquency ratio2.47 %2.43 %2.44 %
Origination volume$13,803  $11,923  $10,537  
Number of accounts originated1,481,166  1,436,029  1,442,895  
* See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.


52

Comparison of Adjusted Pretax Income for 2019 and 2018

Interest income increased $50$437 million or 12% in 20162019 when compared to 20152018 primarily due to higher net charge-offs on our personal loans reflecting growth during 2016.


47

Other revenues decreased $7 million in 2016 when compared to 2015 primarily due to the net of (i) a decrease in investment revenues of $10 million during 2016 resulting from a decrease in invested assets and lower realized gains on the sale of investment securities and (ii) an increase in insurance revenues of $2 million during 2016 reflecting higher earned credit premiums, partially offset by lower earned non-credit premiums.

Other expenses increased $22 million in 2016 when compared to 2015 due to the net of the following:

Other operating expenses increased $39 million primarily due to (i) an increase in credit and collection related costs of $13 million during 2016 reflectingcontinued growth in our loan portfolio (ii) a decreasealong with higher yield. The higher yield reflects the continued stability in deferred origination costs of $12annual percentage rates and the improvement in late stage delinquency.

Interest expense increased$103 million during 2016, and (iii)or 12% in 2019 when compared to 2018 primarily due to an increase in average debt, consistent with the growth in our loan portfolio, and our strategic actions to increase unsecured debt, which tends to have higher interest rates than secured debt, in order to achieve a more proportional mix of secured and unsecured funding.

See Notes 10 and 11 of the Notes to the Consolidated Financial Statements included in this report for further information technology expenseson our long-term debt, securitization transactions and our revolving conduit facilities.

Provision for finance receivable losses increased $58 million or 6% in 2019 when compared to 2018 primarily driven by the growth in our loan portfolio. The allowance for finance receivable losses as a percentage of $10net finance receivables decreased from prior periods due to the shift in portfolio mix to more secured personal loans and improvements in the effectiveness of collections.

Other revenues increased $61 million during 2016.

Insurance policy benefits and claims decreased $17 millionor 11% in 2019 when compared to 2018 primarily due to favorable variancesa $31 million increase in benefit reserves, which partially resulted frominsurance products sold due to higher loan volume and larger average loan size, and a $9$25 million write-downincrease in investment revenue primarily driven by an increase in unrealized gains on equity investment securities due to improved market conditions and an increase in interest income due to higher yield and higher average cash and investment balances.

Other expenses increased $36 million or 3% in 2019 when compared to 2018 primarily due to our continued reinvestment in our business operations while achieving operating leverage.

Comparison of benefit reserves recorded during 2016.
Adjusted Pretax Income for 2018 and 2017


ACQUISITIONS AND SERVICING

AdjustedFor a comparison of OMH's adjusted pretax income (loss) attributable to SFCfor C&I for the years ended 2018 and selected financial statistics2017, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment Results” in Part II Item 7 of OMH's Annual Report on Form 10-K for Acquisitions and Servicing (which are reportedthe year ended December 31, 2018 filed with the SEC on an adjusted Segment Accounting Basis) were as follows:February 15, 2019.


53

(dollars in millions)      
At or for the Years Ended December 31, 2017 2016 2015
       
Interest income $—
 $102
 $455
Interest expense —
 20
 87
Provision for finance receivable losses —
 14
 68
Net interest income after provision for finance receivable losses —
 68
 300
Other revenues —
 —
 5
Other expenses 2

15

61
Adjusted pretax income (loss) (non-GAAP) (2) 53
 244
Pretax income attributable to non-controlling interests —
 28
 127
Adjusted pretax income (loss) attributable to SFC (non-GAAP) $(2) $25
 $117
       
Selected Financial Statistics *      
Finance receivables held for investment:      
Net finance receivables $—
 $—
 $1,703
Number of accounts —
 —
 232,383
Average net receivables $—
 $414
 $1,887
Yield —% 24.19% 24.14%
Net charge-off ratio —% 3.48% 3.49%
30-89 Delinquency ratio —% —% 4.40%
OTHER
*See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.


On March 31, 2016, we sold our equity interest in the SpringCastle Joint Venture, the primary component“Other” consists of our Acquisitions
liquidating SpringCastle Portfolio servicing activity and Servicing segment.

OTHER

“Other” consist of our non-originating legacy operations, which include (i) our liquidating real estate loan portfolio as discussed belowloans and (ii) our liquidating retail sales finance portfolio (including retail sales finance accounts from our legacy auto finance operation).receivables.


Beginning in 2017, management no longer views or manages our real estate assets as a separate operating segment. Therefore,
the fourth quarter 2019, we are now including Real Estate,included A&S, which was previously presented as a distinct reporting segment, in “Other.” To conformOther. See Note 19 of the Notes to
the Consolidated Financial Statements included in this new alignment ofreport for further information on this change in our segments, wesegment alignment. We have revised our prior period segment disclosures.disclosures to conform to this new alignment.



48

AdjustedOMH's adjusted pretax income (loss)loss of the Other components (which are reported on an adjusted Segment Accounting Basis) wereBasis was as
follows:

(dollars in millions)
Years Ended December 31,201920182017
Interest income$9  $17  $23  
Interest expense5  17  21  
Provision for finance receivable losses (a)—  (5) 7  
Net interest income after provision for finance receivable losses4  5  (5) 
Other revenues26  33  45  
Other expenses (b)39  57  74  
Adjusted pretax loss (non-GAAP)$(9) $(19) $(34) 
(a) Provision for finance receivable losses for 2017 includes a $5 million increase due to estimated net charge-offs attributable to the impact of hurricanes Harvey and Maria.
(dollars in millions)      
Years Ended December 31, 2017 2016 2015
       
Interest income $23
 $51
 $76
Interest expense (a) 21
 52
 268
Provision for finance receivable losses (b) 7
 6
 (1)
Net interest income (loss) after provision for finance receivable losses (5) (7) (191)
Other revenues (c) 256
 198
 46
Other expenses (d) 11
 28
 50
Adjusted pretax income (loss) (non-GAAP) $240
 $163
 $(195)
(b) Other expenses for 2018 includes $4 million of non-cash incentive compensation expense related to the rights of certain executives to a portion of the cash proceeds from the sale of OMH’s common stock by SFH.
(a)
Interest expense for 2016 when compared to 2015 reflected a change in the methodology of allocating interest expense. See Note 22 of the Notes to Consolidated Financial Statements included in this report for the allocation methodologies table.

(b)
Provision for finance receivable losses includes a $5 million increase due to estimated net charge-offs attributable to the impact of hurricanes Harvey and Maria.

(c)
Other revenues reported in “Other” primarily includes interest income on the Cash Services Note (previously referred to as the “Independence Demand Note”) and on SFC’s note receivable from SFI. See Note 11 of the Notes to Consolidated Financial Statements included in this report for further information on the notes receivable from parent and affiliates.

(d)
Other expenses for 2015 reflected non-cash incentive compensation relating to the rights of certain executives to receive a portion of the cash proceeds received by the Initial Stockholder.


Net finance receivables held for investment of the Other components (which are reported on a Segment Accounting Basis) were as follows:
(dollars in millions)      
December 31, 2017 2016 2015
       
Net finance receivables:      
Personal loans $—
 $11
 $17
Real estate loans 136
 153
 565
Retail sales finance 6
 12
 24
Total $142
 $176
 $606



49

Credit Quality    

FINANCE RECEIVABLE COMPOSITION

The following table presents the composition of our finance receivables held for investment for each of the Company’s segments on a Segment Accounting Basis were as wellfollows:
(dollars in millions)
December 31,20192018*2017
Net finance receivables held for investment:
Other receivables$—  $—  $142  
Net finance receivables held for sale:
Other receivables$66  $103  $138  
* On September 30, 2018, we transferred our real estate loans previously classified as reconciliationsother receivables from held for investment to our totalheld for sale. See Notes 5 and 7 of the Notes to the Consolidated Financial Statements included in this report for further information.



54

Credit Quality

The results of SFC are consolidated into the results of OMH. Due to the nominal differences between SFC and OMH, content throughout this section relate only to OMH. See Note 2 of the Notes to the Consolidated Financial Statements included in this report for the reconciliation of results of SFC to OMH.

FINANCE RECEIVABLES

Our net finance receivables, on a GAAP basis:
(dollars in millions) 
Consumer
and
Insurance
 Other 
Segment to
GAAP
Adjustment
 
Consolidated
Total
         
December 31, 2017        
Personal loans $5,308
 $—
 $—
 $5,308
Real estate loans —
 136
 (8) 128
Retail sales finance —
 6
 —
 6
Total $5,308
 $142
 $(8) $5,442
         
December 31, 2016        
Personal loans $4,794
 $11
 $(1) $4,804
Real estate loans —
 153
 (9) 144
Retail sales finance —
 12
 (1) 11
Total $4,794
 $176
 $(11) $4,959

The largest componentconsisting of our finance receivablespersonal loans, were $18.4 billion at December 31, 2019 and primary source of our interest income is our personal loan portfolio.$16.2 billion at December 31, 2018. Our personal loans are typically non-revolving, with a fixed-rate, and a fixed original term of three to six years, and are secured by consumer goods, automobiles, or other personal propertytitled collateral, or are unsecured. We consider the concentration of secured loans, the underlying value of the collateral of the secured loans, and the delinquency status of our finance receivables as the primary indicators of credit quality. At December 31, 2017, 57%2019 and December 31, 2018, 52% and 48%, respectively, of our personal loans, on a consolidated basis, were secured by titled collateral, compared to 58% at December 31, 2016.collateral.


Distribution of Finance Receivables by FICO Score


There are many different categorizations used in the consumer lending industry to describe the creditworthiness of a borrower, including prime, non-prime,near prime, and sub-prime. We track and analyze the performance of our finance receivable portfolio using many different parameters, including FICO scores, which is widely recognized in the consumer lending industry.


We group FICO scores into the following credit strength categories:


•Prime: FICO score of 660 or higher
•     Non-prime:Near prime: FICO score of 620-659
•Sub-prime: FICO score of 619 or below


Our customers are described as prime at one end of the credit spectrum and sub-prime at the other. Our customers’ demographics are in many respects near the national median but may vary from national norms in terms of credit and repayment histories. Many of our customers have experienced some level of prior financial difficulty or have limited credit experience and require higher levels of servicing and support from our branch network.network and central servicing operations.




50

Our net finance receivablesThe following table reflects our personal loans grouped into the following categories described above based solely on borrower FICO credit scores atas of the purchase, origination, renewal, or most recently refreshed date wereor as follows:of the loan origination or purchase date:

(dollars in millions) 
Personal
Loans
 
Real Estate
Loans
 Retail Sales Finance Total(dollars in millions)
December 31,December 31,20192018
        
December 31, 2017 *        
FICO scores        FICO scores
660 or higher $1,233
 $42
 $3
 $1,278
660 or higher$3,951  $3,906  
620-659 1,397
 21
 1
 1,419
620-6594,683  4,251  
619 or below 2,678
 65
 2
 2,745
619 or below9,755  8,007  
Total $5,308
 $128
 $6
 $5,442
Total$18,389  $16,164  
        
December 31, 2016        
FICO scores        
660 or higher $888
 $41
 $5
 $934
620-659 1,079
 23
 2
 1,104
619 or below 2,814
 77
 4
 2,895
Unavailable 23
 3
 —
 26
Total $4,804
 $144
 $11
 $4,959

*The shift in FICO distribution includes the alignment in FICO versions across OMH. Effective March 31, 2017, the legacy Springleaf FICO scores were refreshed to FICO 08 version, which is comparable with the legacy OneMain FICO version.

The increase in the sub-prime category from prior year reflects the growth in secured loans, which accommodates customers with lower FICO scores.

DELINQUENCY


We consider the delinquency status of our finance receivables as the primary indicator of credit quality. We monitor delinquency trends to evaluate the risk of future credit losses and employ advanced analytical tools to manage our exposure and appetite.exposure. Our branch team members work with customers through occasional periods of financial difficulty and offer a variety of borrower assistance programs to help customers continue to make payments. Team members also actively engage in collection activities throughout the early stages of delinquency. We closely track and report the percentage of receivables that are contractually 30-89 days past due as a benchmark of portfolio quality, collections effectiveness, and as a strong indicator of losses in coming quarters.


55

When finance receivables are contractually 60 days past due, we consider them delinquentthese accounts to be at an increased risk for loss and we transfer collections managementcollection of these accounts to our centralized operations, as these accounts are considered to be at increased risk for loss.operations. Use of our centralized operations teams for managing late stage delinquency allows us to apply more advanced collections technologies/collection technologies and tools, and drives operating efficiencies in servicing. At 90 days contractually past due, we consider our finance receivables to be nonperforming.



The delinquency information for net finance receivables is as follows:
(dollars in millions)Consumer
and
Insurance		Segment to
GAAP
Adjustment		GAAP
Basis
December 31, 2019
Current$17,578  $(28) $17,550  
30-59 days past due273  (1) 272  
Delinquent (60-89 days past due)182  (1) 181  
Performing18,033  (30) 18,003  
Nonperforming (90+ days past due)388  (2) 386  
Total net finance receivables$18,421  $(32) $18,389  
Delinquency ratio
30-89 days past due2.47 %*  2.46 %
30+ days past due4.58 %*  4.56 %
60+ days past due3.09 %*  3.08 %
90+ days past due2.11 %*  2.10 %
December 31, 2018
Current$15,437  $(26) $15,411  
30-59 days past due231  (2) 229  
Delinquent (60-89 days past due)162  (1) 161  
Performing15,830  (29) 15,801  
Nonperforming (90+ days past due)365  (2) 363  
Total net finance receivables$16,195  $(31) $16,164  
Delinquency ratio
30-89 days past due2.43 %*  2.42 %
30+ days past due4.68 %*  4.66 %
60+ days past due3.26 %*  3.25 %
90+ days past due2.25 %*  2.25 %
* Not applicable.


56
51



The following table presents (i) delinquency information of the Company’s segments on a Segment Accounting Basis, (ii) reconciliations to our total net finance receivables on a GAAP basis, by number of days delinquent, and (iii) delinquency ratios as a percentage of net finance receivables:
(dollars in millions) 
Consumer
and
Insurance
 Other 
Segment to
GAAP
Adjustment
 
Consolidated
Total
         
December 31, 2017        
Current $5,064
 $109
 $(6) $5,167
30-59 days past due 75
 9
 (1) 83
Delinquent (60-89 days past due) 54
 4
 —
 58
Performing 5,193
 122
 (7) 5,308
         
Nonperforming (90+ days past due) 115
 20
 (1) 134
Total net finance receivables $5,308
 $142
 $(8) $5,442
         
Delinquency ratio        
30-89 days past due 2.46% 8.60% *
 2.61%
30+ days past due 4.61% 22.75% *
 5.06%
60+ days past due 3.20% 16.66% *
 3.54%
90+ days past due 2.16% 14.15% *
 2.46%
         
December 31, 2016        
Current $4,570
 $131
 $(9) $4,692
30-59 days past due 64
 10
 (1) 73
Delinquent (60-89 days past due) 45
 4
 —
 49
Performing 4,679
 145
 (10) 4,814
         
Nonperforming (90+ days past due) 115
 31
 (1) 145
Total net finance receivables $4,794
 $176
 $(11) $4,959
         
Delinquency ratio        
30-89 days past due 2.26% 8.32% *
 2.47%
30+ days past due 4.67% 25.88% *
 5.38%
60+ days past due 3.33% 20.16% *
 3.90%
90+ days past due 2.40% 17.56% *
 2.91%
*Not applicable.



52

ALLOWANCE FOR FINANCE RECEIVABLE LOSSES


We record an allowance for finance receivable losses to cover estimated incurred losses on our finance receivables. Our allowance for finance receivable losses may fluctuate based upon our continual review of the growth and credit quality of the finance receivable portfoliosportfolio and changes in economic conditions.


Changes in the allowance for finance receivable losses for each of the Company’s segments on a Segment Accounting Basis, as well as reconciliations to our total allowance for finance receivable losses on a GAAP basis, were as follows:
(dollars in millions)Consumer
and
Insurance		OtherSegment to
GAAP
Adjustment		Consolidated
Total
Year Ended December 31, 2019
Balance at beginning of period$773  $—  $(42) $731  
Provision for finance receivable losses1,105  —  24  1,129  
Charge-offs(1,172) —  15  (1,157) 
Recoveries143  —  (17) 126  
Balance at end of period$849  $—  $(20) $829  
Allowance ratio4.61 %(a) (a) 4.51 %
Year Ended December 31, 2018
Balance at beginning of period$724  $35  $(62) $697  
Provision for finance receivable losses1,047  (5) 6  1,048  
Charge-offs(1,127) (3) 26  (1,104) 
Recoveries129  3  (19) 113  
Other (b)—  (30) 7  (23) 
Balance at end of period$773  $—  $(42) $731  
Allowance ratio4.77 %(a) (a) 4.52 %
Year Ended December 31, 2017
Balance at beginning of period$732  $31  $(74) $689  
Provision for finance receivable losses963  7  (15) 955  
Charge-offs(1,100) (7) 53  (1,054) 
Recoveries129  4  (26) 107  
Balance at end of period$724  $35  $(62) $697  
Allowance ratio4.88 %24.28 %(a) 4.66 %
(a) Not applicable.
(dollars in millions) 
Consumer
and
Insurance
 
Acquisitions
and
Servicing
 Other 
Segment to
GAAP
Adjustment
 
Consolidated
Total
           
Year Ended December 31, 2017          
Balance at beginning of period $185
 $—
 $31
 $(12) $204
Provision for finance receivable losses 316
 —
 7
 1
 324
Charge-offs (347) —
 (7) 1
 (353)
Recoveries 61
 —
 4
 —
 65
Balance at end of period $215
 $—
 $35
 $(10) $240
           
Allowance ratio 4.07% —% 24.28% (a)
 4.41%
           
Year Ended December 31, 2016          
Balance at beginning of period $174
 $4
 $70
 $(24) $224
Provision for finance receivable losses 305
 14
 6
 4
 329
Charge-offs (338) (17) (18) 4
 (369)
Recoveries 44
 3
 8
 (1) 54
Other (b) —
 (4) (35) 5
 (34)
Balance at end of period $185
 $—
 $31
 $(12) $204
           
Allowance ratio 3.87% —% 17.51% (a)
 4.12%
           
Year Ended December 31, 2015          
Balance at beginning of period $132
 $3
 $91
 $(46) $180
Provision for finance receivable losses 255
 68
 (1) 17
 339
Charge-offs (248) (79) (28) 6
 (349)
Recoveries 36
 12
 8
 (1) 55
Other (c) (1) —
 —
 —
 (1)
Balance at end of period $174
 $4
 $70
 $(24) $224
           
Allowance ratio 4.05% 0.25% 11.57% (a)
 3.42%
(a)Not applicable.

(b)Other consists of:

•(b) Other consists primarily of the eliminationreclassification of allowance for finance receivable losses due to the saletransfer of the SpringCastle Portfolioreal estate loans in other receivables from held for investment to finance receivables held for sale on March 31, 2016, in
connection with the sale of our equity interest in the SpringCastle Joint Venture.September 30, 2018. See Note 25 and 7 of the Notes to the Consolidated Financial Statements included in this report for more information about the sale; andfurther information.

•     the elimination of allowance for finance receivable losses due to the transfers of real estate loans held for investment to finance
receivable held for sale during 2016.

(c)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 during 2015.


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The current delinquency status of our finance receivable portfolio, inclusive of recent borrower performance, along with the volume of our TDR activity, and the level and recoverability of collateral securing our finance receivable portfolio are the primary drivers that can cause fluctuations in our allowance for finance receivable losses from period to period. We monitor the allowance ratio to ensure we have a sufficient level of allowance for finance receivable losses to cover estimated incurred losses in our finance receivable portfolio.

In aggregate, our Consumer and Insurance The allowance for finance receivable losses increasedas a percentage of net finance receivables has decreased from prior periods reflecting lower allowance requirements due to the shift in portfolio mix to more secured personal loans and improvements in the effectiveness of our collections, offset by $30 million during 2017, inclusivethe impacts of $3 million related to estimatescontinued liquidation of impacts to charge-offspurchased credit impaired finance receivables resulting from hurricanes Harvey and Irma.the OneMain Acquisition.


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See Notes 4 andNote 6 of the Notes to the Consolidated Financial Statements included in this report for more information about the changes in the allowance for finance receivable losses.


TDR FINANCE RECEIVABLES


We make modifications to our finance receivables to assist borrowers during times ofexperiencing financial difficulties. When we modify a loan’s contractual terms for economic or other reasons related to the borrower’s financial difficulties and grant a concession that we would not otherwise consider, we classify that loan as a TDR finance receivable. The increase to the TDR portfolio in 2019 was primarily driven by the increase in modifications on late stage delinquent accounts and the growth in our loan portfolio.


Information regarding TDR net finance receivables held for investment for each of the Company’s segments on a Segment Accounting Basis, as well as reconciliations to information regarding our total TDR finance receivables held for investment on a GAAP basis, wereis as follows:
(dollars in millions)Consumer
and
Insurance		Segment to
GAAP
Adjustment		GAAP
Basis
December 31, 2019
TDR net finance receivables$721  $(63) $658  
Allowance for TDR finance receivable losses292  (20) 272  
December 31, 2018
TDR net finance receivables$555  $(102) $453  
Allowance for TDR finance receivable losses210  (40) 170  


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(dollars in millions) Consumer
and
Insurance		 Other Segment to
GAAP
Adjustment		 Consolidated
Total
         
December 31, 2017        
TDR net finance receivables $111
 $74
 $(25) $160
Allowance for TDR finance receivable losses 44
 26
 (14) 56
         
December 31, 2016        
TDR net finance receivables $47
 $71
 $(27) $91
Allowance for TDR finance receivable losses 20
 23
 (12) 31
Liquidity and Capital Resources

Upon the completion of our branch integration in the first quarter of 2017, we continued the alignment and enhancement of our collection processes, which in the second quarter of 2017 resulted in an increase in the loans now classified as TDRs and accordingly, we reclassified the associated allowance for finance receivable losses. The allowance for non-TDR finance receivable losses continues to reflect our historical loss coverage.

Liquidity and Capital Resources    


SOURCES AND USES OF FUNDS


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

SFC Issuance of 5.625% Senior Notes Due 2023

On December 8, 2017, SFC issued $875 million aggregate principal amount of the 5.625% SFC Notes under the SFC Fourth Supplemental Indenture, pursuant to which OMH provided a guarantee of the 5.625% SFC Notes on an unsecured basis. SFC used a portion of the net proceeds from the sale of the 5.625% SFC Notes to repay at maturity approximately $557 million aggregate principal amount of SFC’s existing 6.90% Medium-Term Notes and for general corporate purposes. See Note 12 of the Notes to Consolidated Financial Statements included in this report for further information on the issuance.



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SFC Issuance of 6.125% Senior Notes Due 2022

On May 15, 2017, SFC issued $500 million aggregate principal amount of the 6.125% SFC Notes under the SFC Third Supplemental Indenture, pursuant to which OMH provided a guarantee of the 6.125% SFC Notes on an unsecured basis. On May 30, 2017, SFC issued and sold $500 million aggregate principal amount of the Additional SFC Notes in an add-on offering. SFC used a portion of the net proceeds from the sale of the Additional SFC Notes to repurchase approximately $466 million aggregate principal amount of its existing 6.90% Senior Notes due 2017 at a premium to par. SFC used the remaining net proceeds from the sale of the 6.125% SFC Notes for general corporate purposes. See Note 12 of the Notes to Consolidated Financial Statements included in this report for further information on the issuance.

Securitizations and Borrowings from Revolving Conduit Facilities

During 2017, we (i) completed one consumer loan securitization and one auto securitization, and (ii) exercised our right to redeem the 2014-A Notes. At December 31, 2017, we had $3.4 billion in UPB of finance receivables pledged as collateral for our securitization transactions.

We are also party to various transaction agreements entered into on (i) September 6, 2017, in connection with the closing of the OneMain Financial Issuance Trust 2017-1 (“OMFIT 2017-1”) revolving pool consumer loan securitization and (ii) December 11, 2017, in connection with the closing of the OneMain Direct Auto Receivables Trust 2017-2 (“ODART 2017-2”) revolving pool direct auto loan securitization. The terms of each of the OMFIT 2017-1 and ODART 2017-2 securitization transaction agreements permit us to sell, upon customary terms and conditions, including indemnification and repurchase provisions for breaches of representations and warranties, eligible consumer loans during the revolving period of the OMFIT 2017-1 and ODART 2017-2 securitization. At December 31, 2017, we have not sold any consumer loans pursuant to the OMFIT 2017-1 securitization or direct auto loans pursuant to the ODART 2017-2 securitization.

During 2017, we (i) terminated five revolving conduit agreements and (ii) entered into three new conduit facilities. At December 31, 2017, we had access to five conduit facilities with a total borrowing capacity of $2.2 billion. At December 31, 2017, no amounts were drawn under these facilities.

See Notes 12 and 13 of the Notes to Consolidated Financial Statements included in this report for further information on our long-term debt, loan securitization transactions and conduit facilities.

Subsequent to December 31, 2017, we have drawn a net amount of $365 million under our various revolving conduit facilities.

USES OF FUNDS

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

At December 31, 2017, we had $244 million of cash and cash equivalents, which included $62 million of cash and cash equivalents held at our regulated insurance subsidiaries or for other operating activities that is unavailable for general corporate purposes. During 2017, we generated net income of $94 million. Our net cash outflow from operating and investing activities totaled $955 million in 2017. At December 31, 2017, our scheduled principal and interest payments for 2018 on our existing debt (excluding securitizations) totaled $324 million. As of December 31, 2017, we had $2.0 billion UPB of unencumbered personal loans and $328 million UPB of unencumbered real estate loans (including $193 million held for sale).

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

See Notes 12 and 13 of the Notes to Consolidated Financial Statements included in this report for further information on our long-term debt, loan securitization transactions and conduit facilities.


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



During 2019, OMH generated net income of $855 million. OMH net cash outflow from operating and investing activities totaled $1.1 billion for the year ended December 31, 2019. At December 31, 2019, our scheduled principal and interest payments for 2020 on our existing debt (excluding securitizations) totaled $1.7 billion. As of December 31, 2019, we had $9.9 billion UPB of unencumbered personal loans and $120 million UPB of unencumbered real estate loans. These real estate loans are included in held for sale.

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

SFC’s Issuances and Redemptions

For information regarding the issuances and redemptions of SFC's unsecured debt, see Note 10 of the Notes to the Consolidated Financial Statements included in this report.

Securitizations and Borrowings from Revolving Conduit Facilities

During the year ended December 31, 2019, we completed four personal loan securitizations (OMFIT 2019-1, ODART 2019-1, OMFIT 2019-A, and OMFIT 2019-2, see “Securitized Borrowings” below), and redeemed five securitizations (SLFT 2015-A, OMFIT 2015-1, OMFIT 2015-2, OMFIT 2016-2, and ODART 2017-1). At December 31, 2019, we had $8.3 billion in UPB of finance receivables pledged as collateral for our securitization transactions.

During the year ended December 31, 2019, we entered into four new revolving conduit facilities and terminated one revolving conduit facility.

Subsequent to December 31, 2019, we extended the revolving period for OneMain Financial Funding VII, LLC on January 24, 2020 from June 2021 to January 2023.

See Notes 10 and 11 of the Notes to the Consolidated Financial Statements included in this report for further information on our long-term debt, loan securitization transactions and conduit facilities.


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Cash Dividends to OMH's Common Stockholders

During 2019, dividend declarations by OMH's board of directors were as follows:

Declaration DateRecord DatePayment DateDividend Per ShareAmount Paid
(in millions)
February 11, 2019February 26, 2019March 15, 2019$0.25  $34  
April 29, 2019May 29, 2019June 14, 20190.25  34  
July 29, 2019August 27, 2019September 13, 20192.25  *  306  
October 28, 2019November 26, 2019December 13, 20190.25  34  
Total$3.00  $408  
* On July 29, 2019 the dividend declaration consisted of a regular quarterly dividend of $0.25 per share and a special dividend of $2.00 per share.

To provide funding for the dividends, SFC paid dividends to OMH of $34 million on March 13, 2019 and on June 13, 2019, $306 million on September 12, 2019, and $34 million on December 12, 2019.

On February 10, 2020, OMH declared a regular quarterly dividend of $0.33 per share and a special dividend of $2.50 per share payable on March 13, 2020 to record holders of OMH's common stock as of the close of business on February 26, 2020. To provide funding for the OMH dividend, the SFC Board of Directors authorized a dividend in the amount of up to $388 million payable on or after March 10, 2020.

While OMH intends to pay regular quarterly dividends for the foreseeable future, and has announced its intention to pay semi-annual special dividends, all subsequent dividends will be reviewed quarterly and declared at the discretion of the board of directors and will depend on many factors, including our financial condition, earnings, cash flows, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends, and other considerations that the board of directors deems relevant. OMH's dividend payments may change from time to time, and the board of directors may not continue to declare dividends in the future.

LIQUIDITY


OMH's Operating Activities


Net cash provided by operations of $438 million$2.4 billion for 20172019 reflected net income of $94$855 million, the impact of non-cash items, and an unfavorablea favorable change in working capital of $70$67 million. Net cash provided by operations of $475$2.0 billion for 2018 reflected net income of $447 million, the impact of non-cash items, and a favorable change in working capital of $86 million. Net cash provided by operations of $1.6 billion for 20162017 reflected a net income of $233$183 million, the impact of non-cash items, and a favorable change in working capital of $17 million. Net cash provided by operations of $608 million for 2015 reflected a net income of $141 million, the impact of non-cash items, and a favorable change in working capital of $72 million.


OMH's Investing Activities


Net cash used for investing activities of $1.4$3.4 billion, $2.4 billion, and $2.2 billion for 2019, 2018, and 2017, wasrespectively, were primarily due to net cash advances on intercompany notes receivable and net principal originations of finance receivables held for investment and held for sale. Net cash provided by investing activitiessale and purchases of $451 million for 2016 was primarily due to the SpringCastle Interests Sale, the Lendmark Sale, the August 2016 Real Estate Loan Sale, and the December 2016 Real Estate Loan Sale,available-for-sale securities, partially offset by net principal collectionssales, calls, and originationsmaturities of finance receivables held for investment and held for sale. Net cash used for investing activities of $2.0 billion for 2015 was primarily due to the OneMain Acquisition.available-for-sale securities.


OMH's Financing Activities


Net cash provided by financing activities of $901$1.5 billion for 2019 was primarily due to net issuances of long-term debt offset primarily by the cash dividends paid in 2019. Net cash provided by financing activities of $44 million for 2018 was primarily due to net issuances of long-term debt. Net cash provided by financing activities of $975 million for 2017 was primarily due to net issuances of long-term debt, including SFC’s offerings of the 6.125% SFC Notes in May of 2017 and the 5.625% SFC Notes in December of 2017; offset primarily by the repayment at maturity of existing 6.90% Medium-Term Notes and the repurchase of existing 6.90% Medium-Term Notes. Net
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OMH's Cash and Investments

At December 31, 2019, we had $1.2 billion of cash usedand cash equivalents, which included $182 million of cash and cash equivalents held at our regulated insurance subsidiaries or for financingother operating activities that is unavailable for general corporate purposes.

At December 31, 2019, we had $1.9 billion of $1.1 billioninvestment securities, which are all held as part of our insurance operations and are unavailable for 2016 was primarily due to net repayments of long-term debt. Net cash provided by financing activities of $992 million for 2015 reflected the debt issuances associated with the 2015-A and 2015-B securitizations.general corporate purposes.


Liquidity Risks and Strategies


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


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


•our inability to grow or maintain our personal loan portfolio with adequate profitability;
any inability to repay or default in the repayment of intercompany indebtedness owed to us by our affiliates or owed by us to our affiliates;
•the effect of federal, state and local laws, regulations, or regulatory policies and practices;
•effects of ratings downgrades on our secured or unsecured debt
•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, and a prolonged inability to adequately access capital market funding. We intend to support our liquidity position by utilizing some or all of 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 revolving conduit 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.



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However, it is possible that the actual outcome of one or more of our plans could be materially different than expected or that one or more of our significant judgments or estimates could prove to be materially incorrect.


OUR INSURANCE SUBSIDIARIES


Our insurance subsidiaries are subject to state regulations that limit their ability to pay dividends. See Note 1412 of the Notes to the Consolidated Financial Statements included in this report for further information on these restrictions and the dividends paid by our insurance subsidiaries during 2015from 2017 through 2017.2019.

OUR DEBT AGREEMENTS


The debt agreements to which SFC and its subsidiaries are a party include customary terms and conditions, including covenants and representations and warranties. See Note 1210 of the Notes to the Consolidated Financial Statements included in this report for further information on the restrictive covenants under SFC’s debt agreements, as well as the guarantees of SFC’s long-term debt.


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Securitized Borrowings
We execute private securitizations under Rule 144A of the Securities Act of 1933. As of December 31, 2019, our structured financings consisted of the following:
(dollars in millions)Issue Amount (a)Initial Collateral BalanceCurrent
Note Amounts
Outstanding (a)		Current Collateral Balance
(b)		Current
Weighted Average
Interest Rate		Original
Revolving
Period
SLFT 2015-B$314  $336  $314  $336  3.78 % 5 years
SLFT 2016-A532  559  166  208  3.49 % 2 years
SLFT 2017-A652  685  619  685  2.98 % 3 years
OMFIT 2015-3293  329  293  325  4.21 % 5 years
OMFIT 2016-1500  570  160  238  4.67 % 3 years
OMFIT 2016-3350  397  317  391  4.33 % 5 years
OMFIT 2017-1947  988  769  796  2.74 % 2 years
OMFIT 2018-1632  650  600  651  3.60 % 3 years
OMFIT 2018-2368  381  350  381  3.87 % 5 years
OMFIT 2019-1632  654  600  654  3.79 % 2 years
OMFIT 2019-2900  947  900  947  3.30 %7 years
OMFIT 2019-A789  892  750  892  3.78 %7 years
ODART 2017-2605  624  240  276  3.07 % 1 year
ODART 2018-1947  964  900  964  3.56 % 2 years
ODART 2019-1737  750  700  750  3.79 % 5 years
Total securitizations$9,198  $9,726  $7,678  $8,494  
(a) Issue Amount includes the retained interest amounts as applicable and the Current Note Amounts Outstanding balances reflect pay-downs subsequent to note issuance and exclude retained interest amounts.
(b) Inclusive of in-process replenishments of collateral for securitized borrowings in a revolving status as of December 31, 2019.
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Revolving Conduit Facilities
In addition to the structured financings, we have access to 14 revolving conduit facilities with a total borrowing capacity of $7.1 billion as of December 31, 2019:
(dollars in millions)Advance Maximum BalanceAmount
Drawn		Revolving
Period End		Due and Payable
Rocky River Funding, LLC$400 $— April 2022May 2023
OneMain Financial Funding IX, LLC650 — June 2022July 2023
Mystic River Funding, LLC850 — September 2022October 2025
Fourth Avenue Auto Funding, LLC200 — June 2022July 2023
OneMain Financial Funding VIII, LLC650 — August 2021September 2023
OneMain Financial Auto Funding I, LLC850 — June 2021July 2028
OneMain Financial Funding VII, LLC850 — June 2021July 2023
Thayer Brook Funding, LLC250 — July 2021August 2022
Hubbard River Funding, LLC250 — September 2021October 2023
Seine River Funding, LLC650 — October 2021November 2024
New River Funding, LLC250 — March 2022April 2027
Hudson River Funding, LLC500 — June 2022July 2025
Columbia River Funding, LLC500 — September 2022October 2025
St. Lawrence River Funding, LLC250 — October 2022November 2024
Total$7,100 $— 

See “Liquidity and Capital Resources - Sources and Uses of Funds - Securitizations and Borrowings from Revolving Conduit Facilities” above for information on the transaction completed subsequent to December 31, 2019.

Contractual Obligations


At December 31, 2017,2019, our material contractual obligations were as follows:

(dollars in millions)20202021-20222023-20242025+SecuritizationsTotal
Principal maturities on long-term debt:
Securitization debt (a)$—  $—  $—  $—  $7,678  $7,678  
Medium-term notes1,000  1,646  2,475  4,399  —  9,520  
Junior subordinated debt—  —  —  350  —  350  
Total principal maturities1,000  1,646  2,475  4,749  7,678  17,548  
Interest payments on debt (b)664  1,062  781  1,139  899  4,545  
Total$1,664  $2,708  $3,256  $5,888  $8,577  $22,093  
(a) On-balance sheet securitizations and borrowings under revolving conduit facilities are not included in maturities by period due to their variable monthly payments. At December 31, 2019, there were no amounts drawn under our revolving conduit facilities.
(dollars in millions) 2018 2019-2020 2021-2022 2023+ Securitizations Total
             
Principal maturities on long-term debt:            
Securitization debt (a) $—
 $—
 $—
 $—
 $3,052
 $3,052
Medium-term notes —
 2,000
 1,650
 1,175
 —
 4,825
Junior subordinated debt —
 —
 —
 350
 —
 350
Total principal maturities —
 2,000
 1,650
 1,525
 3,052
 8,227
Interest payments on debt (b) 324
 624
 314
 580
 208
 2,050
Operating leases (c) 16
 20
 7
 —
 —
 43
Total $340
 $2,644
 $1,971
 $2,105
 $3,260
 $10,320

(b) Future interest payments on floating-rate debt are estimated based upon floating rates in effect at December 31, 2019.
(a)On-balance sheet securitizations and borrowings under revolving conduit facilities are not included in maturities by period due to their variable monthly payments. At December 31, 2017, there were no amounts drawn under our revolving conduit facilities.



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(b)Future interest payments on floating-rate debt are estimated based upon floating rates in effect at December 31, 2017.Off-Balance Sheet Arrangements

(c)Operating leases include annual rental commitments for leased office space, automobiles, and information technology and related equipment.

Off-Balance Sheet Arrangements    


We have no material off-balance sheet arrangements as defined by SEC rules. Werules and we had no off-balance sheet exposure to losses associated with unconsolidated variable interest entitiesVIEs at December 31, 20172019 or 2016, other than certain representations and warranties associated with the sales of the mortgage-backed retained certificates during 2014. As of December 31, 2017, we had no repurchase activity related to these sales.2018.





