Download Springleaf Holdings, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): April 27, 2015 (April 27, 2015)
Springleaf Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
001-36129
(Commission File Number)
27-3379612
(I.R.S. Employer Identification No.)
601 N.W. Second Street,
Evansville, Indiana 47708
(Address of principal executive offices)(Zip Code)
(812) 424-8031
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:




Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02
Results of Operations and Financial Condition.
Recent Developments
The following preliminary, unaudited financial information reflects the expectations of Springleaf Holdings, Inc., a Delaware
corporation (the “Company”), with respect to its results of operations for the three months ended March 31, 2015, based on currently available
information. The Company has not yet finalized its financial statements as of and for the three months ended March 31, 2015, and its
independent registered public accounting firm has not audited, reviewed, compiled or performed any procedures with respect to the preliminary
financial information presented below and accordingly does not express an opinion or any form of assurance with respect thereto. Actual
results for the period may differ materially from the preliminary estimates presented below.
Preliminary Results for Quarter Ended March 31, 2015
Net income (loss) is expected to be in the range of net loss of $1 million to net income of $1 million for the three months ended
March 31, 2015, versus net income of $52 million for the three months ended March 31, 2014. Earnings per diluted share is expected to be in
the range of ($0.01) to $0.01 (based on 115.4 million diluted shares as of March 31, 2015), versus $0.45 for the three months ended March 31,
2014.
Pretax core earnings (a non-GAAP measure) for the three months ended March 31, 2015 is expected to be in the range of $100 million
to $103 million, versus $80 million for the three months ended March 31, 2014. Earnings per diluted share (a non-GAAP measure) is expected
to be in the range of $0.55 to $0.56 for the three months ended March 31, 2015 versus $0.43 for the three months ended March 31, 2014.
The Company’s consumer net finance receivables is expected to be $3.9 billion versus $3.8 billion as of December 31, 2014. Yield for
the Company’s Consumer and Insurance segment is expected to be in the range of 26.8% to 26.9% for the three months ended March 31, 2015,
versus 26.9% for the three months ended March 31, 2014.
Acquisitions and Servicing segment pretax income is expected to be in the range of $35.5 million to $36.5 million for the three months
ended March 31, 2015, versus $23 million for the three months ended March 31, 2014.
A reconciliation of expected income before provision for income taxes — push-down accounting basis to pretax core earnings (a
non-GAAP measure) for the three months ended March 31, 2015 is set forth in the following table:
(in millions)
Low
Income before provision for income taxes - push-down accounting basis
Push-down accounting adjustments
Income before provision for income taxes - historical accounting basis
Adjustments:
Pretax operating loss - Non-Core Portfolio Operations
Pretax operating loss - Other/ non-originating legacy operations
Pretax operating income attributable to non-controlling interests
Pretax core earnings
$
$
High
37
33
70
48
13
(31 )
100
$
$
39
33
72
49
13
(31 )
103
Forward-Looking Statements
This Current Report on Form 8-K contains “forward-looking statements” within the meaning of the U.S. federal securities laws.
Forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, future events or
performance, the Company’s preliminary unaudited financial information ranges and underlying assumptions and other statements, which are
not statements of historical facts. Statements preceded by, followed by or that otherwise include the words “anticipate,” “appears,” “believe,”
“foresee,” “intend,” “should,” “expect,” “estimate,” “project,” “plan,” “may,” “could,” “will,” “are likely” and similar expressions are intended
to identify forward-looking statements. These statements involve predictions of the Company’s future financial condition, performance, plans
and strategies, and are thus dependent on a number of factors including, without limitation, assumptions and data that may be imprecise or
incorrect. Specific factors that may impact performance or other
2
predictions of future actions include, but are not limited to: changes in general economic conditions, including the interest rate environment and
the financial markets; levels of unemployment and personal bankruptcies; shifts in residential real estate values; shifts in collateral values,
delinquencies, or credit losses; natural or accidental events such as earthquakes, hurricanes, tornadoes, fires, or floods; war, acts of terrorism,
riots, civil disruption, pandemics, or other events disrupting business or commerce; the Company’s ability to successfully realize the benefits of
the SpringCastle portfolio; the effectiveness of the Company’s credit risk scoring models; changes in the Company’s ability to attract and retain
employees or key executives; changes in the competitive environment in which the Company operates; changes in federal, state and local laws,
regulations, or regulatory policies and practices; potential liability relating to real estate and personal loans which the Company has sold or may
sell in the future, or relating to securitized loans; the costs and effects of any litigation or governmental inquiries or investigations; the
Company’s continued ability to access the capital markets or the sufficiency of the Company’s current sources of funds to satisfy its cash flow
requirements; the Company’s ability to generate sufficient cash to service all of its indebtedness; the potential for downgrade of the Company’s
debt by rating agencies; and other risks described in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year
ended December 31, 2014, filed with the Securities and Exchange Commission on March 16, 2015. Forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The
Company cautions you not to place undue reliance on these forward-looking statements that speak only as of the date they were made. The
Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or
circumstances after the date of this presentation or to reflect the occurrence of unanticipated events. Forward-looking statements should not be
relied upon as the sole basis upon which to make any investment decision.
The information disclosed under this Item 2.02, including Exhibit 99.1 hereto, is being furnished and shall not be deemed to be filed
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of
that section, nor shall it be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the
Exchange Act, unless expressly set forth as being incorporated by reference into such filing.
Item 8.01
Other Events.
As reported on its Current Report on Form 8-K filed on March 3, 2015, the Company entered into a Stock Purchase Agreement (the
“Stock Purchase Agreement”), dated as of March 2, 2015, with CitiFinancial Credit Company, a Delaware Corporation (“Seller”). The Stock
Purchase Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will purchase from Seller (the
“Proposed Acquisition”) all of the equity of OneMain Financial Holdings, Inc., a Delaware corporation (“OneMain”), for an aggregate
purchase price of $4.25 billion in cash, which amount will be adjusted up or down, as applicable, by the amount by which OneMain’s
stockholder’s equity as of the closing of the Proposed Acquisition exceeds or is less than, as applicable, $1.944 billion.
The Company is filing this Current Report on Form 8-K to provide: (1) the Company’s unaudited pro forma condensed combined
financial statements relating to the Proposed Acquisition, attached hereto as Exhibit 99.1 and (2) OneMain’s audited consolidated and
combined financial statements as of December 31, 2014 and 2013, and for each of the years in the three-year period ended December 31, 2014,
attached hereto as Exhibit 99.2. The information in Exhibit 99.2 was provided by OneMain. The information in Exhibits 99.1 and 99.2 is
incorporated herein by reference.
Item 9.01
(a)
Financial Statements and Exhibits.
Financial Statements of Business Acquired.
The audited consolidated and combined financial statements of OneMain as of December 31, 2014 and 2013 and for each of the years
in the three-year period ended December 31, 2014 are filed herewith as Exhibit 99.2 and are incorporated in this Item 9.01(a) by
reference.
(b)
Pro Forma Financial Information.
The unaudited pro forma condensed combined financial statements of the Company as of and for the year ended December 31, 2014,
giving effect to the Proposed Acquisition, are filed herewith as Exhibit 99.1 and are incorporated in this Item 9.01(b) by reference.
(d)
Exhibits:
3
Exhibit
Number
23.1
99.1
99.2
Description
Consent of KPMG LLP
Springleaf Holdings, Inc. Unaudited Pro Forma Condensed Combined Financial Statements as of and for the year ended
December 31, 2014
OneMain Financial Holdings, Inc. Audited Consolidated and Combined Financial Statements as of December 31, 2014 and
2013 and for each of the years in the three-year period ended December 31, 2014
4
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 hereunto duly authorized.
SPRINGLEAF HOLDINGS, INC.
(Registrant)
By: /s/ Minchung (Macrina) Kgil
Minchung (Macrina) Kgil
Executive Vice President and Chief Financial Officer
Date: April 27, 2015
5
EXHIBIT INDEX
Exhibit
Number
23.1
99.1
99.2
Description
Consent of KPMG LLP
Springleaf Holdings, Inc. Unaudited Pro Forma Condensed Combined Financial Statements as of and for the year ended
December 31, 2014
OneMain Financial Holdings, Inc. Audited Consolidated and Combined Financial Statements as of December 31, 2014 and
2013 and for each of the years in the three-year period ended December 31, 2014
6
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
OneMain Financial Holdings, Inc.:
We consent to the incorporation by reference in the registration statement (No. 333-200408) on Form S-3 and the registration statement (No.
333-191740) on Form S-8 of Springleaf Holdings, Inc. of our report dated March 23, 2015, with respect to the consolidated and combined
statements of financial position of OneMain Financial Holdings, Inc. as of December 31, 2014 and 2013, and the related consolidated and
combined statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended
December 31, 2014, which report is included in the Form 8-K of Springleaf Holdings, Inc. dated April 27, 2015.
In addition, we consent to the reference to our firm under the heading “Experts” in the prospectus supplement, which is part of such registration
statement on Form S-3.
/s/ KPMG LLP
Baltimore, Maryland
April 27, 2015
Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
In this exhibit 99.1, except as otherwise indicated or the context otherwise requires, references to (i) “SHI” refer to Springleaf
Holdings, Inc.; (ii) “Springleaf,” “we,” “the Company,” “our” and “us” refer to Springleaf Holdings, Inc. and its consolidated subsidiaries;
(iii) “SFC” refer to Springleaf Finance Corporation and its consolidated subsidiaries; (iv) “OneMain” refer to OneMain Financial
Holdings, Inc. and its consolidated subsidiaries; (v) “Seller” refer to CitiFinancial Credit Company; and (vi) “Initial Stockholder” refer to
Springleaf Financial Holdings, LLC, an entity owned primarily by a private equity fund managed by an affiliate of Fortress Investment Group
LLC and AIG Capital Corporation, a subsidiary of American International Group, Inc.
The following unaudited pro forma condensed combined financial information presents the combination of the historical consolidated
and combined balance sheet and statement of income of Springleaf and OneMain adjusted to give effect to the Proposed Acquisition (as
defined below) and the financing arrangements in connection with the Proposed Acquisition. The unaudited pro forma condensed combined
statement of income for the year ended December 31, 2014 (i) combines the historical consolidated statement of income of Springleaf and the
historical consolidated and combined statement of income of OneMain, giving effect to the Proposed Acquisition as if it had been
consummated on January 1, 2014, and (ii) reflects the 2014 Springleaf real estate assets sale transactions and the financing arrangements as if
they had been consummated on January 1, 2014. The unaudited pro forma condensed combined balance sheet combines the historical
condensed consolidated balance sheet of Springleaf and the historical condensed consolidated balance sheet of OneMain as of December 31,
2014, giving effect to the Proposed Acquisition and the financing arrangements as if they had been consummated on December 31, 2014. The
historical consolidated and combined financial information of OneMain has been adjusted to reflect certain reclassifications (included in the
“reclassifications” column) in order to conform to Springleaf’s financial statement presentation.
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting with
Springleaf considered the acquirer of OneMain. Under the acquisition method of accounting, OneMain’s specific identifiable tangible and
intangible assets acquired and liabilities assumed are generally reflected at their respective fair values with any excess of the purchase price
over the fair value of OneMain’s net assets allocated to goodwill.
As of the date hereof, the Proposed Acquisition has not closed and Springleaf has not completed the detailed valuation analysis
necessary to arrive at the required estimates of the fair value of OneMain’s assets to be acquired and the liabilities to be assumed and the
related allocations of purchase price, nor has it identified all adjustments necessary to conform OneMain’s accounting policies to Springleaf’s
accounting policies. A final determination of the fair value of OneMain’s assets and liabilities, including intangible assets with both indefinite
or finite lives, will be based on the actual net tangible and intangible assets and liabilities of OneMain that exist as of the closing date of the
Proposed Acquisition and, therefore, cannot be made prior to the completion of the transaction. As a result of the foregoing, the pro forma
adjustments are preliminary and are subject to change as additional information becomes available and as additional analyses are performed.
The preliminary pro forma adjustments have been made solely for the purpose of providing the unaudited pro forma condensed combined
financial information presented herein. Springleaf estimated the fair value of OneMain’s assets and liabilities based on discussions with
OneMain’s management, preliminary valuation studies, due diligence and information presented in OneMain’s public filings. Until the
Proposed Acquisition is completed, both companies are limited in their ability to share certain information. Upon completion of the Proposed
Acquisition, final valuations will be performed. Any increases or decreases in the fair value of relevant balance sheet amounts upon completion
of the final valuations will result in differences from this pro forma condensed combined balance sheet and/or statement of income. The final
acquisition method of accounting will be different from that reflected in the pro forma information presented herein, and this difference may be
material.
Assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial information (the
“pro forma adjustments”) are described in the accompanying notes. The historical consolidated financial statements have been adjusted in the
unaudited pro forma condensed combined financial information to give effect to pro forma events that are: (1) directly attributable to the
Proposed Acquisition; (2) factually supportable; and (3) with respect to the pro forma statement of income, expected to have a continuing
impact on the combined results of Springleaf and OneMain following the Proposed Acquisition. The unaudited pro forma condensed combined
1
financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results and financial
position that would have been achieved had the Proposed Acquisition occurred on the date indicated. Further, the unaudited pro forma
condensed combined financial information does not purport to project the future operating results or financial position of the combined
company following the Proposed Acquisition.
The unaudited pro forma condensed combined financial information, although helpful in illustrating the financial characteristics of the
combined company under one set of assumptions, does not reflect the benefits of expected cost savings (or associated costs to achieve such
savings), opportunities to earn additional revenue, or other factors that may result as a consequence of the Proposed Acquisition and,
accordingly, do not attempt to predict or suggest future results. Specifically, the unaudited pro forma condensed combined statement of income
excludes projected operating efficiencies and synergies expected to be achieved as a result of the Proposed Acquisition. The unaudited pro
forma condensed combined financial information also excludes the effects of costs associated with any restructuring or integration activities or
asset dispositions resulting from the Proposed Acquisition, as they are currently not known, and to the extent they occur, are expected to be
non-recurring and will not have been incurred at the closing date of the Proposed Acquisition. However, such costs could affect the combined
company following the Proposed Acquisition in the period the costs are incurred or recorded. Further, the unaudited pro forma condensed
combined financial information does not reflect the effect of any regulatory actions that may impact the results of the combined company
following the Proposed Acquisition.
In October 2013, certain executives of Springleaf received a grant of incentive units in the Initial Stockholder. These incentive units
are subject to their continued employment with the Company and provide benefits (in the form of distributions) in the event the Initial
Stockholder makes distributions to one or more of its members that exceed certain specified amounts. In connection with the sale of our
common stock by the Initial Stockholder, certain of the specified thresholds may be satisfied. Springleaf recognizes these incentive units in
accordance with ASC 710, Compensation—General, and will recognize compensation expense at the time any distributions are made to the
executives. If the underwriters’ option to purchase additional shares is not exercised, Springleaf is not expected to recognize any compensation
expense in the second quarter of 2015 related to the incentive units. If the underwriters’ option to purchase additional shares is exercised in full,
Springleaf is expected to recognize non-cash compensation expense of approximately $14 million in the second quarter of 2015 related to the
incentive units. The unaudited pro forma condensed combined statement of income does not include any adjustment for such compensation
expense.
The unaudited pro forma condensed combined statement of income for the year ended December 31, 2014 has been prepared to give
effect to the 2014 real estate assets sale transactions (collectively, the “Asset Sales”) reported in our Current Report on Form 8-K filed
November 13, 2014 and adjusted for additional sales completed subsequent to that filing. There are no adjustments for the Asset Sales or the
additional sales completed subsequent to such Current Report on Form 8-K in the unaudited pro forma condensed combined balance sheet
since the Asset Sales were completed prior to, and is reflected in the balance sheet amounts as of, December 31, 2014.
The unaudited pro forma condensed combined financial information has been developed from and should be read in conjunction with:

the historical audited consolidated financial statements of Springleaf as of and for the year ended December 31, 2014 included
in Springleaf’s Annual Report on Form 10-K and incorporated by reference in this document; and

