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

FORM 10-Q

(Mark One)
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended SeptemberJune 30, 20172020

OR

¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period fromto

Commission file number 1-06155

001-36129 (OneMain Holdings, Inc.)
SPRINGLEAF001-06155 (OneMain Finance Corporation)

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


IndianaDelaware (OneMain Holdings, Inc.)35-041609027-3379612
Indiana (OneMain Finance Corporation)35-0416090
(State of Incorporation)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)


*SPRINGLEAF FINANCE CORPORATION
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Securities 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
OneMain Finance Corporation: None


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

OneMain 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☐

OneMain Finance Corporation      Yes ☑ No ☐



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
OneMain Holdings, Inc.:
Large accelerated filero☑
Accelerated filero
☐
Non-accelerated filerþ
☐
Smaller reporting companyo
☐
Emerging growth companyo☐
OneMain 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.      ☐
OneMain 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☑

OneMain Finance Corporation     Yes ☐ No ☑

At October 31, 2017,July 23, 2020, there were 134,322,410 shares of OneMain Holdings, Inc’s common stock, $0.01 par value, outstanding.
At July 23, 2020, there were 10,160,021 shares of the registrant’sOneMain Finance Corporation’s common stock, $0.50 par value, outstanding.

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TABLE OF CONTENTS



TABLE OF CONTENTS

4
3
PART I — FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
67
Condensed Consolidated Statements of Operations
78
Condensed Consolidated Statements of Comprehensive Income
89
Condensed Consolidated Statements of Shareholders’ Equity
10
Condensed Consolidated Statements of Cash Flows
11
Condensed Consolidated Balance Sheets
12
Condensed Consolidated Statements of Operations
13
Condensed Consolidated Statements of Comprehensive Income
14
Condensed Consolidated Statements of Shareholder’s Equity
915
Condensed Consolidated Statements of Cash Flows
1016
1118
4544
6668
6669
Controls and Procedures of OneMain Holdings, Inc.
69
Controls and Procedures of OneMain Finance Corporation
69
6770
6770
6772
6772
6772
6772
6773
6874
75



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Table of Contents


GLOSSARY

Terms and abbreviations used in this report are defined below.
Term or AbbreviationDefinition
Term or AbbreviationDefinition
1999 IndentureIndenture dated as of May 1, 1999 between SFC and Wilmington
2014-A Notesasset-backed notes issued in March 2014 by the Springleaf Funding Trust 2014-A
20162019 Annual Report on Form

10-K
Combined OMH and OMFC Annual Report on Form 10-K for the fiscal year ended December 31, 20162019, filed with the SEC on February 14, 2020
2022 SFC Notes$500 million of 6.125% Senior Notes due 2022 issued by SFC on May 15, 2017 and guaranteed by OMH
30-89 Delinquency rationet finance receivables 30-89 days past due as a percentage of net finance receivables
5.25% SFC Notes$700 million of 5.25%
8.25% Senior Notes due 2019 issued by SFC on December 3, 2014 and guaranteed by OMH
6.125% SFC Notes2020collectively, the 2022 SFC Notes and the Additional SFC Notes
8.25% SFC Notes$1.0 billion of 8.25% Senior Notes due 2020 issued by SFCOMFC on April 11, 2016 and guaranteed by OMH
ABSasset-backed securities
Additional SFC Notes$500 million of 6.125%8.875% Senior Notes due 20222025$600 million of 8.875% Senior Notes due 2025 issued by SFCOMFC on May 30, 201714, 2020 and guaranteed by OMH
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
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 net gain on salekey performance measure of SpringCastle interests, SpringCastle transaction costs, and losses resulting from repurchases and repayments of debtour segment
AHLAETRannual effective tax rate
AHLAmerican Health and Life Insurance Company, an insurance subsidiary of OneMain Financial Holdings, LLC
ASC
ApolloApollo Global Management, LLC and its consolidated subsidiaries
Apollo-Värde Groupan investor group led by funds managed by Apollo and Värde
Apollo-Värde Transactionthe purchase by the Apollo-Värde Group of 54,937,500 shares of OMH common stock from SFH pursuant to the Share Purchase Agreement for an aggregate purchase price of approximately $1.4 billion in cash on June 25, 2018
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
Blackstonecollectively, BTO Willow Holdings II, L.P. and Blackstone Family Tactical Opportunities Investment Partnership—NQ—ESC L.P.
Cash Services NoteBase Indenturenew intercompany demand note issued to CSI in exchange for the Independence Demand Note in connection with the Note AssignmentOMFC Indenture, dated as of December 3, 2014
CDOCARES ActCoronavirus Aid, Relief, and Economic Security Act signed into law by President Trump on March 27, 2020
C&IConsumer and Insurance
CDOcollateralized debt obligations
CFPBConsumer Financial Protection Bureau
CMBS
CMBScommercial mortgage-backed securities
CSISpringleaf Financial Cash Services, Inc.
Dodd-Frank Act
COVID-19the Dodd-Frank Wall Street Reform and Consumer Protection Actglobal outbreak of a novel strain of coronavirus
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 BankOMFC 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
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 LSALoan and Security Agreement, dated September 29, 2017, among Fourth Avenue Auto Funding, LLC, certain third party lenders and other third parties pursuant to which Fourth Avenue Auto Funding, LLC may borrow up to $250 million

3



Term or AbbreviationGAAPDefinition
GAAPgenerally accepted accounting principles in the United States of America
GAPguaranteed asset protection
Gross charge-off ratioannualized gross charge-offs as a percentage of average net receivables
Indenture
Guaranty Agreementsagreements entered into on December 30, 2013 by OMH whereby it agreed to fully and unconditionally guarantee the SFCpayments of principal, premium (if any), and interest on the Other Notes, and the 6.00% Senior Notes due 2020, which were redeemed in full on April 15, 2019
Indenturethe Base Indenture, together with the SFC Thirdall subsequent Supplemental IndentureIndentures
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 StockholderIRSSpringleaf Financial Holdings, LLCInternal Revenue Service
Junior Subordinated Debenture$350 million aggregate principal amount of 60-year junior subordinated debt issued by SFCOMFC under an indenture dated January 22, 2007, by and between SFCOMFC and Deutsche Bank Trust Company, as trustee, and guaranteed by OMH
Lendmark Salethe sale of 127 Springleaf branches to Lendmark Financial Service, LLC, effective April 30, 2016
LIBORLondon Interbank Offered Rate
Logan CircleLogan Circle Partners, L.P.
Merit
MeritMerit Life Insurance Co., a former insurance subsidiary of OMFC. In the fourth quarter of 2019, the Company sold all of the issued and outstanding shares in Merit to a third party
MetLifeMetLife, Inc.
Moody’sMoody’s Investors Service, Inc.
Mystic River Funding LSALoan 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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Table of Contents
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 Assignmentan 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
NRZODARTNew Residential Investment Corp.
OCLIOneMain Consumer Loan, Inc.
ODARTOneMain Direct Auto Receivables Trust
OGSCOneMain General Services Corporation, successor to SGSC and SFMC
OMASOneMain Assurance Services, LLC
OMFH
OMFCOneMain Finance Corporation (formerly Springleaf Finance Corporation)
OMFITOneMain Financial Issuance Trust
OMHOneMain Holdings, Inc.
OneMain AcquisitionAcquisition of OneMain Financial Holdings, LLC
OMFH Notenew intercompany demand note issued to OMFH in exchange for the Independence Demand Note (in addition to the Cash Services Note) in connection with the Note Assignment
OMHOneMain Holdings, Inc.
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,the 8.25% Senior Notes due 2023 and the 7.75% Senior Notes due 2021, on a senior unsecured basis, and the Junior Subordinated Debenture, on a junior subordinated basis, issued by SFCOMFC and guaranteed by OMH
Pretax capital generationa non-GAAP financial measure used by management as a key performance measure of our segment, defined as adjusted pretax income (loss) excluding the change in allowance for finance receivable losses
Recovery ratioannualized recoveries on net charge-offs as a percentage of average net receivables
Retail sales financecollectively, retail sales contracts and revolving retail accounts
RMBS
RMBSresidential mortgage-backed securities
SCP LoansRSAspurchased credit impaired loans acquired through the SpringCastle Joint Venturerestricted stock awards
SECRSUsrestricted stock units
SCLHSpringleaf 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
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

4



SFCSpringleaf Finance Corporation (as of July 1, 2020, SFC has been renamed to OMFC)
Term or AbbreviationDefinition
SFC
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
SFISpringleaf Finance, CorporationInc.
SFC Base IndentureIndenture dated as of December 3, 2014
SFC First Supplemental IndentureShare Purchase Agreementsupplemental indenture dated as of December 3, 2014, 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
SFC Second Supplemental Indenturesupplemental indenture dated as of April 11, 2016, to the SFC Base Indenture
SFC Third Supplemental Indenturesupplemental indenture dated as of May 15, 2017, to the SFC Base Indenture
SFC Trust Guaranty Agreementa share purchase agreement entered into on December 30, 2013January 3, 2018, among the Apollo-Värde Group, SFH and the Company to acquire from SFH 54,937,500 shares 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 OMH whereby it agreed to fully and unconditionally guarantee the related payment obligations under the trust preferred securities in connection with the Junior Subordinated DebentureFortress
SFISLFTSpringleaf Finance, Inc.
SFMCSpringleaf Finance Management Corporation
SGSCSpringleaf General Services Corporation
SLFTSpringleaf Funding Trust
SMHCSpringleaf Mortgage Holding Company and subsidiaries
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 VenturePortfoliojoint venture among SpringCastle America, LLC, SpringCastle Credit, LLC, SpringCastle Finance, LLC, and SpringCastle Acquisition LLC in which SpringCastle Holdings, LLCloans the Company previously owned and now services on behalf of a 47% equity interest in each of SpringCastle America, LLC, SpringCastle Credit, LLC and SpringCastle Finance, LLC and Springleaf Acquisition Corporation previously owned a 47% equity interest in SpringCastle Acquisition LLCthird party
SpringCastle Portfolioloans acquired through the SpringCastle Joint Venture
Tangible equitytotal equity less accumulated other comprehensive income or loss
Tangible managed assetstotal assets less goodwill and other intangible assets
Supplemental Indenturescollectively, the following supplements to the Base Indenture: First Supplemental Indenture, dated as of December 3, 2014; Second Supplemental Indenture, dated as of April 11, 2016; Third Supplemental Indenture, dated as of May 15, 2017; Fourth Supplemental Indenture, dated as of December 8, 2017; Fifth Supplemental Indenture, dated as of March 12, 2018; Sixth Supplemental Indenture, dated as of May 11, 2018; Seventh Supplemental Indenture, dated as of February 22, 2019; Eighth Supplemental Indenture, dated as of May 9, 2019; Ninth Supplemental Indenture, dated as of November 7, 2019; and Tenth Supplemental Indenture, dated as of May 14, 2020
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 LSALoan 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 million
TritonTenth Supplemental IndentureTenth Supplemental Indenture, dated as of May 14, 2020, to the Base Indenture
TritonTriton Insurance Company, an insurance subsidiary of OneMain Financial Holdings, LLC
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
UPBUnearned finance chargesthe 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
5

Table of Contents
Term or AbbreviationDefinition
UPBunpaid principal balance for interest bearing accounts and the gross remaining contractual payments less the unaccreted balance of unearned finance charges for precompute accounts
VFNVärdevariable funding notesVärde Partners, Inc.
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



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Table of Contents


PART I — FINANCIAL INFORMATION


Item 1. Financial Statements.    
Item 1. Financial Statements.


SPRINGLEAF FINANCE CORPORATIONONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)

(dollars in millions, except par value amount)June 30,
2020		December 31, 2019
Assets  
Cash and cash equivalents$2,740  $1,227  
Investment securities (includes available-for-sale securities with a fair value of $1.8 billion and
    amortized cost basis of $1.7 billion in 2020)
1,862  1,884  
Net finance receivables (includes loans of consolidated VIEs of $8.9 billion in 2020 and $8.4 billion
    in 2019)
17,721  18,389  
Unearned insurance premium and claim reserves(791) (793) 
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $1.1 billion in
    2020 and $340 million in 2019)
(2,324) (829) 
Net finance receivables, less unearned insurance premium and claim reserves and allowance for
finance receivable losses		14,606  16,767  
Restricted cash and restricted cash equivalents (includes restricted cash and restricted cash equivalents
    of consolidated VIEs of $459 million in 2020 and $400 million in 2019)
487  405  
Goodwill1,422  1,422  
Other intangible assets324  343  
Other assets1,067  769  
Total assets$22,508  $22,817  
Liabilities and Shareholders’ Equity  
Long-term debt (includes debt of consolidated VIEs of $7.8 billion in 2020 and $7.6 billion in 2019)$18,010  $17,212  
Insurance claims and policyholder liabilities630  649  
Deferred and accrued taxes124  34  
Other liabilities (includes other liabilities of consolidated VIEs of $15 million in 2020 and $14 million
    in 2019)
573  592  
Total liabilities19,337  18,487  
Contingencies (Note 14)
Shareholders’ equity:  
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized, 134,319,171 and 136,101,156 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively1  1  
Additional paid-in capital1,648  1,689  
Accumulated other comprehensive income65  44  
Retained earnings1,457  2,596  
Total shareholders’ equity3,171  4,330  
Total liabilities and shareholders’ equity$22,508  $22,817  
(dollars in millions, except par value amount) September 30,
2017		 December 31,
2016
     
Assets  
  
Cash and cash equivalents $402
 $240
Investment securities 577
 582
Net finance receivables:  
  
Personal loans (includes loans of consolidated VIEs of $3.4 billion in 2017 and $2.9 billion in 2016) 5,122
 4,804
Real estate loans 133
 144
Retail sales finance 7
 11
Net finance receivables 5,262
 4,959
Unearned insurance premium and claim reserves (139) (212)
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $117 million in 2017 and $94 million in 2016) (223) (204)
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance receivable losses 4,900
 4,543
Finance receivables held for sale 137
 153
Notes receivable from parent and affiliates 4,305
 3,723
Restricted cash and restricted cash equivalents (includes restricted cash and restricted cash equivalents of consolidated VIEs of $167 million in 2017 and $211 million in 2016) 178
 227
Other assets 151
 251
     
Total assets $10,650
 $9,719
     
Liabilities and Shareholder’s Equity  
  
Long-term debt (includes debt of consolidated VIEs of $3.1 billion in 2017 and $2.7 billion in 2016) $7,598
 $6,837
Insurance claims and policyholder liabilities 283
 248
Deferred and accrued taxes 119
 106
Other liabilities (includes other liabilities of consolidated VIEs of $5 million in 2017 and 2016) 265
 185
Total liabilities 8,265
 7,376
Commitments and contingent liabilities (Note 14) 

 

     
Shareholder’s equity:  
  
Common stock, par value $.50 per share; 25,000,000 shares authorized, 10,160,021 shares issued and outstanding at September 30, 2017 and December 31, 2016 5
 5
Additional paid-in capital 799
 799
Accumulated other comprehensive loss —
 (7)
Retained earnings 1,581
 1,546
Total shareholder’s equity 2,385
 2,343
     
Total liabilities and shareholder’s equity $10,650
 $9,719


See Notes to the Condensed Consolidated Financial Statements.


Statements (Unaudited).
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SPRINGLEAF FINANCE CORPORATIONONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in millions, except per share amounts)2020201920202019
Interest income$1,077  $1,000  $2,184  $1,955  
Interest expense271  238  527  473  
Net interest income806  762  1,657  1,482  
Provision for finance receivable losses423  268  954  554  
Net interest income after provision for finance receivable losses383  494  703  928  
Other revenues:    
Insurance109  114  226  224  
Investment29  24  38  50  
Net loss on repurchase and repayment of debt—  (12) —  (33) 
Net gain on sale of real estate loans—  —  —  3  
Other10  30  25  60  
Total other revenues148  156  289  304  
Other expenses:    
Salaries and benefits184  204  383  404  
Other operating expenses139  140  291  276  
Insurance policy benefits and claims90  50  157  94  
Total other expenses413  394  831  774  
Income before income taxes118  256  161  458  
Income taxes29  62  40  112  
Net income$89  $194  $121  $346  
Share Data:    
Weighted average number of shares outstanding:    
Basic134,316,252  136,083,993  135,112,676  136,043,221  
Diluted134,379,576  136,248,813  135,260,396  136,220,274  
Earnings per share:    
Basic$0.66  $1.43  $0.90  $2.54  
Diluted$0.66  $1.42  $0.90  $2.54  
(dollars in millions) Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017
2016
   
    
  
Interest income:        
Finance charges $307
 $296
 $903
 $976
Finance receivables held for sale originated as held for investment 3
 7
 10
 71
Total interest income 310
 303
 913
 1,047
         
Interest expense 133
 135
 389
 429
         
Net interest income 177
 168
 524
 618
         
Provision for finance receivable losses 70
 87
 232
 263
         
Net interest income after provision for finance receivable losses 107
 81
 292
 355
         
Other revenues:  
  
  
  
Insurance 37
 43
 114
 122
Investment 9
 8
 23
 22
Interest income on notes receivable from parent and affiliates 70
 56
 191
 158
Net loss on repurchases and repayments of debt (1) —
 (28) (16)
Net gain on sale of SpringCastle interests —
 —
 —
 167
Net gain (loss) on sales of personal and real estate loans —
 (4) —
 18
Other —
 4
 8
 (2)
Total other revenues 115
 107
 308
 469
         
Other expenses:  
  
  
  
Operating expenses:  
  
  
  
Salaries and benefits 73
 81
 229
 263
Other operating expenses 66
 67
 198
 221
Insurance policy benefits and claims 15
 7
 49
 39
Total other expenses 154
 155
 476
 523
         
Income before income taxes 68
 33
 124
 301
         
Income taxes 30
 10
 51
 101
         
Net income 38
 23
 73
 200
         
Net income attributable to non-controlling interests —
 —
 —
 28
         
Net income attributable to Springleaf Finance Corporation $38
 $23
 $73
 $172


See Notes to the Condensed Consolidated Financial Statements.


Statements (Unaudited).
7
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SPRINGLEAF FINANCE CORPORATIONONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in millions)2020201920202019
   
Net income$89  $194  $121  $346  
Other comprehensive income:    
Net change in unrealized gains on non-credit impaired available-for-sale securities87  36  32  75  
Foreign currency translation adjustments5  2  (5) 5  
Income tax effect:    
Net change in unrealized gains on non-credit impaired available-for-sale securities(20) (8) (7) (17) 
Foreign currency translation adjustments(1) —  1  (1) 
Other comprehensive income, net of tax71  30  21  62  
Comprehensive income$160  $224  $142  $408  
(dollars in millions) Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
         
Net income $38

$23

$73

$200
         
Other comprehensive income (loss):  
  
  
  
Net change in unrealized gains on non-credit impaired available-for-sale securities 3
 5
 13
 29
Retirement plan liabilities adjustments —
 —
 4
 —
Income tax effect:  
  
  
  
Net unrealized gains on non-credit impaired available-for-sale securities (1) (1) (5) (10)
Retirement plan liabilities adjustments —
 —
 (1) —
Other comprehensive income, net of tax, before reclassification adjustments 2
 4
 11
 19
Reclassification adjustments included in net income:  
  
  
  
Net realized gains on available-for-sale securities (3) (2) (6) (5)
Net realized gain on foreign currency translation adjustments —
 (5) —
 (5)
Income tax effect:  
  
  
  
Net realized gains on available-for-sale securities 1
 1
 2
 2
Reclassification adjustments included in net income, net of tax (2) (6) (4) (8)
Other comprehensive income (loss), net of tax —
 (2) 7
 11
         
Comprehensive income 38
 21
 80

211
         
Comprehensive income attributable to non-controlling interests —
 —
 —
 28
         
Comprehensive income attributable to Springleaf Finance Corporation $38
 $21
 $80
 $183


See Notes to the Condensed Consolidated Financial Statements.Statements (Unaudited).



8
9




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

OneMain Holdings, Inc. Shareholders’ Equity
(dollars in millions)Common
Stock		Additional
Paid-in
Capital		Accumulated
Other Comprehensive
Income (Loss)		Retained
Earnings		Total Shareholders’ Equity
Three Months Ended June 30, 2020
Balance, April 1, 2020$1  $1,645  $(6) $1,412  $3,052  
Share-based compensation expense, net of forfeitures—  3  —  —  3  
Other comprehensive income—  —  71  —  71  
Cash dividends *—  —  —  (44) (44) 
Net income—  —  —  89  89  
Balance, June 30, 2020$1  $1,648  $65  $1,457  $3,171  
Three Months Ended June 30, 2019
Balance, April 1, 2019$1  $1,682  $(2) $2,269  $3,950  
Share-based compensation expense, net of forfeitures—  1  —  —  1  
Other comprehensive income—  —  30  —  30  
Cash dividends *—  —  —  (34) (34) 
Net income—  —  —  194  194  
Balance, June 30, 2019$1  $1,683  $28  $2,429  $4,141  
Six Months Ended June 30, 2020
Balance, January 1, 2020 (pre-adoption)$1  $1,689  $44  $2,596  $4,330  
Net impact of adoption of ASU 2016-13 (see Note 3)
—  —  —  (828) (828) 
Balance, January 1, 2020 (post-adoption)1  1,689  44  1,768  3,502  
Common stock repurchased and retired—  (45) —  —  (45) 
Share-based compensation expense, net of forfeitures—  10  —  —  10  
Withholding tax on share-based compensation—  (6) —  —  (6) 
Other comprehensive income—  —  21  —  21  
Cash dividends *—  —  —  (432) (432) 
Net income—  —  —  121  121  
Balance, June 30, 2020$1  $1,648  $65  $1,457  $3,171  
Six Months Ended June 30, 2019
Balance, January 1, 2019$1  $1,681  $(34) $2,151  $3,799  
Share-based compensation expense, net of forfeitures—  7  —  —  7  
Withholding tax on share-based compensation—  (5) —  —  (5) 
Other comprehensive income—  —  62  —  62  
Cash dividends *—  —  —  (68) (68) 
Net income—  —  —  346  346  
Balance, June 30, 2019$1  $1,683  $28  $2,429  $4,141  
  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 —
 —
 —
 73
 73
 —
 73
Balance, September 30, 2017 $5
 $799
 $—
 $1,581
 $2,385
 $—
 $2,385
               
Balance, January 1, 2016 $5
 $789
 $(24) $1,341
 $2,111
 $(79) $2,032
Capital contribution 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 —
 —
 11
 —
 11
 —
 11
Net income —
 —
 —
 172
 172
 28
 200
Balance, September 30, 2016 $5
 $799
 $(13) $1,513
 $2,304
 $—
 $2,304
* Cash dividends declared were $0.33 per share and $0.25 per share during the three months ended June 30, 2020 and 2019, respectively, and $3.16 per share and $0.50 per share during the six months ended June 30, 2020 and 2019, respectively.


See Notes to the Condensed Consolidated Financial Statements.


Statements (Unaudited).
9
10




SPRINGLEAF FINANCE CORPORATIONONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30,
(dollars in millions)20202019
Cash flows from operating activities  
Net income$121  $346  
Reconciling adjustments:
Provision for finance receivable losses954  554  
Depreciation and amortization130  138  
Deferred income tax charge (benefit)(69) 21  
Net loss on repurchase and repayment of debt—  33  
Share-based compensation expense, net of forfeitures10  7  
Other5  (10) 
Cash flows due to changes in other assets and other liabilities53  56  
Net cash provided by operating activities1,204  1,145  
Cash flows from investing activities  
Net principal collections (originations) of finance receivables held for investment and held for sale64  (1,400) 
Proceeds on sale of finance receivables held for sale originated as held for investment—  19  
Available-for-sale securities purchased(207) (317) 
Available-for-sale securities called, sold, and matured262  336  
Other securities purchased(6) (5) 
Other securities called, sold, and matured8  15  
Other, net(15) 5  
Net cash provided by (used for) investing activities106  (1,347) 
Cash flows from financing activities  
Proceeds from issuance of long-term debt, net of commissions5,456  3,159  
Repayment of long-term debt(4,689) (2,856) 
Cash dividends(431) (68) 
Common stock repurchased and retired(45) —  
Withholding tax on share-based compensation(6) (5) 
Net cash provided by financing activities285  230  
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents1,595  28  
Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period1,632  1,178  
Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period$3,227  $1,206  
Supplemental cash flow information
Cash and cash equivalents$2,740  $786  
Restricted cash and restricted cash equivalents487  420  
Total cash and cash equivalents and restricted cash and restricted cash equivalents$3,227  $1,206  
Cash paid for amounts included in the measurement of operating lease liabilities$29  $29  
Supplemental non-cash activities
Right-of-use assets obtained in exchange for operating lease obligations$22  $177  
(dollars in millions) Nine Months Ended September 30,

2017 2016
     
Cash flows from operating activities  
  
Net income $73
 $200
Reconciling adjustments:  
  
Provision for finance receivable losses 232
 263
Depreciation and amortization 112
 108
Deferred income tax benefit (65) (94)
Net gain on liquidation of United Kingdom subsidiary —
 (5)
Net gain on sales of personal and real estate loans —
 (18)
Net loss on repurchases and repayments of debt 28
 16
Share-based compensation expense, net of forfeitures —
 1
Net gain on sale of SpringCastle interests —
 (167)
Other —
 6
Cash flows due to changes in:  
  
Other assets and other liabilities 154
 17
Insurance claims and policyholder liabilities (38) (21)
Taxes receivable and payable 57
 95
Accrued interest and finance charges (28) (6)
Other, net (4) 2
Net cash provided by operating activities 521
 397
     
Cash flows from investing activities  
  
Net principal originations of finance receivables held for investment and held for sale (532) (455)
Proceeds on sales of finance receivables held for sale originated as held for investment —
 871
Proceeds from sale of SpringCastle interests, net of restricted cash released —
 26
Cash advances on intercompany notes receivable (1,685) (643)
Proceeds from repayments of principal and assignment of intercompany notes receivable 1,126
 887
Available-for-sale securities purchased (226) (218)
Trading and other securities purchased —
 (10)
Available-for-sale securities called, sold, and matured 240
 291
Trading and other securities called, sold, and matured 1
 18
Proceeds from sale of real estate owned 3
 7
Other, net 12
 6
Net cash provided by (used for) investing activities (1,061) 780
     
Cash flows from financing activities  
  
Proceeds from issuance of long-term debt, net of commissions 2,342
 2,984
Proceeds from intercompany note payable —
 670
Repayments of long-term debt (1,679) (4,320)
Distributions to joint venture partners —
 (18)
Payments on note payable to affiliate —
 (670)
Withholding tax on share-based compensation —
 (1)
Cash dividend of SFMC (10) —
Capital contribution from parent —
 10
Net cash provided by (used for) financing activities 653
 (1,345)
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)    
     
(dollars in millions) At or for the
Nine Months Ended September 30,
 2017 2016
     
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents 113
 (168)
Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period 467
 616
Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period $580
 $448
     
Supplemental cash flow information    
Cash and cash equivalents $402
 $272
Restricted cash and restricted cash equivalents 178
 176
Total cash and cash equivalents and restricted cash and restricted cash equivalents $580
 $448
     
Supplemental non-cash activities  
  
Transfer of finance receivables held for investment to finance receivables held for sale (prior to deducting allowance for finance receivable losses) $—
 $1,895
Increase in finance receivables held for investment financed with intercompany payable 4
 89
Transfer of finance receivables to real estate owned 7
 7
Non-cash dividend of SFMC (28) —
Net unsettled investment security purchases —
 (24)


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


See Notes to the Condensed Consolidated Financial Statements.