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Critical Accounting Policies and Estimates

Critical Accounting Policies and Estimates    


We consider the following policies to be our most critical accounting policies because they involve critical accounting estimates and a significant degree of management judgment:


ALLOWANCE FOR FINANCE RECEIVABLE LOSSES


We estimate the allowance for finance receivable losses primarily on historical loss experience using a roll rate-based model applied to our finance receivable portfolios.portfolio. In our roll rate-based model, our finance receivable types are stratified by collateral mix and contractual delinquency stages, (i.e., current, 1-29 days past due, 30-59 days past due, etc.) and are projected forward in one-month increments using historical roll rates. In each month of the simulation, losses on our finance receivable types are captured, and the ending delinquency stratification serves as the beginning point of the next iteration. No new volume is assumed. This process is repeated until the number of iterations equals the loss emergence period (the interval of time between the event which causes a borrower to default on a finance receivable and our recording of the charge-off) for our finance receivable types. As delinquency is a primary input into our roll rate-based model, we inherently consider nonaccrual loans in our estimate of the allowance for finance receivable losses.


Management exercises its judgment, based on quantitative analyses, qualitative factors, such as recent delinquency and other credit trends, and experience in the consumer finance industry, when determining the amount of the allowance for finance receivable losses. We adjust the amounts determined by the roll rate-based model for management’s estimate of the effects of model imprecision which include but are not limited to, any changes to underwriting criteria, portfolio seasoning, and current economic conditions, including levels of unemployment and personal bankruptcies.

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. 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. We update our estimates for cash flows on a quarterly basis incorporating current assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that are reflective of current market conditions. If expected cash flows increase significantly, we adjust the yield prospectively; conversely, if expected cash flows decrease, we record an impairment.


TDR FINANCE RECEIVABLES


When we modify a loan’s contractual terms for economic or other reasons related to the borrower’s financial difficulties and grant a concession that we would not otherwise consider, we classify that loan as a TDR finance receivable. When we modify an account weLoan modifications primarily useinvolve a combination of the following to reduce the borrower’s monthly payment: reduce interest rate, extend the term, capitalizedefer or forgive past due interest or forgive principal. Account modifications that are deemed to be a TDR finance receivable are measured for impairment in accordance with the authoritative guidance for the accounting for impaired loans.


The allowance for finance receivable losses related to our TDR finance receivables represents loan-specific reserves based on an analysis of the present value of expected future cash flows. We establish our allowance for finance receivable losses related to our TDR finance receivables by calculating the present value (discounted at the loan’s effective interest rate prior to modification) of all expected cash flows less the recorded investment in the aggregated pool. We use certain assumptions to estimate the expected cash flows from our TDR finance receivables. The primary assumptions for our model are prepayment speeds, default rates, and severity rates.


FAIR VALUE MEASUREMENTS


Management is responsible for the determination of the fair value of our financial assets and financial liabilities and the supporting methodologies and assumptions. We employ widely used financial techniques or utilize third-party valuation service providers to gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments or pools of finance receivables. When our valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, we determine fair value either by requesting brokers who are knowledgeable about these securities to provide a quote, which is generally non-binding, or by employing widely used financial techniques.



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58



GOODWILL AND OTHER INTANGIBLE ASSETS


We test goodwill for potential impairment annually as of October 1 of each year and whenever events occur or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount. If the qualitative assessment indicates that it is more likely than not that the reporting unit’s fair value is less than its carrying amount, we proceed with the quantitative impairment test. When necessary, the fair value of the reporting unit is calculated utilizing the income approach, which uses prospective financial information of the reporting unit discounted at a rate that we estimate a market participant would use.

For indefinite livedindefinite-lived intangible assets, we review for impairment at least annually and whenever events occur or circumstances change that would indicate the assets are more likely than not to be impaired. We first complete an annual qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. If the qualitative assessment indicates that the assets are more likely than not to have been impaired, we proceed with the fair value calculation of the assets. The fair value is determined in accordance with our fair value measurement policy.

For those net intangible assets with a finite useful life, we review such intangibles for impairment at least annually and whenever events or changes in circumstances indicate that theirthe carrying amounts may not be recoverable.


Recent Accounting Pronouncements    

Recent Accounting Pronouncements

See Note 4 of the Notes to the Consolidated Financial Statements included in this report for discussion of recently issued accounting pronouncements.


Seasonality    

Seasonality

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





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59


Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.    


The fair values of certain of our assets and liabilities are sensitive to changes in market interest rates. The impact of changes in interest rates would be reduced by the fact that increases (decreases) in fair values of assets would be partially offset by corresponding changes in fair values of liabilities. In aggregate, the estimated impact of an immediate and sustained 100 bpbps increase or decrease in interest rates on the fair values of our interest rate-sensitive financial instruments would not be material to our financial position.


The estimated increases (decreases) in fair values of interest rate-sensitive financial instruments were as follows:
December 31,20192018
(dollars in millions)+100 bps-100 bps+100 bps-100 bps
Assets
Net finance receivables, less allowance for finance receivable losses$(218) $223  $(182) $187  
Finance receivables held for sale(5) 6  (8) 10  
Fixed-maturity investment securities(72) 74  (66) 71  
Liabilities
Long-term debt$(667) $713  $(391) $361  
December 31, 2017 2016
(dollars in millions) +100 bp -100 bp +100 bp -100 bp
         
Assets        
Net finance receivables, less allowance for finance receivable losses $(75) $78
 $(70) $72
Finance receivables held for sale (10) 12
 (11) 13
Fixed-maturity investment securities (22) 26
 (30) 30
         
Liabilities        
Long-term debt $(243) $224
 $(166) $150


We derived the changes in fair values by modeling estimated cash flows of certain of our assets and liabilities. We adjusted the cash flows to reflect changes in prepayments and calls, but did not consider loan originations, debt issuances, or new investment purchases.


We did not enter into interest rate-sensitive financial instruments for trading or speculative purposes.


Readers should exercise care in drawing conclusions based on the above analysis. While these changes in fair values provide a measure of interest rate sensitivity, they do not represent our expectations about the impact of interest rate changes on our financial results. This analysis is also based on our exposure at a particular point in time and incorporates numerous assumptions and estimates. It also assumes an immediate change in interest rates, without regard to the impact of certain business decisions or initiatives that we would likely undertake to mitigate or eliminate some or all of the adverse effects of the modeled scenarios.





66
60


Item 8. Financial Statements and Supplementary Data.
Item 8. Financial Statements and Supplementary Data.    


An index to our financial statements and supplementary data follows:


TopicPage
TopicPage
6268
70
Financial Statements of OneMain Holdings, Inc. and Subsidiaries:
6371
6472
6573
6674
6775
Financial Statements of Springleaf Finance Corporation and Subsidiaries:
77
78
79
80
81
Note 1.
6983
Note 2.
6984
Note 3.
7286
Note 4.
8295
Note 5.
8496
Note 6.
93101
Note 7.
95102
Note 8.
96103
Note 9.
99106
Note 10.
107
Note 10.11.
100
Note 11.
Related Party Transactions
100
Note 12.
Long-term Debt
104
Note 13.
Variable Interest Entities
108109
Note 14.12.
111
Note 13.
115
Note 15.14.
115
Note 16.
Capital Stock
115
Note 17.
Accumulated Other Comprehensive Income (Loss)
116117
Note 18.15.
117118
Note 19.16.
120121
Note 20.17.
121123
Note 21.18.
121128
Note 22.19.
124130
Note 23.20.
128133
Note 24.
Subsequent Events
134
Note 25. 21.
134139





67
61



Report of Independent Registered Public Accounting Firm (OneMain Holdings, Inc.)




Tothe Board of Directors and Shareholders of OneMain Holdings, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of OneMain Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, of comprehensive income, of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

68

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Finance Receivable Losses for Loans Collectively Evaluated for Impairment – Loss Emergence Period

As described in Notes 3 and 6 to the consolidated financial statements, the Company’s allowance for finance receivable losses for loans collectively evaluated for impairment was $557 million as of December 31, 2019. Management bases the allowance for finance receivable losses primarily on historical loss experience using a roll rate-based model applied to the Company’s finance receivable portfolios collectively evaluated for impairment. Losses are projected forward in one-month increments over the loss emergence period (the interval of time between the event which causes a borrower to default on a finance receivable and the recording of the charge-off).

The principal considerations for our determination that performing procedures relating to the allowance for finance receivable losses for loans collectively evaluated for impairment – loss emergence period is a critical audit matter are (i) there was significant judgment by management in determining the loss emergence period, which in turn led to a high degree of subjectivity and judgment in performing procedures relating to the loss emergence period, (ii) there was high degree of judgment in evaluating audit evidence relating to the loss emergence period, and (iii) significant audit effort was necessary to perform procedures related to the loss emergence period and involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from these procedures.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the allowance for finance receivable losses, including controls over the determination of the loss emergence period. These procedures also included, among others, testing management’s process for determining the loss emergence period, including testing the historical default and charge-off data inputs used in the determination of the loss emergence period, and evaluating the reasonableness of the loss emergence period, including consideration of underlying portfolio characteristics. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the methodology for determining the loss emergence period.

/s/ PricewaterhouseCoopers LLP

Dallas, Texas
February 14, 2020

We have served as the Company’s auditor since 2002.


69


Report of Independent Registered Public Accounting Firm (Springleaf Finance Corporation)


To the Board of Directors and Shareholder of Springleaf Finance Corporation



Opinion on the Financial Statements


We have audited the accompanying consolidated balance sheets of Springleaf Finance Corporation and its subsidiaries (the “Company”) as of December 31, 20172019 and 2016,2018, and the related consolidated statements of operations, of comprehensive income, (loss), shareholder’sof shareholder's equity and of cash flowsfor each of the three years in the period ended December 31, 2017,2019, including the related notes (collectively referred to as the “consolidatedfinancial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Companyas ofDecember 31, 20172019 and 2016,2018, and the results of theirits operations and theirits cash flows for each of the three years in the period endedDecember 31, 20172019 in conformity with accounting principles generally accepted in the United States of America.


Basis for Opinion


These consolidatedfinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits of these consolidatedfinancial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.


Our audits included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. We believe that our audits provide a reasonable basis for our opinion.


/s/ PricewaterhouseCoopers LLP


Dallas, Texas
February 21, 201814, 2020


We have served as the Company's auditor since 2002.




70
62


SPRINGLEAF FINANCE CORPORATIONONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

(dollars in millions, except par value amount)
December 31,20192018
Assets  
Cash and cash equivalents$1,227  $679  
Investment securities1,884  1,694  
Net finance receivables (includes loans of consolidated VIEs of $8.4 billion in 2019 and $8.5 billion
    in 2018)
18,389  16,164  
Unearned insurance premium and claim reserves(793) (662) 
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $340 million in
    2019 and $444 million in 2018)
(829) (731) 
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance
receivable losses		16,767  14,771  
Finance receivables held for sale64  103  
Restricted cash and restricted cash equivalents (includes restricted cash and restricted cash equivalents of
    consolidated VIEs of $400 million in 2019 and $479 million in 2018)
405  499  
Goodwill1,422  1,422  
Other intangible assets343  388  
Other assets705  534  
Total assets$22,817  $20,090  
Liabilities and Shareholders’ Equity  
Long-term debt (includes debt of consolidated VIEs of $7.6 billion in 2019 and $7.5 billion in 2018)$17,212  $15,178  
Insurance claims and policyholder liabilities649  685  
Deferred and accrued taxes34  45  
Other liabilities (includes other liabilities of consolidated VIEs of $14 million in 2019 and 2018)592  383  
Total liabilities18,487  16,291  
Commitments and contingent liabilities (Note 16)
Shareholders’ equity:  
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized, 136,101,156 and 135,832,278 shares issued and outstanding at December 31, 2019 and 2018, respectively1  1  
Additional paid-in capital1,689  1,681  
Accumulated other comprehensive income (loss)44  (34) 
Retained earnings2,596  2,151  
Total shareholders’ equity4,330  3,799  
Total liabilities and shareholders’ equity$22,817  $20,090  
(dollars in millions, except par value amount)    
December 31, 2017 2016
     
Assets    
Cash and cash equivalents $244
 $240
Investment securities 536
 582
Net finance receivables:    
Personal loans (includes loans of consolidated VIEs of $3.3 billion in 2017 and $2.9 billion in 2016) 5,308
 4,804
Real estate loans 128
 144
Retail sales finance 6
 11
Net finance receivables 5,442
 4,959
Unearned insurance premium and claim reserves (108) (212)
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $141 million in 2017 and $94 million in 2016) (240) (204)
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses 5,094
 4,543
Finance receivables held for sale 132
 153
Notes receivable from parent and affiliates 4,488
 3,723
Restricted cash and restricted cash equivalents (includes restricted cash and restricted cash equivalents of consolidated VIEs of $158 million in 2017 and $211 million in 2016) 169
 227
Other assets 161
 251
     
Total assets $10,824
 $9,719
     
Liabilities and Shareholder’s Equity    
Long-term debt (includes debt of consolidated VIEs of $3.0 billion in 2017 and $2.7 billion in 2016) $7,865
 $6,837
Insurance claims and policyholder liabilities 261
 248
Deferred and accrued taxes 78
 106
Other liabilities (includes other liabilities of consolidated VIEs of $5 million in 2017 and 2016) 214
 185
Total liabilities 8,418
 7,376
Commitments and contingent liabilities (Note 19) 

 

     
Shareholder’s equity:    
Common stock, par value $.50 per share; 25,000,000 shares authorized, 10,160,021 shares issued and outstanding at December 31, 2017 and 2016 5
 5
Additional paid-in capital 799
 799
Accumulated other comprehensive income (loss) —
 (7)
Retained earnings 1,602
 1,546
Total shareholder’s equity 2,406
 2,343
     
Total liabilities and shareholder’s equity $10,824
 $9,719


See Notes to the Consolidated Financial Statements.



71
63


SPRINGLEAF FINANCE CORPORATIONONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations

(dollars in millions, except per share amounts)
Years Ended December 31,201920182017
Interest income:
Finance charges$4,116  $3,645  $3,183  
Finance receivables held for sale11  13  13  
Total interest income4,127  3,658  3,196  
Interest expense970  875  816  
Net interest income3,157  2,783  2,380  
Provision for finance receivable losses1,129  1,048  955  
Net interest income after provision for finance receivable losses2,028  1,735  1,425  
Other revenues:  
Insurance460  429  420  
Investment95  66  73  
Net loss on repurchases and repayments of debt(35) (9) (29) 
Net gains on sales of real estate loans3  18  —  
Other99  70  96  
Total other revenues622  574  560  
Other expenses:  
Salaries and benefits808  917  777  
Other operating expenses559  576  593  
Insurance policy benefits and claims185  192  184  
Total other expenses1,552  1,685  1,554  
Income before income taxes1,098  624  431  
Income taxes243  177  248  
Net income$855  $447  $183  
Share Data:  
Weighted average number of shares outstanding:  
Basic136,070,837  135,702,989  135,249,314  
Diluted136,326,911  136,034,143  135,678,991  
Earnings per share:    
Basic$6.28  $3.29  $1.35  
Diluted$6.27  $3.29  $1.35  
(dollars in millions)      
Years Ended December 31, 2017 2016 2015
      
Interest income:      
Finance charges $1,228
 $1,276
 $1,597
Finance receivables held for sale originated as held for investment 13
 74
 60
Total interest income 1,241
 1,350
 1,657
       
Interest expense 517
 556
 667
       
Net interest income 724
 794
 990
       
Provision for finance receivable losses 324
 329
 339
       
Net interest income after provision for finance receivable losses 400
 465
 651
       
Other revenues:      
Insurance 140
 160
 158
Investment 28
 31
 49
Interest income on notes receivable from parent and affiliates 255
 214
 42
Net loss on repurchases and repayments of debt (28) (17) —
Net gain on sale of SpringCastle interests —
 167
 —
Net gain on sales of personal and real estate loans and related trust assets —
 18
 —
Other 12
 1
 (6)
Total other revenues 407
 574
 243
       
Other expenses:      
Operating expenses:      
Salaries and benefits 307
 347
 364
Other operating expenses 251
 291
 299
Insurance policy benefits and claims 56
 55
 72
Total other expenses 614
 693
 735
       
Income before income tax expense 193
 346
 159
       
Income tax expense 99
 113
 18
       
Net income 94
 233
 141
       
Net income attributable to non-controlling interests —
 28
 127
       
Net income attributable to Springleaf Finance Corporation $94
 $205
 $14


See Notes to the Consolidated Financial Statements.



72
64


SPRINGLEAF FINANCE CORPORATIONONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)

(dollars in millions)
Years Ended December 31,201920182017
  
Net income$855  $447  $183  
Other comprehensive income (loss):  
Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities88  (44) 21  
Retirement plan liability adjustments7  (7) 12  
Foreign currency translation adjustments5  (9) 6  
Income tax effect:  
Net unrealized gains (losses) on non-credit impaired available-for-sale securities(20) 9  (7) 
Retirement plan liability adjustments(1) 3  (3) 
Foreign currency translation adjustments(2) —  (2) 
Other comprehensive income (loss), net of tax, before reclassification adjustments77  (48) 27  
Reclassification adjustments included in net income, net of tax:  
Net realized losses (gains) on available-for-sale securities, net of tax1  1  (9) 
Retirement plan liability adjustments, net of tax—  —  (1) 
Reclassification adjustments included in net income, net of tax1  1(10) 
Other comprehensive income (loss), net of tax78  (47) 17  
Comprehensive income$933  $400  $200  
(dollars in millions)      
Years Ended December 31, 2017 2016 2015
       
Net income $94
 $233
 $141
       
Other comprehensive income (loss):      
Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities 13
 17
 (17)
Retirement plan liabilities adjustments 4
 22
 (9)
Income tax effect:      
Net unrealized (gains) losses on non-credit impaired available-for-sale securities (5) (6) 5
Retirement plan liabilities adjustments (1) (7) 3
Other comprehensive income (loss), net of tax, before reclassification adjustments 11
 26
 (18)
Reclassification adjustments included in net income:      
Net realized gains on available-for-sale securities (7) (8) (14)
Net realized gain on foreign currency translation adjustments —
 (4) —
Income tax effect:      
Net realized gains on available-for-sale securities 3
 3
 5
Reclassification adjustments included in net income, net of tax (4) (9) (9)
Other comprehensive income (loss), net of tax 7
 17
 (27)
       
Comprehensive income 101
 250
 114
       
Comprehensive income attributable to non-controlling interests —
 28
 127
       
Comprehensive income (loss) attributable to Springleaf Finance Corporation $101
 $222
 $(13)


See Notes to the Consolidated Financial Statements.




73
65


SPRINGLEAF FINANCE CORPORATIONONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholder’sShareholders’ Equity

OneMain Holdings, Inc. Shareholders’ Equity
(dollars in millions)Common
Stock		Additional
Paid-in
Capital		Accumulated
Other Comprehensive
Income (Loss)		Retained
Earnings		Total Shareholders’ Equity
Balance, January 1, 2019$1  $1,681  $(34) $2,151  $3,799  
Share-based compensation expense, net of forfeitures—  13  —  —  13  
Withholding tax on share-based compensation—  (5) —  —  (5) 
Other comprehensive income—  —  78  —  78  
Cash dividends *—  —  —  (410) (410) 
Net income—  —  —  855  855  
Balance, December 31, 2019$1  $1,689  $44  $2,596  $4,330  
Balance, January 1, 2018$1  $1,560  $11  $1,706  $3,278  
Non-cash incentive compensation from SFH—  110  —  —  110  
Share-based compensation expense, net of forfeitures—  21  —  —  21  
Withholding tax on share-based compensation—  (10) —  —  (10) 
Other comprehensive loss—  —  (47) —  (47) 
Impact of AOCI reclassification due to the Tax Act—  —  2  (2) —  
Net income—  —  —  447  447  
Balance, December 31, 2018$1  $1,681  $(34) $2,151  $3,799  
Balance, January 1, 2017$1  $1,548  $(6) $1,523  $3,066  
Share-based compensation expense, net of forfeitures—  17  —  —  17  
Withholding tax on share-based compensation—  (5) —  —  (5) 
Other comprehensive income—  —  17  —  17  
Net income—  —  —  183  183  
Balance, December 31, 2017$1  $1,560  $11  $1,706  $3,278  
  Springleaf Finance Corporation Shareholder’s Equity    
(dollars in millions) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Springleaf Finance Corporation Shareholder’s Equity Non-controlling Interests Total Shareholder’s Equity
               
Balance, January 1, 2017 $5
 $799
 $(7) $1,546
 $2,343
 $—
 $2,343
Other comprehensive income —
 —
 7
 —
 7
 —
 7
Dividend of SFMC to SFI —
 —
 —
 (38) (38) —
 (38)
Net income —
 —
 —
 94
 94
 —
 94
Balance, December 31, 2017 $5
 $799
 $—
 $1,602
 $2,406
 $—
 $2,406
               
Balance, January 1, 2016 $5
 $789
 $(24) $1,341
 $2,111
 $(79) $2,032
Capital contributions from parent —
 10
 —
 —
 10
 —
 10
Share-based compensation expense, net of forfeitures —
 1
 —
 —
 1
 —
 1
Withholding tax on share-based compensation —
 (1) —
 —
 (1) —
 (1)
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 —
 —
 17
 —
 17
 —
 17
Net income —
 —
 —
 205
 205
 28
 233
Balance, December 31, 2016 $5
 $799
 $(7) $1,546
 $2,343
 $—
 $2,343
               
Balance, January 1, 2015 $5
 $771
 $3
 $1,327
 $2,106
 $(129) $1,977
Non-cash incentive compensation from Initial Stockholder —
 15
 —
 —
 15
 —
 15
Share-based compensation expense, net of forfeitures —
 2
 —
 —
 2
 —
 2
Excess tax benefit from share-based compensation —
 1
 —
 —
 1
 —
 1
Change in non-controlling interests:              
Distributions declared to joint venture partners —
 —
 —
 —
 —
 (77) (77)
Other comprehensive loss —
 —
 (27) —
 (27) —
 (27)
Net income —
 —
 —
 14
 14
 127
 141
Balance, December 31, 2015 $5
 $789
 $(24) $1,341
 $2,111
 $(79) $2,032
* Cash dividends declared were $0.25 per share in the first, second, and fourth quarters, and $2.25 per share in the third quarter of 2019.


See Notes to the Consolidated Financial Statements.




74
66


SPRINGLEAF FINANCE CORPORATIONONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows


(dollars in millions)
Years Ended December 31,201920182017
Cash flows from operating activities  
Net income$855  $447  $183  
Reconciling adjustments:
Provision for finance receivable losses1,129  1,048  955  
Depreciation and amortization271  289  328  
Deferred income tax charge1  23  30  
Net loss on repurchases and repayments of debt35  9  29  
Non-cash incentive compensation from SFH—  110  —  
Share-based compensation expense, net of forfeitures13  21  17  
Other(9) 13  (4) 
Cash flows due to changes in other assets and other liabilities67  86  17  
Net cash provided by operating activities2,362  2,046  1,555  
Cash flows from investing activities  
Net principal originations of finance receivables held for investment and held for sale(3,305) (2,373) (2,275) 
Proceeds on sales of finance receivables held for sale originated as held for investment19  100  —  
Available-for-sale securities purchased(718) (680) (671) 
Available-for-sale securities called, sold, and matured574  563  739  
Other securities purchased(18) (11) —  
Other securities called, sold, and matured31  36  18  
Other, net(12) (32) (3) 
Net cash used for investing activities(3,429) (2,397) (2,192) 
Cash flows from financing activities  
Proceeds from issuance of long-term debt, net of commissions5,895  5,525  5,427  
Repayment of long-term debt(3,961) (5,471) (4,447) 
Cash dividends(408) —  —  
Withholding tax on share-based compensation(5) (10) (5) 
Net cash provided by financing activities1,521  44  975  
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents454  (307) 338  
Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period1,178  1,485  1,147  
Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period$1,632  $1,178  $1,485  
Supplemental cash flow information
Cash and cash equivalents$1,227  $679  $987  
Restricted cash and restricted cash equivalents405  499  498  
Total cash and cash equivalents and restricted cash and restricted cash equivalents$1,632  $1,178  $1,485  
Cash paid for amounts included in the measurement of operating lease liabilities$(58) $—  $—  
Interest paid$(845) $(752) $(746) 
Income taxes paid(261) (150) (156) 
75
(dollars in millions)      
Years Ended December 31, 2017 2016 2015
       
Cash flows from operating activities      
Net income $94
 $233
 $141
Reconciling adjustments:      
Provision for finance receivable losses 324
 329
 339
Depreciation and amortization 143
 144
 92
Deferred income tax benefit (82) (83) (50)
Non-cash incentive compensation from Initial Stockholder —
 —
 15
Net gain on liquidation of United Kingdom subsidiary —
 (4) —
Net gain on sales of personal and real estate loans and related trust assets —
 (18) —
Net loss on repurchases and repayments of debt 28
 17
 —
Share-based compensation expense, net of forfeitures —
 1
 2
Net gain on sale of SpringCastle interests —
 (167) —
Other 1
 6
 (3)
Cash flows due to changes in:      
Other assets and other liabilities 107
 (37) (48)
Insurance claims and policyholder liabilities (92) (19) 34
Taxes receivable and payable 13
 56
 111
Accrued interest and finance charges (95) 14
 (23)
Other, net (3) 3
 (2)
Net cash provided by operating activities 438
 475
 608
       
Cash flows from investing activities      
Net principal originations of finance receivables held for investment and
held for sale		 (783) (557) (799)
Proceeds on sales of finance receivables held for sale originated as held for investment —
 930
 78
Proceeds from sale of SpringCastle interests, net of restricted cash released —
 26
 —
Cash advances on intercompany notes receivable (1,837) (1,042) (3,720)
Proceeds from repayments of principal and assignment of intercompany notes receivable 1,154
 1,023
 189
Available-for-sale securities purchased (245) (353) (476)
Trading and other securities purchased —
 (10) (1,474)
Available-for-sale securities called, sold, and matured 301
 380
 470
Trading and other securities called, sold, and matured 1
 20
 3,779
Proceeds from sale of real estate owned 4
 8
 14
Other, net 12
 26
 (12)
Net cash provided by (used for) investing activities (1,393) 451
 (1,951)
       
Cash flows from financing activities      
Proceeds from issuance of long-term debt, net of commissions 3,456
 3,854
 3,028
Proceeds from intercompany note payable —
 670
 —
Repayments of long-term debt (2,544) (4,920) (1,960)
Distributions to joint venture partners —
 (18) (77)
Payments on note payable to affiliate —
 (670) —
Excess tax benefit from share-based compensation —
 —
 1
Withholding tax on vested RSUs and PRSUs (1) (1) —
Cash dividend of SFMC (10) —
 —
Capital contributions from parent —
 10
 —
Net cash provided by (used for) financing activities 901
 (1,075) 992



67



Consolidated Statements of Cash Flows (Continued)
(dollars in millions)
Years Ended December 31,201920182017
Supplemental non-cash activities
Right-of-use assets obtained in exchange for operating lease obligations$233  $—  $—  
Transfer of finance receivables to real estate owned8  7  9  
Transfer of net finance receivables held for investment to finance receivables held for sale
(prior to deducting allowance for finance receivable losses)		—  111  —  
Consolidated Statements of Cash Flows (Continued)

(dollars in millions)      
Years Ended December 31, 2017 2016 2015
       
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents (54) (149) (351)
Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period 467
 616
 967
Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period $413
 $467
 $616
       
Supplemental cash flow information      
Cash and cash equivalents $244
 $240
 $321
Restricted cash and restricted cash equivalents 169
 227
 295
Total cash and cash equivalents and restricted cash and restricted cash equivalents $413
 $467
 $616
       
Interest paid $(436) $(451) $(511)
Income taxes received (paid) (71) (140) 45
       
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) $—
 $1,945
 $617
Increase in finance receivables held for investment financed with intercompany payable —
 89
 —
Transfer of finance receivables to real estate owned 9
 8
 11
Non-cash dividend of SFMC (28) —
 —


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


See Notes to the Consolidated Financial Statements.



76
68


SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets

(dollars in millions, except par value amount)
December 31,20192018
Assets
Cash and cash equivalents$1,227  $663  
Investment securities1,884  1,694  
Net finance receivables (includes loans of consolidated VIEs of $8.4 billion in 2019 and $8.5 billion
    in 2018)
18,389  16,122  
Unearned insurance premium and claim reserves(793) (662) 
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $340 million in
    2019 and $444 million in 2018)
(829) (726) 
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance
receivable losses		16,767  14,734  
Finance receivables held for sale64  103  
Notes receivable from parent—  260  
Restricted cash and restricted cash equivalents (includes restricted cash and restricted cash equivalents of
    consolidated VIEs of $400 million in 2019 and $479 million in 2018)
405  499  
Goodwill1,422  1,422  
Other intangible assets343  387  
Other assets704  547  
Total assets$22,816  $20,309  
Liabilities and Shareholder's Equity
Long-term debt (includes debt of consolidated VIEs of $7.6 billion in 2019 and $7.5 billion in 2018)$17,212  $15,178  
Insurance claims and policyholder liabilities649  685  
Deferred and accrued taxes35  42  
Other liabilities (includes other liabilities of consolidated VIEs of $14 million in 2019 and 2018)595  383  
Total liabilities18,491  16,288  
Commitments and contingent liabilities (Note 16)
Shareholder's equity:
Common stock, par value $0.50 per share; 25,000,000 shares authorized, 10,160,021 shares
    issued and outstanding at December 31, 2019 and 2018
5  5  
Additional paid-in capital1,888  2,110  
Accumulated other comprehensive income (loss)44  (34) 
Retained earnings2,388  1,940  
Total shareholder's equity4,325  4,021  
Total liabilities and shareholder's equity$22,816  $20,309  

See Notes to the Consolidated Financial Statements.

77

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations

(dollars in millions)
Years Ended December 31,201920182017
Interest income:
Finance charges$4,116  $3,635  $3,174  
Finance receivables held for sale11  13  13  
Total interest income4,127  3,648  3,187  
Interest expense972  876  816  
Net interest income3,155  2,772  2,371  
Provision for finance receivable losses1,129  1,043  947  
Net interest income after provision for finance receivable losses2,026  1,729  1,424  
Other revenues:
Insurance460  429  420  
Investment95  66  73  
Interest income on notes receivable from parent7  18  23  
Net loss on repurchases and repayments of debt(35) (9) (29) 
Net gains on sales of real estate loans3  18  —  
Other99  38  53  
Total other revenues629  560  540  
Other expenses:
Salaries and benefits808  877  750  
Other operating expenses558  577  635  
Insurance policy benefits and claims185  192  184  
Total other expenses1,551  1,646  1,569  
Income before income taxes$1,104  $643  $395  
Income taxes246  182  243  
Net income$858  $461  $152  

See Notes to the Consolidated Financial Statements.

78

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income

(dollars in millions)
Years Ended December 31,201920182017
Net income$858  $461  $152  
Other comprehensive income (loss):
Net change in unrealized gains (losses) on non-credit impaired available-for-sale securities88  (44) 21  
Retirement plan liability adjustments7  (8) 4  
Foreign currency translation adjustments5  (9) 6  
Income tax effect:
Net unrealized gains (losses) on non-credit impaired available-for-sale securities(20) 9  (7) 
Retirement plan liability adjustments(1) 3  (1) 
Foreign currency translation adjustments(2) —  (2) 
Other comprehensive income (loss), net of tax, before reclassification adjustments77  (49) 21  
Reclassification adjustments included in net income, net of tax:
Net realized losses (gains) on available-for-sale securities, net of tax1  1  (9) 
Reclassification adjustments included in net income, net of tax1  1  (9) 
Other comprehensive income (loss), net of tax78  (48) 12  
Comprehensive income$936  $413  $164  


See Notes to the Consolidated Financial Statements.
79

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity

Springleaf Finance Corporation Shareholder's Equity
(dollars in millions)Common
Stock		Additional
Paid-in
Capital		Accumulated
Other Comprehensive
Income (Loss)		Retained
Earnings		Total Shareholders’ Equity
Balance, January 1, 2019$5  $2,110  $(34) $1,940  $4,021  
Share-based compensation expense, net of forfeitures—  13  —  —  13  
Withholding tax on share-based compensation—  (5) —  —  (5) 
Other comprehensive income—  —  78  —  78  
Contribution of SCLH to SFC from SFI—  34  —  —  34  
Merger of SFI with SFC—  (408) —  —  (408) 
Cash contribution from OMH—  144  —  —  144  
Cash dividends—  —  —  (410) (410) 
Net income—  —  —  858  858  
Balance, December 31, 2019$5  $1,888  $44  $2,388  $4,325  
Balance, January 1, 2018$5  $1,909  $6  $1,482  $3,402  
Non-cash incentive compensation from SFH—  110  —  —  110  
Contribution of OGSC to SFC from SFI—  53  5  —  58  
Contribution of SMHC to SFC from SFI—  30  —  —  30  
Share-based compensation expense, net of forfeitures—  10  —  —  10  
Withholding tax on shared-based compensation—  (2) —  —  (2) 
Other comprehensive loss—  —  (48) —  (48) 
Impact of AOCI reclassification due to the Tax Act—  —  3  (3) —  
Net income—  —  —  461  461  
Balance, December 31, 2018$5  $2,110  $(34) $1,940  $4,021  
Balance, January 1, 2017$5  $1,906  $(6) $1,368  $3,273  
Share-based compensation expense, net of forfeitures—  5  —  —  5  
Withholding tax on RSUs converted—  (2) —  —  (2) 
Other comprehensive income—  —  12  —  12  
Dividend of SFMC to SFI—  —  —  (38) (38) 
Net income—  —  —  152  152  
Balance, December 31, 2017$5  $1,909  $6  $1,482  $3,402  


See Notes to the Consolidated Financial Statements.

80

SPRINGLEAF FINANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows

(dollars in millions)
Years Ended December 31,201920182017
Cash flows from operating activities
Net income$858  $461  $152  
Reconciling adjustments:
Provision for finance receivable losses1,129  1,043  947  
Depreciation and amortization271  279  317  
Deferred income tax charge3  21  43  
Net loss on repurchases and repayments of debt35  9  29  
Non-cash incentive compensation from SFH—  110  —  
Share-based compensation expense, net of forfeitures13  10  5  
Other(9) 13  (5) 
Cash flows due to changes in other assets and other liabilities92  21  159  
Net cash provided by operating activities2,392  1,967  1,647  
Cash flows from investing activities
Net principal originations of finance receivables held for investment and held for sale(3,305) (2,372) (2,267) 
Proceeds on sales of finance receivables held for sale originated as held for investment19  100  —  
Cash advances on intercompany notes receivables(3) (34) (355) 
Proceeds from repayments of principal on intercompany note to parent3  187  249  
Available-for-sale securities purchased(718) (680) (671) 
Available-for-sale securities called, sold, and matured574  563  739  
Other securities purchased(18) (11) —  
Other securities called, sold, and matured31  36  18  
Other, net(12) (27) 7  
Net cash used for investing activities(3,429) (2,238) (2,280) 
Cash flows from financing activities
Proceeds from issuance of long-term debt, net of commissions5,895  5,525  5,427  
Repayment of long-term debt(3,961) (5,471) (4,447) 
Cash contribution of SCLH12  —  —  
Cash dividends to OMH(408) —  —  
Cash contribution from OMH144  —  —  
Cash contribution of SMHC—  13  —  
Cash contribution of OGSC—  11  —  
Cash dividends of SFMC—  —  (10) 
Payments on intercompany note payable(170) (99) —  
Withholding tax on share-based compensation(5) (2) (2) 
Net cash provided by (used by) financing activities1,507  (23) 968  
81

Consolidated Statements of Cash Flows (Continued)
(dollars in millions)
Years Ended December 31,201920182017
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents470  (294) 335  
Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period1,162  1,456  1,121  
Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period$1,632  $1,162  $1,456  
Supplemental cash flow information
Cash and cash equivalents$1,227  $663  $958  
Restricted cash and restricted cash equivalents405  499  498  
Total cash and cash equivalents and restricted cash and restricted cash equivalents$1,632  $1,162  $1,456  
Cash paid for amounts included in the measurement of operating lease liabilities$(58) $—  $—  
Interest paid$(847) $(753) $(746) 
Income taxes paid(261) (150) (154) 
Supplemental non-cash activities
Right-of-use assets obtained in exchange for operating lease obligations$233  $—  $—  
Transfer of finance receivables to real estate owned8  7  9  
Transfer of net finance receivables held for investment to finance receivables held
for sale (prior to deducting allowance for finance receivable losses)		—  111  —  
Non-cash merger of SFI with SFC(408) —  —  
Non-cash contribution of SCLH22  —  —  
Non-cash contribution of OGSC—  47  —  
Non-cash contribution of SMHC—  17  —  
Non-cash dividend of SFMC—  —  (28) 

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

See Notes to the Consolidated Financial Statements.
82

ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 20172019


1. Nature of Operations    
1. Nature of Operations


Springleaf Finance CorporationOneMain Holdings, Inc. is referred to in this report as SFC“OMH” or, collectively with its subsidiaries, whether directly or indirectly owned, “Springleaf,” the “Company,” “we,” “us,” or “our”“our.” OMH is a wholly owned subsidiary of SFI. SFIDelaware corporation.

OMH is a wholly ownedfinancial services holding company whose subsidiaries engage in the consumer finance and insurance businesses. Prior to the completion of the merger described below, OMH’s direct subsidiary of OMH.was Springleaf Finance, Inc. (“SFI”).

At December 31, 2017, the Initial Stockholder owned approximately 44% of OMH’s common stock. The Initial Stockholder is owned primarily by a private equity fund managed by an affiliate of Fortress.


On December 27, 2017, SoftBank acquired Fortress and Fortress now operates within SoftBank as an independent business headquartered in New York.

See Note 24 regarding a definitive agreementSeptember 20, 2019, Springleaf Finance Corporation (“SFC”) entered into on January 3, 2018, among OMH, an investor group led by funds managed by affiliates of Apollo Global Management, LLC (togethera merger agreement with its direct parent, SFI, to merge SFI with and into SFC, with SFC as the surviving entity. The merger was effective in SFC's consolidated subsidiaries, “Apollo”) and Värde Partners, Inc. (“Värde” and together with Apollo, collectively, the “Apollo-Värde Group”) and the Initial Stockholder.

2. Significant Transactions    

OMH’S ACQUISITION OF ONEMAIN FINANCIAL HOLDINGS, LLC

On November 15, 2015, OMH, through its wholly owned subsidiary, Independence, completed its acquisitionfinancial statements as of OMFH from Citigroup for approximately $4.5 billion in cash (the “OneMain Acquisition”).July 1, 2019. As a result of the OneMain Acquisition, OMFHmerger with SFI, SFC became a wholly owned, indirectwholly-owned direct subsidiary of OMH. OMFH is not a subsidiary

At December 31, 2019, the Apollo-Värde Group owned approximately 40.4% of SFC and SFC is not a subsidiaryOMH’s common stock.