the historical audited consolidated and combined financial statements of OneMain as of December 31, 2014 and 2013, and for
each of the years in the three-year period ended December 31, 2014 included in the Current Report on Form 8-K to which this
exhibit 99.1 is attached.
2
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of December 31, 2014
The following unaudited pro forma condensed combined balance sheet as of December 31, 2014, combines the December 31, 2014
historical combined balance sheets of Springleaf and OneMain assuming the companies had been combined on December 31, 2014 using the
acquisition method of accounting.
December 31, 2014
(In millions)
Assets
Cash and cash equivalents
Investment securities
Net finance receivables:
Personal loans
SpringCastle Portfolio
Real estate loans
Retail sales finance
Unearned revenue and deferred
costs
Unearned premium and claim
reserves
Net finance receivables
Allowance for finance receivable
losses
Net finance receivables, less allowance
for finance receivable losses
Finance receivables held for sale
Restricted cash and cash equivalents
Goodwill and intangible assets
Deferred tax assets, net
Premises and equipment, net
Other assets
Total assets
Liabilities and Shareholders’ Equity
Long-term debt
Related party debt
Borrowings under a revolving facility
Insurance claims and policyholder
liabilities
Deferred and accrued taxes
Other liabilities
Total liabilities
Shareholders’ equity:
Common stock
Additional paid-in capital
Accumulated other comprehensive
income
Retained earnings
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’
equity
Springleaf
$
OneMain
879
2,935
$
4a
9,946
—
—
—
(1,510 )
—
—
—
—
(1,510 )
—
6,483
(176 )
$
$
$
Reclassifications
(147 )
—
3,831
1,979
625
48
6,307
205
218
—
—
—
514
11,058
8,385
—
—
$
$
319
1,391
(4,239 )
—
6a
4b
266
—
—
—
6c
1,510
4b
(415 )
8,021
415
415
4c
(695 )
—
695
415
—
147
21
—
(94 )
73
415
7,326
—
—
71
313
94
180
9,694
3,444
3,249
—
$
$
$
1,051
2,900
—
—
—
—
12,533
1,979
625
48
—
—
—
—
266
—
—
—
15,185
6d
—
961
—
—
1,772
(313 )
—
(78 )
(1,897 )
6e
6f
—
—
—
—
—
—
10
2,826
1,262
(3,249 )
2,529
6j, 6k
6j
6j, 6l
6g, 6h
$
$
1,846
—
—
(176 )
$
$
15,009
205
365
1,864
—
—
699
22,096
14,937
—
2,529
1,322
152
339
19,279
—
—
—
(1,846 )
6i
6i
—
980
1
1,509
—
—
—
—
—
(44 )
(43 )
(1,933 )
—
(1,933 )
6i
6i
—
—
980
—
980
3
1,492
3,005
(188 )
2,817
—
1,846
3
1,492
2,025
(188 )
1,837
44
43
1,933
—
1,933
415
3
$
—
—
—
1,846
1
529
$
$
4,239
(1,423 )
6j
6l
415
—
—
415
9,694
4e
4d, 4e
$
Pro Forma
Combined
—
(506 )
—
36
461
506
101
7,761
$
$
4a
4d
—
—
—
$
446
152
238
9,221
11,058
Adjustments
for
Financing
Arrangements(5)
Adjustments
for Proposed
Acquisition
4c
$
(1,897 )
$
2,826
$
22,096
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 2014
The following unaudited pro forma condensed combined statement of income for the year ended December 31, 2014, combines the
December 31, 2014 historical combined income statements of Springleaf and OneMain assuming the companies had been combined on
January 1, 2014 using the acquisition method of accounting, and reflects the 2014 sales of Springleaf real estate assets as if those assets had
been sold on January 1, 2014.
Adjustments
for
Proposed
Acquisition
For the year ended December 31, 2014
OneMai
(In millions, except share data)
Springleaf
n
Reclassifications
Interest income:
Finance charges
$
1,921 $ 2,011 $
—
$
Investment revenue
—
62
(62 ) 4g
Finance receivables held for sale originated as
held for investment
61
—
—
Total interest income
1,982
2,073
(62 )
Interest expense
734
217
—
Net interest income
1,248
1,856
(62 )
Provisions for finance receivable losses
474
—
575 4f
Net interest income after provisions for finance
receivable losses
774
1,856
(637 )
Other revenues:
Insurance
166
338
—
Investment
39
3
62 4g
Net gain (loss) on repurchases and repayments
of debt
(66 )
—
—
Net gain (loss) on fair adjustments on debt
(15 )
—
—
Net gain (loss) on sales of real estate loans and
related trust assets
726
—
—
Other
(18 )
43
—
Total other revenues
832
384
62
Provisions for credit losses and for benefits and
claims:
Provisions for credit losses
—
575
(575 ) 4f
Policyholder benefits and claims
—
134
(134 ) 4f
Total provisions for credit losses and for benefits
and claims
—
709
(709 )
Other expenses:
Operating expenses:
Salaries and benefits
360
288
—
Other operating expenses
Restructuring expenses
Insurance losses and loss adjustment expenses
Total other expenses
Income (loss) before benefit from income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income attributable to non-controlling
interests
Net income (loss)
Net income (loss) per common share attributable
to Springleaf:
Basic
Diluted
Weighted average number of shares outstanding
Basic
Diluted
266
—
75
701
905
297
608
426
—
—
714
817
304
513
$
103
505 $
—
513 $
$
$
4.40
4.38
—
—
134 4f
134
—
—
—
—
—
$
(387 ) 7a
—
Adjustments for
Financing
Arrangements(5)
$
—
—
Adjustments
for Assets
Sales(8)
$
Pro Forma
Combined
(369 ) $
—
3,176
—
—
(387 )
39 7b
(426 )
(166 ) 7d
—
—
76 7c
(76 )
—
(53 )
(422 )
(80 )
(342 )
(87 )
8
3,184
986
2,198
796
(260 )
(76 )
(255 )
1,402
—
—
—
—
(11 )
—
493
104
—
—
—
—
—
—
—
—
—
—
—
—
(726 )
24
(713 )
—
49
565
—
—
—
—
—
—
—
—
—
—
—
—
—
(10 )
712
(19 )
—
(10 )
(39 )
(929 )
(340 )
(589 )
590
—
199
1,501
466
140
326
74 7h
7e,
7f,
(83 ) 7h
—
—
(9 )
(251 )
(93 ) 7g
(158 )
—
(158 )
—
—
—
—
(76 )
(28 ) 7g
(48 )
$
(7 )
(41 )
$
(66 )
(15 )
—
(589 ) $
$
$
114,791,225
115,265,123
18,939,394 7i
18,939,394 7i
4
96
230
1.72 7i
1.71 7i
133,730,619
134,204,517
7i
7i
Note 1—Description of Proposed Acquisition
On March 2, 2015, SHI entered into a stock purchase agreement with Seller to acquire all of the outstanding equity interests of
OneMain for $4.25 billion in cash, which amount will be adjusted up or down, as applicable, by the amount by which OneMain’s stockholder’s
equity as of the closing exceeds or is less than $1.94 billion (the “Proposed Acquisition”). Closing of the Proposed Acquisition is subject to
various conditions. The Proposed Acquisition is expected to close in the third quarter of 2015, although there can be no assurance that the
Proposed Acquisition will close, or if it does, when the actual closing will occur.
Note 2—Basis of Pro Forma Presentation
The unaudited pro forma condensed combined balance sheet related to the Proposed Acquisition is included as of December 31, 2014
and the unaudited pro forma condensed combined income statement is included for the year ended December 31, 2014. The historical audited
consolidated and combined financial statements of OneMain have been adjusted to reflect reporting reclassifications necessary to conform to
the presentation of the historical consolidated financial statements of Springleaf. The adoption of new or changes to existing accounting
principles generally accepted in the United States of America subsequent to the unaudited pro forma condensed combined financial statement
dates may result in changes to the presentation of the preliminary unaudited pro forma condensed combined financial information, if material.
The unaudited pro forma condensed combined financial information shows the impact of the Proposed Acquisition on the condensed
combined balance sheet and the condensed combined statement of income under the acquisition method of accounting with Springleaf treated
as the acquirer. The acquisition method of accounting, provided by Accounting Standards Codification (“ASC”) 805 Business Combinations ,
uses the fair value concepts defined in ASC 820 Fair Value Measurement . Under this method of accounting, the assets and liabilities of
OneMain are recorded by Springleaf at the date of acquisition at their estimated fair values, where fair value is defined in ASC 820 as “the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date.” The fair value of OneMain’s identifiable tangible and intangible assets acquired and liabilities assumed are based on fair
value estimates as of December 31, 2014. Any excess of the purchase price over the fair value of identified assets acquired and liabilities
assumed will be recognized as goodwill. Fair value measurements may require extensive use of significant estimates and management’s
judgment, and it is possible the application of reasonable judgment could produce varying results based on a range of alternative estimates
using the same facts and circumstances. At this time, a detailed valuation of the assets acquired and liabilities assumed as part of the Proposed
Acquisition has not been completed, and accordingly, the unaudited pro forma financial information was prepared using a preliminary
allocation of the estimated purchase price based on assumptions and estimates, which are subject to material changes. Additionally, the
Company has not yet completed all of the analysis necessary to identify additional items that could significantly impact the purchase price
allocation or the assumptions and adjustments made in preparation of the unaudited pro forma financial information. Until the Proposed
Acquisition is consummated, access to information to make such estimates is limited. As such, certain market based assumptions were used
when data was not available; however, management believes the fair values recognized for the assets to be acquired and liabilities to be
assumed are based on reasonable estimates and assumptions. Subsequent to the Proposed Acquisition completion date, there may be further
refinements of the business combination adjustments as additional information becomes available. Increases or decreases in fair value of
certain balance sheet amounts and other items of OneMain as compared to the information presented in this document may change the amount
of the business combination adjustments to goodwill and other assets and liabilities and may impact the income statement due to adjustments in
yield and/or amortization of adjusted assets and liabilities.
Note 3—Conforming Accounting Policies
Differences in the allowance and provision methodology have been identified. OneMain generally charges-off personal loans at the
earlier of (1) 180 days contractually past due if there have been no payments within the last six months, or (2) 360 days contractually past due.
However, Springleaf generally charges-off personal loans that are beyond 180 days contractually past due. As the finance receivables are
reflected at their fair value under the acquisition method of accounting, this policy
5
difference is not expected to have a material impact on the unaudited pro forma condensed combined financial information.
At this time, the Company is not aware of any additional differences that would have a material impact on the unaudited pro forma
condensed combined financial information. Upon consummation of the Proposed Acquisition, Springleaf will review OneMain’s accounting
policies to determine whether it may be necessary to harmonize any differences in accounting policies between those of Springleaf and
OneMain. As a result of that review, Springleaf may identify differences between the accounting policies of the two companies that, when
conformed, could have a material impact on the unaudited pro forma condensed combined financial information.
Note 4—Reclassifications
Certain balances from the consolidated and combined financial statements of OneMain were reclassified to conform their presentation
to the consolidated financial statements of Springleaf.
The following reclassifications were made to OneMain’s historical consolidated balance sheet for the purpose of Springleaf’s
unaudited pro forma condensed combined balance sheet as of December 31, 2014, with the exception of 4d below:
4a.
Reclassification of OneMain’s restricted cash amounts from parenthetical disclosure under “Cash and cash equivalents”
to the “Restricted cash and cash equivalents” financial statement line item to conform to Springleaf’s financial statement
presentation.
4b.
Reclassification of OneMain’s “Unearned revenue and deferred costs” balance as a separate financial statement line
item to “Personal loans” to conform to Springleaf’s financial statement presentation.
4c.
Reclassification of OneMain’s “Unearned premium and claims reserves” from the “Net Finance Receivables” financial
statement line item to “Insurance claims and policyholder liabilities” to conform to Springleaf’s financial statement
presentation.
4d.
Reclassification of Springleaf’s “Intangible assets” balance from the “Other Assets” financial statement line item to
“Goodwill and Intangible assets” for presentation consistency.
4e.
Reclassification of OneMain’s “Premises and equipment, net” balance as a separate financial statement line item to
“Other Assets” to conform to Springleaf’s financial statement presentation.
The following reclassifications were made to OneMain’s historical consolidated and combined income statement for the purpose of
Springleaf’s unaudited pro forma condensed combined statement of income for the year ended December 31, 2014:
4f.
Reclassification of OneMain’s financial statement line items grouped under “Provisions for credit losses and for
benefits and claims” to “Provisions for finance receivable losses” and insurance related expenses to “Insurance losses and
loss adjustment expenses” to conform to Springleaf’s financial statement presentation.
4g.
Reclassification of OneMain’s investment earning from the “Investment revenue” financial statement line item to
“Other Revenues: Investment” to conform to Springleaf’s financial statement presentation.
Note 5—Transaction Financing
The anticipated funding for the Proposed Acquisition consists of an expected cash payment of approximately $4.24 billion. Springleaf
anticipates funding the consideration using a combination of available cash, proceeds from the sale of investment securities, securitizations,
sale of retained interest in notes related to previous securitizations, and this offering. Prior to the securitizations, sale of retained interest in
notes, and this offering, Springleaf has adequate liquidity to fund a cash payment of the purchase price using available cash, proceeds from the
sale of investment securities and existing
6
Springleaf conduit facilities. The following is a summary of the assumed financing transactions related to the Proposed Acquisition (in
millions):
Description
Amount
Proceeds from sale of investment securities
The equity offering contemplated hereby
2015-A Securitization
2015-B Securitization
Proceeds from sale of SpringCastle 2014-A Notes
Gross proceeds
Costs, premiums and discounts associated with the above transactions
Net Proceeds
$
$
1,423
1,000
1,163
314
363
4,263
(24 )
4,239
For the anticipated equity issuance, an issue price of $52.80 per share was assumed based on the closing price of Springleaf’s common
stock on the NYSE on April 24, 2015, which results in the issuance of approximately 18.9 million shares of Springleaf common stock. The
issue price may be different on the actual date of issue and therefore will have an impact on the actual share amounts presented in the unaudited
pro forma condensed combined financial information. Additional paid in capital is adjusted for the net proceeds of the common stock issuance.
The 2015-A and 2015-B securitizations include issuance of four classes of fixed rate, asset backed notes with weighted average yields
of 3.58% and 3.87%, respectively. In addition, Springleaf sold $232 million and $131 million principal amount of SpringCastle 2014-A
Class C and D Notes, respectively, to an unaffiliated party at a premium to the principal balance. The interest rates on the Class C and D Notes
are 5.59% and 6.82%, respectively.
Note 6—Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments
This footnote should be read in conjunction with “Note 1—Description of Proposed Acquisition”, “Note 2—Basis of Pro Forma
Presentation”, “Note 3—Conforming Accounting Policies”, “Note 4—Reclassifications”, and “Note 5—Transaction Financing”. Adjustments
included in the columns “Adjustments for Proposed Acquisition” and “Adjustments for Financing Arrangements” to the accompanying
unaudited pro forma condensed combined balance sheet at December 31, 2014 are represented, in part, by the following considerations arising
out of applying the acquisition method of accounting to OneMain’s assets and liabilities (in millions):
Description
Fair value of cash consideration
Less: Book value of OneMain’s net assets
Less: Fair value adjustments of assets and
liabilities acquired
Loans receivables
Allowance for loan losses
Goodwill and intangible assets
Deferred tax assets, net
Premises and equipment, net
Other assets
Long-term debt
Related-party debt
Borrowings under a revolving facility
Deferred and accrued taxes
Goodwill and intangible assets
Purchase
Price
Allocation
Historical
Note
(6a)
(6b)
$
9,946
(695 )
71
313
94
180
(3,444 )
(3,249 )
—
(506 )
—
7
$
9,702
—
—
—
153
43
(4,706 )
—
(2,529 )
—
(6c)
(6d)
(6e)
(6f)
(6g)
(6h)
(6j), (6k)
(6j)
(6j), (6l)
(6j)
(6e)
Amounts
$
$
4,239
1,933
266
695
(71 )
(313 )
59
(137 )
(1,262 )
3,249
(2,529 )
506
1,843
6a)
Represents cash consideration of approximately $4.25 billion payable at closing, adjusted based on the amount of
equity at closing. If OneMain were to have the same equity at closing as it reported at December 31, 2014, the cash payment
would be $4.14 billion.
6b)
Reflects the historical book value of net assets acquired as of December 31, 2014.
6c)
Personal loans
Reflects fair value adjustment for OneMain’s loan portfolio, which includes both a purchased credit impaired (“PCI”)
portfolio and a non-PCI portfolio. See Note 7a for further discussion on the income statement adjustment resulting from this
bifurcation.
6d)
Allowance for finance receivable losses
Reflects the elimination of OneMain’s historical allowance for finance receivable losses.
6e)
Goodwill and intangible assets
Represents the following:
i.
the elimination of $71 million of intangible assets reflected on OneMain’s historical consolidated balance
sheet. The fair value estimate for new identifiable intangible assets has not been finalized as of the date hereof and
has accordingly not been specifically identified herein.
ii.
the difference between the fair value of the consideration transferred and the values assigned to the
identifiable tangible and intangible assets acquired and liabilities assumed. The amount of goodwill presented in the
above table reflects the estimated goodwill as a result of the acquisition of $1.84 billion; however this number is
expected to decrease significantly once the identifiable intangibles have been assigned fair values.
6f)
Deferred tax assets
Represents the elimination of deferred tax assets reflected on OneMain’s historical consolidated balance sheet.
6g)
Premises and equipment, net
Represents fair value adjustment primarily related to OneMain’s Symphony system (“Symphony”), an underwriting,
originating, servicing, and payment processing platform as well as other software.
6h)
Other assets
Represents the elimination of historical debt issuance costs and deferred acquisition costs related to OneMain’s insurance
business.
Description
Amount
Debt insurance fees
Deferred acquisition costs
Total
6i)
$
$
36
101
137
Equity
Represents adjustment to eliminate OneMain’s historical stockholder’s equity.
6j)
Borrowing adjustments for Acquisition Accounting
Represents adjustment to eliminate OneMain’s related party debt due to an intercompany income tax payable to Seller and
replacement with borrowings expected to be in place at the
8
time of closing. The expected borrowings include OneMain Financial Issuance Trust 2015-1 securitization and OneMain’s
revolving warehouse facility completed during the first quarter of 2015. The borrowings are included as pro forma
adjustments to properly reflect the liabilities of the acquired company as of the closing date. The adjustment decreases related
party debt and deferred and accrued taxes by $3.25 billion and $506 million, respectively and replaces that debt with
$1.23 billion, net of a discount of $3 million, and $2.53 billion for the OneMain Financial Issuance Trust 2015-1
securitization and OneMain’s revolving warehouse facility, respectively.
Description
Amount
Related party debt
Intercompany income tax payable
Related party debt to be repaid at closing of acquisition
$
Borrowings under a revolving facility
OneMain Financial Issuance Trust 2015-1
Third party borrowing to repay related party debt
$
6k)
$
$
3,249
506
3,755
2,529
1,226
3,755
Long-term debt
Represents fair value adjustment of $36 million related to OneMain’s senior unsecured notes.
6l)
Total pro forma combined debt includes borrowings under a revolving facility totaling $2.5 billion.
Note 7—Unaudited Pro Forma Condensed Combined Income Statement Adjustments
This footnote should be read in conjunction with “Note 1—Description of Proposed Acquisition”, “Note 2—Basis of Pro Forma
Presentation”, “Note 3—Conforming Accounting Policies”, “Note 4—Reclassifications”, “Note 5—Transaction Financing” and
“Note 6—Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments”. Adjustments included in the columns “Adjustments for
Proposed Acquisition” and “Adjustment for Financing Arrangements” to the accompanying unaudited pro forma condensed combined income
statement for the year ended December 31, 2014 are represented by the following:
7a)
Interest Income: Finance Charges
Finance receivables acquired are separated into purchased credit impaired and purchased non-credit impaired portfolios. The
purchased credit impaired finance receivables portfolio is comprised of approximately $778 million of unpaid principal
balance as of December 31, 2014 and is valued based on the expected cash flows to be collected. For this portfolio, the
difference between the fair value and the outstanding loan balance at acquisition is separated into the accretable yield
component and the non-accretable component. The accretable yield will be recognized over the estimated remaining life of
the loan portfolio at an effective yield under the interest method. The non-accretable difference is recorded to cover lifetime
expected net credit losses and will absorb losses on loans accounted for under ASC 310-30 until it is exhausted. The excess
of the cash flows expected to be collected on the purchased credit impaired finance receivables over the discounted cash
flows is accreted into interest income at a level rate of return over the expected lives of the underlying pools of the purchased
credit impaired finance receivables. As of December 31, 2014, the discount to unpaid principal balance on the purchased
credit impaired finance receivables is $312 million and the effective yield is 10.89%. The finance charges calculated on the
purchased credit impaired finance receivables is $64 million.
9
The purchased non-credit impaired finance receivable portfolio includes approximately $7.6 billion of unpaid principal
balance, and is accounted for under ASC 310-20. For this portfolio a premium is recorded equal to the difference between the
fair value and the outstanding loan balance at closing and will be recognized over the remaining life of the loan portfolio at
an effective yield using the interest method. As of December 31, 2014, the premium to unpaid principal balance for the
purchased non-credit impaired finance receivables is estimated at approximately $553 million and the related effective yield
is 22.24%. The finance charges on the purchased non-credit impaired finance receivables are $1.6 billion.
The net impact of finance charges to the unaudited pro forma condensed combined income statement is a decrease of
$387 million for the year ended December 31, 2014.
7b)
Interest Expense adjustments for Acquisition Accounting
Represents the incremental interest expense, including the amortization of fair value adjustments, for the year ended
December 31, 2014 as if the Proposed Acquisition occurred on January 1, 2014. The Proposed Acquisition assumes a new
debt structure, as noted in Note 6j above, and adjustments to market rates are estimated for interest expense. The related party
interest expense is replaced with interest expense adjustment for new and existing borrowings “as if” those borrowings had
provided financing throughout the year. The table below illustrates adjustments to interest expense (in millions):
For the Year Ended
December 31, 2014
Description
Related party debt
2015-1 Securitization
Borrowings under a revolving facility
2014-1 and 2014-2 securitizations
Senior unsecured notes
Total incremental interest expense
7c)
$
$
(178 )
46
58
21
92
39
Interest Expense adjustments for Financing Arrangements
Represents the incremental interest expense related to the 2015-A and 2015-B securitizations and the sale of the SpringCastle
2014-A Notes issued to fund the Proposed Acquisition.
The interest expense adjustment pertaining to the 2015-A and 2015-B securitizations is calculated using a weighted average
yield of 3.58% and 3.87%, respectively, and a weighted average life of 3.71 and 5.76 years, respectively.
The interest expense adjustment for the Springcastle 2014-A Class C and D Notes was calculated using an interest rate of
5.59% and 6.82%, respectively.
7d)
Provisions for finance receivable losses
This adjustment represents the elimination of the provisions for finance receivable losses recorded on OneMain’s historical
consolidated and combined Statement of Income for the year ended December 31, 2014 and the inclusion of provision of
$409 million to conform to Springleaf’s allowance methodology. To calculate the provision, Springleaf uses a roll rate model
that derives the roll rate percentage to estimate incurred losses. This methodology was applied to OneMain’s portfolio
derived from historical data to determine OneMain’s roll rates.
To determine the provision, the balances of purchased non-credit impaired accounts, which are less than 60 days past due at
the time of acquisition, are evaluated through this roll rate
10
model, and the results are expressed as a percentage of the receivables balance which ranges from 3.5% to 6.25%.
7e)
Other operating expenses (amortization)
Represents the elimination of $11 million of amortization related to intangible assets recorded on OneMain’s historical
consolidated and combined statement of income for the year ended December 31, 2014. It should be noted that since the new
intangibles have not been assigned a value as of the date hereof, an adjustment for additional amortization on such intangibles
is not included herein.
7f)
Other operating expenses (depreciation)
This adjustment represents the increased depreciation for the fair value of Symphony and other software for the year ended
December 31, 2014. The increase in depreciation expense is based on a useful life of 10 years for Symphony and 10-15 years
for other software.
7g)
Provision for Income Taxes
Represents adjustment to record the net tax effect of the pro forma adjustments based on the statutory tax rate of 36.5% for
adjustments related to Springleaf and 37.2% for adjustments related to OneMain.
7h)
Salaries and benefits
OneMain’s historical consolidated and combined income statement includes allocated costs which represent general
corporate level services provided to OneMain and other affiliates by Citigroup. Corporate level services include finance,
human resources, legal, compliance, risk, technology and administration. These costs are classified as “Other operating
expenses” in OneMain’s historical consolidated and combined income statement. An adjustment was made to reclassify such
costs from “Other operating expenses” to “Salaries and benefits” to reflect the costs associated with these services as if they
were performed by OneMain employees.
7i)
Net income per common share attributable to Springleaf
Net income per common share attributable to Springleaf has been calculated based on the number of shares assumed to be
outstanding, assuming such shares were outstanding for the full period presented.
The following table sets forth the computation of unaudited pro forma basic and diluted income per share attributable to
common stockholders (in millions, except share data):
Year ended December 31, 2014
Net
Income
Earnings per share, basic
Earnings per share, diluted
$
Per share
amount
Shares
230
230
133,730,619
134,204,517
$
1.72
1.71
Shares utilized in the calculation of pro forma basic and diluted income (loss) per share attributable to Springleaf are as
follows:
Historical
Weighted-average shares outstanding, basic
Weighted-average shares outstanding, diluted
Year ended December 31, 2014
Shares issued in
the equity raise
114,791,225
115,265,123
11
18,939,394
18,939,394
Pro Forma Total
133,730,619
134,204,517
Note 8—Unaudited Pro Forma Condensed Combined Income Statement Adjustments for Real Estate Assets Sale
During 2014 Springleaf entered into a series of transactions relating to the sales of our principal interests in our real estate loans, the
related servicing of these loans and the sales of certain performing and non-performing real estate loans, which substantially completed our
plan to liquidate our non-core real estate loans. At December 31, 2014, real estate loans held for investment and held for sale totaled
$625 million and $205 million, respectively. The following Asset Sales were completed during 2014 and reflected in the pro forma condensed
combined income statement as if they were completed on January 1, 2014:



The Securitization Assets Sale (as defined in Note 1 of the Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information contained within our Current Report on Form 8-K filed November 13, 2014) by SHI’s indirect wholly owned
subsidiary SFC and the Depositors as defined in Note 1 of the Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information contained within our Current Report on Form 8-K filed November 13, 2014), to Credit Suisse Securities (USA) LLC
and certain of its affiliates (“Credit Suisse”) and the MSR Sale (as defined in Note 1 of the Notes to Unaudited Pro Forma
Condensed Consolidated Financial Information contained within our Current Report on Form 8-K filed November 13, 2014) by
SFC and MorEquity, Inc. (“MorEquity”), a wholly owned subsidiary of SFC, to Nationstar Mortgage LLC, both of which were
completed on August 29, 2014. The total purchase price for these transactions was approximately $1.67 billion, of which
$1.63 billion relates to the Securitization Assets Sale, and $39 million relates to the MSR Sale.
The 2006-1 Securitization Assets Sale (as defined in Note 1 of the Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information contained within our Current Report on Form 8-K filed November 13, 2014) by the Company to an
unaffiliated third party, for a purchase price of $9.5 million.

The sale of certain performing and non-performing mortgage loans by certain indirect subsidiaries of SHI to Credit Suisse,
completed on September 30, 2014. The purchase price for the September Whole Loan Sales was $795 million. This amount
includes a holdback provision of $120 million. Of the $120 million holdback, $83 million was received from Credit Suisse as of
December 31, 2014.

The sale of a portion of the remaining performing and non-performing mortgage loans by certain indirect subsidiaries of SHI
to Credit Suisse, completed on November 7, 2014. The purchase price for the November Whole Loan Sales (as defined in our
Current Report on Form 8-K filed November 13, 2014) was approximately $270 million. This amount includes a holdback
provision of $34 million, as described in Note 1 of the Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information contained within our Current Report on Form 8-K filed November 13, 2014. Of the $34 million holdback,
$11 million was received from Credit Suisse as of December 31, 2014.

Prior Dispositions (as defined in Note 1 of the Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
contained within our Current Report on Form 8-K filed November 13, 2014), including (i) the sale by Third Street Funding LLC,
SFC’s wholly owned subsidiary, of its beneficial interests in the mortgage-backed retained certificates related to a securitization
transaction in 2009 for approximately $737.2 million which closed on March 31, 2014, (ii) the sale of certain performing and
non-performing real estate loans by MorEquity for approximately $79 million, which closed on March 31, 2014, and (iii) the sale
by Sixth Street Funding LLC, a wholly owned subsidiary of SFC, of its beneficial interests in the mortgage-backed retained
certificates related to a securitization transaction in 2010 for approximately $263.7 million, which closed on June 30, 2014.

Subsequent to the November 13, 2014 filing of our Current Report on Form 8-K, the sale of a portion of the remaining
performing and non-performing mortgage loans by certain indirect subsidiaries of SHI to Credit Suisse was completed on
December 19, 2014. The purchase price for the sale was approximately $25.8 million. This amount includes a holdback provision
of $4.5 million.
12
Exhibit 99.2
KPMG LLP
1 East Pratt Street
Baltimore, MD 21202-1128
Report of Independent Registered Public Accounting Firm
The Board of Directors
OneMain Financial Holdings, Inc. and subsidiaries:
We have audited the accompanying consolidated and combined statements of financial position of OneMain Financial Holdings, Inc.
and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated and combined statements of income,
comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2014. These consolidated and
combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated and combined financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the financial
position of OneMain Financial Holdings, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of its operations and its cash
flows for the years then ended in conformity with U.S. generally accepted accounting principles.
Baltimore, Maryland
March 23, 2015
F-1
ONEMAIN FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated and Combined Statements of Income
Years ended December 31, 2014, 2013 and 2012
(In millions of dollars, except share data)
2014
Revenue
Finance interest and other charges
Investment revenue
Total interest revenue
Interest expense
Net interest revenue
Other non-interest revenue:
Insurance premiums
Realized gain on sales and impairments of investments, net
Other revenue
Total non-interest revenue
Total revenue, net of interest expense
$
2013
2,011
62
2,073
217
1,856
$
2012
1,953
66
2,019
228
1,791
$
1,907
75
1,982
264
1,718
338
3
43
384
2,240
353
5
140
498
2,289
379
18
156
553
2,271
Provisions for credit losses and for benefits and claims
Provision for credit losses
Policyholder benefits and claims
Total provisions for credit losses and for benefits and claims
575
134
709
550
151
701
683
167
850
Operating expenses
Compensation and benefits
Technology and communications
Occupancy
Advertising and marketing
Other operating
Total operating expenses
Income before income taxes
Provision for income taxes
Net income
$
288
85
72
74
195
714
817
304
513
$
294
83
75
66
225
743
845
309
536
$
264
87
81
67
291
790
631
224
407
Share data: 1
Weighted average shares outstanding
Earnings per share basic and diluted
$
1,000
512,973
$
1,000
535,885
$
1,000
407,202
Share data for the years ended December 31, 2013 and 2012 has been retroactively determined based on the common stock outstanding
on a legal basis at December 31, 2014 for presentation purposes.
1
Refer to the Notes to Consolidated and Combined Financial Statements.
F-2
ONEMAIN FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated and Combined Statements of Comprehensive Income
Years ended December 31, 2014, 2013 and 2012
(In millions of dollars)
2014
Net income
Other comprehensive income (loss):
Net change in unrealized gains and losses on investment securities, net of taxes
Net change in foreign currency translation adjustment, net of taxes
Total other comprehensive income (loss)
Comprehensive income
2013
$
513
$
4
(4 )
—
513 $
Refer to the Notes to Consolidated and Combined Financial Statements.
F-3
$
2012
536
$
(36 )
(2 )
(38 )
498 $
407
9
(1 )
8
415
ONEMAIN FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated and Combined Statements of Financial Position
(In millions of dollars, except share data)
December 31,
2014
Assets
Cash and cash equivalents (including restricted cash of $147 and $188)
Investments (at fair value)
Consumer finance receivables:
Loans and accrued interest receivable
Unearned revenue and deferred costs
Unearned premium and claim reserves
Allowance for loan losses
Net consumer finance receivables
Deferred tax assets, net
Intangible assets
Premises and equipment, net
Other assets
Total assets
$
December 31,
2013
319
1,391
$
9,946
(1,510 )
(415 )
(695 )
7,326
313
71
94
180
9,694
$
$
319
1,431
10,100
(1,433 )
(416 )
(676 )
7,575
256
82
21
152
9,836
The following table summarizes the assets of the variable interest entities (“VIEs”) that are included in the Consolidated and Combined
Statements of Financial Position above. The assets in the table below include those assets that can only be used to settle obligations of
consolidated and combined VIEs on the following page, and are in excess of those obligations. Additionally, the assets in the table below
include third-party assets of consolidated and combined VIEs only and exclude intercompany balances that eliminate in consolidation or
combination.
December 31,
2014
Assets
Cash and cash equivalents
Net consumer finance receivables
Other assets
Total assets
$
$
Refer to the Notes to Consolidated and Combined Financial Statements.
F-4
147
2,179
11
2,337
December 31,
2013
$
$
—
—
—
—
ONEMAIN FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated and Combined Statements of Financial Position (continued)
(In millions of dollars, except share data)
December 31,
2014
Liabilities and equity
Related party debt
Long-term debt
Insurance policy and claim reserves
Income taxes payable
Accounts payable, accrued expenses and other liabilities
Total liabilities
Commitments and contingencies (Note 16)
Equity:
Common stock ($1.00 par value, 1,000 shares issued and authorized at December 31, 2014)
Additional paid-in capital
Retained earnings
Net Parent investment
Accumulated other comprehensive income
Total equity
Total liabilities and equity
$
December 31,
2013
3,249
3,444
461
506
101
7,761
$
—
1,846
43
—
44
1,933
9,694
$
$
5,894
—
483
539
73
6,989
—
—
—
2,803
44
2,847
9,836
The following table summarizes the liabilities of VIEs that are included in the Consolidated and Combined Statements of Financial
Position above. The liabilities in the table below include third-party liabilities of consolidated and combined VIEs only, and exclude
intercompany balances that eliminate in consolidation or combination. The liabilities also exclude amounts where creditors or beneficial
interest holders have recourse to the general credit of OneMain Financial Holdings, Inc.
December 31,
2014
Liabilities
Long-term debt
Accounts payable, accrued expenses and other liabilities
Total liabilities
$
$
Refer to the Notes to Consolidated and Combined Financial Statements.
F-5
1,944
24
1,968
December 31,
2013
$
$
—
—
—
ONEMAIN FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated and Combined Statements of Changes in Equity
(In millions of dollars, except share data)
Additional
paid-in
capital
Common stock
Shares
Amount
Balance, December 31, 2011
Net income
Transfers from Parent
Dividends
Other comprehensive income, net
of taxes
Balance, December 31, 2012
Net income
Transfers from Parent
Dividends
Other comprehensive loss, net of
taxes
Balance, December 31, 2013
Net income
Transfers from Parent, net 1
Conversion of net Parent
investment into common stock
Dividends
Other comprehensive income, net
of taxes
Balance, December 31, 2014
1
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
—
—
—
—
—
$
—
—
—
6
$
Retained
earnings
$
$
$
—
—
—
—
—
—
—
—
—
—
—
226
—
1,000
—
—
—
3,157
(1,317 )
—
(183 )
—
1,000
—
—
—
1,846
—
43
$
$
$
Accumulated
other
comprehensive
income
Net Parent
investment
$
$
$
2,424 $
407
7
(394 )
74
—
—
—
—
2,444 $
536
6
(183 )
8
82
—
—
—
—
2,803
287
67
$
(3,157 )
—
$
Total
equity
—
—
$
F-6
$
(38 )
44 $
—
—
2,498
407
7
(394 )
8
2,526
536
6
(183 )
(38 )
2,847
513
73
—
—
—
(1,500 )
—
44
—
1,933
Consists of transfers from Parent of $494 million partially offset by a transfer to Parent of real estate loans of $421 million.
Refer to the Notes to Consolidated and Combined Financial Statements.
$
$
ONEMAIN FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated and Combined Statements of Cash Flows
Years ended December 31, 2014, 2013 and 2012
(In millions of dollars)
2014
Cash flows from operating activities
Net income
Adjustments to reconcile income to net cash from operating activities:
Net realized gain on sales of investments
Impairments of investments
Provision for credit losses
Depreciation and amortization
Deferred tax benefit
Net changes in other assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities
Net (increase) decrease in short-term investments
Purchases of investments
Proceeds from sales of investments
Proceeds from maturities of investments
Originations of consumer finance receivables 1
Repayments of consumer finance receivables
Purchase of consumer finance receivables
Purchase of premises and equipment
Decrease in restricted cash
Net cash (used in) provided by investing activities
Cash flows from financing activities
Repayments of short-term borrowings
Debt issuance costs
Issuance of long-term debt
Repayments of long-term debt
Net (decrease) increase in related party debt
Transfers from Parent
Dividends paid
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year (excluding restricted cash of
$188, $206 and $282)
Cash and cash equivalents, end of year (excluding restricted cash of
$147, $188 and $206)
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest
Income taxes
Supplemental schedule of non-cash investing and financing activities:
Transfers from Parent
Transfer to Parent of real estate loans
1
$
2013
513
$
2012
536
$
(4 )
1
575
36
(44 )
42
1,119
(6 )
1
550
36
(18 )
(104 )
995
(21 )
3
683
62
(96 )
120
1,158
(17 )
(217 )
86
184
(3,285 )
2,482
—
(85 )
41
(811 )
41
(321 )
72
224
(3,175 )
2,444
—
(4 )
18
(701 )
17
(361 )
363
268
(2,692 )
2,528
(87 )
(29 )
76
83
—
(41 )
3,444
—
(2,645 )
475
(1,500 )
(267 )
41
—
—
—
—
(143 )
—
(183 )
(326 )
(32 )
(750 )
—
—
(2,500 )
2,399
—
(394 )
(1,245 )
(4 )
131
163
167
$
172
$
131
$
163
$
210
379
$
228
500
$
277
137
19
(421 )
6
—
Originations of consumer finance receivables are presented net of payoffs on loans that were refinanced into a new loan.
Refer to the Notes to Consolidated and Combined Financial Statements.
F-7
407
7
—
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(1) Organization and Business
The accompanying Consolidated and Combined Financial Statements primarily include OneMain Financial Holdings, Inc. (“OMFH”), a
holding company, and its wholly owned subsidiaries OneMain Financial, Inc. (DE) (“OMFI”), American Health and Life Insurance Company
(“AHL”) and Triton Insurance Company (“Triton”), (collectively “OneMain Financial Holdings, Inc. and subsidiaries” or “the Company”). The
Company is a wholly owned subsidiary of CitiFinancial Credit Company (“CCC” or “Parent”), which is a wholly owned subsidiary of
Associates First Capital Corporation, an indirect subsidiary of Citigroup, Inc. (“Citigroup”).
On July 1, 2014, CCC contributed all of the capital of OMFI, AHL and Triton to OMFH resulting in OMFH becoming the legal parent of
the contributed entities. The contribution did not result in a change to the historical carrying value of the assets and liabilities of the Company.
The Company conducts its operations through two business segments - Lending and Insurance. In accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, Segment Reporting , operating segments represent components of
an entity where discrete financial information is available and for which the operating results are regularly reviewed by the chief operating
decision maker to determine resources to be allocated to a segment and to assess its performance.
The Company’s Lending segment originates and services personal loans to consumers through a community branch-based network
throughout the United States. The Company ceased originating real estate loans as of June 1, 2012. Prior to January 6, 2014, the Company
serviced a portfolio of owned real estate loans and a portfolio of real estate loans owned by an affiliate. Refer to Note 15 for further information
on the transfer of real estate loans and related servicing in 2014.
The Company’s Insurance segment underwrites policies to its customers and underwrites and reinsures policies covering customers of
Citigroup affiliates. In addition, the Company is a full service administrator of debt protection products for customers of Citigroup affiliates.
Refer to Note 15 for further information on the services provided to Citigroup affiliates.
Refer to Note 3 for additional information regarding the Company’s business segments.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
Prior to the July 1, 2014 contribution of capital discussed in Note 1 above, there was not a legal parent-subsidiary relationship between
OMFH, OMFI, AHL and Triton. Accordingly, for all periods prior to July 1, 2014, the Company’s financial statements were prepared on a
combined basis and the Parent’s equity investment in the Company as of December 31, 2013 is presented as Net Parent investment in lieu of
common stock, paid in capital and retained earnings. The combined financial statements combine all of the Company’s subsidiaries. Effective
July 1, 2014, the Company’s financial statements have been prepared on a consolidated basis. Under this basis of presentation, the financial
statements consolidate all of the Company’s subsidiaries and present the Parent’s legal equity investment as common stock, paid in capital and
retained earnings. All subsequent periods will also be presented on a consolidated basis.
The Consolidated and Combined Financial Statements have been prepared in accordance with generally accepted accounting principles in
the United States of America (“GAAP”) and present the Consolidated and Combined Statements of Financial Position of OMFH as of
December 31, 2014 and 2013 and the related Consolidated and Combined Statements of Income, Comprehensive Income, Changes in Equity
and Cash Flows of OMFH for each of the years in the three-year period ended December 31, 2014. All significant intercompany balances and
transactions between the legal entities that comprise OMFH have been eliminated.
F-8
The Consolidated and Combined Financial Statements include expense allocations to and from affiliates for certain costs of support
functions provided on a centralized basis within Citigroup. Such allocations primarily relate to employee benefits, technology, operations and
global functions such as finance, human resources, legal and compliance. Certain of these expenses were incurred directly, rather than
allocated, following a transfer of employees from CCC to the Company in 2013. Management believes the basis on which the expenses have
been allocated to be a reasonable reflection of the utilization of services provided to or the benefits received by the Company during the periods
presented. The allocations may not, however, reflect the expenses the Company would have incurred as a stand-alone company for the periods
presented. Actual costs that may have been incurred if the Company had been a stand-alone company would depend on multiple factors,
including organizational structure, which functions were outsourced or performed by employees and strategic decisions in various areas such as
information technology and infrastructure. Refer to Note 15 for further discussion of these expense allocations.
The Consolidated and Combined Financial Statements included herein may not be indicative of the Company’s financial position, results
of operations, and cash flows in the future, and also may not be indicative of the financial position, results of operations and cash flows had the
Company been a separate, stand-alone entity during the periods presented.
Earnings per share data for the years ended December 31, 2013 and 2012 has been retroactively determined based on the common stock
outstanding on a legal basis at December 31, 2014. Earnings per share is calculated as net income divided by the weighted average shares
outstanding during the period. No securities or instruments have been issued that could convert to common stock and have a dilutive effect on
earnings per share.
While the Company is included in the consolidated U.S. federal and certain state income tax returns of Citigroup, the income tax
provision in the Consolidated and Combined Statements of Income has been calculated as if the Company filed a separate tax return.
The Company consolidates entities deemed to be variable interest entities when the Company is determined to be the primary beneficiary.
(b) Use of Estimates
Management must make estimates and assumptions that affect the Consolidated and Combined Financial Statements and the related
footnote disclosures. Such estimates are used in connection with certain fair value measurements. Refer to Note 14 for further discussions on
estimates used in the determination of fair value. Moreover, estimates are significant in determining the amounts of other-than-temporary
impairments (“OTTI”), provisions for probable and estimable losses that may arise from credit-related exposures, probable and estimable
losses related to litigation and regulatory proceedings, insurance policy and claims reserves and tax reserves. While management uses its best
judgment in making estimates, actual amounts or results could differ from those estimates. Current market conditions increase the risk and
complexity of the judgments in these estimates.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit with banks and short-term, highly liquid investments with original maturities of
three months or less. These short-term investments are carried at cost plus accrued interest, which approximates fair value. Restricted cash is
restricted primarily for the use of the consolidated VIEs.
(d) Investments
Investments include fixed-income and equity securities. Fixed-income instruments primarily include mortgage-backed securities,
corporate bonds, notes and redeemable preferred stocks. Equity securities include common and nonredeemable preferred stocks. All securities
are classified as available-for-sale (“AFS”).
AFS securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, are excluded from earnings
and reported as a component of Accumulated other comprehensive income (“AOCI”) on the Consolidated and
F-9
Combined Statements of Financial Position until realized. Realized gains and losses from the sale of AFS securities are determined on a
specific identification basis and are recorded in earnings.
Premiums and discounts on debt securities are amortized or accreted over the life of the related AFS security as an adjustment to yield
using the effective interest method. Such amortization and accretion are classified in Investment revenue on the Consolidated and Combined
Statements of Income. Dividend and interest income are recognized when earned and included in Investment revenue on the Consolidated and
Combined Statements of Income. For investments in fixed-income securities, accrual of interest income is suspended for investments that are in
default or when collection is doubtful.
The Consolidated and Combined Statements of Income reflect the full impairment (that is, the difference between the security’s
amortized cost basis and fair value) on debt securities that the Company intends to sell or would more-likely-than-not be required to sell before
the expected recovery of the amortized cost basis. For AFS debt securities in a loss position that management has no intent to sell and believes
that it is not likely to be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the
rest of the fair value loss is classified in Accumulated other comprehensive income on the Consolidated and Combined Statements of Financial
Position. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over
the remaining term of the security as projected using cash flow projections and base assumptions. For equity securities deemed to be impaired,
the entire fair value loss is recognized in earnings.
A decline in the market value of any AFS security below cost, that is deemed to be other-than-temporary, is recorded in earnings
immediately. To determine whether impairment is other-than-temporary, the Company assesses each security for indications of credit
impairment. Refer to Note 5 for further discussion on investments and OTTI.
(e) Consumer Finance Receivables
Consumer finance receivables include loans which are reported at their outstanding unpaid principal balances, reduced by any charge-off,
and net of any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans. In calculating net
consumer finance receivables, consumer finance receivables are reduced by unearned revenue and deferred costs, allowance for loan losses and
unearned insurance premium and claim reserves on certain collateral protection, credit life, credit involuntary unemployment (“IUI”) and credit
disability policies related to the loans. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to
income over the lives of the related loans. All loans are held for investment.
Interest income accrual ceases for personal loans when payments are 90 days contractually past due. If payments are made on a personal
loan that reduces the loan’s contractual delinquency status to less than 90 days contractually past due, the accrual of income resumes. Cash
receipts on non-accruing loans are recorded either on a cash basis to income or entirely to the outstanding principal balance depending on the
terms of the loan. Loans that have been modified to include a concession to a borrower who is in financial difficulty may not be accruing
interest at the time of the modification. One or two payments under the new terms must be made to return the loan to accrual status, depending
on the delinquency status. All borrowers are required to provide full income documentation and show ability to pay prior to a modification
being granted.
Charge-off policies follow the general guidelines below:



Personal loans are charged off at the earlier of: (1) 180 days contractually past due if there have been no payments within the last
six months; or (2) 360 days contractually past due;
Unsecured personal loans in bankruptcy are charged off in the month following 30 days contractual delinquency; and
Personal loans secured by autos in bankruptcy are charged off at the earlier of: (1) 180 days contractually past due if there have
been no payments within the last six months; or (2) 360 days contractually past due.
The policies below relate to real estate loans, which were transferred to affiliates on January 1, 2014. Refer to Note 15.
F-10



Loans secured by real estate were written down to the estimated value of the property, less costs to sell, at the earlier of: (1) the
receipt of title; (2) the initiation of foreclosure (a process that commenced when payments were 120 days contractually past due);
(3) when the loan was 180 days contractually past due if there were no payments within the past six months; or (4) 360 days
contractually past due;
Loans secured by real estate, for which a decision was made not to foreclose on the loans, were charged off at the earlier of:
(1) 180 days contractually past due if there were no payments within the last six months; or (2) 360 days contractually past due; and
Loans secured by real estate in Chapter 7 bankruptcy were written down to the estimated value of the property, less costs to sell, in
the month following 60 days contractually past due.
Charge-offs are recorded as a reduction to the allowance for loan losses and subsequent recoveries of previously charged-off amounts are
credited to the allowance for loan losses.
Allowance for Loan Losses
An allowance for loan losses on consumer finance receivables is maintained at an amount that represents management’s best estimate of
probable losses inherent in its existing receivables portfolios. Losses on consumer finance receivables are recognized when incurred. The
Company evaluates the loan portfolios for impairment quarterly. The allowance for non-troubled debt restructured loans is determined in
accordance with ASC 450-20, Loss Contingencies, and established via a process that estimates these probable losses based upon various
analyses. This process includes migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of
the portfolio, along with analyses that reflect current and anticipated economic conditions, including changes in housing prices and
unemployment trends.
Provisions for loan losses are direct charges to income in amounts sufficient to maintain the allowance at a level management determines
to be adequate to cover losses inherent in the portfolio. The allowance fluctuates based upon continual review of the loan portfolio and changes
in economic conditions. Changes to the allowance for loan losses are classified in Provision for credit losses on the Consolidated and
Combined Statements of Income.
Separate valuation allowances are determined for impaired loans whose terms have been modified in a troubled debt restructuring
(“TDR”). Long-term modification programs, as well as short-term (less than 12 months) modifications from January 1, 2011 that provide
concessions (such as interest rate reductions) to borrowers in financial difficulty, are reported as TDRs. Short-term concessions granted prior to
January 1, 2011 are not reported as TDRs; however, the allowance for loan losses is consistent with the requirements of ASC 310-10-35,
Receivables—Subsequent Measurement .
The allowance for loan losses for TDRs is determined in accordance with ASC 310-10-35 considering all available evidence, including,
as appropriate, the present value of the expected future cash flows of the loans discounted at the loans’ original effective interest rates or the
estimated fair value of the collateral less disposal costs. These expected cash flows incorporate modification program default rate assumptions.
Finance-Related Interest and Other Charges
Finance-related interest and other charges are recognized as income using the level-yield method. Fees received and direct costs incurred
for the origination and renewal of loans are deferred and amortized over the contractual lives of the receivables as part of interest income. The
remaining unamortized balances are reflected in interest income at the time that the receivables are paid in full or renewed, or reflected in credit
losses when the receivables are partially or fully charged off. The Company considers all renewals that are not TDRs to be more than minor
modifications. Therefore, the remaining unamortized balances relating to modifications that are not TDRs are reflected in interest income
whenever a loan is renewed. Unamortized balances related to TDRs are included in the recorded investment of the TDR and no additional fees
are assessed and no additional costs are deferred.
F-11
(f) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful life of three to 10 years for equipment. Amortization of leasehold improvements is computed
using the straight-line method over the shorter of the useful life of five to 20 years or the term of the related lease.
Computer software and development costs incurred in connection with developing or obtaining computer software for internal use are
capitalized and amortized over a useful life of two to 10 years.
Premises and equipment are tested for impairment annually and when events or changes in circumstances indicate that the carrying value
of such assets may not be recoverable. Impairment is recognized if the carrying amount is not recoverable and exceeds the fair value of the
asset.
(g) Intangible Assets
Intangible assets are comprised of the present value of future profits (“PVFP”) of purchased insurance contracts in the Insurance
segment. The PVFP is dynamically amortized over the lifetime of the block of business and is subject to premium deficiency testing in
accordance with ASC 944, Financial Services—Insurance.
(h) Insurance
Insurance Premiums
Premiums from short-duration insurance contracts are earned over the related contract period. Short-duration contracts primarily include
collateral protection, credit life, credit disability, and credit IUI policies. Credit insurance premiums that are billed monthly are recognized as
revenue when billed. The Company defers single premium credit insurance premiums in Unearned premium and claim reserves on the
Consolidated and Combined Statements of Financial Position. Unearned premiums on U.S. credit insurance are recognized as revenue on credit
life using the sum-of-digits or actuarial methods, on credit disability using one-third pro-rata plus two-thirds sum-of-digits, on credit IUI using
the mean of pro-rata and sum-of-digits, and on other collateral protection using the pro-rata method. For Canadian credit insurance, credit life
unearned premiums are recognized as revenue using the sum-of-digits method, for credit disability using the mean of pro-rata and sum-of-digits
and for credit IUI using the pro-rata method.
Premiums from long-duration contracts are earned when due from policyholders. Long-duration contracts include term life, accidental
death and hospital indemnity policies. Benefits and expenses are associated with premiums by means of the provision for future policy benefits,
unearned premiums and the deferral and amortization of policy acquisition costs. Premiums from reinsurance assumed are earned over the
related contract period.
Unearned premium, policy and claim reserves related to the Company’s borrowers are netted and classified as contra-assets in Consumer
finance receivables on the Consolidated and Combined Statements of Financial Position. Unearned premium, policy and claim reserves related
to non-Company customers are classified as liabilities in Insurance policy and claim reserves on the Consolidated and Combined Statements of
Financial Position.
Commissions on ancillary insurance products are recorded net of estimated refunds based on historical cancellation rates. These
commissions are classified in Other revenue on the Consolidated and Combined Statements of Income.
Insurance Policy and Claim Reserves
The liabilities for future policy benefits for long-duration policies are calculated in accordance with principles set forth in ASC 944.
Mortality, morbidity, lapse and yield assumptions are set at the time of issue for each issue year of business and are not changed in future
valuation periods.
F-12
Included in insurance policy and claim reserves are unearned premiums for credit life, credit disability, credit IUI, and collateral
protection insurance.
Claim reserves for losses are based on claims experience, actual claims reported and estimates of claims incurred but not reported.
Assumptions are based on historical experience, adjusted to provide for possible adverse deviation. These estimates are periodically reviewed
and compared with actual experience and industry standards, and revised if it is determined that future experience will differ substantially from
that previously assumed. Since the reserves are based on estimates, the ultimate liability may be more or less than such reserves.
The effects of changes in such estimated reserves are classified in Policyholder benefits and claims on the Consolidated and Combined
Statements of Income in the period in which the estimates are changed.
Acquisition Costs
The Company defers insurance policy acquisition costs (primarily commissions on acquired blocks and premium taxes). The Company
classifies deferred policy acquisition costs in Other assets on the Consolidated and Combined Statements of Financial Position and amortizes
these costs at a policy level over the term of the related policies, whether directly written or reinsured. Deferred acquisition costs (“DAC”) are
subject to premium deficiency testing in accordance with ASC 944.
(i) Advertising
Advertising costs are expensed as incurred except for certain insurance direct mail and related expenses attributed to successful written
premiums. These costs are capitalized in DAC, classified in Other assets on the Consolidated and Combined Statements of Financial Position
and subject to premium deficiency testing in accordance with ASC 944.
(j) Income Taxes
The Company is included in the consolidated U.S. federal and state income tax returns of Citigroup, where applicable, but also files
certain separate state and foreign income tax returns. The tax provision and current and deferred tax balances have been presented on a separate
company basis as if the Company were a separate filer. The Company recognizes the current and deferred tax consequences of all transactions
that have been recognized in the Consolidated and Combined Financial Statements using the provisions of the enacted tax laws. Deferred taxes
are recorded for the future consequences of events that have been recognized in the Consolidated and Combined Financial Statements or tax
returns. The Company is subject to the income tax laws of the United States and Canada, and the state and local jurisdictions in which it
operates. These tax laws are complex and are subject to differing interpretations by the taxpayer and the relevant governmental taxing
authorities. Disputes over interpretations of the tax laws may be subject to review and adjudication by the court systems of the various tax
jurisdictions or may be settled with the taxing authority upon audit.
In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these
inherently complex tax laws. The Company must also make estimates about when, in the future, certain items will affect taxable income in the
various tax jurisdictions, both domestic and foreign. Deferred tax assets and liabilities are determined based on differences between the
financial reporting and tax basis of assets and liabilities and are measured using the enacted tax laws and rates that will be in effect when the
differences are expected to reverse. Deferred income tax expense or benefit represents the expected increase or decrease to future tax payments
as these temporary differences reverse over time. Deferred tax assets are recognized subject to management’s judgment that realization is
more-likely-than-not.
ASC 740, Income Taxes, sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax
positions. This interpretation uses a two-step approach wherein a tax benefit is recognized if a position is more-likely-than-not to be sustained.
The amount of the benefit is then measured to be the highest tax benefit that is greater than 50% likely to be realized. ASC 740 also sets out
disclosure requirements to enhance transparency of an entity’s tax reserves.
Refer to Note 11 to the Consolidated and Combined Financial Statements for a further discussion of the Company’s tax provision and
related income tax assets and liabilities.
F-13
(k) Foreign Currency Translation
Assets and liabilities of foreign operations are translated from their functional currencies into U.S. dollars for reporting purposes using
the period end spot foreign exchange rate. Revenues and expenses of foreign operations are translated monthly from their respective functional
currencies into U.S. dollars at amounts that approximate weighted average exchange rates. The effects of those translation adjustments are
classified in Accumulated other comprehensive income on the Consolidated and Combined Statements of Financial Position.
(l) Securitization
The Company securitizes personal loans from time to time. There are two key accounting determinations that must be made relating to
securitizations; first, whether the securitization entity would be consolidated; and second, whether the transfer of financial assets to the entity is
considered a sale under GAAP. If the securitization entity is a VIE, and the Company is determined to be the primary beneficiary, the VIE is
consolidated. Refer to Note 13 for more information regarding VIEs.
Interests in the securitized and sold assets may be retained in the form of subordinated tranches, spread accounts and servicing rights. In
the case of consolidated securitization entities, these retained interests are not reported on the Consolidated and Combined Statements of
Financial Position. There were no such retained interests as of December 31, 2014 or 2013. The securitized loans remain on the Consolidated
and Combined Statements of Financial Position and the Company consolidates its securitization entities.
(m) Incentive Compensation
The Company’s executives and employees participate in the Citigroup programs described below to the extent they meet the eligibility
criteria established by Citigroup. The Company makes cash payments to reimburse Citigroup for the cost of the awards when shares are
delivered to participants (the payments are based on market value of the vested stock awards at such time or the spread realized by the
employee on an option exercise). The Company recognizes compensation expense for the awards as described below.
Discretionary Annual Incentive Awards
Citigroup grants immediate cash bonus payments, deferred cash awards, stock payments and restricted and deferred stock awards as part
of its discretionary annual incentive award program involving a large segment of Citigroup employees worldwide, including employees of the
Company. Most of the shares of common stock issued by Citigroup as part of its equity compensation programs are to settle the vesting of the
stock components of these awards.
Discretionary annual incentives are generally awarded in the first quarter of the calendar year based on the previous year’s performance.
Awards valued at less than U.S. $100,000 (or local currency equivalent) are generally paid in the form of an immediate cash bonus. Pursuant to
Citigroup policy and/or regulatory requirements, certain employees and officers are subject to mandatory deferrals of incentive pay and
generally receive 25%-60% of their awards in a combination of restricted or deferred stock and deferred cash awards.
Deferred annual incentive awards are generally delivered as two awards—a restricted or deferred stock award under Citigroup’s Capital
Accumulation Program (“CAP”) and a deferred cash award. The applicable mix of CAP and deferred cash awards may vary based on the
employee’s minimum deferral requirement and the country of employment. In some cases, the entire deferral will be in the form of either a
CAP or deferred cash award.
Subject to certain exceptions (principally, for retirement-eligible employees), continuous employment within Citigroup is required to vest
in CAP and deferred cash awards. Post-employment vesting by retirement-eligible employees and participants who meet other conditions is
generally conditioned upon their refraining from competition with Citigroup during the remaining vesting period, unless the employment
relationship has been terminated by Citigroup under certain conditions.
F-14
Generally, the CAP and deferred cash awards vest in equal annual installments over three- or four-year periods. Vested CAP awards are
delivered in shares of Citigroup common stock. Deferred cash awards are payable in cash and earn a fixed notional rate of interest that is paid
only if and when the underlying principal award amount vests.
Unvested CAP and deferred cash awards made in January 2011 or later are subject to one or more clawback provisions that apply in
certain circumstances, including in the case of employee risk-limit violations or other misconduct, or where the awards were based on earnings
that were misstated. CAP awards made to certain employees in February 2013 and later, and deferred cash awards made to certain employees
in January 2012, are subject to a formulaic performance-based vesting condition pursuant to which amounts otherwise scheduled to vest will be
reduced based on the amount of any pre-tax loss in the participant’s business in the calendar year preceding the scheduled vesting date. For
CAP awards made in February 2013 and later, a minimum reduction of 20% applies for the first dollar of loss.
In addition, deferred cash awards made to certain employees in February 2013 and later are subject to a discretionary performance-based
vesting condition under which an amount otherwise scheduled to vest may be reduced in the event of a “material adverse outcome” for which a
participant has “significant responsibility.” Deferred cash awards made to these employees in February 2014 and later are subject to an
additional clawback provision pursuant to which unvested awards may be canceled if the employee engaged in misconduct or exercised
materially imprudent judgment, or failed to supervise or escalate the behavior of other employees who did.
The compensation expense related to the discretionary annual incentive cash awards, which are paid immediately, was $8 million, $9
million and $2 million for the years ended December 31, 2014, 2013 and 2012. These amounts are classified in Compensation and benefits
expense on the Consolidated and Combined Statements of Income. In January 2013, certain shared services employees were transferred to the
Company. Prior to such transfer, annual incentive awards related to those employees were allocated to the Company and are classified in Other
operating expense on the Consolidated and Combined Statements of Income.
Sign-on and Long-term Retention Awards
Stock awards, deferred cash awards and grants of stock options may be made at various times during the year as sign-on awards to induce
new hires to join the Company or to high-potential employees as long-term retention awards.
Vesting periods and other terms and conditions pertaining to these awards tend to vary by grant. Generally, recipients must remain
employed through the vesting dates to vest in the awards, except in cases of death, disability or involuntary termination other than for “gross
misconduct.” These awards do not usually provide for post-employment vesting by retirement-eligible participants. Any stock option grants are
for Citigroup common stock with exercise prices that are no less than the fair market value at the time of grant.
Stock Option Programs
Stock options have not been granted to Citigroup’s employees as part of the annual incentive award programs since 2009.
Other Variable Incentive Compensation
Citigroup has various incentive programs globally that are used to motivate and reward performance primarily in the areas of sales,
operational excellence and customer satisfaction. Participation in these plans is generally limited to employees who are not eligible for
discretionary annual incentive awards. The compensation expense related to variable incentive compensation awards was $24 million, $25
million and $18 million for the years ended December 31, 2014, 2013 and 2012 and is classified in Compensation and benefits expense on the
Consolidated and Combined Statements of Income.
F-15
Summary
Recipients of Citigroup stock awards generally do not have any stockholder rights until shares are delivered upon vesting or exercise, or
after the expiration of applicable required holding periods. Recipients of restricted or deferred stock awards and stock unit awards, however,
may be entitled to receive dividends or dividend-equivalent payments during the vesting period. Recipients of restricted stock awards generally
are entitled to vote the shares in their award during the vesting period. Once a stock award vests, the shares are freely transferable, unless they
are subject to a restriction on sale or transfer for a specified period. Pursuant to a stock ownership commitment, certain executives have
committed to holding most of their vested shares indefinitely.
The total expense recognized for stock awards represents the grant date fair value of such awards, which is generally recognized as a
charge to income ratably over the vesting period, other than for awards to retirement-eligible employees and immediately vested awards.
Whenever awards are made or are expected to be made to retirement-eligible employees, the charge to income is accelerated based on when the
applicable conditions to retirement eligibility were or will be met. If the employee is retirement eligible on the grant date, or the award is vested
at grant date, the entire expense is estimated and recognized in the year prior to grant. The compensation expense related to deferred stock and
deferred cash awards was not material for any of the periods presented.
(n) Retirement and Postemployment Benefits
The Company participates in several noncontributory defined benefit pension plans sponsored by Citigroup covering certain
U.S. employees. Citigroup’s U.S. qualified defined benefit plan was frozen effective January 1, 2008 for most employees. Accordingly, no
additional compensation-based contributions were credited to the cash balance portion of the plan for existing plan participants after 2007.
However, certain employees covered under the prior final pay plan formula continue to accrue benefits. The Company also participates in a
number of noncontributory, nonqualified pension plans. These plans, which are unfunded, provide supplemental defined pension benefits to
certain U.S. employees. With the exception of a few employees covered under the prior final average pay formulas, the benefits under these
plans were frozen in prior years. The allocated share of the related benefit for these pension plans was $9 million, $8 million and $6 million for
the years ended December 31, 2014, 2013 and 2012. These amounts are classified in Compensation and benefits expense on the Consolidated
and Combined Statements of Income.
The Company also participates in postretirement health care and life insurance benefits offered by Citigroup to certain eligible
U.S. retired employees. The allocated share of the related net expense is classified in Compensation and benefits expense on the Consolidated
and Combined Statements of Income and was not material to the results of operations for the years ended December 31, 2014, 2013 and 2012.
The Company also participates in postemployment plans sponsored by Citigroup that provide income continuation and health and welfare
benefits to certain eligible U.S. employees on long-term disability. The allocated share of the related net expense was $1 million, $3 million
and $3 million for the years ended December 31, 2014, 2013 and 2012. These amounts are classified in Compensation and benefits expense on
the Consolidated and Combined Statements of Income.
Citigroup sponsors defined contribution plans in the United States and in certain non-U.S. locations, all of which are administered in
accordance with local laws. The most significant defined contribution plan is the Citigroup 401(k) Plan in the U.S. Under the Citigroup
401(k) plan, eligible U.S. employees received matching contributions of up to 6% of their eligible compensation for 2014, 2013 and 2012
subject to statutory limits. Additionally, for eligible employees whose eligible compensation is $100,000 or less, a fixed contribution of up to
2% of eligible compensation is provided. All Company contributions are invested according to participants’ individual elections. The expense
allocated to the Company for the Citigroup 401(k) Plan amounted to approximately $16 million, $15 million, and $17 million for the years
ended December 31, 2014, 2013 and 2012. These amounts are classified in Compensation and benefits expense on the Consolidated and
Combined Statements of Income and included in direct allocated costs. Refer to Note 15 for further discussion on direct allocated costs.
F-16
(o) Accounting Changes
There were no accounting changes affecting the Company during the periods presented.
(p) Future Application of Accounting Standards
Consolidation
In February 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-02, Consolidation (Topic 810): Amendments to the
Consolidation Analysis , which is intended to improve certain areas of consolidation guidance for legal entities such as limited partnerships,
limited liability companies, and securitization structures. The ASU will reduce the number of consolidation models. The ASU will be effective
on January 1, 2016. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the effect of ASU
2015-02 on its financial statements.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers , which requires an entity to recognize the
amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most
existing revenue recognition guidance in GAAP when it becomes effective on January 1, 2017. Early application is not permitted. The standard
permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will
have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it
determined the effect of the standard on its financial statements.
Accounting for Financial Instruments—Credit Losses
In December 2012, the FASB issued a proposed ASU, Financial Instruments-Credit Losses . This proposed ASU, or exposure draft, was
issued for public comment in order to allow stakeholders the opportunity to review the proposal and provide comments to the FASB and does
not constitute accounting guidance until a final ASU is issued.
The exposure draft contains proposed guidance developed by the FASB with the goal of improving financial reporting about expected
credit losses on loans, securities and other financial assets held by banks, financial institutions and other organizations. The exposure draft
proposes a new accounting model intended to require earlier recognition of credit losses, while also providing additional transparency about
credit risk.
The FASB’s proposed model would utilize an “expected credit loss” measurement objective for the recognition of credit losses for loans,
held-to-maturity securities and other receivables at the time the financial asset is originated or acquired and adjusted each period for changes in
expected credit losses. For AFS securities where fair value is less than cost, impairment would be recognized in the allowance for credit losses
and adjusted each period for changes in credit. This would replace the multiple existing impairment models in GAAP, which generally require
that a loss be “incurred” before it is recognized.
The FASB’s proposed model represents a significant departure from existing GAAP, and may result in material changes to the
Company’s accounting for financial instruments. The impact of the FASB’s final ASU on the Company’s financial statements will be assessed
when it is issued. The exposure draft does not contain a proposed effective date; this would be included in the final ASU, when issued.
(3) Business Segments
The Company evaluates the results of its operations through two reportable segments: Lending and Insurance. The Lending segment
primarily originates, services and, from time to time, securitizes unsecured personal loans and personal loans secured by autos. The Lending
segment also includes real estate loans. Prior to January 6, 2014, the Company serviced real
F-17
estate loans to nonprime consumers through the Company’s community-based branch network. The Company ceased originating real estate
loans as of June 1, 2012 and transferred its remaining real estate loans to affiliates on January 1, 2014.
The Insurance segment writes and reinsures credit life, credit disability, credit IUI, collateral protection, term life, accidental death, and
hospital indemnity policies.
The chief operating decision maker evaluates the operating results and performance of the Lending and Insurance segments through
Income before income taxes on the Consolidated and Combined Statements of Income .
The following table summarizes certain information by segment for the three years ended December 31, 2014, 2013 and 2012:
Net interest revenue
2014
2013
(In millions of dollars)
Lending
Insurance
Intersegment eliminations
and reclassifications
Total
1
$
$
1,794
62
—
1,856
$
$
1,725
66
—
1,791
$
$
2012
2014
Operating expenses
2013
1,643 $
75
634
121
$
—
1,718 $
(41 ) 1
714
$
663
120
2012
$
(40 ) 1
743
$
2014
703
127
Income before
income taxes
2013
$
658 $
159
682
163
(40 ) 1
790
$
—
817 $
—
845
2012
$
443
188
—
631
$
Represents commissions charged to the Insurance segment by the Lending segment for insurance products sold through the Lending
branch network, which are eliminated in consolidation and combination.
The following table summarizes total assets by segment at December 31, 2014 and 2013:
Total assets
(In millions of dollars)
2014
Lending
Insurance
Intersegment eliminations and reclassifications 1
Total
1
$
$
2013
8,573
1,536
(415 )
9,694
$
$
8,676
1,576
(416 )
9,836
Represents unearned premium and claim reserves related to the Company’s customers that is managed as a liability for segment
reporting purposes.
Most of the revenue generated by the Company’s business segments is derived from U.S. clients. Neither business segment earned
revenue from a single external customer that was 10% or more of total consolidated or combined revenue.
F-18
(4) Interest Revenue and Expense
The following table summarizes interest revenue, interest expense and provision for credit losses for the years ended December 31, 2014,
2013 and 2012:
(In millions of dollars)
2014
Interest revenue:
Finance interest and other charges
Investment revenue
Total interest revenue
Interest expense:
Related party debt
Long-term debt
Total interest expense
Net interest revenue
Provision for credit losses
Net interest revenue after provision for credit losses
$
$
F-19
2013
2,011
62
2,073
178
39
217
1,856
575
1,281
$
$
2012
1,953
66
2,019
228
—
228
1,791
550
1,241
$
$
1,907
75
1,982
173
91
264
1,718
683
1,035
(5) Investments
The following tables summarize amortized cost, gross unrealized gains and losses and estimated fair value of investments classified as
AFS at December 31, 2014 and 2013:
(In millions of dollars)
Fixed maturity securities:
Mortgage-backed:
U.S. government agency guaranteed
Prime
Commercial
Total mortgage-backed
U.S. Treasury and federal agency
State and municipal
Foreign government
Corporate
Other debt
Total fixed maturity securities
Equity securities
Short-term and other securities
Total investments
$
$
63
5
53
121
27
47
140
849
63
1,247
40
31
1,318
Gains
$
$
$
69
7
72
148
28
33
137
914
54
1,314
36
14
1,364
Fair
value
Losses
4
—
2
6
—
1
8
55
—
70
10
—
80
$
—
—
—
—
—
—
—
6
—
6
1
—
7
$
$
$
Gains
$
$
Fair
value
Losses
5
—
3
8
—
1
7
59
—
75
9
—
84
$
$
67
5
55
127
27
48
148
898
63
1,311
49
31
1,391
$
2013
Gross unrealized
Amortized
cost
(In millions of dollars)
Fixed maturity securities:
Mortgage-backed:
U.S. government agency guaranteed
Prime
Commercial
Total mortgage-backed
U.S. Treasury and federal agency
State and municipal
Foreign government
Corporate
Other debt
Total fixed maturity securities
Equity securities
Short-term and other securities
Total investments
2014
Gross unrealized
Amortized
cost
—
—
—
—
1
1
1
13
1
17
—
—
17
$
$
74
7
75
156
27
33
143
960
53
1,372
45
14
1,431
Management reviews the investment portfolio on a periodic basis to determine the cause of declines in the fair value of each security in
an unrealized loss position. Evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary
or other-than-temporary in nature. Each investment security has been assessed for
F-20
indications of credit impairment. Considerations such as recoverability of invested amount over a reasonable period of time, along with the
factors considered in evaluating whether a loss is temporary, include:

The length of time and the extent to which fair value has been below cost;

The severity of the impairment;

The cause of the impairment and the financial condition and near-term prospects of the issuer, including credit ratings and support
from subordination for asset-backed securities;

Activity in the market of the issuer which may indicate adverse credit conditions; and

The Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery.
For fixed-maturity securities, including investment-grade perpetual preferred stocks, these considerations include management’s estimate
of the probability of collecting amounts sufficient to recover the amortized cost basis of the security. For equity securities, these considerations
reflect management’s ability and intent to hold the investment for a period of time sufficient to recover the cost basis of the security or whether
it is more-likely-than-not that the Company will be required to sell the security prior to recovery of its cost basis.
Review for impairment generally includes:

Identification and evaluation of investments that have indication of possible impairment;

Analysis of individual investments that have fair values less than amortized cost, including consideration of the length of time the
investment has been in an unrealized loss position and the expected recovery period;

Discussion of evidential matter, including an evaluation of factors or triggers that could cause individual investments to qualify as
having OTTI and those that would not support OTTI; and

Documentation of the results of these analyses, as required under business policies.
Recognition and Measurement of OTTI
The following table summarizes the total OTTI recognized in earnings for the years ended December 31, 2014, 2013 and 2012:
(In millions of dollars)
Impairment losses related to securities that the Company does not intend to sell nor
will likely be required to sell:
Total OTTI losses recognized during the year
Less: portion of impairment loss recognized in AOCI (before taxes)
Net impairment losses recognized in earnings for securities that the Company
does not intend to sell nor will likely be required to sell
Impairment losses recognized in earnings for securities that the Company intends
to sell or more-likely-than-not will be required to sell before recovery
Total impairment losses recognized in earnings
Total impairment losses recognized in earnings by investment type:
Fixed maturity securities
Equity securities
Total impairment losses recognized in earnings 2
1
AFS 1
2013
2014
$
$
$
F-21
$
1
$
Includes OTTI on non-marketable equity securities.
1
—
—
1
1
—
1
2012
1
—
$
1
$
$
$
—
1
—
1
1
4
1
3
$
$
$
—
3
2
1
3
2
Classified in Realized gain on sales and impairments of investments, net on the Consolidated and Combined Statements of Income
F-22
The following tables summarize a 12-month roll-forward of the credit-related impairments recognized in earnings for AFS debt securities
held at December 31, 2014 and 2013 that the Company does not intend to sell nor likely will be required to sell:
Balance,
December 31,
2013
(In millions of dollars)
AFS debt securities:
Mortgage-backed
Foreign government
Corporate
All other debt
Total OTTI credit
losses recognized
for AFS debt
securities
Balance,
December 31,
2014
$
1
—
3
1
$
—
—
1
—
$
—
—
—
—
$
—
—
(1 )
—
$
1
—
3
1
$
5
$
1
$
—
$
(1 )
$
5
Cumulative OTTI credit losses recognized in earnings
Credit impairments
Credit impairments
recognized in
Reductions due to
recognized in
earnings on
credit-impaired
earnings on
securities
securities sold,
securities not
previously
transferred or
previously impaired
impaired
matured
Balance,
December 31,
2012
(In millions of dollars)
AFS debt securities:
Mortgage-backed
Foreign government
Corporate
All other debt
Total OTTI credit
losses recognized
for AFS debt
securities
Cumulative OTTI credit losses recognized in earnings
Credit impairments
Credit impairments
recognized in
Reductions due to
recognized in
earnings on
credit-impaired
earnings on
securities
securities sold,
securities not
previously
transferred or
previously impaired
impaired
matured
Balance,
December 31,
2013
$
1
—
3
1
$
—
—
—
—
$
—
—
—
—
$
—
—
—
—
$
1
—
3
1
$
5
$
—
$
—
$
—
$
5
F-23
The following table summarizes amortized cost and fair value by contractual maturity at December 31, 2014 and 2013:
2014
(In millions of dollars)
Mortgage-backed:
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years
Total
U.S. Treasury and federal agency:
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years
Total
State and municipal:
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years
Total
Foreign government:
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years
Total
Corporate and other:
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years
Total
Total fixed maturity securities
2013
Amortized
cost
—
2
6
113
121
$
$
Fair
value
$
Amortized
cost
—
2
6
119
127
$
Fair
value
—
3
3
142
148
—
3
3
150
156
$
1
14
12
—
27
1
14
12
—
27
6
11
11
—
28
6
11
10
—
27
—
13
29
5
47
—
13
30
5
48
1
8
18
6
33
1
9
18
5
33
15
68
57
—
140
15
73
60
—
148
10
72
55
—
137
10
76
57
—
143
91
404
331
86
912
1,247
92
437
344
88
961
1,311
62
399
419
88
968
1,314
63
426
436
88
1,013
1,372
$
$
$
Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
F-24
The following tables summarize the fair value of investment securities for which an OTTI has not been recognized that have been in an
unrealized loss position for less than 12 months or for 12 months or longer at December 31, 2014 and 2013:
(In millions of dollars)
Mortgage-backed
U.S. Treasury and federal agency
State and municipal
Foreign government
Corporate
Other debt
Equity
Total
$
$
14
5
5
2
90
26
5
147
$
$
—
—
—
—
2
—
1
3
$
$
$
$
28
12
20
26
262
17
365
$
$
9
9
5
2
76
10
—
111
$
$
Total
—
1
1
1
11
—
14
$
$
3
—
—
—
16
6
25
$
$
Gross
unrealized
losses
Fair
value
—
—
—
—
4
—
—
4
$
$
2013
Twelve months or
longer
Gross
Fair
unrealized
value
losses
Less than twelve
months
Gross
Fair
unrealized
value
losses
(In millions of dollars)
Mortgage-backed
U.S. Treasury and federal agency
State and municipal
Foreign government
Corporate
Other debt
Total
2014
Twelve months
or longer
Gross
Fair
unrealized
value
losses
Less than twelve
months
Gross
Fair
unrealized
value
losses
23
14
10
4
166
36
5
258
—
—
—
—
6
—
1
7
$
$
Total
Gross
unrealized
losses
Fair
value
—
—
—
—
2
1
3
$
$
31
12
20
26
278
23
390
$
$
—
1
1
1
13
1
17
At December 31, 2014, the Company had 524 investment securities in a gross unrealized loss position. The unrealized losses are due to
increases in interest rates primarily as a result of widening of interest rate spreads reflecting an increase in risk premiums. The evidence
considered by management in reaching the conclusion that the unrealized losses are not other-than-temporary includes analyst views, financial
performance of the issuers and underlying collateral, cash flow projections, ratings and rating downgrades and available credit enhancements.
Based on the analysis of the evidence, management has determined it is probable that the Company will collect all amounts due according to
the contractual terms of the investment securities. The Company has no intent to sell the investment securities and believes it likely will not be
required to sell the investment securities before recovery of the amortized cost basis. As of December 31, 2013, the fair value and unrealized
losses on equity securities that were in an unrealized loss position were insignificant.
F-25
The following tables summarize sales proceeds and Realized gain on sales and impairments of investments , net on the Consolidated and
Combined Statements of Income for the years ended December 31, 2014, 2013 and 2012:
(In millions of dollars)
2014
Sales proceeds:
Fixed income and equity investments
Short-term investments
Total proceeds on sales of investments
$
86
—
86
$
(In millions of dollars)
2013
$
$
$
72
42
114
$
2014
Gross pre-tax gains (losses) on investment securities:
Gains
Losses
Net pre-tax gains on investment securities
OTTI
Realized gain on sales and impairments of investments, net
2012
$
$
2013
8
(4 )
4
(1 )
3
$
2012
13
(7 )
6
(1 )
5
$
363
—
363
$
28
(7 )
21
(3 )
18
$
At December 31, 2014 and 2013, investment securities with an approximate carrying value of $167 million and $173 million were on
deposit with regulatory authorities as required by insurance regulations.
(6) Consumer Finance Receivables
The following table summarizes net consumer finance receivables at December 31, 2014 and 2013:
(In millions of dollars)
2014
Personal loans
Home equity loans
Residential first mortgages
Total loans
Unearned premium and claim reserves
Accrued interest receivable
Consumer finance receivables 1
Allowance for loan losses
Net consumer finance receivables
1
$
$
2013
8,347
—
—
8,347
(415 )
89
8,021
(695 )
7,326
$
$
8,112
371
92
8,575
(416 )
92
8,251
(676 )
7,575
Presented net of unearned revenue and deferred costs of $1.5 billion and $1.4 billion at December 31, 2014 and 2013.
Geographic diversification of consumer finance receivables reduces the concentration of credit risk associated with economic stress in
any one state. The Company’s entire personal loan portfolio is serviced within the United States. At December 31, 2014 and 2013, no state or
customer comprised 10% or more of the Company’s total consumer finance receivables balance.
Refer to Note 14 for further discussion on the fair value of consumer finance receivables. Refer to Note 15 for discussion on the transfer
of real estate loans.
F-26
Credit Quality Indicators
Credit quality indicators that are actively monitored include delinquency status, Fair Isaac Corporation (“FICO”) credit scores and loan to
value (“LTV”) ratios.
Delinquency Status
Delinquency status is carefully monitored and considered a key indicator of credit quality. The Company considers a loan delinquent if a
monthly payment has not been received by the close of business on the loan’s next due date. All loans are classified as non-accrual when loan
payments are 90 days contractually past due.
The following tables summarize consumer finance receivables delinquencies and non-accrual loans as of December 31, 2014 and 2013:
2014
Total
current
(In millions of dollars)
Personal loans
Home equity loans
Residential first mortgages
Total loans
$
$
Greater than
or equal to 90
days past due
(Nonaccrual)
30 - 89 days
past due
1
7,946
—
—
7,946
$
160
—
—
160
$
$
$
Total loans
241
—
—
241
$
196
9
4
209
$
$
8,347
—
—
8,347
2013
Total
current
(In millions of dollars)
Personal loans
Home equity loans
Residential first mortgages
Total loans
1
$
$
Greater than
or equal to 90
days past due
(Nonaccrual)
30 - 89 days
past due
1
7,780
354
86
8,220
$
$
136
8
2
146
$
$
Total loans
$
8,112
371
92
8,575
Loans less than 30 days past due are presented as current.
Credit Scores
Independent credit agencies rate an individual’s risk for assuming debt based on the individual’s credit history and assign every consumer
a FICO credit score. These scores are continually updated by the agencies based upon an individual’s credit actions (e.g., taking out a loan,
missed or late payments, etc.). FICO scores are updated monthly for substantially the entire portfolio or, otherwise, on a quarterly basis.
F-27
The following tables summarize details on FICO scores at December 31, 2014 and 2013:
2014
Equal to or
greater than
620 but less
than 660
Less than
620
(In millions of dollars)
Personal loans
Home equity loans
Residential first mortgages
Total loans
$
3,653
—
—
3,653
$
$
Equal to or
greater than
660
2,244
—
—
2,244
$
$
$
Total loans
2,450
—
—
2,450
$
$
8,347
—
—
8,347
2013
Equal to or
greater than
620 but less
than 660
Less than
620
(In millions of dollars)
Personal loans
Home equity loans
Residential first mortgages
Total loans
$
$
3,533
173
48
3,754
$
$
Equal to or
greater than
660
2,169
91
23
2,283
$
$
Total loans
2,410
107
21
2,538
$
$
8,112
371
92
8,575
Loan to Value Ratios
LTV ratios (loan balance divided by appraised or estimated value) are calculated on real estate loans at origination. LTV ratios for
residential first mortgages are updated monthly by applying market pricing data using the most recent CoreLogic Home Pricing Index data
available for substantially all of the residential first mortgages applied at the Metropolitan Statistical Area level, if available; otherwise at the
state level. The remainder of the residential first mortgages is updated in a similar manner using the Federal Housing Finance Agency indices.
The value of home equity loans is estimated at the time of origination and is not subsequently adjusted or updated.
The following table summarizes details on the LTV ratios at December 31, 2013. Due to the January 2014 transfer of real estate loans,
this information is not applicable as of December 31, 2014.
2013
Less than or
equal to 80%
(In millions of dollars)
Home equity loans
Residential first mortgages
Total real estate loans
Greater than
80% but less
than or equal
to 100%
$
$
54
73
127
F-28
$
$
Greater than
100%
312
19
331
$
$
Total real
estate loans
5
—
5
$
$
371
92
463
Allowance for Loan Losses
The following table summarizes the change in the allowance for loan losses on consumer finance receivables for the years ended
December 31, 2014, 2013 and 2012:
(In millions of dollars)
2014
Balance, January 1
Provision for credit losses
Amounts charged off
Recovery of amounts previously charged off
Other 1
Balance, December 31
$
Total loans
Ratio of allowance for loan losses to total loans
$
1
$
2013
676
575
(569 )
58
(45 )
695
$
2012
686
550
(577 )
43
(26 )
676
$
8,347
$
8.33 %
$
545
683
(561 )
29
(10 )
686
$
8,575
$
7.88 %
8,447
8.12 %
Related to a non-provision transfer of reserves associated with loan sale transactions.
The following table summarizes the allowance for loan losses and investment in loans at December 31, 2014 and 2013:
(In millions of dollars)
2014
Allowance for loan losses:
Determined in accordance with ASC 450-20
Determined in accordance with ASC 310-10-35
Total allowance for loan losses
$
$
Loans, net of unearned income:
Non-TDR loans evaluated for impairment in accordance with ASC 450-20
TDR loans evaluated for impairment in accordance with ASC 310-10-35
Total loans
$
$
2013
482
213
695
$
7,851
496
8,347
$
$
$
441
235
676
8,036
539
8,575
Impaired Loans
Impaired loans are those for which the Company believes it is not probable that it will collect all amounts due according to the original
contractual terms of the loan. Impaired loans include loans whose terms have been modified due to the borrower’s financial difficulties and for
which the Company has granted a concession to the borrower. These modifications may include interest rate reductions and/or principal
forgiveness. Impaired loans exclude loans that have not been modified and are carried on a non-accrual basis. In addition, impaired loans
exclude substantially all loans modified pursuant to the Company’s short-term modification programs (i.e., for periods of 12 months or less)
that were modified after December 31, 2008 and prior to January 1, 2011. Outstanding loans included in these short-term programs amounted
to $14 million and $41 million at December 31, 2014 and 2013.
F-29
The following tables summarize impaired loans at and for the years ended December 31, 2014, 2013 and 2012:
Recorded
investment 1
(In millions of dollars)
Personal loans 4
Home equity loans
Residential first mortgages
Total impaired consumer finance receivables 5
$
$
$
$
1
2
3
4
5
$
$
$
$
495
—
—
495
$
$
213
—
—
213
$
$
489
—
—
489
Interest
income
recognized
$
476
56
7
539
$
$
476
56
7
539
$
$
212
18
5
235
$
$
496
58
5
559
Interest
income
recognized
$
$
$
488
61
3
552
$
$
213
28
—
241
$
$
476
58
1
535
91
6
—
97
$
At and for the year ended December 31, 2012
Unpaid
Related
Average
principal
specific
carrying
balance
allowance 2
value 3
488
61
3
552
89
—
—
89
$
At and for the year ended December 31, 2013
Unpaid
Related
Average
principal
specific
carrying
balance
allowance 2
value 3
Recorded
investment 1
(In millions of dollars)
Personal loans
Home equity loans
Residential first mortgages
Total impaired consumer finance receivables 5
496
—
—
496
Recorded
investment 1
(In millions of dollars)
Personal loans 4
Home equity loans
Residential first mortgages
Total impaired consumer finance receivables 5
At and for the year ended December 31, 2014
Unpaid
Related
Average
principal
specific
carrying
balance
allowance 2
value 3
Interest
income
recognized
$
$
91
7
—
98
Recorded investment in consumer finance receivables includes net deferred loan fees and costs, unamortized premium or discount
and direct write-downs.
Classified in Allowance for loan losses on the Consolidated and Combined Statements of Financial Position.
Average carrying value represents the average recorded investment ending balance for the last four quarters and does not include
related specific allowance.
Beginning in October 2013, impaired personal loans, which are TDRs, that have subsequently renewed into a new loan at current
market terms, and for which the borrower is no longer experiencing financial difficulty, are no longer considered an impaired loan or a
TDR at time of renewal. Management determined that it is impracticable to determine the effect of applying this change retrospectively
to impaired loans and the related allowance for loan losses presented prior to October 2013.
Prior to 2008, the Company’s financial accounting systems did not separately track impaired loans whose terms were modified due
to the borrowers’ financial difficulties, and for which it was determined that a concession was granted to the borrower.
Troubled Debt Restructuring
The Company may make modifications to its loans for various reasons. Such modifications may result in long-term or short-term rate
reductions and payment deferrals. When a modification is made to a loan for a borrower experiencing financial difficulty and the terms are
considered below market terms for that borrower, the Company reports such modified loans as TDRs.
F-30
The following tables summarize TDR activity and default information for the years ended December 31, 2014, 2013 and 2012:
2014
Post-modification
recorded investment
(in millions of dollars)
Number of loans
modified
Personal loans
Home equity loans
Residential first mortgages
Total
41,234
—
—
41,234
$
305
—
—
305
$
40,980
1,064
97
42,141
$
Average
interest rate
reduction
293
13
6
312
$
5.02 %
3.09 %
2.64 %
2012
Post-modification
recorded investment
(in millions of dollars)
Number of loans
modified
Personal loans
Home equity loans
Residential first mortgages
Total
6.26 %
—%
—%
2013
Post-modification
recorded investment
(in millions of dollars)
Number of loans
modified
Personal loans
Home equity loans
Residential first mortgages
Total
Average
interest rate
reduction
37,233
1,931
32
39,196
$
Average
interest rate
reduction
268
24
2
294
$
3.53 %
1.73 %
2.07 %
The following table summarizes TDRs for which a payment default (defined as 60 days past due) occurred within one year of the
modification for the years ended December 31, 2014, 2013 and 2012:
(In millions of dollars)
2014
Personal loans
Home equity loans
Residential first mortgages
Total
$
2013
75
—
—
75
$
$
2012
61
6
1
68
$
$
54
7
—
61
$
(7) Intangible Assets
Intangible assets are comprised of the PVFP of purchased insurance contracts. The following table summarizes intangible assets at
December 31, 2014 and 2013:
2014
Gross
carrying
amount
(In millions of dollars)
Total intangible assets
$
226
2013
Net
carrying
amount
Accumulated
amortization
$
(155 ) $
F-31
Gross
carrying
amount
71
$
226
Accumulated
amortization
$
(144 ) $
Net
carrying
amount
82
Amortization expense was $11 million, $13 million and $13 million for the years ended December 31, 2014, 2013 and 2012 and is
classified in Other operating expense on the Consolidated and Combined Statements of Income. Included in these amounts is $3 million
recognized in each of the years ended December 31, 2013 and 2012 related to a $91 million customer relationship asset that was fully
amortized in 2013.
The following table summarizes future amortization expense related to intangible assets at December 31, 2014:
(In millions of dollars)
2015
2016
2017
2018
2019
Thereafter
Total amortization expense
$
$
F-32
11
11
13
13
11
12
71
(8) Premises and Equipment, net
The following table summarizes the cost of premises and equipment and related accumulated depreciation and amortization at December
31, 2014 and 2013:
(In millions of dollars)
2014
Leasehold improvements
Equipment
Software
Premises and equipment
Less accumulated depreciation and amortization
Premises and equipment, net
$
$
2013
83
31
82
196
(102 )
94
$
$
81
30
2
113
(92 )
21
On September 30, 2014, the Company purchased technology assets related to the “Symphony” system, an underwriting, originating,
servicing and payment processing platform, from an affiliate for $80 million. The software assets were recorded by the Company at their
historical carrying basis of $80 million as reported by the affiliate prior to the transfer. The assets will be amortized on a straight line basis over
their estimated remaining useful life of approximately eight years.
Depreciation and amortization expense was $11 million, $10 million and $15 million for the years ended December 31, 2014, 2013 and
2012. Rental expense (principally for offices and computer equipment) was $45 million, $47 million and $54 million for the years ended
December 31, 2014, 2013 and 2012. Non-base rent expenses, included in rental expense, (principally real estate taxes and utilities) were $3
million for each of the years ended December 31, 2014, 2013 and 2012. These amounts are classified in Occupancy expense and Technology
and communications expense on the Consolidated and Combined Statements of Income, based on the nature of the related asset.
Annual impairment tests were performed and no premises and equipment were impaired.
The following table summarizes future minimum annual rentals under noncancelable operating leases at December 31, 2014:
(In millions of dollars)
2015
2016
2017
2018
2019
Thereafter
Total noncancelable operating leases
$
$
40
33
21
13
8
24
139
On October 8, 2014, the Company entered into agreements to lease a new corporate headquarters in Baltimore, Maryland. The Company
expects to incur an aggregate of $34 million of rental expense over 11 years commencing in March 2015, which is included in the above table.
Some of the Company’s branch leases contain a standard renewal option of up to five years, have rent escalations built into their
respective leases, and contain various leasehold and tenant improvement incentives.
F-33
(9) Long-term Debt
Long-term debt is accounted for at cost. Debt issuance costs are capitalized and classified in Other assets on the Consolidated and
Combined Statements of Financial Position. Amortization of debt issuance costs is classified in Interest expense on the Consolidated and
Combined Statements of Income over the earlier of the contractual term of the debt or the earliest call date that management would consider
exercising. The following table summarizes certain information relating to long-term debt:
Weighted
average interest
rate
2019 Notes
2021 Notes
Senior unsecured notes
OneMain Financial Issuance Trust 2014-1
OneMain Financial Issuance Trust 2014-2
Securitizations
Total long-term debt
Balance, December 31,
2014
(In millions of dollars)
Maturity date
6.75 %
7.25 %
2019
2021
2.54 %
2.93 %
2024
2024
$
$
700
800
1,500
760
1,184
1,944
3,444
The Company had no third-party long-term debt at December 31, 2013.
Senior Unsecured Notes
On December 11, 2014, OMFH completed an issuance of $1.5 billion of unsecured debt, of which $700 million aggregate principal
amount of 6.75% fixed-rate senior notes will mature in 2019 (the “2019 Notes”) and $800 million aggregate principal amount of 7.25%
fixed-rate senior notes will mature in 2021 (the “2021 Notes” and, together with the 2019 Notes, the “Notes”).
Each series of Notes are:






general unsecured senior obligations of the Company;
equal in right of payment with any existing and future senior indebtedness of the Company;
subordinated to any existing and future secured indebtedness of the Company to the extent of the value of the assets securing such
indebtedness;
senior in right of payment to any future subordinated indebtedness of the Company;
subordinated to any existing and future indebtedness and other liabilities, including preferred stock, of non-guarantors; and
unconditionally guaranteed on a senior unsecured basis by each of the Company’s wholly owned domestic subsidiaries other than
certain subsidiaries, including the Company’s insurance subsidiaries and securitization subsidiaries.
2019 Notes and 2021 Notes
The 2019 Notes mature on December 15, 2019 and the 2021 Notes mature on December 15, 2021. Interest on the Notes is payable
semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2015. The Company may redeem the Notes, in
whole or in part, at its option, at different prices throughout the term of the debt.
Certain Covenants
The indenture under which the Notes were issued does not contain financial covenants but does contain a number of restrictive
non-financial covenants that impose significant operating and financial restrictions on the Company and may limit its ability to engage in acts
that may be in the Company’s best interest, including, but not limited to:
F-34