Statements (Unaudited).
10
11




SPRINGLEAFONEMAIN FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)

(dollars in millions, except par value amount)June 30,
2020		December 31, 2019
Assets
Cash and cash equivalents$2,740  $1,227  
Investment securities (includes available-for-sale securities with a fair value of $1.8 billion and an
    amortized cost basis of $1.7 billion in 2020)
1,862  1,884  
Net finance receivables (includes loans of consolidated VIEs of $8.9 billion in 2020 and $8.4 billion
    in 2019)
17,721  18,389  
Unearned insurance premium and claim reserves(791) (793) 
Allowance for finance receivable losses (includes allowance of consolidated VIEs of $1.1 billion in
    2020 and $340 million in 2019)
(2,324) (829) 
Net finance receivables, less unearned insurance premium and claim reserves and allowance for finance
receivable losses		14,606  16,767  
Restricted cash and restricted cash equivalents (includes restricted cash and restricted cash equivalents of
    consolidated VIEs of $459 million in 2020 and $400 million in 2019)
487  405  
Goodwill1,422  1,422  
Other intangible assets324  343  
Other assets1,066  768  
Total assets$22,507  $22,816  
Liabilities and Shareholder's Equity
Long-term debt (includes debt of consolidated VIEs of $7.8 billion in 2020 and $7.6 billion in 2019)$18,010  $17,212  
Insurance claims and policyholder liabilities630  649  
Deferred and accrued taxes125  35  
Other liabilities (includes other liabilities of consolidated VIEs of $15 million in 2020 and $14 million
    in 2019)
572  595  
Total liabilities19,337  18,491  
Contingencies (Note 14)
Shareholder's equity:
Common stock, par value $0.50 per share; 25,000,000 shares authorized, 10,160,021 shares issued and
    outstanding at June 30, 2020 and December 31, 2019
5  5  
Additional paid-in capital1,892  1,888  
Accumulated other comprehensive income65  44  
Retained earnings1,208  2,388  
Total shareholder's equity3,170  4,325  
Total liabilities and shareholder's equity$22,507  $22,816  

See Notes to the Condensed Consolidated Financial Statements (Unaudited).
12


ONEMAIN FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in millions)2020201920202019
Interest income$1,077  $1,000  $2,184  $1,955  
Interest expense271  238  527  473  
Net interest income806  762  1,657  1,482  
Provision for finance receivable losses423  268  954  554  
Net interest income after provision for finance receivable losses383  494  703  928  
Other revenues:
Insurance109  114  226  224  
Investment29  24  38  50  
Net loss on repurchase and repayment of debt—  (12) —  (33) 
Net gain on sale of real estate loans—  —  —  3  
Other10  34  25  68  
Total other revenues148  160  289  312  
Other expenses:
Salaries and benefits184  204  383  404  
Other operating expenses139  140  291  276  
Insurance policy benefits and claims90  50  157  94  
Total other expenses413  394  831  774  
Income before income taxes118  260  161  466  
Income taxes29  63  40  113  
Net income$89  $197  $121  $353  

See Notes to the Condensed Consolidated Financial Statements (Unaudited).

13
ONEMAIN FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in millions)2020201920202019
Net income$89  $197  $121  $353  
Other comprehensive income (loss):
Net change in unrealized gains on non-credit impaired available-for-sale securities87  36  32  75  
Foreign currency translation adjustments5  2  (5) 5  
Income tax effect:
Net change in unrealized gains on non-credit impaired available-for-sale securities(20) (8) (7) (17) 
Retirement plan liability adjustments—  —  —  (1) 
Foreign currency translation adjustments(1) —  1  —  
Other comprehensive income, net of tax71  30  21  62  
Comprehensive income$160  $227  $142  $415  

See Notes to the Condensed Consolidated Financial Statements (Unaudited).
14

ONEMAIN FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholder's Equity (Unaudited)

OneMain Finance Corporation Shareholder's Equity
(dollars in millions)Common
Stock		Additional
Paid-in
Capital		Accumulated
Other Comprehensive
Income (Loss)		Retained
Earnings		Total Shareholder’s Equity
Three Months Ended June 30, 2020
Balance, April 1, 2020$5  $1,889  $(6) $1,159  $3,047  
Share-based compensation expense, net of forfeitures—  3  —  —  3  
Other comprehensive loss—  —  71  —  71  
Cash dividends—  —  —  (40) (40) 
Net income—  —  —  89  89  
Balance, June 30, 2020$5  $1,892  $65  $1,208  $3,170  
Three Months Ended June 30, 2019
Balance, April 1, 2019$5  $2,145  $(2) $2,062  $4,210  
Share-based compensation expense, net of forfeitures—  1  —  —  1  
Other comprehensive income—  —  30  —  30  
Cash dividends—  —  —  (34) (34) 
Net income—  —  —  197  197  
Balance, June 30, 2019$5  $2,146  $28  $2,225  $4,404  
Six Months Ended June 30, 2020
Balance, January 1, 2020 (pre-adoption)$5  $1,888  $44  $2,388  $4,325  
Net impact of adoption of ASU 2016-13 (see Note 3)
—  —  —  (828) (828) 
Balance, January 1, 2020 (post-adoption)5  1,888  44  1,560  3,497  
Share-based compensation expense, net of forfeitures—  10  —  —  10  
Withholding tax on share-based compensation—  (6) —  —  (6) 
Other comprehensive income—  —  21  —  21  
Cash dividends—  —  —  (473) (473) 
Net income—  —  —  121  121  
Balance, June 30, 2020$5  $1,892  $65  $1,208  $3,170  
Six Months Ended June 30, 2019
Balance, January 1, 2019$5  $2,110  $(34) $1,940  $4,021  
Contribution of SCHC to OMFC from SFI—  34  —  —  34  
Share-based compensation expense, net of forfeitures—  7  —  —  7  
Withholding tax on shared-based compensation—  (5) —  —  (5) 
Other comprehensive income—  —  62  —  62  
Cash dividends—  —  —  (68) (68) 
Net income—  —  —  353  353  
Balance, June 30, 2019$5  $2,146  $28  $2,225  $4,404  


See Notes to the Condensed Consolidated Financial Statements (Unaudited).

15

ONEMAIN FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30,
(dollars in millions)20202019
Cash flows from operating activities
Net income$121  $353  
Reconciling adjustments:
Provision for finance receivable losses954  554  
Depreciation and amortization130  138  
Deferred income tax charge (benefit)(69) 19  
Net loss on repurchase and repayment of debt—  33  
Share-based compensation expense, net of forfeitures10  7  
Other5  (10) 
Cash flows due to changes in other assets and other liabilities49  60  
Net cash provided by operating activities1,200  1,154  
Cash flows from investing activities
Net principal collections (originations) of finance receivables held for investment and held for sale64  (1,400) 
Proceeds on sale of finance receivables held for sale originated as held for investment—  19  
Cash advances on intercompany notes receivables—  (3) 
Proceeds from repayments of principal on intercompany note to parent—  3  
Available-for-sale securities purchased(207) (317) 
Available-for-sale securities called, sold, and matured262  336  
Other securities purchased(6) (5) 
Other securities called, sold, and matured8  15  
Other, net(15) 5  
Net cash provided by (used for) investing activities106  (1,347) 
Cash flows from financing activities
Proceeds from issuance of long-term debt, net of commissions5,456  3,159  
Repayment of long-term debt(4,689) (2,856) 
Cash contribution of SCLH—  12  
Cash dividends(472) (68) 
Payments on intercompany note payable—  (6) 
Withholding tax on share-based compensation(6) (5) 
Net cash provided by financing activities289  236  
Net change in cash and cash equivalents and restricted cash and restricted cash equivalents1,595  43  
Cash and cash equivalents and restricted cash and restricted cash equivalents at beginning of period1,632  1,162  
Cash and cash equivalents and restricted cash and restricted cash equivalents at end of period$3,227  $1,205  
16

Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
Six Months Ended June 30,
(dollars in millions)20202019
Supplemental cash flow information
Cash and cash equivalents$2,740  $785  
Restricted cash and restricted cash equivalents487  420  
Total cash and cash equivalents and restricted cash and restricted cash equivalents$3,227  $1,205  
Cash paid for amounts included in the measurement of operating lease liabilities$29  $29  
Supplemental non-cash activities
Right-of-use assets obtained in exchange for operating lease obligations$22  $177  
Non-cash contribution of SCLH—  22  

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

See Notes to the Condensed Consolidated Financial Statements (Unaudited).
17

ONEMAIN HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172020


1. Business and Basis of Presentation

OneMain Holdings, Inc. (“OMH”), and Basis of Presentation    

its wholly-owned direct subsidiary, OneMain Finance Corporation (“OMFC”) (formerly known as Springleaf Finance Corporation (“SFC”)) are financial services holding companies whose subsidiaries engage in the consumer finance and insurance businesses. Prior to the completion of the merger described below, OMH’s direct subsidiary was Springleaf Finance, Inc. (“SFI”).

Effective July 1, 2020, SFC was renamed to OMFC. The name change did not affect OMFC’s legal entity structure, nor did it have an impact on OMH’s or OMFC’s financial statements. Although the name change was not effective until July 1, 2020, OMFC is used in this report, including references to past transactions and arrangements occurring prior to the name change.

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

OMH and OMFC are referred to in this report, as “SFC” or, collectively with itstheir subsidiaries, whether directly or indirectly owned, “Springleaf,” the “Company,as “the Company,” “we,” “us,” or “our.” SFCThe information in this Quarterly Report on Form 10-Q is a wholly owned subsidiary of SFI. SFI is a wholly owned subsidiary of OMH.equally applicable to OMH and OMFC, except where otherwise indicated.


At SeptemberJune 30, 2017,2020, the Initial StockholderApollo-Värde Group owned approximately 57%40.9% of OMH’s common stock. The Initial Stockholder is owned primarily by a private equity fund managed by an affiliate of Fortress.


BASIS OF PRESENTATION


We prepared our condensed consolidated financial statements using GAAP.generally accepted accounting principles in the United States of America (“GAAP”). These statements are unaudited. The year-end condensed balance sheet data was derived from our audited financial statements but does not include all disclosures required by GAAP. The statements include the accounts of SFC,OMH, its subsidiaries (all of which are wholly owned, except for certain subsidiaries associated with the SpringCastle 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 condensed consolidated financial statements and disclosures of contingent assets and liabilities. In management’s opinion, the condensed consolidated financial statements include the normal, recurring adjustments necessary for a fair statement of results. UltimateActual results could differ from our estimates. We evaluated the effects of and the need to disclose events that occurred subsequent to the balance sheet date. To conform to the 20172020 presentation, we have reclassified certain items in prior periods of our condensed consolidated statements of cash flows. Also, to conform to the new alignment of our segments, as further discussed in Note 16, we have revised our prior period segment disclosures.financial statements.


The condensed consolidated financial statements in this report should be read in conjunction with the consolidated financial statements and related notes included in our 20162019 Annual Report on Form 10-K. We follow the same significant accounting policies for our interim reporting, except for the new accounting pronouncements subsequently adopted and disclosed in Note 3 below.

18

2. Recent Accounting Pronouncements    


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

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

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

June 30, 2020December 31, 2019
(dollars in millions)OMHOMFCDifferenceOMHOMFCDifference
Other assets$1,067  $1,066  $1  $769  $768  $1  
Deferred and accrued taxes124  125  (1) 34  35  (1) 
Other liabilities573  572  1  592  595  (3) 
Total shareholders' equity (a)3,171  3,170  1  4,330  4,325  5  

Three Months Ended June 30,
20202019
(dollars in millions)OMHOMFCDifferenceOMHOMFCDifference
Other revenues (b)$10  $10  $—  $30  $34  $(4) 
Income before income taxes118  118  —  256  260  (4) 
Income taxes29  29  —  62  63  (1) 
Net Income89  89  —  194  197  (3) 
Six Months Ended June 30,
20202019
(dollars in millions)OMHOMFCDifferenceOMHOMFCDifference
Other revenues (b)$25  $25  $—  $60  $68  $(8) 
Income before income taxes161  161  —  458  466  (8) 
Income taxes40  40  —  112  113  (1) 
Net Income121  121  —  346  353  (7) 
(a) The differences between total shareholders’ equity in the periods ended June 30, 2020 and December 31, 2019 were due to historical differences in results of operations of the companies and differences in equity awards.
(b) Other revenues include the interest income on notes receivables from parent, which were notes from SFI held by OMFC and Springleaf Mortgage Holding Company and subsidiaries (“SMHC”), a wholly-owned direct subsidiary of OMFC. See Note 1 and below for further discussion of the merger between SFI and OMFC.

19

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

Merger of SFI into OMFC

On September 20, 2019, OMFC entered into a merger agreement with its direct parent SFI, to merge SFI with and into OMFC, with OMFC as the surviving entity. The merger was effective in OMFC's condensed consolidated financial statements as of July 1, 2019. In conjunction with the merger, the net deficiency of SFI, after elimination of its investment in OMFC, was absorbed by OMFC resulting in an equity reduction of $408 million to OMFC, which included the elimination of the intercompany notes and receivables between OMFC 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 OMFC assumed through the merger. On September 23, 2019, OMFC repaid SFI’s note to OMH. Concurrently, OMH paid $22 million in other payables due to OMFC and made an equity contribution of $144 million to OMFC.

The transactions noted above resulted in a net $264 million reduction to OMFC's equity.

OMFC's Notes Receivable from Parent

As a result of the merger between SFI and OMFC, described in Note 1 and above, a $232 million note receivable from SFI to OMFC was dissolved effective July 1, 2019. Additionally, OMFC assumed a $28 million note payable from SFI to SMHC, a wholly-owned subsidiary of OMFC, and OMFC subsequently paid off the note on September 23, 2019. For the three and six months ended June 30, 2019, interest income on these notes totaled $3 million and $7 million, respectively, which we report in other revenues.

Springleaf Consumer Loan Holding Company (“SCLH”) Contribution

On March 10, 2019, all of the outstanding capital stock of SCLH, a subsidiary of SFI, was contributed to OMFC and SCLH became a wholly-owned direct subsidiary of OMFC. The contribution was effective as of January 1, 2019 and increased OMFC’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.


3. Recent Accounting Pronouncements

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

Investments

In March of 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting, which eliminates the requirement that, when an investment qualifies for use of the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method 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 gain or loss 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 annual 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 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.


11



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 become 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 recognition model across industries. In August of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date, to defer the effective date of the new revenue recognition standard by one year, which would result in the ASU becoming effective for the Company for annual periods beginning January 1, 2018. In March of 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations, which clarifies the implementation of the guidance on principal versus agent considerations from ASU 2014-09. ASU 2016-08 does not change the core principles of the guidance in ASU 2014-09, but rather clarifies the distinction between principal versus agent considerations when implementing ASU 2014-09. In April of 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, to clarify the implementation guidance of ASU 2014-09 relating to performance obligations and licensing. In May of 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, to clarify guidance in ASU 2014-09 related to assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts/contract modifications. In December of 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, which improves the guidance specific to the amendments 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 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 liabilities, 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 annual 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.

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Leases

In February of 2016, the FASB issued ASU 2016-02, Leases. The ASU 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 annual 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. The Company’s leases primarily consist of leased office space, automobiles and information technology equipment. At December 31, 2016, the Company had approximately $55 million of minimum lease commitments from these operating leases (refer to Note 19 of our 2016 Annual Report on Form 10-K). We believe the adoption of this ASU will have a material impact on our consolidated financial statements, and we are in the process of quantifying the expected impact.

Allowance for Finance ReceivablesCredit Losses


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

The We expect ongoing changes in the allowance for finance receivable losses will be driven primarily by the growth of our loan portfolio, mix of secured and unsecured loans, credit quality, and the economic environment at that time. In addition, the ASU requires that credit lossesdeveloped a new accounting treatment for purchased financial assets with credit deterioration.

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The ASU also modifies the other-than-temporary impairment model for available-for-sale debt securities by requiring companies to record an allowance for credit impairment rather than write-downs of such assets.

Management has reviewed this update and other ASUs that were subsequently issued to further clarify the implementation guidance outlined in ASU 2016-13.

We adopted the amendments of these ASUs as of January 1, 2020.

Upon adoption, we recorded 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 more-than-insignificantcorresponding one-time cumulative reduction to retained earnings, net of tax, of $0.83 billion in the consolidated balance sheet as of January 1, 2020.

The adoption of this ASU, as it relates to available-for-sale debt securities, did not have a material impact on the consolidated financial statements as of January 1, 2020.

As a result of the adoption of ASU 2016-13, several of our significant accounting policies have changed to reflect the requirements of the new standard. See below for these updated significant accounting policies as of January 1, 2020.

Allowance for Finance Receivable Losses

We establish the allowance for finance receivable losses through the provision for finance receivable losses. We evaluate our finance receivable portfolio by level of contractual delinquency in the portfolio, specifically in the late stage delinquency buckets and inclusive of the migration of the loans through the delinquency buckets. Our finance receivables consist of a large number of relatively small, homogeneous accounts. We evaluate our finance receivables for impairment as pools. None of our accounts are large enough to warrant individual evaluation for impairment.

We estimate the allowance for finance receivable losses primarily on historical loss experience using a cumulative loss model applied to our finance receivable portfolios. Our gross credit loss expectation is offset by the estimate of future recoveries using historical recovery curves. Our finance receivables are primarily segmented in the loss model by contractual delinquency status. Other attributes in the model include collateral mix and recent credit score. To estimate the gross credit losses, the model utilizes a roll rate matrix to project the first 12 months of losses and historical cohort performance to project the expected losses over the remaining term. Our methodology relies solely on historical loss experience to forecast the corresponding future outcomes. These patterns are then applied to the current portfolio to obtain an estimate of future losses. We also consider key economic trends including unemployment rates and bankruptcy filings. Forecasted macroeconomic conditions extend to our reasonable and supportable forecast period and revert to a historical average. No new volume is assumed. Renewals are a significant piece of our new volume and are considered a terminal event of the previous loan. We have elected not to measure an allowance on accrued finance charges as it is our policy to reverse finance charge amounts previously accrued after 4 contractual payments become past due.

Management exercises its judgment when determining the amount of credit deterioration since originationallowance for finance receivable losses. Our judgment is based on quantitative analyses, qualitative factors, such as recent portfolio, industry, and other economic trends, and experience in the consumer finance industry. We adjust the amounts determined by our model for management’s estimate of the effects of model imprecision which include but are not limited to, any changes to underwriting criteria and portfolio seasoning.


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Impairments on Investment Securities: Available-for-sale.

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

•we intend to sell the security;
•it is more likely than not that are measured atwe 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 bedetermined in a similar manner(even if we do not intend to other financial assets measured atsell 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; however,basis less any current period credit loss, we recognize the initialimpairment as a direct write-down in investment revenues equal to the difference between the investment security’s amortized cost and its fair value at the balance sheet date. Once the impairment is recorded, we adjust the investment security to a new amortized cost basis equal to the previous amortized cost basis less the impairment write-down recognized in the current period.

In determining whether a credit loss exists, we compare our best estimate of the present value of the cash flows expected to be collected from the security to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, a credit loss exists and an allowance for credit losses is addedrecorded, not to exceed the total unrealized loss on the security. The cash flows expected to be collected are determined by assessing all available information, including issuer default rate, ratings changes and adverse conditions related to the purchase priceindustry sector, financial condition of the financial asset rather than being reportedissuer, 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 expense. Subsequent changesexists with respect to an investment in a security (i.e., we do not expect to recover the entire amortized cost basis of the security), we would be unable to assert that we will recover our amortized cost basis even if we do not intend to sell the security. Therefore, in these situations, a credit impairment is considered to have occurred.

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

For investment securities in which a credit impairment was recorded through an allowance, we record subsequent increases and decreases in the allowance for credit losses as credit loss expense or reversal of credit loss expense in investment revenues. We will not reverse a previously recorded allowance to an amount below zero. We recognize subsequent increases and decreases in the fair value of our available-for-sale securities from non-credit related factors in accumulated other comprehensive income or loss.

Interest receivables on our investment securities are excluded from the amortized cost and fair value and are recorded in earnings. Interest income should be recognized based“Other assets.” We have elected not to measure an allowance on interest receivables due to our policy to reverse interest receivable at the time collectability is uncertain. The reversal of interest receivable is recorded in investment revenue.

See Notes 4, 5, and 7 for additional information on the effective rate, excludingadoption of ASU 2016-13.

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ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED

Insurance

In August of 2018, the discount embedded inFASB issued ASU 2018-12, Financial Services - Insurance: Targeted Improvements to the purchase price attributableAccounting for Long-Duration Contracts, which provides targeted improvements to expected credit losses at acquisition.

The ASU also requires companiesTopic 944 for the assumptions used to record allowancesmeasure the liability for held-to-maturityfuture policy benefits for nonparticipating traditional and available-for-sale debt securities rather than write-downslimited-payment contracts; measurement of such assets.

In addition, the ASU requires qualitativemarket risk benefits; amortization of deferred acquisition costs; and quantitative disclosures that provide information about the allowance and the significant factors that influenced management’s estimate of the allowance.

Theenhanced disclosures. Under current guidance, this ASU will become effective for us beginning January 1, 2022. In July of 2020, the CompanyFASB proposed a one-year deferral of this ASU to become effective for public entities for fiscal years beginning January 1, 2020. Early adoption is permitted for fiscal years beginning January 1, 2019. The Company’s2023.

We have a cross-functional implementation team has developedand a project plan to ensure we comply with all updates fromthe amendments in this ASU at the time of adoption. Currently, we are engaging various vendors to assess a software solution to meet the new accounting and disclosure requirements of the ASU. We are currentlycontinue to make progress in evaluating the processpotential impact of developing an acceptable model to estimate the expected credit losses. We believe the adoption of thisthe ASU will have a material impact on our consolidated financial statements, and we are in the process of quantifying the expected impacts.statements.

Statement of Cash Flows

In August of 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. 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

In October of 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this ASU will become effective for the Company for annual reporting periods beginning January 1, 2018. We concluded the adoption of this ASU will not have a material impact on our consolidated financial statements.


13



Compensation and Benefits

In March of 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, to improve the presentation of the net periodic pension cost and net periodic postretirement benefit costs. It requires that a company present the service cost component separately from other components of net benefit cost on the income statement. 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.

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 the nine months ended September 30, 2017, but not yet effective, would have a material impact on our consolidated financial statements or disclosures, if adopted.


3. Finance Receivables    
4. Finance Receivables


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

Personal loans —which are secured by consumer goods, automobiles, or other personal property or are unsecured, typically non-revolving, with a fixed-rate, fixed terms generally between threeand a fixed, original term of three to six years. At September 30, 2017, we had over 914,000 personal loans representing $5.1 billion of net finance receivables, compared to 928,000 personal loans totaling $4.8 billion at December 31, 2016.

Real estate loans —years, and are secured by firstautomobiles, other titled collateral, or second mortgages on residential real estate, generally have maximum original termsare unsecured.

Net finance receivables consist of 360 months, and are considered non-conforming. Real estate loans may be closed-end accounts or open-end home equity linesour total portfolio of credit and are primarily fixed-rate products. Since we ceased originating real estate loans in January of 2012, our real estate loans have been 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. Revolving retail accounts are open-end accounts that can be used for financing repeated purchases from the same merchant. Retail sales contracts are secured by the personal property designated in the contract and generally have maximum original terms of 60 months. Revolving retail accounts are secured by the goods purchased and generally require minimum monthly payments based on the amount financed calculated after the most recent purchase or outstanding balances. Our retail sales finance portfolio is in a liquidating status.


14



loans. Components of net finance receivables held for investment by typeour personal loans were as follows:
(dollars in millions)June 30, 2020December 31, 2019
Gross receivables *$17,521  $18,195  
Unearned points and fees(224) (242) 
Accrued finance charges284  289  
Deferred origination costs140  147  
Total$17,721  $18,389  
* Gross receivables equal the unpaid principal balance (“UPB”) except for the following:
(dollars in millions) Personal
Loans		 
Real Estate
Loans
 Retail
Sales Finance		 Total
         
September 30, 2017  
  
  
  
Gross receivables * $5,671
 $132
 $8
 $5,811
Unearned finance charges and points and fees (664) —
 (1) (665)
Accrued finance charges 69
 1
 —
 70
Deferred origination costs 46
 —
 —
 46
Total $5,122
 $133
 $7
 $5,262
         
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 or discount net of premium established at the time of purchase is included in both interest bearing and precompute accounts to reflect the finance receivable balance at its initial fair value;

Finance receivables originated subsequent to the 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;accounts established prior to the adoption of ASU 2016-13; and

TDR•Purchased credit deteriorated finance receivables — gross finance receivables equal the UPB for interest bearing accounts and the gross remaining contractual payments for precompute accounts. Additionally, theany remaining unearned discount net of premium established at the time of purchase, is included in both interest bearing and precompute accounts previously purchased as a performing receivable.the adoption of ASU 2016-13 on January 1, 2020.

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At September 30, 2017 and December 31, 2016, unused linesTable of credit extended to customers by the Company were immaterial.Contents

CREDIT QUALITY INDICATOR


We consider the delinquency status of our finance receivables as our primarykey credit quality indicator. We monitor the delinquency of our finance receivable portfolio, including the migration between the delinquency buckets and changes in the delinquency trends to manage our exposure to credit risk.risk in the portfolio. When finance receivables are 60 days contractually past due, we consider 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. We stop accruing finance charges and reverse finance charges previously accrued on nonperforming loans. We reversed net accrued finance charges of $22 million and $50 million during the three and six months ended June 30, 2020, respectively. Finance charges recognized from the contractual interest portion of payments received on nonaccrual finance receivables totaled $4 million and $8 million during the three and six months ended June 30, 2020, respectively. All loans in nonaccrual status are considered in our estimate of allowance for finance receivable losses.