2018 Share Sale Transactions

As disclosed in Note 21 of OMFH.

the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K, certain executives of the Company had previously been granted incentive units that only provided benefits (in the form of distributions) if Springleaf Financial Holdings, LLC ("SFH") made distributions to one or more of its common members that exceeded specified threshold amounts. In connection with the closingFortress Transaction resulting from the Apollo-Värde Transaction described in Note 2 of the OneMain Acquisition, on November 13, 2015, OMH and certain subsidiaries of SFC 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 respectNotes to the OneMain AcquisitionConsolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K, certain executive officers who were holders of SFH incentive units received a distribution of approximately $106 million in the aggregate from SFH. Although the distribution was not made by the Company or its subsidiaries, in accordance with Accounting Standards Codification ("ASC") 710, Compensation-General, we recorded non-cash incentive compensation expense of approximately $106 million, with an equal and allowed OMHoffsetting increase to proceed with the closing. Pursuantadditional paid-in-capital. The impact 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 viableCompany was non-cash, equity neutral, 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. The sale contemplated under the terms of the Settlement Agreement was consummated through the Lendmark Sale described below.not tax deductible.


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, we 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 soldaddition, in connection with the Lendmarkdistributions by SFH to AIG resulting from the AIG Share 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 extensionsTransaction described in Note 2 of the closing deadline set forthNotes to the Consolidated Financial Statements in Part II - Item 8 included in our 2018 Annual Report on Form 10-K, these same executive officers holding the incentive units described above, received a distribution of approximately $4 million in the Settlement Agreement. The DOJ granted our requests through May 13, 2016.aggregate from SFH in respect of their incentive interests in SFH. Consistent with the Fortress Transaction, we recorded non-cash incentive compensation expense of approximately $4 million, with an equal and offsetting increase to additional paid-in-capital. Again, the impact to the Company was non-cash, equity neutral, and not tax deductible.




83
69


Notes to Consolidated Financial Statements, Continued

2. Reconciliation of Springleaf Finance Corporation Results to OneMain Holdings, Inc. Results

The results of SFC are consolidated into the results of OMH. Due to the nominal differences between SFC and OMH, content throughout this filing relates to both OMH and SFC. SFC disclosures relate only to itself and not to any other company.

Except where otherwise indicated, and excluding certain insignificant cash and non-cash transactions at the OMH level, these notes relate to the consolidated financial statements for both companies, OMH and SFC. In addition to certain intercompany payable and receivable amounts between the entities, the following is a reconciliation of the consolidated balance sheets and results of our consolidated statements of operations of SFC to OMH:

December 31,20192018
(dollars in millions)OMHSFCDifferenceOMHSFCDifference
Cash and cash equivalents$1,227  $1,227  $—  $679  $663  $16  
Net finance receivables (a)18,389  18,389  —  16,164  16,122  42  
Allowance for finance receivable losses (a)(829) (829) —  (731) (726) (5) 
Notes receivables from parent (b)—  —  —  —  260  (260) 
Other intangible assets343  343  —  388  387  1  
Other assets705  704  1  534  547  (13) 
Deferred and accrued taxes34  35  (1) 45  42  3  
Other liabilities592  595  (3) 383  383  —  
Total shareholders' equity (c)4,330  4,325  5  3,799  4,021  (222) 

Years Ended December 31,201920182017
(dollars in millions)OMHSFCDifferenceOMHSFCDifferenceOMHSFCDifference
Finance charges (a)$4,116  $4,116  $—  $3,645  $3,635  $10  $3,183  $3,174  $9  
Interest expense970  972  (2) 875  876  (1) 816  816  —  
Provision for finance receivable losses (a)1,129  1,129  —  1,048  1,043  5  955  947  8  
Interest income on note receivables from parent (b)—  7  (7) —  18  (18) —  23  (23) 
Other revenue (d)99  99  —  70  38  32  96  53  43  
Salaries and benefits808  808  —  917  877  40  777  750  27  
Other operating expenses559  558  1  576  577  (1) 593  635  (42) 
Income before income taxes1,098  1,104  (6) 624  643  (19) 431  395  36  
Income taxes243  246  (3) 177  182  (5) 248  243  5  
Net Income855  858  (3) 447  461  (14) 183  152  31  
(a) The differences in the 2018 and 2017 periods are related to Springleaf Consumer Loan Holding Company (“SCLH”) finance receivables and the related allowance for finance receivable losses. On May 2, 2016, we completedMarch 10, 2019, all of the Lendmark Sale for an aggregate cash purchase priceoutstanding capital stock of $624 million. Such saleSCLH, a subsidiary of SFI, was contributed to SFC, and SCLH became a wholly-owned direct subsidiary of SFC. The contribution was effective as of April 30, 2016,January 1, 2019. See below for further details related to the Contribution of SCLH to SFC.
(b) Included in the notes receivables from parent were notes from SFI held by SFC and includedSpringleaf Mortgage Holding Company’s (“SMHC”), a wholly-owned direct subsidiary, of SFC. See Note 1 and below for further discussion of the salemerger between SFI and SFC.
(c) The differences between total shareholders’ equity in the years ended December 31, 2019 and 2018 were due to Lendmarkhistorical differences in results of personal loans with an unpaid principal balance (“UPB”) asoperations of March 31, 2016the companies and differences in equity awards.
(d) The primary difference between OMH and SFC for other revenue relate to the servicing revenue from the SpringCastle Portfolio. The servicing fee revenue totaled $29 million and $37 million during 2018 and 2017 periods, respectively.

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The following transactions are related to SFC and have no impact on OMH's consolidated financial results.

Merger of SFI into SFC

On September 20, 2019, SFC entered into a transition servicesmerger agreement with Lendmark datedits direct parent SFI, to merge SFI with and into SFC, with SFC as the surviving entity. The merger was effective in SFC's consolidated financial statements as of May 2, 2016 (the “Transition Services Agreement”), and OMH’s and our activities remained subjectJuly 1, 2019. In conjunction with the merger, the net deficiency of SFI, after elimination of its investment in SFC, was absorbed by SFC resulting in an equity reduction of $408 million to SFC, which includes the oversightelimination of the Monitoring Trustee appointed byintercompany notes and receivables between SFC and SFI, as discussed below.

The net deficiency of SFI included an intercompany note payable plus accrued interest of $166 million from SFI to OMH which SFC assumed through the court pursuantmerger. On September 23, 2019, SFC repaid SFI’s note to the Settlement Agreement until the expirationOMH. Concurrently, OMH paid $22 million in other payables due to SFC and made an equity contribution of the Transition Services Agreement. $144 million to SFC.

The Transition Services Agreement expired on May 1, 2017.

On May 2, 2016, SFC used a portion of the proceeds from the Lendmark Sale to repay,transactions noted above resulted in full, its revolving demand note with OMFH, which totaled $376 million (including interest payable of $6 million).

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 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.”

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$264 million reduction to SFC's equity.

SFC's Notes Receivable from Parent

The notes receivable from parent was $260 million at December 31, 2018 and was comprised of a $232 million note receivable from SFI to SFC and a $28 million note receivable due to SMHC, a wholly-owned subsidiary of SFC, after the timecontribution of sale of $167 million.

SMHC from SFI to SFC on December 15, 2018. As a result of this sale, SpringCastle Acquisitionthe merger between SFI and SpringCastle Holdings no longer hold any ownership interestsSFC, described in Note 1 and above, the note receivable from SFI to SFC was dissolved effective July 1, 2019 and the SFI note payable to SMHC was assumed by SFC and subsequently paid off on September 23, 2019. Interest income on the notes receivable from SFC totaled $8 million during 2019, $18 million during 2018, and $23 million during 2017, which we report in interest income on notes receivable from parent.

Springleaf Consumer Loan Holding Company (“SCLH”) Contribution

On March 10, 2019, all of the SpringCastle Joint Venture. However, unlessoutstanding capital stock of SCLH, a subsidiary of SFI, was contributed to SFC and SCLH became a wholly-owned direct subsidiary of SFC. The contribution was effective as of January 1, 2019 and increased SFC’s total shareholder’s equity and total assets by $34 million and $53 million, respectively. The contribution is presented prospectively because it is deemed to be a contribution of net assets.

OneMain Consumer Loan, Inc. (“OCLI”) Loan Referral Fees

Through June 30, 2018, OCLI, a wholly-owned direct subsidiary of SCLH, provided personal loan application and credit underwriting services on behalf of SFC for personal loan applications that are submitted online. SFC was charged a fee of $35 for each underwritten approved application processed, as well as any other fees agreed to by the parties. On July 1, 2018, SFC terminated SFI will remain as servicer of the SpringCastle Portfolio under the servicingits 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.

with OCLI to provide these services. Prior to the SpringCastle Interests Sale,termination, during 2018 and 2017, SFC recorded $29 million and $56 million of referral fee expense, respectively. Certain costs incurred by OCLI to provide these services are a component of deferred origination costs, which are included in net finance receivables.

OneMain General Services Corporation (“OGSC”) Services Agreement

OGSC provides a variety of services to affiliates under a services agreement, including SFC. OGSC was contributed to SFC by OMH effective July 1, 2018, and all activity between OGSC and SFC under the agreement is eliminated from SFC’s results as of July 1, 2018. Prior to the NRZ Buyers owned a 30% limited liability company interestcontribution, during 2018 and 2017, SFC recorded $265 million and $460 million, respectively, of service fee expenses, which are included in the SpringCastle Joint Venture,operating expenses.

Parent and Affiliate Receivables and Payables

Receivables from parent and affiliate totaled $18 million at December 31, 2018 and were included in other assets. There were no receivables from parent and affiliates ofat December 31, 2019 as the Blackstone Buyers owned a 23% limited liability company interest in the SpringCastle Joint Venture (together, the “Other Members”). The Other Members are partiesbalances were eliminated due to the purchase agreement for purposesmerger of certain limited indemnification obligationsSFI and post-closing expense reimbursement obligations ofSFC, and the SpringCastle Joint VentureSCLH contribution noted above. Payables to the SpringCastle Sellers.parent and affiliate are included in other liabilities and were immaterial at December 31, 2019 and 2018.


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. Wesley 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. Douglas 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.



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Notes to Consolidated Financial Statements, Continued

3. Summary of Significant Accounting Policies
REAL ESTATE LOAN SALES

August 2016 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.

December 2016 Real Estate Loan Sale

On December 19, 2016, SFC and certain of its subsidiaries sold a portfolio of first and second lien mortgage loans for aggregate cash proceeds of $58 million (the “December 2016 Real Estate Loan Sale”). In connection with this sale, we recorded a net loss in other revenues at the time of sale of less than $1 million.

SFC’s MEDIUM-TERM NOTE ISSUANCES

8.25% Senior Notes Due 2020

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 “SFC Base Indenture”), as supplemented by a First Supplemental Indenture, dated as of December 3, 2014 (the “SFC First Supplemental Indenture”) and a Second Supplemental Indenture, dated as of April 11, 2016 (the “SFC Second Supplemental Indenture”), pursuant to which OMH provided a guarantee of the notes on an unsecured basis.

6.125% Senior Notes Due 2022

On May 15, 2017, SFC issued $500 million aggregate principal amount of 6.125% Senior Notes due 2022 (the “2022 SFC Notes”) under the SFC Base Indenture, as supplemented by a Third Supplemental Indenture, dated as of May 15, 2017 (the “SFC Third Supplemental Indenture”), pursuant to which OMH provided a guarantee of the 2022 SFC Notes on an unsecured basis.

On May 30, 2017, SFC issued and sold $500 million aggregate principal amount of additional 2022 SFC Notes (the “Additional SFC Notes”) in an add-on offering. The initial 2022 SFC Notes and the Additional SFC Notes (collectively, the “6.125% SFC Notes”), are treated as a single class of debt securities and have the same terms, other than the issue date and the issue price.

5.625% Senior Notes Due 2023

On December 8, 2017, SFC issued $875 million aggregate principal amount of 5.625% Senior Notes due 2023 (the ‘‘5.625% SFC Notes’’) under the SFC Base Indenture, as supplemented by a Fourth Supplemental Indenture dated as of December 8, 2017 (the “SFC Fourth Supplemental Indenture” and, collectively with the SFC Base Indenture, the SFC First Supplemental Indenture, the SFC Second Supplemental Indenture, and the SFC Third Supplemental Indenture, the “Indenture”), pursuant to which OMH provided a guarantee of the 5.625% SFC Notes on an unsecured basis.

See Note 12 for further information regarding our debt issuances.



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Notes to Consolidated Financial Statements, Continued

3. Summary of Significant Accounting Policies    

BASIS OF PRESENTATION


We prepared our consolidated financial statements using GAAP.generally accepted accounting principles in the United States of America ("GAAP"). The statements include the accounts of SFC,OMH, its subsidiaries (all of which are wholly owned, except for certain subsidiaries associated with a joint venture in which we owned a 47% equity interest prior to March 31, 2016)wholly-owned), and VIEsvariable interest entities ("VIEs") in which we hold a controlling financial interest and for which we are considered to be the primary beneficiary as of the financial statement date.


We eliminated all material intercompany accounts and transactions. We made judgments, estimates, and assumptions that affect amounts reported in our consolidated financial statements and disclosures of contingent assets and liabilities. In management’s opinion, the 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 20172019 presentation, we reclassified certain items in prior periods of our consolidated financial statements. Also, to conform to the new alignment of our segments, as further discussed in Note 22, we have revised our prior period segment disclosures.


ACCOUNTING POLICIES


Operating SegmentsSegment


Our segments coincide with how our businesses are managed. At December 31, 2017, our two segments include:

2019, Consumer and Insurance; and
Acquisitions and Servicing.

Insurance (“C&I”) is our only reportable segment. The remaining components (which we refer to as “Other”) consist of (i) our liquidating SpringCastle Portfolio servicing activity and (ii) our non-originating legacy operations, which include: (i)include our liquidating real estate portfolio; (ii) ourloans and liquidating retail sales finance portfolio (including retail sales finance accountsreceivables. Previously, the servicing revenues and related expenses from our legacy auto finance operation); (iii) our lending operations in Puerto Rico and the U.S. Virgin Islands; and (iv) the operations of the United Kingdom subsidiary, prior to its liquidation on August 16, 2016.

Beginning in 2017, management no longer views or manages our real estate assets as a separate operating segment. Therefore,
we are now including Real Estate, which was previouslySpringCastle Portfolio were presented as a distinct reporting and operating segment, Acquisitions and Servicing (“A&S”). However, due to the continued decline in “Other.” To conform to
this new alignment of our segments,servicing revenues and related expenses, management no longer views the servicing activity from the SpringCastle Portfolio as a separate reportable segment. Therefore, we are now including A&S in Other. We have revised our prior period segment disclosures.disclosures to conform to this new alignment.


Finance Receivables


Generally, we classify finance receivables as held for investment based on management’s intent at the time of origination. We determine classification on a loan-by-loan basis. We classify finance receivables as held for investment due to our ability and intent to hold them until their contractual maturities. We carry finance receivables at amortized cost which includes accrued finance charges, net unamortized deferred origination costs and unamortized points and fees, unamortized net premiums and discounts on purchased finance receivables, and unamortized finance charges on precomputed receivables.


We include the cash flows from finance receivables held for investment in the consolidated statements of cash flows as investing activities, except for collections of interest, which we include as cash flows from operating activities. We may finance certain insurance products offered to our customers as part of finance receivables. In such cases, the insurance premium is included as an operating cash inflow and the financing of the insurance premium is included as part of the finance receivable as an investing cash flow in the consolidated statements of cash flows.


Finance Receivable Revenue Recognition


We recognize finance charges as revenue on the accrual basis using the interest method, which we report in interest income. We amortize premiums or accrete discounts on finance receivables as an adjustment to finance charge income using the interest method and contractual cash flows. We defer the costs to originate certain finance receivables and the revenue from nonrefundable points and fees on loans and amortize them as an adjustment to finance charge income using the interest method.



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Notes to Consolidated Financial Statements, Continued


We stop accruing finance charges when four contractual4 payments (approximately 90 days) become contractually past due for personal loans and retail sales contracts and when the sixth contractual payment becomes past due for revolving retail accounts. For finance receivables serviced externally, including real estate loans, we stop accruing finance charges when the third or fourth contractual payment becomes past due depending on the type of receivable and respective third party servicer.loans. We reverse finance charge amounts previously accrued upon suspension of accrual of finance charges.


For certain finance receivables that had a carrying value that included a purchase premium or discount, we stop accreting the premium or discount at the time we stop accruing finance charges. We do not reverse accretion of premium or discount that was previously recognized.


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We recognize the contractual interest portion of payments received on nonaccrual finance receivables as finance charges at the time of receipt. We resume the accrual of interest on a nonaccrual finance receivable when the past due status on the individual finance receivable improves to the point that the finance receivable no longer meets our policy for nonaccrual. At that time, we also resume accretion of any unamortized premium or discount resulting from a previous purchase premium or discount.


We accrete the amount required to adjust the initial fair value of our purchased finance receivables to their contractual amounts over the life of the related finance receivable for non-credit impaired finance receivables and over the life of a pool of finance receivables for purchased credit impaired finance receivables as described in our policy for purchase credit impaired finance receivables.


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 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.



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Notes to Consolidated Financial Statements, Continued

Troubled Debt Restructured Finance Receivables


We make modifications to our personal loans to assist borrowers who are experiencing financial difficulty, are in bankruptcy or are participating in a consumer credit counseling arrangement. We make modifications to our real estate loans to assist borrowers in avoiding foreclosure. 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. We restructure finance receivables only if we believe the customer has the ability to pay under the restructured terms for the foreseeable future. We establish reserves on our TDR finance receivables by discounting the estimated cash flows associated with the respective receivables at the effective interest rate prior to the modification to the account and record any difference between the discounted cash flows and the carrying value as an allowance adjustment.


We may modify the terms of existing accounts in certain circumstances, such as certain bankruptcy or other catastrophic situations or for economic or other reasons related to a borrower’s financial difficulties that justify modification. When we modify an account, we primarily use a combination of the following to reduce the borrower’s monthly payment: reduce interest rate, extend the term, capitalizedefer or forgive past due interest or forgive principal or interest.principal. Additionally, as part of the modification, we may require trial payments. If the account is delinquent at the time of modification, the account is brought current for delinquency reporting. Account modifications that are deemed to be a TDR finance receivable are measured for impairment. Account modifications that are not classified as a TDR finance receivable are measured for impairment in accordance with our policy for allowance for finance receivable losses.


Finance charges for TDR finance receivables require the application of judgment. We recognize the contractual interest portion of payments received on nonaccrual finance receivables as finance charges at the time of receipt. TDR finance receivables that are placed on nonaccrual status remain on nonaccrual status until the past due status on the individual finance receivable improves to the point that the finance receivable no longer meets our policy for nonaccrual.


Allowance for Finance Receivable Losses


We establish the allowance for finance receivable losses through the provision for finance receivable losses. We evaluate our finance receivable portfolio by finance receivable type. Our finance receivable typesreceivables (personal loans real estate loans, and retail sales finance)other receivables) consist of a large number of relatively small, homogeneous accounts. We evaluate our finance receivable typesreceivables for impairment as pools. None of our accounts are large enough to warrant individual evaluation for impairment.


Management considers numerous internal and external factors in estimating probable incurred losses in our finance receivable portfolio, including the following:


•prior finance receivable loss and delinquency experience;
•underlying collateral;
•the composition of our finance receivable portfolio; and
•current economic conditions, including the levels of unemployment and personal bankruptcies.


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We base the allowance for finance receivable losses primarily on historical loss experience using a roll rate-based model applied to our finance receivable portfolios. In our roll rate-based model, our finance receivable types are stratified by contractual delinquency stages (i.e., current, 1-29 days past due, 30-59 days past due, etc.) and projected forward in one-month increments using historical roll rates. In each month of the simulation, losses on our finance receivable types are captured, and the ending delinquency stratification serves as the beginning point of the next iteration. No new volume is assumed. This process is repeated until the number of iterations equals the loss emergence period (the interval of time between the event which causes a borrower to default on a finance receivable and our recording of the charge-off) for our finance receivable types. As delinquency is a primary input into our roll rate-based model, we inherently consider nonaccrual loans in our estimate of the allowance for finance receivable losses.


Management exercises its judgment, based on quantitative analyses, qualitative factors, such as recent delinquency, andunderlying collateral, recoverability of collateral securing our finance receivables, other credit trends, and experience in the consumer finance industry, when determining the amount of the allowance for finance receivable losses. We adjust the amounts determined by the roll rate-based model for management’s estimate of the effects of model imprecision, any changes to underwriting criteria, portfolio seasoning, and current economic conditions, including levels of unemployment and personal bankruptcies. We charge or credit this adjustment to expense through the provision for finance receivable losses.



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Notes to Consolidated Financial Statements, Continued


We generally charge off to the allowance for finance receivable losses personal loans that are beyond 7 payments (approximately 180 daysdays) past due. Generally, we start repossession of the titled personal property when the customer becomes 2 payments (approximately 30 days) past due and may charge-off prior to the account becoming 7 payments (approximately 180 days) past due.
To avoid unnecessary real estate loan foreclosures, we may refer borrowers to counseling services, as well as consider a cure agreement, loan modification, voluntary sale (including a short sale), or deed in lieu of foreclosure. When two payments are past due on a collateral dependent real estate loan and it appears that foreclosure may be necessary, we inspect the property as part of assessing the costs, risks, and benefits associated with foreclosure. Generally, we start foreclosure proceedings on real estate loans when four monthly installments are past due. When foreclosure is completed and we have obtained title to the property, we obtain a third-party’s valuation of the property, which is either a full appraisal or a real estate broker’s or appraiser’s estimate of the property sale value without the benefit of a full interior and exterior appraisal and lacking sales comparisons. Such appraisals or real estate brokers’ or appraisers’ estimate of value are one factor considered in establishing an appropriate valuation; however, we are ultimately responsible for the valuation established. We reduce finance receivables by the amount of the real estate loan, establish a real estate owned asset, and charge off any loan amount in excess of that value to the allowance for finance receivable losses.


We infrequently extend the charge-off period for individual personal and real estate loan accounts when, in our opinion, such treatment is warranted and consistent with our credit risk policies.


We may renew a delinquent accountsecured or unsecured personal loan accounts if the customer meets current underwriting criteria and it does not appear that the cause of past delinquency will affect the customer’s ability to repay the newrenewed loan. We subject all renewals to the same credit risk underwriting process as we would a new application for credit.


For our personal loans, and retail sales finance receivables, we may offer those customers whose accounts are in good standing the opportunity of a deferment, which extends the term of an account. We may extend this offer to customers when they are experiencing higher than normal personal expenses. Generally, this offer is not extended to customers who are delinquent. However, we may offer a deferment to a delinquent customer who is experiencing a temporary financial problem. The account is consideredmust be current uponafter granting the deferment. To evaluate whether a borrower’s financial difficulties are temporary or other than temporary we review the terms of each deferment to ensure that the borrower has the financial ability to repay the outstanding principal and associated interest in full following the deferment and after the customer is brought current. If, following this analysis, we believe a borrower’s financial difficulties are other than temporary, we will not grant deferment, and the loans may continue to age until they are charged off. We generally limit a customer to two2 deferments in a rolling twelve month period unless we determine that an exception is warranted and is consistent with our credit risk policies.

For our real estate loans, we may offer Additionally, for borrowers that do not meet the qualifications of a deferment to a delinquent customer who is experiencing a temporary financial problem, which extends the term of an account. Prior to granting the deferment, we may requirealso offer a partial payment. We forebear the remaining past due interest when the deferment is granted for real estate loans that were originatedcure agreement, settlement or acquired centrally. The account is considered current upon granting the deferment. We generally limit a customer to two deferments in a rolling twelve month period for real estate loans that were originated at our branch offices (one deferment for real estate loans that were originated or acquired centrally) unless we determine that an exception is warranted and is consistent with our credit risk policies.loan modification.


Accounts that are granted a deferment are not classified as troubled debt restructurings.TDRs. We do not consider deferments granted as a troubled debt restructuringTDR because the customer is not experiencing an other than temporary financial difficulty, and we are not granting a concession to the customer or the concession granted is immaterial to the contractual cash flows. We pool accounts that have been granted a deferment together with accounts that have not been granted a deferment for measuring impairment in accordance with the authoritative guidance for the accounting for contingencies.


The allowance for finance receivable losses related to our purchased credit impaired finance receivables is calculated using updated cash flows expected to be collected, incorporating assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that are reflective of current market conditions. Probable decreases in expected finance receivable cash flows result in the recognition of impairment. Probable and significant increases in expected cash flows to be collected would first reverse any previously recorded allowance for finance receivable losses.


We also establish reserves for TDR finance receivables, which are included in our allowance for finance receivable losses. The allowance for finance receivable losses related to our TDR finance receivables represents loan-specificspecific reserves based on an analysis of the present value of expected future cash flows. We establish our allowance for finance receivable losses related to our TDR finance receivables by calculating the present value (discounted at the loan’s effective interest rate prior to modification) of all expected cash flows less the recorded investment in the aggregated pool. We use certain assumptions to


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Notes to Consolidated Financial Statements, Continued

estimate the expected cash flows from our TDR finance receivables. The primary assumptions for our modelto estimate these expected cash flows are prepayment speeds, default rates, and severity rates.


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Finance Receivables Held for Sale


Depending on market conditions or certain of management’s capital sourcing strategies, which may impact our ability and/or intent to hold our finance receivables until maturity or for the foreseeable future, we may decide to sell finance receivables originally intended for investment. Our ability to hold finance receivables for the foreseeable future is subject to a number of factors, including economic and liquidity conditions, and therefore may change. As of each reporting period, management determines our ability to hold finance receivables for the foreseeable future based on assumptions for liquidity requirements or other strategic goals. When it is probable that management’s intent or ability is to no longer hold finance receivables for the foreseeable future and we subsequently decide to sell specifically identified finance receivables that were originally classified as held for investment, the net finance receivables, less allowance for finance receivable losses, are reclassified as finance receivables held for sale and are carried at the lower of cost or fair value. Any amount by which cost exceeds fair value is accounted for as a valuation allowance and is recognized in other revenues in the consolidated statements of operations. We base the fair value estimates on negotiations with prospective purchasers (if any) or by using a discounted cash flows approach. We base cash flows on contractual payment terms adjusted for estimates of prepayments and credit related losses. Cash flows resulting from the sale of the finance receivables that were originally classified as held for investment are recorded as an investing activity in the consolidated statements of cash flows. When sold, we record the sales price we receive less our carrying value of these finance receivables held for sale in other revenues.


When it is determined that management no longer intends to sell finance receivables which had previously been classified as finance receivables held for sale and we have the ability to hold the finance receivables for the foreseeable future, we reclassify the finance receivables to finance receivables held for investment at the lower of cost or fair value and we accrete any fair value adjustment over the remaining life of the related finance receivables.


ReserveGoodwill

Goodwill represents the amount of purchase price over the fair value of net assets we acquired in connection with the OneMain Acquisition. We test goodwill for Sales Recourse Obligationspotential impairment annually as of October 1 of each year and whenever events occur or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount.


We first complete a qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. If the qualitative assessment indicates that it is more likely than not that the reporting unit’s fair value is less than its carrying amount, we proceed with the quantitative impairment test. When we sell finance receivables, we may establish a reserve for sales recourse in other liabilities, which represents our estimate of losses to be: (a) incurred by us onnecessary, the repurchase of certain finance receivables that we previously sold; and (b) incurred by us for the indemnification of losses incurred by purchasers. Certain sale contracts include provisions requiring us to repurchase a finance receivable or indemnify the purchaser for losses it sustains with respect to a finance receivable if a borrower fails to make initial loan payments to the purchaser or if the accompanying mortgage loan breaches certain customary representations and warranties. These representations and warranties are made to the purchaser with respect to various characteristicsfair value of the finance receivable, such asreporting unit is calculated using the manner of origination, the nature and extent of underwriting standards applied, the types of documentation being provided, and, in limited instances, reaching certain defined delinquency limits. Although the representations and warranties are typically in place for the lifeincome approach based upon prospective financial information of the finance receivable,reporting unit discounted at a rate we believe that most repurchase requests occur within the first five years of the sale ofestimate a finance receivable. In addition, an investor may request that we refund a portion of the premium paid on the sale of mortgage loans if a loan is prepaid within a certain amount of time from the date of sale. At the time of the sale of each finance receivable (exclusive of finance receivables included in our on-balance sheet securitizations), we record a provision for recourse obligations for estimated repurchases, loss indemnification and premium recapture on finance receivables sold, which is charged tomarket participant would use.

Intangible Assets other revenues. Any subsequent adjustments resulting from changes in estimated recourse exposure are recorded in other revenues.than Goodwill

Other Intangible Assets


At the time we initially recognize intangible assets, a determination is made with regard to each asset as it relates to its useful life. We have determined that each of our intangible assets has a finite useful life with the exception of the OneMain trade name, insurance licenses, lending licenses and certain domain names, which we have determined to have indefinite lives.


For intangible assets with a finite useful life, we review for impairment at least annually and whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated if the sum of undiscounted estimated future cash flows is less than the carrying value of the respective asset. Impairment is permanently recognized by writing down the asset to the extent that the carrying value exceeds the estimated fair value. The VOBAvalue of business acquired ("VOBA") is the PVFPpresent value of future profits ("PVFP") of purchased insurance contracts. The PVFP is dynamically amortized over the lifetime of the block of business and is subject to premium deficiency testing in accordance with Accounting Standards Codification (“ASC”) TopicASC 944, Financial Services — Insurance.


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For indefinite livedindefinite-lived intangible assets, we review for impairment at least annually and whenever events occur or circumstances change that would indicate the assets are more likely than not to be impaired. We first complete an annual qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. If the qualitative assessment indicates that the assets are more likely than not to have been impaired, we proceed with the fair value calculation of the assets. The fair value is determined in accordance with our fair value measurement policy. If the fair value is less than the carrying value, an impairment loss will be recognized in an amount equal to the difference and the indefinite life classification will be evaluated to determine whether such classification remains appropriate.


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Leases

All our leases are classified as operating leases, and we are the lessee or sublessor in all our lease arrangements. At inception of an arrangement, we determine if a lease exists. At lease commencement date, we recognize right-of-use assets and lease liabilities measured at the present value of lease payments over the lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Since our operating leases do not provide an implicit rate, we utilize the best available information to determine our incremental borrowing rate, which is used to calculate the present value of lease payments. The right-of-use asset also includes any prepaid fixed lease payments and excludes lease incentives. Options to extend or terminate a lease may be included in our lease arrangements. We reflect the renewal or termination option in the right-of-use asset and lease liability when it is reasonably certain that we will exercise those options. In the normal course of business, we will renew leases that expire or replace them with leases on other properties.

We have elected the practical expedient to treat both the lease component and non-lease component for our leased office space portfolio as a single lease component. Operating lease costs for lease payments are recognized on a straight-line basis over the lease term and are included in “Other operating expenses” in our consolidated statement of operations. In addition to rent, we pay taxes, insurance, and maintenance expenses under certain leases as variable lease payments. The operating lease right-of-use assets are included in “Other assets” and the operating lease liabilities are included in “Other liabilities” in our consolidated balance sheet.

Insurance Premiums


We recognize revenue for short-duration contracts over the related contract period. Short-duration contracts primarily include credit life, credit disability, credit involuntary unemployment insurance, and collateral protection policies. We defer single premium credit insurance premiums from affiliates in unearned premium reserves which we include as a reduction to net finance receivables. We recognize unearned premiums on credit life, credit disability, credit involuntary unemployment insurance and collateral protection insurance as revenue using the sum-of-the-digits, straight-line or other appropriate methods over the terms of the policies. Premiums from reinsurance assumed are earned over the related contract period.


We recognize revenue on long-duration contracts when due from policyholders. Long-duration contracts include term life, accidental death and dismemberment, and disability income protection. For single premium long-duration contracts a liability is accrued, that represents the present value of estimated future policy benefits to be paid to or on behalf of policyholders and related expenses, when premium revenue is recognized. The effects of changes in such estimated future policy benefit reserves are classified in insurance policy benefits and claims in the consolidated statements of operations.


We recognize commissions on ancillaryoptional products as other revenue when earned.


We may finance certain insurance products offered to our customers as part of finance receivables. In such cases, unearned premiums and certain unpaid claim liabilities related to our borrowers are netted and classified as contra-assets in the net finance receivables in the consolidated balance sheets, and the insurance premium is included as an operating cash inflow and the financing of the insurance premium is included as part of the finance receivable as an investing cash flow in the consolidated statements of cash flows.


Policy and Claim Reserves


Policy reserves for credit life, credit disability, credit involuntary unemployment, and collateral protection insurance equal related unearned premiums. Reserves for losses and loss adjustment expenses are based on claims experience, actual claims reported, and estimates of claims incurred but not reported. Assumptions utilized in determining appropriate reserves are based on historical experience, adjusted to provide for possible adverse deviation. These estimates are periodically reviewed and compared with actual experience and industry standards, and revised if it is determined that future experience will differ substantially from that previously assumed. Since reserves are based on estimates, the ultimate liability may be more or less than such reserves. The effects of changes in such estimated reserves are classified in insurance policy benefits and claims in the consolidated statements of operations in the period in which the estimates are changed.


We accrue liabilities for future life insurance policy benefits associated with non-credit life contracts and base the amounts on assumptions as to investment yields, mortality, and surrenders. We base annuity reserves on assumptions as to investment yields and mortality. Ceded insurance reserves are included in other assets and include estimates of the amounts expected to be recovered from reinsurers on insurance claims and policyholder liabilities.


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Insurance Policy Acquisition Costs


We defer insurance policy acquisition costs (primarily commissions, reinsurance fees, and premium taxes). We include deferred policy acquisition costs in other assets and amortize these costs over the terms of the related policies, whether directly written or reinsured.



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Notes to Consolidated Financial Statements, Continued


Investment Securities


We generally classify our investment securities as available-for-sale or trading and other, depending on management’s intent. Our investment securities classified as available-for-sale are recorded at fair value. We adjust related balance sheet accounts to reflect the current fair value of investment securities and record the adjustment, net of tax, in accumulated other comprehensive income or loss in shareholder’sshareholders’ equity. We record interest receivable on investment securities in other assets.


Under the fair value option, we may elect to measure at fair value, financial assets that are not otherwise required to be carried at fair value. We elect the fair value option for available-for-sale securities that are deemed to incorporate an embedded derivative and for which it is impracticable for us to isolate and/or value the derivative. We recognize any changes in fair value in investment revenues.


We classify our investment securities in the fair value hierarchy framework based on the observability of inputs. Inputs to the valuation techniques are described as being either observable (Level 1 or 2) or unobservable (Level 3) assumptions (as further described in “Fair Value Measurements” below) that market participants would use in pricing an asset or liability.


Impairments on Investment Securities


Available-for-sale.We evaluate our available-for-sale securities on an individual basis to identify any instances where the fair value of the investment security is below its amortized cost. For these securities, we then evaluate whether an other-than-temporary impairment exists if any of the following conditions are present:


•we intend to sell the security;
•it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or
•we do not expect to recover the security’s entire amortized cost basis (even if we do not intend to sell the security).


If we intend to sell an impaired investment security or we will likely be required to sell the security before recovery of its amortized cost basis less any current period credit loss, we recognize an other-than-temporary impairment in investment revenues equal to the difference between the investment security’s amortized cost and its fair value at the balance sheet date.


In determining whether a credit loss exists, we compare our best estimate of the present value of the cash flows expected to be collected from the security to the amortized cost basis of the security. Any shortfall in this comparison represents a credit loss. The cash flows expected to be collected are determined by assessing all available information, including length and severity of unrealized loss, issuer default rate, ratings changes and adverse conditions related to the industry sector, financial condition of issuer, credit enhancements, collateral default rates, and other relevant criteria. Management considers factors such as our investment strategy, liquidity requirements, overall business plans, and recovery periods for securities in previous periods of broad market declines.


If a credit loss exists with respect to an investment in a security (i.e., we do not expect to recover the entire amortized cost basis of the security), we would be unable to assert that we will recover our amortized cost basis even if we do not intend to sell the security. Therefore, in these situations, an other-than-temporary impairment is considered to have occurred.


If a credit loss exists, but we do not intend to sell the security and we will likely not be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the impairment is classified as: (i) the estimated amount relating to credit loss; and (ii) the amount relating to all other factors. We recognize the estimated credit loss in investment revenues, and the non-credit loss amount in accumulated other comprehensive income or loss.


Once a credit loss is recognized, we adjust the investment security to a new amortized cost basis equal to the previous amortized cost basis less the credit losses recognized in investment revenues. For investment securities for which other-than-temporary impairments were recognized in investment revenues, the difference between the new amortized cost basis and the cash flows expected to be collected is accreted to investment income.


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We recognize subsequent increases and decreases in the fair value of our available-for-sale securities in accumulated other comprehensive income or loss, unless the decrease is considered other than temporary.




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Notes to Consolidated Financial Statements, Continued

Investment Revenue Recognition


We recognize interest on interest bearing fixed-maturity investment securities as revenue on the accrual basis. We amortize any premiums or accrete any discounts as a revenue adjustment using the interest method. We stop accruing interest revenue when the collection of interest becomes uncertain. We record dividends on equity securities as revenue on ex-dividend dates. We recognize income on mortgage-backed and asset-backed securities as revenue using an effective yield based on estimated prepayments of the underlying collateral. If actual prepayments differ from estimated prepayments, we calculate a new effective yield and adjust the net investment in the security accordingly. We record the adjustment, along with all investment securities revenue, in investment revenues. We specifically identify realized gains and losses on investment securities and include them in investment revenues.


Variable Interest Entities


An entity is a VIE if the entity does not have sufficient equity at risk for the entity to finance its activities without additional financial support or has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated into the financial statements of its primary beneficiary. When we have a variable interest in a VIE, we qualitatively assess whether we have a controlling financial interest in the entity and, if so, whether we are the primary beneficiary. In applying the qualitative assessment to identify the primary beneficiary of a VIE, we are determined to have a controlling financial interest if we have (i) the power to direct the activities that most significantly impact the economic performance of the VIE, and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. We consider the VIE’s purpose and design, including the risks that the entity was designed to create and pass through to its variable interest holders. We continually reassess the VIE’s primary beneficiary and whether we have acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances.