limitations on restricted payments;
limitations on certain types of indebtedness subject to financial ratios;
limitations on restrictions on distributions from certain subsidiaries;
limitations on affiliate transactions;
limitations on sales of assets and subsidiary stock;
limitations on the type of business conducted;
limitations on additional guarantees; and
certain limitations on mergers and consolidations.
Suspension of Covenants on Achievement of Investment Grade Status
If and when the Notes achieve investment grade status and no default or event of default has occurred and is continuing under the
indenture, the Company will not be subject to the provisions of the covenants referred to above. At December 31, 2014, the Notes had a
non-investment grade rating and no default or event of default had occurred.
Guarantees
The obligations of the Company pursuant to the Notes are unconditionally guaranteed, jointly and severally, by each of the Company’s
subsidiaries (Guarantors) except for certain subsidiaries that are specifically excluded from providing this guarantee, including the VIEs and
insurance companies (Non-Guarantors). As of December 31, 2014, the Non-Guarantors accounted for approximately 30% of the Company’s
total revenue, 36% of total assets and 31%, or $2.4 billion, of total liabilities including trade payables.
Securitizations
On July 30, 2014, the Company completed the securitization of personal loans and formed OneMain Financial Issuance Trust 2014-2
(“OneMain Trust”) resulting in the issuance of $1.2 billion of 2.47% Class A, 3.02% Class B, 4.33% Class C and 5.31% Class D fixed rate
notes collateralized by $1.3 billion of loans. The notes are due September 18, 2024 and may be called at the option of the OneMain Trust on or
after July 18, 2016 at a redemption price equal to 101% of the aggregate note principal balance at the time of the call. The OneMain Trust will
make payments of interest on the notes during the revolving period, which ends June 30, 2016, and make principal and interest payments
thereafter. During the revolving period, additional loans may be transferred to the OneMain Trust. The loans are restricted from being sold or
pledged as collateral and can only be used to pay the liabilities of the OneMain Trust while the notes are outstanding. The parent of the
OneMain Trust is OneMain Financial Funding II, LLC, which is a subsidiary of OMFH.
On April 17, 2014, the Company completed the securitization of personal loans and formed OneMain Financial Issuance Trust 2014-1
(the “Issuer” or the “Trust”) resulting in the issuance of $760 million of 2.43% Class A and 3.24% Class B fixed rate notes collateralized by
$1.0 billion of loans. The notes are due June 18, 2024 and may be called at the option of the Issuer on or after April 18, 2016 at a redemption
price equal to 101% of the aggregate note principal balance at the time of the call. The Issuer will make payments of interest on the notes
during the revolving period, which ends March 31, 2016, and make principal and interest payments thereafter. During the revolving period,
additional loans may be transferred to the Trust. The loans are restricted from being sold or pledged as collateral and can only be used to pay
the liabilities of the Trust while the notes are outstanding. The parent of the Trust is OneMain Financial Funding, LLC, which is a subsidiary of
OMFH.
The securitization trusts described above are VIEs consolidated by the Company as their primary beneficiary. Refer to Note 13 for further
discussion regarding VIEs.
Refer to Note 14 for information regarding the fair value of long-term debt.
F-35
Maturities of Long-term Debt
The following table summarizes future maturities of long-term debt (excluding securitizations) at December 31, 2014:
(In millions of dollars)
2019 Notes
2021 Notes
Senior unsecured notes
OneMain Financial Issuance
Trust 2014-1
OneMain Financial Issuance
Trust 2014-2
Securitizations
Total maturities of
long-term debt
1
2015
$
$
2016
—
—
—
$
2017
—
—
—
2018
—
—
—
$
2019
—
—
—
$
$
Thereafter
700
—
700
Securitizations
—
800
800
$
Total
1
—
—
—
$
$
700
800
1,500
—
—
—
—
—
—
760
760
—
—
—
—
—
—
—
—
—
—
—
—
1,184
1,944
1,184
1,944
—
$
—
—
$
—
$
$
700
$
800
$
1,944
$
3,444
On-balance sheet securitizations are not included in maturities by period due to their variable monthly payments.
(10) Insurance
Reinsurance
The Company’s use of ceded reinsurance arrangements is limited. The Company has generally used assumed reinsurance agreements to
acquire blocks of business in force. Ceded reinsurance arrangements do not discharge the insurance entities or the Company as the primary
insurer.
The following tables summarize reinsurance amounts included on the Consolidated and Combined Statements of Income for the years
ended December 31, 2014, 2013 and 2012:
2014
Direct
amount
(In millions of dollars)
Premiums:
Accident and health insurance
Life insurance
Property and other
Total premiums
Policyholder benefits and claims
Insurance policy and claim reserves
Assumed
from other
companies
$
$
$
114
88
61
263
$
$
112
673
F-36
Ceded to
other
companies
Net
amount
$
$
—
(6 )
—
(6 )
$
143
130
65
338
$
$
(9 )
(88 )
$
$
134
876
$
$
29
48
4
81
$
$
31
291
2013
Direct
amount
(In millions of dollars)
Premiums:
Accident and health insurance
Life insurance
Property and other
Total premiums
Policyholder benefits and claims
Insurance policy and claim reserves
Assumed
from other
companies
$
$
$
118
89
65
272
$
$
123
694
Ceded to
other
companies
Net
amount
$
$
—
(5 )
—
(5 )
$
149
134
70
353
$
$
(6 )
(91 )
$
$
151
899
$
$
31
50
5
86
$
$
34
296
2012
Direct
amount
(In millions of dollars)
Premiums:
Accident and health insurance
Life insurance
Property and other
Total premiums
Policyholder benefits and claims
Assumed
from other
companies
$
$
$
121
94
68
283
$
137
Ceded to
other
companies
Net
amount
$
$
—
(5 )
—
(5 )
$
155
149
75
379
$
(5 )
$
167
$
$
34
60
7
101
$
35
Life insurance policies in force were $11.4 billion and $12.0 billion at December 31, 2014 and 2013. Accident and health premiums in
force were $281 million and $280 million at December 31, 2014 and 2013.
Deferred Policy Acquisition Costs
Unamortized deferred policy acquisition costs were $101 million and $109 million at December 31, 2014 and 2013, and are classified in
Other assets on the Consolidated and Combined Statements of Financial Position. Amortization of deferred policy acquisition costs was $16
million, $15 million and $19 million for the years ended December 31, 2014, 2013 and 2012, and is classified in Other operating expense on
the Consolidated and Combined Statements of Income.
Statutory Stockholder’s Equity
The insurance entities’ statutory stockholder’s equity was $379 million, $415 million and $454 million at December 31, 2014, 2013 and
2012. The life insurance entities’ statutory stockholder’s equity was $189 million, $209 million and $235 million at December 31, 2014, 2013
and 2012. The property and casualty insurance entity’s statutory stockholder’s equity was $190 million, $206 million and $219 million at
December 31, 2014, 2013 and 2012. State law restricts the amounts the Company’s insurance entities may pay as dividends without prior
notice to, or in some cases prior approval from, the Texas Department of Insurance. The Company’s insurance entities paid dividends of $148
million in 2014 that did not require prior approval, dividends of $183 million in 2013 that did not require prior approval and dividends of $394
million in 2012 upon receiving prior approval. In 2015, the insurance entities may pay dividends up to $125 million without prior regulatory
approval. For all of the years presented, the Company met the regulatory capital requirements. The consolidated and combined insurance
entities’ net income determined in accordance with GAAP was $122 million, $128 million, and $142 million for the years ended December 31,
2014, 2013 and 2012. The consolidated and combined insurance entities’ net income determined in accordance with statutory accounting
practices was $129 million, $153 million and $189 million for the years ended December 31, 2014, 2013 and 2012. The life insurance entities’
net income determined in accordance with statutory accounting practices was $74 million, $89 million and $114 million for the years ended
December 31, 2014, 2013 and 2012. The property
F-37
and casualty insurance entity’s net income determined in accordance with statutory accounting practices was $55 million, $64 million and $75
million for the years ended December 31, 2014, 2013 and 2012.
The following table reconciles statutory income before income taxes to GAAP Insurance segment income before income taxes for the
Company’s insurance entities for the years ended December 31, 2014, 2013 and 2012:
(In millions of dollars)
2014
Statutory income before income taxes
Deferred policy acquisition costs
Amortization of present value of future profits
Reserve changes
Amortization of interest maintenance reserve
Other, net
GAAP Insurance segment income before income taxes
$
2013
189
7
(11 )
2
(7 )
(21 )
159
$
$
2012
226
(9 )
(11 )
(4 )
(9 )
(30 )
163
$
$
265
(15 )
(9 )
(14 )
(10 )
(29 )
188
$
The following table reconciles statutory equity to GAAP equity for the Company’s insurance entities for the years ended December 31,
2014, 2013 and 2012:
(In millions of dollars)
2014
Statutory equity
Deferred policy acquisition costs 1
Reserve changes
Present value of future profits
Income taxes expense
Interest maintenance and asset valuation reserves
Net unrealized gains
Other
GAAP equity
$
$
2013
379
143
124
71
(100 )
28
35
(9 )
671
$
$
2012
415
129
120
82
(101 )
35
36
(7 )
709
$
$
The deferred policy acquisition costs reported in the table above include capitalized costs related to commissions that eliminate upon
consolidation of the Company of $42 million, $20 million and $21 million at December 31, 2014, 2013 and 2012.
1
F-38
454
138
124
92
(116 )
43
74
(6 )
803
Liability for Accident and Health Unpaid Claims and Reserve for Losses and Loss Expenses
The following table summarizes activity in the accident and health policy and contract claims and certain accident and health aggregate
reserves (present value of amounts not yet due on claims) and activity in the liability for credit IUI unpaid claims and claim adjustment
expenses for the years ended December 31, 2014, 2013 and 2012:
(In millions of dollars)
2014
Balance, January 1
Incurred related to:
Current year
Prior years
Total incurred
Paid related to:
Current year
Prior years
Total paid
Foreign currency translation adjustment
Balance, December 31
$
2013
109
$
$
2012
120
$
132
83
(14 )
69
90
(5 )
85
98
(4 )
94
(32 )
(50 )
(82 )
(1 )
95
(35 )
(60 )
(95 )
(1 )
109
(37 )
(69 )
(106 )
—
120
$
$
The decrease in incurred claims in 2014 and 2013 resulted from subsequent revisions to estimated claim reserves based on actual
experience.
(11) Income Taxes
The following table summarizes components of current and deferred provision (benefit) for income taxes for the years ended December
31, 2014, 2013 and 2012:
(In millions of dollars)
2014
Current tax provision:
U.S. Federal
State & local
Non-U.S.
Total current tax provision
Deferred tax benefit:
U.S. Federal
State & local
Non-U.S.
Total deferred tax benefit
Provision for income taxes
$
$
F-39
2013
288
50
10
348
(22 )
(22 )
—
(44 )
304
$
$
2012
294
23
10
327
(17 )
(1 )
—
(18 )
309
$
$
292
16
12
320
(85 )
(11 )
—
(96 )
224
The following table reconciles the federal statutory income tax rate to the Company’s effective income tax rate for the years ended
December 31, 2014, 2013 and 2012:
2014
Statutory U.S. Federal income tax rate for corporations
State income taxes, net of Federal income tax benefit
Tax advantaged income
Other
Effective income tax rate
2013
35.0 %
2.2
(0.1 )
0.1
37.2 %
2012
35.0 %
1.7
(0.1 )
—
36.6 %
35.0 %
0.5
—
—
35.5 %
The following table summarizes deferred income taxes at December 31, 2014 and 2013:
(In millions of dollars)
2014
Deferred tax assets:
Credit loss deduction
Fixed assets
Other deferred tax assets
Total deferred tax assets
Deferred tax liabilities:
Investments and loan basis differences
Deferred policy acquisition costs and value of insurance in force
Insurance reserves
Other deferred tax liabilities
Total deferred tax liabilities
Net deferred tax assets
$
$
2013
269
58
54
381
(13 )
(50 )
(5 )
—
(68 )
313
$
$
257
43
45
345
(30 )
(24 )
(17 )
(18 )
(89 )
256
The Company had no valuation allowance on deferred tax assets at December 31, 2014 and 2013. Although realization is not assured, the
Company believes that the realization of the recognized deferred tax asset is more-likely-than-not based on expectations as to future taxable
income in the jurisdictions in which it operates.
The Company recorded uncertain income tax positions relevant to the jurisdictions where it is required to file income tax returns.
Income taxes payable of $506 million at December 31, 2014 is comprised of income taxes payable to affiliates of $497 million and
income taxes payable to taxing authorities of $9 million. Income taxes payable of $539 million at December 31, 2013 is comprised of income
taxes payable to affiliates of $544 million and income taxes receivable from taxing authorities of $5 million.
F-40
The following table summarizes the activity of the Company’s unrecognized tax benefits for the years ended December 31, 2014, 2013
and 2012:
(In millions of dollars)
2014
Total unrecognized tax benefits at January 1
Net amount of increases for current year’s tax positions
Gross amount of increases for prior year’s tax positions
Gross amount of decreases for prior year’s tax positions
Amounts of decreases related to settlements
Reductions due to lapse of statutes of limitations
Foreign exchange, acquisitions and dispositions
Distributions back to the Parent
Total unrecognized tax benefits at December 31
$
$
2013
2
1
2
—
—
—
—
—
5
$
$
2012
2
—
—
—
—
—
—
—
2
$
2
—
—
—
—
—
—
—
2
$
Total unrecognized tax benefits that, if recognized, would affect the effective tax rate were $4 million, $2 million and $2 million at
December 31, 2014, 2013 and 2012.
Interest and penalties (not included in “unrecognized tax benefits” above) are a component of the Provision for income taxes on the
Consolidated and Combined Statements of Income and are immaterial for all periods presented.
The Company is currently under audit by the Internal Revenue Service and other major taxing jurisdictions, and it may conclude certain
state and local tax audits within the next 12 months. It is thus reasonably possible that significant changes in the gross balance of unrecognized
tax benefits may occur within the next 12 months, although the Company does not expect such audits to result in amounts that would cause a
significant change to the effective tax rate.
The following table summarizes the major tax jurisdictions in which the Company operates and the earliest tax year subject to
examination:
Jurisdiction
Tax year
United States
Maryland
2012
2011
(12) Changes in AOCI
The following table summarizes the components of AOCI:
F-41
Net unrealized
gains (losses)
on investment
securities
(In millions of dollars)
Balance, December 31, 2011
Change, net of tax
Balance, December 31, 2012
Other comprehensive loss before reclassifications
Decrease due to amounts reclassified from AOCI
Change, net of tax
Balance, December 31, 2013
Other comprehensive income (loss) before reclassifications
Decrease due to amounts reclassified from AOCI
Change, net of tax
Balance, December 31, 2014
1
$
Foreign
currency
translation
adjustment 1
70
9
79
(33 )
(3 )
(36 )
43
6
(2 )
4
47
$
$
$
$
Accumulated
other
comprehensive
income
4
(1 )
3
(2 )
—
(2 )
1
(4 )
—
(4 )
(3 )
$
$
$
$
74
8
82
(35 )
(3 )
(38 )
44
2
(2 )
—
44
$
$
$
Reflects the movements in the Canadian Dollar against the U.S. Dollar.
The following table summarizes the pre-tax and after-tax changes in each component of AOCI:
(In millions of dollars)
Pre-tax
Balance, December 31, 2011
Change in net unrealized gains (losses) on investment securities
Foreign currency translation adjustment
Change
Balance, December 31, 2012
Change in net unrealized gains (losses) on investment securities
Foreign currency translation adjustment
Change
Balance, December 31, 2013
Change in net unrealized gains (losses) on investment securities
Foreign currency translation adjustment
Change
Balance, December 31, 2014
$
$
$
$
Tax effect
114
13
(1 )
12
126
(54 )
(3 )
(57 )
69
6
(7 )
(1 )
68
$
After-tax
(40 )
(4 )
—
(4 )
(44 )
18
1
19
(25 )
(2 )
3
1
(24 )
$
$
$
$
74
9
(1 )
8
82
(36 )
(2 )
(38 )
44
4
(4 )
—
44
$
$
$
The following table summarizes the decrease in AOCI for amounts reclassified to the Consolidated and Combined Statements of Income
for the year ended December 31, 2014 and 2013:
(In millions of dollars)
2014
Net realized gains on sales of investments 1
Gross OTTI impairment losses 1
Net realized gains on investment securities reclassified out of AOCI—pretax
Tax expense
Net realized gains on investment securities reclassified out of AOCI—after-tax
1
$
$
2013
(4 )
1
(3 )
1
(2 )
$
$
Refer to Note 5 for additional information on realized gains and losses on investment securities and OTTI impairment losses.
F-42
(6 )
1
(5 )
2
(3 )
(13) Variable Interest Entities
An entity is referred to as a VIE if it meets the criteria outlined in ASC 810, Consolidation , which are: (1) the entity’s equity is
insufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; or (2) the entity’s
equity investors cannot make significant decisions about the entity’s operations or do not absorb their proportionate share of the expected losses
or receive the expected returns of the entity. The Company is involved with VIEs through its loan securitization activities.
In accordance with ASC 810, the Company consolidates a VIE when it has both the power to direct the activities that most significantly
impact the VIE’s economic performance and an obligation to absorb losses, or a right to receive benefits from the entity that could be
potentially significant to the VIE (that is, the Company is the primary beneficiary).
VIEs are continually monitored to determine if any events have occurred that could cause the VIEs’ primary beneficiary status to change.
These events include:




Additional purchases or sales of variable interests by the Company or an unrelated third party, which cause the Company’s overall
variable interest ownership to change;
Changes in contractual arrangements in a manner that reallocates expected losses and residual returns among the variable interest
holders;
Changes in the party with power to direct activities of a VIE that most significantly affect the entity’s economic performance; and
Providing support to an entity that results in an implicit variable interest.
The two securitization trusts described in Note 9 are VIEs consolidated by the Company at December 31, 2014. The Company continued
to combine a trust related to a previous securitization for which an optional early redemption was exercised in December 2012 until its
dissolution in May 2014. Upon redemption, the assets were no longer considered restricted to only settle the obligations of the VIE and the
creditors and beneficial interest holders were considered to have recourse to the general credit of the Parent as they are all related parties.
The following table summarizes the carrying amounts and classifications of the VIEs’ assets and liabilities in the Consolidated and
Combined Statements of Financial Position that are consolidated in accordance with ASC 810 for the years ended December 31, 2014 and
2013:
(In millions of dollars)
2014
Assets
Cash and cash equivalents
Net consumer finance receivables
Other assets
Total assets
$
$
Liabilities
Related party debt
Long-term debt
Accounts payable, accrued expenses and other liabilities
Total liabilities
1
$
$
Presented net of intercompany receivables of $442 million at December 31, 2013.
F-43
2013
162
2,179
11
2,352
$
—
1,944
24
1,968
$
$
$
188
4,139
112
4,439
403 1
—
406
809
(14) Fair Value Measurements
ASC 820-10, Fair Value Measurement , defines fair value, establishes a consistent framework for measuring fair value and requires
disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. Among other things, the standard requires the Company to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Fair Value Hierarchy
ASC 820-10 specifies a hierarchy of inputs based on whether the inputs are observable or unobservable. Observable inputs reflect market
data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.
These two types of inputs have created the following fair value hierarchy:
Level 1—Quoted prices for identical instruments in active markets.
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that
are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active
markets.
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are
unobservable.
The Company’s policy with respect to transfers between levels of the fair value hierarchy is to recognize transfers into and out of each
level as of the end of the reporting period.
Determination of Fair Value
For assets and liabilities carried at fair value, the Company primarily utilizes third-party valuation service providers to derive fair values
based on various methodologies, including market quotes where available, external non-binding broker quotes, and proprietary valuation
models. The Company assesses the reasonableness of security values received from valuation service providers through various analytical
techniques including comparing the information obtained from the valuation service providers to other third-party valuation sources for
selected securities.
F-44
Fair Value of Financial Instruments
The following tables summarize the fair value and carrying amount of financial instruments at December 31, 2014 and 2013:
2014
Carrying
value
(In millions of dollars)
Assets
Cash and cash equivalents
Investments (Note 5)
Consumer finance receivables (Note 6)
Liabilities
Related party debt (Note 15)
Long-term debt (Note 9)
1
$
319
1,391
7,741 1
Estimated
fair value
$
319
1,391
8,758
3,249
3,444
Estimated fair value
Level 2
Level 1
—
57
—
$
$
—
—
3,249
3,480
319
1,276
—
Level 3
—
58
8,758
$
—
—
3,249
3,480
The carrying value of consumer finance receivables is calculated as Net consumer finance receivables excluding unearned premium and
claim reserves of $415 million.
2013
Carrying
value
(In millions of dollars)
Assets
Cash and cash equivalents
Investments (Note 5)
Consumer finance receivables (Note 6)
Liabilities
Related party debt (Note 15)
1
$
319
1,431
7,991 1
Estimated
fair value
$
5,894
319
1,431
8,651
5,894
Estimated fair value
Level 2
Level 1
$
—
49
—
—
$
319
1,324
—
Level 3
$
—
—
58
8,651
5,894
The carrying value of consumer finance receivables is calculated as Net consumer finance receivables excluding unearned premium and
claim reserves of $416 million.
Fair value assumptions, of the financial instruments listed below, are based upon subjective estimates of market conditions and perceived
risks of the financial instruments at a certain point in time, as disclosed further in various notes to the Consolidated and Combined Financial
Statements.
Fixed maturities and equity securities —fair value is based primarily on quoted market prices or if quoted market prices are not
available, discounted expected cash flows using market rates for similar instruments which are commensurate with the credit quality and
maturity of the investments. If market rates for similar instruments are not available, other valuation techniques would be used and the asset
would be classified as Level 3.
Short-term and other investments —carrying value approximates fair value due to the relatively short period of time between the
origination of the investment and its expected maturity or realization.
Consumer finance receivables —At December 31, 2014, fair value is estimated using a discounted cash flow methodology using
assumptions management believes a market participant would make in valuing these assets. At December 31, 2013, fair value was estimated
based primarily on an exit value return on asset methodology, using assumptions that management believes a market participant would use in
valuing these assets. While both methods achieve a fair value
F-45
estimate in accordance with GAAP, management adopted the discounted cash flow valuation technique as it is considered a more traditional
and universally understood methodology.
Related party debt —carrying value approximates fair value due to the short-term nature of these instruments.
Long-term debt —fair value measurements of long-term debt are based upon input from market participants or indicative prices obtained
from a third party.
The disclosed fair values for financial instruments do not reflect any premium or discount that could result from offering for sale, at one
time, the Company’s entire holdings of a particular financial instrument. In addition, any potential taxes and other expenses that would be
incurred in an actual sale or settlement are not reflected in amounts disclosed.
Items Measured at Fair Value on a Recurring Basis
The Company has certain financial assets that are required to be reported on the Consolidated and Combined Statements of Financial
Position at fair value, on a recurring basis. The Company does not have any items that are required to be reported on the Consolidated and
Combined Statements of Financial Position at fair value, on a nonrecurring basis.
F-46
The following tables summarize assets measured at fair value on a recurring basis:
(In millions of dollars)
Fixed maturity securities:
Mortgage-backed:
U.S. government agency guaranteed
Prime
Commercial
Total mortgage-backed
U.S. Treasury and federal agency
State and municipal
Foreign government
Corporate
Other debt
Total fixed maturity securities
Equity securities
Short-term and other securities
Total investments
—
—
—
—
12
—
—
1
—
13
44
—
57
$
$
(In millions of dollars)
Fixed maturity securities:
Mortgage-backed:
U.S. government agency guaranteed
Prime
Commercial
Total mortgage-backed
U.S. Treasury and federal agency
State and municipal
Foreign government
Corporate
Other debt
Total fixed maturity securities
Equity securities
Short-term and other securities
Total investments
December 31, 2014
Level 2
Level 3
Level 1
$
$
—
—
—
—
15
—
—
—
—
15
34
—
49
$
$
$
1
—
1
2
—
—
1
40
10
53
5
—
58
$
$
$
69
7
75
151
12
33
143
923
43
1,305
5
14
1,324
$
$
67
5
55
127
27
48
148
898
63
1,311
49
31
1,391
$
December 31, 2013
Level 2
Level 3
Level 1
$
66
5
54
125
15
48
147
857
53
1,245
—
31
1,276
Total
Total
5
—
—
5
—
—
—
37
10
52
6
—
58
$
$
74
7
75
156
27
33
143
960
53
1,372
45
14
1,431
Transfers between Level 1 and Level 2 of the Fair Value Hierarchy
For the year ended December 31, 2014, the Company transferred no investments from Level 1 to Level 2 and no investments from Level
2 to Level 1.
For the year ended December 31, 2013 the Company transferred $65 million of investments from Level 1 to Level 2, primarily related to
equity and short-term and other securities which were not traded with sufficient frequency to constitute an active market. For the year ended
December 31, 2013, the Company transferred $28 million of investments from Level 2 to
F-47
Level 1, primarily related to U.S. Treasury and federal agency securities which were traded with sufficient frequency to constitute an active
market.
The following tables summarize the changes in the Level 3 fair value category:
(In millions of dollars)
Fixed maturity securities:
Mortgage-backed:
U.S. government agency
guaranteed
Prime
Commercial
Total mortgage-backed
State and municipal
Foreign Government
Corporate
Other debt
Total fixed maturity
securities
Equity securities
Total fixed maturity and equity
securities
(In millions of dollars)
Fixed maturity securities:
Mortgage-backed:
U.S. government agency
guaranteed
Alt- A
Commercial
Total mortgage-backed
State and municipal
Corporate
Other debt
Total fixed maturity
securities
Equity securities
Total fixed maturity and equity
securities
Balance,
December 31,
2013
$
Transfers
into
Level 3
5
—
—
5
—
—
37
10
$
52
6
$
58
$
$
19
$
Transfers
into
Level 3
—
—
—
—
—
4
10
$
14
4
$
1
2
2
5
—
—
2
—
7
12
Balance,
December 31,
2012
$
Transfers
out of
Level 3
18
6
1
2
9
1
38
—
$
58
(8 )
(11 )
6
2
(19 ) $
8
$
(1 ) $
(1 )
(2 )
(4 )
(1 )
(5 )
(3 )
(14 ) $
F-48
—
—
—
—
—
(3 )
—
—
—
—
—
1
—
1
2
—
1
40
10
(4 )
(5 )
—
2
—
(1 )
53
5
(9 ) $
$
4
—
4
$
2
—
—
—
—
—
$
$
$
(1 ) $
Net unrealized
gains in other
comprehensive
income on
assets still held
Net
realized
gains
(losses)
Sales
—
—
—
—
—
1
3
Balance,
December 31,
2014
(1 ) $
—
—
(1 )
—
$
Purchases
(13 )
(1 )
$
Sales
—
—
—
—
—
1
4
1
(4 ) $
(2 )
(1 )
(7 )
—
—
—
(1 )
Transfers
out of
Level 3
48
10
$
Purchases
Net unrealized
losses in other
comprehensive
income on
assets still held
Net
realized
gains
(losses)
— $
—
—
—
—
(2 )
—
—
—
—
—
—
—
—
(2 )
(7 )
—
—
(9 ) $
—
$
Balance,
December 31,
2013
—
—
—
—
—
1
—
$
1
—
$
58
1
5
—
—
5
—
37
10
52
6
$
58
Transfers in and out of Level 3 of the Fair Value Hierarchy
For the year ended December 31, 2014, securities, primarily related to equity and mortgage-backed securities, were transferred into and
out of Level 3 due to changes in the level of price observability for the specific securities. Of the $19 million of securities transferred into Level
3, $7 million was transferred from Level 1 and $12 million was transferred from Level 2. Of the $19 million of securities transferred out of
Level 3, $10 million was transferred into Level 1 and $9 million was transferred into Level 2.
For the year ended December 31, 2013, securities, primarily related to corporate, equity and mortgage-backed securities were transferred
into Level 3 due to changes in the level of price observability for the specific securities. Of the $58 million of securities transferred into Level
3, $3 million was transferred from Level 1 and $55 million was transferred from Level 2.
For the year ended December 31, 2013, securities, primarily related to corporate, mortgage-backed and other debt securities, were
transferred out of Level 3 due to changes in the level of price observability for the specific securities. Of the $14 million of securities
transferred out of Level 3, $1 million was transferred into Level 1 and $13 million was transferred into Level 2.
Valuation Techniques and Inputs for Level 2 Fair Value Measurements
At December 31, 2014 and 2013, the majority of the financial instruments in Level 2 consisted of cash and investments. Investments in
Level 2 were composed of corporate securities, mortgage-backed securities and foreign government securities. The fair value for these
investments is based upon: (1) quoted prices for similar assets in active markets; (2) quoted prices for identical or similar assets in inactive
markets; or (3) valuations based on models where the significant inputs are observable; including, but not limited to, interest rates, yield curves,
prepayment speeds, default rates and loss severities; or where the significant inputs can be corroborated by observable market data.
Valuation Techniques and Inputs for Level 3 Fair Value Measurements
At December 31, 2014, the majority of the investments in Level 3 were corporate securities for which the fair value is measured by the
Company’s third-party valuation service provider using a price based methodology with the significant unobservable input as the price, which
ranges from 3.27 to 116.38 of par.
At December 31, 2013, the majority of the investments in Level 3 were corporate securities for which the fair value is measured by the
Company’s third-party valuation service provider using a price based methodology with the significant unobservable input as the price, which
ranges from 1.25 to 121.28 of par.
The effect on the fair value measurement of a given security is wholly dependent on the amount and direction of any changes in the
unobservable price input.
(15) Related Party Transactions
Expense Allocations
The Consolidated and Combined Financial Statements include direct and indirect expense allocations of certain costs for employee
benefits and support functions provided on a centralized basis by various providers across Citigroup and CCC. These expenses are allocated to
the Company based on various cost- and/or activity-related drivers.
F-49
The following table summarizes the Company’s allocated share of the related costs from Citigroup and CCC providers for the years
ended December 31, 2014, 2013 and 2012:
(In millions of dollars)
2014
Direct costs
Indirect costs
Total allocated expenses
$
$
2013
209
43
252
$
$
2012
224
76
300
$
$
254
101
355
Direct Allocated Costs
Direct allocated costs represent specific services or functions that are attributable to the Company based on actual and/or estimated usage
or consumption.
Employee benefits
The Company reimburses Citigroup for payroll taxes and benefits provided to its employees under various U.S. Citigroup employee
benefit plans, including costs associated with its participation in Citigroup’s retirement plans and active employee health and life insurance
benefit plans. These costs are allocated by individual based on actual employee wages. The Company’s allocated share of the costs associated
with these plans was $73 million, $80 million and $70 million for the years ended December 31, 2014, 2013 and 2012. These costs are
classified in Compensation and benefits expense on the Consolidated and Combined Statements of Income.
Technology
Citigroup provides certain information technology infrastructure, applications and support services. These costs are allocated based on
individual employee consumption or information technology infrastructure usage. The Company’s allocated share of costs associated with
these services was $74 million, $75 million and $78 million for the years ended December 31, 2014, 2013 and 2012. These costs are classified
in Technology and communications expense on the Consolidated and Combined Statements of Income.
Occupancy
Citigroup provides the Company certain shared premises and related services primarily located in Baltimore, Maryland. These costs are
allocated based on the square footage occupied on the premises, including a share of costs related to unoccupied square footage and common
areas. The Company’s allocated share of costs associated with these services was $6 million and $5 million for the years ended December 31,
2014 and 2013. These costs are classified in Occupancy expense on the Consolidated and Combined Statements of Income. For the year ended
December 31, 2012, these costs were included in other shared support costs discussed in Other Direct Costs below.
Other Direct Costs
Centralized Citigroup locations provide various services including payment processing, preparation of customer statements and
centralized default management services. Costs are allocated to the Company based on transactions, statements produced and number of
accounts serviced. The Company’s allocated share of the costs for these services was $47 million, $53 million and $40 million for the years