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The following is a summary of net finance receivablesour personal loans held for investment by typethe year of origination and number of days delinquent, our key credit quality indicator, at June 30, 2020:

(dollars in millions)20202019201820172016PriorTotal
Performing
Current$4,273  $8,224  $3,035  $1,064  $334  $167  $17,097  
30-59 days past due15  84  40  17  7  5  168  
60-89 days past due9  59  31  13  5  4  121  
Total performing4,297  8,367  3,106  1,094  346  176  17,386  
Nonperforming (Nonaccrual)
90-179 days past due7  178  88  34  12  8  327  
180 days or more past due—  5  2  1  —  —  8  
Total nonperforming7  183  90  35  12  8  335  
Total$4,304  $8,550  $3,196  $1,129  $358  $184  $17,721  


The following is a summary of our personal loans held for investment by number of days delinquent:
(dollars in millions) Personal
Loans		 
Real Estate
Loans
 Retail
Sales Finance		 Total
         
September 30, 2017        
Net finance receivables:        
Performing        
Current $4,901
 $103
 $7
 $5,011
30-59 days past due 75
 8
 —
 83
60-89 days past due 46
 2
 —
 48
Total performing 5,022
 113
 7
 5,142
Nonperforming        
90-179 days past due 97
 4
 —
 101
180 days or more past due 3
 16
 —
 19
Total nonperforming 100
 20
 —
 120
Total $5,122
 $133
 $7
 $5,262
         
December 31, 2016        
Net finance receivables:        
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 updelinquent at December 31, 2019, which is prior to the dateadoption of charge-off at 180 days past due. Our revolving retail finance receivables that were more than 90 days past dueASU 2016-13 on January 1, 2020 and still accruing finance charges at September 30, 2017 and at December 31, 2016 were immaterial.continues to be reported under ASC 310, Receivables:

(dollars in millions)Total
Performing
Current$17,550 
30-59 days past due272 
60-89 days past due181 
Total performing18,003 
Nonperforming
90-179 days past due377 
180 days or more past due9 
Total nonperforming386 
Total$18,389 

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PURCHASED CREDIT IMPAIRED FINANCE RECEIVABLES


OurASU 2016-13 superseded the accounting for purchased credit impaired finance receivables consist of receivables purchased in connection with the Fortress Acquisition.

Prior to March 31, 2016, ourpurchase credit deteriorated finance receivables. As a result, we converted all purchased credit impaired finance receivables also includedto purchased credit deteriorated finance receivables in accordance with ASC Topic 326, which resulted in the SpringCastle Portfolio, which was purchasedgross-up of net finance receivables and allowance for finance receivable losses of $15 million on January 1, 2020. Due to the adoption of ASU 2016-13, the following disclosures related to purchase credit impaired finance receivables are no longer applicable for reporting periods beginning in connection with the joint venture acquisition of the SpringCastle Portfolio. On March 31, 2016, we sold the SpringCastle Portfolio in connection with the SpringCastle Interests Sale.2020.


We reportpreviously reported 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 September 30, 2017 and December 31, 2016,2019, finance receivables held for sale, reported in “Other assets,” totaled $137$64 million, and $153 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 56 for further information on our finance receivables held for sale.


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Information regarding our purchased credit impaired FA Loans held for investment and held for salefinance receivables were as follows:
(dollars in millions) September 30,
2017		 December 31,
2016
     
FA Loans (a)    
Carrying amount, net of allowance $60
 $70
Outstanding balance (b) 97
 107
Allowance for purchased credit impaired finance receivable losses 9
 8
(a)(dollars in millions)Purchased credit impaired FA Loans held for sale included in the table above were as follows:December 31, 2019
(dollars in millions) September 30,
2017		 December 31,
2016
     
Carrying amount $46
 $54
Outstanding balance 75
 83

(b)Personal Loans
Carrying amount, net of allowance$40 
Outstanding balance is defined as UPB of the loans with a net carrying amount.(a)74 
Allowance for purchased credit impaired finance receivable losses (b)— 
Real Estate Loans - Held for Sale
Carrying amount$19 
Outstanding balance (a)35 

(a) Outstanding balance is defined as the UPB of the loans with a net carrying amount.
(b) The allowance for purchased credit impaired finance receivable losses at September 30, 2017 and December 31, 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.


Changes in accretable yield for purchased credit impaired finance receivables held for investment and held for sale were as follows:
(dollars in millions)Three Months Ended June 30, 2019Six Months Ended June 30, 2019
Personal Loans
Balance at beginning of period$34  $39  
Accretion(4) (9) 
Reclassifications from nonaccretable difference *16  16  
Balance at end of period$46  $46  
Real Estate Loans - Held for Sale
Balance at beginning of period$23  $27  
Accretion—  (1) 
Transfer due to finance receivables sold—  (3) 
Balance at end of period$23  $23  
(dollars in millions) SCP Loans FA Loans Total
       
Three Months Ended September 30, 2017      
Balance at beginning of period $—
 $55
 $55
Accretion —
 (1) (1)
Balance at end of period $—
 $54
 $54
       
Three Months Ended September 30, 2016      
Balance at beginning of period $—
 $61
 $61
Accretion —
 (1) (1)
Transfers due to finance receivables sold —
 (11) (11)
Reclassifications from nonaccretable difference (a) —
 8
 8
Balance at end of period $—
 $57
 $57
       
Nine Months Ended September 30, 2017      
Balance at beginning of period $—
 $60
 $60
Accretion (b) —
 (4) (4)
Reclassifications to nonaccretable difference (a) —
 (2) (2)
Balance at end of period $—
 $54
 $54
       
Nine Months Ended September 30, 2016      
Balance at beginning of period $375
 $66
 $441
Accretion (b) (16) (5) (21)
Reclassifications from nonaccretable difference (a) —
 7
 7
Transfer due to finance receivables sold (359) (11) (370)
Balance at end of period $—
 $57
 $57

* Reclassifications from nonaccretable difference represents the increases in accretable yield resulting from higher estimated undiscounted cash flows.
17
25



(a)Reclassifications from (to) nonaccretable difference represents the increases (decreases) in accretable yield resulting from higher (lower) estimated undiscounted cash flows.

(b)Accretion on our purchased credit impaired FA Loans held for sale was $3 million and $4 million for the nine months ended September 30, 2017 and 2016, respectively.

TDR FINANCE RECEIVABLES


Information regarding TDR finance receivables held for investment and held for sale were as follows:
(dollars in millions)June 30, 2020December 31, 2019
  
Personal Loans 
TDR gross receivables (a)$700  $655  
TDR net receivables (b)702  658  
Allowance for TDR finance receivable losses321  272  
Real Estate Loans - Held for Sale
TDR gross receivables (a)$50  $52  
TDR net receivables (b)50  53  
(a) TDR gross receivables — gross receivables are equal to UPB and, if applicable, any remaining unearned premium or discount established at the time of purchase if previously purchased as a performing receivable.
(dollars in millions) 
Personal
Loans
 Real Estate
Loans *		 Total
       
September 30, 2017      
TDR gross finance receivables $100
 $141
 $241
TDR net finance receivables 100
 142
 242
Allowance for TDR finance receivable losses 40
 12
 52
       
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.
*TDR real estate loans held for sale included in the table above were as follows:
(dollars in millions) September 30,
2017		 December 31, 2016
     
TDR gross finance receivables $91
 $89
TDR net finance receivables 92
 90

As of September 30, 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 for our personal loans that are held for investment and our real estate loans that are held for sale were as follows:
(dollars in millions) 
Personal
Loans (a)
 
Real Estate
Loans (b)
 Total(dollars in millions)Personal
Loans		Real Estate LoansTotal
         
Three Months Ended September 30, 2017  
  
  
Three Months Ended June 30, 2020Three Months Ended June 30, 2020
TDR average net receivables $94
 $142
 $236
TDR average net receivables$698  $51  $749  
TDR finance charges recognized 3
 3
 6
TDR finance charges recognized13  —  13  
      
Three Months Ended September 30, 2016      
Three Months Ended June 30, 2019Three Months Ended June 30, 2019
TDR average net receivables $35
 $159
 $194
TDR average net receivables$527  $58  $585  
TDR finance charges recognized —
 3
 3
TDR finance charges recognized12  1  13  
      
Nine Months Ended September 30, 2017      
Six Months Ended June 30, 2020Six Months Ended June 30, 2020
TDR average net receivables $69
 $139
 $208
TDR average net receivables$687  $51  $738  
TDR finance charges recognized 6
 7
 13
TDR finance charges recognized25  1  26  
      
Nine Months Ended September 30, 2016      
Six Months Ended June 30, 2019Six Months Ended June 30, 2019
TDR average net receivables $34
 $187
 $221
TDR average net receivables$502  $61  $563  
TDR finance charges recognized 2
 9
 11
TDR finance charges recognized23  2  25  
18
26



(a)TDR personal 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
 
     
Three Months Ended September 30, 2017   
 
TDR average net receivables  $92
 
TDR finance charges recognized  2
 
     
Three Months Ended September 30, 2016    
TDR average net receivables  $112
 
TDR finance charges recognized  2
 
     
Nine Months Ended September 30, 2017    
TDR average net receivables  $90
 
TDR finance charges recognized  5
 
     
Nine Months Ended September 30, 2016    
TDR average net receivables  $105
 
TDR finance charges recognized  5
 


19



Information regarding the new volume of the TDR finance receivables held for investment were as follows:
Three Months Ended June 30,Six Months Ended June 30,
(dollars in millions)2020201920202019
Personal Loans
Pre-modification TDR net finance receivables$129  $124  $287  $244  
Post-modification TDR net finance receivables:
Rate reduction75  85  175  170  
Other *54  39  112  74  
Total post-modification TDR net finance receivables$129  $124  $287  $244  
Number of TDR accounts17,381  18,307  39,199  36,813  
* “Other” modifications primarily include potential principal and interest forgiveness contingent on future payment performance by the borrower under the modified terms.

New volume of TDR finance receivables held for sale are not included in the table above as they were as follows:immaterial for the three and six months ended June 30, 2020 and 2019.
(dollars in millions) 
Personal
Loans (a)
 
SpringCastle
Portfolio
 Real Estate
Loans (a)		 Total
         
Three Months Ended September 30, 2017  
  
  
  
Pre-modification TDR net finance receivables $28
 $—
 $1
 $29
Post-modification TDR net finance receivables:        
Rate reduction $19
 $—
 $2
 $21
Other (b) 10
 —
 —
 10
Total post-modification TDR net finance receivables $29
 $—
 $2
 $31
Number of TDR accounts 4,837
 —
 63
 4,900
         
Three Months Ended September 30, 2016        
Pre-modification TDR net finance receivables $10
 $—
 $3
 $13
Post-modification TDR net finance receivables:        
Rate reduction $5
 $—
 $3
 $8
Other (b) 3
 —
 1
 4
Total post-modification TDR net finance receivables $8
 $—
 $4
 $12
Number of TDR accounts 1,702
 —
 86
 1,788
         
Nine Months Ended September 30, 2017        
Pre-modification TDR net finance receivables $91
 $—
 $14
 $105
Post-modification TDR net finance receivables:        
Rate reduction $66
 $—
 $15
 $81
Other (b) 24
 —
 —
 24
Total post-modification TDR net finance receivables $90
 $—
 $15
 $105
Number of TDR accounts 17,034
 —
 477
 17,511
         
Nine Months Ended September 30, 2016        
Pre-modification TDR net finance receivables $28
 $1
 $13
 $42
Post-modification TDR net finance receivables:        
Rate reduction $16
 $1
 $11
 $28
Other (b) 8
 —
 3
 11
Total post-modification TDR net finance receivables $24
 $1
 $14
 $39
Number of TDR accounts 5,251
 157
 291
 5,699
(a)TDR finance receivables held for sale included in the table above were immaterial.

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


20




Personal loans held for investment and held for sale that were modified as TDR personal loansfinance receivables within the previous 12 months and for which there was a default during the period to cause the TDR personalfinance receivables to be considered nonperforming (90 days or more past due) are reflected in the following table.
Three Months Ended June 30,Six Months Ended June 30,
(dollars in millions)2020201920202019
Personal Loans
TDR net finance receivables *$26  $21  $57  $40  
Number of TDR accounts3,787  3,171  8,339  6,096  
* Represents the corresponding balance of TDR net finance receivables at the end of the month in which they defaulted.

Real estate loans held for sale that were modified as TDR finance receivables within the previous 12 months and for which there was a default during the period to cause the TDR finance receivables to be considered nonperforming (90 days or more past due) were as follows:
(dollars in millions) 
Personal
Loans
   
Three Months Ended September 30, 2017  
TDR net finance receivables * $10
Number of TDR accounts 2,202
   
Three Months Ended September 30, 2016  
TDR net finance receivables * $1
Number of TDR accounts 355
   
Nine Months Ended September 30, 2017  
TDR net finance receivables * $24
Number of TDR accounts 5,232
   
Nine Months Ended September 30, 2016  
TDR net finance receivables * $4
Number of TDR accounts 1,030
*Represents the corresponding balance of TDR net finance receivables at the end of the month in which they defaulted.

TDR real estate loansimmaterial for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016 that defaulted during2019.


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5. Allowance for Finance Receivable Losses

We establish an allowance for finance receivable losses through the previous 12-monthprovision for finance receivable losses. We evaluate our finance receivable portfolio by the level of contractual delinquency in the portfolio, specifically in the late stage delinquency buckets and inclusive of the migration of the loans through the delinquency buckets. We estimate and record an allowance for finance receivable losses to cover the estimated lifetime expected credit losses on our finance receivables, pursuant to the adoption of ASU 2016-13 on January 1, 2020. Prior to the adoption of ASU 2016-13, we estimated and recorded an allowance for finance receivable losses to cover estimated incurred losses on our finance receivables. Our allowance for finance receivable losses may fluctuate based upon changes in portfolio growth, credit quality, and economic conditions. See Note 3 for additional information regarding our policy for allowance for finance receivable losses.

Our current methodology to estimate expected credit losses used the most recent macroeconomic forecasts, which incorporated the projected impacts of the global outbreak of a novel strain of coronavirus (“COVID-19”) on the U.S. economy. Our forecast leveraged economic projections from an industry leading forecast provider. We also incorporated estimated impacts from known government stimulus measures, the involuntary unemployment insurance coverage of our portfolio, and our borrower assistance efforts. At June 30, 2020, our economic forecast used a reasonable and supportable period were immaterial. TDR SpringCastle Portfolio loansof 12 months. The increase in our allowance for finance receivable losses for the ninethree and six months ended SeptemberJune 30, 2016 that defaulted during2020 was largely due to these economic considerations offset by a release in our reserves as a result of the previous 12-month period were immaterial.decline in our net finance receivables in the period.


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4. Allowance for Finance Receivable Losses    


Changes in the allowance for finance receivable losses by finance receivable type were as follows:
Three Months Ended June 30,Six Months Ended June 30,
(dollars in millions)2020201920202019
Personal Loans
Balance at beginning of period$2,182  $733  $829  $731  
Impact of adoption of ASU 2016-13 *—  —  1,118  —  
Provision for finance receivable losses423  268  954  554  
Charge-offs(321) (290) (657) (601) 
Recoveries40  33  80  60  
Balance at end of period$2,324  $744  $2,324  $744  
(dollars in millions) Personal
Loans		 
SpringCastle
Portfolio
 
Real Estate
Loans
 Retail
Sales Finance		 Consolidated Total
           
Three Months Ended September 30, 2017  
    
  
  
Balance at beginning of period $201
 $—
 $19
 $1
 $221
Provision for finance receivable losses 65
 —
 5
 —
 70
Charge-offs (81) —
 (1) —
 (82)
Recoveries 13
 —
 1
 —
 14
Balance at end of period $198
 $—
 $24
 $1
 $223
           
Three Months Ended September 30, 2016  
    
  
  
Balance at beginning of period $176
 $—
 $20
 $1
 $197
Provision for finance receivable losses 85
 —
 2
 —
 87
Charge-offs (79) —
 (4) —
 (83)
Recoveries 12
 —
 1
 —
 13
Balance at end of period $194
 $—

$19

$1

$214
           
Nine Months Ended September 30, 2017  
    
  
  
Balance at beginning of period $184
 $—
 $19
 $1
 $204
Provision for finance receivable losses 225
 —
 7
 —
 232
Charge-offs (260) —
 (4) —
 (264)
Recoveries 49
 —
 2
 —
 51
Balance at end of period $198
 $—
 $24
 $1
 $223
           
Nine Months Ended September 30, 2016  
    
  
  
Balance at beginning of period $173
 $4
 $46
 $1
 $224
Provision for finance receivable losses 241
 14
 8
 —
 263
Charge-offs (253) (17) (10) (1) (281)
Recoveries 33
 3
 4
 1
 41
Other * —
 (4) (29) —
 (33)
Balance at end of period $194
 $—
 $19
 $1
 $214
*Other consists of:

* As a result of the eliminationadoption of ASU 2016-13 on January 1, 2020, we recorded a one-time adjustment to the allowance for finance receivable losses due tolosses. See Notes 3 and 4 for additional information on the transferadoption of real estate loans held for investment to finance receivables held for sale on June 30, 2016; andASU 2016-13.

the elimination of allowance for finance receivable losses due to the sale of the SpringCastle Portfolio on March 31, 2016, in connection with the SpringCastle Interests Sale.



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28



The allowance for finance receivable losses and net finance receivables by type and by impairment method were as follows:
(dollars in millions)June 30, 2020December 31, 2019
Allowance for finance receivable losses:
Collectively evaluated for impairment$2,003  $557  
Purchased credit impaired finance receivables *—  —  
TDR finance receivables321  272  
Total$2,324  $829  
Finance receivables:
Collectively evaluated for impairment$17,019  $17,691  
Purchased credit impaired finance receivables *—  40  
TDR finance receivables702  658  
Total$17,721  $18,389  
Allowance for finance receivable losses as a percentage of finance receivables13.12 %4.51 %
* As a result of the adoption of ASU 2016-13 on January 1, 2020, the accounting for purchased credit impaired finance receivables was superseded with purchase credit deteriorated finance receivables which are collectively evaluated for impairment. See Notes 3 and 4 for additional information on the adoption of ASU 2016-3.
(dollars in millions) Personal
Loans		 
Real Estate
Loans
 Retail
Sales Finance		 Total
         
September 30, 2017  
  
  
  
Allowance for finance receivable losses:  
  
  
  
Collectively evaluated for impairment $158
 $3
 $1
 $162
Purchased credit impaired finance receivables —
 9
 —
 9
TDR finance receivables 40
 12
 —
 52
Total $198
 $24
 $1
 $223
         
Finance receivables:  
  
  
  
Collectively evaluated for impairment $5,022
 $60
 $7
 $5,089
Purchased credit impaired finance receivables —
 23
 —
 23
TDR finance receivables 100
 50
 —
 150
Total $5,122
 $133
 $7
 $5,262
         
Allowance for finance receivable losses as a percentage of finance receivables 3.87% 18.19% 8.96% 4.24%
         
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%



5. Finance Receivables Held for Sale    

6. Finance Receivables Held for Sale

We reportreported finance receivables held for sale, included within “Other assets,” of $137$59 million at SeptemberJune 30, 20172020 and $153$64 million at December 31, 2016,2019, which consist entirely of real estate loans, and are carried at the lower of cost or fair value, and consist entirelyapplied on an aggregate basis.

In February 2019, we sold a portfolio of real estate loans. At September 30, 2017 and December 31, 2016, the fair value of our finance receivables held for sale exceeded the cost. We used the aggregate basis to determine the lower of cost or fair value of finance receivables held for sale.

SPRINGCASTLE PORTFOLIO

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

PERSONAL LOANS

On May 2, 2016, we sold personal 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 sale of $22 million.

23



REAL ESTATE LOANS

On June 30, 2016, we transferred $257 million of real estate loans (after deducting allowance for finance receivable losses) from held for investment to held for sale due to management’s intent to no longer hold these finance receivables for the foreseeable future. In connection with the August 2016February 2019 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$3 million.


At June 30, 2020, 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 the three and ninesix months ended SeptemberJune 30, 20172020 and 2016.2019.

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6. Investment Securities    


7. Investment Securities

AVAILABLE-FOR-SALE SECURITIES


Cost/amortized cost, allowance for credit losses, unrealized gains and losses, and fair value of fixed maturity available-for-sale securities by type were as follows:
(dollars in millions)Cost/
Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
June 30, 2020*    
Fixed maturity available-for-sale securities:    
U.S. government and government sponsored entities$12  $—  $—  $12  
Obligations of states, municipalities, and political subdivisions84  5  —  89  
Commercial paper31  —  —  31  
Non-U.S. government and government sponsored entities134  8  —  142  
Corporate debt1,087  72  (7) 1,152  
Mortgage-backed, asset-backed, and collateralized:   
RMBS209  8  —  217  
CMBS63  2  (1) 64  
CDO/ABS85  1  (2) 84  
Total$1,705  $96  $(10) $1,791  
* The allowance for credit losses related to our investment securities was immaterial as of June 30, 2020.
(dollars in millions) 
Cost/
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
         
September 30, 2017  
  
  
  
Fixed maturity available-for-sale securities:  
  
  
  
Bonds  
  
  
  
U.S. government and government sponsored entities $19
 $—
 $—
 $19
Obligations of states, municipalities, and political subdivisions 71
 —
 —
 71
Non-U.S. government and government sponsored entities 4
 —
 —
 4
Corporate debt 354
 5
 (2) 357
Mortgage-backed, asset-backed, and collateralized:  
  
  
  
RMBS 38
 —
 —
 38
CMBS 29
 —
 —
 29
CDO/ABS 49
 —
 —
 49
Total bonds 564
 5
 (2) 567
Preferred stock (a) 7
 —
 (1) 6
Other long-term investments 1
 —
 —
 1
Total (b) $572
 $5
 $(3) $574
         
December 31, 2016  
  
  
  
Fixed maturity available-for-sale securities:  
  
  
  
Bonds        
U.S. government and government sponsored entities $13
 $—
 $—
 $13
Obligations of states, municipalities, and political subdivisions 83
 —
 (1) 82
Non-U.S. government and government sponsored entities 5
 —
 —
 5
Corporate debt 356
 2
 (5) 353
Mortgage-backed, asset-backed, and collateralized:  
  
  
  
RMBS 39
 —
 —
 39
CMBS 33
 —
 —
 33
CDO/ABS 46
 —
 —
 46
Total bonds 575
 2
 (6) 571
Preferred stock (a) 6
 —
 —
 6
Other long-term investments 1
 —
 —
 1
Total (b) $582
 $2
 $(6) $578


(dollars in millions)Cost/
Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
December 31, 2019*
Fixed maturity available-for-sale securities:
U.S. government and government sponsored entities$11  $—  $—  $11  
 Obligations of states, municipalities, and political subdivisions91  2  (1) 92  
Commercial paper91  —  —  91  
Non-U.S. government and government sponsored entities144  3  —  147  
Corporate debt1,054  45  (1) 1,098  
Mortgage-backed, asset-backed, and collateralized:
RMBS214  3  —  217  
CMBS56  1  —  57  
CDO/ABS84  1  —  85  
Total$1,745  $55  $(2) $1,798  
* The balances reported as of December 31, 2019 are not subject to the adoption of ASU 2016-13 on January 1, 2020 and continue to be reported under ASC 320, Investments – Debt and EquitySecurities.

As of June 30, 2020, interest receivables reported in “Other assets” totaled $12 million, and no amounts were reversed from investment revenue for available-for-sale securities.

24
30



(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 September 30, 2017 and December 31, 2016, which is classified as a restricted investment and carried at cost.

Fair value and unrealized losses on available-for-sale securities by type and length of time in a continuous unrealized loss position without an allowance for credit losses were as follows:
 Less Than 12 Months12 Months or LongerTotal
(dollars in millions)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
June 30, 2020      
Non-U.S. government and government sponsored entities$2  $—  $—  $—  $2  $—  
Corporate debt112  (7) 3  —  115  (7) 
Mortgage-backed, asset-backed, and collateralized:
RMBS2  —  —  —  2  —  
CMBS18  (1) —  —  18  (1) 
CDO/ABS32  (2) —  —  32  (2) 
Total$166  $(10) $3  $—  $169  $(10) 
December 31, 2019*      
U.S. government and government sponsored entities$—  $—  $3  $—  $3  $—  
Obligations of states, municipalities, and political subdivisions29  (1) 4  —  33  (1) 
Commercial paper76  —  —  —  76  —  
Non-U.S. government and government sponsored entities19  —  14  —  33  —  
Corporate debt63  (1) 13  —  76  (1) 
Mortgage-backed, asset-backed, and collateralized:
RMBS45  —  —  —  45  —  
CMBS15  —  7  —  22  —  
CDO/ABS14  —  —  —  14  —  
Total$261  $(2) $41  $—  $302  $(2) 

* The balances reported as of December 31, 2019 are not subject to the adoption of ASU 2016-13 on January 1, 2020 and continue to be reported under ASC 320, Investments – Debt and EquitySecurities.
  Less Than 12 Months 12 Months or Longer Total
(dollars in millions) 
Fair
Value
 
Unrealized
Losses *
 
Fair
Value
 
Unrealized
Losses *
 
Fair
Value
 
Unrealized
Losses
             
September 30, 2017  
  
  
  
  
  
Bonds:  
  
  
  
  
  
U.S. government and government sponsored entities $12
 $—
 $4
 $—
 $16
 $—
Obligations of states, municipalities, and political subdivisions 11
 —
 14
 —
 25
 —
Corporate debt 63
 (1) 83
 (1) 146
 (2)
RMBS 5
 —
 21
 —
 26
 —
CMBS 4
 —
 14
 —
 18
 —
CDO/ABS 16
 —
 11
 —
 27
 —
Total bonds 111
 (1) 147
 (1) 258
 (2)
Preferred stock —
 —
 6
 (1) 6
 (1)
Other long-term investments 1
 —
 —
 —
 1
 —
Total $112
 $(1) $153
 $(2) $265
 $(3)
             
December 31, 2016  
  
  
  
  
  
Bonds:  
  
  
  
  
  
U.S. government and government sponsored entities $9
 $—
 $—
 $—
 $9
 $—
Obligations of states, municipalities, and political subdivisions 57
 (1) 2
 —
 59
 (1)
Non-U.S. government and government sponsored entities 3
 —
 —
 —
 3
 —
Corporate debt 171
 (5) 5
 —
 176
 (5)
RMBS 33
 —
 —
 —
 33
 —
CMBS 22
 —
 —
 —
 22
 —
CDO/ABS 25
 —
 —
 —
 25
 —
Total bonds 320
 (6) 7
 —
 327
 (6)
Preferred stock —
 —
 6
 —
 6
 —
Total $320
 $(6)
$13

$—
 $333
 $(6)
*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 169256 and 217398 investment securities in an unrealized loss position at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively. We do not consider the unrealized losses to be credit-related, as these unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. Additionally, at SeptemberJune 30, 2017,2020, there were no credit impairments on investment securities that we had nointend to sell. We do not have plans to sell any of the remaining investment securities with unrealized losses as of June 30, 2020, and we believe it is more likely than not that we would not be required to sell such investment securities before recovery of their amortized cost.