Other Invested Assets

Commercial mortgage loans and insurance policy loans are part of our investment portfolio and we include them in other assets at amortized cost. We recognize interest on commercial mortgage loans and insurance policy loans as revenue on the accrual basis using the interest method. We stop accruing revenue when collection of interest becomes uncertain. We include other invested asset revenue in investment revenues. We record accrued other invested asset revenue receivable in other assets.


Cash and Cash Equivalents


We consider unrestricted cash on hand and short-term investments having maturity dates within three months of their date of acquisition to be cash and cash equivalents.


We typically maintain cash in financial institutions in excess of the Federal Deposit Insurance Corporation’s insurance limits. We evaluate the creditworthiness of these financial institutions in determining the risk associated with these cash balances. We do not believe that the Company is exposed to any significant credit risk on these accounts and have not experienced any losses in such accounts.


Restricted Cash and Cash Equivalents


We include funds to be used for future debt payments relating to our securitization transactions and escrow deposits in restricted cash and cash equivalents.


Long-term Debt


We generally report our long-term debt issuances at the face value of the debt instrument, which we adjust for any unaccreted discount, unamortized premium, or unamortized debt issuance costs associated with the debt. Other than securitized products, we generally accrete discounts, premiums, and debt issuance costs over the contractual life of the security using contractual payment terms. With respect to securitized products, we have elected to amortize deferred costs over the contractual life of the security. Accretion of discounts and premiums are recorded to interest expense.



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Notes to Consolidated Financial Statements, Continued


Income Taxes


We recognize income taxes using the asset and liability method. We establish deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of assets and liabilities, using the tax rates expected to be in effect when the temporary differences reverse. Deferred tax assets are also recognized for tax attributes such as net operating loss carryforwards.


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Realization of our gross deferred tax asset depends on our ability to generate sufficient taxable income of the appropriate character within the carryforward periods of the jurisdictions in which the net operating and capital losses, deductible temporary differences and credits were generated. When we assess our ability to realize deferred tax assets, we consider all available evidence and we record valuation allowances to reduce deferred tax assets to the amounts that management conclude are more-likely-than-not to be realized.


We recognize income tax benefits associated with uncertain tax positions, when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more likely than not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with the taxing authority.


The Tax Act was enacted on December 22, 2017 and we must reflect the changes associated with its provisions in 2017. The law is complex and has extensive implications for our federal and state current and deferred taxes and income tax expense. We recorded and reported the effects of the Tax Act in our financial statements in 2017. For further information, see Note 18 of the Notes to Consolidated Financial Statements included in this report.

Retirement Benefit Plans


We have funded and unfunded noncontributory defined pension plans. We recognize the net pension asset or liability, also referred to herein as the funded status of the benefit plans,plan, in other assets or other liabilities, depending on the funded status at the end of each reporting period. We recognize the net actuarial gains or losses and prior service cost or credit that arise during the period in other comprehensive income or loss.


Many of our employees are participants in our 401(k) plan.Plan. Our contributions to the plan are charged to salaries and benefits within operating expenses.


Share-based Compensation Plans


We measure compensation cost for service-based and performance-based awards at estimated fair value and recognize compensation expense over the requisite service period for awards expected to vest. The estimation of awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from current estimates, such amounts will be recorded as a cumulative adjustment to salaries and benefits in the period estimates are revised. For service-based awards subject to graded vesting, expense is recognized under the straight-line method. Expense for performance-based awards with graded vesting is recognized under the accelerated method, whereby each vesting is treated as a separate award with expense for each vesting recognized ratably over the requisite service period.


Fair Value Measurements


Management is responsible for the determination of the fair value of our financial assets and financial liabilities and the supporting methodologies and assumptions. We employ widely accepted internal valuation models or utilize third-party valuation service providers to gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments or pools of finance receivables. When our valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, we determine fair value either by requesting brokers who are knowledgeable about these securities to provide a quote, which is generally non-binding, or by employing widely accepted internal valuation models.


Our valuation process typically requires obtaining data about market transactions and other key valuation model inputs from internal or external sources and, through the use of widely accepted valuation models, provides a single fair value measurement for individual securities or pools of finance receivables. The inputs used in this process include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads,


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Notes to Consolidated Financial Statements, Continued

bid-ask spreads, currency rates, and other market-observable information as of the measurement date as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector, and other issue or issuer-specific information. When market transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly increased. We assess the reasonableness of individual security values received from our valuation service providers through various analytical techniques. As part of our internal price reviews, assets that fall outside a price change tolerance are sent to our third-party investment manager for further review. In addition, we may validate the reasonableness of fair values by comparing information obtained from our valuation service providers to other third-party valuation sources for selected securities.


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We measure and classify assets and liabilities in the consolidated balance sheets in a hierarchy for disclosure purposes consisting of three “Levels” based on the observability of inputs available in the market placemarketplace used to measure the fair values. In general, we determine the fair value measurements classified as Level 1 based on inputs utilizing quoted prices in active markets for identical assets or liabilities that we have the ability to access. We generally obtain market price data from exchange or dealer markets. We do not adjust the quoted price for such instruments.


We determine the fair value measurements classified as Level 2 based on inputs utilizing other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.


Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The use of observable and unobservable inputs is further discussed in Note 23.20.


In certain cases, the inputs we use to measure the fair value of an asset may fall into different levels of the fair value hierarchy. In such cases, we determine the level in the fair value hierarchy within which the fair value measurement in its entirety falls based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

We recognize transfers into and out of each level of the fair value hierarchy as of the end of the reporting period.


Our fair value processes include controls that are designed to ensure that fair values are appropriate. Such controls include model validation, review of key model inputs, analysis of period-over-period fluctuations, and reviews by senior management.


PRIOR PERIOD REVISIONSEarnings Per Share (OMH Only)


DuringBasic earnings per share is computed by dividing net income or loss by the second quarterweighted-average number of 2015, we discoveredshares outstanding during each period. Diluted earnings 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 awards.

Foreign Currency Translation

Assets and liabilities of foreign operations are translated from their functional currencies into U.S. dollars for reporting purposes using the period end spot foreign exchange rate. Revenues and expenses of foreign operations are translated monthly from their respective functional currencies into U.S. dollars at amounts that we had not charged-off certain bankrupt accountsapproximate weighted average exchange rates. The effects of those translation adjustments are classified in our SpringCastle Portfolio and we identified an error inaccumulated other comprehensive income (loss) on the calculation of the allowance for our TDR personal loans. As a result of these findings, we recorded an out-of-period adjustment in the second quarter of 2015 related to prior periods, which increased provision for finance receivable losses by $8 million and decreased provision for income taxes by $3 million. The adjustment was not material to our results of operations for 2015.consolidated balance sheets.




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Notes to Consolidated Financial Statements, Continued

4. Recent Accounting Pronouncements
4. Recent Accounting Pronouncements    

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTEDIncome Taxes


InvestmentsWe recognize income taxes using the asset and liability method. We establish deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of assets and liabilities, using the tax rates expected to be in effect when the temporary differences reverse. Deferred tax assets are also recognized for tax attributes such as net operating loss carryforwards.


In March
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Realization of our gross deferred tax asset depends on our ability to generate sufficient taxable income of the FASB issued ASU 2016-07, Simplifyingappropriate character within the Transitioncarryforward periods of the jurisdictions in which the net operating and capital losses, deductible temporary differences and credits were generated. When we assess our ability to realize deferred tax assets, we consider all available evidence and we record valuation allowances to reduce deferred tax assets to the Equity Methodamounts that management conclude are more-likely-than-not to be realized.

We recognize income tax benefits associated with uncertain tax positions, when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more likely than not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of Accounting,being realized upon ultimate settlement with the taxing authority.

Retirement Benefit Plans

We have funded and unfunded noncontributory defined pension plans. We recognize the net pension asset or liability, also referred to herein as the funded status of the benefit plan, in other assets or other liabilities, depending on the funded status at the end of each reporting period. We recognize the net actuarial gains or losses and prior service cost or credit that arise during the period in other comprehensive income or loss.

Many of our employees are participants in our 401(k) Plan. Our contributions to the plan are charged to salaries and benefits within operating expenses.

Share-based Compensation Plans

We measure compensation cost for service-based and performance-based awards at estimated fair value and recognize compensation expense over the requisite service period for awards expected to vest. The estimation of awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from current estimates, such amounts will be recorded as a cumulative adjustment to salaries and benefits in the period estimates are revised. For service-based awards subject to graded vesting, expense is recognized under the straight-line method. Expense for performance-based awards with graded vesting is recognized under the accelerated method, whereby each vesting is treated as a separate award with expense for each vesting recognized ratably over the requisite service period.

Fair Value Measurements

Management is responsible for the determination of the fair value of our financial assets and financial liabilities and the supporting methodologies and assumptions. We employ widely accepted internal valuation models or utilize third-party valuation service providers to gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments or pools of finance receivables. When our valuation service providers are unable to obtain sufficient market observable information upon which eliminatesto estimate the requirement that, when an investment qualifiesfair value for a particular security, we determine fair value either by requesting brokers who are knowledgeable about these securities to provide a quote, which is generally non-binding, or by employing widely accepted internal valuation models.

Our valuation process typically requires obtaining data about market transactions and other key valuation model inputs from internal or external sources and, through the use of widely accepted valuation models, provides a single fair value measurement for individual securities or pools of finance receivables. The inputs used in this process include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, bid-ask spreads, currency rates, and other market-observable information as of the equity methodmeasurement date as well as the specific attributes of accountingthe security being valued, including its term, interest rate, credit rating, industry sector, and other issue or issuer-specific information. When market transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly increased. We assess the reasonableness of individual security values received from our valuation service providers through various analytical techniques. As part of our internal price reviews, assets that fall outside a price change tolerance are sent to our third-party investment manager for further review. In addition, we may validate the reasonableness of fair values by comparing information obtained from our valuation service providers to other third-party valuation sources for selected securities.

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We measure and classify assets and liabilities in the consolidated balance sheets in a hierarchy for disclosure purposes consisting of three “Levels” based on the observability of inputs available in the marketplace used to measure the fair values. In general, we determine the fair value measurements classified as a resultLevel 1 based on inputs utilizing quoted prices in active markets for identical assets or liabilities that we have the ability to access. We generally obtain market price data from exchange or dealer markets. We do not adjust the quoted price for such instruments.

We determine the fair value measurements classified as Level 2 based on inputs utilizing other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The use of observable and unobservable inputs is further discussed in Note 20.

In certain cases, the inputs we use to measure the fair value of an increaseasset may fall into different levels of the fair value hierarchy. In such cases, we determine the level in the fair value hierarchy within which the fair value measurement in its entirety falls based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of ownership interestthe significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or degreeliability.

Our fair value processes include controls that are designed to ensure that fair values are appropriate. Such controls include model validation, review of influence, an investor must adjust the investment, resultskey model inputs, analysis of operations,period-over-period fluctuations, and retainedreviews by senior management.

Earnings Per Share (OMH Only)

Basic earnings retroactively on a step-by-step basis as if the equity method of accounting 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 gainper share is computed by dividing net income or loss by the weighted-average number of shares outstanding during each period. Diluted earnings per share is computed based on the weighted-average number of common shares 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 awards.

Foreign Currency Translation

Assets and liabilities of foreign operations are translated from their functional currencies into U.S. dollars for reporting purposes using the period end spot foreign exchange rate. Revenues and expenses of foreign operations are translated monthly from their respective functional currencies into U.S. dollars at amounts that approximate weighted average exchange rates. The effects of those translation adjustments are classified in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method of accounting. The amendment in this ASU became effective prospectively for the Company for fiscal periods beginning January 1, 2017. We have adopted this ASU as of January 1, 2017 and concluded that it does not have an impact on our consolidated financial statements.

Statement of Cash Flows

In November of 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, which simplifies the presentation of restricted cash(loss) on the statement of cash flows by requiring entities to include restricted cash and restricted cash equivalents in the reconciliation of cash and cash equivalents. The amendments in this ASU become effective for the Company for fiscal years beginning January 1, 2018. We elected to early adopt this ASU as of January 1, 2017 and presented this change on a retrospective basis for all periods presented. We concluded that this ASU does not have a material impact on our consolidated financial statements.balance sheets.

Technical Corrections and Improvements

In January of 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections, to enhance the footnote disclosure guidelines for ASUs 2014-09, 2016-02, and 2016-13. The amendments to this transition guidance became effective for the Company for fiscal years beginning January 1, 2017. We have adopted this ASU as of January 1, 2017 on a prospective basis. We concluded that this ASU does not have a material impact on our consolidated financial statements.

Business Combinations

In January of 2017, the FASB issued ASU 2017-01, Business Combinations, to clarify the definition of a business, which establishes a process to determine when an integrated set of assets and activities can be deemed a business combination. The amendments in this ASU became effective for the Company for annual periods beginning January 1, 2018. We elected to early adopt this ASU as of April 1, 2017 on a prospective basis. We concluded that the adoption of this ASU does not have a material impact on our consolidated financial statements.

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. Management has reviewed this update and other ASU’s that were subsequently issued to further clarify the implementation guidance outlined in ASU 2014-09. The Company will adopt this ASU effective January 1, 2018. The Company’s implementation efforts included the identification of revenue streams that are within the scope of the new guidance and the review of related contracts with customers to determine their effect on certain non-interest income items presented in our consolidated statements of operations and the additional presentation disclosures required. We concluded that substantially all of the Company’s revenues are generated from activities that are outside the scope of this ASU, and the adoption will not have a material impact on our consolidated financial statements.

Financial Instruments

In January of 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which simplifies the impairment assessment of equity investments. The update requires equity investments to be



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Notes to Consolidated Financial Statements, Continued

4. Recent Accounting Pronouncements
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 for fiscal periods beginning January 1, 2018 using a cumulative-effect adjustment to the balance sheet. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) shall be applied prospectively to equity investments that exist as of the date of adoption of this update. We concluded the adoption of this ASU will not have a material impact on our consolidated financial statements.

In March of 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs, which amends the amortization period for certain purchased callable debt securities held at a premium. This ASU shortens the amortization period for the premium from the adjustment of yield over the contractual life of the instrument to the earliest call date. The amendments in this ASU become effective for the Company for fiscal years beginning January 1, 2019. We believe the adoption of this ASU will not have a material impact on our consolidated financial statements.

Leases

In February of 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize a right-of-use asset and a liability for the obligation to make payments on leases with terms greater than 12 months and to disclose information related to the amount, timing and uncertainty of cash flows arising from leases, including various qualitative and quantitative requirements. The amendments in this ASU become effective for the Company for fiscal periods beginning January 1, 2019. The Company’s cross-functional implementation team has developed a project plan to ensure we comply with all updates from this ASU at the time of adoption. We are currently in the process of importing all identified leases into a new leasing system that will allow us to better account for the leases in accordance with the new guidance. We are assessing new system updates to ensure both qualitative and quantitative data requirements will be met at the time of adoption. The Company’s leases primarily consist of leased office space, automobiles and information technology equipment. At December 31, 2017, the Company had $43 million of minimum lease commitments from these operating leases (refer to Note 19). We believe the adoption of this ASU will have a material effect on our consolidated financial statements, and we are in the process of quantifying the expected impact.

Allowance for Finance Receivables Losses

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

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 bedetermined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price of the financial asset rather than being reported as a credit loss expense. Subsequent changes in the allowance for credit losses are recorded in earnings. Interest income should be recognized based on the effective rate, excluding the discount embedded in the purchase price attributable to expected credit losses at acquisition.

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

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

The ASU will become effective for the Company for fiscal years beginning January 1, 2020. Early adoption is permitted for fiscal years beginning January 1, 2019. The Company’s cross-functional implementation team has developed a project plan to ensure we comply with all updates from this ASU at the time of adoption. We continue to make progress in developing an acceptable model to estimate the expected credit losses. After the model has been reviewed and validated in accordance with


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Notes to Consolidated Financial Statements, Continued

our governance policies, the Company will provide further disclosure regarding the estimated impact on our allowance for finance receivables losses. In addition to the development of the model, we are assessing the additional disclosure requirements from this update. We believe the adoption of this ASU will have a material effect on our consolidated financial statements, and we are in the process of quantifying the expected impacts.

Statement of Cash Flows

In August of 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this ASU will become effective for the Company for fiscal years beginning January 1, 2018. We concluded the adoption of this ASU will not have a material impact on our consolidated financial statements.

Income Taxes


We recognize income taxes using the asset and liability method. We establish deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of assets and liabilities, using the tax rates expected to be in effect when the temporary differences reverse. Deferred tax assets are also recognized for tax attributes such as net operating loss carryforwards.

92

Realization of our gross deferred tax asset depends on our ability to generate sufficient taxable income of the appropriate character within the carryforward periods of the jurisdictions in which the net operating and capital losses, deductible temporary differences and credits were generated. When we assess our ability to realize deferred tax assets, we consider all available evidence and we record valuation allowances to reduce deferred tax assets to the amounts that management conclude are more-likely-than-not to be realized.

We recognize income tax benefits associated with uncertain tax positions, when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more likely than not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with the taxing authority.

Retirement Benefit Plans

We have funded and unfunded noncontributory defined pension plans. We recognize the net pension asset or liability, also referred to herein as the funded status of the benefit plan, in other assets or other liabilities, depending on the funded status at the end of each reporting period. We recognize the net actuarial gains or losses and prior service cost or credit that arise during the period in other comprehensive income or loss.

Many of our employees are participants in our 401(k) Plan. Our contributions to the plan are charged to salaries and benefits within operating expenses.

Share-based Compensation Plans

We measure compensation cost for service-based and performance-based awards at estimated fair value and recognize compensation expense over the requisite service period for awards expected to vest. The estimation of awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from current estimates, such amounts will be recorded as a cumulative adjustment to salaries and benefits in the period estimates are revised. For service-based awards subject to graded vesting, expense is recognized under the straight-line method. Expense for performance-based awards with graded vesting is recognized under the accelerated method, whereby each vesting is treated as a separate award with expense for each vesting recognized ratably over the requisite service period.

Fair Value Measurements

Management is responsible for the determination of the fair value of our financial assets and financial liabilities and the supporting methodologies and assumptions. We employ widely accepted internal valuation models or utilize third-party valuation service providers to gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments or pools of finance receivables. When our valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, we determine fair value either by requesting brokers who are knowledgeable about these securities to provide a quote, which is generally non-binding, or by employing widely accepted internal valuation models.

Our valuation process typically requires obtaining data about market transactions and other key valuation model inputs from internal or external sources and, through the use of widely accepted valuation models, provides a single fair value measurement for individual securities or pools of finance receivables. The inputs used in this process include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, bid-ask spreads, currency rates, and other market-observable information as of the measurement date as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector, and other issue or issuer-specific information. When market transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly increased. We assess the reasonableness of individual security values received from our valuation service providers through various analytical techniques. As part of our internal price reviews, assets that fall outside a price change tolerance are sent to our third-party investment manager for further review. In Octoberaddition, we may validate the reasonableness of fair values by comparing information obtained from our valuation service providers to other third-party valuation sources for selected securities.

93

We measure and classify assets and liabilities in the consolidated balance sheets in a hierarchy for disclosure purposes consisting of three “Levels” based on the observability of inputs available in the marketplace used to measure the fair values. In general, we determine the fair value measurements classified as Level 1 based on inputs utilizing quoted prices in active markets for identical assets or liabilities that we have the ability to access. We generally obtain market price data from exchange or dealer markets. We do not adjust the quoted price for such instruments.

We determine the fair value measurements classified as Level 2 based on inputs utilizing other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The use of observable and unobservable inputs is further discussed in Note 20.

In certain cases, the inputs we use to measure the fair value of an asset may fall into different levels of the fair value hierarchy. In such cases, we determine the level in the fair value hierarchy within which the fair value measurement in its entirety falls based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Our fair value processes include controls that are designed to ensure that fair values are appropriate. Such controls include model validation, review of key model inputs, analysis of period-over-period fluctuations, and reviews by senior management.

Earnings Per Share (OMH Only)

Basic earnings per share is computed by dividing net income or loss by the weighted-average number of shares outstanding during each period. Diluted earnings per share is computed based on the weighted-average number of common shares 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 awards.

Foreign Currency Translation

Assets and liabilities of foreign operations are translated from their functional currencies into U.S. dollars for reporting purposes using the period end spot foreign exchange rate. Revenues and expenses of foreign operations are translated monthly from their respective functional currencies into U.S. dollars at amounts that approximate weighted average exchange rates. The effects of those translation adjustments are classified in accumulated other comprehensive income (loss) on the consolidated balance sheets.

94

4. Recent Accounting Pronouncements

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

Leases

In February of 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory2016-02, Leases, which requires lessees to recognize a right-of-use asset and a liability for the obligation to make payments on leases with terms greater than 12 months and to disclose information related to the amount, timing and uncertainty of cash flows arising from leases, including various qualitative and quantitative requirements. Management has reviewed this update and other ASUs that were subsequently issued to further clarify the implementation guidance outlined in ASU 2016-02. We adopted the amendments of these ASUs as of January 1, 2019, using the optional transition approach. As a result of this election, the prior periods presented have not been adjusted. See Note 16 for additional information on the adoption of ASU 2016-02.

ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED

Financial Instruments - Credit Losses

In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which significantly changes the way that entities are 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. The new approach requires entities to recognizemeasure all expected credit losses for financial assets over their expected lives based on historical experience, current conditions, and reasonable forecasts of collectability. The expected credit loss model requires earlier recognition of credit losses than the income tax consequencesincurred loss approach. We expect ongoing changes in the allowance for finance receivable losses will be driven primarily by the growth of the Company’s loan portfolio, mix of secured and unsecured loans, credit quality, and the economic environment at that time.

The ASU also modifies the other-than-temporary impairment model for available-for-sale debt securities by requiring companies to record an intra-entity transferallowance for credit impairment rather than write-downs of an asset other than inventory whensuch assets.

In addition, the transfer occurs. 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 amendments in this ASU will becomeis effective for the Company for annual reporting periods beginning January 1, 2018. We concluded2020.

The Company’s cross-functional implementation team has completed the implementation of this ASU. Based on the December 31, 2019 loan portfolio and current expectations of future economic conditions, this ASU resulted in an increase to the allowance for finance receivable losses of $1.12 billion, an increase to deferred tax assets of $0.28 billion, and a corresponding one-time cumulative reduction to retained earnings, net of tax, of $0.83 billion in the consolidated balance sheets at January 1, 2020.

In addition, the Company’s implementation team worked with our investment advisor to develop a new process to comply with this ASU as it relates to available-for-sale debt securities and the related disclosure requirements. The adoption of this ASU, as it relates to available-for-sale debt securities, will not have a material impact on ourthe consolidated financial statements.


Compensation and Benefits
95

Insurance

In MarchAugust of 2017,2018, the FASB issued ASU 2017-07, Compensation-Retirement Benefits: Improving2018-12, Financial Services - Insurance: Targeted Improvements to the PresentationAccounting for Long-Duration Contracts, which provides targeted improvements to Topic 944 for the assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited-payment contracts; measurement of Net Periodic Pension Costmarket risk benefits; amortization of deferred acquisition costs; and Net Periodic Postretirement Benefit Cost, to improve the presentation of the net periodic pension cost and net periodic postretirement benefit costs. It requires that a company present the service cost component separately from other components of net benefit cost on the income statement.enhanced disclosures. The amendments in this ASU become effective for the Company for fiscal periods beginning January 1, 2018.2022, as a result of the FASB issuing a one-year deferral of this ASU for public companies. We concludedhave a cross-functional implementation team and a project plan to ensure we comply with all the amendments in this ASU at the time of adoption. We continue to make progress in evaluating the potential impact of the adoption of thisthe ASU will not have a material impact on our consolidated financial statements.

In May of 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting, which provides guidance on which changes to the terms or conditions of a share-based payment award requires an entity to apply modification accounting. The amendments in this ASU become effective for the Company for annual periods beginning January 1, 2018. We concluded the adoption of this ASU will not have a material impact on our consolidated financial statements.


We do not believe that any other accounting pronouncements issued, during 2017, but not yet effective, would have a material impact on our consolidated financial statements or disclosures, if adopted.


5. Finance Receivables    

5. Finance Receivables

Our finance receivable types includereceivables consist of personal loans, which are non-revolving, with a fixed-rate, a fixed term of three to six years, and are secured by automobiles, other titled collateral, or are unsecured. Prior to September 30, 2018, our finance receivables also included other receivables, which consist of our liquidating loan portfolios: real estate loans, retail sales finance contracts, and revolving retail accounts. We continue to service or sub-service our liquidating 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 December 31, 2017, we had approximately 920,000 personal loans representing $5.3 billion of net finance receivables, compared to 928,000 personal loans totaling $4.8 billion at December 31, 2016.

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. In 2012, we ceased originatingcontracts. Effective September 30, 2018, our real estate loans and the portfolio is in a liquidating status.

Retail sales finance —include retail sales contracts and revolving retail accounts. Retail sales contracts are closed-end accounts that represent a single purchase transaction, are secured by the personal property designated in the contract and generally have maximum original terms of 60 months. Revolving retail accounts are open-end accounts that can be used for financing repeated purchaseswere transferred from the same merchant, 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.


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Notes to Consolidated Financial Statements, Continued

Components of net finance receivables held for investment by typeto held for sale due to management's intent to no longer hold these finance receivables for the foreseeable future.
Net finance receivables consist of our total portfolio of personal loans. Components of our personal loans were as follows:

(dollars in millions)
December 31,20192018
Gross receivables *$18,195  $15,978  
Unearned points and fees(242) (201) 
Accrued finance charges289  253  
Deferred origination costs147  134  
Total$18,389  $16,164  
* Gross receivables equal the UPB except for the following:
(dollars in millions) 
Personal
Loans
 
Real Estate
Loans
 
Retail
Sales Finance
 Total
         
December 31, 2017        
Gross receivables * $5,858
 $127
 $7
 $5,992
Unearned finance charges and points and fees (676) —
 (1) (677)
Accrued finance charges 78
 1
 —
 79
Deferred origination costs 48
 —
 —
 48
Total $5,308
 $128
 $6
 $5,442
         
December 31, 2016        
Gross receivables * $5,449
 $142
 $12
 $5,603
Unearned finance charges and points and fees (754) 1
 (1) (754)
Accrued finance charges 63
 1
 —
 64
Deferred origination costs 46
 —
 —
 46
Total $4,804
 $144
 $11
 $4,959
*Gross receivables are defined as follows:

•Finance receivables purchased as a performing receivable — gross finance receivables are equal theto UPB for interest bearing accounts and, the gross remaining contractual payments for precompute accounts. Additionally, theif applicable, any remaining unearned premium net ofor discount 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;
and

Finance receivables originated subsequent to the Fortress Acquisition — 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
accounts


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 premium, net of discount established at the time of purchase, is included in both interest bearing and precompute accounts previously purchased as a performing receivable.
96

At December 31, 2017 and 2016, unused lines of credit extended to customers by the Company were immaterial.



85


Notes to Consolidated Financial Statements, Continued

GEOGRAPHIC DIVERSIFICATION


Geographic diversification of finance receivables reduces the concentration of credit risk associated with economic stresses in any one region. The largest concentrations of net finance receivables were as follows:

December 31,20192018 *
(dollars in millions)AmountPercentAmountPercent
Texas$1,606  9 %$1,446  9 %
North Carolina1,217  7  1,178  7  
California1,193  6  994  6  
Pennsylvania1,097  6  945  6  
Florida1,025  6  832  5  
Ohio913  5  791  5  
Illinois787  4  700  4  
Georgia748  4  650  4  
Indiana741  4  653  4  
Virginia710  4  651  4  
Tennessee602  3  547  3  
Other7,750  42  6,777  43  
Total$18,389  100 %$16,164  100 %
* December 31, 2018 concentrations of net finance receivables are presented in the order of December 31, 2019 state concentrations.
December 31, 2017 2016 *
(dollars in millions) Amount Percent Amount Percent
         
Illinois $481
 9% $400
 8%
Indiana 428
 8
 360
 7
North Carolina 426
 8
 398
 8
California 323
 6
 298
 6
Georgia 304
 6
 276
 6
Florida 301
 6
 254
 5
Texas 295
 5
 288
 6
Ohio 294
 5
 266
 5
Virginia 284
 5
 266
 5
South Carolina 275
 5
 254
 5
Pennsylvania 252
 5
 255
 5
Other 1,779
 32
 1,644
 34
Total $5,442
 100% $4,959
 100%

*December 31, 2016 concentrations of net finance receivables are presented in the order of December 31, 2017 state concentrations.


CREDIT QUALITY INDICATOR


We consider the concentration of secured loans, the underlying value of collateral of secured loans, and the delinquency status of our finance receivables as our primary credit quality indicator.indicators. At December 31, 2019 and December 31, 2018, 52% and 48%, respectively, of our personal loans were secured by titled collateral. We monitor delinquency trends to manage our exposure to credit risk. When finance receivables are contractually 60 days contractually past due, we consider them delinquentthese accounts to be at an increased risk for loss and we transfer collection of these accounts to our centralized operations, as these accounts are considered to be at increased risk for loss.operations. At 90 days or more contractually past due, we consider our finance receivables to be nonperforming.



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Notes to Consolidated Financial Statements, Continued


The following is a summary of net finance receivablesour personal loans held for investment by type and by number of days delinquent:
(dollars in millions)
December 31,20192018
Performing
Current$17,550  $15,411  
30-59 days past due272  229  
60-89 days past due181  161  
Total performing18,003  15,801  
Nonperforming
90-179 days past due377  355  
180 days or more past due9  8  
Total nonperforming386  363  
Total$18,389  $16,164  

97
(dollars in millions) 
Personal
Loans
 
Real Estate
Loans
 
Retail
Sales Finance
 Total
         
December 31, 2017        
Performing:        
Current $5,063
 $98
 $6
 $5,167
30-59 days past due 75
 8
 —
 83
60-89 days past due 55
 3
 —
 58
Total performing 5,193
 109
 6
 5,308
Nonperforming:        
90-179 days past due 112
 4
 —
 116
180 days or more past due 3
 15
 —
 18
Total nonperforming 115
 19
 —
 134
Total $5,308
 $128
 $6
 $5,442
         
December 31, 2016        
Performing:        
Current $4,579
 $102
 $11
 $4,692
30-59 days past due 64
 9
 —
 73
60-89 days past due 45
 4
 —
 49
Total performing 4,688
 115
 11
 4,814
Nonperforming:        
90-179 days past due 112
 8
 —
 120
180 days or more past due 4
 21
 —
 25
Total nonperforming 116
 29
 —
 145
Total $4,804
 $144
 $11
 $4,959


We accrue finance charges on revolving retail finance receivables up to the dateTable 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 December 31, 2017 and at December 31, 2016 were immaterial.Contents

PURCHASED CREDIT IMPAIRED FINANCE RECEIVABLES


Our purchased credit impaired finance receivables consist of receivablespersonal loans and real estate loans purchased in connection with the OneMain Acquisition and the Fortress Acquisition.Acquisition, respectively.

Prior to March 31, 2016, our purchased credit impaired finance receivables also included the SpringCastle Portfolio, which was purchased in connection with the joint venture acquisition of the SpringCastle Portfolio. On March 31, 2016, we sold our interest in the SpringCastle Portfolio in connection with the SpringCastle Interests Sale.


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


At December 31, 20172019 and 2016,2018, finance receivables held for sale totaled $132$64 million and $153$103 million, respectively, which include purchased credit impaired finance receivables,real estate loans, as well as TDR finance receivables. Therefore, we are presenting the financial information for our purchased credit impaired finance receivables and TDR finance receivables combined for finance receivables held for investment and finance receivables held for sale in the tables below.real estate loans. See Note 7 for further information on our finance receivables held for sale.



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Notes to Consolidated Financial Statements, Continued


Information regarding our purchased credit impaired FA Loans held for investment and held for salefinance receivables were as follows:
(dollars in millions)
December 31,20192018
Personal Loans
Carrying amount, net of allowance$40  $89  
Outstanding balance (a)74  135  
Allowance for purchased credit impaired finance receivable losses (b)—  —  
Real Estate Loans - Held for Sale
Carrying amount$19  $28  
Outstanding balance (a)35  48  
(a) Outstanding balance is defined as UPB of the loans with a net carrying amount.
(dollars in millions)    
December 31, 2017 2016
     
FA Loans (a)    
Carrying amount, net of allowance $57
 $70
Outstanding balance (b) 94
 107
Allowance for purchased credit impaired finance receivable losses 9
 8

(a)   ��Purchased credit impaired FA Loans held for sale included in the table above were as follows:
(dollars in millions)    
December 31, 2017 2016
     
Carrying amount $44
 $54
Outstanding balance 72
 83

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

(b) The allowance for purchased credit impaired finance receivable losses at December 31, 2017 and 2016, reflectedreflects the carrying value of the purchased credit impaired   loans held for investment being higher thanexceeding the present value of the expected cash flows. As indicated above, no allowance was required as of December 31, 2019 or 2018.


Changes in accretable yield for purchased credit impaired finance receivables held for investment and held for sale were as follows:
(dollars in millions)
Years Ended December 31,201920182017
Personal Loans
Balance at beginning of period$39  $47  $59  
Accretion(20) (27) (34) 
Reclassifications from nonaccretable difference *16  19  22  
Balance at end of period$35  $39  $47  
Real Estate Loans - Held for Sale
Balance at beginning of period$27  $53  $60  
Accretion(2) (4) (5) 
Reclassifications to nonaccretable difference *—  —  (2) 
Transfer due to finance receivables sold(3) (22) —  
Balance at end of period$22  $27  $53  
(dollars in millions) SCP Loans FA Loans Total
       
Year Ended December 31, 2017      
Balance at beginning of period $—
 $60
 $60
Accretion (a) —
 (5) (5)
Reclassifications to nonaccretable difference (b) —
 (2) (2)
Balance at end of period $—
 $53
 $53
       
Year Ended December 31, 2016      
Balance at beginning of period $375
 $66
 $441
Accretion (a) (16) (7) (23)
Reclassifications from nonaccretable difference (b) —
 12
 12
Transfers due to finance receivables sold (359) (11) (370)
Balance at end of period $—
 $60
 $60
       
Year Ended December 31, 2015      
Balance at beginning of period $452
 $54
 $506
Accretion (a) (77) (8) (85)
Reclassifications from nonaccretable difference (b) —
 20
 20
Balance at end of period $375
 $66
 $441
(a)    Accretion on our purchased credit impaired FA Loans held for sale included* Reclassifications from (to) nonaccretable difference represents the increases (decreases) in the table above were as follows:

accretable yield resulting from higher (lower) estimated undiscounted cash flows.

98
88


Notes to Consolidated Financial Statements, Continued

(dollars in millions)    
Years Ended December 31, 2017 2016 2015
       
Accretion $4
 $5
 $6

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

TROUBLED DEBT RESTRUCTUREDTDR FINANCE RECEIVABLES


Information regarding TDR finance receivables held for investment and held for sale were as follows:
(dollars in millions)
December 31,20192018
  
Personal Loans 
TDR gross receivables (a)$655  $450  
TDR net receivables (b)658  453  
Allowance for TDR finance receivable losses272  170  
Real Estate Loans - Held for Sale
TDR gross receivables (a)$52  $89  
TDR net receivables (b)53  75  
(a) TDR gross receivables — gross receivables are equal to UPB and, if applicable, any remaining unearned premium or discount established at the time of purchase if previously purchased as a performing receivable.
(dollars in millions) 
Personal
Loans
 Real Estate
Loans (a)		 Total
       
December 31, 2017      
TDR gross finance receivables $112
 $139
 $251
TDR net finance receivables 111
 140
 251
Allowance for TDR finance receivable losses 44
 12
 56
       
December 31, 2016      
TDR gross finance receivables $47
 $133
 $180
TDR net finance receivables 47
 134
 181
Allowance for TDR finance receivable losses 20
 11
 31
(b) TDR net receivables — TDR gross receivables net of unearned points and fees, accrued finance charges, and deferred origination costs.
(a) TDR real estate loans held for sale included in the table above were as follows:
(dollars in millions)

    
December 31, 2017 2016
     
TDR gross finance receivables $90
 $89
TDR net finance receivables 91
 90

(b) As defined earlier in this Note.

As of December 31, 2017, we had no commitments to lend additional funds on our TDR finance receivables.


TDR average net receivables held for investment and held for sale and finance charges recognized on TDR finance receivables held for investment and held for sale were as follows:
(dollars in millions)Personal
Loans		Other Receivables *Total
   
Year Ended December 31, 2019
TDR average net receivables$550  $58  $608  
TDR finance charges recognized45  3  48  
Year Ended December 31, 2018
TDR average net receivables$383  $130  $513  
TDR finance charges recognized45  7  52  
Year Ended December 31, 2017
TDR average net receivables$231  $140  $371  
TDR finance charges recognized33  9  42  
(dollars in millions) 
Personal
Loans (a)
 
SpringCastle
Portfolio
 Real Estate
Loans (b)		 Total
        
Year Ended December 31, 2017        
TDR average net receivables $79
 $—
 $140
 $219
TDR finance charges recognized 8
 —
 9
 17
         
Year Ended December 31, 2016        
TDR average net receivables $36
 $—
 $175
 $211
TDR finance charges recognized 3
 —
 11
 14
         
Year Ended December 31, 2015        
TDR average net receivables $29
 $12
 $198
 $239
TDR finance charges recognized 3
 1
 11
 15


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Notes to Consolidated Financial Statements, Continued

(a)TDR personal loans held for sale included in the table above were immaterial.

(b) TDR real estate loans* Other receivables held for sale included in the table above consist of real estate loans and were as follows:
(dollars in millions)
Years Ended December 31,201920182017
TDR average net receivables$58  $98  $91  
TDR finance charges recognized3  5  6  

99
(dollars in millions) Real Estate
Loans
   
Year Ended December 31, 2017  
TDR average net receivables $91
TDR finance charges recognized 6
   
Year Ended December 31, 2016  
TDR average net receivables $102
TDR finance charges recognized 6
   
Year Ended December 31, 2015  
TDR average net receivables $91
TDR finance charges recognized 5

Information regarding the new volume of the TDR finance receivables held for investment and held for sale were as follows:are reflected in the following table.