ending December 31, 2014, 2013 and 2012. These costs are classified in Other operating expense on the Consolidated and Combined
Statements of Income.
Other shared support costs includes local executive and administrative support functions which were shared with an affiliate in 2012.
These costs are allocated based on a variety of drivers, such as number of accounts, number of branches and headcount. The Company’s
allocated share of costs associated with these services was $52 million for the year ended December 31, 2012. These costs are classified in
Other operating expense on the Consolidated and Combined Statements of
F-50
Income. Following a transfer of employees from CCC to the Company in 2013, the Company was no longer allocated these expenses but rather
incurred them directly.
The Company incurred expenses from certain affiliates for marketing and distributing its credit insurance products and billing and
collecting periodic premiums on other products and programs. These expenses are based on a percentage of written insurance premiums. The
Company’s share of costs associated with these services was $9 million, $11 million and $14 million for the years ended December 31, 2014,
2013 and 2012. These costs are classified in Other operating expense on the Consolidated and Combined Statements of Income.
Indirect Allocated Costs
Indirect allocated costs represent general corporate level services provided to the Company and other affiliates by Citigroup. Corporate
level services include finance, human resources, compliance, risk, legal, communications, treasury, audit, administration and security. The
costs are attributed to the Company in two steps; first, using a consumption based survey; and second, based on metrics that are reflective of
service usage. Prior to 2014, operations and technology management were included in indirect costs. The Company’s allocated share of indirect
costs was $43 million, $76 million and $101 million for the years ending December 31, 2014, 2013 and 2012. These costs are classified in
Other operating expense on the Consolidated and Combined Statements of Income.
Revenue Allocations
The Insurance segment provides administrative support related to debt protection products on behalf of other Citigroup affiliates. The
Company recorded income related to these services of $11 million, $11 million and $11 million for the years ended December 31, 2014, 2013
and 2012. These amounts are classified in Other revenue on the Consolidated and Combined Statements of Income.
The Company provides other shared support to an affiliate beginning in 2013 following a transfer of employees from CCC to the
Company. The Company recorded income related to these services of $7 million and $5 million for the years ended December 31, 2014 and
2013. These amounts are classified in Other revenue on the Consolidated and Combined Statements of Income.
Related Party Debt
The Company’s related party debt was $3.2 billion and $5.9 billion, net of related party receivables of $1.7 billion and $854 million at
December 31, 2014 and 2013. These unsecured balances are short-term in nature with no stated maturity and include charges for operational
support and the borrowing and lending of funds. The Company is charged interest monthly based on CCC’s cost of funds.
The following table summarizes information with respect to related party debt for the years ended December 31, 2014 and 2013:
(In millions of dollars, except weighted average interest rate)
2014
Weighted average interest rate
Maximum outstanding balance
Interest paid
$
$
2013
3.93 %
5,625
$
178
$
3.69 %
6,000
228
Other Related Party Transactions
Cash on deposit with related parties was $32 million and $153 million as of December 31, 2014 and 2013. These balances are classified
in Cash and cash equivalents on the Consolidated and Combined Statements of Financial Position.
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Income taxes payable of $506 million at December 31, 2014 is comprised of income taxes payable to affiliates of $497 million and
income taxes payable to taxing authorities of $9 million. Income taxes payable of $539 million at December 31, 2013 is comprised of income
taxes payable to affiliates of $544 million and income taxes receivable from taxing authorities of $5 million.
On November 13, 2014, the Company declared a dividend of $1.5 billion which was paid to CCC on November 18, 2014. The dividend
was funded with an increase in related party debt due to CCC, which was repaid in December 2014 using the proceeds from the Notes. Refer to
Note 9 for discussion on the Notes.
On September 30, 2014, the Company purchased technology assets related to the “Symphony” system, an underwriting, originating,
servicing and payment processing platform, from an affiliate for $80 million. The software assets were recorded by the Company at their
historical carrying basis of $80 million as reported by the affiliate prior to the transfer. Refer to Note 8 for additional discussion.
On August 13, 2014, CCC entered into an agreement to obtain a new back-office account management system on behalf of the Company
and other affiliates. The related expense allocated to the Company is not material for the year ended December 31, 2014. This contract can be
terminated prior to completion in exchange for an early termination fee of approximately $9 million less any amounts already paid under the
contract. If incurred, a significant portion of the termination fee would be allocated to the Company.
On July 1, 2014, CCC contributed all of the capital of OMFI, AHL and Triton to OMFH resulting in OMFH becoming the legal parent of
the contributed entities. Refer to Note 1 and Note 2 for additional discussion related to this contribution.
On January 6, 2014, the Company transferred real estate loan servicing responsibilities to an affiliate. Due to a licensing restriction, the
servicing relating to $57 million of loans could not be released until April 6, 2014. The Company received servicing fees of $2 million, $101
million and $127 million for the years ended December 31, 2014, 2013 and 2012. These servicing fees are classified in Other revenue on the
Consolidated and Combined Statements of Income. The Company did not receive or pay any consideration relating to the servicing transfer.
On January 1, 2014, the Company transferred its residential first mortgage and home equity loans totaling approximately $463 million to
affiliates in the form of a distribution. The distribution occurred at carrying value and accordingly, no gain or loss was recognized.
(16) Commitments and Contingencies
In the ordinary course of business, the Company including its affiliates and subsidiaries, as well as its respective current and former
officers, directors and employees, routinely are named as defendants in, or as parties to, various actual or threatened legal actions and
proceedings. Certain of these actions and proceedings assert claims or seek relief in connection with alleged violations of consumer protection,
lending, insurance, anti-fraud, anti-money laundering, employment and other statutory and common laws. Certain of these legal actions and
proceedings may include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief, and in some
instances, seek recovery on a class-wide basis.
In the ordinary course of business, the Company is also subject to governmental and regulatory examinations, information-gathering
requests, investigations and proceedings (both formal and informal), certain of which may result in adverse judgments, settlements, fines,
penalties, restitutions, disgorgements, injunctions or other relief. In addition, the Company and certain of its affiliates and subsidiaries are
regulated entities and, in those capacities, subject to regulation by various U.S. and state regulators. In connection with formal and informal
inquiries by these regulators, the Company receives requests, subpoenas and orders seeking documents, testimony and other information in
connection with various aspects of their regulated activities. The Company from time to time receives grand jury subpoenas and other requests
for information or assistance, formal or informal, relating to the Company and its customers, from federal or state law enforcement agencies.
The Company seeks to resolve all litigation and regulatory matters in the manner management believes is in the best interests of the
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Company and its shareholders, and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any
penalties or other relief sought as appropriate in each pending matter.
In accordance with ASC 450, accruals are established for contingencies, including litigation and regulatory matters, when management
believes it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. When the reasonable estimate of the
loss is within a range of amounts, the minimum amount of the range is accrued, unless some higher amount within the range is a better estimate
than any other amount within the range. Once established, accruals are adjusted from time to time, as appropriate, in light of additional
information. In view of the inherent unpredictability of litigation and regulatory matters, particularly where the damages sought are substantial
or indeterminate, the investigations or proceedings are in the early stages, or the matters involve novel legal theories or a large number of
parties, the Company cannot predict the timing or ultimate resolution of litigation and regulatory matters, and the actual costs of resolving
litigation and regulatory matters may be substantially higher or lower than the amounts accrued for those matters.
Subject to the foregoing, it is the opinion of the Company’s management, based on current knowledge and after taking into account its
current legal accruals, that the eventual outcome of the matters described in this Note would not be likely to have a material adverse effect on
the Company’s financial condition. Nonetheless, given the substantial or indeterminate amounts sought in certain of these matters, and the
inherent unpredictability of such matters, an adverse outcome in certain of these matters could, from time to time, have a material adverse
effect on its results of operations or cash flows in particular periods.
Litigation and Regulatory Contingencies
Securitizations
In December 2014, the Company received a subpoena from the Department of Justice requesting information related to the Company’s
origination, servicing and securitization of personal loans secured by autos. The Company is fully cooperating with the inquiry.
West Virginia Consumer Finance Litigation
In 2006, Paul Lightner filed a counter-claim class action complaint seeking recovery under West Virginia’s Consumer Credit and
Protection Act against CitiFinancial, Inc. (WV) for selling insurance with allegedly inflated premiums and for allegedly taking impermissible
security interests in household goods. In 2008, the trial court certified a class under both claims and denied CitiFinancial, Inc.’s motion for
summary judgment on both claims. CitiFinancial, Inc. appealed the denial of summary judgment on the insurance claim, and in 2009 the West
Virginia Supreme Court reversed the trial court, and held that appropriateness of insurance rates was a matter to be decided by the West
Virginia Insurance Commissioner. In 2010, the West Virginia Insurance Commissioner ruled in CitiFinancial, Inc. (WV)’s favor, and plaintiffs
appealed this decision. In June 2014, the West Virginia Supreme Court ruled in CitiFinancial, Inc. (WV)’s favor, and affirmed the decision of
the Insurance Commissioner. The matter has been remanded back to the trial court, where a new judge has been assigned to the matter.
CitiFinancial, Inc. (WV) is subject to the prior judge’s 2008 certification order, and is seeking to have the remaining claim for taking
impermissible security interests in household goods decertified. Additional information concerning this matter is publicly available in court
filings under Lightner v. CitiFinancial, Inc., Case No. 02-C0723 (Cir. Ct. Marshall Co. WV).
Other Commitments and Contingencies
Business Developments
On July 25, 2014, CCC executed a Host Services Agreement on behalf of the Company and other affiliates. In conjunction with this
agreement, the Company executed a work order directly with the third party for maintenance services, which is expected to commence once the
new account management system is operational. The work order has an initial five-year term and provides for payments based on a fixed fee
per loan processed. If, once effective, the work order is terminated by
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the Company without cause, the Company would be obligated to pay a termination fee of $26 million less any fees already paid under the
agreement.
Back-office Account Management System
On August 13, 2014, CCC entered into an agreement to obtain a new back-office account management system on behalf of the Company
and other affiliates. This contract can be terminated prior to completion in exchange for an early termination fee, which would be allocated to
the Company. Refer to Note 15 for additional discussion related to this arrangement.
(17) Subsequent Events
Subsequent events have been evaluated through March 23, 2015.
On March 3, 2015, Citigroup announced that it reached a definitive agreement to sell the Company to Springleaf Holdings (NYSE:
LEAF). The deal is expected to close in the third quarter of 2015, subject to regulatory approvals and other customary closing conditions.
On February 5, 2015, the Company completed the securitization of personal loans using the OneMain Financial Issuance Trust 2015-1
(“2015-1 Trust”) formed in October 2014, resulting in the issuance of $1.2 billion of 3.19% Class A, 3.85% Class B, 5.12% Class C and 6.63%
Class D fixed rate notes collateralized by $1.4 billion of loans. The notes are due March 18, 2026 and may be called at the option of the 2015-1
Trust on or after the payment date occurring in January 2018 at a redemption price equal to 101% of the aggregate note principal balance at the
time of the call. The 2015-1 Trust will make payments of interest on the notes during the revolving period, which ends December 31, 2017, and
make principal and interest payments thereafter. During the revolving period, additional loans may be transferred to the 2015-1 Trust. The
loans are restricted from being sold or pledged as collateral and can only be used to pay the liabilities of the 2015-1 Trust while the notes are
outstanding. The parent of the 2015-1 Trust is OneMain Financial Funding III LLC, which is a subsidiary of OMFH. The 2015-1 Trust is a VIE
consolidated by the Company as its primary beneficiary.
On February 3, 2015, the Company entered into a $3.0 billion revolving warehouse facility. The facility has a securitization structure,
whereby OneMain Financial Warehouse Trust, a wholly owned statutory trust (“Warehouse Trust”), has issued Series 2015-A Variable
Funding Notes (the “notes”) that are backed by personal loans originated by the Company from time to time, to a number of financial
institutions, which may from time to time include asset-backed commercial paper conduits administered by certain of these financial
institutions. During the revolving period of the facility, we may sell personal loans into the Warehouse Trust and draw advances against the
value of such personal loans, subject to meeting required overcollateralization levels. The lenders will make advances against the notes on a
revolving basis through December 31, 2017. The initial maximum principal balance of $3.0 billion will be reduced by $500 million on
January 30, 2016 and by an additional $1.0 billion on January 30, 2017. The notes mature on January 18, 2025. Advances funded by
commercial paper conduits through the issuance of promissory notes issued in the commercial paper market will bear interest at a rate
equivalent to the weighted average annual rate of all commercial paper notes issued by such conduit purchaser to fund its advances, plus
2.15%. Advances funded by lenders that are not commercial paper conduits, or by commercial paper conduits funded through means other than
the commercial paper market, will bear interest at a rate based on a formula using LIBOR, plus 2.15%. The interest rate may be increased under
certain circumstances. During the revolving period, the outstanding note balance may be redeemed, in whole or in part, at our option. The debt
incurred under the warehouse facility is non-recourse to OMFH. The Warehouse Trust is a VIE consolidated by the Company as its primary
beneficiary.
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