We continue to monitor unrealized loss positions for potential credit impairments. During the three and ninesix months ended SeptemberJune 30, 2017 and 2016, we did not recognize any other-than-temporary impairment2020, credit impairments were immaterial related to our investment securities. Therefore, there were no material additions or reductions in the allowance for credit losses (impairments recognized or reversed in earnings) on ourcredit impaired available-for-sale securities in investment revenues.

25



Duringfor the three and ninesix months ended SeptemberJune 30, 20172020.
31

Prior to the adoption of ASU 2016-13, other-than-temporary impairment losses, primarily on corporate debt, in investment revenues were immaterial during the three and 2016, theresix months ended June 30, 2019. There were no material additions or reductions in the cumulative amount of credit losses (recognized in earnings) on other-than-temporarily impaired available-for-sale securities.securities during the three and six months ended June 30, 2019.


The proceeds of available-for-sale securities sold or redeemed during the three and six months ended June 30, 2020 totaled $47 million and $105 million, respectively. The proceeds of available-for-sale securities sold or redeemed during the resultingthree and six months ended June 30, 2019 totaled $180 million and $209 million, respectively. The net realized gains and losses were as follows:immaterial during the three and six months ended June 30, 2020 and 2019.
(dollars in millions) Three Months Ended September 30, Nine Months Ended September 30,
 2017
2016
2017 2016
         
Proceeds from sales and redemptions $103
 $42
 $222
 $235
         
Realized gains $3
 $1
 $7
 $5
Realized losses —
 —
 (1) —
Net realized gains $3
 $1
 $6
 $5


Contractual maturities of fixed-maturity available-for-sale securities at SeptemberJune 30, 20172020 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$137  $136  
Due after 1 year through 5 years611  581  
Due after 5 years through 10 years509  475  
Due after 10 years169  156  
Mortgage-backed, asset-backed, and collateralized securities365  357  
Total$1,791  $1,705  
(dollars in millions) 
Fair
Value
 
Amortized
Cost
     
Fixed maturities, excluding mortgage-backed, asset-backed, and collateralized securities:  
  
Due in 1 year or less $67
 $67
Due after 1 year through 5 years 221
 221
Due after 5 years through 10 years 40
 39
Due after 10 years 123
 121
Mortgage-backed, asset-backed, and collateralized securities 116
 116
Total $567
 $564


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$620 million and $11$633 million at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively.


TRADING AND
OTHER SECURITIES


The fair value of other securities by type was as follows:
(dollars in millions)June 30, 2020December 31, 2019
Fixed maturity other securities: 
Bonds 
Non-U.S. government and government sponsored entities$1  $1  
Corporate debt20  24  
Mortgage-backed, asset-backed, and collateralized bonds15  15  
Total bonds36  40  
Preferred stock *13  19  
Common stock *22  26  
Other long-term investments—  1  
Total$71  $86  
* We employ an income equity strategy targeting investments in stocks with strong current dividend yields. Stocks included have a history of stable or increasing dividend payments.

32

(dollars in millions) September 30,
2017		 December 31,
2016
     
Fixed maturity other securities:  
  
Bonds  
  
Corporate debt $2
 $2
Mortgage-backed, asset-backed, and collateralized:    
CMBS —
 1
Total $2
 $3

Mark-to-marketNet unrealized gains on trading and other securities held at Septemberwere $6 million for the three months ended June 30, 20172020. Net unrealized gains on other securities held were immaterial for the three months ended June 30, 2019. We recognized $7 million in unrealized losses and 2016$5 million in unrealized gains on other securities for the six months ended June 30, 2020 and 2019, respectively.

There were 0 net realized gains (losses)and losses on trading and other securities sold or redeemed during the 2017 and 2016 periods were immaterial for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016. We report these gains (losses) in investment revenues. 2019.

Other securities areinclude equity securities and those securities for which the fair value option was elected. Our remaining tradingWe report net unrealized and realized gains and losses on other securities wereheld, sold, or redeemed in the first quarter of 2016.investment revenue.



26

8. Long-term Debt



7. Transactions with Affiliates of Fortress    

SUBSERVICING AGREEMENT

Nationstar subservices the real estate loans of certain of our subsidiaries. Investment funds managed by affiliates of Fortress indirectly own a majority interest in Nationstar. The subservicing fees paid to Nationstar were $1 million or less for the three and nine months ended September 30, 2017 and 2016.

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, as a result, Logan Circle is no longer an affiliate of Fortress. Costs and fees incurred for these investment management services were $1 million or less for the three and nine months ended September 30, 2017 and 2016.

SALE OF EQUITY INTEREST IN SPRINGCASTLE JOINT VENTURE

On March 31, 2016, we sold our 47% equity interest in the SpringCastle Joint Venture, which owns the SpringCastle Portfolio, to certain subsidiaries of NRZ and Blackstone. NRZ is managed by an affiliate of Fortress.

8. 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 2017 and does not expect to demand payment from SFI in 2017. The note receivable from SFI totaled $393 million at September 30, 2017 and $285 million at December 31, 2016. The interest rate for the UPB is the lender’s cost of funds rate, which was 6.06% at September 30, 2017. Interest revenue on the note receivable from SFI totaled $7 million and $17 million for the three and nine months ended September 30, 2017, respectively, compared to $4 million and $14 million for the three and nine months ended September 30, 2016, respectively, which we report in interest income on notes receivable from parent and affiliates.

Independence Demand Note. On November 12, 2015, in connection with the closing of the OneMain Acquisition, CSI, SFC’s wholly owned subsidiary, entered into the Independence Demand Note, whereby CSI agreed to make advances to Independence from time to time, with 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 proceeds of any advance either (i) to fund a portion of the purchase price for the OneMain Acquisition or (ii) for general corporate purposes. The note is payable in full on December 31, 2019, and CSI can 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. Interest revenue on the note receivable from Independence totaled $47 million and $139 million for the three and nine months ended September 30, 2016, respectively.

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.

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 6.06% at September 30, 2017.

At September 30, 2017 and December 31, 2016, the note receivable from Independence relating to the Cash Services Note totaled $2.8 billion and $2.9 billion, respectively, which included compounded interest due to CSI. Interest revenue on the note receivable from Independence relating to the Cash Services Note totaled $43 million and $131 million for the three and nine

27



months ended September 30, 2017, respectively, which we report in interest income on notes receivable from parent and affiliates.

OneMain Demand Note. On November 15, 2015, in connection with the closing of the OneMain Acquisition, SFC entered into the OneMain Demand 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) 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 September 30, 2017, the maximum amount that may be advanced totaled $1.6 billion. At September 30, 2017 and December 31, 2016, the note receivable from OMFH totaled $1.1 billion and $530 million, respectively, which included compounded interest due to SFC. Interest revenue on the note receivable from OMFH totaled $21 million and $43 million for the three and nine months ended September 30, 2017, respectively, and $5 million for each of the three and nine months ended September 30, 2016, which we report in interest income on notes receivable from parent and affiliates.

Receivables from Parent and Affiliates

At September 30, 2017 and December 31, 2016, receivables from parent and affiliates totaled $6 million and $40 million, respectively. At September 30, 2017, receivables from parent and affiliates included (i) interest receivable on SFC’s note receivable from SFI previously discussed in this Note, (ii) taxes paid by SFC for all entities and then settled under the tax sharing agreement, (iii) intercompany insurance premiums collected, and (iv) the servicing fees and collections received on the legacy OneMain loans serviced by legacy Springleaf branches. At December 31, 2016, receivables from parent and affiliates also included expenses paid by a subsidiary of SFC for the benefit of parent and affiliates. Receivables from parent and affiliates at December 31, 2016 are presented net of a payable to SFI of $6 million. Excluding this payable, receivables from parent and affiliates totaled $46 million at December 31, 2016.

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, which was 6.06% at September 30, 2017.

Interest expense on the note payable to OMFH was $1 million and $7 million for the three and nine months ended September 30, 2016, respectively, which we report in interest expense. At September 30, 2017, the maximum amount that may be advanced totaled $750 million. No amounts were drawn under the note at September 30, 2017 and December 31, 2016.

Payables to Parent and Affiliates

At September 30, 2017 and December 31, 2016, payables to parent and affiliates totaled $53 million and $13 million, respectively. At September 30, 2017 and December 31, 2016, SFC had net payables of $48 million and $12 million, respectively, primarily to OGSC, which related to the intercompany agreements further discussed below in this Note. At September 30, 2017 and December 31, 2016, SFC also had a payable of $1 million to OCLI, a subsidiary of SFI, for internet lending referral fees charged to the branch network. See “Loan Referral Fees” below. Additionally, at September 30, 2017, SFC had a payable of $4 million to OMFH for servicing and collection fees of legacy Springleaf loans serviced by legacy OneMain branches. See “Loan Servicing Fees” below for further information.

LOAN SALE TRANSACTIONS

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.


28



During the second quarter of 2016, 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 $89 million for an aggregate purchase price of $89 million. OCLI continues to service these loans. SFC recorded service fee expenses of less than $1 million and $1 million for the three and nine months ended September 30, 2017, respectively, and $1 million and $2 million for the three and nine months ended September 30, 2016, respectively.

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. During the three and nine months ended September 30, 2017, SFC recorded $4 million and $10 million, respectively, of service fee expenses for the legacy Springleaf loans serviced by legacy OneMain branches and $4 million and $11 million, respectively, of service fee income for the legacy OneMain loans serviced by legacy Springleaf branches. At September 30, 2017, SFC’s receivable from OMFH for the servicing fees and collections received on the legacy OneMain loans serviced by legacy Springleaf branches totaled $4 million, and SFC’s payable to OMFH for the servicing fees and collections received on the legacy Springleaf loans serviced by legacy OneMain branches totaled $4 million.

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 the three and nine months ended September 30, 2017, SFC recorded $5 million and $16 million, respectively, compared to $4 million and $11 million for the three and nine months ended September 30, 2016, respectively, of referral fee expense. SFC’s payable to OCLI for internet lending referral fees totaled $1 million at September 30, 2017 and December 31, 2016.

DEBT PURCHASES

In June of 2017, OMAS, a subsidiary of OMFH, purchased $4 million principal amount of SFC’s medium term notes in the open market for an aggregate purchase price of $4 million. At the purchase dates, these notes had a carrying value of $3 million.

In March of 2017, OMAS purchased $1 million principal amount of SFC’s medium term notes in the open market for an aggregate purchase price of $1 million. At the purchase dates, these notes had a carrying value of $1 million.

In December of 2016, OMAS purchased $5 million principal amount of SFC’s medium term notes in the open market for an aggregate purchase price of $5 million. At the purchase dates, these notes had a carrying value of $5 million.

These purchase transactions did not impact our condensed consolidated financial statements.

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.

CAPITAL CONTRIBUTION TO SFC

During the first quarter of 2016, SFC received a capital contribution of $10 million from SFI to satisfy an interest payment required by the Junior Subordinated Debenture in respect of SFC’s junior subordinated debt.

INTERCOMPANY AGREEMENTS

OGSC, as successor to SFMC and SGSC, is a party to the following intercompany agreements.


29



Services Agreement

OGSC provides the following services to various affiliates under a services 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. 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 the three and nine months ended September 30, 2017, total service fee expenses recorded by SFC totaled $83 million and $221 million, respectively, which are included in operating expenses, compared to $58 million and $183 million for the three and nine months ended September 30, 2016, respectively.

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 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. SFC did not record any license fees during the three months ended September 30, 2017, and total license fees for the nine months ended September 30, 2017 remained at $1 million, which is included as a contra expense to other operating expenses. During the three and nine months ended September 30, 2016, SFC recorded $1 million and $4 million, respectively, of license fees.

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, SFC did not record any intercompany rental income during the three months ended September 30, 2017, and SFMC’s rent charged to SGSC for the nine months ended September 30, 2017 remained at
$1 million, which is included as a contra expense to other operating expenses. During the three and nine months ended September 30, 2016, SFC recorded $1 million and $3 million, respectively, of rent income attributable to the building lease agreement that previously existed between SFMC and SGSC and that was terminated effective April 5, 2017.


30



9. Long-term Debt    


Principal maturities of long-term debt (excluding projected repayments on securitizations and revolving conduit facilities by period) by type of debt at SeptemberJune 30, 20172020 were as follows:
Senior Debt
(dollars in millions)SecuritizationsUnsecured
Notes (a)		Junior
Subordinated
Debt (a)		Total
Interest rates (b)0.98%-6.94%5.38%-8.88%2.97 %
Remainder of 2020$—  $999  $—  $999  
2021—  644  —  644  
2022—  1,000  —  1,000  
2023—  1,175  —  1,175  
2024—  1,300  —  1,300  
2025-2067—  4,995  350  5,345  
Securitizations (c)7,867  —  —  7,867  
Total principal maturities$7,867  $10,113  $350  $18,330  
Total carrying amount$7,835  $10,003  $172  $18,010  
Debt issuance costs (d)(29) (86) —  (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%
 3.05%  
         
Fourth quarter 2017 $—
 $557
 $—
 $557
2018 —
 —
 —
 —
2019 —
 700
 —
 700
2020 —
 1,300
 —
 1,300
2021 —
 650
 —
 650
2022 —
 1,000
 —
 1,000
2023-2067 —
 300
 350
 650
Securitizations (b) 3,110
 —
 —
 3,110
Total principal maturities $3,110
 $4,507
 $350
 $7,967
         
Total carrying amount $3,097
 $4,329
 $172
 $7,598
Debt issuance costs (c) $(12) $(21) $—
 $(33)
(a)The interest rates shown are the range of contractual rates in effect at September 30, 2017. Effective January 16, 2017, the interest rate on the UPB of the Junior Subordinated Debenture became a variable floating rate (determined quarterly) equal to 3-month LIBOR plus 1.75%, or 3.05% as of September 30, 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(a) Pursuant to the stated maturity date. At September 30, 2017, there were no amounts drawn under our revolving conduit facilities. See Note 10 for further information on our long-term debt associated with securitizations and revolving conduit facilities.

(c)Debt issuance costs are reported as a direct deduction from long-term debt, with the exception of debt issuance costs associated with our revolving conduit facilities, which totaled $12 million at September 30, 2017 and are reported in other assets.

SFC’S OFFERINGS OF 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 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” and, collectively with the SFC Base Indenture, the “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 NotesSupplemental Indentures 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 intends to use the remaining net proceeds from the sale of the 6.125% SFC Notes for general corporate purposes, which may include additional debt repurchases and repayments.



31



The 6.125% 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 contains covenants that, among other things, (i) limit SFC’s ability to create liens on assets and (ii) restrict SFC’s ability to consolidate, merge or sell its assets. The Indenture also provides for events of default which, if any of them were to occur, would permit or require the principal of and accrued interest on the 6.125% SFC Notes to become, or to be declared, due and payable.

GUARANTY AGREEMENTS

6.125% SFC Notes

On May 15, 2017,Guaranty Agreements, 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 September 30, 2017, $1.0 billion aggregate principal amount of the 6.125% SFCUnsecured 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 September 30, 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 September 30, 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 consisted of the following: 8.25% Senior Notes due 2023; 7.75% Senior Notes due 2021; 6.00% Senior Notes due 2020; the Junior Subordinated Debenture; and all senior notes outstanding on December 30, 2013, issued pursuant to the 1999 Indenture, between SFC and Wilmington (the successor trustee to Citibank N.A.). 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 September 30, 2017, $2.2 billion aggregate principal amount of the Other SFC Notes were outstanding.

Debenture. The OMH guarantees of SFC’sOMFC’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 June 30, 2020.
(c) Securitizations 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 June 30, 2020, there were 0 amounts drawn under our revolving conduit facilities. See Note 9 for further information on our long-term debt associated with securitizations and revolving conduit facilities.
10. Variable Interest Entities    (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 June 30, 2020 and are reported in “Other assets.”



8.875% SENIOR NOTES DUE 2025 OFFERING

On May 14, 2020, OMFC issued a total of $600 million aggregate principal amount of 8.875% Senior Notes due 2025 (the “8.875% Senior Notes due 2025”) under the Base Indenture, as supplemented by the Tenth Supplemental Indenture, pursuant to which OMH provided a guarantee on an unsecured basis.

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REDEMPTION OF 8.25% SENIOR NOTES DUE 2020

On June 29, 2020, OMFC issued a notice of full redemption of its 8.25% Senior Notes due 2020. On July 29, 2020, OMFC paid an aggregate amount of $1.0 billion, inclusive of accrued interest and premiums, to complete the redemption. In connection with the redemption, we will recognize approximately $35 million of net loss on repurchases and repayments of debt in the third quarter of 2020.


9. 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, weWe have transferred certain finance receivables to VIEs for asset-backed financing transactions including securitization and conduit transactions. We have determined thatinclude the assets and liabilities in our consolidated financial statements because we are 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’sVIE. We account for these asset-backed debt obligations are accounted for as secured borrowings. We are deemed to be the primary beneficiary of each VIE because we have the ability to direct the activities

See Note 3 and Note 11 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 and its affiliates’ contractual right to service the finance

32



receivables securing the VIEs’ debt obligations. To the extent we retain any subordinated debt obligation or residual interest in an asset-backed financing facility, we are exposed to potentially significant losses and potentially significant returns.
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 recourseNotes to the Company if the cash flows from the underlying finance receivables securing such debt obligations are not sufficient to pay all principal and interestConsolidated Financial Statements in Part II - Item 8 included in our 2019 Annual Report 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. We expect that any credit losses in the pools of finance receivables securing the asset-backed debt obligations will likely be limited to our subordinated and residual retained interests. We have no obligation to repurchase or replace qualified finance receivables that subsequently become delinquent or are otherwise in default.Form 10-K for more detail regarding VIEs.


We parenthetically disclose on our consolidated balance sheets the VIE’s assets that can only be used to settle the VIE’s obligations and liabilities if its creditors have no recourse against the primary beneficiary’s general credit. The carrying amounts of consolidated VIE assets and liabilities associated with our securitization trusts and revolving conduit facilities were as follows:
(dollars in millions)June 30, 2020December 31, 2019
Assets  
Cash and cash equivalents$3  $4  
Finance receivables - Personal loans8,877  8,428  
Allowance for finance receivable losses1,132  340  
Restricted cash and restricted cash equivalents459  400  
Other assets29  29  
Liabilities  
Long-term debt$7,835  $7,643  
Other liabilities15  15  
(dollars in millions) September 30,
2017		 December 31,
2016
     
Assets  
  
Cash and cash equivalents $2
 $2
Finance receivables:  
  
Personal loans 3,389
 2,943
Allowance for finance receivable losses 117
 94
Restricted cash and restricted cash equivalents 167
 211
Other assets 12
 9
     
Liabilities  
  
Long-term debt $3,097
 $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 $90 million and $172 million during the three and six months ended June 30, 2020, respectively, compared to $82 million and $164 million during the three and six months ended June 30, 2019, respectively.

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 securitizationssecuritization 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.



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34


Our securitized borrowings at September 30, 2017 consisted of the following:
(dollars in millions) Current
Note Amounts
Outstanding		 
Current
Weighted Average
Interest Rate
 
Original
Revolving
Period
       
Consumer Securitizations:      
SLFT 2015-A (a) $1,163
 3.47% 3 years
SLFT 2015-B (b) 314
 3.78% 5 years
SLFT 2016-A (c) 500
 3.10% 2 years
SLFT 2017-A (d) 619
 2.98% 3 years
Total consumer securitizations 2,596
    
       
Auto Securitizations:      
ODART 2016-1 (e) 246
 2.70% —
ODART 2017-1 (f) 268
 2.61% 1 year
Total auto securitizations 514
    
       
Total secured structured financings $3,110
    
(a)
SLFT 2015-A Securitization. On February 26, 2015, we issued $1.2 billion of notes backed by personal loans. The notes mature in November 2024.

(b)
SLFT 2015-B Securitization. On April 7, 2015, we issued $314 million of notes backed by personal loans. The notes mature in May 2028.

(c)
SLFT 2016-A Securitization. On December 14, 2016, we issued $532 million of notes backed by personal loans. The notes mature in November 2029. We initially retained $32 million of the asset-backed notes.

(d)
SLFT 2017-A Securitization. On June 28, 2017, we issued $652 million of notes backed by personal loans. The notes mature in July 2030. 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.

(e)
ODART 2016-1 Securitization. On July 19, 2016, we issued $754 million of notes backed by direct auto loans. 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.

(f)
ODART 2017-1 Securitization. On February 1, 2017, we issued $300 million of notes backed by direct auto loans. 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.

REVOLVING CONDUIT FACILITIES


As of September 30, 2017, our borrowings underWe had access to 14 revolving conduit facilities consistedwith a total maximum borrowing capacity of the following:$7.1 billion as of June 30, 2020. Ourconduit facilities contain revolving periods during which time no principal payments are required, but may be made without penalty followed by a subsequent amortization period. Principal balances of outstanding loans, if any, are due and payable in full over periods ranging up to ten years as of June 30, 2020. Amounts drawn on these facilities are collateralized by our personal loans.

At June 30, 2020, 0 amounts were drawn under these facilities.

(dollar in millions)
Note Maximum
Balance
Amount
Drawn
Revolving
Period End







First Avenue Funding LLC $250
 $—
 June 2018
Seine River Funding, LLC 500
 —
 December 2019
Thur River Funding, LLC (a) 350
 —
 June 2020
Mystic River Funding, LLC (b) 850
 —
 September 2020
Fourth Avenue Auto Funding, LLC (c) 250
 —
 September 2020
Total
$2,200

$—




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2017 Activity

(a)Concurrent with the termination of the note purchase agreement with the Sumner Brook 2013-VFN1 Trust discussed below, on June 29, 2017, we entered into the Thur River Funding LSA with the same third party lenders who were parties to the terminated note purchase agreement. We may borrow up to a maximum principal balance of $350 million under the Thur River Funding LSA, and amounts borrowed will be backed by personal loans acquired from subsidiaries and affiliates of SFC from time to time. Following the revolving period, the principal balance of the outstanding loans, if any, will be reduced as cash payments are received on the underlying personal loans and will be due and payable in full in February 2027.10. Insurance

(b)Concurrent with the termination of the note purchase agreement with the Springleaf 2013-VFN1 Trust discussed below, on September 28, 2017, we entered into the Mystic River Funding LSA with the same third party lenders who were parties to the terminated note purchase agreement. We may borrow up to a maximum principal balance of $850 million under the Mystic River Funding LSA, and amounts borrowed will be backed by personal loans acquired from subsidiaries and affiliates of SFC. Following the revolving period, the principal balance of the outstanding loans, if any, will be reduced as cash payments are received on the underlying personal loans and will be due and payable in full in October 2023.

(c)Concurrent with the termination of the note purchase agreement with the Second Avenue Funding, LLC discussed below, on September 29, 2017, we entered into the Fourth Avenue Auto Funding LSA with the same third party lenders who were parties to the terminated note purchase agreement. We may borrow up to a maximum principal balance of $250 million under the Fourth Avenue Auto Funding LSA, and amounts borrowed will be backed by auto loans acquired from subsidiaries and affiliates of SFC. Following the revolving period, the principal balance of the outstanding loans, if any, will be reduced as cash payments are received on the underlying personal loans and will be due and payable in full in October 2021.

Midbrook 2013-VFN1 Trust. On April 13, 2017, Midbrook 2013-VFN1 Trust voluntarily terminated its note purchase agreement with its lenders.

Sumner Brook 2013-VFN1 Trust. On June 29, 2017, Sumner Brook 2013-VFN1 Trust voluntarily terminated its note purchase agreement with its lenders.

Whitford Brook 2014 - VFNI Trust. On July 14, 2017, Whitford Brook 2014-VFNI Trust voluntarily terminated its note purchase agreement with its lenders.

Springleaf 2013-VFN1 Trust. On September 28, 2017, Springleaf 2013-VFN1 Trust voluntarily terminated its note purchase agreement with its lenders.

Second Avenue Funding LLC. On September 29, 2017, Second Avenue Funding, LLC voluntarily terminated its note purchase agreement with its lenders.

VIEINTEREST EXPENSE

Other than the retained subordinate and residual interests in our consolidated VIEs, we are under no obligation, either contractually or implicitly, to provide financial support to these entities. Consolidated interest expense related to our VIEs for the three and nine months ended September 30, 2017 totaled $30 million and $83 million, respectively, compared to $25 million and $97 million for the three and nine months ended September 30, 2016, respectively.

DECONSOLIDATED VIES

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


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11. Insurance    


Changes in the reserve for unpaid claims and loss adjustment expenses (not considering reinsurance recoverable):
At or for the
Six Months Ended June 30,
(dollars in millions)20202019
Balance at beginning of period$117  $117  
Less reinsurance recoverables(4) (4) 
Net balance at beginning of period113  113  
Additions for losses and loss adjustment expenses incurred to:
Current year174  111  
Prior years *(11) (15) 
Total163  96  
Reductions for losses and loss adjustment expenses paid related to:
Current year(58) (50) 
Prior years(47) (48) 
Total(105) (98) 
Net balance at end of period171  111  
Plus reinsurance recoverables3  3  
Balance at end of period$174  $114  
* Reflects (i) a redundancy in the prior years’ net reserves of $11 million at June 30, 2020, primarily due to favorable development of credit life, term life, and credit disability claims during the period, and (ii) a redundancy in the prior years’ net reserves of $15 million at June 30, 2019, primarily due to a favorable development of credit life, disability, and unemployment claims during the period.

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11. Capital Stock and Earnings Per Share (OMH Only)

CAPITAL STOCK

OMH has 2 classes of authorized capital stock: preferred stock and common stock. OMFC has 2 classes of authorized capital stock: special stock and common stock. OMH and OMFC may issue preferred stock and special stock, respectively, in one or more series. The OMH Board of Directors and the OMFC Board of Directors determine the dividend, liquidation, redemption, conversion, voting, and other rights prior to issuance.

During the first quarter of 2020, the OMH Board of Directors approved a stock repurchase program, which allowed us to repurchase up to $200 million of OMH’s outstanding common stock with no stated expiration. On March 20, 2020, OMH temporarily suspended its stock repurchase program. OMH retains the right to reinstate the stock repurchase program as circumstances change.

Prior to the suspension of the program, OMH repurchased and retired 2,031,698 shares of its common stock with an average price paid per share of $22.30, for an aggregate total of approximately $45 million, including commissions and fees. The aggregate purchase price in excess of the par value of the repurchased OMH common stock is recorded as a reduction to additional paid-in-capital. To provide funding for the OMH stock repurchase and retirement program, the OMFC Board of Directors authorized multiple dividend payments in the aggregate amount of $45 million.