(dollars in millions)
Years Ended December 31,201920182017
Personal Loans
Pre-modification TDR net finance receivables$536  $377  $327  
Post-modification TDR net finance receivables:
Rate reduction370  289  251  
Other (a)166  88  75  
Total post-modification TDR net finance receivables$536  $377  $326  
Number of TDR accounts78,257  57,324  45,560  
Other Receivables (b)
Pre-modification TDR net finance receivables$1  $3  $16  
Post-modification TDR net finance receivables:
Rate reduction1  3  16  
Other—  —  —  
Total post-modification TDR net finance receivables$1  $3  $16  
Number of TDR accounts8  70  510  
(a) “Other” modifications primarily include potential principal and interest forgiveness contingent on future payment performance by the borrower under the modified terms.
(dollars in millions) 
Personal
Loans (a)
 
SpringCastle
Portfolio
 Real Estate
Loans (b)		 Total
         
Year Ended December 31, 2017        
Pre-modification TDR net finance receivables $124
 $—
 $16
 $140
Post-modification TDR net finance receivables:        
Rate reduction $93
 $—
 $16
 $109
Other (c) 30
 —
 —
 30
Total post-modification TDR net finance receivables $123
 $—
 $16
 $139
Number of TDR accounts 22,500
 —
 510
 23,010
         
Year Ended December 31, 2016        
Pre-modification TDR net finance receivables $49
 $1
 $16
 $66
Post-modification TDR net finance receivables:        
Rate reduction $31
 $1
 $16
 $48
Other (c) 12
 —
 1
 13
Total post-modification TDR net finance receivables $43
 $1
 $17
 $61
Number of TDR accounts 9,517
 157
 364
 10,038
         
Year Ended December 31, 2015        
Pre-modification TDR net finance receivables $33
 $7
 $21
 $61
Post-modification TDR net finance receivables:        
Rate reduction $15
 $6
 $17
 $38
Other (c) 12
 —
 5
 17
Total post-modification TDR net finance receivables $27
 $6
 $22
 $55
Number of TDR accounts 6,515
 721
 385
 7,621



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Notes to Consolidated Financial Statements, Continued

(a)TDR personal(b) TDR "other receivable" loans held for sale included in the table above were immaterial.

(b)TDR real estate loans held for sale included in the table above were as follows:
(dollars in millions)
Real Estate
Loans
 
   
Year Ended December 31, 2017  
Pre-modification TDR net finance receivables$6
 
Post-modification TDR net finance receivables$7
 
Number of TDR accounts232
 
   
Year Ended December 31, 2016  
Pre-modification TDR net finance receivables$5
 
Post-modification TDR net finance receivables$5
 
Number of TDR accounts122
 
   
Year Ended December 31, 2015  
Pre-modification TDR net finance receivables$6
 
Post-modification TDR net finance receivables$7
 
Number of TDR accounts113
 

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

Net finance receivables held for investment andsale include in the table above were immaterial.

Personal loans held for saleinvestment 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:are reflected in the following table.
(dollars in millions)
Years Ended December 31,201920182017
Personal Loans
TDR net finance receivables *$96  $64  $89  
Number of TDR accounts14,732  9,719  15,035  
(dollars in millions) 
Personal
Loans
 
SpringCastle
Portfolio
 Real Estate
Loans (a)		 Total
         
Year Ended December 31, 2017        
TDR net finance receivables (b) $37
 $—
 $4
 $41
Number of TDR accounts 8,113
 —
 101
 8,214
         
Year Ended December 31, 2016        
TDR net finance receivables (b) (c) $6
 $—
 $3
 $9
Number of TDR accounts 1,409
 19
 61
 1,489
         
Year Ended December 31, 2015        
TDR net finance receivables (b) $5
 $2
 $3
 $10
Number of TDR accounts 1,221
 147
 46
 1,414
(a)* Represents the corresponding balance of TDR net finance receivables heldat the end of the month in which they defaulted.

TDR other receivables for sale included in the table above were as follows:years ended December 31, 2019, 2018 and 2017 that defaulted during the previous 12-month period are immaterial.





100
91


Notes to Consolidated Financial Statements, Continued

(dollars in millions) Real Estate
Loans
   
Year Ended December 31, 2017  
TDR net finance receivables $2
Number of TDR accounts 53
   
Year Ended December 31, 2016  
TDR net finance receivables $2
Number of TDR accounts 30
   
Year Ended December 31, 2015  
TDR net finance receivables $1
Number of TDR accounts 17
(b)Represents the corresponding balance of TDR net finance receivables at the end of the month in which they defaulted.6. Allowance for Finance Receivable Losses

(c)TDR SpringCastle Portfolio loans for the year ended December 31, 2016 that defaulted during the previous 12-month period were less than $1 million and, therefore, are not quantified in the combined table above.



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Notes to Consolidated Financial Statements, Continued

6. Allowance for Finance Receivable Losses    


Changes in the allowance for finance receivable losses by finance receivable type were as follows:
(dollars in millions)Personal
Loans		Other
Receivables		Total
Year Ended December 31, 2019
Balance at beginning of period$731  $—  $731  
Provision for finance receivable losses1,129  —  1,129  
Charge-offs(1,157) —  (1,157) 
Recoveries126  —  126  
Balance at end of period$829  $—  $829  
Year Ended December 31, 2018
Balance at beginning of period$673  $24  $697  
Provision for finance receivable losses1,050  (2) 1,048  
Charge-offs(1,102) (2) (1,104) 
Recoveries110  3  113  
Other *—  (23) (23) 
Balance at end of period$731  $—  $731  
Year Ended December 31, 2017
Balance at beginning of period$669  $20  $689  
Provision for finance receivable losses949  6  955  
Charge-offs(1,048) (6) (1,054) 
Recoveries103  4  107  
Balance at end of period$673  $24  $697  
(dollars in millions) 
Personal
Loans
 
SpringCastle
Portfolio
 
Real Estate
Loans
 
Retail
Sales Finance
 
Consolidated
Total
           
Year Ended December 31, 2017          
Balance at beginning of period $184
 $—
 $19
 $1
 $204
Provision for finance receivable losses 318
 —
 6
 —
 324
Charge-offs (347) —
 (5) (1) (353)
Recoveries 61
 —
 3
 1
 65
Balance at end of period $216
 $—
 $23
 $1
 $240
           
Year Ended December 31, 2016          
Balance at beginning of period $173
 $4
 $46
 $1
 $224
Provision for finance receivable losses 306
 14
 9
 —
 329
Charge-offs (340) (17) (11) (1) (369)
Recoveries 45
 3
 5
 1
 54
Other (a) —
 (4) (30) —
 (34)
Balance at end of period $184
 $—
 $19
 $1
 $204
           
Year Ended December 31, 2015 

   

 

  
Balance at beginning of period $130
 $3
 $46
 $1
 $180
Provision for finance receivable losses 257
 67
 13
 2
 339
Charge-offs (250) (78) (18) (3) (349)
Recoveries 37
 12
 5
 1
 55
Other (b) (1) —
 —
 —
 (1)
Balance at end of period $173
 $4
 $46
 $1
 $224
(a)Other consists of:

•* Other consists primarily of the eliminationreclassification of allowance for finance receivable losses due to the saletransfer of the SpringCastle Portfolio on March 31, 2016, in
connection with the sale of our equity interest in the SpringCastle Joint Venture; and

•     the elimination of allowance for finance receivable losses due to the transfers of real estate loans in other receivables from held for investment to finance
receivable receivables held for sale during 2016.on September 30, 2018. See Notes 5 and 7 included in this report for further information.

(b)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 during 2015.




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Notes to Consolidated Financial Statements, Continued


The allowance for finance receivable losses and net finance receivables by type and by impairment method were as follows:
(dollars in millions)
December 31,20192018
Allowance for finance receivable losses:
Collectively evaluated for impairment$557  $561  
Purchased credit impaired finance receivables—  —  
TDR finance receivables272  170  
Total$829  $731  
Finance receivables:
Collectively evaluated for impairment$17,691  $15,622  
Purchased credit impaired finance receivables40  89  
TDR finance receivables658  453  
Total$18,389  $16,164  
Allowance for finance receivable losses as a percentage of finance receivables4.51 %4.52 %

(dollars in millions) 
Personal
Loans
 
Real Estate
Loans
 
Retail
Sales Finance
 Total
         
December 31, 2017        
Allowance for finance receivable losses:        
Collectively evaluated for impairment $172
 $2
 $1
 $175
Purchased credit impaired finance receivables —
 9
 —
 9
TDR finance receivables 44
 12
 —
 56
Total $216
 $23
 $1
 $240
         
Finance receivables:        
Collectively evaluated for impairment $5,197
 $57
 $6
 $5,260
Purchased credit impaired finance receivables —
 22
 —
 22
TDR finance receivables 111
 49
 —
 160
Total $5,308
 $128
 $6
 $5,442
         
Allowance for finance receivable losses as a percentage of finance receivables 4.06% 18.66% 9.91% 4.41%
         
December 31, 2016        
Allowance for finance receivable losses:        
Collectively evaluated for impairment $164
 $—
 $1
 $165
Purchased credit impaired finance receivables —
 8
 —
 8
TDR finance receivables 20
 11
 —
 31
Total $184
 $19
 $1
 $204
         
Finance receivables:        
Collectively evaluated for impairment $4,757
 $76
 $11
 $4,844
Purchased credit impaired finance receivables —
 24
 —
 24
TDR finance receivables 47
 44
 —
 91
Total $4,804
 $144
 $11
 $4,959
         
Allowance for finance receivable losses as a percentage of finance receivables 3.84% 13.31% 4.42% 4.12%

See Note 3 for additional information on the determination of the allowance for finance receivable losses.




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Table of Contents

Notes to Consolidated Financial Statements, Continued

7. Finance Receivables Held for Sale
7. Finance Receivables Held for Sale    


We reportreported finance receivables held for sale of $132$64 million at December 31, 20172019 and $153$103 million at December 31, 2016,2018, which consist entirely of real estate loans, and are carried at the lower of cost or fair value, and consist entirely of real estate loans. At December 31, 2017 and 2016, the fair value of our finance receivables held for sale exceeded the cost. We used theapplied on an aggregate basis to determine the lower of cost or fair value of finance receivables held for sale.basis.


See Note 3 for more information regarding our accounting policy for finance receivables held for sale.


SPRINGCASTLE PORTFOLIO

During March of 2016, we transferred $1.6 billion of loans of the SpringCastle Portfolio from held for investment to held for sale and 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.

PERSONAL LOANS

During 2015, we transferred $608 million of personal loans from held for investment to held for sale. On May 2, 2016,In February 2019, we sold personala portfolio of real estate loans held for sale with a carrying value of $602$16 million for aggregate cash proceeds of $19 million and recorded a net gain in other revenues atof $3 million (“February 2019 Real Estate Loan Sale”). After the timerecognition of the February 2019 Real Estate Loan Sale, the carrying value of the remaining loans classified in finance receivables held for sale exceeded their fair value and, accordingly, we marked the remaining loans to fair value and recorded an impairment in other revenue of $22$3 million.


REAL ESTATE LOANS

On November 30, 2016,During 2018, we transferred $50$88 million of real estate loans (net of allowance for finance receivable losses) from held for investment to held for sale.sale due to management’s intent to no longer hold these finance receivables for the foreseeable future. In connection with the December 2016 Real Estate Loan Sale,2018, we sold a portfolio of first and second lien mortgagereal estate loans with a carrying value of $58$82 million for aggregate cash proceeds of $100 million and recorded a net lossgain in other revenues of less than $1 million.

On June 30, 2016, we transferred $257$18 million (“December 2018 Real Estate Loan Sale”). After the recognition of real estate loans from held for investment to held for sale. In connection with the August 2016December 2018 Real Estate Loan Sale, we sold a portfolio of second lien mortgage loans with athe carrying value of $250 millionthe remaining loans classified in finance receivables held for sale exceeded their fair value and, accordingly, we marked the remaining loans to fair value and recorded a net lossan impairment in other revenuesrevenue of $4$16 million.


At December 31, 2019, the carrying value of our finance receivables held for sale was not impaired. We did not have any other material transfer activitytransfers to or from finance receivables held for sale during 2017, 2016 or 2015.2019, 2018 and 2017.





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Table of Contents

Notes to Consolidated Financial Statements, Continued

8. Investment Securities
8. Investment Securities    

AVAILABLE-FOR-SALE SECURITIES


Cost/amortized cost, unrealized gains and losses, and fair value of fixed maturity available-for-sale securities by type were as follows:

(dollars in millions) 
Cost/
Amortized Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
(dollars in millions)Cost/
Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
        
December 31, 2017        
December 31, 2019December 31, 2019    
Fixed maturity available-for-sale securities:        Fixed maturity available-for-sale securities:    
Bonds        
U.S. government and government sponsored entities $17
 $��
 $—
 $17
U.S. government and government sponsored entities$11  $—  $—  $11  
Obligations of states, municipalities, and political subdivisions 70
 —
 —
 70
Obligations of states, municipalities, and political subdivisions91  2  (1) 92  
Commercial paperCommercial paper91  —  —  91  
Non-U.S. government and government sponsored entities 4
 —
 —
 4
Non-U.S. government and government sponsored entities144  3  —  147  
Corporate debt 322
 4
 (2) 324
Corporate debt1,054  45  (1) 1,098  
Mortgage-backed, asset-backed, and collateralized:        Mortgage-backed, asset-backed, and collateralized:   
RMBS 35
 —
 —
 35
RMBS214  3  —  217  
CMBS 23
 —
 —
 23
CMBS56  1  —  57  
CDO/ABS 53
 —
 —
 53
CDO/ABS84  1  —  85  
Total bonds 524
 4
 (2) 526
Preferred stock (a) 6
 —
 (1) 5
Other long-term investments 1
 —
 —
 1
Total (b) $531
 $4
 $(3) $532
TotalTotal$1,745  $55  $(2) $1,798  
        
December 31, 2016        
December 31, 2018December 31, 2018    
Fixed maturity available-for-sale securities:        Fixed maturity available-for-sale securities:    
Bonds        
U.S. government and government sponsored entities $13
 $—
 $—
 $13
U.S. government and government sponsored entities$21  $—  $—  $21  
Obligations of states, municipalities, and political subdivisions 83
 —
 (1) 82
Obligations of states, municipalities, and political subdivisions91  —  (1) 90  
Certificates of deposit and commercial paperCertificates of deposit and commercial paper63  —  —  63  
Non-U.S. government and government sponsored entities 5
 —
 —
 5
Non-U.S. government and government sponsored entities145  —  (2) 143  
Corporate debt 356
 2
 (5) 353
Corporate debt1,027  2  (32) 997  
Mortgage-backed, asset-backed, and collateralized:        Mortgage-backed, asset-backed, and collateralized:   
RMBS 39
 —
 —
 39
RMBS130  —  (2) 128  
CMBS 33
 —
 —
 33
CMBS72  —  (1) 71  
CDO/ABS 46
 —
 —
 46
CDO/ABS94  1  (1) 94  
Total bonds 575
 2
 (6) 571
Preferred stock (a) 6
 —
 —
 6
Other long-term investments 1
 —
 —
 1
Total (b) $582
 $2
 $(6) $578
TotalTotal$1,643  $3  $(39) $1,607  
(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 FHLB common stock of $1 million at December 31, 2017 and 2016, which is classified as a restricted investment and carried at cost.




103
96


Notes to Consolidated Financial Statements, Continued

Fair value and unrealized losses on available-for-sale securities by type and length of time in a continuous unrealized loss position were as follows:

 Less Than 12 Months 12 Months or Longer Total Less Than 12 Months12 Months or LongerTotal
(dollars in millions) 
Fair
Value
 
Unrealized
Losses *
 
Fair
Value
 
Unrealized
Losses *
 
Fair
Value
 
Unrealized
Losses
(dollars in millions)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
            
December 31, 2017            
Bonds:            
December 31, 2019December 31, 2019      
U.S. government and government sponsored entities $13
 $—
 $1
 $—
 $14
 $—
U.S. government and government sponsored entities$—  $—  $3  $—  $3  $—  
Obligations of states, municipalities, and political subdivisions 35
 —
 12
 —
 47
 —
Obligations of states, municipalities, and political subdivisions29  (1) 4  —  33  (1) 
Commercial paperCommercial paper76  —  —  —  76  —  
Non-U.S. government and government sponsored entitiesNon-U.S. government and government sponsored entities19  —  14  —  33  —  
Corporate debt 120
 (1) 69
 (1) 189
 (2)Corporate debt63  (1) 13  —  76  (1) 
Mortgage-backed, asset-backed, and collateralized:Mortgage-backed, asset-backed, and collateralized:
RMBS 14
 —
 12
 —
 26
 —
RMBS45  —  —  —  45  —  
CMBS 6
 —
 15
 —
 21
 —
CMBS15  —  7  —  22  —  
CDO/ABS 30
 —
 10
 —
 40
 —
CDO/ABS14  —  —  —  14  —  
Total bonds 218
 (1) 119
 (1) 337
 (2)
Preferred stock —
 —
 5
 (1) 5
 (1)
Other long-term investments 1
 —
 —
 —
 1
 —
Total $219
 $(1) $124
 $(2) $343
 $(3)Total$261  $(2) $41  $—  $302  $(2) 
            
December 31, 2016            
Bonds:            
December 31, 2018December 31, 2018      
U.S. government and government sponsored entities $9
 $—
 $—
 $—
 $9
 $—
U.S. government and government sponsored entities$3  $—  $16  $—  $19  $—  
Obligations of states, municipalities, and political subdivisions 57
 (1) 2
 —
 59
 (1)Obligations of states, municipalities, and political subdivisions10  —  57  (1) 67  (1) 
Non-U.S. government and government sponsored entities 3
 —
 —
 —
 3
 —
Non-U.S. government and government sponsored entities19  (1) 97  (1) 116  (2) 
Corporate debt 171
 (5) 5
 —
 176
 (5)Corporate debt377  (14) 448  (18) 825  (32) 
Mortgage-backed, asset-backed, and collateralized:Mortgage-backed, asset-backed, and collateralized:
RMBS 33
 —
 —
 —
 33
 —
RMBS23  —  78  (2) 101  (2) 
CMBS 22
 —
 —
 —
 22
 —
CMBS10  —  54  (1) 64  (1) 
CDO/ABS 25
 —
 —
 —
 25
 —
CDO/ABS18  —  33  (1) 51  (1) 
Total bonds 320
 (6) 7
 —
 327
 (6)
Preferred stock —
 —
 6
 —
 6
 —
Total $320
 $(6) $13
 $—
 $333
 $(6)Total$460  $(15) $783  $(24) $1,243  $(39) 
*Unrealized losses on certain available-for-sale securities were less than $1 million and, therefore, are not quantified in the table above.


On a lot basis, we had 217398 and 1,767 investment securities in an unrealized loss position at December 31, 20172019 and 2016.2018, respectively. We do not consider the unrealized losses to be credit-related, as these unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. Additionally, at December 31, 2017,2019, other-than-temporary impairments on investment securities that we had nointend to sell were immaterial. We do not have plans to sell any of the remaining investment securities with unrealized losses as of December 31, 2019, and we believe it is more likely than not that we would not be required to sell such investment securities before recovery of their amortized cost.


We continue to monitor unrealized loss positions for potential impairments. During 2017, 20162019 and 2015 periods, we did not recognize any2018, other-than-temporary impairment credit losses, primarily on available-for-sale securitiescorporate debt, in investment revenues.revenues were immaterial. NaN impairment was recognized during 2017.


There were no material additions or reductions in the cumulative amount of credit losses (recognized in earnings) on other-than-temporarily impaired available-for-sale securities for the 2017, 2016,during 2019, 2018, and 2015 periods.2017.






104
97


Notes to Consolidated Financial Statements, Continued

The proceeds of available-for-sale securities sold or redeemed during 2019, 2018, and 2017 totaled $284 million, $341 million, and $508 million, respectively. The net realized gains and losses were immaterial during 2019 and 2018, and the resulting net realized gains were as follows:$14 million during 2017.
(dollars in millions)      
Years Ended December 31, 2017 2016 2015
       
Proceeds from sales and redemptions $283
 $308
 $416
       
Realized gains $7
 $9
 $15
Realized losses —
 (1) (1)
Net realized gains $7
 $8
 $14


Contractual maturities of fixed-maturity available-for-sale securities at December 31, 20172019 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$226  $225  
Due after 1 year through 5 years559  546  
Due after 5 years through 10 years481  457�� 
Due after 10 years173  163  
Mortgage-backed, asset-backed, and collateralized securities359  354  
Total$1,798  $1,745  
(dollars in millions) 
Fair
Value
 
Amortized
Cost
     
Fixed maturities, excluding mortgage-backed, asset-backed, and collateralized securities:    
Due in 1 year or less $78
 $78
Due after 1 year through 5 years 178
 180
Due after 5 years through 10 years 36
 36
Due after 10 years 123
 119
Mortgage-backed, asset-backed, and collateralized securities 111
 111
Total $526
 $524


Actual maturities may differ from contractual maturities since issuers and borrowers may have the right to call or prepay obligations. We may sell investment securities before maturity for general corporate and working capital purposes and to achieve certain investment strategies.


The fair value of securities on deposit with third parties totaled $8$633 million and $11$515 million at December 31, 20172019 and 2016,2018, respectively.


TRADING AND OTHER SECURITIES


Our trading securities were sold in the first quarterThe fair value of 2016; other securities by type was as follows:

(dollars in millions)
December 31,20192018
Fixed maturity other securities:  
Bonds  
Non-U.S. government and government sponsored entities$1  $1  
Corporate debt24  43  
Mortgage-backed, asset-backed, and collateralized bonds15  2  
Total bonds40  46  
Preferred stock *19  19  
Common stock *26  21  
Other long-term investments1  1  
Total$86  $87  
* 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.

Net unrealized gains on other securities held at December 31, 2019 were $6 million. Net unrealized losses were $7 million at December 31, 2018 and immaterial at December 31, 2017.

Net realized gains and losses on other securities sold or redeemed are included in investment revenue and were immaterial during 2019, 2018, and 2017.

Other securities include equity securities and those securities for which the fair value option was elected:elected.


105

9. Goodwill and Other Intangible Assets

GOODWILL

The fair valuecarrying amount of fixed maturity trading and other securitiesgoodwill totaled $3 million$1.4 billion at December 31, 20172019 and 2016,2018. We did 0t record any impairments to goodwill during 2019, 2018 and consisted primarily of corporate debt.2017.
Net unrealized gains (losses) on trading and other securities held at December 31, 2017 and December 31, 2016 were immaterial. Net unrealized gains were $4 million on securities held at December 31, 2015.
Net realized gains (losses) during 2017 and 2016 were immaterial. Net realized losses during 2015 were $3 million.




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Notes to Consolidated Financial Statements, Continued

9. Other Assets    

Components of other assets were as follows:
(dollars in millions)    
December 31, 2017 2016
     
Prepaid expenses and deferred charges $26
 $38
Fixed assets, net * 25
 70
Deferred tax assets 24
 2
Ceded insurance reserves 20
 22
Other intangible assets 15
 15
Cost basis investments 11
 11
Receivables from parent and affiliates 11
 40
Other investments 9
 30
Other 20
 23
Total $161
 $251
*Fixed assets were net of accumulated depreciation of $96 million at December 31, 2017 and $180 million at December 31, 2016. The decrease in fixed assets is primarily related to the contribution of SFMC. See Note 11 for more information regarding this transaction.



OTHER INTANGIBLE ASSETS


The gross carrying amount and accumulated amortization, in total and by major intangible asset class were as follows:
(dollars in millions)Gross Carrying AmountAccumulated AmortizationNet Other Intangible Assets
December 31, 2019
Customer relationships$223  $(160) $63  
Trade names220  —  220  
VOBA105  (71) 34  
Licenses25  —  25  
Other13  (12) 1  
Total$586  $(243) $343  
December 31, 2018
Customer relationships$223  $(126) $97  
Trade names220  —  220  
VOBA141  (99) 42  
Licenses28  —  28  
Other13  (12) 1  
Total$625  $(237) $388  
(dollars in millions) Gross Carrying Amount Accumulated Amortization Net Other Intangible Assets
       
December 31, 2017      
VOBA $36
 $(33) $3
Customer relationships 18
 (18) —
Licenses 12
 —
 12
Customer lists 9
 (9) —
Total $75
 $(60) $15
       
December 31, 2016      
VOBA $36
 $(33) $3
Customer relationships 18
 (18) —
Licenses 12
 —
 12
Customer lists 9
 (9) —
Total $75
 $(60) $15

Amortization expense totaled less than $1$39 million in 2017 and 2016, and $42019, $43 million in 2015.2018, and $52 million in 2017. The estimated aggregate amortization of other intangible assets for each of the next five years is less than $1 million.



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Notes to Consolidated Financial Statements, Continued

10. Transactions with Affiliates    

SUBSERVICING AGREEMENT

Nationstar subservices the real estate loans of certain of our indirect subsidiaries. Investment funds managed by affiliates of Fortress indirectly own a majority interest in Nationstar. The subservicing fees paid to Nationstar were immaterial in 2017, 2016, and 2015.

INVESTMENT MANAGEMENT AGREEMENT

Logan Circle provides investment management services for our investments. Logan Circle was a wholly owned subsidiary of Fortress. On September 15, 2017, Fortress sold its interest in Logan Circle to MetLife, and Logan Circle is no longer an affiliate of Fortress. Costs and fees incurred for these investment management services were immaterial in 2017, 2016, and 2015.

SALE OF EQUITY INTEREST IN SPRINGCASTLE JOINT VENTURE

On March 31, 2016, we sold our 47% equity interestreflected in the SpringCastle Joint Venture, which ownstable below.
(dollars in millions)Estimated Aggregate Amortization Expense
2020$37  
202132  
20223  
20233  
20243  

During 2019, we wrote off the SpringCastle Portfolio, to certain subsidiariesnet carrying amount on our indefinite-lived insurance license intangibles and VOBA of NRZ and Blackstone. NRZ is managed by an affiliate of Fortress.

See Note 2 for more information regarding this transaction.

11. Related Party Transactions    

AFFILIATE LENDING

Notes Receivable from Parent and Affiliates

Note Receivable from SFI. SFC’s note receivable from SFI is payable in full on May 31, 2022, and SFC may demand payment at any time prior to May 31, 2022; however, SFC does not anticipate the need for additional liquidity during 2018 and does not expect to demand payment from SFI in 2018. The note receivable from SFI totaled $387$6 million at December 31, 2017 and $285 million at December 31, 2016. The interest rate for the UPB is the lender’s cost of funds rate, which was 5.87% at December 31, 2017. Interest revenue on the note receivable from SFI totaled $23 million during 2017, $19 million during 2016, and $15 million during 2015, which we report in interest income on notes receivable from parent and affiliates.

Independence Demand Note. On November 12, 2015, in connection with the closingsale of the OneMain Acquisition, CSI, SFC’s wholly ownedour former insurance subsidiary, entered into the Independence Demand Note, whereby CSI agreed to make advances to Independence from time to time, withMerit Life Insurance Co. ("Merit"). During 2018, we recorded an aggregate amount outstanding not to exceed $3.55 billion. On November 12, 2015, Independence borrowed $3.4 billion under the Independence Demand Note. Under the Independence Demand Note, Independence was required to use the proceedsimpairment loss of any advance to either fund a portion of the purchase price for the OneMain Acquisition or for general corporate purposes. The note is payable in full$8 million on December 31, 2019, and CSI may demand payment at any time prior to December 31, 2019. Independence can repay the note in whole or in part at any time without premium or penalty. The interest rate for the UPB is the lender’s cost of funds rate.

On July 19, 2016, CSI, Independence, and OMFH entered into the Note Assignment pursuant to which CSI sold and assigned to OMFH, and OMFH purchased and assumed from CSI, an interest in and to CSI’s right to receive $150 million principal amount outstanding under the Independence Demand Note for a purchase price of $150 million. On July 20, 2016, OMFH paid the $150 million purchase price to CSI.

Cash Services Note. In connection with the Note Assignment discussed above, Independence exchanged the Independence Demand Note for (i) the Cash Services Note issued to CSI with a maximum borrowing amount not to exceed $3.4 billion and (ii) the OMFH Note issued to OMFH with a maximum borrowing amount not to exceed $150 million. The Cash Services Note and the OMFH Note provide that no advances shall be made to Independence on or after December 31, 2019 and all principal and interest shall be payable in full on December 31, 2019, unless earlier payment is demanded by CSI or OMFH. The interest rate for the UPB is the lender’s cost of funds rate, which was 5.87% at December 31, 2017.

At December 31, 2017 and December 31, 2016, the note receivable from Independence relating to the Cash Services Note totaled $2.9 billion, which included compounded interest due to CSI. Interest revenue on the note receivable from


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Table of Contents

Notes to Consolidated Financial Statements, Continued

Independence relating to the Cash Services Note totaled $173 million during 2017, $185 million during 2016, and $27 million during 2015, which we report in interest income on notes receivable from parent and affiliates.

OneMain Demand Note. On November 15, 2015,our indefinite-lived licenses in connection with the closingsale of the OneMain Acquisition, SFC entered into the OneMain Demandour former insurance subsidiary, Yosemite Insurance Company ("Yosemite"). See Note with OMFH, whereby SFC agreed to make advances to OMFH from time to time, with an aggregate amount outstanding not to exceed $500 million. Under the OneMain Demand Note, OMFH is required to use the proceeds of any advance either (i) exclusively to finance the purchase, origination, pooling, funding or carrying of receivables by OMFH or any of its restricted subsidiaries or (ii)12 for general corporate purposes. The note is payable in full on December 31, 2024, and SFC may demand payment with five days prior notice. OMFH may repay the note in whole or in part at any time without premium or penalty. The interest rate for the UPB is the lender’s cost of funds rate.

SFC has, from time to time, amended the note to increase the maximum amount that may be advanced to OMFH. At December 31, 2017, the maximum amount that may be advanced totaled $1.6 billion. At December 31, 2017 and 2016, the note receivable from OMFH totaled $1.2 billion and $530 million, respectively, which included compounded interest due to SFC. Interest revenuefurther information on the note receivable from OMFH totaled $59 million and $10 million for 2017 and 2016, respectively, which we report in interest income on notes receivable from parent and affiliates.sales.


Note Payable to Affiliate

On December 1, 2015, in connection with the closing of the OneMain Acquisition, OMFH entered into a revolving demand note with SFC, whereby OMFH agreed to make advances to SFC from time to time, with an aggregate amount outstanding not to exceed $500 million. Under the note, SFC is required to use the proceeds of any advance for general corporate purposes. The note is payable in full on December 31, 2024, and OMFH may demand payment with five days prior notice. SFC may repay the note in whole or in part at any time without premium or penalty. The interest rate for the UPB is the lender’s cost of funds rate.

At December 31, 2017, the maximum amount that may be advanced totaled $750 million. At December 31, 2017 and 2016, no amounts were drawn under the note. We did not incur interest expense on the note payable to OMFH during 2017. Interest expense on the note payable was $7 million in 2016, which was reported in interest expense.

INTERCOMPANY AGREEMENTS

Dividend of SFMC to SFI

On April 10, 2017, SFMC, a former subsidiary of SFC, was contributed to SFI in the form of a dividend. SFI then contributed SFMC and SGSC to OMH, SFMC merged into SGSC, which was renamed and is now OGSC. As a result of the dividend, the Company’s total shareholder equity and total assets were reduced by $38 million and $65 million, respectively, on the contribution date.

The contribution was the result of the continuing integration process, and part of a series of corporate consolidation transactions surrounding the OneMain Acquisition.

Agreements with OGSC

OGSC, as successor to SFMC and SGSC, is a party to the following three intercompany agreements:

Services Agreement. OGSC provides the following services to various affiliates under a service agreement: management and administrative services; financial, accounting, treasury, tax, and audit services; facilities support services; capital funding services; legal services; human resources services (including payroll); centralized collections and lending support services; insurance, risk management, and marketing services; and information technology services. The fees payable to OGSC are equal to 100% of the allocated cost of providing the services. We believe these allocations are reasonable among the entities receiving the services. In addition to the services noted above, OGSC assumed the services provided by SFMC, which primarily consist of providing operating staff and field management for our branches. During 2017, 2016, and 2015, we recorded $292 million, $239 million, and $224 million, respectively, of service fee expenses, which are included in other operating expenses.

License Agreement.As a result of the merger of SFMC and SGSC noted above, the license agreement, whereby SFMC leased its information technology systems and software and other related equipment to SGSC, was terminated. The monthly license fee payable by SGSC for its use of the information technology systems and software was 100% of the actual costs incurred by



106
101


Notes to Consolidated Financial Statements, Continued

10. Long-term Debt
SFMC plus a 7.00% margin. The fee payable by SGSC for its use of the related equipment was 100% of the actual costs incurred by SFMC. Amounts recorded by us under this license agreement totaled $1 million in 2017 and $6 million in 2016 and 2015, respectively, and are included as a contra expense to other operating expenses.

Building Lease Agreement. In contemplation of the merger of SFMC and SGSC noted above, the building lease agreement whereby SFMC leased six of its buildings to SGSC for an annual rental amount of $4 million, plus additional rental amounts to cover other charges, was terminated effective April 5, 2017. As a result, SFMC’s rent charged to SGSC was $1 million during 2017 and $4 million during 2016 and 2015, respectively, which is included as a contra expense to other operating expenses.

Agreements with OMFH and OCLI

Loan Servicing Fees. In connection with the branch integration activities during the fourth quarter of 2016, SFC entered into an intercompany service agreement with OMFH relating to the servicing of loans when a legacy OneMain loan is serviced by a legacy Springleaf branch and vice versa. In exchange, a monthly servicing fee is charged based on a percentage of the outstanding principal balance of the designated loans. During 2017, SFC recorded $13 million of service fee expenses for the legacy Springleaf loans serviced by legacy OneMain branches and $15 million, of service fee income for the legacy OneMain loans serviced by legacy Springleaf branches. SFC loan servicing fee income and expense during the 2016 period were immaterial.

Loan Referral Fees. OCLI provides personal loan application processing and credit underwriting services on behalf of SFC for personal loan applications that are submitted online. SFC is charged a fee of $35 for each underwritten approved application processed, as well as any other fees agreed to by the parties. During 2017 and 2016, these fees were $22 million and $16 million, respectively.

Transactions with Insurance Subsidiaries

SFC incurs a payable whenever it finances or collects insurance premiums on policies issued by OMFH insurance subsidiaries or when SFC insurance subsidiaries incur insurance claims on insurance policies issued on OMFH loans. Conversely, SFC records a receivable when insurance claims are incurred on policies issued by insurance subsidiaries of OMFH on SFC loans. As a result of these transactions, at December 31, 2017, SFC had a $22 million payable to and a $4 million receivable from OMFH subsidiaries. At December 31, 2016, SFC insurance subsidiaries had a receivable from OMFH lending subsidiaries of $3 million. SFC’s payable to OMFH subsidiaries at December 31, 2016 was immaterial.

Loan Purchase and Sale Agreements

From time to time, OCLI enters into loan purchase and sale agreements with certain subsidiaries of SFC pursuant to which OCLI sells certain personal loans and continues to service the loans.

During the third quarter of 2017, OCLI entered into loan purchase and sale agreements with certain subsidiaries of SFC pursuant to which OCLI sold certain personal loans with an aggregate UPB at the time of sale of $4 million for an aggregate purchase price of $4 million. OCLI does not service these loans.

During the second quarter of 2016, OCLI had sold personal loans with an aggregate UPB at the time of sale of $89 million for an aggregate purchase price of $89 million. OCLI continues to service these loans. During 2017 and 2016, SFC recorded $2 million and $3 million, respectively, of service fee expenses for these personal loans.

See Note 9 and Note 15 regarding receivables and payables from affiliates and parent.

OTHER

OMAS Debt Purchases

As of December 31, 2017, OMAS, a subsidiary of OMFH, purchased a total of $10 million principal amount of SFC’s medium-term notes in the open market in three separate purchase transactions for an aggregate purchase price of $10 million. These notes had a carrying value of $9 million.

These purchase transactions did not impact our consolidated financial statements and there are no plans for OMAS to make future purchases of SFC debt.



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Notes to Consolidated Financial Statements, Continued

Home and Auto Membership Plans

SFC collects optional home and auto membership plan fees that are payable to subsidiaries of OMFH. SFC’s payable to OMFH subsidiaries for these fees was $2 million at December 31, 2017. The amount payable at December 31, 2016 was immaterial.

Capital Contribution to SFC

During 2016, SFC received a capital contribution of $10 million from SFI to satisfy an interest payment required by the Junior Subordinated Debenture.


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Notes to Consolidated Financial Statements, Continued

12. Long-term Debt    


Carrying value and fair value of long-term debt by type were as follows:
December 31, 2019December 31, 2018
(dollars in millions)Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
Senior debt$17,040  $18,332  $15,006  $14,868  
Junior subordinated debt172  177  172  173  
Total$17,212  $18,509  $15,178  $15,041  
  December 31, 2017 December 31, 2016
(dollars in millions) 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
         
Senior debt $7,693
 $8,180
 $6,665
 $7,150
Junior subordinated debt 172
 189
 172
 158
Total $7,865
 $8,369
 $6,837
 $7,308


Weighted average effective interest rates on long-term debt by type were as follows:
Years Ended December 31,At December 31,
20192018201720192018
Senior debt5.90 %5.64 %5.73 %5.85 %5.89 %
Junior subordinated debt8.68  8.13  6.41  7.65  8.56  
Total5.93  5.66  5.74  5.87  5.92  
  Years Ended December 31, At December 31,
  2017 2016 2015 2017 2016
           
Senior debt 6.99% 7.18% 6.96% 6.57% 7.46%
Junior subordinated debt 6.41
 12.26
 12.26
 6.37
 12.26
Total 6.98
 7.30
 7.05
 6.57
 7.59


Principal maturities of long-term debt (excluding projected repayments on securitizations and revolving conduit facilities by period) by type of debt at December 31, 20172019 were as follows:
Senior Debt
(dollars in millions)SecuritizationsUnsecured
Notes (a)		Junior
Subordinated
Debt (a)		Total
Interest rates (b)2.31%-6.94%5.38%-8.25%3.74 %
2020$—  $1,000  $—  $1,000  
2021—  646  —  646  
2022—  1,000  —  1,000  
2023—  1,175  —  1,175  
2024—  1,300  —  1,300  
2025-2067—  4,399  350  4,749  
Securitizations (c)7,678  —  —  7,678  
Total principal maturities$7,678  $9,520  $350  $17,548  
Total carrying amount$7,643  $9,397  $172  $17,212  
Debt issuance costs (d)(30) (85) —  (115) 
  Senior Debt    
(dollars in millions) Securitizations 
Medium
Term
Notes
 
Junior
Subordinated
Debt
 Total
         
Interest rates (a) 2.04% - 6.50%
 5.25% - 8.25%
 3.11%
  
         
2018 —
 —
 —
 —
2019 —
 700
 —
 700
2020 —
 1,300
 —
 1,300
2021 —
 650
 —
 650
2022 —
 1,000
 —
 1,000
2023-2067 —
 1,175
 350
 1,525
Securitizations (b) 3,052
 —
 —
 3,052
Total principal maturities $3,052
 $4,825
 $350
 $8,227
         
Total carrying amount $3,041
 $4,652
 $172
 $7,865
Debt issuance costs (c) $(11) $(30) $—
 $(41)
(a)The interest rates shown are the range of contractual rates in effect at December 31, 2017. Effective January 16, 2017, the interest rate on the UPB of the Junior Subordinated Debenture became a variable floating rate (determined quarterly) equal(a) Pursuant to 3-month LIBOR plus 1.75%, or 3.11% as of December 31, 2017. Prior to January 16, 2017, the interest rate on the UPB of the Junior Subordinated Debenture was a fixed rate of 6.00%.

(b)Securitizations have a stated maturity date but are not included in the above maturities by period due to their variable monthly repayments, which may result in pay-off prior to the stated maturity date. At December 31, 2017, there were no amounts drawn under our revolving conduit facilities. See Note 13 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 $11 million at December 31, 2017 and are reported in other assets.


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Notes to Consolidated Financial Statements, Continued

SFC’s Medium-Term Note Issuances

5.625% Senior Notes Due 2023

On December 8, 2017, SFC issued $875 million aggregate principal amount of 5.625% Senior Notes due 2023 (the “5.625% SFC Notes”) under an Indenture dated as of December 3, 2014 (the “SFC Base Indenture”), as supplemented by a Fourth Supplemental Indenture dated as of December 8, 2017 (the “SFC Fourth Supplemental Indenture”), pursuant to which OMH provided a guarantee of the 5.625% SFC Notes on an unsecured basis.

SFC used a portion of the net proceeds from the sale of the 5.625% SFC Notes to repay at maturity approximately $557 million aggregate principal amount of its existing 6.90% Medium-Term Notes. SFC intends to use the remaining net proceeds from the sale of the 5.625% SFC Notes for general corporate purposes, which may include additional debt repurchases and repayments.

6.125% Senior Notes Due 2022

On May 15, 2017, SFC issued $500 million aggregate principal amount of 6.125% Senior Notes due 2022 (the “2022 SFC Notes”) under the SFC Base Indenture, as supplemented by a Third Supplemental Indenture, dated as of May 15, 2017 (the “SFC Third Supplemental Indenture”), pursuant to which OMH provided a guarantee of the 2022 SFC Notes on an unsecured basis.

On May 30, 2017, SFC issued and sold $500 million aggregate principal amount of additional 2022 SFC Notes (the “Additional SFC Notes”) in an add-on offering. The initial 2022 SFC Notes and the Additional SFC Notes (collectively, the “6.125% SFC Notes”), are treated as a single class of debt securities and have the same terms, other than the issue date and the issue price.

SFC used a portion of the net proceeds from the sale of the Additional SFC Notes to repurchase approximately $466 million aggregate principal amount of its existing 6.90% Senior Notes due 2017 at a premium to par. SFC used the remaining net proceeds from the sale of the 6.125% SFC Notes for general corporate purposes.

8.25% Senior Notes Due 2020

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 the SFC Base Indenture, as supplemented by a Second Supplemental Indenture, dated as of April 11, 2016 (the “SFC Second Supplemental Indenture” and, collectively with the SFC Base Indenturesupplemental indentures and the SFC First Supplemental Indenture, the SFC Third Supplemental Indenture, and the SFC Fourth Supplemental Indenture thereto, the “Indenture”), pursuant to whichGuaranty Agreements, OMH provided a guarantee of the 8.25% SFC notes on an unsecured basis.

SFC used a portion of the proceeds from the sale of the 8.25% SFC Notes to repurchase approximately $600 million aggregate principal amount of its existing senior notes that were scheduled to mature in 2017, at a premium to principal amount from certain beneficial owners, and certain of those beneficial owners purchased new 8.25% SFC Notes in the offering. SFC used the remaining net proceeds for general corporate purposes.

The 5.625% SFC Notes, 6.125% SFC Notes and 8.25% SFC 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 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 contain covenants that, among other things, (i) limit SFC’s ability to create liens on assets and (ii) restrict SFC’s ability to consolidate, merge or sell its assets. The 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 SFC Notes to become, or to be declared, due and payable.


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Notes to Consolidated Financial Statements, Continued

GUARANTY AGREEMENTS

5.625% SFC Notes

On December 8, 2017, OMH entered into the SFC Fourth 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 the 5.625%SFC Notes. As of December 31, 2017, $875 million aggregate principal amount of the 5.625% SFC Notes were outstanding.

6.125% SFC Notes

On May 15, 2017, OMH entered into the SFC Third 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 the 6.125% SFC Notes. As of December 31, 2017, $1.0 billion aggregate principal amount of the 6.125% SFC Notes were outstanding.

8.25% SFC Notes

On April 11, 2016, OMH entered into the SFC 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 the 8.25% SFC Notes. As of December 31, 2017, $1.0 billion aggregate principal amount of the 8.25% SFC Notes were outstanding.

5.25% SFC Notes

On December 3, 2014, OMH entered into the SFC Base Indenture and the SFC 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 the 5.25% SFC Notes. As of December 31, 2017, $700 million aggregate principal amount of the 5.25% SFC Notes were outstanding.

Other SFC Notes

On December 30, 2013, OMH entered into SFC Guaranty Agreements whereby it agreed to fully and unconditionally guarantee the payments of principal, premium (if any) and interest on the Other SFC Notes. The Other SFC Notes consist of the following:

8.25%Unsecured Senior Notes due 2023
7.75% Senior Notes due 2021
6.00% Senior Notes due 2020; and
the Junior Subordinated Debenture;

The Junior Subordinated Debenture underlies the trust preferred securities sold by a trust sponsored by SFC. On December 30, 2013, OMH entered into the SFC Trust Guaranty Agreement whereby it agreed to fully and unconditionally guarantee the related payment obligations under the trust preferred securities. As of December 31, 2017, approximately $1.6 billion aggregate principal amount of the Other SFC Notes were outstanding.

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

(b) The interest rates shown are the range of contractual rates in effect at December 31, 2019. The interest rate on the remaining principal balance of the Junior Subordinated Debenture consists of a variable floating rate (determined quarterly) equal to 3-month LIBOR plus 1.75%, or 3.74% as of December 31, 2019.
(c) Securitizations have a stated maturity date but are not included in the above maturities by period due to their variable monthly repayments, which may result in pay-off prior to the stated maturity date. At December 31, 2019, there were 0 amounts drawn under our revolving conduit facilities. See Note 11 for further information on our long-term debt associated with securitizations and revolving conduit facilities.
(d) Debt issuance costs are reported as a direct deduction from long-term debt, with the exception of debt issuance costs associated with our revolving conduit facilities, which totaled$29 million at December 31, 2019 and are reported in “Other assets.”


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SFC’S 6.125% SENIOR NOTES DUE 2024 OFFERINGS

On February 22, 2019, SFC issued $1.0 billion aggregate principal amount and on July 2, 2019, SFC issued an additional $300 million aggregate principal amount of 6.125% Senior Notes due 2024 (the “6.125% SFC Notes due 2024”) under the SFC Senior Notes Indentures, as supplemented by the SFC Seventh Supplemental Indenture, pursuant to which OMH provided a guarantee on an unsecured basis.

REDEMPTION OF SFC'S 5.25% SENIOR NOTES DUE 2019

As a result of the February 2019 offering of the 6.125% SFC Notes due 2024 as described above, SFC issued a notice of redemption to redeem all of the outstanding principal amount of its 5.25% Senior Notes due 2019 (the "5.25% SFC Notes due 2019"). On March 25, 2019, SFC paid an aggregate amount of $706 million, inclusive of accrued interest and premiums, to complete the redemption. In connection with the redemption, we recognized $21 million of net loss on the repurchases and repayments of debt for the year ended December 31, 2019.

REDEMPTION OF SFC'S 6.00% SENIOR NOTES DUE 2020

On March 15, 2019, SFC issued a notice of redemption of its 6.00% Senior Notes due 2020 (the "6.00% SFC Notes due 2020"). On April 15, 2019, SFC paid an aggregate amount of $317 million, inclusive of accrued interest and premiums, to complete the redemption. In connection with the redemption, we recognized $11 million of net loss on repurchases and repayments of debt for the year ended December 31, 2019.

SFC’S 6.625% SENIOR NOTES DUE 2028 OFFERING

On May 9, 2019, SFC issued a total of $800 million aggregate principal amount of 6.625% Senior Notes due 2028 (the “6.625% SFC Notes due 2028”) under the SFC Senior Notes Indentures, as supplemented by the SFC Eighth Supplemental Indenture, pursuant to which OMH provided a guarantee on an unsecured basis.

SFC’S 5.375% SENIOR NOTES DUE 2029 OFFERING

On November 7, 2019, SFC issued a total of $750 million aggregate principal amount of 5.375% Senior Notes due 2029 (the “5.375% SFC Notes due 2029”) under the SFC Senior Notes Indentures, as supplemented by the SFC Ninth Supplemental Indenture, pursuant to which OMH provided a guarantee on an unsecured basis.

OMFH Notes

During 2018, OMFH redeemed all $700 million outstanding principal amount of OMFH Notes due 2019 and, through 2 separate redemptions, all $800 million outstanding principal amount of OMFH Notes due 2021 at a redemption price equal to 103.375% for the OMFH Notes due 2019 and 103.625% for the OMFH Notes due 2021, plus accrued and unpaid interest to the redemption date. In connection with these redemptions, we recognized $8 million of net loss on repurchases and repayments of debt for the year ended December 31, 2018.

DEBT COVENANTS


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’sSFC���s long-term debt discussed above are subject to customary release provisions.


108

With the exception of SFC’s junior subordinated debenture, none of SFC’sour debt agreements requirerequires 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


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Table of Contents

Notes to Consolidated Financial Statements, Continued

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 December 31, 2017,2019, SFC was in compliance with all of the covenants under its debt agreements.


Junior Subordinated Debenture


In January of 2007, SFC issued the Junior Subordinated Debenture, consisting of $350 million aggregate principal amount of 60-year junior subordinated debt. The Junior Subordinated Debenture underlies the trust preferred securities sold by a trust sponsored by SFC. SFC can redeem the Junior Subordinated Debenture at par beginning in January of 2017. Effective January 16, 2017, theThe interest rate on the UPBremaining principal balance of the Junior Subordinated Debenture becameconsists of a variable floating rate (determined quarterly) equal to 3-month LIBOR plus 1.75%, or 3.11%3.74% as of December 31, 2017. Prior2019. On December 30, 2013, OMH entered into a guaranty agreement whereby it agreed to January 16, 2017,fully and unconditionally guarantee, on a junior subordinated basis, the payment of principle of, premium (if any), and interest rate on the UPB of the Junior Subordinated Debenture was a fixed rate of 6.00%.Debenture.


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


Based upon SFC’s financial results for the 12 months ended December 31, 2017,2019, a mandatory trigger event did not occur with respect to the interest payment due in January of 2018,2020, as SFC was in compliance with both required ratios discussed above.



OMFH Debt Agreements
107

TableOn June 13, 2018, OMFH redeemed the remaining principal amount of Contentsthe OMFH Notes due 2021 and received notice of satisfaction and discharge with respect to the OMFH Notes. As such, OMFH is no longer subject to the covenants or other terms of the OMFH Indenture or the OMFH Supplemental Indenture.


Notes to Consolidated Financial Statements, Continued


13. Variable Interest Entities    
11. Variable Interest Entities


CONSOLIDATED VIES


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 asset-backed financing transactions, including securitization and conduit transactions. We have determined that we areSFC or OMFH is the primary beneficiary of these VIEs and, as a result, we include each VIE’s assets, including any finance receivables securing the VIE’s debt obligations, and related liabilities in our consolidated financial statements and each VIE’s asset-backed debt obligations are accounted for as secured borrowings. We areSFC or OMFH is deemed to be the primary beneficiary of each VIE because we haveSFC or OMFH, as applicable, has the ability to direct the activities of the VIE that most significantly impact its economic performance, including the losses it absorbs and its right to receive economic benefits that are potentially significant. Such ability arises from SFC’s or OMFH’s and itstheir affiliates’ contractual right to service the finance receivables securing the VIEs’ debt obligations. To the extent we retain any debt obligation or residual interest in an asset-backed financing facility, we are exposed to potentially significant losses and potentially significant returns.


109

The asset-backed debt obligations issued by the VIEs are supported by the expected cash flows from the underlying finance receivables securing such debt obligations. Cash inflows from these finance receivables are distributed to repay the debt obligations and related service providers in accordance with each transaction’s contractual priority of payments, referred to as the “waterfall.” The holders of the asset-backed debt obligations have no recourse to the Company if the cash flows from the underlying finance receivables securing such debt obligations are not sufficient to pay all principal and interest on the asset-backed debt obligations. With respect to any asset-backed financing transaction that has multiple classes of debt obligations, substantially all cash inflows will be directed to the senior debt obligations until fully repaid and, thereafter, to the subordinate debt obligations on a sequential basis. We retain an interest and credit risk in these financing transactions through our ownership of the residual interest in each VIE and, in some cases, the most subordinate class of debt obligations issued by the VIE, which are the first to absorb credit losses on the finance receivables securing the debt obligations. In addition, with respect to each financing transaction that is subject to the risk retention requirements of Section 941 of the Dodd-Frank Act, we retain at least 5% of the balance of each class of debt obligations and at least 5% of the residual interest in each VIE which, collectively, represents 5% of the economic interest in the credit risk of the securitized assets in satisfaction of the risk retention requirements. We expect that any credit losses in the pools of finance receivables securing the asset-backed debt obligations will likely be limited to our retained interests described above. We have no obligation to repurchase or replace qualified finance receivables 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 and revolving conduit facilities were as follows:
(dollars in millions)
December 31,20192018
Assets  
Cash and cash equivalents$4  $2  
Finance receivables - Personal loans8,428  8,480  
Allowance for finance receivable losses340  444  
Restricted cash and restricted cash equivalents400  479  
Other assets29  26  
Liabilities  
Long-term debt$7,643  $7,510  
Other liabilities15  14  
(dollars in millions)    
December 31, 2017 2016
     
Assets    
Cash and cash equivalents $2
 $2
Finance receivables:    
Personal loans 3,334
 2,943
Allowance for finance receivable losses 141
 94
Restricted cash and restricted cash equivalents 158
 211
Other assets 11
 9
     
Liabilities    
Long-term debt $3,041
 $2,675
Other liabilities 6
 7


Other than the retained subordinate and residual interests in our consolidated VIEs, we are under no further obligation than is otherwise noted herein, either contractually or implicitly, to provide financial support to these entities. Consolidated interest expense related to our VIEs totaled $326 million in 2019, $341 million in 2018, and $323 million in 2017.







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Notes to Consolidated Financial Statements, Continued

SECURITIZED BORROWINGS


Each of our securitizations contains a revolving period ranging from one to fiveseven years during which no principal payments are required to be made on the related asset-backed notes, except for the ODART 2016-1 securitization which has no revolving period.notes. The indentures governing our securitization borrowings contain early amortization events and events of default, that, if triggered, may result in the acceleration of the obligation to pay principal and interest on the related asset-backed notes.


Our securitized borrowings at December 31, 2017 consisted of the following:
(dollars in millions) Issue Amount * Current
Note Amounts
Outstanding *		 
Current
Weighted Average
Interest Rate
 
Original
Revolving
Period
 Issue Date Maturity Date
             
Consumer Securitizations:            
SLFT 2015-A $1,163
 $1,163
 3.47% 3 years
 02/26/2015 11/2024
SLFT 2015-B 314
 314
 3.78% 5 years
 04/07/2015 05/2028
SLFT 2016-A (a) 532
 500
 3.10% 2 years
 12/14/2016 11/2029
SLFT 2017-A (b) 652
 619
 2.98% 3 years
 06/28/2017 07/2030
Total consumer securitizations   2,596
        
             
Auto Securitization:            
ODART 2016-1 (c) 754
 188
 2.91% —
 07/19/2016 Various
ODART 2017-1 (d) 300
 268
 2.61% 1 year
 02/01/2017 Various
Total auto securitizations   456
        
             
Total secured structured financings   $3,052
        
*Issue Amount includes the retained interest amounts as detailed below while the Current Note Amounts Outstanding balances include pay-downs subsequent to note issuance and exclude retained interest amounts.

(a)
SLFT 2016-A Securitization. We initially retained $32 million of the asset-backed notes.

(b)
SLFT 2017-A Securitization. We initially retained $26 million of the Class A notes, $2 million of the Class B notes, $2 million of the Class C notes and $3 million of the Class D notes.

(c)
ODART 2016-1 Securitization. The maturity dates of the notes occur in January 2021 for the Class A notes, May 2021 for the Class B notes, September 2021 for the Class C notes and February 2023 for the Class D notes. We initially retained $54 million of the Class D notes.

(d)
ODART 2017-1 Securitization. The maturity dates of the notes occur in October 2020 for the Class A notes, June 2021 for the Class B notes, August 2021 for the Class C notes, December 2021 for the Class D notes, and January 2025 for the Class E notes. We initially retained $11 million of the Class A notes, $1 million of each of the Class B, Class C, and Class D notes, and the entire $18 million of the Class E notes.

Call of 2014-A Notes. On February 15, 2017, we exercised our right to redeem the 2014-A Notes for a redemption price of $188 million, which excluded $33 million for the Class D Notes owned by Twenty First Street, a wholly owned subsidiary of SFC, on February 15, 2017, the date of the optional redemption. The outstanding principal balance of the asset-backed notes was $221 million on the date of the optional redemption.



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Notes to Consolidated Financial Statements, Continued

REVOLVING CONDUIT FACILITIES


AsWe had access to 14 conduit facilities with a total borrowing capacity of $7.1 billion as of December 31, 2017,2019. Our conduit facilities’ revolving period end ranges from approximately one to three years. Principal balances of outstanding loans, if any, are due and payable in full ranging from approximately three to nine years as of December 31, 2019. Amounts drawn on these facilities are collateralized by our borrowingspersonal loans.

At December 31, 2019, 0 amounts were drawn under conduit facilities consistedthese facilities.

110

(dollar in millions) Note Maximum
Balance		 
Amount
Drawn
 
Revolving
Period End
 Backed by Loans Acquired from Subsidiaries of Due and Payable (a)
           
First Avenue Funding LLC $250
 $—
 June 2018 SFC - auto loans (b)
Seine River Funding, LLC 500
 —
 December 2019 SFC - personal loans December 2022
Thur River Funding, LLC 350
 —
 June 2020 SFC - personal loans February 2027
Mystic River Funding, LLC 850
 —
 September 2020 SFC - personal loans October 2023
Fourth Avenue Auto Funding, LLC 250
 —
 September 2020 SFC - auto loans October 2021
           
Total $2,200
 $—
      
(a)The date following the revolving period, that the principal balance of the outstanding loans, if any, will be reduced as cash payments are received on the underlying loans and will be due and payable in full.

(b)For First Avenue Funding, LLC, principal amount of the notes, if any, will be reduced as cash payments are received on the underlying direct auto loans and will be due and payable in full 12 months following the maturity of the last direct auto loan held by First Avenue Funding, LLC.

During the 2017 period we voluntarily terminated the following conduit facilities concurrently with the execution of certain conduit facilities set forth in the table above:
Contents
Termination Date
Midbrook 2013-VFN1 Trust04/13/2017
Sumner Brook 2013-VFN1 Trust06/29/2017
Whitford Brook 2014-VFN1 Trust07/14/2017
Springleaf 2013-VFN1 Trust09/28/2017
Second Avenue Funding LLC09/29/201712. Insurance


VIE INTEREST EXPENSE

Other thanAs part of our retained interestcontinuing integration efforts in certain debt obligationsconnection with the OneMain Acquisition, on March 7, 2019, we entered into a share purchase agreement to sell all of the issued by VIEs and residual interestsoutstanding shares of our former insurance subsidiary, Merit. The transaction closed on December 31, 2019. We recorded a net gain of $9 million in other operating expenses in the remaining consolidated VIEs,fourth quarter of 2019. On May 29, 2018, we are under no obligation, either contractually or implicitly,entered into a share purchase agreement to provide financial support to these entities. Consolidated interest expense related to our VIEs totaled $113 million in 2017, $122 million in 2016, and $184 million in 2015.

DECONSOLIDATED VIES

As a resultsell all of the SpringCastle Interests Saleissued and outstanding shares of our former insurance subsidiary, Yosemite. We recorded an impairment loss of $14 million on March 31, 2016, we deconsolidated the securitization trust holdingtransfer to held for sale in other operating expenses in the underlying loanssecond quarter of the SpringCastle Portfolio and previously issued securitized interests, which were reported2018. The transaction closed in long-term debt.2018.



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Notes to Consolidated Financial Statements, Continued

14. Insurance


INSURANCE RESERVES


Components of unearned insurance premium reserves, claim reserves and benefit reserves were as follows:

(dollars in millions)
December 31,20192018
Finance receivable related:
Payable to OMH:
Unearned premium reserves$712  $583  
Claim reserves81  79  
Subtotal (a)793  662  
Payable to third-party beneficiaries:
Unearned premium reserves121  100  
Benefit reserves107  106  
Claim reserves18  17  
Subtotal (b)246  223  
Non-finance receivable related:
Unearned premium reserves74  77  
Benefit reserves311  364  
Claim reserves18  21  
Subtotal (b)403  462  
Total$1,442  $1,347  
(a) Reported as a contra-asset to net finance receivables.
(dollars in millions)    
December 31, 2017 2016
     
Finance receivable related:    
Payable to SFC:    
Unearned premium reserves $92
 $189
Claim reserves 16
 23
Subtotal (a) 108
 212
     
Payable to OMH:    
Unearned premium reserves (b) 42
 6
Claim reserves 5
 —
Subtotal (b) 47
 6
     
Payable to third-party beneficiaries:    
Unearned premium reserves 10
 25
Benefit reserves 98
 105
Claim reserves 3
 6
Subtotal (b) 111
 136
     
Non-finance receivable related:    
Benefit reserves 61
 65
Claim reserves 42
 41
Subtotal (b) 103
 106
     
Total $369
 $460
(b) Reported in insurance claims and policyholder liabilities.
(a)Reported as a contra-asset to net finance receivables.

(b)Reported in insurance claims and policyholder liabilities.


Our insurance subsidiaries enter into reinsurance agreements with other insurers. Reserves related to unearned premiums, claims and benefits assumed from non-affiliated insurance companies totaled $50$369 million and $52$319 million at December 31, 20172019 and 2016,2018, respectively.


Reserves related to unearned premiums, claims and benefits ceded to non-affiliated insurance companies totaled $20$71 million and $74 million at December 31, 20172019 and $22 million in 2016.2018, respectively.




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111


Notes to Consolidated Financial Statements, Continued

Changes in the reserve for unpaid claims and loss adjustment expenses (not considering reinsurance recoverable):

(dollars in millions)
At or for the Years Ended December 31,201920182017
Balance at beginning of period$117  $154  $158  
Less reinsurance recoverables(4) (23) (26) 
Net balance at beginning of period113  131  132  
Additions for losses and loss adjustment expenses incurred to:
Current year200  199  188  
Prior years *(15) (10) 5  
Total185  189  193  
Reductions for losses and loss adjustment expenses paid related to:
Current year(121) (118) (115) 
Prior years(64) (69) (78) 
Total(185) (187) (193) 
Foreign currency translation adjustment—  (1) (1) 
Net balance at end of period113  132  131  
Plus reinsurance recoverables4  4  23  
Less transfer of reserves—  (19) —  
Balance at end of period$117  $117  $154  
* Reflects (i) a redundancy in the prior years’ net reserves of $15 million at December 31, 2019, primarily due to favorable development of credit life, disability, and unemployment claims during the year, (ii) a redundancy in the prior years’ net reserves of $10 million at December 31, 2018, primarily due to a favorable development of credit life, disability, and unemployment claims during the year, and (iii) a shortfall in the prior years’ net reserves of $5 million at December 31, 2017, primarily due to an unfavorable development on previously disclosed property and casualty policies and an unfavorable development on certain assumed credit disability policies.
(dollars in millions)      
At or for the Years Ended December 31, 2017 2016 2015
       
Balance at beginning of period $70
 $73
 $70
Less reinsurance recoverables (22) (22) (22)
Net balance at beginning of period 48
 51
 48
Additions for losses and loss adjustment expenses incurred to:      
Current year 60
 65
 64
Prior years * 3
 —
 —
Total 63
 65
 64
Reductions for losses and loss adjustment expenses paid related to:      
Current year (43) (44) (40)
Prior years (22) (24) (21)
Total (65) (68) (61)
Net balance at end of period 46
 48
 51
Plus reinsurance recoverables 20
 22
 22
Balance at end of period $66
 $70
 $73
*Reflects a shortfall in the prior years’ net reserves of $3 million at December 31, 2017 due to an unfavorable development on previously disclosed property and casualty policies.


Incurred claims and allocated claim adjustment expenses, net of reinsurance, as of December 31, 2017,2019, were as follows:
Years Ended December 31,At December 31, 2019
(dollars in millions)2015 (a)2016 (a)2017 (a)2018 (a)2019Incurred-but-
not-reported Liabilities (b)		Cumulative Number of Reported ClaimsCumulative
Frequency (c)
Credit Insurance
Accident Year
2015$138  $129  $129  $126  $125  $—  52,555  2.8 %
2016—  138  135  133  131  2  51,654  2.8 %
2017—  —  136  129  125  7  44,341  2.4 %
2018—  —  —  145  134  19  41,487  2.1 %
2019—  —  —  —  152  67  35,825  1.9 %
Total$667  
(a) Unaudited.
 Years Ended December 31,   At December 31, 2017  
(dollars in millions) 2013 (a) 2014 (a) 2015 (a) 2016 (a) 2017 
Incurred-but-
not-reported Liabilities (b)
 Cumulative Number of Reported Claims 
Cumulative
Frequency (c)
Credit Insurance                
Accident Year                
2013 42
 38
 38
 38
 38
 —
 22,068
 2.8%
2014 —
 50
 46
 46
 46
 —
 24,902
 2.8%
2015 —
 —
 54
 50
 50
 1
 25,874
 2.8%
2016 —
 —
 —
 55
 55
 6
 25,291
 2.7%
2017 —
 —
 —
 —
 53
 16
 19,114
 2.3%
Total       
 $242
      
(b) Includes expected development on reported claims.
(a)Unaudited.

(b)Includes expected development on reported claims.

(c)(c) Frequency for each accident year is calculated as the ratio of all reported claims incurred to the total exposures in force.




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Notes to Consolidated Financial Statements, Continued

Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance, as of December 31, 2017,2019, were as follows:

Years Ended December 31,
(dollars in millions)2015 *2016 *2017*2018*2019
Credit Insurance
Accident Year
2015$68  $106  $117  $123  $125  
2016—  74  113  124  129  
2017—  —  75  108  117  
2018—  —  —  81  114  
2019—  —  —  —  86  
Total$571  
All outstanding liabilities before 2015, net of reinsurance—  
Liabilities for claims and claim adjustment expenses, net of reinsurance$96  
* Unaudited.
 Years Ended December 31,  
(dollars in millions) 2013 * 2014 * 2015 * 2016 * 2017
Credit Insurance          
Accident Year          
2013 23
 34
 37
 38
 38
2014 —
 28
 41
 45
 46
2015 —
 —
 31
 45
 49
2016 —
 —
 —
 36
 49
2017 —
 —
 —
 —
 37
Total       
 $219
           
All outstanding liabilities before 2013, net of reinsurance   —
Liabilities for claims and claim adjustment expenses, net of reinsurance   $23
*Unaudited.


The reconciliations of the net incurred and paid claims development to the liability for claims and claim adjustment expenses were as follows:

(dollars in millions)
December 31,20192018*2017*
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance:
Credit insurance$96  $94  $90  
Other short-duration insurance lines3  2  22  
Total99  96  112  
Reinsurance recoverable on unpaid claims:
Other short-duration insurance lines—  —  20  
Insurance lines other than short-duration18  21  22  
Total gross liability for unpaid claims and claim adjustment expense$117  $117  $154  
* Unaudited.
(dollars in millions)  
December 31, 2017 2016 * 2015 *
       
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance:      
Credit insurance $23
 $26
 $29
Other short-duration insurance lines 20
 19
 19
Total 43
 45
 48
       
Reinsurance recoverable on unpaid claims:      
Other short-duration insurance lines 20
 22
 22
       
Insurance lines other than short-duration 3
 3
 3
Total gross liability for unpaid claims and claim adjustment expense $66
 $70
 $73
*Unaudited.


We use completion factors to estimate the unpaid claim liability for credit insurance and most other short-duration products. For some products, the unpaid claim liability is estimated as a percent of exposure. For the long-tailed Excess & Surplus products, which have a longer period of time before claims are paid, unpaid claim liabilities are estimated by a third party and reviewed by our appointed actuary using statistical analyses, including analysis of trends in loss severity and frequency.


There have been no significant changes in methodologies or assumptions during 2017.2019.


Our average annual percentage payout of incurred claims by age, net of reinsurance, as of December 31, 2017,2019, were as follows:
Years1  2  3  4  5  
Credit insurance57.4 %27.9 %8.3 %4.4 %1.4 %
Years 1 2 3 4 5
Credit insurance 63.9% 26.8% 8.3% 2.3% 0.2%




113
113


Notes to Consolidated Financial Statements, Continued

STATUTORY ACCOUNTING


Our insurance subsidiaries file financial statements prepared using statutory accounting practices prescribed or permitted by the Indiana DOI,Department of Insurance ("DOI") which is a comprehensive basis of accounting other than GAAP. The primary differences between statutory accounting practices and GAAP are that under statutory accounting, policy acquisition costs are expensed as incurred, policyholder liabilities are generally valued using prescribed actuarial assumptions, and certain investment securities are reported at amortized cost. We are not required and did not apply purchase accounting to the insurance subsidiaries on a statutory basis.


Statutory net income (loss) for our insurance companies by type of insurance was as follows:

(dollars in millions)      (dollars in millions)
Years Ended December 31, 2017 2016 2015Years Ended December 31,201920182017
      
Property and casualty $19
 $11
 $15
Life and health 37
 20
 (1)
Property and casualty:Property and casualty:
YosemiteYosemite$—  $—  $19  
TritonTriton16  18  31  
Life and health:Life and health:
MeritMerit$—  $53  $37  
AHLAHL56  32  34  


Statutory capital and surplus for our insurance companies by type of insurance were as follows:

(dollars in millions)    (dollars in millions)
December 31, 2017 2016December 31,20192018
    
Property and casualty $42
 $63
Life and health 79
 133
Property and casualty:Property and casualty:
TritonTriton$144  $113  
Life and health:Life and health:
MeritMerit$—  $94  
AHLAHL192  129  


Our insurance companies are also subject to risk-based capital requirements adopted by the IndianaTexas DOI. Minimum statutory capital and surplus is the risk-based capital level that would trigger regulatory action. At December 31, 20172019 and 2016,2018, our insurance subsidiaries’ statutory capital and surplus exceeded the risk-based capital minimum required levels.


DIVIDEND RESTRICTIONS


Our insurance subsidiaries are subject to domiciliary state regulations that limit their ability to pay dividends. Merit and Yosemite were domiciled in Indiana, with Merit redomesticating to Texas on January 28, 2019. AHL and Triton are domiciled in Texas. State law restricts the amounts that our insurance subsidiaries Yosemite and Merit, may pay as dividends without prior notice to the Indianastate of domicile DOI. The maximum amount of dividends, referred to as “ordinary dividends,” for an Indiana or Texas domiciled life insurance company that can be paid without prior approval in a 12 month period (measured retrospectively from the date of payment) is the greater of: (i) 10% of policyholders’ surplus as of the prior year-end;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 prior to its payment.state of domicile DOI. 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;year-end or (ii) the statutory net income. Any amount greater must be approved by the Indiana DOI prior to its payment.state of domicile DOI. These approved dividends are called “extraordinary dividends.” OurDuring 2018, ordinary dividends of $34 million and $37 million were paid by AHL and Merit, respectively. There were 0 ordinary dividends paid by any of our insurance subsidiaries paid extraordinary dividends to SFC totaling $125 million, $63 million, and $100 million during 2017, 2016, and 2015, respectively.2019 or 2017.




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Notes to Consolidated Financial Statements, Continued

15. Other Liabilities    

Components of other liabilitiesExtraordinary dividends paid were as follows:

(dollars in millions)
Years Ended December 31,201920182017
AHL$—  $—  $111  
Triton—  70  —  
Merit140  —  90  
Yosemite—  42  35  


(dollars in millions)    
December 31, 2017 2016
     
Payables to parent and affiliates * $110
 $13
Accrued interest on debt 44
 48
Accrued expenses and other liabilities 23
 39
Loan principal warranty reserve 7
 13
Retirement plans 5
 31
Other 25
 41
Total $214
 $185
*Payables to parent13. Capital Stock and affiliates at December 31, 2017 consisted of: (i) a $67 million payable under the tax sharing agreement; (ii) a $24 million payable primarily to AHL for insurance premiums collected by legacy Springleaf branches which reflects activity started in 2017; (iii) net payables to OGSC of $13 million for intercompany service agreements; (iv) payable of $4 million to OMFH for Loan Servicing Fees, and (v) a payable of $2 million to OCLI for internet lending referral fees. See Note 11 for further information regarding SFC’s intercompany agreements and Note 18 regarding SFC’s tax sharing agreement with OMFH.Earnings Per Share (OMH Only)


16. Capital Stock    CAPITAL STOCK


OMH has 2 classes of authorized capital stock: preferred stock and common stock. SFC has two2 classes of authorized capital stock: special stock and common stock. OMH and SFC may issue preferred stock and special stock, respectively, in one or more series. The OMH Board of Directors and the SFC boardBoard of directors determinesDirectors determine the dividend, liquidation, redemption, conversion, voting, and other rights prior to issuance.


Par value and shares authorized at December 31, 20172019 were as follows:

OMHSFC
Preferred Stock *Common StockSpecial StockCommon Stock
Par value$0.01  $0.01  $—  $0.50  
Shares authorized300,000,000  2,000,000,000  25,000,000  25,000,000  
* NaN shares of OMH preferred stock or SFC special stock were issued and outstanding at December 31, 2019 or 2018.
  Special Stock Common Stock
     
Par value $—
 $0.50
Shares authorized 25,000,000
 25,000,000


SharesChanges in OMH shares of common stock issued and outstanding were as follows:

  Special Stock Common Stock
December 31, 2017 2016 2017 2016
         
Shares issued and outstanding —
 —
 10,160,021
 10,160,021
At or for the Years Ended December 31,201920182017
Balance at beginning of period135,832,278  135,349,638  134,867,868  
Common shares issued268,878  482,640  481,770  
Balance at end of period136,101,156  135,832,278  135,349,638  


During 2016, SFC received capital contributions from SFI totaling $10 million to satisfy interest payments required by SFC’s junior subordinated debenture in respect of SFC’s junior subordinated debt.shares issued and outstanding were as follows:




Special StockCommon Stock
2019201820192018
Shares issued and outstanding—  —  10,160,021  10,160,021  

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Notes to Consolidated Financial Statements, Continued

EARNINGS PER SHARE (OMH ONLY)
17. Accumulated Other Comprehensive Income (Loss)    

The computation of earnings per share was as follows:
(dollars in millions, except per share data)
Years Ended December 31,201920182017
 
Numerator (basic and diluted):  
Net income$855  $447  $183  
Denominator:  
Weighted average number of shares outstanding (basic)136,070,837  135,702,989  135,249,314  
Effect of dilutive securities *256,074  331,154  429,677  
Weighted average number of shares outstanding (diluted)136,326,911  136,034,143  135,678,991  
Earnings per share:  
Basic$6.28  $3.29  $1.35  
Diluted$6.27  $3.29  $1.35  
* We have excluded the following shares in the diluted earnings per share calculation for 2019, 2018, and 2017 because these shares would be anti-dilutive, which could impact the earnings per share calculation in the future:
Years Ended December 31,201920182017
Performance-based shares173,944  40,593  59,863  
Service-based shares97,011  246,913  674,472  

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


116

14. 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)
Year Ended December 31, 2019    
Balance at beginning of period$(28) $(3) $(3) $(34) 
Other comprehensive income before reclassifications68  6  3  77  
Reclassification adjustments from accumulated other
comprehensive income		1  —  —  1  
Balance at end of period$41  $3  $—  $44  
Year Ended December 31, 2018    
Balance at beginning of period$4  $4  $3  $11  
Other comprehensive loss before reclassifications(35) (4) (9) (48) 
Reclassification adjustments from accumulated other comprehensive income1  —  —  1  
Impact of AOCI reclassification due to the Tax Act2  (3) 3  2  
Balance at end of period$(28) $(3) $(3) $(34) 
Year Ended December 31, 2017
Balance at beginning of period$(1) $(4) $(1) $(6) 
Other comprehensive income before reclassifications14  9  4  27  
Reclassification adjustments from accumulated other comprehensive loss(9) (1) —  (10) 
Balance at end of period$4  $4  $3  $11  
(dollars in millions) Unrealized Gains (Losses) Available-for-Sale Securities Retirement Plan Liabilities Adjustments Foreign Currency Translation Adjustments Total Accumulated Other Comprehensive Income (Loss)
         
Year Ended December 31, 2017        
Balance at beginning of period $(3) $(4) $—
 $(7)
Other comprehensive income before reclassifications 8
 3
 —
 11
Reclassification adjustments from accumulated other comprehensive loss (4) —
 —
 (4)
Balance at end of period $1
 $(1) $—
 $—
         
Year Ended December 31, 2016        
Balance at beginning of period $(9) $(19) $4
 $(24)
Other comprehensive income before reclassifications 11
 15
 —
 26
Reclassification adjustments from accumulated other comprehensive loss (5) —
 (4) (9)
Balance at end of period $(3) $(4) $—
 $(7)
         
Year Ended December 31, 2015        
Balance at beginning of period $12
 $(13) $4
 $3
Other comprehensive loss before reclassifications (12) (6) —
 (18)
Reclassification adjustments from accumulated other comprehensive loss (9) —
 —
 (9)
Balance at end of period $(9) $(19) $4
 $(24)


Reclassification adjustments from accumulated other comprehensive income (loss) to the applicable line item on our consolidated statements of operations were as follows:
(dollars in millions)
Years Ended December 31,201920182017
Unrealized gains (losses) on available-for-sale securities:
Reclassification from accumulated other comprehensive income (loss) to investment revenues, before taxes$(1) $(2) $14  
Income tax effect—  1  (5) 
Reclassification from accumulated other comprehensive income (loss) to investment revenues, net of taxes(1) (1) 9  
Unrealized gains (losses) on retirement plan liabilities:
Reclassification from accumulated other comprehensive income (loss) to retirement plan liabilities adjustments, before taxes$—  $—  $2  
Income tax effect—  —  (1) 
Reclassification from accumulated other comprehensive income (loss) to retirement plan liabilities adjustments, net of taxes—  —  1  
Total$(1) $(1) $10  

(dollars in millions)      
Years Ended December 31, 2017 2016 2015
       
Unrealized gains on investment securities:      
Reclassification from accumulated other comprehensive income (loss) to investment revenues, before taxes $7
 $8
 $14
Income tax effect (3) (3) (5)
Reclassification from accumulated other comprehensive income (loss) to investment revenues, net of taxes 4
 5
 9
       
Unrealized gains on foreign currency translation adjustments:      
Reclassification from accumulated other comprehensive income (loss) to other revenues —
 4
 —
Total $4
 $9
 $9




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Table of Contents

Notes to Consolidated Financial Statements, Continued

15. Income Taxes
18. Income Taxes


OMH and all of its eligible domestic U.S. subsidiaries including SFC, file a consolidated life/non-life federal tax return with the IRS. AHL, an insurance subsidiary of OneMain, is not an eligible company under Internal Revenue Code Section 1504 and therefore, files separate federal life insurance tax returns. Income taxes from the consolidated federal and state tax returns are allocated to theour eligible subsidiaries under a tax sharing agreement with OMH.