Changes in OMH shares of common stock issued and outstanding were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Balance at beginning of period134,309,707  136,082,463  136,101,156  135,832,278  
Common shares issued9,464  6,954  249,713  257,139  
Common shares retired—  —  (2,031,698) —  
Balance at end of period134,319,171  136,089,417  134,319,171  136,089,417  

EARNINGS PER SHARE (OMH ONLY)

The computation of earnings per share was as follows:
Three Months Ended June 30,Six Months Ended June 30,
(dollars in millions, except per share data)2020201920202019
  
Numerator (basic and diluted):    
Net income$89  $194  $121  $346  
Denominator:    
Weighted average number of shares outstanding (basic)134,316,252  136,083,993  135,112,676  136,043,221  
Effect of dilutive securities *63,324  164,820  147,720  177,053  
Weighted average number of shares outstanding (diluted)134,379,576  136,248,813  135,260,396  136,220,274  
Earnings per share:    
Basic$0.66  $1.43  $0.90  $2.54  
Diluted$0.66  $1.42  $0.90  $2.54  
* We have excluded weighted-average unvested restricted stock units totaling 483,644 and 247,990 for the three months ended June 30, 2020 and 2019, respectively, and 304,866 and 353,292 for the six months ended June 30, 2020 and 2019, respectively, from the fully-diluted earnings per share calculations as these shares would be anti-dilutive, which could impact the earnings per share calculation in the future.

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  At or for the
Nine Months Ended September 30,
(dollars in millions) 2017 2016
     
Balance at beginning of period $70
 $73
Less reinsurance recoverables (22) (22)
Net balance at beginning of period 48
 51
Additions for losses and loss adjustment expenses incurred to:    
Current year 52
 49
Prior years * —
 (1)
Total 52
 48
Reductions for losses and loss adjustment expenses paid related to:    
Current year (31) (31)
Prior years (20) (20)
Total (51) (51)
Net balance at end of period 49
 48
Plus reinsurance recoverables 22
 22
Balance at end of period $71
 $70
Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during each period. Diluted earnings per share is computed based on the weighted-average number of shares outstanding plus the effect of potentially dilutive shares outstanding during the period using the treasury stock method. The potentially dilutive shares represent outstanding unvested RSUs and RSAs.

*Reflects (i) a redundancy in the prior years’ net reserves of less than $1 million at September 30, 2017 primarily due to favorable development on ordinary life and credit disability during the year and (ii) a redundancy in the prior years’ net reserves of $1 million at September 30, 2016 primarily due to credit disability and credit involuntary unemployment insurance claims developing more favorably than anticipated.12. Accumulated Other Comprehensive Income (Loss)


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12. Accumulated Other Comprehensive Income (Loss)    


Changes, net of tax, in accumulated other comprehensive income (loss) were as follows:
(dollars in millions)Unrealized
Gains (Losses)
Available-for-Sale Securities *		Retirement
Plan Liabilities
Adjustments		Foreign
Currency
Translation
Adjustments		Total
Accumulated
Other
Comprehensive
Income (Loss)
Three Months Ended June 30, 2020    
Balance at beginning of period$(1) $3  $(8) $(6) 
Other comprehensive income before reclassifications67  —  4  71  
Balance at end of period$66  $3  $(4) $65  
Three Months Ended June 30, 2019    
Balance at beginning of period$2  $(3) $(1) $(2) 
Other comprehensive income before reclassifications28  —  2  30  
Balance at end of period$30  $(3) $1  $28  
Six Months Ended June 30, 2020    
Balance at beginning of period$41  $3  $—  $44  
Other comprehensive income (loss) before reclassifications25  —  (4) 21  
Balance at end of period$66  $3  $(4) $65  
Six Months Ended June 30, 2019    
Balance at beginning of period$(28) $(3) $(3) $(34) 
Other comprehensive income before reclassifications58  —  4  62  
Balance at end of period$30  $(3) $1  $28  
* There were immaterial amounts related to available-for-sale debt securities for which an allowance for credit losses was recorded during the three and six months ended June 30, 2020.
(dollars in millions) 
Unrealized
Gains (Losses)
Available-for-Sale Securities
 
Retirement
Plan Liabilities
Adjustments
 
Foreign
Currency
Translation
Adjustments
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
         
Three Months Ended September 30, 2017  
  
  
  
Balance at beginning of period $1
 $(1) $—
 $—
Other comprehensive income before reclassifications 2
 —
 —
 2
Reclassification adjustments from accumulated other comprehensive income (loss) (2) —
 —
 (2)
Balance at end of period $1
 $(1) $—
 $—
         
Three Months Ended September 30, 2016  
  
  
  
Balance at beginning of period $4
 $(19) $4
 $(11)
Other comprehensive income before reclassifications 4
 —
 —
 4
Reclassification adjustments from accumulated other comprehensive income (loss) (1) —
 (5) (6)
Balance at end of period $7
 $(19) $(1) $(13)
         
Nine Months Ended September 30, 2017  
  
  
  
Balance at beginning of period $(3) $(4) $—
 $(7)
Other comprehensive income before reclassifications 8
 3
 —
 11
Reclassification adjustments from accumulated other comprehensive income (loss) (4) —
 —
 (4)
Balance at end of period $1
 $(1) $—
 $—
         
Nine Months Ended September 30, 2016  
  
  
  
Balance at beginning of period $(9) $(19) $4
 $(24)
Other comprehensive income before reclassifications 19
 —
 —
 19
Reclassification adjustments from accumulated other comprehensive income (loss) (3) —
 (5) (8)
Balance at end of period $7
 $(19) $(1) $(13)


Reclassification adjustments from accumulated other comprehensive income (loss) to the applicable line item on our condensed consolidated statements of operations were as follows:immaterial for the three and six months ended June 30, 2020 and 2019.
(dollars in millions) Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016
2017
2016
         
Unrealized gains on available-for-sale securities:  
  
  
  
Reclassification from accumulated other comprehensive income (loss) to investment revenues, before taxes $3
 $2
 $6
 $5
Income tax effect (1) (1) (2) (2)
Reclassification from accumulated other comprehensive income (loss) to investment revenues, net of taxes 2
 1
 4
 3
         
Unrealized gains on foreign currency translation adjustments:        
Reclassification from accumulated other comprehensive income (loss) to other revenues —
 5
 —
 5
Total $2
 $6
 $4
 $8

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13. Income Taxes     
13. Income Taxes

At September 30, 2017, weWe had a net deferred tax asset of $7$441 million compared to aand $104 million at June 30, 2020 and December 31, 2019, respectively. The increase in our net deferred tax liabilityasset of $42 million at December 31, 2016. The decrease in net deferred tax liability of $49$337 million was primarily due to the tax recognitioneffect of the 2014 fair value adjustmentincrease in the allowance for finance receivable losses from both the adoption of ASU 2016-13 and the current period activity. See Note 5 for further information on the increase in allowance. The increase was partly offset by favorable mark-to-market valuation of our real estate portfolioreceivables.

We follow the guidance of ASC 740, Income Taxes, for interim reporting of income taxes under which we calculate an estimated annual effective tax rate (“AETR”) and purchase accounting for debt writedown.apply the AETR to our year-to-date income (loss) before income taxes. In addition, we recognize any discrete items as they occur. Our estimates may need to be further adjusted throughout the year as the effects of the COVID-19 pandemic plays out in the economic and financial markets, and as a result, our AETR may significantly change in the remaining period of 2020.


The effective tax rate for the ninesix months ended SeptemberJune 30, 20172020 was 40.9%24.6%, compared to 33.6%24.5% for the same period in 2016.2019. The effective tax raterates for the ninesix months ended SeptemberJune 30, 20172020 and 2019 differed from the federal statutory rate of 21% primarily due to the effect of state income taxes and discrete expense from the 2016 tax year return-to-provision adjustment. The effective tax rate for the nine months ended September 30, 2016 differed from the federal statutory rate primarily due to the effect of the non-controlling interests in the previously owned SpringCastle Portfolio, partially offset by the effect of state income taxes.


We are currently under examination of our U.S. federal tax returnreturns for the years 20112014 to 20132016 by the Internal Revenue Service.IRS. We are also under examination ofby various states for the years 2011 to 2016.2018. Management believes it has adequately provided for taxes for such years.


Our gross unrecognized tax benefits, including related interest and penalties, totaled $12 million at SeptemberJune 30, 20172020 and $11 million at December 31, 2016.2019. We accrue interest related to uncertain tax positions in income tax expense. The amount of any change in the balance of uncertain tax liabilities over the next 12 months is not expected to be material to our consolidated financial statements.


On March 27, 2020, the Coronarvirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, and technical corrections to tax depreciation methods for qualified improvement property. We do not anticipate the CARES Act will have a material impact on our consolidated financial statements. We will continue to monitor legislative developments related to the COVID-19 pandemic.
14. Contingencies    


14. Contingencies

LEGAL CONTINGENCIES


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


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


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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 range of additional loss can be reasonably estimated for any given action.


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

SALES RECOURSE OBLIGATIONS

15. Segment Information

At SeptemberJune 30, 2017, our reserve for sales recourse obligations totaled $11 million, which primarily related to our real estate loan sales in 2014, with a minimal portion of the reserve related to net charge-off sales of our finance receivables. We did not establish any additional reserves 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 sold and the terms of each transaction. During the three and nine months ended September 30, 2017 and 2016, we had no material repurchase activity related to these sales and no material activity related to our sales recourse obligations.

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At September 30, 2017, there were no material repurchase requests with loss exposure that management believed would not be covered by the reserve. However, we will continue to monitor any repurchase activity in the future and will adjust the reserve accordingly. When recourse losses are reasonably possible or exposure to such losses exists in excess of the liability already accrued, it is not always possible to reasonably estimate the size of the possible recourse losses or range of losses.

15. Benefit Plans    

During the three and nine months ended September 30, 2017 and 2016, the components of net periodic benefit cost with respect to our defined benefit pension plans were immaterial. We do not currently fund post retirement benefits.

16. Segment Information    

Our segments coincide with how our businesses are managed. At September 30, 2017, our two segments included:

2020, Consumer and Insurance — We originate and service personal loans (secured and unsecured) through (“C&I”) is our branch network and our centralized operations. We offer credit insurance (life insurance, disability insurance, and involuntary unemployment insurance) and non-credit insurance. 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 “in footprint,” 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 “out of footprint,” not located near a branch, our centralized operations originate the loan.

Acquisitions and Servicing — SFI services the SpringCastle Portfolio that was acquired by an indirect subsidiary of OMH through the SpringCastle Joint Venture. On March 31, 2016, the SpringCastle Portfolio was sold in connection with the sale of our equity interest in the SpringCastle Joint Venture. These loans consist of unsecured loans and loans secured by subordinate residential real estate mortgages and include both closed-end accounts and open-end lines of credit. These loans are in a liquidating status and vary in substance and form from our originated loans. Unless 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.

only reportable segment. The remaining components (which we refer to as “Other”) consist of (i) our liquidating SpringCastle Portfolio servicing activity and (ii) our non-originating legacy operations, which primarily include (i) our liquidating real estate loan portfolio as discussed below, (ii) our liquidating retail sales finance portfolio (including retail sales finance accounts from our legacy auto finance operation), and (iii) our short equity personal loans that we are no longer originating.loans.

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 previously presented as a distinct reporting segment, in “Other.” To conform to this new alignment of our segments, we have revised our prior period segment disclosures.


The accounting policies of the segmentsC&I segment are the same as those disclosed in Note 3 and Note 19 of the Notes to the consolidated financial statements ofConsolidated Financial Statements in Part II - Item 8 included in our 20162019 Annual Report on Form 10-K, except as described below.

Due to the nature of the Fortress Acquisition, we applied purchase accounting. However, we report the operating results of Consumer and Insurance, Acquisitions and Servicing, and Other using the Segment Accounting Basis, which (i) reflects our allocation methodologies for certain costs, primarily interest expense and loan loss reserves, 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).


39



We record revenues and expenses (on a Segment Accounting Basis) directly incurred by a specific segment within the applicable segment. We allocate revenues and expenses that are not directly incurred by a specific segment to each segment using the following methodologies:
10-K.
Interest expense
Consumer and Insurance and Other - Interest expense for unsecured debt is recorded to each of the segments using a weighted average interest rate applied to allocated average unsecured debt.
Average unsecured debt is allocated as follows:
l  Other - At 100% of asset base. (Asset base represents the average net finance receivables including finance receivables held for sale.)
l  Consumer and Insurance - Receives remainder of unallocated average debt.
Provision for finance receivable lossesAllocated to each of the segments based on the remaining delinquent accounts as a percentage of total delinquent accounts.
Other revenues
Net gain (loss) on repurchases and repayments of debt - Allocated to each of the segments based on the interest expense allocation of debt.

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 - Allocated to each of the segments based on services provided.
Other operating expenses - Allocated to each of the segments based on services provided.

The “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; and

Assets - revalues assets based on their fair values at the effective date of the Fortress Acquisition.


40




The following tables present information about the Company’s segments,C&I and Other, as well as reconciliations to the condensed consolidated financial statement amounts.
(dollars in millions)Consumer
and
Insurance		OtherSegment to
GAAP
Adjustment		Consolidated
Total
Three Months Ended June 30, 2020  
Interest income$1,074  $1  $2  $1,077  
Interest expense266  1  4  271  
Provision for finance receivable losses422  —  1  423  
Net interest income after provision for finance receivable losses386  —  (3) 383  
Other revenues144  4  —  148  
Other expenses402  5  6  413  
Income (loss) before income tax expense (benefit)$128  $(1) $(9) $118  

Three Months Ended June 30, 2019  
Interest income$999  $2  $(1) $1,000  
Interest expense232  1  5  238  
Provision for finance receivable losses263  —  5  268  
Net interest income after provision for finance receivable losses504  1  (11) 494  
Other revenues144  12  —  156  
Other expenses378  10  6  394  
Income before income tax expense$270  $3  $(17) $256  

39

(dollars in millions) 
Consumer
and
Insurance
 
Acquisitions
and
Servicing
 Other (a) Segment to
GAAP
Adjustment		 Consolidated
Total		(dollars in millions)Consumer
and
Insurance		OtherSegment to
GAAP
Adjustment		Consolidated
Total
          
Three Months Ended September 30, 2017    
  
  
  
At or for the Six Months Ended June 30, 2020At or for the Six Months Ended June 30, 2020  
Interest income $304
 $—
 $6
 $—
 $310
Interest income$2,174  $3  $7  $2,184  
Interest expense 115
 —
 5
 13
 133
Interest expense515  2  10  527  
Provision for finance receivable losses 64
 —
 6
 —
 70
Provision for finance receivable losses952  —  2  954  
Net interest income (loss) after provision for finance receivable losses 125
 —
 (5) (13) 107
Other revenues (b) 47
 —
 70
 (2) 115
Net interest income after provision for finance receivable lossesNet interest income after provision for finance receivable losses707  1  (5) 703  
Other revenuesOther revenues281  9  (1) 289  
Other expenses 150
 1
 4
 (1) 154
Other expenses809  12  10  831  
Income (loss) before income tax expense (benefit) $22
 $(1) $61
 $(14) $68
Income (loss) before income tax expense (benefit)$179  $(2) $(16) $161  
AssetsAssets$20,389  $70  $2,049  $22,508  

At or for the Six Months Ended June 30, 2019  
Interest income$1,953  $5  $(3) $1,955  
Interest expense462  3  8  473  
Provision for finance receivable losses539  —  15  554  
Net interest income after provision for finance receivable losses952  2  (26) 928  
Other revenues *290  21  (7) 304  
Other expenses740  23  11  774  
Income before income tax expense$502  $—  $(44) $458  
Assets$18,872  $87  $2,058  $21,017  
*Other revenues in Other include the gain on the February 2019 Real Estate Loan Sale as well as the impairment adjustments on the remaining loans in held for sale in 2019.
40

Three Months Ended September 30, 2016      
  
  
Interest income $291
 $—
 $11
 $1
 $303
Interest expense 105
 —
 9
 21
 135
Provision for finance receivable losses 84
 —
 1
 2
 87
Net interest income after provision for finance receivable losses 102
 —
 1
 (22) 81
Other revenues (b) 53
 —
 38
 16
 107
Other expenses 146
 —
 9
 —
 155
Income before income taxes $9
 $—
 $30
 $(6) $33
At or for the Nine Months Ended September 30, 2017    
  
  
  
Interest income $891
 $—
 $18
 $4
 $913
Interest expense 327
 —
 16
 46
 389
Provision for finance receivable losses 223
 —
 7
 2
 232
Net interest income (loss) after provision for finance receivable losses 341
 —
 (5) (44) 292
Other revenues (b) 133
 —
 192
 (17) 308
Other expenses 466
 1
 10
 (1) 476
Income (loss) before income tax expense (benefit) $8
 $(1) $177
 $(60) $124
           
Assets (c) $4,939
 $—
 $5,765
 $(54) $10,650

At or for the Nine Months Ended September 30, 2016      
  
  
Interest income $897
 $102

$43
 $5

$1,047
Interest expense 299
 20
 43
 67
 429
Provision for finance receivable losses 240
 14
 5
 4
 263
Net interest income (loss) after provision for finance receivable losses 358
 68
 (5) (66) 355
Net gain on sale of SpringCastle interests —
 167
 —
 —
 167
Other revenues (b) 169
 —
 122
 11
 302
Other expenses 487
 15
 22
 (1) 523
Income before income taxes 40
 220
 95
 (54) 301
Income before income taxes attributable to non-controlling interests —
 28
 —
 —
 28
Income before income taxes attributable to Springleaf Finance Corporation $40
 $192
 $95
 $(54) $273
           
Assets (c) $5,529
 $—
 $4,069
 $(91) $9,507
(a)Real Estate segment has been combined with “Other” for the prior period.16. 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 8 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 8 for further information on the notes receivable from parent and affiliates.

41



17.The accounting policies of our Fair Value Measurements

The fair valueare the same as those disclosed in Note 3 and Note 20 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 newNotes to the market and not yet established, the characteristics specific to the transaction, and general market conditions.Consolidated Financial Statements in Part II - Item 8 included in our 2019 Annual Report on Form 10-K.


The following table summarizespresents the fair valuescarrying amounts and carryingestimated fair values of our financial instruments and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the levelobservability of the inputs we utilizedused:

Fair Value Measurements UsingTotal
Fair
Value		Total
Carrying
Value
(dollars in millions)Level 1Level 2Level 3
June 30, 2020
Assets
Cash and cash equivalents$2,740  $—  $—  $2,740  $2,740  
Investment securities39  1,819  4  1,862  1,862  
Net finance receivables, less allowance for finance receivable losses—  —  17,914  17,914  15,397  
Restricted cash and restricted cash equivalents487  —  —  487  487  
Other assets *
—  —  67  67  67  
Liabilities
Long-term debt$—  $18,584  $—  $18,584  $18,010  
December 31, 2019
Assets
Cash and cash equivalents$1,159  $68  $—  $1,227  $1,227  
Investment securities45  1,835  4  1,884  1,884  
Net finance receivables, less allowance for finance receivable losses—  —  19,319  19,319  17,560  
Restricted cash and restricted cash equivalents405  —  —  405  405  
Other assets *
—  —  84  84  74  
Liabilities
Long-term debt$—  $18,509  $—  $18,509  $17,212  
*Other assets at June 30, 2020 and December 31, 2019 includes finance receivables held for sale and miscellaneous receivables related to determine such fair values:our liquidating loan portfolios.

41
  Fair Value Measurements Using Total
Fair
Value		 Total
Carrying
Value
(dollars in millions) Level 1 Level 2 Level 3  
           
September 30, 2017  
  
  
  
  
Assets  
  
  
  
  
Cash and cash equivalents $289
 $113
 $—
 $402
 $402
Investment securities —
 575
 2
 577
 577
Net finance receivables, less allowance for finance receivable losses —
 —
 5,457
 5,457
 5,039
Finance receivables held for sale —
 —
 141
 141
 137
Notes receivable from parent and affiliates —
 4,305
 —
 4,305
 4,305
Restricted cash and restricted cash equivalents 178
 —
 —
 178
 178
Other assets (a) —
 8
 12
 20
 21
           
Liabilities  
  
  
  
  
Long-term debt $—
 $8,201
 $—
 $8,201
 $7,598
Other liabilities (b) —
 53
 —
 53
 53
           
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

(a)Includes commercial mortgage loans, escrow advance receivable, receivables from parent and affiliates, and receivables related to sales of real estate loans and related trust assets.

(b)Consists of payables to parent and affiliates.


42


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 UsingTotal Carried At Fair Value
(dollars in millions)Level 1Level 2Level 3
June 30, 2020    
Assets    
Cash equivalents in mutual funds$2,622  $—  $—  $2,622  
Investment securities:    
Available-for-sale securities    
U.S. government and government sponsored entities—  12  —  12  
Obligations of states, municipalities, and political subdivisions—  89  —  89  
Commercial paper—  31  —  31  
Non-U.S. government and government sponsored entities—  142  —  142  
Corporate debt4  1,145  3  1,152  
RMBS—  217  —  217  
CMBS—  64  —  64  
CDO/ABS—  84  —  84  
Total available-for-sale securities4  1,784  3  1,791  
Other securities   
Bonds:   
Non-U.S. government and government sponsored entities—  1  —  1  
Corporate debt—  19  1  20  
RMBS—  1  —  1  
CDO/ABS—  14  —  14  
Total bonds—  35  1  36  
Preferred stock13  —  —  13  
Common stock22  —  —  22  
Total other securities35  35  1  71  
Total investment securities39  1,819  4  1,862  
Restricted cash equivalents in mutual funds474  —  —  474  
Total$3,135  $1,819  $4  $4,958  


42

 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 3Total Carried At Fair Value
        
September 30, 2017  
  
  
  
December 31, 2019December 31, 2019    
Assets  
  
  
  
Assets    
Cash equivalents in mutual funds $163
 $—
 $—
 $163
Cash equivalents in mutual funds$775  $—  $—  $775  
Cash equivalents in securities —
 113
 —
 113
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 —
 19
 —
 19
U.S. government and government sponsored entities—  11  —  11  
Obligations of states, municipalities, and political subdivisions —
 71
 —
 71
Obligations of states, municipalities, and political subdivisions—  92  —  92  
Certificates of deposit and commercial paperCertificates of deposit and commercial 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 —
 357
 —
 357
Corporate debt5  1,093  —  1,098  
RMBS —
 38
 —
 38
RMBS—  217  —  217  
CMBS —
 29
 —
 29
CMBS—  57  —  57  
CDO/ABS —
 49
 —
 49
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 —
 567
 —
 567
Total bonds—  37  3  40  
Preferred stock —
 6
 —
 6
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) —
 573
 1
 574
Other securities        
Bonds:        
Corporate debt —
 2
 —
 2
Total other securities —
 2
 —
 2
Total other securities40  42  4  86  
Total investment securities —
 575
 1
 576
Total investment securities45  1,835  4  1,884  
Restricted cash in mutual funds 168
 —
 —
 168
Restricted cash equivalents in mutual fundsRestricted cash equivalents in mutual funds403  —  —  403  
Total $331
 $688
 $1

$1,020
Total$1,223  $1,903  $4  $3,130  

(a)
Due to the insignificant activity within the Level 3 assets during the three and nine months ended September 30, 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 September 30, 2017, which is carried at cost.


43



  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 the three and ninesix months ended SeptemberJune 30, 2017.2020 and 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.


FAIR VALUE MEASUREMENTS — NON-RECURRING BASIS


We measure the fair value of certain assets on a non-recurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Net impairment charges recorded on assets measured at fair value on a non-recurring basis were immaterial for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016.2019.


FAIR VALUE MEASUREMENTS — VALUATION METHODOLOGIES AND ASSUMPTIONS


See Note 2320 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 20162019 Annual Report on Form 10-K for information regarding our methods and assumptions used to estimate fair value.

43


44




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


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


TopicPage
TopicPage
45
47
48
5051
5455
57
6162
6567
6667
6668
6668


44
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, which may result in an •adverse impact on us;

various risks relating to our continued compliance with the Settlement Agreement;

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;

any inability to perform or default in the performance of any contractual obligations, including intercompany indebtedness, that currently exist or may in the future exist between us and our affiliates;

changes in general economic conditions, including the interest rate environment in which we conduct business and the financial markets throughmarkets;
•risks associated with the COVID-19 pandemic and the mitigation efforts by governments and related effects on us, our customers, and employees;
•our estimates of the allowance for finance receivable losses may not be adequate to absorb actual losses, causing our provision for finance receivable losses to increase, which we can access capital and also invest cash flows fromwould adversely affect our Consumer and Insurance segment;results of operations;

•increased levels of unemployment and personal bankruptcies;

•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;


45



•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;

•a failure in or breach of our operational or security systems or infrastructure or those of third parties, including as a result of cyber-attacks, or other cyber-related incidents involving the loss, theft or unauthorized disclosure of personally identifiable information, or “PII,” of our present or former customers;
risks associated with •our insurance operations, including insurance claims that exceedcredit risk scoring models may be inadequate to properly assess the risk of customer unwillingness or lack of capacity to repay;
•adverse changes in our expectationsability to attract and retain employees or insurance losses that exceedkey executives to support our reserves;businesses;

the•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;

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;regulations, including effects of the Tax Act and the CARES Act;

•risks associated with our insurance operations, including insurance claims that exceed our expectations or insurance losses that exceed our reserves;
45

•our inability to successfully implement our growth strategy for our consumer lending business or successfully acquire portfolios of personal loans;
•a change in the proportion of secured loans may affect our personal loan receivables and portfolio yield;
•declines in collateral values or increases in actual or projected delinquencies or net charge-offs;
•potential liability relating to real estate and personal loans thatfinance 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;

46



•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;

•management estimates and assumptions, including estimates and assumptions about future events, may prove to be incorrect; and
changes in accounting principles and policies or changes in accounting estimates;•various risks relating to continued compliance with the Settlement Agreement with the U.S. Department of Justice.

effects of the contemplated acquisition of Fortress by an affiliate of SoftBank Group Corp.;

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

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


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


If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. You should specifically consider the factors identified in this report and in the documents we file with the SEC, including our 2019 Annual Report on Form 10-K, that could cause actual results to differ before making an investment decision to purchase our common stock.securities and should not place undue reliance on any of our forward-looking statements. 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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Overview    


Overview

We are a leading provider of responsible personal loan products, primarily to non-prime customers. Our network of over 600approximately 1,500 branch offices in 2844 states as of September 30, 2017 andis staffed with expert personnel and is complemented by our online personal loan origination capabilities and centralized operations which allow 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 or sub-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 ofterms generally between three toand six years, and are secured by consumer goods, automobiles, or other personal propertytitled collateral, or are unsecured. At SeptemberJune 30, 2017,2020, we had over 914,000approximately 2.31 million personal loans, of which 53% were secured by titled property, representing $5.1$17.7 billion of net finance receivables, compared to approximately 2.44 million personal loans, of which 57%52% were secured by titled collateral, compared to 928,000 personal loansproperty, totaling $4.8$18.4 billion of which 58% were secured by titled collateral at December 31, 2016.
2019.