The Company’s foreign subsidiaries/branches file tax returns in Canada, Puerto Rico, and the U.S. Virgin Islands. The Company recognizes a deferred tax liability for the undistributed earnings of its foreign operations, if any, as we do not consider the amounts to be permanently reinvested. As of December 31, 2017,2019, the Company had no0 undistributed foreign earnings.


Components of income (loss) before income tax expense were as follows:
(dollars in millions)   
Years Ended December 31,201920182017
  
Income before income tax expense - U.S. operations$1,082  $610  $416  
Income before income tax expense - foreign operations16  14  15  
Total$1,098  $624  $431  

Components of income tax expense (benefit) were as follows:
(dollars in millions)
Years Ended December 31,201920182017
Current:
Federal$205  $131  $208  
Foreign3  3  2  
State34  20  8  
Total current242  154  218  
Deferred:
Federal15  15  18  
State(14) 8  12  
Total deferred1  23  30  
Total$243  $177  $248  
(dollars in millions)      
Years Ended December 31, 2017 2016 2015
       
Income before income tax expense - U.S. operations $193
 $347
 $152
Income (loss) before income tax expense (benefit) - foreign operations —
 (1) 7
Total $193
 $346
 $159

Components of income tax expense were as follows:
(dollars in millions)      
Years Ended December 31, 2017
2016
2015
       
Current:      
Federal $167
 $181
 $63
Foreign * —
 —
 —
State 14
 15
 5
Total current 181
 196
 68
       
Deferred:      
Federal (77) (77) (46)
Foreign * —
 —
 —
State (5) (6) (4)
Total deferred (82) (83) (50)
Total $99
 $113
 $18
*Deferred foreign income taxes were less than $1 million during the 2017, 2016, and 2015 periods and, therefore, are not quantified in the table above.


Expense from foreign income taxes includes foreign subsidiaries/branches that operate in Canada, Puerto Rico, and the U.S. Virgin Islands. During the 2016 and 2015 periods, expense from foreign income taxes also included United Kingdom operations.




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117


Notes to Consolidated Financial Statements, Continued

ReconciliationsOMH's reconciliations of the statutory federal income tax rate to the effective income tax rate were as follows:
Years Ended December 31,201920182017
Statutory federal income tax rate21.00 %21.00 %35.00 %
State income taxes, net of federal3.49  3.65  2.86  
Change in valuation allowance(2.07) —  —  
Nondeductible compensation0.13  3.85  —  
Excess tax expense on share-based compensation0.04  0.02  0.41  
Impact of Tax Act—  —  18.65  
Other, net(0.43) (0.15) 0.55  
Effective income tax rate22.16 %28.37 %57.47 %
Years Ended December 31, 2017 2016 2015
       
Statutory federal income tax rate 35.00 % 35.00 % 35.00 %
       
Impact of Tax Act 11.81
 —
 —
State income taxes, net of federal 2.84
 1.66
 0.23
Excess tax benefit on share-based compensation (0.03) (0.20) —
Non-controlling interests —
 (2.86) (27.91)
Tax impact of United Kingdom subsidiary liquidation —
 (0.62) —
Nondeductible compensation —
 —
 3.39
Other, net 1.61
 (0.22) 0.41
Effective income tax rate 51.23 % 32.76 % 11.12 %


The effective income tax rate for 2017, 2016, and 2015 differed fromSFC's reconciliations of the statutory federal income tax rate primarily due to the recognition of the impact of the Tax Act, effects of the non-controlling interest in the previously owned SpringCastle Portfolio, state income taxes, and discrete expense from the 2016 tax year return-to-provision adjustment. The effective income tax rate is based on income (loss) before taxes, which includes income (loss) attributable to non-controlling interests. The income (loss) attributable to the non-controlling interest is not included in the taxable income in SFC, resulting in variances from the statutory federal income tax rate of (2.86)% and (27.91)% in 2016 and 2015, respectively.

The difference in the effective income tax rate were as follows:
Years Ended December 31,201920182017
Statutory federal income tax rate21.00 %21.00 %35.00 %
State income taxes, net of federal3.49  3.68  2.63  
Change in valuation allowance(2.06) —  —  
Nondeductible compensation0.13  3.73  —  
Excess tax expense on share-based compensation0.04  0.02  0.33  
Return to provision adjustment0.08  —  0.81  
Impact of Tax Act—  —  21.69  
Other, net(0.41) (0.08) 1.09  
Effective income tax rate22.27 %28.35 %61.55 %
The lower effective income tax rate in 20172019 as compared to 20162018 is primarily due to the release of the valuation allowance against certain state deferred taxes in 2019 and the effect of discrete tax expense for the non-deductible compensation expense in 2018. The lower effective income tax rate in 2018 as compared to 2017 is primarily due to the lower federal statutory rate of 21% in 2018 and the recognition of the impact of the Tax Act which increased our 2017 effective income tax rate by 11.81%18.65%. As a result of the Tax Act, we recognized a $23an $81 million tax charge in 2017. This charge is primarily the result of the lower corporate tax rate, which required us to remeasure our net deferred tax asset to reflect the lower corporate tax rate. The difference in the impact on the effective income tax rate due to non-controlling interest in 2016 as compared to 2015 is due to the fact that the net income attributable to non-controlling interest was a smaller percentage of the total income (loss) in 2016 as compared to 2015.


A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits (all of which would affect the effective income tax rate if recognized) is as follows:
(dollars in millions)
Years Ended December 31,201920182017
Balance at beginning of year$17  $15  $16  
Increases in tax positions for current years2  —  1  
Increases in tax positions for prior years2  8  —  
Lapse in statute of limitations(3) (6) (2) 
Settlements with tax authorities(6) —  —  
Balance at end of year$12  $17  $15  
(dollars in millions)      
Years Ended December 31, 2017 2016 2015
       
Balance at beginning of year $11
 $9
 $4
Increases in tax positions for current years 1
 2
 4
Lapse in statute of limitations (1) —
 —
Increases in tax positions for prior years —
 —
 4
Decreases in tax positions for prior years —
 —
 (2)
Settlements with tax authorities —
 —
 (1)
Balance at end of year $11
 $11
 $9


Our gross unrecognized tax benefits include related interest and penalties. We accrue interest and penalties related to uncertain tax positions in income tax expense. The amount of any change in the balance of uncertain tax liabilities over the next 12 months is not expected to be material to our consolidated financial statements.


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We are currently under examination of our U.S. federal tax return for the years 20112014 to 20132016 by the IRS. We are also under examination of various states for the years 2011 to 2016.2018. Management believes it has adequately provided for taxes for such years.




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Notes to Consolidated Financial Statements, Continued


Components of deferred tax assets and liabilities were as follows:
(dollars in millions)
December 31,20192018*
Deferred tax assets:
Allowance for loan losses$210  $191  
Net operating losses and tax credits33  36  
Insurance reserves31  8  
Pension/employee benefits16  22  
Mark-to-market10  35  
Tax interest adjustment7  19  
Acquisition costs6  7  
Fair value of equity and securities investments—  8  
Other9  15  
Total$322  $341  
Deferred tax liabilities:
Goodwill$97  $75  
Debt fair value adjustment52  56  
Deferred loan fees19  21  
Fair value of equity and securities investments12  —  
Fixed assets8  8  
Discount - debt exchange5  9  
Other4  2  
Total$197  $171  
Net deferred tax assets before valuation allowance$125  $170  
Valuation allowance(21) (41) 
Net deferred tax assets$104  $129  
* To conform to the 2019 presentation, we reclassified certain items in the prior period.
(dollars in millions)    
December 31, 2017 2016
     
Deferred tax assets:    
Allowance for loan losses $51
 $77
Mark-to-market 55
 55
State taxes, net of federal 39
 27
Pension/employee benefits 5
 13
Legal and warranty reserve 2
 6
Federal and foreign net operating losses and tax attributes 1
 3
Other —
 2
Total 153
 183
     
Deferred tax liabilities:    
Debt fair value adjustment 54
 118
Insurance reserves 14
 14
Discount - debt exchange 11
 16
Other intangible assets 3
 5
Fixed assets 2
 —
Impact of tax accounting method change —
 38
Other 8
 5
Total 92
 196
     
Net deferred tax assets (liabilities) before valuation allowance 61
 (13)
Valuation allowance (37) (29)
Net deferred tax assets (liabilities) $24
 $(42)


The gross deferred tax liabilities are expected to reverse in time, and projected taxable income is expected to be sufficient to create positive taxable income, which will allow for the realization of all of our gross federal deferred tax assets and a portion of the state deferred tax assets. The increase of ourdecrease in net deferred tax asset isof $25 million was mainly attributable to changethe favorable movement of fair market valuemark-to-market basis difference on our loan receivables and tax amortization of our receivablesgoodwill which was partly offset by an adjustment recorded asthe increase of December 31, 2017 to reflect the reduction in the U.S. statutory tax rate from 35% to 21% resulting from the Tax Act.loan loss reserve.

During 2016 we liquidated our United Kingdom operations. As such, there are no net operating loss carryforwards (and no offsetting valuation allowances) related to our United Kingdom operations at December 31, 2016.


At December 31, 20172019, we had state net operating loss carryforwards of $630$551 million, compared to $610$626 million at December 31, 2016.2018. The state net operating loss carryforwards mostly expire between 20182025 and 2037.2039, except for some states which conform to the federal rules for indefinite carryforward. We had a valuation allowance on our gross state deferred tax assets, net of deferred federal tax benefit, of $36$18 million and $26$38 million at December 31, 20172019 and 2016,2018, respectively. The total valuation allowance was established based on management’s determination that the deferred tax assets are more likely than not to not be realized. During 2019, we released $23 million of valuation allowance against certain state deferred tax assets. This release was primarily due to the impact of our ongoing legal entity simplification project, in which we consolidated our various operating subsidiaries, and continued earnings growth.





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Notes to Consolidated Financial Statements, Continued

16. Leases and Contingencies
19. Lease Commitments, Rent Expense,
LEASES

As described in Note 4, we have adopted ASU 2016-02, Leases, as of January 1, 2019, using the optional transition approach. As a result of this election, the prior periods presented have not been adjusted.

Our operating leases primarily consist of leased office space, automobiles, and Contingent Liabilities    information technology equipment and have remaining lease terms of one year to ten years.


LEASE COMMITMENTS AND RENT EXPENSEAt December 31, 2019, our operating right-of-use asset balance was $163 million, and our operating lease liability balance was $176 million. Our operating lease costs totaled $61 million, and our variable lease costs totaled $16 million for the year ended December 31, 2019. Our sublease income was immaterial for 2019.


AnnualAt December 31, 2019, maturities of lease liabilities, excluding leases on a month-to-month basis, were as follows:
(dollars in millions)Operating Leases
2020$62  
202152  
202239  
202323  
202413  
Thereafter11  
Total lease payments200  
Imputed interest(24) 
Total$176  

Weighted Average Remaining Lease Term3.8 years
Weighted Average Discount Rate3.78 %

As of December 31, 2018, under ASC 840, Leases, annual rental commitments for leased office space, automobiles and information technology equipment accounted for as operating leases, excluding leases on a month-to-month basis, were as follows:
(dollars in millions)Lease Commitments
2019$60  
202050  
202137  
202226  
202312  
2024+12  
Total$197  
(dollars in millions) Lease Commitments
   
2018 $16
2019 12
2020 8
2021 5
2022 2
2023+ —
Total $43


In addition to rent, we pay taxes, insurance, and maintenance expenses under certain leases. In the normal course of business, we will renew leases that expire or replace them with leases on other properties. Rental expense totaled $28$74 million in each2018 and $79 million in 2017.

121


LEGAL CONTINGENCIES


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


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


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


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


SALES RECOURSE OBLIGATIONSFederal Securities Class Action (OMH only)


At December 31,On February 10, 2017, our reservea putative class action lawsuit, Galestan v. OneMain Holdings, Inc., et al., was filed in the U.S. District Court for sales recourse obligations totaled $7 million, which primarily related to our real estate loan sales in 2014, with a minimal portionthe Southern District of New York, naming as defendants OMH and two of its officers. The lawsuit alleged violations of the reserve relatedExchange Act for allegedly making materially misleading statements and/or omitting material information concerning alleged integration issues after the OneMain Acquisition in November 2015, and was filed on behalf of a putative class of persons who purchased or otherwise acquired OMH’s common stock between February 25, 2016 and November 7, 2016. The complaint sought an award of unspecified compensatory damages, an award of interest, reasonable attorney’s fees, expert fees and other costs, and equitable relief as the court may deem just and proper. On April 23, 2019, the parties executed a settlement agreement, which received final approval from the Court on August 9, 2019. Pursuant to net charge-off salesthe settlement agreement, the action was dismissed with prejudice. The settlement contained no admission of our finance receivables. We did not establish an additional reserve for sales recourse obligations associated with the personal loans sold in the Lendmark Sale or our real estate loan sales in 2016 based on the credit quality of the loans soldliability by OMH and the terms of each transaction.other defendants.



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120


Notes to Consolidated Financial Statements, Continued

The activity in our reserve for sales recourse obligations was as follows:
(dollars in millions)      
At or for the Years Ended December 31, 2017 2016 2015
       
Balance at beginning of period $13
 $15
 $24
Recourse losses —
 —
 (2)
Provision for recourse obligations, net of recoveries * (6) (2) (7)
Balance at end of period $7
 $13
 $15
*Reflects the elimination of the reserve associated with other prior sales of finance receivables.17. Retirement Benefit Plans

At December 31, 2017, there were no material recourse requests with loss exposure that management believed would not be covered by the reserve. However, we will continue
DEFINED CONTRIBUTION PLAN

The Company sponsors a voluntary defined contribution plan 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 excesseligible employees of the liability already accrued, it is not always possible to reasonably estimateCompany.

OneMain 401(k) Plan

The OneMain 401(k) Plan (the "401(k) Plan"), previously known as the sizeSpringleaf Financial Services 401(k) Plan, provided for a 100% Company matching on the first 4% of the possible recourse losses or rangesalary reduction contributions of losses.the employees for 2019, 2018, and 2017. The salaries and benefits expense associated with this plan was $17 million in 2019 and 2018, and $16 million in 2017.


20. Benefit Plans    

PENSION PLANS

As noted in Note 11 Related Party Transactions,In addition, the Company contributed SFMC,may make a former subsidiarydiscretionary profit sharing contribution to the 401(k) Plan. The Company has full discretion to determine whether to make such a contribution, and the amount of SFCsuch contribution. In no event, however, will the discretionary profit sharing contribution exceed 4% of annual pay. The Company did not make any discretionary profit sharing contributions to SFIthe 401(k) Plan in the form of a dividend. All assets and liabilities of SFMC were transferred including the net pension liabilities and any other obligations related to the2019, 2018, or 2017.

DEFINED BENEFIT PLANS

Springleaf Financial Services Retirement Plan

The Springleaf Financial Services Retirement Plan (the “Springleaf Retirement Plan”) is a noncontributoryqualified non-contributory defined benefit plan the Springleaf Financial Services Excess Retirement Income Plan, an unfunded defined benefit plan, and the Supplemental Executive Retirement Income Plan, an unfunded defined benefit plan, to OMH. The projected net pension obligation related to these plans as of December 31, 2016 was $25 million.

The CommoLoco Retirement Plan, a noncontributory defined benefit plan, which had a projected net pension obligation as of December 31, 2016 of $6 million, was retained by the Company.

The CommoLoCo Retirement Plan, which is subject to the provisions of ERISA. Effective December 31, 2012, the Springleaf Retirement Plan was frozen with respect to both benefits accruals and new participation. U.S. salaried employees who were employed by a participating company, had attained age 21, and completed twelve months of continuous service were eligible to participate in the plan. Employees generally vested after 5 years of service. Prior to January 1, 2013, unreduced benefits were paid to retirees at normal retirement (age 65) and were based upon a percentage of final average compensation multiplied by years of credited service, up to 44 years. Our current and former employees will not lose any vested benefits in the Springleaf Retirement Plan that accrued prior to January 1, 2013.

CommoLoCo Retirement Plan

The CommoLoCo Retirement Plan is a qualified non-contributory defined benefit plan which is subject to the provisions of ERISA and the Puerto Rico tax code, was frozen effectivecode. Effective December 31, 2012.2012, the CommoLoCo Retirement Plan was frozen. Puerto Rican residents employed by CommoLoCo, Inc., our Puerto Rican subsidiary, who had attained age 21 and completed one year of service were eligible to participate in the plan. Our current and former employees in Puerto Rico will not lose any vested benefits in the CommoLoCo Retirement Plan that accrued prior to January 1, 2013. The fair value

Unfunded Defined Benefit Plans

We sponsor unfunded defined benefit plans for certain employees, including key executives, designed to supplement pension benefits provided by our other retirement plans. These include: (i) the Springleaf Financial Services Excess Retirement Income Plan (the "Excess Retirement Income Plan"), which provides a benefit equal to the reduction in benefits payable to certain employees under our qualified retirement plan as a result of plan assets net of expense forfederal tax limitations on compensation and benefits payable; and (ii) the CommoLoCoSupplemental Executive Retirement Plan ("SERP"), which provides additional retirement benefits to designated executives. Benefits under the Excess Retirement Income Plan totaled $12 millionwere frozen as of December 31, 20172012, and benefits under the SERP were frozen at the end of August 2004.

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OBLIGATIONS AND FUNDED STATUS

The following table presents the funded status of the defined benefit pension plans. The funded status of the plans is measured as the difference between the plan assets at fair value and the projected benefit obligation.

(dollars in millions)Pension *
At or for the Years Ended December 31,201920182017
Projected benefit obligation, beginning of period$320  $354  $385  
Interest cost12  11  13  
Actuarial loss (gain)47  (30) 17  
Benefits paid:
Plan assets(15) (15) (14) 
Settlement—  —  (47) 
Projected benefit obligation, end of period364  320  354  
Fair value of plan assets, beginning of period308  341  354  
Actual return on plan assets, net of expenses69  (19) 47  
Company contributions1  1  1  
Benefits paid:
Plan assets(15) (15) (14) 
Settlement—  —  (47) 
Fair value of plan assets, end of period363  308  341  
Funded status, end of period$(1) $(12) $(13) 
Other liabilities recognized in the consolidated balance sheet$(1) $(12) $(13) 
Pretax net gain (loss) recognized in accumulated other comprehensive income (loss)$4  $(3) $4  
*Includes non-qualified unfunded plans, for which the aggregate projected benefit obligation totaled $17 million. was $10 million, $9 million and $10 million at December 31, 2019, 2018 and 2017, respectively.


Defined benefit pension plan obligations in which the PBO was in excess of the related plan assets and the ABO was in excess of the related plan assets were as follows:

(dollars in millions)PBO and ABO Exceeds
Fair Value of Plan Assets
December 31,20192018
Projected benefit obligation$364  $320  
Accumulated benefit obligation364  320  
Fair value of plan assets363  308  

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The following table presents the components of net periodic benefit cost recognized in income and other amounts recognized in accumulated other comprehensive income or loss with respect to the defined benefit pension plans:

(dollars in millions)Pension
Years Ended December 31,201920182017
Components of net periodic benefit cost:
Interest cost$12  $11  $13  
Expected return on assets(15) (18) (18) 
Settlement gain—  —  (2) 
Net periodic benefit cost(3) (7) (7) 
Other changes in plan assets and projected benefit obligation recognized in other comprehensive income or loss:
Net actuarial loss (gain)(7) 7  (12) 
Amortization of net actuarial gain (loss)—  —  2  
Total recognized in other comprehensive income or loss(7) 7  (10) 
Total recognized in net periodic benefit cost and other comprehensive income$(10) $—  $(17) 

We have estimated the net loss that will be amortized from accumulated other comprehensive income or loss into net periodic benefit cost over the next fiscal year will be immaterial for our combined defined benefit pension plans.

Assumptions

The following table summarizes the weighted average assumptions used to determine the projected benefit obligations and the net periodic benefit costs:

Pension
December 31,20192018
Projected benefit obligation:
Discount rate3.08 %4.12 %
Net periodic benefit costs:
Discount rate4.12 %3.49 %
Expected long-term rate of return on plan assets5.03 %5.27 %

Discount Rate Methodology

The projected benefit cash flows were discounted using the spot rates derived from the unadjusted FTSE Pension Discount Curve (formerly the Citigroup Pension Discount Curve) at December 31, 2019 and an equivalent weighted average discount rate was derived that resulted in the same liability.

Investment Strategy

The investment strategy with respect to assets relating to our pension plans is designed to achieve investment returns that will (i) provide for the benefit obligations of the plans over the long term; (ii) limit the risk of short-term funding shortfalls; and (iii) maintain liquidity sufficient to address cash needs. Accordingly, the asset allocation strategy is designed to maximize the investment rate of return while managing various risk factors, including but not limited to, volatility relative to the benefit obligations, diversification and concentration, and the risk and rewards profile indigenous to each asset class.

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Allocation of Plan Assets

The long-term strategic asset allocation is reviewed and revised annually. The plans’ assets are monitored by our Retirement Plans Committee and the investment managers, which can entail allocating the plans’ assets among approved asset classes within pre-approved ranges permitted by the strategic allocation.

At December 31, 2019, the actual asset allocation for the primary asset classes was 95% in fixed income securities, 4% in equity securities, and 1% in cash and cash equivalents. The 2020 target asset allocation for the primary asset classes is 94% in fixed income securities and 6% in equity securities. The actual allocation may differ from the target allocation at any particular point in time.

The expected long-term rate of return for the plans was 5.0% for the Springleaf Retirement Plan and 5.8% for the CommoLoCo Retirement Plan for 2019. The expected rate of return is an aggregation of expected returns within each asset class category. The expected asset return and any contributions made by the Company together are expected to maintain the plans’ ability to meet all required benefit obligations. The expected asset return with respect to each asset class was developed based on a building block approach that considers historical returns, current market conditions, asset volatility and the expectations for future market returns. While the assessment of the expected rate of return is long-term and thus not expected to change annually, significant changes in investment strategy or economic conditions may warrant such a change.

Expected Cash Flows

Funding for the U.S. pension plan ranges from the minimum amount required by ERISA to the maximum amount that would be deductible for U.S. tax purposes. This range is generally not determined until the fourth quarter. Contributed amounts in excess of the minimum amounts are deemed voluntary. Amounts in excess of the maximum amount would be subject to an excise tax and may not be deductible under the Internal Revenue Code. Supplemental and excess plans’ payments and postretirement plan payments are deductible when paid.

The expected future benefit payments, net of participants’ contributions, of our defined benefit pension obligationplans at December 31, 2019 are as follows:

(dollars in millions)Pension
2020$16  
202116  
202216  
202317  
202417  
2025-202989  

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FAIR VALUE MEASUREMENTS — PLAN ASSETS

The inputs and methodology used in determining the fair value of the plan assets are consistent with those used to measure our assets. See Note 3 for a discussion of the accounting policies related to fair value measurements, which includes the CommoLoco Retirement Plan was $5 million.valuation process and the inputs used to develop our fair value measurements.


The following table presents information about our plan assets measured at fair value and indicates the fair value hierarchy based on the levels of inputs we utilized to determine such fair value:
21. Share-Based Compensation     

(dollars in millions)Level 1Level 2Level 3Total
December 31, 2019
Assets:
Cash and cash equivalents$3  $—  $—  $3  
Equity securities:
U.S.1  —  —  1  
International (a)1  —  —  1  
Fixed income securities:
U.S. investment grade (b)49  290  —  339  
U.S. high yield (c)—  5  —  5  
Total$54  $295  $—  $349  
Investments measured at NAV (d)14  
Total investments at fair value$363  
December 31, 2018
Assets:
Cash and cash equivalents$4  $—  $—  $4  
Equity securities:
U.S. (e)—  7  —  7  
International (a)—  6  —  6  
Fixed income securities:
U.S. investment grade (b)—  287  —  287  
U.S. high yield (c)—  4  —  4  
Total$4  $304  $—  $308  
(a) Includes investment mutual funds in companies in emerging and developed markets.

(b) Includes investment mutual funds in U.S. and non-U.S. government issued bonds, U.S. government agency or sponsored agency bonds, and investment grade corporate bonds.

(c) Includes investment mutual funds in securities or debt obligations that have a rating below investment grade.

(d) We have elected the practical expedient to exclude certain investments that were measured at net asset value ("NAV") per share (or equivalent) from the fair value hierarchy.

(e) Includes index mutual funds that primarily track several indices including S&P 500 and S&P 600 in addition to other actively managed accounts, comprised of investments in small cap and large cap companies.

The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Based on our investment strategy, we have no significant concentrations of risks.



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18. Share-Based Compensation

ONEMAIN HOLDINGS, INC. AMENDED AND RESTATED 2013 OMNIBUS INCENTIVE PLAN


In 2013, OMH adopted the OneMain Holdings, Inc. Amended and Restated 2013 Omnibus Incentive Plan (the "Omnibus Plan"), which was amended and restated effective as of May 25, 2016, under which equity-based awards are granted to selected management employees, non-employee directors, independent contractors, and consultants. The amendment and restatement of the Omnibus Plan (i) extended the term of the Omnibus Plan from October 2023 to May 2026 and (ii) limited the number of cashcash-settled and equity-based awards under the Omnibus Plan valued at more than $500,000 to non-employee directors during the calendar year.


As of December 31, 2017, 13,199,0962019, 13,303,988 shares of common stock were reserved for issuance under the Omnibus Plan, including 1,411,236659,628 shares subject to outstanding equity awards. The amount of shares reserved is adjusted annually at the beginning of the year by a number of shares equal to the excess of 10% of the number of outstanding shares on the last day of the previous fiscal year over the number of shares reserved and available for issuance as of the last day of the previous fiscal year. The Omnibus Plan allows for issuance of stock options, RSUs, and restricted stock awards (“RSAs”),RSAs, stock appreciation rights, and other stock-based awards and cash awards. SFC participates

During 2019, OMH amended certain cash-settled and equity-based award agreements, to provide for the right to accrue cash dividend equivalents. Approximately 450 employees were affected by the amendments and the share-based compensation expense recognized as a result of amending the awards was immaterial during 2019.

Total share-based compensation expense, net of forfeitures, for all equity-based awards totaled $13 million, $21 million, and $17 million during 2019, 2018, and 2017, respectively. The total income tax benefit recognized for stock-based compensation was $3 million in stock2019 and $6 million in 2018 and 2017. As of December 31, 2019, there was total unrecognized compensation expense of $10 million related to unvested stock-based awards that are expected to be recognized over a weighted average period of OMH. Unless specifically noted, the following disclosures are based on all award activity of OMH.one year.



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Notes to Consolidated Financial Statements, Continued

Service-based Awards


In connection with the initial public offering on October 16, 2013 and subsequent to the offering, OMH has granted service-based RSUs and RSAs to certain of our non-employee directors, executives and employees. The RSUs are subjectgranted with varying service terms of one year to a graded vesting period of 4.2four years or less and do not provide the holders with any rights as shareholders, including the rightexcept with respect to earn dividends during the vesting period.dividend equivalents. As of December 31, 2019, OMH had 0 outstanding RSAs. The RSAs are subject to a graded vesting period of three years or less and provide the holders the right to vote and to earn dividends during the vesting period. Thegrant date fair value for restricted unitsRSUs and awardsRSAs is generally the closing market price of OMH’s common stock on the date of the award. For

Expense for service-based awards granted in connection with the initial public offering, the fair value is the offering price. Expense is amortized on a straight linestraight-line basis over the vesting period, based on the number of awards that are ultimately expected to vest. The weighted-average grant date fair value of service-based awards issued in 2019, 2018, and 2017 2016,was $30.10, $31.55, and 2015 was $27.85, $26.14, and $47.44, respectively. The total fair value of service-based awards that vested during 2019, 2018, and 2017 2016,was $12 million, $23 million, and 2015 was $18 million, $10 million, and $7 million, respectively.


The following table summarizes the service-based stock activity and related information for the Omnibus Plan for 2017:2019:

Number of
Shares		Weighted
Average
Grant Date Fair Value		Weighted
Average
Remaining
Term (in Years)
Unvested as of January 1, 2019694,592  $37.70  
Granted309,243  30.10  
Vested(317,755) 37.55  
Forfeited(217,066) 33.96  
Unvested at December 31, 2019469,014  34.52  1.01

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Number of
Shares
 
Weighted
Average
Grant Date Fair Value
 
Weighted
Average
Remaining
Term (in Years)
       
Unvested as of January 1, 2017 1,382,920
 $35.86
  
Granted 407,184
 27.85
  
Vested (575,322) 31.86
  
Forfeited (73,172) 38.10
  
Unvested at December 31, 2017 1,141,610
 34.87
 1.91

Performance-based Awards


During 2017, 20162019, 2018 and 2015,2017, OMH awarded PRSUscertain executives performance-based awards that may be earned based on the financial performance of OMH. Certain PRSUsThese awards are subject to the achievement of performance goals during thea one-year period between the grant date and December 31, 2017. Theseor a cumulative three-year period. The awards are also subject to a graded vesting period of two yearsconsidered earned after the attainment of the performance goal, or December 31, 2017, whichever occurs earlier. The remaining PRSUs are subject to separate and independent performance goals for 2017, 2018, and 2019; therefore, a separate requisite service period exists for each year that begins on January 1 of the respective performance year. Vesting for these awards will occur on the filing date of this Annual Report on Form 10-K that occurs after the performance year orperiod when results have been evaluated and approved by the date the actual performance outcome is determined, whichever is later. Allcommittee of the PRSUs allow for partial vesting if a minimum levelOMH Board of performance is attained. The PRSUs do not provide the holders with any rights as shareholders, including the rightDirectors, which oversees OMH's compensation programs (the "Compensation Committee"), and vest according to earn dividends during the vesting period. their certain terms and conditions.

The fair value for PRSUsall performance-based awards is based on the closing market price of ourOMH's stock on the date of the award.


Expense for performance-based sharesawards is recognized over the requisite service period when it is probable that the performance goals will be achieved and is based on the total number of units expected to vest. Expense for awards with graded vesting is recognized under the accelerated method, whereby each vesting is treated as a separate award with expense for each vesting recognized ratably over the requisite service period. If minimum targets are not achieved by the end of the respective performance periods, all unvested shares related to those targets will be forfeited and canceled, and all expense recognized to that date is reversed.


The weighted average grant date fair value of performance-based awards issued in 2019 was $31.86. The weighted average grant date fair value of performance-based awards issued in 2018 and 2017 and 2015 was $24.98 and $34.45, respectively. No performance shares were granted during 2016.$24.98. The total fair value of performance-based awards that vested during 2019, 2018, and 2017 was $3 million, $3 million, and 2016 was $2 million, and $4 million, respectively. No performance-based awards vested in 2015.



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Notes to Consolidated Financial Statements, Continued


The following table summarizes the performance-based stock activity and related information for the Omnibus Plan for 2017:2019:

Number of
Shares		Weighted
Average
Grant Date Fair Value		Weighted
Average
Remaining
Term (in Years)
 
Number of
Shares
 
Weighted
Average
Grant Date Fair Value
 
Weighted
Average
Remaining
Term (in Years)
     
Unvested as of January 1, 2017 407,948
 $25.94
 
Unvested as of January 1, 2019Unvested as of January 1, 2019143,734  $26.40  
Granted 90,072
 24.98
 Granted336,885  31.86  
Vested (92,000) 24.78
 Vested(121,754) 27.60  
Forfeited (136,394) 25.70
 Forfeited(168,251) 31.18  
Unvested at December 31, 2017 269,626
 26.14
 3.78
Unvested at December 31, 2019Unvested at December 31, 2019190,614  31.05  2.18


DueCash-settled Stock-based Awards

OMH has granted cash-settled stock-based awards to certain of our executives. These awards are granted with vesting conditions relating to the contributiontrading price of SFMCOMH's common stock and the portion of OMH's common stock owned by stockholders other than the Apollo-Värde Group, and certain other terms and conditions. The awards provide for the right to SFI duringaccrue cash dividend equivalents. Upon achievement, these awards would be settled in cash. The grant date fair value of the 2017 period therecash-settled stock-based awards was no direct share-based compensation expense or associated income tax benefit recognized. Followingzero because the contributionsatisfaction of SFMC to SFI, such expense is incurred by OGSC and subsequently allocated to SFC by OMGS. Asthe required event-based performance conditions were not considered probable as of the grant dates. Vesting of the cash-settled stock-based awards was not considered probable as of December 31, 2017, there was no unrecognized compensation expense. See Note 11 for information regarding the dividend2019.


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INCENTIVE UNITS
Total share-based compensation expense, net of forfeitures, for all stock-based awards directly incurred by SFC amounted to $2 million during 2016 and 2015. The total income tax benefit recognized for stock-based compensation was $1 million in 2016 and 2015.

OMHSFH Incentive Units


In the fourth quarter of 2015, certain executives of the Company surrendered a portion of their incentive units in the Initial Stockholder and certain additional executives of the Company received a grant of incentive units in the Initial Stockholder. These incentive units are intended to encourage the executives to create sustainable, long-term value for the Company by providing them with interests that are subject to their continued employment with the Company and that only provide benefits (in the form of distributions) if the Initial Stockholder makes distributions to one or more of its common members that exceed specified amounts. The incentive units are entitled to vote together with the holders of common units in the Initial Stockholder as a single class on all matters. The incentive units may not be sold or otherwise transferred and the executives are entitled to receive these distributions only while they are employed with the Company, unless the executive’s termination of employment results from the executive’s death, in which case the executive’s beneficiaries will be entitled to receive any future distributions. Because the incentive units only provide economic benefits in the form of distributions while the holders are employed, and the holder generally does not have the ability to monetize the incentive units due to the transfer restrictions, the substance of the arrangement is that of a profit sharing agreement. These incentive units provide benefits (in the form of distributions) in the event the Initial Stockholder makes distributions to one or more of its members that exceed certain specified amounts. In connection with the sale of ourOMH's common stock by SFH in 2018, as described in Note 1 of the Initial Stockholder in 2015,Notes to the Consolidated Financial Statements, certain of the specified thresholds were satisfied. In accordance with ASC Topic 710, Compensation-General, we recorded non-cash incentive compensation expense of $15$106 million in 2015 related to the incentive unitsApollo-Värde Transaction and $4 million related to the AIG Share Sale Transaction with a capital contribution offset such thatoffset. Under both of these transactions, the impactimpacts to overall shareholder’sthe Company were non-cash, equity was neutral. Noneutral, and not tax deductible. NaN expense was recognized for these awards during 20172019 or 2016.2017.




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19. Segment Information
Notes to Consolidated Financial Statements, Continued


22. Segment Information    

Our segments coincide with how our businesses are managed. At December 31, 2017, our two segments included:

2019, Consumer and Insurance — We originate and service personal loans and offer credit insurance (life insurance, disability insurance, involuntary unemployment insurance, and collateral protection insurance) and non-credit insurance through (“C&I”) is our branch network and our centralized operations. We also offer auto membership plans of an unaffiliated company. Our branch network conducts business in 28 states. Our centralized operations underwrite and process certain loan applications that we receive from our branch network or through an internet portal. If the applicant is located near an existing branch, 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, our centralized operations originate the loan.

Acquisitions and Servicing — SFI services the SpringCastle Portfolio. 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. Unless SFI is terminated, SFI will continue to provide the servicing for these loans pursuant to a servicing agreement, which SFI services as unsecured loans because the liens are subordinated to superior ranking security interests. See Note 2 for information regarding the SpringCastle Interest Sale and the acquisition and disposition of the SpringCastle Portfolio.

only reportable segment. The remaining components (which we refer to as “Other”) consist of (i) our liquidating SpringCastle Portfolio servicing activity and (ii) our non-originating legacy operations, which include (i)
our liquidating real estate loan portfolio as discussed below, (ii) ourloans and liquidating retail sales finance portfolio (including retail sales finance accountsreceivables. Previously, the servicing revenues and related expenses from our legacy auto finance operation), (iii) our lending operationsthe SpringCastle Portfolio were presented as a distinct reporting and operating segment, Acquisitions and Servicing (“A&S”). However, due to the continued decline in Puerto Ricoservicing revenues and the U.S. Virgin Islands; and (iv) the operations of the United Kingdom subsidiary, prior to its liquidation on August 16, 2016.

Beginning in 2017,related expenses, management no longer views or manages our real estate assetsthe servicing activity from the SpringCastle Portfolio as a separate operatingreportable segment. Therefore, we are now including Real Estate, which was previously presented as a distinct reporting segment,A&S in “Other.” To conform to this new alignment of our segments, weOther. We have revised our prior period segment disclosures.disclosures to conform to this new alignment.


The accounting policies of the segmentsC&I segment are the same as those disclosed in Note 3, except as described below.