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


Our non-originating legacy products include:


Real Estate Loans•Other Receivables — We ceased originating real estate loans in January of 2012 and during 2014, we sold $6.4 billion real estate loans held for sale. During 2016, we sold $308 million real estate loans held for sale. The remaining real estate loans may be closed-end accounts or open-end home equity lines of credit, generally have a fixed rate and maximum original terms of 360 months, and are secured by first or second mortgages on residential real estate. Predominantly, our first lien mortgages are serviced by third-party servicers, and we continue to provide servicing for our second lien mortgages (home equity lines of credit). At September 30, 2017, we had $133 million ofservice or sub-service liquidating real estate loans held for investment, of which 90% 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 $137 million and $153 million at September 30, 2017 and December 31, 2016, respectively.
loans.

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


OUR SEGMENTSSEGMENT

At September 30, 2017, we had two operating segments:

Consumer and Insurance; and
Acquisitions and Servicing.


Beginning in 2017,the fourth quarter of 2019, C&I is our only reportable segment. The remaining components (which we refer to as “Other”) consist of (i) our liquidating SpringCastle Portfolio servicing activity and (ii) our non-originating legacy operations, which primarily include Real Estate, which was previously presented as a distinct reporting segment, in “Other.”our liquidating real estate loans. See Note 1615 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on this change in our segment alignment and for more information about our segments. To conformsegment.
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Recent Developments and Outlook

RECENT DEVELOPMENTS 

Management’s Response to the new alignmentCOVID-19 Pandemic

COVID-19 has evolved into a global pandemic and has resulted in widespread volatility and deterioration in economic conditions across the United States. Governmental authorities have taken a number of steps to combat or slow the spread of COVID-19, including shutdowns of non-essential businesses, implementing stay-at-home orders, promoting social distancing measures, and other actions which have disrupted economic activity. We have been and will continue to be focused on helping our customers and employees through these difficult times. We are generally classified as an “essential business” by government authorities because we play a vital role in providing personal loans to hardworking Americans in hundreds of local communities. Our long track record of a strong balance sheet and liquidity profile, disciplined underwriting, and focus on our customers, allows us to remain well positioned to address the economic uncertainties, as well as take advantage of opportunities for growth as the economy recovers. Although we cannot predict how quickly and/or broadly the economy will recover, we will continue to:

•Maintain strong capital and liquidity: We have maintained a strong balance sheet and liquidity profile as a result of numerous actions taken over the last several years, such as deleveraging, increasing the available borrowing capacity under our revolving conduit facilities, diversifying our funding mix, and extending our unsecured debt maturities. Our cash and cash equivalents, together with our potential borrowings under our revolving conduit facilities, provide a liquidity runway through 2022 under numerous stress scenarios, assuming no access to the capital markets. This liquidity runway calculation contemplates all the cash needs of the Company.

•Continue to enhance our underwriting: We quickly took steps to tighten underwriting standards and reduce originations to higher risk categories of lending and continue to monitor and evaluate our underwriting standards as we further understand the evolving impacts the COVID-19 pandemic is having on local-level economies. We are using our decades of experience and proprietary data to serve our customers while maintaining an appropriately conservative portfolio risk-management program.

•Focus on serving our customers: Our top priority is to service and care for our current customers. We actively engaged with other lenders to put forward solutions to help our customers through this difficult time. We took steps to enhance our servicing capacity by shifting branch team members toward a greater focus on servicing existing loans. Beginning in late March and through April 2020, we increased proactive outreach to customers, offering to support them through our borrower assistance programs, which includes reduced and deferred payment options, waiving of late fees, and temporary suspension in credit bureau reporting.

•Deploy business continuity plans: We deployed our existing business continuity plans which are designed to ensure operational flexibility, including the ability of our segments, we have revisedemployees to work remotely. Our hybrid operating model, with fully scaled branch and central operations teams, can dynamically reroute application and servicing capabilities to service centers and branches across the United States. Although a small number of branches were temporarily closed, primarily for deep cleanings or due to government mandates, and subsequently reopened, all of our prior period segment disclosures.teams, both branch and central operations, remain operational today. We continue to serve our customers while maintaining social distancing and other safety protocols.


For further information regarding the impact of COVID-19 on our business, results of operations, and liquidity and capital resources, see “Outlook” and “Results of Operations” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.
Recent Developments and Outlook    


DIVIDEND OF SFMC
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Cash Dividends to OMH's Common Stockholders

On AprilJuly 27, 2020, OMH declared a dividend of $2.33 per share payable on August 18, 2020 to record holders of OMH's common stock as of the close of business on August 10, 2017, SFMC,2020. For information regarding the quarterly dividends declared by OMH, see “Liquidity and Capital Resources” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Issuance of 8.875% Senior Notes Due 2025 and Notice of Redemption of 8.25% Senior Notes due 2020

On May 14, 2020, OMFC issued a former subsidiarytotal of SFC,$600 million of aggregate principal amount of 8.875% Senior Notes due 2025.

On June 29, 2020, OMFC issued a notice of full redemption of its 8.25% Senior Notes due 2020.

For further information regarding the issuance and notice of redemption of our unsecured debt, see Note 8 of the Notes to the Condensed Consolidated Financial Statements included in this report.

Securitization Transaction Completed: OMFIT 2020-1

On May 1, 2020, we completed a private securitization in which OMFIT 2020-1 issued $821 million principal amount of notes backed by personal loans. For further information regarding the issuance of our secured debt, see “Liquidity and Capital Resources” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Stock Repurchase Program

For information regarding the stock repurchase program, see Note 11 of the Notes to the Condensed Consolidated Financial Statements included in this report.

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

On January 2, 2020, Adam L. Rosman was contributedappointed to SFI in the formOMFC Board of Directors and as Executive Vice President. Mr. Rosman replaced John C. Anderson, who resigned as a dividend. SFI then contributed SFMCmember of OMFC's board of directors and SGSCas Executive Vice President on January 2, 2020.

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OUTLOOK

We continue to OMH,manage the impacts of the COVID-19 pandemic and SFMC merged into SGSC, which was renamedare prepared to face any additional challenges that may impact our industry as states ease their stay-at-home orders and is now OGSC.move to reopen their economies. As a result of the dividend, the Company’s total shareholder equityCOVID-19 pandemic, we expect near-term impacts to continue to affect our originations, loan loss reserves, and total assets were reduced by $38 million and $65 million, respectively,involuntary unemployment insurance claims. The ultimate impact on our losses depends on the contribution date.rates of unemployment, government stimulus measures, state reopenings, and the speed of economic recovery. There is also uncertainty regarding the effects of a secondary outbreak of COVID-19 and the related potential for additional shutdowns or re-shutdowns over the near-term. To the extent economies are suppressed or slow to recover, without continued government stimulus measures, we could see higher delinquency trends during the remainder of 2020 and related losses to be realized in 2021. We may incorporate further changes to the macroeconomic assumptions within our forecast used in our credit loss allowance model, as well as changes to our loan loss performance outlook, both of which could lead to further changes in our allowance for loan losses, reserve rate, and provision expense. Additionally, as a result of anticipated lower receivables and higher losses, we are proactively taking measures to reduce our operating expenses.


The contribution wasfull extent to which the resultCOVID-19 pandemic will impact our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the mitigation efforts by government entities, as well as our own COVID-19 operational response. We have taken and will continue to take active and decisive steps in this time of uncertainty and remain committed to the safety of our employees, while also continuing integration process, and part of a series of corporate consolidation transactions surroundingto serve our customers by remaining open with appropriate protective protocols in place. While we anticipate that the OneMain Acquisition.

OUTLOOK

With our experienced management team, long track record of successfully accessing the capital markets, and strong demand for consumer credit,economic recovery could be unstable, we believe we are well positionedwell-positioned to executeface these challenges and are prepared for future growth opportunities. We have served hard working Americans for many decades, through both changing economic conditions and natural disasters, and will continue to remain focused on our strategic priorities of strengthening our capital base by (i) continuing the growth in receivables through enhanced marketing strategies and product options, (ii) reducing leverage, and (iii) maintaining a strong liquidity, level and 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 and believe the strong credit quality of our loan portfolio will continue as the result of our disciplined underwriting, practices and ongoing collection efforts. We have continued to see some migration of customer activity away from traditional channels, such as direct mail, to online channels (primarily serviced throughserving our branch network), where we believe we are well suited to capture volume due to our scale, technology, and deployment of advanced analytics.



customers.
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50




Tax Reform Proposals
Results of Operations


The presidential administrationresults of OMFC are consolidated into the results of OMH. Due to the nominal differences between OMFC and several membersOMH, content throughout this section relates only to OMH. See Note 2 of the U.S. Congress have indicated significant reformNotes to the Condensed Consolidated Financial Statements included in this report for the reconciliation of various aspectsresults of OMFC to OMH.

COVID-19 PANDEMIC IMPACTS ON RESULTS

The adverse effects caused by the U.S. tax codeCOVID-19 pandemic, mitigation efforts from government stimulus measures, as a top legislative priority. A number of proposals for tax reform, including significant changes to corporate tax provisions, are currently under consideration. Such changes could have a material impact, either positive or negative, onwell as our deferred tax assets and liabilities andown operational response has impacted our consolidated financial position,business, results of operations, and cash flows, depending onliquidity and capital resources. The following is a summary of the naturemost significant impacts:

•Net finance receivables were $17.7 billion as of June 30, 2020 compared to $18.4 billion as of December 31, 2019. Initial operational disruptions, combined with actions taken by management to tighten underwriting standards, which reduced originations to higher risk categories of lending, and extent of any changes to the U.S. tax code that are ultimately enacted into law. Additionally, changes to the U.S. tax code could more broadly impact the U.S. economy, which could potentially resulta reduction in a material impact, either positive or negative, on the demand for personal loans, resulted in an overall decline in net finance receivables. Originations began to be impacted in the last two weeks of March, with our productslowest production levels occurring in April. Originations increased in May and June as we enhanced our remote origination capabilities and increased proactive outreach to customers, as well as improvement in customer demand, although below 2019 levels, as unemployment trends improved.

•The government stimulus measures, our borrower assistance programs, and collection efforts resulted in strong customer payment trends, which contributed to a decrease in our 30-89 day delinquency ratio to 1.6% as of June 30, 2020 when compared to 2.5% as of December 31, 2019 and 2.1% as of June 30, 2019.

•Under our borrower assistance programs, we waived late fees for payments due March 15, 2020 through April 30, 2020, suspended credit bureau reporting for newly delinquent accounts in March and April of 2020, and offered reduced and deferred payment options to our customers. Borrower assistance enrollment peaked in April at 8.0% of loans in the portfolio, and returned to 2.3% at June 30, 2020, which is largely consistent with pre-COVID-19 enrollment levels.

•Our loan loss reserve methodology includes forecasted economic trends and unemployment levels, which significantly increased our provision for finance receivable losses as a result of the impacts of COVID-19. The rise in unemployment claims around the country also resulted in an increase in involuntary unemployment insurance claims expense. For further information regarding the impact of COVID-19 on net income for the periods, see “Results of Operations - OMH’s Consolidated Results” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

•In March, out of an abundance of caution, we elected to draw our revolving conduit facilities to preserve financial flexibility during the capital market disruption resulting from the COVID-19 pandemic. During the second quarter of 2020, we subsequently repaid all of our revolving conduit facilities. We also issued debt securities in both the unsecured and ABS markets. As of June 30, 2020, we had $2.7 billion of cash and cash equivalents, $8.7 billion of unencumbered personal loans, and $7.1 billion in potential borrowing capacity from our 14 revolving conduit facilities.

•In the second quarter, the Company incurred direct costs associated with COVID-19 relating to (i) information technology costs to transition employees to work remotely, (ii) branch, central operations, and corporate locations sanitization services and the abilitysupplies, (iii) installation of our customersprotective barriers and other appropriate safety measures as employees return to repay their loans. work, and (iv) other costs and fees directly related to COVID-19. The Company also incurred restructuring costs associated with a reduction in workforce. For further information regarding directs costs associated with COVID-19 and restructuring charges, see “Results of Operations - Non-GAAP Financial Measures” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

•We cannot predict if or whendid not have any impairments with respect to goodwill, intangible assets, long-lived assets, and right of use assets at June 30, 2020. We currently do not anticipate any impairments as it relates to these proposals to reform the U.S. tax code will be enacted into law and, accordingly, no assurance can be given as to whether or to what extent any changes to the U.S. tax code will impact us or our customers or our financial position, results of operations or cash flows.

Impact of Hurricanes Harvey, Irma and Maria

In August and September of 2017, our customers in certain areas of the United States and Puerto Rico were impacted by hurricanes Harvey, Irma and Maria. While the actual exposure to our business is not fully knownassets at this time, but we have made estimates that are reflected in our condensed consolidated financial statementswill continue to monitor and test as of September 30, 2017. The estimated total hurricane-related impact recorded during the three months ended September 30, 2017 was approximately $12 million, consisting primarily of increases in our loan loss reserve and borrower-related assistance programs. See additional comments in the Results of Operations and Segment Results in this report.appropriate.

Completion of evaluation of certain alternatives

OMH recently completed an evaluation of certain alternatives to maximize stockholder value, including a sale of its business. The evaluation has concluded and OMH continues to implement its previously disclosed strategies.



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51




Results of Operations    

OMH'S CONSOLIDATED RESULTS


See the table below for ourOMH's consolidated operating results and selected financial statistics. A further discussion of ourOMH's operating results for each of our operating segmentssegment is provided under “Segment Results” below.
At or for the
Three Months Ended June 30,		At or for the
Six Months Ended June 30,
(dollars in millions, except per share amounts)2020201920202019
Interest income$1,077  $1,000  $2,184  $1,955  
Interest expense271  238  527  473  
Provision for finance receivable losses423  268  954  554  
Net interest income after provision for finance receivable losses383  494  703  928  
Other revenues148  156  289  304  
Other expenses413  394  831  774  
Income before income taxes118  256  161  458  
Income taxes29  62  40  112  
Net income$89  $194  $121  $346  
Share Data:   
Earnings per share:  
Diluted$0.66  $1.42  $0.90  $2.54  
Selected Financial Statistics *  
Finance receivables held for investment:
Net finance receivables$17,721  $16,980  $17,721  $16,980  
Number of accounts2,305,877  2,356,975  2,305,877  2,356,975  
Average net receivables$17,909  $16,538  $18,144  $16,342  
Yield24.16 %24.19 %24.16 %24.06 %
Gross charge-off ratio7.21 %7.03 %7.28 %7.42 %
Recovery ratio(0.89)%(0.80)%(0.89)%(0.75)%
Net charge-off ratio6.32 %6.23 %6.39 %6.67 %
30-89 Delinquency ratio1.63 %2.14 %1.63 %2.14 %
Origination volume$2,047  $3,879  $4,636  $6,462  
Number of accounts originated194,480  410,347  471,253  686,677  
Debt balances:
Long-term debt balance$18,010  $15,551  $18,010  $15,551  
Average daily debt balance19,772  15,974  18,724  15,906  
(dollars in millions) At or for the
Three Months Ended September 30,		 At or for the
Nine Months Ended September 30,
 2017 2016 2017 2016
         
Interest income $310
 $303
 $913
 $1,047
Interest expense 133
 135
 389
 429
Provision for finance receivable losses 70
 87
 232
 263
Net interest income after provision for finance receivable losses 107
 81
 292
 355
Net gain on sale of SpringCastle interests —
 —
 —
 167
Other revenues 115
 107
 308
 302
Other expenses 154
 155
 476
 523
Income before income taxes 68
 33
 124
 301
Income taxes 30
 10
 51
 101
Net income 38
 23
 73
 200
Net income attributable to non-controlling interests —
 —
 —
 28
Net income attributable to SFC $38
 $23
 $73
 $172
         
Selected Financial Statistics (a)  
  
  
  
Finance receivables held for investment:        
Net finance receivables $5,262
 $4,989
 $5,262
 $4,989
Number of accounts 919,837
 949,097
 919,837
 949,097
Finance receivables held for sale:        
Net finance receivables $137
 $166
 $137
 $166
Number of accounts 2,533
 3,191
 2,533
 3,191
Finance receivables held for investment and held for sale: (b)        
Average net receivables $5,195
 $4,942
 $5,020
 $5,789
Yield 23.44 % 23.81 % 24.05 % 23.80 %
Gross charge-off ratio 6.21 % 6.56 % 7.03 % 6.46 %
Recovery ratio (1.09)% (1.03)% (1.36)% (0.93)%
Net charge-off ratio 5.12 % 5.53 % 5.67 % 5.53 %
30-89 Delinquency ratio 2.51 % 3.01 % 2.51 % 3.01 %
Origination volume $1,009
 $868
 $2,941
 $2,845
Number of accounts originated 144,876
 148,163
 417,399
 471,460
(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 nine months ended September 30, 2016 in connection with the Lendmark Sale, but excludes real estate loans held for sale for both periods in order to be comparable with our segment statistics disclosed in “Segment Results.”


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52



Comparison of Consolidated Results for the Three and Six Months Ended SeptemberJune 30, 20172020 and 20162019


Interest income increased $7$77 million or 7.7% and $229 million or 11.7% for the three and six months ended SeptemberJune 30, 20172020, respectively, when compared to the same periodperiods in 2016 due to the net of the following:

Finance charges increased $11 million2019 primarily due to the net of the following:
growth in our loan portfolio.

◦
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 alignment of pricing and credit strategies, which have driven originations toward direct auto customers who tend to have loans with lower yields and charge-offs. In addition, the hurricane-related borrower assistance program of approximately $2 million, which unfavorably impacted our third quarter 2017 yield by approximately 20 basis points.


Interest income on finance receivables held for sale decreased $4 million primarily due to the $58 million sale of real estate loans in November 2016.

Interest expense decreased $2 increased $33 million or 13.9% and $54 million or 11.4% for the three and six months ended SeptemberJune 30, 20172020, respectively, when compared to the same periodperiods in 20162019 primarily due to a lower weighted average interest rate on our debt.

Provision for finance receivable losses decreased $17 million for the three months ended September 30, 2017 when compared to the same period in 2016 primarily due to the alignment of pricing and credit strategies, which have driven originations toward higher quality customers who tend to have lower delinquencies and provision. 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 thean increase in future net charge-offs attributable to these hurricanes to be $8 millionaverage debt of $3.8 billion and have increased our provision for finance receivable losses accordingly.

Other revenues increased $8 million for the three months ended September 30, 2017 when compared to the same period in 2016 primarily due to a $14 million increase in interest income on the OneMain Demand Note during the 2017 period. This increase was partially$2.8 billion, respectively, offset by a decrease in insurance revenueslower average cost of $6 million during the 2017 period due to canceled and runoff business and lower earned credit and non-credit premiums.funds.


Other expenses decreased $1 million for the three months ended September 30, 2017 when compared to the same period in 2016 primarily due to the net of the following:

Salaries and benefits decreased $8 million primarily due to a decrease in average staffing as a result of our integration of the two legacy companies.

Insurance policy benefits and claims increased $8 million primarily due to unfavorable variances in claim and benefit reserves, which includes a $2 million incremental reserve attributable to hurricanes Harvey and Irma.

Income taxes totaled $30 million for the three months ended September 30, 2017 compared to $10 million for the same period in 2016. The effective tax rate for the three months ended September 30, 2017 was 44.4% compared to 29.6% for the same period in 2016. The effective tax rate for the three months ended September 30, 2017 differed from the federal statutory rate primarily due to the effect of state income taxes and discrete expense from the 2016 tax year return-to-provision adjustment. The effective tax rate for the three months ended September 30, 2016differed from the federal statutory rate primarily due to the effect of discrete tax benefits from early implementation of a new accounting standard and the income tax treatment of the net realized foreign currency translation gain arising from our United Kingdom subsidiary liquidation.

Comparison of Consolidated Results for the Nine Months Ended September 30, 2017 and 2016

Interest income decreased $134 million for the nine months ended September 30, 2017 when compared to the same period in 2016 due to the following:

Finance charges decreased $73 million primarily due to 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 the transfers of $257 million and $50 million of

51



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 in our personal loan portfolio.

◦
Yield on finance receivables held for investment increased primarily due to the SpringCastle Interest Sale and the continued liquidating of the real estate loan portfolio, which generally have lower yields relative to our personal loan portfolio. This increase was partially offset by the alignment of pricing and credit strategies, which have driven originations toward direct auto customers who tend to have loans with lower yields and lower charge-offs.

Interest income on finance receivables held for sale decreased $61 million primarily due to the transfer of $608 million of our personal loans to finance receivables held for sale on September 30, 2015, which were sold in the Lendmark Sale on May 2, 2016.

Interest expense decreased $40 million for the nine months ended September 30, 2017 when compared to the same period in 2016 primarily due to the following:

Average debt decreased primarily due to (i) the elimination of the debt associated with the SpringCastle Interests Sale and (ii) net debt repurchases and repayments during the past 12 months, including $466 million repurchased in connection with SFC’s offerings of the 6.125% SFC Notes in May of 2017 and repayments relating to our conduit facilities. 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 98 and 109 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on our long-term debt, securitization transactions, and our revolving conduit facilities.


Provision for finance receivable losses increased $155 million or 57.8% and $400 million or 72.2% for the three and six months ended June 30, 2020, respectively, when compared to the same periods in 2019 primarily due to the adoption of ASU 2016-13 and the forecast of elevated unemployment as a result of COVID-19, partially offset by the decline in finance receivables within the current periods.
Interest
Other revenues decreased $8 million or 5.1% for the three months ended June 30, 2020 when compared to the same period in 2019 primarily due to a decrease in insurance products and home and auto membership plans sold as a result of lower loan origination volume, along with a decrease from prior period due to a net gain on the sale of SpringCastle interests. The decrease was partially offset by prior period net loss on the repayment of debt.

Other revenues decreased $15 million or 4.9% for the six months ended June 30, 2020 when compared to the same period in 2019 primarily due to a decrease in investment revenue primarily driven by lower mark-to-market gains on equity investment securities, a decrease in insurance products and home and auto membership plans sold as a result of lower loan origination volume, along with decreases from prior periods due to net gains on sale from the sale of SpringCastle interests and the sale of a cost method investment. The decrease was partially offset by prior period net losses on the repayments of debt.

Other expenses increased $19 million or 4.8% and $57 million or 7.4% for the three and six months ended June 30, 2020 when compared to the same periods in 2019 primarily due to an increase in insurance policy benefits and claims expense primarily due to the impact of COVID-19 on note payableour involuntary unemployment insurance products. The increase was partially offset by a decrease in general operating expenses reflecting our efforts to affiliate of $7tightly manage costs, as well as variable expenses associated with lower loan origination volume.

Income taxes totaled $29 million and $40 million for the ninethree and six months ended SeptemberJune 30, 2016 resulted2020, respectively, compared to $62 million and $112 million for the three and six months ended June 30, 2019, respectively, due to lower pre-tax income in the current periods.

For the three and six months ended June 30, 2020, the effective tax rates were 24.7% and 24.6%, respectively. For the three and six months ended June 30, 2019, the effective tax rates were 24.3% and 24.5%, respectively. The effective tax rates differed from a revolving demand note agreement between SFC and OMFH, entered into on December 1, 2015. the federal statutory rate of 21% primarily due to the effect of state income taxes.

See Note 813 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on this note.

Provision for finance receivable losses decreased $31 million for the nine months ended September 30, 2017 when compared to the same period in 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 increase in future 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 for the nine months ended September 30, 2016 reflected the net gain associated with the sale of our equity interest in the SpringCastle Joint Venture on March 31, 2016.

Other revenues increased $6 million for the nine months ended September 30, 2017 when compared to the same period in 2016 primarily due to a $33 million increase in interest income on the OneMain Demand Note during the 2017 period and $11 million of service fee income in the 2017 period under an intercompany service agreement between SFC and OMFH, as discussed in Note 8 of the Notes to Condensed Consolidated Financial Statements of this report. This increase was partially offset by (i) $18 million net gain on sales of personal and real estate loans in the 2016 period, (ii) $12 million higher net loss on repurchases and repayments of debt in the 2017 period, and (iii) a decrease in insurance revenues of $8 million during the 2017 period due to canceled and runoff business and lower earned credit and non-credit premiums.

Other expenses decreased $47 million for the nine months ended September 30, 2017 when compared to the same period in 2016 due to the net of the following:

effective tax rates.
Salaries and benefits decreased $34 million primarily due to a decrease in average staffing as a result of our integration of the two legacy companies.
53


Other operating expenses decreased $23 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 $10 million primarily due to unfavorable variances in claim reserves, which includes a $2 million incremental reserve attributable to hurricanes Harvey and Irma.

52


Income taxes totaled $51 million for the nine months ended September 30, 2017 compared to $101 million for the same period in 2016. The effective tax rate for the nine months ended September 30, 2017 was 40.9% compared to 33.6% for the same period in 2016. The effective tax rate for the nine months ended September 30, 2017 differed from the federal statutory rate primarily due to the effect of state income taxes and discrete expense from the 2016 tax year return-to-provision adjustment. The effective tax rate for the nine months ended September 30, 2016 differed from the federal statutory rate primarily due to the effect of the non-controlling interests in the previously owned SpringCastle Portfolio, partially offset by the effect of state income taxes.

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 direct costs associated with COVID-19, net gain (loss) on sales of personal and real estate loans, net gain on sale of SpringCastle interests, SpringCastle transaction costs, lossesloss 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 Spring Castle interests, and net loss on liquidationsale of our United Kingdom subsidiary.real estate loans. Management believes adjusted pretax income (loss) is useful in assessing the profitability of our segments andsegment.

Management also uses adjusted pretax income (loss) in evaluating our operating performance. Adjusted pretax income (loss) is capital generation, a non-GAAP financial measure, as a key performance measure of our segment. This measure represents adjusted pretax income as discussed above and excludes the change in our allowance for finance receivable losses in the period while still considering the net charge-offs incurred during the period. Management believes that pretax capital generation is useful in assessing the capital created in the period impacting the overall capital adequacy of the Company. Management believes that the Company’s reserves, combined with its equity, represent the Company’s loss absorption capacity.

Management utilizes both adjusted pretax net income (loss) and pretax capital generation in evaluating our performance. Additionally, both of these non-GAAP measures are consistent with the performance goals established in OMH’s executive compensation program. Adjusted pretax income (loss) and pretax capital generation are non-GAAP financial measures and should be considered supplemental to, but not as a substitute for or superior to, income (loss) before income taxes, net income, or other measures of financial performance prepared in accordance with GAAP.


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

Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in millions)2020201920202019
Consumer and Insurance
Income before income taxes - Segment Accounting Basis$128  $270  $179  $502  
Adjustments:
    Direct costs associated with COVID-196  —  9  —  
Acquisition-related transaction and integration expenses2  8  8  14  
    Net loss on repurchase and repayment of debt—  12  —  28  
Net gain on sale of cost method investment—  —  —  (11) 
Restructuring charges7  1  7  4  
Adjusted pretax income (non-GAAP)$143  $291  $203  $537  
Provision for finance receivable losses$422  $263  $952  $539  
Net charge-offs(282) (256) (578) (540) 
Pretax capital generation (non-GAAP)$283  $298  $577  $536  
Other
Income (loss) before income taxes - Segment Accounting Basis$(1) $3  $(2) $—  
Adjustments:
 Additional net gain on sale of SpringCastle interests—  (7) —  (7) 
Net loss on sale of real estate loans *—  —  —  1  
Adjusted pretax loss (non-GAAP)$(1) $(4) $(2) $(6) 
(dollars in millions) Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
         
Consumer and Insurance        
Income before income taxes - Segment Accounting Basis $22
 $9
 $8
 $40
Adjustments:        
Net gain on sale of personal loans —
 —
 —
 (22)
Net loss on repurchases and repayments of debt 1
 —
 17
 7
Debt refinance costs —
 —
 —
 4
Adjusted pretax income (non-GAAP) $23
 $9
 $25
 $29
         
Acquisitions and Servicing        
Income (loss) before income tax expense (benefit) attributable to SFC - Segment Accounting Basis $(1) $—
 $(1) $192
Adjustments:        
Net gain on sale of SpringCastle interests —
 —
 —
 (167)
SpringCastle transaction costs —
 —
 —
 1
Adjusted pretax income (loss) attributable to SFC (non-GAAP) $(1) $—
 $(1) $26
         
Other        
Income before income taxes - Segment Accounting Basis $61
 $30
 $177
 $95
Adjustments:        
Net loss on sale of real estate loans

 —
 12
 —
 12
Net loss on liquidation of United Kingdom subsidiary —
 5
 —
 5
Net loss on repurchases and repayments of debt —
 —
 —
 1
Debt refinance costs —
 —
 —
 1
Adjusted pretax income (non-GAAP) $61
 $47
 $177
 $114


53



Segment Results    

* During the six months ended June 30, 2019, the resulting impairment on finance receivables held for sale remaining after the February 2019 Real Estate Loan Sale has been combined with the gain on the sale. See Note 166 of the Notes to the Condensed Consolidated Financial Statements included in this report for (i)more information regarding the real estate loan sale.
54


Segment Results

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

See Note 19 of the Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2019 Annual Report on Form 10-K for a description of our segments (ii) reconciliations of segment totals to condensed consolidated financial statement amounts, (iii)and methodologies used to allocate revenues and expenses to each segment, and (iv) further discussionsegment. See Note 15 of the differencesNotes to the Condensed Consolidated Financial Statements included in our Segment Accounting Basis and GAAP.this report for reconciliations of segment total to condensed consolidated financial statement amounts.


CONSUMER AND INSURANCE


AdjustedOMH's adjusted pretax income and selected financial statistics for Consumer and Insurance (which are reportedC&I on an adjusted Segment Accounting Basis)Basis were as follows:
At or for the
Three Months Ended June 30,		At or for the
Six Months Ended June 30,
(dollars in millions)2020201920202019
Interest income$1,074  $999  $2,174  $1,953  
Interest expense266  232  515  462  
Provision for finance receivable losses422  263  952  539  
Net interest income after provision for finance receivable losses386  504  707  952  
Other revenues144  156  281  307  
Other expenses387  369  785  722  
Adjusted pretax income (non-GAAP)$143  $291  $203  $537  
Selected Financial Statistics *    
Finance receivables held for investment:
Net finance receivables$17,732  $17,016  $17,732  $17,016  
Number of accounts2,305,877  2,356,975  2,305,877  2,356,975  
Average net receivables$17,921  $16,573  $18,159  $16,376  
Yield24.09 %24.17 %24.08 %24.05 %
Gross charge-off ratio7.22 %7.11 %7.29 %7.51 %
Recovery ratio(0.89)%(0.91)%(0.89)%(0.86)%
Net charge-off ratio6.33 %6.20 %6.40 %6.65 %
30-89 Delinquency ratio1.63 %2.15 %1.63 %2.15 %
Origination volume$2,047  $3,879  $4,636  $6,462  
Number of accounts originated194,480  410,347  471,253  686,677  
* See “Glossary” at the beginning of this report for formulas and definitions of our key performance ratios.
(dollars in millions) At or for the
Three Months Ended September 30,		 At or for the
Nine Months Ended September 30,

2017 2016
2017 2016













Interest income
$304
 $291
 $891
 $897
Interest expense
115
 105
 327
 299
Provision for finance receivable losses
64
 84
 223
 240
Net interest income after provision for finance receivable losses
125

102

341

358
Other revenues
48

53

150

154
Other expenses
150

146

466

483
Adjusted pretax income (non-GAAP)
$23

$9

$25

$29
         
Selected Financial Statistics (a)  
  
  
  
Finance receivables held for investment:        
Net finance receivables $5,122
 $4,765
 $5,122
 $4,765
Number of accounts 914,423
 939,161
 914,423
 939,161
Finance receivables held for investment and held for sale: (b)        
Average net receivables $5,051
 $4,712
 $4,870
 $4,794
Yield 23.87 % 24.57 % 24.46 % 25.04 %
Gross charge-off ratio 6.28 % 6.56 % 7.12 % 7.01 %
Recovery ratio (1.02)% (0.91)% (1.34)% (0.90)%
Net charge-off ratio 5.26 % 5.65 % 5.78 % 6.11 %
30-89 Delinquency ratio 2.36 % 2.68 % 2.36 % 2.68 %
Origination volume $1,010
 $867
 $2,941
 $2,825
Number of accounts originated 144,876
 148,163
 417,399
 471,460

55
(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 nine months ended September 30, 2016 in connection with the Lendmark Sale.

Comparison of Adjusted Pretax Income for the Three and Six Months Ended SeptemberJune 30, 20172020 and 20162019


Interest income increased $13$75 million or 7.5% and $221 million or 11.3% for the three and six months ended June 30, 2020, respectively, when compared to the same periods in 2019 primarily due to growth in our loan portfolio.

Interest expense increased $34 million or 14.7% and$53 million or 11.5% for the three and six months ended June 30, 2020, respectively, when compared to the same periods in 2019 primarily due to an increase in average debt of $3.8 billion and $2.8 billion, respectively, offset by a lower average cost of funds.

See Notes 8 and 9 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on our long-term debt, securitization transactions, and our revolving conduit facilities.

Provision for finance receivable losses increased $159 million or 60.5% and $413 million or 76.6% for the three and six months ended June 30, 2020, respectively, when compared to the same periods in 2019 primarily due to the adoption of ASU 2016-13 and the forecast of elevated unemployment as a result of COVID-19, partially offset by the decline in finance receivables within the current periods.

Other revenues decreased $12 million or 7.7% for the three months ended SeptemberJune 30, 20172020 when compared to the same period in 2016 due to the increase in finance charges2019 primarily due to the neta decrease in insurance products and home and auto membership plans sold as a result of the following:lower loan origination volume.


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

Yield on finance receivables held for investmentOther revenues decreased primarily due to the alignment of pricing and credit strategies, which have driven originations toward direct auto customers who tend to have loans with lower yields and lower charge-offs. In addition, the hurricane-related borrower assistance program of approximately $2$26 million unfavorably impacted our third quarter 2017 yield by approximately 20 basis points.


54



Interest expense increased $10 millionor 8.5% for the threesix months ended SeptemberJune 30, 20172020 when compared to the same period in 20162019 primarily due to a decrease in investment revenue primarily driven by lower mark-to-market gains on equity investment securities in the current period and a decrease in insurance products and home and auto membership plans sold as a result of lower loan origination volume.

Other expenses increased $18 million or 4.9% and $63 million or 8.7% for the three and six months ended June 30, 2020 when compared to the same periods in 2019 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 decreased $20 million for the three months ended September 30, 2017 when compared to the same period in 2016insurance policy benefits and claims expense primarily due to the alignmentimpact of pricing and credit strategies, which have driven originations toward higher quality customers who tend to have lower delinquencies and provision. This decreaseCOVID-19 on our involuntary unemployment insurance products. The increase was partially offset by (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 increase in future net charge-offs attributable to these hurricanes to be $3 million and have increased our provision for finance receivable losses accordingly.

Other expenses increased $4 million for the three months ended September 30, 2017 when compared to the same period in 2016 primarily due to the net of the following:

Insurance policy benefits and claims increased $8 million primarily due to unfavorable variances in claim and benefit reserves, which includes a $2 million incremental reserve attributable to hurricanes Harvey and Irma.

Salaries and benefits decreased $5 million primarily due to a decrease in average staffinggeneral operating expenses reflecting our efforts to tightly manage costs, as a resultwell as variable expenses associated with lower loan origination volume.

OTHER

“Other” consists of our integrationliquidating SpringCastle Portfolio servicing activity and our non-originating legacy operations, which includes primarily our liquidating real estate loans.

OMH's adjusted pretax loss of the two legacy companies.

Comparison of Adjusted Pretax Income for the Nine Months Ended September 30, 2017 and 2016

Interest income decreased $6 million for the nine months ended September 30, 2017 when compared to the same period in 2016 due to the net of the following:

Interest income on finance receivables held for sale decreased $56 million due to the transfer of $608 million of our personal loans to finance receivables held for sale on September 30, 2015, which were sold in the Lendmark Sale on May 2, 2016.

Finance charges increased $50 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 alignment of pricing and credit strategies, which have driven originations toward direct auto customers who tend to have loans with lower yields and lower charge-offs.

Interest expense increased $28 million for the nine months ended September 30, 2017 when compared to the same period in 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 decreased $17 million for the nine months ended September 30, 2017 when compared to the same period in 2016 primarily due to the alignment of pricing and credit strategies, which have driven originations toward higher quality customers who tend to have lower delinquencies and provision. This decrease was partially offset by (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 increase in future net charge-offs attributable to these hurricanes to be $3 million and have increased our provision for finance receivable losses accordingly.

Other expenses decreased $17 million for the nine months ended September 30, 2017 when compared to the same period in 2016 primarily due to the net of the following:

Salaries and benefits decreased $21 million primarily due to a decrease in average staffing as a result of our integration of the two legacy companies.

Other operating expenses decreased $5 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.


55



Insurance policy benefits and claims increased $9 million primarily due to unfavorable variances in claim and benefit reserves, which includes a $2 million incremental reserve attributable to hurricanes Harvey and Irma.

ACQUISITIONS AND SERVICING

Adjusted pretax income (loss) attributable to SFC and selected financial statistics for Acquisitions and Servicing (which are reportedcomponents on an adjusted Segment Accounting Basis) wereBasis was as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in millions)2020201920202019
Interest income$1  $2  $3  $5  
Interest expense1  1  2  3  
Net interest income after provision for finance receivable losses—  1  1  2  
Other revenues4  5  9  15  
Other expenses5  10  12  23  
Adjusted pretax loss (non-GAAP)$(1) $(4) $(2) $(6) 
(dollars in millions) Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
         
Interest income $—
 $—
 $—
 $102
Interest expense —
 —
 —
 20
Provision for finance receivable losses —
 —
 —
 14
Net interest income after provision for finance receivable losses —
 —
 —
 68
Other expenses 1
 —
 1
 14
Adjusted pretax income (loss) (non-GAAP) (1) —
 (1) 54
Pretax income attributable to non-controlling interests —
 —
 —
 28
Adjusted pretax income (loss) attributable to SFC (non-GAAP) $(1) $—
 $(1) $26
         
Selected Financial Statistics *    
    
Finance receivables held for investment:        
Average net receivables $—
 $—
 $—
 $552
Yield —% —% —% 24.23%
Net charge-off ratio —% —% —% 3.48%

*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 of our Acquisitions and Servicing segment.

OTHER

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

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 previously presented as a distinct reporting segment, in “Other.” To conform to this new alignment of our segments, we have revised our prior period segment disclosures.


56



Adjusted pretax incomereceivables of the Other components, (which are reported on an adjusted Segment Accounting Basis) were as follows:
(dollars in millions) Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
         
Interest income $6
 $11
 $18
 $43
Interest expense 5
 9
 16
 43
Provision for finance receivable losses (a) 6
 1
 7
 5
Net interest income (loss) after provision for finance receivable losses (5) 1
 (5) (5)
Other revenues (b) 70
 55
 192
 140
Other expenses 4
 9
 10
 21
Adjusted pretax income (non-GAAP) $61
 $47
 $177
 $114
(a)For the three and nine months ended September 30, 2017 our provision for finance receivable losses includes approximately a $5 million estimated increase in future net charge-offs attributable to the impact of hurricanes Harvey and Maria.

(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 8 of the Notes to Condensed Consolidated Financial Statements in this report for further information on the notes receivable from parent and affiliates.

Net finance receivables held for investment of the Other components were $148 million and $237 million at September 30, 2017 and 2016, respectively. Net finance receivables held for sale were $142 million and $168 million at September 30, 2017 and 2016, respectively.

Credit Quality    

FINANCE RECEIVABLE COMPOSITION

The following table presents the composition of our finance receivables for each of the Company’s segmentsin “Other assets,” on a Segment Accounting Basis were as well as reconciliationsfollows:
June 30,
(dollars in millions)20202019
Net finance receivables held for sale:
Other receivables$61  $75  
56



Credit Quality

The results of OMFC are consolidated into the results of OMH. Due to our totalthe nominal differences between OMFC and OMH, content throughout this section relate only to OMH. See Note 2 of the Notes to the Condensed Consolidated Financial Statements included in this report for the reconciliation of results of OMFC 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
         
September 30, 2017        
Personal loans $5,122
 $—
 $—
 $5,122
Real estate loans —
 141
 (8) 133
Retail sales finance —
 7
 —
 7
Total $5,122
 $148
 $(8) $5,262
         
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 $17.7 billion at June 30, 2020 and primary source of our interest income is our personal loan portfolio.$18.4 billion at December 31, 2019. Our personal loans are typically non-revolving, with a fixed-rate, and a fixed original term ofterms generally between three toand six years, and are secured by consumer goods, automobiles, or other personal propertytitled collateral, or are unsecured. At September 30, 2017, 57%We consider the delinquency status of our personal loans were secured by titled collateral, comparedfinance receivables as our key credit quality indicator. We monitor the delinquency of our finance receivable portfolio, including the migration between the delinquency buckets and changes in the delinquency trends to 58%manage our exposure to credit risk in the portfolio. Our branch team members work with customers as necessary and offer a variety of borrower assistance programs to help customers continue to make payments. See “Results of Operations” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report for further details on our borrower assistance programs.

DELINQUENCY

We monitor delinquency trends to evaluate the risk of future credit losses and employ advanced analytical tools to manage our exposure. Team members are actively engaged 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. See “Results of Operations” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report for further details on the COVID-19 impact on delinquency.

When finance receivables are contractually 60 days past due, we consider these accounts to be at December 31, 2016.an increased risk for loss and we transfer collection of these accounts to our centralized operations. Use of our centralized operations teams for managing late stage delinquency allows us to apply more advanced collection technologies and tools, and drives operating efficiencies in servicing. At 90 days contractually past due, we consider our finance receivables to be nonperforming.






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The delinquency information for net finance receivables is as follows:
Distribution
(dollars in millions)Consumer
and
Insurance		Segment to
GAAP
Adjustment (a)		GAAP
Basis
June 30, 2020
Current$17,107  $(10) $17,097  
30-59 days past due169  (1) 168  
Delinquent (60-89 days past due)121  —  121  
Performing17,397  (11) 17,386  
Nonperforming (90+ days past due)335  —  335  
Total net finance receivables$17,732  $(11) $17,721  
Delinquency ratio
30-89 days past due1.63 %(b)1.63 %
30+ days past due3.52 %(b)3.52 %
60+ days past due2.57 %(b)2.57 %
90+ days past due1.89 %(b)1.89 %
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 %(b)2.46 %
30+ days past due4.58 %(b)4.56 %
60+ days past due3.09 %(b)3.08 %
90+ days past due2.11 %(b)2.10 %
(a) As a result of Finance Receivablesthe adoption of ASU 2016-13, we converted all purchased credit impaired finance receivables to purchased credit deteriorated finance receivables in accordance with ASC Topic 326, which resulted in the gross-up of net finance receivables and allowance for finance receivable losses of $15 million on January 1, 2020. See Notes 3, 4, and 5 of the Notes to the Condensed Consolidated Financial Statements for additional information on the adoption of ASU 2016-13 included in this report.
(b) Not applicable


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ALLOWANCE FOR FINANCE RECEIVABLE LOSSES

We estimate and record an allowance for finance receivable losses to cover the estimated lifetime expected credit losses on our finance receivables, effective with the adoption of ASU 2016-13 on January 1, 2020. Prior to the adoption of ASU 2016-13, we estimated and recorded an allowance for finance receivable losses to cover estimated incurred losses on our finance receivables. Our allowance for finance receivable losses may fluctuate based upon our continual review of the growth and contractual delinquency of the finance receivable portfolio and changes in economic conditions.

Our current methodology to estimate expected credit losses used the most recent macroeconomic forecasts, which incorporated the projected impacts of COVID-19 on the U.S. economy. We also incorporated estimated impacts from known government stimulus measures, the involuntary unemployment insurance coverage of our portfolio, and our borrower assistance efforts. Our forecast leveraged economic projections from an industry leading forecast provider. At June 30, 2020, our economic forecast used a reasonable and supportable period of 12 months. The increase in our allowance for finance receivable losses for the three and six months ended June 30, 2020 was largely due to these economic considerations offset by a release in our reserves as a result of the decline in our net finance receivables in the period. In the near-term, we may experience further changes to the macroeconomic assumptions within our forecast, as well as changes to our loan loss performance outlook, both of which could lead to further changes in our allowance for loan losses, reserve rate, and provision expense. For further information regarding the impact of COVID-19 on our allowance for finance receivable losses see “Recent Development and Outlook” and “Results of Operations” under Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Changes in the allowance for finance receivable losses were as follows:
(dollars in millions)Consumer
and
Insurance		Segment to
GAAP
Adjustment		Consolidated
Total
Three Months Ended June 30, 2020
Balance at beginning of period$2,202  $(20) $2,182  
Provision for finance receivable losses422  1  423  
Charge-offs(322) 1  (321) 
Recoveries40  —  40  
Balance at end of period$2,342  $(18) $2,324  
Three Months Ended June 30, 2019
Balance at beginning of period$765  $(32) $733  
Provision for finance receivable losses263  5  268  
Charge-offs(294) 4  (290) 
Recoveries38  (5) 33  
Balance at end of period$772  $(28) $744  


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(dollars in millions)Consumer
and
Insurance		Segment to
GAAP
Adjustment		Consolidated
Total
Six Months Ended June 30, 2020
Balance at beginning of period$849  $(20) $829  
Impact of adoption of ASU 2016-13 (a)1,119  (1) 1,118  
Provision for finance receivable losses952  2  954  
Charge-offs(658) 1  (657) 
Recoveries80  —  80  
Balance at end of period$2,342  $(18) $2,324  
Allowance ratio13.21 %(b)13.12 %
Six Months Ended June 30, 2019
Balance at beginning of period$773  $(42) $731  
Provision for finance receivable losses539  15  554  
Charge-offs(610) 9  (601) 
Recoveries70  (10) 60  
Balance at end of period$772  $(28) $744  
Allowance ratio4.54 %(b)4.38 %
(a) As a result of the adoption of ASU 2016-13, we recorded a one-time adjustment to the allowance for finance receivable losses. Additionally, we converted all purchased credit impaired finance receivables to purchased credit deteriorated finance receivables in accordance with ASC Topic 326, which resulted in the gross-up of net finance receivables and allowance for finance receivable losses of $15 million on January 1, 2020. See Notes 3, 4, and 5 of the Notes to the Condensed Consolidated Financial Statements for additional information on the adoption of ASU 2016-13 included in this report.
(b) Not applicable.

The current delinquency status of our finance receivable portfolio, inclusive of recent borrower performance, volume of our TDR activity, level and recoverability of collateral securing our finance receivable portfolio, and the reasonable and supportable forecast of economic conditions (after the adoption of ASU 2016-13) are the primary drivers that can cause fluctuations in our allowance for finance receivable losses from period to period. We monitor the allowance ratio to ensure we have a sufficient level of allowance for finance receivable losses based on the estimated lifetime expected credit losses in our finance receivable portfolio. The allowance for finance receivable losses as a percentage of net finance receivables increased from prior periods due to the adoption of ASU 2016-13 and the impacts of the current economic environment.

See Note 5 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information about the changes in the allowance for finance receivable losses.

TDR FINANCE RECEIVABLES

We make modifications to our finance receivables to assist borrowers experiencing 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.
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Information regarding TDR net finance receivables is as follows:
(dollars in millions)Consumer
and
Insurance		Segment to
GAAP
Adjustment		GAAP
Basis
June 30, 2020
TDR net finance receivables$750  $(48) $702  
Allowance for TDR finance receivable losses344  (23) 321  
December 31, 2019
TDR net finance receivables$721  $(63) $658  
Allowance for TDR finance receivable losses292  (20) 272  

DISTRIBUTION OF FINANCE RECEIVABLES BY FICO ScoreSCORE


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, includingWhile management does not utilize FICO scores which is widely recognized into manage credit quality, we have presented the consumer lending industry.

Wefollowing on how we group FICO scores into the following credit strength categories:said categories for comparability purposes across our industry:


•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.


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:
(dollars in millions) 
Personal
Loans
 
Real Estate
Loans
 
Retail
Sales Finance
 Total
         
September 30, 2017 *        
FICO scores        
660 or higher $1,207
 $41
 $4
 $1,252
620-659 1,354
 26
 1
 1,381
619 or below 2,561
 66
 2
 2,629
Total $5,122
 $133
 $7
 $5,262
         
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 reflects 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.

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. 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 30-89 days past due as a benchmark of portfolio quality, collections effectiveness, and as a strong indicator of losses in coming quarters.

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


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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:loan origination or purchase date:
(dollars in millions)June 30, 2020 *December 31, 2019
FICO scores
660 or higher$4,375  $3,951  
620-6594,708  4,683  
619 or below8,638  9,755  
Total$17,721  $18,389  
(dollars in millions) 
Consumer
and
Insurance
 Other 
Segment to
GAAP
Adjustment
 
Consolidated
Total
         
September 30, 2017        
Current $4,901
 $116
 $(6) $5,011
30-59 days past due 75
 9
 (1) 83
Delinquent (60-89 days past due) 46
 3
 (1) 48
Performing 5,022
 128
 (8) 5,142
         
Nonperforming (90+ days past due) 100
 20
 —
 120
Total net finance receivables $5,122
 $148
 $(8) $5,262
         
Delinquency ratio        
30-89 days past due 2.36% 7.84% *
 2.51%
30+ days past due 4.30% 21.65% *
 4.77%
60+ days past due 2.83% 15.60% *
 3.19%
90+ days past due 1.94% 13.80% *
 2.27%
         
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.


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ALLOWANCE FOR FINANCE RECEIVABLE LOSSES

We record an allowance for finance receivable losses to cover incurred losses on our finance receivables. Our allowance for finance receivable losses may fluctuate based upon our continual review of the credit quality of the finance receivable portfolios 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
 
Acquisitions
and
Servicing
 Other 
Segment to
GAAP
Adjustment
 
Consolidated
Total
           
Three Months Ended September 30, 2017          
Balance at beginning of period $201
 $—
 $27
 $(7) $221
Provision for finance receivable losses 64
 —
 6
 —
 70
Charge-offs (80) —
 (1) (1) (82)
Recoveries 13
 —
 1
 —
 14
Balance at end of period $198
 $—
 $33
 $(8) $223
           
Three Months Ended September 30, 2016          
Balance at beginning of period $176
 $—
 $34
 $(13) $197
Provision for finance receivable losses 84
 —
 1
 2
 87
Charge-offs (79) —
 (5) 1
 (83)
Recoveries 12
 —
 2
 (1) 13
Balance at end of period $193
 $—
 $32
 $(11) $214
           
Nine Months Ended September 30, 2017          
Balance at beginning of period $185
 $—
 $31
 $(12) $204
Provision for finance receivable losses 223
 —
 7
 2
 232
Charge-offs (259) —
 (7) 2
 (264)
Recoveries 49
 —
 2
 —
 51
Balance at end of period $198
 $—
 $33
 $(8) $223
           
Allowance ratio 3.87% —% 23.21% (a)
 4.24%
           
Nine Months Ended September 30, 2016          
Balance at beginning of period $173
 $4
 $70
 $(23) $224
Provision for finance receivable losses 240
 14
 5
 4
 263
Charge-offs (253) (17) (14) 3
 (281)
Recoveries 33
 3
 6
 (1) 41
Other (b) —
 (4) (35) 6
 (33)
Balance at end of period $193
 $—
 $32
 $(11) $214
           
Allowance ratio 4.08% —% 13.51% (a)
 4.30%
(a) Not applicable.

(b)Other consists of:
the elimination of allowance for finance receivable losses due to the transfer of real estate loans held for investment to finance receivable held for sale on June 30, 2016; and
the elimination of allowance for finance receivable losses due to the sale of the SpringCastle Portfolio on March 31, 2016, in connection with the SpringCastle Interests Sale.


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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, 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 allowance for finance receivable losses decreased by $3 million in the third quarter of 2017, inclusive of $3 million related to estimates of higher future charge-offs dueDue to the impact of hurricanes HarveyCOVID-19, FICO scores as of June 30, 2020 may have been impacted due to government stimulus measures, borrower assistance programs, and Irma.

See Note 4 of the Notespotentially inconsistent reporting to Condensed Consolidated Financial Statements included in this report for more information about the changes in the allowance for finance receivable losses.

TDR FINANCE RECEIVABLES

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

Information regarding TDR 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, were as follows:credit bureaus.
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(dollars in millions) Consumer and Insurance Other Segment to GAAP Adjustment Consolidated Total
         
September 30, 2017        
TDR net finance receivables $100
 $76
 $(26) $150
Allowance for TDR finance receivable losses 40
 26
 (14) 52
         
December 31, 2016        
TDR net finance receivables $47
 $71
 $(27) $91
Allowance for TDR finance receivable losses 20
 23
 (12) 31


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 classified as TDRs and accordingly, we have 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

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’S Offerings of 6.125% Senior Notes Due 2022

On May 15, 2017, SFC issued $500 million aggregate principal amount of the 2022 SFC Notes under the 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 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 intends to use the remaining net proceeds from the sale of the 6.125% SFC Notes for general corporate purposes, which may include additional debt repurchases and repayments. See Note 9 of the Notes to Condensed Consolidated Financial Statements included in this report for further information on the offerings.