Due to the nature of the OneMain Acquisition and the Fortress Acquisition, we applied purchase accounting. However, we report the operating results of Consumer and Insurance, Acquisitions and Servicing,C&I and Other using the Segment Accounting Basis, which (i) reflects our allocation methodologies for certain costs, primarily interest expense and loan loss reserves,other expenses, 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 and long-term debt at acquisition, as well as the amortization/accretion in future periods).



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Notes to Consolidated Financial Statements, Continued

We allocate revenues and expenses (onon a Segment Accounting Basis)Basis to eachthe C&I segment and Other using the following methodologies:

Interest incomeDirectly correlated with a specific segment.to C&I segment and Other.
Interest expense
AcquisitionsC&I and Servicing - This segment includes interest expense specifically identified to the SpringCastle Portfolio.
Consumer and Insurance and Other - The Company has securitization debtsecured and unsecured debt. The Company first allocates interest expense to its segmentsC&I segment based on actual expense for securitizations and secured term debt and using a weighted average for unsecured debt allocated to the segments.debt. Interest expense for unsecured debt is recorded to each of the segmentsC&I segment using a weighted average interest rate applied to allocated average unsecured debt. Average unsecured debt allocations for the periods presented are as follows:
Subsequent to the OneMain Acquisition
Total average unsecured debt is allocated as follows:
lOther - at 100% of asset base. (Asset base represents the average net finance receivables including finance receivables held for sale); and
lConsumer and InsuranceC&I - receives remainder of unallocated average debt.
The net effect of the change in debt allocation and asset base methodologies for 2015, had it been in place as of the beginning of the year, would be an increase in interest expense of $208 million for Consumer and Insurance and a decrease in interest expense of $208 million for Other.
For the period first quarter 2015 to the OneMain Acquisition
Total average unsecured debt was allocated to Consumer and Insurance and Other, such that the total debt allocated across each segment equaled 83% of the Consumer and Insurance asset base, and 100% of the Other 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; and
l  Other - average net finance receivables, including average net finance receivables held for sale, investments including proceeds from Real Estate sales, cash and cash equivalents, less proceeds from equity issuance in 2015 and operating cash reserve and cash included in other segments.
Provision for finance receivable lossesDirectly correlated with specificto the C&I segment except for allocations related to personal loans and retail in Other, which are based on the remaining delinquent accounts as a percentage of total delinquent accounts.Other.
Other revenuesDirectly correlated with a specificto the C&I segment except for:and Other.
l  Net gain (loss) on repurchases and repayments of debt - Allocated to each of the segments based on the interest expense allocation of debt.
l  Gains and losses on foreign currency exchange - Allocated to each of the segments based on the interest expense allocation of debt.
Other expenses
Salaries and benefits - Directly correlated with a specific segment.to C&I segment and Other. Other salaries and benefits not directly correlated with a specificthe C&I segment and Other are allocated to each of the segments based on services provided.
Other operating expenses - Directly correlated with a specific segment.to the C&I segment and Other. Other operating expenses not directly correlated with a specificto the C&I segment and Other are allocated to each of the segments based on services provided.
Insurance policy benefits and claims- Directly correlated with a specificto the C&I segment.
Acquisition-related transaction and integration expenses - Consist 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 C&I segment and Other based on services provided.




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Notes to Consolidated Financial Statements, Continued


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

•Interest income - reverses the impact of premiums/discounts on purchased finance receivables and the interest income recognition under guidance in ASC 310-20, Nonrefundable Fees and Other Costs, and ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, 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;

•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;costs and
the amortization of purchased software assets on a historical cost basis; and

•Assets - revalues assets based on their fair values at the effective date of the OneMain Acquisition and the Fortress Acquisition.



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Notes to Consolidated Financial Statements, Continued

The following tables present information about the Company’s segments,C&I and Other, as well as reconciliations to the consolidated financial statement amounts.
(dollars in millions) 
Consumer
and
Insurance
 
Acquisitions
and
Servicing
 Other (a) Eliminations Segment to
GAAP
Adjustment		 
Consolidated
Total
(dollars in millions)Consumer
and
Insurance		OtherSegment to
GAAP
Adjustment		Consolidated
Total
            
At or for the Year Ended December 31, 2017            
At or for the Year Ended December 31, 2019At or for the Year Ended December 31, 2019  
Interest income $1,213
 $—
 $23
 $—
 $5
 $1,241
Interest income$4,114  $9  $4  $4,127  
Interest expense 439
 —
 21
 —
 57
 517
Interest expense947  5  18  970  
Provision for finance receivable losses 316
 —
 7
 —
 1
 324
Provision for finance receivable losses1,105  —  24  1,129  
Net interest income (loss) after provision for finance receivable losses 458
 —
 (5) —
 (53) 400
Other revenues (b) 169
 —
 256
 —
 (18) 407
Net interest income after provision for finance receivable lossesNet interest income after provision for finance receivable losses2,062  4  (38) 2,028  
Other revenues *Other revenues *600  32  (10) 622  
Other expenses 601
 2
 11
 —
 —
 614
Other expenses1,494  39  19  1,552  
Income (loss) before income tax expense (benefit) $26
 $(2) $240
 $—
 $(71) $193
Income (loss) before income tax expense (benefit)$1,168  $(3) $(67) $1,098  
            
Assets (c) $5,107
 $—
 $5,727
 $—
 $(10) $10,824
AssetsAssets$20,705  $77  $2,035  $22,817  
At or for the Year Ended December 31, 2016            
Interest income $1,192
 $102
 $51
 $—
 $5
 $1,350
Interest expense 402
 20
 52
 —
 82
 556
Provision for finance receivable losses 305
 14
 6
 —
 4
 329
Net interest income (loss) after provision for finance receivable losses 485
 68
 (7) —
 (81) 465
Net gain on sale of SpringCastle interests —
 167
 —
 —
 —
 167
Other revenues (b) 219
 —
 179
 —
 9
 407
Other expenses 648
 16
 29
 —
 —
 693
Income before income taxes 56
 219
 143
 —
 (72) 346
Income before income tax attributable to non-controlling interests —
 28
 —
 —
 —
 28
Income before income tax expense attributable to Springleaf Finance Corporation $56
 $191
 $143
 $—
 $(72) $318
             
Assets (c) $5,494
 $—
 $4,293
 $—
 $(68) $9,719
             
At or for the Year Ended December 31, 2015            
Interest income $1,115

$455
 $76

$—
 $11
 $1,657
Interest expense 190
 87
 268
 (5) 127
 667
Provision for finance receivable losses 255
 68
 (1) —
 17
 339
Net interest income (loss) after provision for finance receivable losses 670

300
 (191)
5
 (133) 651
Other revenues 212

5
 46

(5) (15) 243
Other expenses 622

61
 50

—
 2
 735
Income (loss) before income tax expense (benefit) 260
 244
 (195) —
 (150) 159
Income before income tax attributable to non-controlling interests —
 127
 —
 —
 —
 127
Income (loss) before income tax expense (benefit) attributable to Springleaf Finance Corporation $260

$117
 $(195)
$—
 $(150) $32
             
Assets $5,632
 $1,784
 $4,830
 $—
 $(58) $12,188

At or for the Year Ended December 31, 2018  
Interest income$3,677  $17  $(36) $3,658  
Interest expense844  17  14  875  
Provision for finance receivable losses1,047  (5) 6  1,048  
Net interest income after provision for finance receivable losses1,786  5  (56) 1,735  
Other revenues *495  27  52  574  
Other expenses1,494  163  28  1,685  
Income (loss) before income tax expense (benefit)$787  $(131) $(32) $624  
Assets$17,893  $120  $2,077  $20,090  

At or for the December 31, 2017
Interest income$3,305  $23  $(132) $3,196  
Interest expense765  21  30  816  
Provision for finance receivable losses963  7  (15) 955  
Net interest income after provision for finance receivable losses1,577  (5) (147) 1,425  
Other revenues547  45  (32) 560  
Other expenses1,448  80  26  1,554  
Income (loss) before income tax expense (benefit)$676  $(40) $(205) $431  
Assets$16,955  $293  $2,185  $19,433  
*Other revenue in Other includes the gains on the February 2019 Real Estate Loan Sale and the December 2018 Real Estate Loan Sale as well as the impairment adjustments on the remaining loans in held for sale in 2019 and 2018, respectively.

132

(a)Real Estate segment has been combined with “Other” for the prior period.20. Fair Value Measurements

(b)Other revenues reported in “Other” primarily includes interest income on the Cash Services Note (previously referred to as the “Independence Demand Note”) and on SFC’s note receivable from SFI. See Note 11 for further information on the notes receivable from parent and affiliates.

(c)Assets reported in “Other” primarily includes notes receivable from parent and affiliates discussed above. See Note 11 for further information on the note receivable from parent and affiliates.


127
Table of Contents

Notes to Consolidated Financial Statements, Continued

23. 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. See Note 3 for a discussion of the accounting policies related to fair value measurements, which includes the valuation process and the inputs used to develop our fair value measurements.


The following table presents the carrying amounts and estimated fair values of our financial instruments and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used:

Fair Value Measurements UsingTotal
Fair
Value		Total
Carrying
Value
(dollars in millions)Level 1Level 2Level 3
December 31, 2019
Assets
Cash and cash equivalents$1,159  $68  $—  $1,227  $1,227  
Investment securities45  1,835  4  1,884  1,884  
Net finance receivables, less allowance for finance receivable losses—  —  19,319  19,319  17,560  
Finance receivables held for sale—  —  74  74  64  
Restricted cash and restricted cash equivalents405  —  —  405  405  
Other assets *
—  —  10  10  10  
Liabilities
Long-term debt$—  $18,509  $—  $18,509  $17,212  
December 31, 2018
Assets
Cash and cash equivalents$618  $61  $—  $679  $679  
Investment securities34  1,655  5  1,694  1,694  
Net finance receivables, less allowance for finance receivable losses—  —  16,734  16,734  15,433  
Finance receivables held for sale—  —  103  103  103  
Restricted cash and restricted cash equivalents499  —  —  499  499  
Other assets *
—  1  15  16  16  
Liabilities
Long-term debt$—  $15,041  $—  $15,041  $15,178  
*Other assets at December 31, 2019 and December 31, 2018 include miscellaneous receivables related to our liquidating loan portfolios.
  Fair Value Measurements Using 
Total
Fair
Value
 
Total
Carrying
Value
(dollars in millions) Level 1 Level 2 Level 3  
           
December 31, 2017          
Assets          
Cash and cash equivalents $240
 $4
 $—
 $244
 $244
Investment securities —
 534
 2
 536
 536
Net finance receivables, less allowance for finance receivable losses —
 —
 5,710
 5,710
 5,202
Finance receivables held for sale —
 —
 139
 139
 132
Notes receivable from parent and affiliates —
 4,488
 —
 4,488
 4,488
Restricted cash and restricted cash equivalents 169
 —
 —
 169
 169
Other assets (a) —
 11
 12
 23
 23
        

  
Liabilities       

  
Long-term debt $—
 $8,369
 $—
 $8,369
 $7,865
Other liabilities (b) —
 110
 —
 110
 110
           
December 31, 2016          
Assets          
Cash and cash equivalents $198
 $42
 $—
 $240
 $240
Investment securities —
 580
 2
 582
 582
Net finance receivables, less allowance for finance receivable losses —
 —
 5,122
 5,122
 4,755
Finance receivables held for sale —
 —
 159
 159
 153
Notes receivable from parent and affiliates —
 3,723
 —
 3,723
 3,723
Restricted cash and restricted cash equivalents 227
 —
 —
 227
 227
Other assets (a) —
 41
 34
 75
 77

          
Liabilities   

   

 

Long-term debt $—
 $7,308
 $—
 $7,308
 $6,837
Other liabilities (b) —
 13
 —
 13
 13



133
128


Notes to Consolidated Financial Statements, Continued

(a)Other assets includes commercial mortgage loans, escrow advance receivables, and receivables from parent and affiliates at December 31, 2017 and commercial mortgage loans, escrow advance receivables, receivables from parent and affiliates, and receivables related to sales of real estate loans and related trust assets at December 31, 2016.

(b) Consists of payables to parent and affiliates.

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 ValueFair Value Measurements UsingTotal Carried At Fair Value
(dollars in millions) Level 1 Level 2 Level 3 (a) (dollars in millions)Level 1Level 2Level 3 *Total Carried At Fair Value
        
December 31, 2017  
  
  
  
December 31, 2019December 31, 2019    
Assets  
  
  
  
Assets    
Cash equivalents in mutual funds $142
 $—
 $—
 $142
Cash equivalents in mutual funds$775  $—  $—  $775  
Cash equivalents in securities —
 4
 —
 4
Cash equivalents in securities—  68  —  68  
Investment securities:  
  
  
  
Investment securities:      
Available-for-sale securities  
  
  
  
Available-for-sale securities      
Bonds:  
  
  
  
U.S. government and government sponsored entities —
 17
 —
 17
U.S. government and government sponsored entities—  11  —  11  
Obligations of states, municipalities, and political subdivisions —
 70
 —
 70
Obligations of states, municipalities, and political subdivisions—  92  —  92  
Commercial paperCommercial paper—  91  —  91  
Non-U.S. government and government sponsored entities —
 4
 —
 4
Non-U.S. government and government sponsored entities—  147  —  147  
Corporate debt —
 324
 —
 324
Corporate debt5  1,093  —  1,098  
RMBS —
 35
 —
 35
RMBS—  217  —  217  
CMBS —
 23
 —
 23
CMBS—  57  —  57  
CDO/ABS —
 53
 —
 53
CDO/ABS—  85  —  85  
Total available-for-sale securitiesTotal available-for-sale securities5  1,793  —  1,798  
Other securitiesOther securities   
Bonds:Bonds:   
Non-U.S. government and government sponsored entitiesNon-U.S. government and government sponsored entities—  1  —  1  
Corporate debtCorporate debt—  23  1  24  
RMBSRMBS—  1  —  1  
CDO/ABSCDO/ABS—  12  2  14  
Total bonds —
 526
 —
 526
Total bonds—  37  3  40  
Preferred stock —
 5
 —
 5
Preferred stock14  5  —  19  
Common stockCommon stock26  —  —  26  
Other long-term investments —
 —
 1
 1
Other long-term investments—  —  1  1  
Total available-for-sale securities (b) —
 531
 1
 532
Other securities  
  
  
  
Bonds:  
  
  
  
Corporate debt —
 3
 —
 3
Total other securities —
 3
 —
 3
Total other securities40  42  4  86  
Total investment securities —
 534
 1
 535
Total investment securities45  1,835  4  1,884  
Restricted cash in mutual funds 159
 —
 —
 159
Restricted cash in mutual funds403  —  —  403  
Total $301
 $538
 $1
 $840
Total$1,223  $1,903  $4  $3,130  
(a)Due to the insignificant activity within the Level 3 assets during 2017, we have omitted the additional disclosures relating to the changes in Level 3 assets measured at fair value on a recurring basis and the quantitative information about Level 3 unobservable inputs.

(b)Excludes an immaterial interest in a limited partnership that we account for using the equity method and FHLB common stock of $1 million at December 31, 2017, which is carried at cost.


*Due to the insignificant activity within the Level 3 assets during 2019, we have omitted the additional disclosures relating to the changes in Level 3 assets measured at fair value on a recurring basis and the quantitative information about Level 3 unobservable inputs.


134
129


Notes to Consolidated Financial Statements, Continued

Fair Value Measurements UsingTotal Carried At Fair Value
(dollars in millions)Level 1Level 2Level 3 *
December 31, 2018    
Assets    
Cash equivalents in mutual funds$426  $—  $—  $426  
Cash equivalents in securities—  61  —  61  
Investment securities:    
Available-for-sale securities    
U.S. government and government sponsored entities—  21  —  21  
Obligations of states, municipalities, and political subdivisions—  90  —  90  
Certificates of deposit and commercial paper—  63  —  63  
Non-U.S. government and government sponsored entities—  143  —  143  
Corporate debt—  995  2  997  
RMBS—  128  —  128  
CMBS—  71  —  71  
CDO/ABS—  93  1  94  
Total available-for-sale securities—  1,604  3  1,607  
Other securities         
Bonds:            
Non-U.S. government and government sponsored entities—  1  —  1  
Corporate debt—  42  1  43  
RMBS—  1  —  1  
CDO/ABS—  1  —  1  
Total bonds—  45  1  46  
Preferred stock13  6  —  19  
Common stock21  —  —  21  
Other long-term investments—  —  1  1  
Total other securities34  51  2  87  
Total investment securities34  1,655  5  1,694  
Restricted cash in mutual funds482  —  —  482  
Total$942  $1,716  $5  $2,663  
*Due to the insignificant activity within the Level 3 assets during 2018, we have omitted the additional disclosures relating to the changes in Level 3 assets measured at fair value on a recurring basis and the quantitative information about Level 3 unobservable inputs.

135
  Fair Value Measurements Using Total Carried At Fair Value
(dollars in millions) Level 1 Level 2 Level 3 (a) 
         
December 31, 2016  
  
  
  
Assets  
  
  
  
Cash equivalents in mutual funds $119
 $—
 $—
 $119
Cash equivalents in securities —
 42
 —
 42
Investment securities:  
  
  
  
Available-for-sale securities  
  
  
  
Bonds:  
  
  
  
U.S. government and government sponsored entities —
 13
 —
 13
Obligations of states, municipalities, and political subdivisions —
 82
 —
 82
Non-U.S. government and government sponsored entities —
 5
 —
 5
Corporate debt —
 353
 —
 353
RMBS —
 39
 —
 39
CMBS —
 33
 —
 33
CDO/ABS —
 46
 —
 46
Total bonds —
 571
 —
 571
Preferred stock —
 6
 —
 6
Other long-term investments —
 —
 1
 1
Total available-for-sale securities (b) —
 577
 1
 578
Other securities  
  
  
  
Bonds:  
  
  
  
Corporate debt —
 2
 —
 2
CMBS —
 1
 —
 1
Total other securities —
 3
 —
 3
Total investment securities —
 580
 1
 581
Restricted cash in mutual funds 212
 —
 —
 212
Total $331

$622
 $1
 $954
(a)Due to the insignificant activity within the Level 3 assets during 2016, we have omitted the additional disclosures relating to the changes in Level 3 assets measured at fair value on a recurring basis and the quantitative information about Level 3 unobservable inputs.

(b)Excludes an immaterial interest in a limited partnership that we account for using the equity method and FHLB common stock of $1 million at December 31, 2016, which is carried at cost.

We had no transfers between Level 1 and Level 2 during 2017 and 2016.



130


Notes to Consolidated Financial Statements, Continued

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 *Impairment Charges
(dollars in millions)Level 1Level 2Level 3Total
At or for the Year Ended December 31, 2019
Assets
Finance receivables held for sale$—  $—  $64  $64  $3  
Real estate owned—  —  6  6  3  
At or for the Year Ended December 31, 2018
Assets
Finance receivables held for sale$—  $—  $103  $103  $16  
Real estate owned—  —  6  6  3  
*The fair value information presented in the table is as of the date the fair value adjustment was recorded.
  Fair Value Measurements Using *   Impairment Charges
(dollars in millions) Level 1 Level 2 Level 3 Total 
           
At or for the Year Ended December 31, 2017          
Assets          
Real estate owned $—
 $—
 $6
 $6
 $3
           
At or for the Year Ended December 31, 2016          
Assets          
Finance receivables held for sale $—
 $—
 $159
 $159
 $4
Real estate owned —
 —
 5
 5
 2
Total $—
 $—
 $164
 $164
 $6
*The fair value information presented in the table is as of the date the fair value adjustment was recorded.


We wrote down certain finance receivables held for sale reported in our Other segment to their fair value during the second quarter of 20162019 and 2018 and recorded the writedownsimpairment in other revenues.

We wrote down certain real estate owned reported in our Other segment to their fair value less cost to sell during 2017 See Note 7 regarding the impairment losses recorded on the February 2019 and 2016 and recorded the writedowns in other revenues.December 2018 Real Estate Loan Sales. 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.


The inputs and quantitative data used in our Level 3 valuations for our real estate owned are unobservable primarily due to the unique nature of specific real estate assets. Therefore, we used independent third-partythird 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 December 31, 20172019 and 20162018 was as follows:

December 31, 2019December 31, 2018
Valuation Technique(s)Unobservable InputRangeWeighted AverageRangeWeighted Average
Finance receivables held for saleIncome approachDiscount Rate4.17% - 8.50%6.36 %4.23% - 8.00%5.72 %
Default Rate15.00% - 65.00%36.36 %13.50% - 70.00%43.13 %
Real estate ownedMarket approachThird Party Valuation****
*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.
Range (Weighted Average)
Valuation Technique(s)Unobservable InputDecember 31, 2017December 31, 2016
Finance receivables held for saleIncome approachMarket value for similar type loan transactions to obtain a price point**
Real estate ownedMarket approachThird-party valuation**

*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.











136
131


Notes to Consolidated Financial Statements, Continued

FAIR VALUE MEASUREMENTS — VALUATION METHODOLOGIES AND ASSUMPTIONS


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


Cash and Cash Equivalents


Cash equivalents in mutual funds include positions in money market funds with weighted average maturity of less than 90 days. Money market funds are reported at their current carrying value, which approximates fair value due to the short-term nature of these instruments and are categorized as Level 1 within the fair value table.

Cash equivalents in securities includes highly liquid investments with a maturity of less than 90 days at purchase. The carrying amount of cash and cash equivalents, including cash and certainthese cash equivalents approximates fair value.

Mutual Funds

Thevalue due to the short time between the purchase and expected maturity of these securities. Cash equivalents in securities are categorized as Level 2 within the fair value of mutual funds is based on quoted market prices of the underlying shares held in the mutual funds.table.


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 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, for both non-impaired and purchased credit impaired finance receivables, is 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 Restricted Cash Equivalents


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




137
132


Notes to Consolidated Financial Statements, Continued

Notes Receivable from Parent and Affiliates

The carrying amount of the notes receivable from parent and affiliates approximates the fair value because the notes are payable on a demand basis prior to their due dates and the interest rates on these notes adjust with changing market interest rates.

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 from Parent and Affiliates

The carrying amount of receivables from parent and affiliates 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.


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 December 31, 2017,2019, we had no0 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.

Payables to Parent and Affiliates

The fair value of payable to parent and affiliates approximates the carrying value due to its short-term nature.




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Table of Contents

Notes to Consolidated Financial Statements, Continued

21. Selected Quarterly Financial Data (Unaudited)
24. Subsequent Events    

Apollo-Värde Transaction

On January 3, 2018, the Apollo-Värde Group entered into a Share Purchase Agreement with the Initial Stockholder and OMH to acquire 54,937,500 shares or approximately 40.6% of the outstanding shares of OMH common stock from the Initial Stockholder, representing the entire holdings of OMH stock beneficially owned by Fortress. This transaction is expected to close in the second quarter of 2018 and is subject to regulatory approvals and other customary closing conditions.

25. Selected Quarterly Financial Data (Unaudited)    

OurOMH's selected quarterly financial data for 20172019 was as follows:
(dollars in millions, except per share amounts)Fourth
Quarter		Third
Quarter		Second
Quarter		First
Quarter
Interest income$1,107  $1,065  $1,000  $956  
Interest expense252  244  238  236  
Provision for finance receivable losses293  282  268  286  
Net interest income after provision562  539  494  434  
Other revenues162  156  156  148  
Other expenses380  398  394  380  
Income before income taxes344  297  256  202  
Income taxes83  49  62  50  
Net income$261  $248  $194  $152  
Earnings per share:
Basic$1.92  $1.82  $1.43  $1.12  
Diluted1.91  1.82  1.42  1.11  
Note: Year-to-Date may not sum due to rounding
(dollars in millions) 
Fourth
Quarter
 
Third
Quarter
 
Second
Quarter
 
First
Quarter
         
Interest income $328
 $310
 $306
 $297
Interest expense 128
 133
 129
 127
Provision for finance receivable losses 92
 70
 91
 71
Other revenues 99
 115
 87
 106
Other expenses 138
 154
 160
 162
Income before income taxes 69
 68
 13
 43
Income taxes 48
 30
 5
 16
Net income $21
 $38
 $8
 $27



OurOMH's selected quarterly financial data for 20162018 was as follows:
(dollars in millions, except per share amounts)Fourth
Quarter		Third
Quarter		Second
Quarter		First
Quarter
Interest income$958  $933  $905  $862  
Interest expense229  227  220  200  
Provision for finance receivable losses278  256  260  254  
Net interest income after provision451450425408
Other revenues153  144  140  137  
Other expenses390  395  522  377  
Income before income taxes214  199  43  168  
Income taxes46  51  36  44  
Net income$168  $148  $7  $124  
Earnings per share:
Basic$1.24  $1.09  $0.05  $0.91  
Diluted1.24  1.09  0.05  0.91  
Note: Year-to-Date may not sum due to rounding.
(dollars in millions) 
Fourth
Quarter
 
Third
Quarter
 
Second
Quarter
 
First
Quarter
         
Interest income $303
 $303
 $313
 $431
Interest expense 127
 135
 138
 156
Provision for finance receivable losses 66
 87
 85
 91
Other revenues 105
 107
 106
 256
Other expenses 170
 155
 177
 191
Income before income taxes 45
 33
 19
 249
Income taxes 12
 10
 6
 85
Net income 33
 23
 13
 164
Net income attributable to non-controlling interests —
 —
 —
 28
Net income attributable to Springleaf Finance Corporation $33
 $23
 $13
 $136




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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.    


None.


Item 9A. Controls and Procedures.    
Item 9A. Controls and Procedures.


CONTROLS AND PROCEDURES OF ONEMAIN HOLDINGS, INC.


Evaluation of Disclosure Controls and Procedures


Disclosure controls and procedures are designed to provide reasonable assurance that information we areOMH is required to disclose in reports that we fileOMH files or submitsubmits under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including ourthe Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.


As of December 31, 2017, we2019, OMH carried out an evaluation of the effectiveness of ourits disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This evaluation was conducted under the supervision of, and with the participation of ourOMH’s management, including ourthe Chief Executive Officer and ourthe Chief Financial Officer. Based on ourthe evaluation, ourthe Chief Executive Officer and ourthe Chief Financial Officer concluded that ourOMH's disclosure controls and procedures were effective as of December 31, 2017,2019 to provide the reasonable assurance described above.


Management’s Report on Internal Control over Financial Reporting


OurOMH's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, and has conducted an evaluation of the effectiveness of ourits internal control over financial reporting as of December 31, 2017,2019, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control - Integrated Framework” (2013). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Based on this evaluation, ourOMH's management concluded that ourOMH's internal control over financial reporting was effective as of December 31, 2017.2019.


PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements as of December 31, 2019 included in this Annual Report on Form 10-K, has also audited the effectiveness of OMH's internal control over financial reporting as of December 31, 2019. The Report of Independent Registered Public Accounting Firm is included in Item 8 of this report.

Changes in Internal Control over Financial Reporting


There were no changes in ourOMH's internal control over financial reporting during the fourth quarter of 2017,2019 that have materially affected, or are reasonably likely to materially affect, ourOMH's internal control over financial reporting.

Item 9B. Other Information.    

None.


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135


CONTROLS AND PROCEDURES OF SPRINGLEAF FINANCE CORPORATION

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that information SFC is required to disclose in reports that SFC files or submits under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of December 31, 2019, SFC carried out an evaluation of the effectiveness of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This evaluation was conducted under the supervision of, and with the participation of SFC’s management, including the Chief Executive Officer and the Chief Financial Officer. Based on the evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that SFC's disclosure controls and procedures were effective as of December 31, 2019 to provide the reasonable assurance described above.

Management’s Report on Internal Control over Financial Reporting

SFC's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, and has conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2019, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control - Integrated Framework” (2013). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Based on this evaluation, SFC's management concluded that SFC's internal control over financial reporting was effective as of December 31, 2019.

Changes in Internal Control over Financial Reporting

There were no changes in SFC's internal control over financial reporting during the fourth quarter of 2019 that have materially affected, or are reasonably likely to materially affect, SFC's internal control over financial reporting.


141

Item 9B. Other Information.

Apollo-Värde Group Margin Loan Agreements

As of December 16, 2019, the Apollo-Värde Group informed OMH that it has undertaken to pledge all of its 54,937,500 shares of OMH’s common stock pursuant to margin loan agreements and related documentation on a non-recourse basis. The Apollo-Värde Group further informed OMH that the loan to value ratio in connection with the loans on January 30, 2020 was equal to approximately 21.45%. The Apollo-Värde Group informed OMH that the margin loan agreements contain customary default provisions, and in the event of an event of default under the loan agreements, the lenders thereunder may foreclose upon any and all shares of OMH’s common stock pledged to them.

When the margin loan agreements were entered into, OMH delivered letter agreements to the lenders in which it has, among other things, made certain representations and warranties and has agreed, subject to certain exceptions, not to take any actions that are intended to hinder or delay the exercise of any remedies by the secured parties under the margin loan agreements and related documentation. Except for the foregoing, OMH is not a party to the margin loan agreements and related documentation and does not have, and will not have, any obligations thereunder.

Consulting Agreement

On December 2, 2019, OMH announced that John C. Anderson would be retiring from the Company in 2020. On February 13, 2020, OMH and one of its subsidiaries entered into a Consulting and Separation Agreement and Release (the “Consulting Agreement”) with Mr. Anderson. The Consulting Agreement provides that Mr. Anderson will serve as a consultant to the Company from February 22, 2020 through June 30, 2020, subject to earlier termination under certain circumstances. The consulting fee is $225,000, plus authorized expense reimbursements.

The Consulting Agreement also provides for a lump sum separation payment totaling $825,000, payable on June 30, 2020, provided that Mr. Anderson complies with the terms of the Consulting Agreement, which includes a release of claims and certain restrictive covenants.
142

PART III


Item 10. Directors, Executive Officers and Corporate Governance.

The information required by Item 10.10 with respect to executive officers is incorporated by reference to the information presented in the section captioned “Executive Officers” in OMH’s definitive proxy statement for the 2020 Annual Meeting of Shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days of OMH’s fiscal year-end (the “Proxy Statement”).

Information required by Item 10 for matters other than executive officers is incorporated by reference to the information presented in the sections captioned “Board of Directors, Executive Officers” “Proposal 1: Election of Directors,” “Corporate Governance” and Corporate Governance.    

Intentionally omitted in accordance with General Instruction I (2)(c) of Form 10-K.

Item 11. Executive Compensation.    

Intentionally omitted in accordance with General Instruction I (2)(c) of Form 10-K.

Item 12. Security“Security Ownership of Certain Beneficial Owners and Management - "Delinquent Section 16(a) Reports” in the Proxy Statement.

Item 11. Executive Compensation.

The information required by Item 11 is incorporated by reference to the information presented in the sections captioned “Board
of Directors - Committees of the Board of Directors” and Related Stockholder Matters.    “Executive Compensation” in the Proxy Statement.

Intentionally omitted
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by Item 12 is incorporated by reference to the information presented in accordance with General Instruction I (2)(c)the sections captioned “Security Ownership of Form 10-K.Certain Beneficial Owners and Management” and “Executive Compensation - Equity Compensation Plan Information” in the Proxy Statement.


Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by Item 13 is incorporated by reference to the information presented in the sections captioned “Certain Relationships and Related Transactions,Party Transactions” and Director Independence.    “Board of Directors” in the Proxy Statement.

Intentionally omitted
Item 14. Principal Accounting Fees and Services.

The information required by Item 14 is incorporated by reference to the information presented in accordance with General Instruction I (2)(c) of Form 10-K.the section captioned “Audit Function” in the Proxy Statement.

Item 14. Principal Accounting Fees and Services.    

OMH’s Audit Committee pre-approves all audit and non-audit services provided by our independent accountants, PricewaterhouseCoopers LLP.

During 2017, we recorded $6 million of audit fees and $11 million for 2016, which were primarily for the audit of SFC’s Annual Reports on Form 10-K, quarterly review procedures in relation to SFC’s Quarterly Reports on Form 10-Q, statutory audits of insurance subsidiaries of SFC, and audits of other subsidiaries of SFC.



143
136


PART IV


Item 15. Exhibits and Financial Statement Schedules.    

(a)(1) The following consolidated financial statements of Springleaf Finance CorporationItem 15. Exhibits and its subsidiaries are included in Part II - Item 8:Financial Statement Schedules.

(a)(1) The following consolidated financial statements of OneMain Holdings, Inc. and Springleaf Finance Corporation and their subsidiaries are included in Part II - Item 8:

Consolidated Balance Sheets, December 31, 20172019 and 20162018
Consolidated Statements of Operations, years ended December 31, 2017, 2016,2019, 2018, and 20152017
Consolidated Statements of Comprehensive Income (Loss), years ended December 31, 2017, 2016,2019, 2018, and 20152017
Consolidated Statements of Shareholder’sShareholders’ Equity, years ended December 31, 2017, 2016,2019, 2018, and 20152017
Consolidated Statements of Cash Flows, years ended December 31, 2017, 2016,2019, 2018, and 20152017
Notes to the Consolidated Financial Statements


(2) Financial Statement Schedules:


The financial statementAll other schedules have been omitted because they are either not required or inapplicable.


(3) Exhibits:

Exhibits are listed in the Exhibit Index below.


(b)
Exhibits

(b) Exhibits

The exhibits required to be included in this portion of Part IV - Item 15(b) are listed in the Exhibit Index to this report.


Item 16. Form 10-K Summary.    

Item 16. Form 10-K Summary.

None.




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137


Exhibit Index    

Exhibit Index

Exhibit
2.1*
Exhibit
2.2*
2.1*2.3*
2.4*
2.5
3.1
3.2
3.3
3.23.4
3.5
3.6
Certain instruments defining the rights of holders of long-term debt securities of the Company are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company hereby undertakes to furnish to the SEC, upon request, copies of any such instruments.
4.1
4.2
4.3
Indenture, dated as of September 24, 2013, between Springleaf Finance Corporation and Wilmington Trust, National Association, as trustee. Incorporated by reference to Exhibit 4.1 to ourSpringleaf Finance Corporation’s (File No. 1-06155) Current Report on Form 8-K filed on September 25, 2013.
4.44.3
145

Table of Contents
Exhibit
4.54.4
4.5.14.4.1
4.5.2
Second Supplemental Indenture, dated as of April 11, 2016, by and among Springleaf Finance Corporation, OneMain Holdings, Inc., as Guarantor, and Wilmington Trust, National Association, as Trustee.Trustee (including the form of 8.250% Senior Notes due 2020 included therein as Exhibit A). Incorporated by reference to Exhibit 4.1 toour Current Report on Form 8-K filed on April 11, 2016.
4.5.34.4.2
4.5.44.4.3


138

4.4.4
Exhibit
4.4.5
104.4.6
4.4.7
4.4.8
4.5
10.1
10.2**
10.2.1**
10.2.2**
10.2.3**
10.2.4**
10.2.5**
146

Table of Contents
Exhibit
10.2.6**
10.2.7**
10.3**
10.4**
10.5**
10.6**
10.7**
10.7.1**
10.8
10.8.1
10.9
10.10
10.210.11
10.3
Guaranty, dated as of December 30, 2013, by OneMain Holdings, Inc. (formerly Springleaf Holdings, Inc.) in respect of Springleaf Finance Corporation’s 60-year junior subordinated debentures. Incorporated by reference to Exhibit 10.5 to OneMain Holdings, Inc.’s (formerly Springleaf Holdings, Inc.) (File No. 1-36129)OMH’s Current Report on Form 8-K filed on January 3, 2014.2014 (File No. 001-36129).
10.410.12
12.121.1
23.1
23.2
31.1
31.2
147

Table of Contents
Exhibit
31.3
31.231.4
32.1
101
32.2
101 
Interactive data files pursuant to Rule 405 of Regulation S-T:S-T, formatted in Inline XBRL:
   (i) Consolidated Balance Sheets,
   (ii) Consolidated Statements of Operations,
   (iii) Consolidated Statements of Comprehensive Income, (Loss),
   (iv) Consolidated Statements of Shareholder’s Equity,
   (v) Consolidated Statements of Cash Flows, and
   (vi) Notes to the Consolidated Financial Statements.
104 Cover Page Interactive Data File in Inline XBRL format (Included in Exhibit 101).

*Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon request.



* Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon request.

** Management contract or compensatory plan or arrangement.


148
139


OMH Signatures
Signatures    


Pursuant to the requirements of Section 13 or 15(d) 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, on February 21, 2018.14, 2020.


ONEMAIN HOLDINGS, INC.
SPRINGLEAF FINANCE CORPORATION
By:
/s/By:/s/Micah R. Conrad
Micah R. Conrad
(Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 21, 2018.14, 2020.


/s/Jay N. LevineDouglas H. Shulman/s/Peter B. Sinensky
Jay N. LevineDouglas H. ShulmanPeter B. Sinensky
(President, Chief Executive Officer, and Director —
Principal Executive Officer)		(Director)
/s/Micah R. Conrad/s/Marc E. Becker
Micah R. ConradMarc E. Becker
   
/s/Micah R. Conrad
Micah R. Conrad
(Executive(Executive Vice President and Chief Financial Officer — Principal Financial Officer)(Director)
/s/Michael A. Hedlund/s/Aneek S. Mamik
Michael A. HedlundAneek S. Mamik
(Senior Vice President and Group Controller

— Principal Accounting Officer)
(Director)
/s/John C. AndersonJay N. Levine/s/Valerie Soranno Keating
John C. AndersonJay N. LevineValerie Soranno Keating
(Chairman of the Board and Director)(Director)
/s/Roy A. Guthrie/s/Richard A. Smith
Roy A. GuthrieRichard A. Smith
(Director)(Director)
/s/Matthew R. Michelini
Matthew R. Michelini
(Director)



149


SFC Signatures

Pursuant to the requirements of Section 13 or 15(d) 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, on February 14, 2020.

SPRINGLEAF FINANCE CORPORATION
(Registrant)
By:/s/ Micah R. Conrad
Micah R. Conrad
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 14, 2020.

/s/ Richard N. Tambor
Richard N. Tambor
(President, Chief Executive Officer, and Director —
Principal Executive Officer)
/s/Micah R. Conrad
Micah R. Conrad
(Executive Vice President, Chief Financial Officer, and
Director — Principal Financial Officer)
/s/Adam L. Rosman
Adam L. Rosman
(Executive Vice President and Director)
/s/Scott T. ParkerMichael A. Hedlund
Scott T. ParkerMichael A. Hedlund
(Director)(Senior Vice President and Group Controller
— Principal Accounting Officer)





140