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Securitizations and Borrowings from Revolving Conduit Facilities

During the nine months ended September 30, 2017, we (i) completed one consumer loan securitization and one direct auto loan securitization and (ii) exercised our right to redeem the asset-backed notes issued by SLFT 2014-A. See “Structured Financings” later in this section for further information on each of our securitization transactions.

During the nine months ended September 30, 2017, we (i) terminated five revolving conduit agreements and (ii) entered into three new conduit facilities.

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

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 September 30, 2017, we had $402 million of cash and cash equivalents, which included $173 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 the nine months ended September 30, 2017, we generated net income of $73 million. Our net cash outflow from operating and investing activities totaled $540 millionfor the nine months ended September 30, 2017. At September 30, 2017, our remaining scheduled principal and interest payments for 2017 on our existing debt (excluding securitizations) totaled $716 million. As of September 30, 2017, we had $1.7 billion UPB of unencumbered personal loans and $338 million UPB of unencumbered real estate loans (including $198 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 9 and 10 of the Notes to Condensed Consolidated Financial Statements included in this report for further information on our long-term debt, loan securitization transactions and conduit facilities.


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


During the six months ended June 30, 2020, OMH generated net income of $121 million. OMH net cash inflow from operating and investing activities totaled $1.3 billion for the six months ended June 30, 2020. At June 30, 2020, our scheduled principal and interest payments for the remainder of 2020 on our existing debt (excluding securitizations) totaled $1.3 billion. As of June 30, 2020, we had $8.7 billion UPB of unencumbered personal loans and $113 million UPB of unencumbered real estate loans. These real estate loans are classified as held for sale and reported in “Other assets.”

Based on our estimates and taking into account the risks and uncertainties of our plans, we believe that we will have adequate liquidity to finance and operate our businesses and repay our obligations as they become due through 2022.

OMFC’s Issuance and Notice of Redemption of Unsecured Debt

For information regarding the issuance and notice of redemption of OMFC's unsecured debt, see Note 8 of the Notes to the Condensed Consolidated Financial Statements included in this report.

Securitizations and Borrowings from Revolving Conduit Facilities

During the six months ended June 30, 2020, we completed one personal loan securitization (OMFIT 2020-1, see “Securitized Borrowings” below), and redeemed one personal loan securitization (SLFT 2016-A). At June 30, 2020, we had $8.8 billion in UPB of finance receivables pledged as collateral for our securitization transactions.

At June 30, 2020, the borrowing capacity was $7.1 billion and no amounts were drawn nor were any personal loans pledged as collateral under our revolving conduit facilities.

See Notes 8 and 9 of the Notes to the Condensed Consolidated Financial Statements included in this report for further information on our long-term debt and revolving conduit facilities.

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Shares Repurchased and Retired

During the first quarter of 2020, OMH repurchased and retired 2,031,698 shares of its common stock at an average price per share of $22.30, for an aggregate total of approximately $45 million, including commissions and fees. To provide funding for the OMH stock repurchase and retirement program, the OMFC Board of Directors authorized multiple dividend payments in the aggregate amount of $45 million. On March 20, 2020, OMH temporarily suspended its stock repurchase program. OMH retains the right to reinstate the stock repurchase program as circumstances change. For additional information regarding the shares repurchased see Note 11 of the Notes to the Condensed Consolidated Financial Statements included in this report.

Cash Dividends to OMH's Common Stockholders

As of June 30, 2020, dividend declarations for the current year by OMH's board of directors were as follows:
Declaration DateRecord DatePayment DateDividend Per ShareAmount Paid
(in millions)
February 10, 2020February 26, 2020March 13, 2020$2.83  *$386  
April 27, 2020May 29, 2020June 12, 20200.33  44  
Total$3.16  $430  
* Our February 10, 2020 dividend declaration of $2.83 included a quarterly dividend of $0.33 per share.

To provide the primary funding for the dividends, OMFC paid dividends of $426 million to OMH during the six months ended June 30, 2020.

On July 27, 2020, OMH declared a dividend of $2.33 per share payable on August 18, 2020 to record holders of OMH's common stock as of the close of business on August 10, 2020. To provide funding for the OMH dividend, the OMFC Board of Directors authorized a dividend in the amount of up to $315 million payable on or after August 15, 2020.

While OMH intends to pay its minimum quarterly dividend, currently $0.33 per share, for the foreseeable future, and announced its intention to evaluate dividends above the minimum every first and third quarters, all subsequent dividends will be reviewed 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 choose not to continue to declare dividends in the future.

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LIQUIDITY


OMH's Operating Activities


Net cash provided by operations of $521 million$1.2 billion for the ninesix months ended SeptemberJune 30, 20172020 reflected net income of $73$121 million, the impact of non-cash items, and a favorable change in working capital of $141$53 million. Net cash provided by operations of $397 million$1.1 billion for the ninesix months ended SeptemberJune 30, 20162019 reflected net income of $200$346 million, the impact of non-cash items, and a favorable change in working capital of $87$56 million.


OMH's Investing Activities


Net cash provided by investing activities of $106 million for the six months ended June 30, 2020 was primarily due to the calls, sales, and maturities of investment securities partially offset the purchases of available-for-sale securities. Net cash used for investing activities of $1.1$1.3 billion for the ninesix months ended SeptemberJune 30, 20172019 was 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 providedsale and purchases of available-for-sale securities, partially offset by investing activities of $780 million for the nine months ended September 30, 2016 was primarily due to the SpringCastle Interests Sale and the Lendmark Sale, netcalls, sales, calls, and maturities of available-for-sale securities, and net collections on intercompany notes receivable, partially offset by net principal originations of finance receivables held for investment and held for sale.securities.



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OMH's Financing Activities


Net cash provided by financing activities of $653$285 million for the ninesix months ended SeptemberJune 30, 20172020 was primarily due to the issuances of 8.875% Senior Notes due 2025 and OMFIT 2020-1 securitization offset by debt repayments, cash dividends paid, and the cash paid on the common stock repurchased during the period. Net cash provided by financing activities of $230 million for the six months ended June 30, 2019 was primarily due to net issuances of long-term debt including SFC’s offeringsoffset by cash dividends paid.

OMH's Cash and Investments

At June 30, 2020, we had $2.7 billion of the 6.125% SFC Notes in Maycash and cash equivalents, which included $240 million of 2017. Net cash usedand cash equivalents held at our regulated insurance subsidiaries or for financingother operating activities that is unavailable for general corporate purposes.

At June 30, 2020, we had $1.9 billion of $1.3 billioninvestment securities, which are all held as part of our insurance operations and are unavailable for the nine months ended September 30, 2016 was primarily due to net repayments of long-term debt.general corporate purposes.


Liquidity Risks and Strategies


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

There are numerous risks to our financial results, liquidity, capital raising, and debt refinancing plans, some of which may not be quantified in our current liquidity forecasts. These risks include, but are not limited, to the following:further described in our “Liquidity and Capital Resources” of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our 2019 Annual Report on Form 10-K.


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;
potential liability relating to real estate and personal loans that we have sold or may sell in the future, or relating to securitized loans; and
the potential for disruptions in the debt and equity markets.

The principalPrincipal factors that could decrease our liquidity are customer delinquencies and defaults, a decline in customer prepayments, and a prolonged inability to adequately access capital market funding. We intend to support our liquidity position by utilizing some or all the following strategies:strategies that are further described in our “Liquidity and Capital Resources” of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II - Item 7 included in our 2019 Annual Report on Form 10-K.

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.


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.

Debt Ratings

During the second quarter of 2017, SFC’s long-term corporate debt rating was upgraded to B2 with a positive outlook by Moody’s.


OUR INSURANCE SUBSIDIARIES


Our insurance subsidiaries are subject to state regulations that limit their ability to pay dividends. State law restricts the amounts that MeritAHL and Yosemite may pay as dividends without prior notice to the Indiana DOI. The maximum amount of dividends, referred to as “ordinary dividends,” for an Indiana domiciled life insurance company that can be paid without prior approval in a 12 month period (measured retrospectively from the date of payment) is the greater of: (i) 10% of policyholders’ surplus as of the prior year-end or (ii) the statutory net gain from operations as of the prior year-end. Any amount greater must be approved by the Indiana DOI prior to its payment. The maximum ordinary dividends for an Indiana domiciled property and casualty insurance company that can be paid without prior approval in a 12 month period (measured retrospectively from the date of payment) is the greater of: (i) 10% of policyholders’ surplus as of the prior year-end; or (ii) the statutory net income. Any amount greater must be approved by the Indiana DOI prior to its payment. These approved dividends are called “extraordinary dividends.” Our insurance subsidiariesTriton did not pay any dividends during the ninesix months ended SeptemberJune 30, 2017. During2020 and 2019. See Note 12 of the nine months ended September 30, 2016,Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2019 Annual Report on Form 10-K for more information on state regulation restrictions and the Merit and Yosemite paid extraordinary dividends to SFC totaling $63 million.

sale.
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64




OUR DEBT COVENANTSAGREEMENTS


The debt agreements to which SFCOMFC and its subsidiaries are a party include customary terms and conditions, including covenants and representations and warranties. Some or allSee Note 10 of these agreements also contain certain restrictions, including (i) restrictionsthe Notes to the Consolidated Financial Statements in Part II - Item 8 included in our 2019 Annual Report on Form 10-K for more information on the ability to create senior liens on property and assets in connection with any newrestrictive covenants under OMFC’s debt financings and (ii) SFC’s ability to sell or convey all or substantially all of its assets, unlessagreements, as well as the transferee assumes SFC’s obligations under the applicable debt agreement. In addition, the OMH guarantees of SFC’sOMFC’s long-term debt discussed above are subject to customary release provisions.debt.


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

As of September 30, 2017, SFC was in compliance with all of the covenants under our 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, the interest rate on the UPB of the Junior Subordinated Debenture became a variable floating rate (determined quarterly) equal to 3-month LIBOR plus 1.75%, or 3.05% as of September 30, 2017. Prior to January 16, 2017, the interest rate on the UPB of the Junior Subordinated Debenture was a fixed rate of 6.00%.

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

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


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Structured Financings

Securitized Borrowings
We execute private securitizations under Rule 144A of the Securities Act of 1933. As of SeptemberJune 30, 2017,2020, 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  $265  $284  3.83 % 5 years
SLFT 2017-A652  685  619  702  2.98 % 3 years
OMFIT 2015-3293  329  293  325  4.21 % 5 years
OMFIT 2016-1500  570  72  157  5.46 % 3 years
OMFIT 2016-3350  397  317  415  4.33 % 5 years
OMFIT 2017-1947  988  524  588  2.74 % 2 years
OMFIT 2018-1632  650  600  683  3.60 % 3 years
OMFIT 2018-2368  381  350  400  3.87 % 5 years
OMFIT 2019-1632  654  600  687  3.79 % 2 years
OMFIT 2019-2900  947  900  995  3.30 %7 years
OMFIT 2019-A789  892  750  892  3.78 %7 years
OMFIT 2020-1 (c)821  958  821  958  4.12 %2 years
ODART 2017-2605  624  156  185  3.38 % 1 year
ODART 2018-1947  964  900  964  3.56 % 2 years
ODART 2019-1737  750  700  750  3.79 % 5 years
Total securitizations$9,487  $10,125  $7,867  $8,985  
(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 June 30, 2020.
(c) On May 1, 2020, we issued $821 million of notes backed by personal loans. The notes mature in May of 2032. We initially retained $71 million of the Class C notes and subsequently sold the Class C notes on May 29, 2020.
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(dollars in millions) 
Initial
Note
Amounts
Issued (a)
 
Initial
Collateral
Balance (b)
 
Current
Note
Amounts
Outstanding
 
Current
Collateral
Balance (b)
 
Current
Weighted
Average
Interest
Rate (a)
 
Collateral
Type
 
Original
Revolving
Period
               
Consumer Securitizations:  
  
  
  
  
    
SLFT 2015-A $1,163
 $1,250
 $1,163
 $1,250
 3.47% Personal loans 3 years
SLFT 2015-B 314
 335
 314
 336
 3.78% Personal loans 5 years
SLFT 2016-A 500
 560
 500
 559
 3.10% Personal loans 2 years
SLFT 2017-A 619
 685
 619
 685
 2.98% Personal loans 3 years
Total consumer securitizations 2,596

2,830

2,596
 2,830
      
               
Auto Securitizations:              
ODART 2016-1 700
 754
 246
 305
 2.70% Direct auto loans —
ODART 2017-1 268
 300
 268
 300
 2.61% Direct auto loans 1 year
Total auto securitizations 968
 1,054
 514
 605
      
               
Total secured structured financings $3,564
 $3,884
 $3,110
 $3,435
  
    
(a)Represents securities sold at time of issuance or at a later date and does not include retained notes.

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

Revolving Conduit Facilities
In addition to the structured financings, included in the table above, we hadhave access to five14 revolving conduit facilities with a total borrowing capacity of $2.2$7.1 billion as of SeptemberJune 30, 2017, as discussed in Note 10 of the Notes to Condensed Consolidated Financial Statements included in this report. At September 30, 2017, no amounts were drawn under these facilities.2020:

(dollars in millions)Advance Maximum BalanceAmount
Drawn
Rocky River Funding, LLC$400 $— 
OneMain Financial Funding IX, LLC650 — 
Mystic River Funding, LLC850 — 
Fourth Avenue Auto Funding, LLC200 — 
OneMain Financial Funding VIII, LLC650 — 
Thayer Brook Funding, LLC250 — 
Hubbard River Funding, LLC250 — 
Seine River Funding, LLC650 — 
New River Funding, LLC250 — 
Hudson River Funding, LLC500 — 
Columbia River Funding, LLC500 — 
St. Lawrence River Funding, LLC250 — 
OneMain Financial Funding VII, LLC850 — 
OneMain Financial Auto Funding I, LLC850 — 
Total$7,100 $— 
We are also party to various transaction agreements entered into on September 6, 2017, in connection with the closing of the OneMain Financial Issuance Trust 2017-1 (“OMFIT 2017-1”) revolving pool consumer loan securitization. The terms of such 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 securitization.  At September 30, 2017, we have not sold any consumer loans pursuant to the OMFIT 2017-1 securitization.


See “Liquidity and Capital Resources - Sources and Uses of Funds - Securitizations and Borrowings from Revolving Conduit Facilities” above for information on the securitization and conduit transactionstransaction completed subsequent to SeptemberJune 30, 2017.2020.


Our overall funding costs are positively impacted by our increased usage
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Off-Balance Sheet Arrangements
Off-Balance Sheet Arrangements    


We have no other material off-balance sheet arrangements as defined by SEC rules. Werules, and we had no material off-balance sheet exposure to losses associated with unconsolidated VIEs at SeptemberJune 30, 20172020 or December 31, 2016, other than certain representations and warranties associated with the sales of the mortgage-backed retained certificates during 2014. As of September 30, 2017, we had no repurchase activity related to these sales.2019.



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Critical Accounting Policies and Estimates



Critical Accounting Policies and Estimates    

We describe our significant accounting policies used in the preparation of our consolidated financial statements in Note 3 of the Notes to Consolidated Financial Statements in Part II, Item 8 of our 2016 Annual Report on Form 10-K. We consider the following policies to be our most critical accounting policies because they involve critical accounting estimates and a significant degree of management judgment:


ALLOWANCE FOR FINANCE RECEIVABLE LOSSES

We estimate the allowance for finance receivable losses;losses primarily on historical loss experience using a cumulative loss model applied to our finance receivable portfolios. Our gross credit loss expectation is offset by the estimate of future recoveries using historical recovery curves. Our finance receivables are primarily segmented in the loss model by contractual delinquency status. Other attributes in the model include collateral mix and recent credit score. To estimate the gross credit losses, the model utilizes a roll rate matrix to project the first 12 months of losses and historical cohort performance to project the expected losses over the remaining term. Our methodology relies solely on historical loss experience to forecast the corresponding future outcomes. These patterns are then applied to the current portfolio to obtain an estimate of future losses. We also consider key economic trends including unemployment rates and bankruptcy filings. Forecasted macroeconomic conditions extend to our reasonable and supportable forecast period and revert to a historical average. No new volume is assumed. Renewals are a significant piece of our new volume and are considered a terminal event of the previous loan. We have elected not to measure an allowance on accrued finance charges as it is our policy to reverse finance charge amounts previously accrued after four contractual payments become past due.
purchased credit impaired
Management exercises its judgment when determining the amount of the allowance for finance receivables;receivable losses. Our judgment is based on quantitative analyses, qualitative factors, such as recent portfolio, industry, and other economic trends, and experience in the consumer finance industry. We adjust the amounts determined by our model for management’s estimate of the effects of model imprecision which include but are not limited to, any changes to underwriting criteria and portfolio seasoning.

TDR FINANCE RECEIVABLES

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

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

FAIR VALUE MEASUREMENTS

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

Thereassets, we review for impairment at least annually and whenever events occur or circumstances change that would indicate the assets are more likely than not to be impaired. We first complete an annual qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. If the qualitative assessment indicates that the assets are more likely than not to have been no materialimpaired, we proceed with the fair value calculation of the assets. The fair value is determined in accordance with our fair value measurement policy.

For those net intangible assets with a finite useful life, we review such intangibles for impairment at least annually and whenever events or changes to our critical accounting policies or to our methodologies for deriving critical accounting estimates duringin circumstances indicate that the nine months ended September 30, 2017.carrying amounts may not be recoverable.


Recent Accounting Pronouncements    

Recent Accounting Pronouncements

See Note 23 of the Notes to the Condensed Consolidated Financial Statements included in this report for discussion of recently issued accounting pronouncements.


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.season and as a result of tax refunds. Delinquencies on our personal loans are generally lowestlower in the first quarterand second quarters and tend to rise throughout the remainder of the year. These seasonal trends contribute to fluctuations in our operating results and cash needs throughout the year. Our normal seasonality trends continue to be affected by the COVID-19 pandemic and mitigating efforts from government stimulus measures.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.    

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to our market risk previously disclosed in Part II - Item 7A ofincluded in our 20162019 Annual Report on Form 10-K.
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Item 4. Controls and Procedures.    

Item 4. Controls and Procedures.

CONTROLS AND PROCEDURES OF ONEMAIN HOLDINGS, INC.


Evaluation of Disclosure Controls and Procedures


Disclosure controls and procedures are designed to provide reasonable assurance that information we areOMH is required to disclose in reports that we fileOMH files or submitsubmits under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including ourthe Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.


As of SeptemberJune 30, 2017, we2020, OMH carried out an evaluation of the effectiveness of ourits disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This evaluation was conducted under the supervision of, and with the participation of ourOMH’s management, including ourthe Chief Executive Officer and ourthe Chief Financial Officer. Based on ourthe evaluation, ourthe Chief Executive Officer and ourthe Chief Financial Officer concluded that ourOMH's disclosure controls and procedures were effective as of SeptemberJune 30, 20172020 to provide the reasonable assurance described above.


Changes in Internal Control over Financial Reporting


There were no changes in ourOMH's internal control over financial reporting during the thirdsecond quarter of 20172020 that have materially affected, or are reasonably likely to materially affect, ourOMH's internal control over financial reporting.




CONTROLS AND PROCEDURES OF ONEMAIN FINANCE CORPORATION


Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that information OMFC is required to disclose in reports that OMFC files or submits under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of June 30, 2020, OMFC 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 OMFC’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 OMFC's disclosure controls and procedures were effective as of June 30, 2020 to provide the reasonable assurance described above.

Changes in Internal Control over Financial Reporting

There were no changes in OMFC's internal control over financial reporting during the second quarter of 2020 that have materially affected, or are reasonably likely to materially affect, OMFC's internal control over financial reporting.

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69



PART II — OTHER INFORMATION


Item 1. Legal Proceedings.    
Item 1. Legal Proceedings.


See Note 14 of the Notes to the Condensed Consolidated Financial Statements included in this report.


Item 1A. Risk Factors.

In light of recent developments related to COVID-19 and the adoption of ASU 2016-13, we are supplementing our risk factors. The following supplemental risk factors should be read in conjunction with the risk factors contained in Item 1A. Risk Factors.    1A and the information under “Forward-Looking Statements” in our 2019 Annual Report, as filed with the SEC on February 14, 2020.


RISKS RELATED TO OUR BUSINESS

The COVID-19 pandemic is adversely affecting consumer finance businesses including OneMain.

The COVID-19 pandemic has resulted in widespread volatility and deterioration in economic conditions across the United States. Governmental authorities have taken a number of steps to combat or slow the spread of COVID-19, including shutdowns of non-essential businesses, stay-at-home orders, social distancing measures, and other actions which have disrupted economic activity. Certain states have relaxed their restrictions and begun to reopen their economies. In some cases, these states are experiencing new outbreaks of COVID-19 and have re-imposed shutdowns of restaurants, entertainment and similar venues. These disruptions and uncertainties related to shutdowns and reopenings have resulted in a significant reduction in the number of customers at our branch locations and lower demand for our products, which, combined with our credit tightening, has decreased our loan originations. COVID-19 has also resulted in higher unemployment in the United States, which we expect will over time result in increased delinquencies and credit losses on finance receivables outstanding. In addition, if significant portions of our workforce are unable to work effectively as a result of COVID-19, there may be servicing and other disruptions to our business. Additionally, a large secondary outbreak of COVID-19 could lead to further mandated shutdowns and economic uncertainty. As a result, we cannot foresee whether the outbreak of COVID-19 pandemic will be effectively contained, nor can we predict the severity and duration of its impact.

In March 2020, the CARES Act was signed into law, which, among other things, expanded states’ ability to provide unemployment insurance for many workers impacted by COVID-19, including for workers who were not otherwise eligible for unemployment benefits, provide direct payments to qualifying individuals, and provided assistance for small and medium size businesses. We believe that many of our customers have benefited from the enhanced benefits provided by the CARES Act, some of which, such as enhanced unemployment benefits, are set to expire in July 2020. If these benefits are not extended, or if other stimulus measures benefiting our customers are not enacted in the near term, the effect may result in an increase in delinquencies and materially and adversely impact our results of operations and financial condition in future periods.

Federal, state and local governments have mandated or encouraged financial services companies to make accommodations to borrowers and other customers affected by COVID-19. Legal and regulatory responses to concerns about COVID-19 could result in additional regulation or restrictions affecting the conduct of our business in the future. All of the foregoing may adversely affect our income and other results of operations or make collection of our personal loans more difficult or reduce income received from such loans or our ability to obtain financing with respect to such loans.

COVID-19 has also caused significant volatility in financial markets and adverse economic conditions and may have significant long-term adverse effects on the U.S. economy, including increased instability in capital markets, declines in business and consumer confidence, reductions in economic activity, increased unemployment and recession, any of which may adversely affect our ability to access the capital markets and could have an adverse impact on our liquidity, our income and our ability to support our operations and other negative impacts on our financial position, results of operations, and prospects.

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

We maintain an allowance for finance receivable losses. To estimate the appropriate level of allowance for finance receivable losses, we consider known and relevant internal and external factors that affect finance receivable collectability, including the total amount of finance receivables outstanding, historical finance receivable charge-offs, our current collection patterns, and current and forecasted economic trends. Our methodology for establishing our allowance for finance receivable losses is based on the guidance from ASC 326, Financial Instruments – Credit Losses, which requires us to measure expected credit losses for financial assets at each reporting date. The allowance is primarily based on historical experience, current conditions, and our reasonable and supportable forecast of economic conditions. If customer behavior changes as a result of economic conditions and if we are unable to accurately predict how the unemployment rates, personal bankruptcy filings, and general economic conditions may affect our allowance for finance receivable losses, our allowance for finance receivable losses may be inadequate. Our allowance for finance receivable losses is an estimate, and if actual finance receivable losses are materially greater than our allowance for finance receivable losses, our results of operations could be adversely affected. Neither state regulators nor federal regulators regulate our allowance for finance receivable losses.

RISKS RELATED TO FINANCIAL REPORTING

Our valuations may include methodologies, models, estimations and assumptions which are subject to differing interpretations and could result in changes to financial assets and liabilities that may materially adversely affect our results of operations and financial condition.

The allowance for finance receivable losses is a critical accounting estimate which requires us to use significant estimates and assumptions to determine the appropriate level of allowance. We estimate the allowance for finance receivable losses primarily on historical loss experience using a cumulative loss model applied to our finance receivable portfolio. Our gross loss expectation is offset by the estimate of future recoveries using historical recovery curves on the active portfolio along with accounts that were previously charged-off. We adjust the amounts determined by the model for the impact of management’s economic forecast, such as the levels of unemployment and personal bankruptcy filings, and the effects of model imprecision which include any changes to underwriting criteria and portfolio seasoning. If we are unable to predict certain of these assumptions accurately, our allowance for finance receivable losses may be inadequate. If actual finance receivable losses are materially greater than our allowance for finance receivable losses, our results of operations, financial condition, and liquidity could be adversely affected.

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

There have been no other material changes to our risk factors included in Part I, Item 1A of our 20162019 Annual Report on Form 10-K, except for changes previously disclosed in Part II, Item 1A10-K.

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


None.


Item 3. Defaults Upon Senior Securities.    

Item 3. Defaults Upon Senior Securities.

None.


Item 4. Mine Safety Disclosures.    

Item 4. Mine Safety Disclosures.
Not applicable.

Item 5. Other Information.    


None.


Item 6. Exhibits.    

Item 5. Other Information.

None.

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Table of Contents

Item 6. Exhibit Index.

Exhibit NumberDescription
Exhibit Number

3.1
Description
3.2
4.1
31.1

31.2

31.3
31.4
32.1
101

32.2
101Interactive data files pursuant to Rule 405 of Regulation S-T:
S-T, formatted in Inline XBRL:
(i) Condensed Consolidated Balance Sheets,

(ii) Condensed Consolidated Statements of Operations,

(iii) Condensed Consolidated Statements of Comprehensive Income, (Loss),

(iv) Condensed Consolidated Statements of Shareholder’s Equity,

(v) Condensed Consolidated Statements of Cash Flows, and

(vi) Notes to the Condensed Consolidated Financial Statements.
104Cover Page Interactive Data File in Inline XBRL format (Included in Exhibit 101).



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73





Signature    

OMH Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


SPRINGLEAF FINANCE CORPORATIONONEMAIN HOLDINGS, INC.
(Registrant)
Date:November 6, 2017July 30, 2020By:/s/ Micah R. Conrad
Micah R. Conrad
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)


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74




OMFC Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ONEMAIN FINANCE CORPORATION
(Registrant)
Date:July 30, 2020By:/s/ Micah R. Conrad
Micah R. Conrad
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)

75